Digital Economy Bill

WRITTEN EVIDENCE SUBMITTED BY BT GROUP (DEB 51)

BT Group, which includes EE, is pleased to respond to the Bill Committee’s request for written evidence. BT Group supports this wide-ranging Bill’s core objectives of access to fast digital communications, increased infrastructure investment and ensuring even greater benefit to consumers and businesses. The Bill brings forward a number of positive measures, but other aspects must be revised in order to deliver on its ambitions.

In summary:

1. We have major concerns over proposals to downgrade significantly the process of appealing Ofcom decisions (Clause 74) and would urge that the current on-the-merits approach is retained in the interest of promoting better regulation that protects customers and ensures the UK remains attractive to investment by large and small players alike.

2. We broadly support the reforms to the Electronic Communications Code (Clauses 4-7, Schedules 1-3) in encouraging greater digital connectivity, although more clarity is needed in the definition of "Electronic Communications Apparatus" to ensure the scope of the Code over certain types of mobile sites is not unintentionally limited.

3. We believe we have a better solution to delivering universal access to good broadband (Clause 1) through a commercial solution that will deliver access more quickly, efficiently and economically.

4. Provisions for switching communications provider (clause 2) should act as catalyst to ensure a consistent and effective approach across all services – particularly in a world of increasingly bundled offers, including pay TV which is not explicitly addressed by the Bill despite suffering from lower switching rates than other services and weaker competition resulting in UK citizens paying significantly more for pay TV services than the European average.

5. Any compensation scheme (clause 3) should only be based on objectively identifiable and measurable issues – and should not be overly prescriptive, recognising that compensation can be a competitive differentiator for providers.

6. The Bill introduces the power for Ofcom to fine operators should they breach their spectrum licence obligations (Clause 10). We acknowledge that Ofcom may currently have limited sanctions for breaches available to it. Whilst focus may be on coverage obligations (and EE is on track to meet its 90% geographic coverage commitment in 2017), it is important to emphasise that spectrum licences include a raft of obligations for which financial penalties are not appropriate or proportionate, and financial penalties should not become a default approach.

7. We fully support the Bill’s approach in bringing forward age verification of adult websites (Part 3), concentrating on the commercial providers of these services rather than relying on ISPs to block material unless legally compelled to do so.

8. We support, via Clause 28, the Bill’s removal of Section 73 of the Copyright, Patent & Designs Act (CDPA), but believe that it needs to be replaced rather than deleted.

9. Consumers need accurate and relevant information about communications providers and their services but, without tighter definition, Clause 73 risks creating disproportionate burdens on CPs, with potential competition impacts.

We provide further detail on each of these points below and would be pleased to discuss further with Committee members.

1. We have major concerns over proposals to downgrade significantly the process of appealing Ofcom decisions (Clause 74) and would urge that the current on-the-merits approach is retained in the interest of promoting better regulation that protects customers and ensures the UK remains attractive to investment by large and small players alike

Ofcom’s decisions are fundamental to consumers and CPs and involve such large sums that it is a simple matter of justice that they should be subject to appeal on the merits.

Many communications providers (CPs), representing the vast majority of digital infrastructure investment in the UK (Sky, BT, EE, Vodafone, Virgin, O2), have raised major concerns over proposals to dilute the process of appealing Ofcom decisions.

It is false to suggest Ofcom is uniquely challenged relative to other regulators by having to live up to the standard of merits-based appeal and that the proposed change would bring Ofcom into line with other regimes. Merits review (that is, a review to see whether the decision is wrong, not just to see whether it is unlawful) is applied in many other UK sectors (such as energy, water, aviation and rail) and indeed in every member state across Europe.

Ofcom acts as judge, jury and investigator. It would be insufficient for Ofcom decisions to be subject only to judicial review (JR) for being factually or legally incorrect or procedurally flawed:

· Dilution will result in worse outcomes for consumers and for competition; successful challenges have produced consumer benefits of hundreds of millions of pounds.

· Regulators do not always get things right and a reliable appeals mechanism is essential to correct mistakes.

· It cannot be right that decisions impacting what consumers, for example, might end up paying or how they can switch provider, and millions of pounds of investment strategy by CPs can only be challenged on whether due process was followed or whether they are lawful – not whether they are correct.

· This would have a significant effect on investment, innovation and product development.

· The existing regime is well-understood and any changes would result in protracted legal battles as the proper meaning of the Judicial Review standard is worked out.

Changing the standard of review will not:

· Improve the speed of appeals; references back to Ofcom of decisions set aside will mean they take longer.

