Culture, Media and Sport Committee - Broadband Delivery UK - Minutes of EvidenceHC 474-i

Back to Report

House of commons

oral EVIDENCE

TAKEN BEFORE THE

CULTURE, MEDIA AND SPORT Committee

BroadbanD Delivery UK

Tuesday 3 July 2012

Ed Vaizey MP, Robert Sullivan and Simon Towler

Evidence heard in Public Questions 1 - 83

Oral Evidence

Taken before the Culture, Media and Sport Committee

on Tuesday 3 July 2012

Members present:

Mr John Whittingdale (Chair)

Dr Thérèse Coffey

Damian Collins

Philip Davies

Paul Farrelly

Louise Mensch

Steve Rotheram

Mr Adrian Sanders

Jim Sheridan

Mr Gerry Sutcliffe

________________

Examination of Witnesses

Witnesses: Ed Vaizey MP, Minister for Culture, Communications and Creative Industries, Robert Sullivan, Chief Executive, Broadband Delivery UK, and Simon Towler, Deputy Director, Department for Culture, Media and Sport, gave evidence.

Q1 Chair: Good morning. This is a special one-off session of the Committee looking at Broadband Delivery UK, and I would like to welcome this morning Ed Vaizey, the Minister for Culture, Communications and Creative Industries, Robert Sullivan, the Chief Executive of BDUK, and Simon Towler, the Head of Spectrum and Broadband at DCMS. Dr Coffey has an adjournment debate at 11.00 am but has a particular interest in this area, so I am going to invite her to begin.

Dr Coffey: Thank you, Mr Chairman. I am very grateful to you all for coming. In line with the Government’s ambition to be ultra fast in terms of broadband, I am going to be ultra fast in terms of questions and hopefully in response. There is a great concern around different projects at the moment that state aid is basically holding up projects, whether it is the £17,000 required to complete a project in Cumbria that has been going on for a long time, officials poring over it, probably costing £250,000 or £500,000 in officials’ time, and we can’t hold that up-in other areas the framework has not been accepted, DG Comp is rattling the cage. Can you tell us more about when are we going to get state aid clearance?

Ed Vaizey: Thank you very much, Mr Chairman, for your kind introduction and I am, as you indicated, flanked by two experts on this subject who will answer the Committee’s questions when I fall down. Thank you, Dr Coffey. I gather it was your initiative that we are having this one-off session, so it is particularly sad to see you depart in half an hour, but I will try to answer.

Dr Coffey: I have a rail debate.

Ed Vaizey: It is a rail debate?

Dr Coffey: So I have to be there on time.

Ed Vaizey: Always focused on infrastructure, Dr Coffey-very important. We share your frustrations on state aid. We have negotiated hard with the European Commission. They have a certain perspective on how state aid rules should be applied. We have a different perspective. The Secretary of State met with Commissioner Almunia last month in London. I think he may have gone out to Brussels again, but Mr Towler will correct me if I am wrong about that. We have negotiated hard and we think we have made very real progress, virtually to the point where we are very close to getting state aid clearance. It has been a very frustrating process and, frankly, one wishes it could have been quicker, but DG Comp took a particular view about how state aid should be applied. It was unfortunate as well that, as we were coming to the point where we needed agreement on state aid, DG Comp was already reviewing and changing its own approach to state aid. Those two issues met in the middle and, I think, added some additional complexity and delay, which has been unfortunate.

Q2 Dr Coffey: Could I just ask a supplementary before Mr Towler responds. I believe one of the perceived risks is if BT ends up being the only supplier selected by various bids because the number of suppliers in this competitive market seems to have shrunk to two. Is that a major barrier to agreeing state aid?

Ed Vaizey: No, I don’t think it is a barrier to agreeing state aid. I think BT and DG Comp have made their own compromises in terms of the interpretation of how state aid should be applied. In terms of who are the main organisations available to bid for these funds, I think it is great that we have BT and Fujitsu, both of whom have signed the framework document, so they are in play to bid for these funds going forward. A lot of people argue about how we should have applied the broadband funds. Should they have been relatively local, which is the route we have gone down, or should it be national? If it had been national, we would have only had one bidder succeed for that national contract. I think the fact that we have two companies competing is a good thing. Obviously, we can’t force private companies to compete for these funds if it does not fit with their own strategy for how they want to roll out their broadband networks, but we are delighted to have BT and Fujitsu in the frame. Certainly, we don’t think that if BT wins the majority of contracts-and obviously I am not going to predict that would be the case-that it would cause a problem with state aid.

Q3 Dr Coffey: If I take up the issue in Cumbria, in European terms £17,000 is an accounting error for an organisation that has not had its accounts signed off. I appreciate the meetings that have been held by the Secretary of State with the Vice-President, but can you tell us more about a realistic timeframe? People want to start digging in the ground and they feel they cannot.

Ed Vaizey: I think we are very close to an agreement. I do not want to put a particular date on it because I think that would be obviously a hostage to fortune, but I certainly do not expect to be here next year on state aid approval, and I certainly do not expect to be here in six months. We are very close. The Secretary of State is going to Brussels again tomorrow, although there will be other issues that he will discuss with Commissioner Almunia. I do appreciate the frustration. Although £17,000 may well be an accounting error in some people’s eyes, it is still public money and state aid rules still apply. If you give somebody £1, if you give them £10 million, state aid rules will still apply, so it is important that we have state aid in place.

It is frustrating as well obviously when you are applying public money, there is bureaucracy involved. If you take a small community project like Fell End, which is something we actively support-a local community taking the initiative-it is frustrating that because they have to apply for public money, they become part of quite a bureaucratic process in terms of getting state aid approval, having to do an open procurement, because again they can’t simply just be handed a cheque and give it to the bloke next door; not that Fell End ever would do that, but you have to have an open public procurement process because public money is involved. We all know how bureaucracy can get in the way and how most of us would like to see something happen with the stroke of a pen, but unfortunately, or I think correctly because it is public money, we have to go through quite complicated processes.

Q4 Dr Coffey: One of my colleagues later is going to tackle the potentially complex and bureaucratic process that people have experienced. You publish regularly the percentage of local broadband plans that have been approved by BDUK. With some of those plans, though, there is a threat to withdraw money. I understand in Scotland you managed to raise their money by nearly 50% for over £100 million from the first amount of money allocated after undertaking careful analysis. Does that mean other areas have been short changed and if they need more cash they will get it? For example, the hon. Member for Rutland was putting in a bid for £400,000 to try to complete that. I know Suffolk, for example, have chipped in an equal amount of money to the proposal, a very similar amount of money. Why is it that potentially some county councils may not see broadband delivered if you are not happy with their plans?

Ed Vaizey: We undertook a detailed analysis of the money that we had allocated. In Scotland, you are dealing with the Highlands and Islands and very remote areas, and you are dealing with areas that do not have cabinets that can be upgraded. They simply have copper lines. Some of those areas do not have even have backhaul to take it back to the main exchange centre. That is a very expensive process and that, to a certain extent, encapsulates why public money is needed. To dig up the roads in the Highlands and Islands is an enormously expensive process and no commercial company would ever really get a return on their investments, so there is a lot of money there. But we have gone round the whole country, so Devon, Somerset, Herefordshire have also received an uplift in their funding following the same exercise. It is also important to emphasise that Scotland is going to match the additional money that it is receiving from BDUK. It is not as if the Scots are simply taking a handout and running away with the money. They are matching it pound for pound. That is good news, I think.

Q5 Dr Coffey: What led to the 6% error on the first analysis? It is a significant quantum. We are not talking a small difference.

