Examination of Witnesses (Questions 100-119)
TUESDAY 8 APRIL 2003
MR PAUL
REYNOLDS, MR
BRUCE STANFORD
AND MS
TRISH JONES
100. It is fairly obvious that rural communities
did feel somewhat discriminated against and higher trigger levels
were set for smaller rural communities. I know you have begun
to address that but is it true that, because of the apparent recession
of the trigger point, the follow-up work has to some extent been
less well advertised? I am talking about people signing on—not
showing an interest but paying their money—and my understanding
is that you had, where you have gone in early, quite low take-up
rates and I just wonder whether there has been some mismatch in
terms of the publicity for getting people to the trigger and then
what follows afterwards.
(Mr Reynolds) You raise a question generally around
what stimulates demand and for sure the "Build it and they
will come" approach does not work. We know that emphatically
from some of our early experiences where there was relatively
little time spent on demand stimulation—"Just build
the thing" really did nobody any good. What we have found
is that a combination of communities themselves getting engaged
in the trigger process just heightens awareness, and where that
has been done and led locally particularly well we find quite
an explosion of demand once the thing is built. Also, we have
worked hard with many service providers on marketing schemes that
have helped engage demand, and so a combination of either more
conventional market demand stimulation and local self-help, leadership,
where either or both of those has taken place, we find demand
once the exchange is built works rather better than the "Build
it and they will come" approach.
(Mr Stanford) What the trigger scheme shows is how
complicated a business broadband is end-to-end in the United Kingdom.
When customers register they are not registering with BT Wholesale
who are those who ultimately build the infrastructure, they are
registering with whoever their retailer is, an ISP. When a trigger
point is reached BT Wholesale does not contact those customers
to say "Please buy"; the retailer, the service provider,
needs to, because it is not uncommon for someone to register with
six service providers and it is not for us to interfere as to
where that customer will buy their retail service. So we are working
very hard with the service providers to say that, as soon as a
trigger is about to be reached, please go out to your customers
and take those orders so that we all have commitment at every
part of the wholesale/retail value chain to make sure that we
get customers, because the best way to sell broadband is for someone
to have it and sell it to their neighbour. It is a reference sale.
101. Moving on to Exchange Activate and looking
at small communities, surely there is a big disadvantage asking
people to pay upfront entirely for the implementation in service?
Have you begun to look at different ways in which you can, if
you like, graduate the initial cost so that people pay back over
a long period of time?
(Mr Stanford) That is a matter of the risk of the
investment because, after all, to enable exchanges in the United
Kingdom would be asking BT to invest in every exchange upfront.
What Exchange Activate does is enable an investor to contribute
at the wholesale level, and to retail at whatever level they think
is appropriate. It is an opportunity we are putting out there
to share risk at the small level where at the moment it is not
economical in a standard way. What we have done is make sure there
is a buyback opportunity because if there is a broadband demand
that would enable the standard roll-out to absorb it, we do not
want those investors to be disadvantaged in any way. So we carefully
manage a buyback opportunity and, when we announced the launch
of this last week, the community of interest was very high for
small local initiatives such as that.
Ms Atherton
102. Can you tell me if you have done any breakdown
of the socio-economic differences between the areas that are pre
registering? Are you seeing lots of villages in Surrey and Hampshire
getting together and having the capacity to get somebody out and
getting organised to make it all happen, as opposed to some of
the more less economically successful areas?
(Mr Reynolds) Certainly I can think of examples of
local leadership making it happen up and down the country in the
Highlands and Islands and in Yorkshire through to Surrey, but
that is anecdotal. We need to come back to you in more precise
detail on that.
103. It is important because, if we end up with
the economically rich already becoming the only ones with the
access to the technology over and above less prosperous areas,
then you do create more—?
(Mr Reynolds) I really do not think passion and leadership
for the subject just comes from people in the home counties. It
really does not, from our experience, but we will do more work
on that.
