§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Peter Lloyd.]
12.39 am§ Mr. Paddy Ashdown (Yeovil)I am grateful to the Minister for turning out at this late hour and for this opportunity to initiate a debate on a matter relating to high technology.
The story that I have to tell is about a small firm which has done what the Government are saying should be done but which, in the process, has been all but killed off by a Government-sponsored body. I have not chosen this particular firm because it has suffered an especial injustice or been the victim of a level of incompetence which is unusual. Unfortunately, the contrary is the case. The point of my story, which concerns Kirk Automation of Cinderford in Gloucestershire, is that it is all too chillingly typical. What Kirk Automation has suffered mirrors the experiences of many other similar high technology firms throughout Britain. Their businesses have been threatened, their employees laid off, their orders lost and their futures placed in jeopardy by the unbelievable incompetence, unacceptable delay, unreasonable expense and unimaginable bureaucracy foisted on them by the British Approvals Board for Telecommunications. The BABT is not in any way connected with British Telecom. That connection has been mistakenly made and BT has been blamed for BABT's mistakes. In this case BT is blameless.
Kirk Automation was founded by a young technologist, Kevin Kirk, in 1983. It specialises in manufacturing equipment for data communications—the very area in which the Secretary of State and the Minister have told us that Britain could and should be a world leader. It started as what is known in the trade as a legendary "garden shed" firm. Like Hewlett Packard, the giant United States hi-tech multinational, Kirk Automation started in a room so small that there was not room for both employees to work at the same time. One had to work during the day while the other came in to work in the evening.
The firm grew fast and now, less than three years after it was originally founded, employs, or employed 27 people and turns over, or did turn over before BABT got its hands on it, £500,000 a year. Last year the firm received an award for taking on more young people than any other firm of equivalent size in Gloucestershire. Turnover was predicted to double to £1 million next year. The firm has obtained orders from abroad, especially from Holland, and has significantly broken into the big market—a difficult market. The computer games giant, Atari, for example, is one of its customers.
By any definition the firm is the model of what the Prime Minister and the Government tell us a small firm should be. It is a positive fairy tale, and perhaps too much like a 'fairy tale, because now on cue enters stage left the wicked uncle, or, to be more precise, the bungling ogre in the shape of the BABT. The firm's mistake was to produce a piece of equipment that required BABT's approval. Last year it produced the "Magic Modem". For the benefit of the non-technically minded, a modem is a piece of equipment attached to a telephone line, enabling data to be passed through the telephone network. The Kirk 315 Automation Magic Modem is at the centre of our story. It is a small box, that will cost about £60 in the market place, but the final bill for testing will be no less than £10,000—two and a half times the original estimate.
Like everything the firm did, its Magic Modem proved a market winner. Prestel showed immediate interest, so the firm decided to get the modem checked over by Teleproof, the commercial consultancy arm of BT, the laboratories of which are in the same place as BABT at Wharf road in London. Not only are their laboratories in the same place, but they share the same facilities, the same people, the same tests and even the same paperwork, as I shall show later.
Teleprools engineers commented that the modem was
a beautiful piece of kit",and recommended that it should be passed to BABT for testing immediately. In November of last year Kirk Automation submitted the modem to BA BT for testing, which was estimated at a quite staggering cost of £4,000. I shall leave that aside for the moment.By December, absolutely nothing had happened. After several telephone calls, BABT said that the modem was still on the shelf, untouched, as I understand it, and that it did not have enough staff and was moving premises. Kevin Kirk, the founder of Kirk Automation, decided to investigate matters for himself and applied for a job at BABT. He was told that no one with less than a master's degree should apply. The pay was so low that no one with a master's degree would dream of applying. No wonder there was a staff shortage.
Meanwhile, orders and interest in the Magic Modem were building up. Unichem, the high street chemist chain, wanted to place a modem in all its shops up and down the country, but that could not be done until the modem had received BABT approval. Amstrad, the major and successful computer manufacturer, similarly showed considerable interest, but the modem required approval first.
In January of this year, Kirk frustrated because of the lack of progress, wrote to the local MP, the hon. Member for Gloucestershire, West (Mr. Marland), who has done a first-class job in chasing up the case. The firm also sent letters to the Secretary of State for Trade and Industry and to the Prime Minister complaining about the delay.
No doubt because of that pressure, the head of BABT, who is for some unaccountable reason an ex-Army colonel, eventually contacted the firm personally. Colonel Vivers explained that the delay was all because Kirk had not filled in the application forms correctly. That was three months after submitting the forms.
