Examination of Witnesses (Questions 159
- 179)
TUESDAY 6 JUNE 2006
MS DEBORAH
TONROE, MR
TIM LORD,
MR HAMISH
MACLEOD,
MR NICHOLAS
LANSMAN, MS
CAMILLE DE
STEMPEL AND
MR JAMES
BLESSING
Chairman: We will move on now to the
next session, where we have as witnesses, from the Mobile Broadband
Group, Deborah Tonroe, of Orange, Tim Lord from Hutchison 3G and
Hamish MacLeod, from the Mobile Broadband Group, and also the
Internet Service Providers' Association, Nicholas Lansman, Secretary
General, Camille de Stempel, Director, and James Blessing, Director.
I am sorry to have delayed the start of the session. As you know,
we are trying to cover a lot of ground so I would only say do
not feel that all of you need to answer every single question.
Can I invite Nigel Evans to start.
Q159 Mr Evans: How quickly is the
usage of 3G going to be taken up, the television use of it?
Mr Lord: On familiar services
that we can get the content for, which to date has been music,
we are finding very rapid uptake. We are finding that, of our
customer base, (about 3½ million customers) every month,
over a million downloads of video or audio tracks take place,
and we have about 76% of all mobile music downloads, it is actually
17% of all music legal downloads in the market and it is about
4% of all downloads of the total music market, for the singles
market including physical distribution. We have a lot of success
in music. We do have some TV clips. We have Big Brother, we have
some sports clips, we have some streamed channels, but we are
finding it very frustrating to get more TV content onto these
networks. 3G networks, in our case, already cover nearly 90% of
the UK population. A massive investment has taken place and continues
to take place, and actually we would like more TV content. New
services are doing well, we have got a million downloads of people
downloading user-generated content, but we have not got a streamed
version of BBC1, we have not got a streamed version of 24 Hour
News. We think, at this stage in market development, really we
want to have the TV companies—the BBC, the public service
broadcasters—focusing more on mobile as a distribution mechanism
and focusing on it in a more consistent manner. Today, I was reading
in the FT that the BBC is going to provide streamed content to
a DAB service but actually they have not done that for us yet,
and we would be keen to encourage them. The comment I would make
about it is that all new distribution platforms essentially need
to have familiar content from the older distribution systems to
take off and drive critical mass. It is an odd example, but, for
example, the cable and satellite systems all started with rebroadcasting
the main terrestrial channels. We would like to be in that sort
of situation, and to date we have had a slightly frustrating discussion,
certainly with the BBC, in terms of trying to encourage them.
Q160 Mr Evans: Why: what are they
saying to you?
Mr Lord: It is complicated and
they are under restrictions from the Government as to what they
are and are not allowed to do, and how the licence fee is treated.
We just note that in other areas they have managed to get round
it, but for us it seems to be taking a really long time.
Ms Tonroe: There is enormous enthusiasm
from the broadcasters. I have been working with mobile content
now for over 10 years and I have been selling the concept of mobile
content and I have never been welcomed with so much enthusiasm
for mobile TV, it really has struck a chord. There is enormous
enthusiasm, but, as Tim says, the frustration is the actual delivery
of the service, and there are two types of services that we are
looking for over mobile television. One is a synchronous stream,
live, as you have it at home, but you just take it away with you.
The second phase of that is a more tailored-for-mobile service,
it recognises that the consumer is on the move and provides them
with a different type of entertainment. Ironically, we are starting
to see that come out first from some of the smaller players, and
the larger players, who have very warm words to say about mobile
TV, have not taken the easy route of doing a synchronous stream,
which we have seen in many other European countries.
Q161 Mr Evans: Do you think the picture
is up to it?
Mr Lord: I am very confident on
3G that it is fantastic, of course.
Q162 Mr Evans: If too many people
take it up though does not the picture degrade?
