Examination of Witnesses (Question Numbers
160-179)
RT HON
STEPHEN TIMMS
MP AND MS
RACHEL CLARK
24 NOVEMBER 2009
Q160 Chairman: We are not clear and
you have not made it clear this morning.
Mr Timms: With respect, I think
I have made it fairly clear. Certainly from the customer's point
of view, what this service will provide is access to the kind
of—
Chairman: You sound a little bit like
a dodgy Internet Service Provider yourself over claiming for speeds!
You have promised us a note and we will have to have it, but we
are not currently very impressed.
Q161 Mr Binley: I think if you were
selling to me I would be very worried, Stephen! Let us go on to
the Network Design Procurement Group because they have a lot of
work to do and they have a lot of work to do very, very quickly.
For instance, we talk about under-served communities. How will
they determine the location of under-served communities? What
do they actually mean by that?
Mr Timms: The first priority for
them will be those communities that do not have access to the
service we have just been talking about, and I think the current
estimate is something like 10% or 11% of UK households fall into
that category. So that will be the first priority, to identify
where those are, and then to devise means by which the funding
that we are providing will enable those communities, those households,
to be provided with that service.
Q162 Mr Binley: I do not wish to
hark on this but you cannot define an under-served community until
you define the target at which you are looking, quite frankly;
so the two are connected and it is important. I recognise that
you are coming back to us and I am perfectly happy that should
be the case.
Mr Timms: I do think there is
more clarity about this than the Committee is suggesting. 10%
or 11% of households at the moment do not have this service and
that is a fairly well defined group.
Q163 Mr Binley: Do not have any service
at all?
Mr Timms: Do not have the service
that we are talking about, the 2Mbps.
Q164 Mr Binley: We will look forward
to your response to us, which is important. I am a businessman,
or was, and I am still very proud to say so, and I would be horrified
if my people were working when they procured services on the basis
of a reverse auction process. I would be horrified if the major
criterion was the lowest price. Can you reassure us that I am
being over-pedantic in looking at words and that the whole thing
will be a much wider assessment and it will not necessarily be
the lowest price in a reverse auction process?
Mr Timms: I will ask Rachel to
comment on this. Clearly this will be a very important issue for
the group to address once it is in place and I do think it is
going to be important for them to secure good value for money
for the funding that is provided. Precisely what mechanism they
will use for that, I agree there is space for debate, and quite
an important debate, but I think that value for money is certainly
an important consideration.
Ms Clark: What we have said is
that a reverse auction is one option that ought to be considered.
As the Minister says, it is clearly important that we get best
value for money, but we will need to set very clear quality of
service parameters and the technical specification that we talked
about earlier will be a part of that. The procurement process
will need to explain absolutely clearly fundamentally what it
is we expect bidders to deliver and within that we need to look
at value for money as we make decisions.
Q165 Mr Binley: The government records
of both parties have not been very good in terms of this area
of purchasing, and I talk about some of the government computer
purchases which have been disastrous, quite frankly. How can you
confirm to me, give me confidence that this process will come
out with the best possible provider irrespective of the bit that
it is going to be a reverse auction process, which frightens me
to death?
Mr Timms: We will certainly have
to apply the highest standards of good practice in procurement
of this kind of service and, as you point out, there are some
projects that have not gone very well and, of course, there are
other projects that have gone extremely well.
Q166 Mr Binley: Thank God!
Mr Timms: And there is a growing
body of well-understood good practice for procurement in this
area and we will need to make sure that those best practices are
rigorously applied in this case.
Q167 Mr Binley: You might keep us
in touch with that because it is a pretty important part of the
process. Is £200 million enough to deliver the Universal
Service Commitment?
Mr Timms: I think we will need
to supplement that with other forms of support and we may well
be able to secure industry support; there may be funding available
from Regional Development Agencies and perhaps from local authorities
of the kind that has already been deployed on some of the existing
next generation projects that have already secured funding. I
think the £200 million will give us the central resource
that we need to deliver the commitment.
Q168 Mr Binley: Again, I do not understand
how you can arrive at that decision when you have not confirmed
the other parameters that we talked about earlier, so I think
that there is some concern and doubt here and there is a fear
that this budget will run away with government, as many budgets
do. So there is a need to reassure the general public that will
not happen. Let me leave it with you because I recognise that
we are talking early stages, but you will note that, I am sure.
Can I ask why the Government is separating the Universal Service
Commitment and the next generation access into two separate projects?
Mr Timms: That is a really good
question. In our mind and the thinking behind the Digital
Britain White Paper was that there is a need quite urgently
to make sure that there is access to a broadband service for everybody.