· Reduce the number of appeals; in Australia numbers increased and consumers paid more.

· Reduce the cost to the state, as the courts (including appeal courts) work out what the regime requires.

Changing the standard of appeal will:

· Reduce investment into the UK; a lesser review standard dis-incentivises high-quality decision making in the first place. Investors will be less willing to invest if they perceive scope for arbitrariness in Ofcom decisions with little ability to challenge it. The proposed changes would make the EU regulatory system relatively more attractive to infrastructure investment with its higher standard of appeal that ensures the merits of a regulator’s decision are sound.

· The change would provide an un-level playing field to SMEs who would be more disadvantaged under the new system for several reasons:

o Merits review is inherently more accommodating of smaller/less sophisticated players, since it is concerned with whether the decision is wrong, as opposed to whether it is irrational or wrong in law. The bases for a JR challenge are detailed and technical, with very limited scrutiny of the facts. In contrast, on a merits review, the CAT can (a) review and decide for itself factual matters and (b) reach its own conclusions on the correctness of the regulator’s decision.

o This is not merely an academic point; the CAT is more ready and able to adapt its processes to the needs of smaller players than the High Court. The CAT made this point themselves in their own evidence to the BIS consultation on merits review reform.

o In JR, SMEs will face higher costs associated with the need to have more detailed legal advice, and will face higher obstacles to bringing a claim.

o An example of SMEs before the CAT is the Rapture litigation, where a small broadcaster was able to challenge Ofcom’s decision (representing itself for the most part) on a dispute about Sky satellite charges and get a more-than-fair hearing. Another more pertinent example, is CityFibre, whose current appeal asserts the Ofcom decision on dark fibre undermines their ability to invest.

2. We broadly support the reforms to the Electronic Communications Code (Clauses 4-7, Schedules 1-3) in encouraging greater digital connectivity – although further improvement is needed

Reform to the Electronic Communications Code is welcome and will support BT in extending both EE’s 4G network to 95% of UK geography by 2020 and fixed-line superfast broadband, particularly through the introduction of a ‘no scheme’ approach to site valuation (Schedule 1, paragraph 23) and new rights for automatic upgrading and sharing (Schedule 1, paragraphs 16 and 17). These changes ensure the Code will better reflect the fundamental shift we have seen in the use, reliance and necessity of connectivity over the past three decades in the rights that operators have to maintain, upgrade and extend their networks economically and efficiently.

However, there are also a number of important changes that should be made to the new Code to ensure that the Government’s policy intent is realised and that this opportunity for reform is maximised.

The Government’s stated policy intent with regard to the scope of the new ECC is not to "disrupt market incentives for investment in passive infrastructure by establishing a legal framework to allow compulsory access" to cell site towers in which Wholesale Infrastructure Providers have made a significant investment. The Government has looked to achieve this through the Bill by developing a definition of land (over which operators have Code rights), that excludes "Electronic Communications Apparatus" (see Schedule 1, p137 line 27).

Whilst we have concerns that this does not confer mobile operators with Code rights over purpose-built masts provided by Wholesale Infrastructure Providers, the drafting of the definition of "Electronic Communications Apparatus" (from Schedule 1, p83 line 21) goes significantly further than this, creating the risk that non-telecoms infrastructure on which operators install equipment (such as water towers, floodlights on sports grounds or pylons) and buildings that house equipment used for fixed line telephony (telephone exchanges) will fall outside the scope of the Code.

We do not believe that this is the Government’s intention and would remove another significant proportion of sites from the scope of the Code (in addition to purpose-built masts provided by Wholesale Infrastructure Providers). This would dilute the impact of the Code reforms, the intention of which is to support coverage roll-out for the benefit of consumers.

We also have particular concerns over ‘stopping up’. This is the procedure highway authorities use to decommission stretches of public highway. Under the new Code, CPs’ rights have been significantly diluted, when streets are ‘stopped up’ (to build on or for redirection, for example) the occupier of the land can give us notice to quit (one-year minimum) and we would not now be able to recover the cost of re-location. We are particularly worried that this appears to apply retrospectively. This has potentially a very significant financial impact, does not support the policy objective of the new Code and we believe this is an unintended consequence on behalf of the Government.

3. We believe we have a better solution to delivering universal access to good broadband (Clause 1) through a commercial solution that will deliver access more quickly, efficiently and economically

The UK already has great superfast broadband availability, 91% today, and that will rise to more than 95% by the end of 2017. And we need to try and get as close to 100% coverage as possible. Currently only 4% of homes are unable to access speeds of at least 10Mbps. Recent benchmarking by Analysys Mason shows that this is already the highest coverage of 10Mpbs+ network among comparable EU nations.

