Examination of Witnesses (Questions 1-19)|
TUESDAY 5 MARCH 2002
1. Good morning. Welcome before the Committee,
formally. We have met you twice before and had some useful information
from you in the past. Just for the record, could you introduce
yourselves and give a little bit of background as to your operations
in the UK?
(Mr Jeffers) Thank you very much, and
thanks for inviting us. I have with me Simon Tse, who is our regional
director for NTL business in Wales, and Alex Blowers, our director
of regulatory affairs. To augment our written submission, I would
like to make four points. Firstly a quick explanation: NTL is
effectively the leading UK cable company. We pass 11 million homes
with 3 million customers providing over 5 million products and
services. Bringing that closer to home, within Wales NTL's operation
focuses mainly on industrial south Wales and the key urban areas
of Cardiff, Swansea and Newport, and within these areas the network
passes some 300,000 homes, of which 142,000 are customersapproximately
50 per cent. We do some operations in continental Europe but none
in the US. We are, however, a US listed company and in large part
it has been US investment that has enabled us to build or buy
our local loop infrastructure which is the only meaningful alternative
to that of the dominant player, British Telecom. Secondly, we
and many other companies who will give evidence to this Committee
operate in a truly convergent sector where product development
is measured in months rather than in years, and there is no doubt
in our mind, therefore, that we need a convergent regulationand,
indeed, it needs to work at internet speeds, preferably broadband
speeds at that, sooner rather then later. In addition we believe
this should be about the future rather than the history of communications,
and that Ofcom in itself should be focused on competition and
consumers rather than the interests of established broadcasters.
Thirdly, as the leading provider for broadband services in the
UK, we are now sitting with over 120,000 broadband customers in
the UK on the retail side, and that compares favourably with BT's
wholesale and retail operations. We welcome competition from other
players in the market, presuming it is not at predatory pricing
obviously, and we both believe in, and have actively called for,
measures further to stimulate demand. Finally, Wales is characterised
by urban centres, small towns, villages and very sparsely populated
rural areas, and for Wales to have the best chance of achieving
a high level of broadband availability we would say a good mix
of technologies, including cable modems, ADSL, wireless local
loop and satellites are all required. Thus a really competitive
choice through that can be provided to the Welsh homes and businesses,
so service providers will improve in turn their broadband offerings
on price and quality of service.
2. Can we just establish what broadband is for
the purposes of the Committee? You describe it in your submission
as "always on", very high speed, two-way access. Can
you tell us what the difference is between that idea and ADSL,
which some other people tend to also describe as broadband?
(Mr Jeffers) They are two not dissimilar technologies
in as much as you can justifiably call them both broadband services.
Broadband is effectively how fast you can communicate down a piece
of cable, whether it is fibre optic or copper, and the fact that
it is always on. So I would say that they are two complementary
technologies and you can rightly class them both as broadband.
3. For what kind of applications would you need
your type of broadband, if I might describe it like that, rather
than an asymmetric system?
(Mr Jeffers) For the consumer environment the classic
uses of broadband are for high speed access to the internet for
things like MP3 music file downloads and video downloads, and
simply the "always on" capability, whether it is running
at 128 K or 512 K, is very useful for just simply receiving things
like e-mails, working from home and so on, and as the speed increases
to 512 K and above it very much goes into the realms of video
conferencing, et cetera.
(Mr Tse) For the business environment, broadband as
we see it today is about using e-mail and about the ability to
have a web page on the internet but it is a lot more than that.
It is also how you integrate your whole business processes around
the internet itself. For example, why would I need to have a pay
roll department working for my organisation when I can outsource
that using a big fat broadband pipe to access a particular company
that specialises in pay roll facilities. That is one example and
there are others you could use. So it is how you re-engineer your
business and use the internet and broadband specifically for that
4. So it would be very useful for business,
probably more useful, to have a broadband capability of the kind
you are describing rather than ADSL?
(Mr Tse) From the technology perspective, as Ian was
saying, effectively ADSL is using the copper wires that are already
in the ground and combining together so that you can get more
capacity out of them. Effectively, using ADSL or using a cable
to deliver is delivering the capacity and enabling you to use
that with a regular cable or an ADSL. It is just giving you high
speed access to the internet space.