Several minor questions were sorted out over the telephone. However, the main reason for the delay was revealed to be the fact that Kirk Automation had circled rather than ticked a box on one of the forms. By the end of February, still nothing had been heard from BABT. Approaches to Kirk's MP, the hon. Member for Gloucestershire, West, as well as to the Secretary of State and Oftel, seemed to have no effect on Colonel Vivers and his staff.
That is not to say that BABT was not doing anything — quite the contrary. It was busy sending Kirk Automation demands for more money. The final bill for its approval turned out to be £10,000, against its original estimate of £4,000. When one looks at BABT's charges, one can understand why that happened. Every time the 316 small front plate, which the Minister might like to notice here, was changed so that the logo could be changed, BABT charged £750 for the testing.
BABT found one single fault with the modem, in a cable clamp, which had to be replaced and re-tested according to British Standard 415. BS 415 specifies that that must take one minute and 20 seconds. BABT's charges for that one minute and 20 seconds-worth of testing were a staggering £185, which equates with an hourly rate of £8,325. That is what BABT thinks it appropriate to charge.
I digress from the main line of the story. By April, there was still nothing from BABT. At this stage, Kirk Automation ran out of money and was on the verge of bankruptcy. The firm was saved only by the faith of a friendly bank manager in what it could and might do. Barclays came to the rescue.
The result of the delays was severe. The firm had to lay off progressively 23 of its 27 employees, including the general manager. The firm was reduced to the three-man complement of the garden shed days three years previously. Kirk Automation contacted BABT every day, but always in vain.
In mid-April there was a rumour that Colonel Vivers might be leaving BABT, but that proved to be false. At last, at the end of April, Kirk Automation received interim approval for the modem, five months after it was submitted for testing.
That is not the end of the story, because interim approval means that the company can produce only a limited number of units. However, it was able to re-engage some staff, who duly worked flat out on massive overtime to save the firm and catch up on undelivered orders.
Kirk Automation has still not received final approval for its modem. It is still in BABT's laboratory at Wharf road, in an office next door to where it received a glowing report from a Teleproof engineer nine month ago. The tests that are being carried out are the same as those which took place nine months ago. The people carrying out the tests are the same as those who were undertaking the tests nine months ago. The laboratories are the same and even the paperwork, with one small exception, is exactly the same as that which was involved nine months ago. Yet nine months have passed and Kirk Automation is £10,000 the poorer. Its orders have been lost and its staff laid off. Its viability has been undermined. As a result of its inability to meet orders, I am told that the company is being sued or pursued by suppliers and customers alike.
I do not accuse BABT of trying deliberately to destroy this small high technology firm and its products. I have no doubt that it has done so by accident, but it could not have done so more efficiently if it had planned and designed this precise outcome.
Unhappily, this is not an isolated incident. Mr. Terry Bartram of the Telecom Dealers Association tells me that the problem is widespread. It appears that there is massive and broadly felt dissatisfaction in BABT and in the industry it serves. Even if all goes well, it appears that it takes six months to get approval for the most simple piece of telecommunications equipment. By the Telecom Dealers Association's calculations, at least 50 per cent. of this time is spent in administration.
Unfortunately, there is more. BABT now seems to be delaying, if not actually refusing, approval of subscriber call forwarding equipment, otherwise known as the call diverter. When approved, this equipment will be in direct 317 competition with British Telecom's exchange based call forwarding equipment, for which BT is able, as a current monopoly supplier of the service, to charge an exorbitant rental and secure a substantial income. I am advised that one can purchase a non-BT manufactured diverter from a well-known telecommunications equipment supplier for half the price of BT's annual rental charge. That is the annual rental charge. The public might justifiably ask why this equipment is not being approved. Who is pressing whom and for what reason?
I understand that Oftel has now accumulated a mounting pile of complaints about BART, its delays, its overcharging and its inefficiencies. Things have become so bad that manufacturers are now deciding to make their new equipment outside Britain. For instance, Kirk Automation has received an order from Atari for one of its new designs, but Atari has insisted that this piece of equipment is built offshore, out of Britain, to avoid BABT's clammy hands.
Things are different abroad. The French Government have supplied 100 per cent. support for their telecommunications industry and are practically giving away free models to all telecom subscribers. A PABX exchange, which would cost £12,000 and take six weeks to receive approval in Germany, costs no less than a quarter of a million pounds and can take 18 months to obtain BABT approval in Britain. How can British industry hope to compete in this situation?
I should be grateful if the Minister would address himself specifically to the following questions. To whom, ultimately, is BABT responsible? Should it not be made responsible ultimately to a body such as Oftel? When will the Birtwistle report be published? Incidentally, Birtwistle is the name of yet another ex-Army colonel. I am not quite sure why ex-Army colonels seem to hold such important positions in our telecommunications industry, but no doubt there is a reason for that. Colonel Birtwistle has now been writing his report for nine months; surely it must now be nearing completion.
