Select Committee on Culture, Media and Sport Minutes of Evidence

Examination of Witnesses (Questions 40-59)


2 MAY 2006

  Q40  Peter Luff As a point of fact, how constrained are you in this process by international agreements?

  Mr Carter: Reasonably, and the start point is an international agreement. In fact it is going on and it will start next month. There is some national flexibility but `reasonably' is the answer to that.

  Chairman: There are no further questions on the broadcasting side. In that case, I am now going to hand over to my colleague, Peter Luff, who is going to take us through telecoms.

  Peter Luff was called to the Chair

  Q41 Chairman: Gentlemen, thank you very much. The only reason we took broadcasting first is that we did it alphabetically; telecommunications is much more important! I would like to begin by asking that general question which I press you nicely about now. How important, in terms of GDP, do you think the relative contributions of broadcasting and telecom-munications are?

  Lord Currie of Marylebone: First, the tele- communications sector is bigger, quite clearly, as a business, simply measuring it in terms of the businesses in the sector. If you then go on and ask what is the contribution more broadly, it is undoubtedly the case that telecommunications infrastructure networks are a major dynamic source of economic growth. Equally, one should say that public service broadcasting is a major contributor to the social, cultural and political wellbeing of the country. I would hate to have to balance one against the other.

  Q42  Chairman: When we talk about infrastructure these days we think about road and railways primarily, perhaps sewage if we have that kind of mind, but telecommunications is probably the most important aspect of the nation's infrastructure now.

  Lord Currie of Marylebone: I would agree with that. I think what we are increasingly going to see as telecommunications infrastructure becomes general, as very high speeds of electronic delivery is available to everybody, are our social working patterns shifting in much the way that electricity, when it came, changed quite considerably the way society worked and the way in which industry located and operated. I think we are just at the start of that transformation.

  Q43  Chairman: With the fact of the convergence of the two sectors, it makes sense for you to exist as a single regulator but you must have a view of the relative importance of the two sectors to decide, in the context of your Annual Plan, how much resource you are going to devote from your organisation to the different parts. I repeat my question: how important are the two different parts of your work?

  Mr Carter: It sounds as though we are dancing on pinheads here. They are equally important but the absolute answer to your resource question is that we spend more time on matters telecoms than we do on matters broadcasting by some order.

  Q44  Chairman: I can guess the reasons for that but it would help if you stated those.

  Mr Carter: They are largely scale, complexity, partly a function of the historical regulatory regimes which preceded us because the licensing regime and the technical issues associated with that are more complex in telecoms than they are in broadcasting, and partly because the single largest player in broadcasting is not entirely our responsibility—the BBC—whereas all players in telecoms are our responsibility. There is a variety of reasons but there is no doubt that by volume of activity we spend more time on matters telecoms than we do on broadcasting, but they are equally important.

  Q45  Chairman: It is a very difficult to answer in a joint committee. If we had separate hearings, I wonder what your answers might have been, but that is for another occasion. Can I ask another point of fact? There is speculation, or more than speculation, that the European Commission is looking to take a responsibility for telecommunications regulations to create a proper single market. Could you bring us up to date on that?

  Mr Carter: Again, telecommunications is far more influenced by European rules than is the case for broadcasting where the principles of subsidiarity are more pre-eminent. We could have an interesting debate about why that is the case. Currently, there is a review of the existing European framework going on. We are engaged in that. We are fortunate in the sense that one of our executive board colleagues is currently Chairman of the European Regulators Group, so we are in a reasonably significant position to influence that. I think it would be inaccurate to describe it as a desire to create a single regulator. I do not think, beyond some of the more wild remarks on the fringe, that is the case, but there is no doubt that there is significant pressure to harmonise not just regulatory analysis but regulatory remedies across Europe. That is the case.

  Q46  Chairman: So you are not concerned by that at this stage?

