Examination of Witnesses (Question Numbers
2 NOVEMBER 2009
Q1 Chairman: Gentlemen, welcome to
this first Committee evidence session on our inquiry into broadband
and the Digital Britain report, the future of broadband speeds
and so on. I think you all sent in written evidence, thank you
for that. Thank you for coming today. Could I begin, as I always
do, by asking you to identify yourselves for the record.
Dr Whitley: I am
Tim Whitley. I am BT's Group Strategy Director.
Mr Paul: I am Aidan Paul. I am
Chief Executive of Vtesse Networks.
Mr Heaney: Andrew Heaney, Director
of Strategy and Regulation at TalkTalk Group.
Mr Williams: David Williams, Founder
and Chief Executive of Avanti Communications.
Q2 Chairman: Thank you very much
indeed. You are broadly the provider community in this. This first
question is impossibly broad and I am setting it specifically
in the context of broadband technology, not the wider issues that
this report raises. What is your overall view of the Digital Britain
report? What do you think from the perspective of today's evidence
session are its most important conclusions? Do not forget, sins
of omission are also very important to this Committee. What does
it not do that perhaps it should have done?
Mr Heaney: I will have a go if
I talk from the perspective of a piped provider and I will park
illegal file sharing for a minute because that is a little bit
Q3 Chairman: We are not really looking
at illegal file sharing, which is a huge issue. It does have a
Mr Heaney: I think in Digital
Britain there were two main things. One was the Universal Service
Commitment to get up to 2Mbps and the other was the 50p tax. We
think the Universal Service Commitment to get up to 2Mbps is a
very good idea; 2Mbps is increasingly an essential service and
it is very clear that the private sector is unlikely to reach
much further, ergo it is a good idea for the Government to intervene.
On the 50p tax, we think it is a very poor idea. We do not know
where the private sector is going yet, therefore there is a risk
that this tax would chill out and delay private sector investment
and roll-out. The other thing is it is likely to be providing
speeds which really are not essential at the moment. In France
the number of people who take these higher speed services is less
than 10%. Last week Virgin said the number of people who take
their 50Mbps product is 0.5%, admittedly with a late start. We
think it is not a role for government intervention but we think
doing it through a regressive tax is
Q4 Chairman: Both of those issues
we want to take in more detail in a separate evidence session.
For you it is the Universal Service and 50p levy that are the
two big issues.
Mr Heaney: Yes.
Chairman: Does anyone want to add to
Mr Paul: My concern would be about
ending up with a uniform roll-out into the Final Third in some
Q5 Chairman: I know what the Final
Third means, but just so that we begin this evidence session all
knowing what we are talking about could you just define the Final
Mr Paul: One of the valuable things
the report did was at least provide a vocabulary and some basic
analysis where we can have a debate. We may disagree on certain
of the conclusions but it does provide a useful basis and vocabulary.
One of the areas that I think it did do well, broadly speaking,
was to divide the country up into three, the first area being
the area in which there is already competition and, therefore,
without any mechanisms or intervention that people would get as
fast a speed as they would wish. The second third was those areas
where in time and in not very long it was likely that the same
condition would apply as in the first third. What it then identified
was the Final Third, which is the area of most interest to us,
and that is those areas that are outside principally the current
cable TV footprint, which is the areas in which there has been
a degree of competition because of the ability of the cable TV
networks to upgrade the speeds that can be provided. That Final
Third tends to be rural areas, but our analysis has indicated
that first of all it is much more broadly spread than one might
think and, secondly, it appears in places that one might have
thought were part of the First Third simply because of the way
in which the BT network has been rolled out. There are gaps between
towns and there might be an infill, those people might be on very
long lines or just by dint of accident end up with very poor broadband
speeds. That is one of the things that the report does provide:
a useful vocabulary for discussing these things further.
Q6 Chairman: I will not begin to
tell you the problems I had with my broadband connection this
summer, and I live in a city.
