Memorandum submitted by Ofcom
1. Ofcom is the regulator for the communications
sector, with responsibility for regulating telecoms, broadcasting
and the radio spectrum.
2. Ofcom is a public corporation that is
held accountable to Parliament and subject to ongoing scrutiny
by the National Audit Office. We are also subject to scrutiny
by the Competition Appeals Tribunal, which can hear appeals on
the merits of a significant range of decisions.
3. Ofcom welcomes this opportunity to contribute
to the Regulatory Reform Committee's inquiry into Themes and Trends
in Regulatory Reform. We believe that ongoing debate, review and
reform of regulatory approaches are important.
4. We take this opportunity to set out an
overview of our own approach to regulation and key examples of
successful innovation in our regulatory approach. We believe these
set a good standard for best practice in regulation and are relevant
to the issues of effective regulation which the committee is considering
OFCOM'S
APPROACH TO
REGULATION
5. Ofcom's primary statutory duty is to
further the interests of citizens and consumers, where appropriate
through the promotion of competition.
6. Ofcom is committed to the principles
of better regulation. We have a statutory duty, as set out below,
to have regard to the principles of better regulation and to other
principles of best practice as they evolve.
7. Under section 3(3) of the Communications
Act we are specifically required to have regard to the principles
under which regulation should be transparent, accountable, proportionate,
consistent and targeted only at cases where action is needed.
8. Under section 6 of the Communications
Act we have a duty to keep the fulfillment of our functions under
review, to ensure that regulation by Ofcom does not involve:
— The imposition of burdens which are unnecessary;
or
— The maintenance of burdens which have
become unnecessary.
9. These principles are reflected in the
more detailed regulatory principles that guide our day-to-day
work. These regulatory principles include:
— Ofcom will regulate with a clearly articulated
and publicly reviewed annual plan, with stated policy objectives.
— Ofcom will intervene where there is a
specific statutory duty to work towards a public policy goal which
markets alone cannot achieve.
— Ofcom will operate with a bias against
intervention, but with a willingness to intervene firmly, promptly
and effectively where required.
— Ofcom will strive to ensure its interventions
will be evidence-based, proportionate, consistent, accountable
and transparent in both deliberation and outcome.
— Ofcom will always seek the least intrusive
regulatory mechanisms to achieve its policy objectives.
— Ofcom will research markets constantly
and will aim to remain at the forefront of technological understanding.
— Ofcom will consult widely with all relevant
stakeholders and assess the impact of regulatory action before
imposing regulation upon a market.
10. We take an evidence-based approach to
regulation and are committed to consulting widely, where it is
appropriate. We constantly seek to improve and update our consultation
process to reflect changes in society and technology. In recent
consultations, including our Public Service Broadcasting Review
and Mobile Sector Assessment, we have included an option to contribute
to our consultations via online "blogs".
11. We seek to ensure that we follow a transparent,
systematic and objective approach when considering what regulatory
solutions (self-, co—, or formal regulation) to rely on
in specific cases. To this end, we recently published a statement
on "Identifying appropriate regulatory solutions" in
December 2008.[111]
The statement sets out the high-level principles we will adopt
to guide our thinking when analyzing alternative approaches. These
principles are based on best practice in the communications sector
and beyond, our own experience of co-regulation over the past
five years, as well as stakeholders' input received during consultation.
12. We have a duty to undertake impact assessments
to ensure that our regulation is well targeted and consistent
with the principles set out above. Impact assessments encourage
policy makers to consider a wide range of options, including not
regulating, and provide a framework for analyzing the pros and
cons of these objectives objectively. Impact Assessments are embedded
in our policy development processes, including through training
and corporate governance "check points" along the policy
development path.
13. We think it is very important to take
compliance and enforcement into account when introducing new regulation.
A particular area of importance is considering the costs of compliance
and providing clear information and guidance to companies about
what they need to do to comply. We have a number of iniatives
to ensure that the enforcement group of Ofcom is closely joined
up with the policy development groups to make sure that compliance
and enforcement is considered appropriately.
14. An example of this is our recent work
on the misselling of mobile phones, which we will release a Statement
on shortly. An important part of determining our regulatory approach
has been considering the strengths and weaknesses of various enforcement
mechanisms. We have also looked at what information and evidence
we would need from a company if we were to undertake an investigation—to
make sure that we are not imposing unnecessary record-keeping
and evidentiary burdens on business. We have also written detailed
guidelines to make it clear to companies how they can comply with
new regulation.
