Original URL: http://www.theregister.co.uk/2007/06/11/ofcomwatch_luff_interview/

MPs to cast closer eye on broadband ripoffs

Luff gets tough

By Ofcomwatch

Posted in Networks, 11th June 2007 14:27 GMT

Ofcomwatch blog logoInterview

As chair of the Trade and Industry commons select committee, Peter Luff MP is one of most influential figures in telecoms. He sat down with Ofcomwatch editors Luke Gibbs and Russ Taylor recently to talk about the increasing politicisation of the regulator, his broadband concerns, and the recent phone scandal. He had some stern words for both OFCOM and BT.

Let's talk about mis-selling. In broadband you have some unique types of...well I won't call it mis-selling because I have not researched it, but you have statements to the effect of: 'this is free broadband'. Consumer advocates often say the use of the word 'free' is inherently misleading because it is not free when you have to purchase something else to get it. And you've also seen these claims of 'up to 8 megabits per second' and after thousands of tests most of the connections are actually a small fraction of the promised speed. What's your view on this?

It's such a complex area for the consumer to understand actually what is being offered. My concern in the mobile telephone market is that there is almost too much competition. The offers are so bewildering - how on earth do you compare what's being offered? On what rational basis do you reach a decision? And broadband - it's technical offering actually bewilders most consumers because you are asking for a degree of technological sophistication they won't have.

But if I am promised 'up to 8 megabits per second' and I consistently receive less than 2 megabits per second ...

I had a problem with my broadband connection at home - no one could work out why it was not delivering a much higher rate...eventually we just put a new router in and the rate went up again. I got the rate I wanted, which is a reasonable rate anyhow.

The problem is that people say, "I'm terribly sorry, it's not our fault", particularly when it's a problem with BT providing the infrastructure. There's a lot of buck passing that goes on as well. So, it's quite difficult to regulate in each case: "Our computer is not functioning", "the router is not functioning properly", "there is someone down in the street that has done something"...

'You live too far from the telephone exchange' - I've seen all types of excuses.

It's really difficult. Well, I think the industry has got to be really careful about not making excessive claims and if it doesn't then there will be a toughening up of the regulatory environment.

It's an odd industry. I think the only industry that is more misleading in terms of excessive claims are the laptop manufacturers that tell you the battery charge should last four hours. I've never had a battery last as long as the manufacturer claims. And it seems in broadband you get the same sort of puffery that is consistent. When one does it - the industry leader - all the rest have to follow because if I am saying 'up to 8 megs a second' then there is no incentive for anyone to be truthful and say I am offering '2 megs a second' because why would you buy 2 when you can have 8 for the same price? You have a race to the bottom when it comes to puffery in the broadband industry.

Good point. I can sympathise with that.

Are we likely to see changes if the Conservative Party comes to power in this area? The Economic Competitiveness Group, as part of its review, has done some work on regulation. It's a broad question - generally about regulation and specifically about this area.

I don't know. I am not close enough to the policy-making process so I cannot answer that question. I am chairman of the select committee so I don't really wear a party hat when it comes to these issues. I think that the Lords investigation into economic regulation will be very influential, actually. I think it is an important inquiry. A lot of us will watch and see what that says. I hope it will be motivated by a desire to increase competition rather than regulation. The test will be whether or not you can make an industry more effective by increasing competition than by regulating more intensely. So, I hope that's the direction we move in.

When you look at Ofcom today, is the resulting product - the Ofcom you see operating and appearing before you in the committee - is that the Ofcom people imagined? Is it consistent with what you thought it would be?

I think I just need to ask more searching questions of Ofcom than I used to. That's what I would say. I thought it was a Rolls Royce - now I think it may only be a BMW.

More people should think about it, do you think?

I think telecommunications is the Cinderella of the infrastructure of the UK. That's a recurring concern of mine.

Duff information makes duff decisions

Apart from the Digital Dividend Review (DDR), do you have any specific praise or criticisms related to how Ofcom uses evidence - things like surveys or market research - when it justifies its actions? one big piece of research Ofcom did was used to justify the junk food adverts aimed at children.

Should a regulator find out what people want? That's the politicians' job, isn't it? This is a problem Ofcom is facing more and more. To what extent is it a problem having political issues - delegated to it - as opposed to issues that can be resolved by appeal to objective fact. The DDR is a classic example of that.

In the whole debate about childhood obesity, how much of it was political prejudice and how much of it was objective fact? It's very difficult. So, I suppose my one concern is 'Are politicians asking too much of Ofcom?'

