UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 305 ii

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

WELSH AFFAIRS COMMITTEE

DIGITAL INCLUSION IN WALES

Tuesday 10 March 2009

MS ANN BEYNON and MR SIMON PAUL

MR CHRIS SMEDLEY and MR JON JAMES

Evidence heard in Public Questions 47 - 113

USE OF THE TRANSCRIPT

Oral Evidence

Taken before the Welsh Affairs Committee

on Tuesday 10 March 2009

Members present

Dr Hywel Francis, in the Chair

Mrs Siân C James

Mr David Jones

Mark Pritchard

Hywel Williams

Mark Williams

________________

Memoranda submitted by BT

Examination of Witnesses

Witnesses: Ms Ann Beynon, Director, BT Wales and Mr Simon Paul, Inclusion Programme Manager, BT, gave evidence.

Q47 Chairman: Good morning, bore da. Welcome to the Welsh Affairs Committee and particularly to this inquiry on Digital Inclusion. Could you please introduce yourselves for the record, please?

Ms Beynon: I am Ann Beynon; I am the BT Director for Wales.

Mr Paul: I am Simon Paul; I am Inclusion Programme Manager for BT.

Q48 Chairman: Thank you very much. Could I begin by asking you what particular barriers to digital inclusion are relevant to Wales? Is there something special about digital inclusion and barriers in Wales?

Ms Beynon: If you look at the statistics I think they suggest Wales is pretty similar to the rest of the United Kingdom; certainly in terms of take-up of broadband it seems to be mid-table, whatever set of figures you look at. So it is not at the bottom and it is not at the top, it is in a comfortable zone in the middle in terms of take-up. The only thing I can suggest is that there will be certain parts of Wales, as there will be certain parts of other parts of the United Kingdom where you may have more difficulty in terms of accessibility and in terms of variety. There will also be areas where there would be questions of deprivation or economic disadvantage that would also be a factor in take-up of services. The other factor that seems to be persistent across the UK is age; so the older the individual the least likely that person is to use the technology in any meaningful way.

Q49 Mark Pritchard: How do you respond to the criticism that you have done a good job of turning Ofcom native, particularly in relation to the announcement last week by Ofcom that they are going to allow BT a free reign in rolling out new broadband services?

Ms Beynon: My response would be that super fast broadband, which is what Ofcom has now ruled on - and we welcome their ruling very much because it allows us to have a secure regulatory environment in which to invest and we are investing £1.5 billion in a very difficult economic climate - it is really important that Ofcom took that decision. We will be rolling out that broadband starting off in Muswell Hill and Whitchurch and there is a long list of the places we will go next. It is not going native; I think that Ofcom has looked at the reality of the situation and has understood that they really need BT to be able to make this investment, that it is in the interest of Wales and of the UK for part of the UK to have the highest possible level of connectivity in order to benefit the economy.

Q50 Mark Pritchard: But given that your shareholders and your board of directors will want a return on that investment, is it not the fact that you currently have a monopoly already and the fact that Ofcom's decision is going to see that existing monopoly extended means that customers down the line post that investment can expect very high bills because there is no competition to drive down the cost of those bills?

Ms Beynon: I do not think that is correct. I would disagree with you that BT has a monopoly. A huge amount of work has gone on in the last few years to creating a regulatory environment and the UK I think is ahead of the game in creating that kind of regulatory environment that allows access to the wholesale network for all operators. One of the key things to do with superfast broadband will be that other service providers will have access to that network, so the rollout of it will depend upon other communication providers working with BT, with Openreach, which is looking at the network itself, the access network. So there will be competition - there absolutely will be competition.

Q51 Mark Pritchard: You are on about the retail market but of course at the wholesale point, the wholesale market where you sell on to those other telecom providers, you have a complete monopoly. This inquiry is about digital inclusion and one of the biggest things to exclude people, particularly vulnerable groups, retired people, people on low incomes, the biggest barrier to entry into the digital market place and generation is price and the decision by Ofcom, no doubt, by allowing you to continue as the monopoly wholesaler, will mean that the retail arm will have to put on the costs because you can pick your price.

Ms Beynon: No. The pricing of broadband in the UK is one of the lowest in the G7; it is very competitive and prices have been moved down regularly. I do not think that price is the issue. The whole point about allowing this investment to happen is that you need an infrastructure that is accessible to all. The way our regulator Ofcom looks at BT is quite demanding; we have to demonstrate year on year the amount of Local Loop Unbundling that occurs in our exchanges, i.e. other operators that put their kit in our exchanges, and there are very strict targets that we have to achieve to demonstrate that. That creates wholesale competition in itself. We are then obliged to make sure that we are offering all our services on a wholesale basis to all service providers in exactly the same way, so BT Retail has no advantage whatsoever from the way Openreach prices its products - the whole of the industry benefits. That creates competition and we absolutely believe in competition; we do not want bottlenecks and we believe that Ofcom has removed bottlenecks and we now have a more competitive environment in the UK than in any other European country.

Q52 Mark Pritchard: In order that Wales can benefit and indeed the whole of the United Kingdom would BT agree to a price cap on its wholesale service to those other telecoms providers, in order that prices are kept at a reasonable level for the end user?

Ms Beynon: We have not increased prices since 2005. We had an agreement recently that we can increase the pricing. We have to increase the pricing to make a sensible return on our investment. That was not a decision taken overnight; that was a decision that was pored over in detail for many months and that is the agreement we have reached with the operator.

Q53 Mark Pritchard: Even if you increase your price from the 2005 freeze, if you want to call it that, my question is are you prepared as a company, once you have settled on a particular price, to cap it for a defined period of time in order that the retail providers to customers know how they can invest, can have a strategic review of their pricing arrangements in order that the customer knows exactly what they are going to have to pay?

Ms Beynon: When we decide on our pricing Openreach will consult with industry generally; so there is an industry methodology of consulting on pricing. We cannot agree to a cap; we would undertake a negotiation with the regulator as agreed, as is understood under the undertakings and that is what we would follow.

Q54 Chairman: If we could focus on one particular part of Wales, the South Wales Valleys, what would be the explanations for the apparent low take-up of broadband?

Ms Beynon: We do not fully understand, which is why we are currently going to undertake a piece of research, not just in the Valleys but in deprived communities to try and understand what different usages are there of the technology and what is the inhibitor to take-up. It is not impossible that we will discover that actually what is happening is that there is a huge amount of competition already and that Local Loop Unbundlers are active in areas which are low in the deprivation scale. I suspect that might be the case. So the question is going to be what do people do with the technology? So there may be an issue about social status; it could be a class issue, but we need to find out and we have so far not found any particular research that explains it. So that is why we are going to start undertaking that research ourselves.

Q55 Chairman: When would you anticipate publishing those findings?

Ms Beynon: Mid-summer, I would expect.

Q56 Mr Jones: Essentially my question was to be very much the same thing. What factors would you point to as the reasons for the low take-up of the new technology, but I guess you are still working on the issue.

