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§ Mr. Steve Webb (Northavon)I begin with a confession: recently, I have been spending rather a lot of time in the company of Mr. Bill Gates. Not literally, I hasten to add; I suppose that "virtually" would be the way to put it. I have recently acquired two of his books—one of which was free, although I bought the other. The book that has had a great effect on me is "Business at the Speed of Thought". At the end of about 300 pages of Mr. Gates enthusing about the growth in the internet and what he calls "the web life style"—with a name like mine, I am also very enthusiastic about the Webb life style—it is difficult to avoid the sense that, although one suspects that Mr. Gates has his own agenda on the issue, even if only part of what he describes comes true, there is a tremendous opportunity for British business, education and consumers. It is important that we do not miss that opportunity.
My contention, therefore, is that we must get telecommunications regulation right. It is not unfair to say that the present regulation was largely not framed with the internet in mind. I am well aware that the regulation is under urgent review and I hope that we shall hear more about the direction of the thinking on that matter during the debate. I argue that there is a problem and will cite some statistics in evidence. Obviously, there are different statistics showing how far behind Europe is compared with the United States. A report from Jupiter Communications suggests that only 18 per cent. of United Kingdom households are on-line, compared with 44 per cent. in the US. The report notes that, although that gap will close, and in four years' time, the UK figure may have risen to 41 per cent., by that time, the US figure will be 63 per cent. I am sure that the figures will vary according to definitions, but there is clear evidence of a gap and of a problem that needs to be addressed.
Some other problems are tied in with telecommunications regulation issues—for example, telephone communication charging structures and their implication for the structure and location of British business. Once this debate became common knowledge, I received several emails, including one from a young man aged 20, who lives in Bradley Stoke in my constituency. He described himself as an internet entrepreneur. I am delighted that such people live in my patch, and look forward to meeting that young man. He tells me that, in his business, the huge cost of local calls—running into thousands of pounds—or the cost of dedicated lines means that he has had to locate and register his business in the United States.
My constituency is home to many high-tech companies—Orange, TeleWest, Hewlett Packard and so on—so it should be a natural home for internet entr—epreneurs, even those aged 20. Clearly, if my constituent is being forced to relocate in the US, something somewhere must be wrong.
§ Mr. Richard Allan (Sheffield, Hallam)Does my hon. Friend agree that there is also a problem in that a business in the US can service European customers throughout Europe more cheaply than a business based in a European country? Does he agree that regulation is necessary to try to get rid of the cost of telecoms crossing national 613 boundaries in Europe? Such additional costs make the UK and other European countries uncompetitive compared with the US.
§ Mr. WebbI am grateful to my hon. Friend for making those points. As chairman of the Select Committee on Information, he is most knowledgable on such matters. His points tie in with what I was saying. If telecommunications regulation is causing British entrepreneurs to site their businesses—either physically or virtually—in the US or elsewhere, there is clearly a problem to be addressed.
Before considering some possible solutions, I want to consider the problem of whether telecom giants—for want of a better word—are stifling the potential for expansion in this area. For example, I was told, by e-mail, about cable modems; that might be one way of facilitating greater access. Henry Jaremko of QE Data Ltd.—someone I had not met before—told me that he had tried for two years to get BT to sort out a cable modem for him. He was told that the company was considering the matter and researching it. He stated:
I talk to friends and colleagues in the Netherlands and in America and they are all using cable modems NOW—they pay … £30 to £50 a month for the service and they get speeds typically five times faster than an average modem … More importantly for the fee … they are ONLINE ALL THE TIME.He put that last phrase in capitals, which means that he was shouting at me. He continued:There is no concept of dialling—their computers are permanently wired to the net from their homes or offices.
§ Mr. Ian Bruce (South Dorset)As they have initiated this welcome debate, I am sure that Liberal Democrats were only too pleased to receive messages. Last night, I had dinner with representatives from several telecoms companies; they told me that, within weeks—literally—we shall receive announcements from several sources about a fixed fee, on-line all the time, to an internet provider. Perhaps, therefore, the hon. Gentleman is wrong to say that we should get the regulation right. The regulation is already in place; the market will provide the solution for the UK. Despite the fact that our telephone calls are already cheap, he is right to identify the problems on the internet side, but I think that the solution will occur soon.
