Examination of Witnesses (Questions 40-59)
LORD CARTER
OF BARNES
CBE
10 MARCH 2009
Q40 Chairman: Exactly.
Lord Carter of Barnes: "And
if you go to Korea it is 50Mb." My response to that is, "That
slightly misses the point. That is not what we are talking about.
That is the next generation approach."
Q41 Chairman: This is a base level.
Lord Carter of Barnes: This is
a base level, and on a base level there is no country in the world
today that is offering to do that. However high our ambitions
are—which is why I think the minimum wage is a good analogy—I
think we should take a view of what we think is the base level
of service and we should find a way of funding the delivery of
that. But they are quite different questions.
Q42 Chairman: Ofcom made the announcement
last week on next generation broadband, giving BT the freedom
to set prices. Has that changed the balance of the Government's
position from what you have described as from leading to watching?
Where is the balance in that relationship now?
Lord Carter of Barnes: The Ofcom
announcement last week—and I think both Ofcom and BT if
they were here would say the same thing—gives clarity and
certainty to BT, and indeed other players in the market, as to
how BT can seek to get a return on the investments that they have
said that they will make, but the investments that they have said
they will make are only to 40% of the country. It is the same
question asked in different ways. If you are only talking about
the half of the country that is economically attractive, will
the market get there? Sure it will. It will probably get there
and offer competition. But what about the other half?
Q43 Mr Hoyle: Absolutely.
Lord Carter of Barnes: You take
one of three views on that. You either say, "We'll wait and
see, new technologies will come along, prices will go down, things
will get cheaper, with new services/applications, the revenue
picture will get clearer." All of those things are true,
by the way. You could take a watching position and say, "We
don't want to artificially intervene" because you might have
the effect of stilting the market." But we do have a live
experience in the cable industry of what happens, and what that
tells you is that it only takes you so far.
Q44 Chairman: Perhaps you could summarise
this for us by saying what you think are the incentives on industry
to fund next generation access networks. What factors will decide
whether you think the public sector has to step in in some way
to improve that deployment? Could you summarise at this stage
or is that too big a question?
Lord Carter of Barnes: That is
a very big question. I think in the first instance it is incumbent
upon us in the project to see whether the arguments make the case.
It sort of goes back to your opening question: What are the economic
benefits? What are the social benefits? What are the benefits
in the efficiency of the delivery of public services? What are
the benefits in new applications or new benefits to users, whether
they be individuals or small to medium-sized or large businesses?
If you can make that case, the new American administration has
said very publicly that they believe—and I think I am quoting—that
there is $15 for every dollar invested, so a dollar invested in
smart technology produces a $15 externality benefit to the American
economy, either in jobs, innovation or productivity. We are doing
that work as we speak to see whether or not we can make that case.
Until you can make that case, you cannot justify any form of public
incentive whatever that may be.
Chairman: That is the whole concept.
We will look now at mobile wireless networks.
Q45 Mr Binley: We had 1G in 1985,
2G in 1991, 3G in 2000, and I just wonder how many more Gs you
think we need to pull over the next 25 years? What is your thinking
in that respect? Would you give us an idea of the time frame.
Lord Carter of Barnes: I remember
going to Japan in 2004 or 2005 and seeing the first ever demonstration
of 4G technology by DoCoMo, the Japanese provider. Where are we
now? 2009. At this year's mobile congress in Barcelona, 4G was
the talk of the town. I am sure if you and I were to be sitting
in x number of years time, we will be talking about 5G.
All the G is, is the next generation.
Q46 Mr Binley: I understand that.
Lord Carter of Barnes: It is speed
and capability. I think the difference between 4G and 3G or 2G
is that it will move mobile from being a voice and data service
to being a voice, data and video service. Once you go to voice
data and video, the fifth or sixth generation might make it better
video, more video, multiple applications simultaneously, but,
in a sense, the key achievement is to get to voice data and video,
because that technology then sits alongside fixed technology as
offering comparable services. Third and fourth generation mobile
is a big change from first and second.
Q47 Mr Binley: And your Department
is clearly thinking beyond that. When are you looking at 5G?
Lord Carter of Barnes: I think
it would be fair to say that we are pretty singularly focused
on removing any obstacles that there may be to the furthering
of successful deployment of 3G and looking at when and how fourth
generation services can be covered.
Q48 Mr Binley: Which you hope will
be 2011/2012.
