Digital Economy Bill (First sitting)

Christian Matheson Excerpts

Committee Debate: 1st sitting: House of Commons
Tuesday 11th October 2016 Public Bill Committees

[Claire Perry]

Q I am conscious of what Baroness Harding said about perhaps not setting a quantum, but do you think there should be a separate quantum for SMEs? One of the challenges we have is that there is not enough. We do not have separate legislation or, indeed, powers for cabling to new business parks. If I may ask a supplementary question, in my experience the issue with the USO is often with the broadband speeds in the household; it is not just a question of getting the cable to the front door or the bricks. What could the process be for dealing with those claims and helping householders realise that that might be a problem?

One final question: we would like the USO to be an average speed, rather than being achieved 15% of the time, or whatever the current average regulations are. What are your views on that? Are you prepared to commit to our offering an average USO of 10 megabits per second?

Baroness Harding: At the risk of being dangerously technical, I think we all try to summarise in the form of speed, but actually consumers and businesses would say that reliability and consistency are every bit as important as speed. The small businesses that are customers of TalkTalk would say, “It’s not the headline speed I need. I need it to work every single second when my customers are using the chip and pin machine in my small corner shop”, for example. So while speed is a useful proxy, it is not perfect.

The Minister gets to the nub of the issue: when you have a proper fibre network that goes all the way to the premises, you have upgrade potential. You just change the card in the rack of computers back at the exchange and you can go from 1G to 100G. You also have a much, much more reliable network. When it rains, water does not get into the copper and it does not stop working.

The small businesses that we talk to are very cross that the fibre-to-the-premises roll-out has missed out a lot of business parks—not necessarily because they want speed, but because they want a reliable service where they can upload as much as they can download and customers can always buy things from them.

I would therefore support being clearer in the detailed regulations that I presume Ofcom would set in specifying the service requirements for small businesses as opposed to consumers.

[Christian Matheson (City of Chester) (Lab)]

Q What flexibility would you like to see within the legislation for either the Government or perhaps Ofcom to be able to deem the level of the USO in the manner that Baroness Harding described as technology increases?

David Dyson: I have a couple of points. Covering some of the previous questions, it is impossible to predict what will be the right speed in five years’ time. There are two elements to delivering that. One is effective competition. On the second, I agree with Baroness Harding that in those harder-to-reach less economic areas, the separation of Openreach is the only way that you will get assurance that those customers will get the right speed.

Fundamentally, Ofcom needs to have more powers to make the right decisions that effectively create the right competitive environment in the UK—an environment where it is not constantly worried about being litigated. At that point, you have a stronger regulator that will make the right decisions for the right reasons and a lot of these discussions will take care of themselves.

Baroness Harding: You can see from my nodding head that I agree with David. A lot of the provisions in the Bill are very good, pro-consumer, and I would encourage the Committee to look very favourably towards them. David has just alluded to one of them, which is to make sure that you have a stronger regulator that can get decisions taken faster without using up nearly 50% of the Competition Appeal Tribunal’s time.

Sean Williams: On the specific question about flexibility, as long as it is stable enough for network investors to deploy a certain investment in order to get to the target and then recover some of their investment money, it can be flexible after that. If it is too flexible, you never quite know what you are supposed to be investing in, so I think it needs to be definitive for a period and then it can move on progressively as society and the economy moves on.

I agree with Baroness Harding on the subject of reliability. Reliability is a very important metric, but SMEs are not typically the most demanding broadband customers. A big household streaming lots of HD videos is a very demanding broadband supplier. SMEs and large households have different kinds of requirements and we need to work with Ofcom to establish exactly what those standards should be.

It is true that some of the problems happen within the home or within the business premises. It is important to make sure that all the retailers—TalkTalk and all the others—are able to support their customers in the business or home. Making sure those networks and wi-fi work well is also very important, to answer Mr Perry’s earlier remarks.

[Kevin Brennan (Cardiff West) (Lab)]

Q Sean, do you recognise the figure that improving wayleave rights under the ECC will reduce costs for providers by 40%? Would you like to tell us whether any surplus from that will be used to invest in local communities or will it be going to your profit margins?

Sean Williams: I do not recognise the particular figure, to be honest, but I would not necessarily dispute it.

--- Later in debate ---

[Kevin Brennan]

Q Will certain areas be limited, do you think, in reaching the 10 megabits?

Baroness Harding: I think the way that you ensure that there is sufficient competition to drive investment and create choice is by having a very strong regulator that does not believe any of us, actually, when we say “Trust us, we will be okay; we will do it for you.” If you live in any of the rural constituencies in the country, you do not have Virgin as an alternative. There is only one fixed line network provider. There are only two mast joint ventures for mobile networks, so I would argue that the telecoms market is not competitive enough at all and that the best way Government can ensure that all constituents across the country benefit is by having a much stronger regulator that forces competition. I think you should be very worried when you hear large incumbents saying, “Set up a universal service obligation but don’t let it get too far ahead of what we’ve got in our business case.” That is not what business should be doing. Businesses will invest more if they are scared their customers will go elsewhere, not because they have been given a promise by Government.