§ Mr. WebbI hope that the hon. Gentleman is right. I am sure that the Minister for Small Firms, Trade and Industry will be aware of the latest developments and will be able to brief us on them.
I do not know how new cable modems are, but Mr. Jaremko says that other European companies seem to have managed to take up that new technology. Is BT a slumbering giant? Is that why the company has not moved as fast as it might have done to take up that technology? I have also been briefed about digital subscriber loops. That is a new world to me, but it seems to be another form of technology that would provide a means for extensive internet access. However, again there seems to be a problem with an incumbent supplier, who is perhaps not as innovative as possible.
We have a series of problems. What could be the cause? One obvious candidate—although it is not the sole problem—is the cost of local calls. In the US, local calls 614 are free in many circumstances, whereas in the UK, local calls are metered with a 5p minimum charge. That 5p charge may be relevant when one is going on-line, receiving e-mails and coming off-line, and it may discourage people from doing that regularly. However, my key concern is the metering of local calls and its implications. In terms of e-commerce, I draw an analogy with being charged for window shopping in the high street. Retailers would be appalled if that were the case, yet we make people pay by the minute for window shopping on the internet.
Some people might respond that Freeserve has come in and everyone is on-line so the problem is solved. However, we are talking not only about people being on-line, but about using the internet as part of their "life style"—as a servant in business, education and leisure. Being on-line and having access is only part of the battle, we then have to use the thing. There is evidence that usage increases when metered charges are abolished and replaced with fees. When America OnLine moved from one structure to the other in 1996, monthly use went up from an average of 14 minutes to 33 minutes over three months. The average figure is now an hour a day for that company. Of course, there are limits, but, if the internet is to be a servant and is to be part of our lives, we must remove the marginal cost to a greater or a lesser extent.
The Minister will probably recall that, when I wrote to him on this subject, his response was that average telecom charges are low in the UK. However, I am concerned not only with the average, but with the margins. Once one is on-line and has paid the set-up costs, one wants the marginal costs to be low to provide an incentive. Clearly, the costs are not as low here as they are in the US.
Assuming that greater coverage and use are good, what should we do? I make one query of that assumption. I am enthusiast in all those matters—I suppose that enthusiast is a euphemism for an anorak—but internet content is also relevant. As a parent, I am aware that there is material on the internet that I do not want my children to see, just as there is material on the top shelf of the newsagent that I do not want them to see. However, rationing by price—getting people to come off the internet—has nothing to do with that problem. It is vital that the problem is addressed, but we are tackling it in a haphazard and ineffective way. I have reservations about teenagers in their bedrooms spending hours on the net unsupervised. However, the issues that we are raising in the debate are not inconsistent with tackling that problem.
What can be done? The Campaign for Unmetered Telecommunications, with which I am sure the Minister is familiar, has been energetic and effective in publicising the issue. It has an excellent website at www.unmetered.org, and I have spent many happy minutes surfing it and then getting off-line. It quotes the "father of the web", Tim Berners-Lee, who says:
universal internet access for all in a country is very important. To be practical, internet connections must be permanent … The time taken to dial up over a telephone line makes many uses of the internet … prohibitively bothersome. Regulatory systems and charging which support the status quo in which the telephone system is used to dial every time the internet is used hobble a country's ability to use the network—it is a bit like asking a motor vehicle to be preceded by a man carrying a red flag. It is forcing the new technology to operate in the mode of the old technology.That final observation is a telling one. We are not talking about more people having PCs with modems in the back, or more people hopping on and off-line. We are 615 talking about—to use the awful phrase—the web life style, in which the internet is integral to our activities, but as a servant, not a master.America OnLine has just surveyed more than 11,000 of its customers, almost all of whom cited local call costs as the main barrier to greater internet use. I know that there is no such thing as a free lunch. We are talking not about free local calls, but about unmetered local calls coupled with some sort of subscription charge—that is, trying to get marginal costs down and so increasing use.
