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Lord Phillips of Sudbury: My Lords, I should like briefly to refer to a point already mentioned by the noble Lord, Lord Desai, in relation to the amendment so tellingly moved by the noble Lord, Lord Cope of Berkeley. Indeed, the noble Lord, Lord Cope, was open and "liberal" enough--dare I say it?--to say that the precise composition of the technical advisory board is not written in stone in his mind.

Although there is talk in the amendment of there being six members on the board appointed from the providers of technical services and six from the agencies which will use the powers under the Bill, there should be representation from the consumers of these services, not just the voluntary sector consumers but consumers generally. I congratulate the noble Lord, Lord Stevenson, on one of his earliest interjections. Amendments Nos. 18, 19 and 20 will deal more directly with the important points that he raised.

Lord St John of Bletso: My Lords, like my noble friend Lord Stevenson I did not get involved in the Committee stage. I declare an interest as managing director of one of the larger ISPs in the UK and a

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NASDAQ quoted company. In Committee the Minister mentioned that industry had been fully consulted on the implications of the Bill. I beg to differ. I have spoken to a number of colleagues who run similar large ISPs who are horrified at the potential consequences of the Bill. I totally agree with the noble Lord, Lord McNally, that it is essential that the Government gain the confidence of industry with regard to the Bill.

Amendment No. 14 is concerned with technical requirements. My noble friend Lord Stevenson mentioned financial consequences. I mention also legal consequences. Every ISP has to provide clients with service level agreements. The installation of a "black box" has severe implications from a security angle which would affect the guarantees in service level agreements. I do not resist the Bill, but I totally support and endorse the amendment which would help to win the confidence of industry.

Lord Blackwell: My Lords, I too urge the Government to accept the amendments that we are discussing. Rather than repeat the arguments that have already been made this evening and in Committee, I ask the Government to explain how they would envisage the measure working if the committee of experts is not in place. Given the pace of change of technology that a number of speakers mentioned in Committee, it seems to me inevitable that disputes will occur if the Minister simply imposes obligations on persons,

    "as it appears to him reasonable".

On occasion companies will dispute that those obligations are reasonable. They will say that the obligations are technically impossible and that they cannot be delivered in the way that is envisaged. I believe that some mechanism will have to be put in place to resolve such disputes. Therefore, is it not far better for the Government to accept such a mechanism and a committee of experts in the first place?

The Earl of Erroll: My Lords, I have entered the discussion rather late and I am starting to realise the horrors that might be involved. As access to the Internet speeds up at an extremely rapid pace, if the black boxes do not keep up with that and cannot monitor the traffic fast enough, presumably the Government will either have to give up the idea, persuade people to spend a fortune on developing them, or not monitor the traffic.

I may be able to develop a way round the black boxes. My main e-mail currently resides on a server probably based in Seattle as an American service provider provides my mail box. I assume that my communication goes straight across the Atlantic and is downloaded over there. That provider will not have a black box. If I get a cheap link from one of the telecoms providers to take me across the Atlantic for 3p a minute, presumably I can get round the black box by

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linking into an American ISP over the telephone line. I would love to know whether that is possible as it would solve a lot of problems.

Lord Bassam of Brighton: My Lords, some matters are beyond me and that is probably one of them.

Viscount Goschen: My Lords, with the leave of the House, I make the following point. I am well aware that we are on Report. The noble Lord cannot just dismiss the point made by the noble Earl. That matter is absolutely key; namely, that Internet traffic can be routed via overseas ISPs to evade cost, as well as regulatory and technical burdens. The noble Lord must address that issue.

Lord Bassam of Brighton: My Lords, I shall endeavour to do that. However, at this stage I wish to focus on the issues that have been raised in the debate and on some of the underlying issues. I believe that the noble Viscount, Lord Goschen, invited me to set out the Government's broader thinking, not least on issues of cost. I wish to discuss that before I turn to the amendments relating to the possible creation of a technical advisory board.

In Committee, I was pressed to make a more general statement about the Government's intentions with regard to the implementation of Clauses 12 and 13. It is right that I should respond to that matter now. Our response is not to alter the legislation significantly. We do not believe that that would be appropriate in this case. However, we can and do intend to give a greater indication of our strategy in approaching the allocation of costs and the implementation of an intercept capability. I wish to tell the House what we have in mind.

I start with Clauses 12 and 13 as currently drafted. The matter of the allocation of costs is dealt with in a Clause 12 order. I need to correct something for the record. The order itself will not deal with costs. However, the Secretary of State, in presenting the order to Parliament, will in practice have to explain the position on costs. This is partly because Parliament will expect that and partly because the Secretary of State will have to show that he has discharged his duty under Clause 13(3).

