Hello etc.

I was invited here this evening to give my views on the convergence of broadcasting and telecommunications. In one sense this can be a dangerous thing to do. We all know that the world of telecommunications moves at an exponential speed and predictions can become rapidly overtaken by events, or exceed even the wildest of expectations.

I am sure that if in 1984 the first Director General of Telecommunications Professor Bryan Carsberg had accurately predicted what is today is commonplace – over half the population owning a mobile phone, use of the Internet, interactive services available over a digital television set - people would have laughed at his suggestions.

I intend to try to set out this evening a few ideas on where I think we are going. This will, tentatively, cover what we are pretty sure will happen in the near future, what might happen in the longer term, and what I think that all means for regulators.

Current Situation

As with all attempts to talk about the future, the safest possible place to start is by reviewing where we are now.

The objectives of Oftel are absolutely clear – to get the best deal for consumers in terms of quality, choice and value for money. As DG of Telecoms I believe that it is important that there is a partnership between regulators and industry to ensure the best possible opportunity to take advantage of the rapidly evolving world. Through competition, innovation and experimentation we will continue to provide consumers with better products, greater diversity and cheaper prices.

The UK telecoms market is worth £28bn and some areas have experienced huge growth – particularly in mobile phones and the Internet.

Prices have fallen dramatically. Mobile prices have come down two thirds since 1990. BT’s fixed line call prices have fallen 50% since privatisation, with other competing operators driving down prices even lower.

Consumer choice has greatly increased, with licensed service operators now running into their hundreds. Everyone in the UK has access to at least three different types of fixed line operators (BT, indirect access and calls and access), and through the expansion of cable networks 50% can choose between four different types of operators. There are also four, soon to be five, competing mobile operators to chose from, with other service providers operating on their networks.

The proportion of homes with internet access has more than doubled since the start of 1999, 16 million people - over a third of all adults use the internet at home or at work. This growth has been helped by the considerable reductions in the price of internet calls that have occurred in the past year. The March 2000 comparisons showed that off-peak access in the UK is the cheapest in the OECD. Hopefully the launch of unmetered services and the requirement on BT to offer the necessary services to enable other operators to supply unmetered Internet access over BT’s local network will help to continue this success in reducing costs to the consumers.

Finally, the UK is leading the way in Digital Television with the worlds first provision of digital services on three platforms: Satellite, terrestrial and cable. Predictions of at least five million subscribers by the end of the year will help to further the growth of people in the UK using internet services, email, interactive transactions and e-commerce. It is often surprising to people that Oftel plays a role in digital television services – I am sure not least of all to those who wrote the 1984 Act! But we do through implementation of rules around conditional access and access control as a result of the advanced television standards directive.

All of this has been achieved through a combination of two vital ingredients. First, I think it is fair to say, appropriate and proportionate regulation to ensure that competition can thrive, and second entrepreneurs like yourselves who have seized the opportunity to provide innovative services to customers.

It is this dynamic– companies that are prepared to pave the way with new services and offerings – that has consistently pushed the boundaries of what we at Oftel think will happen in the industry, has challenged incumbents with new approaches and different solutions and has reached out to consumers that are eager to take up new technologies if the price, and the service, is right.

Oftel is fortunate to be involved right at the centre of an industry that is currently the focus of frenzied attention. I think that it would not be overdoing things to note that the decisions made by regulators can help fashion what the future might look like. Our challenge is to influence it positively and not to interfere or intervene in a way which will impede development of effective competition.

This is a responsibility which I take extremely seriously and is always in the regulators mind when embarking upon decisions. We have recently published our new strategy which has refocused our objectives away from a mechanical obligation to undertake certain activities towards ensuring specific market outcomes – for example, achieving effective competition, benefiting consumers. In this environment, my main concerns are:

• to ensure that operators with market power do not abuse that power to the detriment of emerging competition

• to ensure that whatever regulatory measures I take encourage rather than stifle competition in the long term

• to ensure that I neither over-regulate nor under-regulate. Over regulation would stifle investment and innovation. But equally where I do need to regulate, I shall not hesitate to do so.

I think that there is a consensus in some areas as to where the technology we are dealing with is heading. There is little doubt that the provision of more services will drive consumer demand for higher bandwidth and that the huge demand for data traffic will continue to increase.

There is also little doubt that the penetration of PCs and the availability of internet access either through PC, phone or mobile, will grow.