If you look at Ofcom, there is a fuzzy line between policy making and implementing policies that are contained in the statute or other government instructions. Is Ofcom therefore becoming a political organisation?

That's the question that lay behind some of the questions Parliament recently asked of Ofcom in the recent evidence session. I don't think it would want to, but of course there is lots concern about some of the appointments made there recently. I have to say I find people like Ed Richards very good to deal with. I have no complaints about the way they responded to my probing.

How do you rate Ofcom's performance on the DDR, initially and now? How have they started and how have they moved forward?

It's very interesting. Ofcom's first decision is that spectrum should be allocated by a market-based mechanism because they cannot make the judgments between competing uses. Philosophically I agree with that. But you do get into some very difficult decisions quite quickly. Two principles emerge from this, in my view:

The first is the extent to which Ofcom are being asked to take political decisions rather than market decisions. The question of HDTV - is it something that people have a right to get free of charge? And the hard-pressed broadcasters (and they are hard-pressed in the commercial and the state sector) haven't got extra money to spend on more spectrum. So, it's a political decision - I think Ofcom got a political decision delegated to them. I think it's been unreasonable.

The second issue is the quality of the technical information Ofcom brought to the debate. For the first time in my experience with Ofcom their technical information appeared to be severely deficient.

So they were taking political decisions on the basis of bad technical information.

You are referring to this question of how many HD signals could they get...?

Who is right and who is wrong? You've got to be very careful. The broadcasters will make one set of claims in their own commercial interests. But Ofcom seem to be well over the line with that advice. I was also referring to their complete failure to understand the use that spectrum is put to. They had employed consultants, they had done work, but just they hadn't got their facts right. And we had to work very hard to make Ofcom understand that the existing spectrum is used differently to the way they understood. They had incomplete estimates, for example, of unofficial unlicenced use. There were some very naïve assumptions made.

For an organisation that has always had a high reputation - as far as I am concerned - I've talked to ministers about this and they have said 'well if Ofcom think it, it must be all right' - and that was my prejudice to begin with as well, but take a look ...

So where did this go wrong? Was it a particular problem with an issue in this sector or was it an indicator of sloppiness within Ofcom more generally? I think that is a question the organisation has got to ask itself. They have admitted they got it wrong but they need to ask themselves why they got it wrong.

What implications does that have for them in terms of their perception going forward?

Well, they are going to be open to much more challenge now. I think about people like me who had worked under the assumption that it was a relatively benign organisation that did things broadly right. Now we are saying "hang on, they got that one wrong, let me make sure they got this one right". I think they will be open to more scrutiny as a result on the technical side of their work rather than on their judgments on issues of a more political nature.

Britain's looming broadband crisis

I'd like to ask you about next generation access (NGA), which is the UK's term for telephone companies installing high-speed fibre optic cables. NGA covers things like advanced high-speed wireless infrastructure. But more importantly, when you compare it to North America and Asia they are talking about fibre optic cable. There have been several studies - including one by the the Broadband Stakeholders Group - which have talked about the lack of UK investment in fibre optic cable and how important that investment will be in the future in things like education and commerce and online video. Ofcom has made some initial inquiries into this. What's your view on what needs to happen, apart from studying the issue more? There has been an issue of public subsidy of fibre optics. Ofcom has slammed the door on that. Or there is an issue that it may be some sort of market structure in the UK that is causing this - for example, the separation of BT into its wholesale and retail parts. Or, as Ofcom has suggested, the time may just not be right. For whatever reasons the UK might be lagging, there could be legitimate reasons. Do you have a view?

I have a concern of a strategic nature of Ofcom's role which may play a part in that. All the pressures on Ofcom deal with the consumer issues - the individual consumer issues that would attract headlines in the Daily Mail and The Sun rather than the issues that would attract headlines in the Financial Times. I think Ofcom are often distracted by these huge debates about childhood obesity or by the telecommunications market - international roaming charges. That's not to say they are not important issues. They are. But the underlying concern I have is that when we talk about the infrastructure of the UK, the telecommunications infrastructure is probably the most important one now. I would say it is more important than the roads.

Getting a good telecommunications system is more important than good roads in the UK - at least as important, but probably more important.

I'm worried that Ofcom are being driven a lot of the time into putting their effort into the consumer issues whether on the broadcasting side of the house or on the telecommunications side of the house. I just get that sense that there is not that same pressure on them from the outside to deliver on these business-based concerns. I think Ofcom may want to, but their success or failure is judged on these frankly less important issues, strategically. Politically more sensitive, but actually strategically less interesting.

