Examination of Witnesses (Questions 1-19)
LORD CARTER
OF BARNES
CBE
10 MARCH 2009
Q1 Chairman: Lord Carter, welcome to
this one-off evidence session on your very important project Digital
Britain. This is your first appearance before us as a Committee,
so doubly welcome. Perhaps I could begin by asking you a general
question. In the introduction to Digital Britain you say,
"The UK's digital economy accounts for around 8% of GDP."
I am interested in how much digital is an industry in itself and
how much a facilitator of other industries. What is in that figure
of 8% of GDP?
Lord Carter of Barnes: Thank you
for the invitation to appear before the Committee. I agree with
you that it is difficult when measuring the digital economy to
know quite where to draw the line. Within that definition are
what you might describe as the immediate and direct players in
the sector, so the traditional network operators, the service
providers, the creative industries, and information communication
technologies more broadly. Not captured in that number are the
enabling benefits, the contributory and externality benefits of
a dynamic digital economy to the rest of the economy. Part of
the thesis of the report, which I think is contained in another
section, is that, notwithstanding the absolute size of the sector,
which is large by any measure, its enabling and underpinning role,
in truth, stretches to pretty much every aspect of public and
private endeavour.
Q2 Chairman: I suppose I am trying
to capture in my own mind whether that 8% is a measure of the
people directly involved in digital technology and how much it
goes beyond that. For example, I think the sound systems in theatres
are now moving to digital technology. Are those in the creative
industries outside the definition of Digital Britain or are they
inside it?
Lord Carter of Barnes: That would
be inside.
Q3 Chairman: It is a fairly broad
but realistic definition.
Lord Carter of Barnes: It is.
Q4 Chairman: The other interesting
thing which struck me in your introduction is on page 4, where
you say, "The European Commission's global league table of
digital adoption skills and use shows that the UK, having been
in the top seven earlier in the decade, has slipped to twelfth
place." We are the sixth largest economy in the world, the
eighth largest manufacturing economy in the world. Twelfth place
is quite bad news, is it not?
Lord Carter of Barnes: The issue
is one of speed of the development of the sector. As you will
know from your own experience, Chairman, having followed this
sector for some time, we have ebbed and flowed in our position
in international league tables, either on skills or on adoption
or on participation, and partly because of the pace of change
we do find ourselves in some instances lower than we would wish
to be and we are, as you rightly say, firing a warning shot that
that is something to which we should pay attention.
Q5 Chairman: As I understand it,
one of your own personal concerns is digital literacy in the UK,
which you think is too low. Sometimes we assume that we are at
the forefront of telecom's liberalisation and digital take-up
and of course that statistic shows that is not necessarily the
case.
Lord Carter of Barnes: Yes, I
do think digital literacy is a key issue. I do not mean by that
that every child or student should have the ability to write code
or design a network, but competence and comfort with the design
and application of systems and professional services and other
commercial activities in a fully digital world. If you believe,
as I do, that it is going to be the mainstay of the economy, then
it is a major source of competitive advantage. We have, as a result
of the report, asked both the e-skills Skills Council and the
skills sector Skills Council, the two Skills Councils that directly
impact on the sector, to give us their views of what they think
the gaps are in current competency and their views of recommendations
for training.
Chairman: We will now move to some process
issues.
Q6 Mr Oaten: I have to confess I
find this whole area fairly confusing and it is not helped by
the fact that I seem to be bombarded with all sorts of different
reviews and various inquiries taking place. It would be helpful
for the record to understand exactly where your work with Digital
Britain sits with the work which Ofcom have been doing and the
announcement they made a few days ago in terms of what they thought
should happen with regulation on next generation. How do the two
fit together?
Lord Carter of Barnes: Perhaps
I can answer more generally and then come back to the specific
question. Ofcom, as you know, is the independent regulator for
the sector. They published a document last week which was dealing
with an important and specific question largely around the pricing
of wholesale access services for the prospective next generation
telecommunications network. That is a very important issue and
a particular issue for BT and for those people who might then
be trying to access those services. I think both Ofcom and BT
would say that that publication only deals with a very particular
aspect of the issue, not least because BT themselves have only
talked about the prospect of building out next generation networks
to about 40% of the country. In this report we are trying (a)
to take a government view rather than an independent regulatory
review—and those are different things, (b) to look at it
in the round, and (c) to look at some of the universality and
larger scale challenges for provision rather than how would you
regulate the specific activities of a commercial player.
