Internet and Broadband Access

HL Deb 14 January 2004 vol 657 cc625-54

6.39 p.m.

Lord St John of Bletso rose to call attention to the measures which Her Majesty's Government are taking to promote affordable Internet broadband access throughout the United Kingdom; and to move for Papers.

The noble Lord said: My Lords, I am delighted to have this opportunity today to bring to your Lordships' attention and to debate this topical and extremely important issue. There is no doubt that broadband access has the potential to provide major, far-reaching benefits to every echelon of our population, as well as to business, particularly small and medium-sized enterprises. I am extremely grateful to all noble Lords who at such short notice have put down their names to speak in this debate.

At the outset, I declare several interests. I was, until last year, the managing director of a large international ISP, providing Internet access to the corporate market. I am the chairman of the trustees of a UK charity, Citizens Online, which is an independent national charity committed to the objective of digital inclusion, universal access to the Internet, whether through narrow band or broadband, which partners with a number of leading UK companies and local government. This charity has for several years run projects throughout the country that demonstrate how digital inclusion can make a real and significant difference to disadvantaged communities.

I was keen to raise this debate in your Lordships' House for three principal reasons. First, I wanted to recognise the achievements of both government and commercial, non-government organisations in extending the reach and take-up of broadband services already secured. In the same vein, I wanted to identify what I perceive as the major obstacles and challenges we face in order to extend the take-up of broadband over the next few months and years. Secondly, important as it is to discuss reach and take-up, I feel it is important that we help raise awareness of the many benefits of broadband services to both the public and the private sector. There still appears to be an enormous amount of naivety about the exact definition of broadband, high speed Internet access. Finally, as is stated in the wording of the Motion, I wanted to identify what existing and additional measures, both financial and logistic, Her Majesty's Government are taking specifically to promote affordable broadband access in all parts of the country, not simply in the major cities but also in the rural areas.

At the outset, BT is to be commended for extending the reach of broadband services to cover, according to its most recent figures, 89 per cent of homes and businesses in the United Kingdom. There is no doubt, however, that to get from 89 per cent to 100 per cent coverage industry, government, regional development agencies, local councils and others will all need to join together in partnership and to adopt and to pursue a wide range of innovative strategies. Here I refer to the advances in satellite technology and wireless technologies.

What alarms me is that, despite this high availability, this reach of 89 per cent, less than 10 per cent of the population has so far adopted broadband. While there continues to be a drive for 100 per cent broadband availability, and for a solution for the rural broadband issue, the key question is what will drive the take-up that will deliver the broadband revolution.

Clearly, the joint challenge to industry and to the Government, including the regulators—here I refer to Ofcom—is to rectify this situation quickly and to optimise broadband's contribution to the UK economy. I was staggered by some statistics that I received this afternoon from the Centre for Economic and Business Research that claim that if business fully embraces broadband now, the benefits to the UK economy by 2007 could be an additional £13 billion. That is a substantial contribution.

The poor take-up can partly be explained by a lack of appreciation of broadband services, rather than narrowband services, but the key harrier to mass-market adoption is price. Here I am referring not just to the monthly fees for broadband but also to set-up and migration fees, which are not very competitive with the rest of Europe. The average retail price for the standard consumer 512 kilobits per second broadband service is between £27 and £30 per month, which remains relatively high. It is fairly competitive with the rest of Europe, but it is comparatively high and can fall.

Prices have been falling, but one way of reducing prices further would be to introduce more competition in the wholesale broadband market, which BT currently controls and has the lion's share. The move from British Telecom's IPStream only to the increasing availability of DataStream this year—I must apologise for technicalities, as I am sure that not many of your Lordships are that up to speed about DataStream and IPStream—should also provide greater competition in the broadband wholesale market. Wholesale competition, and particularly DataStream, will drive innovation and therefore lead to more competitive broadband products.

BT currently charges ISPs a £50 set-up fee in addition to the monthly fees for broadband. Invariably, the ISPs swallow them, but effectively they pass on these fees to their customers in the form of inflated monthly fees. In contrast, comparing this to the rest of Europe, in Italy Telecom Italia has no levies for set-up and in Germany Deutsche Telekom even pays the ISPs 40 euros for every new broadband customer. If BT could reduce its set-up fees, it seems likely that the take-up of broadband services would be accelerated.

Moving on to the challenge of making the wider UK population aware of the benefits of broadband, I commend the work being done by the Office of the e-Envoy, particularly its UK online annual report, which was recently published. The Broadband Stakeholder Group has also made major strides in promoting the take-up of broadband services and I understand that it will soon be publishing a comprehensive report to this end. I was also encouraged by the work of the regional development agencies in both improving the availability of broadband in their regions and promoting the awareness of its benefits to both the public and business. Have Her Majesty's Government any plans to increase the UK Broadband Fund, which is currently around £30 million, to promote more affordable access in rural areas?

The Prime Minister has pledged that all schools will be connected to broadband by 2006. Can the Minister provide an indication of what percentage of schools—primary schools and secondary schools—currently have 2MG broadband connections? Some schools are already exploring how they may, with their 2MG ADSL connections, become local Internet service providers, even using wi-fi. Broadband can and should play a major part in e-learning, particularly in those parts of the United Kingdom where there is a shortage of teachers and schools. There is a raft of commendable e-learning initiatives, which can come to fruition and maturity only when there is a greater take-up of broadband access—not just access but take-up—across the UK. Also, e-learning is not just about children. It is about lifelong education and has huge benefits for the elderly.

Of course, broadband is not just about ADSL. Other technologies, such as cable modems, wireless and satellite, all have the potential to provide fast and sophisticated access to the Internet and its services. Will the Minister elaborate on what measures Her Majesty's Government are taking to promote wi-fi wireless across the UK? I appreciate that in many parts of the UK it is not economic for the commercial telephone companies to upgrade their telephone exchanges to broadband. The cost is in the region of £250, 000 per exchange. What scope is there for government to assist in that endeavour of local loop-unbundling?

My next point relates to the specific measures that Her Majesty's Government are taking to promote affordable broadband. We are all aware of the substantial sums that the Government received from the sale of the 3G licences only a few years ago, which almost crippled many of the telcos. It is to be hoped that more government funds will be pledged to the rollout of affordable broadband services, particularly in rural areas.

I understand that the Government intend to spend £1 billion on broadband connectivity for the public sector between 2003 and 2006. Will the Minister elaborate on the workings of the broadband aggregation project, and explain what assistance is likely to be given to the private sector? Will he also tell us how that will benefit those members of society who are currently digitally excluded? I was interested in the report of the UK Broadband Task Force, Public Sector Funding for Broadband, which examined the application of broadband by the public sector and outlined details of the broadband aggregation project's objective of seeking to aggregate public sector demand for broadband at both regional and national level.

The multi-faceted nature of the digital divide has been extensively discussed and debated, along with the motivations for tackling it as an urgent social inclusion issue. One area where the Government could help would be to extend the home computing initiative, which currently enables employers to lend PCs and peripheral PC equipment to their employees to increase household penetration rates. That tax-efficient scheme for households to acquire PCs does not currently include any tax breaks for broadband connectivity. Will the Government consider extending the home computing initiative to include broadband connectivity?

It is furthermore crucial that the Government create a joined-up strategy for digital inclusion by creating a well resourced digital inclusion unit. That unit should support the co-ordinated working of all the initiatives, programmes and pilots relevant to the issue, such as e-learning, skills for life, community regeneration and other social inclusion activities.

Although there are encouraging developments in the promotion of broadband throughout the UK, it seems highly unlikely that our Government will meet their declared target for the UK to be the most extensive and competitive broadband market in the G8 by 2005. Will the Minister give us some indication of where we are today in terms of broadband adoption in the UK, in relation to the pricing of the other G7 countries as opposed to supply broadband coverage?

It is true that the take-up of broadband services in the rest of Europe, like the UK, is relatively low, but for UK plc to benefit from the many economic advantages that broadband can bring to the UK economy, all steps must be taken to promote the take-up of broadband throughout the United Kingdom now. I have no doubt about the commitment of the Government but, as ever, actions will speak louder than words. I beg to move for Papers.

6.54 p.m.