Ed Vaizey: We did it on a household basis. We did an analysis based on which households needed to receive a broadband upgrade. Somewhere like Northern Ireland, for example, on paper does not appear to be getting a lot of money, but in a slightly counterintuitive way that is a very good thing, because it is an indication that Northern Ireland is well ahead of most of the rest of the country. Northern Ireland is one of the most fibred up parts of the United Kingdom, so that is a good thing. Obviously, you make your initial allocations on which households are going to need an upgrade and then you do a more detailed analysis, partly through to-ing and fro-ing in terms of an exchange with the affected areas, and Herefordshire and the West Country were areas that put their case to us. I am conscious that I am hogging the floor, Mr Chairman, and I can see that Dr Coffey is looking at Rob Sullivan whenever she addresses a question, because she really wants the person who knows the answers to give her the answers.

Dr Coffey: No, I am very happy with your answers so far, but I am sure that BDUK can-

Robert Sullivan: I think the Minister has covered the most important points. One of the critical things about the pilots that we set up-Highlands and Islands in Scotland was one of the pilots, as was Herefordshire-was we knew they were some of the most challenging parts of the country and we knew that they would need product solutions that were very embryonic, essentially, from the private sector, particularly, as the Minister said, around the exchange only lines. So it was not a mistake; it was something that we said right off the bat that we would need to do further work on with the local authorities and with the private sector. Alongside that, the Scottish Government did, with close interaction with us, very detailed modelling of their own that provided a more detailed evidence base. It is one of the things where the community groups have had probably more impact than they might take credit for themselves. In that time, for example, BT have now produced a new product that is for exchange only lines and I think they have benefited from testing that in the field. That means for us that in the modelling we were able to quantify the actual pricing and costs of those solutions, which even a year ago did not exist. It is a good demonstration of how fast-moving this process is. So it is an evidence-based process, and we went through that and then Ministers made the extra allocation.

Q6 Dr Coffey: Thank you for that. Cumbria has come up a few times and it will come up again now because, of course, Cumbria rejected the initial proposals from both BT and Fujitsu in the tender process. While we cannot go into the details because it is a commercial negotiation, I understand that it may look from the outside as if simply there is not enough money in the pot for BT or Fujitsu to deliver the requirements that Cumbria put in their tender. Do you think we are going to see that elsewhere?

Robert Sullivan: I would not agree with that assertion. I think one of the reasons that we decided to go ahead with the framework-and the Minister has touched upon this-was these are highly complex procurements technologically and economically in terms of understanding the right solution, and I think the projects that were pilots obviously came before the framework. So they have had to go through this whole process with a lot of help from us, but they are pioneering that and they have put a lot of work in, as have industry. They just felt that, and credit to them, they were pushing to really get the best terms, I think squeezing the pips out of both companies. It also showed the benefit of having two companies competing and they pushed them very hard. I think, again credit to them as a local authority, they stood their ground. They did not feel that either bid was completely compliant with their requirements. This was particularly around the risk transfer process in terms of who bears the risk with some of the uncertainties in the process. I think they have quite a detailed planning process, too; I think it is a negotiated procedure. We are working with them closely, and I think they will get there and get a good deal for Cumbria.

It just reinforces for us all of the local authorities have worked extremely hard. They have all struggled, whether it is state aid or the commercial negotiations. We do not mandate use of the framework, but almost all local authorities have now called in and said, "This is the best route for us." One more point about that is I think one of the reasons why the framework is as good as it is is that right from the start we involved what we called the initial call-offs, so the four local authorities that were ahead of the curve and I think Suffolk is included in that set. They have designed the whole framework with us so it is fit for purpose when local authorities catch it and it goes through.

Last week we finalised, both contracts were signed by BT and Fujitsu, so we are very pleased with that outcome. In many cases that is why local authorities were on hold because they are able to carry on now. They can go through ITT because the state aid piece is now a clause inside the contracts, so they can pick that up. It is no longer a bottleneck for local authorities.

Q7 Dr Coffey: So they can get that. That is where you have moved a barrier. I am afraid I am going to have to dash for the train, but one last question before I do, and it is probably more a policy thing: £150 million has been put into ultrafast broadband for cities and more money has been put into Newcastle alone to get ultrafast broadband than, say, funds into my own county of Suffolk to get people basic or reasonably fast broadband. Frankly, won’t the market provide ultrafast if there is a demand for it? Why is the Government putting considerable chunks into just a number of cities, as opposed to delivering the connections across the country?

Ed Vaizey: It is easy to forget that a lot of cities have their own not-spots and poor broadband, and what we wanted to do in terms of policy was to raise the game for a number of key cities in the UK, to raise their profile as super-connected cities-cities that could compete in terms of their fibre infrastructures with some of the most well-connected cities around the globe. It was an open competition, and we are delighted that 10 cities have come through the first phase of the super connected cities. We are now going to a second phase that will include some of our smaller towns and cities, which equally have the kind of high-tech infrastructure that they want to showcase and attract in good investment. Simon is itching to come in on the back of that point.

Simon Towler: It is a growth measure. We have seen that broadband connectivity, and that is at least one of the reasons we are here, promotes economic growth and it promotes productivity. There is emerging evidence, at least in some studies, that higher speeds promote greater growth and greater productivity, and we are also particularly getting a lot of demand, as I am sure this Committee knows very well, from business for ultrafast connectivity. The European Community has targets for take up of ultrafast by 2020, and at the moment the take up of the very high speed products is relatively low. You are right that ultimately the market is likely to provide in most of those areas, not all, over time; but by stimulating the market, challenging cities to provide innovative solutions, they will support their businesses and they will bring forward that growth.

Dr Coffey: Thank you very much. I apologise for having to leave early.

Q8 Paul Farrelly: Regarding state aid, I have a couple of questions, Chair, thank you very much. Cumbria has had some difficulties with the procurement process, I understand. Cable & Wireless, which had been providing broadband for four years, withdrew because it said the removal of public subsidy was uneconomic following the abolition of the North West Development Agency. My question-and it is really for the uninitiated-is what was it about the design of that support via the North West Development Agency that did not trigger state-aid concerns, whereas the state-aid concerns are now an overarching problem for the roll-out process?

Ed Vaizey: We might have to get you a fuller answer later on, Mr Farrelly, unless Mr Sullivan or Mr Towler can help me, but my instinct would be that state aid is applied on a case-by-case basis. So you go to the Commission with your proposal and there would have been state-aid approval for particular schemes that were put in place three, four or five years ago, but it does not give you blanket approval for any further schemes that you come up with at a later date. It may also be because-and I am speculating here, so I will correct the record by writing to the Chairman if that is necessary-some of them were entirely in public ownership. We have had some problems, to be completely blunt, with what on paper seemed to be very go ahead schemes that are funded by regional development agencies, which have proved to be wholly uneconomic because of the absence of private-sector partners.

Although it may sound rather harsh, without a BT or a TalkTalk going out and getting customers and also having the opportunity to sell to customers at competitive prices, you can end up where you effectively have a wholly publicly financed infrastructure. It can end up being quite expensive and also you do not have the marketing nous, to put it in layman’s terms, to get people to sign up for the broadband. If you get a letter through your door saying you have the chance to sign up to BT broadband or you have the chance to sign up to local region broadband, you will probably end up plumping for BT. I think that may have been part of the reason why they might have got state aid because they were publicly financed projects, and part of the reason why they are not doing so well is because of the lack of a private sector partner. Simon, do you want to answer?

Robert Sullivan: Do you want me to just to say-

Simon Towler: I do, yes.

Robert Sullivan: Firstly, my understanding is that Cumbria County Council are going to pick up the area that is left behind and so those residents will not be without a service. The other important point about state aid is in a way it is not a check of whether the investment model is sustainable. I think the critical piece here is that one of the things we have done in the framework is a lot of due diligence and it is behind our choice of gap funding as our intervention method, because we look very carefully with companies at the sustainability of the project. For example, the BDUK funding is capital only. We are not funding, and it is very difficult to fund under state aid, operating costs. We look very carefully at whether the model is sustainable such that, once the capital funding goes in, can the private sector make a continuing return, and in a sense, it is not the process for state aid to do that. It is a process for value for money on the procurement side that analyses that. Both state aid and the procurement regulations are important. I am not that close to the project, but my expectation would be that the company found it difficult because of the operating costs to make it sustainable.

