House of Commons Culture, Media and Sport Committee Broadband Delivery UK

Oral evidence

Tuesday 3 July 2012

Ed Vaizey MP, Minister for Culture, Communications and Creative Industries, Robert Sullivan, Chief Executive, Broadband Delivery UK, and Simon Towler, Deputy Director, Department for Culture, Media and Sport

Ordered by The House of Commons to be printed 3 July 2012

HC 474-i Published on 28 August 2012 by authority of the House of Commons London: The Stationery Office Limited £5.50

The Culture, Media and Sport Committee

The Culture, Media and Sport Committee is appointed by the House of Commons to examine the expenditure, administration, and policy of the Department for Culture, Media and Sport and its associated public bodies.

Current membership

Mr John Whittingdale MP (Conservative, Maldon) (Chair) Dr Thérèse Coffey MP (Conservative, Suffolk Coastal) Damian Collins MP (Conservative, Folkestone and Hythe) Philip Davies MP (Conservative, Shipley) Paul Farrelly MP (Labour, Newcastle-under-Lyme) Louise Mensch MP (Conservative, Corby) Steve Rotheram MP (Labour, Liverpool, Walton) Mr Adrian Sanders MP (Liberal Democrat, Torbay) Jim Sheridan MP (Labour, Paisley and Renfrewshire North) Mr Gerry Sutcliffe MP (Labour, Bradford South) Mr Tom Watson MP (Labour, West Bromwich East)

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The committee is one of the departmental select committees, the powers of which are set out in House of Commons Standing Orders, principally in SO No 152. These are available on the internet via www.parliament.uk.

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The Reports and evidence of the Committee are published by The Stationery Office by Order of the House. All publications of the Committee (including press notices) are on the internet at www.parliament.uk/cmscom.

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The current staff of the Committee are Elizabeth Flood (Clerk), Sarah Heath (Second Clerk), Victoria Butt (Senior Committee Assistant), Keely Bishop/Alison Pratt (Committee Assistants) and Jessica Bridges-Palmer (Media Officer).

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All correspondence should be addressed to the Clerk of the Culture, Media and Sport Committee, House of Commons, 7 Millbank, London SW1P 3JA. The telephone number for general enquiries is 020 7219 6188; the Committee’s email address is [email protected]

List of witnesses

Tuesday 3 July 2012 Page

Ed Vaizey MP, Minister for Culture, Communications and Creative Industries, Robert Sullivan, Chief Executive, Broadband Delivery UK, and Simon Towler, Deputy Director, Department for Culture, Media and Sport Ev 1

Culture, Media and Sport Committee: Evidence Ev 1

Oral evidence

Taken before the Culture, Media and Sport Committee on Tuesday 3 July 2012

Members present: Mr John Whittingdale (Chair)

Dr Thérèse Coffey Steve Rotheram Damian Collins Mr Adrian Sanders Philip Davies Jim Sheridan Paul Farrelly Mr Gerry Sutcliffe Louise Mensch ______

Examination of Witnesses

Witnesses: Ed Vaizey MP, Minister for Culture, Communications and Creative Industries, Robert Sullivan, Chief Executive, Broadband Delivery UK, and Simon Towler, Deputy Director, Department for Culture, Media and Sport, gave evidence.

Q1 Chair: Good morning. This is a special one-off about that. We have negotiated hard and we think we session of the Committee looking at Broadband have made very real progress, virtually to the point Delivery UK, and I would like to welcome this where we are very close to getting state aid clearance. morning Ed Vaizey, the Minister for Culture, It has been a very frustrating process and, frankly, one Communications and Creative Industries, Robert wishes it could have been quicker, but DG Comp took Sullivan, the Chief Executive of BDUK, and Simon a particular view about how state aid should be Towler, the Head of Spectrum and Broadband at applied. It was unfortunate as well that, as we were DCMS. Dr Coffey has an adjournment debate at 11.00 coming to the point where we needed agreement on am but has a particular interest in this area, so I am state aid, DG Comp was already reviewing and going to invite her to begin. changing its own approach to state aid. Those two Dr Coffey: Thank you, Mr Chairman. I am very issues met in the middle and, I think, added some grateful to you all for coming. In line with the additional complexity and delay, which has been Government’s ambition to be ultra fast in terms of unfortunate. broadband, I am going to be ultra fast in terms of questions and hopefully in response. There is a great Q2 Dr Coffey: Could I just ask a supplementary concern around different projects at the moment that before Mr Towler responds. I believe one of the state aid is basically holding up projects, whether it is perceived risks is if BT ends up being the only the £17,000 required to complete a project in Cumbria supplier selected by various bids because the number that has been going on for a long time, officials poring of suppliers in this competitive market seems to have over it, probably costing £250,000 or £500,000 in shrunk to two. Is that a major barrier to agreeing officials’ time, and we can’t hold that up—in other state aid? areas the framework has not been accepted, DG Comp Ed Vaizey: No, I don’t think it is a barrier to agreeing is rattling the cage. Can you tell us more about when state aid. I think BT and DG Comp have made their are we going to get state aid clearance? own compromises in terms of the interpretation of Ed Vaizey: Thank you very much, Mr Chairman, for how state aid should be applied. In terms of who are your kind introduction and I am, as you indicated, the main organisations available to bid for these funds, flanked by two experts on this subject who will I think it is great that we have BT and Fujitsu, both answer the Committee’s questions when I fall down. of whom have signed the framework document, so Thank you, Dr Coffey. I gather it was your initiative they are in play to bid for these funds going forward. that we are having this one-off session, so it is A lot of people argue about how we should have particularly sad to see you depart in half an hour, but applied the broadband funds. Should they have been I will try to answer. relatively local, which is the route we have gone Dr Coffey: I have a rail debate. down, or should it be national? If it had been national, Ed Vaizey: It is a rail debate? we would have only had one bidder succeed for that Dr Coffey: So I have to be there on time. national contract. I think the fact that we have two Ed Vaizey: Always focused on infrastructure, Dr companies competing is a good thing. Obviously, we Coffey—very important. We share your frustrations can’t force private companies to compete for these on state aid. We have negotiated hard with the funds if it does not fit with their own strategy for how European Commission. They have a certain they want to roll out their broadband networks, but perspective on how state aid rules should be applied. we are delighted to have BT and Fujitsu in the frame. We have a different perspective. The Secretary of Certainly, we don’t think that if BT wins the majority State met with Commissioner Almunia last month in of contracts—and obviously I am not going to predict London. I think he may have gone out to Brussels that would be the case—that it would cause a problem again, but Mr Towler will correct me if I am wrong with state aid. Ev 2 Culture, Media and Sport Committee: Evidence

