Examination of Witness (Questions 540
WEDNESDAY 22 MARCH 2000
540. Protectionism is unlikely in same way regulation
A. Protectionism certainly, however I think
there is an argument for some kind of moderation or ability on
a domestic level. I do not think it can be done at a European
level because I think it is just too big, certainly on a domestic
level. To try to give you an example, we host Chat and we have
to be very careful about what content emerges from the conversations
that take place between people online and we are finding it increasingly
difficult to do that as volumes increase. There is also within
the Internet a cultural objection to wanting to interfere and
interpose yourself in a dialogue between consenting adults. I
think that it is an enormously difficult area to regulate. One's
instinct is to say, "Please keep way from it until such time
you as you see fit".
Lord Cavendish of Furness: We are taking more
responsibility for our lives.
541. You talked about attracting small retailers
and small businesses onto Freeserve, how do you monitor the quality
of the businesses that you are attracting on? Do you have a responsibility
to the 30 per cent of the households which you are linked up with?
A. For a start we began by acknowledging there
is a responsibility. If one looks at our e-commerce offering,
we had to address the question of trust and confidence on the
part of the consumer. We did that for obvious commercial reasons
because we realised that the consumers' lack of faith in this
new environment was one reason why they were not participating.
We looked around and there are a number of accreditation schemes
we could have signed up to as a business, which would have required
some kind of self-auditing process, and the like, and none of
them were impressive.
542. Are these unique to the Internet?
A. No, these are ones which have established
themselves as being unique to the Internet. What we decided to
do was create our own charter, if you like, which we impose on
the merchants we bring in and offer up to our consumers. That
may be a rather clumsy way of putting it, we developed something
we called the Freeserve Shopping Promise and we had to do a couple
of things. Legally we had to make sure that it was binding as
a matter of contract on the merchants. Freeserve is essentially
there to facilitate, arguably perhaps, an agent as a matter of
law. I think we are getting very close to agency at Freeserve.
I think we are getting close to acting as an agent sometimes and
at the end of the day once one acknowledges the responsibility
to the customer one hopes that one does not build up a huge tranche
of litigation if things ever go wrong. I am trying also to distance
myself at the same time. We impose obligations on merchants. We
do that in a number of ways. First of all, for the most part of
your trading with businesses which have a track record we select
them essentially, we require them to sign-up to the Freeserve
Shopping Promise and the guidelines for that are essentially the
Office of Fair Trading's website because the Office of Fair Trading
has an extremely good source and is an extremely good source of
online advice for consumers. We build a high pulling from our
merchants to the OFT website and we said that must be available
at all times. We required the merchants to make sure they had
proper fulfilment procedures, that they had a consumer redress
mechanism in place and consumers did not just have to buy with
a credit card, they could send a cheque in and that consumers
did not just have to contact the merchant by e-mail that there
was a telephone number that had to be available. We put all of
that together, we wrapped it up as the Freeserve Shopping Promise
and we imposed it as a condition of placing it on the Freeserve
website. So far we have gone through our first Christmas, and
that has gone down extremely well, touch wood.
543. Do you have sanctions against merchants
if they break your shopping promise?
A. We reserve the right to throw them off.
544. Under what circumstances would you do that?
A. For persistent material breach of the Freeserve
Shopping Promise, a failure to respond properly to consumers'
requests for information, a failure to comply with the Sale of
Goods legislation, a breach of privacy, all of those would be
deemed by us to be material breaches.
545. What about the nature of the goods they
sell, do you have any control over those?
A. Yes. In fact we had to do quite a big sweep
across United Kingdom legislation anyway because a number of products
people ask us to sell we cannot sell anyway, I am thinking particularly
of things like medicine. Tobacco we do not permit.
Lord Faulkner: None of your merchants sells
546. What about booze?
A. Booze is all right.
547. AOL came to give us evidence.
A. You mean America Online.
548. They said that in America they gave stronger
guarantees for all trade that took place on the network there
by comparison to what we currently offer in Europe, do you know
anything about this? They are your principal competitor as well.
A. Yes, very much so. Do American consumers
have better rights than European or United Kingdom consumers?
549. They offered better guarantees and underwriting
in the United States than in Europe.
A. I have to say I honestly do not know. I think
consumers' rights within Europe and in the United Kingdom are
pretty strong in terms of consumer rights and remedies.
550. I think it was business to a consumer rather
than their rights.
A. Where we have fallen down in the United Kingdom
has been on access to redress. The law is okay but I think that
within the United Kingdom consumer organisations have sometimes
represented that it is actually the access to redress where we
have fallen down. The Office of Fair Trading have accepted that.
I have to say I have no knowledge of United States consumer redress
mechanisms, so I cannot really comment.
551. I think it was a company sponsored form
of redress role rather than a statutory one.
A. The Office of Fair Trading, and I tend to
agree with this, have always rather stood shy of trade association
redress mechanisms. The examples that have usually been cited
are things like the motor trade, the shoe industry and furniture.
I have to say they have not covered themselves in glory over the
past fifteen to twenty years. One thing that the United Kingdom
has, which the United States certainly do not have, is the home
authority principle. In my own experience in retailing this is
a European issue as well because there is a proposal that European
redress mechanisms be put in place, and I think it would be tragic
if the United Kingdom lost access to the home authority support
that retailers have, which means they can consult, discuss and
talk about problems as retailers with the local authority Trading
Standards Association who happen to reside in their area. It would
be tragic if the EU redress mechanism ended up in the hands of
a consumer lobby rather than the people who are out there every
day acting on behalf of the consumer.
