Examination of Witnesses (Questions 180
TUESDAY 2 FEBRUARY 1999
180. Why do you believe the UK software industry
has not been as successful as its American counterparts? If we
just look at one or two of the namesMicrosoft, Sun, AOL,
Netscapewhy do you think we have not been as successful?
(Mr Higgins) It is a much debated point but probably
the first reason is the size of the local market that you have
in the US compared to the UK. The second is probably the attitude,
the entrepreneurial attitude, and all the systems to support that;
the culture that is there to support that in the US, which is
not there to support that so much in the UK, whether it is from
incentives for investment in high tech firms or just the attitude
and things which were taught in our schools. We just do not have
that same entrepreneurial culture. It is changing but I think
that is one of the fundamental reasons.
181. Do you think we are too late, we have missed
(Mr Higgins) I do not think we are too late. We should
never take that attitude. What is the alternative? We must attempt
to become more entrepreneurial. The vision of being a centre for
electronic commerce is an opportunity. One does get with technology
the opportunity to constantly leapfrog, so there is an opportunity
for us here to take a lead as English speakers to exploit the
fact a lot of electronic commerce is conducted in the English
language; there is an opportunity for us to do that.
(Mr Emery) I would contend that the UK software industry
is not quite as bad you have painted it. Certainly there is very
good evidence from, say, the games software industry that the
UK can hold its head up against anyone in the world. However,
there are some interesting behaviour patterns which establish
themselves. I was investigating a company in the electronic commerce
area recently which is called Taxi International, and this company
was founded by two guys in London in 1996, and what they did as
soon as they founded themselves was go over to Silicon Valley
in California and open up an office there. It told me something
about their attitude towards the UK as an environment in which
they should grow their dynamic new business. I have no evidence
for why they did it and I cannot explain it, but they are certainly
not the first people who have been innovative, creative people
who come from the UK who have quite quickly turned towards the
US as the environment they preferred in which to work.
182. Do you not feel it is a bit like actors
in this country, that they feel unless they go to America and
make a film in Hollywood they have not made it?
(Mr Emery) No, I am not sure I do. There is an element
of that, that is certain, but I remember when the Internet Bookshop
was opened in Oxford by a guy called Daryl Mattock, he got there
before amazon.com and he began his bookshop over some store in
some back street in Oxford and before very long he found he was
being overtaken by amazon.com. I went to a conference two years
ago where he spoke and one of the people from the floor said,
"Mr Mattock, if you had your time over again, where would
you set up?" and he said, "I would set up in the States,
I would not try it in Oxford in the UK", and he is not the
rich man he should be, the guy who owns amazon.com is that rich
183. You have said in your submission that you
think the US could become the "out of town shopping mall
that bankrupts the British high street" because people are
going to be buying everything and all their services over the
Internet in the future. How real is that? Do you think it is really
(Mr Higgins) What we have got to do is encourage UK
suppliers to get on-line and take advantage of the opportunities
to compete in the global market place. I think if we do not do
that, what we will find is that when we go on-line to buy our
software, sports goods, computers, whatever it is, we will find
there is a surfeit of US suppliers on there already all geared
up to make those offers over the Internet and there is a limited
choice in the UK to do that. So unless the UK really gets hold
of the opportunity, whilst that may be an extreme statement, it
clearly demonstrates what could happen.
184. If we are talking about physical goods,
things which you have to move physically from one country to another,
people are going to have to realise that they are paying quite
a lot of tax on those. If it is clothing, for example, you have
a total of about 33 per cent added by the time you have paid VAT
and import duty from the States. So is it not rather less likely
that that will happen and more likely that it will be the sale
of services which will be affected?
(Mr Higgins) Physical goods below a certain value
do not get taxed anyway. That is certainly true with things which
are delivered electronically, where they do not actually cross
any physical threshold, yes.
185. That is really the area which is going
to be most affected, your own line of business really. The other
problem with that area of business, surely, is that it is very
much open to piracy, is it not?
(Mr Emery) Being the people who own a lot of this
software, we obviously think piracy is extremely important. Piracy
puts lots of our jobs at risk, so we are absolutely against it.
However, we think by and large, if we were to enforce the current
copyright patent provisions and introduce things like WIPO, the
World Intellectual Property Organisation, that would be a very,
very good start. So a universal crack-down on this would be excellent.
We think electronic commerce itself however introduces little
more risk than already exists. We do not expect there to be a
massive increase in piracy because of electronic commerce. There
is an increase in piracy because of the Internet, there is an
increase in piracy because it is easier to copy things which are
digital, for example, on CDs, but that is not electronic commerce
per se, it is an effect of digitisation.