15. We believe that we have strong analytical
framework in place which is backed up by well integrated processes.
This ensures that our regulation fulfills our primary goal of
furthering the interest of citizens and consumers.
RISK BASED
REGULATION
16. The concept of "risk-based regulation"
has been an important part of the regulatory reform debate in
recent years. Our starting point for this is that before deciding
whether to apply risk-based regulation it is first necessary to
distinguish between:
— universal regulation—regulation
that applies to all companies (for example, employment law or
health and safety regulation); and
— targeted regulation—this includes
economic regulation, regulation that is ancillary to economic
regulation in that it is designed to ensure orderly markets as
competition develops and regulation that is designed to achieve
specific public policy goals (for example Public Service Broadcasting
obligations).
17. Risk-based regulation has a part to
play in relation to universal regulation where it makes sense
to direct resources towards companies that are most likely not
to comply.
18. As a general point, we note that it
is useful to consider the extent to which companies have the incentive
to self-regulate—on their own companies may take too narrow
a view of risk, focusing on the risk to their own businesses and
not taking into account systemic risk. As set out in our statement
on "Identifying appropriate regulatory solutions", industry-led
regulation is likely to be effective where companies' commercial
interests are aligned with public objectives. Where this is not
the case, companies may not have sufficient incentives to self-police,
and regulatory intervention is likely to be needed, either in
the form of co-regulation or a full statutory solution.
19. Another general point we note is that
Ofcom does consider "risk" as a normal part of our analysis
of policy options—by taking into account the risks attached
to different policy options.
20. We also note that as well as thinking
about the extent to which companies (as opposed to Government
and regulators) should be trusted to manage risks it is also useful
to consider the responsibilities of consumers and citizens. For
example, we consider that media literacy for consumers and citizens
is an important way that the public can manage online risks for
themselves
THE IMPACT
OF CURRENT
ECONOMIC DEVELOPMENTS
21. Recent economic developments will clearly
have an impact on the sectors which Ofcom regulates. We are considering
and analyzing these potential impacts closely on an ongoing basis.
22. We do not think that the current economic
challenges will require a different fundamental approach and philosophy
towards regulation in our case. The current principles and regulatory
approaches which we already have (as set out above) mean that
we have the structures and processes in place to be able to effectively
take the changing economic environment into account in fulfilling
our regulatory function.
23. We do note, however, that the current
economic situation brings particular issues into sharper focus,
including the following three:
(a) New challenges in achieving investment
in the consumer interest
24. The changing economic climate presents
new challenges in considering the best way to achieve investment
which is in the consumer interest. Investment is more likely in
a growing than in a contracting economy. Less investment may not
be in the consumer interest. The extent to which competition can
impact on investment is an important part of this consider, which
can in turn be affected by the changing economic environment.
There is a need to balance certainty of regulation and flexibility,
which allows for changing economic conditions.
25. Our work on super-fast broadband is
a good example of how we can achieve this balance. Super-fast
broadband can allow the delivery of new and improved technologies
to consumers—a clear consumer benefit.
26. Our approach to super-fast broadband
is to remove barriers to investment while preserving the potential
for competition. BT, as the dominant provider, is an important
player in investing in these new technologies. We have ensured
BT lets competitors access the new technology it invests in. However,
we will allow BT to set the prices it will charge to these competitors
(with certain conditions ensuring there is not discrimination
among competitors or BT's own retail business). Therefore, consumers
can benefit from investment by BT and competitors who use the
access technologies that BT invests in.
(b) The importance of the consumer safety
net
27. The current economic situation is likely
to lead to greater potential for individual consumer detriment
and harm. For example, in the telecommunications sector which
we regulate there may be increased instances of telecommunications
customers losing services because of company failure. An important
part of our ongoing work is making sure that we are monitoring
and responding to new instances and trends in potential consumer
harm and detriment resulting from the changing economic conditions.
(c) The impact of regulatory burdens
28. Changing economic conditions can clearly
impact the impact that regulatory burdens can have on businesses.
