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COMMONS BILL [LORDS] [MONEY]
Queen's recommendation having been signified—
Motion made, and Question put forthwith, pursuant to Standing Order No. 52 (Money resolutions and ways and means resolutions in connection with bills),
That, for the purposes of any Act resulting from the Commons Bill [Lords], it is expedient to authorise the payment out of money provided by Parliament of—
(b) any increase attributable to the Act in the sums payable out of money so provided under any other Act.—[Tony Cunningham.]
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Classified Directory Advertising
Motion made, and Question proposed, That this House do now adjourn.—[Tony Cunningham.]
8.40 pm
Martin Salter (Reading, West) (Lab): I am surprised at the Under-Secretary of State for Environment, Food and Rural Affairs, my hon. Friend the Member for South Dorset (Jim Knight). Only a few moments ago, at that very Dispatch Box, he expressed great interest in the fascinating subject of classified directory advertising. We have checked his antecedents. From 1991 until 2000—I think—he worked for Dentons directories. We can only conclude that he had no intention of misleading the House, and merely decided that a lifetime in directory advertising was probably enough for any human being.
I am pleased to have secured this debate on behalf of the employees of Yell Limited, whose headquarters are based in Reading. Yell is a successful company with a £660 million turnover in the United Kingdom. It employs about 1,000 people in two offices in Reading, where it has operated for nearly 20 years. I am even more pleased that my old friend the Under-Secretary of State for Trade and Industry, my hon. Friend the Member for Bradford, South (Mr. Sutcliffe)—the Minister responsible for consumer affairs—is to reply to the debate.
I have a high regard for my hon. Friend, not least on the basis of my experience of him when he was a leading light in the trade union group of Labour Members of Parliament. I know for sure that if a group of workers in his constituency felt similarly threatened by the actions of the Competition Commission, he would not hesitate to take up cudgels on their behalf in his capacity as a constituency Member. That is why I am certain that he will take careful note of the representations I have received from the trade unions at Yell as well as from the management team—in particular, from Monica Charles, assistant branch secretary of the Communication Workers Union, and Andy Neatham of the Yell branch of Connect. I am also particularly indebted to Richard Duggleby of Yell for taking the time to talk me through aspects of this complex issue.
I am sure that my hon. Friend will respond directly to the matters that I shall raise, and will not simply read out a dry briefing note from his very talented officials, who have a way with the English language to which the rest of us can only aspire. I want him to bear in mind three points following an encounter which I assure him will not continue until 10.30 pm.
Stephen Pound (Ealing, North) (Lab): Shame.
Martin Salter: My hon. Friend clearly wishes the debate to continue for longer. I am sure that any intervention from him will achieve precisely that objective.
These are the issues that I want the Minister to bear in mind. First, what problems does the Competition Commission's inquiry into classified directory advertising seek to solve, given that directories such as the excellent Yellow Pages are free to consumers, and that advertising rates are falling faster than the current price cap demands? What is the problem? Secondly, has
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the Competition Commission not recognised that there is now something called Google? As the man said, the internet has changed everything. People no longer need to advertise exclusively in classified directories, as almost every aspect of human knowledge is available on the internet. Thirdly, why does the Competition Commission appear to want to legislate for yesterday, rather than addressing problems that will confront the marketplace tomorrow or in years to come?
The market for classified directory advertising may not strike everyone as one of the most important subjects for public debate, but for some reason it has become a subject of almost obsessive interest to the competition authorities in the UK, the Department of Trade and Industry, the Office of Fair Trading, the Competition Commission and its predecessor, the Monopolies and Mergers Commission—although, interestingly, that obsessive interest does not appear to be shared by their counterparts elsewhere in Europe.
I make it absolutely clear that I have no declarable interest in the subject. I have no registered position or shareholding in any company that is active in the sector. My interest relates primarily to the fact that the market leader in the sector, Yell Group plc, is based in Reading and the prolonged inquiry by the Competition Commission is taking up a considerable amount of the company's time when it could otherwise be getting on with running its business.
