Joint Committee on the Draft Communications Bill Minutes of Evidence

Examination of Witnesses (Questions 160-179)


MONDAY 27 MAY 2002

  160. If I can just move on, while OFCOM has concurrent powers, it also has powers that are not available to the OFT?
  (Mr Vickers) Yes.

  161. Of course, while there is no suggestion from OFCOM that the OFT would lead it, it would become less clear to the industry if it was going to use the ex ante powers or the competition powers as they develop. It has been put to us—and indeed Patricia Hodgson last week reflected this view—that the ability of those enjoying market power in telecommunications and communications was such that they could foreclose the market before the point at which competition powers would necessarily be able to bite. Could I invite you to comment on whether in practice those who are currently regulators who are going to become part of OFCOM might be underestimating the ability of their Competition Act powers to be used rather than their ex ante regulatory powers to impose conditions?
  (Mr Vickers) From my experience, I have no reason to think that those regulatory bodies are either underestimating or overestimating the role that the Competition Act powers might play. It is important to say that under the Competition Act it is only the abuse of the dominant position which is unlawful, which has to be assessed on a case-by-case basis.

  162. So you do you share the view then that was put to us that the use of ex ante regulatory conditions will continue to be widely used because Competition Act powers on their own would not be sufficient to prevent those with significant market power from foreclosing the market? Is not foreclosure or anything that goes with it, by definition, an abuse of trading competition?
  (Mr Vickers) That depends on the case. Margaret has spoken about the relevance and importance of European case law. Whether it is right to retain a role for ex ante regulation depends on how conditions of demand and conditions of technology evolve and also in part on historical inheritance. Of course, some of the industries concerned came out of an era of nationalised monopoly which was part of the historical background at that time. There are supply and demand features of parts of the communications industry which make ex ante regulation important to retain for the time being.

Baroness Cohen of Pimlico

  163. Can I have a go at that one? Can I come from a specific historic example whereby there are a lot of people complaining that the dominant telecoms supplier was choking them off before they could get in by not offering them cheap enough broadband and so on. There were many of us who were less than impressed by the way Oftel dealt with this. If you were an aggrieved party, somebody who felt they were being choked off, would you under this legislation retain the possibility of going to the Competition Commission and saying, "Oi", or would you just bat it back to OFCOM?
  (Mr Vickers) An aggrieved party—complainant if you like—could very well come to us or to a concurrent regulator where that was appropriate under the Competition Act, as now.

  164. What would you do?
  (Mr Vickers) We receive a level of complaints which is well into the four figures per annum across the economy as a whole and we will begin by conducting a preliminary investigation of the complaint. In the majority of cases we conclude at an early stage there is no merit in the complaint for something to be taken further forward. Of course, complaints, as was just mentioned, may go to the concurrent regulators as well. Another possibility is for a private action to be brought. The Competition Act is the law, and the law is the law whoever is applying it—it is not that a different answer depends on who is applying the Act—and private parties can bring actions themselves. The public authorities, rightly, do not have a monopoly on that activity. So there are various avenues that can be pursued.
  (Ms Bloom) A complainant can also go to the European Commission if you are asking about which one and how it is handled.

  165. It is a handling point.
  (Ms Bloom) For example, if they went to the European Commission and to us we would agree with the European Commission which one would take it. Under the concurrent powers only one authority can use the formal powers of investigation at the same time. To date we have had something between 30 and 40 cases under the concurrent powers between us and all the other regulators. Except for one of those cases the regulator has taken the case. It takes us about a couple of days and we agree that it would be sensible for them to do it because they have the expertise in that market, they have the staff and they know about the area, so generally they will take it. In the exception, if it is a case involving the need to use our raiding powers, particularly if there is a cartel, because we have the expertise in that area we would generally do the work rather than the sector regulator.

Lord Pilkington of Oxenford

  166. Previously when we have taken evidence some of us were concerned about the rather ambivalent position of the BBC in this situation. Do you feel that the Bill gives the BBC an unfair competitive advantage and are you satisfied that OFCOM will be able to apply competition regulation to the BBC on equal terms with the other providers? The second question is a technical one. To what extent is the BBC exempt from the Chapter I and II prohibitions of the Competition Act 1998 by virtue of the General Exemption? In a nutshell, in relation to other people is the BBC privileged or can OFCOM apply competition rules to the BBC? What is your interpretation of the Bill as it stands?
  (Mr Vickers) The Competition Act—to focus on that part of the question—applies to all undertakings including the BBC where it is acting as an undertaking. That category would certainly include the commercial activities of the BBC and on the case law I believe it would cover significantly more than that. That is the question of what constitutes an undertaking for the purposes of the Act.

