3 Oftel's regulation of anti-competitive
behaviour
17. Oftel had a statutory duty to investigate all
complaints, including those involving anti-competitive behaviour.
One of Oftel's four high level objectives was to prevent anti-competitive
behaviour and Oftel budgeted to spend £1.8 million on this
work in 2002-03.[25]
18. The regulator has two main means of investigating
potential anti-competitive behaviour: firstly, under the sector-specific
Communications Act 2003, which includes powers to impose fines;
and secondly, under the general Competition Act 1998, which provides
stronger powers of investigation and enforcement as well as powers
to fine. In July 2002, following two years' experience of the
Competition Act, Oftel decided to use that Act in preference to
the telecommunications legislation wherever possible.[26]
19. In June 1998 the Director General told our predecessor
Committee that the proportion of investigations initiated by Oftel,
rather than on the basis of a complaint, had risen from 10% at
the time of the C&AG's examination to 20%. Oftel accepted
the Committee's conclusion that Oftel should not be too reactive
in dealing with anti-competitive behaviour. Oftel continued to
initiate its own investigations, but complaint based investigations
still dominated. In the two years to June 2002, 'Oftel-initiated'
cases accounted for 12% of investigations.[27]
20. It is important that the regulator's investigations
are completed in a timely fashion. Figure 2, which sets
out the average duration of an investigation over several time
periods, shows that Oftel's performance deteriorated after our
predecessor Committee's Report covering the period January 1995
to January 1997. After June 2002, however, Oftel's performance
improved in the run up to the implementation in July 2003 of a
new EU Framework Directive requiring most types of investigation
to be completed within four months.[28]Figure
2: Changes in the duration of Oftel's investigation over time
Period
| Number of cases
| Average duration of cases
| Source
|
January 1995 to December 1997
| 217
| 23 weeks
| Note 1
|
July 2000 to June 2002
| 187
| 27 weeks
| Note 2
|
July 2002 to September 2003
| 110
| 18 weeks
| Note 3
|
Notes:
1. Countering anti-competitive behaviour in the telecommunications industry (Report by the C&AG, HC 667, Session 1997-98)
2. The Office of Telecommunications: Helping consumers benefit from competition in the telecommunications market (Report by the C&AG, HC 768, Session 2002-03)
3. Memorandum by the Director General of Telecommunications to the Committee of Public Accounts, October 2003 (Ev 24, para 5)
|
21. In a supplementary memorandum, Oftel gave us details of an
allegation of anti-competitive behaviour made by Vanco against
BT. In this case, BT was on the verge of losing a large
contract to provide telecommunications services to IBM to a smaller
competitor called Vanco, who were undercutting BT's published
prices. BT offered to introduce IBM to a third party sales agent,
called RHM. If BT retained IBM's business, RHM would rebate to
IBM a sum of money every month which would, in effect, make up
the difference between BT's published prices and the lower prices
quoted by Vanco.
22. Oftel investigated this scheme as being anti-competitive
and concluded that BT had breached Condition 54.9 of its licence
by operating a discount scheme without publishing the details
of the scheme. On 10 February 2003 Oftel issued a Provisional
Order requiring BT to publish details of the discount within three
days. BT then withdrew its offer to IBM, through RHM, and therefore
did not have to publish details of the discount. [29]
23. This case raised three issues. Firstly, when
the Committee questioned Oftel about the case, it did not seem
to have some key information, including the ultimate ownership
of RHM and the amount of money involved.[30]
Although Oftel subsequently provided a confidential letter which
set out the sums of money involved, it did not clarify the issue
of ownership of RHM, but merely confirmed that RHM was not a subsidiary
of BT. [31]
24. Secondly, Oftel did not have a face-to-face meeting
with any of the companies involved.[32]
It was not its normal practice to undertake such meetings during
an investigation because its statutory powers extend only to documentary
information; it cannot attach the same evidential weight to information
gathered informally. In the Vanco v BT case, Oftel considered
that the information obtained from RHM was so clear cut that there
was no need to supplement this with a meeting.[33]
25. Thirdly, the regulator did not impose a fine
on BT for its behaviour in this case. Oftel said that this was
because the relevant power to fine was only available after the
Communications Act came into force on 25 July 2003.[34]
Although it could have levied a fine under the Competition Act
1998, the standard of proof required under that Act is high. Oftel
used the Telecommunications Act in this case because it enabled
Oftel to complete the investigation within five weeks.[35]
26. In the absence of a fine, Oftel could have punished
a company for indulging in anti-competitive behaviour by publishing
the details of the wrongdoing. Although BT may have suffered some
reputational damage as a result of the Vanco case,[36]
Oftel could have given the case wider publicity.
25 C&AG's Report, para 2.9 Back
26
ibid, paras 2.11-2.12 Back
27
ibid, para 2.13 Back
28
Qq 19-22 Back
29
Ev 25 (para 12) Back
30
Qq 60-61, 79-82, 97 Back
31
Part of the supplementary memorandum submitted by the Office of
Telecommunications, Ev 26-27 - not printed Back
32
Ev 27 (Q 112) Back
33
Qq 101-104; Ev 27 (Q 112) Back
34
Q 75 Back
35
Qq 125, 74 Back
36
Q 105 Back
|