Dr Whitley: From a BT perspective
I share some of the panellists' views already. The overarching
point with the Digital Britain report is that we welcome and recognise
the importance of our sector in terms of not just the wellbeing
of consumers in the UK but also businesses. It is helpful that
this process is ongoing and there are a lot of helpful ideas set
out in there. I think we broadly agree with TalkTalk that the
USC is a good idea, and we can debate the detailI am sure
we willaround whether 2Mbps is the right level, but it
seems a sensible and reasonable aspiration to set. In terms of
the levy, Aidan is right, it is very hard at this stage to judge
exactly where the commercial deployments will go in terms of the
extent of their deployment or the specifics of the geography,
but what is clear is it is likely in the long-term there will
be some areas that will struggle in terms of commercial deployments
certainly in terms of getting super-fast broadband quickly. Whether
the levy is the right mechanism or not I guess is a separate debate,
but the idea of having public money helping the private sector
in terms of getting super-fast broadband in just some of those
regions we would say is helpful. I am not sure we share TalkTalk's
view as to the speeds enabled by super-fast broadband. We believe
super-fast broadband will be beneficial to customers and customers
will want those speeds.
Q7 Chairman: Am I right in saying
that BT are more enthusiastic about the 50p levy than many other
people in the industry?
Dr Whitley: Whether the levy is
the right mechanism I do not know, but the principle of public
money being applied carefullythere are many questions as
to how and whenthe creating a fund that can be used in
that way at some point in the future is something we generally
think is a good idea.
Q8 Chairman: We will look at the
50p levy in a bit more detail later. I just want to understand
your positioning at the moment. That leaves one of you to answer.
Mr Williams: I think the report
did a good job of scoping the problem. It correctly identified
the order of magnitude of the number of homes that are currently
struggling. I think it did a poor job in getting across the message
that technology neutrality is important in this area, as in fact
in all other areas of government procurement or government sponsored
R&D. Most of us are clear on this subject: there will be a
combination of technologies applied to the solution of this problem.
Consumers have been confused for a while about what broadband
is and what it can do and why they need it. One of the problems
which currently persists is the notion that everybody needs to
have a fibre optic cable running to their front door. That is
not broadband; it is one way of doing broadband. Technology neutrality
needs to be emphasised. I believe that the levy is a good thing
and will stimulate investment. I firmly believe that the market
will solve this problem, the market will deliver 2Mbs broadband
to every home in the UK, there is no doubt about that, the technologies
are here now and it is merely a matter of time. If, as a society,
we want to accelerate that then Government could play a role and
the levy is one way of doing it, so the levy could stimulate the
increase in speed of investment, but left alone the market will
still solve the problem eventually.
Q9 Chairman: We will come back to
that in more detail. That is a helpful opening shot from each
of you about your positions. To what extent is the current broadband
network meeting demand? How do we know what future demand levels
will be? What is going to drive future demand? I hear people saying
the only thing that really drives demand for super high speed
is interactive gaming.
Mr Williams: Video is the answer.
It is all about video. Our customer throughput is doubling every
year. Every 12 months the amount of data downloaded doubles. On
our network we see that is video. More and more websites are having
video embedded in them and the encoding rate of the video that
appears in those websites is ever higher. With services like those
that BT and the BBC are offering, encouraging consumers to download
real TV programmes, that pattern is only going to accelerate.
Dr Whitley: I think it is true
to say that broadband today is pretty good and delivers a good
service for many, many applications. In particular, if we focus
on the 2Mbps, Ofcom's estimate was 85-95% of lines today can deliver
2Mbps. In terms of what that can deliver to an end user, if we
look at some of the services that people love, things like BBC
iPlayer, and even delivery to a decent-sized TV screen, that is
at 600-700Kbps. One of the important elements of this whole debate
is linking it back to actual services that people use. That stat
of 85% does not mean that 15% of lines cannot get 2Mbps and part
of the job of the USC will be about to trying to sort that out.
It is easy to run away with the notion that there are vast swathes
of applications out there right now that need 50 or 100Mbps. There
are indeed specific applications, multiple high-definition TV,
for example, that if you have enough channels could consume that
capacity but they are probably not the things that most people
are doing today. A second point is we need to extend the debate
away just from the access capability, which is the portion that
is covered by Ofcom's stat of 85% at 2Mbs, and recognise that
today when you consume services off the Internet there are many
areas that limit the ultimate throughput, whether it is the server
at the end of the Internet or pier capacity. There is a whole
raft of different things that can cause people frustration today
and all of those need to be worked through.