Most important of all, will the Minister understand the scale of the problem with BABT? Does he recognise that the cause is inadequacy and incompetence within BABT itself? Does he understand the damage that is being done to small high technology firms in an area where Britain still has some strength and where the Government say, quite rightly, that we can become a world leader? If the Minister understands all that, and I hope he does, what on earth does he intend to do about it?
§ The Parliamentary Under-Secretary of State for Trade and Industry (Mr. John Butcher)I thank the hon. Member for Yeovil (Mr. Ashdown) for raising this subject today. I entirely agree that unreasonable barriers should not be placed before small companies that wish to bring new products into a growth market in which there are opportunities not just domestically but internationally for British companies in high added value, high technology engineering.
I shall try to answer the three questions posed by the hon. Gentleman about the Birtwistle report, the route through which the British Approvals Board for 318 Telecommunications should report and the rate of progress that BABT has been able to achieve over the past three years or so.
Perhaps, however, it is helpful to begin by recapping why we have an approvals system, and why it is operated as it is. Telecommunications equipment is different from almost any other set of products in that it interfaces and interacts with a public communications network, sending electrical signals across the carrier's infrastructure and receiving signals from other attachments. This raises issues concerning the safety of the equipment, not just for users but also for network operators and employees. Moreover, characteristics of particular attachments affect the performance of the network, not just for users of that attachment and those whom they are calling, but potentially also for all other users of the network. For that reason, all telecommunications administrations require that equipment to be attached to their networks meets minimum standards of safety and performance, most commonly through a type-approval scheme.
Until 1981, responsibility for equipment approval lay solely with British Telecom, which had the network monopoly. With the introduction of competition in network operation and equipment supply, it became desirable and necessary to establish an independent mechanism for setting standards for attachment equipment and adjudicating whether particular products met those standards. Hence the setting up of BABT which advises the Secretary of State, who is the formal standards and approvals authority.
The aim was to create an independent and objective system, fair and equitable to all equipment suppliers, which could ensure the integrity of public networks and the safety of users and operators. It should he appreciated that, in doing this, we were replacing well-established arrangements, which were able to operate as flexibly or indeed as arbitrarily as BT chose. One immediate feature of an objective and independent system is that it requires published and comprehensive rules and procedures, which the hon. Gentleman referred to as more bureaucracy, whilst those operating it must build up their own resources and expertise — expertise which, due to the increased demand liberalisation has helped to stimulate, is in short supply. That is the paradoxical price of opening telecommunications markets to competition. The reward is more fairness, more openness and easier access to the market for new suppliers.
In the early days of liberalisation, everyone involved was engaged on finding a way forward, both approvals applicants and regulators alike. Delays occurred whilst they familiarised themselves with the requirements. There was a learning curve to go through. The increased output of approvals shows the results of this. However, greater familiarity with the market opportunities liberalisation is bringing has itself brought new companies with new products into the market. They too, like their predecessors, are having to go through a learning process whilst BABT is dealing with more and more applications. No one denies the need for a type approvals regime. Suppliers remind us that many overseas telecommunications administrations place great store on products having been approved in the United Kingdom. Our aim in the approvals process is to protect this reputation and at the same time ensure that United Kingdom customers have 319 the choice of the latest technology while suppliers are able to introduce their new products with the minimal necessary constraints.
At this stage I can provide part of an answer to the hon. Gentleman's specific questions. He will wish to know the rate of approvals recommended by BABT. In 1983, at a very early stage, there were five. In 1984 there were 114. In 1985 there were 257. In the first and second quarters of 1986 there have been 163 approvals. The rate is growing dramatically, and we are here referring to the non-routine approvals. Those are major and significant new products coming into the market.
No one has denied the need for a type approvals regime, but the question is how that regime is operated. The hon. Gentleman has sought to place before the House the particular example of one company's experience in order to illustrate some of the problems.
The Kirk Automation Ltd. case illustrates the problems of transition, both for BABT and for companies. It is quite unfair to blame BABT for all the time taken, or for all the costs entailed. The hon. Gentleman may be aware that the procedure works as follows. On receipt of an application for type approval, BABT checks that the proper documentation has been supplied. It determines which standards are relevant and that may entail special exercises for novel products. It seeks tenders for testing from designated test houses, currently British Standards Institution and BT laboratories, and then advises applicants of the lowest bid and seeks their go-ahead and payment of the test fees. If a company has no previous BABT approvals, BABT checks its production and quality capabilities. BABT must then wait for the completed test results and verify them before advising OFTEL and thence the DTI to issue an approval.