As the Minister said, the other part of that, we have built in very firmly, based on the evidence we have seen from other projects, around the importance of having the major internet service providers signed up to use this service because we know that, without that happening, it is very difficult for the enterprise running the wholesale layer to make that work commercially.

Paul Farrelly: If there is any further light to be shed from experience of the way other products have been constructed that would be helpful to us, then we would like to hear.

Ed Vaizey: We will certainly follow up on that.

Q9 Paul Farrelly: That leads me on to the second question. Presumably, and I do not know, in at least one of the 27 countries of Europe, there is still a nationalised telecoms operator, and we have BT here. Would a nationalised telecoms operator not fall foul of state aid rules where, because of the structure of telecoms in this country, we would do? That is not, I would say, a call from me to renationalise BT, but I can’t speak for the Chair or other members of the Committee.

Robert Sullivan: Essentially state aid is to check that the measure is necessary, and going back to a question that Dr Coffey mentioned, it is a check that the private sector and the market would not provide without any intervention, and it is also a check then that that intervention is appropriate. I do not think it would be the route to circumventing state aid.

The other important point about state aid, though, is it is a time consuming process and a complex process, as the Minister said, but it is also important that it is there to protect particularly smaller companies who have made an investment. One of the things that the county councils have to do right upfront is they have to give very great transparency to what the private sector, including SMEs, are already doing, so that a state aid measure does not just come in and wipe out the business model for small companies who are trying to innovate and help customers in those areas. It has a real benefit as well as an issue, I think.

Q10 Damian Collins: Is the issue with the European Commission principally over wholesale market access, and that has been the sticking point?

Ed Vaizey: Broadly speaking, yes. Do you want to elaborate?

Robert Sullivan: Yes. As the Minister said, it is unfortunate timing in that they are going through and understandably trying to put the clearance in light of where their draft guidelines might evolve to. We started off with about five difficult issues. There was some discussion around whether wireless qualifies as NGA. But you are right; predominantly, it has been unpacking what is probably one short paragraph in the state aid guidelines around open access and quantifying-we have unpacked that to probably two or three levels-on what does that open access mean in terms of new build duct, existing duct. That is where we have got to, and I think we have now narrowed it down to a much smaller space. As the Minister said, we are confident we will get to a resolution on that.

Q11 Damian Collins: The second point there is the access price to the infrastructure, particularly BT’s infrastructure?

Robert Sullivan: Correct, but I think the conditions will be laid down such that it is looking at what a third party access seeker could ask for in terms of whether it is Fujitsu or BT that build the network. There are material issues for both companies here, I think.

Q12 Damian Collins: Is the issue that BT’s price is too high or too low?

Robert Sullivan: It is a question not in terms of only the pricing; it is really the conditions. There is a lot of work we are doing at the moment on what is called proportionality tests, of which I won’t bore you with the details, but it is trying to assess what is a reasonable hurdle for a new company, a new access seeker, that wants to then use infrastructure that has been subsidised with state aid.

Q13 Damian Collins: What I am saying is the issue is that if that price is very low no one else can come in and compete against it, against the monopoly, or the price is set high because the company knows it has a monopoly already and can charge whatever it wants. That is the issue that you have to try to wrestle with.

Robert Sullivan: I think that is part of the discussion, yes.

Q14 Damian Collins: BDUK have produced a very helpful document for authorities bidding, which is on the DCS website. But you make this sound relatively straightforward about benchmark pricing and you have to get a relevant average price for the local market, so why have you encountered these problems?

Robert Sullivan: As the Minister said, it is because the state-aid guidelines are changing and also the Commission felt that they wanted to unpack what open access means in a lot more detail than is set out in the guidelines.

Q15 Damian Collins: But you have been seeing these bids coming in, so presumably people submitting their bids, being approved by the Secretary of State, are following the guidelines you have established. Are you saying now that you either misinterpreted what the Commission wanted, or the Commission have changed their mind?

Robert Sullivan: I am not sure it is either of those. The Commission are reassessing how firmly they want to tie down what open access means. The other thing I should say is, again, this was a mechanism to try to help local authorities and community groups through what is a very complex piece of machinery. There are two pieces of the jigsaw that BDUK have in place. One is the framework, which is essentially the contractual mechanism. Then separately we have what is called our state-aid umbrella. So, essentially, we have a document that secures state aid when it goes through and then all local authorities don’t need to go through their own state-aid process. What they have to show is that they are then compatible with the conditions that we have set down. That will save local authorities an enormous amount of legal work and complexity and speed up the process.

Q16 Damian Collins: Do you think we are going to end up having to drop the access prices to get this through the Commission?

Robert Sullivan: I don’t know exactly what the outcome will look like. All I would say is that the negotiations are going in the right direction. The Secretary of State has, as the Minister said, made it very clear how important it is for the growth agenda to sort this very quickly. We are confident that we will get an answer very shortly.

Q17 Damian Collins: We will probably come on to 4G later on, but does 4G have to be part of the package to get this through the Commission?

Robert Sullivan: No.

Q18 Jim Sheridan: Apologies for my limited knowledge of this. I am still practising the TV remote control. But representation has been made to me, just probably an hour ago, about the delivery of 4G and the costs to the individual. Can you say anything about these filters that have to be put in?

Ed Vaizey: This is issue that is being debated at the moment. 4G spectrum comes on stream next year and the year after, which is the next generation of mobile phone spectrum. This is the kind of spectrum that is going to make your smartphone work more quickly. You will be able to download your data more quickly on your smartphone. It is a very important measure and we are very keen to see it come on stream. We will be using some of the spectrum that has been vacated by analogue television when we moved over to digital television, so we are having to clear that spectrum. That is why it has taken longer than some people would have liked, but we are now in a very good place. But the point is that when that comes on it has the potential to interfere with your digital television reception.

So the Department worked with Ofcom at the beginning of the year to look at what measures we would put in place, and we decided we would put in place an organisation that was run by the mobile phone companies. We took the view that it should be the mobile phone companies that put in place the measures that will mitigate the interference from their own spectrum on television viewers, because they would have the technical knowledge of their base stations and where they are placed and they could put a lot of technology on to the base stations to reduce the interference at source. You can do things like turn down power on your base stations, your mobile phone masts, where it is causing interference. So they could mitigate a lot at the source. Then we have set aside £180 million for a help scheme. It is similar in some respects to the digital television help scheme that obviously got a lot of publicity. That will involve publicity, advice to householders, physical help, if you like, for vulnerable households to eliminate the interference.

Ofcom has made an estimate of the number of people who might be affected, but I have to stress that that is an estimate, and it is a conservative estimate. I hate to use the phrase "worst-case scenario" because that sets lots of hares running, but they have taken a big estimate and it might well be that the interference is much lower than we anticipate and we have to do less. But we have been very cautious. We have established this company, which we call MitCo, standing for mitigation obviously, or we are about to establish it, and we have set aside this money to ensure there is money to mitigate the effects. But I know this is an issue the Chairman is very interested in.

Chair: This is an issue the Chairman is very interested in and I have a lot of questions on it, but I want to leave it to the end because it is slightly separate from the main issue we have been discussing. We will come back to it, if we may.

Jim Sheridan: I am concerned; is there an individual cost to people for this?

Chair: Jim, there are questions 12 to 14; if we could come back to it later.

Q19 Louise Mensch: Going back to macro-policy, you have a big target: 90% of people access to superfast broadband by 2015. Are you going to hit that?

Ed Vaizey: Yes, I think we will hit that. We are very well on track. We take into account, for example, what BT is doing at the moment. It has already passed its target of 10 million households with superfast broadband. It is wiring up the equivalent of Singapore every quarter. It is due to complete its programme a year ahead of schedule in 2014. Virgin Media, as you know, is covering 30 million households as well, almost half the population with superfast broadband. We are on the verge, having approved most of the procurement projects for rural broadband, of seeing shovels in the ground, as it were, towards the end of this year. I think, in 2013 and 2014, you will see a much accelerated process as people get to work.