The Earl of Northesk

My Lords, I congratulate the noble Lord, Lord St. John of Bletso, on securing this important and timely debate. On 16 December last year, Oftel released its second consultation on the wholesale broadband access market review. Once Ofcom assumed its powers on 29 December, it formally endorsed the draft decisions outlined in the review.

As the Government's 2005 targets loom, the review makes for worrying reading. Its essential message states the obvious. First, British Telecom has significant market power—SMP—within the sector. In turn, that encourages a supposition that the wholesale broadband access market is not effectively competitive. Secondly, current technological access alternatives to ADSL, such as satellite, wireless or cable, are not in a position to provide any competitive restraint on BT. Thirdly, that situation is not likely to change in the foreseeable future.

That unnerving state of affairs is echoed by the comments of industry insiders. John Pluthero, whom I think is chief executive officer of Centrica, has said: The market review says nothing new—as ever it's jam tomorrow. Four years on there is still no broadband revolution—instead we have one supplier, one product and one price. Tomorrow never comes—the broadband revolution is on hold until further notice". Eric Abensur, CEO of Freeserve, has said: Without real competition to stimulate a major growth in demand, the Government's target of being the most extensive and competitive broadband market in the G7 by 2005 is wide of the mark". That echoes the noble Lord's point. Inevitably, all that begs the question of what should be done to invigorate competition in the sector, and thereby not only make real progress towards the Government's 2005 targets, but increase affordability and widen consumer choice.

The review is as good a place to start as any. It seems nonsense that, having concluded that there is no effective competition in the sector, the regulator should determine that the status quo—the existing retail-minus pricing methodology—should be retained. As a spokesman for the Broadband Industry Group observed: The regulators have missed the opportunity to introduce cost plus pricing which would increase competition in the market and lower broadband prices for consumers. As a group, we are frustrated, but remain determined to secure a fair outcome for both consumers and business. We will continue to campaign for 'cost-plus' pricing and greater competition in the UK broadband market". There is a widely held view that the move to cost-plus pricing, as a means to achieve appropriate price reductions in broadband product and stimulate real competition, is long overdue. Accordingly, I very much hope that both the regulator and the Government have such a move firmly in their sights. Indeed, I invite it.

The Minister will be aware that, via the medium of Questions for Written Answer, I have been pursuing other aspects of the pricing structure for wholesale broadband. In particular, I have asked about activation fees, but also migration fees, as mentioned by the noble Lord, Lord St John, and other aspects of the issue. To quote directly from one of the Minister's Answers to me, I note his premise that: The broadband market must necessarily be market driven". Moreover, it is essentially accurate to say that: Competition is fostering innovative pricing—such as the free activation offer". Indeed. it would be churlish not to admit that, since the start of 2002. progress has been made in reducing retail prices for broadband. However, at the same time we have to be mindful that, as the review makes plain, it is happening within the context of BT's SMP status. In terms, BT has a considerable and, in current circumstances, unassailable edge over its competitors. I cannot help feeling that some redress in respect of the activation-fee issue—perhaps even the migration-fee issue—would assist. Indeed, I draw some comfort from the Minister's statement that: The independent regulator Ofcom, has the power to intervene if they feel prices are being maintained artificially high".—[Official Report, 5/1/04; col. WA 26.] To that extent I hope that, as Ofcom conducts its imminent strategic review of the whole UK telecommunications sector, it will take a very close look at that sort of issue. Moreover, I trust that the Minister will offer the Government's twopennyworth on the matter.

It could be argued that broadband is languishing in a chicken and egg situation—and has been for a number of years. Undoubtedly getting its pricing structure right would act as an important driver for take-up. But it is a moot point that that can be achieved all the time that the market is not effectively competitive. Moves to create an appropriate pricing structure are inevitably subject to the prevailing lack of competition, rather than being geared towards achieving a natural level as a matter of course. So, while I do not dissent from the proposition that broadband product should be market-driven, I also believe there is a strong case for more proactive involvement in competition issues in the sector. if not directly from the Government, certainly from Ofcom, more probably both. Altroconsumo, the Italian equivalent of the Consumers' Association, has said that it is: convinced that, in particular at this initial stage, a good structuring and functioning of a competitive market in broadband has to be deemed more important than the possibility to have lower prices for the moment. I admit that something there may have been lost in translation, but I am bound to say that I have some sympathy for that view.

Of course pricing—that is, affordability—is a significant barrier to take-up of broadband services by the consumer. In the context of workable technological solutions, that is particularly the case in respect of the growing digital divide between urban and rural areas. As an aside and to put flesh on some of the observations of the noble Lord, Lord St John, it is worth bearing in mind that a number of other barriers, based on the age of the potential users, their level of income and, indeed, their motivation, are also important. In other words, we should not lose sight of the fact that it would be erroneous to assume that the establishment of a fully competitive market would, necessarily and as a matter of course, give rise to universal broadband access.

Moreover, in assessing the Government's and the market's progress towards, affordable internet broadband access throughout the United Kingdom", it is important to draw the distinction between availability and take-up—a point well made by the noble Lord, Lord St John. I have a constant battle trying to decipher and interpret the statistics. It is accurate to say that, as of 12 January this year, 2, 146 of BT's UK exchanges out of a total, as I understand it, of 5, 500—that is, significantly less than half—had been ADSL-enabled, covering 85 per cent of UK households. In addition BT has set trigger levels for a number of remaining exchanges which, if activated, would cover 99 per cent of households.

On the face of it, the prospect of 99 per cent coverage is marvellous; and yet the statistic is illusory, if not deceptive. In the first place, to state the obvious, coverage is not the same as take-up. The figure also has to be seen within the context of the digital divide. The vast majority of urban areas have full accessibility to broadband, whereas in rural areas, where demand for broadband product is much stronger, accessibility levels, according to anecdotal evidence, are running at only 30 per cent. The resolution of that imbalance should be an urgent priority for both Ofcom and the Government.

In respect of the distinction to be drawn between coverage and take-up, I return to one of my hobbyhorses, already mentioned by the noble Lord, St John. Your Lordships may recall that, for some time, I have been nagging away at the issue of what constitutes a proper definition of broadband. The simple fact is that the Government's figures for take-up include connections operating at 128kbps; that is, data transfer speeds operating at approximately double a standard dial-up connection. Yet most people, even the regulator itself, regard "true" broadband as services offering data transfer speeds in excess of 500kbps. That is important for a variety of reasons. First, it is extraordinarily difficult to know how reliable the statistics are. For example, as the Minister will be aware as a result of some of my Questions for Written Answer, the World Economic Forum's global information technology report placed the UK eighth in the rankings in terms of competition in the ISP market and 67th the affordability of Internet access. As the Minister stated in his Answer to me: the findings … appear to be very much at odds with those of the more regular and focused Oftel benchmarking".—[Official Report, 5/1/04; col. WA25.] I will say! My supposition is that the discrepancy arises at least in part because of different interpretations as to what constitutes broadband—case of apples and pears. But the important point remains; namely, that, on measures of what most people would define as true broadband, UK performance is not as glorious as is implied by the statistics that we generally use.

There is another important point. Quite rightly, the Government perceive broadband to be a hugely important driver of both public service reform as well as a mechanism to: facilitate the next phase of e-commerce". The investment of funds, as with for example the NHS national IT plan, is massive and, so far as I can tell, at the heart of the thinking underpinning the policy is a recognised requirement to transfer very large data files, such as X-rays and so on, via the Internet.

The problem is that data transfer speeds of anything less than 500kbps would not necessarily constitute the necessary step change from existing dial-up connections. They could even prove to be counter-productive, if not short-sighted, in the sense that users would be placed in a position where the benefits of true high-speed data transfer would not be readily apparent. In effect, using 128kbps as a bare minimum of broadband definition imposes an artificial constraint on the proper development and deployment of "true" broadband. To be fair, I have it in mind that the Government, in rolling out broadband to the education sector, are insisting on a bare minimum of 2mbps. That is all good and well. None the less, it contrasts starkly with the concurrent insistence that 128kbps is adequate for broadband in other situations.