The current BDUK programme, including gainshare, can achieve fibre coverage of 96% and we have told the Government and Ofcom we can extend that further without the need for taxpayers’ money. We believe we can deliver fibre-based solutions to almost 99% of homes by the end of 2020. Our programme would see most homes in the final 5% of the UK receive speeds well in excess of 10Mbps though the final 1% may require ‘on demand’ solutions (involving fibre, wireless or maybe satellite) that require higher upfront costs.

Put simply, we want to deliver universal coverage without legislation or public funding, and we are waiting for clarification from Government on how we can work together on this; we can do it with the right regulatory and policy environment. We can do it in a way that is more expedient, efficient and with a better customer experience than the current ‘on-demand’ proposals. The solution would also support competition as any solution provided through Openreach would be available on an equivalent basis for any other retailer to supply to end-customers.

With just 10Mbps , the UK will be way ahead of any other nation in Europe where the USOs typically range from 2 - 4 Mbps . O ur target for 10Mbps is a floor, not a ceiling; and most premises will be able to get much faster speeds.

4. Provisions for switching communications provider (clause 2) should act as catalyst to ensure a consistent and effective approach across all services, including pay TV

Ofcom is currently consulting on switching schemes for mobile and on making switching easier and more reliable for consumers for landline, broadband and pay TV switching between different platforms. BT is supportive of the principle that switching should be led by the gaining provider and we are working constructively with Ofcom on these consultation processes to enable effective switching of all communications services, whether individually or when bundled together, noting that the communications market is changing, with offers that are increasingly converged. It is therefore important that if end-users switch a bundle of services (consisting of, for instance, fixed line, fixed broadband and pay TV), all elements of the bundle are subject to the same process. This avoids confusion on behalf of the end-user as to which process should be used for which service, and ensures that providers cannot gain a competitive advantage because of a difference in switching processes.

Following on from this, it is equally important that there is a symmetry in switching processes, and the same services, irrespective of technology, are subject to the same switching processes, including the same opportunities or restrictions on the losing providers’ ability to ‘save’ the customer.

However, the Bill does not on its face explicitly address pay TV switching (including switching of pay TV where it is purchased as a single service) and we believe it should. The Bill should act as a catalyst to address switching of all core communications and TV products, the most pressing of which is pay TV, which has half the switching rate of that in the mobile phone sector. Indeed, research released last year showed clearly that UK citizens pay significantly more for their pay TV than the European average, with the highest prices among comparable EU states. Recent media coverage by the Telegraph and the BBC has documented the significant difficulty and aggravation that Sky customers face when attempting to switch away to other suppliers in the market.

5. Any compensation scheme (clause 3) should only be based on objectively identifiable and measurable issues – and should not be overly prescriptive, recognising that compensation can be a competitive differentiator for providers

It is important that where the service that a consumer receives falls below objectively identifiable and measureable standards that the consumer receives appropriate, meaningful and timely compensation from their communication provider (and we would highlight that Openreach already compensates CPs – TalkTalk, Sky, BT Consumer, for example – if it fails to fix network faults within agreed timeframes). We support Ofcom looking into the issue of compensation to retail customers – and this should be done with reference to what is already provided for under the Consumer Rights Act.

BT Consumer is working to introduce an automatic compensation scheme and is engaging constructively with Ofcom as it reviews the necessity for a regulatory scheme, including engaging with Ofcom on what a scheme should cover and in what way, and how it should be implemented. If Ofcom’s analysis were to demonstrate that compensation is not provided where due, BT’s preference is for a scheme, that whilst protecting consumers, is not overly prescriptive and allows communication providers to differentiate their offerings, and to the extent that it is appropriate, is implemented through an industry code of practice. We do not believe it is feasible, however, to define an automatic compensation scheme for all services, and for all eventualities; for example, issues that arise in the provision of mobile services are less like to lend themselves to an automatic scheme.

On the Bill’s proposal we would urge:

· A compensation scheme should not be prescriptive; compensation could be a competitive differentiator for CPs, which would be advantageous for customers.

· Ofcom should consider putting in place a voluntary Code of Practice, which sets out high-level principles around compensation, if there is evidence that customers are not currently being compensated in case of service failure.

· Only objectively identifiable and measurable issues should be included in such a scheme, such as delayed repair and provision and missed appointments.

6. The Bill introduces the power for Ofcom to fine operators should they breach spectrum licence obligations (Clause 10) – it will be important that it uses this appropriately and proportionately

We acknowledge that the current position whereby a breach of a wireless telegraphy licence may only be sanctioned by revocation of the licence may require change, as revocation is unlikely to be a proportionate sanction.

