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House of Commons
Session 2005 - 06
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Standing Committee Debates

Draft Communications Act 2003
(Maximum Penalty and Disclosure
of Information) Order 2005

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First Standing Committee
on Delegated Legislation

The Committee consisted of the following Members:


Mr. Eric Martlew

Beresford, Sir Paul (Mole Valley) (Con)
Bone, Mr. Peter (Wellingborough) (Con)
†Dhanda, Mr. Parmjit (Gloucester) (Lab)
†Evennett, Mr. David (Bexleyheath and Crayford) (Con)
†George, Mr. Bruce (Walsall, South) (Lab)
†Gerrard, Mr. Neil (Walthamstow) (Lab)
Hamilton, Mr. Fabian (Leeds, North-East) (Lab)
†Hendry, Charles (Wealden) (Con)
Johnson, Mr. Boris (Henley) (Con)
†Lamb, Norman (North Norfolk) (LD)
†Michael, Alun (Minister for Industry and the Regions)
†Milburn, Mr. Alan (Darlington) (Lab)
†Purchase, Mr. Ken (Wolverhampton, North-East) (Lab/Co-op)
Reid, Mr. Alan (Argyll and Bute) (LD)
†Robertson, John (Glasgow, North-West) (Lab)
†Stewart, Ian (Eccles) (Lab)
†Strang, Dr. Gavin (Edinburgh, East) (Lab)
Mark Egan, Committee Clerk
† attended the Committee

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Monday 12 December 2005

[Mr. Eric Martlew in the Chair]

Draft Communications Act 2003
(Maximum Penalty and Disclosure
of Information) Order 2005

4.30 pm

The Minister for Industry and the Regions (Alun Michael): I beg to move

    That the Committee has considered the draft Communications Act 2003 (Maximum Penalty and Disclosure of Information) Order 2005.

I shall explain the draft order and its wider context. The order does two things, but its impact will go much further in preventing rogue operators from being successful. I have some notes and information to explain the background which, if I may, Mr. Martlew, I shall put on the Table. They are not directly relevant to the order, but they explain some of the background and provide the type of information that has been sought by hon. Members on several occasions. When looking at the context earlier today I thought that it might be useful for the information to be provided for members of the Committee.

The statutory instrument does two things. First, it increases the maximum penalty from £100,000 to £250,000. Secondly, it expands the definition of a relevant person to include ICSTIS, as I shall refer to it from now on despite my dislike of acronyms, which is the Independent Committee for the Supervision of Standards of Telephone Information Services. That full title explains why we use the acronym fairly frequently.

ICSTIS is not statutory in nature but it is a good example of effective regulation through a partnership between the Government’s—or rather Parliament’s—regulator and the industry. In effect, Ofcom delegates regulation to ICSTIS. If that did not work, Ofcom could take back the role and responsibilities. Ofcom is directly accountable to Parliament, rather than to Ministers, for the use of its powers. That delegation is a good idea because the area of commercial activity in question is extremely complex in terms both of the business activity and the technology. Not only that, but the technology is extremely fast moving, so it is difficult to look sufficiently far ahead to anticipate problems before they arise.

In a fast changing and rapidly converging electronic age, speed of reaction is essential to public protection, but enabling businesses in the UK to operate quickly and at the cutting edge is also essential—that is how our industry will stay at the cutting edge. We need the engagement of industry to achieve that. After six months in my current role I am convinced that most of the players in the industry, at least in the UK, know that working hard at protecting the public by catching
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and excluding those who exploit—the bad guys—is the only way to avoid the heavy hand of more traditional forms of regulation, which would be demanded by the public, and indeed by Members of Parliament, unless the scams can be eradicated through the co-operative approach. This is not a soft approach. It is an effective one.

Norman Lamb (North Norfolk) (LD): Will the Minister give way?

Alun Michael: Let me give two examples, then I shall give way.