3 July 2012 Ed Vaizey MP, Robert Sullivan and Simon Towler

Q3 Dr Coffey: If I take up the issue in Cumbria, in have copper lines. Some of those areas do not have European terms £17,000 is an accounting error for an even have backhaul to take it back to the main organisation that has not had its accounts signed off. exchange centre. That is a very expensive process and I appreciate the meetings that have been held by the that, to a certain extent, encapsulates why public Secretary of State with the Vice-President, but can you money is needed. To dig up the roads in the Highlands tell us more about a realistic timeframe? People want and Islands is an enormously expensive process and to start digging in the ground and they feel they no commercial company would ever really get a cannot. return on their investments, so there is a lot of money Ed Vaizey: I think we are very close to an agreement. there. But we have gone round the whole country, so I do not want to put a particular date on it because I Devon, Somerset, Herefordshire have also received an think that would be obviously a hostage to fortune, uplift in their funding following the same exercise. It but I certainly do not expect to be here next year on is also important to emphasise that Scotland is going state aid approval, and I certainly do not expect to be to match the additional money that it is receiving from here in six months. We are very close. The Secretary BDUK. It is not as if the Scots are simply taking a of State is going to Brussels again tomorrow, although handout and running away with the money. They are there will be other issues that he will discuss with matching it pound for pound. That is good news, I Commissioner Almunia. I do appreciate the think. frustration. Although £17,000 may well be an accounting error in some people’s eyes, it is still Q5 Dr Coffey: What led to the 6% error on the first public money and state aid rules still apply. If you analysis? It is a significant quantum. We are not give somebody £1, if you give them £10 million, state talking a small difference. aid rules will still apply, so it is important that we Ed Vaizey: We did it on a household basis. We did an have state aid in place. analysis based on which households needed to receive It is frustrating as well obviously when you are a broadband upgrade. Somewhere like Northern applying public money, there is bureaucracy involved. Ireland, for example, on paper does not appear to be If you take a small community project like Fell End, getting a lot of money, but in a slightly which is something we actively support—a local counterintuitive way that is a very good thing, because community taking the initiative—it is frustrating that it is an indication that Northern Ireland is well ahead because they have to apply for public money, they of most of the rest of the country. Northern Ireland is become part of quite a bureaucratic process in terms one of the most fibred up parts of the United of getting state aid approval, having to do an open Kingdom, so that is a good thing. Obviously, you procurement, because again they can’t simply just be make your initial allocations on which households are handed a cheque and give it to the bloke next door; going to need an upgrade and then you do a more not that Fell End ever would do that, but you have to detailed analysis, partly through to-ing and fro-ing in have an open public procurement process because terms of an exchange with the affected areas, and public money is involved. We all know how Herefordshire and the West Country were areas that bureaucracy can get in the way and how most of us put their case to us. I am conscious that I am hogging would like to see something happen with the stroke of the floor, Mr Chairman, and I can see that Dr Coffey a pen, but unfortunately, or I think correctly because is looking at Rob Sullivan whenever she addresses a it is public money, we have to go through quite question, because she really wants the person who complicated processes. knows the answers to give her the answers. Dr Coffey: No, I am very happy with your answers Q4 Dr Coffey: One of my colleagues later is going so far, but I am sure that BDUK can— to tackle the potentially complex and bureaucratic Robert Sullivan: I think the Minister has covered the process that people have experienced. You publish most important points. One of the critical things about regularly the percentage of local broadband plans that the pilots that we set up—Highlands and Islands in have been approved by BDUK. With some of those Scotland was one of the pilots, as was plans, though, there is a threat to withdraw money. I Herefordshire—was we knew they were some of the understand in Scotland you managed to raise their most challenging parts of the country and we knew money by nearly 50% for over £100 million from the that they would need product solutions that were very first amount of money allocated after undertaking embryonic, essentially, from the private sector, careful analysis. Does that mean other areas have been particularly, as the Minister said, around the exchange short changed and if they need more cash they will only lines. So it was not a mistake; it was something get it? For example, the hon. Member for Rutland was that we said right off the bat that we would need to putting in a bid for £400,000 to try to complete that. do further work on with the local authorities and with I know Suffolk, for example, have chipped in an equal the private sector. Alongside that, the Scottish amount of money to the proposal, a very similar Government did, with close interaction with us, very amount of money. Why is it that potentially some detailed modelling of their own that provided a more county councils may not see broadband delivered if detailed evidence base. It is one of the things where you are not happy with their plans? the community groups have had probably more impact Ed Vaizey: We undertook a detailed analysis of the than they might take credit for themselves. In that money that we had allocated. In Scotland, you are time, for example, BT have now produced a new dealing with the Highlands and Islands and very product that is for exchange only lines and I think remote areas, and you are dealing with areas that do they have benefited from testing that in the field. That not have cabinets that can be upgraded. They simply means for us that in the modelling we were able to Culture, Media and Sport Committee: Evidence Ev 3

3 July 2012 Ed Vaizey MP, Robert Sullivan and Simon Towler quantify the actual pricing and costs of those Q7 Dr Coffey: So they can get that. That is where solutions, which even a year ago did not exist. It is a you have moved a barrier. I am afraid I am going to good demonstration of how fast-moving this process have to dash for the train, but one last question before is. So it is an evidence-based process, and we went I do, and it is probably more a policy thing: £150 through that and then Ministers made the extra million has been put into ultrafast broadband for cities allocation. and more money has been put into Newcastle alone to get ultrafast broadband than, say, funds into my Q6 Dr Coffey: Thank you for that. Cumbria has own county of Suffolk to get people basic or come up a few times and it will come up again now reasonably fast broadband. Frankly, won’t the market because, of course, Cumbria rejected the initial provide ultrafast if there is a demand for it? Why is the Government putting considerable chunks into just proposals from both BT and Fujitsu in the tender a number of cities, as opposed to delivering the process. While we cannot go into the details because connections across the country? it is a commercial negotiation, I understand that it may Ed Vaizey: It is easy to forget that a lot of cities have look from the outside as if simply there is not enough their own not-spots and poor broadband, and what we money in the pot for BT or Fujitsu to deliver the wanted to do in terms of policy was to raise the game requirements that Cumbria put in their tender. Do you for a number of key cities in the UK, to raise their think we are going to see that elsewhere? profile as super-connected cities—cities that could Robert Sullivan: I would not agree with that assertion. compete in terms of their fibre infrastructures with I think one of the reasons that we decided to go ahead some of the most well-connected cities around the with the framework—and the Minister has touched globe. It was an open competition, and we are upon this—was these are highly complex delighted that 10 cities have come through the first procurements technologically and economically in phase of the super connected cities. We are now going terms of understanding the right solution, and I think to a second phase that will include some of our the projects that were pilots obviously came before smaller towns and cities, which equally have the kind the framework. So they have had to go through this of high-tech infrastructure that they want to showcase whole process with a lot of help from us, but they are and attract in good investment. Simon is itching to pioneering that and they have put a lot of work in, as come in on the back of that point. have industry. They just felt that, and credit to them, Simon Towler: It is a growth measure. We have seen they were pushing to really get the best terms, I think that broadband connectivity, and that is at least one of squeezing the pips out of both companies. It also the reasons we are here, promotes economic growth showed the benefit of having two companies and it promotes productivity. There is emerging competing and they pushed them very hard. I think, evidence, at least in some studies, that higher speeds again credit to them as a local authority, they stood promote greater growth and greater productivity, and their ground. They did not feel that either bid was we are also particularly getting a lot of demand, as I completely compliant with their requirements. This am sure this Committee knows very well, from was particularly around the risk transfer process in business for ultrafast connectivity. The European terms of who bears the risk with some of the Community has targets for take up of ultrafast by uncertainties in the process. I think they have quite a 2020, and at the moment the take up of the very high detailed planning process, too; I think it is a speed products is relatively low. You are right that negotiated procedure. We are working with them ultimately the market is likely to provide in most of closely, and I think they will get there and get a good those areas, not all, over time; but by stimulating the deal for Cumbria. market, challenging cities to provide innovative It just reinforces for us all of the local authorities have solutions, they will support their businesses and they worked extremely hard. They have all struggled, will bring forward that growth. whether it is state aid or the commercial negotiations. Dr Coffey: Thank you very much. I apologise for having to leave early. We do not mandate use of the framework, but almost all local authorities have now called in and said, “This is the best route for us.” One more point about that is Q8 Paul Farrelly: Regarding state aid, I have a couple of questions, Chair, thank you very much. I think one of the reasons why the framework is as Cumbria has had some difficulties with the good as it is is that right from the start we involved procurement process, I understand. Cable & Wireless, what we called the initial call-offs, so the four local which had been providing broadband for four years, authorities that were ahead of the curve and I think withdrew because it said the removal of public Suffolk is included in that set. They have designed the subsidy was uneconomic following the abolition of whole framework with us so it is fit for purpose when the North West Development Agency. My question— local authorities catch it and it goes through. and it is really for the uninitiated—is what was it Last week we finalised, both contracts were signed by about the design of that support via the North West BT and Fujitsu, so we are very pleased with that Development Agency that did not trigger state-aid outcome. In many cases that is why local authorities concerns, whereas the state-aid concerns are now an were on hold because they are able to carry on now. overarching problem for the roll-out process? They can go through ITT because the state aid piece Ed Vaizey: We might have to get you a fuller answer is now a clause inside the contracts, so they can pick later on, Mr Farrelly, unless Mr Sullivan or Mr Towler that up. It is no longer a bottleneck for local can help me, but my instinct would be that state aid authorities. is applied on a case-by-case basis. So you go to the Ev 4 Culture, Media and Sport Committee: Evidence