Q20 Louise Mensch: People are concerned about value for money, particularly where public money has been involved. Given that public money is being offered as a subsidy, are you confident that superfast broadband is going to be reasonably priced for the individual consumer, especially where public money has been allocated?

Ed Vaizey: Yes, I am confident. I think we have a competitive marketplace. BT Openreach has an open access infrastructure, so other people can use its infrastructure. Through negotiation with Ofcom, BT has dramatically reduced its prices for what is known as passive infrastructure access, that is being able to get your fibre into BT’s ducts, and that has been reduced by something like 50% or 60% from the initial prices that were set. We have had some success with the business rating of fibre by reducing the cost of that in new build areas and rural areas. So there are lots of factors that are driving down the cost of laying the infrastructure. But we have a very competitive marketplace as well, and I think an important point to make is that one of the things that will put us at the top of the tree, near the top of the league tables in terms of broadband, is not only that we will have fast broadband but that it will be accessible at a reasonable price to the consumer. There will be a debate by consumers about whether or not they think the price differential is worth it. Some telecoms companies, I suspect, will market superfast broadband at broadly the same price as current broadband, simply to get the customer on to the network to see how much of a difference it might make to how they use broadband. But I think prices are very competitive. I am sure there are international indices that show that we are quite competitive in the rest of the world.

Q21 Louise Mensch: Mr Towler, do you have anything to add, particularly in relation to that last point about our competitiveness in terms of price in the international marketplace for superfast broadband?

Simon Towler: Yes. I don’t have the price figures to hand, but they will be in Ofcom’s international communications market reports. My recollection is that we score extremely well in relation to other countries in Europe. In some ways where we are today is a function of the success of local loop unbundling. Comparisons do get made with progress in fibre to the home and other places, which have basically leapfrogged to that situation where they have absolutely appalling copper infrastructure in the ground. We have reasonably good copper infrastructure in the ground. Once you get the fibre out to a cabinet you can produce speeds of, first, up to about 40 and now, with the change in frequency planning, up to about 80 Mbps. That is a function of the quality of the copper. You can go on to price comparison sites, including Broadband.co.uk, and you will see prices as low as £3 a month, or £3.25 from TalkTalk at the moment.

Louise Mensch: I must switch.

Simon Towler: But that is exactly a choice. That £3.25 will not be superfast, that will be a 8 Mbps package. I personally happen to subscribe to Infinity 2 and that is about £25 a month. Virgin Media have a 100 Mbps product that is comparable. The issue that you are getting sometimes with take up in this country, I think, is precisely about very price-savvy, very price-conscious consumers who are saying, "I’m quite happy with 10 Mbps because I’m paying £6, £8, £9 a month. I am not yet convinced of the benefits of 100 Mbps." That is part of the reason we are doing the ultrafast broadband projects in cities, creating that environment where people will create the applications and the new services you saw coming through after local loop unbundling.

Louise Mensch: Indeed. Well, I hope the Minister is keeping an eye, although it is a separate discussion, on piracy of larger files like television and movies once superfast broadband is rolled out across the UK, because there will be, doubtless, some collateral piracy damage, but thank you for those answers.

Q22 Chair: It is all very well talking about superfast broadband, but there are some people who do not get broadband at all. You have, as part of your commitment, the pledge that there should be 100% broadband coverage across the country. How are you going to achieve that?

Ed Vaizey: That is the entire point behind our £530 million programme. We have set aside £530 million for rural broadband. We have done it on a local basis, which has attracted matched funding. It is worth making the point that I think the figure that we are now able to use-and Mr Sullivan will correct me if I am wrong-is about £1.2 billion of public investment. For example, we were talking about Scotland earlier; how the Scottish Government has matched the investment we have made in rural broadband in Scotland. So there is a substantial amount of money going in. As I say, the detailed procurement process we have been through, working with local authorities and devolved Administrations who are best placed to know where the broadband should go in order to bring in people who can’t receive broadband, I think is the most effective way of ensuring that we meet that target.

Q23 Chair: It has been suggested that there should be a universal service obligation, as there is, for instance, in the Post Office. Is that something that you think could become necessary?

Ed Vaizey: I think the European Commission, or was it the European Parliament, debated that and rejected it. I think they were right to reject it in terms of this being early days. To impose a universal service obligation now would distort investment decisions. I think we are lucky in this country that we have two very dynamic main players in the market and many other players in the market who are laying infrastructure, providing innovative and new services. I do not think they would be able to make that kind of investment if we imposed a universal service obligation on them. But, in effect, we will be delivering broadband for all by 2015, and I am sure that the universal service obligation is something that might well come up in discussion in the future.

I think the other thing to point out as well is that, through the £150 million, we are putting into mobile phone infrastructure we are effectively going to increase coverage of mobile phones to being near universal, which I think is a very good achievement as well.

Q24 Chair: That would be sufficient to meet your target? If somebody had access to 4G through a mobile network then you would consider that, therefore, they had access to broadband?

Ed Vaizey: Yes, I would.

Simon Towler: Might I add, Chairman, on technology choices right now we have very close to 100% broadband coverage? It may be, in some instances, extremely poor, but on the definition for the European Union target for 2013 of functional broadband for everybody by 2013, they are talking about the original definition of broadband at greater than 144 kbps. Our universal service commitment goes to 2 Mbps. Just about everybody can get that now, with exceptions in tiny numbers from satellite. Satellite providers will provide an acceptable service of somewhere between 2 and 10 Mbps quite happily now. 4G, we hope, would generally speaking provide rather better than that, certainly better than 2 Mbps.

Q25 Paul Farrelly: Just looking at the current programmes as an overview again, the local authorities are harder pressed than ever now in terms of finances and therefore the ability to commission their own outside advice. Minister, what do you think the optimum number of people is under the current programme for BDUK to properly advise all the councils that are likely or wish to take part in the programme?

Ed Vaizey: We had this debate about how many people worked for BDUK. The headcount we now use is 53 people. I think there are 10 people devoted to local broadband plans, but Rob will correct me in about a minute and a half. We think that is adequate. As you know, there is, in Whitehall, an animus towards reducing numbers and not hiring additional staff. But, with BDUK, we have always taken the view that when BDUK come to us with a reasonable case and say, "This is the additional headcount we need; the additional support we need to make this work," we have always signed off on it and pushed it through the Cabinet Office, which is where you have to get ultimate sign off. So, to a certain extent, we are driven by what Mr Sullivan says that he needs. We are confident that he has the people on the ground to do the job. I say in all candour that if Mr Sullivan came to me and said, "I don’t have enough people. I need five, 10, 15, extra people to get this job done," I would scrutinise him in the appropriate way, but I would be minded to sign off, because I think he has done a superb job and I think BDUK has done an amazing job over the last two years in getting us to where we are. So having got Mr Sullivan now in the right frame of mind to absorb what I was saying-

Q26 Paul Farrelly: Very quickly, Mr Sullivan, is it an adequate number, the optimum number?

Robert Sullivan: When I started two years ago, we had five people in the team, but we had the beginnings of one programme, the rural programme. As we have gone through, the Minister has evaluated the urban programme and the mobile programme and we have brought in the very specialised expertise to let us take that through. So I think we are fit for purpose. We are deliberately lean and agile, and we do change people inside the team and roll them off the programme as we go through different stages very quickly. The other thing I would say is that we have done a lot of work with local authorities. The programme was devolved by design, and as I said earlier, the four local authorities that we have been working with in designing the framework have a lot of procurement expertise in their own right. They have sat on our board and taken us through the process. In a sense, BDUK is catalysing the take up of capacity across the country in different local authorities. We are deliberately not trying to carry all of this ourselves, as a completely national programme. I think we have the resources that we need, but we keep that under review.