I hope I am wrong, but I get the sense that therefore as a result they inevitably attract a lower profile within the organisation.

What could Ofcom do? Should Ofcom raise this in a more urgent manner with Parliament? Is that the next step for Ofcom?

I think we Parliamentarians need to make sure Ofcom is under proper scrutiny on this issue. I think there is an assumption in the UK that we have a liberalised telecommunications market. It is better than any other telecommunications market in the world. We have an arrogant assumption that we are ahead of the game and we will stay there automatically by some magical process. And I don't think this assumption is well-founded.

And I don't think we understand the way in which competition will grow internationally - both in the telecommunications market and more generally and if our infrastructure can actually deliver, particularly (but not only) for the City of London that requires service of the highest possible standard. So we need to keep putting enough pressure on Ofcom so that they make enough of their resources in time. Otherwise, the real danger is that we will switch entirely over to being run by a tabloid agenda.

Why haven't people learned from what happened in broadband?

I do still think that BT as an organisation has not made a lot of progress. It doesn't convince me that it's learned lessons.

I remain unconvinced by the separation of BT into wholesale and retail. I'm not convinced that Openreach is adequately separated. I'm not saying it has to go whole hog into separate companies, but I remain unconvinced, and I think it does give the incumbent retail operator a big advantage. That concerns me. For me it's competition that drives innovation more than anything else, not regulation.

The whole debate about Local Loop Unbundling and rates is an example where there is a slowness in the government to move to put competitors on a level playing field. I think that is beginning to be addressed. I think we've got the Department of Communities and Local Government understanding that it's important now. They were really dragging their feet on that issue. It's so disappointing to see such an important issue for competition - which I think is the answer to the problem - so far down the priority list in government.

There is an interesting wrinkle with BT and Ofcom about the lack of investment in fibre optic technologies at the moment. When Ofcom separated BT it had a range of choices. Around that time the OECD stepped in with a paper and basically said separating your national incumbent carrier is a very risky thing. It can have consequences for future investment. I'm not saying it is a causal relationship, but now we are seeing a lack of investment. Do you think Ofcom should revisit this whole separation?

I still think of Openreach as a servant to BT. When you look at the very effective and dynamic approach of National Grid to developing the electricity grid and the gas grid it's interest is in providing excellent services to those that want to use its wires and pipes. I think National Grid does a first-rate job. I am not as convinced that Openreach is as committed to investment and dynamism as it ought to be. It's almost a perfect parallel.

Wouldn't National Grid operate primarily in the interests of its biggest customer?

But it's a more competitive market. Not a perfectly competitive market but a more competitive market for gas and electricity. And that's a problem: The market is inadequately competitive so Openreach actually does have a comfortable relationship with its biggest customer, BT. I haven't done a detailed analysis, but that's my prejudice.

Well you would suspect most businesses tend to operate favourably to their largest client.

Exactly, and the innovation would be driven by the largest client's request. So if someone who had five percent of the market said "we would like you to do this", they would say "tough, it's not in our commercial interests". But in a properly competitive market, it would be in their interests. It's a matter of great concern to me. I really am quite worried about this. It's not clear to me that the undertakings offered by BT are being properly enforced by Ofcom. That's a question that was raised in the joint hearing and it certainly concerns the competitors.

Making a complaint

Take a consumer's point of view. If I have a problem with my telephone provider, I go to the provider first, then OTELO, then Ofcom will see me after three months. There is still a jumble of processes consumers have to go through.

Ofcom's trying to rationalise the way consumer complaints are done. I broadly sympathise with what they are doing. They are basically saying: let's empower the consumers...and keep the regulators out of it. That basic approach is one I actually have a lot of sympathy for. Otherwise the regulator gets bogged down handling individual consumer complaints. I think that is a good idea.

What about ICSTIS though? When this phone quiz scandal broke it was very convenient for someone to blame ICSTIS. And it's nameless and faceless. You could argue that it's just an accountability dodge.

I know. I am very uncomfortable about that. And that's not so much about convergence, it's more about sub-contracting enforcement. One of the enemies of democracy and regulation is complexity - it confuses those it is supposed to serve. Certainly, wherever possible one-stop-shops are very desirable, bringing together the accountability point you just made. But why should advertising regulation be handled separately? What good reason is there for it - not one I can think of. ®

A longer version of this interview can be downloaded frmo the Ofcomwatch blog.