186. So it is really the improvement in the
hardware and the ability to actually copy these things which is
the problem rather than the e-commerce itself? Is that what you
(Mr Emery) That is correct.
187. Nevertheless the greatest impact is going
to be on information in one form or another?
(Mr Emery) Yes. There are really two reasons why we
pirate, I think. There is the one which says, "I want to
cheat on the price", which is extremely bad, but there is
also a temptation to cheat because of time, that is it is difficult
to obtain this and my mate has a copy, therefore it is more convenient
for me. However, with the universal, all-pervading Internet and
the ability to get things off the Internet legitimately very easily,
you eventually reduce piracy in some areas. So citizens who want
to comply with the law may find it actually easier to do so because
of electronic commerce, so we should welcome it in that way.
188. But you imagine presumably, going back
to the hardware goods, that those suppliers of washing machines
who do not advertise their wares over the Internet in the future
will lose out and that the existing retailers will increasingly
have to offer their wares electronically?
(Mr Higgins) Maybe do not pick on washing machines,
but if you take sports clothing, for instance, buying from Canada
is common practice now because it is inexpensive, good quality,
and it is as easy to do as buying from other parts of the US.
That is an easy thing to do now.
(Mr Emery) The indicator to me that this is up and
running and ripe for picking is the Consumer Association in their
magazine, Which?, actually recommending that people go
and do this. What better legitimisation can you have?
189. You mention in your submission to us that
telecom prices are a barrier to electronic commerce. How significant
do you think this is? I do not know whether you heard BT giving
evidence earlier, but effectively they were saying if you take
a bundle of charges there is effectively no difference, and even
where there was a difference evidence from the States shows it
makes no difference if you are in a state which gives free local
calls or charges for local calls. You cannot both be right, or
(Mr Higgins) I will ask Bob to answer this question
specifically but I can give you an example from my own personal
experience a couple of years ago setting up an Internet operation
in San Francisco and in London. I paid over half as much again
for a BT line that was six times as slow as I was able to get
in San Francisco at that time. That was a couple of years ago
and things have moved on but I am sure there are other practical
examples. Entrepreneurs say, "Where shall I set my business
up? I can be in San Francisco or I can be in London. Hang on,
I will be in San Francisco." It is just so easy to do that
(Mr Scott) The evidence we have presented in our submission
comes from a study we have recently undertaken for the European
Commission called Condrinet, which showed a direct correlation
between the cost of connection and Internet penetration in a bundle
of countries. BT's evidence this morning (and I agree entirely
with it) was that there has been a significant move to better
prices within the UK market, and that is good, but what I would
contest is, is good good enough? You cannot afford to accept what
has been done is enough for us to compete in that world market.
You have to look at two different aspects of electronic commerce
in this regard. There is the cost of connection for the end consumer,
the buyer. Initiatives like Dixons Freeserve, which makes it free
to connectyou still have to pay for the telecoms costs
but it is free to connect, I happen to be a consumer of Freeserve
myselfare fine, you are making it easier for people to
connect and buy. I forget who it was from my colleagues here who
made a comment in a recent meeting that we had, "Do we want
to be a nation of shoppers or do we want to be a nation of shopkeepers?"
What we seem to be doing is making it easier for people to buy,
but for the people who actually want to set up a business on the
Internet the cost for them to connect, to be merchants, to be
banks who trade over the Internet or whatever else, is actually
significantly higher than our competitors in the States and in
Europe. You mentioned France earlier, France has got the largest
electronic commerce platform anywhere in the world to the domestic
market, it is called Minitel and has been around since the early
1980s. In some respects that is actually holding back France going
on to the Internet but there is already a society which is accustomed
to trading electronically, the organisations which are trading
their goods are used to trading them electronically, and therefore
those organisations I think have a very significant opportunity
to come into the UK market and offer their services to the UK
population at large, and I think that is to the disadvantage of
UK companies who find significantly increased costs over and above
their competitors in other countries.
190. So what do you think the Government or
Oftel should be doing about this, apart from just telling BT to
reduce their prices?
(Mr Scott) Personally, I do not think it is the responsibility
of the CSSA to be making recommendations to Oftel. I present our
information, the research we have undertaken, it is clear from
that evidence that there is a disparity in price, but I certainly
am not in a position to advise Oftel.
191. Have you given your evidence to Oftel?
(Mr Scott) The information is present in a report
which has gone to the European Commission, it is freely available
in the UK, it has been made available to the DTI, so that information
is free and is in the public domain.
Mr Morgan: Good.
