Select Committee on European Union Minutes of Evidence

Memorandum by BT plc


  Use and acceptance of e-Commerce are increasing rapidly and inexorably. Growth is controlled by a complex mix of "environmental" factors and is not simply dependent on the costs of telecommunications links and access to Internet Service Providers. The UK has now reached the point where the momentum for deployment of e-commerce, business to business and business to consumer, is unstoppable.

  Little action is needed from government at EU or national level once basic enabling legislation covering electronic signatures, e-money, and liability is in place. These provisions should be consistent with global developments. E-commerce intermediaries must not be held liable for material passing through their systems and must not have burdensome monitoring/control obligations placed on them. Maximum use should be made of the internal market principle of "country of origin" regulation coupled with mutual recognition of licensing/controls. The pace of change is so rapid that any more prescriptive interventions risk being counter-productive.

  Effective use of e-commerce by the EU and national governments has great potential to stimulate use and acceptance. E-commerce is, however, incapable of providing quick and easy solutions to longstanding issues of social exclusion. The attainment of a "Knowledge Economy" is not dependent simply on access to communication tools but also depends on heavy investment in basic education and training.

  Inconsistent, or unduly prescriptive, policies at national or EU level will create uncertainties and costs, deterring expansion of e-commerce outside national or EU boundaries. E-commerce suppliers and consumers must be able to make binding choices of law and forum, other than that of a consumer's domicile.

  There is an ongoing need for close policy co-ordination within the EU institutions and at member state level as e-commerce embraces an ever widening set of traditional responsibilities from teaching to transport to health-care.

  This memorandum responds to the questions set out in the Committee's letter to the company. The questions are considered in the order asked. A background paper is also attached.

What needs to be done to create confidence and stimulate e-commerce?

  1.1  Demand for e-commerce services is rapidly expanding in the UK, particularly in the business-to-business sector, which represents over 80 per cent of e-commerce revenues. The 1999 Goldman Sachs report "B2B: 2B or not 2B", notes that a key determinant in the take-up of business to business (B2B) strategies is the position in the adoption lifecycle.

  1.2  For businesses and consumers the life-cycle has now reached the stage of the "early majority" and rapid growth is assured as market forces operate. Detailed prescriptive intervention by government, at EU or Member State level, at this stage, risks slowing growth by increasing regulatory risk, removing investment incentives, and distorting competition.

  1.3  This factor is highly significant and account should be taken of the lessons of the FCC in the US. A July 1999 paper entitled "The FCC and the unregulation of the Internet"[1] provides the following insights which are applicable to e-commerce: "Fundamental lessons learned from the Commission's thirty year deregulatory approach towards data networks include:

    —  Do not automatically impose legacy regulations on new technologies,

    —  When Internet-based services replace traditional legacy services, begin to deregulate the old instead of regulate the new; and

    —  Maintain a watchful eye to ensure that anti-competitive behaviour does not develop, do not regulate based on the perception of potential future bottlenecks, and be careful that any regulatory responses are the minimum necessary and outweigh the costs of regulation."

  1.4  Factors that may have had a braking effect on the take-up by businesses and consumers of e-commerce in the UK include:

    —  lack of skills and knowledge about e-commerce;

    —  lack of a common understanding about the opportunities and (for businesses) the threats presented by e-commerce;

    —  concerns about privacy and governmental monitoring;

    —  concerns about an effective legal framework to deal with issues such as electronic money, intellectual property rights, security, digital signatures, consumer protection, and taxation; and

    —  PC costs (the report, entitled "Moving into the Information Age: An International Benchmarking Study"[2], noted the cost of a PC as a major barrier to take-up in the UK).

    —  perceptions of Internet access prices higher than they actually are.

  1.5  A range of solutions already exist which could help address some of the issues around security, authentication and verification which appear to be contributing to the slower take-up of e-commerce in the UK. Organisations such as the Alliance for Electronic Business (AEB) provide fora for discussion between government and the private sector.

