Examination of Witnesses (Questions 260-269)
Wednesday 21 May 2003
RT HON
ALUN MICHAEL
MP, MR STEPHEN
TIMMS MP AND
DR MICHAEL
DUGGAN
Q260 Mr Wiggin: There is no cable
there.
Mr Timms: No but it will provide
infrastructure which can be used for backhaul for the kind of
rural service you are describing.
Alun Michael: I will just remind
you that Oftel has mandated access to the BT network. So, whereas
it is a monopoly provider in one sense, it is very much a regulated
monopoly.
Q261 Ms Atherton: Just going back
to the last round of questions, there has been a lot said this
morning about the Cornwall initiative but, of the eight partners
that took part, seven of them are in the public sector and seven
of them are providing public subsidy in order to make it happen
and I think that is the critical point, that BT itself is not
going to be the one that initiates it and that it does have to
come with extra support from the public sector if you are going
to reach the parts that you do not otherwise reach.
Mr Timms: Can I just agree with
that. I think that public sector institutions right around the
country have a very, very important role in gathering support
in the way that has happened in Cornwall in getting the message
out, in bringing people together, in enthusing businesses and
explaining to them what the benefits of broadband are and, in
that sense, I think the model is a very good one that can be used
elsewhere. There will not be the Objective One money, but other
funding, the RDAs' budgets, are being applied to this and will
be across the country.
Q262 Chairman: Just finally on the
issue of state aid and it goes back to the issue of target coverage
that it was aimed at. From my point of view, I can see the argument
in saying that this is a market-led operation, but there will
come a point when the market on its own, despite all these initiatives,
will only achieve a certain percentage and, at that point in time,
it would be for Government to then devise a strategy for bridging
the gap. If you are in for 90 per cent, how do we get from where
we are to the 90% and do we have the levers and the partnerships
and the powers under state aid rules to actually ensure that we
deliver the policy objective? When you are moving from 30% to
60% or 70% coverage, it is how quickly the market can drive the
technology of how we get there and we will reach the point in
the next year or two when we are seeking to achieve the maximum
level of coverage and we need to ensure that Government have the
strategy, the levers and the powers in place to ensure that that
last five or ten per cent is achieved rather than not achieved
because we simply left it to the market.
Alun Michael: Before Stephen answers
on some of the specifics, can I just say that that is one of the
points I was trying to make at the beginning, which is that, if
we were having an approach where we simply left it to the market
and therefore you started with London and the big cities and then
you moved out to the larger towns etc, then it would be progressively
getting further and further into the more difficult areas. A year
or so ago, I was fearful that that was the way in which these
developments would go. I do not think that is the case. I think
that what we are seeing now is that we are trying to tackle the
issues in the remoter areas and enable access in villages and
small towns as well as in the big cities. I think it has been
seen as a rural challenge as well as an urban challenge and therefore
we are approaching it from the two ends along with the investment
that was referred to earlier by education and health and the aggregation
to which Stephen referred earlier is obviously going to be absolutely
crucial in rural areas. So, I think that rather than sort of moving
outwards from the depths of urban England, we are actually trying
to see how we can find the appropriate means of reaching each
part of the country and the stimulation of demand and the enabling
of people to find a way through where it is possible to do so
by whichever technology is something that is now being promoted
by the RDAs and by the Countryside Agency and, in some areas,
by local government as well as by the sort of partnerships to
which we have referred earlier.
Mr Timms: My understanding is
that, by the summer, BT intends to announce thresholds for exchanges
and if they were all achieved and all those exchanges were to
be ADSL enabled, we would have 90% broadband availability across
the country. So, I think that the 90% target, if that is what
it is, or the 90% level is one that we might well achieve quite
quickly. On top of that, there will be what the Government are
doing in broadband aggregation, providing broadband to every school
and, in principle, if broadband is available to a school, then
there is the possibility at least of extending that to the community
around the school as well. So, I think there are a number of avenues
we can see to go beyond where the ADSL-enablement process gets
us to. On top of that, I point to some of the examples that have
been developed from the £30 million broadband fund like the
Alston CyberMoor project in Cumbria which is a wireless broadband
project which has just turned itself into a co-operative and I
think has established a way to become sustainable through that
means. There are other initiatives in that project as well. So,
I think that we can start to see how we can, as Alun was saying,
gradually extend the availability of broadband beyond the point
where the process that BT and the other providers are going through
at the moment would reach us.
