COUNTERING ANTI-COMPETITIVE BEHAVIOUR
IN THE TELECOMMUNICATIONS INDUSTRY
INTRODUCTION
AND
SUMMARY
OF
CONCLUSIONS
AND
RECOMMENDATIONS
1. The Office of Telecommunications (OFTEL) are the
principal regulator of the telecommunications industry in the
United Kingdom. Their key objective is to provide the best possible
deal for the consumer in terms of quality, choice and value for
money. They consider that the most effective way of achieving
this is by encouraging competition and countering anti-competitive
practices.[1]
2. Where any supplier has a very strong market position
there is always a risk that it may act anti-competitively, for
example, by establishing barriers to market entry or seeking to
drive out new entrants from the market. Were such behaviour to
go unchecked, consumers would in the long run pay higher prices,
receive a lower quality of service and have less choice. It is
therefore important that anti-competitive behaviour is deterred
and anti-competitive practices are stopped at the earliest opportunity.[2]
3. In June 1998, on the basis of a report by the
Comptroller and Auditor General, we took evidence from OFTEL on
the results of their investigation and enforcement action against
anti-competitive behaviour and on the adequacy of the staffing
resources they devote to this work. We also examined a number
of wider issues and future developments, including OFTEL's focus
on consumers, the state of competitiveness in the telecommunications
market and the likely impact of the new competition legislation
on OFTEL's effectiveness in tackling anti-competitive behaviour.
4. Three main points emerged from our examination:
- The telecommunications market is developing and
changing rapidly, and speedy action by OFTEL is critical in preventing
anti-competitive behaviour by dominant companies from damaging
smaller businesses and hurting consumers. We welcome the efforts
that OFTEL are making to be more proactive in initiating more
investigations into alleged anti-competitive behaviour as well
as responding to complaints.
- In order to undertake effective investigations
and negotiations with dominant companies in the telecommunications
industry, who have considerable resources and expertise at their
disposal, OFTEL need staff with relevant experience at senior
levels in commercial organisations. And it will be important for
them to press ahead with their proposed training programme to
equip staff with the skills and knowledge to operate effectively
under new competition legislation.
- There is a need for greater transparency and
clarity in pricing structures if consumers are to make informed
choices between different operators' services. We note that OFTEL
are currently investigating companies' tariff structures and look
to OFTEL to take swift action if they find tariffs to be anti-competitive
or detrimental to consumers.
We look to OFTEL to take these matters forward, together
with our other recommendations, and we will wish to keep in touch
with their progress.
5. Our more specific conclusions and recommendations
are as follows:
On investigation and enforcement
(i) We note that
OFTEL's authority derives essentially from the power to take enforcement
action against companies engaged in anti-competitive behaviour.
We are therefore surprised that, of the 217 investigations completed
by OFTEL between 1995 and 1997, only 17 led to any formal enforcement
action being taken. We recognise that in a number of cases enforcement
action was not taken because the parties reached agreement between
themselves or the operator stopped the alleged anti-competitive
behaviour. Nevertheless, we consider that taking enforcement action
at an earlier stage in more investigations would send a clearer
message to the industry that OFTEL are committed to tackling anti-competitive
behaviour (paragraph 18).
(ii) We note that around 90 per cent of
the investigations into anti-competitive behaviour undertaken
between 1995 and 1997 originated from complaints received from
companies in the industry and that OFTEL initiated only 10 per
cent themselves. We note that the proportion of investigations
initiated by OFTEL has since risen to 20 per cent, and that there
are other areas where they seek to resolve problems before complaints
are made. We welcome this trend and urge OFTEL to ensure that
they are not too reactive in dealing with anti-competitive behaviour
(paragraph 19).
(iii) We note that, after enforcement action
has been taken, OFTEL largely rely on the original complainant
to let them know if the anti-competitive behaviour persists. We
are concerned that this absence of follow-up by OFTEL runs the
risk that such practices may continue and we urge them to follow
up more systematically the actions they take to stop anti-competitive
behaviour (paragraph 20).