Ms Beynon: Yes. There are certain things we have done that indicate things to us. For example, we have an activity we call Internet Rangers, whereby we ask children in the last year of primary school to bring along older relatives - it could be their parents, it could be their grandparents - and they show those more elderly members of their family how to use technology. We tend to find that when that happens that very few of those elderly relatives have been using that technology; so there is an age issue clearly. What we have been doing then in those kinds of activities is bringing along the local FE College and quite often we find that some of the people there will sign up and take on a course, although we do not actually push that on people. We have done the same thing working with Age Concern, doing Silver Surf events, which have been very successful. I do not know if you want to add something about that, Paul.

Mr Paul: Just going back to the research, with Age Concern we have recently commissioned some research looking at older people aged from 55 to 64 in socioeconomic group DE, which are amongst the most excluded, to understand what it is for them, the non-users, what are the barriers and what would help them to become users. So that is in train. We have a project called Crossing the Divide and one of the outcomes from that is that if you provide equipment, online access and support, all three, then you can make fantastic progress, and the feedback from participants in that has been very, very positive.

Q57 Mr Jones: That would tend to indicate, therefore, that financial barriers exist, if people are willing to take it up when facilities are provided for them. But are there any barriers that you have identified?

Mr Paul: Just going back to the cost. I know it is outside Wales but we are doing a project in the City of London and we know that people think that the cost of broadband is actually much higher than it really is; they think it is on average £23 a month. There are some people where cost will be a factor but only actually quite a small percentage from the research that we have done.

Q58 Mr Jones: So what other factors have you identified?

Mr Paul: The other ones are access, skills, motivation and competence.

Q59 Mr Jones: You refer in your memo to the South Wales Valleys where access to broadband is very high and yet take-up is exceptionally low, so clearly access in that particular case is not a reason. What reasons would you speculate, or what reasons has your researched revealed as being the cause of that?

Ms Beynon: It would be the age profile. If you think about the age profile of people in that geography they would be at the older age group. Also possibly the skills level; we know that skills in that geography are not particularly high in general - numeracy and literacy skills are lower than in other parts of the population, so there is an issue about skills. There may be an issue about affordability in terms of perception of price. I think maybe you are looking at specific groups as well, which is why we need to drill down and understand those very particular groups and one of the groups we have identified is looked after children. So children who are looked after, who are in care will normally be in a home where there is not access to a computer, so the project we have been doing with Caerphilly or with Carmarthenshire is to get first of all the computer in the home for the child to use and to be able to have that computer if the child goes on to further education. Parallel with that, what we are doing is running a scheme whereby we are providing work placements for children who are in care because, again, another important thing is confidence and by giving them work placements we hope to build their confidence; so, again, that is another element. So it is a number of issues put together and specific groups are more vulnerable than others, I would suggest.

Q60 Mr Jones: Could it be a cultural thing too, that they are just not interested?

Mr Paul: That is true; a huge proportion of non-users simply say they are not interested - about 35% I think from ONS statistics.

Q61 Hywel Williams: Can I ask you about "not-spots"?

Ms Beynon: Please!

Q62 Hywel Williams: I am sure you were expecting this from me. You refer to a host of not-spots throughout Wales where broadband is not available, so what are you doing to reduce the number of not-spots?

Ms Beynon: What is happening is that we have a contract with the Welsh Assembly Government, called RIBS - Regional Innovative Broadband Scheme. Part of that contract is to allow us to look at not-spots; it is not a legal obligation but we said we would make our best efforts to see what we could do, working with them to address not-spots. So we have been looking at fixed line solutions predominantly to not-spots in Wales. We have also taken the data that the Welsh Assembly Government has collected on its website and analysed it, so we have got that down now to about 60 - we believe that there are 60 not-spots left that need to be addressed. We have actually managed to do six of them and we announced that in December. So we have done Saundersfoot, Llanpumsaint, Reynoldston, Bronwydd, Cilcennin and Gwytherin are the six and I know that David in particular has been very busy and involved with Gwytherin. It was a long and arduous journey but it is extremely expensive to do these remaining not-spots because they are distance-related issues. So we are working on that programme and we are now looking at the 60 that are left and seeing which ones we can do next with the affordability. But I would stress that some of these now are becoming very expensive to address with that kind of technology. We have organised a workshop for the Assembly officials with satellite providers so that we provide the information that is available in the public domain on that kind of solution as well; so that could be done. We are also removing things like line concentrators ourselves as part of our upgrade programme, so by the end of the year we will have probably no more than five line concentrators left on our network in Wales, and that is quite an important inhibitor to access. Obviously as people order broadband we remove DACS as well, which is a line splitting device. So a whole number of things are going on to remedy it and we are also looking at parenting people on different exchanges as another solution, which we looked at in Penylan in Cardiff: for example, instead of parenting them on the Roath exchange we parent them on Llanedeyrn and that has allowed some of the people who could not get broadband there in the city centre to get broadband. So a huge number of different things are being looked at. The other thing we are recommending people to do is to get a device called an iPlate. That does not give you broadband but it gives you better broadband very often because it reduces the interference within the home. Things like microwave ovens and all kinds of technology causes interference that can impact upon your broadband signal and so that is another thing we are recommending that people do. So all put together it is a toolkit of things that people need.

Q63 Hywel Williams: Can I ask you to what extent are you communicating all the vast ranges of activity that you are undertaking with local people? You may be aware that people in in my constituency have been asking and I have discussed with councillors and the community council about having a public meeting because my constituents are mystified why they cannot. Why not tell them what this is about?

Ms Beynon: It is actually time to get round but I have been in touch with Councillor Dewi Lewis for economic development in Gwynedd and offered to come along and talk to people but suggested that before we do that ideally it would be nice to get a list of specific issues as well so that we can address them beforehand. I am going to Anglesey at the end of April with Ieuan Wyn Jones and we are going to have the public meeting in Bodedern. We are also going to have meetings with Kirsty Williams before long to talk about situations in Powys and likewise with Nerys Evans as well. So we are having one-to-one meetings and public meetings where we can but obviously resources are limited. We also had a broadband surgery at the Assembly in January, where Amy Chalfen, who is a senior executive in Openreach, came along and presented to all the Assembly members and all their staff and offered any further follow-ups and that is how we have arranged the meetings with Kirsty and with Nerys Evans.

Q64 Hywel Williams: I am just thinking of basic provision of information as close as possible so that you can get to the people and say, "We cannot but we will" or "We cannot and we will not".

Ms Beynon: I see what you are saying but it is quite a complicated thing to do.

Chairman: Mark Williams wants to ask a supplementary at this point.