Q263 Mr Curry: I confess to being
technologically challenged in all this as my children point out
to me constantly. So I just try and keep one step ahead of the
game and I do not wish to intrude upon the conversation amongst
experts but it is a confusing landscape, is it not? If you were
a businessman in Settle and you say, "I have been told that
I must get broadband, where do I start?" the landscape immediately
looks incredibly confusing. Would it not be helpful if the Government
or somebody, perhaps the RDA—I have met the lady who has
been seconded to the RDA—could set out a sort of hierarchy
of search, as it were? Where do you start? Do you ask BT if the
exchange enabled? If that is not happening, where do you go? You
have heard that the primary school is going to get broadband,
"Can I have access to that?" A number of queries I get
are from people who are terribly confused by the sheer landscape
in front of them. A few simple steps of, "If you want broadband,
these are the steps you go through. This is a hierarchy of inquiry"
would be enormously helpful and I would find it very helpful in
answering their requests because, when they come to me and ask,
"What do I do?" at the moment I find it difficult to
say, "Start there and, if that does not work, go there and,
from there, you go there." That would be very helpful.
Mr Timms: What I would say to
somebody in that position would be to start with the RDA—there
are broadband specialists now in each of the RDAs—and see
where that gets to, but you may well be right that we ought to
be encouraging a more formal—
Q264 Mr Curry: Perhaps a help line
where they can say, "Help navigate me, please."
Alun Michael: I think it is worth
saying that, as far as rural areas are concerned, where there
is a particular perception of difficulty and particular challenges,
Stephen and I have agreed this week that we are going to do a
note saying to local communities, "This is what the situation
is; this is the information you need to get; this is where you
get it" and so on, which is precisely along the lines you
are suggesting. Of course, we have been going through a period
where it has actually been confusing simply because things have
been developing so that, for instance, as I mentioned earlier,
if you had asked how near to an exchange you have to be, it is
only a few months ago that the answer would have been five kilometres
and it is now six-and-a-half kilometres. So, I think it is a question,
as you suggest, David, of trying to find the best way of making
sure that people can get information and be helped to be able
to ask the right questions in order to work the thing through
and we are on the case.
Q265 Mr Curry: BT. I suppose it is
inevitable when you have one very large provider which is in possession
of most of the infrastructure that the people trying to get in
the market will say that that provider is doing its best to sort
of keep them out. We caught a bit on the news this morning about
Easy-Jet and Branson trying to get slots at Orly and the air traffic
people allocating the slots have not given them enough slots to
make it viable in order to protect the monopoly of Air France
and so on. Some of the other providers have effectively levelled
the same accusation at BT. For example, Firstnet said that BT
was deliberately stealing the market in regions which had been
targeted by wireless producers and the RDA said that curiously,
whenever there is a bit of competition around, the trigger levels
from BT mysteriously came down. Avanti said that BT was using
halfhearted use of alternative technology such as satellite and
wireless to queer the pitch rather than because it had a serious
intention of getting into that. It is difficult for BT because
it has, in a sense, been asked to be a national champion, yet
it is a private business with obligations to its shareholders,
it is not state controlled. Are you satisfied that the relationship
between your Government and BT and BT and other providers is a
satisfactory one and that these accusations are either unjustified
or capable of being dealt with?
Mr Timms: I do think that the
approach BT is taking currently on broadband is a much more helpful
and encouraging one than was the case a year or so ago and I very
much welcome the change and the much more aggressive approach,
I think, to providing broadband that we have seen recently compared
with what was the case in the past. However, it is very important
and right at the heart of the Government's policy is the commitment
to ensuring a fully competitive broadband market. It is the role
of Oftel to ensure that those who compete with BT are not dealt
with unfairly and it will be the role of Ofcom in the future and,
where there are concerns along the lines you have described, I
would expect the regulator to take those very seriously because
we do want people, not just BT, to be able to invest with confidence
in the provision of broadband infrastructure and it is important
that BT does not behave in a way that unfairly exploits its current
dominance.
