House of Commons - Explanatory Note
Communications Bill - continued          House of Commons

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Clause 358: Application of the Competition Act 1998 to news provision

732.     This clause amends section 194A of the Broadcasting Act 1990. Under that section, the Secretary of State may declare that any provisions in agreements between regional Channel 3 licence holders for the appointment of the Channel 3 news provider are either not anti-competitive or, if anti-competitive, are proportionate to the objectives being achieved. The effect of such a declaration is that the Chapter I prohibition in the Competition Act 1998 (referred to above) does not apply to those provisions and the OFT cannot use its powers under Chapter 3 of Part 1 of that Act to investigate the agreement. The Secretary of State is obliged to consult the OFT before making such declarations and to notify the OFT after making such declarations.

733.     This clause amends the references in section 194A of the Broadcasting Act 1990 to the OFT to refer to both the OFT and to OFCOM. This reflects the concurrent jurisdiction of the OFT and OFCOM under Part 1 of the Competition Act 1998 in relation to communications matters.

734.     Paragraphs 51 and 52 of Schedule 18 (transitional provisions) provide that from the date on which clauses 356 and 357 come into force, anything done by the Director General of Telecommunications under the Enterprise Act 2002 or the Competition Act 1998 which OFCOM would, under those provisions, have the power to do in the future, will be taken to have been done by OFCOM. Anything else will, from the date of entry into force, be taken to have been done by the OFT.

Chapter 2: Newspaper mergers

735.     The Enterprise Act 2002 (EA 2002) repealed the majority of the merger provisions of the Fair Trading Act 1973 (FTA 1973) and created a new merger control regime. However, the special newspaper merger regime contained in sections 57 to 62 FTA 1973 remained intact. Under the special newspaper regime, a transfer of a newspaper or newspaper assets to a newspaper proprietor requires the prior written consent of the Secretary of State where the newspapers of the proprietor to whom the transfer is made (including the titles being acquired) have an average paid for circulation of 500,000 copies or more per day. Subject to certain statutory exceptions, the Secretary of State cannot give this consent until the Competition Commission have reported on the matter. If consent is not obtained when required the transaction will be unlawful and void.

736.     Consideration of reform of this aspect of the merger control system was deferred so that it could be considered as part of the overall reform of media ownership rules in this Bill. Chapter 2 makes provision for the repeal of the existing newspaper merger regime provisions and the integration of newspaper mergers into the overall structure of the EA 2002 merger regime. Newspaper mergers will no longer be subject to mandatory pre-notification requirements and the criminal sanctions, which underpin the current regime, will not be continued.

737.     The EA 2002 provides for decisions on the majority of non-newspaper mergers to be taken by the independent competition authorities (the OFT and the Competition Commission) against a new competition-based test of whether they result in a substantial lessening of competition. This replaces the broader public interest test used in the FTA 1973. However, the EA 2002 also provides a mechanism whereby the Secretary of State can intervene and decide on particular mergers that raise specified public interest considerations, by the serving of an intervention notice. National security is the only public interest consideration currently specified in the EA 2002. The Secretary of State can serve an intervention notice in relation to any transaction that qualifies for consideration by the competition authorities. She can also serve a "special intervention notice" in relation to mergers involving government defence contractors where the standard qualifying thresholds are not satisfied, allowing these to be examined by reference to the specified public interest consideration(s), but not on competition grounds.

738.     Chapter 2 of the Bill integrates treatment of newspaper mergers with the merger regime of the EA 2002. However, as newspaper transactions can potentially raise public interest concerns beyond the substantial lessening of competition test, provision is also made for "newspaper public interest considerations" that the Secretary of State can specify in an intervention notice or special intervention notice under the EA 2002. Provision is also made for an additional advisory role that OFCOM will have where the Secretary of State intervenes in a case on newspaper public interest grounds.

Clause 359: Repeal of existing newspaper merger regime

739.     This clause repeals sections 57 to 62 FTA 1973, which give effect to the existing special newspaper merger regime.

Clause 360: Repeal of exclusion for newspaper mergers from general merger controls

740.     This clause repeals section 69 of the EA 2002, which prevents a case from being referred to the Competition Commission under both the special newspaper merger regime in the FTA 1973 and the general merger regime in the EA 2002. With the repeal of sections 57 to 62 FTA 1973 (see clause 359) this provision is no longer necessary.