I would not like the Minister, to imagine that I have been unduly critical. There are encouraging elements in some of their approaches to broadband. I am aware of recent developments such as Ofcom's decision to open up the 5.8 gigahertz band to wireless service providers. That should facilitate the deployment of broadband, particularly in rural areas. As the Minister, Stephen Timms, has said: there will be cases where the market will not deliver and targeted support may well be needed. Where the lack of broadband availability is a limiting factor in economic regeneration, that can be a justification for using existing funds for regional economic development". That is a very welcome policy stance, albeit its virtue is dependent upon appropriate action being taken. Happily, like the noble Lord, Lord St John, I can extol the merits of the DTI's broadband aggregation project as a potential means of filling some of the gaps in broadband availability. Indeed, in that context, I have been very impressed by the Anglesey Connected programme and the imaginative way in which it has been used to extend the reach of broadband and the potential use of "piggy-backing" in that part of Wales. The key point is that, as BT has observed, the Government have to be seen to be utilising broadband capabilities, if at all possible in partnership with local communities and the private sector, in their own delivery of services. That would do a great deal to unlock both availability and take-up.

In conclusion, it is inevitable that we measure broadband against the Government's stated targets. The year 2005 is not that far away and I have growing doubts that the UK will be the most competitive and most extensive broadband market in the G7, or that all government services will be online by that deadline. Certainly, both the Government and Ofcom have their work cut out if they are to deliver. Be that as it may and as I hope I have made plain, there is much both of them could be doing if they had the will to bring achievement of the targets closer. I very much hope they will grasp the nettle and push the broadband agenda forwards.

7.10 p.m.

Lord Grantchester

My Lords, I thank the noble Lord, Lord St John of Bletso, for introducing the debate. I speak only as a layman and not as a competent user. In making my remarks today, I am indebted to Dr Charles Trotman of the Country Land and Business Association, which continues to campaign vigorously for the faster rollout of broadband in rural areas.

It is true that broadband has been a success story in bringing about a step-change in technological advancement in communications. From an initially slow start, the United Kingdom has made tremendous strides in catching up. BT broadband now covers 80 per cent of the country and within Europe the UK network is second only to Germany.

However, that is so only because of the UK's relative urban predominance. In order to ensure that the enabling of exchanges is cost-effective, BT has introduced a pre-registration system which allows it to register the level of interest in broadband in a particular locality. Trigger levels are set for each exchange, which means that there must be a certain number of requests for broadband before an exchange can be enabled. If the trigger level is not reached, BT will not enable the exchange. That means that businesses which clearly need broadband will have to consider a more expensive option because either the trigger level cannot be reached or no trigger level has been set.

In evidence to the Environment, Food and Rural Affairs Select Committee inquiry in the other place in July 2003 into rural broadband, the CLA called for all exchanges to have trigger levels set. This was adopted by the Select Committee in its first recommendation of the report.

Of the 5, 500 total exchanges, some 3, 200 are located in rural areas. BT has set trigger levels for more than 2, 600 exchanges and has said that in November it will set levels for a further 2, 300. That means that 80 per cent of rural exchanges will have trigger levels set and take the UK to some 90 per cent coverage.

There are three key areas in which broadband is essential to the economic prosperity in rural Britain: food and farming; rural business; and the rural communities. Twenty-live per cent of unemployment is in rural areas. Agriculture remains in a perilous state. Figures from Defra illustrate this with more than 5, 000 jobs lost during the past 12 months, despite the increase in incomes. The rural economy needs to diversify away from its dependence on farming and tourism. Access to broadband is key to the economic development of rural areas and it is essential to avoid an urban/rural divide over broadband access as the activities of small businesses can be transformed by this advancement. Rural areas need to become part of any technological framework to help them to adapt to change. Lack of access to broadband is not a sacrifice that can be made.

Although the take-up of broadband has been some 10 to 12 per cent in urban areas, the likelihood is that this uptake will be some 25 to 30 per cent in rural areas. The real barrier of high cost in rural areas has to be overcome. Some of the constraints are technological in that the remote areas are physically outside the six kilometre radius to he linked on ADSL. I understand that some 13 per cent of businesses are outside this six kilometre radius. Realistically for the last 10 per cent, the choice is between additional public funds—for example, from regional development agencies—to extend BT's reach, or for waiting for new entrants to meet what demand there is—for example, lease lines and satellite. However, these have technological disadvantages.

BT has no intention of rolling out ADSL to all rural areas. It is unhelpful to raise the hopes of rural businesses in areas where there is no intention of enabling exchanges to provide ADSL, or where the reaching of trigger levels is so far off as to be impossible to establish any certainty. This means that rural businesses are not able to take sensible commercial decisions.

Given the Government's commitment to have broadband connections to every school and doctor's surgery by 2006, and that many of these are outside the six kilometre radius, can the Minister confirm how this will be achieved? To borrow the analogy of North Sea gas, we were all promised that we would be linked up to a cheaper national grid. Well, several areas, including my own in south Cheshire, are still waiting. Can the Minister confirm the commitment and confirm the money the e-commerce Minister in the other place has committed some £1 billion for broadband connection and that this will he sufficient?

What happens where a village school is too far away from an exchange to benefit from affordable broadband? If a school is in an area where broadband is not commercially viable, will the Government install a private line to the school? Despite the Government's willingness to allow piggy-backing, I understand that cannot be done on a dedicated line. In effect, the Government will be putting in place a private network for a public-sector body which will not allow private business access, thereby denying access to affordable broadband.

According to BT, more than 70 per cent of the population in the north-west has access to broadband, covering some 800 schools and more than 250 libraries. In Cheshire, the area was given a recent boost with £3.7 million from the North West Development Agency. This was to assist up to 350 small and medium-sized enterprises with broadband access and a further 2, 750 businesses with broadband advice. This funding will also help to extend the availability of broadband across rural parts of Cheshire, as well as to provide two mobile broadband demonstration units. I can report that in Cheshire, of 470 exchanges 228 have been enabled, with 132 having had trigger levels set. But as many as 23 will not have trigger levels set. My own exchange of Audlem is on the verge of being enabled, having attained 283 requests towards a trigger level of 300.

On the role that the Government can play in the roll-out of broadband, it is recognised that they are also a big customer because of the IT demands of the public services. The CLA has called for rural businesses to be able to piggy-back on the public broadband infrastructure in order to reduce the costs of purchasing backhaul—that is, broadband capacity. Under the Government's public aggregation project, regional aggregation bodies have been set up and located in each of the nine English regions to bring about public sector demand for broadband. I understand that the Government will purchase backhaul to an exchange where this is feasible to provide broadband for the public sector. Can the Minister confirm that enough will be purchased at a significantly reduced rate to make piggybacking economically viable? Can he also confirm that state-aid regulation does not apply to this purchase?

I understand that the CLA has been informed by the DTI that the East Midlands Regional Development Agency will be used as a pathfinder for other RDAs and RABs. I also understand that one plan under discussion is the creation of a small exchange set-up in the black holes that exist beyond the six kilometre radius. Will the Minister comment on that, as it seems an ingenious answer to bring broadband to all areas? Has EMDA's plan finally been agreed with government? Will RABs be permitted to act unilaterally rather than under an agreed uniform approach? Does this mean that the Government's projected timetable of broadband roll-out will now be met?

These comments clearly suggest that there are still some significant problems. For many in the rural economy, the roll-out of affordable broadband is too slow. All types of broadband have their downsides. ADSL, for example, is unlikely to be available across the country as the economics do not make sense and satellite has disadvantages in terms of cost, adverse weather and latency. It remains essential that rural businesses know all the available options where broadband can made a difference. Farmers are now diversifying into other income areas such as online marketing, farm guides and trails as well as farm tourism and bed and breakfast. It is clear that rural business is unable to compete because of the failure to access broadband. Relocation is often not an option and development will take the by-pass, an example of rural exclusion. If rural business had access to affordable broadband it would speed up the whole value chain and allow rural businesses to exploit opportunities and help the market to work, re-connecting town and country, producers and consumers.

The community is the hub of the rural economy and it is at the heart of the countryside. Its vibrancy reflects the health of the rural economy. Your Lordships debated the setting up of community interest companies last week. These companies may well be the chosen vehicle to maintain rural shops in isolated villages and will look to the help which affordable broadband will bring them. The rural pub and post office can deliver other services via broadband thus increasing turnover for survival as well as providing a vital resource for the community. The very presence of broadband in the rural community can establish a gateway, a form of M25, where, once established, it will be very quickly used.

The Government must move quickly to offer all their services on-line, especially those directed at rural communities. This in turn will also stimulate demand and encourage take-up. Let us not miss this opportunity.