That, of itself, takes time. More significantly, delays can and do arise which are not due to BABT. For example, forms may be completed incorrectly. With new products, there can be uncertainty whether appropriate standards exist. It takes time for test houses to respond to tender requests. It takes time for applicants to accept test houses' bids and to send their advance payment. It takes time to get products tested—test houses have been overloaded—or re-tested if some tests are failed and products need modification as quite often happens. Such non-BABT delays are most common for the smaller companies without experience of system. I note carefully what the hon. Gentleman has said about the needs of small companies in particular. Many of the delays in Kirk's case were outside BABT's control.
Delays and high costs are not acceptable, and I shall come on to actions in hand to reduce them. I shall first set things in context, and say a little about BABT. Most approvals still have no BABT involvement. Equipment for attachment to private circuits and enhancements to products originally approved by BT are still approved through BT. Since liberalisation, nearly 6,000 new approvals have been granted, 529 through BABT. But those 529 BA BT-approved products are generally the more important ones, and the balance of new approvals will quickly shift towards BABT as the old pre-liberalisation products are replaced with new ones.
Overall, the system is working in a way which has helped achieve unprecedented consumer choice and greatly reduced real prices of attachments, while adequately safeguarding the public networks. Although approvals procedures in some other countries are on the 320 face of it simpler and cheaper, in practice there are few other countries where all suppliers — not just those admitted to a PTT "club"—can have such a range of attachment products approved without bias or favour. That factor should be highlighted.
We do not underestimate the difficulties at BABT. The biggest single problem has been difficulties in recruiting professional engineering staff. Following a management review last year, BABT was given greater management autonomy. It moved to new offices, computerised its accounts, and recruited a further seven engineers to work on approvals and support functions. Those changes have helped reduce the backlog of applications to one third the level of last summer. A further improvement in the service offered should follow from the opening of additional new test facilities by Hull city telephone company and Standard Telephone Laboratories.
However, more radical changes are necessary to ensure further improvements. In particular, we need to reduce the bureaucracy of the approvals machinery, both in procedures and in responsibilities.
One problem to which the hon. Gentleman referred has been the overlapping interests of DTI and OFTEL since the Telecommunications Act 1984. Under that Act responsibility for the approval of contractors, approval of apparatus and designation of standards was placed with the Secretary of State, who could delegate that authority to the Director General for Telecommunications. In practice most day-to-day administrative responsibility for these matters, and hence "hands-on" expertise, has been with OFTEL, although formal responsibility has remained with the Secretary of State. In order to provide a clear focus for action, and eliminate duplicated responsibilities, the Secretary of State intends issuing a general authorisation under sections 20(1), 22(1) and 22(6) of the Act, delegating full responsibility to the Director General for approvals and standards matters—except in areas where international considerations override the requirements for domestic standards to be designated. I am grateful for the hon. Gentleman for bringing this matter forward today because the debate has allowed the House to share that information which I have no doubt will be communicated to the appropriate parties.
This change should facilitate subsequent decisions over other improvements which are under consideration. I know that time is pressing. I can give the hon. Gentleman an undertaking that I will examine the blow by blow account that he has presented. If need be, the hon. Gentleman and I can talk about these matters in detail in my office, and discuss the lessons of this particular path to approval.
There are two other areas where it is legitimate for the Government to act. The first is to simplify standards, and we are hopeful that the Birtwistle report will be produced speedily. The second area in which the Government can act is to increase the options available to applicants in the number of laboratories available to do the testing. As I said earlier, we are doubling the number of laboratories from two to four.
Those are the two areas of major bottleneck. I appreciate that the hon. Gentleman will wish to discuss with me the options for further reassurance on the working of BABT which has been the import of the hon. Gentleman's remarks tonight. I hope that my remarks will satisfy the hon. Gentleman.
§ Mr. AshdownThe Minister's remarks have been extremely helpful and they will be widely welcomed in those areas afflicted by this particular problem. I should be grateful if he would spend a little time considering the real problem, which relates to the time involved. The competitiveness of small firms has been so significantly undermined through problems related to time. As the Minister said earlier, I hope that he will press BABT to ensure that the time for approval is reduced to the level that exists in Germany and elsewhere on the continent in competitor nations.
§ Mr. ButcherI am prepared to consider that point. That has exercised our attention for some time and we are anxious that we do not build non-tariff barriers against our domestic producers. We are keeping the position closely under review in relation to the interests if small firms, many of which we hope will become big firms in this growth area. The hon. Gentleman's views are echoed elsewhere and, for that reason and for the reasons that he has deployed tonight, I am prepared to become involved in discussions with him about the lessons of this story, including the question of time scale.
Question put and agreed to.
Adjourned accordingly at eight minutes past One o'clock.