House of Commons - Trade and Industry

Select Committee on Trade and Industry Tenth Report

III SOCIAL ISSUES

39. The internet is typically accessed by users in their homes and offices using a personal computer and an ordinary telephone line. Access to the internet is therefore restricted to those with the appropriate hardware, including a telephone connection,[88] and software, which can be expensive to acquire and maintain, and computer skills. There is a danger that those people without jobs which involve regular use of computers, without the means of buying the equipment needed to get onto the internet at home, or who are currently unable or unwilling to use computers may miss out on the benefits which it has been predicted electronic commerce might provide. The Government told us that one of its aims was to prevent the formation of a class of "information-have-nots" or "information poor", that is those people excluded from key aspects of the economy by their inability to use the internet, an objective with which we entirely agree.[89] We discuss below a number of policy debates which have arisen in relation to the possibility of an "information divide" developing in society.

Internet Access

40. A number of witnesses raised with us issues relating to the cost of using the internet and the availability of telecommunications infrastructure by which the internet can be accessed, suggesting that, in both respects, UK users are comparatively worse off than their foreign, especially US, counterparts.[90] These issues are central to the Government's ambitions to permit more of its services to be available on-line and for the UK to become the best environment for electronic trading by 2002. Potential electronic commerce practitioners, particularly SMEs and consumers, will shy away from the internet if it is perceived to be slow, costly to use and prone to breakdown.

INFRASTRUCTURE

41. There are three principal means by which PC users may currently access the internet:

by using a modem and a normal telephone line to "dial in". Modems convert information in digital form from a computer into analogue form, and vice versa, enabling a standard telephone line to be used for electronic communications. Modems provide low bandwidth access, typically at most 56Kbit/s.[91] It can take several minutes for a large file, piece of software, sound or video clip to be downloaded onto a computer by a modem
by using an integrated services digital network (ISDN), which allows users to communicate in digital form, by-passing the analogue network. ISDN can utilise the 64Kbit/s bandwidth of the digital public telecommunications network to the full. ISDN2 can provide 128Kbit/s bandwidth, by allowing two channels of communication to be opened simultaneously[92]
by using leased lines which provide permanent point-to-point communication links dedicated to the customer's exclusive use. Leased lines are available at a range of bandwidths, from 65kbit/s to upwards of 2Mbit/s.[93]

Higher bandwidth services tend to cost more to set up than lower bandwidth services. Consequently, leased lines tend to be used by business customers, especially those offering on-line services; ISDN by SMEs and some residential users; and modems by residential users.[94] Few residential users and SMEs access the internet by means of high-bandwidth facilities, such as leased lines.

42. The Government told us that "the UK is already one of the most liberalised telecommunications markets in the World" and we have already noted that the business-led Information Age Partnership described the UK's telecommunications infrastructure as a source of competitive advantage.[95] A recent report by the US Government commented that the UK had "one of the most liberalised telecommunications markets in Europe" and that "UK companies are using innovations in pricing and content to offset some of the advantages that US companies gained by being early into the UK markets" as a result.[96] The CBI emphasised the need for increased telecommunications liberalisation in Europe in order to improve EU competitiveness in relation to the US.[97] Although telecommunications liberalisation has advanced further in the UK than in several other European countries, we outline below some of the significant problems that remain.

The Local Loop

43. In 1994 our predecessor Committee reported on the UK's high-bandwidth, or broadband, communications network, focussing on "the importance of Britain developing a national optical fibre network extending to individual homes and businesses".[98] The Committee identified a number of benefits which might result from the establishment of such a network including in relation to the UK's economic competitiveness and improvements in public service.[99] Witnesses argued that the UK stood to take advantage of similar benefits from the extension of high-bandwidth networks. The CBI, for instance, told us that "easy access to high-speed digital telecommunications, at reasonable cost, is essential" if the aims of the Government's competitiveness agenda are to be achieved.[100]