552. One last point about delivering services,
is delivery of the goods going to be a major, or could it be a
major, problem in the future? You hope your business grows and
so will other people's, who is going to actually deliver it and
keep up delivery times? Is that going to become a problem?
A. I think it has the potential. The DTI are
certainly worried about the impact on town centres from white
vans flying about all over the place. I have heard of the white
van site, because they expect so many white vans to be bought
over the next few years. Again, if we can get our infrastructure
together, if we can do the kind of things that they do in Holland,
where they get the trucking done outside the town and small vans
come in and make the delivery, it would be marvellous. The great
thing that the Internet does give the consumer is the ability
to track the product. One can only say that if fulfilment does
not work or if fulfilment is late or is delayed then consumers
will not buy it, it is as simple as that. That is true also for
telephone catalogue based ordering systems, so there is nothing
new in that.
553. Like all commercial companies you all try
and increase your market, quite properly, and it seemed to me
the other day Alta Vista had the ultimate in suggesting free access.
I am sure they will get some money back on advertising, I cannot
think they could possibly cover that free servicehere is
a chance for you to undermine your oppositiondoes this
sound a bit stupid?
Baroness O'Cathain: We expected that answer
554. Where do we go with ultimate goodies being
A. Following the Alta Vista announcement, from
a Freeserve perspective we had to think very quickly about how
we could respond, which meant that we analysed very closely, as
the business did when it first reached the view that it could
offer a subscription free for Internet access in September 1998
when Freeserve was launched. How could we offer something which
would reduce the cost of Internet access for the consumer whilst
at the same time recognising there is a telecommunications infrastructure
which needs to be paid for at some point by somebody? We were
able to negotiate with BT to offerit is not immediate,
we launch it in May£6.99 off-peak un-metered Internet
access on-line and with our current telecommunications provider,
Energis, from June we will offer a completely un-metered all day
peak and offpeak access proposition. We can do that provided the
consumer spends £10 a month.
555. Un-metered I can understand, but free I
do not understand.
A. In the United States they do have what they
call free. Of course the telecom environment is different. Alta
Vista cannot, in my view, turn that proposition into a realistic
Lord Sandberg: Okay. Thank you.
556. This is absolutely fascinating. I know
we could go on for hours in this area of Freeserve and its involvement
in the British market. During the course of the conversation I
had a thought that this is a marvellous opportunity for the Post
Office, however leave that to one side. What we have to remember
is we are a Sub-Committee of the Select Committee on the European
Union and we are looking at this with our European Union hats
on. You must have some views on the activity of the European Union,
is it tackling e-commerce in the right way or what role should
A. Our view is that it is now starting to get
to grips with eEurope.
557. It is.
A. The eEurope initiative is, perhaps, the start
of that. There is a bewildering number of European directives
facing us as a business at the moment, the commercial impact of
which we find very difficult to grasp. It is an area where one
is required to take quite specialist advice which costs a reasonable
amount of money. It is an area which then has to be fed into the
organisation for some impact to be understood. You always find
when you look at European directives they are presented for one
reason, which may be harmonisation; harmonisation is the reason
for a number of these e-commerce related directives coming forward.
They then have consequences in areas which nobody has ever thought
of. A good example of that is, perhaps, the Copyright Directive,
which is intended to harmonise copyright law across Europe, which
could have an impact on us as a business here because it may tilt
the balance in favour of the owner of the media of the content
in such a way as to require us to pay fees or levies or, indeed,
not get access to the product at all, which could stifle a market
before it is even born. I do not think when the European Community
were looking at the Copyright Directive as a harmonisation vehicle
they would have considered its impact in this environment. Although
there is now clearly a grasp of eEurope with the eEurope initiative,
I still think there is probably a serious gap in the knowledge
of those that are legislating at the moment over how these principles
will fall to be applied in a particular sector, which is emerging
and changing as quickly as the e-commerce sector is. I am not
sure I know the answer to that because those of us in the sector
find it enormously difficult to take the time to educate, if you
like, and to inform. If I were to say to you that I do not really
see where that process can happen in Europe anyway, perhaps in
part that answers the question because there is a whole series
of different offices and commissioners facing me and I have to
ask myself the question, "Who should I talk to?" That
is when we take advice and try and find the time for a trip to
Brussels to explain what is happening. Also it is probably worth
noting there are no trade associations in this area either. Legislators
and policy makers have generally benefited from being able to
go a trade association. I do not think that exists at this moment
in this sector and it is something that we should be considering.
Chairman: That is very helpful.
558. Perhaps we might be able to help you. The
reality is that these reports of the Select Committee of the House
of Lords are looked at and gone over with a fine tooth comb. In
order to make it even more pertinent I would find it extremely
useful if you could actually, wearing your general counsel's hatyou
have a lot of experience dealing with the legal side of the European
Uniongive us an aide memoire of your view of directive
by directive what you think they are likely to achieveyou
must have done this work, we would not want you to do anything
extraand say where you think the problems are going to.
That would give us, it would certainly give me as lay person,
a complete idiot as Lord Paul would say, some sort of handle on
A. We do not have it but we are working on it.
Once we have it, we will be very happy to share it with you.
559. How long do you think that may be?
A. Within the next couple of weeks. The reason
we have to do it is because these policies have a direct impact
on the commercial proposition so it has to be done anyway, as
Baroness O'Cathain: That would be very helpful
and we might be able to help you.