Q65 Mark Williams: Can I congratulate you for the work that was done in the community of Cilcennin, but in the 54 other not-spots I certainly think from a constituency point of view that there are many within Ceredigion and there is that bewilderment when an approach is made maybe by community council to outreach and a negative letter comes back when, as you have said, there are many alternatives and they do need to be communicated out there in the country. So could you add to your list a meeting in the village of Llangwyryfon, South Aberystwyth where there are concerns? People just want to be reassured that there are some alternatives there that need to be looked at, not least I have to say, in areas of Ceredigion where there is a preponderance of small businesses. And with 54% of my constituents employed in small businesses and micro-businesses there is a real need there, particularly in this economic climate.

Ms Beynon: I hear what you say and absolutely we need to communicate but also sometimes we need to be honest if there is no answer. I think the worse thing is to suggest that there is an answer when there is not one. I think we need to be upfront about that. We are doing everything we can. We are getting to the limit of the technology, which is why I go back to say, with satellite, that we must remember that satellite will not get to everybody either because it depends which direction. So getting 100% is almost impossible - there will always be somebody left, but let us try and get that to be as few people as possible.

Q66 Mrs James: You have talked about the broadband rollout and the not-spot problems there, but given that these could be repeated now with the next generation access networks, how are you going to avoid those hotspots?

Ms Beynon: We are all waiting with bated breath to find out what is recommended in the Digital Britain Review, which we expect in the summer. Obviously there is a recommendation in that about there being a broadband universal service obligation with a speed of around two megabits being suggested, although that has not been decided for definite. We are waiting to understand how that would be funded because there is talk of an industry-wide fund to which industry as a whole would contribute. Obviously we would be very keen to see that industry definition as wide as possible to include competent providers as well as the mobile phone operators, as well as BT, and I think that would be a good move. That would then move the UK towards a fairly sensible level across the piece. Again, it has to be funded and there needs to be a mixture of technologies. So I think the first clarity seems to me to get to a solution for this two megabits universal service broadband. Then we need to look at the faster services. Two megabits is not a bad service to be getting; you can get TV and broadband on that. Then you come to the question of superfast broadband and those high speed services. The debate is quite intense in terms of is there actually a market and to what extent do people actually want to buy those speeds? Certainly a certain number are but is there a volume market as yet and to what extent is the volume market and for what speeds? So the work we have been doing in Whitchurch and on the first £1.5 billion rollout will teach us what do people actually want, and rather than just rolling out the broadband and putting the technology in we will want to work with communities - and we are already working with Cardiff Council - on what they would actually do with it, so to really understand what would it mean for business, what would it mean for schools, what would it mean for the local authority itself? So it is not enough just to put the technology in, we need to understand. Then when we understand what the market is like and when we know that there is a market demand we can increase the rollout. But we are in unchartered territory; we do not actually know as yet how much true market demand there is and how much people are willing to pay.

Q67 Mrs James: That brings us to the question of how open in reality is the broadband and Internet market when they still rely on you, BT, a great deal, to provide the hardware and the services? So how open can it possibly be?

Ms Beynon: It is already possible for other service providers to put their equipment on our exchanges to provide Local Loop Unbundling. That means that they then own the customer relationship completely on a wholesale level and that is increasing the usage.

Q68 Mrs James: Sorry, they own the customer?

Ms Beynon: They own the customer relationship completely because others will use the BT network and we own the customer and they provide services by us, but this is the situation where they own the customer relationship. They are the wholesaler as well as the retailer. So that already happens. The question you have to ask then is to what extent would one want to invest in a duplicated network across the UK? It is like having one M4 or one rail system and numerous numbers of fibres all over the place. Or should we make sure that what fibre there is is available to all? What we are trying to do is to make sure that whatever fibre we lay will absolutely be accessible to whoever wants to buy that fibre through the open market in purchasing that fibre.

Q69 Mrs James: What happens to customers? Talking about what we use the Internet for I have now discovered a whole new world since I have added loads of friends and loads of forums of which I am a member, yet my friend that I try to talk to in some of these not-spots have very difficult relationships with these providers because nine times out of ten they get a BT engineer knocking on the door and that confuses them dreadfully.

Ms Beynon: We are trying to make that clear to people because what we have done is to create an internal division called Openreach, which is a separate company, which has a separate reporting line into the main BT board and we are continually trying to expand the role that Openreach plays and I think it is important to understand that role because it is Openreach that provides that universality of access. It is very important to have healthy competition, and that is how it works. So Openreach absolutely have to operate as a neutral provider to all people.

Q70 Mark Pritchard: Just a couple of quick questions on customer service levels. Some technology and service companies have withdrawn from off-shoring and have returned call centres to the United Kingdom now that obviously unemployment is rising rapidly in Wales and indeed across the country. I know in my own experience that some of your call centres are still abroad from some of the accents and I just wondered do you have any plans as a company to bring back some of these call centres and bring back some jobs to the United Kingdom and, in particular, Wales?

Ms Beynon: The call centres we did outsource were additional to the ones we already had in the UK, so we never took away any UK jobs and took them abroad. That is the first thing we need to understand - these were additional services that were provided elsewhere. But we always reveal where our service is provided from and I am sure that that is currently and is always being looked at, but at the moment there are no plans of which I am aware. Obviously a key thing in terms of inclusion to mention here is that we do provide Welsh language services from our call centre in Bangor, so we are one of the few operators that do provide Welsh language services.

Q71 Mark Pritchard: Thank you. Customer service is very important and how would you respond to the criticism where you have a customer in Wales or other parts of the country who has a single telephone line provided by BT, has BT Vision and also BT broadband, but when dealing with customer services has to deal with three different call centres, is sent and dispatched each month three different bills - meaning three different envelopes, three different bits of paper, three lots of people to process that bill. Why is it that BT wants more and more the telecoms cake in this country and yet it cannot even integrate its own payments systems and clearly its own customer service systems? Three different bills for just a single home, using all of those services, to me it sounds ludicrous.

Ms Beynon: The first point is that one thing that we do is to offer people online billings - people do not have to have paper bills they can actually do it online. When you are building a new product like BT Vision then you would want to manage that project separately to the main offer. We are continually looking at the way we deliver our services and we have a very robust country within the company to improve customer service over the next few months, and that is the absolutely number one priority for the company at the moment - customer service. I am sure this will be looked at. But when you are managing such a massive customer base - and we are of course managing the separation of our systems, which is obligatory under the undertakings - the Openreach systems have to be completely independent via the BT systems and that is our priority at the moment, to make sure that we have that separation of systems.

Chairman: That was two supplementary questions. This is one supplementary now from Mr David Jones and then I will come to Mark Williams.

Q72 Mr Jones: Could I return to the proposed universal service obligation introduced by Digital Britain? It does strike me that that is a very ambitious target, two megabits per second, which I would guess that in much of your network you already comfortably exceed. To what extent would you agree with that and would you possibly agree also that that is not a target that really stretches BT very much at all?