7.21 p.m.

The Earl of Erroll

My Lords, I thank my noble friend Lord St John of Bletso for giving us the opportunity to discuss this matter tonight. It is a very important subject because its scale has increased enormously over the past few years. In 2001, about 250, 000 people were using broadband in the United Kingdom. Last year there were 3 million and the figure is growing. Although people seem to be worried about the take-up, we shall be facing very wide usage over the next few years. One needs it to do business in the modern world, and that is the bottom line. If one does not have high speed communications one cannot spread information or receive it rapidly enough to be effective. If it is too time-consuming one wastes a lot of time twiddling thumbs waiting for information to arrive over the communications link.

It has become not a like-to-have issue, but a must-have for business. Very often BT and various others who worry about take-up are trying to consider everyone having it. For them it is still a like-to-have. The reason for that is the expense in many cases. That is why the point made by my noble friend Lord St John of Bletso about cost is the key to the whole issue. People speak of social exclusion but there is economic exclusion. If people cannot afford it they will not take it up.

For many people the must-have is the mobile telephone, which is very expensive to run when compared to landline services in the past. There are many other priorities, possibly satellite television, which seems to be a great priority with my son who spends a lot of time watching sport. The priorities lie elsewhere. Broadband will come and people will put up with a lot of delay. When the pricing is right or people are making enough money, it will become the next must-have followed by the take-up, if it is available, which is the next matter to which one comes.

As regards costs, from the point of view of small and medium size enterprises one must have costs which are within the reach of everyone. When a small business starts up it may comprise just one or two persons. Every cost matters because even if the new concern is financed by the Prince's Trust, for example, or anyone else, it is not dolled out huge amounts of money. The new concern does not want to go further into debt in order to have something that is a must-have for business.

It is interesting that the Traffic Management Bill may have some effect on this. That Bill is about digging up the highways. I am warned that we could end up with a situation where the highways authorities favour themselves. There are also problems of competition which could favour BT as it already has quite a significant infrastructure under the roads. We could prevent new people coming into the market because they do not receive permission or are charged far too much for laying their cable in order to provide the service to the end user. I shall return to traffic later.

Ultimately, the question is availability. My experience in trying to get ADSL so that I could join the parliamentary VPM and therefore gain access to the parliamentary system at home was very interesting. I dialled into BT to find out whether I could receive it on my home phone number. At first it could not be done, but then BT enabled the local exchange for ADSL and I was told that I was 6.5 kilometres away and could not receive the service. I am about 3.5 kilometres away as the crow flies so I raised an objection, particularly as I discovered that a house 100 yards could receive it through including its telephone number. BT said that I was definitely too far away. I asked the location exchange but they could not help me. The good news is that I now seem to have moved within the 6.5 kilometre distance and I shall be offered broadband after all. Whether the house or the exchange moved I am not sure.

That experience highlights some of the problems of joining the service. I was very reassured by the briefing paper for this debate which states that there are initiatives in progress that could bring ADSL to 99 per cent of the people. I suspect that a good deal of that is because of the highly successful partnerships it has at county level and with other council and local government organisations.

What worried me was the caveat "could". It could mean that if the initiatives are not progressed by other people it will not happen. There is the satellite system as well, but it has disadvantages. It is the answer for some people when no other service can be provided.

A paper was produced by the broadband stakeholders' group, which has been discussing these issues in great depth. One of the points it made was that wireless technology is probably going to have the biggest impact on extending coverage and in enhancing competition. There does not have to be a wire link. There is a huge future for that provision. But we must have regard for the small players. One particular company has just taken up 14 wireless licences. There are others who are very small players in the market who need to be encouraged. We need infrastructure competition in order for the system to work. That is one of the challenges for the future.

We speak about the current broadband and everyone is worried about joining it. But the type of broadband that we are talking about rolling out is not very fast. When one considers the potential contention rates on a 512 ADSL line, it could be that one is slowed up almost to the speeds of narrowband. There is going to be a demand for better service levels. With faster speeds people will need more band width. That will require public sector funding or one will have to offer private people a proper return on investment.

We do not need a repeat of the stand-off between the Government and BT. The Government said that we would all he enabled by 2005 and BT could see lots of money on the horizon. It said that it was too expensive and there was a stand-off while it was decided who would pay. That is why we have the terrible catch-up situation now. The role of Ofcom in this matter will be very important. I have noticed that it is already becoming over-tasked and I do not want to present it with another task. I flag up its role as important.

I have become interested in connecting with wireless. How does one find a connection? In that regard the partnerships have huge potential. The DTI's broadband aggregation project is a very good idea. The noble Lord, Lord Granchester, spoke about whether we could piggy-back on public service connections. I do not see why not. I believe that that should be a requirement. I hope that it will be very easy for the ordinary citizen to find out what is available, to benefit from it and to ride on the back of all the public money which is being put into connectivity for surgeries and schools.

We are also trying to get business going, because at the end of the day it is the small businesses which pay. Sometimes people in government forget that they are funded out of taxation. Businesses and their employees pay the taxes. Large companies are down-sizing and trying to become more efficient most of the time. Growth in the future is in the SMEs and the micro-businesses, the 3.8 million which employ 50 people or fewer. Over 2 million of them have five people or fewer. That is where future innovation and growth lies and those people need access to new technology in order to grow and become global. One can have a global business with one person. I have a business in America which I run via the Internet. One does not need to have a vast organisation. We must remember that those are the people who will be paying the tax that keeps us sitting here and keeps all those regulators and such people in jobs.

Finally, I turn to possibilities for the future, because it is nice to look forward positively. One great thing about broadband, because it is, or can be, an always-on connection, is the opportunity that it gives for peerto-peer networking—that should appeal to the House. There is grid computing. Oxford University presently has a grid project out searching for a cancer cure, because thousands of small computers out there can all add up to a massive amount of data analysis and number-crunching capability.

Someone estimated that 10 billion megahertz of processing power is sitting out there on the Internet for potential use. We need broadband to connect it up. We could use that for large projects for the greater public benefit at little cost. That could reduce research costs and other things.

There are environmental gains to be had from that. The Traffic Management Bill is aimed at reducing congestion. We can reduce congestion by using high-speed Internet links. When you are trying to discuss business, you need eyeball-to-eyeball contact with people. It is all very well just talking on the telephone, but eyeballing someone is useful. With high-speed connection, someone can appear to be sitting in front of you and you can have a conference remotely. Teleworking can reduce congestion—I notice that the RAC and the teleworking group thought that it could cut commuter traffic by 10 per cent by 2005—but we must have high-speed access for that.

That will also have an impact on planning policy, use of domestic property to run businesses, arid all sorts of such things. Many policy issues involved need to be considered at some stage. However, equally, we do not want to slow the process by waiting for someone to produce a policy document on it; we just need to get on with it, so that people can build properly for the future.

My message is that if we are to be the country in the G7 best equipped to carry on e-enabled commerce by 2005, we need to encourage and envision that future now.

7.32 p.m.

Viscount Chandos>

My Lords, I welcome the initiative of the noble Lord, Lord St John of Bletso, in raising the issue of broadband access and thank him for his excellent introduction to the debate. As the last speaker before the Front Benchers wind up the debate, I am struck that this 21st century subject has so far attracted as speakers only hereditary Peers—whether elected or otherwise recycled, like myself.

Perhaps Tim Berners-Lee, the progenitor of the Internet who was so deservedly awarded a knighthood in the New Year's Honours List, already secretly enjoyed a far older title as the 18th Earl of Broadband. Vice-President Al Gore was unsuccessful in persuading the world that he was the inventor of the Internet. Perhaps we should take another tack and claim the true inventor of the Internet as a longstanding hereditary parliamentarian and politician.

I declare an interest, as disclosed in the Register of Members' Interests, as a director of several companies whose primary business relates to the Internet. A few years ago, the remarkable Dr Andy Grove, chairman of the Intel semi-conductor group, said: Soon we won't talk about investing in internet companies; we will just invest in companies, almost all of which will rely to some extent or another on the internet for their operations". That was an unerringly accurate prediction, so in declaring my interest, I feel that I am in the same position as almost every businessman—even every consumer. Even someone who does not themselves use a home computer or the Internet will benefit indirectly from the rapid deployment and take-up of broadband connections, whether through improved deliveries to their local shop or enhanced access to information, data and records by their local hospital, as the noble Earl, Lord Northesk, described.

