Examination of Witnesses (Questions 140
- 159)
MONDAY 9 JULY 2007
Mr Simon Grossman
Q140 Lord St John of Bletso:
Can you be a little more specific about the services that the
consumer would not be getting as a result of roaming charges,
for example? It is inevitable that roaming charges would have
to come down. Are you saying that you think that the telecommunications
sector and self-regulation are the way ahead and the Commission
should not get as involved as it has so far in bringing more protection
for consumers?
Mr Grossman: In a sense, I would say that, wouldn't
I, but I understand the realities and political imperatives that
regulation of certain markets is going to happen and regulators
will feel that is the right and correct approach. The Committee
may be aware that Orange and other mobile operators had particular
concerns about the roaming regulation, the manner in which that
was done, in the sense that the regulator was taken largely out
of the process and it was very much a political negotiation which
led to a certain price point being chosen. I cannot give you particular
examples of services that are not going to be delivered, because
they are not going to be delivered, so in one sense they do not
exist. But perhaps I could indicate that Orange, for example,
made a 15% headcount reduction last year, so there are several
hundred people who would be working for Orange were it not for
that reduction. That reduction has been brought about, I would
not say entirely as a matter of regulation, but partly as a matter
of regulation because of the fact that we are several hundred
million pounds short of where we would otherwise have been. I
should also say, partly as a matter of market forces and competition,
as the mobile market in the UK is intensely competitive. It is
not just Orange; all mobile operators are in a similar situation.
It is an intense market combined with regulation that does affect
the bottom line and, therefore, we simply have less people working
for Orange and working under much more stringent conditions.
Q141 Lord Haskel: I wonder
if you could come back to the matter of the operation of the Single
Market. You told us that you were a supporter of the Single Market
and that you felt that competition did a lot to keep prices down,
you felt that liberalisation would help the Single Market operate
better and you told us that part of that liberalisation would
be the break-up of British Telecom and France Telecom. Could I
ask you, do you think that the Commission has got the ability
to carry that through? Why has that not been carried through,
is it the local regulators that have fallen down on the job or
is it the Commission that has fallen down on the job? Is it that
this is going to happen anyway and it is just a matter of time?
Why do you think this has not happened? Where does the weakness
lie?
Mr Grossman: Do you mean specifically the break-up
of British Telecom or France Telecom?
Q142 Lord Haskel: You said
that you felt the market would be liberalised if British Telecom
and France Telecom were broken up.
Mr Grossman: In a sense the market was partially
liberalised when we moved from a situation of a single incumbent,
to one where new entrants and new operators are able to enter,
and obviously that process was begun in the UK in 1984 by the
Telecoms Act. British Telecom in the UK is not broken up but it
is separated. That was a decision which Ofcom took following a
period of consultation. It had the ability to break it up completely.
It certainly did not lack the powers, but I am probably correct
in saying that no-one, even in the industry, was proposing that.
I think it was thought to be such a significant step that it would
take up the regulator's mind and resources for a period of months,
if not years. Therefore, there would not be any short-term, or
arguably even medium-term, benefit to BT's competitors because
it would be such a significant upheaval that any benefits would
be too far down the line. They took the compromise proposal, which
was what they termed functional separation, separating the wholesale,
retail and Openreach divisions, and ensuring that Openreach offered
access to BT on the same basis that it offered it to its retail
competitors. That was seen to be a good compromise and the means
by which you could open up the market and you could allow the
competitors of BT retail to compete on equal terms. France Telecom,
you will appreciate, does not believe that functional separation
in France is required. It believes that the UK situation was bought
about by the fact that Ofcom was slow to act against British Telecom,
particularly in respect of local loop unbundling. As I mentioned
earlier, local loop unbundling was far more advanced in France
than it was in the UK. Ofcom was under significant pressure in
the UK to do more, to get broadband rolled out to more consumers,
and it was seen that functional separation was a way of doing
that. Yes, it was far broader than that but to some extent that
was seen to be the kick-start because BT had been, shall we say,
in the view of some of its competitors, a little slow in responding
to the request to open up its network and in particular its telephone
exchanges.