3 July 2012 Ed Vaizey MP, Robert Sullivan and Simon Towler

Commission with your proposal and there would have Paul Farrelly: If there is any further light to be shed been state-aid approval for particular schemes that from experience of the way other products have been were put in place three, four or five years ago, but it constructed that would be helpful to us, then we does not give you blanket approval for any further would like to hear. schemes that you come up with at a later date. It may Ed Vaizey: We will certainly follow up on that. also be because—and I am speculating here, so I will correct the record by writing to the Chairman if that Q9 Paul Farrelly: That leads me on to the second is necessary—some of them were entirely in public question. Presumably, and I do not know, in at least ownership. We have had some problems, to be one of the 27 countries of Europe, there is still a completely blunt, with what on paper seemed to be nationalised telecoms operator, and we have BT here. very go ahead schemes that are funded by regional Would a nationalised telecoms operator not fall foul development agencies, which have proved to be of state aid rules where, because of the structure of wholly uneconomic because of the absence of private- telecoms in this country, we would do? That is not, I sector partners. would say, a call from me to renationalise BT, but I Although it may sound rather harsh, without a BT or can’t speak for the Chair or other members of the a TalkTalk going out and getting customers and also Committee. having the opportunity to sell to customers at Robert Sullivan: Essentially state aid is to check that competitive prices, you can end up where you the measure is necessary, and going back to a question effectively have a wholly publicly financed that Dr Coffey mentioned, it is a check that the private infrastructure. It can end up being quite expensive and sector and the market would not provide without any also you do not have the marketing nous, to put it in intervention, and it is also a check then that that layman’s terms, to get people to sign up for the intervention is appropriate. I do not think it would be broadband. If you get a letter through your door the route to circumventing state aid. saying you have the chance to sign up to BT The other important point about state aid, though, is broadband or you have the chance to sign up to local it is a time consuming process and a complex process, region broadband, you will probably end up plumping as the Minister said, but it is also important that it is for BT. I think that may have been part of the reason there to protect particularly smaller companies who have made an investment. One of the things that the why they might have got state aid because they were county councils have to do right upfront is they have publicly financed projects, and part of the reason why to give very great transparency to what the private they are not doing so well is because of the lack of a sector, including SMEs, are already doing, so that a private sector partner. Simon, do you want to answer? state aid measure does not just come in and wipe out Robert Sullivan: Do you want me to just to say— the business model for small companies who are Simon Towler: I do, yes. trying to innovate and help customers in those areas. Robert Sullivan: Firstly, my understanding is that It has a real benefit as well as an issue, I think. Cumbria County Council are going to pick up the area that is left behind and so those residents will not be Q10 Damian Collins: Is the issue with the European without a service. The other important point about Commission principally over wholesale market state aid is in a way it is not a check of whether the access, and that has been the sticking point? investment model is sustainable. I think the critical Ed Vaizey: Broadly speaking, yes. Do you want to piece here is that one of the things we have done in elaborate? the framework is a lot of due diligence and it is behind Robert Sullivan: Yes. As the Minister said, it is our choice of gap funding as our intervention method, unfortunate timing in that they are going through and because we look very carefully with companies at the understandably trying to put the clearance in light of sustainability of the project. For example, the BDUK where their draft guidelines might evolve to. We funding is capital only. We are not funding, and it is started off with about five difficult issues. There was very difficult to fund under state aid, operating costs. some discussion around whether wireless qualifies as We look very carefully at whether the model is NGA. But you are right; predominantly, it has been sustainable such that, once the capital funding goes in, unpacking what is probably one short paragraph in the can the private sector make a continuing return, and state aid guidelines around open access and in a sense, it is not the process for state aid to do that. quantifying—we have unpacked that to probably two It is a process for value for money on the procurement or three levels—on what does that open access mean side that analyses that. Both state aid and the in terms of new build duct, existing duct. That is procurement regulations are important. I am not that where we have got to, and I think we have now close to the project, but my expectation would be that narrowed it down to a much smaller space. As the the company found it difficult because of the Minister said, we are confident we will get to a operating costs to make it sustainable. resolution on that. As the Minister said, the other part of that, we have built in very firmly, based on the evidence we have Q11 Damian Collins: The second point there is the seen from other projects, around the importance of access price to the infrastructure, particularly BT’s having the major internet service providers signed up infrastructure? to use this service because we know that, without that Robert Sullivan: Correct, but I think the conditions happening, it is very difficult for the enterprise will be laid down such that it is looking at what a running the wholesale layer to make that work third party access seeker could ask for in terms of commercially. whether it is Fujitsu or BT that build the network. Culture, Media and Sport Committee: Evidence Ev 5

3 July 2012 Ed Vaizey MP, Robert Sullivan and Simon Towler

There are material issues for both companies here, I Robert Sullivan: I don’t know exactly what the think. outcome will look like. All I would say is that the negotiations are going in the right direction. The Q12 Damian Collins: Is the issue that BT’s price is Secretary of State has, as the Minister said, made it too high or too low? very clear how important it is for the growth agenda Robert Sullivan: It is a question not in terms of only to sort this very quickly. We are confident that we will the pricing; it is really the conditions. There is a lot get an answer very shortly. of work we are doing at the moment on what is called proportionality tests, of which I won’t bore you with Q17 Damian Collins: We will probably come on to the details, but it is trying to assess what is a 4G later on, but does 4G have to be part of the reasonable hurdle for a new company, a new access package to get this through the Commission? seeker, that wants to then use infrastructure that has Robert Sullivan: No. been subsidised with state aid. Q18 Jim Sheridan: Apologies for my limited Q13 Damian Collins: What I am saying is the issue knowledge of this. I am still practising the TV remote is that if that price is very low no one else can come control. But representation has been made to me, just in and compete against it, against the monopoly, or probably an hour ago, about the delivery of 4G and the price is set high because the company knows it the costs to the individual. Can you say anything has a monopoly already and can charge whatever it about these filters that have to be put in? wants. That is the issue that you have to try to Ed Vaizey: This is issue that is being debated at the wrestle with. moment. 4G spectrum comes on stream next year and Robert Sullivan: I think that is part of the the year after, which is the next generation of mobile discussion, yes. phone spectrum. This is the kind of spectrum that is going to make your smartphone work more quickly. Q14 Damian Collins: BDUK have produced a very You will be able to download your data more quickly helpful document for authorities bidding, which is on on your smartphone. It is a very important measure the DCS website. But you make this sound relatively and we are very keen to see it come on stream. We straightforward about benchmark pricing and you will be using some of the spectrum that has been have to get a relevant average price for the local vacated by analogue television when we moved over to digital television, so we are having to clear that market, so why have you encountered these problems? spectrum. That is why it has taken longer than some Robert Sullivan: As the Minister said, it is because people would have liked, but we are now in a very the state-aid guidelines are changing and also the good place. But the point is that when that comes on Commission felt that they wanted to unpack what it has the potential to interfere with your digital open access means in a lot more detail than is set out television reception. in the guidelines. So the Department worked with Ofcom at the beginning of the year to look at what measures we Q15 Damian Collins: But you have been seeing would put in place, and we decided we would put in these bids coming in, so presumably people place an organisation that was run by the mobile submitting their bids, being approved by the Secretary phone companies. We took the view that it should be of State, are following the guidelines you have the mobile phone companies that put in place the established. Are you saying now that you either measures that will mitigate the interference from their misinterpreted what the Commission wanted, or the own spectrum on television viewers, because they Commission have changed their mind? would have the technical knowledge of their base Robert Sullivan: I am not sure it is either of those. stations and where they are placed and they could put The Commission are reassessing how firmly they want a lot of technology on to the base stations to reduce to tie down what open access means. The other thing the interference at source. You can do things like turn I should say is, again, this was a mechanism to try to down power on your base stations, your mobile phone help local authorities and community groups through masts, where it is causing interference. So they could what is a very complex piece of machinery. There are mitigate a lot at the source. Then we have set aside two pieces of the jigsaw that BDUK have in place. £180 million for a help scheme. It is similar in some One is the framework, which is essentially the respects to the digital television help scheme that contractual mechanism. Then separately we have what obviously got a lot of publicity. That will involve is called our state-aid umbrella. So, essentially, we publicity, advice to householders, physical help, if you have a document that secures state aid when it goes like, for vulnerable households to eliminate the through and then all local authorities don’t need to go interference. through their own state-aid process. What they have Ofcom has made an estimate of the number of people to show is that they are then compatible with the who might be affected, but I have to stress that that is conditions that we have set down. That will save local an estimate, and it is a conservative estimate. I hate to authorities an enormous amount of legal work and use the phrase “worst-case scenario” because that sets complexity and speed up the process. lots of hares running, but they have taken a big estimate and it might well be that the interference is Q16 Damian Collins: Do you think we are going to much lower than we anticipate and we have to do less. end up having to drop the access prices to get this But we have been very cautious. We have established through the Commission? this company, which we call MitCo, standing for Ev 6 Culture, Media and Sport Committee: Evidence