Other noble Lords have already comprehensively spelt out why broadband connections and the resulting fast Internet services are so desirable both socially and economically. They can improve the service and simultaneously lower the cost compared to narrowband and provide far richer content for consumers in education and business. Home shopping is not just a convenience for busy professionals or a boon to the collectors of the obscure but can be a Godsend to the disabled.

The Motion concerns the Government's measures to promote affordable Internet broadband access. Earlier speakers have fully covered that—in particular the needs of rural and more remote areas. I shall therefore briefly consider the issue from a slightly different perspective—both a broader view of broadband, as it does not concern only the Internet; and the provision of broadband infrastructure from a macro-market point of view rather than from that of the regional and rural challenges on which the previous two speakers, in particular, concentrated. Clearly, in theory, the stronger the overall market, the more it should encourage networks and service providers to cover areas that they might otherwise deem to be uneconomic; and the less, therefore, the initiatives that we have discussed may be needed.

In reality, I have no doubt that we need all the help we can get to create broadband Britain as quickly as possible—both strong regional and rural initiatives and a powerful engine in the overall market. Broadband can deliver not just fast and always-on Internet services but digital television channels and video on demand simultaneously with a fast Internet connection on the same line. Although that currently requires greater bandwidth than the 512 kilobits per second that represents the standard adopted by BT for fast Internet, that is not a fundamental difference. The ADSL technology and modems are the same to provide speeds of 2 megabits per second or higher, which is what is needed for full-screen digital television pictures.

The only real difference is that there is a slightly greater sensitivity to the distance between the telephone exchange and the home to which the service is delivered. Even taking that into account, 90 per cent of homes can receive that level of bandwidth through the deployment of ADSL on BT's network and the constant development of compression technology is in any case decreasing the bandwidth needed for video on demand and digital television services. The masterly analysis of bandwidth issues of the noble Earl, Lord Northesk, is highly relevant here.

Why is the matter important? Yes, it is nice as a consumer to have those enhanced services. Yes, there are enormous opportunities for schools and universities to benefit from programming delivered on demand by broadband. But, most importantly, it is those richer and more popular content services that will drive take-up of broadband connections—almost as much as the reduction in price emphasised by the noble Lord, Lord St John. Indeed, increased take-up will in itself probably be the most important factor in driving prices lower, over and above the ability to spread the cost of broadband connections across a greater number of services.

The noble Earl, Lord Northesk, spoke for every service provider's frustration in his dissection of the performance of BT. I was interested to read in BT's briefing notes that it emphasises the competitiveness of the UK market. Methinks it doth protest too much. As the noble Earl reminded us, there is an effective overwhelming monopoly exercised by BT in providing broadband services over its network and a dominant overall position, even after taking into account the position of the cable operators.

De mortuis, nil nisi bonum, but it is impossible not to conclude that the recently deceased Oftel's implementation of local loop unbundling was a disastrous non-event. We have suffered the worst of both worlds: no effective competition; and a deeply risk-averse monopolist that has moved forward at a painfully slow pace. At least in other markets, such as Germany, where competitive initiatives such as local loop unbundling have also failed—some years before Oftel designed the system introduced in this country—there has at least been a dominant player that, as the noble Lord, Lord St John, recounted, has driven take-up through aggressive pricing.

In respect of non-Internet broadband services such as digital television and video on demand, it is difficult not to be left with the impression that BT has managed the deployment of ADSL and the standard product offered in a way, and on a timetable, that is profoundly linked to its own ability and inclination to provide any particular service.

I conclude, therefore, by joining other noble Lords in expressing the strong hope, which I am sure the Minister will share, that Ofcom will bring to bear a far more vigorous and effective regulatory regime on the provision of broadband than Oftel achieved.

7.40 p.m.

Lord Avebury

My Lords, I declare an interest as a satisfied customer of BT Openworld since May 2001. I do not agree entirely, therefore, with the noble Viscount's remarks. But he is right that we face a new era, with Ofcom taking over the regulatory function. The Minister will remember from our debates last year on the Communications Bill, which set up Ofcom, that we placed on Ofcom the duty of having regard to, the desirability of encouraging the availability and use of high speed data transfer services throughout the United Kingdom". In spite of the convoluted language used, that means that Ofcom is taking over the baton from Oftel and doing what it can—perhaps much better than Oftel did—with the resources being made available to it as a regulator to support the Government's target of having the most extensive and competitive broadband market in the G7 by 2005. I imagine that most noble Lords would agree—certainly those who took part in debates on the Bill did—that competition is on the whole the most effective way of achieving that objective. However, as noble Lords said during the debates on the amendments tabled by the noble Earl, Lord Northesk, in June, competition may not be able to deal with the rural/urban divide, which has been the subject of many noble Lords' remarks.

Access to broadband via DSL is now available to over 89 per cent of homes in the UK. The number of customers has passed the 3 million mark, with 55 per cent using DSL and 45 per cent cable. Some 40, 000 new broadband users a week are coming on board. That is not a bad record. I agree with the noble Earl, Lord Erroll, that we should not be unduly pessimistic about take-up.

Other technology may have a contribution to make in areas where DSL is not available, particularly broadband fixed wireless access, although to date they have not been very significant. We have noted the point made by the noble Earl, Lord Erroll, that licences were awarded in the 3.4 gigahertz spectrum in June 2003. However, the winners of that option— PCCW, which took over 14 of the 15 licences—has yet to make any use of the spectrum. It would be interesting to know whether the Government have information about its plans. In the 28 gigahertz band, one firm offers low contention data services to business in four cities, but at quite a high cost. In February, BT will begin trials in some rural areas of the newly released 5.8 gigahertz band, which can provide download speeds of 1 megabits per second to people living beyond the reach of broadband-enabled exchanges. That may provide some comfort to the noble Lord, Lord Granchester, in particular, and others concerned about the rural divide.

Noble Lords have mentioned 3G mobiles only en passant. They may be attractive to a new group of broadband users, mostly, I suspect, for non-business purposes, and particularly to teenagers. It is reported that manufacturers are offering models specifically designed for teenagers. To protect young people, the models are incapable of accessing adult services and gambling, and retailers will demand proof of age. Assuming that those rules work—that is a big assumption—children may still be able to enter chatrooms, where they may be exposed to temptations and risks.

A few months ago, ACPO placed a bid for £5 million for the Government to fund regional centres to combat Internet paedophiles. That would enable the police to copy hard disks without alteration, which is needed to comply with the rules of evidence. The growth of broadband creates new opportunities for criminals of all kinds, including terrorists, animal rights extremists, fraudsters claiming to offer partnerships in the assets of dead African dictators, and people who for a variety of motives engage in "denial of service" attacks, which preoccupied the noble Earl, Lord Northesk, and other noble Lords two years ago when he introduced the Computer Misuse (Amendment) Bill. The police must have the resources to deal effectively with all those threats. It would be useful if the Minister, in his winding-up speech, could say how the Government will respond to ACPO'S first, modest request for a mere £5 million.

The retail market for broadband is reasonably competitive, with cable offering an alternative to DSL in some areas, and the introduction of a range of products based on datastream, which has been mentioned, starting with an entry-level 150-kilobitsper-second service at £16 per month, which has proved very popular. I am not sure whether I agree with the noble Earl, Lord Northesk, that we have the wrong definition of broadband. A variety of services at different speeds and different prices will stimulate the market most effectively. If what suppliers are telling me is true, there has been an astonishing take-up of the low-speed 150 Kb service that has been on offer.

The Earl of Northesk

My Lords, I thank the noble Lord for permitting me to intervene. My problem with the definition is not so much that there is something intrinsically wrong with defining 128 kilobits per second as the lower limit of broadband. My problem is that, in analysing the statistics, it becomes impossible to know whether a particular series of statistics includes 128 kilobits or not.

Lord Avebury

My Lords, I understood the noble Earl's point that it distorts the picture when trying to compare take-up in the UK with that of other G7 states. That point must be noted in future statistical comparisons.