44. We asked OFTEL why, since 1994, high-bandwidth networks had not been extensively rolled-out to residential and small business users. Mr Walker, Director Technology, OFTEL, explained that telecommunications firms had not generally planned to extend fibre optic networks to residential users and SMEs because of the cost of doing so, but that new Digital Subscriber Loop (DSL) technologies had now "radically changed the opinions of the telecoms industry towards what was seen as the obsolescent copper network" which were now regarded as "potentially the vehicle for delivering high-bandwidth services to a much wider range of customers" than was previously foreseen.[101] Such technologies are being commercially deployed overseas and are being trialed in the UK.[102] Other new technologies, including third-generation mobile telephones, cable modems and satellite telephones might also permit widespread high-bandwidth internet access in future.[103]

45. The Campaign for Unmetered Telecommunications (CUT) unfavourably compared the rate at which DSL and other new high-bandwidth technologies are being rolled-out in the UK with the pace of change in other European countries and the US.[104] BT rejected such a comparison, arguing that "in terms of upgrading the speed of these local copper loops...we are not significantly behind anywhere else."[105] Nevertheless, OFTEL published in December 1998 a consultation document seeking views on the likely future demand for high-bandwidth services, whether that demand is being adequately met, and, if barriers to that demand being satisfied exist, how they can be reduced.[106] OFTEL told us that it was examining "whether we believe BT will rise to the challenge not only of providing the services they choose to supply over the network, but also providing the wholesale services to other operators and service providers so that they too can enter that market."[107] OFTEL published its conclusions on access to the local loop on 6 July 1999. It concluded that "there is unmet demand in the SME sector for higher bandwidth services" and that, consequently, BT's competitors should be able to upgrade BT's local telephone lines in order to provide their own high-bandwidth services to consumers and that, when BT upgrades its network, access to the upgraded lines should be available on a fair basis.[108]

46. DSL technologies are only one means of providing high-bandwidth services; ISDN and leased lines may be more appropriate for business users; cable modems are beginning to be rolled-out; and interactive television may offer non-PC high-bandwidth services to a significant proportion of residential consumers.[109] We agree with OFTEL, however, that BT's monopoly ownership and control of the local loop could restrict the roll-out of vital new high-bandwidth services. Although OFTEL has no role to play in championing the development of particular technologies — such as DSL — we believe that it must be proactive in ensuring that competitive forces exert their influence throughout the UK's telecommunications infrastructure so that residential consumers and small and medium sized enterprises can benefit from a choice of high-bandwidth technologies from different operators.

ISDN

47. ISDN is only available to those consumers located within a short distance — around three to five kilometres — of a telephone exchange.[110] The Federation of Small Businesses warned that this caused a "reduction in the value of electronic communication in rural areas" which put such areas at "a major disadvantage".[111] BT told us that this limitation to their services would continue to exist for "some time", although local exchanges are gradually being improved.[112] A similar limitation is likely to affect DSL technologies.[113] Electronic commerce offers the opportunity to unlock the potential of the rural economy. The Government must ensure that this opportunity is exploited, not wasted due to deficiencies in the nation's telecommunications infrastructure, by ensuring that there exists effective competition in the supply of high-bandwidth services to all users, not just those in urban or suburban areas.

Alternative Delivery Mechanisms

48. Witnesses mentioned a number of emerging alternative means by which the internet could be accessed, and electronic commerce carried out in future, including:

interactive television, building on the recent commencement of digital television services, which has the potential to provide a low-tech means of internet access to people without computer equipment or skills[114]
other fixed cable networks, including broadband access using the cable television network and the electricity supply network[115]
third generation mobile telephones, the radio spectrum for which is planned to be auctioned by the Government in the second half of 1999/2000[116]
other wireless mechanisms, include radio-based and satellite systems.[117]

It is not possible to say which, if any, of these possibilities will become prevalent in the next century; in what situations they might replace the PC as the usual means of providing access to the internet; or to anticipate the development of any further, as yet unexplored, possible means of linking computers and computer networks. Interactive television is predicted to be the most advanced of these technologies, although all might be commercially available within five to ten years.[118] OFTEL must, however, be mindful of the need to ensure that there are no market barriers to the development and take-up of these technologies; and the Government should seek to ensure that British industry is at the crest of this technological wave.

COST

49. The debate about the cost of using the internet encompasses several different issues:-

the charges made by internet service providers
the cost of local telephone calls
charges for high-bandwidth services
prices of computer hardware.