3 July 2012 Ed Vaizey MP, Robert Sullivan and Simon Towler mitigation obviously, or we are about to establish it, But I think prices are very competitive. I am sure there and we have set aside this money to ensure there is are international indices that show that we are quite money to mitigate the effects. But I know this is an competitive in the rest of the world. issue the Chairman is very interested in. Chair: This is an issue the Chairman is very Q21 Louise Mensch: Mr Towler, do you have interested in and I have a lot of questions on it, but I anything to add, particularly in relation to that last want to leave it to the end because it is slightly point about our competitiveness in terms of price in separate from the main issue we have been discussing. the international marketplace for superfast broadband? We will come back to it, if we may. Simon Towler: Yes. I don’t have the price figures to Jim Sheridan: I am concerned; is there an individual hand, but they will be in Ofcom’s international cost to people for this? communications market reports. My recollection is Chair: Jim, there are questions 12 to 14; if we could that we score extremely well in relation to other come back to it later. countries in Europe. In some ways where we are today is a function of the success of local loop unbundling. Q19 Louise Mensch: Going back to macro-policy, Comparisons do get made with progress in fibre to the you have a big target: 90% of people access to home and other places, which have basically superfast broadband by 2015. Are you going to hit leapfrogged to that situation where they have that? absolutely appalling copper infrastructure in the Ed Vaizey: Yes, I think we will hit that. We are very ground. We have reasonably good copper well on track. We take into account, for example, what infrastructure in the ground. Once you get the fibre BT is doing at the moment. It has already passed its out to a cabinet you can produce speeds of, first, up target of 10 million households with superfast to about 40 and now, with the change in frequency broadband. It is wiring up the equivalent of Singapore planning, up to about 80 Mbps. That is a function every quarter. It is due to complete its programme a of the quality of the copper. You can go on to price year ahead of schedule in 2014. Virgin Media, as you comparison sites, including Broadband.co.uk, and you know, is covering 30 million households as well, will see prices as low as £3 a month, or £3.25 from almost half the population with superfast broadband. TalkTalk at the moment. We are on the verge, having approved most of the Louise Mensch: I must switch. procurement projects for rural broadband, of seeing Simon Towler: But that is exactly a choice. That £3.25 shovels in the ground, as it were, towards the end of will not be superfast, that will be a 8 Mbps package. this year. I think, in 2013 and 2014, you will see a I personally happen to subscribe to Infinity 2 and that much accelerated process as people get to work. is about £25 a month. Virgin Media have a 100 Mbps product that is comparable. The issue that you are Q20 Louise Mensch: People are concerned about getting sometimes with take up in this country, I think, value for money, particularly where public money has is precisely about very price-savvy, very price- been involved. Given that public money is being conscious consumers who are saying, “I’m quite offered as a subsidy, are you confident that superfast happy with 10 Mbps because I’m paying £6, £8, £9 a broadband is going to be reasonably priced for the month. I am not yet convinced of the benefits of 100 individual consumer, especially where public money Mbps.” That is part of the reason we are doing the has been allocated? ultrafast broadband projects in cities, creating that Ed Vaizey: Yes, I am confident. I think we have a environment where people will create the applications competitive marketplace. BT Openreach has an open and the new services you saw coming through after access infrastructure, so other people can use its local loop unbundling. infrastructure. Through negotiation with Ofcom, BT Louise Mensch: Indeed. Well, I hope the Minister is has dramatically reduced its prices for what is known keeping an eye, although it is a separate discussion, as passive infrastructure access, that is being able to on piracy of larger files like television and movies get your fibre into BT’s ducts, and that has been once superfast broadband is rolled out across the UK, reduced by something like 50% or 60% from the because there will be, doubtless, some collateral initial prices that were set. We have had some success piracy damage, but thank you for those answers. with the business rating of fibre by reducing the cost of that in new build areas and rural areas. So there are Q22 Chair: It is all very well talking about superfast lots of factors that are driving down the cost of laying broadband, but there are some people who do not get the infrastructure. But we have a very competitive broadband at all. You have, as part of your marketplace as well, and I think an important point to commitment, the pledge that there should be 100% make is that one of the things that will put us at the broadband coverage across the country. How are you top of the tree, near the top of the league tables in going to achieve that? terms of broadband, is not only that we will have fast Ed Vaizey: That is the entire point behind our £530 broadband but that it will be accessible at a reasonable million programme. We have set aside £530 million price to the consumer. There will be a debate by for rural broadband. We have done it on a local basis, consumers about whether or not they think the price which has attracted matched funding. It is worth differential is worth it. Some telecoms companies, I making the point that I think the figure that we are suspect, will market superfast broadband at broadly now able to use—and Mr Sullivan will correct me if the same price as current broadband, simply to get the I am wrong—is about £1.2 billion of public customer on to the network to see how much of a investment. For example, we were talking about difference it might make to how they use broadband. Scotland earlier; how the Scottish Government has Culture, Media and Sport Committee: Evidence Ev 7

3 July 2012 Ed Vaizey MP, Robert Sullivan and Simon Towler matched the investment we have made in rural Ed Vaizey: We had this debate about how many broadband in Scotland. So there is a substantial people worked for BDUK. The headcount we now use amount of money going in. As I say, the detailed is 53 people. I think there are 10 people devoted to procurement process we have been through, working local broadband plans, but Rob will correct me in with local authorities and devolved Administrations about a minute and a half. We think that is adequate. who are best placed to know where the broadband As you know, there is, in Whitehall, an animus should go in order to bring in people who can’t towards reducing numbers and not hiring additional receive broadband, I think is the most effective way staff. But, with BDUK, we have always taken the of ensuring that we meet that target. view that when BDUK come to us with a reasonable case and say, “This is the additional headcount we Q23 Chair: It has been suggested that there should need; the additional support we need to make this be a universal service obligation, as there is, for work,” we have always signed off on it and pushed it instance, in the Post Office. Is that something that you through the Cabinet Office, which is where you have think could become necessary? to get ultimate sign off. So, to a certain extent, we are Ed Vaizey: I think the European Commission, or was driven by what Mr Sullivan says that he needs. We it the European Parliament, debated that and rejected are confident that he has the people on the ground to it. I think they were right to reject it in terms of this do the job. I say in all candour that if Mr Sullivan being early days. To impose a universal service came to me and said, “I don’t have enough people. I obligation now would distort investment decisions. I need five, 10, 15, extra people to get this job done,” I think we are lucky in this country that we have two would scrutinise him in the appropriate way, but I very dynamic main players in the market and many would be minded to sign off, because I think he has other players in the market who are laying done a superb job and I think BDUK has done an infrastructure, providing innovative and new services. amazing job over the last two years in getting us to I do not think they would be able to make that kind where we are. So having got Mr Sullivan now in the of investment if we imposed a universal service right frame of mind to absorb what I was saying— obligation on them. But, in effect, we will be delivering broadband for all by 2015, and I am sure Q26 Paul Farrelly: Very quickly, Mr Sullivan, is it that the universal service obligation is something that an adequate number, the optimum number? might well come up in discussion in the future. Robert Sullivan: When I started two years ago, we I think the other thing to point out as well is that, had five people in the team, but we had the beginnings through the £150 million, we are putting into mobile of one programme, the rural programme. As we have phone infrastructure we are effectively going to gone through, the Minister has evaluated the urban increase coverage of mobile phones to being near universal, which I think is a very good achievement programme and the mobile programme and we have as well. brought in the very specialised expertise to let us take that through. So I think we are fit for purpose. We are deliberately lean and agile, and we do change people Q24 Chair: That would be sufficient to meet your inside the team and roll them off the programme as target? If somebody had access to 4G through a mobile network then you would consider that, we go through different stages very quickly. The other therefore, they had access to broadband? thing I would say is that we have done a lot of work Ed Vaizey: Yes, I would. with local authorities. The programme was devolved Simon Towler: Might I add, Chairman, on technology by design, and as I said earlier, the four local choices right now we have very close to 100% authorities that we have been working with in broadband coverage? It may be, in some instances, designing the framework have a lot of procurement extremely poor, but on the definition for the European expertise in their own right. They have sat on our Union target for 2013 of functional broadband for board and taken us through the process. In a sense, everybody by 2013, they are talking about the original BDUK is catalysing the take up of capacity across the definition of broadband at greater than 144 kbps. Our country in different local authorities. We are universal service commitment goes to 2 Mbps. Just deliberately not trying to carry all of this ourselves, as about everybody can get that now, with exceptions a completely national programme. I think we have the in tiny numbers from satellite. Satellite providers will resources that we need, but we keep that under review. provide an acceptable service of somewhere between 2 and 10 Mbps quite happily now. 4G, we hope, Q27 Steve Rotheram: Minister, you touched earlier would generally speaking provide rather better than on in a question from Dr Coffey about the issue of that, certainly better than 2 Mbps. bureaucracy. How do you respond to the specific accusations that the tendering process that you have Q25 Paul Farrelly: Just looking at the current established for BDUK is overly bureaucratic and programmes as an overview again, the local complex? authorities are harder pressed than ever now in terms Ed Vaizey: Well, I don’t recognise that. I haven’t of finances and therefore the ability to commission received any significant complaint that I can recall as their own outside advice. Minister, what do you think a Minister direct from anyone involved in the the optimum number of people is under the current tendering process. It is complex, obviously, to cross programme for BDUK to properly advise all the the t’s and dot the i’s on an infrastructure project of councils that are likely or wish to take part in the this nature. As I said earlier in response of Dr Coffey, programme? we are here to ensure that public money is spent Ev 8 Culture, Media and Sport Committee: Evidence