We have heard that the suppliers of datastream services are complaining that BT discriminates against them because of its pricing policies, particularly in the charge of £50 for migrating from IP stream. Having endowed the regulator with extensive powers against the exploitation of a dominant position by an SMP, it would be incongruous of Parliament to egg on one party or another from the touchline in these debates. We have translated the rules of the game contained in the European directives into language that can be interpreted by UK players, and we set up Ofcom as the referee. After several seasons, we might well look at the rules again and, if necessary, improve the referee's powers. But it would be perverse in the extreme to do that when the first round has only just started.

I have read Oftel's 215-page document, published on 16 December, to which the noble Earl, Lord Northesk, referred, Identification and analysis of markets, determination of market power and setting SMP conditions for the wholesale broadband access market, and noted the finding, based on its growing market share, that BT possesses single-firm SMP in the broadband origination and conveyance markets. However, the regulator intends to set conditions, not only the requirement to provide access with retail minus pricing, which the noble Earl, Lord Northesk, criticises, but requirements not to discriminate unduly in favour of their own retail activities; to provide a reference offer; to notify charges, terms and conditions; and to provide transparency in the quality of service information.

I should point out to the noble Earl that it is still a draft report and that there is an opportunity to make representations up to 6 February. Ofcom will have to take those into consideration. It is in the nature of the process of regulation that not everybody can be satisfied, with the person having SMP—in this case, BT—wanting less onerous conditions and others wanting tighter conditions. However, the particular viewpoints of the players are not a matter for Parliament.

The Government's role in accelerating broadband rollout is principally that of a large customer. The DTI's broadband aggregation project, which has been mentioned, is an effective way of mobilising demand, and the principle of aggregation has also worked well in bridging the rural divide, although it is not the only way. The idea of having a variety of partnerships has been mentioned. Such arrangements have been deployed in Scotland, Wales, Northern Ireland and the regions of England to stimulate demand and usage. I noted that Stornoway, Kirkwall and Lerwick have been connected through one such partnership and that accessibility has shot up in Scotland as a whole, from 39 per cent of users early in 2003 to 70 per cent by the end of the year.

My noble friend Lord Redesdale has drawn my attention to the fact that most, if not all, successful partnerships have been in areas that qualify for EU Objective 1 status. I note that the Act Now partnership in Cornwall, which has been taken as a model by many people, is still a useful example to others. It is holding a conference next month to explore the possibility of further partnerships and consider how people can learn from existing ones. However, there are many rural areas. The rural areas in the constituency of my right honourable friend the Member for Berwick-upon-Tweed do not have Objective 1 status, and there are many such areas. I hope that Stephen Timms, when he addresses the conference, will pay particular attention to rural areas that do not have Objective I status. If it is correct to say that it is only through EU funding that the partnerships have been successful, that will leave out a great many areas.

One of the recommendations that, I understand, is to be made in a report by the broadband stakeholders group in the next few weeks is that the Government should undertake a study of the potential implications of broadband-enabled remote and flexible working for the UK's communications, transport, housing and planning policies. I support that idea enthusiastically, because I think that we have, at last, the means of enabling remote working, which has been discussed for the past 20 years, and, in particular, a means of enabling women to balance work and home commitments and enabling many talented women to remain economically active while they look after small children. The Government might also conduct a survey of firms that already employ remote workers, to see what lessons there are to be learnt for management and for staff relations. In local government, they might investigate whether teleworking/broadband initiatives are being cramped by the need to concentrate on the e-government agenda, as I heard was the case in one London borough.

Apart from implementing the systems, the other huge problem, which has been touched on, is how to assist the information-poor to access the systems and share the benefits that IT-literate people already take for granted. According to the Commons Library, 88 per cent of 16 to 24 year-olds used the Internet in October 2003, but only 16 per cent of those aged over 65 did so. That point was made by the noble Earl, Lord Northesk. Of the one third of adults who had never used the Internet, just over half said that they did not want to use it, had no need for it or had no interest in it. My honourable friend Mr Richard Allan asked about the "won't surfs", as they are called, in another place the other day. The Minister who replied, Douglas Alexander, referred to the "Get Started" campaign, which targets hard-to-reach groups, especially the elderly, but said that he saw the difficulty as one of lack of skills and experience rather than lack of motivation. I suggest that we have to deal with both, and that should be one of the objectives of the digital inclusion panel, announced by the Secretary of State, Patricia Hewitt, on 15 December.

The broadband industry group quotes research—I think that it was mentioned by the noble Earl, Lord Erroll—that shows that a clear link exists between communications technologies and economic growth. On the most cautious assumptions, it says that, by 2010, GDP will he £3.5 billion higher as a result of broadband, and that it could be as much as £16 billion higher. The benefits in terms of quality of life could be even more dramatic. UK-wide availability of broadband would encourage many businesses to migrate from London to the regions, and from high-rent cities to smaller towns and villages. It will help employers to stagger working hours, relieving pressure on commuter transport systems. It will enrich our leisure; for example, in the enormous growth of online genealogical information or in the creation of personal websites that enable us to share information with people throughout the world. It will enhance democracy by enabling us all to keep tabs on what the Government are doing and to build web-based coalitions for correcting their mistakes. That is why this is the most important issue that we face in the 21st century.

7.57 p.m.

Baroness Wilcox

My Lords, I thank the noble Lord, Lord St John of Bletso, for introducing this timely debate, which has enabled us to hear his expert analysis of where we are today. It also enabled us to hear from other speakers, and I refer particularly to the tour de force by my noble friend Lord Northesk. It makes me feel weird standing here, as I am no techie. I am proud to say that I am now on broadband, but the side-effect has been that the telephone extension in my sitting-room and the telephone extension in my bedroom no longer ring. I am having great difficulty getting British Telecom to turn up at a time when I can be there. I have no doubt that all will be well.

Broadband is an umbrella term for various technologies that give users access to the Internet at a much higher speed than the standard 56-kilobyte modem. I am delighted to move at such a pace at home. The Government have asserted that broadband is important because broadband subscriber growth will, facilitate the next phase of e-commerce", That is correct, but it has not happened yet, as the noble Lord, Lord St John of Bletso, so eloquently outlined. The additional bandwidth provided by a broadband connection allows new value-added services to be delivered to consumers and businesses alike. That is wonderful.

The noble Earl, Lord Erroll, enthused about some of the benefits, some of which I have listed and some of which we have heard about today. Businesses can save time and money, and they stand to benefit from productivity improvements. Catalogue and stock databases can be hosted by specialist ISPs. Virtual private networks can be set up, and broadband enables application service provision that permits the outsourcing of IT functions.

For consumers, the DTI has suggested that there are a number of additional benefits. The Internet can be accessible from several PCs, and online gaming, music and video can be available. Other benefits include two-way, real-time visual communication, opportunities for long-distance learning and the delivery of all kinds of key services. How exciting all that sounds. But so much more needs to be done to encourage those uses. I look forward to hearing the response of the noble Lord, Lord Sainsbury.

The Government's record so far with this exciting new opportunity is frustratingly poor. Their targets are still not being met. There is a lack of clarity in the institutional and competitive framework that the Government have created. Their failure to create an adequate competitive environment is damaging. The Government should have a duty to promote competition and to reduce regulation.

My noble friend Lord Northesk graphically outlined BT's hold on the market. The bottom line still is that we have one supplier, one product and one price. The Government should create a more competitive environment to encourage new entrants to that market. They should entrust the regulator with a remit to protect against market abuse until a competitive market evolves. It is for the regulator to protect users and consumers of national services and utilities and to stimulate national competitiveness.

As a country, where are we? I am not as impressed as the noble Lord, Lord Avebury, by where we are right now. The CBI states that Britain lies sixth among the G7 countries in broadband connections and that few small and medium-sized enterprises are yet connected. According to the broadband stakeholder group, only one household in 25 is currently subscribing to broadband. Less than one household in every 30 that has a computer is hooked up to a broadband service. In the business community, among firms employing more than 10 people, less than one in five has a broadband connection.

In January, only 1.4 million households and businesses were connected to a broadband service. According to Oftel, Britain has only slightly more than half as many lines connected to broadband per head of population as Germany, and just over a quarter as many as Sweden. The noble Lord, Lord St John, asked: where are we today towards the Government's avowed target? Perhaps the Minister will be able to cheer us up in his response. Perhaps the United States of America lags even further behind than we do.

