Select Committee on European Union Fourteenth Report


206. The Part should be read in the context of the detail provided by Part 4, The e-Commerce Environment, and Part 5, What Governments are Doing Currently.

Transaction costs

207. Whilst overall transaction costs are lower for Internet trading (see Part 4, p 19), there are some aspects where costs are unnecessarily high (see Access, paragraph 239). Payment mechanisms for B2C can be unnecessarily cumbersome and expensive. Customers take time to fill in their personal and credit card details, and have to answer questions (for example in the purchase of medical products particularly) every time a purchase is made. Some established vendors, for example, have proprietary, patented processes to make this as easy as possible but can simply form an entry barrier for smaller companies.

Smart cards

208. A smart card is a credit card sized piece of plastic. It incorporates a computer chip which can hold substantial amounts of data securely. Its uses include carrying electronic cash, making e-commerce transactions and storing personal data, for example medical data. The data can be read via special devices attached to a cash machine, personal computer or mobile telephone. Smart cards can contain all this information which can then be entered automatically whenever a purchase is made. Smart cards also have wider benefits. They can, for example, be used in medical emergencies anywhere in the world to provide summary medical histories. The Sub-Committee's evidence is that smartcards, which are less widely used in the United Kingdom than in other parts of Europe, would help to promote e-commerce for all citizens.[62] The United Kingdom's failure in this area has, according to one witness, been mainly a question of poor project management.[63]

209. We recommend that the United Kingdom Government encourage the development and wider use of smart cards. Given the unhappy record of smart card projects in the United Kingdom, we recommend that the Government address the following questions:

    (i)  Why is the United Kingdom less advanced in the use of smart cards than other Member States?

    (ii)  Is the Government looking at best practice elsewhere?

    (iii)  Is the Government reviewing the future of United Kingdom smart card projects?

Credit cards

210. Credit cards are the usual form of B2C payment but they are not always the best.

e-Money and e-wallets

211. So, for both vendors and purchasers other forms of e-commerce payment are needed.[67] The use of "e-money" and "e-wallet" schemes is more prevalent outside the UK.[68]

212. e-cash is money stored on a smart card. Via an interface with a bank's computer it can be "charged" with cash which can then be spent using a similar interface in a shop or on a computer linked to the Internet. An e-wallet is a small software program that can be used for online payments. It stores and manages secure payment details and allows several methods of payment such as credit and debit cards, and electronic cash.

213. The lack of effective payment mechanisms is also likely to affect the growth of mobile telephony.[69] This is particularly important at the European level since this could be an obstacle preventing Europe capitalising on its competitive lead in mobile telephony.

214. We recommend that the EU and the United Kingdom Government continue to encourage the development of cross-Europe e-money and e-wallet arrangements.


215. Governments try to weigh the need for regulation against the need to create environments that are supportive of and attractive to e-commerce. Evidence to the Sub-Committee has highlighted industry's concern that the United Kingdom Government and the EU will tend to do what governments are prone to do. They will err on the side of caution and over-regulate, thus stifling the growth of e-commerce.[70] It was pointed out that it is in companies' own interests to self-regulate competently and securely[71] and that self-regulation is not the low cost option for companies.[72] But if companies do not self regulate competently, governments will be under pressure from consumers to introduce legislation.

216. We welcome the stated intentions of both the EU and the United Kingdom Government to adopt a "light touch" on e-commerce regulation but think that vigilance will be needed to maintain this approach.

Liberalisation of the telecommunications infrastructure

217. The basic platform on which the Internet operates is the telecommunications infrastructure. Competition to provide services on this platform will stimulate the development of e-commerce. Evidence from the US emphasises the importance of this infrastructure in the development of e-commerce.[73] The Sub-Committee has heard evidence that the United Kingdom, despite being the first European country to privatise telecommunications, has lagged behind in truly opening the infrastructure to competition.[74] See Access (paragraph 239) for recommendations.

218. There is also evidence that members of the EU are at different stages in the liberalisation process.[75] France and Germany have not yet fully liberalised the infrastructure. While this is in part to the disadvantage of these countries which will find it more difficult to attract Application Service Providers (ASPs), it is also to the disadvantage of companies from other EU member states which are seeking to enter these markets. This runs counter to the EU's single market and competition policies.

