CHAPTER 2: THE FRAMEWORK FOR THE NEW REGULATOR |
(i) The general duties
15. One of the central organising principles of the
draft Communications Bill is that the operation of the new regulatory
framework should be the responsibility of OFCOM as an independent
regulator, operating at arm's length from the Government.
The Office of Telecommunications (Oftel), one of the five regulators
whose functions OFCOM will inherit, undertakes its work in accordance
with duties laid down by Parliament.
Three of the other existing regulators - the ITC, the BSC and
the Radio Authority - also have a great deal of statutory independence,
deriving in considerable measure from the deep-rooted tradition
that it would be wrong for the Government itself to have direct
control over broadcast content. The fifth current regulator -
the Radiocommunications Agency - is an Executive Agency subject
to control by Ministers.
16. In granting statutory independence to economic
regulators, Parliament has sought to set parameters for the work
of those regulators by laying down general duties and, in many
but not all cases, setting out a hierarchy for those general objectives.
As Dr Kim Howells MP, the Minister for Broadcasting, said in a
previous Ministerial incarnation: "General duties lie at
the heart of the regulatory process. They set the framework in
exercise their functions under the utilities
Acts." If duties
are not stated with sufficient clarity in legislation, there is
potential for regulators to exercise their functions in a manner
at odds with the intentions of Government and Parliament. In determining
OFCOM's general duties, Parliament will do much to set the terms
under which that body will perform its functions.
17. The Communications White Paper proposed that
OFCOM have three central regulatory objectives:
- "protecting the interests of consumers in
terms of choice, price, quality of service and value for money,
in particular through promoting open and competitive markets;
- maintaining high quality of content, a wide range
of programming, and plurality of public expression;
- protecting the interests of citizens by maintaining
accepted community standards in content, balancing freedom of
speech against the need to protect against potentially offensive
or harmful material, and ensuring appropriate protection of fairness
18. Clause 3(1) and (2) of the draft Bill seek to
give statutory effect to these and other objectives for OFCOM.
Subsection (1) lists seven duties for OFCOM in carrying out their
functions. Subsection (2) sets out eight factors to which OFCOM
"shall have regard" in performing its duties under subsection
(1). These subsections establish the general duties of OFCOM subject
to two qualifications. The first qualification is that, in undertaking
functions relating to electronic communications networks and services
and the management of radio spectrum, OFCOM is required to give
priority to five requirements set out in Clause 4 which seek to
give effect to the policy objectives and regulatory principles
established for national regulatory authorities under Article
8 of the EC Framework Directive.
There is no indication in the Directive or the draft Bill of priority
between the five requirements, which relate to the promotion of
competition, the development of the internal market and the promotion
of the interests of citizens; OFCOM is granted discretion in resolving
conflicts between the requirements.
The second qualification is that, like other sector-specific regulators
with Competition Act powers, OFCOM's general duties do not apply
when it is exercising those powers unless the relevant duty is
a matter to which the Office of Fair Trading (OFT) can have regard.
19. Notwithstanding these qualifications, there is
no doubt that the final framing of the general duties proposed
in Clause 3 will be central to the way OFCOM does its job. The
wording of these general duties has accordingly been the focus
of some of the evidence that we have received and a number of
comments have been made about the current proposals.
20. The draft Bill has been criticised on the grounds
that the interests of consumers, which were at the forefront of
the objectives proposed in the White Paper, have not been fully
reflected in the general duties or indeed in the draft Bill as
a whole. One of the authors of that White Paper as the then Secretary
of State for Culture, Media and Sport, the Rt Hon Chris Smith
MP, was concerned that the word "consumer" had been
replaced by the word "customer", a phrase which he argued
implied "a purely commercial relationship".
The term "consumer" only appears in the title of the
Consumer Panel, whose role we consider separately below, and in
Clause 248, where the word has a distinct meaning.
Several organisations argued that the use of the terms "customer"
or "end-user" in the draft Bill where the White Paper
and the EC Directives used the term "consumer" was both
a source of confusion, and more importantly, appeared to exclude
from OFCOM's consideration those not in a commercial relationship
with a communications provider and those unable to access services.
The Government failed to provide a convincing explanation for
its decision not to employ the language of its own White Paper
in the draft Bill.
We recommend that, in the general duties of OFCOM and elsewhere
in the Bill where a specific commercial relationship between a
customer and a service provider is not being referred to, the
term "consumer" be used in preference to the term "customer"
and that consumer be defined so as to encompass all those who
benefit or might benefit from the provision of services and facilities
in relation to which OFCOM has functions.