We are not there yet—we are quite close to it but we are
not there yet—so we want to move quickly to fill in the
current gaps in the availability of the service and we can do
that by 2012 with the 2Mbps level. We recognise as well that technology
is moving on apace. There are already almost half of UK households
able to access next generation services through the Virgin Cable
Network at 50Mbps, and they are talking about higher speeds. BT
says that it will be providing next generation broadband services
to ten million homes by 2012, a quarter of them with fibre to
the homes, so things are moving quickly. If we take no action
we will be left in a position where perhaps two-thirds of UK households
would have access to those services and the remaining third would
not. We do not think that is a satisfactory outcome and so we
think it is necessary to intervene to speed up the rollout of
next generation broadband services to those parts of the country
which otherwise would not be reached any time soon. I think there
are two stages to it. There is making sure that everybody has
the safety net of the basic minimum level of service as quickly
as possible and then apply additional resources to speed up the
rollout of next generation services beyond that.
Q169 Lembit Opik: Let us talk
about next generation as it is something you have already touched
on, Minister. I understand that there are various providers like
Virgin developing a 200Mbps service, which is a huge step forward
compared to what we have now, but it begs the question what for?
I am not expecting you to be a fortuneteller. The demand for the
next generation access currently is really only essential for
video. For example, the BBC iPlayer, which is a pretty sophisticated
service, requires less than 1Mbps. I do not want to sound like
a Luddite, but so that we understand where we are heading what
evidence is there that we will need these kinds of colossal steps
forward in speeds?
Mr Timms: I think that is a very
good question and I am grateful to you for not expecting me to
be a fortune-teller. There clearly is a fair amount of uncertainty
about all this. I recall, as I am sure you do, that when first
generation broadband was being introduced people then were saying,
"What on earth are people going to use this for?" and
it turns out that there are lots of things that have been very
heavily used. I think wherever you look the trend is towards increasing
demands on bandwidth and one could take the view that this trend
is suddenly going to stop, but my view is that that is unlikely
and the likelihood is that trend of growing demand is likely to
grow. Another point is that we are seeing, as you say, Virgin
investing quite substantial sums to enable its customers to have
50Mbps at the moment and, as you say, higher speeds in the future,
and BT is committing something like £1.5 billion to the commitment
that it made, so clearly some quite hard-headed commercial assessments
have concluded that there is demand in the near future for these
services. I think the question is are we going to be satisfied
with just two-thirds of the country getting that and the remaining
third not doing so, or not? My view is that we do need to take
steps to make sure that we achieve the 90% goal that I have described.
One can certainly talk about increasing needs in education, in
health, in public service, applications of tele-working, video
conferencing from home and all of these things that are emerging
which may well generate the demand that we are talking about,
but I think we can be pretty confident that in one form or another
that demand is going to emerge.
Q170 Lembit Opik: Forgive me
for a brief digression, but Calvin Mckenzie said to me when he
brought his astrologer in to be fired he said, "I am afraid
I am going to have to let you go, but you probably knew that already"!
Chairman: Name-dropping and a very bad
joke!
Q171 Lembit Opik: I apologise
for one of those. There is no accounting for senses of humour,
Chairman. Moving swiftly on, though, you have mentioned access
a few times now and every time you say that I think of my own
constituency as generally the other third. We have a very high
proportion of inaccessibility—we are under-served quite
substantially—and while not being parochial I recognise
that in a geographical context it will be much more than 10% or
11% of the country which is under-served in the way that you say.
This really risks creating a two-tier system. The first question
is how did you come to the conclusion that the two-thirds target
was the right one? Who did you consult, for example?
Mr Timms: Two-thirds is not the
target, two-thirds is our view of what would happen without public
intervention and we want to do better than that, hence the proposal
for the levy. There was some quite substantial analysis underpinning
that conclusion and I will ask Rachel to describe what was done.
Ms Clark: Some extensive work
was done by the Broadband Stakeholders' Group, an analysis made
last year—maybe a little further back than that—on
the costs of rolling out broadband, and because it is the Broadband
Stakeholders' Group it brings together pretty much the whole of
the industry, so it has a strong industry consensus behind it,
which shows that the costs of rolling out NGA, going out to just
over 60% of the population tends to be around £137 per home
passed, which is a figure that looks absorbable within the investment
case. Then it starts to climb quite steeply and for the next 30%
it climbs at around a one in two rate until it hits £337
per home passed and then at 90% it veers off straight. That is
a graph which we can certainly make available to the Committee
if you want to see it, it is in the public domain. This gives
us a clear sense of what the investment case is going to look
like and you can use those figures and various analysts have used
those figures to then compare with population densities and forecast
take-up rates and you can see what the likely deployment is and,
in fact, the announcements that companies have made so far about
rollout tends to bear that out at the moment.
