Examination of Witnesses (Questions 1-19)|
Lord Carter of Barnes, Mr Roger Higginson and Mr
17 November 2008
Q1 Chairman: Lord Carter, thank you very
much indeed for coming. Can you see the name plates for those
around the table?
Lord Carter of Barnes: There is one of
the noble Lords' nameplates that is obscured, but fortunately
it is the one I know best!
Q2 Chairman: With your agreement, if we
could allocate about forty or forty-five minuteswe apologise
for starting slightly late. Perhaps you would care, for the record,
to introduce yourself with your responsibilities, and your two
Lord Carter of Barnes: Good afternoon.
On my left, I am joined by Nigel Hickson, the Deputy Director,
Europe and International; and Roger Higginson is Head of Europe
and International Policy. I am the Minister for Telecommunications,
Technology and Broadcasting; so in theory, I am a converged ministertechnologically
at least! It is a great pleasure to be here today.
Q3 Chairman: Thank you for coming, and thank
you to your officials. The first question is this: in our report,
which I am delighted that you have brought, and a number of Members
of this Committee sat on Sub-Committee B to produce that reportin
our report on the original Roaming Regulation we concluded that
the information base for the Regulation was incomplete and much
of the evidence was circumstantial. What is the evidence base
to support the extension of the Regulation to SMS, which, for
the record, I think we can call text messaging, and data roaming?
Lord Carter of Barnes: I think the Committee
was right, and indeed is right, to continue to programme the evidence
base. My own view, and our view, is that there are two or three
sources of further evidence, and then there is a reality of experience.
The first and obvious source of evidence is the submissions that
have come from the operators in the market, which, as you can
imagine, given the introduction of wholesale regulation and indeed
price gaps, has been significant and substantial, which has had
the good effect of increasing the amount of knowledge at the centre.
Equally, whilst the ERGand I speak as an ex-member of the
ERGnever felt able to deal with this problem unilaterally,
it has been a subject of ERG tracking and analysis on a country-by-country
basis, and also in the key bilateral areas for some time. Both
their initial submissions and their subsequent submissions have
given us a significant evidence base. Then there have been the
relevant country submissions. There is quite a significant body
of evidence now, certainly in relation to voice, which is robust.
I would argue that equally the same is true of texting. I think
that data is, by definition, an emerging market, and therefore
it would be fair to say that the evidence base on data is comparatively
less robust, but then the proposals on regulatory intervention
in the data market are less intrusive. Those two are probably
Mr Hickson: As the Minister said, the
evidence presented by the European Regulators' Group has shown
that as a result of the regulation introduced in June 2007, prices
for both retail voice and wholesale voice have tended to cluster
around the tariff caps that were introduced then. The European
Regulators' Group hoped that the average price levels might show
a degree of competition, and perhaps that has not emerged yet
quite as we might have hoped.
Q4 Lord Powell of Bayswater: It is a question
about the timing of this. Having an extension so soon after the
thing has been adopted seems to be a bit curious especially as
the explanatory memorandum says that the Regulation proceeded
without major problems and achieved its principal objective. Is
15 months a bit short to have real, solid experience of how it
has been working?
Lord Carter of Barnes: I think I share
the questioner's scepticism about the driving rationale behind
having an extension to the Regulation now. As I am sure colleagues
are aware, this is a subject on the agenda for the Ministers'
Council meeting next week. There are still some quite significant
areas for probing discussion and debate. Having said that, clearly
there is a political imperative herelet us be candid about
itthat is driving some of the time. That is not all bad,
because it has to be said that it was the political imperative
that made this happen; and if we had not had that across Europe
it would not have happened in the first place. The national regulatory
authorities, in truth, were somewhere between impotent and indifferent
on this question, probably for too long. Equally, as my colleague
Nigel has just said, there has been some disappointment on the
clustering effect on pricing, and this is designed to sharpen
the pencil a little and to make people focus on a greater level
of competition. I think there has been quite significant concern
that the industry may be about to do to itself again, on data
roaming, what it did on voice roaming; and therefore firing a
warning shot now perhaps slightly earlier in the process, is no
bad thing. It is a kind of a combination of all three of those.
Q5 Lord Powell of Bayswater: Has the industry
given you a view on the timing? Has it made a big fuss about it
or a modest fuss or no fuss?
Lord Carter of Barnes: What were the
three fuss options? I have to say in the interests of accuracy
that I have not yet had a detailed engagement with the mobile
operators myself in this role. I have had engagement from two
of the five here but not from all five. I am pretty well aware
of their view, and my sense is that there is a mixture ofI
am trying to get these in the right order of responseresentment,
which is understandable resentment of anyone operating in what
they feel is an aggressively competitive market of ex ante regulation;
resignation that this is where we are, and it is going to happen;
and a degree of relief that the actual price tables are not so
aggressively close to or below costs that it is not operable.
