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ZDNet interviews e-Minister: Part II

Part I

Another criticism we get from ZDNet readers is about the telecoms watchdog Oftel. I think it is fair to say that most people have lost faith in its ability to regulate. How do you respond to that?

That is not the message I get. Some of the telcos and ISPs are making generalised or specific complaints about Oftel but the general allegations don't get you very far. David Edmonds himself said to the House of Commons Select Committee that he thought they hadn't moved fast enough on the issue of cost of leased lines. They are now doing that.

There are doing a fast comparison study -- and again it is quite hard to get accurate comparisons on leased line costs because of the length of lines and bandwidth variation -- but Oftel is trying to get accurate comparisons to see if there is a big problem and what needs to be done about it.

Most of the ISPs I've spoken to most recently say they are satisfied with the way Oftel is dealing with the Surftime interconnection issues. People make great sweeping allegations, then it becomes clear that either they don't understand the technical problems or prefer to ignore them because it is easier to make a general complaint.

There is big talk in government about the move to Internet time. Is Oftel moving in Internet time?

Oftel completely understands the need and they're driving it forward as fast as they can, but the fact is, as with any company that has a large legacy IT system, it does unfortunately take real time. The same is true when you've got a legacy local loop and the technology has to be upgraded to get an interconnection regime that is fair to all operators.

People look at what Oftel have achieved and it has only opened up 15 percent of the domestic market. Is that good enough?

It is not Oftel's job to force consumers to switch telephone providers. The cable franchises were designed in the way they were to ensure there was competition to BT in the local loop. Tough decisions were taken to restrict BT from delivering television down the telephone line. They are still not allowed to do that, although the restriction will be lifted very soon.

BT would make the argument that if it had been allowed to deliver television down the local loop then they would have rolled out ADSL much, much earlier because it would have been commercially viable. The reason why they weren't allowed to do it was because cable companies would have been killed before they were even born. They would have found it quite impossible to create a market with BT already able to offer television as well as telephone. BT were deliberately restricted in order to create that new source of competition.

The local loop is terribly important but one cannot become obsessed with it to the exclusion of all else. Digital television and mobile telephony are already in the here and now, bringing the Internet to millions of people who are never going to have a computer.

So BT doesn't have a monopoly?

That's right BT doesn't have a monopoly. BT is the incumbent, dominant operator in the local loop, with 83 percent of local voice telephone calls. But if you look at BT's latest results, you will see the affect of competition that already exists. You will see the extent to which calls starting on BT's local loop, terminate with a different operator. BT constantly complains about it, saying it is unfair to BT. Most of the money from local loop calls doesn't go to BT, it goes to the terminating operators.

That is one reason why we have the Freeserve model. ISPs are able to finance services through the share of telephone revenue they get. As I said before, charges for peak time use is too high, but it will come down with Surftime. The importance of Surftime is not simply that it is a retail option from BT, which BT may amend, but that it will also be provided wholesale. I think we will see a variety of subscription packages that will be in place the minute the wholesale deal is sorted out. And I think that will be quite fast.

So will access prices, as Gordon Brown asserted in his speech this week, be halved by 2002?

We will get there and we will get there fast. Gordon Brown stated very clearly and forcefully the existing policy.

The government wants to get everyone online, BT wants to make profits. How do you reconcile a government that can't interfere in commercial business and the needs of citizens to get affordable access?

The best way to get everybody online is to make sure there is universal availability of affordable broadband by having the greatest possible competition and choice. When BT had an entire monopoly, they were not noted for speed and efficiency.

We've already seen what is happening in national and international telephony and there is a highly competitive mobile market. In the case of the local loop, because of BTs position as an incumbent, we still need regulation to open up the market. In the meantime we need to ensure that the price comes down, which is happening.

Last year Oftel cut the costs of fixed telephone to mobile. We are also getting cable coming in as a new source of competition, available to 60 percent of businesses and consumers. Then, of course, we've got digital television. We are still looking at around 12 percent take-up, but it is growing incredibly fast, even faster than mobile. Once we've dealt with the issues around local loop unbundling, we will have the richest broadband environment in the world.

People still look to BT for the lead. With voice-over-IP coming, BT's position is threatened. Is it time for a new style of tele-communications?

We are seeing huge changes already. It is worth remembering that we have already got the most competitive telecoms market in Europe and the world. We liberalised years before other European countries. In Germany, Deutsche Telekom don't just dominant the local loop but the ISP market as well. The idea that we are dragging our heels and allowing an incumbent to hang onto a monopoly is simply not the case.

BT is not the dominant provider in international calls, in mobiles and in ISPs. In fact, they look with considerable envy at what is going on in other European countries, where incumbents have been allowed to hang on to their monopolies.

There is fast change in this world as communications and computing and content and broadcasting converge. We are seeing new kinds of companies emerge with joint ventures and mergers of many different kinds. You can't say one business model is replaced by another, new models are emerging and competing. I don't think anyone can say where it will end up in five years' time. It is in a constant state of flux.

Part I

Part III