Mr Lord: Not really. What we would
find eventually is that we might have to install more capacity
as more people start subscribing. The beauty of 3G is that it
is a very flexible technology, in terms of how it manages demand
on the radio spectrum, and the fact that you can add multiple
carriers to support it. We have got a lot of future technological
enhancements which are available within the 3G standard, so we
can go to HSDPA if we need more capacity. That is, already at
1.1 megabits per second, and that technology will go to, we think,
seven megabits per second, so we have got tremendous scope to
deal with capacity issues.
Q163 Mr Evans: How long do you think
it is going to be before all the other systems that you can get
up there fade and everybody is on 3G, that they will only sell
3G and that will be it, or whatever comes after 3G; 4G, I guess?
Mr Lord: We think 46 million people
globally have 3G `phones; that went up by 147% last year: 20 million
in Japan. We think, and it is not often understood, that there
is a tremendous issue of global critical mass for the development
of the handsets and the chipsets. Essentially, you can waste a
lot of time with inter-technology competition, because the real
benefits to consumers arise when you have a good technological
standard which is adopted on a very wide scale. In GSM, for example,
the fact that GSM handsets now are so cheap, the fact that this
is a technology being deployed in Africa, is because so many GSM
handsets are being manufactured that the price per unit has gone
very, very low. The same thing will happen with 3G. Obviously,
Hutchison is a 3G-only player, we do buy in 2G services but essentially
we are a 3G operator. I think, this year, at the GSM conference,
it has now reached the stage that 3G is inevitable, it is a much
more efficient use of spectrum, it supports multiple services;
how quickly it will happen is a more difficult question.
Ms Tonroe: Consumers are changing
their handsets every 18 months now, on average, so it is a fairly
quick turnaround for customers who are particularly interested
in using that 'phone for more than a 'phone call, which is becoming
much more prevalent.
Q164 Mr Evans: Is the World Cup going
to be a driver for 3G?
Ms Tonroe: Unfortunately, in the
UK, it is not, in terms of a live-streamed match. There are going
to be some clips available, so you could watch after the game
a three-minute summary, which is disappointing actually.
Q165 Mr Evans: Can I switch to broadband:
what is the take-up of broadband now in the UK?
Mr Blessing: Depending on how
you define broadband, currently there are 11 million lines installed
across the UK, eight million of those belong to BT, or various
bits of BT, and the other three million down to cable companies'
use, about 400,000 and something.
Q166 Mr Evans: Is it accelerating,
or do you think that you are reaching a plateau?
Mr Lansman: The latest statistics
which the National Office of Statistics have put out show that
the trend is for growth in broadband, a consequent diminution
of the amount of dial-up customers, on narrow-band, and the growth
is continuing, and there is a variety of factors behind that.
In fact, some of the comments which you were discussing earlier,
in terms of the drivers for why people want broadband, not so
long ago, a handful of years ago, a half meg connection would
have been enough to surf the internet, to send e-mail, but now,
with things such as rich content, video, film and indeed television,
you are going to see a greater demand for services delivered via
broadband.
Q167 Mr Evans: Do you think the content
is good enough yet, as a driver, and indeed the speeds; what is
the reality of the speeds that people can get these days, because
it is very difficult, is it not, to download a movie or a TV programme
and watch it in good quality?
Mr Blessing: Actually speeds are
quite reasonable now. You can watch live television quite easily.
The BBC's multicast streams are very high quality; at a distance,
they are absolutely fine to watch on a large-screen TV. The problem
is going to be that BT's underlying network, on which most of
the country is still running, just was never designed to do multicast,
so that, the bandwidth requirements which service providers are
going to have to put in place, the services' needs are going to
go through the roof, which means probably prices will rise, rather
than fall, unless you use an LLU provider.
Mr Lansman: This might be an issue
that you will come on to, but there is a great amount of investment
going into the broadband infrastructure. Obviously, BT have swung
a lot of that with their 21st century networks, I am sure they
will talk about that later, but there is going to be a big investment
across the board in the internet, to make sure that it can cope,
and indeed deliver, for all the future elements of content, whether
that is film or TV, and so forth.