The first example, which is slightly to one side of the order, deals with child abuse and child pornography on the internet. By bringing together the industry, the regulators, the police and non-governmental organisations we have been able to create a structure in which problems are identified by the Internet Watch Foundation. The co-operation of the industry means that many problems are identified quickly and the problem sites are eradicated. With a Home Office colleague I met representatives of the industry and those organisations to look at the way in which that arrangement was working. We concluded that we have achieved more in the last year than we could have achieved in perhaps five years through regulation. Having flexibility and speed is of the essence.

The second example is that outside this regulation, ICSTIS has acted to give effect to the decision of the Department of Trade and Industry to delay payment for premium rate services by 30 days, as Ofcom recommended. That means that no telecoms company can pay out to a service provider until there has been time for a complaint about a scam to be acted on. What that means is that cash can be recovered for an exploited customer.

One of the problems was that sometimes a small organisation went quickly and briefly into the market, was able to exploit the technology and was gone by the time that an attempt was made to recover money. The 30-day delay builds into the system the capacity to ensure that fines, which are dealt with by the order, can be imposed and money recovered, rather than profit being made and organisations being gone before it is possible to deal with them. That requirement came into effect on 15 September.

If we can remove the profit motive, that will drive out scams. The measure will enable ICSTIS to collect fines from the fly-by-nights, who are the really bad guys, and will introduce effective discipline more widely in the industry. We shall assess the full effect of the measure over the coming months and keep it under review, but both the increase in fine capacity and the exchange of intelligence will provide robust underpinning to our approach.

That is why I wanted to explain the context. The two measures in the order are important, but they are legislative measures in a wider regulatory framework.

Norman Lamb: The Minister has largely answered the question that I wanted to ask. It seems to me that the increase in the fine, which I welcome, will not by itself deal with the original problem, which was that it
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seemed impossible to bring prosecutions or challenges—to enforce regulation—so the level of fine was irrelevant. Was the problem simply that the fly-by-nights disappeared before it was possible to recover any money, and the delay in making payment really the key to clamping down on the fly-by-night operators?

Alun Michael: There are two different groups of organisations. I am grateful to the hon. Gentleman for acknowledging that the context as well as the regulation is important, because I want to underline that. The level of fining has gone up because of public concern about the activity that we are considering. The DTI, Ofcom and ICSTIS have considered what needs to be done to eradicate the problems. In respect of the problem of those who come and go very quickly, the delay in the payment of money from the network both allows intervention and gives the network an incentive, as I shall explain in a moment.

There are also ongoing organisations, which might balance whether the game is worth the candle. The penalty needs to be high enough to make them recognise that being legitimate is worth their while. The way I put it, we are creating a sort of antisocial behaviour order for the industry that says that serial activities that are questionable or on the edge are not worth it and that it is better to have a well regulated industry with a good reputation than to succumb to the danger of the past couple of years, from which we have learnt, which is an industry that is not well regulated and has a bad reputation.

That type of industry would be bad for businesses that are engaged in valuable activities. I am thinking, for example, of directory inquiries, the provision of information about sports results—I know that that occupies the minds of some people, even some MPs, from time to time—stock market prices, or even the Queen’s golden jubilee tickets. When those tickets were being issued, a premium rate service was used. Premium rate services can give something to the customer in a variety of useful ways. The question is how we can build in protection.

The level of fine is important in itself, but it will be made even more effective if the further point is pursued. In my view, in certain circumstances a penalty should be imposed for each breach—for each offence or each contravention, which is the term used in the Communications Act 2003—rather than per service. That view has been upheld by ICSTIS’s independent appeal body and I believe that it is also the view of lawyers. I am pleased that ICSTIS is now consulting on a change in the code of practice to make that clear.