21. Concern about the draft Bill's reflection of
the White Paper's objective relating to consumer interest is more
than merely terminological. The Government's policy in the White
Paper was that it would be for the regulator to resolve any conflicts
between the three objectives set out there.
This position has been maintained with respect to the fifteen
general duties listed in subsections (1) and (2) of Clause 3:
in any particular case, it shall be for the Board of OFCOM to
resolve a conflict "in the manner they think best in the
In its inquiry into the White Paper in the last Parliament the
Culture, Media and Sport Committee noted and supported arguments
for a clearer priority between objectives.
22. Several submissions argued that OFCOM's duty
to further the interests of consumers should be seen as its "over-arching"
duty. It was also
suggested by some that OFCOM's primary concern should be the "long-term"
interests of consumers, so that any conflict between short-term
and long-term interests was resolved with emphasis on the latter.
NTL argued that the consumer duty ought to refer to promoting
consumer interests through competition and that "it would
be better to have competition identified as the primary duty in
advance to avoid any future conflict".
A model of such an approach is already available in section 9
of the Utilities Act, which sets out as the principal objective
of gas regulation as being "to further the interests of the
persons who are customers
wherever appropriate by promoting
effective competition". Dr Howells noted at the time of the
passage of this legislation that "the duties form a hierarchy,
which is designed to assist regulators in resolving potentially
conflicting regulatory objectives".
23. We see merit in an approach which gives emphasis
to the promotion of consumer interests through competition. Promoting
vigorous competition, where attainable, is likely to be a surer
means than other regulatory action of satisfying consumers, because,
where transparency is guaranteed, markets naturally capture consumers'
wants. Furthermore, giving priority to the promotion of competition
is likely to make other regulatory action less necessary, consistent
with the objective, discussed further below, of achieving focused
and cost-effective regulation.
24. However, we are also persuaded that there are
public interests relating to the regulatory framework that are
not encompassed in a consumer-driven objective and are not properly
reflected in OFCOM's general duties as presently drafted. The
concept of citizens' interests was to the fore in the White Paper
and is referred to in the Policy document accompanying the draft
Bill, but fails to feature in the duties set out in the draft
Bill itself. As with
the term "consumers", this is more than a matter of
semantics. Evidence we received reflected genuine concern that
the democratic, social and cultural interests of citizens, most
notably in relation to broadcast content, were not given due weight
in the formulation of OFCOM's general duties.
This concern was also apparent in many contributions to our online
forum. Steve Buckley of Public Voice summed up the concerns expressed
with the following argument: "the interests of citizens should
come first and the duties of OFCOM should spell out the need to
promote the interests of citizens as well as consumers".
25. Broadcast content is not the only area where
it will be the duty of OFCOM to serve a wider public interest
beyond that of consumers. In a review of radio spectrum management
commissioned by the Government and published in March 2002, Professor
Martin Cave pointed out that, in the management of radio spectrum
for which OFCOM will assume primary responsibility, consumer and
competition interests have to be balanced against the public service
use of spectrum. He proposed an additional duty on OFCOM "to
maximise, by ensuring the efficient allocation and use of the
spectrum, the overall value derived by society from using the
radio frequency spectrum".
In evidence, Professor Cave told us that he was pleased that the
wording of paragraph (c) of Clause 3(1) captured - in the phrase
" in the interests of all persons" - the wider public
interest in the use of spectrum, while preferring the term "efficient"
he proposed to the word "optimal" employed in the Bill.
We share the Government's preference for the term "optimal",
reflecting as it does the combination of economic, social and
technical considerations that must determine the use of spectrum,
although we examine later in this Report the relationship between
the general duty in respect of spectrum and the duties created
in the Wireless Telegraphy Act 1998.
26. Patricia Hewitt and Tessa Jowell understandably
told us that they would oppose the idea of a primary duty on OFCOM
that would secure priority for either economic and competition
issues or cultural concerns at the expense of the other element.
However, Tessa Jowell said encouragingly that, "if the Committee
comes up with a drafting that neatly and elegantly elides those
two functions, then obviously we would look at that gratefully
The Communications Green Paper of July 1998 stated:
"The regulatory process
starts with Government. Regulators must have a clear legislative
framework within which to operate. With greater clarity of duties
and objectives comes improved accountability for their delivery
- to Parliament, to Ministers, and to consumers."
The draft Bill as it stands does not
provide the clarity of duties and objectives that the Government
itself has sought. It would be an abdication of responsibility
by Parliament and the Government to set out fifteen general duties
without a clear hierarchy. We agree with Patricia Hodgson, Chief
Executive of the ITC, that a failure to establish such a hierarchy
"may have a danger of paralysing decision-making".