Ms Beynon: I think it is stretching because even though I believe that about 83% can already get in excess of two megabits it is about understanding those that are hardest to reach. So it is not going to make a big difference to the majority but it is going to make a difference for the last few that cannot get broadband. Possibly as well in giving those people two megabits, maybe some of them get broadband the first time. So it would create a programme that drives that universality of availability in an important way. But it has to be done properly and it has to be done realistically and there may be quite a large cost, but then we do not know what is the total cost envisaged. We are working very closely with the Digital Britain team and providing them with lots of information about BT's network and pricing and so on to help them reach a conclusion. It is doable but as long as all those issues that I mentioned earlier on are taken into account.

Q73 Mr Jones: It just seems to me that when you refer, as you do in your memo, to the potential of 1000 megabits per second you are going to get an enormous digital divide in this country if others are limping along at two megabits.

Ms Beynon: As I said, we do not know at the moment exactly how much demand there is in the market place for those higher bandwidths. The intelligence we get from other countries - Japan, for example, has an incredible amount of bandwidth available but the usage is very, very low, so having the availability of bandwidth does not necessarily mean it will be used. So I think the jury is out in terms of how much real genuine demand there is for bandwidth. There will be certain sectors, certain industries that will need that kind of bandwidth and that is already available and I think you should remember that; large businesses that BT services do have those kinds of bandwidths now - it is not as if it is something new. The question is the affordability of the level of bandwidth at the lower end of the marketplace for SMEs and do SMEs actually need it. One of the things that superfast broadband will do will be to give bandwidths of an average of 15 and up to 40 meg, but averaging out roughly at 15; but also the upload speeds will be higher, probably about four or five megabits and that for a business is quite important because you then get digital symmetrical services.

Q74 Mark Williams: Just following on from that, in that ambitious target how much work are you doing in matching the 56 not-spots - to return to the not-spots - in that ambitious target? I appreciate what you say about how topography conspires against some communities but is the Assembly Government, with that target in mind, looking to prioritise those gaps?

Ms Beynon: When we announced superfast broadband we did not want it to be seen as a solution for not-spots because we could not guarantee that it would be. That does not mean to say that there will be the odd one now and again that might be, and we have found one in Wales that might be a not-spot that could be solved by superfast broadband; but there is a debate going on about that at the moment. I do not think that superfast broadband in itself is necessarily a solution to not-spots; it may be more to do with the extension of the mobile signal, extension of the satellite provision. We need to look at the mix of technologies; that is where we are getting to in terms of us looking at the fixed network because I think a fixed network is preferable. But that is where the energy needs to go. I would tend to say as well that in terms of where public expenditure goes on networks if any of that occurs it should be about getting to the universality of provision rather than looking at the higher end side because the higher end side I think will look after itself. It is at the bottom end that any kind of public sector intervention should be found.

Q75 Mark Williams: You have touched on this in your earlier comments but on the contribution by commercial organisations, what do you perceive are the major hurdles for commercial organisations wishing to participate in digital inclusion? You have talked about some of the opportunities?

Ms Beynon: We work very closely with government and the local authorities on the rollout of broadband, and going back to 2004/2005 we actually worked in partnership with a lot of local authorities across the UK to rollout broadband because we had a registration process and a trigger mechanism, which is why Caerphilly Council, for example, became the first council in the UK to have all its exchanges enabled because it worked very hard on the demand side. So one of the things we have learnt is that it is the more important work on the demand side than to see funding of the supply side. So a key thing for government to understand is that it is on the demand activity that emphasis needs to go. The other thing we have learnt is that we do need to be absolutely clear on state aid issues and procurement because if a sector procures a network then it is very clear that that network has to be open and transparent and accessible to all. It is very clear that the return on that investment has to be within the same kind of guidelines that one would expect for a private sector investment and all those things to be understood. Even if the public sector organisation does the marketing for broadband it has to be generic - it cannot mention ADSL or any specific technology, it has to be generic. So there are issues around state aid and procurement that absolutely need to be understood before we work with government and that is again something we are going through working with Cardiff on superfast broadband and we make it very clear that any collateral is rightly the collateral that promotes all of the service providers and not just BT. So those are the kinds of things we need to understand.

Q76 Mark Williams: Collaboration between different companies and BT's willingness to collaborate with its competitors in bridging the digital divide?

Ms Beynon: We do work with other companies and we work with Microsoft, which is a competitor, but also in Whitchurch we are particularly keen that other communication providers comment upon our plans for the next stage. So that is what is happening at the moment; that we have drawn up a long list of the next exchanges that will deploy superfast broadband after Whitchurch and Muswell Hill. That is out of consultation with communication providers. We would very much like those communication providers to comment and to tell us what they think about what we could do and that will inform the shortlist, the reduction of that long list to a smaller number of exchanges which we will publish before the end of the month. So we really want the communication providers to be part of this debate and discussion and to contribute to the deployment in a constructive way.

Chairman: Mr Pritchard, you wish to ask one short supplementary.

Q77 Mark Pritchard: Thank you, Chairman. In reply to Mr Williams' first question you mentioned not-spots. Do you share my concern that recently when I called the Chairman and Chief Executive's office of BT on behalf of a constituent, calling several times the given number with the BT brand - 017 and I will not read it out here - the line was dead and cut off? What signal does that send out when BT wants a bigger piece of the cake and when the Chairman and Chief Executive's office own telephone line is dead?

Ms Beynon: I am surprised and if I can give you more information I will certainly make enquiries about it. I do not understand that.

Q78 Mark Pritchard: From the very top - that is unbelievable, is it not?

Ms Beynon: I do not understand why that would be the case; we need to double check.

Q79 Mark Pritchard: Is your telephone line working, just out of interest?

Ms Beynon: Yes.

Chairman: That is three supplementaries. We will move on to Mr David Jones.

Q80 Mr Jones: Can I turn to the question of online risks. Which sectors of the online public would you say are most likely to run risks other than, of course, children?

Mr Paul: Older people, disabled people, people with learning difficulties.

Q81 Mr Jones: Why are they more vulnerable?

Mr Paul: Because of their understanding of the world - I am thinking of people with learning difficulties who need support anyway. We are actually working with an organisation called Home Farm Trust to develop a tool, a DVD, which explains how you can go about buying a computer that meets your needs; how to connect the bits together - it has a voiceover with screen image. This is due to be launched in a couple of months' time and it has applications beyond those with learning difficulties, so carers and older people will also benefit from this development.

Q82 Mr Jones: Does the nature of online risks change over time? Are there new risks replacing old ones?

Mr Paul: I am not sure that it is changing that much; I think that is fairly standard. We have the Green X Internet Code that BT supported. I think those have been around for some considerable time.

Q83 Mr Jones: What concerns me is that phishing scams have been around for a very long time and I find it hard to understand why Internet service providers are unable to develop software that can identify these and weed them out of the system before they arrive on the screens of end users.

Mr Paul: I am not sure about the technology on that. I know we have the clean feed system where we work with the Internet Watch Foundation, so pornography is filtered out if people sign up to that particular system. Technology can be used for filtering out unwanted material but clearly there is not anything available at the moment regarding phishing.

Q84 Mr Jones: I find that quite extraordinary because it seems that barely a day goes by that I do not have an email from a long lost relation in Nigeria informing me that I have inherited huge sums of money!