As many have pointed out, Clauses 12 and 13 necessarily contain a great deal of flexibility. That is important in order to ensure that the provisions can apply to a range of technologies and over a number of years. For both those reasons--that technology is changing and that we wish this legislation to have a certain longevity--we need to retain flexible arrangements. Noble Lords will note that Clause 13 requires the Secretary of State to pay marginal costs. We have defined what we mean by this at various stages. On the question of other costs, Clause 13 allows a Secretary of State to pay all or none of the costs involved. We regard that flexibility as essential but it has none the less drawn some criticism. It is the uncertainty that that creates which I now seek to address.

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I start with a resume of the current position in terms of an intercept requirement. We have set this out elsewhere. The communication service providers meet the cost of developing and maintaining the reasonable capability, identifying the relevant communication and delivering it to an agreed handover point within their network. The Government are responsible for meeting the cost of invoking an interception, transmission of the product from the handover point and any additional assistance beyond the reasonable capability.

That is the current situation. However, the Government appreciate that the emergence of new technologies--significantly Internet protocol--brings new considerations to bear. In addressing these new considerations, the Government must also bear in mind the need to ensure equity across the entire industry in the new arrangements.

The Government have estimated that costs to communication service providers not presently covered, but who will be covered under the Bill, will not exceed £20 million over three years. As is well known, that estimate was published in the regulatory impact assessment when the Bill was introduced in the other place in February.

None of the research since that time has caused us to alter this view. We stand by that estimate. We are aware that alternative estimates exist--the noble Lord, Lord Stevenson, made the point very capably that estimates have varied greatly--but we have not yet seen a reason to move from the £20 million estimate. Having said that, we do not claim a monopoly of wisdom on these complicated and difficult issues--we cannot--and we intend to ratchet up the level of our discussions with industry contacts to reflect that point. But we must go with the best estimate that we can make at this stage.

We have given careful thought to the way to approach the requirement under Clause 12. It should be noted that Clause 12 requires the Government to return to Parliament with an order before Clause 12 can be implemented. This order would contain more details of the capability to be required and it would be accompanied by more indications on the allocation of costs. The time at which that order is brought before Parliament will depend upon the progress that the Government can make with industry on technical considerations. In advance of the appearance of that order, and to aid today's debate, I shall now outline our strategy.

We start from the current position, which I outlined earlier, and I can move on to say that the Government will set aside an amount of money over three years, from April 2001 to 2004, to ease the introduction of the additional burden. We will set aside £20 million for that purpose.

I should outline the approach that the Government will take on allocating the money. First, the Government expect to fund most of the development of the capability for the interception of traffic transmitted as Internet protocol and for the building of any necessary equipment. Some people have

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estimated developmental costs at around £½ million; others have estimated that the costs will be higher. We shall work with industry colleagues on this development and, depending upon the extent to which the technology is genuinely different for interception or to which the technology is similar to that which the industry might itself need--for example, for record keeping or for audit purposes--the Government will pay either for the development of the capability or make a contribution. Part of the money we have set aside will be for this purpose and it will be the first draw on that money.

The rest of the money would, exceptionally, be available to service providers who require help with the installation of a new intercept capability due to new technology. Primarily, we are thinking here of the integration of the Internet protocol interception capability. My first point is that most service providers will not be approached with a requirement to install a capability. There may be some planning and consideration costs for smaller companies, but we genuinely do not think that these will be significant for larger companies. Where installation requirements are significant in terms of the size of the company, the Government will make a contribution. We have said many times that we expect these companies to be small in number. That view continues to be the case. Once installed, the CSPs will be responsible for ensuring that the Internet protocol interception capability is updated to intercept new services they offer and changes within their network.

I should at this stage divert to answer a couple of frequently asked questions. Some people assert that, as the coverage will not be universal, all that criminals will need to do is use a service provider that does not contain this capability. Others say that as the requirement will not be universal it will necessarily create inequities in the communications market. We reject both of those assertions.

As to the first assertion--that criminals will simply use service providers that do not maintain a capability--we do not expect that criminals will know which service providers maintain a capability. A more significant point is that criminals have, one presumes, known for some time that it is possible to intercept telephones--but this does not stop them using telephones. It is also the case that, while all public telecommunications operators may be required to maintain a capability, only a small number are called upon to do so in practice--yet we have shared with this House many times the significant results from interception at present--£185 million-worth of drugs was seized in this way in 1998. Current successes are ones that the UK as a whole simply cannot afford to lose.

As to the second point, that this will create inequities in the market, we reject this too. This will not be the case. The same criteria will be applied to all service providers regardless of the situation. The criteria will be: is this a new requirement on the service provider; how significant is the cost in terms of the overall size and turnover of the company?

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In practice, we do not expect to approach the smallest companies in this way. However, the smaller the company, the greater proportion of its costs the Government will meet, up to and including the entire cost of installation. None the less, if considerations are appropriate, we believe that it may be possible to reimburse some of the larger companies for some of the costs of installing a capability to intercept traffic carried over Internet protocols.