Q168 Helen Southworth: How much are
you expecting that consumers will be prepared to pay for mobile
television?
Ms Tonroe: Mobile television is
currently on the market for in the region of £10 a month;
there are different variations on that from different networks,
depending on how much content, channels are in the package that
you buy. On average, it is £10 a month.
Q169 Helen Southworth: Are you confident
that is going to be affordable, when you add in the cost of the
handset and the fact that people are very likely to be paying
for services at home as well?
Ms Tonroe: The primary reason
why people buy a mobile 'phone handset is still based on the fact
that they want to make telephone calls, so their primary reason
for buying a handset, and a handset that they choose to buy, is
based on that reason. Then the additional services that they add,
£10 a month has been chosen, has been selected, because of
the customer research that we did. It is also interesting, across
Europe it seems to be about the same level as well, €10 is
slightly cheaper, but €10 or US$10 in America, so it is all
about the same price, globally.
Q170 Helen Southworth: There is rather
a difference, is there not, between US$10 or €10 and £10?
Ms Tonroe: The content that you
get varies as well, so you get less content, and at the end of
the day you are getting the same amount of content for the same
comparative price.
Q171 Helen Southworth: I do not know
what the percentage of that difference is, but it is quite a substantial
one, is it not; it is about 60 pence?
Mr MacLeod: It is a very dynamic
situation and the situation gets more competitive.
Mr Lord: Because we are a 3G operator,
we have had to push ahead faster with that, I think we are already
a bit cheaper. What we are doing, television is an experience
good, your valuation of television often is not known until you
have seen the programme, so actually upfront or per transaction
charges are not very customer-friendly. It is actually probably
better, and we are doing this more and more now, to bundle and
say, "Well, here is our, hopefully, very competitive tariff
for a thousand minutes of `phone calls and included in that is
this many downloads and this many streams of television,"
so that people can try it. Essentially, we need to start building
this market and you do not do that by charging people in advance
of experiencing it. We are doing quite a lot with that now.
Q172 Helen Southworth: What about
handset costs?
Mr Lord: In the UK markets, the
UK consumer does very well on that issue, because handsets are
quite heavily subsidised. Essentially, what mobile does is it
gives a much lower cost entry price to broadband. It is much cheaper
to, say, get a `pay as you go' 'phone than it is to buy a PC,
so, essentially, consumers are getting a very good deal, we feel,
from the mobile operators at the moment.
Q173 Helen Southworth: What is the
comparator then for UK handsets as against the rest of the world
handsets?
Mr Lord: It tends to be on the
structure of the subsidy mechanism for the handset, so in a very
competitive market, as in the UK, there are five operators, it
is very competitive, people are buying handsets on "pay as
you go" for £10 or £20.
Ms Tonroe: You can get them for
nothing, so you can get them as part of your package, if you sign
a contract.
Q174 Alan Keen: This is a PDA which
I got because I was due an upgrade; it is O2. The previous one
actually I bought, costing me hundreds of pounds. What is going
to happen next, and it is a dynamic market, as you have just mentioned,
and what would you like us to say, how can we contribute to the
industry, what would make you very happy if you read in the report
that this was what MPs were saying?
Mr Lord: I think there are two
things. One is that the migration from 2G to 3G is probably the
biggest infrastructure project in telecoms, it may be even the
biggest infrastructure project, full stop, in the UK; it is a
massive degree of investment, both in the network and in the roll-out
of new handsets. The first thing I think we would like to see
from the Government is an understanding of 3G; 3G was created
by the 2000 3G spectrum auction, which we considered to be a very
intelligent piece of industrial policy, where, basically, by licensing
a new entrant, the Government has ensured that there is at least
one operator which has very large incentives to roll out the new
technology and bring it very quickly to consumers. I think that
is very effective; understanding 3G, talking about 3G and maybe
doing something about our content issues on 3G, because at the
moment we would like more.