Such a provision would mean that individual offences relating to an individual subscriber could each attract a penalty in the clearer cases of abuse. That is likely to make it certain that the game is not worth the candle for those who seek to exploit the public, particularly the vulnerable, in a variety of ways. That level of penalty, particularly if it is repeated per incident, should not be used lightly. However, the two steps taken together will send a clear message: “This is not soft regulation. Do not mess: this animal has real
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teeth and will use them.” That is good news for customers because it means that they have protection, and it will be commercially good for the industry because it will regain a good reputation.

Finally, when a scam has occurred, customers want a refund as well as punishment for the offender. Another new provision will enable ICSTIS not only to order refunds but to collect the money from the network if it is not forthcoming from the service provider. That will concentrate the minds of networks on their due diligence. I have spoken to one or two that have accepted that that is a good way of doing business, because it enables them to say to the service provider, “No, we are not going to allow you access to the service unless you can provide appropriate safeguards for the public”. In appropriate cases they can use the 30-day delay to protect themselves as well as the customer.

The order forms part of an intelligent and formalised approach to protecting the consumer against scams, while increasing the flexibility of services available and the quality of the market. That has got to be good commercially as well as good for the consumer. I commend the two fairly straightforward measures in the order as two essential legislative developments to strengthen a flexible but effective partnership between the regulator, the Government and the industry as a whole, which, as I have indicated, has generally responded positively to the need to protect the public who are their customers.

4.42 pm

Charles Hendry (Wealden) (Con): It is a pleasure to serve under your chairmanship, Mr. Martlew. Anybody who is in doubt about the importance of the order need only look at the number of people who have been nominated to serve on the Committee. There are two former Cabinet Ministers present, including the right hon. Member for Darlington (Mr. Milburn) who by now has probably served enough time on the Back Benches and is ready to move back into the ranks of Government. This extremely important occasion is his opportunity.

I endorse the Minister’s comments about the industry being right to take the lead in these matters. It knows best where the loopholes are and where the abuses are taking place. I attended the recent meeting of the Parliamentary Information Technology Committee, at which the right hon. Gentleman spoke, and it was extremely encouraging to see the approach being taken by the industry and its determination to ensure that it is a wholly legitimate industry. Those in the sector are in the best position to advise the Government on where the potential loopholes and abuse are taking place because, with the best will in the world, people in Government Departments and in this place do not necessarily know where abuses are happening.

Most of us do not normally call to premium rate numbers. I inadvertently did so over the weekend when I was trying to place my vote for Andy in “The X Factor”. I misdialled and ended up being told, “This is the hottest, most exciting new call centre on the
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system.” Rather embarrassed, I had to explain to my wife that I do not normally call that number and that it was not on speed dial. However, most of us tend not to have tremendous experience of those services.

Norman Lamb: We believe you.

Charles Hendry: I am sure that the hon. Gentleman believes me. It would be inappropriate of him not to.

The Minister has explained the ways in which the order is designed to improve regulation, but I have a couple of questions of clarification for him. With regard to the maximum fine, many businesses in the sector are small businesses and a fine of a quarter of a million pounds might bankrupt such a small firm. Is it intended that the fine be related to the size of the company, or will it be an absolute fine related to the severity of the offence? Similarly, given that we are dealing with a multi-billion pound industry which contains some multi-million pound international operators, what assessment has he made of the likely effectiveness of a fine of a quarter of a million pounds on the largest operators?

Can the Minister provide some example or indication of how the premium rate services industry has grown in recent years? How many premium rate service companies are there in the UK, and how many are estimated to operate from overseas but target British consumers? On the latter point, perhaps the Minister could explain how it is intended that Ofcom should regulate those overseas companies that target UK consumers.

Finally, can the Minister enlighten us on how many companies have been referred to Ofcom and been fined under existing legislation? How has Ofcom arrived at the figure of a quarter of a million pounds for the maximum fine? What assessment has been made of the impact of such a fine as a deterrent or threat? We note the extension of the exemption on the restriction of a disclosure to ICSTIS; perhaps the Minister could update us on progress on the other 16 recommendations in last year’s Ofcom report.