Q27 Steve Rotheram: Minister, you touched earlier on in a question from Dr Coffey about the issue of bureaucracy. How do you respond to the specific accusations that the tendering process that you have established for BDUK is overly bureaucratic and complex?

Ed Vaizey: Well, I don’t recognise that. I haven’t received any significant complaint that I can recall as a Minister direct from anyone involved in the tendering process. It is complex, obviously, to cross the t’s and dot the i’s on an infrastructure project of this nature. As I said earlier in response of Dr Coffey, we are here to ensure that public money is spent appropriately, so it is important that we have a framework document that covers all the bases.

Q28 Steve Rotheram: You are not aware of the Lords Communications Committee written evidence, pages 177 and 346, I think, if my eyes are not giving way, which criticises the tendering process for being expensive, overly bureaucratic and complex?

Ed Vaizey: I don’t know who put in that evidence. I did read the Lords’ evidence and I gave evidence to that Select Committee, but I have not had a queue of local authorities coming through my door, or any of the devolved Administrations, saying that they felt it was complex. I think when you take a step back from anything, anyone who gets involved in any procurement exercise would probably regard it as expensive and time consuming and difficult, and they would much rather that you just simply wrote them a cheque and they got on with the job. But I think we have a legal obligation to ensure that procurement is undertaken in the appropriate way and that we don’t leave unnecessary gaps that might catch us out later. You could say about almost any project in which the Government is involved that people will always complain about the bureaucracy. But that is the price, I am afraid; you have to pay if you want to access public money.

Q29 Steve Rotheram: You say people always complain about things being overly bureaucratic. Isn’t this exactly what you did in opposition, to criticise things for being overly bureaucratic? Isn’t it one thing to be critical in opposition and then the reality is when you get into government it is much more difficult to streamline and simplify these process because there are certain checks and balances that need to be in place?

Ed Vaizey: Well, I appreciate, Mr Rotheram, the opposition’s support for the position the Government is in at the moment.

Q30 Chair: You are nearly at the point where local broadband plans have been approved. What proportion are there left still to gain approval?

Ed Vaizey: From memory, I think it is four, but Mr Sullivan will-

Robert Sullivan: Technically four, but two of those are local authorities who have decided that they think the private sector will provide, so two.

Chair: That is Tyneside?

Robert Sullivan: It is yes.

Ed Vaizey: North and South Tyneside.

Q31 Chair: Are you concerned that North and South Tyneside appear to have opted out of the entire Government strategy?

Ed Vaizey: I hesitate. I should curb myself. I was going to say they might have been put off by the complex and bureaucratic, expensive process of bidding for the money, in which case it saves the taxpayer some money. I don’t know all the details of why North and South Tyneside have walked away from it. I am rather impressed that they feel the private sector will deliver everything.

Robert Sullivan: To be fair to them, they are very, very small projects. They are probably talking about almost part of one exchange and I think they feel that they can put pressure on the private sector to address that without intervention. Indeed, that would mean that they don’t need to go through the whole process, so it is an understandable position.

Just on the point of overly bureaucratic, as I said before Ministers have not mandated that local authorities use the framework. Almost all local authorities have decided to use the framework as the most efficient mechanism through the process. Where I do have some comment from stakeholders is that, particularly for very small community groups, they do, despite a lot of hard work, find the state aid guidelines and the procurement regulations that we have to fit around very complex to understand. In a sense, many of those community groups are doing this alongside other jobs. They are not full time devoted to this in the way that I and the team are. What we have tried to do is our outreach team do a lot of work to try to share best practice and give them as much support as we can to make the process as painless as possible. As the Minister said, these are complex procurements. It is always going to be a reasonably high hurdle to follow through the system.

Q32 Paul Farrelly: Apart from Tyneside, what is the other area that has not been approved?

Robert Sullivan: From memory I think there is a small part of Birmingham, but there I think we are realigning that with the super-connected cities programme. They are basically all authorities that are almost at the very edge of our assignments. You are looking at very small allocations. They have decided, I think, to just pick that up through a different mechanism. But I think credit to the commitment from local authorities. Again, we didn’t mandate that local authorities match funded. Almost all local authorities have put in local broadband plans in a very short order. They have only had less than a year to do this from scratch, and many of them have put in more than match funding. So there has been an enormous amount of traction there, I think, with the local authorities.

Q33 Paul Farrelly: Could you write to us and tell us which part of Birmingham, in case that provokes an alternative reaction?

Robert Sullivan: Yes, we are happy to send you details on that.

Q34 Chair: All the plans that have been approved will, if they all come to fruition, result in superfast broadband being available by the target date of 2015?

Robert Sullivan: Correct, yes.

Chair: I would now like to return to the interesting question of 4G and the potential consequences for the television watching nation.

Q35 Mr Sanders: I want to go back to your answer about the numbers and the different calculations of the numbers of households that are likely to be affected. If the £180 million set aside to deal with the problem is not sufficient, what is going to be the mechanism for bringing in more resources to deal with the problem, given you will already have had the income from the spectrum?

Ed Vaizey: We have promised to make up the shortfall, should there be any shortfall in the £180 million. I am confident, however, that the £180 million is absolutely sufficient. But the bottom line is we do not want people to be left without television reception because of 4G interference and I am not going to let that happen.

Q36 Mr Sanders: The question about the Government’s calculation that has come into my postbag is that it is based on the cost of the filtering equipment but not necessarily the cost of installing that equipment, which in many households may necessitate more help with installing than has been calculated. Is there going to be money to help with installing?

Ed Vaizey: Yes, there is money to help with installing. We have an interesting debate with Freeview who are running this campaign in the media to extract more money from the Government. I am not even sure they want to extract more money from the Government. I think they want clarity on what help would be available. The first group are what we call vulnerable consumers-the elderly or people with physical infirmities-and they will get practical help. Money has been set aside within that £180 million. I think it is £20 million to do that. The debate is then whether there needs to be additional money set aside to help others who may request somebody to come and help them fit a filter and, because of Freeview’s concerns, we are looking at that again, so we are having a good discussion with them on that.

Q37 Mr Sanders: Where is that if that-

Ed Vaizey: That will come from within the £180 million, so at the moment, the parameters are set in certain ways, and Mr Towler will elaborate on those, but we can-

Q38 Mr Sanders: But if extra funding is needed, where is that going to come from? Is that going to come from the taxpayer?

Ed Vaizey: Don’t forget the taxpayer would have benefited from the receipts from the auction process, so there will be additional money available.

Q39 Mr Sanders: If the additional money has to come from the receipts from the sale of the spectrum, then clearly you are not going to benefit as much from the sale of the spectrum if the calculations are wrong.

Ed Vaizey: If the calculations are wrong; but, Mr Sanders, all I can say is that Ofcom conducted a very detailed study on this and we set aside what we consider to be a very generous sum of money. When the last Government set aside money for the help scheme for digital terrestrial television, I think it set aside-this is again off the top of my head and I will correct the figure if I am wrong-something like £350 million, we had a massive underspend on that money. So these are estimates, but they are very carefully worked out estimates, and I think £180 million is a great deal of money.

What you have to do is you have to look at the potential figures of people who will be affected, and as I say, there is a lot that can be done before you get to people who are genuinely in need of help. I have already said in answer to Mr Sheridan’s question that, because the mobile operators are effectively in charge of the mitigation measures, there are a lot of things they can do on their base stations. They can reduce the power, and they can fit technology to their base stations to reduce the interference, so quite a lot of householders can be potentially removed from the equation as 4G comes on stream.