Q6 Chairman: Can I just ask, following Lord
Powell, whether the impending dissolution of the Commissionalthough
some of the members might be reappointedhas been a factor
in certainly one of the Commissioners wishing to focus on this?
Lord Carter of Barnes: I am not sure
I know the answer to that. I suspect the answer is that I am sure
Q7 Baroness Eccles of Moulton: Minister,
the Committee, when discussing the question of a sunset clause,
were very pleased when it was acceptedwhich meant the Regulation
had a life. Now there is a proposal to extend it for three years.
How would this make the Regulation more effective for voice roaming?
Lord Carter of Barnes: I think the hope
is in two respects. One is because of the nature of the glide
path over the period of time that it will allow industry and users
to adjust over a sensible period of time, and hence extending
both the period and therefore the sunset clause would make sense
for that reason; and that therefore within that, because of the
varying degrees of development of different markets in Europe,
and within that the varying degree of efficiency of different
operators within Europe, we will get to a point whereby real competition
will be able to play out, because there will be a much more sensible
average operating cost that everyone will be able to work with.
I think that is the argument.
Q8 Baroness Eccles of Moulton: You would
be hopeful that by 2013 the sunset clause could operate!
Lord Carter of Barnes: I definitely would
be hopeful. I have to say I do have some form on this question.
I was extremely disappointed that we had to end up here in the
first place. The UK has, it is fair to say, probably the most
competitive mobile market in Europe, not just in the network operators,
but also the virtual network operatorsif you take the combination
of the network operators and the virtual network operators, we
have an attractively competitive market here if you are a user
of mobile services. Equally, it is unarguable that the operators
were extracting unjustifiably high prices and that they had been
given a lot of warning that this was an issue; and so it was an
inevitability therefore that we were going to end up with Regulation.
I think part of the reason why the Regulation was quite as intrusive
as it was, and the reason why there is quite the same degree of
political enthusiasm to come at this question again and extend
the sunset clause, is because of that initial reluctance to participate
constructively. However, the analysis will tell you that if we
get to 2013 and we end up with lower termination rates, then that
will have the effect of naturally lowering prices, and therefore
the sunset clause should be able to operate.
Q9 Baroness Eccles of Moulton: The hope
is that the industry would not react, if the sunset clause operated,
by going back to their old ways!
Lord Carter of Barnes: If you have got
to the point whereby termination rates are at that level, then
it should not happen. That is the theorythat is the theory!
Q10 Lord Haskel: We have already touched
on this matter of the prices clustering around the wholesale and
the retail caps, but of course this is something that the Committee
was very concerned about, and we thought it was likely to happen.
We thought that there should be an average instead of an absolute
price cap; but as it has now happened, could you say why has the
retail price cap for voice roaming been maintained, and should
not consideration be given to replace the absolute cap with an
average one, so that we get a bit more competition into the market?
Lord Carter of Barnes: I am afraid I
do not knowI factually do not knowand perhaps Nigel
or Roger can help me herehow much consideration was actually
given this time around to re-visiting the question of absolutes
versus averages. I suspect, in truth, it was probably not a lot!
I do not know if I am wrong in that. Why is that? I think there
is a pragmatic reason for it and a political (with lower case
"p") reason for it. The pragmatic reason is that these
absolute numbers are easier for everyone to understandfor
consumers to understandand they are easier for industry
to work with, particularly when you are dealing with sole operators,
inter-party operators and network-sharing arrangements. For that
reason, pragmatism prevails. The political reason (with lower
case "p") is that if you go for averages, then some
people end up paying more than they do with absolutes. I suspect
that is the reason. Am I incorrect or am I missing something?
Mr Hickson: No, Minister, you are not
incorrect. I think there is just one other point. The Minister
is right; it has not been discussed in any detail this time around,
Lord Haskel, but it was discussed when the Roaming Regulation
was first brought forward. One of the real difficulties in addition
to measuring an average cap by the national regulatory authorities
is that if you put an average forward, then the tendency would
be for prices to vary around that average, but always to meet
that average. In effect, you would be imposing a retail regulation
whereas what we did last time around in setting a cap was to set
a cap in the belief that the economic competition in the market
would serve to hit a target below that cap; and so would deliver
better for consumers.
