Select Committee on European Union Written Evidence

Annex A


1.  Summary

  OFTEL supports the Government's aims to make the UK to be the best environment for e-commerce by the end of 2002.

  OFTEL wants to see choice and value for money for consumers for Internet access.

  OFTEL believes that competition is the most effective way of achieving these goals.

  The Internet is an extremely dynamic area and the market is already delivering eg Telewest offering unlimited Internet access for £10/month.

2.  Government Targets

  The Government's aim is to make the UK the best environment in the world for e-commerce by the end of 2002.

  The Chancellor challenged industry in his speech of 16 February 2000:

    "I know that [OFTEL] firmly shares my strong belief that delivering low cost Internet access is one of the single most important things we can do to promote the knowledge economy. It is our aim that the cost of using the Internet in the UK will be as low as in the US by end 2002. This is our challenge to the industry—a challenge our country needs met, a challenge we will continuously monitor in detail and if not being met will prompt us into further action".

3.  OFTEL's aims

  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.

OFTEL's twin-track approach

  There are two main areas of Internet access that OFTEL is considering: narrowband and broadband.

  Narrowband is the term used to describe dial-up access using a computer and modem over the telephone network. This is the Internet access technology of today. This is currently the most common method of accessing the Internet for residential and small business consumers, and may remain so for some time, especially for low and occasional users.

  Broadband is used to describe high speed access to the Internet using a variety of technologies. This will enable advanced services, such as the ability to watch and interact with video over the Internet. This is the technology of the future, but is coming soon. Broadband is at an early stage of roll-out, but will be an important element of Internet access in the not too distant future.

  OFTEL is actively pursuing both narrowband and broadband access by promoting competition. Competition gives choice to consumers, and spurs innovation and lower prices. Heavy regulation can reduce incentives to innovate and invest, but some regulation is needed to remove barriers when they arise. OFTEL will act firmly if necessary.

5.  Where are we at—what's happening in the UK market now?

  ISP market: Competition has resulted in a variety of tariffs, with a downward pressure on prices. There are over 400 Internet Service Providers (ISPs) in the UK, the majority of which are subscription free, and many others offer other innovative price structures. Unlike the rest of Europe, an offshoot of the incumbent does not dominate the highly competitive UK ISP market.

  Pay-as-you-go: The UK pioneered the subscription-free (pay-as-you-go) model, which has been copied by many other countries. Subscription-free Internet access led to a rapid growth in the number of Internet users in the UK, and is likely to remain the best option for occasional or light users, and those who do not wish to commit to a contract. Some ISPs offer subscription free access at rates below the normal local-rate tariff, and OFTEL has put in place changes which will allow ISPs to price even more flexibly.

  Unmetered access: Some subscription ISPs have offered unmetered access at weekends and evenings for some time. Some, such as AOL, also offer reduced peak rates of 1 pence per minute for a small subscription. BT itself offers unmetered off-peak access for £9.99 per month via its BT Internet package. ISPs continue to innovate and there are a number of ISPs that offer completely unmetered access. Telewest's SurfUnlimited package, available to subscribers in its franchise area, allows unmetered access at all times from £10/month although subscribers must also make a certain amount of non-Internet calls as well. ntl have recently announced a similar scheme to be launched in April. Freeserve, still the largest ISP in terms of subscribers, has recently introduced completely free access if subscribers re-route £10 of non-Internet calls through the Energis network. This is a very dynamic area, with new products are being announced by ISPs every week.

  BT SurfTime: BT announced plans before Christmas to offer unmetered pricing packages in Spring 2000. These packages included a variety of options for unmetered access for a fixed monthly fee, as well as offering cheaper pay-as-you-go prices. BT is able to offer these upgrading its local exchanges so that data traffic can be taken off the telephone network at the earliest opportunity and put onto their data network. By this method, Internet traffic can be transported more efficiently, leading to cost savings that can be passed on to consumers. Discussions are continuing between the Internet industry and BT to ensure that other operators are able to compete and take advantage of BT's new pricing packages and network upgrade.

  SurfTime prices: In March BT announced its modified pricing structure for SurfTime. Prices will be £5.99 and £19.99 per month for unmetered off-peak and peak access respectively in addition to line rental. The product is expected to be available from June.

6.  How does the UK compare with other countries?

  Key figures:

    —  Use of Internet grew 200 per cent in 1999.

    —  There are now around 7 million Internet subscribers in the UK (1 in 5 homes now has access to the Internet).

    —  14 million adults (around a third) now regularly use the Internet (at home, work or college).

  The latest OECD comparisons for March 2000 show that:

    —  For off-peak access the UK is the cheapest in the OECD (based on BT Internet).

    —  At peak times, BT remains expensive although the gap has narrowed since the last comparison.

    —  Telewest's SurfUnlimited compares favourably with all OECD figures for anytime access although availability is limited.

    —  Launch of SurfTime and others (eg ntl and Freeserve) will improve things still further.

  Further details are available of estimates of the number of UK Internet users and International Internet Access Price Comparisons.

7.  Other ways of accessing the Internet

  Mobile: One of the key technologies for accessing the Internet will be the mobile phone. Such services are already available. Within the next 12-18 months the UK can expect to see a much greater uptake of mobile Internet services as the industry puts in place new technologies and services that exploit those technologies to change GSM from being primarily a voice service to a voice and data platform with significant revenues being generated from data value added services. Key technology developments will result in faster data connections and more enhanced services.

  Television: Access to the Internet via their television is likely to become increasingly common as Web-enable TV set-top boxes and games consoles become more popular. These devices are already available and being used by consumers. Accessing the Internet in this way may be more convenient for some people who cannot afford, or do not like the complexity of using a computer.

8.  Broadband Access

  This is an area of considerable market development at the moment, with many exciting developments in areas such as ADSL, Cable Modems and Broadband Radio. A separate brief has been compiled to describe this work.

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