3 July 2012 Ed Vaizey MP, Robert Sullivan and Simon Towler appropriately, so it is important that we have a Robert Sullivan: To be fair to them, they are very, framework document that covers all the bases. very small projects. They are probably talking about almost part of one exchange and I think they feel that Q28 Steve Rotheram: You are not aware of the they can put pressure on the private sector to address Lords Communications Committee written evidence, that without intervention. Indeed, that would mean pages 177 and 346, I think, if my eyes are not giving that they don’t need to go through the whole process, way, which criticises the tendering process for being so it is an understandable position. expensive, overly bureaucratic and complex? Just on the point of overly bureaucratic, as I said Ed Vaizey: I don’t know who put in that evidence. I before Ministers have not mandated that local did read the Lords’ evidence and I gave evidence to authorities use the framework. Almost all local that Select Committee, but I have not had a queue of authorities have decided to use the framework as the local authorities coming through my door, or any of most efficient mechanism through the process. Where the devolved Administrations, saying that they felt it I do have some comment from stakeholders is that, was complex. I think when you take a step back from particularly for very small community groups, they anything, anyone who gets involved in any do, despite a lot of hard work, find the state aid procurement exercise would probably regard it as guidelines and the procurement regulations that we expensive and time consuming and difficult, and they have to fit around very complex to understand. In a would much rather that you just simply wrote them a sense, many of those community groups are doing this cheque and they got on with the job. But I think we alongside other jobs. They are not full time devoted have a legal obligation to ensure that procurement is to this in the way that I and the team are. What we have tried to do is our outreach team do a lot of work undertaken in the appropriate way and that we don’t to try to share best practice and give them as much leave unnecessary gaps that might catch us out later. support as we can to make the process as painless You could say about almost any project in which the as possible. As the Minister said, these are complex Government is involved that people will always procurements. It is always going to be a reasonably complain about the bureaucracy. But that is the price, high hurdle to follow through the system. I am afraid; you have to pay if you want to access public money. Q32 Paul Farrelly: Apart from Tyneside, what is the other area that has not been approved? Q29 Steve Rotheram: You say people always Robert Sullivan: From memory I think there is a complain about things being overly bureaucratic. Isn’t small part of Birmingham, but there I think we are this exactly what you did in opposition, to criticise realigning that with the super-connected cities things for being overly bureaucratic? Isn’t it one thing programme. They are basically all authorities that are to be critical in opposition and then the reality is when almost at the very edge of our assignments. You are you get into government it is much more difficult to looking at very small allocations. They have decided, streamline and simplify these process because there I think, to just pick that up through a different are certain checks and balances that need to be in mechanism. But I think credit to the commitment from place? local authorities. Again, we didn’t mandate that local Ed Vaizey: Well, I appreciate, Mr Rotheram, the authorities match funded. Almost all local authorities opposition’s support for the position the Government have put in local broadband plans in a very short is in at the moment. order. They have only had less than a year to do this from scratch, and many of them have put in more than Q30 Chair: You are nearly at the point where local match funding. So there has been an enormous broadband plans have been approved. What amount of traction there, I think, with the local proportion are there left still to gain approval? authorities. Ed Vaizey: From memory, I think it is four, but Mr Sullivan will— Q33 Paul Farrelly: Could you write to us and tell us Robert Sullivan: Technically four, but two of those which part of Birmingham, in case that provokes an are local authorities who have decided that they think alternative reaction? the private sector will provide, so two. Robert Sullivan: Yes, we are happy to send you Chair: That is Tyneside? details on that. Robert Sullivan: It is yes. Ed Vaizey: North and South Tyneside. Q34 Chair: All the plans that have been approved will, if they all come to fruition, result in superfast Q31 Chair: Are you concerned that North and South broadband being available by the target date of 2015? Tyneside appear to have opted out of the entire Robert Sullivan: Correct, yes. Government strategy? Chair: I would now like to return to the interesting Ed Vaizey: I hesitate. I should curb myself. I was question of 4G and the potential consequences for the going to say they might have been put off by the television watching nation. complex and bureaucratic, expensive process of bidding for the money, in which case it saves the Q35 Mr Sanders: I want to go back to your answer taxpayer some money. I don’t know all the details of about the numbers and the different calculations of the why North and South Tyneside have walked away numbers of households that are likely to be affected. from it. I am rather impressed that they feel the private If the £180 million set aside to deal with the problem sector will deliver everything. is not sufficient, what is going to be the mechanism Culture, Media and Sport Committee: Evidence Ev 9