Ms Beynon: I think it is also linked not just to technology but education and training and explaining to people what they need to do because one would not want to create the Internet to sound like a threat. This is the key with young people; that it is a hugely empowering influence in their lives but they probably trust it too much. Young people are so comfortable with it that they absolutely trust it and they put their personal profiles online and they should not do that. It is not technology that will stop them doing that, but they need to be taught and educated not to do it and why.

Q85 Mr Jones: To what extent would you say that it is the responsibility on the one hand of government and on the other hand of commercial organisations to intervene in addressing these online risks?

Ms Beynon: We have to make sure as a commercial provider that we have the best security possible for our customers and that goes without saying, but in terms of making sure that the awareness is out there, I think it is a question of a partnership between government and the private sector and certainly with the UK Child Internet Safety Council we are a member of that Council, which was set up by government, and industry is involved with government and so we work on it together. It is a joint responsibility. We all need to be owning it and doing something about it and sharing information with each other, which is why again we have taken the initiative in Wales to provide a Welsh language version of the Green X Code, which is about child Internet safety and we work with the EDFN about educating people as to what it actually means; that it is not about not using the Internet but using it in a responsible manner. So we all need to own it, I think.

Q86 Mr Jones: What would you say would be the most effective strategies for minimising the risks that businesses, end users and children might encounter when using the new technology?

Ms Beynon: I suppose having a reputable supplier for the business; making sure that you are getting the best advice you can get. I would hope that those other BT customers are getting that advice from BT Business - I am sure that they do; and we particularly make sure that that happens. The same thing would be true of any customer with whatever service provider they choose to contract with - we must make sure that we get the best possible services. Educating the consumer - and that is going to be increasingly a role that will be taken on by the new consumer watchdog to make sure that that happens. So I think it is about creating awareness. It is just like buying a car; people have to learn not to use a car that is faulty.

Q87 Mr Jones: To what extent can the government or should the government regulate Internet use?

Ms Beynon: I think we would rather see there would be a voluntary code; that we would agree to sign up to best practice and to demonstrate a continual revision of that best practice. I think that once the government starts to intervene with the actual traffic that goes on it starts to get very difficult and very unwieldy and could cause quite significant economic harm because it is very difficult then to define and to draw the line. So what we need to do is to have voluntary codes that reputable companies sign up to, and make sure that we continually refresh them in view of that.

Q88 Mr Jones: And if those codes do not work?

Ms Beynon: I would hope that they do. It is our responsibility to make sure that they do.

Q89 Hywel Williams: The people who might be most at risk are people who are socially and economically disadvantaged. Do you target interventions of particular factions of society, people who might be at risk? Actually there are other initiatives which are in communities to promote financial, education and literacy possibly and do you read across to those sorts of initiatives so that you can integrate whatever you are doing with those initiatives?

Ms Beynon: We work very closely with an Assembly Government initiative called Community of One, which I think we describe in the paper, that BT was instrumental in setting up Community of One, and that has the main responsibility within the Assembly Government for outreach to the community. So we have a BT representative on the board of that organisation and we also work with it in practical activities on the ground. So we try to make sure in that way that we are reading across as best we can. Again, we read across in terms of the children and young people agenda with looked after children; so the issue is not just technology, it is deeper than that. Technology is only part of the solution and, as I was saying earlier on, by giving them work placement it is not giving them technology but it is something we understand that they need, having understood their technology needs. So there is an element of read across, I would say, and we do try and make sure that we are connected with the different departments of government in Wales because ICT affects everything; it is not a stand alone, it is an enabler for all kinds of activities in all departments. Again, we are working with the Post Office Fund, looking at ways in which we can set up two broadband hubs in the Cambrian Mountains; that is something we are about to start on now and that is something we are doing with that part of the Assembly. So we tend to find that we are working with different parts of the Assembly on different initiatives and there is interconnectivity in it all.

Chairman: Thank you very much for attending today. Thank you for the memoranda you sent in as well, they were very helpful in preparing for this session. You have been most helpful in the comprehensive way in which you have answered the questions but also the patient way you have answered all the questions. Ffarwél.

Memoranda submitted by Geo and Virgin Media

Examination of Witnesses

Witnesses: Mr Chris Smedley, Chief Executive Officer, Geo and Mr Jon James, Director of Broadband, Virgin Media, gave evidence.

Chairman: Good morning and welcome to the Welsh Affairs Committee and welcome to this particular inquiry. Thank you for your written memoranda. Could I ask Mr David Jones to ask the first question?

Q90 Mr Jones: Yes and it is to Mr Smedley. Good morning. Could you briefly tell the Committee something about your FibreSpeed network in North Wales?

Mr Smedley: The simple eye level view of FibreSpeed, using the analogy given before about the road network, is that this is a new digital motorway initially being built through North Wales. The more detailed view of that goes back in time to the Welsh Assembly Government's views about competition in the telecoms market, particularly looking at North Wales and the cost of services to businesses but also the knock-on effect into the broadband market for residential end users, which, based on studies that were done around about four to five years ago, showed a price differential in North Wales of two to seven times the cost of equivalent services in the southeast of England, which was used as the benchmark. So the view was taken by the government that a procurement process was needed to develop an alternative optical fibre infrastructure and a competitive procurement process was undertaken, which led to a contract that was signed with ourselves at Geo about two years ago to build this new network. That build has just been completed; it runs from Holyhead all the way through into Manchester to connect up to the rest of the infrastructure in the UK, the Internet site in Manchester and other key data centres. FibreSpeed itself is a business; it is actually a special purpose vehicle that sits within the Geo group of businesses. It is very much a partnership between the Welsh Assembly Government and Geo and it is funded by a combination of Welsh Assembly Government funding, ERDF structural funds from the European Community and also from Geo's own investment in there as well. As I say, the first phase has been built and that was actually to connect 14 business parks and also key towns and other locations throughout North Wales. The contract with Geo is ultimately for a 15-year concession to operate that network as well and the services go live in April of this year. The other key think to quickly point out about it is that FibreSpeed has been based on the premise that if public money is to be put into new infrastructure, in this case the optical fibre infrastructure, then that should be done on what is used in the industry - it is termed open access principles. In other words, anybody that wants to come and use that network can do so on the basis of accessing the base components of the network, the fibre, but also can buy services on an equivalent basis to anybody else in the market for Ethernet services or wireless services for which FibreSpeed is also responsible for delivering into the market. So FibreSpeed itself transacts with other service providers, not with end users; so therefore not the consumers in residential premises or for the businesses themselves. Straight away in North Wales, even before the network was launched, we had signed up 13 new service providers, mostly local new businesses, who were being created to take advantage of this opportunity and themselves access the business parts and other businesses in North Wales. The final thing about FibreSpeed is that it is very much phase one. In North Wales we are working closely with the Assembly Government at the moment to look at alternative sources of funding, ideally to accelerate the programme - it is in the brief that we sent through, a map of Wales showing where else the government would look to potentially put a new network to provide the same sorts of benefits in the rest of Wales as is currently in North Wales. There are a lot of potential funding sources being talked about at the moment, including the European Commission and there is a bit of a false start because it actually turned out that the distribution mechanism was very much based on agricultural shared principles and therefore there is a very small share for the UK and for Wales. But alternative sources are being looked at now.

