Joint Committee on the Draft Communications Bill Minutes of Evidence

Examination of Witnesses (Questions 320-339)



  Chairman: It is very interesting that we have Microsoft and AOL who are both accused by Rupert Murdoch of drowning. I am glad to see you have not drowned and I am very glad to see you with us.

Mr Lansley

  320. Good morning. In the evidence that you sent to us, I think both of you have raised issues relating to the coverage of the Bill as regards telecommunications service regards Chapter 1, Part 2 elements, and the relationship between that and the EC Framework Directive. Let me firstly explain why I do not understand it and then perhaps you will put me and the Committee right. On the face of it, it seems to me that the intention of what is expressed in clause 22 is to deliver the framework, the same kind of interpretations as the Framework Directive and the definitions there and insofar as it does not include a reference to the exemption for information society services, which the Framework Directive does in its preamble, that is because the Bill elsewhere expresses more precisely what is intended to be regulated by way of television licensed or content services which my colleagues will come on to later. It seems to me that the intention of clause 22 is to be to deliver precisely the same kind of regulatory boundary as the Framework Directive, so why do you think that is not achieved?
  (Mr Lambert) I think broadly the Bill sets out to implement the Directive, but we think basically that in drafting it, it has been streamlined to such an effect that some of the exemptions intended in the original Directive have been lost in the implementation. Essentially, what we are saying is that there is a lack of clarity there which needs to be refined. We feel that it is not a huge leap in fact to clarify that in the final Bill, to alter the wording so that it reflects the original Directive very precisely.

  321. But the bit that I, and I may have misunderstood it, but the bit that I found missing which I think, yes, it was your evidence actually particularly related to was the exemption of information society services, but surely an illustration of that are things like the Web-based content. Clearly those are going to be dealt with, if they are dealt with at all, by television licensable content. Indeed the issues of content are dealt with elsewhere in this Bill, so why is it necessary in Part 2 to deal with content issues and say that they are specifically exempted?
  (Mr Lambert) Well, our reading of the Bill, and this is the reading which is clear, I believe, by many of the other submissions that you have received in writing and which we have seen, is that the Bill is not clear on that point and is open to interpretation the extent to which the content can be regulated and that that needs to be refined so that it is absolutely clear what can and cannot be regulated.

Lord Crickhowell

  322. Chairman, when I hear that type of comment being made, I always rather ask people, "Okay, if you think the wording is inadequate, could you suggest a better wording which would at least identify rather more clearly what your thoughts are?" You are making a point, but you are being pretty imprecise about it. It might be helpful, not now, but in a note to us, if you actually identify more clearly and perhaps suggest a remedy. We perhaps might not like it, but at least it will help with greater clarity.
  (Mr Lambert) We would be very happy to put forward further submissions to clarify exactly how we would alter that wording and to do that to you and to the DTI and the DTMS.

  Chairman: What is interesting certainly for us listening to evidence is that you quite clearly sense there is disquiet or a sense that the Bill could be stronger than that, but there is a reluctance to come forward with the type of clauses and the type of wording which would actually make it stronger and better. Now, I do not know if it is a shortcoming of the atmosphere the Bill has emerged in, but it does not help us and at the end of the day it will not help the Bill either unless we get the very, very best and most solid advice. As Lord Crickhowell says, we may not accept it or we may accept it, but I think you would help yourselves enormously by being very clear about what it is that you feel is inadequate.

Baroness Cohen of Pimlico

  323. You have criticised, as have many others, the speed of the rollout of broadband. We have seen the OFTEL regulator, David Edmonds, who said that he did not think that the provisions of the current Bill would have helped him to speed up the rollout of broadband. How would you wish to see this Bill amended in order to enable either the speed-up of broadband or whatever the next thing is?
  (Ms Thomson) If we could start with the speed-up of broadband rollout, I think in terms of that in the UK over the last couple of years there were very significant practical difficulties in rolling out broadband and combined with the very high prices in the market, it meant that we did not get very good take-up at the end of the day. Oftel did in the end put pressure on BT to reduce prices, which was one of the major issues, I think, in achieving quicker rollout, and I think what we saw was that Oftel was really quite effective in the mechanisms that they had in place and what they were able to do. It was quite simply the speed with which they were able to deliver it and we saw that previously with the rollout of flat-rate Internet access as well, so really our issue is about how we were able to act speedily and actually get things moving through the process as quickly as possible.