Q11 Lord Haskel: The explanatory memorandum
in paragraph 11 says: "The Commission concluded that there
was `a significant risk that allowing the regulations to expire
would lead to an increase in prices'", and that is why it
remains as it is. I was not quite sure why that followed. It is
in paragraph 11 of the explanatory memorandum, where they talk
about the wholesale and retail prices remaining clustered around
the levels of the caps.
Lord Carter of Barnes: I do not have
the detailed copy, for which I apologise, but I suspect, again,
that part of it is the reason that Nigel has just outlined. What
you have not seen, if you like, is independent pricing, or pricing
behaviour independent of the pricing caps; and therefore if you
remove the pricing caps what happens is that people revert to
typeand that that type has not been sufficiently institutionalised,
particularly as it relates to termination rates; and until you
get to that point then you should not feel comfortable enough
to remove the guide of the maximum retail price cap. I have to
say I am sceptical on this; but, equally, I have to confess that
I was sceptical about it, but there is no doubt that if it had
only been wholesale price caps, I do not think we would have seen
the prices coming down to where they are. You have to ask yourself
a question: what price has been paid because a price has clearly
been paid somewherethis is not free money. I have certainly
been asking my officials to try and give me some more evidence
around this before I go to the Council meeting next week, because
this has had the effect of taking revenue out of the market. If
you look at the increase in the absolute volume of roaming minutes,
it does not seem to be as large as the reduction in price, so
that cost is being borne somewhere. Wearing a parochial British
hat, which is largely my job, that, I think, is particularly acute
in the UK market where returns on capital for the operators, certainly
for the network operators in the UK, are not what they once were;
and that does force people to make decisions about where they
spend their capital: do they spend it in the United Kingdom or
do they spend it in other parts of the world? There is a connectivity
here; but having said all that, the prices I am pretty sure would
not have ended up where they ended up, had we not had that capping
Q12 Chairman: Has there been any evidence
from industry that indicates that companies have been seeking
to recoup from domestic mobile phone services some of their losses
due to the capping at retail level? Is there any evidence of that?
Lord Carter of Barnes: I think there
has been more argument of it than evidence of it. I think there
has been some evidence on domestic pre-pay tariffs of an increase,
and, again, logic would tell you that we will probably see more
of that because we are now over-penetrated in this market, so
people cannot compensate through growth, certainly growth driven
by penetration and compensated growth through additional usage.
Actually we have continued to see some quite significant innovations
in the UK market on minute packages, roaming packages and alternative
packagesso not yet. I think that if there is a waterbed
effectand, as I say, I do not know the answer to this yet,
Chairmanmy start point is that it is probably less invisible
at the point of the market where the consumer uses the service
and more visible at the capital end of the market. These are very
capital-intensive businesses, and they are very capital-intensive
businesses beginning to go through a technology change. I think
if we should have a concern for us to look at very carefully,
that is where our concern should be.
Q13 Lord Paul: During our inquiry, concern
was expressed by some witnesses that the price caps would stifle
innovation. Has this proved to be the case?
Lord Carter of Barnes: No, I do not think
that has proven to be the case. As I say, that is largely because
we have a greater number of players in the UK market. I do not
know whether or not there is evidence around Europe, and certainly
in those European markets that have a lower number of virtual
network operators than we do and a lower number of fixed operators
than we do; but we have seen a range of tariffs on bundling of
roaming voice minutes, roaming voice calls at the same price as
domestic calls on partner networks; we have seen the use of domestic
post-pay call allowance for roaming calls on partner networksa
swapping of credits; and we have seen monthly subscriptions on
discounted rates, or reduced rates, back to the United Kingdom.
The operators have innovated. The operators' argument always was:
"We were just about to do that anyway" or, "We
are doing that anyway". The truth of course was that they
were doing a bit of it but not as much as you might have wanted
and not with as much focus or enthusiasm as you might have wanted.
It would appear at the moment that there has not been. As I said
earlier, Lord Paul, I have a nagging concern in the back of my
mind, which I have expressed before to the Commission, that we
must not view this industry as a free take; there is a price to
be paid. Mobile technology and wireless technology is going to
become an ever more increasing part of both domestic access to
new services and industrial access to new services, and I think
we would look back in five or ten years and kick ourselves if,
in order to take what appears to be a "no price win"
on one service, we end up paying a significant price on future
development in other areas. That is the axis that we need to keep
an eye on.
Q14 Lord Walpole: Minister, the data roaming
proposals include a suggestion that a warning and cut-off facility
should be provided to customers. Is this technically possible
for all mobile technologies including mobile phones and laptops?