The OFT first referred the UK classified directory advertising industry to the Competition Commission's predecessor, the Monopolies and Mergers Commission, in March 1995—a long time before this Government took office. In November that year, the MMC submitted its report and recommendations on various new undertakings, notably price controls, to the then Secretary of State for Trade and Industry, Mr. Ian Lang. In March 1996, the DTI accepted the MMC's proposed undertakings, while the OFT was charged with monitoring their effectiveness.
Between 2000 and 2001, the OFT undertook a further study into the market and recommended to the DTI that the 1996 undertakings should be modified somewhat, chiefly by further tightening the price controls on Yellow Pages. The DTI accepted the advice, but suggested that the OFT should review the relevant undertakings again in 2005, with a view to having any new measures in place by 1 January 2006. We are now well past 1 January 2006.
On 3 November 2004, under the somewhat unlikely headline "OFT to review classified directory advertising and opium derivatives", the OFT issued a press release announcing the further review. Disappointingly, the headline turned out to refer to two separate cases, rather than an unusual instance of market convergence. In April 2005, the OFT decided to refer the whole subject back to the Competition Commission for another full investigation. The commission initially indicated that it expected to complete its inquiry by summer 2006, but the timetable has slipped several times, and the commission now does not plan to publish its report until September 2006, and perhaps not until April 2007. Not only would that be well past the DTI's original target of having any new measures in place by 1 January 2006, but it would break all known records for the longest, or, perhaps, slowest, competition inquiry yet undertaken by either the Competition Commission, or the Monopolies and Mergers Commission.
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The cause of the drawn-out obsession of the UK competition authorities with classified directory advertising is something of a mystery. A search of the parliamentary online database normally brings up questions asked by hon. Members on almost any subject, but there is virtually nothing on this issue. A few trade associations and advertising groups have given evidence to the current inquiry, as one would expect, but small businesses, many of which are regular users of classified advertising, appear to be unconcerned. Not a single one was chosen to give evidence to the current inquiry, and nor has the Federation of Small Businesses submitted any views to the Competition Commission.
Stephen Pound: My hon. Friend says that small and medium-sized enterprises may not have expressed concern, but many in my constituency have expressed concern that what they think of as an absolutely vital tool for bringing their products to market appears to be threatened. Will my hon. Friend tell us how on earth Yell Group is managing to retain its renowned high standards in the face of such uncertainty, difficulty and diversion of scarce resources?
Martin Salter: As I said earlier, Yell Group and Yellow Pages itself are providing advertising rates that are lower than the price cap demands. The operation is extremely healthy, and there is a complementary internet service, yell.com. The competition inquiry itself has not yet affected Yell Group's profitability and nor has it directly threatened the employment opportunities of my constituents. However, the period of uncertainty is doing no one any favours, not least the Competition Commission. Hon. Members and Parliament, to which the commission is ultimately responsible, would expect the commission to be addressing real problems, not made-up, theoretical problems that belong to a bygone age. I thank my hon. Friend for his most welcome support.
Consumer groups appear equally unconcerned about the matter. The only reference to their position is a transcript on the Competition Commission website of a short interview conducted with Which?—the Consumers Association—in which it argues that the present CC inquiry was probably unnecessary. That is significant. I have huge regard for Which?, and must declare that my wife works for it. It is universally regarded as an effective champion of consumer issues and consumer choice. However, Which? does not recognise the need for the inquiry.
No more than 30 organisations of various kinds have given evidence to the Competition Commission's inquiry in addition to the main principals in the market, such as Yell, Thomson Directories and British Telecom. By the normal standards of industry inquiries by the commission, that is an exceptionally low level of submissions. It is also noticeable that many of the submissions that have been made are in fact quite positive about the current state of the market and also quite positive about the service provided by Yell—which answers the point made by my hon. Friend. So the question remains: why have the OFT and the commission devoted such an extraordinary amount of time to this subject, when neither the main users of classified advertising—small businesses—nor ordinary consumers have any particular concerns?
