Select Committee on Culture, Media and Sport Minutes of Evidence


Examination of Witnesses (Questions 60-79)

OFCOM

2 MAY 2006

  Q60  Chairman: Before I bring in Michael Clapham and broadband I have one last regulatory question. When you are doing a regulatory impact assessment ahead of a deregulation—and when you do significant issues are involved—you can deregulate without doing a regulatory impact assessment; that is correct, is it not?

  Mr Carter: We could.

  Q61  Chairman: Do you?

  Mr Carter: I would not like to say we never have because I have a sneaking suspicion you might have a bit of paper in your hand that says, "Ah ha!"

  Q62  Chairman: No, I am asking that question because I do not know the answer!

  Mr Carter: I would hope we have not, I think is the appropriate answer.

  Q63  Chairman: So you think the norm should be that you do one?

  Lord Currie: Any significant deregulatory change should have a regulatory impact assessment, yes.

  Q64  Mr Clapham: Turning to broadband services they are particularly important, particularly in rural areas in relation to diversification which is taking place in the economy, of course. I note that there has been an increase in take-up of broadband but we still have significant numbers in rural areas that do not have access. What are you doing to ensure that people who do not yet have access are going to have access in the near future? For example, what discussions have you had with BT regarding this and what kind of responses have you had from them?

  Lord Currie: BT have enabled the vast majority of exchanges around the country, even in rural areas, so the extension of broadband is very widespread and of course there have been initiatives by the Scottish Parliament, the Welsh Assembly and in Northern Ireland to extend the coverage to those areas where it is generally uneconomic to have an exchange enabled for broadband. So we are very nearly at the point where the vast part of the country can get broadband at a reasonable speed. Of course, they may not get the speeds that are possible in urban centres where the competition is much more intense but over time one could expect to see technology and other changes bringing those speeds in in a much more widespread way. So I think the picture is a very different one now from what it was three or four years ago when there was concern that Britain was way behind on take-up and in the availability of broadband around the country.

  Q65  Mr Clapham: I suppose the upgrading of the exchanges and the removal of the distance limits have certainly helped. My brief says that 99.6% of access but of course the 0.4% that do not have access are quite significant and, as I say, they tend to be in rural areas. Rural areas at this present time are under a great deal of pressure to diversify in order to be able to ensure sustainability, so it is important that they do have access. In terms of the alternatives, has wireless access been discussed with BT and, if so, what is their response to providing that kind of access to and from rural communities?

  Mr Carter: You would have to ask BT that specific question but on wireless generally, in answer to your question what are we doing about the un-served or the underserved, one of the things we are trying to do is to get as much spectrum as possible out to the market for alternative providers to provide services to the un-served and the underserved, which rather goes back to our conversation about what do you do with the release spectrum and many others. We had our first auction last week for some spectrum that had previously been allocated for cordless telephones, digital cordless telephones that are no longer needed. Over the next 18 months, two years we will probably hold auctions for about 300 megahertz of spectrum. Is there a likelihood that you will see increasing wireless services? Absolutely there is. The mobile operators are increasingly delivering their 3G licence obligations; and you will have mobile broadband services. As we were saying, we are holding BT firmly to account on the access services division and the cost of wholesale access to the local loop and we would hope to see local loop unbundling going to maybe 1000, 1200 exchanges in effective competition. That will not give you 100% coverage but it will give you north of 70% coverage. I think the combination of all of those things will get us to a position of multiple broadband service providers offering multiple speeds. Will there be small residual pockets of the population, largely rural that will be completely un-served? It is possible. It is possible and I do not think we could sit here today and say no, that would not be the case; but I think what we would say is that the ingredients for minimising that are looking a hell of a lot rosier today than they have for quite some time.

  Q66  Mr Clapham: Coming back to your responsibilities and some of the things you said earlier about having the responsibility for the economic implications, in terms of broadband there are clearly important economic implications.

  Mr Carter: Indeed.

  Q67  Mr Clapham: Does that impact on to your responsibilities at all? Do you see it as impacting on to your responsibilities?

  Mr Carter: I would say that we have put broadband provision and broadband take-up at the centre of what we have done pretty much from the very beginning. Why have we done that? Again, it goes back to your comments and the Chairman's opening comments—connectivity at speed and ease of use is central to a services-based economy; if you do not have high-speed, reliable and resilient connected networks you do not have an economy—you do not have it industrially and you do not have it domestically. Whilst debates about spectrum allocation for broadcasters are an important base they are a subsidiary question to the quality of industrial connectivity for the country—they absolutely are. We have always taken the view—and I believe we are right in this—that you do not reach for a single provider straight away because often in these debates you are trading coverage and competition and I do not think we are competition-obsessed but we believe that effective competition does ultimately provide the better outcomes for customers. But there are also coverage questions and you are constantly trying to get that balance right and I think in broadband we are pretty much there. Broadband coverage, as you rightly say, is 99.6%; that is 1.2% higher than you will get to with digital terrestrial television or with analogue television. That does not mean that there are not some people who are un-served but it is a substantial place to be.

  Q68  Mr Clapham: But in terms of some of the discussions you have had, has it all been considered about extending the universal obligation of BT?

  Mr Carter: To Broadband?

  Q69  Mr Clapham: Yes.

  Mr Carter: There is much debate about that; we have not taken a view on that yet. As you know, there is a universal service on traditional telephone services and therefore on dial-up by definition. We have not taken the view that to impose a universal service obligation on broadband is the right thing to do, we believe the market is too nascent. Not least, I have to say, that it is the case today that 99.9% of households are covered with ADSL broadband and yet we only have 60% penetration. So there are many thousands of people who could get broadband today from multiple providers at very cheap prices who choose not to.