  Mr Carter: We are deeply involved in it. I am not sure we would say we are concerned by it. I think we are advantaged by the fact—and I do not want this in any way, shape or form to sound boastful because it is not meant to be, genuinely—that across Europe, both in the newer accession countries and indeed in the larger, more established European countries, our regulatory approaches are generally regarded as quite significantly developed, and therefore we tend to be at the forefront of these discussions rather than at the back.

  Q47  Chairman: Keep it that way because the importance of the services sector in the UK economy means that the competitiveness of the telecommunications sector is absolutely key. Briefly, tell us about your plans for a separate consumer voice within your organisation. You are consulting on that, are you not?

  Lord Currie of Marylebone: No. We have a separate consumer voice already within Ofcom, which was set up in the Communications Act.

  Q48  Chairman: But are you planning for an expansion of that role?

  Lord Currie of Marylebone: No, I think it is fair to say that the Government is proposing to create a consumer voice. Currently, there are discussions going on about how such a body, which may have a wider remit, would interact with our consumer panel. On some versions of those, it might incorporate the consumer panel, but there is a number of different proposals on the table that are being discussed.

  Q49  Chairman: When do you expect decisions to be taken?

  Mr Carter: I think the current timetable is towards the end of the year.

  Q50  Chairman: Let us move on to the strategic review, which is obviously one of the most important things you are doing in this sector. Can you give us an update on the progress that BT is making in implementing its undertakings?

  Mr Carter: We can. Substantial activity has gone on since the undertakings were signed and agreed. We have seen the creation of the separate access division, Openreach, and all of the staff transfer and structural transfers that went along with that. We are now experiencing what I described to my board last week as the `bump and grind' of operational delivery. That is creating some challenges for everyone involved. This is no small task. Openreach is a division that employs over 35,000 people. Going back to your earlier question about the relative size and scale, that makes it bigger even than the BBC by headcount. In terms of consumer outcomes rather than regulatory detail, I think we are seeing strides. I have to confess to taking some small moment of pleasure in driving past a billboard with `broadband price wars' when we saw broadband services being offered at ever faster speeds and ever lower prices. That is in no small part down to reductions in wholesale prices and ease of access and competitors entering that market.

  Lord Currie of Marylebone: I think Stephen is absolutely right to say that we are in the process of getting operational delivery. BT, in their undertakings, have committed themselves to very considerable change. I am absolutely sure that they are determined to deliver that, but of course it is not an easy task. It is our job to keep them up to the mark. If you go back two or three years and thought where was local loop unbundling then and where is it now, I think the transformation has been very considerable, to the benefit of consumers.

  Q51  Chairman: So you are broadly satisfied with the progress being made?

  Mr Carter: We will give you an answer to that in October. There are five critical delivery dates between now and then and significant delivery dates on systems equivalence, systems access, planning and back-haul. These are all very important constituent elements of a programme that needs to deliver. It would be inappropriate for us to say right now that we are doing anything other than monitoring those responsibilities.

  Q52  Chairman: It is not the case that the jury has not yet reached a verdict; it is not in a position to reach a verdict yet?

  Mr Carter: No, it is not.

  Q53  Chairman: I know one of the competitors to BT who desperately wants this process to succeed obviously, and it must, is a little bit concerned about any other changes to regulation affecting the sector before the review is complete. Can you comment on that?

  Mr Carter: It is always very dangerous for people to see one regulatory decision as contingent upon another regulatory decision, not least because, going back to your question about the European structure, the European structure requires us to look at the market in vertical analysis, which I think is one of the limitations of the European framework. We have to make stand-alone decisions about different areas of regulation. It is absolutely accurate to say that we have identified four or five individual markets where we think deregulation can be pursued.

  Q54  Chairman: What are those?

  Mr Carter: That is in: business lines, leased lines; in retail price controls, most visibly and significantly in the application of price controls to the line rental charge; what is called combined pooling of prices where people wish to bid for commercial contracts and at the moment they are not allowed to pool pricing on a market where they are regulated with a product from a market where they are not, for reasons that are obvious. There are others. And we are consulting on some or all of those at the moment. If you work back from a good place, if we were to meet again in September or October, assuming that we were to find ourselves with the necessary level of delivery on the access part of the infrastructure, it would be disappointing, I think, in our view, were we not to see the march of deregulation continue.

