Clause 88 - Conditions about leased lines
Communications Bill
9:30 am
Mr John Whittingdale (Maldon and East Chelmsford, Conservative)
Clause 88 deals with an important area in which we are seeking to achieve a competitive market. Government and Opposition are probably on common ground in thinking that creating the conditions for greater competition in telecommunications is a desirable objective.
Unfortunately, the Minister was not able to join us for our interesting discussion on local loop unbundling. However, I am sure that he will have taken advantage of the intervening period to read our
debate. I was gratified to hear him say this morning that he attached importance to local loop unbundling—even though progress towards that end has been almost invisible.
The absence of LLU means that the ability of alternative operators to lease lines has become all the more significant. Earlier this year, one of the main competitors to BT said:
''Without LLU, the main source of competition is at the service provider or re-seller level. This too got off to a very poor start in the UK—although not as badly as in some European countries. If LLU had lived up to expectations, reselling of BT's wholesale product would only have been a temporary solution; but it looks now as if it will be the main show for at least the next two or three years.''
I suspect that it might last even longer than that. Alternative operators are able to lease lines and offer a competing product to the consumer, and it appears that that is the main area in which consumers enjoy genuine competitive choice. For that reason, I am keen to explore clause 88 with the Minister and to discuss how he thinks Ofcom will seek to promote that further.
The truth is that alternative operators who have tried to take advantage of the provisions and offer a competing service have run into a series of obstacles that have made it harder for them to do that. One alternative operator has talked to us about the problems that it has encountered and it has drawn attention to a number of difficulties. Oftel is addressing some of those difficulties, but they will certainly require more intervention by Ofcom when it is up and running. For example, on fairly simple point, that alternative operator said:
''If BT could provide us with wholesale ADSL circuits in a timely fashion, at the right price to stimulate the market, could guarantee the level of service and provide the features needed by business users, we would be happy. But sadly, this is not been the case.''
That operator acknowledged that
''BT has made progress in getting the lead times for installation down to a reasonable period'',
but said that it still had difficulty in obtaining ''a decent ordering system''. That was meant to have been in place before autumn last year, but the operator said that
''current processes are cumbersome and error-prone.''
Repeated complaints have been made. Although those have to some extent been dealt with because Oftel has intervened, pricing remains a matter of concern. For a long time, alternative operators complained that they were being charged more by BT for a wholesale ADSL line than BT Openworld—a BT-owned provider—was charging its retail customers. Operators pointed out that BT appeared to be retailing its own service at less than cost. Following much protest and intervention by the regulator, BT reduced its prices by enough to reduce any penalties that it might face under the Competition Act 1998, although not sufficiently to remove completely the squeeze on margins. It is possible now for alternative operators to employ some margin from business ADSL lines.
There have been other attempts to make it easier to offer competing services. For example, there have been long arguments about whether BT should enter into a service level agreement with alternative operators. BT enters into contracts with all of its customers, so why should a service level agreement for wholesale ADSL prove so difficult to obtain? Similarly, BT designs its services, including its wholesale DSL products, for its own retailer, BT Openworld, whose customer base is primarily residential. Alternative operators have asked whether there are enhancements that might allow DSL to compete with that business, but it is fair to say that such requests have met with a lack of enthusiasm. I am told that
''The standard response to such requests is 'This will have to go in the development stack'.''
In all those areas, there has been resistance from the main provider to allowing alternative suppliers to develop and offer services on the same, equal basis to that which is offered by BT's own subscriber. Oftel has addressed that during the last year, although it seems to have taken it a long time to get round to it. For example, three or four months ago Oftel announced that BT should be able to supply a wholesale service to alternative suppliers that would allow them to offer their customers one telephone bill for charges and line rental. Previously, that was not possible: subscribers who took on an alternative provider received two bills—one from the alternative provider for call charges and one from BT for the line rental charge.
Undoubtedly, having one bill will help. David Edmonds, who we now know will be on the board of Ofcom, said at the time:
''Operators made it clear that providing a single telephone bill would enable them to offer a variety of packages to consumers such a single flat rate charge for all calls and the abolition of the line rental.''
That is a step forward. We have recently begun to make progress and only last month Oftel published
''detailed proposals to enable service providers to offer residential and business consumers a new service covering line rental, calls and bills over BT's network.''
That comes from a consultation document and the precise requirements need to be properly consulted on, so we are not there yet. I hope that the Minister will acknowledge that Ofcom should treat this matter as a priority. As hon. Members have said, it is likely to be the main area in which we achieve true competition.