  Q70  Mr Clapham: I accept that point, but as I explained in my opening remarks, I am particularly concerned about some of the rural areas and rural areas, as I say, facing diversification because of changes in the economy and it is important that they do get the access.

  Lord Currie: If I may say on that point, if you were to compare the position now for the rural economy compared with, say, 10 or 20 years ago, the connectivity of the rural economy is much greater and that allows location of new services in all parts of the United Kingdom in a way that would not have been possible 10 or 20 years ago. So there is a huge opportunity, which is why I think the penetration of broadband is going to have quite significant implications over time, about where people live and where business is located. I think we will see the start of that process.

  Q71  Mr Clapham: Can I turn to look at some of our competitors? In terms of where we fit into a league table we are about midway, I understand?

  Mr Carter: On take-up?

  Q72  Mr Clapham: In terms of take-up, and although we are perhaps doing better than some of our main competitors like Germany and Italy in Europe there are others that are doing better: for example, the Dutch are doing better and I understand that Korea is doing much better. Is there anything that we can learn from those countries to help us, particularly with, as I say, the rural section?

  Mr Carter: This is such an interesting subject we have discussed this for a long time. We are a converged regulator and you will not find many people who are more fascinated by broadcasting than me, but I would observe that one of the things that I do think hampers us as a nation is that we are a bit more interested in broadcasting than we are in broadband in connectivity. What is interesting about some of the countries you have described is their benefits of connectivity are greater than ours. There are some cultural issues there as well as some hard infrastructure questions. There are also, I think, some issues of government policy—government policy in Korea is a different thing than government policy in most countries—and there are questions about what is our position as a country on some of these questions. It does not, again, address specifically the rural access question but it would frame the debate in a way. But I think we would say that we are comfortably going in the right direction—we are talking about fixed broadband—but we should not forget mobile. We have four GSM mobile networks and 2G mobile networks; we have five 3G networks in varying degrees of deployment, all of whom are talking about or offering increasing broadband services. So our network provision is not simply fixed network provision, you are seeing alternative networks, and that is before we are beginning to see wi-fi access services at scale begin to be deployed. We are not in a bad place.

  Q73  Mr Clapham: Finally, with regard to your discussions with the DTI, are they happy with what we are doing with regards to connectivity?

  Mr Carter: My own view is that you should ask the DTI; I think it would be wrong for us to speak on their behalf.

  Q74  Mr Clapham: But your indications are that they are?

  Lord Currie: I think we have had good discussions with the DTI and they are very supportive of what we have been doing and they are pleased at the progress achieved—which is both the combination of technology and of course we hope effective regulation. But as Stephen says, it is better to ask them directly what they think; they may give you a different answer to the one they gave us, but let us hope that is not the case.

  Chairman: I think John wants to converge on this.

  Q75  Mr Whittingdale: We occasionally seem to fall into the trap of talking about people either having broadband or not having broadband, but you have rightly made the point that speed is equally important.

  Mr Carter: Yes.

  Q76  Mr Whittingdale: We now have providers talking about being able to provide up to eight megabytes but the key words seem to be "up to", and one commentator I read said that in order to get eight megabytes you would have to be able to look out of your bedroom window and actually see the BT vans around the exchange. Is there a concern that where we may fall behind internationally is in the speeds that we are able to offer, that our network actually is not going to be able to provide the very fast speeds that modern applications are going to need?

  Lord Currie: When I took the position of Chairman of Ofcom people told me quite definitely that engineering prevented more than one meg. going down the copper wire. There has been a transformation over the last three years and I do not suppose that that transformation is going to slow down. That is one reason why the question of where fibre-wire is installed in the network is very much an open question. Clearly the core part of the network, yes, but is it sensible to take it to the curb? Is it then sensible to take it into the home? That really does depend on what the limits are on the copper wire infrastructure we already have, and we have seen those limits shifting all the time. So, yes, there must be a concern, we need to be concerned about that question about whether there are limits on what speeds can be achieved, but all I would say is that the transformation we have seen over the last few years is pretty dramatic. If it slows down then we will have a basis for worrying about it and it will be for commercial operators to decide whether fibre investment makes sense to deliver those even higher speeds.

  Chairman: Can we turn to mobile telephony and Rob Marris?

  Q77  Rob Marris: Mr Carter, I imagine that you go to Brussels from time to time for the European Regulators' Group and so on. Do you have a mobile phone?

  Mr Carter: I do but I have it turned off!

  Q78  Rob Marris: Pleased to hear it! Mine is on silent! If you are in Brussels how much does it cost you to make a call to the UK with your UK mobile phone?

  Mr Carter: More than it should, I think is the answer to that question. As you know, the Commission and indeed the European Regulators' Group are spending quite a bit of time on exactly what is the right solution to high roaming prices.

  Q79  Rob Marris: Does it not suggest that when you said earlier that effective competition provides better outcomes that that is not always the case because we have the four main operators and the five 3G operators and so on, yet it still costs an awful lot of money when you are using a UK mobile phone within the European Union to make a call to the UK or indeed a local call within a country where one is sited. What is Ofcom doing to contribute to the process of changing that?

  Mr Carter: I take the point and it is a point well made and consistently made by people. As I am sure you know, it would equally cost you a lot if you were on a Spanish call phoning home to Spain or if you were on an Italian phone calling home to Italy, so it is not a uniquely UK problem.


 
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