(Mr Jeffers) I think the key thing to acknowledge
in this is that it will take a mix of technologies to deliver
broadband to any area not just cable. That will be ADSL, wireless
or satellite, and it is wrong to say one is better than the other.
They all have a part to play. Some have strengthssome have
5. Are there any types of businesses that would
benefit more from broadband than, say, the run-of-the-mill businesses?
Technology businesses, information businesses?
(Mr Tse) Certainly if you look at the early adopters
then it is the technology-led ones that are using broadband services.
Effectively, the gain is there for all types of businesses. Now,
it is debateable down to what level that is and the benefits they
will get from that, so if you talk about Wales having less than
19 companies, then if you take the public sector to one side,
those that employ 1000 people, then if you look at the bulk of
the SME sector within Wales it is less than 15 employees. When
you get down to the micro level of 1, 2, 3 or 4 employees, then
the advantages are there to be gained but not necessarily as big
an advantage as for an organisation that employs 250 people.
6. Most of your network in Wales is concentrated
in the industrial and urban areas of south Wales, and is provided
by fibre optic cable. Is cable the best way of delivering broadband
services in the most sparsely populated and rural areas of Wales?
(Mr Jeffers) Again, the simple economics of any infrastructurewhether
it is cable, copper, fibre, etcis that obviously it has
to be geared towards concentration of employment. The further
you go out from those concentrations, the higher the cost to deliver.
In some instances, it would be worthwhile I think, where the economics
work, for small concentrations where you have a lot of homes together
but I think for many rural areas, satellite and wireless will
provide other alternatives. Our view very much is, if we can stimulate
the demand for broadband services where there is existing network,
that in turn will encourage companies including ourselves and
others really to explore those technologies which in turn will
drive the price down through the delivery, but the disadvantage
of some of the satellite and wireless technology is obviously
that at this stage it is cost sensitive.
7. I am going to open a new business club in
Brecon in the heart of Wales. What type of technology should they
be using there? Satellite? Wireless? What do you think will be
their best facility?
(Mr Jeffers) There is a number of things that I would
encourage businesses to look at. Because we would use the incumbent
players' network to deliver some of our services as well and,
if the demand is there today for the service, that would be the
most obvious one to exploitan ADSL/DSL style connection.
Going forward it will be the other technologies as well that will
give competitive choice.
(Mr Tse) Yes, we would use the incumbent supplier
and that is a true statement in the sense that we would not only
use our own infrastructure to deliver broadband, whether it would
be 128 K or 512 K, but we would contract with the incumbent supplier
to provide services even though we do not have our own services
in that part of Wales, and allow the customer to have the benefit
of our tariffing regardless of where they sit, whether it be north
Wales, mid Wales or even in industrial south Wales.
8. What are the real limitations to satellite
and wireless technology?
(Mr Jeffers) Predominantly the speed of access. The
advantage to satellite is the fact that it has such a wide footprint
it can cover a huge area so it is ideal for a rural community,
but by its very nature it is predominantly one-way. That is the
restriction on it which you do not have with cable or DSL technology.
Time will change that inevitably, and we will look at different
9. What role do NTL see for wireless highspeed
access modem technology which you are supporting, and will you
use it to provide competitive services to BT in rural areas or
will you leave this to satellite companies?
(Mr Jeffers) That is a great question because WHAM
has been a project we piloted in Wales, and very close to here
we use it to deliver service now, and it is a technology that
we think has great opportunity to stretch our network so we can
bring the cable to the point that it is today, and using wireless
highspeed we can connect in some other outlying areas. It really
is a question of looking at any geography and seeing the best
opportunities and mixing those technologies, but WHAM certainly
comes with all the advantages that cable would havetwo-way
communication at very high speedsso it would be probably
a better alternative to satellite but, again, it has to connect
to the network at some point so there is still some restriction
attached to it. But it is a developmental technology and it is
one we are committed to rolling out as we can get the economics
to start working.
10. Is the government right to adopt a technology-neutral
approach to the delivery of broadband?