Each has been the source of recent controversy, with the suggestion made in each case that UK users pay more to access the internet than their counterparts overseas.

ISP Charges

50. A recent study of the charges made by internet service providers (ISPs) — often a monthly flat-rate fee — additional to the telecommunications cost of internet use suggested that such charges were higher in the UK than in Europe and the US.[119] The Internet Service Providers' Association described the analysis as "fairly simplistic" particularly in the light of changes to the UK's ISP market since late 1998, including the emergence of around 150 ISPs which do not make access charges.[120] "Free" ISPs have proved popular with consumers.[121] OFTEL told us that, with 300 internet service providers operating in the UK, there exists a "fairly competitive market" but the possibility exists of market distortions being caused by firms cross-subsidising their ISP operations from revenues earned elsewhere.[122] The Internet Service Providers' Association cautioned against undue regulation of the market because of its dynamic nature, a point which was reiterated on several occasions by electronic commerce practitioners during our visit to the United States.[123] OFTEL has already begun to deal with issues raised by "free" ISPs, including the division of revenues from calls made to ISPs between the telecommunications operator and the receiving firm, and have undertaken to keep under review the cross-subsidisation issue.[124]

Local Telephone Calls

51. Most consumers accessing the internet by means of a modem and an ordinary telephone line do so by dialling their ISP's locally-charged (eg 0845) telephone number.[125] For most residential customers and SMEs using the internet, local telephone charges are the marginal cost of going on-line and, as such, are a key influence over the extent to which such consumers and enterprises engage in electronic commerce. Several witnesses complained that the cost of local telephone calls was a serious barrier to electronic commerce, particularly when compared to the US where consumers in most States can choose unmetered local calls.[126] A recent US Government report stated that "a factor facilitating e-commerce growth in the United States is the flat rate pricing structure of local residential telephone calls...The pricing structures in most other countries are not so conducive to online shopping".[127] One of the witnesses we received evidence from, the Campaign for Unmetered Telecommunications, was established to focus on "dissatisfaction about the cost of accessing the internet from home in the UK".[128]

52. It could be said that there is no such thing as cost-free internet access. Where US customers can take advantage of unmetered local telephone calls, they often pay a higher line rental fee than would otherwise be the case. Even if customers were offered internet access without being required to pay the service provider or telecommunications firm, the service would still be paid for out of revenues earned from other activities —long distance telephone calls, for instance.[129]

53. Data on telecommunications prices and costs is notoriously hard to come by, rendering international comparisons difficult at best. OFTEL warned us that price comparisons with the US were complicated by differences between States because much telecoms regulation is based at State level.[130] The Director General of Telecommunications told us recently that, in the UK, "the tariff material provided by the telephone companies is actually confusing for the consumer. I think it is very difficult to work out who you get the best buy from...I want to see if we can produce something that is much clearer and much simpler".[131] We welcome OFTEL's recognition that consumers need full and clear information about the tariffs charged by different telephone operators in order for them to take full advantage of the opportunities offered by competition in the telecommunications market. Urgent progress in this area is now required.

54. Despite the difficulties involved with comparing telephone tariffs between companies and internationally, the OECD has recently undertaken an analysis which suggests that BT's charges for local telephone calls are competitive within Europe, although perhaps less so with the US. OFTEL argued to us that a UK customer taking advantage of a free internet service provider and a cable telephone operator would already benefit from some of the lowest charges for internet use in the OECD, especially for off-peak connections.[132] OFTEL is undertaking "further internal research on various aspects of the cost of using the internet and supplying internet access in the UK compared with other countries" which we look forward to seeing.[133]

55. OFTEL told us that "we are not against free local calls as a point of principle" but that such calls must not be subsidised by other aspects of the service provider's business.[134] It indicated that "free" internet access in the US had been paid for, at least in part, by higher tariffs for long distance calls.[135] CUT disputed this point, arguing that "prices for long-distance and international calls from most US operators are roughly comparable to BT's" and that, because of the structure of the US telecommunications market, direct cross-subsidy from national and international calls to local calls was "improbable if not impossible".[136] Thomas Long, an American visiting fellow at Glasgow University, provided us with a comparison of telecommunications charges between California and the UK and concluded that "even with most of its residential customers taking unmetered local service, Pacific Bell is able to offer a substantially better deal for local services than BT, while offering a broadly comparable deal for long distance calls."[137]

