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Session 2007 - 08
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European Standing Committee Debates

Electronic Communications Networks and Services



The Committee consisted of the following Members:

Chairman: Mr. Eric Martlew
Baron, Mr. John (Billericay) (Con)
Burt, Lorely (Solihull) (LD)
Chapman, Ben (Wirral, South) (Lab)
Clapham, Mr. Michael (Barnsley, West and Penistone) (Lab)
Cunningham, Tony (Workington) (Lab)
Dobbin, Jim (Heywood and Middleton) (Lab/Co-op)
Hendry, Charles (Wealden) (Con)
Roy, Mr. Frank (Lord Commissioner of Her Majesty's Treasury)
Scott, Mr. Lee (Ilford, North) (Con)
Shepherd, Mr. Richard (Aldridge-Brownhills) (Con)
Teather, Sarah (Brent, East) (LD)
Touhig, Mr. Don (Islwyn) (Lab/Co-op)
Wicks, Malcolm (Minister for Energy)
Hannah Weston, David Slater, Committee Clerks
† attended the Committee
The following also attended, pursuant to Standing Order No. 119(5):
Palmer, Dr. Nick (Broxtowe) (Lab)

European Committee

Tuesday 18 March 2008

[Mr. Eric Martlew in the Chair]

Electronic Communications Networks and Services

4.30 pm
The Chairman: I call the member of the European Scrutiny Committee to make a brief explanatory statement on the decision to refer the relevant document to this Committee.
Jim Dobbin (Heywood and Middleton) (Lab/Co-op): It is a great pleasure to make my first statement on behalf of the European Scrutiny Committee under your esteemed chairmanship, Mr. Martlew. It might be helpful if I take a couple of minutes to explain the background to the document and to say why the European Scrutiny Committee recommended it for debate in this Committee.
The regulatory framework for electronic communications networks and services was agreed in 2002, and implemented in 2003, to bring about effective competition in the provision of electronic communications and services across all member states. It is market based and designed to work closely with a fast-developing industry. Its centrepiece is a national regulatory authority, which in the United Kingdom is Ofcom, and it aims to regulate communications providers with significant market power and to open up markets to increased competition. With the Government moving away from day-to-day regulation and from state ownership of incumbent operators, the new regulatory framework was to be reviewed by the end of 2006.
At the end of 2005, the Commission began a public consultation, which resulted in a package of proposals being produced last November. Those proposals are now before this Committee. The Commission proposed the establishment of a new European Electronic Communications Market Authority, the aim of which is to enhance the Commission’s capacity and that of the national regulator to ensure that market rules and consumer regulations are applied consistently across the EU.
The proposals also include new consumer rights, such as the right to switch telecom operators within a day and the right to transparent and comparable price information; more customer choice through more competition, especially by national telecoms regulators using the functional separation of the network and retail arms of operators for dominant telecom operators; better security in using communication networks; a new deal for radio spectrum, using the substantial amount of radio spectrum coming from the switchover from analogue to digital television—the so-called digital dividend; and the encouragement of investment in new infrastructures, as well as ensuring broadband access for everyone.
Better regulation was also proposed, such as deregulating those markets where EU-driven market opening has already led to competition, to allow the Commission and national regulators to focus on the main bottlenecks, such as the broadband market. Recommendations were made for more independent watchdogs to guarantee fair regulation in the interest of consumers.
The most important and controversial proposal is for the new authority, which, among other things, would take over the functions of the ERG, Ofcom and its counterparts.
The European Scrutiny Committee’s concern is, essentially, that it is not at all clear how the authority would operate. It would seek to involve itself unnecessarily and unhelpfully in areas that are the preserve of national authorities, particularly spectrum management. The Commission would be much better employed in ensuring that the current system—based on a strong national regulatory agency that is encouraged by its Government to get on with the job of working with the industry and to promote competition, new services and a better deal for consumers, in which the UK leads the pack—is implemented effectively in those member states that deliberately or otherwise fail to implement that regime. That is just the beginning of a lengthy negotiating process, first within the Council and then within the European Parliament.