Chairman: Can I ask you to pause for a moment and give us a chance to ask some more questions.

Q91 Mr Jones: Could you tell us a little more about open access, which sounds very interesting. I know that, for example, you have a connection to the Abergele Business Park in my constituency and I think also to the one at St. Asaph. If other businesses geographically close to the network wanted to connect to it would they have to pay their own cost of connection and their own cost of a fibre optic cable, or would there be some other means by which that would be subsidised?

Mr Smedley: There are a number of ways of looking at that and it very much depends on who else is within that geography. Sometimes the demand from a particularly large business is so great and the distance to connect to the network so small that the cost of extending the network can be easily covered just by that one customer. That is unusual, particularly in the North Wales geography, where a lot of businesses are not of that size. So the next step is then to look at what other businesses there are that would justify an investment through from either FibreSpeed itself or a request to the Welsh Assembly Government funding for the use of other funds that are put aside for the development of the project and to do just that. At the moment there have already been four extensions built off the core network last year to get to places like Mold and Cefn and other places just off the core route that at the moment are using government funding, but our anticipation is that as more service providers get into the market and, if you like, the demand is stimulated then it will be easy to actually justify that just from the commercial income that comes from those new customers.

Q92 Hywel Williams: You mentioned Cefn then, Caernarvon, so it goes from Holyhead to Manchester and then from Caernarvon to Manchester as well, does it?

Mr Smedley: It is a spur, it drops down.

Q93 Hywel Williams: What are the prospects of a spur further to Pethely, Caerphilly?

Mr Smedley: It is something we are discussing at the moment with the government and it is one of the potential extensions of the route. One of the things that the European Regional Development Funds did in the course of the last few months is extend the window for the use of that funding, which had been locked down such that all the projects had to be delivered by the end of last year. There has been an extension given to that until the end of June of this year and so we are now rapidly trying to look at some extensions and Pethely is one of them. So we are very hopeful that that will get through the government's own internal processes, which include state aid review, etcetera. But our intention is to try and deliver that mid-summer.

Hywel Williams: That is very welcome news.

Q94 Mrs James: You have talked about the potential and Cefn and Caernarvon, so that geographical area; but what about the offshoots, the possibilities into smaller hamlets, people who are already on broadband but may be experiencing problems. Will it improve things for them?

Mr Smedley: The whole use of FibreSpeed as a residential infrastructure is, to be honest, not the original topology that was designed when the network was first put in place - it was very much looking at the towns and the major business parks. Having said that, it has always been in our minds that something that would have to be delivered. So the first part of that is making sure that the network picks up the key BT sites along the way so that an alternative backbone infrastructure can be provided to the major ISPs in the UK who can then come in and put their equipment in those exchanges, become the unbundlers of those exchanges in greater numbers than they currently do and provide services. Frankly, that is not going to answer the question for a lot of the hamlets you mentioned where the exchanges are not enabled or they are perhaps sitting in some of the not-spots that you mentioned before. Our view on that is that actually the Digital Britain project, which looks like sponsoring a view that mobile broadband is a potential way of picking up a lot of those, will probably be the technology that is most likely to deliver to very rural areas, but those networks as well also require backbone infrastructure, so we will be looking to connect into the mobile networks for that.

Q95 Hywel Williams: Can you outline for us the potential benefits for businesses and communities in North Wales from putting this in?

Mr Smedley: It starts with solving the original problem, that the services that were currently sold there were too expensive and so the prices have now been benchmarked; what FibreSpeed sells out is put at a wholesale level equivalent to the southeast of England and that will be under review to make sure that is always the case. So fundamentally we would expect to see better, faster services, more choice, more flexibility, a greater range of services at prices comparable with the rest of the UK. That in turn should provide, particularly for ICT-based businesses but also businesses with large ICT requirements, the opportunity for new start-up enterprises, growth and higher employment into those sectors. But also, as we were talking about just there, better services into the residential community through, predominantly, from our perspective as a wholesale provider, ISPs and mobile customers.

Q96 Hywel Williams: In that respect it is very welcome that we are able to put a spur into Cefn and with the television industry up there and many people are very appreciative of that. What about the network benefit to people who are currently regarded as digitally excluded, which is the point of this investigation, of course?

Mr Smedley: As I was saying before, I think our view is that BT's own rollout of services that Ms Beynon was talking about earlier is clearly critical to that from the fixed infrastructure perspective, and as across the rest of Wales we are very much focused on North Wales, but I am sure that Virgin Media's plans as well in their franchise areas will be very important to that as well. Fundamentally though we think that for those that are fundamentally excluded because of lack of reach, because there is no available service then it is likely, unless there is a really aggressive rollout of the geographic nature of BT's fixed line services, that a mobile or wireless solution, using technology like y-max, will have to be deployed and will have to be, in all likelihood, funded. The fundamental about FibreSpeed having been deployed is because there was perceived to be a market failure at the wholesale level, the backbone level of the market - simply there was no competitive optical fibre infrastructure to BT in those areas. The same really would be argued, I am sure, by anybody that was given the task of providing, for example, a two megabit universal service obligation into rural communities. So if you are looking at the issues of exclusion, which obviously go much wider than just the geographic coverage of the networks, those mobile solutions, those wireless solutions are likely to be critical and they will need to be deployed with new high sites, new technologies sitting on those masts to give the geographic coverage into those areas. But then those services have to be pulled back and if they are broadband services and not voice services then you will end up needing the kind of infrastructure that FibreSpeed has to pull those services back into the core network and out into the wider world.

Q97 Hywel Williams: You have already told the Committee that you have a 15-year contract, so I assume you think that is sustainable for 15 years. What is going to happen subsequently and who is going to be managing it? How sustainable is it?

Mr Smedley: We are very comfortable about the sustainability of it. The majority of the funding is upfront and some cost into the build and the operational costs of the network, our forecasters will be covered at least by year four of the 15-year concession. Indeed, there is actually a review clause at that point where the government can check that the thing is operating as it should and that no further subsidy is required past that point. So we are comfortable that the revenues generated by the business will cover its costs.

Q98 Mark Williams: A question to Mr James. You provide broadband access in Wales via the BT network, your own cable network and via mobile services. What can these different access routes offer for the disadvantaged and the hard to reach groups that the Committee is looking at, particularly thinking of in terms of rural areas the socially isolated and economically disadvantaged, or a combination of those factors. What do those methods offer those groups?