219. We recommend that the EU take steps to enforce its competition policy in respect of telecommunications infrastructures by ensuring that the Telecommunications Directive is fully implemented across the European Union.

Venture capital

220. The Sub-Committee's evidence shows first that the quality of venture capitalism is essential for the growth of e-commerce[76] and, second, that US venture capitalism works better for e-commerce than European venture capitalism. It provides funding earlier and the re-payment structures are more suitable for the new companies.[77]

221. We recommend that the EU and the United Kingdom Government promote the lessons of US venture capitalism in Europe. We note that EU heads of government endorsed the Risk Capital Action Plan at the Special Economic Summit at Lisbon (23 and 24 March 2000) but we find the deadline for implementation—2003—unambitious. We feel strongly that the United Kingdom Government should move faster produce a comprehensive re-statement of policy with the objective of creating conditions for venture capital similar to those which exist in the USA.

Stock options

222. Stock options can be seen as the remuneration currency of start-up e-commerce businesses. Their tax treatment is less favourable for entrepreneurs in Europe than the US, making it harder to attract top quality managers.[78] In the United Kingdom stock options are treated as income rather than capital. They are also subject to the deduction of National Insurance contributions.

223. We recommend that the United Kingdom Government treat stock options as capital and not income and that it should also respond to the concerns about National Insurance Contributions currently levied on stock options.


224. In the US it has been found that high technology clusters of companies, universities and research groups stimulate research and development,[79] and the diffusion and application of new e-commerce technologies. They also increase the training and mobility of qualified knowledge workers.[80] The University of Cambridge Science Park is, however, an example of a United Kingdom cluster although it is not yet on the same scale as US counterparts.

225. We expect the United Kingdom Government to encourage the growth of technology clusters. The barriers to growth, particularly the absence of affordable housing, around existing clusters should be the subject of review in formulating planning policies.

Competition and barriers to entry

226. Competition promotes growth. Entry barriers do the opposite. Away from e-commerce, barriers to entry are typically high capital costs of entry and access to distribution. In e-commerce such barriers are much reduced or do not exist at all, for example Internet banks do not need a branch network. However, e-commerce entry barriers do include telecommunications access costs, regulation and red tape.[81]

227. We agree that policies of increasing competition and reducing barriers to entry are critical to continued development of e-commerce into Europe.

Small and Medium Sized Enterprises (SMEs)

228. SMEs are important drivers of business activity. B2B e-commerce is based on large companies purchasing their supplies from SMEs, which may be located anywhere in the world. The success of B2B relies on companies of all sizes having e-commerce knowledge and capabilities.[82] Likewise B2C encourages SMEs to be able to trade with consumers in different countries. Unfortunately the knowledge and capabilities required are extensive, and SMEs need help. Large organisations also face difficulties but they have the resources (if not necessarily the will) to tackle the problems.

229. We recommend that the EU provide improved support for SMEs in respect of e-commerce cross-border trading, by providing clear and easily accessible information especially on the Internet on trading conditions and consumer protection regulations throughout the Union.

230. We recommend that the United Kingdom Government monitor the effectiveness of the DTI's support provisions for SMEs. (One witness revealed a private sector initiative which appeared to replicate what the SBS intended to do.)

Consumer confidence

231. Individual consumers will only buy on the Internet if they are confident that their unseen purchases are of good quality,[83] their financial transactions are secure,[84] their personal data will be kept private[85] and they will be able to get redress in case of unsatisfactory performance.[86] These are not such major problems for B2B where transactions are generally covered by contracts.

232. Multinational companies sometimes voluntarily offer different levels of protection in some countries compared to others. For example, AOL in the US underwrites transactions undertaken on its sites but does not offer the same protection in Europe.[87] Credit card companies offer different levels of protection in the different countries where they operate.[88]

233. We commend the work currently being carried out by the Directorate-General for Health and Consumer Protection (SANCO) with credit card companies to secure credit card customer protection guarantees in common throughout the EU. We recommend that SANCO extend this work in order to afford European customers similar levels of protection to those enjoyed by customers in the USA. We recommend that SANCO engage in a similar dialogue with the ISPs and urge the United Kingdom Government to do the same.