There will thus be further opportunities for the European Scrutiny Committee and, if appropriate, the European Committee to examine and debate the proposed changes as they take shape. However, for now, the European Scrutiny Committee thought it important to provide this Committee with an opportunity to hear the Minister explain the Commission’s proposals in more detail, to question him on them and to debate the proposals at the outset.
The Chairman: I call the Minister to make an opening statement.
4.34 pm
The Minister for Energy (Malcolm Wicks): I am pleased to be serving under your chairmanship, Mr. Martlew, and I thank my hon. Friend the Member for Heywood and Middleton for introducing the topic in the way he did.
It is almost impossible to overestimate the importance of electronic communications to our lives; they are visibly changing before our eyes. We live in a networked world. Telephones and computers, and the services and data that they carry, are seen as an essential part of modern life. There is an expectation that it will be increasingly cheaper and easier to communicate over time. Indeed, it is no exaggeration to say that our future prosperity will depend in large part on how well such services are supplied to the market and how well we use them to create a modern, knowledge economy.
As we have heard, the EC framework of regulation for electronic communications networks and services, which was agreed in 2003, was designed to continue the process of the liberalisation of the telecoms market by ensuring effective competition and thus releasing innovation. It did so by setting the ground rules for regulation in the EU and promoted the idea of independent regulators. It is fair to say that the 2003 framework was a success and it enabled many of the market innovations and improvements that we have seen over the past five years.
This is a £60 billion turnover business in the UK and we have seen prices fall dramatically. Over the past seven years, the cost of a 10-minute call within the EU has fallen by 74 per cent. For a typical basket of services—in other words, fixed, mobile and broadband—the UK is cheaper than France, Italy and Germany. That is based on Ofcom statistics.
It was expected that the framework of regulation would need to be refreshed, and in November 2007 the Commission published proposals to revise it. The Government’s view is that the framework has been most successful when it has been properly implemented by member states. I am glad to say that the UK is regarded by industry experts as having the most effective regulatory regime. To a large extent, many of the proposed improvements mirror our approach in Great Britain. A great deal of what is proposed is therefore very welcome to us.
I will not go through all the measures, such as those designed better to target markets where regulation should apply, to speed up the process of agreeing reviews and implementing measures, to empower consumers and to liberalise the use of spectrum. I will simply point to the two issues where we need to consider how to respond to the Commission proposals. First is the proposal for a new EU agency that would advise the Commission on when and how to use its power to intervene with a member state. Secondly, there are new Commission powers to veto national remedies and to impose remedies on national regulatory authorities to ensure that the framework is applied consistently.
I listened carefully to what my hon. Friend said about the new European telecoms authority. We continue to analyse the case for establishing a new EU market authority and are considering whether other methods could better achieve the objectives. We think that it is unclear whether a new authority would be the quickest or most effective method of achieving the objectives. We have some concerns about its scope, size and governance. It may not have enough political independence to ensure robust evidence-based decisions. We are looking to the existing ERG arrangements—in other words, the European Regulators Group, formed from the national regulators—to convince us that that group can deliver the objectives and that, collectively, the regulators can raise their game. We note the progress that the ERG has made, and I strongly encourage it to accelerate those improvements.
While we are sympathetic to attempts to improve the enforcement of the regulatory framework, we need to debate the proposals at home and with our European partners with a view to finding solutions that maintain the appropriate balance between the Commission and independent regulators to achieve the goal of effective implementation.
The Chairman: We have until half-past 5 to ask questions of the Minister. I remind hon. Members that they may ask a series of questions if they so wish.
Mr. Michael Clapham (Barnsley, West and Penistone) (Lab): Given what the Minister has said about the ERG, does he intend to meet with it or at least require it to report to him its views regarding regulation of the telecoms within Europe? Will he make a statement to Parliament when he receives that information from the group?