Q143 Lord Haskel: So you think
that the Commission has done its job, it is a matter for the regulators
of the nation states?
Mr Grossman: Yes. I certainly do not think that
the Commission is lacking in powers. I think one of the things
that is very important, and of which you will be aware, is that
the Commission has made proposals and raised the possibility of
creating a single European regulator. I do not believe anyone
other than the Commission supports the concept because it sounds
good in theory but in practice a regulator needs to understand
its own national market. The market in the UK is so different
from the markets in Spain, France and Germany, so to have a single
regulator which attempted to do everything would not seem to add
anything to the process and arguably would take something away.
We feel that it is best done by local regulators. Of course, regulators
are as different as anything else and in the UK we think we have
got a pretty good one. Ofcom is generally well respected throughout
Europe and probably grudgingly by most of the industry. It conducts
generally fair analysis and, although one might not support all
of its eventual decisions and outcomes, I do not think that generally
speaking we would object to the manner and thoroughness of its
analysis. Unfortunately, the same cannot necessarily be said of
our sister companies in some other European countries. They do
not feel that their regulators take quite the same detailed and
thorough approach that Ofcom does. In a sense, if one was to have
a broader pan-European approach in some countries we think we
would benefit because the European regulator would be better and
more thorough than the existing local regulator. But in other
countries like the UK we think we would suffer because we think
we have got a regulator that fully understands the market and
is likely to give the most appropriate outcome, if not the best
from the industry's perspective.
Q144 Lord Haskel: Do you think
that the Commission should be beefing up the regulators who are
not doing their jobs?
Mr Grossman: Well, I hesitate to comment because
my knowledge of other European regulators probably is not good
enough to give too much detail. I would not want to mislead the
Committee. Certainly from what I understand from colleagues in
other member countries, they do not feel that their regulators
are sufficiently thorough. They do not feel that their analysis
and understanding of their markets is sufficiently deep. Whether
or not the Commission has the power to do anything about that,
to some extent it has to accept the regulators that it has. It
can decide whether or not to give them more powers but it is very
difficult for them to say, "I am sorry, you are not up to
the job. You are not conducting a detailed and thorough enough
analysis. You are not understanding your markets well enough".
To be fair, a lot of them look to Ofcom for that type of expertise
and knowledge, so Ofcom stands above as an expert that others
can look to follow.
Q145 Lord Geddes: I have two
questions which to an extent are linked. The first is perhaps
the more factual one. You have spoken much about France Telecom
and British Telecom having a monopoly position on what I would
call the fixed line. What is the situation in the other 25 Member
States, how does that vary?
Mr Grossman: I should say not quite a monopoly
either in the UK or in France.
Q146 Lord Geddes: All right,
a quasi-monopoly.
Mr Grossman: I am afraid I am hesitant to answer
the question, not wanting to mislead the Committee. Orange is
a strong and powerful force in both the UK and France. That is
where my primary knowledge lies. I would not want to give any
information about other countries because I do not feel sufficiently
knowledgeable to do so.
Q147 Lord Geddes: Let me move
on to the second one then. Presently, with the new regulatory
framework there is quite a lot of discretion still for Member
States regarding implementation. Do you think that is a good thing
or do you think that there should be less discretion and, therefore,
greater harmonisation?
Mr Grossman: Well, this is a difficult question
that we wrestled with for reasons I have just been speaking about
in the sense that in some countries we believe that, yes, a greater
level of harmonisation would benefit.
Q148 Lord Geddes: Sorry, your
previous reply was with regard to the regulators.
Mr Grossman: Yes.
Q149 Lord Geddes: I am talking
about the actual implementation of the framework.