(Ms Jones) Can I say that part of the key about working
with the regional agencies and county councils is to spend a lot
more time in those areas where the apparent awareness and take-up
is poor, and there is an emerging difference between the northern
counties and the southern counties in this debate and we have
been working directly with Yorkshire Forward, key parts of the
north east, Merseyside and we have just opened up discussions
in Lincolnshire as well, so we are working with those people to
point out to them that there is an emerging disparity in terms
of awareness and take-up even where it is currently available,
and we should work with them to understand and align their local
agendas. "Help us to help you" is the whole approach,
and we provide very detailed analysis at a local level of knowledge
about internet users, the disposition of businesses, and also
the way in which perhaps the public sector with the delivery of
their own services in these communities could help, and there
are active projects, some of which are about to go to tender so
it is very difficult for me to talk about them, but you will find
in the north that the kind of approach you have developed in ACTNOW,
for example, means we are taking on a much broader front across
the country. There are ten or twelve active engagements going
on.
104. Is that using regional broadband money,
or structural funds, or what?
(Ms Jones) Some of it is directed from structural
funds; some of it is directed into the demand awareness creation
and support-type activity, and we are indeed investing money in
that ourselves as part of the risk analysis.
105. In what way could government be a more
robust supporter of broadband?
(Ms Jones) There is evidence which suggests that people
who have never used the internet, for example, are the people
equally most likely to be in need of public sector services and
support. If there was perhaps a much more rigorous response from
various parts of the public sector into prioritising their own
agenda into the delivery of their own services using ICT technology
such that the people on the receiving end could be much more comfortable
about engaging with the public sector in that way, then for the
people at the periphery and in areas where travel is difficult,
etc, this technology could be the very thing that breaks open
the demand for requirement. So the public sector locally has quite
a key part to play here. It also might help at technology level.
If we can take fibre-backed services into schools or public sector
sites locally, it could possibly ease the whole burden of the
way in which we take ADSL services out into those communities.
So there is a part to play here.
106. You are talking about piggy-backing?
(Ms Jones) Yes, but we are talking about the public
sector getting to grips with the delivery of its own services
through ICT, for the community to engage with the services in
that way. It could be a major driver of demand. I have to say
that the reason we have continuously looked at SME as the base-building
block of taking these broadband agendas into commercial areas
is that it is the one area where we know how to communicate with
small businesses in the way in which the applications and services
can best be adopted into their businesses. There is a real relevance
to the way those services can be brought about. At the moment
at citizen level their need for the services has to be triggered
through other opportunities.
(Mr Reynolds) I would add clear direction and leadership,
for example, in bringing broadband services to the schools and
hospitals and every community. Our own studies show that, if government
were to do that and where BT might be successful in some areas
to win those contracts, the fibre we would have to provide to
support those services would absolutely ease the costs of providing
DSL broadband to the whole community, because often the economics
are very largely based on whether the fibre back to the core broadband
network exists at the moment or not. We have to provide that fibre
if we are to win any of those contracts to rural communities,
and then it would benefit the whole community. So we need government
and leadership in those areas, and the schools and hospitals would
benefit right away, and the knock-on is a good one too.
107. Lastly from me, how effective has the broadband
task force been, in your view?
(Mr Reynolds) It has been a good rallying point for
views. We have engaged with them and as you know from our evidence
every other part of government, and that has been very helpful
up to now. Referring back to my answer to the last question, there
is an opportunity now. We are all clearer than we were a year
ago about what might work and what might not; what things government
could do that are totally legitimately in the government agenda
to do, and how that might help the infrastructure of BT and others
in this market if contracts were to be let. What I would say is
there is an opportunity for a focusing of the government agenda,
some specific things will help, and let industry then get on with
what it can do.
108. And those specific things would be?
(Mr Reynolds) A stronger vision about the provision
of broadband services to public services so that, competitively
tendered, BT would want to participate very strongly in that process
and we know that, where we were successful, it would help our
wider broadband agenda, and that is of benefit to both parties.