(Mr Jeffers) I think it is very fair to adopt a technology-neutral
approach. I think it would be wrong to try and say "The solution
is X", because I think it would stifle some potential developments
in there. We have a very high speed broadband cable network. Others
deliver it on copper and on satellite and if we can encourage
the delivery of broadband regardless of platform that is going
to be the best approach to ensure coverage.
(Mr Tse) We live in a technology environment market
that changes at an unbelievable rate. Three months in our environment
is like 12 months or two years in an external environment. It
would be wise to stay away from a specific form of technology,
therefore, and just say it is about delivering broadband however
that may be done using the different technologies that exist.
11. Is the government doing enough to encourage
(Mr Tse) Certainly, if you look at the work that has
been done in Wales already with the Welsh Assembly and the WDA
and the various projects that have been put together. If you look
at Cymru Ar Lein,
for example, as one of the projects, let alone Pathway to Prosperity
and so on, it asks how do we maximise the advantages that are
to be got through the delivery of broadband services? So there
are a number of projects that are well under way.
(Mr Blowers) On that point it is fair
to say that the Government could always do more. In a sense it
is our job to push the Government as far as we can in the direction
of supporting and stimulating the role of broadband. We have been
working very closely with the broadband stakeholders' group, and
one of the conclusions of that group is that Government policy
is broadly correct. There is no need to tear up the existing framework
and start again, but that is not to say that there are not a number
of specific and detailed measures that the Government could take
which would improve the environment in which we find ourselves.
If it is of interest to the Committee, we can certainly talk about
some of the specific proposals that we have made to the Government
in the context of that broadband stakeholders work.
12. We have been told in our inquiry that access
to and usage of broadband is much more expensive in rural areas.
The example we were given is that, if a company operating in Slough
were to relocate to Bangor, its bill would triple, which puts
areas like Bangor in rural Wales at an economic disadvantage.
BT says it is required to use the same pricing regime throughout
the country. Is it the case that the same tariffing principles
are applied throughout the country?
(Mr Jeffers) What I can say on the consumer side is
that our price is the same regardless of where you are in the
UK. A broadband customer in Wales will be paying £14.99 for
our 128 K service and £24.99 for our half Mega bit service,
and that is a universal price throughout the UK.
(Mr Tse) Certainly, from the business
side, there are two products on broadband. There are leased line
circuits we provide as well as point-to-point access mechanisms
through to the internet, but if you are talking about broadband
specifically, regardless of whether we use the BT ADSL product
under re-sell agreements or the cable modem that is delivered
via our own network, we charge £90 a month for 512 K and
£125 a month for our 1 M bit services. That is the common
practice regardless of whether you are in Wales, Scotland, England
or Northern Ireland.
13. As I understand it, BT have got the franchise
for the whole of the country and they set their price the same
throughout the whole of the country and they are not allowed to
vary it wherever they are, so it is like a safety net. But in
other areas like the Wirral and North Wales there are five providers
and in Slough there are many providers, so they are undercutting
each other so BT effectively cannot operate in those environments
because it is not allowed to vary its price, but NTL and others
can undercut and provide a better service. Is that the essence
(Mr Blowers) I think the situation is that BT is faced
by a requirement to average its prices throughout the UK. There
are some exceptions to that so, for instance, connection fees
can vary. If the actual cost to BT is above a certain threshhold
they can charge the actual amount, and that can be very significant
if you are sitting on top of a mountain in mid-Wales. I think
what you are alluding to is that, in parts of the country where
there is competition, it is driving the price down below, as it
were, the book price that BT is charging, so the standard price
has been discounted heavily by competitors and that is great and
is very good for the people in that area. The challenge clearly
is not just to have a universal access infrastructure everywhere
but benefits in competition. There are two ways of doing that.
You can encourage service provision over the BT network so wherever
there is BT network service providers are able to compete on a
level playing field with BT and then you get the benefits of that
competition, because although there is a fixed price for the access
infrastructure, people can compete on the other elements of the
package and force prices down.