Then, to be blunt, a lot of other householders will be getting their television in other ways, through cable or satellite, so they are very unlikely to be affected within the affected area, if you are living near a base station or whatever. So then you come down to people who get their digital terrestrial television who are near a base station who are likely to be affected. We have made a calculation, and we think that is about 900,000 people. We have made a calculation as to the kind of money we need to fit filters to their houses, which will deal with a huge amount of the problem, and then to deal with those for whom a filter will not be a solution, they will need a more expensive solution. We have made that calculation, so that is where we are. I don’t think Freeview can argue any other way about it; they have made an estimate; we have made an estimate; we have done it in great detail through Ofcom. But obviously, politically, we are not going to allow anyone to lose their television signal because of mobile phone interference.

Q40 Mr Sanders: But on the argument that Ofcom have done a lot of work coming up with that figure, Freeview have done a lot of work coming up with their figure, and the variation of between 760,000 and 2.3 million affected households is vast. It is even vast between your figure of 900,000 and 2.3 million. It only needs to be a few hundred thousand above your 900,000 for your monetary calculation to be completely out of kilter. The set aside of £180 million will simply not be up to the job.

Ed Vaizey: I don’t agree with that.

Simon Towler: No, neither do I.

Q41 Chair: Are we all agreed that potentially 2.3 million sets are affected, which is the Ofcom estimate?

Simon Towler: Yes, but that is the universe of sets that could be affected. That is the Ofcom number that Freeview started from, but then there are mitigation measures that would be taken, and that knocks everything down.

Q42 Chair: Indeed, but I want to start off with the 2.3 million. What estimate do you think are still going to be affected in the house after the mobile companies have taken the mitigation measures at the base stations that you refer to?

Simon Towler: All of the mitigation measures.

Chair: This is not mitigation measures in the household. This is at the base station.

Simon Towler: It is 900,000.

Q43 Chair: So 900,000 households potentially require mitigation in order to go on receiving television. You have said they can have free filters. Does that apply to just those who rely on DTT, or is that satellite and cable subscribers as well?

Simon Towler: They don’t need the filters.

Q44 Chair: Well, you say that. They do if they have a second set upstairs.

Simon Towler: The point I did wish to make is that is out to consultation at the moment by Ofcom and so these issues are being carefully considered and carefully addressed.

Q45 Chair: If I am a household that is affected, even though I am a satellite subscriber, is the Government still going to provide me with a filter so that my television in my bedroom works?

Simon Towler: The premise in the consultation is that the second set would not receive a filter.

Q46 Chair: All right, so I am going to have to go out and buy a filter in order for my second set to work.

Simon Towler: Yes, for £10.

Ed Vaizey: We estimate it will be £10. The price might be lower when-

Q47 Chair: As I understand it, it is likely that those households with amplification in the loft will require professionally installed filters. Would you agree with that?

Simon Towler: Not necessarily. In the loft?

Q48 Chair: If you have your own amplifier device in order to receive television, the advice I have had is that to fit a filter will require a professional to come and do it. It is not something that a normal member of the public can just go and plug something in.

Simon Towler: My understanding is in most instances, and this was the consumer research-so Ofcom did this on the basis of consumer research-the filters would be able to be fitted easily by a normally capable adult in-

Q49 Chair: My understanding is that research was done with people who had standard aerial installations. It was not done with those who have specialist equipment already installed, and a large proportion do have that specialist equipment.

Simon Towler: So these are the issues that are being considered in the consultation document, and I am not in a position to second-guess-

Q50 Chair: The estimate I had was that to fit a filter is probably in the region of £150.

Simon Towler: Yes, that sounds reasonable.

Q51 Chair: So in those households where it is likely that it is going to require a professional to fit a filter at the cost of £150, is that going to come out of the Government fund, or are people going to have to pay for it?

Ed Vaizey: As I made clear, Mr Chairman, we are consulting on this, so there is a consultation out there. Freeview take a view that everyone is going to have to have professional fitting of a filter in order to mitigate the effect of 4G spectrum. We do not share that view. Freeview have put their case very robustly. We continue to consult on this. We will come to a final conclusion; but, as I say, we took very detailed advice from Ofcom. We have been working on this for some considerable time. We have put in place MitCo in order to drive forward the mitigation measures. We have set aside £180 million. We are confident. But you are right, Mr Chairman, that that is the fundamental nub of the argument; is everyone going to have to require professional installation or not? That is what we are consulting on. Freeview is putting its case very robustly. You have put down parliamentary questions about it. We are responding to that and we will look at that, and we will put in place an appropriate response.

Q52 Chair: But you, as the Minister, are not able to say today that, if a household requires professional installation of a filter at a cost of £150, the Government will meet that cost?

Ed Vaizey: There is a difference of view about whether or not professional installation is required. Freeview have put their case; I have taken my advice from Ofcom.

Q53 Chair: There will be some households where it clearly is required. If it is clearly required, will Government meet that cost, or is the householder going to have to pay £150?

Simon Towler: Let’s start with the thing that the Minister has already said that vulnerable consumers will get installation.

Q54 Chair: That is interesting, because if you say that vulnerable consumers are going to get this free, by implication you are saying that, if you are not vulnerable, you are going to have to pay something.

Simon Towler: That is the position at the moment, but, as I say, we are still consulting on the issue. The position at the moment is that Ofcom have not asked us to change the conditions that have been set out, the £180 million, or the conditions set out in the consultation document. The position at the moment is we have not been asked by Ofcom to do that, but we are considering the representations that have been made and there will need to be clarity by the time the information memorandum for the 4G spectrum auction is published, which is due this month.

Q55 Chair: Can I ask you about multiple dwelling units. Do you accept that it will almost certainly require professional installation of filters?

Simon Towler: No, I don’t accept that.

Q56 Chair: You think somebody living in a tenement flat is going to be able to go and fit a filter, do you?

Simon Towler: No. It is the responsibility of the landlords under the terms of the consultation at the moment. I am not saying that they will have the same filter, but the idea is that they will be provided with a more complex filter that is able, therefore, to provide for the needs of MDUs. At the moment that is the-

Q57 Chair: Your view is that landlord will be able to go and fit this more complex filter by himself?

Simon Towler: At the moment, those are the terms-

Q58 Chair: Has Ofcom looked at the research into this?

Simon Towler: It is looking at the research and the representations as a result of the consultation, which is still ongoing.

Ed Vaizey: The reason this debate has happened, Mr Chairman, and I reiterate the point, is that this is a consultation. Ofcom did an analysis of what they thought-a generous sum of money that they thought would be needed to mitigate the interference from 4G. We took a policy decision that the mobile phone companies would be the drivers of this policy. In fact, we have even calculated what would happen with the money in terms of an underspend. So this is a very carefully calculated estimate, but it remains an estimate, and that is why we have consulted on it and Freeview is putting a robust case, which you are on top of, about whether or not the amount of money needs to be increased to take account of their argument that professional installation is needed for all filters for all people affected by 4G.

We cannot calculate until 4G happens. We cannot be 100% sure who is going to suffer from interference. In other countries where 4G has come on stream, the interference has been far lower than people have expected, so we could be dealing with far fewer numbers when 4G comes on stream, but we made the estimate. We have done a calculation and we are undergoing a consultation. We can keep batting back and forth how many people are going to have go into a loft; how many people are going to have to fit multiple dwellings; that is part of the consultation. I am confident the money we set aside will be adequate. We have already agreed, with the meeting with Freeview, that we are going to go back and look again at these issues as part of our consultation process, and I am happy to come back to you or indeed, when we conclude our consultation, to address those issues in more detail.

Q59 Chair: Okay, but I still have a couple of points. I agree you can’t necessarily agree the details but would you accept the principle that there are people who may discover that they cannot watch television, through no fault of their own, because the mobile companies have started broadcasting in 4G? Given that has happened to them, through no fault of their own, and indeed a lot of money is going to be raised through the sale of 4G spectrum, therefore they shouldn’t have to bear the cost of being able to watch television again.

Ed Vaizey: The principle behind it is that you will get cover for the main television set. We took a calculation on costs.

Q60 Chair: That is a qualification, saying it is "the main".