It has often been said that the advent of broadband is similar to the invention and use of electricity. Not only does it capture the public's imagination—it does not seem to have quite done that yet—but also it is seen as essential in providing the link between business and the community. The Country Land and Business Association believes that broadband can be even more than that. Like the noble Lord, Lord Grantchester, I, too, believe that it can be the tool that leads to economic prosperity while bringing communities together, as has been said.

Sadly, the clear lack of affordable broadband in rural areas illustrates the widening urban/rural divide. But that does not have to be the case. The recognition of the benefits attached to the introduction of broadband by policy makers will make a step in the right direction. Greater use of broadband technology by all government departments would be another step forward, as we have heard suggested today more than once. Broadband is vital to all elements that make up Britain. Without the ability to access affordable broadband, Britain will suffer. To let that happen due to lack of sensible co-ordinated policy direction, when the infrastructure is already in place, represents a truly missed opportunity.

I look forward to the Minister's reply. After all, he is a bit of a techie himself, and a major investor of his time. As I finish, I should like to observe that in this the most modern of our debates, every speaker, other than the Minister and me, is an elected hereditary Peer.

8.4 p.m.

The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Sainsbury of Turville)

My Lords, I am delighted that the noble Lord, Lord St John of Bletso, has raised this issue. It is one to which the Government attach great importance. Your Lordships' contributions have demonstrated that there is a great deal of interest and expertise in broadband. We also need to recall that our purpose is to contribute to greater prosperity for all, through improving business productivity, giving consumers access to better information and greater choice, and to provide better services, including public services, such as education and healthcare, and to deliver those benefits to all parts of society, not just to a few of them.

A recent report by the Centre for Economic and Business Research suggested that broadband could be worth £22 billion to the UK economy by 2015. It is also interesting that hard evidence of the benefit to individual communities is starting to emerge as well; for example, a study of the small town of South Dundas in Ontario, Canada, with a population of 10, 000, shows that implementing broadband has reversed a decade of declining employment. I also strongly agree with the noble Lord, Lord Avebury, that there are huge quality-of-life benefits, including remote working, as well as the economic ones.

Beyond those important general economic impacts, broadband also promises to deliver a bundle of more specific benefits, including opportunities for digital content providers to commercialise new products. With our strong media and computer games industries, that is an area where the UK has the potential to benefit greatly. I was very glad that the noble Earl, Lord Erroll, introduced a subject which is dear to my heart; namely, grid computing. I think that in this country, we are developing a real world position in grid computing, which will drive the second generation of Internet in the future.

In recognition of broadband's potential early in 2001, the Government set out an ambitious target for the UK to have the most extensive and competitive broadband market in the G7 by 2005 because it is the market that can best deliver customer choice, value for money and innovation.

We have come a long way over the past three years. On competitiveness and extensiveness, we were at the time fourth and fifth out of the G7 respectively. OECD figures for broadband penetration had us in 22nd place behind the Czech Republic. Since then we have made huge progress. In spring 2002, prices fell, so that from sixth in the G7, we moved up to third best for price. That helped us to move from fourth to third in the overall competitiveness measure.

Now, with broadband available to more than 80 per cent of households, we have overtaken the USA for availability. For the overall extensiveness measures, we have moved up from fifth to equal third—level with the USA and overtaking Germany. Only Japan and Canada among the G7 countries are ahead of us. That is a pretty remarkable transformation in our position.

It took until the autumn of 2002 to reach 1 million subscribers, but by November 2003, there were more than 3 million. Now, we should have about 3.2 million subscribers. The figures are rising at some 150, 000 per month.

The noble Earl, Lord Northesk, and the noble Lord, Lord Grantchester, raised the question of whether we would meet our target. Our current predictions are that by 2005 we are likely to be second behind Japan. There is a very clear story here. Not surprisingly —this is true of most markets—this market is driven by price. Price is driven by competition and with that comes service and the benefits that the consumer can get. As those have changed, so we have seen this take-off happen. I recognise that the national figures, though encouraging, provide little comfort for the mainly rural communities that are not yet connected. But there too the market is proving effective and innovative. The demand registration schemes promoted by BT and others have had a positive impact. BT's scheme has led to availability increasing well ahead of predictions made even a year ago.

Technological development will help us on a range of fronts. I expect wireless to be a big element in the next phase of broadband development. Last year, the Radiocommunications Agency concluded a successful auction of 15 licences in the 3.4 gigahertz band for fixed wireless broadband, between them covering the whole country. In answer to the point raised by the noble Lord, Lord Avebury, PCCW has made public its intention to proceed with a soft launch of broadband services in a trial area fairly soon. They will do that under the name UK Broadband. This again will add to competition alongside cable and, in a small way, satellite. This is beginning to make the market very competitive. I shall say more about that later.

Satellite, as I said, also has a role. Alone of all the technologies it can cover the whole country. While satellite has some technological limitations, the main issue is price—it is more expensive for a single connection. The Government are helping to develop the satellite market particularly for small businesses in rural areas through such schemes as the Remote Area BroadBand Inclusion Trial or RABBIT programme run by a consortium of RDAs.

An encouraging sign here is that people in rural communities are taking action to gain access to broadband services. Around the UK communities have either set up their own solutions or have demonstrated the value of demand for broadband to suppliers. There is a great ferment of innovation and energy at community level. It has been suggested—slightly fancifully but interestingly—that we have seen nothing like this since communities went out very publicly to try and get railways to come to their areas. In any case, it is a powerful and welcome force.

The DTI and Defra are working together to support this effort. We have set up a joint Rural Broadband Unit to make the response from the Government and the regional development agencies to the challenge of rural broadband more coherent and effective but more needs to be done. To realise the true benefits of broadband it needs to become ubiquitous so that every company and every community is able to access it.

I agree with the noble Lord, Lord St John of Bletso, about the need for partnership. The Government have called for a new and deeper partnership between the broadband industry, national, regional and local government and local communities. We all need to work together more closely over the next two years to achieve our goal of a Britain in which broadband is available, not in 90 or 95 per cent of communities, but in every single community by the end of 2005. BT has already responded to this call to arms and also I suspect to increasing competition, by announcing that it is eager to work with local communities towards a vision of 100 per cent availability by 2005. I welcome that commitment.

There will undoubtedly be hurdles to overcome, highest in the remotest parts of the UK. We will have to foster continuing innovation in the market. We will need to build demand by working more closely with small businesses to show them the opportunities that broadband offers and by attracting more people to use government services online.

The public sector is committed to exploiting broadband. The noble Lord, Lord St John of Bletso, is absolutely correct. Between 2003 and 2006 public services will spend £1 billion on broadband connectivity to raise standards in schools, improve services at our GPs' surgeries and make our public libraries into community information hubs. The DTI is working with key public sector customers to aggregate demand and to use our buying power to extend the reach of broadband into new areas. This work will start to bear fruit this year through the network of Regional Aggregation Bodies that we are establishing in the English regions. Of course the private sector can ride on the back of these initiatives.

The RDAs have taken up the challenge and have committed, we estimate, some £235 million to broadband development over the period from 2000 to 2006. We will look for more opportunities to catalyse the sort of partnerships that have already borne fruit in Cornwall and elsewhere. The devolved administrations have also been imaginative and creative with broadband. For example, Northern Ireland is aiming for 100 per cent coverage, while both Scotland and Wales have very active programmes. If we succeed in bringing these partnerships together, we can deliver the prize of a more competitive and productive UK, a country in which the benefits of broadband are available for all who want them.

I should like to deal with a number of general points raised by noble Lords. The noble Lord, Lord St John of Bletso, asked whether further government funding would be available for rural broadband access following the £30 million DTI Broadband Fund. The present funding will expire in March this year. We estimate that the £30 million worth of DTI funding has stimulated or leveraged some £235 million worth of spending by RDAs up to 2006. Going forward, the Government will work in partnership with BT and other telecoms companies, with RDAs and other local agencies to complete access roll-out. The market is now beginning to work well, but further inputs from regional and local agencies will be required to complete the task.

The noble Lord asked about the position of wireless technology. The new regulator of the telecoms industry, Ofcom, which took over from the Radiocommunications Agency in December, intends to continue to pursue the objectives of the radio agency; to make spectrum available in order to maximise the opportunity for operators to provide access to a full range of broadband services. I have mentioned the auction that has already taken place.