Mr James: May I take just a moment to give a bit of context to our network, which is, as you will have seen from the earlier note, we run our own fibre optic network. We are the UK's largest ISP - bigger than BT retail - and around 85% is carried over our own network as opposed to over BT's network. That was as the conglomeration of all the cable builds over the decades, which the Virgin Media Department brought together. We cover about 340,000 homes in Wales, predominantly in South Wales, around 27% of Welsh Homes, with our fibre optic network. We also reach further as an LLU over BT's network in partnership with Cable and Wireless who have built an LLU network on our behalf. To answer your question directly, we do have plans to expand our fibre optic network to more homes in areas that are adjacent to our fibre optic network in South Wales and that runs in parallel with and subsequent to our rollout of next generation access of 50 megabits. So there will be areas, perhaps surprisingly, in relatively urban areas that are covered by cable which will also be BT not-spots - it is not the case that it is overwhelmingly in the rural environment that there are not-spots. So I think we have a material contribution to make in terms of expanding the network to bring not just 2 Meg broadband but 50 Meg broadband, the majority adjacent to our existing South Wales network. I think there are also opportunities for us to partner with companies like FibreSpeed and other companies that have built either backbone infrastructures or local infrastructures and if I think about Ceredigion, there is a partnership there that we have just signed with a company called TFL operating out of Pembroke Dock to supply high speed backbone connectivity to their Local Access Network. So we can partner both as a wholesale provider, linking to our backbone but also potentially in the future as a residential provider with those people who have brought a backbone to areas where we do not have that now.

Q99 Mark Williams: Turning now specifically to mobile phone coverage throughout Wales. All my colleagues will testify to it being a huge issue in their constituencies - I certainly can. Could better mobile phone coverage throughout the country be achieved if there was much more cooperation between mobile phone operators?

Mr James: I will duck that question, if I may, if only because Virgin Media is what we call an NVNO, so we are not a mobile network operator; we have a partnership with T-Mobile who manage all the mast infrastructure and network infrastructure on our behalf and we simply operate as a retailer, sitting on top, a bit like Talk-Talk and Sky operate on the top of the BT network. So we tend not to expose our agreements by commenting publicly on matters in the specialist territory of network operators.

Q100 Mrs James: As you are aware, Virgin is a major presence in my constituency in Swansea East and we have talked about the television service and the media service. Is it possible in the near future that web-based services could be provided in the UK via television and what would be needed to achieve this?

Mr James: Can you give me an example of the kind of services you are talking about?

Q101 Mrs James: Because people have your services of the television, etcetera, they would not necessarily access the Internet via telephone lines but by TV satellite set-up, etcetera; that they would do it from the comfort of their own sofa via the television.

Mr James: Our network has enabled us to launch the first video on demand service in the UK and then we have a sophisticated interactive TV experience. We were the first in the UK to launch that quite a few years ago. We have a number of web services on there already, which are exactly as you have described. They are navigable through a familiar TV remote control and they are simplified to enable to give access services without having to use the more complex and perhaps unfamiliar interface of a PC. So we do already make available a number of government services through our interactive TV interface. We also take services like i-player, for example, which is traditionally thought of as being a PC only service and that is available and has been for some time to all Virgin Media TV customers using their remote control. We think there is scope to take the increasing richness of government services and migrate those to our TV service. Technically that is relatively easily done.

Q102 Mrs James: And it could be expanded?

Mr James: Indeed.

Q103 Mrs James: Any plans to do that?

Mr James: At this stage we continue to explore and develop the service. I would not say that there were plans at this stage to invest in a radical expansion; I think the service itself is already quite comprehensive. The issue really is about having those compelling simple services that customers want to use as to opposed to creating from public services and from elsewhere. There is a balance to strike between having a real depth and hence complexity of navigation against having a relatively small selection of the most popular which allow people to enjoy what they see as TV style navigation, i.e. menus with three, four or five options as opposed to 20.

Q104 Mrs James: This question to both of you now. Is there a risk that the deployment of superfast networks could create a new digital divide and, if so, how could this be avoided?

Mr James: We are very much the UK's pioneer in terms of offering superfast residential broadband in that we launched 50 Megs in December and we are launching in various parts of Wales in the next couple of months and will complete our deployment of all our Welsh cable franchises by the end of July. I would echo the comments made earlier by BT, which is to say that the jury is still out on the demand for the next generation broadband. Clearly we as a company have gone where, if you like, that BT have not, in that we have made a very substantial bet commercially on there being future consumer demand for ultrafast broadband. We have not just launched 50, we have also announced recently that we are migrating all our 2 Megabit customers up to 10 Megabits, which we regard as part of the next generation. I think we would see ourselves very much as trying to stimulate and create a market; so at this stage, as I have said, the danger of a digital divide between ultrafast and, if you like, current generation is less of a pressing concern than the issues that have been debated already, between those who have no access and those who have an average current level of access.

Mr Smedley: I think there is a risk, absolutely, and these things take time to rollout. But if you look back in time to the way that the industry has developed and the way that high speed data services have developed from what used to be just ISDN lines, use of fax machines and things like that through to the DSL revolution - and particularly the revolution that really has led to the low prices that most parts of the UK enjoy, and certainly parts of Wales that have the coverage - was really driven by Local Loop Unbundling and that is an infrastructure based level of competition in the network where ISPs, like Carphone and Tiscali and others were able to take advantage of that. There is a risk now that the decisions made last week by Ofcom about superfast broadband and the freedom allowed to BT, which Mr Pritchard was questioning them about before, may in time be looked at as being the point at which there was a departure from that infrastructure based level of competition for delivering these services. So it is very new and Virgin and BT will be rolling these services out as the market demand grows. But if you look at where we have come from and where we are probably going, this is the point at which the decisions are being made. Our concern is very much that there is not on the table from the regulator a view of how you get your hands on an infrastructure based remedy. So the big idea here is access to the BT ducts as they roll out their new fibre technology through to the street cabinets, which is the essence of the current plan, that others should be allowed the opportunity to do the same. That is what led to the success of Local Loop Unbundling and we think it should be on the table now if BT is being allowed to rollout its new services using, at the end of the day, the duct network that was built originally with taxpayers' money. So there is a serious risk; it is not being looked at, in our view, in the right way and we are going to be pushing to try and make sure that that remedy is on the table.

Q105 Mrs James: One last simple question from me. Can broadband via mobile phones offer a serious alternative to fixed line provision?

Mr James: It depends on the outcome you are seeking but certainly it is our view that what we can see in terms of the 3G development over the coming years suggests that a functional level of broadband is going to be achievable via mobile, and I tend to agree with Geo Networks that in terms of the Digital Britain conversation there seems to be some logic that mobile broadband will be the most effective source of extended coverage, albeit there will be a patchwork of solutions. In terms of what is the appropriate level of bandwidth, we have argued to the Digital Britain team that while we very much accept the principle of a universal service commitment there is a viable debate as to whether 2 Megs is in fact too high, particularly given that there is a proposal that the cost of funding that should fall back on the industry and then it is back to the consumer and potentially reduced penetration among disadvantaged groups. Certainly we would argue that all government services currently on line, iPlayer in very reasonable quality could be achieved with less than one meg at the moment and that we would be very concerned that the costs of pushing to a higher level of bandwidth, whether by mobile or otherwise, will filter back down to increasing the cost of broadband and driving broadband penetration and uptake down rather than up.