Some might say that that is happening anyway and that the market will produce that result because, if that is what customers want, suppliers will provide it. However, it strikes me as inherently unlikely that the commercial interests of BT in a regulated environment will coincide exactly with society's best interests. BT has a job to do: it exists to make profits within the constraints imposed on it. Why should its pricing policy be identical to that which society wants in order to maximise internet use among lower income households, students and so on? Such a coincidence is unlikely to occur.
The market has made some progress, but there is no guarantee that it will take us where we want to go. The hon. Member for South Dorset (Mr. Bruce) and others would say that we are getting there: for example, Screaming.Net—a phrase I have been dying to get into Hansard—set up a freefone access system, but there are strings attached in that the customer has to change phone company and go over to Localtel. Mysteriously, BT has been slow in getting people over to Localtel: it claims that it underestimated demand, but Localtel says that it forewarned BT of the demand and that BT has simply not coped. The idea that BT would enthusiastically commit resources to moving its customers to someone else's business is hard to swallow—it would not be surprising if it did the bare minimum.
Last weekend, without making a lot of fuss—the announcement was made on the internet, because the company did not want many people to know, which is telling—BT gave free 48-hour internet access to BT internet subscribers. The company did not publicise that service, because it was not sure that it could cope with large-scale use. Strangely enough, the service proved extremely popular, but, once again, there were strings attached: it was provided only at the weekend, customers were logged off after 20 minutes if they did not do anything, and they were restricted to a maximum of 12 hours on-line at a time.
Perhaps we are inching in the right direction, but I doubt that the cultural shift that is necessary will take place without active Government intervention. In short, we need a new approach to those issues. Tim Berners-Lee says:
Personally, having the luxury of a permanent … connection at home I notice the change of role a computer plays in the home—it becomes immeasurably more friendly. One is much more inclined to order things, pay bills, and check news and weather using it when one does not have to wait and bother with dialling into a service provider.It seems to me that British skills and temperament are well suited to taking advantage of these great technological advances and to taking a world lead in using the internet for business, education and leisure. We have a great opportunity, but we are behind in the game, and the reasons for that can be found in the regulatory structure. I hope the Minister will assure us that he is 616 urging the Office of Telecommunications, Oftel, to encourage, not incremental change, but a cultural shift in the way in which we perceive the internet, which will be to the benefit of all our citizens.
§ The Minister for Small Firms, Trade and Industry (Mr. Michael Wills)I thank the hon. Member for Northavon (Mr. Webb) for raising such a vital issue and congratulate him on securing the debate. I share his enthusiasm for the liberating and empowering potential of the internet for every individual and every business, large and small. He is right to identify that potential and the Government wholly agree with him.
I agree that we are in a transitional period. The technology is remarkably new—in fact it is remarkable in every way. If I may be a little extravagant at this point, never before in human history has a technology with such a profoundly transforming potential become available to so many people so rapidly. Inevitably, all sorts of questions arise about how we as a society cope with such an incredible new technology and, during this transitional period, we have to consider carefully every aspect of our actions in that respect.
I also agree that the widespread availability of a speedy access infrastructure and a high-quality backbone telecommunications network that is available at an affordable price are vital to the growth of the internet. Ultimately, those things will be best provided through effective competition in both telecommunications infrastructure and in the services provided through it.
That competition is already at work in the UK to give us the networks that we need in order to lead the world in this field early in the next century. However, I agree with the hon. Gentleman that effective competition depends on effective and appropriate regulation. We have one of the most liberalised telecommunications markets in the world. As a result of competition, the cost of calls is steadily decreasing, and that is to the benefit of all internet users. I shall run through the range of competition in this country, which is remarkable for the rate at which it has increased over the past few years.
