Select Committee on Environment, Food and Rural Affairs Minutes of Evidence


Examination of Witnesses (Questions 120-133)

TUESDAY 8 APRIL 2003

MR BILL GOODLAND, MR ALEX BLOWERS AND MR DEREK COBB

Chairman

  120. Welcome. Will you introduce your team for the Committee?
  (Mr Goodland) Thank you for inviting us to address you today. I am responsible for internet products at NTL. On my left is Mr Blowers, director of regulatory affairs, and on my right is Derek Cobb, director of network architecture.

  121. Unlike BT, which is a telephone-based broadband system, your system is through the cable network which predominantly is in urban rather than rural areas. Why do you think it is important that people should have access to broadband?
  (Mr Goodland) I have to say that for perhaps the first time I concur with many of the views expressed by BT earlier. I think that broadband has terrific benefits both for the residential and the business market. At a residential level today there are a whole range of entertainment, educational and career enhancing services which are available to the United Kingdom household, and to the business market clearly there are opportunities both to reduce costs and to increase income from improved sales and marketing from broadband.

  122. In your evidence to the Committee you seemed to say that you felt there was less demand for broadband in rural as against urban areas. Do you want to speak a little bit more on that?
  (Mr Goodland) By all means. I would say, first of all, that our view is that demand for broadband across the United Kingdom at a national level is pretty robust. NTL alone is connecting 40-50,000 new subscribers every month, and we are the largest broadband service provider in the United Kingdom, but we do see that the penetration of both broadband services and internet services generally, so both broadband and conventional dial-up internet services, is greater in our network areas, which as you say are predominantly towns and cities than at a national level, so that leads me to the conclusion that demand for and penetration of internet services, both broadband and traditional dial-up, is higher in towns and cities than in rural areas. Clearly this is something of a paradox in that potentially one would assume that the benefits of internet in general and broadband in particular are disproportionately great in rural areas, so the capability of internet to bring together remote communities, to connect rural businesses and remote buyers and sellers, is even greater in rural areas. That tends to indicate that there are a number of factors which are potentially leading to a lower take-up of broadband and dial-up internet in rural areas.

  123. In the big picture, given that the cable network is predominantly an urban network and has only got limited coverage in market towns and rural areas, do you think cable broadband is a significant player in terms of rural access to broadband?
  (Mr Goodland) I do not think that cable broadband is the whole answer for national coverage of broadband internet. We pass more than 8 million homes, and that is just the NTL network. If you add in Telewest, the other cable company, we pass nearly 50% of United Kingdom homes, but I do not think either NTL's cable network or BT's DSL network is the single answer. The solution for national broadband availability is going to be a range of technologies, and with that in mind we have been experimenting and trialing wireless broadband, for instance, as an alternative access technology, so clearly NTL potentially as a wireless provider may well have a role to play in rural internet access.

Mr Curry

  124. So what have you learned from the wireless broadband trial? What are your conclusions?
  (Mr Goodland) I think we have come to some conclusions both about the customer and the technology—

  125. And the price, no doubt?
  (Mr Goodland) And price too. On the question of the customer, the single most important insight is that customers in our experience are pretty indifferent to the method of access, the way in which broadband is delivered, so we are able to sell wireless broadband in the same way that we are able to sell cable broadband, and therefore there is no specific price response into a wireless proposition that is different to a price response from a customer to a cable proposition. Customers want low prices and choice and NTL has, in our view at least, been very much setting the trend in pricing and packaging broadband in the United Kingdom. It is notable, for instance, that at the beginning of 2002, NTL launched three different speeds of broadband: an entry level access speed of 128K at £14.99; we had a 600Kb speed which competes with the standard DSL offer at £24.99, and then we have the 1Mb service which is twice as fast as the DSL product at a premium price. The response that we had from the DSL market at the time was that the 128K product did not really represent true broadband, and there would be no demand in the residential market for the 1Mb product. Having now had a year of terrific success with all three products, it was interesting to see last week BT finally announcing that they too now felt it would be a good idea to have this range of three different products. So our experience is that what the customer wants is a range of access speeds and a range of prices, starting with a very attractive, low priced product which is very close to the dial-up internet price. So that is the customer reaction to wireless.
  (Mr Cobb) From a technology point of view we have been trialing wireless broadband in London for around about two years. Service has gone very well. We actually have about 250 customers on it. During that time they actually have not paid us anything; and we have got to the position where we have had customers on the trial phoning us up asking to pay because they do not want us to shut the service down. From a user point of view the perception is that it is a broadband service. It runs exactly the same as if we had run a cable network to the customer's house. The test for us was to make sure we could take industry-standard cable technology and place it over another access device, which is radio as opposed to cable, because that prevents us from having to set up a market for a completely new set of premise equipment. Within that we have to develop the wireless technology; we have been doing that and we are working to see if we can further reduce the price of the technology.

  126. In parts of the world I represent cable delivery is not a practical proposition. Half the population drink from private water supplies; and they do not have main water, let alone mains anything else. Therefore, the wireless option is going to be an important option. Have you encountered the same problems/opportunities that BT has with the stakeholder scene? Who are the people you would be talking to about the provision of wireless services in remote areas? Do you find the geometry just as confusing as they have found the geometry?
  (Mr Blowers) You will find, I am sure, that everybody from the supply side who appear before this Committee chooses their words with great care and great diplomacy in this area. What nobody wants to do is poison relationships with a range of stakeholders we are dealing with. What we would echo is the sense that there does need to be—

  127. If I may interrupt. If you are too courteous about them all then you will deprive us of the opportunity of calling them in and asking them why they are not being more cooperative.
  (Mr Blowers) Indeed. What we would certainly agree is there is a need for clear ownership and leadership and, if you will, somebody to take the issue by the scruff of the neck in each area. Our principal source of interaction has been with RDAs We would echo the view that the strong RDA exercising leadership, from our perspective, is a very good partner to deal with.