4.44 pm

John Robertson (Glasgow, North-West) (Lab): I declare an interest: I am chairman of the all-party telecommunications group.

Will the Minister tell us how long the delay between a complaint being made and a decision will be? How long can it be? What will be done to advertise the service to customers so that they can complain and put a stop to overpayments? I dealt with the case of an old lady from Yoker who was charged £300 for a call that she thought she had not made, only to find that her phone had been locked into a piece of equipment somewhere in England.

On premium rate services and flexibility, what assurance can the Minister provide that that flexibility will not allow the further incursion into society of pornographic telephone calls and the sending of pornographic pictures to mobile phones? I accept what the Minister said in his contribution and I am pleased
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that we are taking action on fines, but I was interested to hear what he said about the number of fines. Can he tell us whether, if one company were the subject of 100 complaints of the same ilk from different customers, that would result in one fine or 100? If a customer makes more than one complaint, for example, a complaint of being illegally called in order to compel a return call and a complaint of being unhappy with the service, could that person make two separate complaints that would result in two fines?

4.47 pm

Norman Lamb: I warmly welcome the statutory instrument. I am conscious that it has resulted from a full review of the regulatory framework. We are dealing with a very profitable, well-developed sector, which I understand is more developed in this country than any other. I understand that the profits available in that sector in the UK are higher than anywhere else in the world.

The existing regulatory system has failed. We are all conscious that last year’s rogue dialler scandal led to many consumers suffering; in some cases, there were very substantial losses. When those consumers made complaints to ICSTIS, they were met with confirmation that that organisation could not compensate them, nor could the operator with whom they had a contract, so most received no compensation and the fly-by-night crooks go away with it. It was absolutely right to instigate a review to ensure that those abuses could not happen again. Some abuses are still taking place, but not on the scale of last year.

Problems often relate to an absolute lack of transparency. I was interested to see that one of the obligations on ICSTIS will be to try to ensure greater transparency in the way that the system operates. The Library briefing states:

    “The ICSTIS Code of Practice stipulates that consumers must receive . . . clear and accurate pricing information”.

I do not see that, even today. For example, my dear son managed to sign me up for Chelsea team news by text message—it was not the sort of site that the hon. Member for Wealden (Charles Hendry) found himself on—and I found it impossible to deregister. I have no interest in Chelsea team news, but every time I deregistered it bounced back again and the charges continued. There was no information about how much it was costing until later, when I got the bill.

The ICSTIS code mentions transparency, but there is a continuing lack of transparency in charges for the use of premium rate services for texts or phone calls. I shall be interested to hear what the Minister has to say about that and about what more can be done to improve transparency. At the end of the day, legitimate companies can charge what they like, provided that the consumer knows how much that is and can decide whether to use the service.

Will the Minister confirm what sanctions are available? I understand that under the present regulatory regime, ICSTIS has the power to impose fines of up to £100,000. What sanctions has ICSTIS imposed and how many orders of compensation have been made in the last two years? I believe that it is very few.

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Despite those questions, the change proposed to improve access to information and to increase the fine is very welcome.

4.52 pm

Mr. Ken Purchase (Wolverhampton, North-East) (Lab/Co-op): Using words such as “transparency” misses the point. We are dealing with crooks, spivs and ne’er do wells—that is what they are. They cannot help it; they are into supplying so-called services which, in the main, are useless and an absolute waste of time and money. “Transparency” does nothing to shed light on their activities.

I am reminded of when Woody Guthrie was brought before the un-American activities committee and asked what he understood about the nature of free enterprise and capitalism. He replied, “Well, what I know is I’ve been robbed more times by a man with a fountain pen than I ever have by a man with a six-gun.” We seemed to have replaced the fountain pen with mobile phones, word processors and the internet caper, all of which can be extremely useful, but people on the margins in the world of free enterprise cannot help themselves turning to crooked means of earning a living.