Clause 361: Newspaper public interest considerations

741.     This clause amends section 58 of the EA 2002, which specifies the considerations that may need to be looked at (in addition to, or instead of, competition matters) in merger cases and provides a mechanism for varying the specified considerations. Only public interest matters that are specified under section 58 can be considered under the EA 2002 regime.

742.     Currently, only national security is a specified consideration. This clause inserts new sections 58(2A) and (2B) that provide for newspaper public interest considerations to be specified in this section.

743.     New subsection (2A) specifies the need for accurate presentation of news and free expression of opinion in newspapers. This carries forward (albeit in a slightly different context) the specific reference to these two factors in the public interest test that is currently applied by the Competition Commission when considering newspaper transfers under the special newspaper merger regime of the FTA 1973 (see section 59(3) FTA 1973).

744.     New subsection (2B) specifies the need for a plurality of views in newspapers. This is intended to enable a number of plurality issues going beyond free expression or accurate presentation of news to be taken into account, in particular, the structural impact of a transaction on the overall range of views and distribution of voice within the local market. The test of a plurality of views is intended to enable regard to be had not only to the need for a sufficient number of views to be expressed, but also to the need for variety in those views, and for there to be a variety of outlets and publications in which they can be expressed. There is a qualitative element to the plurality assessment that requires account to be taken of the context in which titles circulate and the nature of those titles - for example, one title in a particular area may be of greater significance for plurality purposes than another.

745.     The plurality consideration in subsection (2B) is qualified by the reference to reasonableness and practicality of securing a plurality of views. This reflects the fact that although plurality in each and every market is the ideal goal of the regime, it may not be reasonable to seek to achieve this in relation to a particular part of the market - for example, because of the associated costs. Moreover, the level of plurality that may be considered reasonable in a large urban area may be different to that which is practicable in a small rural community. In making this assessment the Competition Commission will be able to take into account all relevant circumstances. It will be able to consider, for example the size and location of the relevant area, and the extent to which other newspapers in the same area contribute to the level of plurality.

Clause 362: Adaptation of role of OFT in initial investigations and reports

746.     This clause amends sections 44 of the EA 2002 to adapt the role of the OFT in relation to mergers where a newspaper public interest consideration has been specified in an intervention notice.

747.     Subsection (1) makes amendments to section 44(3)(b) EA 2002 to exclude a newspaper public interest consideration from the OFT's duty to provide the Secretary of State with a summary of relevant representations received in relation to public interest considerations mentioned in the intervention notice. This is to avoid duplication, as OFCOM will be under this duty where a newspaper public interest consideration has been specified in the intervention notice (see clause 363).

748.     Subsection (2) adds a new section 44(5A) EA 2002 that ensures that the OFT nonetheless has the power to include such a summary of representations. Such a power might be used, for example, if the OFT received representations after OFCOM had delivered its report, in order to ensure that representations were drawn to the Secretary of State's attention. It also clarifies that the OFT is not required to artificially separate out plurality and competition issues where this is unhelpful to the overall purpose of advising the Secretary of State.

749.     Subsection (3) inserts new sections 44(8), (9) and (10) EA 2002. Sections 44(8) and (9) contain the definitions of "newspaper public interest consideration" and "newspaper". The definition of "newspaper public interest consideration" encompasses the considerations in new section 58(2A) or (2B) EA 2002 that are inserted by virtue of clause 361 of this Bill or any other newspaper public interest consideration that the Secretary of State thinks should be specified in section 58 EA 2002. This latter aspect could encompass, for example, any changes to the newspaper public interest considerations that the Secretary of State may introduce in exercise of her powers in section 58(3) EA 2002. The definition of "newspaper" is the same as that currently used for the purposes of the special newspaper regime in the FTA 1973.

750.     New section 44(10) EA 2002 sets out a power for the Secretary of State to amend the definition of a newspaper by statutory instrument. This power is designed to deal with future developments in the nature of the newspaper market that might mean that the scope of the newspaper public interest consideration should be redefined (for example, if it became more common for titles to circulate across national boundaries such that important UK titles did not necessarily circulate "wholly or mainly" in the UK). Any order under new section 44(10) can only be made after a draft has been laid before, and approved by a resolution of, each House of Parliament (see paragraph 22 of Schedule 16).