56. OFTEL also raised concerns about the impact unmetered telephone calls might have on the telecommunications network.[138] Unmetered calling might not provide an incentive for customers to log off the internet, increasing usage of the network and possibly causing congestion. OFTEL stated that there were instances in the US of calls to emergency services not being connected because of network congestion.[139] CUT, citing data prepared by internet service provider America On-Line, stated that the average duration of internet sessions in the US was 55 minutes, "not infinitely long", compared to 16 minutes in the UK. They also noted that it was possible for ISPs to set a maximum limit to the duration of internet calls.[140] Mr Long claimed to be unaware of any examples of calls to emergency services failing to be connected because of network congestion in the US and told us that "in California, the state with the highest concentration of internet users, there is absolutely no problem completing calls of any type at any time of day or night."[141]

57. Another issue raised by OFTEL was that unmetered local calling might fail to provide adequate incentives for investment in the local telecommunications network, while at the same time increasing the need for such investment to be made.[142] Again, arguments were advanced in opposition to OFTEL's suggestion. Mr. Long said that "additional local calling stimulates demand for additional phone lines...additional lines is an area of fast growth for US local operators."[143] CUT questioned whether additional infrastructural investment would be required as a result of unmetered local calling given current patterns of internet usage and also argued that congestion "sparks off technical advances in telecommunications hardware and software".[144] OFTEL themselves gave us examples of innovations in the utilisation of the public telecommunications network in response to increased internet usage.[145]

58. Operators are increasingly responding to the apparent demand for unmetered or free local telephone calls for internet use.[146] Recent press reports have suggested that BT is negotiating with OFTEL a new tariff package including unmetered local calling.[147] OFTEL must clearly be vigilant in ensuring that such packages are fair,[148] and do not discriminate against consumers who wish to retain metered calling, but we welcome the trend towards unmetered local calling. The possibility of receiving a substantial telephone bill as a result of regular use of the internet, and the widespread perception of this occurring, seem to us to be obvious disincentives to greater use of the internet and, therefore, participation in electronic commerce.[149] Although BT claimed that there was little or no correlation between internet usage and the price of local telephone calls, this evidence was directly contradicted by many of the business people, policy makers and opinion formers we met with in the United States.[150]

59. The more widespread availability to residential customers of unmetered local telephone calls would give electronic commerce in the UK a substantial boost. Although there may be disadvantages to unmetered local calls, these pale into insignificance when examined alongside the potential benefits. As one senior US businessman told us on our recent visit, "you would not charge people by the second to browse in a shop; so why should we accept that customers be charged in that way for visiting websites of interest?" OFTEL can not, and should not, mandate specific tariff options but they can encourage beneficial developments, including by providing customers with the comparative tariff data required to facilitate informed choices.[151] We judge that OFTEL has been unduly cautious in emphasising the possible disadvantages of unmetered local calls, at the expense of the potential benefits. In line with our recommendation that the Director General of Telecommunication be given a duty to facilitate electronic commerce,[152] we recommend that OFTEL investigates what, if any, regulatory actions are required to encourage innovative tariff packages being offered to internet users throughout the UK; and devote resources to studying and publicising the comparative costs of internet access packages, in order to dispel the seemingly widespread perception that anything more than a cursory use of the internet would prove prohibitively expensive.

