Select Committee on Public Accounts Eleventh Report


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


 
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