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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