Clause 363: Additional investigation and report by OFCOM

751.     This clause inserts a new section 44A in the EA 2002, which sets out OFCOM's reporting and related investigatory duties where an intervention notice has been served specifying any newspaper public interest consideration.

752.     New section 44A(2) provides that OFCOM is obliged to report to the Secretary of State within a deadline specified by the Secretary of State. There is nothing to prevent the Secretary of State from altering the deadline if the circumstances so require. New section 44A(3) ensures that the Secretary of State will receive information in the report on at least two areas:

  • OFCOM's advice and recommendations on any newspaper public interest consideration specified

  • OFCOM's summary of the relevant representations that it has received in relation to any such newspaper public interest consideration.

Clause 364: Extension of special public interest regime for certain newspaper mergers

753.     This clause amends section 59 EA 2002, which currently makes provision for the Secretary of State to intervene and serve a "special intervention notice" in relation to an exceptional category of mergers involving government defence contractors. These may be referred for investigation, on specified public interest grounds only, even though they do not meet the normal qualifying thresholds (i.e. 25% share of supply or UK turnover of the company being acquired exceeds £70 million, as set out in section 23 EA 2002).

754.     Subsection (2) replaces sections 59(3) and (4) EA 2002 with new sections 59(3), (3A), (3B), (3C), and (3D). These incorporate the existing criteria set out in section 59 EA 2002 for establishing a "special merger situation" in cases involving government defence contractors, together with new provisions providing that a special merger situation also arises where:

  • all of the criteria for a relevant merger situation within section 23 EA 2002 have been met except for the share of supply or turnover thresholds in sections 23(1)(b) and (2)(b) EA 2002 - that is, where two or more enterprises have ceased to be distinct within the relevant time limits (see sections 24-27 EA 2002); and

  • at least 25% of the supply of newspapers or advertising in newspapers of any description in the UK, or in a substantial part of the UK, was supplied by persons carrying on one of the enterprises concerned in the merger. Unlike the general jurisdiction test in section 23(2)-(4) EA 2002, there is no requirement that the share of supply is created or enhanced by the merger.

755.     Intervention in relation to cases that fall within the special public interest regime is limited to the public interest grounds specified in section 58 EA 2002. They cannot be scrutinised on competition grounds.

756.     Subsection (3) inserts new subsections (6A)-(6E) in section 59 EA 2002. These replicate for the new share of supply provisions in the special public interest regime the provisions on the calculation of share of supply already included for the standard regime in section 23 EA 2002. Subsection (6A) makes it clear that, for the purposes of applying the share of supply test in new sections 59(3C) and (3D) the authorities can apply such criteria (such as value, cost, quantity etc.) as they consider appropriate to determine whether the 25% threshold is satisfied and new subsection (6B) allows the authorities to consider whether goods or services taken on their own, or with others or in groups, make up this proportion. Subsections (6C) and (6D) give the competition authorities the discretion to decide when goods or services are the subject of different forms of supply. Subsection (6E) gives the Secretary of State a power to amend the share of supply requirement inserted by new section 58(3)(b)(ii). This is to ensure that in the event that there is any exercise of the powers in section 123 EA 2002 in relation to the share of supply test in section 23 EA 2002, the changes can be carried across to section 59 EA 2002, such that the share of supply test remains consistent throughout Part 3 EA 2002.

Clause 365: Adaptation of role of OFT in special public interest regime

757.     This clause amends section 61 EA 2002 to adapt the role of the OFT in relation to mergers under the special public interest regime where a newspaper public interest consideration has been specified in a special intervention notice.

758.     Subsection (2) makes amendments to section 61(3)(b) EA 2002 to exclude any newspaper public interest considerations specified in sections 58(2A) and (2B) EA 2002 from the OFT's duty, in section 61 of that Act, to provide the Secretary of State with a summary of relevant representations received in relation to public interest considerations mentioned in the special intervention notice. This is to avoid duplication, as OFCOM will be under this duty (see clause 366) where a newspaper public interest consideration specified in section 58 at the time has been mentioned in the special intervention notice. The clause is restricted to considerations specified in section 58(2A) or (2B) at the time of the notice because the special public interest regime has no equivalent to the provisions in the standard regime by which a new or modified newspaper public interest consideration introduced under section 58(3) EA 2002 can be finalised during the investigation of a merger.