However, it is very important that Ofcom cannot simply default to imposing fines for any breach of licence conditions. Minor breaches should continue to be resolved through dialogue with Ofcom, with fines only being imposed for serious or persistent breaches and when fines are imposed they should be proportionate to any consumer harm realised.

In order that the fining regime is proportionate, only serious breaches of licence conditions should be sanctioned by fines of up to 10% of relevant turnover. This could include, for instance, breach of a coverage obligation. For breaches that are not serious or do not lead to consumer harm, the power to fine should be very significantly lower. It is important to understand that spectrum licences have a very broad range of requirements, rather like a contract, and an onerous remedy of a fine of up to 10% of turnover cannot be appropriate in all instances. Any such risk of a substantial financial fine for minor breaches would sour the ordinary compliance work between operators and Ofcom and disincentivise operators from bringing issues to Ofcom for discussion and resolution.

7. We fully support the Bill’s approach in bringing forward age verification of adult websites (Part 3)

We support the Bill’s proposal to expand the focus of child protection online into a broader set of areas . While ISPs have delivered on their commitment to offer and supply parental controls to 100% of their customer base, t here is no silver bullet and a diverse set of initiatives are required . Indeed, while parental controls are helpful, much of the content online is not addressable by the current filtering solutions (e.g. content embedded in social media or content encrypted by HTTPS). Therefore, we support the follow-the-money approach being proposed by the G overnment – it adds another important tool for helping to keep children safe online in a way that compliments the work done by ISPs already.

It is also right that, as with the offline world, some responsibility rests with the purveyors offering adult material to ensure the user is reasonably age-verified, rather than merely making it freely available. It should not be BT’s or other ISPs’ role to block pornographic material without the consent of the user, absent the addition of a clear legal compulsion to do so.

We therefore agree with the Government’s proposals to focus on the commercial providers, a ‘follow the money’ approach, of online pornography so that they see the protection of children as a core responsibility of doing business. Age verification of pornographic websites will help address the limitations of content filtering.

8. We support, via Clause 28, the Bill’s removal of Section 73 of the Copyright, Patent & Designs Act (CDPA), but believe that it needs to be replaced rather than deleted

Section 73 CDPA enables cable-TV platforms (i.e. Virgin) to distribute public service broadcasters’ (PSBs ) content without violating copyright. However, with technology changes, it is now being used by online platforms such as TV Catch-up freely to distribute PSB content online for profit, without contributing financially to its creation.

The Government proposes to remedy this by removing Section 73. However, to do so in isolation would only increase uncertainty in the relationship between PSBs and platforms. We consider that a key part of the PSB compact is the distribution of PSB channels as widely as possible, without PSBs charging for that content (and with an appropriate allocation of the associated distribution costs).

In the immediate term, we urge the Government to provide clarity and certaint y as to the impact on the PSB/ platform relationship of the repeal of Section 73. In the medium term , we see a clear requirement for a full Government review of the distribution of PSB content, given continuing rapid changes in technology (and potential future developments such as DTT switch-off) and viewer behaviour. This would enable proper consideration of all issues in the round, to inform an updated or new PSB compact which supports public policy objectives.

9. Consumers need accurate and relevant information about communications providers and their services but, without tighter definition, Clause 73 risks creating disproportionate burdens on CPs, with potential competition impacts

The Bill provides powers for Ofcom to order communications providers to release data in the interests of the consumer and competition. BT agrees that consumers should have access to accurate and relevant information so that they can make informed choices between suppliers and services that are most appropriate for their needs. BT’s understanding is that the primary intention is to focus on information related to consumers of retail broadband services. The types of information that might be made available relate to line speeds and customer experience data. To this extent, BT agrees with intent behind the new section 137A, to be introduced by clause 73. BT notes that Ofcom already has extensive information gathering powers, as set out in sections 135 and 136 Communications Act 2003. Accordingly, caution should be taken about the breadth of any new publication obligation that goes over and beyond that.

We are concerned that publication could be mandated for any purposes connected with Part 1 or Part 2 Chapter 1 of the Communications Act. Given the context for the provision, this is too broad. Not only could it result in disproportionately burdensome publication obligations being imposed on CPs, the consequence of this could be to dampen, rather than help develop, competition and too much information can hinder informed consumer choice as much as too little. In the circumstances, BT proposes that the scope of this condition should be narrowed to the purposes for which it was intended.

October 2016

 

Prepared 19th October 2016