Mr Curry
109. Ms Jones mentioned Yorkshire Forward, which
has just recruited something to do with broadband within the last
two weeks. We have been talking about other stakeholders and I
have just been jotting down who these potential stakeholders are.
There is Yorkshire Forward itself, the Learning and Skills Council,
the County Councils, the Countryside Agency, Business Links, the
Chambers of Commerce, the CBI, National Parking, and the Government
Office for Yorkshire and Humber, and those were the ones which
only came to mind immediately. It is all a very fragmented landscape.
I keep getting press releases about various bits of it but as
far as I can see all I get are press releases. What is then happening
out there? I cannot see it. Do you think that the landscape of
partners that you keep talking about is all too fragmented? Who
is going to take the lead in North Yorkshire? Who is getting out
there and doing the legwork?
(Ms Jones) This is one of the most difficult things
and the channelling of funds to conducive activities that touch
the people who are going to make use of those technologies and
services is fragmented,. What was fantastic about Cornwall, and
I cannot explain this more, is that it was about one or two individual
people who were galvanised by the whole Objective 1 process. It
was the first time that had been introduced into Cornwall, and
they saw it as a one-off opportunity. We worked with each one
of these people that you refer to. We sat them round the table
and asked them, "Let's understand what your individual requirements
are and how broadband might benefit your own individual services
like Business Link, and then let's work to see how we can work
together to bring that to bear in some sort of experience that.
. ."—
110. So if you had to nominate, who would be
your preferred institution?
(Ms Jones) We tend to start with the regional development
agencies, and I have to say that we find that we get a better
engagement when we deal at a county or subregional level. The
regional development agencies are very useful at a strategic level
and at a bit of a steerage level, and I think the DTI broadband
advisers could provide a better guidance and advice about how
to steer these broadband strategies, but when it comes to people
sitting round a table wanting to make things happen, we tend to
find that that works best out at county level.
111. So in North Yorkshire who would be the
county level agency?
(Ms Jones) The County Council. We definitely always
have round the table the Learning and Skills Council and the Business
Links.
112. North Yorkshire being a very rural area
you will find a large number of people in the countryside having
dealings with the Rural Payment Agency, which is a mechanism by
which farmers are paid for all their supports, and DEFRA is busy
introducing at the moment a new super-duper computer system which
we hope will not do what every other private sector computer system
has done and go arse over tit. Is there an opportunity to ride
piggy-back on that to get access to a large number of people who
necessarily have to have a very large amount of information stored
on those machines?
(Ms Jones) Very much so. If there is a particular
initiative or driver in a local area that area believes is an
absolute priority in being taken out to users, then we will work
with that as the driver of demand. This is about you telling us
where your local requirements are, otherwise we perform a reactive
response to demand.
113. Can I ask you whether you think that the
government is asking you to perform a function which goes beyond
what you ought to be doing as a commercial business? Is the government,
instead of doing it itself, somehow pushing you up into the frontline
to do things which in other countries the government has accepted
is its responsibility?
(Ms Jones) I think we have been incredibly innovative
and broken the bounds of what we would normally do in order to
push this agenda. I have a very small team that works across the
whole of BT that goes into these regional environments to work
with these people. We are willing to do this because we are as
passionate about getting this moved forward as yourselves. We
would like to see a lot more thought leadership coming from within
the government agencies to work with us on these matters. We have
found that, as we develop these projects locally, we have to contribute
mutually to the payment of serious project management expertise
to bring them to bear, etc. You mentioned DEFRA but we have also
started to work with the Countryside Agency to see whether there
are some initiatives there.
114. But you are giving the impression you are
sniffing around trying to find people who might have something
to contribute, as it were?