Malcolm Wicks: We will certainly discuss this matter with Ofcom, our own regulator. I certainly imagine that officials will find ways, directly or indirectly, of getting the views of the regulators as a whole.
As I said in my opening statement, we are not convinced about the need for a new authority. We are rather sceptical about it, to be blunt. We tend to be slightly suspicious of the European Commission building new agencies and authorities if the case for that is not absolutely proven. In that and other arenas, such as energy, we put out faith in the regulators in the member states. We would like to see more of them have same the clout and independence as our own regulators. That is the approach.
On the question asked by my hon. Friend the Member for Barnsley, West and Penistone about a statement to the House, as my hon. Friend the Member for Heywood and Middleton explained, we are at the beginning of a process. There is plenty of time for scrutiny and for debate, as necessary. I am sure that my colleague in the Department for Business, Enterprise and Regulatory Reform—the Minister for Trade Promotion and Investment—will be mindful of the remarks made by my other colleague, but, being in another place, he cannot attend a Commons Committee.
Charles Hendry (Wealden) (Con): It is a pleasure to serve under your chairmanship, Mr. Martlew. The Minister and I have spent many happy Tuesdays and Thursdays over recent weeks in the room next door serving on the Energy Bill Committee. When we parted company last Thursday, scarcely did we realise how, happily, we would be reunited quite so quickly.
The Minister referred to the proposed new committee. He will be aware that the European Scrutiny Committee said in its assessment that more effective regulation could be achieved through national regulatory bodies. He will also be aware that Ofcom has expressed concern about establishing a new bureaucracy of that nature; the question whether it would diminish the ability to regulate effectively has been raised.
The Minister will be further aware that Ofcom has questioned the cost and highlighted the fact that the new EECMA would employ about 130 staff at a cost to the European taxpayer of £27 million, which is nearly 30 times the budget of the ERG. Does he believe that that would be value for money, or that the costs would be another reason to consider retaining those activities domestically?
Malcolm Wicks: Cost is an important criterion that we would certainly want to bear in mind. As I implied earlier, we will be speaking to the ERG on its role and I repeat that we are sceptical about the need for a new body. The test of that is whether we can see the development across the 27 member states of strong, independent, fearless regulators. We have such regulators in this country in energy, and I believe that that is also true of Ofcom.
Sceptics might say that in some countries there is not such obvious independence—regulators are too close to Government and not able to have that independence. Our preferred route—I suspect that the hon. Gentleman is in the same place on this one—is to put our faith in the independent member state regulators, and to be sceptical and loath to accept the case for a new authority. I am sure that that will be the subject of much debate here in this Parliament and also with the Commission in the months to come.
Lorely Burt (Solihull) (LD): It is a pleasure for me to serve under your chairmanship, Mr. Martlew.
My question also relates to the EECMA, which seems to be an 1/4ber-regulator. I have concerns about that. I have a short shopping list of questions that I am sure the Minister will have no difficulty in answering in one go, if he is so minded. If the regulator is suddenly to be greatly increased in size—
The Chairman: Order. To explain the procedure, the hon. Lady should ask one question at a time, which the Minister may answer. After that, she may ask the next question. That is the system, I understand.
Lorely Burt: By all means. Thank you for your guidance, Mr. Martlew.
If the regulator was suddenly to be so enlarged and the staffing so increased, does the Minister feel that it would start passing legislation to justify its existence, even if systems were working reasonably adequately and it was not getting sufficient referrals of work for it to do in its own right?
Malcolm Wicks: Heaven forbid that any system of governance would invent things for its own sake, but I understand where the hon. Lady is coming from. At the risk of a turgid consensus breaking out, I think that the Committee remains sceptical about an authority. It is unclear whether a new authority would be the quickest, most effective or—I can add now—most inexpensive method of achieving our objectives.