  1.6  It should not be assumed, therefore, that looking ahead there will be a high level of distrust or lack of interest in the utilisation of e-commerce in the UK. Neither should the UK and Europe's later take-up, by comparison with the USA, of some aspects of e-commerce be seen as an indication of such a situation.

  1.7  BT supports the various initiatives which have been introduced or announced by the UK's Office of the E-Envoy under Alex Allan. These link well with PIU reports such as "Wiring It Up" and "Adding It Up", published January 2000, which address cross-government issues in order to modernise the delivery of government services to UK citizens and businesses. The pro-active thrust of the NAO's report "Government on the Web" (12/99) is also relevant.

  1.8  A more detailed paper considering issues relevant to the adoption of e-commerce is attached.

Does the European Commission's draft Action Plan "e-Europe: An Information Society for All" offer a realistic means of promoting e-commerce in the UK?

  2.1  The Commission's draft Action Plan is a valuable top-level summary of the issues, which articulates a clear vision for the future, in particular where it highlights a number of "enabling" areas that are appropriate for government action—such as teacher training, spectrum allocation, and Internet access to government processes.

  2.2  BT supports the majority of initiatives outlined in the Commission's "e-Europe" document and has, for example, already taken steps to facilitate Internet access for schools, and develop services for the disabled. BT is also working to support the NHS in achieving the strategic goals expressed in its seven year strategy document, which reflect the thinking evident in the "Healthcare online" section of the "e-Europe" document. Examples of healthcare initiatives with which BT is involved, include Clinical Governance, Electronic Prescribing, and the National Electronic Library for Health.

  2.3  One of the objectives of the "eEurope" Communication is that the Council and the European Parliament should make every effort to ensure that the remaining e-commerce related directives are in place by the end of 2000. BT has a number of concerns about these proposed directives:

  2.3.1  The proposed Copyright Directive and the proposed e-Commerce Directive are amongst the most critical measures currently under consideration in creating the right framework for e-Commerce and the growth of the knowledge based society, with all of its potential benefits for job creation in the European Union. The protection of copyright on-line is essential so that wide dissemination of content is possible without compromising the rights of suppliers or imposing undue policing burdens on service providers. The issue of liability for infringing material disseminated over the Internet has to be addressed in a pragmatic and efficient way, which stimulates industry co-operation and the development of codes of conduct where possible.

  2.3.2  Realising the full potential of e-commerce in the EU is crucially dependent on SMEs entering the market on a widespread basis. The present proposals for amendment of the Brussels and Rome Conventions are confusing and could hamper the development of e-commerce in Europe. If the proposed text were to enter into force, the overwhelming majority of all e-commerce disputes between a supplier and consumer would take place in the consumers' home courts and apply the consumers' home laws. It is extremely important that government at EU or national level does not limit consumers' freedom to agree contractual jurisdiction and applicable law at the time of making a transaction. The widest choice of goods and prices may only be available to consumers willing to accept "country of origin" jurisdiction and applicable law—but the choice should be allowed them and they may if they wish choose to patronise only merchants offering "country of destination" rules. BT supports the attempts being made, in the European Parliament to allow e-merchants to include legally valid statements that "country of origin" rules apply to transactions on their sites.

  2.4  Policy makers need to consider the impact of all such proposals on the prospects for an entrepreneurial economy. The EU legal framework for e-commerce should be adopted as soon as possible in order to give certainty to businesses and consumers. Naturally the emphasis should be on self regulation and the encouragement of best business practice, rather than prescriptive models which anticipate particular technical solutions and would inhibit the development of e-commerce. Detailed recommendations, in such a fast changing area, could risk distorting the competitive process.

  2.5  Excessive prescriptive intervention is a particular risk in the telecommunications arena where markets are, or are rapidly becoming, competitive.