759.      Subsection (4) adds a new section 61(4A) EA 2002 to ensure that the OFT nonetheless has the power to include such a summary of representations. Such a power might be used, for example, if the OFT received representations after OFCOM had delivered its report, in order to ensure that representations were drawn to the Secretary of State's attention.

Clause 366: Additional investigation and report by OFCOM: special public interest cases

760.     This clause inserts a new section 61A in the EA 2002, which sets out OFCOM's reporting and related investigatory duties where a special intervention notice has been served mentioning any of the newspaper public interest considerations that are specified in section 58(2A) or (2B) EA 2002. The clause is restricted to considerations specified in section 58(2A) or (2B) at the time of the notice because the special public interest regime has no equivalent to the provisions in the standard regime by which a new or modified newspaper public interest consideration introduced under section 58(3) EA 2002 can be finalised during the investigation of a merger.

761.     New section 61A(2) provides that OFCOM is obliged to report to the Secretary of State within a deadline specified by the Secretary of State. There is nothing to prevent the Secretary of State from altering the deadline if the circumstances so require. New section 61A(3) ensures that the Secretary of State will receive information in the report on at least two areas:

  • OFCOM's advice and recommendations on any newspaper public interest considerations specified in section 58(2A) or (2B) and mentioned in the special intervention notice; and

  • OFCOM's summary of the relevant representations that it has received in relation to any such newspaper public interest consideration.

Clause 367: Public consultation in relation to newspaper mergers

762.     This clause introduces a new section 104A EA 2002, which applies only to references to the Competition Commission that specify a newspaper public interest consideration. In conducting its inquiry into such cases the Competition Commission is specifically required, so far as it is practicable, to have regard to the need to consult the sections of the public that may be affected by the merger. The duty can be discharged by consulting such representative sample of the public as the Commission considers to be appropriate for this purpose. This duty applies in addition to the Commission's normal duties of investigation in relation to merger references in public interest cases (see sections 50(3), 65(4) and 104 EA 2002).

Clause 368: General information duties in relation to newspaper mergers

763.     This clause amends section 105 EA 2002 to ensure that, where a newspaper public interest consideration is invoked, OFCOM, as well as the OFT and Competition Commission, will have general information duties vis-...-vis those that might be affected by the merger, each other and the Secretary of State.

764.     Subsection (2) inserts a new section 105(1A) EA 2002 to ensure that where OFCOM is required to produce a report on any newspaper public interest consideration, it will act, if practicable, to bring cases that it is investigating to the attention of those that might be affected by the transaction. The effect of the amendment to section 105(2) in subsection (3) is that this duty does not apply to merger notice cases, which carry their own publicity requirements (see section 99 EA 2002).

765.     Subsections (4) and (6) amend section 105(3) and (4) EA 2002 to ensure that OFT has the same obligations to give relevant information to OFCOM as it already has for the Competition Commission.

766.     Subsections (5) and (7) insert new sections 105(3A) and (4A) EA 2002 to provide that OFCOM will give relevant information to the OFT and the Competition Commission.

767.     Subsections (8) and (9) amend sections 105(5) and (6) EA 2002 to ensure that OFCOM has the same obligations as the OFT and the Competition Commission to give information and assistance to the Secretary of State in order to enable her to carry out her functions in relation to cases that raise public interest considerations.

768.     Subsection (10) amends section 105(7) EA 2002 to extend the duties of the Competition Commission and the Secretary of State to have regard to information given to them under sections 105(3)-(6) so as to encompass information supplied to them under those sections by OFCOM.

769.     Subsection (11) inserts a new section 105(7A) EA 2002, which provides that OFCOM must have regard to any information given to it by the OFT under sections 105(3) or (4) EA 2002 and that OFT must have regard to any information given to it by OFCOM under new sections 105(3A) or (4A).