The noble Lord also asked about the proportion of schools which already have broadband access. The great majority of secondary schools already have it and the Department for Education and Skills already plans to ensure that by 2006 all primary and secondary schools should have a minimum of 2 mbps and 8 mbps respectively. Turning to local loop unbundling, another point raised by the noble Lord, Ofcom will be reviewing the local loop unbundling market later this year.

I should like to address the question of competition in the UK because a number of points were made about this which did not, I think, reflect the true situation. This was a major issue raised by the noble Lord, Lord St John of Bletso, and the noble Earl, Lord Northesk. Price, competition and the services that consumers can get are the three absolutely key factors that will drive the market. The UK is not perfectly competitive. As has been said, the recent publication by Ofcom of its wholesale market review makes it clear that the regulator believes that BT still has significant market power.

However, this is a problem shared with probably every other market in the world. Indeed, the UK market is significantly more competitive than those in many comparable countries, particularly in Europe. Not only are our prices lower, but 45 per cent of households are able to choose between different technologies. There are more than 150 re-sellers of BT's ADSL products. As a result, BT has a retail market share of 25 per cent, which compares with 90 per cent for Deutsche Telekom in Germany and 55 per cent for France Telecom in France. So it is simply not true to say, as did the noble Baroness, Lady Wilcox, that we have one product, one supplier and one price. Further, when quoting Germany and Italy as exemplars, it should be noted that Italy is in seventh place on price, while Germany is also less price competitive than the UK and, of course, Deutsche Telekom is in a powerful position. This is a clear case where bringing competition to the market is paying off and we do not do at all badly on price.

The noble Earl, Lord Northesk, mentioned cost-plus pricing. Ofcom has been established as an independent regulator and it is not for Ministers to interfere in these detailed decisions. Ofcom's wholesale broadband market review was published as a second stage of consultation. It has the difficult job of balancing incentives for BT and competitors and there is still an opportunity for companies such as members of the Broadband Industry Group to make representations to Ofcom.

The Earl of Northesk

My Lords, I thank the Minister for giving way. The real question I wanted to get to the root of in respect of cost-plus versus retail-minus is whether the Government have a particular view on whether there are advantages that obtain to retail-minus or advantages that obtain to cost-plus. Perhaps the Minister would like to comment on that.

Lord Sainsbury of Turville

My Lords, we feel that this is an issue for Ofcom. There is no point in establishing a regulator and then trying to second-guess its policy. It is for the regulator to make decisions on this. It has issued a consultation document and it is now for people to respond to it in order to take this issue forward.

The noble Earl, Lord Northesk, also raised the question of the definition of broadband, which is a subject on which he and I have had frequent correspondence. I should perhaps let the rest of the House into that dialogue. The Government's definition of broadband is guided by the independent advice of the Broadband Stakeholder Group. It uses a dynamic definition of broadband that is technology neutral and focused on the "always on" and interactive characteristics of broadband. The definition is: Always on access at work, at home or on the move, provided by a range of fixed line, wireless and satellite technologies to progressively higher bandwidths capable of supporting genuinely new and innovative content, applications and services, and the delivery of enhanced public services". That is in line with the recent OECD paper, which concluded: There is no universally accepted definition of broadband and national definitions vary, but it is generally agreed that it applies to always-on services, considerably faster than Integrated Services Digital Network". We do not keep information on other countries' definitions of broadband. However, in our analysis of the UK's relative position in the G7, we use the same definition to apply to all countries.

The price of broadband in the UK, which was raised by the noble Lord, Lord St John Bletso, and the noble Earl, Lord Erroll, is a critical issue. Again, we should look at the total picture and the figures that we have. UK prices are competitive against most major markets, and they have continued to fall in the past two years to the point that, last year, according to Oftel, which is now Ofcom, broadband in the UK was cheaper than in Germany or the USA. That view is borne out by others. According to research commissioned from Telecom Communications, consultants for the DTI, we are the third best for price in G7, and more expensive only than Japan and Canada.

The noble Lord, Lord Grantchester, raised the question of trigger levels. Their use is a way of checking that demand is present before investment is a legitimate and innovative way of managing investment. We could, however, be more transparent about the process, and Stephen Timms and Alun Michael have written to BT about that.

The noble Earl, Lord Erroll, raised the question of traffic management. That is an area in which the DTI and DfT are working closely together to make certain that problems do not arise.

The noble Lord, Lord Avebury, raised the question of child pornography, which we regard as a serious issue. While the Internet has undoubtedly facilitated the opportunity for individuals to view and distribute child abuse images, it has also offered law enforcement an increased opportunity to locate and deal with individuals engaged in child abuse, and the viewing or distribution of child abuse images. In answer to his specific question about the ACPO bid, that is a matter for my colleagues in the Home Office, and I shall write to the noble Lord on that subject.

There were a number of other specific technical questions, but as we are running out of time, I shall write to noble Lords on these matters.

Broadband makes what the Internet has promised for so long a reality for individual consumers. I agree with the noble Viscount, Lord Chandos, that for broadband to take hold in our lives, more needs to be done to stimulate compelling content. Technology alone is not persuasive. Customers have to see a marked difference from their current experience. The major existing content providers, such as BBC and Hollywood, will have a major part to play. The UK is also rich in smaller companies with great potential as broadband content developers. We have been looking at the market barriers to content developers realising their potential, and at possible solutions.

In the future, we can expect an increasing demand from consumers for higher-speed services. Telewest and NTL have led the way in offering 1 and 2 megabit-per-second services. In due course, we will need to push up to 5 and 10 megabits. We shall see more and more high value-added applications, delivered through an increasing array of broadband-enabled devices. A critical success factor is whether the UK can develop the next generation networks to carry this volume of data fast enough to keep up with demand.

We have made great progress in the past few years, but there is a great deal more to do. We want take-up to rise, availability to spread and services to accelerate. A competitive market is the best way of delivering that, but the Government will continue to work hard where the market needs their help.

8.24 p.m.

Lord St John of Bletso

My Lords, I am extremely grateful to the Minister for his comprehensive response to many of our questions. I was interested that right at the outset the Minister mentioned that the benefits of fully embracing broadband by 2015 could be worth almost £22 billion to the UK economy. The emphasis should be on fully embracing broadband now—that is one of the core issues that I tried to highlight in my brief speech.

The Minister also spoke in glowing terms of the availability of broadband in the United Kingdom compared with our international partners. That is true, but he did not, I feel, make enough reference to broadband take-up in this country, which has to be one of the main focuses.

I am pleased that the Minister also acknowledged the need for greater partnerships and certainly that the Government see broadband usage as a core objective. To that end, I am very grateful to all of your Lordships who spoke with so much authority and made well informed, wide-ranging and thoughtful speeches.

There were a number of common themes: the noble Earl, Lord Northesk, with his customary expert knowledge on this subject, along with the noble Viscount. Lord Chandos, the noble Lord, Lord Avebury, and others, spoke on the need for greater competition, the greater affordability of broadband and the contrast between broadband coverage and take-up. I am pleased that the noble Lord, Lord Grantchester, focused specifically on the needs of the rural community. There is no doubt that there will be a great need for a greater reach of affordable broadband in the rural areas. I agree with him that if there is far more reach in the rural areas, that will result in a far higher percentage of take-up than in the urban areas.

My noble friend Lord Erroll, in his customary, wide-ranging and expert way, also mentioned the importance of wireless. Certainly, wireless will have a major beneficial impact on extending affordable broadband throughout the United Kingdom. He also said that broadband is not just about high-speed access but also about reliability of service. That is a point well made.

It was interesting to hear from the noble Viscount, Lord Chandos, about the different applications for broadband as well as the need for greater broadband roll-out.

I apologise for making reference to IP stream and datastream. I knew the one person to pick up on that point immediately would be the noble Lord, Lord Avebury, with his vast technical expertise in your Lordships' House. I am pleased that he made reference to datastream and the different broadband options.

No doubt the extension of the reach of affordable broadband services in rural areas will need to happen through partnerships.

As the noble Baroness, Lady Wilcox, and the Minister both said, this has been an excellent opportunity to eulogise on the many benefits and uses of broadband to consumers and, just as importantly, to business. I thank noble Lords who have spoken in this debate. I beg leave to withdraw the Motion for Papers.

Motion for Papers, by leave, withdrawn.