  2.6  BT has been working to develop proposals for cheaper Internet access in the UK based on the "Surftime" approach and has announced a new package which will make the UK a very competitive location for Internet access.

  2.7  BT has given an undertaking to work with Oftel and industry to introduce LLU by 1 July 2001. In view of the agreement of the European Council at the Lisbon Summit to work towards introducing greater competition in local access networks before the end of 2000, BT is currently working with Oftel on the relevant provisioning, support, and maintenance issues, and implementing technical and customer trials.

  2.8  The price for unbundled local loops will need to give a fair return to the owner and must avoid deterring investment in new local infrastructure—either radio or cable—and should discourage undue focus on high value customers.

  2.9  Broadband access is only now beginning to assume a high profile in the minds of consumers and businesses, and BT's own plans for ADSL roll out will provide the kind of quality service that its customers will be expecting from a broadband network.

  2.10  BT recognises the strong desire of UK policy-makers to implement cheaper, broadband access ever more quickly and believes that this can be best achieved through vigorously competitive infrastructure markets. It is relevant to note that over 50 per cent of the country's homes already have three potential broadband service channels; namely broadband service over BT's copper wires, the CATV company's copper wires; and the CATV company's coaxial cable. This figure will rise to approximately 70 per cent when franchise areas are fully built.

  2.11  Local access is, of course, only part of the Internet picture and BT is investing in a high capacity Internet backbone network which will ensure that the core is able to transport information at the speed of the fastest new local delivery technology.

  2.12  Leased line tariffs are one of a number of important issues. The UK leased line market is highly competitive; many prices are at similar levels to the US and are continuing to fall further. In Europe, prices have to be cost-oriented and the UK is one of the few countries where the incumbent can clearly demonstrate that its tariffs meet this requirement. A recent report prepared by Fischer & Lorenz for the European Commission shows that UK charges for international leased circuits are equal to or significantly lower than those in the USA and are around 80 per cent of the OECD average.

  2.13  The idea of an eu top level domain has been conceived as encouraging European businesses and consumers to go on-line. It remains to be seen how effective this will be in the development of European e-commerce through its addition of an extra option beyond existing national and global domain names.

  2.14  Perhaps the most important requirement for European policy is that it not foreclose any commercial options. The overall understanding of e-commerce futures is still very weak and there is no clear idea of where or how wealth creation will take place. Companies are seeking to develop their strategies and need maximum freedom to do so.

  2.15  Smart card development will benefit from the priority suggested in the "e-Europe" document but work must be based on international standards and burdensome infrastructure obligations should not be placed on industry.

  2.16  The EU should not be unduly concerned at this stage about differences from the USA as long as the environment is sufficiently nurturing. Although there may be "first mover" advantages, these will last less long in the Internet world and may be compensated by "next generation" effects where later entrants gain the benefits of lower cost higher performance technologies.

Will codes of conduct and co-regulation provide sufficient protection? Is there a case for intervention by national governments and the EU?

  3.1  There is now a common appreciation in industry and consumer bodies that the way to achieve effective and timely protection is through codes of conduct and co-regulation. Broad introduction and take-up of e-commerce is entirely dependent on the mutual confidence of consumers and providers. Codes of conduct and co-regulation constitute the practical means to deliver protection because they are created as a result of direct, first-hand practical experience of those involved in e-commerce (in any capacity) and are inherently amenable to adaptation and updating in time-scales that can keep pace with the rapid rate of developments.

  3.2  BT, therefore, believes that codes of conduct and co-regulation will indeed provide sufficient protection. It is strongly in industry's interest to build consumer confidence (consumers now appreciate this too) and evidence in other areas (eg travel, banking, etc) suggests it will find means to do so. On-line dispute resolution processes are being developed to meet the undoubted challenges created by an explosion in cross-border and paperless trade (at all levels of trade) and there are numerous issues to be solved—including affordable document translation procedures, and availability of trained e-arbitrators.