Q7 Mr Oaten: Is it unhelpful that
Ofcom have come out with that at this particular point?
Lord Carter of Barnes: No.
Q8 Mr Oaten: It fits comfortably
with it.
Lord Carter of Barnes: It is extremely
helpful. One of the things we were seeking in the interim report
was not to give the regulator the Government's blessing, because
they do not need it, but nevertheless to make it clear that the
Government would be supportive of the larger players being allowed
to earn a reasonable rate of return for next generation investment.
Q9 Mr Oaten: Help me with the next
review, the Caio Review.
Lord Carter of Barnes: That has
happened before.
Q10 Mr Oaten: Do you feel that the
work you are doing is necessary in the light of that? How does
it build on that?
Lord Carter of Barnes: Let me
rewind a bit. This is my sense of the history, which may be different
from others, and I accept that the Chairman has, in the nicest
possible way, a longer history on this. Parliament last engaged
with this sector in material terms in 2002 when the Communications
Act was going through both Houses of Parliament. The Communications
Act, in the main, did three things: (i) it created the converged
regulator, a converged regulator for an increasingly converged
market, (ii) it put into UK law the European Directive on Telecommunications,
which was a new piece of European legislation, (iii) it had a
whole series of individual issues in relation to broadcasting.
I think it would be fair to say, as a statement of the obvious,
that we did not know in 2002 what we now know in 2009, and we
probably did not even know quite how fast this sector would develop.
Ofcom has regulated the sector over the period and it has now
become clear to this Government—and I think this is a view
pretty universally held, that the changes over the last six years
have been of an order of magnitude greater than was anticipated.
The purpose of this review is therefore to say, "Let us take
stock of what has happened over that period," because six
years in this sector is probably the equivalent in development,
capability and change of 20 years in the automotive sector or
20 years in the energy sector because of the speed and pace of
change in capability. Let us take an overall view and come to
a set of decisions and judgments, which we will do in June or
July, as to whether either there is a need for new legislative
intervention or whether there is a need for change that can be
dealt with through non legislative means. The Caio Review commenced
over a year ago and was a specific piece of work commissioned
by one of my departments, the Department for Business, to look
at the specific question around mixed generation access networks
and whether there was a case either for a change in the regulatory
structure or for public intervention. That is completed. One of
the things Caio said was, "Not now, but this is changing
so rapidly, Government, you had better keep a very beady eye on
this, because if you do not you might find yourself left behind
by what is happening around the world." It was one of the
things that prompted the Government to commission this particular
piece of work.
Q11 Mr Oaten: In effect, are you
almost reviewing their findings again within a year?
Lord Carter of Barnes: No, we
are doing what they asked us to do.
Q12 Mr Oaten: If this is moving so
fast, just out of interest how long do you think your recommendations
that you bring out this summer will last for?
Lord Carter of Barnes: I think
that is a very good question and it is one of the things we are
wrestling with at the moment, which is why I say the final report
will look at what are the legislative and non legislative recommendations
or changes that might be made because, as you will know far better
than I, when you say all the answers demand hard-wired legislation,
then over time that is not as flexible as if you can do it through
other means.
Q13 Mr Oaten: On top of everything
we are doing, of course, EU regulations are moving quite fast
and they are speeding up some of the regulations. Are you confident
that the review that you are doing and the recommendations that
you are going to come out with will be compatible with where it
looks as if Europe is going to be having regulation, or are we
going to find ourselves in a situation where we have a mismatch
or a need to review again to keep up with what the EU is suggesting?
Lord Carter of Barnes: I am very
confident on that, not least because I have spent much of the
last month shuttling around Europe trying to see that the new
framework comes out in what we would judge to be a good place.
Today there was a trialogue meeting going on in either Brussels
or in Prague under the Czech Presidency. I do not think I would
be being either immodest or inaccurate if I said that both the
Commission and the Czech and previously French Presidencies would
say that the UK had been a very constructive driving force in
the development to a current European framework.
