Examination of Witnesses (Questions 140
WEDNESDAY 16 FEBRUARY 2000
140. Yes, I am sorry about that but when I walk
out in 20 minutes it is not because you have said something to
offend me. I should declare an interest. I am Chairman of International
Public Relations, Chairman of TOL, which is an Internet company,
and director of Oxford Resources, also an Internet company. My
question for you is really about the conflict in your paper between
regulation on the one hand and commercial encouragement on the
other. I would like to concentrate on the notion of regulation
and hear what your views are on that. The bottom of the second
page of AOL's memorandum you seem to be saying that you are encouraging
a situation of self-regulation and I wonder if I could ask you,
first of all, to expand on that notion of self-regulation and
then perhaps, with the Chairman's approval, I will ask a supplementary
(Mr Hampton) I think a lot of areas of the Internet
have grown up managing themselves. Although it started off as
a defence network it very quickly took off in its own right and
has managed itself. For instance, the whole arrangement of the
names of websites and the underlying numbers, this has all been
done on a self-regulatory approach. I think the internet industry
as a whole feels that progressively, and certainly led by companies
like AOL which has always wanted to promote the Internet as an
e-commerce environment has always offered to do as much as possible
to fulfil its social responsibilities in advance of being asked.
We have done that partially because there is a fear that if we
are forced to do something, we will be forced to do something
which we cannot do compared with what the technology does allow
us to do. We have always attempted to be proactive on that side.
That is the past. In the future with e-commerce we are dealing
with an inherently global technology and it is actually very,
very difficult for an individual government, and to a large extent
for the Commission as well, and the Brussels institutions to get
a grasp on this. There is also a call amongst the industry to
regulate ourselves, regulate e-commerce because we believe that
is going to be the best way, the most effective way of providing
protection for the consumers in particular. As a medium, we are
competing with the high street, with the out of town stores, with
mail order so we have every interest in making our medium responsible
and responsive to consumers. We believe the most effective way
that is going to be delivered is through a self-regulated approach.
The only danger at the moment is there are so many initiatives
starting up rather than there being insufficient.
141. Mr Hall?
(Mr Hall) Very much what Paul is saying. The convergence
of IT telecoms and broadcasting creates a particular complexity
and as a company ICL have used the network of networks as just
the network. Provided it is digital we do not really see the difference
between the telecoms network, a TV network or an IT network. Historically
we have come from an unregulated industry unlike obviously telecoms
or broadcasting. Our culture and our experience reinforces the
virtues of industry self-regulation. We also believe absolutely
that it is so difficult in an environment which is changing so
rapidly to have regulation which will anticipate changes in the
market place and thus benefit both the consumer and the supply
side. We believe that industry self-regulation, which has a self-interest
in meeting the needs of the customer, because the customer will
walk away if you do not do that, is probably more effective than
having fixed regulation. I mentioned in my paper the distance
selling regulation which was drafted at least five years agomaybe
sixbefore all of this was happening and yet will be applied
to this new digital environment. We can see all sorts of difficulties
that might arise on that. Clearly, there are differences across
the Union in the business cultures. There is much more reliance
on certain forms of regulation in some Member States than in others.
The United Kingdom tends to be pretty liberal. The United Kingdom
also has a very long tradition of industry self-regulation. We
are very comfortable with the concept but we still have to win
that argument, it appears to me. When I say "in Brussels",
it is not the Brits versus the rest of the Union; it is just that
there has to be a discussion of the pros and cons so that the
strengths of our case get understood.
142. I can see the benefit to your organisations
of self-regulation in a sense, but self-regulation leads to the
possibility of exploitation. Let me take a specific example: the
provision of medicines which are not available across the chemist's
counter in the United Kingdom, which are purchasable over the
Net. They might be perfectly legal medicines in other countries.
I am not taking a pornography example or a drug example but one
which has a certain amount of social validity to it. Do you think
that there is any way at all that a part of the world can legislate
in some way so as to prevent those kinds of things happening?
If you were in charge, what would you do? Could you do anything?
(Mr Hall) I think you can legislate. Enforcement might
be rather more difficult, which comes down to how we operate in
open, liberal, democratic markets. I can only restate what I think
the industry has said many times: that we do not encourage anybody
to break the law. If there was a law that said "Thou shalt
not have access to certain pharmaceuticals" we would not
encourage people so to do. How to prevent them gaining access
to a global, unpoliced network, which might damage themselves,
I am afraid I do not have the answer to.
(Mr Hampton) There is not a way of stopping people
doing things. The Internet is the great enabler. For children,
there are things that we can do. AOL includes technology that
prevents children going to websites. The parents can set it up,
but adults have the freedom to explore the Internet. It is pretty
143. What happens if somebody purchases something,
say, in France and pays by credit card and whatever they are seeking
to purchase never materialises? What would self-regulation do
there to protect the consumer?
