Examination of Witnesses (Questions 128
WEDNESDAY 16 FEBRUARY 2000
128. Good afternoon. It is very kind of you,
firstly, to write to us with your views, which have been circulated
amongst the Committee and then, secondly, to give us your time
this afternoon. I am grateful, also, for you agreeing to come
together rather than individually, it possibly will save time
and may lead to some interesting exchanges as well, which might
not have been the case if you had come in separately. I hope you
are agreeable with that arrangement. I wonder if you would like
to open up with a few words at this point to supplement your written
evidence or, if not, we will go straight into questions.
(Mr Hall) I do not think so, Chairman.
I think most of it is self-explanatory.
129. Mr Hampton, do you have anything to add?
(Mr Hampton) No, I will stick with what I have said
130. I will start the questioning then. Listening
to the media today I understand the Chancellor of the Exchequer
is due to make quite an important speech this evening in which
he will be making mention of efforts to try to move I think probably
BT faster so that access to the internet will be speedier and
cheaper than had been the case originally. I am wondering if you
would care to comment on this, and I look particularly to you,
Mr Hampton, from AOL, to say a few words perhaps about how that
might affect ISPs particularly?
(Mr Hampton) Yes. As a company, we have been campaigning
to get what we call unmetered telephone prices for the last several
months, along with consumer groups, The Times newspaper
and a variety of other people. Unmetered means that instead of
paying per minute for your telephone calls, you pay an additional
monthly charge, either to BT or via us, and that covers all your
calls to the internet. The crucial point of that is you do not
have the clock ticking in your head all the time that you are
on line thinking "this is costing me money, should I log
off now or should I keep on trying". If the Internet gets
a little bit slow in the evening then it is a real trade off "do
I stay on while it is a little bit frustrating or do I go offline
and save my money". We think this is one of the most striking
differences between Europe and the US. Certainly we think it is
one of the reasons why we are not seeing enough e-commerce in
Europe. The facts are very clear, our members in Europe spend
between about 15 and 20 minutes a day online, our members in the
US, who are accessing pretty much the same type of service, are
on line 60-70 minutes a day, and this is a real gap in the usage
across the Atlantic. We think it is absolutely critical. We absolutely
support measures to lower call prices. The only thing that we
would caution is that this is actually an urgent thing to be done.
I think what the Chancellor is talking about is very much what
is also in the eEurope report which I suspect we will come to
later, which is emphasising so-called unbundling of the local
loop. That is really designed to liberate broad band services
in the future and is vital for the future but does not solve today's
pressing problem with this 40 minute gap between the US and Europe
in terms of usage per day.
131. How do you earn your living, not you as
an individual but the organisation? My understanding is that with
ISPs, their cash flows could be at risk if there is a reduction
in the take on phone charges?
(Mr Hampton) In the past there has been one type of
ISP. Until recently most ISPs charged a monthly charge to customers
for the ISP service. You paid BT for the telephone call part of
it. For a variety of competition reasons eventually part of the
call price ended up in the hands of the ISPs as well and eventually
it became clear that in fact the bit that was being passed from
what the customer pays, the one and a half pence a minute to BT,
was actually able to cover the costs of a light ISP. This is where
the free ISP came from. Our service is very much richer than that,
it includes a lot of content which you do not normally get directly
on the Internet. It has other things built into it which means
we still charge a subscription price. We think that is also good
for building a customer relationship as well. Inside the call
price is enough to pay for the so-called free ISPs, of course
they are not free, you are paying for them in your telephone call
charges. Going forward, what we should be looking for I think
is a choice for the consumer, some will pay the monthly charge
for the unlimited calls, and some will be paying per minute if
they want a subscription-less service because either they are
a light user or they do not want to subscribe, they have not got
the credit cards which you tend to need to pay for the subscription.
What we are going to get for the future is choice for the consumer.
It is probable that 200 free ISPs are unsustainable in any event,
because they are all looking to things like advertising revenues
as well to help boost their profitability and there is not enough
advertising around for 200 companies.
132. The departure of some of those could be
(Mr Hampton) The consumer may decide that in fact
they want to go back to the subscription model, the subscription
model gives them the unlimited calls which is really good for
people who want to do electronic commerce because it takes a while
to go shopping online or if they are interested in doing chat
which just takes a while to chat to people online, some people
are going to choose that. It is a market which is constantly moving
and this is just another development in it. The arrival of the
free ISPs was very fast.
133. Do you want to comment Mr Hall or is it
a bit distant from you?