Ed Vaizey: It is a qualification. We took a view in terms of the amount of money we were happy to set aside, but I hear what you say, Mr Chairman, and some people take the view that every set should be covered by a free filter and so on. That is not the position we have taken.

Q61 Chair: You also said that you weren’t sure how many people were going to be affected. Are you saying that-

Ed Vaizey: The point I am making is you don’t know, just as you didn’t know, when you set aside £350 million for the help scheme for digital television, how many people were going to need to take advantage of it.

Q62 Chair: That is a different matter. With the help scheme, you did know that everybody would have to upgrade from analogue to digital. What you didn’t know is how many people would apply for help through the help scheme, but what you are saying is you don’t know many people are going to find that their television doesn’t work.

Ed Vaizey: I am saying that we have made a very accurate estimate, but by definition it is an estimate, just as I said that in other countries when 4G has come on stream the interference hasn’t been as acute as people estimated. Ofcom has done a technical analysis of households near base stations that could be affected by 4G spectrum.

Q63 Chair: So you are saying that you won’t know until somebody-

Ed Vaizey: I suppose the reason I am cavilling, Mr Chairman, is because by using the phrase "you don’t know" you are implying that not a great deal of detailed work has been done. A great deal of detailed work has been done on this, so I am just saying that we have calculated it in both directions, as it were. The Government has agreed that if additional money is needed it will meet those costs, but it has also put in place a mechanism for repaying some of the money if we have an underspend. So, clearly, you do a detailed analysis. You come up with a sum of money on the basis of that analysis that is both generous and should cover the issue. The frustrating thing about this debate is, to a certain extent, there is an element of bells and whistles being required to cover every eventuality. We took what we thought was a reasonable course, based on the technical analysis that Ofcom put forward.

Q64 Chair: Can I put one other thing to you. Obviously, a lot of detailed work has been done but at the end of the day, as you have said, it is unclear to what extent interference is going to take place. As I understand it, it is proposed that 4G is going to launch. When we had digital switchover, we had the Whitehaven pilot scheme. We then had a phased switchover across the country, which allowed Digital UK to publicise it and make the help available. Here you are going to do the whole thing straight overnight, as I understand it. Are you going to have a pilot scheme like Whitehaven?

Simon Towler: With the greatest of respect, there is an enormous difference between the way that you roll out a telephony network and switch over a broadcasting network.

Q65 Chair: What we are talking about is people finding that their television sets are interfered with, which is very similar to the analogue switchover exercise.

Simon Towler: Yes but the mobile telephony, the mobile broadband network will be rolled out. You will not have a situation where the companies build out their network first in its entirety, flip a switch and everybody has 4G. They will build out on a phased basis and that is precisely the sort of work that MitCo needs to do, as the digital switchover help scheme company needed to do, which is to let people know in good time in advance. One of the very good things about this Freeview campaign is, for most people, you are two years away from anything like mobile service, so we are planning well in advance. Base stations will be built out on an individual basis. This is why you cannot know. You don’t know today where the many thousands of base stations are precisely going to be in every instance, so until you know that you can’t know what the interference effects are from that base station and what the implications are of the mitigation effects when you turn it down. So that is why MitCo is going to have to have a multi-year life and it is going to have to have a lot of money to do this mitigation work over a period of years. Yes, they are going to need to do marketing and information.

Chair: Okay. A couple of my colleagues wish to come in on this.

Q66 Paul Farrelly: I am probably going to come from a different perspective from John on this. One of the concerns that was often mooted about digital switchover was the potential for cowboy installers to go round the country, which doesn’t seem to have happened in fact, judging by the absence of press reports.

Simon Towler: Because of the registered digital installers scheme that was put together, absolutely.

Q67 Paul Farrelly: When you give me a price of £10 for a filter and £150 for installation-and I don’t know what sort of installer, whether there are different sorts of installers needed-if I were an installer, it would be worth my while to give people a free filter as long as I install it for you and get my money back from the Government. My question to the Minister is: isn’t it right that the Government is as robust as you are being in not offering a blank cheque because of the potential for abuse in a situation where it could never be cost-effective, if it were possible, to monitor every application as to whether the TV was in fact affected or not?

Ed Vaizey: I think, Mr Farrelly, part of the frustration with this debate is that, as a Minister responsible for public spending, I have to take a reasonable view of what is the appropriate money to be set aside. We had a detailed analysis of what Ofcom proposed. Freeview comes from a different perspective and they understandably want every bell and whistle to preserve their model of broadcasting. I am a huge fan of Freeview and I am looking forward to YouView when it comes on stream eventually, and I gather this month I keep hearing it is going to come on stream. They want the bells and whistles, so we steer what we think is a reasonable course and a generous course. I think the point that Mr Towler was making earlier as well is we can’t be entirely sure what the infrastructure will be. We have read in the press reports that Vodafone and O2 are talking about effectively merging their own infrastructure. Base stations are expensive for mobile phone companies anyway, and the fewer they have the better, frankly, from their perspective. We have taken a view. We have taken policy decisions that might cause rows in terms of not funding the filter for the second set and not believing that every single filter will need to be fitted by a professional installer, but we have heard Freeview’s robust arguments and that was the purpose of the consultation. I didn’t realise the consultation was going to ratchet up to quite this extent, but so it has, and that is life, isn’t it?

Simon Towler: Can I address the point again? I think you make a very valid point about trying to avoid cowboy installers. I cannot tell you here and now that the registered digital installer scheme will extend to the ability to fit those filters, but it would seem to me likely that RDI-licensed installers would be the sort of people that you want doing the installation where it is necessary.

Q68 Jim Sheridan: Just to follow the Chairman’s question about tenement buildings-and I think you said it would be the ultimate responsibility of the landlord-in practical terms, if that is a private landlord and there are any costs involved, it is highly unlikely that they are going to soak up the costs. More importantly, a number of landlords will be local authorities, so will they be expected to pay the bill?

Simon Towler: Yes.

Jim Sheridan: That is pressure on local authorities as well, then.

Simon Towler: Buildings in public ownership will be treated in exactly the same way as all other buildings. The expectation that landlords will bear the costs of installation is exactly the same expectation as it was in digital switchover.

Q69 Mr Sanders: I can see the hoteliers in my constituency saying this is a Government stealth tax. Shouldn’t they be offered some help, because it seems to me it is the mobile phone operators who are going to be making the big profits, year on year?

Ed Vaizey: I think UK PLC will make big profits from the advent of 4G. I think it is an absolutely vital part of our economic growth agenda and normally when I take questions on 4G it is, "Why haven’t you got on and gone ahead with 4G already?" and the answer to that is-

Chair: We have asked that as well.

Ed Vaizey: The answer, as you know, is that the spectrum hasn’t been cleared yet, which is why you can’t have 4G even if we wanted to wave a magic wand. I am sure millions of people will adopt 4G, including your hoteliers, and millions of people will benefit from it.

Simon Towler: Hoteliers will be in the same sort of range of technologies as everybody else. Many hotels are taking cable; many of them are taking satellite; many of them are taking Freeview; and the sets will be able to have the filters added.

Q70 Mr Sanders: I’m sure that is true, but there will also be many hundreds of my hoteliers and guesthouse proprietors who are going to have to fork out for this.

A final question from me: I understand that Orange and T-Mobile are hoping to roll out 4G services ahead of the spectrum auction, that is they will be using 3G networks and as a consequence they can deliver 4G without causing any interference. Is the only difference there the fact that Government doesn’t get any money from selling spectrum?

Ed Vaizey: No, it is a technical issue. The 4G that is going to cause the interference is the 800 spectrum, which is the lower frequency spectrum that was used by analogue television and the new digital television spectrum is 700, so they are next door to each other. They are next door neighbours, so if there is a lot of stuff going on in 800, that is going to affect 700. The spectrum that Everything Everywhere wants to use and will be liberalised-Ofcom is consulting on the liberalisation-is 1800 spectrum, so it is a very long way away from current digital television spectrum, which is why it won’t interfere with digital television.