(Mr Hall) This is why we promote alternative dispute
resolutions. In fact, there is a dialogue going on in Brussels,
as it happens, between the European Consumers' Association, in
which the Consumers' Association of the United Kingdom plays a
significant role, and UNICE, which is the equivalent of the CBI
at European level, to look at issues like that. It depends on
the size of the credit card bill. Clearly if you have paid for
a Renoir with your Amex and it does not turn up, you will very
quickly go to the courts and get your money back.
144. Which court would you go to?
(Mr Hall) If it was a Renoir, you would very quickly
get on a train and go to a court in France. If it was a crate
of wine that you did not like or did not deliver, would you do
the same thing for something that cost £50? The danger there
is that the consumer could get ripped off 100,000 times at £50
a time. There needs to be some form of redress.
145. You are talking about regulation?
(Mr Hall) We are promoting self-regulation, using
alternative dispute resolutions to give the consumers the confidence
that, for instance, they enjoy in the United Kingdom at present
by working within industry codes of conduct and turning to people
like the Consumers' Association and indeed looking at the Fair
Lord Faulkner of Worcester
146. I want to take up a point Mr Hampton makes
right at the end of his evidence where he says, "It would,
in particular, be a catastrophe if consumer protection concerns
would lead to a fragmentation of the single market at just the
time that the Internet enables citizens to shop all around the
EU from the comfort of their own home." Is that not rather
at variance with what Mr Hall has just said? It is giving the
impression that caveat emptor is not a sufficient safeguard
and there should be in some way in which consumers can get redress.
(Mr Hampton) Exactly. What we support would be European-wide
codes of conduct so that although I might read the version on
an English website in English I would know that the people I was
dealing with, because I could see the relevant logo on their website,
were respecting the same conditions, albeit in French. There is
the issue of would I have gone to a French website in the first
place if I did not speak French. What we want is European codes
of conduct so that when you do get into a problem you can be sure
that the French supplier will act responsibly. The alternative
is to go to a court. Say you wanted to go to a British court.
You would get a British ruling but you would then have to enforce
it abroad. The court's proceeding at the moment was not designed
for a world where everybody was shopping cross-border. It was
designed several years ago when only a very small number of people
were shopping cross-border. This is one of those areas where the
Internet really does change everything because we all have the
capacity to buy from anywhere in the world now instead of the
very different situation as it was before.
147. If I want to buy a carpet from Pakistan
over the Internet, are you suggesting there could be some sort
of worldwide consumer protection arrangement which would cover
that as well as the crate of wine bought in France?
(Mr Hampton) No. I do not think you can rely on industry
to produce you those kinds of guarantees. At the end of the day,
most people shop from brand names that they recognise, from shops
that they recognise. It is not likely to be terribly different.
The reason why Amazon has succeeded is because it has a brand
name that people trust. Other companies are seeking to emulate
the brand name as much as they are seeking to emulate just the
sales of books and so on. This is why you see at the moment that
so many of the advertisements on the underground at the moment
are just for websites. They are building a brand because they
hope that the brand you will trust and then you will trust the
148. Do we not have literally hundreds and thousands
of websites being added every day from people who are new entrepreneurs
endeavouring to make as much money as quickly as possible, who
are not necessarily going to sign up to any consumer association
charger of rights?
(Mr Hall) That is correct. That is something we are
encouraging because it is certainly one of our ambitions as a
company to encourage more British entrepreneurs to become Web
entrepreneurs and create jobs here, create sources of supply here
that can then be exported to markets elsewhere. There will be
an element of risk. As Simon said, most people when they are surfing
the Web will be looking for brands that they recognise. As more
and more of the established retailers become Internet retailers,
there will be much greater consumer confidence because they will
recognise the brand names from the high street and from elsewhere.
Those retailers will carry their brand values with them, which
consumers have learned to trust over the years.
(Mr Hampton) Our brand name is trusted by our members.
Some of these small entrepreneurs set themselves up and they become
part of what we call our shopping channel, which is AOL's high
street. Because people know that they are getting to it via AOL,
they then have trust in these people who otherwise they have not
ever heard of and they would not shop with. It is one of the areas
where we add value. Our brand name adds trust to some of these
149. Not so far as underwriting though. That
could be a solution, could it not?
(Mr Hampton) This is regrettably one of those things
where the US is ahead. In the US, we do underwrite the people
that you buy from and it is something that we are contemplating
for the United Kingdom market but it is not there yet unfortunately.
I would love to be able to announce that.