In fixed-line telecommunications, 45 domestic public telecommunications operators are now licensed, an increase of nearly one third since May 1997, when there were 33. They provide their own infrastructure and services in competition with the former monopolist, BT. Three major cable television companies offer telecommunications services over their lines. In March 1997, there were 125 active cable franchises passing 8.2 million homes, with 2.3 million homes connected. By January this year, the number of active cable franchises had increased to 134, with 11.5 million homes—more than half of all the homes in the UK—passed by cable and approximately 3.5 million connected. Those figures show an increase of more than 50 per cent. in less than two years.
More than 14.5 million people subscribe to the four mobile phone networks—a figure that has more than doubled since March 1997, when only 7.1 million people subscribed. The mobile phone market is now worth approximately £3.5 billion, or roughly one third of the fixed-line market. New pricing packages mean that the mobile phone market is increasingly competitive with fixed-line services. More than 100 companies are licensed 617 to provide international facilities. The DTI has licensed 73 new operators of international services since the general election, and BT's share of the international market is now less than 52 per cent.
As a result of all that competition, call prices have fallen by more than 50 per cent. in real terms since 1984, and there have been even more dramatic price cuts for international calls. However, competition is still increasing: the roll-out of cable and other fixed-line telecommunications is progressing steadily and, later this year, we are to auction off the third generation of mobile telephone licences, which will dramatically increase competition in that sector. As the hon. Gentleman will be aware, that third generation will enable the provision of internet access through mobile phones.
We have an effective competitive framework for telecommunications in this country, but the hon. Gentleman was right to remind us that we must not be complacent. The Government are not complacent and are working to ensure that the regulatory framework develops in a way that continues to encourage competition and the provision of new services available to everybody.
A range of EC directives has reduced regulatory burdens and promoted competition across the EU. We continue to work with other member states on the 1999 review of the telecommunications regulatory framework in the EU to ensure that that process continues. Within the UK, the Government are reforming telecommunications regulation to ensure that it continues to promote competition effectively. For example, we are streamlining the process for modifying licences and we are consulting on a new appeals mechanism. In the longer term, as the hon. Member for Northavon mentioned, the Government are considering more fundamental reform to move away from the current prohibition-based licensing regime to a more flexible system. We shall publish further ideas on that in the follow-up to the convergence Green Paper later this month.
I receive much correspondence about the specific question of internet access. At present, most consumers access the internet through dial-up services—so-called narrowband access. That can be slow and cumbersome and, as the hon. Member for Northavon graphically described, is not necessarily the best way to access the internet. A key current issue is the provision of broadband access in the local loop. The question is how can we provide faster internet access and the ability to transfer much more data at high speeds, because that is the key to the effective roll-out of the technology.
Many new technologies are coming on stream to help to give consumers access to broadband services in the home. The hon. Member for Northavon mentioned digital subscriber line—or DSL—technology. Cable, satellite and terrestrial digital television services incorporating new interactive services will become available later this year. Cable modems, in particular, offer the prospect of much faster internet access without the need to dial up every time the user wants to go on to the net. As I have mentioned, third-generation mobiles will be another key innovation. We hope shortly to launch a consultation on making new spectrum available for fixed radio broadband access services.
§ Mr. WebbThe Minister mentioned cable modems. The chap who e-mailed me was concerned that those 618 have been available elsewhere for a couple of years. He approached BT and it said that it was getting round to it. Is the Minister worried that leaving it to competition is not making the advances in technology available quickly enough?
§ Mr. WillsI shall address the impact of the current competitive situation in a moment, but we believe that competition is the best way and is working. 1 do not want to sound complacent, but all the lessons of recent history tell us that competition is the most effective way to roll out the technology, although that does not mean that there is no place for regulation.
OFFEL has just finished consultation on access to bandwidth which aimed to determine whether there were barriers to the commercial provision of high bandwidth services to residential and small business users, especially services using that approach. It also considered whether OFTEL needed to intervene to allow competing network operators to offer such services directly to customers, by renting BT's copper wires—the so-called local loop unbundling.
