Supplementary memorandum submitted by
ntl and Telewest Broadband
A. OFCOM'S DUTIES
In our original submissions, we made the point
that, although OFCOM will have a key responsibility to protect
the interests of consumers, if Government wants the UK to be a
G7 leader in broadband by 2005 (and digital by 2010), the investment
climate in the UK ought to be as good as, if not better than,
other G7 countries over that period, particularly as all G7 countries
have similar objectives.
Consequently, OFCOM will have a pivotal role
in translating Government broadband and digital broadcasting objectives
Proposal A: OFCOM should have a defined responsibility,
under Clause 3 of Part 1 (General Duties of OFCOM), "to encourage
efficient investment in infrastructure and promote innovation".
This would be in line with Article 8 of the
new European Framework Directive that is due to be implemented
by July 2003. This requirement could apply equally to content
and services investment as well as (broadband) infrastructure.
In our original submissions, we made the point
that OFCOM will need to:
regulate for convergencenot
just for today but for the future generations of users and services;
understand the supply chain economics/dynamics;
recognise that regulation in one
part of the chain can have a knock-on effect on other parts of
Because of the nascent nature of the market,
any potential regulatory intervention could create distortions
in the market. To minimise this possibility, we suggested that
there might be a role for an Economic Advisory Board to review
OFCOM's regulatory proposals with a view to assessing the potential
for unintended effects through the supply chain. This was not
intended as an additional layer of regulation but as a "backstop",
in the early days of OFCOM's existence, to review the potential
impact of proposals.
Proposal B: OFCOM should be mandated to carry
out comprehensive regulatory impact assessments with the intent
of reviewing the impact of its proposals on markets as a whole,
not just on the company/companies that is/are the target for the
Although the "policy narrative" that
accompanied the draft Bill (paragraph 5.2.3) provides for the
addition of conditions to cover this point, these are not currently
included. We believe that a Clause should be inserted to cover
As a means of achieving "light touch"
regulation, it may be worth considering a provision that appears
in the Railways Act 1993 (as amended by the Transport Act 2000)
where the regulator has duties in Section 4 to:
"impose on operators . . . the minimum
restrictions which are consistent with the performance of his
"enable persons providing services to plan
the future of their business with a reasonable degree of assurance".
Proposal C: Clause 5 (1) of the draft Bill could
incorporate such wording to strengthen the duty to secure light
In our original submissions, we pointed out
that, although the "policy narrative" (in the introduction
to Chapter 3) states that "OFCOM will have no power to regulate
content on the Internet", the Content Board is given a remit
in Clause 18 (2) (a) to consider:
". . . matters that concern the contents
of anything which is, or may be, broadcast or otherwise transmitted
by means of electronic communications networks".
In Clause 22 (1), an "electronic communications
network" is defined as "a transmission system for the
conveyance . . . of signals of any description" and, in Clause
22 (10) (a), "signal" is defined as "anything comprising
speech, music, sounds, visual images or communications or data
of any description".
Proposal D: These areas need clarifying to avoid
the definition of licensable content being extended beyond that
covered in Clause 154 (television licensable content) and supported
by the definition of an "electronic communications service"
in Clause 22 (2). One possible modification is to incorporate
wording to differentiate between content that is purely broadcast
(using the "push" model) and that which is "pulled"
by consumer choice.
E. MUST CARRY
We consider the current must carry provisions
to be inadequate in terms of linking must carry status to the
discharge of public service broadcasting obligations, and in terms
of their inequity in the treatment of comparable platforms.
The Government has rightly sought to specify
in some detail what PSB means and what explicit deliverables it
is looking for from PSB operators. However, it has not linked
this to the granting of must carry status for individual channels.
It is important that it is only individual channels, which contribute
to the delivery of PSB in their own right, that should be eligible
for must carry status. For instance, it would clearly be inappropriate
for must carry status to be granted to Granada Men and Motors
because Granada retained a commitment to regional production.
Proposal E1: Rules governing commercial channels'
eligibility for must carry need to be tightly linked to their
contribution to PSB objectives.