ISDN and Leased Lines

60. Several witnesses complained about the costs of ISDN and leased lines in the UK and in Europe, relative to the US, and concluded that there had been inadequate regulation of these aspects of the telecommunications market.[153] The Telecommunication Managers' Association stated that "there is no effective competition in the UK to BT's Basic Rate ISDN2 access and we are again one of the most expensive countries in Europe...OFTEL refuses to examine BT's high start-up costs for the service and other providers are content to cruise under BT's (unregulated) price umbrella, thus forming what appears to be an effective complex monopoly".[154] The Internet Service Providers' Association told us that "European costs for leased circuits are significantly higher than in the USA. It is an area where the regulatory environment for telecommunications seems to have failed us. These costs are a significant direct or indirect burden for all UK industry wishing to use the internet for commerce".[155]

61. Recent surveys of prices for ISDN and leased lines in the UK and elsewhere have served to substantiate the complaints made about the prices of such facilities. A survey of BT's charges for basic connection and rental for ISDN packages suggested that UK customers pay up to six times as much for this service as customers elsewhere in Europe.[156] Representations were made to OFTEL in late 1997 that the prices for long-distance 2Mbt/s leased lines were 50% cheaper in the US, 66% cheaper in Sweden and 10% cheaper in Germany than those charged in the UK by BT.[157] The Telecommunications' Managers Association told us that "the cost of a cross-border leased line in Europe can be as much as 16 times the price of an equivalent leased line in the USA."[158] We pressed BT in oral evidence on the prices they charge for leased lines, which the Internet Service Providers' Association had described as "the backbone of the internet".[159] Sir Peter Bonfield argued that "by and large, what we have here is not significantly different from the United States. There might be some areas where we are more or less expensive, but certainly the price has come down on leased circuits".[160]

62. In relation to ISDN, OFTEL told us that there were now 20 firms offering the service and that "on average most businesses in urban areas now have access to at least two operators' services". It cited a survey by OVUM, which focused on large businesses, and which found that UK call and rental (not connection) charges for ISDN services were slightly above the EU average but well below US charges. OFTEL informed us that it was "continuing to closely monitor the development of the ISDN market".[161]

63. OFTEL launched an investigation into UK prices for leased lines in December 1997 which reported in January 1999. OFTEL concluded that "UK prices are not significantly higher than those in other countries" and that "a combination of existing price caps and increasing competition are reducing UK prices for leased lines". It found that competition between providers of leased lines was particularly strong in central London and that unpublished discounts, particularly to large firms leasing long-distance lines in the US, were a significant influence on comparisons of European and US prices.[162] Although OFTEL proposed two reforms to "ensure that competition continues to develop and to place downward pressure on UK prices", users of leased lines remain dissatisfied.[163] The Internet Service Providers' Association, for instance, argued that "comparing UK costs to expensive European ones and being satisfied that they are 'not significantly above' is clearly not in keeping with the Government's ambitions for the UK in the field of e-commerce."[164]

64. OFTEL intends to study further the relative prices of leased lines in the UK and the US and the extent to which there exists competition between providers of leased lines in the UK, particularly outside of central London.[165] We welcome this commitment but would suggest that a thorough, more wide-ranging analysis of the competitiveness of the UK markets for high-bandwidth services, including ISDN as well as leased lines, is needed. Without high-bandwidth services, in particular leased lines, UK businesses will be unable to offer effective and innovative electronic services, resulting in their competitive advantages being ceded to foreign rivals. Ensuring that UK firms have a choice of competitively-priced high-quality high-bandwidth services must be an urgent priority for OFTEL.

65. As the Internet Service Providers' Association identified, although the prices of UK leased lines may be competitive in European terms, they are less competitive when compared to the prices charged in the US. This is an issue which must be tackled at European level. DTI told us that it had "raised the issue of cost of leased lines in Europe with the European Commission in a number of fora" and had encouraged the Commission to undertake a speedy examination of European leased line prices, with a view to assessing the need to strengthen the provisions of the Leased Lines Directive.[166] We support the Government in its efforts to focus the attention of the European Commission on the need to ensure that European leased lines prices are competitive with those offered in the US.

Hardware

66. The Government recently reported that prices of personal computers, the primary means by which the internet is accessed at present, are higher in the UK than in the US, Japan, France and Germany.[167] Cable & Wireless Communications described hardware prices as "the most significant cost barrier to e-commerce for consumers".[168] This is something which the Government's forthcoming assessment of international price comparisons might usefully consider in more depth.[169] We are also concerned that, due to rapid technological developments, computer hardware can suffer from an "almost built-in obsolescence" which may require consumers to spend substantial sums of money simply to keep pace with the latest capabilities — such as the internet — and software.[170] We welcome the work being undertaken by DTI to compare the prices of consumer goods in the UK and elsewhere and hope that it will be followed by swift action to ensure that British consumers fully benefit from competition in the computer hardware market.