Despite all the moves to open up BT's network and encourage alternative providers to enter the market, progress is still limited. More than 50 per cent. of the retail market is provided for by BT Openworld—BT's own service. The next biggest provider is Video Networks Ltd., which is a specialist provider of a home choice video service. After that, there are three or four internet service providers, but they have far smaller shares in the market. Does the Minister envisage the development of a genuine competitive market of which each main provider has a significant share, rather than there being one dominant player owned by BT?
Mr Chris Bryant (Rhondda, Labour)
The hon. Gentleman makes important points about ensuring that competition is robustly regulated so that consumers and, importantly, retailers get a better deal. However, does he see any read-across from the BT situation to that of Sky? Sky also operates a platform. It sells conditional access to retailers—broadcasters. Yesterday, the Office of Fair Trading failed to find against Sky on exactly the same charges.
Mr Peter Atkinson (Hexham, Conservative)
Order. The hon. Member for Maldon and East Chelmsford should not pursue that line. We are talking about leased lines, not Sky.
Mr John Whittingdale (Maldon and East Chelmsford, Conservative)
The hon. Member for Rhondda (Mr. Bryant) is very keen to have his debate, because that is the second time that he has raised the issue—he intervened on me in the first sitting. I promise that we will have the debate when we reach the relevant part of the Bill, as you have said, Mr. Atkinson. However, the hon. Gentleman said that the ''OFT failed to find'', which suggests that he knows better that the OFT.
Mr John Whittingdale (Maldon and East Chelmsford, Conservative)
Given the choice, I would probably go with the OFT in this instance.
I return to our interesting question about the ownership of the network by BT and the ability to introduce competing providers of retail services. Obviously, that must be subject to regulation, which is a major part of the clause. For understandable reasons, the Minister was unable to attend the first few sittings of the Committee when we debated the early parts of the Bill. At that point, I said that there are some who believe that the BT supplier will always be in an advantageous position, regardless of the strength of the conditions in the Bill that are intended to ensure that there is a level playing field and open access. Regardless of how much one tries to ensure that there are Chinese walls and separation of accounting systems and so forth, a competitive market will not be achieved while the main service provider also owns the infrastructure.
I was interested in the comments on that of Lord Currie, the incoming chairman of Ofcom: as the Minister knows, he has argued in the past that the only way of achieving real competition in the long term is to separate the ownership of the infrastructure from the service provision. The Minister for Tourism, Film and Broadcasting replied to the debate when Lord Currie's remarks were discussed, and I asked him whether he saw any faults in the argument of the incoming chairman of Ofcom; sadly, he resisted my invitation to comment.
Can this Minister be drawn out a little on whether he sees any strength in that argument, or is he confident that the Bill will make it absolutely certain that we can achieve proper separation, so that the main service provider—BT Openworld—will be competing on an entirely equal basis with the other service providers that are leasing lines from BT? That is a very important matter, and it must be addressed satisfactorily if we are to have the competitive market that we all want.
I acknowledge that the regulator is now making good progress on that, although there is further to go. This matter also affects normal telephony services—the old narrow band services.
Mr Brian White (North East Milton Keynes, Labour)
Since BT was privatised in 1984, there have been several opportunities to split the company into different parts. Can the hon. Gentleman explain why the Government that he supported did not take any of those opportunities, in particular that which arose in the early 1990s?
Mr John Whittingdale (Maldon and East Chelmsford, Conservative)
That is a very interesting point. BT was the first privatisation. In the early 1980s, the privatisation of a major utility was regarded as a pretty revolutionary idea, so the combination of a privatisation and a complete change in structure to achieve greater competition was probably considered to be a step too far.
The same arguments then applied to the gas industry. It was transferred en bloc into the private sector, but a competitive market was achieved later on when the supply was separated from the ownership of the transmission network. The hon. Gentleman is right that there is a valid argument that that should happen to BT, and perhaps that argument should have been had earlier—certainly, the idea has been floating around. I have discussed this matter with BT, which says that it is technically impossible. It argues that telecommunications is not like gas and because of the nature of the telecommunications business one cannot separate service provision from ownership of the infrastructure. I am not wholly convinced about that, and I would be interested to hear the Minister's view.
Mr Mark Hoban (Fareham, Conservative)
As several venture capital companies have put together bids for BT's lines, is it not clear that commercial interests believe that it is possible to separate the infrastructure from the provision of services?
