Examination of Witnesses (Questions 60-79)
OFCOM
17 APRIL 2007
Q60 Peter Luff: It is a key question?
Mr Richards: Just to go back on
the issue of are we not concentrating on business users, and so
on and so forth, there was a perception or semantic issue which
concerned some people between when we put out our draft plan and
the final plan, and just to nail that (it is an interesting one),
it was because some of the business user community felt that we
only used the term "consumer" and felt that they were
businesses, business users. In fact, whenever David and I talk
about consumers, we mean both residential consumers and business
consumers and the two things are all within that word "consumer"
for us. We understood their perception and concern there, and
we split it out more and we are more conscious of that.
Q61 Peter Luff: Often the political
pressure is on the consumers as individuals. What has happened
is that we have moved away to the more general business section
now and half the audience has left the room, they are not interested,
but actually business telecommunications is at the heart of business
competitiveness. It is absolutely essential to this country's
prosperity.
Lord Currie of Marylebone: Certainly.
If you look at the time the Ofcom Board spends on telecoms issues,
you would not have that concern. It is absolutely at the heart
of our agenda. Of course, the other things also matter, but telecoms,
as you say, is a crucial area and we are spending time, effort
and resources on it.
Mr Richards: You are absolutely
right. It is four or five times larger in terms of economic value
than the broadcasting sector. It is a much more significant sector
and has much greater wide-based importance to economic efficiency
and productivity in the economy and, on any economic measure,
it is a more important sector. To go back to the Openreach issue
which you asked about, Chairman, as David said, we are in the
process of delivering the Strategic Review. This was never going
to happen overnight, this was always going to be difficult and
challenging. We are asking a massive organisation in BT to change
the way it does things. We are asking them to change the way thousands
and thousands of engineers on the ground do things, all of whom
we have had experience of. We are asking a massive organisation
to go through a significant cultural change. It was never going
to be easy; it was never going to happen over night. Are we making
real progress on this? Yes, I believe we absolutely are. Do we
see the evidence of that? Yes, I believe we do. What is it? Prices
are consistently still going down for business users and residential
consumers, the rate of innovation has gone up, the rate of new
service adoption has gone up and the level of investment, which
is in a sense a key test of this, by a range of different competitive
organisations has surged.
Q62 Peter Luff: What is that figure?
Mr Richards: Surged. It was a
word, not a figure! What is the figure?
Q63 Peter Luff: Yes. "Surge"
covers a multitude of sins!
Mr Richards: We could come back
to you with the figures, but let me give you a very straightforward
example. We not only now have in that area the cable and wirelesses
and the Tiscalis and the Oranges and the traditional telecom companies,
we now have Sky investing very substantial amounts in local loop
unbundling to provide a telecoms service competitively. We also
have Carphone Warehouse, who have surged from nothing to being,
I think, now the third biggest provider of Broadband in the UK
following their acquisition of AOL. So, what you have is a much
more intense competitive environment than we have ever had in
telecommunications in this country. Of course there are teething
problems with Openreach, and of course there are serious issues
which need to be addressed, and, as David said, we spend a lot
of time on those, but that level of investment and the rise in
competitiveness to me is the clearest indicator that we are on
the right track.
Q64 Peter Luff: I should declare
an interest. I had a simply dreadful experience with BT over the
Easter recess which cost me about two and a half working days,
and one of the problems was the engineer came as an Openreach
engineer but he had BT branding on his jacket, he had BT branding
on his case and he had BT on his van outside. Do you think the
separation between BT retail operations and Openreach is really
satisfactory? Are they not using this as a huge commercial advantage
in the market place which also confuses consumers as to exactly
what BT Openreach is?
Lord Currie of Marylebone: It
was always clear that this was not a structural separation. What
BT offered up was operational separation. Yes, I believe they
are delivering that. The branding is common—that is absolutely
right.
Q65 Peter Luff: When my wife asked
the BT engineer for his identity card, because she was having
a row as to whether he could or could not come into the house,
he produced a BT identity card, which really confused her.
Mr Richards: It is still part
of the BT group, it is BT Openreach.
Q66 Peter Luff: Should it be?
Mr Richards: I think the alternative,
as David said, would be full structural separation.
Q67 Peter Luff: Which is what happened
to the gas and electricity industries.
Mr Richards: It is slightly different.
Lord Currie of Marylebone: No,
if you remember, in gas, gas separation happened as a result of
the conscious decision of British Gas, not as a regulatory decision.
We went through the Strategic Review, we considered the option
of structural separation, we considered the alternative of operational
separation with undertakings. The whole industry, pretty much,
was saying to us, "Do not put us through the misery of three
years of going through a structural separation. Let us try this
alternative", and I think it is working.
Q68 Peter Luff: Your latest report
on the progress BT is making with its undertaking has noted the
company has missed some of the deadlines agreed with you. That
obviously concerns me. Are you content that progress is satisfactory
in continuing those undertakings?
Lord Currie of Marylebone: Yes,
I think in broad terms we are, although we are absolutely vigilant
to the possibility that there might be slippage, and we want to
avoid that. There have been breaches. As yet they are not of a
kind that make us deeply concerned, though we remain vigilant,
but if there were slippages further down the road then we would
be increasingly concerned and we would have to address those with
BT through appropriate mechanisms.
Q69 Peter Luff: You will guess I
have quite serious concerns about whether this is actually working
in practice or not. The industry has met me and I am impressed
by their concerns, but what about your own delays? BT Openreach
problems are a problem for the industry, but some of your decisions
on Openreach are taking a long time about opening up the market.