Q106 Mr Jones: Could I come back to Mrs James' question about accessing web-based services via a television set? It seems to me that the infrastructure is actually outpacing the hardware that attaches to that infrastructure. There does not seem to me to be any good reason why, for example, if you want to access the Internet you have to go into a special room and sit in front of a computer. Is it the case that maybe the hardware is not keeping up with the new technology and could we possibly arrive at a point where maybe you can access the Internet or Internet based services from the comfort of your own armchair?

Mr James: The way we would see it is that there is competition for the consumer's attention between TV services such as ours or Sky providing a variety of interactive services through the TV interface with the fall in prices, increased usability of online PCs, particularly given the very rapid uptake of laptops and the expansion of video services. What we see is that a very high proportion of customers are choosing to use services like Video Online through a laptop PC, which is now cheaper and easier to use; and a wireless network with wireless can now be located in any room of the home. There remains a niche, if you like, for customers preferring to use web-type services through a simple interface on the TV, but most customers, we would observe, have chosen to master the complexity of the PC and online combination and get the greater complexity and richness that way than they have to use interactive TV services.

Q107 Mr Jones: Could that be, perhaps, because the TV manufacturers have not really kept up with the new technology and have not introduced those services as part of the equipment package that they sell to the consumer?

Mr James: It is certainly the case that the cycles over which home computers are replaced are infinitely faster than the cycles over which digital sets or boxes, these being the principal blockage, if you like, are replaced by operators like ourselves of BSkyB. Most customers are paying us for the delivery of very simple services over those sets or boxes and consumers to our mind are proving willing to invest as prices come down in replacing laptops and using the laptop as a principal means of access.

Mr Smedley: If I could just add to that? From Geo's perspective within the rest of the UK we use our national network to support customers, both with large ISPs - like Carphone Warehouse and Tiscali - and also large mobile providers, in particular "3", which is the business specialising in 3G services. They would be able to give you more detail than I can but clearly the demand for the use of the services that we are providing, the core infrastructure for the fibre, is very much driven by mobile broadband take-up and what started as a proposition based on things like video technology, which did not really take off, has actually migrated now to take-up and rapid take-up of mobile broadband, largely using what are called laptop dongles putting into PCs. Those PCs typically now are being sold through outlets - as it happens, places like Carphone Warehouse - where the price of a laptop is falling very fast and mobile broadband is therefore being taken up hugely. If you look as well at the kind of devices the mobile suppliers are selling now, all the way through to business-oriented devices like Blackberries, but most handsets as well, there is a deep Internet experience on many of them as well. So there are a number of devices - it is not just the television world; it is not just the PC. The mobile suppliers, who could tell you a lot more about it, would very much point to those as being the cheap access mechanism for the future.

Q108 Mr Jones: Finally, what key actions could be taken to facilitate more commercial participation in digital inclusion projects?

Mr Smedley: Is this talking about government actions?

Q109 Mr Jones: No, I think it is actions from both commerce and government.

Mr James: We would argue in terms of service provision across the UK in Wales that there is already good evidence that in a large part of the market the commercial world is delivering, not just in terms of existing speeds of broadband, but it is investing in taking those risks to bring in the next generation of broadband. At the same time across the country and particularly in Wales there are real issues whether there is likely to be market failure in that sense, in the sense that a minimum speed of broadband will not be available, and certainly we welcome the principle of the universal service commitment through Digital Britain. What we have asked, as I have mentioned, is that that service commitment should be set at a level which is appropriate; that there should be a very clear cost benefit analysis to deliver the speed at which that is set. We are probably going to be talking about very substantial costs here. We have also asked that the right balance should be struck between enabling commercial operators to continue to invest and take risks to expand the network in those areas of the country where that is likely; and to focus public sector intervention on those areas where we can be absolutely clear that no market intervention is likely. We do think that there is a potential risk that public sector intervention could compete directly with some commercial activity. We are also concerned that if the funding of the universal service commitment should be passed back to industry that, as I mentioned previously, given the competitive nature of the broadband industry the chances are that those increases in cost would find their way directly to the consumer and the last thing that we think anyone in the Digital Process wants to achieve is an increase in the retail price of broadband driving down the actual uptake of broadband.

Mr Smedley: From our perspective and particularly for the remit of this inquiry the first priority in terms of making things happen, if you like, is showing that FibreSpeed works as a model; it is a new business, it is a new network. In particular that means connecting through to the BT sites and exploiting the ISP market to bring those big ISPs into the North Wales region. It means partnering with mobile broadband suppliers so that we can have those sitting providing services off the asset as well, and connecting business, which in term has a knock-on effect into the consumer market as well. The second priority is really then looking ahead. Our view is that that will rapidly show to have worked and to have brought both prices and choice and service levels up in North Wales. To extend it further, particularly at the current time when the Digital Britain project is mulling over whether further investment is put into projects like this, we would very much agree that the definition of where you invest public money should be where the market has failed. So there should not be the need to intervene in areas where there is already healthy choice and competition. But FibreSpeed represents an opportunity that if there is public money made available now it should be taken. So that would be our view as to when to start.

Q110 Mr Jones: Could you remind me what was the public contribution to FibreSpeed?

Mr Smedley: The balance of the funding broadly about 80% of the £30 million for the contract over time.

Q111 Mr Jones: Would it have been quite impossible for FibreSpeed to happen without public sector intervention?

Mr Smedley: Yes, I think so. The evidence was that the network was not built up when there was a huge amount of capital going into optical fibre networks in the late 1990s and there was certainly no evidence that anybody in the market was building that infrastructure.

Q112 Mark Williams: Finally turning to some of the risks to Internet users and consumers more generally. What do you perceive are the major risks associated with the introduction of the new technologies that you have talked about this morning?

Mr James: I think the range or risks are well documented that young people and all of us face on the Internet from combinations of illegal use of material to identity theft. As a service provider we see new forms of threat, whether in the form of viruses or others, emerging in a very dynamic way. To give a flavour of our thinking we regard ourselves as a very responsible ISP and we think that the most appropriate route, the most powerful route is to actively educate and encourage our customers to understand the principal threat that faces them on the Internet and to provide them with the tools necessary to secure their PC to prevent phishing for identifies, to provide safe and parentally controlled environments for their children to surf online. We are also actively involved with the Internet Watch Foundation, with the Terry Jones' initiative to develop new ways of addressing new and existing forms of abuses, some of which obviously we do under regulatory cover, if you like. But the emphasis on our activities is on educating and supporting our customers to protect themselves.

Chairman: Could I thank you both for the evidence you have given this morning and also for your extremely helpful memoranda which helped us a great deal in preparation for today's session.