3 July 2012 Ed Vaizey MP, Robert Sullivan and Simon Towler for bringing in more resources to deal with the What you have to do is you have to look at the problem, given you will already have had the income potential figures of people who will be affected, and from the spectrum? as I say, there is a lot that can be done before you get Ed Vaizey: We have promised to make up the to people who are genuinely in need of help. I have shortfall, should there be any shortfall in the £180 already said in answer to Mr Sheridan’s question that, million. I am confident, however, that the £180 because the mobile operators are effectively in charge million is absolutely sufficient. But the bottom line is of the mitigation measures, there are a lot of things we do not want people to be left without television they can do on their base stations. They can reduce reception because of 4G interference and I am not the power, and they can fit technology to their base going to let that happen. stations to reduce the interference, so quite a lot of householders can be potentially removed from the Q36 Mr Sanders: The question about the equation as 4G comes on stream. Government’s calculation that has come into my Then, to be blunt, a lot of other householders will be postbag is that it is based on the cost of the filtering getting their television in other ways, through cable or equipment but not necessarily the cost of installing satellite, so they are very unlikely to be affected that equipment, which in many households may within the affected area, if you are living near a base necessitate more help with installing than has been station or whatever. So then you come down to people calculated. Is there going to be money to help with who get their digital terrestrial television who are near installing? a base station who are likely to be affected. We have Ed Vaizey: Yes, there is money to help with installing. made a calculation, and we think that is about 900,000 We have an interesting debate with Freeview who are people. We have made a calculation as to the kind of running this campaign in the media to extract more money we need to fit filters to their houses, which will money from the Government. I am not even sure they deal with a huge amount of the problem, and then to want to extract more money from the Government. I deal with those for whom a filter will not be a think they want clarity on what help would be solution, they will need a more expensive solution. available. The first group are what we call vulnerable We have made that calculation, so that is where we consumers—the elderly or people with physical are. I don’t think Freeview can argue any other way infirmities—and they will get practical help. Money about it; they have made an estimate; we have made has been set aside within that £180 million. I think it an estimate; we have done it in great detail through is £20 million to do that. The debate is then whether Ofcom. But obviously, politically, we are not going to there needs to be additional money set aside to help allow anyone to lose their television signal because of others who may request somebody to come and help mobile phone interference. them fit a filter and, because of Freeview’s concerns, we are looking at that again, so we are having a good discussion with them on that. Q40 Mr Sanders: But on the argument that Ofcom have done a lot of work coming up with that figure, Freeview have done a lot of work coming up with Q37 Mr Sanders: Where is that if that— their figure, and the variation of between 760,000 and Ed Vaizey: That will come from within the £180 2.3 million affected households is vast. It is even vast million, so at the moment, the parameters are set in between your figure of 900,000 and 2.3 million. It certain ways, and Mr Towler will elaborate on those, only needs to be a few hundred thousand above your but we can— 900,000 for your monetary calculation to be completely out of kilter. The set aside of £180 million Q38 Mr Sanders: But if extra funding is needed, will simply not be up to the job. where is that going to come from? Is that going to Ed Vaizey: I don’t agree with that. come from the taxpayer? Simon Towler: No, neither do I. Ed Vaizey: Don’t forget the taxpayer would have benefited from the receipts from the auction process, so there will be additional money available. Q41 Chair: Are we all agreed that potentially 2.3 million sets are affected, which is the Ofcom Q39 Mr Sanders: If the additional money has to estimate? come from the receipts from the sale of the spectrum, Simon Towler: Yes, but that is the universe of sets then clearly you are not going to benefit as much from that could be affected. That is the Ofcom number that the sale of the spectrum if the calculations are wrong. Freeview started from, but then there are mitigation Ed Vaizey: If the calculations are wrong; but, Mr measures that would be taken, and that knocks Sanders, all I can say is that Ofcom conducted a very everything down. detailed study on this and we set aside what we consider to be a very generous sum of money. When Q42 Chair: Indeed, but I want to start off with the the last Government set aside money for the help 2.3 million. What estimate do you think are still going scheme for digital terrestrial television, I think it set to be affected in the house after the mobile companies aside—this is again off the top of my head and I will have taken the mitigation measures at the base stations correct the figure if I am wrong—something like £350 that you refer to? million, we had a massive underspend on that money. Simon Towler: All of the mitigation measures. So these are estimates, but they are very carefully Chair: This is not mitigation measures in the worked out estimates, and I think £180 million is a household. This is at the base station. great deal of money. Simon Towler: It is 900,000. Ev 10 Culture, Media and Sport Committee: Evidence

3 July 2012 Ed Vaizey MP, Robert Sullivan and Simon Towler

Q43 Chair: So 900,000 households potentially to have professional fitting of a filter in order to require mitigation in order to go on receiving mitigate the effect of 4G spectrum. We do not share television. You have said they can have free filters. that view. Freeview have put their case very robustly. Does that apply to just those who rely on DTT, or is We continue to consult on this. We will come to a that satellite and cable subscribers as well? final conclusion; but, as I say, we took very detailed Simon Towler: They don’t need the filters. advice from Ofcom. We have been working on this for some considerable time. We have put in place Q44 Chair: Well, you say that. They do if they have MitCo in order to drive forward the mitigation a second set upstairs. measures. We have set aside £180 million. We are Simon Towler: The point I did wish to make is that is confident. But you are right, Mr Chairman, that that out to consultation at the moment by Ofcom and so is the fundamental nub of the argument; is everyone these issues are being carefully considered and going to have to require professional installation or carefully addressed. not? That is what we are consulting on. Freeview is putting its case very robustly. You have put down Q45 Chair: If I am a household that is affected, even parliamentary questions about it. We are responding though I am a satellite subscriber, is the Government to that and we will look at that, and we will put in still going to provide me with a filter so that my place an appropriate response. television in my bedroom works? Simon Towler: The premise in the consultation is that Q52 Chair: But you, as the Minister, are not able to the second set would not receive a filter. say today that, if a household requires professional installation of a filter at a cost of £150, the Q46 Chair: All right, so I am going to have to go Government will meet that cost? out and buy a filter in order for my second set to work. Ed Vaizey: There is a difference of view about Simon Towler: Yes, for £10. whether or not professional installation is required. Ed Vaizey: We estimate it will be £10. The price might Freeview have put their case; I have taken my advice be lower when— from Ofcom.

Q47 Chair: As I understand it, it is likely that those Q53 Chair: There will be some households where it households with amplification in the loft will require clearly is required. If it is clearly required, will professionally installed filters. Would you agree with Government meet that cost, or is the householder that? going to have to pay £150? Simon Towler: Not necessarily. In the loft? Simon Towler: Let’s start with the thing that the Minister has already said that vulnerable consumers Q48 Chair: If you have your own amplifier device will get installation. in order to receive television, the advice I have had is that to fit a filter will require a professional to come Q54 Chair: That is interesting, because if you say and do it. It is not something that a normal member that vulnerable consumers are going to get this free, of the public can just go and plug something in. by implication you are saying that, if you are not Simon Towler: My understanding is in most instances, vulnerable, you are going to have to pay something. and this was the consumer research—so Ofcom did this on the basis of consumer research—the filters Simon Towler: That is the position at the moment, would be able to be fitted easily by a normally capable but, as I say, we are still consulting on the issue. The adult in— position at the moment is that Ofcom have not asked us to change the conditions that have been set out, the Q49 Chair: My understanding is that research was £180 million, or the conditions set out in the done with people who had standard aerial consultation document. The position at the moment is installations. It was not done with those who have we have not been asked by Ofcom to do that, but we specialist equipment already installed, and a large are considering the representations that have been proportion do have that specialist equipment. made and there will need to be clarity by the time the Simon Towler: So these are the issues that are being information memorandum for the 4G spectrum considered in the consultation document, and I am not auction is published, which is due this month. in a position to second-guess— Q55 Chair: Can I ask you about multiple dwelling Q50 Chair: The estimate I had was that to fit a filter units. Do you accept that it will almost certainly is probably in the region of £150. require professional installation of filters? Simon Towler: Yes, that sounds reasonable. Simon Towler: No, I don’t accept that.

Q51 Chair: So in those households where it is likely Q56 Chair: You think somebody living in a tenement that it is going to require a professional to fit a filter flat is going to be able to go and fit a filter, do you? at the cost of £150, is that going to come out of the Simon Towler: No. It is the responsibility of the Government fund, or are people going to have to pay landlords under the terms of the consultation at the for it? moment. I am not saying that they will have the same Ed Vaizey: As I made clear, Mr Chairman, we are filter, but the idea is that they will be provided with a consulting on this, so there is a consultation out there. more complex filter that is able, therefore, to provide Freeview take a view that everyone is going to have for the needs of MDUs. At the moment that is the— Culture, Media and Sport Committee: Evidence Ev 11