Q14 Mr Oaten: Are we ahead of the
European pack? If you had a league table of where we fall in terms
of progress on this, would we be in the top three?
Lord Carter of Barnes: That is,
if I may say so, a very challenging question to answer. On the
liberalisation agenda, without a shadow of a doubt we would be
seen to be being at the head of the pack. But, interestingly,
in different countries around Europe you are seeing a very different
set of approaches to the investment in mixed generation networks
agenda. You are also seeing a very different set of approaches
to the digital literacy and legal framework for content, so it
depends which of those specific areas you are addressing. It is
quite difficult to answer that with a single answer.
Q15 Chairman: Before I bring in Julie
Kirkbride, can I ask you one question about timetable. It is 10
March today and the consultation process closes on Thursday. Are
you still on the timetable you set out here, with a final report
in the early summer?
Lord Carter of Barnes: I hope
so, Chairman.
Q16 Chairman: Early summer is a very
flexible definition. We take that to mean before the summer recess.
Lord Carter of Barnes: Our ambition
is before the summer recess. Events could always get in the way,
but our ambition from the very beginning, when we commissioned
this last summer, was to do it in a year, partly for the reasons
that Mark raised, to do it contemporaneously with the conclusion
of the European Framework Review, and also to give us some time
to implement where we needed to over the following year.
Q17 Chairman: You talk about the
need to be fleet of foot and having to move quickly to respond
to industry developments. Equally there are big public policy
issues involved. It is a very difficult issue between giving Parliament
and ministers responsibility for the big public policy issues
and delegating them to a relatively unaccountable economic regulator
in the sense of Ofcom—a very good regulator, by the way,
but it is not ultimately unaccountable. That is a very difficult
balancing act to strike in your report, I think.
Lord Carter of Barnes: It very
much is. I would not say that Ofcom is unaccountable, in the sense
that it is accountable—
Q18 Chairman: Not as accountable
to parliamentarians and ministers.
Lord Carter of Barnes: Not in
the same way. That is why in answer to the previous question I
had to go slightly backwards to go forwards. It certainly was
not clear to me—maybe it was clear to other members here
or other Members of Parliament, but I do not think it was that
clear—in 2002 quite how significant this sector was going
to become, both in its industrial scale, to your opening question,
in its reach in our lives, in the level of complexity, and in
its importance in our competitiveness versus the rest of Europe
and beyond. To that end, I think we are at a point whereby, however
strong and capable and competent the regulator is, there is a
need for government and Parliament to have a strategic view of
what we should do in this sector.
Chairman: We will move on to one of the
most important questions.
Q19 Miss Kirkbride: How does the
Government expect the new generation broadband universal service
agreement to be reached by 2012?
Lord Carter of Barnes: We have
the finest minds in government working on that question, so hopefully
we will be there by 2012. They are two slightly different questions.
The universal service and the next generation question. Universal
service requires three building blocks. The first building block
is that we need to adapt or change the European law, because at
the moment the European framework specifies the universal service
obligation as being a telephone service or what is called a functioning
internet capability which in the European framework is defined
as up to 56 Kb/s. One of the things we are doing in our shuttling
around Europe in the current European Framework Review is running
the argument that that should be changed to allow for a universal
service obligation in broadband to be legal under European law.
That is the first building block, and I am reasonably confident
we will achieve that in this framework review. The second building
block is that we then need to specify how to get universal service.
That is a technical design question which is a mixture of capability
and cost. If you threw all the money in the world at it, you could
get universal service but probably at a cost that would be both
not sensible and unaffordable. Once you have done that calculation,
the third aspect is how you fund it. We have always been of the
view that that will probably end up being some mixture of public
funding and industry levy. Let us assume that we can get all three
of those building blocks resolved—the European clearance;
a design and analysis which gives you a view of which technologies
you should use (fixed, mobile or satellite) and where that makes
sense to use them, depending upon the costs; and a funding structure—is
it possible that that can be done by 2012? I think very possible.
Next generation networks are a very different question. Next generation
networks are about the building of new physical infrastructure
and that is a much larger scale project than defining and implementing
the universal service obligation.
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