The Minister must recognise that part of the problem is not over-regulation but under-regulation, which stems from the time when the Tories decided to privatise BT. There is now a massive raft of companies, none of which can, in truth, be trusted to do the right thing. At what stage does the Minister think BT can be brought back into public ownership?

4.54 pm

Alun Michael: As always, my hon. Friend the Member for Wolverhampton, North-East (Mr. Purchase) puts his finger on one bit of the truth, but it must be put in context. He is good at identifying the crooks, spivs and ne’er do wells and clearly belongs to the tendency who believe that the man with a fountain pen has been replaced by the man with a computer, who must inevitably be a crook—or, even worse, a crook and a Conservative. I notice that my hon. Friend spares all women from any accusation of being involved in these activities.

I have difficulty in responding to my hon. Friend but I have a certain degree of sympathy with the second part of his diatribe. It is a rather old Labour way of looking at the world. I know he will take that as a compliment, which is how it is intended. It is a slightly over-simplified way of looking at an age in which an immense number of people in this country use mobile phones and the internet, and a variety of services are converging.

I was asked what is the size of the market and how many people are involved. It is a £1 billion market and some 40,000 services are provided by thousands of service providers. Those services exist because they are used by a large number of people. I mentioned directory inquiries, results in sports matches such as updates on the cricket scores around the world, stock market prices and a variety of other services that are
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now a fact of life. What is important is allowing the market to develop so that it provides services to those who want it, but dealing with the crooks and the spivs to whom my hon. Friend referred and ensuring that they do not benefit from the market. I shall explain how we will do that.

Hon. Members have already acknowledged that the scale of abuse by rogue diallers, for example, has been massively reduced. The problem grew extremely rapidly and needed to be dealt with, but our ability to respond quickly to a new development of that sort was not adequate at the time. The Government, Ofcom, ICSTIS and the industry have taken steps to ensure that we can respond more quickly to new problems that arise in the future. Rogue diallers are a separate issue from the matter we are discussing, but because it is one of the two issues that has caused most concern to hon. Members it is dealt with in the information note that I have circulated to members of the Committee.

The hon. Member for North Norfolk (Norman Lamb) mentioned his personal experience. A debate always comes alive when Members of this House refer to their own experiences. If a scam has been successful on an hon. Member, one can take it for granted that Ministers and Opposition alike will deal with it very seriously indeed. The hon. Gentleman referred to the difficulties of deregistering. I can tell him that that scam is covered by the ICSTIS system and if subscribers cannot easily unsubscribe to such services it is, in itself, a breach of the ICSTIS code. The mobile industry has also put in place the universal stop command: subscribers must be able to unsubscribe to services by sending a stop command to the service provider. If that fails, the disciplinary system that we have been discussing kicks in. Although I would have to look at the specific circumstances in more detail, the arrangement should be successful in dealing with the problem to which the hon. Gentleman drew attention.

My hon. Friend the Member for Wolverhampton, North-East was right to say that we need a system that enables people to choose to stop something and which, if they have been the subject of a scam, enables them to recover the costs and know that someone will be punished, but otherwise to have the flexibility in the market to enable people consciously to choose what they wish as a service.

There were questions about the extent to which the current fining system has been used. I checked so that I would have up-to-date figures for the Committee. Last year the figure for fines was £2.8 million, of which about 66 per cent. was collected. That raises the question how to ensure that we push that figure nearer to 100 per cent., because generally when fines are not collected it is because people have disappeared. They have stopped providing the service and cut and run. There has been an increase this year, which still has a few weeks to run, to £3.4 million-worth of fines imposed. At £787,000, the current figure for the fines collected is lower than I would have liked, but collection always runs considerably behind the imposition of penalties. The expectation is that we will get to at least 50 per cent. in the fullness of time.

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That is precisely why the steps that I have outlined are being put in place. For instance, the 30-day delay will make it much easier to ensure that fines are collected. Placing responsibility on networks, so that, if there is a failure to collect from the service provider, the money can be collected from the network, will ensure that the good guys among the service providers, as well as the customers, are properly protected, but that the rogues cannot cut and run.