Clause 369: Advice and information in relation to newspaper mergers

770.     This clause inserts a new section 106A EA 2002, which provides that the Secretary of State may publish advice and information to explain the newspaper public interest considerations specified in section 58(2A) and (2B) EA 2002 and to indicate how the Secretary of State expects the merger provisions of the EA 2002 to operate in relation to them. If the Secretary of State chooses to publish such advice she will be required, in preparing the advice, to consult the OFT, OFCOM, the Commission and such other persons as she considers appropriate.

Clause 370: General advisory functions of OFCOM in relation to newspaper mergers

771.     This clause inserts a new section 106B EA 2002 setting out the general advisory functions of OFCOM. In any case where the newspaper public interest consideration has been invoked, OFCOM may give advice to the Secretary of State on any Competition Commission's report on the case, or on any enforcement action that the Secretary of State is considering.

772.     There is also a general power for OFCOM to give advice where the Secretary of State has requested this, which could be used, for example, in the event that the Secretary of State required supplementary advice on a particular aspect of a case. Except for the specific cases mentioned in new section 106B(1), this clause does not empower OFCOM to give advice unless the Secretary of State has requested it.

773.     Any advice that is given will be published, but not before the publication of the Competition Commission's report on the case.

Clause 371: Other general functions of OFCOM in relation to newspaper mergers

774.     This clause inserts a new section 119A EA 2002 that gives OFCOM the function of obtaining and reviewing information relating to any of its functions in relation to the newspaper public interest consideration. This information-gathering role, which may involve research, is with a view to OFCOM having the information it needs to make decisions and carry out its functions under Part 3 EA 2002.

775.     Subsection (4) of new section 119A EA 2002 excludes the general duties of OFCOM provided for in clause 3 of this Bill from OFCOM's functions under the newspaper merger provisions of the EA 2002. In practice the newspaper merger provisions will operate as part of the EA 2002, and this Act has its own provisions setting out the functions and responsibilities of the different authorities.

Clause 372: Monitoring role for OFT in relation to newspaper mergers

776.     This clause inserts a new section 119B EA 2002, which gives the OFT the function of obtaining and reviewing information that may be relevant to the Secretary of State's decision on whether or not to intervene on the basis of the newspaper public interest considerations set out in section 58(2A) or (2B) EA 2002. In particular, the OFT in carrying out this function will ensure that the Secretary of State is made aware of cases where (in the OFT's opinion) she may wish to consider issuing a special intervention notice. The OFT will not be under any obligation to carry out a detailed analysis of any newspaper public interest consideration that may be relevant.

777.     This clause only applies to such cases where they may fall within the special public interest consideration regime. The OFT's duties in relation to public interest cases falling within the standard regime are already fully set out in the EA 2002 (see section 5 and Chapter 2 of Part 3 EA 2002).

Clause 373: Enforcement powers in relation to newspaper mergers

778.     This clause inserts a new paragraph 20A to Schedule 8 EA 2002, which contains the list of matters that can be included in final orders for the purpose of remedying adverse effects specified in a Competition Commission report. This applies only to cases where any of the newspaper public interest considerations were specified in the reference and remain relevant at the point of a decision on remedies.

779.     Remedies to an adverse finding on the basis of the newspaper public interest consideration may be different in character to the remedies directed at competition detriments with which Schedule 8 is principally concerned. Accordingly, paragraph 20A allows the person making the order to make such provision, in relation to these cases, as he considers appropriate in all the circumstances. Sub-paragraph (4) sets out a non-exhaustive list of the type of steps that might be taken in exercise of this power. These are remedies that experience in dealing with newspaper transfers under the FTA 1973 has shown it would be useful to be able to call upon.

Clause 374: Alterations to newspaper panel of Competition Commission

780.     This clause amends the definition of "newspaper merger reference" in paragraph 1 of Schedule 7 to the Competition Act 1998. Schedule 7 to that Act makes provision about the Competition Commission and includes provisions on the appointment of newspaper panel members to the group selected to carry out an inquiry following a reference. The effect of this amendment is that the provisions on the appointment of newspaper panel members to any constituted group will only apply where a merger reference is made specifying a newspaper public interest consideration.

 
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Prepared: 20 November 2002