150. And for elsewhere in Europe?
(Mr Hampton) Once we bring it to the United Kingdom
we will do it in the other countries where we are active as well.
Lord Cavendish of Furness
151. Am I right to believe that the last mile
is a physical as well as a monopolistic question? There is the
question of the actual technology of the last mile as well as
who owns and controls it and puts the tariffs on? Secondly, while
I understand and accept the metering proposal and how good it
would be to do away with it, given the differences of culture
and doing things, one continent with another and one country with
another, is it self-evident that the more minutes you spend on
the Internet the better you are or the better you are doing something?
The American practice of having breakfast meetings has almost
been proved not to be particularly efficient. Thirdly, my question
is on self-regulation, which I think rings a little hollow in
this context. As somebody who is chairman of a business which
is potentially very dangerous and where the government undoubtedly,
through its regulation and its inspectors make it more dangerous
than it need be, but were they to say to me, "Cavendish,
your industry will be safe", I would be much safer than I
am being regulated. On the other hand, I have always felt it reasonablevery
well described in the Piper Alpha Report by Lord Cullento
make a safety case which an authority then could comment on and
say, "This is what I propose to do to be safe." Might
there be mileage in the Internet world actually working on the
regulation case, "We will do this", which then governments,
authorities and institutions could look at and comment on, rather
than deliver regulation from on high?
(Mr Hall) The last mile is physical. There are issues
about the state of the network and whether it should be twisted
copper or whether it should be high band width as well as, if
you like, commercial questions about access. The fact is that
the current network in the main to domestic homes is twisted copper.
There is an issue about how quickly that will be uprated. The
question of safety and other public policy objectives and how
that then gets interpreted into actions that achieve the objective
is one that we are trying to get our heads around as well. Certainly
we think there is a role for coregulation, where, as is happening
in the United Kingdom, HMG goes through the process, states the
policy, but then leaves it up to the industrial players and other
stakeholders to deliver that. With regard to the Electronic Communications
Bill, for instance, which is currently going through Parliament,
the government has stated how it wants the use of encryption to
be handled but is looking to industry self-regulation to deliver
that. In our business, encryption is probably the area which causes
the greatest furore in terms of safety of public policy issues.
As the big picture evolves, we will see examples of coregulation.
I do not think we are claiming that we should be above the law
and the law does not apply to us. What we are saying is that when
laws are being drafted and considered please involve us early
on so we can explain and maybe help identify where there might
be difficulties in implementing that law. One of the big issues
for us working across the Union is compliance. What is acceptable
and proper in the United Kingdom may be quite difference in France
and Belgium. If you are trying to operate across the Union, that
becomes a huge compliance cost. We are looking for simplifications,
rules and codes of conduct which are very similar across the Union
so we can build systems that will react properly within that framework.
152. Must that not start from the bottom? If
you have goods or services to sell, is it not for those sellers
to get together and say, "This is the way we would like to
operate in order to protect our customers"?
(Mr Hall) I think that is precisely what we are proposing.
153. I want to come back to self-regulation.
There are a lot of countries where self-regulation has not worked
in Europe and this business is very global. Even in Britain where
it used to work it is difficult. How do you expect that self-regulation
can work in this industry which is absolutely global?
(Mr Hall) I do not think that in the short term there
will be global self-regulation. It may happen in particular industries
where there is a long tradition of operating globally. In financial
services, there is a degree of interworking between self-regulatory
schemes. The oil industry which is global perhaps has schemes
that could lend themselves to that. Rather, we are looking at
the European level to see a greater emphasis on self-regulation.
That is from my company's perspective in our domestic market.
When we operate in north America, we would expect to work within
their industries' self-regulation rules which will tend to be
similar because the industries themselves have similar attitudes,
even though they may not have similar histories. We are quite
clear in our own thinking that this provides for the flexibility
as the markets change.
154. Even in a country like Britain, self-regulation
in other industries is not functioning any more, or it is functioning
less and less. In an industry like this, what is the hope?
(Mr Hall) I cannot speak for other industries. I have
no competence outside my own industry and some might even question
my competence in that because it is changing so quickly. The self-regulatory
practices with which we are involved have evolved as the IT industry
has evolved in this country and in Europe. I do not perceive problems
with self-regulation. However, we do not operate in a vacuum.
If self-regulation fails, I am sure that the governments would
step in to either bring in new laws or to require governmental
bodies or NGOs to take action.
(Mr Hampton) Maybe one of the issues that you are
concerned with is enforcement. That is clearly an important issue.
I think it is absolutely vital for this new medium to establish
confidence in competition against other mediums. We have every
incentive to ensure that. I can understand that you might still
have concerns. The other side of it is that what we need if we
are going to work in a global market is a degree of harmonisation.