As we pointed out to the Committee, capacity
on cable networks is finite and, therefore, adding more digital
TV channels uses capacity that could be used, for example, for
broadband services. This notion of a more complex opportunity
cost is not reflected in the Government's stated policy, which
would look only at compensation for the direct cost of capacity
set aside. From a wider economic perspective, it is important
that must carry does not lead to widescale misallocation of resources.
Proposal E2: The Government should be required
to explicitly consider the costs, including the opportunity costs,
of must carry obligations before they are imposed.
The current draft of the Bill does no more than
repeat the language of the European directives. Europe, in turn,
has left the detail of when compensation payments should be made
to individual Member States. Therefore we have no clarity at all
at present about the circumstances in which payments might be
made. This problem is compounded by the raising of the prospect
that payments could be made in either direction.
Proposal E3: The Government should specify the
basis on which it would grant compensation for carriage.
On balance, we accept the specific carve out
of new platforms from the must carry rules but, at present, the
Bill discriminates against the cable platform in favour of the
Cable operators will be required to carry any
designated services, but equivalent rules will be applied to the
DTH platforms only when analogue switch-off has occurred. It is
hard to understand the logic of any such linkage. BSkyB is the
leading provider of digital TV in the UK with more than twice
the number of subscribers of our two companies. If there is a
case for ensuring that subscribers can access a core suite of
services on the cable platform, surely that case must be redoubled
in respect of the DTH platform.
BSkyB claims, misleadingly, that the issue is
already addressed because DTH operates an open platform and the
terms of access to that platform are regulated. However, this
misses the point that BSkyB automatically receives payment for
conditional access services it offers to public service broadcasters,
whereas cable operators receive no equivalent payments, despite
facing significantly higher costs. The Government has said it
will not impose any payments for the existing suite of must carry
channels on cable. So the current inequity would continue for
an indefinite period of time.
This could be addressed by introducing rules
imposing must carry requirements of the DTH platform which apply
from commencement of the Bill. Such requirements should be subject
to all the same safeguards listed in our other recommendations
Proposal E4: The must carry rules imposed on
different platforms should be non-discriminatory.
We noted the concern of the Committee about
the application of concurrent powers in the sector. Whilst the
theoretical case for concurrent powers is sound, the granting
of concurrent powers to Oftel has not been a success in practice.
If concurrency is to be given to OFCOM across an even wider jurisdiction,
lessons must be learned from this experience.
Oftel has never had to specify under what circumstances
it will use competition powers as opposed to sector rules. This
surfeit of choice seems to lead to a degree of paralysis and contributes
to delay in overall case handling times, as there is an initial
protracted period of examination before the decision about which
route to pursue is taken.
Proposal F1: Therefore, we believe that there
is a need for a clear decision-making process around the use of
concurrent powers, as opposed to the use of sector rules. The
Bill could address this problem by requiring OFCOM to:
(a) produce guidance on where it will apply
sector rules as opposed to competition powers, and
(b) set a deadline for initial examination
of any case to determine whether concurrent powers should be used
of no more than two weeks from receipt of a complaint.
Applying competition law is a separate discipline
to applying sector economic regulation and a world away from content
regulation. This must be reflected in the way OFCOM is structured
and how reporting lines are set.
Proposal F2: A functionally separate competition
law team should be established within OFCOM, reporting to a suitably
qualified board memberor to the proposed Economic Advisory
If other functions and duties start to impinge
on competition case handling, this would lead to a unique body
of case law developing in communications. Such inconsistency is
undesirable as a matter of principle but, given the nature of
the other duties (eg PSB, spectrum management), our view is that
it would also lead to an undesirable reduction in focus on consumer
benefits and tilt towards producer interests. If the Committee
considers this concern far-fetched, it is worth noting that the
Towers Perrin report, agreed with the individual regulators, explicitly
proposed that certain competition cases should be considered in
a "strategic" way (ie with a view to squaring competition
concerns with other functions and duties).
Proposal F3: Other duties of OFCOMeg
spectrum management or public service broadcastingmust
not influence competition decisions. Competition cases should
be considered only on the grounds that could be considered by
Proposal F4: To ensure that OFCOM's concurrent
powers are carefully and consistently applied, there should be
an explicit requirement in the "duties" section of the
Bill that requires OFCOM to ensure there is no inconsistency in
its competition rulings with those of the OFT, the European Courts,
or the European Commission.