We have a strong regulator, and industry experts reckon that our regulatory framework is at the top of the league table. I suppose, in a slightly patriotic way, that we want to see that spread across the member states. In future, much will depend on whether we see the birth of strong member state regulators across all 27 member states.
Lorely Burt: Does the Minister not feel that if the regulator was subservient to nominees of member states and to the Commission itself, that might affect its independence?
Malcolm Wicks: Any regulator, at member state or EU level—we are, I repeat, sceptical of the latter—has to be independent of Government. That is true for our regulators, and a European regulator would have to be at arm’s length from the Commission. We would not want the politics of the day in the Commission to touch any regulator.
The hon. Lady is tempting me to discuss how a European regulator might work, whereas we are far from convinced that we need one in the first place. What we need—we have one, I think—is a forum whereby the regulators can meet to discuss best practice.
Lorely Burt: Indeed, we have national regulatory authorities. What is the Minister’s view on whether the regulator, trying as it would to appreciate the machinations and workings of 27 member states, would be too remote from the market it sought to regulate?
Malcolm Wicks: There is always a danger of any institution—large or small, to be fair—becoming remote from the customer base or the markets, or whatever it might be. Co-ordination between regulators, and indeed between Governments, through the EU is important in the telecommunications market because gone are the days when we could talk only of telecommunications within Great Britain.
Many of us travel across Europe, and the need for European measures, agreements and co-ordination of networks is crucial. Many of us also travel across the world, and the same argument can be made at an international level. Mechanisms for telecommunications within the European Commission and the roles of the European Parliament and the ERG are fit for purpose. We have not seen the case for a new Commission authority.
Lorely Burt: May I ask my penultimate question? I am concerned about the shift of power. The NRAs hold a lot of power to regulate and to enforce good practice within their member states. Would the creation of such a regulator shift the balance of power from the NRAs and member states to the Commission?
Malcolm Wicks: With respect, the hon. Lady keeps asking questions as if I were a supporter of the authority. In every reply, I have said that I am not, that we remain to be convinced, that we are suspicious and sceptical, and that the case is not proven. I need to emphasise that. She is raising issues that relate to why we are sceptical—a position we will maintain, I think, throughout the discussions.
Lorely Burt: I appreciate entirely the Minister’s position, and he is absolutely right that I am inviting him to fully express that scepticism, which I share. Finally, I would like to ask him about BERT—not me, but the Body of European Regulators in Telecoms—and what role he feels that it might play as a potential alternative to the EECMA, possibly in harmony with or instead of the ERG.
Malcolm Wicks: Is the hon. Lady asking about the European Regulators Group or another group?
Lorely Burt: The Body of European Regulators in Telecoms.
Malcolm Wicks: As far as I understand, it is a useful forum for discussion. I know better what happens with regard to the Council of European Energy Regulators, which is chaired by our own regulator, Sir John Mogg. I understand that it is proving to be a strong vehicle for discussing common matters across the EU and exchanging ideas about what the role of the regulator should be, and I can well imagine that the ERG plays a similar function. If that can develop, it will make the case for not conceding the Commission’s argument for a new authority.
Charles Hendry: May I take the Minister into a slightly different area? One of the issues that the Commission is seeking to address is transparency with regard to broadband speeds and greater consumer information on that. There has been some criticism of the UK because of our broadband speeds. We clearly have one of the largest spreads of broadband in the world—I think that it is 99.5 per cent.—but the speed is not as fast as it is in countries such as France and Japan. Will he give an assessment of why Britain is slower than other countries, particularly those in Europe, in that regard? Does he feel that European pressure is necessary to try to bring that up to speed, and how do we compare generally with Europe? Clearly we are not as fast as France, but are we faster than some of the other countries within the EU?