  324. This is a familiar issue to us and it has been put to us before about the speed when dealing with a dominant player like BT. Now, do you have any useful ideas about instilling speed?
  (Ms Thomson) Certainly we have a couple of ideas in terms of the appeals process which we have noticed in the Bill and I think perhaps Simon might like to comment on that. It is perhaps a negative comment, but perhaps worth picking up at this point.
  (Mr Hampton) For instance, in Germany there is a requirement for the decision to be taken within ten weeks, which compares to six months as being the requirement here. That puts enormous pressure on the regulator and not everything in Germany is perfect, far from it, but that is certainly an amazing standard to be set. I think the other one is that there has to be a concern about the whole appeals process which has in other countries been used very, very effectively by the incumbent operators to slow the process down, to a much lesser extent here, to be honest. Things, once they have been decided on the whole, have been allowed to pass through as BT have in one way or another got round to implementing them, never as fast as you would like, but in Germany you can count on adding nine months after a decision just to go through the appeals process, even if it then upholds the regulator and they should comply. The same practices you can see where the Irish incumbent does it, the Dutch incumbent does it and you have to imagine that BT are watching enviously the way that others are able to slow things down in the process.

  325. Do you think that the Bill could be providing more of an improvement?
  (Mr Hampton) Yes.


  In which case, speed of appeals is one of the things we are thinking about, speed with which the regulator is able to act is one of the things we are engaged in the contemplation of, so again we would welcome detailed proposals.
  (Mr Hampton) Yes.

Lord McNally

  327. Broadband is top of the agenda at the moment, but looking forward to the role of OFCOM, do you actually see it as having an innovation role? Should it be picking winners and should it be looking to speed up things that it is in favour of or should it be neutral as to technical developments and leave that to the market to decide?
  (Ms Thomson) We would like the regulator to be empowering and not actually picking winners. I have to say, we are involved in commercial operations and picking winners is pretty difficult and I think it may even be more so from a regulatory point of view. Speed of change in technology is so fast that if you even go back, say, 18 months to how people were predicting, for example, that mobile would be completely dominant in the delivery of Internet services, it has simply not happened. I think trying to pick winners is probably not a good idea if you are trying to engender creativity. Creativity comes from a dynamic and a competitive market, so I think the creative role of the regulator is to enable industry to actually have multiple companies really forcing creativity and innovation and ensuring that they can flourish in that environment. I see that as much more important than actually picking winners as it is the technology we want to drive. Partly the emphasis on broadband has attracted the rollout of Internet across the country because we have incredible penetration now into the UK of Internet services, particularly flat-rate services, and that is sometimes forgotten because there is such an emphasis on broadband. There needs to be a balance on different access and different accessing platforms because consumers will choose to access the Internet in different ways, but I certainly would not want to pick winners and I think it is actually much more about having an open and competitive market.
  (Mr Frank) I would just add about trying to predict winners that there are some enabling principles which are very important. With broadband it is clear that part of the consumer take-up issue is the lack of compelling services where people feel that the dial-up service is adequate for many of them, for e-mail and web-browsing, but it is going to be very important that people do not put regulatory obstacles in the way of developing the new services, the new applications which will go to make broadband more compelling to a broader set of audiences. For example, if one had a rule that you could not hook up a fax machine to a telephone line without paying an extra surcharge, that would be a problem for the innovation of the fax machine. If we start seeing people using the regulatory process to impose limitations on what they can hook up to the broadband access being brought into the home, we could see a delay in the innovation and experimentation with new services which will be compelling ones which are going to help drive the real value-add which will get them on.

  Chairman: You represent a quintessential team of global organisations that we will be talking to and the point Mr Hampton just made about Germany is very helpful. Any thoughts which you have of your experiences in other countries, even small initiatives which have been taken which have accelerated competition and broadband or other take-up would be enormously helpful to us, so please do not be backward in coming forward. If you think of something going on in South Korea which we could benefit from, it would help us as a Committee to know about that.

Brian White

  328. One of the things that surprised us from AOL was about the universal service provision and your suggestion that the Government should be paying for the universal service provision and any expansion of such a quality rather than the users such as at present. Why do you think that?
  (Mr Hampton) The universal service provision is based on the idea that where the service is generally available and there is a Government desire for it to be more or less 100 per cent available, then, under the universal service principle, that social policy objective is funded out of the industry. Now, at the moment for narrowband or for the conventional telephony, OFTEL calculated the costs of providing access across the whole country and decided that it added up to pretty much zero when you took into account the benefits for BT. Were it to be the case that targets were to be set for broadband, the costs could become considerably more substantial. Now, if those goals are set by government, say, in order to have everybody connected up to broadband, that is effectively a social policy objective or a rural policy objective potentially. It is absolutely unclear to everybody in the industry why industry should then pay for that. It is industry's job on a commercial basis to roll out broadband as far and as widely as it makes commercial sense to do so and beyond the conventional wire-line services, there are satellite-based services and various radio services which will help push penetration to a much higher level and proportion of the country, but were it to be the case that government wanted broadband penetration to go further than what the market could deliver, it is unclear why the market should then be forced to do that. That would be an illustration of the market mechanisms.

