Select Committee on European Union Minutes of Evidence

Examination of Witnesses (Questions 128 - 139)




  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 so far.

  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 expedited then?
  (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 network.

  135. Letting somebody else provide the service?
  (Mr Hall) Letting other people use the access more freely.

  Chairman: Breaking the monopoly.

Baroness O'Cathain

  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.

  138. Really.
  (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.

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