Q172 Lembit Opik: So there
is a rationale based on costings as well and what you are implying
is an exponential increase except in the last group.
Ms Clark: Yes.
Q173 Lembit Opik: That really
ties in to the final question that I want to ask you in two parts.
First of all, having established those criteria how have you as
a Government indicated to the procurement groups which communities
are to be prioritised? Is it purely a financial consideration,
for example?
Mr Timms: We have not indicated
that yet. That will, as I was saying earlier, be an early task
for the procurement group that is being set up. We have simply
said that we think the priority should be those who do not have
an adequate service at the moment. How beyond that the priorities
are set will be a matter for them to determine and a very important
judgment for them to make.
Q174 Lembit Opik: I will tell
you a case study. As it happens there is a very small community
of about two dozen houses in Staylittle in my constituency and
they do not have any access at all. I have been working with other
technologies to see if we can get something going and so forth.
What would be the process to determine whether, for example, this
community of two dozen houses, some of whom want to run broadband-based
businesses, would be a priority or not? Is it fair to admit that
if it is not the case you have not yet established the kind of
criteria to determine that?
Mr Timms: We have not yet worked
out the detailed criteria. One important point is that we would
envisage that quite a number of those small communities, households,
that do not have any kind of broadband service at the moment,
could get the Universal Service Commitment delivered by a next
generation solution and go straight from nothing to a very high
speed service. As I said in my opening remarks, we think that
maybe a million homes could benefit from that. So the fact that
a particular community does not have a service at the moment does
not mean that it is going to be in the 10% that will not have
a next generation service after 2017. I imagine that quite a number
of communities will be able to leapfrog from nothing at all to
a next generation service.
Q175 Lembit Opik: Which would
make mid-Wales the Silicon Valley of Britain—I like the
idea. Chairman, just one final question about technology. We have
already established that it is very hard to crystal ball gaze
about what the applications would be and what we need in the future.
Is there any risk that in pursuing, for example, land-based solutions
at the moment we are ignoring the possibility of having, for example,
the satellite-based solution with the big breakthroughs in satellite
technology and so forth and so we are investing in the wrong thing.
I accept that we have to invest in something, but just what consideration
has been given to be flexible to other solutions which could be
wireless, for example?
Mr Timms: I agree. I think that
satellite and mobile could well be part of the solution and that
will be a product of the tendering process where people will be
invited to come forward with solutions for particular areas and
particular circumstances and it may well be that non-fixed solutions
will be offered and will prove to be the most cost-effective available.
We are certainly not excluding those at all.
Q176 Lembit Opik: What is the
process of looking at alternative technologies?
Mr Timms: What the Procurement
Group will need to do is to divide up the target group that we
are talking about and it will be for them to judge how large the
groups that they want to tender will be, how large the areas they
want to tender will be, and then when they have decided the packages
that they want to attain, they will need to go to the market and
providers will bid to provide a solution for whichever packages
that are of interest to them. So at that stage I would anticipate
that we will have a variety of technologies being proposed and
it will be for the Procurement Group to decide which ones to select.
Q177 Lembit Opik: Will you
in that process be considering ensuring a level playing field
for costs? Taking Staylittle as an example, if you found a solution
that involved satellite but is much more expensive than, for example,
a new town, will there be any redistribution of cost between the
cheaper and more expensive versions? Will you be subsidising,
for example, the expensive solutions, or is that not something
that you have considered?
Mr Timms: We have committed £200
million to this so clearly that will be used to purchase some
of the solutions. Precisely what terms the service would then
be offered on I do not believe we can say at this stage, but there
will be a significant amount of public funding to reduce what
otherwise would be the costs.
Q178 Mr Oaten: On that point. It
would be a shame though, would it not, if the potential of satellite
was lost because the Procurement Committee were very narrow minded
and were treated this in pure, narrow financial procurement means?
Mr Timms: I certainly see significant
potential for satellite solutions to help us in this and the technology
is moving on and we will get better satellite solutions in the
future than perhaps have been available in the past, so I would
hope that we can take advantage of that.
Q179 Mr Oaten: Just a few basic questions,
if I may. Imagining that I was a constituent and I did not have
broadband at all, when will constituents of mine who do not have
broadband get broadband?
Mr Timms: By 2012.
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