  329. So you are saying that it is okay just to have big cities having broadband, for example?
  (Mr Hampton) No. BT cover 66 per cent of the country, I believe, with one technology that they have available. They have satellite services which cover the entire country more or less, by definition, and then there is a whole host of wire-line services and 3G is the one that most people think of, but there are other technologies which exist and which are being rolled out to provide local areas with wireless-based broadband connectivity. These all have to be taken into account. I think the difficulty is that there is a lot of focus on how much does BT cover with VSL today and yet we are in a technology-driven sector and there is a huge number of technologies which mean a year from now the picture could look quite differently and yet there is a possibility that people will draw conclusions that today there is a problem and, therefore, we need substantial intervention. If that is borne by industry, then that creates essentially massive costs which are sort of market-entry barriers and will deprive the competitiveness of the sector.

Nick Harvey

  330. But these massive costs, in your view, should come out of a bottomless pit of government money and that every time there is a new development of any description in the technology sector, the market should come in and cherry-pick the cheaper customers to supply and then this pit of government money emerges to spread it out to everybody else that the dear old market cannot be expected to?
  (Mr Hampton) I think we are working on the assumption that we are actually going to produce an enormous amount of compelling content which actually will mean that there will be substantial demand in most parts of the country for broadband services in the next few years. That will create commercial incentives in the vast majority of the country and where it is the case that the Government wants to see more happen, then I think it makes sense that they finance that.

  331. One hundred per cent?
  (Mr Hampton) The Government should pay for what the Government wants. Industry is there to drive the commercial process and where there is sufficient demand, you can bet your bottom dollar that the industry will be there providing access to the services, but it is for the Government to pay for what the Government wants.

Lord Pilkington of Oxenford

  332. So what you are saying is that the less populated areas of the country are going to depend totally on government support if they want these services, like the place where Nick Harvey now lives?
  (Mr Hampton) Well, there are some pretty narrow initiatives in other countries where local communities have themselves clubbed together and brought broadband themselves and that is after the Government bringing it to them.

  333. Well, it does seem to benefit the industry more than anyone else and in the least populated areas of the country, each individual, just by definition, would have to raise more money and since you are in the least populated areas, the industry does not feel it can contribute and the local community, if they pay for it, it means each individual, as I say, by definition, pays more. Now, I am not saying it, but it looks as though you want to have your cake and eat another three cakes.
  (Mr Hampton) I think we are looking primarily to act as normal commercial companies, providing a service up to the point where it makes commercial sense and there are limits to what the commercial operators can do in any part of the economy, and governments step in to meet any further objectives that they have at that stage.


  334. Would you accept, Mr Hampton, that for the last 100 years it has been part and parcel of European social democracy that companies are partners in creating social equity because that is how you stabilise markets? Would you think that is a pretty sound way of going forward?
  (Mr Hampton) We have a number of initiatives on that side, but I think in the telecoms business too much has been inherited in the past where people worked with a monopolist called BT to provide a nationwide service. We are now at least in some activities in very competitive markets and that has to be taken into account. It is no longer working with one single partner who has a government monopoly which may or may not be accompanied with a role in achieving non-commercial objectives.
  (Mr Lambert) Could I comment on this point about whether it is actually industry or government. In terms of developing these new services and developing access to them, I think really we see it very much as a partnership with government in trying to work with government on the UK Online programme. Clearly one does not look to the Government to subsidise entirely access in rural areas to new services, to broadband and so on, but it has to be a partnership and the industry must come up with compelling reasons for people to go on-line and to spend money on better access and the Government has to work with industry to encourage people to get on-line, to be aware of what the opportunities are and to get the best out of the Internet and the new services which will arise from that.

  Lord Pilkington of Oxenford: To avoid any confusion, maybe you and Mr Hampton could have a chat outside of this room and offer us some unified view on that.