Malcolm Wicks: The Government believe that it is right to examine the economic advantages of having next generation access to broadband and any potential downsides of not having it. No decisions on policy have yet been made, but my Department and HM Treasury have announced a broadband review to look at potential barriers to private sector investment in next generation access to broadband, and I am advised that the review will report in the autumn. The Government retain the view that the roll-out of next generation access in the UK should be led by the private sector and that the public sector should limit its interventions to addressing clear market failures. I am also advised that speed is not the only issue. The better news is that we have coverage of 99.8 per cent. I am not an expert, but I am told that, although France is speedier, its coverage is less than 80 per cent. Compared with other countries, therefore, we can fly the flag in many respects.
Charles Hendry: That is an area where we can fly the flag, as the national spread is truly impressive. May I move the Minister on to the measures for improved access to services for disabled users, which is a matter close to his heart? Given his background, I know that he has great personal commitment to that. Can he tell us something about the progress that is being made in the UK in that regard and whether we are ahead of Europe or are laggards?
With regard to public text telephones that are accessible for the deaf and directory inquiries available for people with sight impairments, my understanding is that there is considerable scope for the UK to do better and that European activity might be appropriate for pushing us forward. I would be grateful for the Minister’s observations on that.
Malcolm Wicks: My broad observation is that the development of new forms of telecommunications has enabled people with disabilities, such as those who are deaf or have impaired hearing, to be included to a greater extent in society. I was reflecting only today on how important texting must be to those who are deaf or hard of hearing. It has moved very quickly in this country and must be a socially inclusive development. I think that there are other means of helping people who are hearing impaired which we would welcome. Certainly, in terms of this EU initiative, the focus on e-accessibility and disabled users is important.
We agree that wherever possible we should take the opportunity to continue working towards reducing the digital divide to make a digitally inclusive society for all a reality. In other ways too, telecommunications already provide some solutions to the problems of frail, old people who live alone and are at risk should they fall in the night. We need to work hard to make sure that the application of telecommunications of different kinds always has a social as well as a commercial perspective.
Charles Hendry: I am grateful to the Minister and I echo his comments. There is one small point of detail. Clearly he will have noticed that throughout our discussions so far there is general backing for the position that we do not need a European regulator on this level. Would such a decision ultimately be made by qualified majority voting, or would it be an issue where there would be a national veto? Clearly, the Government could argue quite firmly in that way, but if there is QMV the body could be imposed upon us when, on a cross-party basis, it is not wanted in this House.
Malcolm Wicks: I think I am right in saying that it will be by qualified majority voting, but we will fight our corner. We would take a lot of convincing that an authority is needed, so certainly we will argue our case. I leave it there.
Lorely Burt: May I ask about the digital dividend and the spectrum? Does the Minister feel that part-harmonisation in clusters with power sharing between member states will go far enough to deal with the spectrum allocation or free up the bandwidths from the digital switchover?
Malcolm Wicks: I do not think I am certain what the answer to that one is. If at a later stage of the debate I can find a way of answering the hon. Lady I will.
The Chairman: If no more Members wish to ask the Minister questions we will proceed to the debate.
Motion made, and Question proposed,
That the Committee takes note of European Union Document No. 15371/07, Commission Communication, Report on the outcome of the Review of the EU regulatory framework for electronic communications networks and services in accordance with Directive 2002/21/EC and Summary of the 2007 Reform Proposals; further notes the Government's support for the European Commission's objectives and most of the Commission's proposals to revise the regulatory framework for electronic communications and services in pursuit of open competition; but acknowledges the Government's intention to continue to analyse both the case for a veto on national remedies and establishing a new EU Market Authority in order to consider whether alternative methods could better achieve the objectives.—[Malcolm Wicks.]
4.58 pm
I am encouraged by the position the Minister takes on the new European-wide body—the EECMA. From what we have seen and read, we would certainly endorse the views put forward by the European Scrutiny Committee, which have also been made to us by Ofcom. This is not the right way forward. There would be better ways of dealing with it. The new body would undoubtedly be expensive. As I mentioned earlier it is estimated that it would employ about 130 people and would cost €27 million. The ERG is currently operating on a budget of under €1 million, so it would be 30 times more expensive and we cannot see the benefits that it would bring.