(Mr Hall) Yes, indeed. I think all of us who have
been taking an interest and have been trying to promote this new
digital revolution have been concerned about the cost to the consumer
of using the services which we engineer and which, indeed, we
sell to people like AOL and they deliver them on. The unbundling
of the local loop is clearly of fundamental importance here because
some of the research we have done certainly implies that it is
not only a question of the cost, although the cost is important,
particularly for the home consumer. There are issues of cost for
companies and in particular for SMEs but for the home consumer
that is a big issue. The other reason is that it can take so long
to get to the services you want because you are having to go through
basically twisted copper and that is an inhibitor where people
have got used to instant access in other services, perhaps through
television or what have you.
Chairman: I think we shall probably be a little
bit general initially with our questions and then we will come
back to the European dimension.
Lord Faulkner of Worcester
134. Will you forgive me, Chairman, if I interrupt
and ask some questions for clarification? I would like to know
what unbundling the local loop means please?
(Mr Hall) At the moment, in spite of the deregulation
and liberalisation that has been going on for some years, it is
also sometimes called the last mile. The connection from the main
network, which generally speaking has liberalised into the home
or the business tends to be owned, if I can put it that way, by
the incumbent operators, and in the UK that is largely BT. Unbundling
is horrid industry jargon for liberalising that last mile of the
135. Letting somebody else provide the service?
(Mr Hall) Letting other people use the access more
Chairman: Breaking the monopoly.
136. I was interested, Mr Hampton, in your original
statement about the number of minutes spent on the Internet in
this country by comparison with the US. You must have done forward
projections. Also, Mr Hall said that cost was important but not
necessarily the only thing. In your forward projections do you
envisage a situation where in Europe, and not just the UK but
Europe as a whole, we will reach the US level, all things being
equal we will do, ie if the cost structure is the same as in the
US, or is there something different about this culture? Maybe,
for example, we have better television programmes this side of
the pond than by comparison with the ones in the US, and, another
point, people might not be as technologically adept in the EU.
I am really wondering if you envisage a situation where the average
amount of usage per person, per home or per business will be similar
in the EU and the US in future? That leads me into my next question:
have you made any assessment of home consumers as a percentage
of the total use of your services, both currently and in the US
and will they converge? I think it is important for us to get
some idea of what AOL and other suppliers are thinking about the
impact of the Internet.
(Mr Hampton) If I answer the second question first.
AOL is a family brand. It is aimed at the family, the people at
home. I think it is very, very largely used by families. We have
a compuserve brand which is now aimed at the so-called new professionals,
so young people with very busy lives but again it is for their
domestic use, so to speak. We are not in the business market at
all to any real extent. To come to your first question about the
number of minutes. In the US in 1996 you still paid per minute
for internet access there and it was at that stage that it became
unmetered in the US, they gave you a fixed price for the month.
Before that, while in the US it was still metered, the usage we
were seeing then was getting to 16-17 minutes a day. Immediately
after the meter was taken off it more or less doubled to about
35 minutes and since then it has gone up to 70 progressively since
then. The US was like how we are now. The other thing we have
done, I think it was about last May, we launched a flat rate trial
in Britain. We gave a limited group of people access to the Internet
for a flat monthly charge. It was so popular that people were
using the Internet to trade the disks that gave you the access.
What we saw then was people using this service were using it around
about this hour per day. I think people are not very different.
I do not think there is a great difference between the two. There
was some recent research from Durlacher, which was published a
couple of days ago, which suggested exactly this kind of thing,
we are going to see US style usage in the UK when we get rid of
the permanent charging.
137. If only we had the same thing with roads,
Mr Hampton, as in the US.
(Mr Hall) Could I add something there. In Europe usage
of the Internet is very patchy. In the Nordic countries, particularly
in Finland and Sweden, the daily usage is perhaps higher than
in the US.
(Mr Hall) Certainly in terms of penetration of internet
usage it is extremely high in Finland and Sweden. That reflects
social trends as well as technology. They tend to be small populations
in large geographies and therefore they will use the communications
media, including the internet, rather more than for instance people
who live within urban areas like this. Nevertheless, all of our
research supports what Mr Hampton has just said that as the price
comes down for the usage, and there is more attractive content
then people will use it more. If we could judge precisely when
that will happen, we will probably make a lot of money but we
know it is coming. Certainly, if you like, the empirical evidence
in those countries, North America, USA and Canada particularly
but also in the Nordics, shows how quickly the graph goes up when
the conditions are right.
139. Does it level out or are we likely to be
involved in the Internet 23 hours a day?
(Mr Hall) It has not levelled out yet and I think
it depends on what one is doing. If you have got government online,
education online, as well as shopping online and hobbies online,
then by definition you will be accessing the network more often.
Chairman: One of the practices of the Committee
is normally when you come in to appear before us to send you a
note in advance of any interests which Committee Members may have.
I overlooked at the beginning to say I give some advice with Andersen
Consulting, so I just want to put that on the record. Other Members
will similarly express an interest if they have one. Lord Chadlington
would like to ask something because he has to leave early.