Payment on the Internet

67. At present, the standard means by which consumers pay for goods on the internet is by credit card.[171] Those consumers without a bank account, or who have chosen not to hold a credit card, or who have been refused a credit card for some reason, are effectively excluded from involvement with electronic commerce.[172] The National Consumer Council told us that only 36% of UK adults use credit cards.[173] Internet users may be reluctant to pay for goods on-line with credit cards because of fears about the security of such transactions.[174] Alternative means of paying for goods and services on-line are being brought forward, which, as well as catering for the concerns already noted, could facilitate small on-line payments which are not usually allowed to be made by credit card.[175] APACS told us about the development of on-line debit cards, which might be of benefit to consumers who have bank accounts but not credit cards.[176] There have also been several UK trials of electronic cash schemes, for instance whereby consumers charge cards with often small amounts of money and use them to make on-line purchases.[177]

68. There are problems associated with the widespread adoption of new payment methods for on-line transactions. The Government told us that "the lack of universally-agreed standards may slow the development of electronic money as an alternative payment system" and that the effects of such systems on "prudent monetary policy [and] the potential for fraud, tax evasion [and] money laundering" were all of concern.[178] The law enforcement agencies submitted to us a paper on the effects increased usage of electronic money might have on their policies to combat money laundering.[179] Many of these issues were the subject of a recent report by the European Central Bank and the European Commission has issued draft directives on the harmonisation of electronic money schemes across Europe.[180]

69. The legislative proposals made by the European Commission, and the issues raised by the European Central Bank, are primarily concerned with the extent to which electronic money, and the firms which issue it, should be subject to banking rules and regulations. While this is undoubtedly an important question to consider, we think that there should also be a focus on ensuring that all sectors of society can participate in electronic commerce. [181] The Government told us that the Electronic Commerce Bill would make the use of electronic money easier through the gradual adoption of smart cards,[182] but barriers to their use by disadvantaged members of society might remain. The Government should examine how consumers without bank accounts can be encouraged to participate in electronic commerce.

Skills

70. In recent years, consumers throughout society have become accustomed to using reasonably complex technology — mobile telephones, satellite television and automated cash machines, for instance. These technologies are relatively user-friendly: although they make use of recent technological advances, they do so in ways which are unobtrusive. Their users make simple, familiar choices, which are quickly effected by hardware and software behind the scenes. Use of the internet is generally far less easy, requiring a personal computer, choice of a software package, and then at least some understanding of how the information required can be found, how unwanted information can be avoided, how links between pages work and of the jargon which litters websites. The internet is a hostile environment for anyone unfamiliar with a personal computer, particularly given the prevalence of anecdotes about its perils — including poor security, limited data protection and the ease with which pornography can be encountered.[183] Participation in electronic commerce requires more than computer hardware and software and an appropriate connection to the telecommunications network; skills, and the confidence to deploy those skills, are essential.

71. Electronic commerce could be made more user-friendly. Electronic mail, although requiring a personal computer, is far simpler to use than the internet. Internet access via television sets or mobile telephones might help attract users previously deterred by the thought of needing to master a computer. The mechanisms of electronic Government could, and should, be very simple to operate. Internet service providers are increasingly developing their own websites into "contents pages" for the internet, which facilitate swift access to popular resources, such as on-line encyclopaedias, travel information and shopping sites.[184] Nevertheless, for as long as electronic commerce primarily involves the internet, accessed by means of a personal computer, then potential users with limited computer skills will avoid it.