Norman Lamb: May I take it that it is compensation rather than fines that can be collected from the operator, or is it both?

Alun Michael: Both, is the intention. That binds everybody into a virtuous circle. The conversations that I have had so far indicate that a 30-day delay would enable a freeze to be put in place for longer, if that was necessary to ensure that money can be recovered and that fines are paid. Both are important. If there is certainty that penalties and compensation moneys can be garnered, the incentive to attempt the scams declines massively. We want the message to be understood that we intend to exert control in this area and that we must have confidence in the system that is in place for the industry.

I ought to underline the fact that anybody who fails to pay up is barred and effectively thrown out of the industry. They cease to be able to undertake such activities. If an individual returns under a different company name, they can be named and prevented from undertaking similar behaviour in another company. The code prevents the changing of names as a way of trying to escape the penalty.

The 30-day delay in payment is crucial in closing the door, but the intelligence element—people in the industry exchanging information among themselves—is important too. Information sharing between telephone companies such as British Telecom, Telewest and Vodafone, as well that involving ICSTIS and Ofcom, is becoming commonplace. With those systems in place, the order will assist the provision of information to ICSTIS to enable its control to be tighter and to improve the standard of the work that it undertakes with the industry.

The hon. Member for Wealden rightly said that a number of recommendations were made as a result of the survey and investigation that was instigated by Ofcom. That result is that a number of the changes have already been put in place and others are in progress. ICSTIS has to go through a consultation process in order to ensure that there is buy-in and the industry can comment before requirements are imposed. It is undertaking that process with a view to achieving a better combination of factors, involving an industry approach in co-operation with the regulator.

Ofcom and ICSTIS have jointly drawn up a memorandum of understanding, which includes key performance indicators to ensure that the standard of
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the industry regulators’ work is increased to the benefit of the industry as a whole and the consumer. A new code of practice is about to be put in place as a result of the consultation process. It will implement a number of the recommendations that do not require statutory action and therefore do not require Government and Parliament to do anything. Having been consulted on, the recommendations will be put in place. They will be part of the general net of arrangements. The Ofcom investigation has led to changes and is leading to new changes, some of which are covered by our debate and others of which will follow in due course.

On the question of what constitutes an incident and its impact on the industry or small firms, we intend the fines to be high enough to serve as a disincentive even to the largest of companies, especially if it is in the back of their minds that a breach of law that was not extremely serious would usually incur a fine per service, but that that could be escalated to a fine per incident in circumstances in which the requirements had been blatantly disregarded and where damage had been done to the public and to confidence in the wider industry. Any fining system must be proportionate to the offence, however, and there is an appeals process if a company believes that the fine was disproportionate. I expect the heaviest fines to be used where there is blatant abuse of the system and disregard of the code of practice. The powers in the order will, in effect, be reserve powers to use against the most blatant of cowboys, rather than for daily use. If a company made a genuine mistake, it would receive a fine that was commensurate to the damage done to the public and consumers and to the extent to which the company was blameworthy. In other words, the usual standards of justice would apply. The consideration would be whether a higher fine was likely to put out of business a company that provided a genuine service in other ways, as putting such a company out of business would clearly be undesirable. Nevertheless, there is a desire that a penalty should hurt.

At the other end of the market—the part of the market of which my hon. Friend the Member for Wolverhampton, North-East has the greatest knowledge—are the companies with a complete disregard for the interests of the public and the consumer. It should be the business of the system to put those companies out of business to ensure that the public are protected.

Given those explanations, I hope that the Committee will be happy to support the order. I am grateful for hon. Members’ comments that the order will improve protection for the public and allow businesses that provide services to succeed in their commercial activities.

Question put and agreed to.


    That the Committee has considered the draft Communications Act 2003 (Maximum Penalty and Disclosure of Information) Order 2005.

Committee rose at seven minutes past Five o’clock.


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