Frankly, the European Union is too slow and by the time it has
harmonised it has probably harmonised the wrong thing. As Mr Hall
said, industry does tend around the world to think about things
in much the same way. You will get a kind of de facto harmonisation
through these industry self-regulatory approaches on both sides
of the Atlantic. That is going to be a very valuable element in
Lord Woolmer of Leeds
155. I assume that in the business to business
area there are more well established procedures by which one checks
on supplies and suppliers check on the likelihood of their customers
paying up. There are various checks, transparencies and so on.
The issues we are discussing principally relate to business to
retail customers. Is that correct?
(Mr Hampton) I cannot imagine that it would be necessary
to intervene on the freedom to contract that exists between businesses.
156. This discussion is principally about business
(Mr Hall) My understanding has been that we are talking
here about business to consumer rather than business to business.
157. Is there any evidence that large corporations
seek to apply e-commerce through the supply chain globally and
that itself is creating a need to have a global process of checking
up on suppliers and so on? One can do it in an established chain
in one's own country in Europe, but the notion of e-commerce is
that it widens enormously the access and availability of suppliers
often in the business case.
(Mr Hall) I do not have any anecdotal evidence that
there is a problem because before a company enters into a contract
they will go through their normal contracting processes. They
will do it much quicker by e-mail or web linked systems. That
will cover the standard contracting terms. That is one reason,
I suspect, that the business to business sector is growing rather
faster than the business to consumerparticularly the case
where you have industries which already source globally and they
are already searching for new sources of supply.
158. Could I touch on a point in your own paper
on the first page, where you make two points? You talk about whether
Europe will become a serious competitor in the global markets.
What do you mean by that? "The big question is whether EU
sources of supplyprimarily of electronic commerce engineers
and venture capitalcan increase sufficiently quickly not
only to satisfy domestic demand but also to allow Europe to become
a serious competitor in the global markets." What is it that
we are all getting bothered about?
(Mr Hall) Anybody who is in business should start
getting bothered about it if their market can be attacked by competitors
that they do not know simply because those competitors make more
effective use of the global networks. A major concern that we
have as a company is not that the Europeans do not understand
the technologythe technology is global; everybody gets
involved in itbut that we do not have the skills in our
companies to implement the technology both swiftly and efficiently,
thus not just maintaining existing competitiveness but perhaps
becoming more aggressive in trying to take business from other
people. That is an issue. That is essentially business to business,
although business to consumer comes into it as well. On the business
to consumer as well as business to business, we would like to
see the United Kingdom and the EU become sources of supply rather
than being places where the demand is being satisfied from outside
the EU. We would like to see more companies growing faster here
and generating the value added in Europe. We are not downhearted
about this. We see it as an issue but certainly as far as digital
goods are concerned, bit based goods, we believe there are huge
opportunities not least as far as education is concerned and other
content that could be delivered over the network. There is a particular
opportunity for the United Kingdom because of the English language
and the creative industries in this country, but we have to move
fast because the markets themselves are changing fast.
(Mr Hampton) We are an intermediary in this business
so we are also looking very much at the demand side. You need
both of them to rise at the same time. You need more potential
customers coming online before the suppliers see an entrepreneurial
advantage in becoming a supplier. The two are going to go hand
in hand. We should never lose sight of both of those.
159. In your paper, Mr Hampton, you said that
the EU draft Action Plan is something of a shopping list, a document
which we have all read and I am sure we would all concur with.
Are there any items in that shopping list that are rather more
important than others in your view?
(Mr Hampton) We think cost of access is crucial. The
proposals they come up with for broad band are great for a broad
band future some time in the latter half of this decade. What
they fail to recognise is that the Americans are doing e-commerce
using their telephone lines at the moment. You do not need a broad
band connection for that. All the estimates are that only 25 per
cent of connections to the Internet even in 2004 will be broad
band. Narrow band ought to be today's focus. That is not mentioned
at all in here which is highly regrettable. The school side is
very important but it is difficult now to find a government that
is not aware of that, although there are some that are more ahead
than others. Risk capital was one that Mr Hall raised in his paper,
which I think is important. Some of the others are important but
they are a bit peripheral. What is really lacking here is you
do not get the impression that they have done a serious analysis
of the situation and where we are going. If you compare it to
firstname.lastname@example.org, that is rather a good document.
The other very creditable thing in that is that it sets the United
Kingdom government deadlines of three or four months. These are
credible to Internet companies. Deadlines at the end of this year,
the end of next year or the year after are way beyond our radar
screens. Just with our staff, we have six month objective periods
and six month bonus periods. Most companies do this on a yearly
basis. It does not make sense on the Internet to do that.