Mr MacLeod: In terms of what is
happening next, an additional comment is that, to date, really
it has been primarily a communications device, for talking, texting,
e-mailing is coming in; what we are seeing the beginnings of is
the mobile as an entertainment device, and that is where the experience
is going to be much, much richer. You have got music and TV, you
have got your user-generated contents, where people are using
it as a camera facility and uploading to their blogs, and the
whole sort of mail-blogging, video-blogging type world, where
the consumer actually becomes a producer, and even is able to
commercialise that activity.
Mr Lord: Yes, but we are not always
proud of it enough. A million people a month are downloading user-generated
content. We have launched a service where basically citizen-journalists
can uplink video to a server and then anybody who wants to watch
it can find it and actually see stuff. It is going to have a wider
effect on the way people participate in their communities, which
we think will be a good thing. One thing I did not mention is
that I think there is a tremendous role for these new technologies
in the public sector, which we have started to engage with local
government on now, on how local government employees can quickly
have access to mobile data. The opportunities in mobile broadband
are limited not just to the commercial opportunities, there are
very obvious opportunities for more efficient government.
Q175 Alan Keen: With these mobile
phones we will hardly ever need to go home at all, will we?
Mr MacLeod: I do not know whether
one is allowed to quote Bill Gates within these walls, but at
a recent conference in London he stated that the current mobile
`phone has only scratched the surface of its potential, and we
agree with that strongly.
Q176 Chairman: We would agree with
that too, since we have been to Korea recently, as a Committee,
where we looked at mobile television, which clearly is widely
available there, in Korea. Of course, in Korea, mobile television
is provided through digital multimedia broadcasting using the
DAB spectrum; that is launching in this country as a UK-Korea
trial, and I attended the launch yesterday. That claims to offer
everything, and more, which 3G is capable of offering. You have
spent a huge amount of money on this 3G spectrum; are you worried
that a rival technology, which appears to be able to offer just
as much, if not more, is going to be available, and is that going
to threaten your investment in 3G?
Mr Lord: DAB is a broadcast technology,
you cannot make a `phone call with it, so I do not think really
it offers a significant threat to 3G. The most likely role for
DAB, if it is successful, is that, as mobile operators, we might
include DAB receivers in handsets, should handsets become available.
I think we are likely to be the customer, if it is a better way
of delivering streamed television, it is not clear to us that
it is yet, but we would be able to use it. I would not really
position it as a competitive threat. I mentioned earlier this
issue about handset availability; for handsets to be cheap you
need to have global scale and I am not yet convinced that this
DAB variant will become available across Europe and across enough
people for all the handsets or chipsets to become inexpensive.
We would not think of it as a threat, but if it is something that
customers want we will add it to our handset portfolio.
Mr MacLeod: The whole spectrum
thing is quite fragmented and confused at the moment. I think
there are just a few points of principle to make there, but I
do not think you can make any definitive statements. One is that,
as Tim said, as much as you can do globally to harmonise what
other people are doing in other parts of the world, you bring
the economies of scale to the handset, and that is absolutely
key. I think, secondly, we have got the digital dividend review
going on at the moment, and you had your analogue inquiry a few
months ago and pointed out that Ofcom really need to get on with
it and not lag behind other European countries in getting that
spectrum released. When that spectrum is released, I think there
needs to be a fair contest for those interested parties that want
to acquire that spectrum, for whatever use; we do not want to
see some special pleading from various quarters. I think Ofcom
are developing a good spectrum policy, in terms of fairness and
openness and good economic use of it, and we would like to see
that continue. The other point just to come back to is actually
that what is really going to drive this market is the content,
and that, I think, is a great contribution that the Committee
can make.