234. We recommend that the United Kingdom Government work to clarify and develop the responsibilities of credit card companies in Internet trading, and where appropriate, collaborate with e-commerce traders who are seeking to improve consumer confidence.


235. B2C e-commerce is only possible if individual consumers understand it and know how it works.[89] Schools and universities provide user education and training but this leaves large gaps in provision across the generations and social divisions. Certain groups, such as the elderly, the unemployed and the under-privileged and others, may be left out.[90] There is evidence that this wide-ranging education is better provided in the US.[91]

236. On the supply side, education and training in IT skills is provided at universities and colleges of further education although there is uncertainty as to what is on offer and how courses with similar titles differ from one another.[92] There is concern that too little education is being provided. The flow of trained IT workers is insufficient and that this lack of skills will soon hinder the development of e-commerce.[93]

237. The Department for Education and Employment (DfEE) might wish to discuss with universities how this shortage could be redressed.

238. The EU and the United Kingdom Government should work to identify gaps in the provision of Internet/e-commerce training for the whole population, and ensure adequate funding for universal access to life-long learning courses.


239. The populations of the EU and the United Kingdom should have ready access to the Internet—access in terms of physical access. Both the EU and the United Kingdom Government are committed to universal access. However, as technologies develop, one of them may dominate as dictated by market forces. The possibilities include personal computers, mobile telephones and digital televisions, or some combination.[94] They each present different opportunities and obstacles on the road to universal access and the Government will need to consider how poorer groups in society will be able to afford access. Meanwhile the Swedish government offers tax breaks for the purchase of personal computers by individuals.[95]

240. Employers can and do help in this regard by allowing employees to use and/or borrow corporately owned equipment. However, it seems this facility, although growing, will still involve only 300,000 employees in three years' time.

241. The EU and the United Kingdom government should consider how their aims of universal access are to be met and by which technologies. In particular, the diffusion of emerging technologies such as e-commerce-enabled digital television, should be encouraged.

242. We recommend that the EU and United Kingdom Government gives greater encouragement to schemes whereby employers allow employees to use or borrow corporately-owned computers to access to the Internet. We recommend that the United Kingdom Government and the Public Services should give a strong lead that the CBI and the TUC should encourage more take-up of this non-taxable benefit through all the channels open to them.

243. If e-commerce is to thrive the population should have good quality access to the Internet.[96] The slowness of delivery from local exchanges to residences is inhibiting the growth of B2C. Technologies are available to deal with the problem but lack of true competition may be inhibiting their deployment. The availability of other delivery technologies such as cable television and satellite will help as well as providing the spur of competition to telecommunications companies.

244. We recommend that the EU and the United Kingdom Government insist on Local Loop Unbundling throughout the EU by the end of 2000, in line with the eEurope Action Plan.

245. The EU and the United Kingdom Government should continue to encourage the deployment of other delivery technologies such as cable television, satellites, and mobile telephony.

246. We recommend that OFTEL insist that BT roll out Asymmetric Digital Subscriber Loop (ADSL) technology across the country by the earliest possible date.

247. If e-commerce is to thrive, the population of the EU should have inexpensive access to the Internet.[97] Currently Internet access is cheaper in the US than Europe and, according to Reuters, cheaper elsewhere in Europe than the UK. In evidence, BT rejected this argument by stating that the United Kingdom has the cheapest off-peak access. DTI witnesses including the e-Minister, Mrs Hewitt, supported the BT view. However, off-peak access is not very relevant to business, especially SMEs, which needs peak-time access. It may seem strange that the DTI, as home of the regulator, should be taking the BT view when it is clearly biased in some respects.

248. Europe is reckoned to be ahead in the development of mobile telephony and in particular Internet access via mobile telephony. However, mobile telephony is currently expensive, and performance is not uniform geographically.

249. We recommend that the EU and the United Kingdom Government work to reduce Internet access costs to the levels of the lowest, and to reduce mobile telephony charges in preparation for Internet access by this means.

250. We recommend that OFTEL conduct a critical and continuing review of its current methods for monitoring true access costs.