David Dyson: But also you should be very worried when you hear statements about how BT is planning to take profits from the duct access and reinvest in that, and in cross-subsidising mobile access. That is just fundamentally wrong, and is not supportive of competition.

[Christian Matheson]

rose—

[The Chair]

Is this on this point?

[Christian Matheson]

Not exactly.

[Nigel Huddleston (Mid Worcestershire) (Con)]

Q Far fewer people switch broadband and phone providers than gas or electricity, for example. Do you support the Government’s published principles of switching, which will make it easier for consumers to switch?

Baroness Harding: Yes, completely. I think it is extremely confusing for consumers, because how you switch depends on which network you are with today, and which one you are going to. It is not a level playing field among competitors, so, for example, someone leaving TalkTalk who takes mobile phone, broadband and TV—a proper quadplay customer—does not have to speak to TalkTalk at all, as they should not. They head off to whomever they want to go to, and the switching process will work its way through. On the other hand, someone leaving Virgin and going to BT, or leaving Sky TV and coming to TalkTalk, has to speak to Virgin or Sky respectively. We and, I think, Three as well have been campaigning for simpler switching for eight years. Finally we have a Bill that is very much on the consumer side, that will make switching easier and competition stronger. I think it is a great thing.

Sean Williams: And BT completely supports the position.

David Dyson: Three has campaigned for more than a decade on this issue. It is a complete joke that it has taken so long, and it fundamentally goes back to the point that Ofcom needs more powers to make decisions that are in the consumer interest. We are the bottom of the class from a global perspective, in terms of switching. I think Papua New Guinea ranks alongside us as the only country that still has donor-led porting. It is a joke. Ofcom tried to legislate on that five years ago, and Vodafone litigated on a technicality and won. Since then it has been kicked into the long grass. It is a major issue, but the more fundamental issue is that Ofcom does not have the power, right now, to make decisions that are fully in the interests of consumers and competition.

--- Later in debate ---

[Nigel Huddleston]

Q Baroness Harding, you mentioned that this is a consumer-friendly Bill in various degrees. Mr Dyson and Mr Williams, are there any other elements of the Bill that you see as consumer friendly that would benefit my constituents, for example?

David Dyson: Absolutely. The electronic communications code reform is critical in being able to roll out more coverage, more capacity and better quality from a mobile perspective. That is a really important step. We hear a lot about coverage, capacity and quality. Ofcom recognises that there is a major issue in consistency of access not just for operators across the country, but for different technologies. That will certainly help, but for me the most important element of the Bill is effectively to give Ofcom the powers to create competition in this market.

Fundamentally for us, the most important decision that Ofcom needs to take in mobile in the next five years is going to happen before the Bill comes through in that spectrum. The UK is bottom of the class not only in mobile number portability, but in spectrum distribution in this market. It is the most fundamental input in terms of a level competitive playing field and Ofcom is about to take that decision in the context that it is always worried about being litigated. The facts speak for themselves. We have a terrible position in the UK right now and I am worried that it will not get any better unless Ofcom has more powers.

[Christian Matheson]

Q I am hearing mixed messages about this industry and its ability to achieve a USO. On one hand, we hear that market forces will achieve it and, on the other hand, we hear that Ofcom does not have enough power and that there is a fear of litigation. Should this Bill be giving greater powers to Ofcom? For example, in areas such as Devizes, which Claire Perry talked about, where there are broadband not spots, should Ofcom deem a provider to provide for that area?

Baroness Harding: The key thing in the Bill is to reform the appeals regime. As David Dyson has just alluded to, between 2008 and 2013, which are the most up to date stats I could get last night, Ofcom accounted for just under 50% of all cases in the Competition Appeal Tribunal. Our industry is important, but it is not that important compared with the whole of the rest of competition issues because the standard of appeal is much lower in telecoms than in any other regulated sector. That means there is a very cautious regulator.

BT has managed to raise $45 million from private equity funds to fund its litigation pot. Ofcom spent £10 million in the last two years on litigation. That is awful use of taxpayers’ money. It means you have an industry that is used to appealing every single decision the regulator takes, so the regulator is too cautious. That is why we are saying, “Give them the powers and competition will do the job for you.”

Sean Williams: I am sorry, but I completely disagree with that point. First, it is not true to say that everything gets appealed. BT did not appeal a charge control this very year that took a billion pounds of profitability out of BT—in fact out of Openreach—over a three-year period. We did not appeal the previous charge control, which did a similar thing and we did not appeal the one before either.