The outcome of that consultation will have a significant impact on the UK telecoms market and in particular on achieving our goal of affordable high-speed internet access to consumers. We are in close touch with OFTEL and I understand that it expects to publish its conclusions later this month. I hope that the hon. Member for Northavon will forgive me, but I cannot pre-empt that process. However, I can assure him that the issue is at the forefront of our minds.
The hon. Gentleman asked what effect competition is having and he gave us some figures. He is aware of the Government's intention to make this country the best place to do business electronically by 2002. We are making progress. More than 1 million people in the UK became internet users for the first time during the third quarter of 1998. Worldwide, the speed of take-up is unprecedented. We should not only compare the position in the past in this country, but examine what our competitors are doing.
Some 16 per cent. of our population had internet access by 1998 compared to 28 per cent. in the US. We are behind the US and we have to catch up, but the comparison with other competitors is better. We have higher figures than Japan at 11 per cent. and much of Europe—only 9 per cent. of the population of Germany have internet access and only 5 per cent. in France. Those comparisons were made before the recent developments in internet pricing, such as Freeserve, and we expect those figures to increase considerably. However, our competitors are also increasing access and we cannot be complacent. Our recent benchmarking survey showed that more than 60 per cent. of UK business now has internet access. More than 50 per cent. has a website. Website use has almost doubled and e-commerce has trebled since 1997. We have seen faster growth in that area than either Japan or the US. We had 30 per cent. growth in internet penetration among British business, and 40 per cent. growth in website penetration since 1998. That compares to 6 and 11 per cent. growth in Japan and 20 and 30 per cent. growth in the US. I accept that the US is starting from a higher base, but we have made considerable advances that show that competition is working.
619 The ambitious target that we set for 1 million small and medium-sized companies to be hooked up to a network by 2002 will probably be achieved by 2000. The technologies are rolling out quickly and, as I have said, that shows that competition is working.
I know that the issue of the cost of access is of great concern to the hon. Member for Northavon and many other people. Is the cost affecting the take-up of the technology? The short answer is no. Of course cost is a consideration, but there is no evidence to suggest that it is a significant barrier to take-up, especially for businesses. As the hon. Gentleman acknowledged, we are just below the OECD average costs for internet access for peak times and, at off-peak times, we are cheaper than the US. The hon. Gentleman, as a distinguished economist, will understand that there is no such thing as a free service: it must be paid for at some point in the process. The question is whether the packages are put together in a way that encourages as many people and businesses as possible to take them up.
I would not like the hon. Member for Northavon to be deluded about the possibility of free access, but companies are free to offer whatever innovative tariffing packages they wish. We have seen a great explosion of such packages in recent months. For example, Kingston Communications in Hull recently introduced a package of £12.77 per month plus 5.5p per call, no matter how long. Cable and Wireless Communications offer combined internet access and telephone charges from £5.99 per month. That includes the internet service provider subscription and up to 12 hours free online each month. NTL has launched a service providing high bandwidth internet connections for a flat rate of £40 a month. It is likely that such services will be rolled out more widely in the coming months. In addition, some internet service providers are now offering internet access on freefone numbers such as 0800 at off—peak times or weekends. The Government welcome such innovation in pricing packages which are delivering for consumers.
The hon. Member for Northavon is right to say that the market will not necessarily provide in all areas and the Government will have to step in. We are doing so to ensure that every school in the country is hooked up to the internet by 2002. We have made remarkable progress. In April 1998, only 20 per cent. of schools were hooked up and only 10 per cent. of those were connected through an integrated services data network link. In April 1999, just a year later, 40 per cent. of all schools were connected, including 30 per cent. via an ISDN. Our target, which we are confident of meeting, is 100 per cent. of schools connected by 2002, including 90 per cent. through an ISDN link. We must also ensure that we do not create a society of the information rich and the information poor. We have a program and a raft of initiatives—
§ Mr. Deputy Speaker (Mr. Michael Lord)Order. We must now turn to the next debate.