(Mr Reynolds) If I may, this is an issue that engages—
115. It is a very British sort of muddle.
(Mr Reynolds) It is something that has emerged over
time. If you take the last year, the whole issue of rural broadband
is of huge interest to BT, everybody in the industry, everybody
in rural communities, every department in government just about,
and a year ago—
116. Probably everybody except your shareholders,
I should think?
(Mr Reynolds) I will come back to that but a year
and a bit ago everyone was looking for solutions and so the process
that Trish and her team have gone through means that inevitably
she has ended up working with every community of interest to try
and find solutions. That is nobody's fault; it is a process of
elimination of finding out what works and does not. What we can
say clearly now is we know some things that work. There are hundreds
and thousands of things that could work but we think we know what
some of the best ones are, and there is a real need to coalesce
activity round the two or three best ideas and the best agencies,
because there are some common things about every community. Schools
and Health Services are common to virtually every community, for
example, so a piece of policy round those would undoubtedly speed
broadband provision and cut out the clutter of debate and dialogue
you are referring to.
117. So if these figures are correct, that the
commitment of the British government to broadband is about $5
a head, $25 in France and $95 in Japan, do those figures say anything
and, if they do, what conclusion should I draw from them?
(Mr Reynolds) It goes back to the point you made in
passing about our shareholders: we have not in this country gone
down the road of massive public subsidy. We have gone down the
road of really incredible innovation to work out how we can bring
services to rural communities in an economically viable way for
BT and in a way that suits government budgets too. So subsidy
levels are low but the success rate has been rather good. At this
point in time we are enabling new exchanges every day and the
rate of broadband sales of both BT and other service providers
in the United Kingdom is the highest in Europe.
118. So this is a unique target to be met?
(Mr Reynolds) At the end of the day we have to create
a business model that works for BT, for our competitors in this
industry, for the industry and for government, and through that
rapid innovation over the last year we have begun to do that.
My clear message is let's coalesce the two or three good things
that will work and get on with them because they can bring benefits
to every community.
Chairman
119. Finally, Mr Reynolds, when a constituency
man in the village of Raftered which has a population of about
12-1,300, with its own exchange, which is enormous by North Yorkshire
standards, comes to you and asks about broadband and you say,
"This is how many your exchange needs and you are only about
a fifth of the way there so it will be some time", and he
turns round and says, "What is stopping BT enabling that
exchange and using the profit it is making from the big exchanges
to make sure that it subsidises the small exchanges?", as
it has this network of telephone lines going into every village
and every house, why can it not simply enable all the exchanges
and cross-subsidise from the more profitable areas these smaller
areas that are not profitable at the moment, and in the long term
BT will make the money? This extends also to the question of whether
there should be a universal service obligation as well.
(Mr Reynolds) There are a lot of parts to that question.
Firstly, universal service obligation as a notion applies economically
to markets where there is something like 90% availability of a
service and perhaps a 70% take-up. We are well short of that.
Take-up of broadband services in the United Kingdom at the moment,
despite a lot of interest, is rather lower—about 5% is the
average—so USO does not come into it at this stage in time.
Secondly, why do we not just do it anyway, and cross-subsidise?
Well, there are Competition Act rules and regulatory rules under
which we operate where we have to demonstrate we are not cross-subsidising
and that we are making a reasonable return on the service, and
that is precisely what we do here, and we make these investments
based on something like a three-year payback. We are absolutely
convinced from our experience of the past year that we can continue
to operate within those sensible rules of that business model
and get to 90% and beyond with the right partnership approach
footprint of broadband in the United Kingdom. Going back to your
constituents, therefore, you have a trigger level that can be
reached, and those trigger levels become more reasonable. The
issue is local leadership and partnership to get there as rapidly
as possible, and we know from hundreds of examples up and down
the country that works and we have resources that will work in
whichever way with local communities to make it work, and broadband
will happen.
Chairman: Thank you. We have a couple
more hearings after this to do in May and hopefully our report
will be out at the end of May. Thank you very much.
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