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One might imagine that, having spent a year on this subject, the commission has perhaps been engaged in some deep, original thinking. Unfortunately, judging by the only substantive document that it has published to date, the opposite seems to be the case. The commission's interestingly titled "Emerging Thinking" paper, published a few weeks ago, is depressingly unoriginal and it suggests that the commission's thinking on this subject has not moved on much beyond the conclusions reached by its predecessor, the Monopolies and Mergers Commission, back in 1995 under the Conservatives. So much has changed in the intervening years.
At that time, the MMC took the view that Yellow Pages was held in high regard by most advertisers and users, that many advertisers did not want to see a proliferation of alternative providers, but that action was needed to keep prices low. After considering and putting to one side the somewhat extreme option of breaking up the company, this led to the price controls on Yell that remain in place today. The MMC recognised that such a course of action could, ironically,
by making it more difficult for other firms seeking to enter the market from being able to compete on price, a point recognised by Which? in its recent comments. The MMC therefore set the price formula at a relatively modest level. Despite that, in 2001, the OFT chose to tighten the price control formula on the grounds that other firms were unlikely to enter the market in any event.
The OFT was wrong in its assumptions. Since 2001, there have in fact been major new entries into the market, most notably by Yell's former parent company, British Telecom, but also by other publishers, such as the Trinity Mirror Group. In addition, the huge growth in the use of the internet for directory inquiry searches for all kinds of services is already affecting the traditional printed directory business and will clearly make a huge impact in the future.
Despite all those changes, the commission, in its "Emerging Thinking" paper appears to have ignored or discounted those developments. Even though competition regulators are meant to be forward looking in their analysis, the commission has so far effectively dismissed the internet, portraying it as a minor side issue and somehow not directly relevant to the printed directory advertising market on which it has been focusing its inquiries for many years, at considerable public expense. It is as if the commission regards the market as virtually unchanged since 10 years ago, so that the previous MMC report from 1996 can be dusted off and republished anew.
Particularly bizarre is the commission's suggestion that BT's re-entry into the market, which surely must be considered as significant, can be discounted as unique, on the grounds that other companies lack its size or brand image. Yet one would have thought that companies such as Vodafone—larger than BT—and Google, which is the UK's most popular search engine, clearly have both the size and the brand image to enter the market if they wished to do so.
So far, the Competition Commission appears to be adopting a circular argument—that price controls currently in place may discourage competition but are
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necessary because there is insufficient competition. It seems that evidence that the extent of the competition has grown—as it clearly has in recent years—must be discounted, as it does not fit in with the commission's preconceptions. Frankly, that is the analysis of the madhouse.
The Competition Commission's attitude is simply not good enough. It reminds me of the famous remark allegedly made by a member of the Monopolies and Mergers Commission when the competition authorities first investigated the beer industry in the 1980s. That industry is well known to my hon. Friend the Member for Ealing, North, and to me, given that the Courage brewery is based in my constituency. The MMC member is alleged to have uttered the golden words that something was
Competition policy is meant to be based on evidence rather than preconceived theories, and on forward-looking analysis rather than old reports and studies from decades ago. The growing competition in the market for classified directory advertising suggests that prices controls are outmoded, and both competitor companies such as Thomson Directories, and consumer organisations such as Which?, have taken a similar view in their evidence.
These days, price controls are not generally used, except for essential utility services such as water, gas and electricity. The case for keeping them, at a time when Yell's market share has been steadily declining and when printed directories form only part of the wider market for information services, seems very weak indeed. The Competition Commission should take more seriously the case for removing price controls as, almost certainly, that would lead to more competition, not less.
Overall, the market is dynamic and changing, with a high level of user satisfaction. It does not have the obvious characteristics that would call for heavy-handed regulation. If Yell were an old fashioned monopoly that obliged reluctant people to buy its products, instead of being a company that provides a good and popular service, there might be a case for 1970s-style price controls. In fact, the company is well run, and has done well since being decoupled from BT in 2001.