Lord Carter of Barnes: Not yet, I think
is the answer to that, but we are reasonably reliably informed
that it will be and should be by 2010. If this becomes effective,
it would be effective by 2009, so there would then be a sunset
clause on the bill shock implementation mechanism, on the transparency
mechanisms by 2010, but this is definitely an area where we think
there is a bit of work to be done on the Commission's proposals
and on the detail of the text, and it is one of the line items
in my brief to myself.
Lord Walpole: I think we rather expect this,
and if you can take it to Europe when you are there, I am sure
we would be very grateful, would we not, Chairman? I have a mobile
phone! It does not work though, and I do not live more than a
hundred miles from London, and it never will work there, I do
not think, unless I change to a different company.
Lord Ryder of Wensum: Stick to the pigeons!
Q15 Lord Walpole: That is a far better idea.
Certainly the laptop thing interests me personally because we
do a lot of communication, as a business, by laptopin fact
more and moreand I am surprised that the postman still
turns up. He does occasionally!
Lord Carter of Barnes: Not as often as
he would likebut that is another story!
Q16 Lord Walpole: Absolutely! Mobiles phones
are things that irritate me because they do not work when you
want them to. I hope they will.
Lord Carter of Barnes: I certainly share
your enthusiasm for data and laptop, wireless, broadband deployment.
As I said in response to an earlier question, it is verythis
mechanismif it is got rightcould be a very, very
sensible piece of self-disciplining positive regulation that avoids
the need to end up with more aggressive intrusive regulation in
another sphere later on.
Q17 Lord Whitty: Unless Norfolk is seen
as a special case, I should say that neither mobile phones nor
broadband work that well in Dorset either! However, I was going
on a different tack although it is similar territory, and I should
declare an interest as the Chair of Consumer Focus that has pointed
out some of the problems of differential access to broadband or
differential price or quality of broadband. In that context, does
the Government have a view on whether it would be desirable for
broadband to be included in a universal service directive?
Lord Carter of Barnes: The Government
does not have a view yet. I think the Government is forming its
view. The noble Lord may be aware that one of the key parts of
my job/appointment is to commission, produce and, to a degree,
write a framework report on the sector, so-called Digital Britain
Report, which we are seeking to publish an interim statement
on at the end of January and then a definitive statement by May
or June; but the purpose of the report or the analysis will be
multiple but within it and central to it will be the question
of how we should look at the universal service obligation in the
round, and then either how it should be maintained or, if it is
extended, extended to what; and then, if it is extended, how that
will be funded and executed. This is a very live issue in Europe.
To my understanding, the only countries in Europe that have expressed
a definitive view on it so far are France and Finland, which have
taken a slightly more unilateral "here is what we think we
should do"and there is a real opportunity here. Going
back to the noble Lord's comment about the increasing importance
of wireless and mobiles and means of delivering broadband, I think
we are well past the point whereby we need to think about universal
service as more than a copper wire if we genuinely have a desire
to get equivalence and reach. It may be scant comfort in Dorset
but it is worth saying that in this country we are actually quite
richly served by network density, which is not true of all of
our European partner nations by some margin, and certainly not
true internationally. The question is: how do we knit together
patchwork technologies in order to get true universality? In order
to do that we have to get to a point of inter-operability between
fixed networks and mobile wireless networks. To get to a point
of inter-operability between the fixed and mobile wireless networks
there are many things you have to resolve, but one of the key
things is that the interconnect pricing regimes in those two networks
are very, very different. There are some quite complex economics
as well as some quite big policy issues.
Q18 Lord Haskel: Minister, following on
from what you have said, I thought you would also include, when
you talked about broadband, things like Skype. Of course, there
you can see the person as well as talk to them, and I just wondered
what kind of impact you thought that would have on this universal
Lord Carter of Barnes: If I understand
the question correctly, at the moment the universal service obligation,
from memory, is that there is an obligation to provide a telephone
connection and functional Internet access. Technically, functional
Internet access can allow some for of videopretty slow
and pretty croaky, but it can allow it. One of the questions in
the universal service debate going forward is: what is the future
definition? The difficulty is that lots of people start in different
places. There are the pigeon fanciers who are in one place, and
then there are the people who are sitting on 20 megabit connections
who are in another. Universal service obligations, by their very
nature, have got to find an affordable common point; so I suspect
there will be some limits on video capability, but considerably
more, one would hope, than what is currently do-able.
Q19 Lord Whitty: If I can just intervene,
we have the Minister hereand as an incoming Minister he
is probably uniquely qualified in his knowledge of the regulatory
framework over which he now has oversight. I wondered if, since
you have gone from being a regulator, you felt that regulation
both at the EU and the UK level had moved in the right direction
and faster or slower than you would have anticipated a few years
Lord Carter of Barnes: In mobile specifically?