  3.3  Government's valuable role is as a "backstop" and should be particularly directed to intervention where primary legislation is necessary, eg to enable electronic transactions to be legally valid; to address taxation and customs and excise issues, which are exclusively within government's purview; to active participation in trans-national harmonisation initiatives (in particular to counter protectionism); to ensure initiatives such as broader availability of joint liability protection from credit card companies; and easy access for consumers to the information and means to obtain cross border redress in national bodies such as the OFT and its equivalents abroad and through the formal legal systems.

Do the institutions of national governments, on the one hand, and the European Commission, the Council of Ministers and the European Parliament, on the other, function with sufficient flexibility and coherence to promote the EU's objectives in the field of e-commerce?

  4.1  Co-ordination is of course important as e-commerce initiatives promulgated by the Single Market directorate also affect the work of the Consumer Protection, Industry/Enterprise, Justice and Home Affairs, and Information Society Directorates General. Drivers for many initiatives impacting on e-commerce have arisen outside the e-commerce field making co-ordination difficult.

  4.2  There is an increasing number of new co-ordination challenges as, for example, the e-Europe initiative seeks to embrace transport and health issues, and the question of Internet taxes is being re-examined globally.

  4.3  The level of generality required in an EU Directive (for reasons of subsidiarity, compromise wording, and the need to cater for different legal frameworks) may prevent the best solution emerging for enabling legislation and may result in differing interpretations and transpositions at Member State level. An example is the issue of liability of intermediaries for copyright infringement—where the US Digital Millennium Copyright Act has additional liability "safe harbours" for telcos and ISPs and specifies detailed procedures which in the EU are to be left to evolve through codes of practice and ongoing court actions. This evolution will leave the e-commerce industry with a level of uncertainty for some time to come.

  4.4  The Commission is right to recognise that the traditional legislative process is too lengthy and inflexible to produce timely legislation for Internet and e-commerce—an environment where change occurs at least four times faster than has been the norm in the past. This argues for a hands-off approach once basic enabling legislation is in place.

  4.5  Member State governments have also faced challenges of internal communication and co-ordination. BT welcomes moves towards greater openness such as the current DTI consultation on the Brussels Regulation.

Should existing EU institutional structures be changed, or new ones created, to improve policy development and co-ordination?

  5.1  It is very welcome that President Prodi has given a political lead, through the eEurope initiative, to completing the EU e-commerce legislative framework by the end of this year. The challenge will be to ensure that the strength of the top level commitment to creating an e-commerce friendly legislative environment is sufficient to ensure that legitimate sectoral interests are accommodated without losing sight of overall objectives.

  5.2  E-commerce and use of the Internet are inherently global/borderless activities. The EU needs to ensure that its policies are fit for a global framework and must thus avoid actions which will place e-merchants within the EU at a disadvantage to their competitors elsewhere in the world.

  5.3  BT agrees with proposals for EU level co-ordination to ensure consistent application of rules across Member States, and to prevent fragmentation of the single market. So far as the Competition Directorate's proposals for Modernisation of the system for implementation of competition rules is concerned BT welcomes the Commission's assurances that such a change should not result in greater legal uncertainty for companies or dissimilar treatments across the EU of fundamentally identical agreements.

How can structural change be brought about fast enough to accommodate to the growth of e-commerce?

  6.1  It seems unlikely that EU institutional structural change will be driven primarily with e-commerce considerations in mind. This makes it all the more important that there is close co-ordination and co-operation between all those areas of the Commission and also the Council and Parliament which are concerned with initiatives in this area. In an era of rapid change, institutions at every level are challenged by the rapid pace of technological development and the difficulty of ensuring that decision making is based upon up to date information about what is happening in the market place. This is another reason for proceeding cautiously when it comes to new legislation or regulation and for ensuring that it is technology neutral.

1   Working paper issued by, but not necessarily on behalf of, the FCC. Back

2   Spectrum Strategy Consultants report (1998), commissioned by the DTI. Back

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