In its representations to us, Ofcom said:
“We would urge that the ERG's role as a forum for the development and exchange of regulatory best practice, and the promotion of the single market, continues to be developed and strongly supported through an enhancement of its status and a formalisation of its role in the European Framework.”
That would seem the most sensible way of trying to take the matter forward. There is no strong case for the new body, its remit is not clear and it would clearly duplicate work that is being done effectively elsewhere. The drive behind the European Commission should be to work on the laggards, the countries where there is not such an effective regime. The European Scrutiny Committee recommended that efforts should be focused on regulatory regimes in those countries that do not manage them as well as we do here, to bring them up to the same standard. I encourage the Minister, and his colleague, the noble Baroness Vadera, who is a forceful figure and will carry the debate to Brussels with great vigour. We wish her every success. Ministers may argue hard, but the new body could still be imposed upon us. If support is needed from the House to show the way forward in maintaining strong, independent, national regulatory bodies, then the Minister can be assured of that from us.
5.1 pm
Lorely Burt: Although my comments so far have been sceptical, we do need this type of regulation. We must tackle the artificial segmentation of markets on a national basis, as well as the fundamental lack of understanding in the way in which EU rules are applied. It is a big market estimated at €250 billion—that is the value of the series dependent on radio spectrum. We want to build strong and effective competition without over-regulating. We welcome the fact that the ex ante regulation is being reduced from 18 to seven markets. The principle of self-regulation in competitive markets is acceptable both to us and, I assume, to hon. Members on the Conservative Benches.
In conclusion, a functional single market is Europe’s best asset in achieving global competitiveness. We live in a global world and that is an example of how we in Europe can use our ability and cohesiveness to its best advantage.
5.4 pm
Malcolm Wicks: We have had a useful debate and an outbreak of consensus on the crucial issue of the authority. The hon. Member for Wealden asked whether it would be qualified majority voting. I said that it would be. I am advised that it is very likely to go through as apparently there is little support in the Council at present but we must argue the case and not become complacent.
Charles Hendry: Can the Minister clarify that? He said that this is very likely to go through—
Malcolm Wicks: Unlikely. After all those hours on the Energy Bill Committee, I am not articulating my words as well as I would hope. The measure is unlikely to go through as there is presently no support in the Council. However, we should not be complacent, and we need to argue the case.
The hon. Member for Solihull asked me about spectrum and the digital divide. Our position, as with all such things, is to support liberalisation and, therefore, spectrum liberalisation. We consider service and technology neutrality to be essential if EU consumers and businesses are to maximise the benefit from this valuable resource. We also consider spectrum trading as essential to enable the market to react to new technologies and services.
I was interested in some data about how customers view the single market. There are many millions of consumers in the European market. Their views about the single market so far are somewhat chequered. Some 70 per cent. of our citizens believe that the single market has had a positive effect on the range and selection of products and services. However, only 41 per cent. of UK consumers agree that single market rules have increased consumer protection. There is clearly more that we and the European Commission need to do to gain confidence. In relation to the new Commission proposals on the framework, the European Bureau of Consumer Organisations stated that
“the ultimate goal of this package should be to ensure to all consumers safe, affordable and fair access to all telecoms services.”
The hon. Member for Wealden made the point that, as part of fairness, we should not neglect issues around disability, or the social policy side.
I repeat that we are very sceptical about the idea of an authority. It is important that we communicate with the ERG through Ofcom to find out its views about ensuring that the single market in telecommunications works still more effectively in the future. We are proud, not complacent, that the UK has the best regulatory framework, which has ensured that more and more of our people have benefited from the range of technologies. It is no side issue. It is crucial to Europe’s strength and to the UK’s strength in the future that we have a liberal and competitive market in telecommunications.
Question put and agreed to.
Committee rose at seven minutes past Five o’clock.
 
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