Q266 Mr Curry: It appears that the
regulator is going to require the post office to deliver other
people's letters; there are quite interesting developments in
this field. On the other side of the coin, BT itself has suggested
that its ability to use profits from very profitable enabled operations
to enable exchanges which might be less profitable has been inhibited
by the obligations placed upon it by the regulator but Oftel itself
told us that there was no substantive or substantial regulatory
inhibition. So, BT seems to think that there is and Oftel is saying
there is not, so what is the definitive version of this? Can BT
effectively cross-subsidise?
Mr Timms: I think that Oftel is
right about this. I do not believe that there are regulatory barriers
preventing the kind of investment that we want to see. It is right
of course that BT must not cross-subsidise broadband from its
voice services, that would be in breach of the regulatory framework,
but I have seen suggestions, for example, that the regulator requires
very rapid payback on broadband investment which makes it difficult
for BT to justify an investment. Oftel has now made it clear that
does not require these very short-term paybacks, so I do not really
think that there are the regulatory obstacles to investment in
broadband that BT has sometimes suggested.
Q267 Chairman: Which perhaps brings
me to the issue that has been raised once or twice in this inquiry
which is the universal service obligation which I think a couple
of years ago was reviewed and the decision was made that it was
premature and that there will be a review of that situation next
year, 2004. Some of the thinking is that, as the coverage reaches
around the 90% mark for broadband, then the question of giving
BT responsibility for universal service provision may well become
appropriate and timely at that point in time. Do you have any
comments on that?
Mr Timms: Yes. We have certainly
looked carefully at this and we will continue to do so. What happens
if you were to add broadband to universal service obligation is
that there would be a substantial cost of providing broadband
in every area that would need to be borne by the existing customers,
that is how the mechanism works, and, at the moment, even in areas
where broadband is available, the take-up is not at such a high
level as to indicate that adding broadband to the USO would be
the right thing to do. Even in somewhere like London, I believe
it is still less than 15% penetration. As time goes on and as
penetration increases in the areas where broadband is available
and, as you say, its extensiveness increases as well, the equation
may well change and there may come a point when it is appropriate
to add broadband into the USO, but I do not think that we are
there yet. There will be an EU review of the USO—and our
current USO comes from the European Union Directive—in 2005,
I think, and the UK will be looking at it in 2004, but, irrespective
of that, we will certainly keep an eye on this question and see
whether at some point it is necessary to make a change but we
are certainly not there yet.
Q268 Chairman: David Curry mentioned
the issue of cross-subsidisation which we have mixed messages
on but which, from both Oftel's point of view and from your department's
point of view, I think we are now clear on, which does give BT
some flexibility if the universal service obligation is placed
upon them in order to ensure that the cost can be transferred
to ensure that that provision is made, but do you see any downside
if that were the case in strengthening BT's monopoly position?
Mr Timms: I think the immediate
downside will be increasing the cost to others because the costs
of making it universal would have to be borne by other customers
and that is why we need to be careful about doing that too early
because we might actually find that we have slowed down the take-up
of broadband by increasing the costs. We do want to make sure
that we have a fully-competitive broadband market and that is
certainly one of the issues of which we need to take account in
looking at that as things go forward.
Q269 Chairman: I think we have come
to the end of the session. I am very grateful to both of you for
coming along. I think it is very useful on these issues that cut
across departments to have ministers from both of the departments
that are dealing with these issues and see how the interaction
and partnership works between departments.
Alun Michael: If I may say, I
think this is the second occasion when I have taken part in a
session like this and I think it is useful from our point of view
as well because it ends up as a discussion and a dialogue and
one goes away with things to pursue from a departmental perspective
as well.
Chairman: There may have been the odd
thing that we have touched upon about which you feel you want
to put something in writing before we actually get our final report
written. As this is the last of the oral sessions, we will be
moving fairly quickly to prepare a short report. Thank you very
much indeed.
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