Q10 Chairman: I was asking the demand
question, not the technical question.
Dr Whitley: From a demand perspective
video is the one that drives a lot of capacity.
Q11 Chairman: Does anyone disagree
Mr Paul: I would like to enlarge
on it. One of the economic reports that was written in 2001 indicates
that something like a third of the economic growth in the OECD
countries in the last 40 years was down to telecommunications
investment. That report also identified that there was a very
critical element to that. It compared countries where the penetration
rate had come up early to 40% penetration, which is per population,
which in the States is notionally 100% per household, and clearly
identified that those countries that had not reached the threshold
did not get the benefits from the infrastructure. The problem
with speed is that once somebody has got it they will not go back
and once the content that is available is richer and you have
got a differentiation between 60% of the population that has 10Mbs
and the remainder that only has 1 or 2, there is a significant
disadvantage for those earlier people. There is an inevitable
diffusion effect that happens with this. Nobody ever wants to
go slower, but at the beginning it is more difficult to make a
case for somebody going faster unless you have got an actual demand
and there is this general diffusion effect. You do not get many
of the economic benefits from the deployment of broadband unless
a significant body of people somewhere nearnot 100%a
Universal Service actually can get it.
Mr Heaney: When you talk about
demand it is important to talk about paid-for demand and willingness
to pay. I think today we have got the right mix of price and demand,
and in the future it will evolve, but I do not think there is
a big willingness to pay a lot more for super-fast services today.
Q12 Chairman: We are not actually
asking the content providers during this evidence session, which
may be a mistake, but I have heard suggestions that in South Korea,
where they have very, very high speeds, 100Mbs moving to 200Mbs,
the film industry has entirely withdrawn from the South Korean
market because they no longer make money, it comes from the illegal
peer-to-peer file sharing. Those speeds are generating no real
economic benefit and possibly an economic disbenefit for the country.
Does that logic have any power?
Mr Paul: The one thing that I
can say is in terms of the trials that we are currently running
in two areas of CornwallSaltash and Hattwe are doing
those in co-operation with Virgin Media and the intention is to
provide a cable TV-like experience over fibre to the cabinetVDSL.
We can all get into the gobbledegook and I will not go into too
much detail. That presents you with certain very specific thresholds
that you have to meet and the two are in absolute speed depending
on what format you use, and that is either 7 or 20Mbs, and then
also in contention rate. The other element of this in terms of
speed, using the analogy of a motorway, is it is no good thickening
up the size of the entries and exits to the motorway if the motorway
is still blocked. In the trials that we are doing in Cornwall
we are providing no contention at all. In order to provide a similar
experience to cable TV in those areas of the country where it
is not you have to provide somewhere between seven and 20Mbs and
pretty much no contention back to the place that you put the video
on-demand service otherwise you cannot do it.
Q13 Chairman: So 7-20 is your target.
That is useful.
Mr Heaney: On economic benefit
I would say your evidence is probably correct, there is very little
economic benefit of super-fast speeds today but I think in future
there will be.
Dr Whitley: That is the challenge
here. There are some interesting data points emerging of players
moving slower again. I think it is TDC in Denmark who have ceased
marketing their VDSL service and are pulling back to 20Mbs. That
is not what BT are doing in the UK. BT have announced an investment
of £1.5 billion that will see us offering a mixture of so-called
fibre to the cabinet and fibre to the premises which will be offering
speeds of up to 40Mbps or 100Mbps in the period to 2012. We plan
to pass ten million homes. Very similar to the configuration that
Aidan just mentioned, that will be looking at providing uncontended
services as well. The challenge here is the uplift of the infrastructure
we are talking about is something that will take a long time and
will cost a lot of money and there is a huge amount of uncertainty
as to what people will do with it, but there is a sense that over
the next five to ten years, if that is the time horizon you think
about, we feel pretty confident that people will find very useful
and compelling things to do with 20, 30, 40Mbps. One extra piece
that is not really often spoken about is the upstream speed, the
ability to upload information into the network. One of the things
that we are pretty excited about in terms of our plans is that
we hope to be moving that to offering 10Mbps upload capability.