Lord Carter of Barnes: As you
will know, if you are a mobile operator, over and above how good
the handsets are and the applications, the key thing you need
in the first instance is spectrum, because spectrum is the physical
raw material off which the services work. The next big release
of spectrum in the UK will not be until after digital switchover
is completed, and that will not be until 2013. The spectrum for
that may get auctioned by the regulator slightly earlier because
you know it is coming. I might be able to say to you, "Here's
an auction, you can bid and buy but I cannot give you occupancy
of the house until 2014." I think we will see auctioning
of the spectrum but I think it is unlikely at a national scale
that that spectrum will be available for fourth generation services
before 2013/2014.
Q49 Mr Binley: Thank you. That helps
me to have a time frame. Returning to your interim report, you
state that there has been ".... a temporary road block that
is not allowing the release of the spectrum needed to keep us
on track towards this important broadband mobile future."
Can you tell me what the road block you refer to is all about?
It is a legal challenge? Do you see it as being overcome relatively
easily? Can you give us the background?
Lord Carter of Barnes: I certainly
do not see it being overcome relatively easily.
Q50 Mr Binley: That is what I feared.
Lord Carter of Barnes: That I
can definitely tell you. This is a very complex subject, but to
summarise it, when mobile services were first licensed there were
two licences. As colleagues around the table may recall, those
two companies were given spectrum in return for a commitment to
build our coverage. It slightly goes back to Mr Hoyle's question
about cable. When the next set of licences were awarded for 3G,
they were auctioned—famously auctioned or successfully auctioned,
depending on your viewpoint.
Mr Hoyle: Very successfully—bankrupted
the industry, though.
Q51 Chairman: Discuss.
Lord Carter of Barnes: Yes, exactly,
an exam question: Discuss. Because of a function of history, there
is a different allocation of spectrums. We now have five physical
mobile operators—and there are virtual operators, but let
us put those to one side for the moment—and they have different
spectrum allocations because of when they came into the market
and the way in which they came into the market. That means that
they approach the prospect of the release of next generation spectrum
with quite different views of the world and that creates quite
a tense regulatory and legal situation. We are trying to find
a way of unblocking that. I think that is the best description.
Q52 Mr Binley: Can I summarise that
by saying that the last three to come into the league are concerned
about still a predominance of a favourable position by the first
two. Is that the situation?
Lord Carter of Barnes: I would
love to say it is as that. It is not quite as that.
Q53 Mr Binley: I am round about right,
am I?
Lord Carter of Barnes: I genuinely
would love to agree with you. It is sadly not as quite straightforward
as that. It is more that the spread of spectrum amongst all five
creates, in the views of some, a very different starting point,
and then all of them have different views about the timetable
for the release of new spectrum and what certainty they need on
their existing spectrum holdings before they can make a decision
on how to bid for or buy new spectrum.
Q54 Mr Binley: This has the potential
to be a legal matter.
Lord Carter of Barnes: It is already
a legal matter, has been a legal matter for the best part of four
or five years.
Q55 Mr Binley: And it has the potential
to blow up sizeably and impact upon where you want to go.
Lord Carter of Barnes: I am rather
hoping it has the potential to do the opposite of that as well.
Q56 Chairman: Of course mobile termination
rates are important here as well, in terms of the smaller operators
and their ability to access, and their share of the voice markets
in particular. Is that what you are considering or is that outside
the terms of your—
Lord Carter of Barnes: Mobile
termination rates are, I am glad to say, entirely a matter for
the regulator.
Q57 Mr Binley: From what you are
telling me, you think this blow up will clear the air, clear the
future, allow you to see forward in a much more meaningful manner.
Lord Carter of Barnes: We have
said to mobile operators in the interim report that we believe
it would be in everybody's interests—from the Government's
point of view but, first, in the consumers' interest and in the
industry's interests—if we could find a way of resolving
the spectrum imbalance, to give certainty and either to modify
or to remove the historical differences. I genuinely cannot say
to you that we are clear that that is doable but we are certainly
doing our level best to try to make that work. I think the mobile
industry is engaging with us quite actively on how to do that.
Q58 Mr Binley: That has been very
helpful. I am grateful. If further radio spectrum is released,
would it be bid for in an auction like that in 2000 or would it
be granted by merit as in 1991 with certain conditions such as
an obligation to provide further 3G network coverage? Where do
you see that contract area going?
Lord Carter of Barnes: It would
be auctioned.
Q59 Mr Binley: Finally, can I come
to this business of service obligation in rural areas for 3G.
We have already heard from Astra that satellite can play a relatively
cost-effective role in doing away with the under-provision in
rural areas. They seem to say that this is not a difficult area.
Do you agree with them? Do you see that as being an important
part of the package?
Lord Carter of Barnes: I do agree
that satellite can be a very cost-effective and attractive service
for so-called hard-to-reach areas.
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