Mr John Whittingdale (Maldon and East Chelmsford, Conservative)
That is right. A bid—or an expression of interest, at least—was recently made, which the BT board firmly rejected.
On this matter, there is both a technical debate as to whether it is possible and a debate about whether it is desirable. I do not expect the Minister suddenly to announce a dramatic Government policy on this during this sitting. However, I would be interested in his reaction to the technical arguments about the theoretical possibility, and whether he is absolutely confident that the provisions of this clause will have the same effect in achieving a genuinely competitive market, which the rather more drastic action of separation would be designed to achieve. That is important for narrowband access, where the regulator has recently stepped in to ensure that wholesale charges are reduced, which has helped to reduce the charges that, for instance, ISPs charge for narrowband access to the internet—the service where one pays a flat rate for being constantly logged on. Such a market is also important if we are to achieve take-up of broadband.
The other day, my hon. Friend the Member for Ryedale said that he still regarded the cost of broadband as prohibitive for many people, and I am sure that he is correct. Of course, there has been
considerable progress in reducing that cost. To some extent, that is due to pressure from the regulator. It is a matter of national interest. If we are to achieve the take-up of broadband, which all agree is in the national interest, achieving greater competition that will bring down prices to the consumer will play an important part.
Mr Brian White (North East Milton Keynes, Labour)
In Germany, the expansion of broadband was brought about by a lack of competition. The regulator and Deutsche Telekom operated together to introduce broadband. That completely contradicts the hon. Gentleman's argument.
Mr John Whittingdale (Maldon and East Chelmsford, Conservative)
I am aware of that argument. It is the case that some have argued—principally BT—that if prices are to be cut to stimulate demand, suppliers will be in danger of being accused of indulging in anti-competitive practices. The hon. Gentleman has raised a point. There will always be a balance between the desirability of achieving greater competitive markets and the rolling out of broadband at lower prices in order to obtain greater take-up.
The clause raises several important issues, and has provided an opportunity for the Minister to respond to some of the concerns.
Mr Stephen Timms (Minister of State (e-Commerce & Competitiveness), Department of Trade and Industry; East Ham, Labour)
We have had a wide-ranging discussion—wider than I thought when I saw that the title of the clause was ''Conditions about leased lines''.
Let me address some of the points raised by the hon. Member for Maldon and East Chelmsford, which are important and interesting. He talked about local loop unbundling and the roll-out of broadband. I hope that local loop unbundling will take place in the UK on a significant scale. We now have the regulatory framework to allow that to happen. The reason that the take-up of local loop unbundling has been rather slow is more to do with the general shortage of investment into the sector than any remaining problems in the regulatory arrangements, or any blockage on BT's part. We have an arrangement that will work well, and some businesses are being built on the basis of unbundling local loops and using them to provide cost-effective broadband services to customers. We will see more of that in future.
I was in Japan recently, and it is certainly the case there that local loop unbundling has been the key to delivering extensive broadband availability, a high level of broadband take-up and low broadband charges. That is an interesting example of the effectiveness of competition in delivering the objectives that we all share.
The hon. Gentleman asked me to comment on the possible break-up of BT. I agree with the principles to which he referred relating to securing a fully competitive telecommunications market. I agree that we have made some good progress in that direction in recent months. Oftel and the director general have made some important announcements—for example, about the single bill for people who have telephone services from providers other than BT. I believe that
the powers in the Bill and the arrangements that we are establishing with Ofcom will allow us to deliver the competitive market that we want.
On the specific issue of a break-up of BT, Ofcom will be able to exercise powers in the Enterprise Act 2002—which was mentioned by my hon. Friend the Member for Milton Keynes, North-East (Brian White)—including the power to make market investigation references to the Competition Commission. That opportunity will be available to Ofcom, should it wish to take it. I am aware that there has been a good deal of interest in the matter of late, with many people calling for a break-up of BT.
I do not think that that is a matter for Ministers—indeed, under the Bill, it will be for Ofcom to consider—but I should say that those who call for the break-up of BT find it difficult to say exactly where the split should be made between the lines and the rest of the network. For example, are we talking about the local exchanges as well as the local network? Some tricky definitional points must be clarified before any such proposal could be seriously addressed. Is it technically impossible? I am sure that the answer is no, but it is certainly very complex, not least in terms of defining precisely where the split should be made. Because it would be such a complex process, it would inevitably be extremely time-consuming and would absorb an enormous amount of energy and effort from everybody in the industry, almost certainly for some years. That would have to be taken into account in deciding whether it was a fruitful road to embark upon. As I said, it will be a matter not for Ministers, but for Ofcom, especially under the powers in the Enterprise Act.