72. The Government has focused on making computers available in schools and public places such as libraries in order to encourage access to the internet and related on-line resources.[185] While not wishing to detract from this strategy, the provision of equipment and appropriate software must be matched by training for those staff, including teachers and librarians, who will help potential users go on-line for the first time. Anyone trying to use the internet for the first time without adequate help and advice is almost bound to find the experience underwhelming, perhaps to the extent that future use of the internet is discouraged. This issue is of particular relevance to schools, given that the Government aims for all school leavers to be "competent using digital technologies" by 2002.[186] The Department for Education and Employment (DfEE) recently estimated that some 30 per cent of primary schools and 90 per cent of secondary schools in England currently have some form of internet access, but these facilities might not all be well used.[187] Further data from DfEE has shown that only 65% of primary school teachers and 61% of secondary school teachers felt confident in the use of information technology within the curriculum.[188] This would suggest the possibility of a gap between the provision of internet access in schools and the ability of teachers to make use of that access, once provided.

73. The Government has indicated that a key priority is ensuring that owners of small and medium sized enterprises have the skills necessary to exploit electronic commerce. e centre^UK told us that "UK competitiveness is held back because of the lack of readily available knowledge amongst...business advisors".[189] DTI is backing the Advisor Skills Initiative, piloted by BT, Compaq and Microsoft, which aims to ensure that small business advisors are adequately trained to "deliver consistent and integrated advice on IT and business best practice".[190] Each of the four sponsors of the Initiative provided £250,000 funding during 1998/99 and a national launch is planned for January 2000.[191] The Government also told us that information technology skills in businesses would be a key priority of the University for Industry, when it is launched in autumn 2000.[192] During our briefing from British Telecommunications we were impressed by the productivity and competitiveness gains which could result from training small businessmen how to make best use of information and communications technologies, as demonstrated by the work of Professor Tony Davies in south Wales.[193] We have reported previously on the uneven quality of advice available to SMEs;[194] it is to be hoped that the Advisor Skills Initiative and the University for Industry both contribute to an improvement, at least in relation to advice about information technology.

74. There is a danger that, by focusing on the skills required by schoolchildren and entrepreneurs, that the bulk of the population, particularly those who do not work with personal computers or who are unable to afford them, might be overlooked.[195] Some initiatives to promote computer skills more widely in society have been launched. The Chancellor of the Exchequer announced in his 1999 Budget speech a tax exemption to encourage businesses to loan computer equipment to their employees, drawing on the success of a similar Swedish scheme.[196] The Government's written memorandum contained reference to the "IT for All" programme, which it plans to extend to the most socially disadvantaged.[197] We are not convinced, however, that the "IT for All" programme has been high on any Ministerial list of priorities recently. A search for "IT for All" on the Government website currently yields no results, the "What's New" section of the "IT for All" website was until recently empty and the website itself has been frequently disabled.[198]

75. Personal computers, the internet and electronic commerce should not be seen as exclusively playthings of the middle classes. We want to see everyone in society — rich or poor, young or old — able to take part in and benefit from electronic commerce. It will be a measure of the Government's success if, in five years time, the profile of the average internet user more closely resembles the population as a whole rather than being skewed towards young, university-educated men.[199] Aside from considerations of social justice and equity, widespread take-up of electronic commerce could provide immense benefits to British industry as well as cost savings for Government. We are of the impression that the Government shares our objective, but we think some more vocal advocacy and more dynamic policies, particularly in relation to socially disadvantaged groups, are called for. We recommend that Ministers, and the e-Envoy once appointed, give a lead in democratising and demystifying electronic commerce.

Employment

76. There has been speculation that the growth of electronic commerce will be detrimental to some sectors of the economy. Commercial intermediaries, such as travel agents and insurance brokers, might in future be by-passed by consumers seeking better deals on-line directly from service providers, such as airlines and underwriters.[200] We met with several major manufacturers in the US that are now selling their goods on their own internet sites as well as through their traditional distribution networks, which might suffer as a result. We have already mentioned the possibility of US internet sites becoming the equivalent of the High Street for British consumers in future.[201] The Government warned us of the "real risk that we will see UK markets, jobs and prosperity eroded by e-commerce competition from overseas" if UK firms do not seize the opportunities offered by electronic commerce.[202] Despite these predictions and suppositions, we are not aware of any analysis of how the growth of electronic commerce might affect employment in the UK or Europe. Discussions in the US confirmed the lack of research into this issue. Automation and computerisation have had a profound effect on the structure of the UK's industrial base over the last twenty years. The previous Secretary of State was adamant that "the economic landscape is changing — rapidly" and that "the knowledge-driven economy is the future."[203] One of the burgeoning number of units within DTI might be well placed to research the implications for UK employment of the growth of electronic commerce, and we recommend that such research is carried out.