Lord Crickhowell

  335. Perhaps I should start by declaring an interest as an AOL user and that I will evaluate the offer that came over my apparatus in the last 48 hours for a new broadband offer. Having said that, I want to go into the difficult area where again both of you have expressed doubts and anxieties about giving us very precise solutions. You both detect a contradiction between the stated policy on excluding Internet content from content regulation and the provisions of the draft Bill and in a world of technological convergence, you understand the fear that we will move almost inevitably into some form of content regulation because it is going to be impossible to distinguish broadcasting from other things that come over the Internet. Now, we understand your anxieties, but neither of you again really produce solutions. Do you think there is a danger of locking in rules, I think as one of you points out, on the basis of technology in a fast-changing world? Perhaps you would like to develop the thinking on what is a very difficult and important question.
  (Mr Frank) Just to suggest that until there is a clearly compelling public policy goal that would require or suggest the regulation of new services, new services not be subjected to the regime of broadcasting rules. Still the general legal framework would apply, so protection of minors, illegal content, what is illegal off-line regardless of what is in this Bill is going to be illegal on-line, but starting from the presumption that there is no reason at this point to impose regulatory goals of the broadcasting regime on on-line content would be the place to start and could be revisited if experience proves us wrong.

  336. But you have anxieties about the ability of the Secretary of State to alter rules on licensable content, so you clearly have an anxiety that what is stated as a clear intent at the moment may in the face of pressure and changing technology move to a world in which there is an attempt to regulate it. Again we come back to the Bill and you state an anxiety and a fear that the Government will say, "We have made a clear statement of policy". Are you suggesting changes in the Bill in support of the situation and, if so, what are they?
  (Mr Hampton) Our concern is that the Government's stated policy objective with which we agree is not transposed into the legislation. As far as we can see, it would potentially cover the Internet and, therefore, the decision to move away towards regulating the Internet would then be one that OFCOM itself could take as and when it felt fit because it had those powers because we would be in a situation whereby the decision the Internet should be regulated would have to be implemented via the use of the powers that the Secretary of State gets from these statutes and, therefore, what we are looking at at the moment are definitions that would take the international property out of the scope, as drafted, knowing that it could come back again at some stage in the future, but then with a proper debate at that time. We have not yet worked out language to offer you, I am afraid. It is very difficult and we recognise this. From what we can see, the difficulty in one of the definitions is to distinguish the Internet from video-on-demand and we are trying to work out, since they feel different, how we can codify that in language and that will probably be our contribution in this area.

  337. The Bill Team are sitting listening to you and I am sure they will be very eager to have these suggestions, and we will be eager because we are faced with a Bill, we have got a statement of government policy, but a very understandable anxiety in the face of technological convergence of how people are going to use that technology, press little buttons and demand things and so on. If you really want the fear dealt with, you have to come up with practical solutions and, as you yourselves say, it is difficult.
  (Mr Hampton) We are very aware of that. We are also aware that sometimes if we do not recognise words in there it is because we are coming from a largely telecoms perspective and they are there for some reason to do with the content side of it and you know you cannot tinker with these words because they have some particular meaning, but it is very difficult for anybody from the industry to be able to understand why some of the words are there. We would like to propose simple deletion, but we know we cannot.

  Lord Crickhowell: I am sure you employ very skilled lawyers and others, so we look forward to having some solutions.

Brian White

  338. Is not one of the problems the reverse problem in that you have got a very proper regulatory framework for broadcasting and as the two merge, those regulatory protections for broadcasting get lost as it moves towards the Internet, so the fear, your fear of the Internet being regulated means a fear of broadcasting becoming totally deregulated?
  (Mr Lambert) I would say that in terms of introducing new regulation, one has to be mindful of the real impact of that. The industry should behave entirely responsibly and we hope that we do in terms of working with individual governments to try to ensure that content is acceptable and that certainly, particularly where minors are engaged, there is considerable co-operation between industry and, for example, the police services to ensure the protection of children wherever possible, just to take that one narrow example. However, you are talking about a phenomenon which is international and we cannot get away from that and trying to regulate it on a purely national basis can sometimes be counter-productive, as we have seen in other areas, and I can think of another related area, the gambling area, and the effort to impose taxation forcing gambling sites offshore. Whilst we in our part of the industry are international and Microsoft will of course always comply with national laws in markets where it is operating, we cannot say that about every single operator. Potentially there could be rogues who will step outside of that situation. I think really what I am saying is that you have to be mindful of what the real impact is and whether you can be successful in regulating that and whether you should not be looking at that in terms of a broader and international remit, for example, the European Union.

Lord Crickhowell

  339. You have introduced the distinction between provision and conveyance. Can you develop for us an approach which succeeds in separating them out because clearly you, Microsoft, do not produce the material which comes through your equipment? How far do you think the Bill does satisfactorily address the distinction?
  (Mr Lambert) I think you made the criticism earlier, Lord Crickhowell, that some of our comments have not been absolutely precise in defining how parts of this Bill should be worded and I think perhaps we should take that criticism as a fair one. I think when we set out to write our submission to you, we were mindful that we did not want to be presumptuous about how we tell you how to legislate really, but we will take the invitation to sit down with the Bill Team and perhaps come back to you in writing with specific comments on how some of these points could be better worded

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