Q71 Mr Sanders: But they don’t have to buy that spectrum, do they?

Ed Vaizey: No, they have that spectrum. What they are applying for is for their licence to be changed, so they can use that spectrum for 4G services.

Q72 Mr Sanders: Without interfering with anybody.

Ed Vaizey: They won’t interfere because they are over here in 1800 and 700 is over here.

Simon Towler: The implication is that everybody could simply use 1800 megahertz spectrum everywhere and that isn’t the case. You will have had representations from colleagues about rural coverage and various other things. Spectrum has different characteristics of the ability to provide coverage and the ability to carry data. Rather simplistically, the higher frequencies, so the 1800 megahertz and the 2.6 gigahertz spectrum, have a greater data carrying capacity, so that is going to be good for densely populated urban areas. One of the reasons you will have heard separately people making representation on the need for 800 megahertz spectrum is that provides broader coverage and greater penetration, hence the interference problem in building. So none of the MNOs-none of the mobile operators-would say to you, "We can do this beautifully without using any 800 megahertz spectrum." They want to start rolling out using some 1800 megahertz spectrum, which is being liberalised. The mandate to liberalise spectrum comes originally from the European Union anyway.

Q73 Mr Sutcliffe: I feel it is unfair for a Government that wants to reduce burdens on individuals and consumers. What the Chairman is suggesting is it is patently unfair if somebody has a second TV and through no fault of their own it gets affected, and there isn’t an agreement in principle that that will be sorted out. I think the Minister has said you have taken a policy decision that second and third sets will not be funded.

Ed Vaizey: We will see what the consultation comes back with, and, as I say, we wanted to have a generous help scheme and assistance scheme. We took a view on what we felt was reasonable and we are consulting on that and we will see what people come back with.

Q74 Mr Sutcliffe: I think it is an unfair principle.

Ed Vaizey: The filters are very low-cost. I am not sure whether the taxpayer should meet all the costs of those people who might have eight or 10 televisions in their house.

Q75 Damian Collins: In my part of east Kent, digital switchover was completed last week, so some of my constituents are enjoying watching Channel 5 for the first time. For them 4G will be something beyond what they are used to, but for some of those people the potential loss of a digital signal they have waited a long time to get would be quite concerning. What calculation have you made about people in rural areas who may be badly affected by this and for whom the only solution will be some form of satellite package and something beyond just fitting filters and other sort of devices to help?

Simon Towler: I can generalise beyond rural. If turning down the base station doesn’t work and if the filters don’t work for them, then covered in the help proposal is the prospect of offering a platform change to those people. The detailed work in the estimation is that should be a very small number of households, in the small number of thousands.

Q76 Damian Collins: In those situations, would someone be able to apply for any type of solution? If someone said, "The cheapest thing I can do is get a Sky package. Can I have some money towards that?" is that something you would do?

Simon Towler: You can’t just try it on and say, "Do you know what, I’ve realised I fancy Sky and I’m going to say that it doesn’t work." The purpose of the mitigation company-the purpose of offering solutions-is can the set of solutions that we are offering provide you with the service that you enjoy now. If filters don’t work, if base station mitigation doesn’t work, then you will be eligible potentially for a platform change.

Q77 Damian Collins: Taking me back to Thérèse Coffey’s railway debate now, but what will be the choice of platforms available? Will people be in a position where they have to switch?

Ed Vaizey: You could get Freesat, for example. You could get an installation of Freesat, which is very cheap, and then you have effectively a Freeview platform through satellite.

Q78 Damian Collins: Yes. For example, would the Government be in the position to say, "Well, there is Freesat, there is YouView, there are three or four services that we would be happy to support you with accessing if you want to."? It won’t just be a question of saying, "Take that or leave it, or pay for it yourselves."

Ed Vaizey: I think that is something that we will make a decision on nearer to the time, but I imagine that we will want to have a cost effective solution for a platform change, but you are dealing with a very few thousand households. I think Mr Towler’s intimations are right. We are not going to pay for people to have Sky television for the rest of their lives because of the platform change. We will put in place a like-for-like change, which is most likely to be Freesat. I don’t want to pre-empt that fully, but that would seem to be the most sensible approach.

Q79 Paul Farrelly: You are so ratcheted up by this that I think we jumped ahead of ourselves and we have a few questions on funding that we wanted to talk about. Did we cover those at the beginning?

Chair: Yes.

Paul Farrelly: Well, can I ask one last question. After all this is over, how many independent suppliers, different suppliers, do you think will be involved in the provision of superfast broadband to remote areas a result of Government funding?

Ed Vaizey: Independent suppliers in what sense-independent ISPs or community broadband networks?

Paul Farrelly: BT and Fujitsu.

Ed Vaizey: At the moment, BT and Fujitsu are in place in terms of putting in place the infrastructure, but the infrastructure will be open access and we all know who the big players are. As well as being BT, it is Virgin and TalkTalk and Sky. TalkTalk tends to be the competitor that uses BT’s infrastructure the most. So we expect the marketplace to remain very competitive. There is no reason why the roll-out of superfast broadband to rural areas should restrict that. In fact, it should increase the competition, potentially.

Q80 Chair: Finally, on the 4G experience, you are talking about approaching a million households who either are going to have to get somebody in or go crawling around trying to fit filters to their cables. This is a huge exercise. It is quite a big logistical challenge. You are going to have to alert people; you are going to have to tell them what to do, how to fit the filter. Are you confident that you can do that? As a suggestion, the first inquiry that this Committee looked at under my chairmanship was digital switchover where we did, I think, raise some concerns and I would have to say in the main it has gone extremely smoothly with very few problems, and I pay tribute to Digital UK who I think have done a very good job. Switchover is about to finish. It will complete this year. Would it not be natural for Digital UK to continue in existence and take on this next exercise, which is not dissimilar to the one they have been overseeing for the last two or three years?

Ed Vaizey: I think that is a very good point and that is exactly the point I have made as we have put this process in place, that MitCo will learn a huge number of lessons from Digital UK and the way they went about digital television switchover. I echo your comments, Mr Chairman; they were hugely successful.

Q81 Chair: But why do we need to have a company learn lessons when you have a company that could do it?

Ed Vaizey: I imagine there will be quite a lot of transfer between Digital UK and MitCo, but there will be a different ownership structure because clearly the people who are responsible for the interference-the mobile phone companies-are going to be put in charge, just as the television companies were in charge of the Digital UK switchover.

Q82 Chair: MitCo is going to be owned by the mobile phone companies, is it?

Simon Towler: Yes, as Digital UK was owned by the television companies.

Ed Vaizey: So the people who have the technical knowledge and are on the ground putting in place the infrastructure that is causing the problem, as it were, are in charge. They are the ones, as I have said repeatedly to this Committee, who are in the position to mitigate a great deal of the effects of 4G interference and they can do that at their base stations. They can nip the problem in the bud very early on. We have put in place a very generous funding programme to allow help for vulnerable households and filters for people who suffer from interference and platform changes for a very small group of people for whom a filter is not an adequate solution, but the technology for the vast majority of people is very straightforward. We currently have a consultation on this issue. We are debating in a very open way, thanks to Freeview’s campaign, whether or not every single household will need a professional installer to come in and fit the filter, and we will take that on board. We have said repeatedly to Freeview that we are listening to their views and that we are taking them into account as part of the consultation, and we are confident we will put forward a solution that will address some of those concerns. We have taken some policy decisions that, in a different environment, others might have taken a different position.

Q83 Chair: I hope you will also listen to the views of this Committee.

Ed Vaizey: I certainly will listen to the views of this Committee.

Chair: It may well be that we shall return to this topic in due course.

Ed Vaizey: It sounds like we might well do, Mr Chairman.

Chair: Thank you very much.

Prepared 24th August 2012