62   See BT Cellnet p 403. Note that a US witness, Pincus, was concerned that smart cards could be used to restrict access by non-Europeans. Back

63   According to the Communication Workers Union (Q 631), the failure of the Horizon system was because it used a software package which had been used successfully on a small application but which proved unreliable when applied to a very much larger and more complex project. Back

64   Dr Michael I Shamos, Q 715. Back

65   Barclaycard, QQ 827 and 828. Back

66   Barclaycard, p 244. See also First Tuesday, pp 23-24. Back

67   BT Cellnet, p 403, and Centre for European Reform, Q 251. Back

68   First Tuesday, p 20. Back

69   Mobile Age Technology, p 482. Back

70   Evidence along these lines came from numerous sources including Consumers in Europe, Corporation of the City of London, PwC, Tesco, and WiF. The TUC, however, was concerned that self-regulation would not be enough. Clifford Chance and British Music Rights wanted more legislation on IPR. Back

71   AOL, p 31, and ICL p 29. Back

72   Clifford Chance Limited Liability Partnership, Q 387. Back

73   See BT, Motorola and Dr Robert Shapiro, Appendix 5. Back

74   Reuters Ltd, p 246. Back

75   Motorola, Appendix 5. Back

76   The Honorable Donald Upson, Appendix 5. Back

77   ICL, p 29, and Mr Bob Litan, Appendix 5. (See also Funding Technology: Lessons from America, David Gill, Chris Martin, Tim Minshall, and Martin Rigby, Wardour Communications, March 2000). Back

78   First Tuesday, p 28, and Mr Bob Litan and The Honorable Donald Upson, Appendix 5. Back

79   Dr Robert Shapiro, US Department of Commerce, placed particular emphasis on the need for substantial R&D investment (Appendix 5). Back

80   Mr Bob Litan, and The Honorable Donald Upson, Appendix 5. Back

81   See, Q 217, and Dr Michael I Shamos, Q 688. BT is caught in the middle of this debate. They argue that regulation stifles competition (p 201) while at the same time being accused by others, principally Reuters, of stifling competition by holding on to a quasi-monopolistic position in the UK market (pp 246-247, Q 854). Back

82   See Alternative Thinking Ltd (pp 394-395), CBI (pp 415-417), CIPS (pp 407-408),, (Q 241) and PricewaterhouseCoopers (p 500). According to Freeserve, the range of EU Directives and regulations is "bewildering" (Q 557). Back

83   Consumers in Europe Group (CEG), p 423. Back

84   Adhocracy Consulting Ltd (UK & AUS) and DIT Solutions (UK) Ltd, p 388. Back

85   National Consumer Council, p 490. Back

86   Many witnesses stressed the need for this. See Part 8, Regulation, for more details. Back

87   AOL, Q 149. Back

88   Barclaycard, pp 235-237. Back

89   The Chartered Institute of Purchasing Supply, p 407; European Informatics Market (EURIM), p 68; National Consumer Council, p 490;, p 55; Telecommunications Managers Association (TMA), pp 522-524; and World Internet Forum (WiF), pp 119-120. Back

90   OFTEL Advisory Committee on Telecommunications for Disabled and Elderly People (DIEL), evidence starts p 84; Royal National Institute for the Blind (RNIB), evidence starts p 513. Back

91   Dr Michael I Shamos, evidence starts p 179. Back

92   Mrs Patricia Hewitt MP, Q 893. Back

93   Dr Peter Jagodzinski, School of Computing, University of Plymouth, p 463. Back

94   Centre for European Reform (CER), p 57. Back

95   Ministry of Industry, Employment and Communications, Stockholm, Sweden, p 481. Back

96   European Information and Communications Technology Industry Association (EICTA), pp 446-228; Institute for the Management of Information Systems (IMIS), pp 457-459;, p 55; Telecommunications Managers Association (TMA), p 522. Note, however, that in the view of the CWU, allowing other companies access to BT local exchanges will prejudice safety (Q 644). Back

97   Centre for European Reform, p 56; CBI, p 415; European Information and Communications Technology Industry Association (EICTA), p 447; Informix Software Ltd, p 454; National Consumer Council, p 490;, P 55; OFTEL, P 496; Reuters Ltd, p246; Telecommunications Managers Association (TMA), p 522; Trustmarque International, p 529. Back

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