In 2002 Freeserve complained to Oftel, and I do not know whether
that is the result or not. In 2004 Energist complained to Ofcom
about BT's charges and other translation services. It was due
for a ruling in March. That ruling has actually come. It seems
you take a very long time to deal with some of these difficult
and complex but important commercial technical questions.
Mr Richards: Both cases you have
cited are not concerned really with Openreach, they are Competition
Act cases.
Q70 Peter Luff: Exactly.
Mr Richards: Competition Act cases,
as we have discovered, do take a long time. They take a long time,
in particular, when you are in territory which is without mere
precedent, and in the Freeserve case, which we cannot go into
the detail of, we are in territory which is without precedent
and therefore it is a very, very difficult case to work on.
Q71 Peter Luff: Do you need legislative
change to make it easier?
Mr Richards: I do not think we
do need legislative change. I do think we need to do them faster.
I think we would recognise that we have not done these as quickly
as the companies involved would expect, and I think we would put
our hands up to that. It has taken—. It is unacceptable.
It is too long to take that length of time over a competition
inquiry, and we are looking at the moment at what we need to do
to make sure that we can execute these on a swifter timetable.
Lord Currie of Marylebone: More
generally, I think there are some areas where we have moved with
admirable swiftness and other areas where things have taken longer,
for a variety of reasons. We are systematically going to look
at our policy processes to ensure that we can combine pace with
proper process, and that is the challenge. It is easy to get the
right process and the long timescale, it is easier getting pace,
but the wrong process will be a huge mistake. We have got to combine
those two and we want to get better at that.
Peter Luff: I am sure the industry will
be encouraged by those answers. Lindsay Hoyle.
Q72 Mr Hoyle: Can I take you on to
the retail price controls. Obviously they were lifted. We are
nine months on. Have you got any evidence of what impact the removal
has had?
Mr Richards: I think the key evidence
that we have got on the removal of retail price controls is, to
be honest, the extraordinary surprise that we have had at the
low level of concern about the removal. We have a contact centre,
a call centre, and we take thousands of calls in that centre every
single week. As a result of that we are able to spot consumers
or, indeed, viewer concerns very quickly, and what I can report
to you is that the lifting of the retail price controls has—I
am not even sure it has figured at all in the level of concern
that we have had.
Q73 Mr Hoyle: That is not quite what
I am asking, is it? You understand what I am talking about. Let
us just settle that, because that does concern me. You are saying,
"We have phones. If people ring up we will measure it on
that." How do people know it has been removed?
Mr Richards: There was a significant
advertising campaign.
Q74 Mr Hoyle: What, in the Chorley
Guardian?
Mr Richards: I am not sure if
it was in the Chorley Guardian.
Q75 Mr Hoyle: Absolutely. We have
got a real problem, have we not? All I am trying to say is that
the people who read local newspapers do not get the information,
and those are the people you should be targeting because they
are the people who are affected. Who do you advertise with?
Mr Richards: Perhaps I could tell
you why I think we have not had complaints. I think that gets
to the root of it. I do not think it is because people do not
know. I would contest that. I think people have had telephone
bills and telephone services. Over the years it has been very
clear that people care a great deal about them and, if something
goes wrong with your telephone or goes wrong with your bill, people
will jump up and down about it very, very quickly indeed, and
we see that, for example, in Broadband at the moment where we
do get a lot of calls and people are very concerned about it.
It is a well established area of consumer concern. I think that
the principal reason that we have not had a very serious level
of complaints about this is because competition is in place, people
are able to exercise choice. If the price of one provider goes
up, they are able to go to another provider, and there is now
a very wide range of different providers in the market offering
different services and different prices, and I think people are
exercising choice in telephone services now in the way that they
do for bread, or milk, or anything else. They, therefore, are
not ringing us up to complain, they are using their own economic
sovereignty; and I think that is a good thing. That is where we
wanted to get to in this market and I think the evidence suggests
that is broadly where we have got.
Q76 Mr Hoyle: I think you are deluding
yourself, Mr Richards. I will tell you what I will do. Let us
have 10 minutes of your time, we will pick 10 phone numbers out
in my constituency and we will ring them up and ask them: do they
know about the retail price control, and I will bet you nine out
of 10 do not even know what you are on about. I am willing to
do that exercise away from this meeting. That is a challenge I
am willing to give you, and it is a challenge I am willing to
take up, so we will see if you take it up, but let us come back
to my original question. The question is: has it had an impact
on prices?
Lord Currie of Marylebone: No.
Q77 Mr Hoyle: Your answer is a straightforward,
"No".
Lord Currie of Marylebone: The
removal of a price cap—what might you expect? It was there
to restrain the monopoly position of BT. The question is: have
we seen a surge of prices as a result of the removal of the price
cap? As Ed has said, no, because there is a competitive constraint
on BT. That is the reason we were able, after 20 years, to take
this price control off. It would have been good if it had been
able to be taken off earlier, but it is a good step, it frees
up the market, gets the regulator out of it, and in that part
of the market that is a very positive step forward.
Q78 Mr Hoyle: Can I give you the
complaints about BT at the moment? It may be people that you do
not worry about, but it is people I worry about. It is the risk
to low-spending consumers who do not have standing orders, who
are penalised by paying through the Post Office where a premium
is attached to their bill. How do you explain that?
Mr Richards: That is a different
issue.
Q79 Mr Hoyle: No, that is how you
have moved the prices. What you are saying is, "Do not worry,
there is a lot of choice", but actually paying your bill
with BT has gone up in a different way. I think it is smoke and
mirrors in putting the prices up?
Mr Richards: With the greatest
of respect, it is a different issue.
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