I should highlight one point: this money is all intended to be focused on the costs of developing, building and, in some cases, integrating the equipment for Internet protocol interception rather than on maintaining the capability. It would all be for the costs over the three years starting from next April. Once installed, and if the capability continued to be required, we would expect service providers to maintain and upgrade equipment; and, indeed, we would expect service providers to continue to maintain and upgrade equipment which already exists. I hope that that is an indication of how the Government expect to spend the money. We would approach the task by working with industry, with the intention of allocating the money only in respect of new requirements due to new technologies and loaded towards the smaller companies, although not exclusively for their benefit.

Parliament can expect more detail on these issues to be set out in the order which must precede any requirement under Clause 12 of the Bill. The money will cover the period 2001 to 2004. We do not think that it is possible at this stage to give an indication of our intentions beyond 2004. Further technological considerations may well by then have affected the equation, a point made very ably by a number of noble Lords. But we undertake to monitor the experience of the system we will put in place and to review and consider the cost issues--and to return to Parliament if necessary--at the end of that three-year period.

We believe that our practice continues to be consistent with international practice, and this is something that particularly we will keep an eye on over the next three- year period. For example, under the Telecommunications Act 1998 in Holland, Internet service providers are required, we understand, to pay the costs of providing the IP stream. This may prove more onerous than our regime in some circumstances.

Secondly, we also believe that there are benefits for industry from the use of interception. This is partly because of the potential and social costs of the drugs menace. It has been estimated, for example, that 50 to 70 per cent of the estimated £1.5 billion a year spent on drugs is raised through acquisitive crime. Perhaps more directly, industry may well appreciate the savings in national security terms gleaned from interception. Significant terrorist bombings have caused huge and extensive damage to business, not least in the City. Interception is one of the key weapons in the armoury available to prevent such bombings happening again. Evidently there is a business interest as well as a wider society interest in ensuring sufficient interception capability.

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Finally, our third argument is that to expect industry to pay at least a contribution towards these costs is a decision based on pure economics. Both government and industry should have an interest in minimising the costs involved. We do not believe this efficiency will best be achieved if industry has no financial stake in the matter.

We accept that considerations of the new technologies, the diversification of communication service providers and the emergence of small companies bring new considerations with them. We do not expect that we will approach the smallest and newest companies with a requirement to install a capability. But we shall approach some companies and focus on the nature of the technology that they are operating and on the overall impact on their business plan that the expenditure will have before allocating an appropriate contribution--more details of which we expect to be available to accompany the draft order to be brought before Parliament.

I hope that I have outlined our strategy with sufficient clarity. We shall make some money available; we expect it to cover the vast majority, if not all, of the costs incurred in the three-year period from 2001 when focusing on those companies which are installing an interception capability over IP and for which this expenditure would be significant. With the reassurance that these matters must return to Parliament in secondary legislation before they take effect, I ask that noble Lords will accept this indication of our strategy as sufficient reassurance as to our intentions in respect of the use of Clauses 12 and 13.

I turn to the amendments on the technical advisory board. I am conscious that I have taken some time in making my earlier statement. I trust that noble Lords will continue to bear with me as I respond to the important points that have been made. It is fair to say that there is probably not a great deal of difference between the position of the mover of the amendment and that of the Government. The difference is probably more the means of achieving what is sought.

The issue of a technical advisory or approvals board has been discussed at great length at all stages of the passage of the Bill through both Houses of Parliament. What has come through clearly, and I think very clearly in this debate, is how all sides agree on the importance of there being close dialogue between government and the industry on reaching agreement on what will constitute a reasonable intercept capability. Certainly, we have always stressed our commitment to that dialogue and we have all along maintained that it would make no sense to forge ahead without having industry alongside in tandem. I can see no virtue in that. We know that from our long experience of close co-operation with the public telecommunications operators which, most would agree, has worked very well over many years.

I should like to assure noble Lords that the Government's expressed scepticism about the necessity of setting up such an advisory board on a statutory basis is not due to inertia or any form of "bloody-mindedness" on our part. Indeed, we have

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given the matter very serious consideration since it was first proposed. Our most important consideration has always been that the industry itself expressed initial scepticism. Much of the advice we received from industry was that, if there was to be a body at all, it would favour a non-statutory advisory group, much along the lines of the arrangements which we already have in place with telecommunications operators. I can confidently say that industry has not been of one mind--this point has been acknowledged in the debate--on the proposal to set up a statutory body. Indeed, it still does not speak with one voice on the matter. I think that is a fact.

British Telecom has informed us that it sees no good reason to change the existing arrangements, which have always worked perfectly well. That was its comment. The communications company, NTL, has also expressed to us its hostility to any changes to the current practice such as the noble Lord proposes in his amendment. Cable & Wireless has informed my officials of its view that the current structure works well and that it can see no benefit to be gained from making the changes suggested here. Only this morning, my--

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