The clause deals with the conditions regarding the availability of leased lines. It enables Ofcom to set SMP conditions where a party has been found to have dominance in the market for leased lines, but the market in question will be limited to such leased lines as are identified by the European Commission in the list of standards published in the Official Journal of the European Communities, which we have not yet seen. Ofcom will need to go through a procedure whereby it identifies a market for review, conducts the market review, sets conditions to combat dominance, and decides in the light of the analysis what those conditions should be. Annexe 7 to the directive, which is headed, ''Non-discrimination, cost orientation and transparency'', sets out some of the areas in which those conditions can be envisaged and gives details of precisely what they might address.
Let me conclude this interesting discussion by reaffirming that it is very important in this part of the telecommunications market, and in the market as a whole, that competition is not unfairly blocked by any provider with significant market power. The hon. Member for Maldon and East Chelmsford said, I believe, that BT has about 50 per cent. of the broadband market. Let me clarify that. BT Openworld has about 50 per cent. of the ADSL market, but more than half the broadband connections in the United Kingdom are from the cable television operators NTL and Telewest. Those
are not ADSL connections. Therefore, looking at all broadband provision, BT Openworld has only about 20 per cent. of the retail broadband market, which is a much smaller proportion than in most comparable markets.
The hon. Gentleman rightly made the point that we have recently seen good progress on competition. We have seen in the broadband market—in some ways, for the first time—the real benefits of infrastructure competition. It was the sale of cable modems by the cable operators before BT was serious about broadband that put pressure on BT to reduce prices, which has led to the substantial growth in the broadband market of recent weeks—we passed the 1 million mark in October, and 28,000 connections a week are now being sold. That is rapid progress. We need to go much further, but there has been a lot of movement in the right direction.
Mr John Whittingdale (Maldon and East Chelmsford, Conservative)
I am grateful to the Minister for such a comprehensive and persuasive reply, especially on whether BT should be separated into different parts. That would be an incredibly complicated exercise, and I am not saying that it is necessarily the right thing to do. However, I am grateful that he acknowledges the importance of the debate.
On the Minister's point about BT Openworld's share of the market, of course he is right that, for people fortunate enough to live in an area where there is a cable provider, genuine competition and choice are available. There are, however, three categories of area. Some areas have both BT and cable available, providing quite strong competition. Sadly, there are far too many areas of the next type, where neither ADSL through BT nor cable is available. Such areas are found in many of our constituencies—
Mr Peter Atkinson (Hexham, Conservative)
Order. I had a feeling that this was an intervention, but it appears to be turning into a speech.
Mr John Whittingdale (Maldon and East Chelmsford, Conservative)
I shall bring it to a conclusion very quickly, Mr. Atkinson.
In the third type of area, which is found in parts of my constituency, ADSL is available but there is little likelihood that there will be a cable provider, at least in the foreseeable future.
Mr Stephen Timms (Minister of State (e-Commerce & Competitiveness), Department of Trade and Industry; East Ham, Labour)
The hon. Gentleman is right. However, we can look forward to much more extensive availability of broadband via wireless, providing another dimension to competition; in addition, it is available almost everywhere by satellite, although at a rather higher cost. There are several avenues through which broadband competition will sharpen, one being the power line, which is now being re-examined, although people lost interest in it for a while. The use of the electricity network to support broadband now seems to be a realistic possibility.
It is absolutely vital to have strong and sharp competition in the broadband market, including for those who resell. There are, I think, more than 150 resellers of BT's wholesale ADSL product. There is a significant degree of effective competition, but we—and Ofcom—need to be vigilant to ensure that that competition is as sharp as it should be. I am well aware
of the concerns of several competitors with BT who have not had enough opportunities in the past.
Question put and agreed to.
Clause 88 ordered to stand part of the Bill.
Mr Peter Atkinson (Hexham, Conservative)
We had a very wide and interesting debate on clause 88, which is perfectly permissible under the rules of order. However, I remind the Committee that clause 89 is a rather narrow clause, so we should perhaps keep to the terms of the amendments.Clause 89 Conditions about apparatus supply