14. So it is like the gas system where you have
the supply in, and then you get the different suppliers undercutting
(Mr Blowers) Precisely. Talking about different products,
one of the complicating factors is that there are different degrees
of competitiveness of different products. For instance, there
is very little competition in local loop unbundling. That process
of actually taking the raw copper from BT and providing your own
services over that essentially has been stillborn, and I think
there are a variety of reasons why that has been the case. On
the other hand, there are existing rules which we benefit from
which means that, if you want to take a leased circuit, a private
circuit, which you provide end-to-end to the customer, you can
get those at wholesale rates from BT. So it is patchy and that
is one of the problems. There is no magic bullet solution but
one of the conclusions that comes out from that is you do need
effective regulation to make sure that service providers, whatever
the product they are interested in selling, can get a fair price
from the infrastructure and deliver those competitive benefits
that you get when you have competition and not just a single monopoly
15. So unless we get competition in the rural
areas of Wales we will be at an economic disadvantage, an economic
(Mr Blowers) The other way of achieving the same result
is that you force BT not just to have a single book price that
it offers everywhere but basically to offer the best price available
anywhere to all customers. That is not what happens at the moment.
So there are two ways of achieving the same aim. We would argue
very strongly that the best thing is to get the regulatory framework
right so you can get the benefits of competition everywhere, because
it is always better to have more than one provider out there competing
for your business.
16. Finally, are there centres of technology
based and information based companies being developed around the
UK now as we speak, or over the past two years, based around this
cheaper access? In other words, as time goes on, is Wales being
left further and further behind as these centres develop, the
infrastructure around them develops, companies become settled
in those communities and there is less likelihood of them moving
to Wales at a future date?
(Mr Jeffers) Personally I do not think so. I speak
from experience from running our business previously in Cambridge,
where it was seen as a very entrepreneurial centre, and the reason
people congregated there and established predominantly high tec
businesses was the brain power that was there, the people as opposed
to the technology, and the network, and running the cable business
there we were under huge pressure to provide the infrastructure
to support the people rather than the other way round. The people
came first, and that is one of the opportunities. It puts good
pressure on companies such as ourselves and the incumbent to provide
the services to the people that are there. I have yet to see examples
of where companies have moved to get the access: they may existI
do not dispute that in any waybut I would almost say at
this point in time that it is about the brain power being there.
17. Why did you not come to North Wales? You
are based around Cardiff and the south Wales valleys.
(Mr Jeffers) It is predominantly an economic argument
at this point. Our network is focused on areas of concentration
and, if you look at the historic development of the cable industry,
whenever there were many small cable businesses startedand
inside Wales it was Cable Tel originallythey focused, by
their very nature, on large centres of population. The markets
have changed quite dramatically which makes the economics of the
businesses totally different; we do see that concentration. That
is not to say that we as an organisation would exclude looking
at other areas, but it really is a question of making sure there
is an economic return on things.
18. What about Wrexham, just to please the Chairman?
Has that got a sufficient population base to attract you?
(Mr Jeffers) There is potential and there is some
interesting work happening with a small cable company in Scotland
looking at places like Ayr, for example, that they have just started
to build, so there are other economic models coming about that
should not be excluded. In time, they may be appropriate for places
like Wrexham as well.
19. Continuing on the question of price, BT
has recently announced reduction in its tariff for broadband services.
Do you see this having an impact on both the supply of and demand
(Mr Jeffers) Without a doubt. It is fantastic news.
Anything to stimulate the broadband market. It is about time they
did so, to be quite candid. It is a wholesale price reduction
and what we need to see is that transferred into the retail market.
We need the AOLs and the Yahoos to come and bundle that at a retail
price. Time will tell what the retail price would be and it looks
as though it is going to be, for that half Mega service, somewhere
around the £25/30 mark which is where we have been since
we launched the service. We have an entry level broadband at £15
which is at 128 K, then you are around £24.99, so a product
around that sort of price is going to stimulate demand. Today
we have just announced at a Financial Times conference that we
will launch a 1 M bit service as of 11 March, and that will be
available in Wales in mid-April, and that is to the consumer at
a cost of £ 49.99, so that will become the fastest internet
service available to the consumer after Easter. So we see the
demand of BT and ourselves constantly pushing this market and
that is stimulating the consumer to get on board.
1 Dolphin Square, Westminster, SW1. Back
Pathway to Prosperity-a New Economic Agenda for Wales. Wales Information
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512K service. Back