We recommend that it be the principal duty of OFCOM, in carrying
out its functions -
(a) to further the
long-term interests of all citizens by -
(b) to further the long-term interests of
consumers by promoting the efficiency of electronic communications
networks and services, and broadcasting
and to do so wherever possible by
promoting effective competition in national, regional and local
communications markets throughout the United Kingdom.
27. We envisage that this principal duty would replace
the current text of Clause 3(1)(a) to (d). We would then expect
the other general duties set out in the rest of subsection (1)
and in subsection (2) to be retained. Provided that greater clarity
is given to OFCOM's objectives by the insertion of a principal
duty as we have suggested, we consider that, with one exception,
these other duties provide a satisfactory statement of OFCOM's
objectives. That exception is the absence of any reference to
the promotion of investment. OFCOM will have a duty in relation
to networks, services and radio spectrum under the Framework Directive
to promote competition by "encouraging efficient investment
in infrastructure, and promoting innovation".
It would be mistaken to imagine that OFCOM itself can determine
the investment climate in the communications sector, but it could
have an adverse impact on that climate if it does not give the
matter sufficient consideration. It would be undesirable to rely
on the indirect effect of the EC Framework Directive, not least
because investment and innovation matter in the broadcast sector
as well as in networks and services.
While there should not be reference to one particular technology
or service in formulating such a duty, we are persuaded of the
case for a general duty relating to investment and innovation.
We recommend that Clause 3(2) be amended to require OFCOM to
have regard to the desirability of encouraging investment and
innovation in communications markets.
14 Cm 5010, p 77. Back
See in particular section 3 of the Telecommunications Act 1984. Back
Economic Regulators, Report by the Better Regulation Task
Force, July 2001 (hereafter Economic Regulators), pp 28-29,
46-47; Better Regulation Task Force Report on Economic Regulators:
Government Response (hereafter Economic Regulators: Government
Response), para 7. Back
HC Deb, Standing Committee A, Utilities Bill, 29 February 2000,
cols 232-233. Back
Cm 5010, p 79. Back
Clause 3(4); Policy, para 6.2.3; Directive 2002/21/EC of
the European Parliament and of the Council of 7 March 2002 on
a common regulatory framework for electronic communications networks
and services (hereafter Framework Directive), Article 8. Back
Framework Directive, Article 8; Clause 4 (10). It should be noted
that OFCOM's general duties can also be overridden by its requirement
to provide information to the European Commission under Clause
15, see Clause 3 (4). Back
Q 176; Clauses 3(6), 247 (11) and (12) and 248 (11) and (12). Back
Ev 550. Back
Clause 248 refers to consumer protection functions under the Fair
Trading Act 1973 that are likely to be repealed when the Enterprise
Bill becomes law, see Enterprise Bill (HL Bill 92 as brought from
the House of Commons on 19 June 2002), Schedule 25, paragraph
5. Clause 205 of the Enterprise Bill proposes a definition of
"consumer" for the purposes of the enforcement of certain
consumer legislation distinct in kind from the definition proposed
in this Report. Back
Ev 535-536, paras 3, 5; Ev 90; Ev 319; Ev 551, para 7; Ev 469,
Ev 578, paras 4-5; Ev 573, para 5. Back
Ev 408 Back
Cm 5010, p 79. Back
Clause 3 (5); Policy, para 5.1.2. Back
HC (2000-01) 161-I, paras 25-27. Back
Ev 561, para 5; Ev 536, para 4; Ev 320; Ev 578, para 3. Back
Appendix 105. See also Memorandum submitted by COLT; Ev 61; Ev
88; Ev 556. Back
Ev 61. Back
HC Deb, Standing Committee A, Utilities Bill, 29 February 2000,
col 233. Back
Cm 5010, pp 10, 79; Policy, pp 9,23. See Ev 550. Back
Ev 302, para 1.1; Ev 308, sections 6 and 7; Ev 300, para 3.1;
Ev 477, para 3.3; Ev 177, para 5.1; Ev 613, para 6.1. Back
Q 793. Back
Review of Radio Spectrum Management: An independent review
for Department of Trade and Industry and HM Treasury by Professor
Martin Cave, March 2002 (hereafter Cave Review), pp
Q 470. Back
Ev 38. Back
QQ 954, 956. Back
Cm 4022, p 37. Back
Q 6. Back
Framework Directive, Article 8 (2)(c). Back
Ev 66; Ev 538, para 2.2. Back
Ev 62; Ev 550; Ev 328, para 20; Ev 130, paras 5-7; Ev 84; QQ 217,
274, 369. Back