We also know that content will be provided over different delivery mechanisms in a way that breaks down completely the divide between television, telecoms and the PC.

As an example of where we are heading, let me look at the mobile phone. Our recent survey work has shown that around one million people are already substituting a mobile phone for a fixed telephone. As one commentator recently said it will seem absurd to future generations that we used to call a telephone based in a building in the vain hope that that person we wished to contact might be there.

Much has been written and said about the third generation mobile auction – mainly in relation to the ever growing shopping list of what the money could be spent on – but those companies investing in that spectrum are in no doubt of the potential that the mobile phone can offer. In the short term there will be increased content available for access from current mobile phone technology. As 3G phones start to be marketed in the UK this will translate into sites with content in a format that is manageable and user friendly for higher bandwidth services through the phone. If you add to this the increasing number of companies that are offering internet access through the television we can see that internet content will be produced in three different ways – the same general information but accessible to the very different consumer interfaces of phone, PC and television.

3G phones are clearly seen as an immense marketing opportunity. As the phone becomes a Personal Digital Assistant, internet access device, radio, portable television and payment method the opportunities for the companies with 3G licences to exploit this are increased.

As the habits of consumers change, so will their access to different media. Broadcasting will no longer be the passive experience it is for the vast majority today, nor will it be based on nation. Already, those with internet access are accessing their media in different ways– the PC is already acting as radio, cd player, newspaper and conversational tool and content is now not bound by what is available in one country. The availability of more bandwidth will no doubt increase this trend, with people able to read their papers on the move through a 3G phone or to listen to their favourite radio 4 programme whilst sunning themselves outside their home in California. This break down of the barriers between delivery mechanisms will signify a change in the types of content that people are accessing. For channel providers – aggregators of content, this may be seen as a threat, as viewers are able to specify exactly what they want to watch, listen to and read when they want to – regardless of the schedulers.

With the change in habits also goes a redefinition of many of the assumptions that we have had in regulation – at the most basic the idea that the purpose of the fixed telephony network is to provide the infrastructure so that people can talk to each other has already been shattered. Data now accounts for over 50% of the traffic on the BT network.

An intrinsic part of the regulatory framework for the last 16 years has been the universal obligation. This obliges BT, and Kingston Communications in Hull, to provide an affordable fixed telephone on reasonable demand. 96% of homes are now connected – a substantial achievement, although we are determined to take further steps until the ultimate goal is secured – that everyone who wants a telephone line should be able to be connected at an affordable price. The ubiquity of fixed lines will also be a major resource in delivering one of this government’s key objectives – universal access to the Internet. What is more, with DSL technology those old copper loops into people’s homes can be used for new services – they can potentially provide almost universal access to higher bandwidth services.

For other regulatory colleagues the implications of convergence are fairly immediate. The internet has blown a hole in content regulation. Viewers ability to create their own channels through Personal Video Recorders, MP3 music players or just plain pay per view even in the short term challenges the assumptions that content can be regulated to ensure diversity, and that controls on offences against decency are meaningful. Already we have a different watershed of 8pm on pay television but it goes further - I believe that a few weeks ago a film was shown cut to conform with broadcasting taste and decency requirements and was simultaneously webcast uncut.

Yet in this new world there will undoubtedly still be a role for the public service broadcasters – not only the BBC but also Channels three, four and five. There can be little doubt though that as a variety of channels providing quality and choice become widely available through digital and multi channel TV, the scope and activities of public sector broadcasting will change.

People are already more able to exercise their own controls and choices in the content that they receive. Any attempts by Government or regulators to shut the stable door - trying to sustain controls by replicating them through censoring access to internet content - will be poorly received. This is one area where self regulation seems to be working, through bodies such as the Internet Watch Foundation and IPSA, and it is one area where consumers themselves can and should exercise their own controls on what they do and do not want to see.

Access to content will also have implications for competition. Recently mobile operators have come under fire for perceiving to block access to different portals on their WAP phones. I believe the fact that consumers have had access to the internet through their PC at home or at work will put pressure on those that think that walled gardens will be acceptable to the consumer. For a time they may wish to hold them in – gaining as much revenue as possible before the inevitable. But ultimately I think pressure from an informed and experienced consumer base that will challenge the telecoms companies and television platforms to ensure open access to internet content.