The proof that Yell's success is due more to good business management than to its strong market share is the fact that it has done so well in the US and other markets. Far from being the incumbent, it has generally been the challenger overseas. That suggests that product innovation and the maintenance of generally good relations with customers can still pay dividends.
It must also be acknowledged that the Competition Commission is only at the emerging thinking stage of its inquiry, and that no final decisions have been taken yet. I am pleased to tell the House that, when the commission's chief executive realised that I had secured this debate, he wrote to me make that very point.
The Competition Commission's thinking may have moved on over the past few months, but to date the story has not been encouraging. There have been indications that members of its panel may not have engaged fully with issues raised in the course of the inquiry, preferring
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to leave matters largely to administrative staff. They, in turn, appear to have relied heavily on work done 10 years or more ago. That is utterly indefensible.
Despite its supposed commitment to transparency, the Competition Commission has tried to hide delays to the timetable by pasting up new deadlines on its website without acknowledgement or public announcement. That is simply unacceptable.
Moreover, I must tell my hon. Friend the Minister that the Department for Trade and Industry is also partly responsible in this matter. It is responsible directly, because it was previously the source of final decisions in competition investigations and yet has allowed this relatively small industry to become subject to endless regulatory investigations and a series of heavy-handed, outmoded and probably unnecessary undertakings.
The Department is also responsible indirectly because, although no longer responsible for the final decision in competition matters, it remains responsible for the publishing sector yet has failed to submit any evidence to the current inquiry. The result has been a seemingly self-perpetuating series of regulatory inquiries into an industry about which there have been few, if any, complaints or concerns and with which everyone, by and large, seems to be perfectly happy. When he replies to the debate, I invite my hon. Friend the Minister to acknowledge that the DTI need not feel constrained by the actions of his Conservative predecessor who started this whole sorry episode in 1995.
Given the Competition Commission's increasingly poor time-keeping, we must query whether Ministers were right to relinquish their powers over its timetables for such inquiries. Where previously it had to request permission from the Department of Trade and Industry for an extension to its timetable, it now simply asks itself. Whereas before the Enterprise Act 2002—I stand guilty here, as I loyally voted for it—most Monopolies and Mergers Commission inquiries took around three months, even the simplest Competition Commission inquiry today takes around six. Others take much longer.
The National Audit Office recently criticised the Office of Fair Trading for taking too long over its cases and failing to prioritise properly. To its credit, the OFT has largely accepted those criticisms and promised to rectify the position. Given how long the Competition Commission now takes over some of its cases, including the inquiry into classified directory advertising, there may be a case for the NAO conducting a similar investigation into its work. I give notice that I will, if necessary, personally approach the NAO to ask it to shine more light on the workings of the Competition Commission.
I understand that the Competition Commission has a current high-profile inquiry into the proposed merger of the booksellers Waterstone's and Ottakar's. I note that it has placed great weight on consumers using the internet to buy books through Amazon.com and the like. That is a factor, the commission says, in keeping the price of books competitive. I hope that the commission will realise that the internet effect is also present in the case of classified directory advertising, and I hope that
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its panel will think carefully about the evidence it has received, which frankly does not support the emerging thinking document published previously.
Once the case is over, I hope that the DTI will reconsider whether lessons can be learned about the way in which such inquiries are conducted, in terms not just of the timetable but the substance. Perhaps it might encourage a peer review exercise similar to those that take place in other cases. It is noticeable that while every country has some form of yellow pages, and while the European Union market for directory services has long been open to competition in line with directives initiated by the European Commission, no competition authority in another EU member state has found it necessary to mount such a prolonged series of inquiries into the industry, with such potentially destablising effects.
I am pleased to have had an opportunity to highlight an issue of considerable importance to my constituency. I, and many others await the provisional findings of the Competition Commission inquiry into classified directories next month. I trust that they will be based on evidence and hard facts, and not on some outdated theory from another age, an age before the internet and the market entry of such significant players as BT, Google, Yahoo and so on. The Minister knows that I shall continue to pursue the issue with considerable vigour, and I await his response with great interest.
9.2 pm
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