Mr Grossman: The manner in which certain markets
are reviewed or—
Q150 Lord Geddes: The manner
in which the new regulatory framework is actually working and
is put into place. Is it operating?
Mr Grossman: Largely, certainly in my view,
it goes to the same point in the sense that we have the five Directives
and obviously they are in force. It is a question then of how
individual regulators implement those Directives, whether or not
they follow the Universal Service Directive or the Access Directive.
We have the rules, we are happy with the rules, we believe the
rules are appropriate and to some extent necessary. However, from
a broader perspective we are concerned that not all of the Member
States, by which we mean the regulators within the Member States,
are properly implementing them. Obviously it is a matter for the
Commission whether or not it wants to take action, and I know
in some cases it has done so, but from Orange's perspective we
are broadly satisfied.
Q151 Lord Whitty: I am interested,
if you like, in the strategy of the approach here. You have talked
largely about liberalising national markets, which we are told
the framework can do to some extent but, nevertheless, you are
breaking down monopolies and ensuring that all companies can operate
within national markets but, from the consumer's point of view,
what the consumer wants to know is, "If I go into a shop
and buy an Orange telephone in Victoria Street, am I offered the
same range of terms and prices that I would be if I walked into
a similar shop in downtown Athens or Bucharest or wherever?"
In this market, which after all has only existed for a few years,
the technology has only existed for a few years, it is very odd
that you would get a different range of options in each of those
markets. I am not entirely sure whether this is the regulator's
fault or whether it is the companies adjusting to what they think
is the preference of the consumers within those individual national
markets.
Mr Grossman: Do you mean a variety of products
and prices?
Q152 Lord Whitty: Leaving
aside the competition, for your company the range of ways in which
you can pay for the telephone, the balance between buying a set,
and you probably have, I do not know, ten different options if
you go into a London shop and in some of these other markets you
would not have anything like ten different options but it is the
same company.
Mr Grossman: There is a minimum set of terms
and consumer protection rules, so in the UK they are contained
within the general conditions of entitlement. So there are 22
general conditions which broadly set out some basic levels of
consumer protection. There are requirements relating to number
portability, that it must be made available; requirements for
services to disabled people; requirements for directory inquiries;
a variety of, if you like, basic consumer expectations and those
will apply, assuming that they have been implemented, throughout
the EU. We would be concerned if regulation went any further,
certainly in relation to prices. We do not think that the price
that is charged in the UK should necessarily be the same as it
is in Spain or in Germany. Prices should be a matter of competition.
Prices tend to be very good in the UK because competition is so
intense, but if one were to have price regulation that said "This
particular mobile phone, this particular service, needs to be
offered at a single rate", we would certainly feel that was
over-regulation. In terms of handsets and products, the type of
handset that you can buy and what you can do with it, again we
think that should be a matter of freedom for individual countries
and, in a sense, it is a matter of individual cultural differences.
For example, some cultures will prefer a contract type of handset,
paying per month and others will prefer pre-pay, pay-as-you-go;
that does differ. Orange is not, if you like, so centralist that
we have a single policy that says, "This type of handset
must be made available at this price offering this type of service".
Even within our own group we have the ability to differentiate,
to understand the market, to react to competitors, to offer what
we believe is the best product within that market. That varies
from Orange in the UK to France, to Spain, to Portugal. We certainly
do not think that the regulator should get involved in that level
of detail.
Q153 Lord Whitty: If there
is a genuine Single Market, and I am not talking about price in
absolute numbers, I am just talking about the range of options
that you would have available to you, obviously the actual way
the market works out is some people would prefer a more contract-based
arrangement and others pay-as-you-go or whatever, should not the
market end up by offering a similar range of methods of payment
in each part of Europe rather than a limited range in some countries
and a pretty wide range in this country and in Germany?