There are also questions of how this technology should be utilised to improve information and education for the public and how Government and public institutions can use the internet and electronic access to information to improve public services. We at Oftel have already been involved in this in relation to connecting public institutions. We have worked to persuade the industry to offer ‘special tariffs’ for schools, libraries and further education colleges at an affordable rate. We’ve also worked with the institutions themselves to promote informed and intelligent purchasing by public institutions.

As to what the future holds. We already have Bluetooth on the horizon, with home based servers using wireless links to control devices in your house. Predictions of your mobile phone being able to do everything from switching on your bath taps in the morning to making your cup of cocoa in at night are being seriously touted. Not least by the mobile phone manufacturers. I am not sure whether I will be getting my fridge to order my milk for me but I am told that at MIT they have already developed wearable computers in the form of belt and sunglasses that can replace the cellular phone, walkman, pager, camcorder and palmtop - with email and fax and web access. I am reminded of the Woody Allen joke "I read that they have devised a machine that can do everything that a man can do except better, only my wife just went out and brought one".

The future of regulation

Within this world of futurology and fanciful ideas, Oftel has a duty and responsibility to consumers and to industry to ensure that not only do we keep up with understanding of the technology but also that we move and change our approach with it. And we think that we have done so and continue to do so. Through our current strategy we wish to start the process of rolling back regulation where it is deemed to be unnecessary, to allow competition to thrive without the burden of regulation and to allow industry where possible to take the initiative itself. Do not let this make you think that we will not continue to act decisively to prevent anti competitive behaviour, but regulation must be proportionate

What I do believe is that a converged world needs to have a converged approach to regulation. The confusion of separate rules for different types of communications networks and services are going to have to be addressed. Already in Oftel I have set out a generic approach which will apply to all questions of access to communications networks.

In this I have proposed three tests that must be met before Oftel would be prepared to intervene with regulation to open up networks:

• That the operator of the network in question has market power in the relevant market sector;

• That the expected benefits from mandating open access are sufficient to justify the costs; and

• That open access is an effective and proportionate measure to deal with insufficient competition in the market.

This is an example of a clear and transparent approach that does not discriminate between delivery mechanisms and applies rules equally.

As to the structure for regulation in this new era – the Government are already addressing this in their White paper discussions. The future that Oftel as an organisation faces may be uncertain, but there is no doubt in my mind that at least for the short term there will be a role for a sectoral regulator of the communications markets. What we do need is to lift the burden caused by too many regulators that leaves industry facing double jeopardy and different approaches to similar problems.

My view of this process is that technological and market developments have created the potential for much more competition than in the current world. So a new approach to sectoral regulation is needed which I believe, in the future, should consist of rules to promote competition, to enable competitors to obtain access to and interconnect with the networks and gateways of those that possess market power, and to safeguard access for consumers to key services where the market alone may not deliver.

The past was based on separate legislative frameworks for telecommunications, broadcasting and radiocommunications. It is very clear that these divisions are no longer appropriate or sustainable.

Conclusion

The main point that I want to emphasise tonight is that in the future there will simply be electronic communications networks and services – there will be no differentiation between telecommunications and broadcasting. The only thing that will separate them is the appliance that you use to connect to the network, be it mobile phone, television or PC or whatever may come along to replace these. The markets for these services will embrace all current forms of services and new ones as well. The focus is and should be on the recipient, the consumer. It is about working, accessing information, interacting with Government, being entertained, being educated, and learning, all through a range of services provided electronically.

My current challenge is to help put this framework in place – to help decide on a new structure of regulation in the communications industry that is responsive to change, is dynamic in approach and is flexible in practice. This must reflect all of what we know and quite a bit of what we can only guess at.

I am proud of Oftel’s achievements to deliver a competitive telecoms market in the UK. We face the future which I have alluded to with confidence. Although we do not know what the future holds for Oftel as an organisation, we believe that the changes in approach we are making are right for the new age of communications.

And Oftel has a good track record. The proof of this can be seen out there in the market place. In homes and businesses across the UK. A flourishing, competitive telecoms industry, providing products and services upon which the UK’s commerce and society depends.

It is important that our approach, and the Government’s approach in the Communications White Paper, does not merely paint the landscape as we see it now, but has the flexibility add detail as the view changes.

It is with this thought in mind that I will leave you with the wise yet somewhat discomforting words of the scientist Niels Bohr who said "Prediction is very difficult. Especially about the future".

Thank you. Etc.