(iv) We note OFTEL's assessment that, as
a result of a series of cases leading to enforcement action, BT
is giving higher priority to compliance. In our view this underlines
the importance of OFTEL taking enforcement action in all appropriate
cases (paragraph 21).
(v) We note the steps that OFTEL have taken
to persuade BT to reduce the charges for its Integrated Services
Digital Network (ISDN) service. We remain concerned about the
price of ISDN lines, however, and urge OFTEL to follow this action
up (paragraph 22).
(vi) We note that OFTEL have set themselves
more demanding targets for the speed with which they handle investigations
of anti-competitive behaviour. We regret that they are not yet
meeting these targets, but note that their performance has improved.
We accept that setting unachievable targets is bad for morale:
targets need to be challenging but realistic. Nevertheless, telecommunications
is a fast moving industry where speed of action is critical. We
would therefore be very concerned if there were to be any significant
slackening in OFTEL's targets for completing investigations of
anti-competitive behaviour (paragraph 23).
On staffing
(vii) We note with
concern OFTEL's view that they are under-resourced in certain
areas and that the work they undertake could be organised better
and made more effective. We urge them to complete their review
of their staffing and organisation as a matter of priority. We
recognise how important it is for consumers that OFTEL's investigative
work should not be undermined by a lack of resources. We therefore
welcome OFTEL's intention to agree a three-year budget with the
Treasury, which is sufficient to meet their needs (paragraph 27).
(viii) We recognise the constraints placed
on OFTEL in being able to offer senior staff rates of pay that
compare with those in the private sector, and we note OFTEL's
lack of high level experience of commercial organisations. We
consider it important that OFTEL staff understand through practical
experience the commercial pressures that businesses are under
and what motivates business decisions. We recommend that OFTEL
seek to increase their expertise and experience in this key area
(paragraph 28).
On wider issues and future developments
(ix) We welcome
the increased focus that OFTEL aim to give to consumers in countering
anti-competitive behaviour. We note that while OFTEL have generally
relied on discussions with consumer representative bodies to obtain
the views of consumers, they have now commissioned a survey of
customers' views on a range of key issues. We welcome this development
since it will enable OFTEL to test consumer opinion directly (paragraph
42).
(x) We consider that if customers are to
be able to distinguish between rival companies, tariffs need to
be transparent and easy to understand. We are therefore concerned
that tariff structures are complicated and confusing for the consumer.
We note that OFTEL recognise this problem and are currently investigating
it, and expect to complete their research by the autumn of 1998.
We urge OFTEL to act firmly on any evidence of anti-competitive
behaviour or consumer detriment on the part of the companies concerned
(paragraph 43).
(xi) We note that in 1999 OFTEL will be
undertaking a review of the state of competitiveness in the telecommunications
market to determine whether competition has developed sufficiently
to allow the remaining price controls over BT to be removed (paragraph
44).
(xii) We note that the new competition legislation
will significantly increase OFTEL's powers, giving them authority
to take interim action and to impose fines. OFTEL will need to
ensure that they are fully prepared to meet this challenge. Re-skilling
and retraining may be necessary in certain areas. We note that
OFTEL have already taken steps to improve training and produce
a manual addressing the practical issues expected to arise. We
welcome these measures and look to OFTEL to ensure that this momentum
is maintained (paragraph 45).
(xiii) We are pleased that OFTEL have accepted
all the recommendations in the C&AG's report for improving
their speed and effectiveness in countering anti-competitive behaviour.
We note that OFTEL have prepared an action plan containing specific
action points and a timetable for implementation which should
result in all these recommendations being implemented by March
1999 (paragraph 46).
1 C&AG's Report (HC 667 of Session 1997-98), para
2 Back
2
C&AG's Report, para 4 Back
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