  128. That is not what BT said. BT said that county level, the lower level, is a more effective partnership. At the practical level of getting out there and building the marketplace the county level is better.
  (Mr Blowers) I do not want to misinterpret what BT has said. I think there are two slightly different issues. There is an issue about finding a body which can exercise strategic leadership and, in particular, can take a view of what funds can be dispersed in terms of funding new broadband activity. There is no question, if this is not driven by the actual needs of communities and it has not got significant buy-in from communities, then it is not going to go anywhere; we will simply be spending money to invest in infrastructure which nobody sees any reason for or point in. There has to be buy-in from local communities. I do think there is a key strategic function for the RADS. It is that which we are seeking to interleave our activities with.

  129. You have spoken about the need for a much more realistic level of spectrum licences. What would you class as a much more realistic level? Would it be helpful if the Government were to release other blocks of spectrum for wireless broadband?
  (Mr Blowers) To be fair to the Government, the Government has been trying for some time to stimulate the development of wireless broadband. There are a number of blocks of spectrum which have been identified and assigned for broadband wireless applications. This is nobody's fault, but one of the realities is that the current approach to spectrum pricing was conceived right at the top of the market, right at the time when everybody was bursting with optimism and there was money lying around in piles which you had access to if you wanted to build alternative networks and infrastructure—that has all changed. One of the things we all need to reflect upon is that, in order to create viable new infrastructure now, the pricing has to reflect the reality today in 2003, which is that the markets are averse to investing in new alternative access infrastructure. In all bands there needs to be a recognition of the fact that pricing needs to be set at a realistic level. The other point we would make is, because of the particularly risk-averse nature of the current climate, there also needs to be a licence fee structure that allows you to enter on a relatively modest scale initially. You have to enter, prove that a product can be successfully rolled out, that there is a market for it, that it works, rather than say: "The only terms on which we can enter this market are if we go out there and immediately seek to acquire 500,000 customers". There is a scale effect and at the moment, the way the licence fees work, they tend to only work if you are prepared to enter the market in vast scale; whereas the instincts and the desire of market participants are to enter on a basis where actually you can incrementally add to the market and, therefore, actually minimise your risk in that way.

Ms Atherton

  130. You have talked diplomatically about Government and RDA interventions, do you think such interventions breach state aid rules?
  (Mr Blowers) No, certainly nothing we have been involved in to date, in our view, would breach state aid rules. What I would say, and I think this echoes evidence which others have given, is that there is a deal of confusion about how state aid rules actually bite on this kind of activity. Before you get into concerns about hard core abuses of state aid rules, there is an issue of the blight and uncertainty around how state aid rules might be applied which could slow down the development of broadband activity. One of the things we have been asking for is that there should be clarity on how the state aid rules apply in this area. It would benefit us all if the Government, presumably with the full knowledge of the European Commission, actually gave us guidance on what is and is not permissible.

  131. If you can get them to agree! Do you accept that the marketplace will never provide broadband to the more remote areas of our country? What role, therefore, do you see in state support in providing broadband to those areas?
  (Mr Blowers) I think one of the things we would say is we are still digesting the announcements that BT made last week. It is clear that BT has significantly extended the claimed reach of its DSL technology. I think we also heard today that BT do see a problem with a hard core of perhaps 10% which simply cannot be reached without some other form of intervention. We would support that. We made the point in our evidence that DSL, in any event, is not an ideal technology. There is a tendency to focus on DSL as a benchmark technology for broadband but actually it is a pretty clunky way of delivering broadband services. Its capabilities do diminish the further one is away from an exchange. For all of those reasons we do think there is a residual problem. I think we would echo what BT said that it is possible to fill at least some of that through partnership approaches. The question is how much is left beyond that which needs some other form of intervention? Frankly, that can only be through some form of Government intervention.

  132. What contact, if any, have you had with DEFRA and the Countryside Agency in relation to delivering broadband in rural areas? Do you see DEFRA and the DTI in a coordinating role?
  (Mr Blowers) The honest answer is that we have had relatively little to do with DEFRA and the Countryside Agency. One of the reasons why we are keen to contribute to the work of this Committee is precisely because we do think there is a tendency to see the partner in this area as being BT, and BT alone, that only BT has anything to contribute. Recognising that there are inherent limitations on what the cable network is going to be able to deliver for people in rural constituencies, we do want to plant a flag which says there are other people other there who are interested in helping to partner with rural communities to deliver broadband services. In relation to the DTI, we do think that the DTI has an important role to play, particularly in coordinating activities amongst government departments. There is a need as we would see it to spread the message about the importance of broadband. I think the DTI has the role, if you like, of gingering-up the activities of other departments and also, where necessary, banging head together. The truth is, if all of this was plain sailing and all departments always worked sensibly with each other, and all agencies of government always worked sensibly with each other, we probably would not need to be here. The truth is that there is a facilitating role that involves, at times, brokering what may be different views between different departments or different agencies about how broadband should be delivered.

  133. You see it as coordinating rather than championing?

  (Mr Blowers) I think there is a bit of both. Championing in the sense that there is essentially quite a lot of public money that can be spent on broadband procurement, and we would like to see that money well spent, and we think the DTI has a role to play there; coordinating in the sense that we do welcome, for instance, the broadband task force activity, not in a kind of invasive way, policing activity, but setting a framework within which RDAs, for instance, spend their money.

  Chairman: Thank you very much, gentlemen, for your contribution this morning. If there is anything you think of later you wish you had included in your previous contribution you have still got time to make a further submission and we will look at that with interest.





 
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