The sort of services that will offer we do not know in detail
yet but you can imagine them. It will be the ability to upload
lots of information to networks, it will be for storage and it
will be for two-way communication, perhaps videos. There is a
lot of uncertainty around exactly what will be the services that
the communication providers in the UK develop that will exploit
these infrastructures, but I think those will come.
Q14 Mr Hoyle: It is really interesting
that you said ten million homes by 2012, but is it going to be
the same people who have benefited already or are you going to
try and ensure that somebody else gets a bite of the cherry? It
seems to me that my constituency in Chorley never seems to get
the benefit, yet other constituencies within cities are always
the beneficiaries. How are you going to ensure that divide does
Mr Paul: Come and see me.
Q15 Mr Hoyle: Very good! What time
are you available?
Mr Paul: After this when you have
Q16 Chairman: I will vouch for Mr
Paul's effective lobbying!
Dr Whitley: We have not yet announced
the detailed roll-out of where those ten million will be and that
is not the limit of our aspirations, that is our early phase,
a big commitment, a big investment, £1.5 billion, but if
it goes well we will learn over the next few years and hope to
Mr Hoyle: The colonies of Lancashire?
Q17 Chairman: Let us do Lancashire
privately afterwards, but it is an important point. Stick to the
Dr Whitley: Absolutely our aspiration
is to be able to serve some of those areas where the economics
are a bit more challenging. For example, if we look at the places
we are trialling at the moment, we are trialling a place called
Taff's Well, which is in South Wales, and in the Calder Valley,
which is all about understanding not just what the economics and
operational challenges are of deploying in urban and suburban
areas but also more remote rural areas. As I say, we have not
announced the full ten million yet, but if I was a betting man
I would say 10-15% of those are going to be
Q18 Chairman: We are in danger of
getting ahead to another section of evidence. We are doing the
digital divide later. Two very quick last questions before I hand
on and as this opening section has taken rather a long time I
will conflate them to one. Can you paint a picture for me of to
what extent Britain will be transformed socially or economically
by universal access to much higher broadband speeds? That builds
on what you have been answering already. What direct economic
benefits rather than consumer benefits might flow from full access
to next generation broadband?
Mr Williams: Government will change
a lot. I think your problems with the Royal Mail might go away
when everybody has got high speed broadband Internet access.
Q19 Chairman: Do you mean the problems
will go away because there will be no Royal Mail! We will need
Star Trek-like teleporters to transmit parcels around the country.
Mr Williams: The provision of
government services could be much, much cheaper if government
was able to offer those services to every one of its consumers
online, so there is no reason why I need to be filling out a form
and posting it somewhere to get a licence of some kind, and there
is no reason why benefits claimants need to be wandering off to
an office to fill a form in. If everything can be done online
Government can save a great deal of money. Also, the extension
of equality in participation in education and employment opportunities
does a great deal for society in evening out inequality. Government
is probably the biggest beneficiary of universal broadband in
Mr Heaney: I think it is actually
very difficult to say. We could have had the same conversation
in the year 2000 about what people will be doing with the Internet
today and I think we would have got it mightily wrong. It is very
difficult to say what those will be, but undoubtedly people will
find things to do with the higher speed.
Mr Paul: The whole way in which
education is delivered in one form or another. One of the things
just recently was somebody was giving some lectures at a gliding
club I belong to, and I could not make it there, but it turns
out I can now log on, hear what is being said and have the material
delivered at the same time. That is very convenient, I have not
had to travel. Maybe it is not quite as good as being there in
person but that is an instant thing which has come up which would
not have been possible even six or 12 months ago. It then starts
to change patterns of behaviour. From my own point of view, the
use of the Internet and the amount of material that is available
now is astonishing. It is that access to material and the ability
to be able to sort through material and process it which starts
to produce the most changes and that affects everybody.
Dr Whitley: I think that is right.
It is about information retrieval, storage, and in particular
that two-way communications element if you imagine a reliable
infrastructure where the information can be enriched with much
more video-based content or real time interaction. I have got
a lot of sympathy with Andrew's point that judging what is going
to happen over the next ten years is really hard.