3 July 2012 Ed Vaizey MP, Robert Sullivan and Simon Towler

Q57 Chair: Your view is that landlord will be able covered by a free filter and so on. That is not the to go and fit this more complex filter by himself? position we have taken. Simon Towler: At the moment, those are the terms— Q61 Chair: You also said that you weren’t sure how Q58 Chair: Has Ofcom looked at the research into many people were going to be affected. Are you this? saying that— Simon Towler: It is looking at the research and the Ed Vaizey: The point I am making is you don’t know, representations as a result of the consultation, which just as you didn’t know, when you set aside £350 is still ongoing. million for the help scheme for digital television, how Ed Vaizey: The reason this debate has happened, Mr many people were going to need to take advantage Chairman, and I reiterate the point, is that this is a of it. consultation. Ofcom did an analysis of what they thought—a generous sum of money that they thought Q62 Chair: That is a different matter. With the help would be needed to mitigate the interference from 4G. scheme, you did know that everybody would have to We took a policy decision that the mobile phone upgrade from analogue to digital. What you didn’t companies would be the drivers of this policy. In fact, know is how many people would apply for help we have even calculated what would happen with the through the help scheme, but what you are saying is money in terms of an underspend. So this is a very you don’t know many people are going to find that carefully calculated estimate, but it remains an their television doesn’t work. estimate, and that is why we have consulted on it and Ed Vaizey: I am saying that we have made a very Freeview is putting a robust case, which you are on accurate estimate, but by definition it is an estimate, top of, about whether or not the amount of money just as I said that in other countries when 4G has come needs to be increased to take account of their on stream the interference hasn’t been as acute as argument that professional installation is needed for people estimated. Ofcom has done a technical analysis all filters for all people affected by 4G. of households near base stations that could be affected We cannot calculate until 4G happens. We cannot be by 4G spectrum. 100% sure who is going to suffer from interference. In other countries where 4G has come on stream, the interference has been far lower than people have Q63 Chair: So you are saying that you won’t know expected, so we could be dealing with far fewer until somebody— numbers when 4G comes on stream, but we made the Ed Vaizey: I suppose the reason I am cavilling, Mr estimate. We have done a calculation and we are Chairman, is because by using the phrase “you don’t undergoing a consultation. We can keep batting back know” you are implying that not a great deal of and forth how many people are going to have go into a detailed work has been done. A great deal of detailed loft; how many people are going to have to fit multiple work has been done on this, so I am just saying that dwellings; that is part of the consultation. I am we have calculated it in both directions, as it were. confident the money we set aside will be adequate. The Government has agreed that if additional money We have already agreed, with the meeting with is needed it will meet those costs, but it has also put Freeview, that we are going to go back and look again in place a mechanism for repaying some of the money at these issues as part of our consultation process, and if we have an underspend. So, clearly, you do a I am happy to come back to you or indeed, when we detailed analysis. You come up with a sum of money conclude our consultation, to address those issues in on the basis of that analysis that is both generous and more detail. should cover the issue. The frustrating thing about this debate is, to a certain extent, there is an element of Q59 Chair: Okay, but I still have a couple of points. bells and whistles being required to cover every I agree you can’t necessarily agree the details but eventuality. We took what we thought was a would you accept the principle that there are people reasonable course, based on the technical analysis that who may discover that they cannot watch television, Ofcom put forward. through no fault of their own, because the mobile companies have started broadcasting in 4G? Given Q64 Chair: Can I put one other thing to you. that has happened to them, through no fault of their Obviously, a lot of detailed work has been done but own, and indeed a lot of money is going to be raised at the end of the day, as you have said, it is unclear to through the sale of 4G spectrum, therefore they what extent interference is going to take place. As I shouldn’t have to bear the cost of being able to watch understand it, it is proposed that 4G is going to launch. television again. When we had digital switchover, we had the Ed Vaizey: The principle behind it is that you will get Whitehaven pilot scheme. We then had a phased cover for the main television set. We took a switchover across the country, which allowed Digital calculation on costs. UK to publicise it and make the help available. Here you are going to do the whole thing straight overnight, Q60 Chair: That is a qualification, saying it is “the as I understand it. Are you going to have a pilot main”. scheme like Whitehaven? Ed Vaizey: It is a qualification. We took a view in Simon Towler: With the greatest of respect, there is terms of the amount of money we were happy to set an enormous difference between the way that you roll aside, but I hear what you say, Mr Chairman, and out a telephony network and switch over a some people take the view that every set should be broadcasting network. Ev 12 Culture, Media and Sport Committee: Evidence

3 July 2012 Ed Vaizey MP, Robert Sullivan and Simon Towler

Q65 Chair: What we are talking about is people think is a reasonable course and a generous course. I finding that their television sets are interfered with, think the point that Mr Towler was making earlier as which is very similar to the analogue switchover well is we can’t be entirely sure what the exercise. infrastructure will be. We have read in the press Simon Towler: Yes but the mobile telephony, the reports that Vodafone and O2 are talking about mobile broadband network will be rolled out. You will effectively merging their own infrastructure. Base not have a situation where the companies build out stations are expensive for mobile phone companies their network first in its entirety, flip a switch and anyway, and the fewer they have the better, frankly, everybody has 4G. They will build out on a phased from their perspective. We have taken a view. We basis and that is precisely the sort of work that MitCo have taken policy decisions that might cause rows in needs to do, as the digital switchover help scheme terms of not funding the filter for the second set and company needed to do, which is to let people know not believing that every single filter will need to be in good time in advance. One of the very good things fitted by a professional installer, but we have heard about this Freeview campaign is, for most people, you Freeview’s robust arguments and that was the purpose are two years away from anything like mobile service, of the consultation. I didn’t realise the consultation so we are planning well in advance. Base stations will was going to ratchet up to quite this extent, but so it be built out on an individual basis. This is why you has, and that is life, isn’t it? cannot know. You don’t know today where the many Simon Towler: Can I address the point again? I think thousands of base stations are precisely going to be in you make a very valid point about trying to avoid every instance, so until you know that you can’t know cowboy installers. I cannot tell you here and now that what the interference effects are from that base station the registered digital installer scheme will extend to and what the implications are of the mitigation effects the ability to fit those filters, but it would seem to me when you turn it down. So that is why MitCo is going likely that RDI-licensed installers would be the sort to have to have a multi-year life and it is going to of people that you want doing the installation where have to have a lot of money to do this mitigation work it is necessary. over a period of years. Yes, they are going to need to do marketing and information. Q68 Jim Sheridan: Just to follow the Chairman’s Chair: Okay. A couple of my colleagues wish to question about tenement buildings—and I think you come in on this. said it would be the ultimate responsibility of the landlord—in practical terms, if that is a private Q66 Paul Farrelly: I am probably going to come landlord and there are any costs involved, it is highly from a different perspective from John on this. One unlikely that they are going to soak up the costs. More of the concerns that was often mooted about digital importantly, a number of landlords will be local switchover was the potential for cowboy installers to authorities, so will they be expected to pay the bill? go round the country, which doesn’t seem to have Simon Towler: Yes. happened in fact, judging by the absence of press Jim Sheridan: That is pressure on local authorities as reports. well, then. Simon Towler: Because of the registered digital Simon Towler: Buildings in public ownership will be installers scheme that was put together, absolutely. treated in exactly the same way as all other buildings. The expectation that landlords will bear the costs of Q67 Paul Farrelly: When you give me a price of installation is exactly the same expectation as it was £10 for a filter and £150 for installation—and I don’t in digital switchover. know what sort of installer, whether there are different sorts of installers needed—if I were an installer, it Q69 Mr Sanders: I can see the hoteliers in my would be worth my while to give people a free filter as long as I install it for you and get my money back constituency saying this is a Government stealth tax. from the Government. My question to the Minister is: Shouldn’t they be offered some help, because it seems isn’t it right that the Government is as robust as you to me it is the mobile phone operators who are going are being in not offering a blank cheque because of to be making the big profits, year on year? the potential for abuse in a situation where it could Ed Vaizey: I think UK PLC will make big profits from never be cost-effective, if it were possible, to monitor the advent of 4G. I think it is an absolutely vital part every application as to whether the TV was in fact of our economic growth agenda and normally when I affected or not? take questions on 4G it is, “Why haven’t you got on Ed Vaizey: I think, Mr Farrelly, part of the frustration and gone ahead with 4G already?” and the answer to with this debate is that, as a Minister responsible for that is— public spending, I have to take a reasonable view of Chair: We have asked that as well. what is the appropriate money to be set aside. We had Ed Vaizey: The answer, as you know, is that the a detailed analysis of what Ofcom proposed. Freeview spectrum hasn’t been cleared yet, which is why you comes from a different perspective and they can’t have 4G even if we wanted to wave a magic understandably want every bell and whistle to wand. I am sure millions of people will adopt 4G, preserve their model of broadcasting. I am a huge fan including your hoteliers, and millions of people will of Freeview and I am looking forward to YouView benefit from it. when it comes on stream eventually, and I gather this Simon Towler: Hoteliers will be in the same sort of month I keep hearing it is going to come on stream. range of technologies as everybody else. Many hotels They want the bells and whistles, so we steer what we are taking cable; many of them are taking satellite; Culture, Media and Sport Committee: Evidence Ev 13