Ofcom is an extremely powerful regulator that is accountable to nobody but the Competition Appeal Tribunal. No one in the Government can tell it what to do. It has extremely wide discretion. You will not get better decisions out of Ofcom if you reduce the standard of appeal to judicial appeal standard. Is it reasonable, is it fair, is it just that Ofcom can take £3 billion of shareholders’ equity value away from them on a judicial review standard? It is not. It is thoroughly unjust.

To keep Ofcom accountable, to keep its decisions high quality and to comply with the regulatory scheme, it is of the utmost importance to require an appeal on its merits. It is required across the communications sector across the whole of the European Union. It is not by any means unique. Ofcom makes many very impactful decisions and that is why it gets many of its decisions appealed to the Competition Appeal Tribunal, very often by the small players in the industry. The organisation that is appealing Ofcom’s most recent charge control is CityFibre Holdings, which thinks that Ofcom’s decision to drive down Openreach prices will kill off its business plan, not just Openreach’s. It is not BT that is appealing that decision. It is very important that the one piece of this that really needs to come out is the change to the appeal regime.

It is also true to say that the Supreme Court of the United Kingdom, only about two years ago, was absolutely clear that the scheme provides for an appeal on the merits.

David Dyson: There are two important points on this. First, Three is 100% supportive of the changes in the Bill in this regard. Secondly, it is really important to note that all the Bill proposes to do is raise the standard of appeal that Ofcom has to the same level as regulators in other industries, which does not feel excessive to me.

Sean Williams: Except that Ofcom has many more powers than any other regulator, including a dispute resolution power that is not available to any other sectoral regulator. That is the cause of many of the disputes and appeals that happen.

[The Chair]

Order. I am afraid that that brings us to the end of the time allotted. I thank our witnesses on behalf of the Committee.

Examination of Witnesses

Daniel Butler, Paul Morris and David Wheeldon gave evidence.

--- Later in debate ---

[Claire Perry]

Q I want to focus questions directly on Mr Legge. I represent a very rural constituency. We are very anxious about home building. We now have effective neighbourhood plans that rather than mandating giant developments plonked down wherever anybody wants them, require developers—often small developers—to work with communities. The preamble is to ask you whether you think the new law coming in next year to require automatic superfast broadband connection for sites of more than 100 homes is suitable for rural areas, or whether we ought to be going further and effectively making it a utility provision for all home builders.

James Legge: My view is very much that it should be seen as a utility provision. The whole way in which we have looked at the housing problem in rural areas has transformed over the last 10 years from the idea of plonking mini-towns on the edge of existing communities. We have realised that if you try to do that, all you do is create massive local opposition and nothing gets built. What you want is small-scale development that is sensitive and local to the community, provides local housing, and is affordable, often affordable in perpetuity.

The idea that you will only get broadband provision when you build 100 premises on the edge of a village or in a rural area is undesirable, simply on the grounds that where new properties are going in and we are putting in an infrastructure, it seems absurd not to take the opportunity. We would not say we are not going to put in electricity, water or, ideally, gas as well, although we do not have mains gas everywhere, to be fair. I think broadband is too important.

It is also important to realise that the population trend at the moment is a move from towns to rural areas. There is enormous potential. If you take a population of 10,000, there are more start-up businesses in rural areas. I think London and some of the major urban city centres exceed. The countryside is a largely missed opportunity, but all the signs are there that if it gets broadband it is ready to fire and go further; so the figure of 100 is too urban-centric in thinking.

[Christian Matheson]

Q Mr Legge, you talk about the need for a fair system of site rents for country landowners in terms of wayleaves and access.

James Legge: I do not think that I did—

[Christian Matheson]

There needs to be,

“clarity over the new system of valuation for site rents that is fair and equitable as well as a robust Code of Practice to ensure landowners, infrastructure providers and mobile phone operators are clear”.

Is there not a danger of conflict between looking after the needs of large landowners to get fair wayleave agreements on their properties and potentially preventing the roll-out of broadband and infrastructure services to other rural residents because we are keeping costs higher to benefit the landowners?

James Legge: I think we recognise that the new communications code must reduce the cost of putting in the infrastructure, both on public and private land, and must also encourage the sharing of masts and access to infrastructure. There is a difference between saying that we will do it and, say, paying a private landowner nothing, and paying them something that is reasonable and fair, taking account of the way in which we treat other utilities. I know that our view differs slightly, though, from some of the other landowning organisations that are focused on land ownership. We are very much focused on delivery to the consumer, but we think it should be fair, equitable and clear.

[Matt Hancock]

Q May I clarify that? You said that the new communication code must do those things. Did you mean by that, that it does do those things and that that is right, or that you do not think it fits what you set out? What you set out is entirely concurrent with the Bill.

James Legge: Yes, and we are supportive of that. We support the fact that we have got to start seeing broadband on the same par as a utility, as opposed to something where there is a premium cost to the provider, which limits provision—