Joint Committee on Draft Communications Bill Report


(i) The importance of economic regulation

108. One of the underlying policy objectives of the draft Bill is to make sure that the United Kingdom "is home to the most dynamic and competitive communications market in the world".[212] The proposed legislation gives effect to this objective in several ways, four of which we consider in this chapter of the Report:

  • the creation of a new framework for the general authorisation of electronic communications networks and services by OFCOM in accordance with the EC Directives and in place of the current regime for telecommunications licensing (Chapter 1 of Part 2);
  • the provision of a greater range of tools than are currently available to facilitate the more effective use of the electro-magnetic spectrum (Chapter 2 of Part 2);
  • the establishment of a new appeals system in respect of sector-specific regulatory powers under the foregoing provisions (Chapter 3 of Part 2); and
  • the endowment of OFCOM with a full range of powers under competition and fair trading law in respect of all communications matters where OFCOM has regulatory functions, including broadcasting (Part 5).

109. We have already alluded to the perceived "pushmi-pullyu" character of OFCOM, with a hard-nosed economic regulator at one end and a culturally-sensitive regulator of broadcast content at the other. While it is essential to OFCOM's success that it serves and supports the wider interests of citizens in sustaining the quality of television and radio, it is the grant to OFCOM of a full range of economic tools across the convergent electronic communications landscape that represents the most significant and novel aspect of the new regulatory regime.

110. In assessing the adequacy of the new regime proposed in the draft Bill and in considering proposals for changing that regime, it is vital to bear in mind the recent history of economic regulation in the communications sector and in telecommunications in particular. Telecommunications has over the past two decades moved away from monopoly provision and yet the successor to that monopoly provider (BT) still controls 73 per cent of the domestic market for basic telecommunications services.[213] During evidence, it was put to us several times that BT had used its position as a vertically integrated organisation with a dominant position in the voice telephony market to leverage that dominance into emerging markets, including those for narrowband Internet services and for broadband services.[214] It was similarly suggested that the current regulator - Oftel - had failed to exercise its regulatory powers to prevent the spread of dominant behaviour in new markets.

111. We consider two particular aspects of this perceived problem later in this Chapter: in paragraphs 159 to 161, we examine the possible lessons of Local Loop Unbundling for the way in which OFCOM exercises its powers relating to access-related conditions; in paragraphs 205 and 206, we examine the balance between competition law powers and sector-specific powers in the light of previous experience of Oftel. At this stage, we feel it is important to note the extent to which historic and continuing experience of regulation in telecommunications informs perceptions of how OFCOM's powers should be different from those of Oftel.

112. We asked David Edmonds to consider the extent to which the new powers proposed for OFCOM would have affected the process of establishing a competitive market for broadband - both through competition among network operators such as BT, NTL and Telewest and through competition in the provision of retail services through the local loop - for which Oftel has been responsible. He replied as follows: "Using your example, would things have been different, I suspect not".[215] We recognise that basic telecommunications operations continue to exhibit significant economies of scale and scope and that these set some limit to the extent of competition that can be obtained economically. BT is able to achieve relatively low operating costs because of the size of its network and its command over resources and it is not practicable for others to match BT's position throughout its operating area. However, we wish to be sure that OFCOM is empowered to do everything possible to secure competition to the extent that it is economic. Many of the specific proposals from telecommunications operators and others that we consider in more detail later were based around this objective.

113. We quoted earlier the observation by Stephen Carter of NTL that "We are more confident as a nation of broadcast regulators than we are as a nation of competition regulators".[216] Although we rejected the particular proposal NTL and others were making - for the establishment of a separate Competition or Economic Regulation Board within OFCOM - we believe there is much truth in this remark. The new competition law provides the tools needed to enhance OFCOM's effectiveness. It is precisely because of the fundamental importance of economic regulation that we wish to see responsibility for it retained by the main Board, rather than being hived off to a subsidiary body. The success of OFCOM will not be assessed by its ability to re-fight past regulatory battles, but by its ability to deal with current and future concerns in a proportionate, targeted and prompt manner. To a considerable extent, this will depend on its capacity, armed with increased competition powers, to bring about a step change in the effectiveness of economic regulation in the communications sector as a whole, and the telecommunications sector in particular. It is with this objective in mind that we have framed many of the recommendations in this Chapter. Only if this objective is achieved will the new regulatory regime provide the contribution to the more dynamic and competitive communications and media markets that the Government is seeking.

114. We understand the concern that has been expressed to us by several witnesses that OFCOM may be distracted from the hard graft of economic regulation by the, at times comparatively superficial, attractions of content regulation. Media attention will probably focus on content regulation by OFCOM rather more than on its economic regulatory activities. It will be incumbent on the main Board of OFCOM to ensure that its regulatory priorities are determined by the genuine need and priorities of effective regulation and not diverted by an agenda set by the media.

212   Cm 5010, p 3. Back

213   Q 288. Back

214   See, for example, Ev 94. Back

215   Q 98. Back

216   Q 213; see paragraph 49 above. Back

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