Select Committee on European Union Written Evidence

Memorandum by the Office of Telecommunications (OFTEL)

  1.  OFTEL welcomes the House of Lords inquiry into the development and co-ordination of policy in the European Union as it relates to e-commerce.

  2.  As the regulator for UK telecommunications, OFTEL's role in electronic commerce arises from its primary role of promoting the interests of consumers of telecommunications services and its interest in the development of telecoms infrastructure, over which electronic commerce services operate.

  3.  OFTEL's work on electronic commerce policy is focused on the availability of access to data services such as the Internet. OFTEL's main approach is to encourage and maintain competition in the provision of such access so to drive down prices and offer choice to consumers. This programme of work is carried out primarily through the Internet and e-commerce project, but also through many other projects in OFTEL's management plan. Key activities include:

    —  provision of higher bandwidth services through the Access to Bandwidth project;

    —  promoting special access packages for schools and public institutions through the Learning Society access issues project;

    —  examining the principle of extending opt-out registers for junk calls and faxes to e-mail through the Telecommunications Data Protection project;

    —  considering the impact of Internet on Universal Service Obligations;

    —  investigating the pricing of leased lines;

    —  determining revenue sharing for Number Translation Services (NTS) calls (this formula underpins the subscription-free ISP model);

    —  the establishment of the OFTEL Internet Forum, to focus on issues of interest to the Internet industry.

Question 1: What needs to be done to create confidence and to stimulate e-commerce?

  4.  For consumers and businesses to gain the full benefits of the e-commerce global market place, it is important that the environment in the UK is right to encourage the development of e-commerce services and to enable consumers to access them in the most efficient way.

  5.  OFTEL plays a key role in regulating telecommunications networks, which means both the infrastructure that underpins the Internet itself and the means of gaining access to it. Getting the regulatory framework right is an important part of promoting the development of e-commerce.

  6.  As stated in OFTEL's recent strategy statement: Achieving the best deal for telecoms consumers, January 2000, regulation where none is justified can distort or undermine competition. It is vital that regulation is only imposed where it is justified and that it is appropriate to the level of competition in the market. Competitive markets, which have incentives to innovate and invest, are the best way of meeting consumer needs. It is particularly important not to stifle innovation in newly emerging markets, such as e-commerce.

  7.  Regulation should be as "light touch" as possible. The case for any new regulation should be scrutinised very closely, and new regulation should only be introduced if it is absolutely necessary for the promotion of competition and for the protection of consumers, and if these aims cannot be achieved in any other way.

  8.  OFTEL's strategy is "competition plus". Competition is the key driver to obtain the best deal for the consumer. "Competition plus" recognises that, given the special features of telecommunications networks, there are circumstances where some formal or informal regulatory action is needed to protect consumers' interests in addition to the achievement of effective competition. As effective competition develops there will be less need for OFTEL to promote competition using licence conditions and a greater reliance on the use of its powers under the Competition Act.

  9.  Early last year the Prime Minister commissioned the Performance and Innovation Unit (PIU) to identify a strategy for achieving the Government's aim of making "the UK the best environment in the world for e-commerce". The PIU published its report in September 1999. One of its 60 recommendations was for OFTEL and the OFT to carry out a review to identify whether there are emerging barriers to competition in electronic markets and make recommendations for preventing these from becoming serious problems.[90]

  10.  OFTEL's strategy statement sets out a timetable for market segment reviews. A review of the competitiveness of the market for Internet access is due to be carried out during the period July to December 2000. The intention is that this analysis will be carried out on a regular basis.

  11.  Two important issues for the development of e-commerce are the cost of Internet access, and the availability of high-speed Internet access. These will be key issues in the review—this paper gives OFTEL's initial thoughts.


  12.  OFTEL wants to see lower prices and more choice for consumers who wish to access the Internet. OFTEL wants to see prices for Internet access in the UK compare favourably against the UK's main competitors, and for consumers to have a variety of options for reliable and fast access to the Internet.

  13.  The UK's ISP market is extremely dynamic leading to considerable innovation and lower prices. Just recently there has been a number of ISPs who have announced unmetered (free calls with a monthly subscription) packages. Telewest, ntl, Freeserve, Altavista are just a few of the major ISPs who have already made announcements.

  14.  BT have responded to these developments by announcing their own unmetered access product called SurfTime, to be launched on 1 June 2000. BT's SurfTime will allow BT customers to access a variety of ISPs on an unmetered basis.

  15.  See Annex A for OFTEL's current brief on Internet access, which also describes some of the key market developments.


  16.  High-speed Internet access requires broadband capacity. There are a variety of new technologies that will be able to provide broadband capacity to consumers and small businesses: digital subscriber lines (DSL), cable modems, broadband wireless, digital TV and low earth orbiting satellite.

  17.  OFTEL expects that these technologies and others may in time provide effective competition in the provision of higher bandwidth access. But OFTEL believes that in the near future the local loop, upgraded using technologies such as DSL, offers the greatest potential to deliver higher bandwidth access to the mass market.

  18.  DSL technology enables ordinary telephone lines to be converted into high bandwidth pipes running into virtually every home and small business. It will provide speeds of up to 2Mbit/s.

  19.  There are two separate developments affecting DSL roll-out in the UK:

    —  BT's roll-out of DSL

    —  Local Loop Unbundling

  20.  BT has been trialing DSL services since October last year. It has announced plans to launch these services in Summer 2000, with high-speed services available to 6 million homes (around 25 per cent of access lines). BT expects to expand its service to around 70 per cent of access lines by the end of 2001. As is required under the terms of its licence BT must provide wholesale DSL access to other service providers on the same terms as it provides those services to itself, and others should be able to launch retail services to customers at the same time as BT.

  21.  There will, therefore, be competition in higher bandwidth services from the moment BT launches its own retail DSL service.

  22.  But it is not sufficient for BT's competitors to have to rely on the pace and scope of BT's ADSL roll-out. This is why OFTEL announced last November that BT should allow operators to lease its local access lines, a process known as Local Loop Unbundling.

  23.  BT will be required to provide local access lines and co-location to other operators to enable them to upgrade the lines (with DSL technology) to provide higher bandwidth capability and offer services direct to consumers.

  24.  There will therefore be competition in the provision of higher bandwidth access (through operators taking BT unbundled loops) from July 2001 at the latest. OFTEL is currently working with BT to improve on this timetable.

Question 2: Does the European Commission's draft Action Plan "eEurope: An Information Society for All" offer a realistic means of promoting e-commerce in the EU?

  25.  OFTEL welcomes the publication by the European Commission of this Action Plan, which recognises the significance and potential benefits of the Information Society.

  26.  OFTEL is working closely with the Office of the E-Envoy to meet the target of making the UK the best place for e-business by the end of 2002. OFTEL supports the E-Envoy's four main workstreams of Modern Markets, Confident People and Information Age Government, backed by Analysis and Benchmarking.

  27.  Below are some comments on specific areas of the Action Plan of high relevance to e-commerce, in which OFTEL has some involvement.

90   This review is available on OFTEL's website, at Back

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