  Q55  Chairman: So are you going to add any areas, any areas earmarked out of that process at present?

  Mr Carter: Not in the near term.

  Chairman: We will turn to price control and Peter Bone.

  Q56  Mr Bone: Thank you, Chairman. I think most people would agree that in 1984 when BT was privatised things went very well; we saw lower prices and obviously more competition and better quality. But in that bundle of privatisation there were price protections and I understand now that there is talk of giving up the price controls. Will that benefit consumers or will that be to their detriment?

  Mr Carter: We would not do it if we did not believe after consultation—so just to be clear we are consulting on that at the moment—that ultimately it would be to their benefit. The proposals that we are consulting on contain two important safety nets, one of which is that for those vulnerable consumers who are on any form of income support there is a widely available, easy to use, price guaranteed alternative. So for consumers who are looking for low line rental with very, very, very low call usage there is a light user scheme that is part of that proposal. Therefore that is an important ongoing safety net. So the removal of retail price controls from the complete package of lines and calls will not remove that—in fact, if anything, we have bolstered that provision. Secondly, you would have to look at the alternative provision and, as you rightly say, at the moment there are many alternative providers and the number and economic sustainability of those is increasing on both counts. Ultimately that acts as a more effective control on price than the Regulator determining once every five years whether it is RPI minus zero or RPI minus one.

  Q57  Mr Bone: I certainly agree with you in principle on that and what you have just said has touched on something I was concerned about, that the vulnerable groups who, actually, you are not talking about removing total price control?

  Mr Carter: No, we are not.

  Q58  Mr Bone: Can I just go back to the fact that BT is still dominant in the sector and it has more than 50% of the market share? Is there a danger that if you completely do away with price controls—and maybe this would have happened anyway in the current situation—that BT, if it wanted to, because of its strength could sell at ridiculously low prices to knock other competitors out of the market and when they have gone they can put the prices way up?

  Mr Carter: We would have powers to deal with the exact situation that you describe; we could do an own initiative investigation on predatory pricing, and we are a competition authority in the sector so we would be able to deal with that. Indeed, we have examples of that in other areas, so I would not be unduly concerned about that specific concern. What we are trying to balance here is really the point that the Chairman made in his opening remarks about the importance of the sector. Since we have inherited our responsibilities from the Telecoms Regulator we have never taken it as our job to beat up the incumbent telecoms provider; that does not seem to me to be the definition of good regulation. The definition of good regulation is to have effective controls where they are necessary and where they are not necessary to get out of the way and allow market services to compete, because you are right to say that BT is the majority provider of fixed calls, but when you then look at lines and calls together and then lines and calls and mobile calls together, and then you look at voice services and other forms of communication over a four to five year period, this market is changing at a substantially rapid pace, and it would not be to our overall industrial competitiveness to be too restrained by traditional market definitions. You need to be aware of them and you need to have effective controls, but if you are overly restrained by them what you end up doing is regulating for yesterday very effectively and then tomorrow's products and services somehow or other do not come as thick and as fast as you would want them to, and we are always trying to get that balance about right. There are judgments and there are analyses to be done but that is why we have said we think now, after the undertakings, with effective implementation, with real competition, with increasing alternative forms of call-like services, now is the time to remove retail price controls, apart from for that vulnerable group of society who are on some form of income support.

  Q59  Mr Bone: So, in summary, it will be cheaper for most consumers and you are still going to look after the vulnerable?

  Mr Carter: If you wanted to regard telecoms as a utility, which we believe increasingly is not a helpful classification, if you go back to your 1984 start point and you look at your utility prices in gas and electricity and you compare what is happening in telecoms then prices are going down in telecoms.

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