192. You have made the point about social inclusion
this morning and you were saying that the Government working with
industry can shape a workforce ready to exploit the massive opportunities
from electronic commerce. How do you see yourselves crossing this
class barrier? At the moment it is a pre-occupation of white collar
business, it is a hobby for middle-class families, how do you
see this becoming accessible to the whole of our community, especially
those people who are from so many things in our society excluded?
(Mr Higgins) That is a very important issue. We recognise
that with changes in technology we have the opportunity to address
this. We have some thoughts on this.
(Mr Emery) We represent the technology part of the
industry and what we are helping to do, and are proud to do, is
constantly to push down the cost of participation. This tumbles
by what is called Moore's Law, where price tumbles almost daily.
What we are looking at at the moment in the wings now is Web TV.
We believe with Web TV we will find we have a cost of getting
access to the Internet which will be about on par with getting
satellite TV, both in terms of the entry cost, the up-front cost
and the recurring costs on a monthly basis. We know that a large
proportion of the population can afford satellite TV, we can hardly
say there is great social exclusion from that, so we would contend
we are within a very short period of access to the Internet being
well within the reach of the majority of the population. Having
said that, we believe that there are two clear things that will
come out of this which will be beneficial. First of all, there
will be reduced prices for many things and we can only conclude
that will benefit everyone, so if the price of buying X goes down,
the proportionate benefit to the poor is higher than the proportionate
benefit to the rich, so we think the Government should try hard
for this because citizens will benefit from this. Secondly, by
having access from the home, we can see only benefit for the old,
the disabled, who are locked into their houses. This is a way
of them gaining access to the world which they would not otherwise
193. Do you think having access to premier league
football and news in Norwegian is necessarily what will make people
switch over? You have mentioned Web TV, do you think that is likely
to be more successful than the BIB package, for example?
(Mr Emery) I think not. This is where the hard bit
of the equation comes out. People have to be motivated to buy
this. We have seen how the motivation has worked for satellite
TV because you can only get to watch premier football on that.
If we were to find, as we expect sometime in the future, that
indeed you can obtain things at lower prices or obtain things
at all which are through Web TV and through the Internet, then
that will be the compelling driver for people to adopt it. One
of the issues is getting the supply side of the industry to start
making those great deals and offers available to attract people
to take it up.
194. Can I ask you about one point on this because
I am interested? You are one of the few witnesses, or groups of
witnesses, who have actually raised the question of social inclusion.
There are other ways of doing it, for example the local authority
access points which a number of local authorities have; the Post
Office for example. I do not want to intrude on your private grief
on matters relating to the Post Office at the moment, Mr Emery,
but there are going to be opportunities outwith the home but within
the capability of accessing by people who hitherto have been excluded.
Would you be saying to Government, "Get the Post Office,
get the local authorities to have their community access points
also wired up for e-commerce as well"?
(Mr Emery) I believe so. We are large suppliers of
that equipment and it is in our self-interest in a sense to say,
"What a good idea". But apart from that we think it
should be in town halls, in post offices, in cyber cafes and these
other good places. We are currently putting equipment in job centres
and so on. So, yes. That is all foundation stuff and we think
it is absolutely great. Yes, we are positively behind that but
nevertheless you require a motivation to use it at all, and that
is for us the key.
(Mr Higgins) It does take us full circle back to what
we were saying at the beginning about the Government taking the
lead and providing not only e-commerce supplies in this way but
also delivering its services in such a way that it is attractive
for the citizen to want to use. That is the key thing.
(Mr Scott) The gentlemen earlier mentioned the need
for the Government to walk the walk, actually lead by example
in doing electronic commerce itself. In many respects that will
fuel and prime the pump, if you like, for industry at large to
take and adopt e-commerce.
195. In your report you have been arguing for
fiscal incentives for the start up of information and communication
technology and that this needs to be improved for companies. Is
it not true that the Government is committed to supporting high
tech firms? What are your prospects of securing further funds
(Mr Higgins) I would say it is not "further"
funds particularly. The Williams Report, the recent Treasury report,
had lots of fine suggestions in it for improving incentives for
high tech start-ups, and we wanted to make sure those are driven
through, and given the changes in the DTI leadership we want to
make sure those continue to be driven through, because it is important
those changes are made and that we do get the sort of culture
and positive investment culture in high tech start-ups that we
need in order to support this whole thing.
196. So you are happy with the incentives which
are in place?
(Mr Higgins) We are happy with what we understand
to be planned and we are happy with what we understand to be the
recommendations which might be picked up from the Williams Report.
We just want to make sure the pressure continues.
197. You are quietly confident that it could
come through and be given the green light?
(Mr Higgins) Yes, I think so.
Chairman: Thank you very much, gentlemen. There
may be a couple of other points we would like to write to you
about but we will be in touch about that. Thanks very much for
your help this morning.