Universal Service

77. Several witnesses argued that universal service obligations should be established in relation to new information and communications technologies as they had been to basic telephony.[204] There are two elements to the concept of universal service obligations, as traditionally applied to the utility sectors. These are that:

certain services — such as a supply of electricity — are available to all consumers, on demand. It is illegal for suppliers to discriminate against consumers in the supply of such services on grounds such as the difficulty of supplying the service, or the income level of the consumer. Arrangements are required to be put in place to deal with consumers who have problems paying for the service
the obligations to supply such services are placed on a defined group of businesses. Historically, these businesses have tended to be publicly-owned monopoly suppliers.

78. These two factors do not apply to any universal service obligations which might be considered in relation to electronic commerce. First, it would be difficult to define which services should be the subject of such obligations. The Government could mandate that all consumers be offered, or required, to be connected up to ISDN or DSL networks, for instance, but this would not be a technology-neutral approach and might have severe implications for UK competitiveness if alternative technologies, such as interactive TV or on-line access by mobile or satellite telephone systems, became predominant, and would also be prohibited by current EU law.[205] Unlike with electricity, gas or telephone connections in the past, firms and individuals are likely to participate in electronic commerce by numerous methods and means of connection in future. Nor is the market environment in relation to these technologies conducive to the introduction of universal service obligations. A multitude of competing operators, rather than a handful of monopoly suppliers, are seeking to offer on-line services.

79. The conventional concept of universal service obligations does not apply to electronic commerce services. The concept remains important, however. As we have argued, it is essential that everyone in society is able to share in the potential benefits of electronic commerce. We fully endorse the Government's view that a new division in society between those with access to knowledge, and the ability to make use of it, and those without such access or ability must not be allowed to develop. There is an urgent need to find ways in which the universal service concept can be applied to electronic commerce.

80. The Government has sought to achieve universal service goals in electronic commerce by improving access to information and communications technologies in several ways, including:[206]

by setting up 800 IT Community Learning Centres in England
a scheme for personal computers to be loaned to low income families
a scheme for subsidised loans for the purchase of personal computers for home use by school teachers
making available computers in public places such as libraries[207]
negotiating reduced telephone tariff packages for internet access from schools (the National Grid for Learning) and, more recently, from other public institutions, such as libraries, Citizens Advice Bureaux and further education colleges.[208]

We have not examined the all important implementation of these schemes, but they illustrate the welcome commitment made by Government to consider how the universal service concept can be adapted to cover electronic commerce. This issue is also being considered at EU level during 1999 as part of the review of universal service in telecommunications.[209] We recommend that the Government begin a national debate about how the universal service concept can be applied to electronic commerce.

88 The National Council Consumer reported that 7% of UK households do not have a telephone connection - Ev, p86 paragraph 2.4 Back

89 Ev, p200 paragraph 5.2; see also Ev, p90 paragraph 7.4, p263 Back

90 Ev, p111 section 9 Back

91 Bandwidth is the physical characteristic of a telecommunications system that indicates the speed at which information can be transferred, measured in digital systems in kilobytes per second (Kbit/s) or megabytes per second (Mbit/s) Back

92 See Ev, p50 section 8.7 Back

93 For definitions see OFTEL's web site at www.oftel.gov.uk/glossary.htm and Ev, pp140-1 paragraphs 42, 47-8 Back

94 Ev, pp140-1 paragraphs 42, 47 Back

95 Ev, p195 paragraph 4.4; also Qq123, 585; Ev, p266 paragraph 11; and see paragraph 14 Back

96 The Emerging Digital Economy II, US Department of Commerce, Jun 99, p8 Back

97 Q71 and Ev, p28 paragraph 16; also Q125 Back

98 Trade and Industry Committee, Third Report, Session 1993/94, Optical Fibre Networks, HC285-I; quotation from paragraph 3; also see HC285-iv Qq343-8; and Q126 Back

99 Ibid, paragraphs 12-17 Back