3 July 2012 Ed Vaizey MP, Robert Sullivan and Simon Towler many of them are taking Freeview; and the sets will policy decision that second and third sets will not be be able to have the filters added. funded. Ed Vaizey: We will see what the consultation comes Q70 Mr Sanders: I’m sure that is true, but there will back with, and, as I say, we wanted to have a generous also be many hundreds of my hoteliers and guesthouse help scheme and assistance scheme. We took a view proprietors who are going to have to fork out for this. on what we felt was reasonable and we are consulting A final question from me: I understand that Orange on that and we will see what people come back with. and T-Mobile are hoping to roll out 4G services ahead of the spectrum auction, that is they will be using 3G Q74 Mr Sutcliffe: I think it is an unfair principle. networks and as a consequence they can deliver 4G Ed Vaizey: The filters are very low-cost. I am not sure without causing any interference. Is the only whether the taxpayer should meet all the costs of those difference there the fact that Government doesn’t get people who might have eight or 10 televisions in any money from selling spectrum? their house. Ed Vaizey: No, it is a technical issue. The 4G that is going to cause the interference is the 800 spectrum, Q75 Damian Collins: In my part of east Kent, digital which is the lower frequency spectrum that was used switchover was completed last week, so some of my by analogue television and the new digital television constituents are enjoying watching Channel 5 for the spectrum is 700, so they are next door to each other. first time. For them 4G will be something beyond They are next door neighbours, so if there is a lot of what they are used to, but for some of those people stuff going on in 800, that is going to affect 700. The the potential loss of a digital signal they have waited spectrum that Everything Everywhere wants to use a long time to get would be quite concerning. What and will be liberalised—Ofcom is consulting on the calculation have you made about people in rural areas liberalisation—is 1800 spectrum, so it is a very long who may be badly affected by this and for whom the way away from current digital television spectrum, only solution will be some form of satellite package which is why it won’t interfere with digital television. and something beyond just fitting filters and other sort of devices to help? Q71 Mr Sanders: But they don’t have to buy that Simon Towler: I can generalise beyond rural. If spectrum, do they? turning down the base station doesn’t work and if the Ed Vaizey: No, they have that spectrum. What they filters don’t work for them, then covered in the help are applying for is for their licence to be changed, so proposal is the prospect of offering a platform change they can use that spectrum for 4G services. to those people. The detailed work in the estimation is that should be a very small number of households, Q72 Mr Sanders: Without interfering with anybody. in the small number of thousands. Ed Vaizey: They won’t interfere because they are over here in 1800 and 700 is over here. Q76 Damian Collins: In those situations, would Simon Towler: The implication is that everybody someone be able to apply for any type of solution? If could simply use 1800 megahertz spectrum someone said, “The cheapest thing I can do is get a everywhere and that isn’t the case. You will have had Sky package. Can I have some money towards that?” representations from colleagues about rural coverage is that something you would do? and various other things. Spectrum has different Simon Towler: You can’t just try it on and say, “Do characteristics of the ability to provide coverage and you know what, I’ve realised I fancy Sky and I’m the ability to carry data. Rather simplistically, the going to say that it doesn’t work.” The purpose of the higher frequencies, so the 1800 megahertz and the 2.6 mitigation company—the purpose of offering gigahertz spectrum, have a greater data carrying solutions—is can the set of solutions that we are capacity, so that is going to be good for densely offering provide you with the service that you enjoy populated urban areas. One of the reasons you will now. If filters don’t work, if base station mitigation have heard separately people making representation doesn’t work, then you will be eligible potentially for on the need for 800 megahertz spectrum is that a platform change. provides broader coverage and greater penetration, hence the interference problem in building. So none Q77 Damian Collins: Taking me back to Thérèse of the MNOs—none of the mobile operators—would Coffey’s railway debate now, but what will be the say to you, “We can do this beautifully without using choice of platforms available? Will people be in a any 800 megahertz spectrum.” They want to start position where they have to switch? rolling out using some 1800 megahertz spectrum, Ed Vaizey: You could get Freesat, for example. You which is being liberalised. The mandate to liberalise could get an installation of Freesat, which is very spectrum comes originally from the European Union cheap, and then you have effectively a Freeview anyway. platform through satellite.

Q73 Mr Sutcliffe: I feel it is unfair for a Government Q78 Damian Collins: Yes. For example, would the that wants to reduce burdens on individuals and Government be in the position to say, “Well, there is consumers. What the Chairman is suggesting is it is Freesat, there is YouView, there are three or four patently unfair if somebody has a second TV and services that we would be happy to support you with through no fault of their own it gets affected, and there accessing if you want to.”? It won’t just be a question isn’t an agreement in principle that that will be sorted of saying, “Take that or leave it, or pay for it out. I think the Minister has said you have taken a yourselves.” Ev 14 Culture, Media and Sport Committee: Evidence

3 July 2012 Ed Vaizey MP, Robert Sullivan and Simon Towler

Ed Vaizey: I think that is something that we will make of lessons from Digital UK and the way they went a decision on nearer to the time, but I imagine that we about digital television switchover. I echo your will want to have a cost effective solution for a comments, Mr Chairman; they were hugely platform change, but you are dealing with a very few successful. thousand households. I think Mr Towler’s intimations are right. We are not going to pay for people to have Q81 Chair: But why do we need to have a company Sky television for the rest of their lives because of the learn lessons when you have a company that could platform change. We will put in place a like-for-like do it? change, which is most likely to be Freesat. I don’t Ed Vaizey: I imagine there will be quite a lot of want to pre-empt that fully, but that would seem to be transfer between Digital UK and MitCo, but there will the most sensible approach. be a different ownership structure because clearly the people who are responsible for the interference—the Q79 Paul Farrelly: You are so ratcheted up by this mobile phone companies—are going to be put in that I think we jumped ahead of ourselves and we charge, just as the television companies were in charge have a few questions on funding that we wanted to of the Digital UK switchover. talk about. Did we cover those at the beginning? Chair: Yes. Q82 Chair: MitCo is going to be owned by the Paul Farrelly: Well, can I ask one last question. After mobile phone companies, is it? all this is over, how many independent suppliers, Simon Towler: Yes, as Digital UK was owned by the different suppliers, do you think will be involved in television companies. the provision of superfast broadband to remote areas Ed Vaizey: So the people who have the technical a result of Government funding? knowledge and are on the ground putting in place the Ed Vaizey: Independent suppliers in what sense— infrastructure that is causing the problem, as it were, independent ISPs or community broadband networks? are in charge. They are the ones, as I have said Paul Farrelly: BT and Fujitsu. repeatedly to this Committee, who are in the position Ed Vaizey: At the moment, BT and Fujitsu are in to mitigate a great deal of the effects of 4G place in terms of putting in place the infrastructure, interference and they can do that at their base stations. but the infrastructure will be open access and we all They can nip the problem in the bud very early on. know who the big players are. As well as being BT, We have put in place a very generous funding it is Virgin and TalkTalk and Sky. TalkTalk tends to programme to allow help for vulnerable households be the competitor that uses BT’s infrastructure the and filters for people who suffer from interference and most. So we expect the marketplace to remain very platform changes for a very small group of people competitive. There is no reason why the roll-out of for whom a filter is not an adequate solution, but the superfast broadband to rural areas should restrict that. technology for the vast majority of people is very In fact, it should increase the competition, potentially. straightforward. We currently have a consultation on this issue. We are debating in a very open way, thanks Q80 Chair: Finally, on the 4G experience, you are to Freeview’s campaign, whether or not every single talking about approaching a million households who household will need a professional installer to come either are going to have to get somebody in or go in and fit the filter, and we will take that on board. We crawling around trying to fit filters to their cables. have said repeatedly to Freeview that we are listening This is a huge exercise. It is quite a big logistical to their views and that we are taking them into account challenge. You are going to have to alert people; you as part of the consultation, and we are confident we are going to have to tell them what to do, how to fit will put forward a solution that will address some of the filter. Are you confident that you can do that? As those concerns. We have taken some policy decisions a suggestion, the first inquiry that this Committee that, in a different environment, others might have looked at under my chairmanship was digital taken a different position. switchover where we did, I think, raise some concerns and I would have to say in the main it has gone Q83 Chair: I hope you will also listen to the views extremely smoothly with very few problems, and I of this Committee. pay tribute to Digital UK who I think have done a Ed Vaizey: I certainly will listen to the views of this very good job. Switchover is about to finish. It will Committee. complete this year. Would it not be natural for Digital Chair: It may well be that we shall return to this topic UK to continue in existence and take on this next in due course. exercise, which is not dissimilar to the one they have Ed Vaizey: It sounds like we might well do, Mr been overseeing for the last two or three years? Chairman. Ed Vaizey: I think that is a very good point and that Chair: Thank you very much. is exactly the point I have made as we have put this process in place, that MitCo will learn a huge number

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