Broadband - Business, Innovation and Skills Committee Contents

Examination of Witnesses (Question Numbers 1-19)



  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 off-patch.

  Q3  Chairman: We are not really looking at illegal file sharing, which is a huge issue. It does have a read-across obviously.

  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 that?

  Mr Paul: My concern would be about ending up with a uniform roll-out into the Final Third in some form.

  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 Third.

  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 detail—I am sure we will—around 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 carefully—there are many questions as to how and when—the 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 with that?

  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 near—not 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 Cornwall—Saltash and Hatt—we are doing those in co-operation with Virgin Media and the intention is to provide a cable TV-like experience over fibre to the cabinet—VDSL. 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 not continue?

  Mr Paul: Come and see me.

  Q15  Mr Hoyle: Very good! What time are you available?

  Mr Paul: After this when you have finished.

  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 extend that.

  Mr Hoyle: The colonies of Lancashire?

  Q17  Chairman: Let us do Lancashire privately afterwards, but it is an important point. Stick to the principle.

  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 my opinion.

  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.

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