When following our standard processes of evaluating and weighing
up the impact of regulatory burdens considering the impact of
regulatory burdens on business is an important aspect. In doing
this we will take into account changes in the economic environment.
KEY EXAMPLES
OF REGULATORY
BEST PRACTICE
WHICH COULD
INFORM THE
DESIGN OF
NEW REGULATIONS
29. We have identified four specific areas
where we believe Ofcom demonstrates best practice in regulatory
innovation, and which it may be helpful for the Committee to consider.
(a) Regulation and Business
30. With respect to the relationship between
regulation and "business success" we think it is important
that business success and an effective regulatory framework are
not seen as mutually exclusive. By establishing a secure and stable
environment to operate in, regulation can be an important component
for ensuring business success. An example from the telecommunications
sector is the regulation of "rogue traders", who through
misleading practices can take business away from legitimate businesses.
31. As a general position we take the view
that regulation should promote sustainable competition and efficient
investment, and should be focused on what is in the interests
of consumers and citizens rather than the interests of particular
companies.
32. The potential impact of regulatory burdens
on regulated companies is an important part of considering the
consumer interest—efficient and cost effective business
is in the interests of consumers—which ultimately bear the
cost of regulation. As said, an important part of our impact assessment
process is looking at the potential regulatory burden on regulated
companies. An example of this is our current work on telecommunications
migration processes. At the moment there are different processes
for different services (eg broadband compared to fixed). This
can be confusing to consumers. However, it may also be inefficient
for businesses to create single migration processes. We are currently
working with industry to consider the potential options for change
and the impacts on businesses.
33. As part of our ongoing focus on consumers,
we also looking at the interests of "business consumers".
Ofcom has recently launched a new project to better understand
the interests of business consumers and to ensure that their interests
are being met in a rapidly evolving telecoms market and economic
environment.
(b) A Strategic Approach to Regulation
34. An important aspect of the way we approach
regulation which we have found to be successful is our strategic
approach to regulation—where we look at sectors and the
regulatory framework as a whole, rather than specific regulatory
issues.
35. For example, key Ofcom projects have
been strategic reviews of telecommunications, spectrum and public
broadcasting. We are currently undertaking a strategic review
of the mobile sector.
36. A strategic approach involves looking
at the sector, identifying key issues that require regulatory
intervention and stripping away regulation that is unnecessary.
The benefit of taking a strategic approach is that it ensures
that regulation is clearly targeted, balanced and joined up rather
then becoming a "regulatory mesh" that evolves over
time.
(c) Focus on Consumer Issues
37. A good example of Ofcom's effective
regulatory approach is our work on consumer issues. In its recent
report "Rating the Regulators" Consumer Focus praised
Ofcom's approach to consumer issues.
38. Ofcom believes that regulation should
have a positive outcome for consumers. This can be direct or indirect,
short or long term—but the regulation should have a clear
pay off for consumers that can be clearly articulated. Considering
and evaluating the "citizen and consumer benefit" is
an important focus of our policy development process.
39. An interesting point to draw from the
Consumer Focus review of Ofcom is that regulatory reform should
not only focus on analytical principles and approaches but also
on organizational structure and dynamics. For example, Consumer
Focus drew attention to the beneficial impact that expanding Ofcom's
Consumer Policy team and moving it into a different area (the
Strategy and Market Development group) has had on Ofcom's approach
to consumer issues.
(d) Strength of Market Research and Intelligence
40. Our experience in regulation has also
demonstrated the importance that strong market intelligence can
play in achieving high standards of regulation.
41. Ofcom dedicates significant resource
and energy to market intelligence and research. A key piece of
work we do is the annual Consumer Experience Report, which surveys
trends and changes across the communications sector. However,
we also have an ongoing internal and external programme to ensure
that we are across developments, trends and changes in the sectors
we regulate.
42. This market intelligence allows us to
do evidence based decision making, understand how the markets
we regulate are evolving and the implications thereof, and in
particular spot risks ahead of time. This ensures that we have
a strong overall picture of the sectors we regulate. We can therefore
approach specific regulatory issues in a well-informed way, backed
up by a strong evidentiary base.
43. Ofcom would be happy to provide further
information on these or other relevant issues if that would be
helpful to the Committee.
March 2009
111 Please see http://www.ofcom.org.uk/consult/condocs/coregulation/statement/ Back
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