Ms Tonroe: Even on that trial
there are the same arguments, that because it has got mobile appended
to it somewhere there is a limitation on the content which has
been made available to that trial, to the BT Movio service, they
have the same issues that we faced. Even though it has been classed
as broadcast, the broadcasters are having to provide the content
which is needed for that, so, to that extent, it has been limited.
Its commercial launch this summer, it will be difficult to judge
whether it is the sort of service a consumer really is looking
for, because it is limited, I think, to four or five TV channels
and an enormous amount of radio, which is a good thing, so they
have suffered the same issues.
Mr Lord: They have got the Cartoon
Network and Teachers' TV and not BBC1.
Ms Tonroe: To clarify, actually
it is not the Cartoon Network that you get at home, it is a mobile
version of the Cartoon Network, which is the same service that
we are doing over 3G.
Q177 Chairman: The Managing Director
is following you as a witness; no doubt we will hear more from
her about it. Just to press the point. I was told by the DAB enthusiasts—and,
obviously, you having made this huge investment in 3G you are
bound to be a 3G enthusiast—that because 3G is essentially
a one-to-one connection actually there is a limit to the number
of people who can be trying to watch different things over 3G
at one time, and that if your subscriber numbers go on increasing
you are going to hit that limit sooner or later?
Mr Lord: 3G has within it a specification
for a broadcast extension, which we can deploy probably within
a year or two, when we need to; so actually we can do, say, a
broadcast when we need to of at least four channels, using just
our spectrum, and other mobile operators can do the same. I am
not convinced that it is such a problem. The other thing you notice,
obviously, with mobile usage is that the way people watch TV is
different, in that they are tending to `snack' on content. We
would like to include BBC1, but if you are on a train or a bus
and you get interrupted you would miss part of the programming,
so this linear programming actually may be difficult in a mobile
environment, it is just not really clear. More of this content,
ultimately, may always be delivered on an "on demand"
basis, which you can do only with a 3G network, so I think we
have got plenty of room to play.
Mr MacLeod: Also, I think, when
you say you are 3G and 3G, 3G, it sort of implies that they are
technology companies; in fact, that is not the case at all. We
are multimedia service companies and we will deploy the technology
that customers want at the cheapest possible price that we can
achieve.
Mr Lord: Our Italian sister company
is deploying DVB-H, because it is available and it seems like
quite a good technology.
Q178 Chairman: Having spent an awful
lot of money on 3G frequencies, presumably you are quite keen
that they are usefully deployed?
Mr Lord: There is a thing called
a sunk cost, is there not; it does not really govern your future
behaviour. We will use the technologies which are most efficient
for delivering the services we want to deliver. At the moment
we can deliver an enormous amount technically using our 3G network,
with nearly 90% coverage of the UK, with mobile broadband. If
we feel that we need to deploy other technologies, we will, but
at the moment what we really need is more content.
Mr MacLeod: Also, slightly more
clarity, on the whole; rights.
Chairman: We may well come on to that.
Q179 Mr Hall: You have alluded to
part of my question already, which is the decision that Ofcom
have got to take about freeing up the spectrum. When that competition
takes place, Hamish, you have already said you want a fair competition,
therefore you are not asking for exclusive rights to any of the
freed-up spectrum?
Mr Lord: There are three things
that are going to happen on spectrum. The first is refarm, which
is the reuse of the 2G spectrum and allowing it for 3G use, and
certainly, briefly, our position has always been probably that
should happen but it has to happen in a way that treats all five
mobile operators fairly. That is probably the first one. There
is then a proposed auction of the expansion bands, which was capacity
which previously was indicated by the Government would be available
for 3G expansion, and we believe the Government should stick to
that commitment. Third, the digital dividend, it is not clear
that those lower frequencies which currently are used for analogue
broadcast would be appropriate for cellular use; probably they
are best used for broadcast services. If at that time there is
a demand for it, people will bid for it. I suspect that people
may have overestimated the demand for that spectrum. There is
a lot of talk about a huge amount of money being released on that
auction, but I just do not know if that is true.
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