Mr Grossman: As I say, I think that is a matter
of competition. If in a particular country that had a more limited
range there was seen to be a competitive advantage to offering
a wide range or a different type of product or service then we
think that would happen. In the UK people tend to care most about
price and handset. That tends to be what determines their buying
decision, so it is very likely that the operator who offers the
widest range of handsets and has them on the market soonest tends
to benefit. One of the issues that Orange has had in the past
is that we have got handsets a little more slowly to the market
than some of our competitors, so in a sense we lose customers
because they do not really care whether they are on Orange or
one of the competitor networks. They simply want this particular
handset as soon as possible, so that is something that in response
to competition we have had to change. We have had to get faster
and we have had to get those handsets to the market more quickly.
There is no reason why that form of competition would not take
place in all markets. In others, perhaps less developed markets
in Eastern Europe, they might be slightly less concerned about
the latest shiny handset but more concerned simply about price.
The same goes for services in certain markets. One might be more
concerned about getting Internet access or email access; in others
it is simply a matter of coverage, "All I want is my mobile
phone to work in the most rural parts". So in that country
we are going to invest in rolling out the network, building more
masts. We are going to invest less in Internet and email services
because that is not what a particular Eastern European country
may desire. There needs to be an element of freedom and not over-regulation
which we do not feel would be in the consumer's interest.
Q154 Baroness Eccles of Moulton:
Can I just return for a minute to unbundling and the comparison
between BT and Ofcom and France Telecom. I think you said that
when Ofcom caused BT to be separated into retail and wholesale
it was not necessary for France Telecom to do the same thing because
they were already a step ahead of BT, or is that not quite what
you said?
Mr Grossman: In relation to broadband and unbundling
of the local loop, yes. I do not know whether the Committee is
familiar with the process. This involves a competitor physically
placing their equipment into the exchange of British Telecom or
France Telecom and by doing so they take control over that copper
line that we were discussing earlier. In the UK there were difficulties
for competitors to get access to BT's exchanges. In some senses
these were very practical difficulties, it was simply taking too
long and the processes were not in place. In France it was easier;
it was quicker. At a certain point in time, say a couple of years
ago, there were far more local loops unbundled than in the UK.
Broadband was more widely available; it was available from a larger
number of operators because local loop unbundling was significantly
further progressed.
Q155 Baroness Eccles of Moulton:
So although we had, as it were, unbundled by separating the retail
and the wholesale, that did not assist the rapid broadband introduction?
Mr Grossman: That came subsequently. The functional
separation—again, forgive me, I cannot remember the dates
precisely—took place about two years ago and it was in the
period leading up to the functional separation that there were
real concerns in the UK about the speed of broadband roll-out
and the lack of competition in that market.
Q156 Baroness Eccles of Moulton:
But France Telecom is not functionally unbundled.
Mr Grossman: No.
Q157 Baroness Eccles of Moulton:
Yet they found there it was much easier to introduce broadband.
Mr Grossman: Yes, because they obviously took
a more enlightened approach. They did not make it as difficult
for competitors, arguably, as BT had done and that is something
that the entire broadband industry in the UK for a period was
up in arms about. They simply could not get into BT's local exchanges.
They could not break through that barrier and they were crying
out to Ofcom to take action. In France the issue never arose because
France Telecom was more open, their local lines were unbundled
so the regulatory pressure did not arise.
Q158 Baroness Eccles of Moulton:
Was it not just a question of capacity? We have been told that
we could not have broadband because there simply was not the capacity
and they did not have whatever it was they needed in the local
exchanges in order to introduce broadband. That was the a function
of the inheritance whereas presumably in France they were much
better equipped so they could introduce broadband.
Mr Grossman: It depends what you mean by capacity.
Q159 Baroness Eccles of Moulton:
Maybe I am getting into deep water here in trying to talk about
technical things that I do not fully understand.
Mr Grossman: In terms of network capacity there
should not be a reason why you cannot unbundle a local loop; why
a competitor cannot come into a BT exchange, install his equipment
and effectively take over that line.
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