  167. Can you give a concrete example of that?
  (Mr Vickers) Margaret may be able to do that. I find it difficult because it is a case-by-case matter and if it is borderline one would need to look carefully at the European jurisprudence which is imported into the UK legislation.
  (Ms Bloom) Essentially it is the body acting commercially or economically and it accepts that one body can at some time be considered to be an undertaking because it is acting in a commercial fashion and at other times it might be, for example, providing some public service required by government, and then it would be unlikely to be an undertaking. Because broadcasting is an economic activity, probably much of the BBC would be counted as an undertaking. It sounds very vague but it has not yet been defined, and it is an issue to be looked at.

  168. It sounds to me pretty complicated and therefore that the BBC is to some extent privileged and it will take a galaxy of lawyers to sort out this particular problem. So your short answer to my question is that the BBC would enjoy some privileges in relation to others merely by the complexity of the situation you describe? Would you like it made simpler on the face of the Bill?
  (Mr Vickers) I am not sure I would be drawn to quite the conclusion that you mention.

  169. I want it to be drawn to a conclusion, that is all.
  (Mr Vickers) Many cases seem to involve galaxies of lawyers! In terms of what is on the face of the Bill, I am not sure that that would be a route if Parliament wished to go down that road. I am simply not sure how the Competition Act with its jurisprudence would sit in that regard, but I am getting into legal and constitutional questions.

  170. Poor old OFCOM is going to be find it hard work when it tries to deal with the BBC, is it not? You nod your head. You agree?
  (Ms Bloom) I think it is a tricky issue.

  171. I am pushing this but we have had rather bland, careful, regulatory answers this afternoon. What I am pushing you to say is would you not agree, with your vast experience of competition, that the Bill could make it simpler and more direct as to the position of OFCOM in regard to the BBC?
  (Ms Bloom) I am trying to avoid a bland, regulatory answer which I think is what you said. In terms of applying the competition powers, because this all stems from European competition law, we inherit this terminology "undertakings". I apologise for the fact that the question of whether something is or is not an undertaking is a rather a difficult issue. In fact, the Competition Appeals Tribunal has a case before it at the moment as to whether a case is an undertaking. If the Government wanted to do something specific in relation to the BBC it would not be in relation to the competition issue, it would be how the BBC is covered by the Communications Bill. That is not something for me to answer.

  Lord Pilkington of Oxenford: A definition of public service broadcasting that applies across the whole field would help me.

Mr Lansley

  172. To be more precise, at least you would know what are the particular tasks assigned to the BBC for reasons, effectively, of public policy that would be protected if the BBC were pursuing those, even if it were engaging in what might otherwise be regarded as an activity inconsistent with the Competition Commission.
  (Ms Bloom) If that is the intention of the Government they would need to legislate in that manner in the Bill.
  (Mr Vickers) Two of the strands of Lord Pilkington's question, as I understood it, staying with the Competition Act, was the question of the general economic interest exclusion. With our own concurrency arrangement here Margaret is better placed than I am to deal with that. The other question concerned whether the way that the Bill provides for content regulation in the case of the BBC might itself create asymmetries. That is a question on which I have to say I am agnostic. I do not have sufficient understanding of that. It may be a question for the Committee to consider whether there might be knock-on competition issues arising from that, but I simply do not know.

Lord McNally

  173. I think it is right. Parliament has got to write it into the Bill. I probably come from a different direction to Lord Pilkington, but we are not in the case of the BBC writing a pure competition piece of legislation. It is going to have special privileges, that is the whole idea of having a public service broadcaster. What slightly worried me is that you suggested that where that line is drawn might be tested almost constantly by case law, and that what we will get is the various broadcasters coming along and testing the BBC's activities against the legislation and chipping away and chipping away at the BBC's role. Do you foresee that in any way?
  (Mr Vickers) I am not sure I would use the language "chipping away" at the BBC's role. When cases come along where it was clear that the BBC was an undertaking and would not covered by the exclusion relating to general economic interest, things would be clear. There might be other cases where the opposite was clear and there may very well within the case law, and the fact we are living in an imperfect world, be a grey area where there might be a dispute. I do not see it as parties trying to push at some frontier or pull it back. It is a question of the law, and by importing European precedents, what that implies given the facts at hand.


  174. Could I pursue this. I'll try not to use the phrase "chipping away", although maybe that is what I am coming to. In the United States the FCC has no competence as regards content, so individual competition issues in that area are judged by the courts. That kind of works for them but they have a much, much more vigorous roll- back system because the Government is not afraid of taking up quite high profile anti-trust cases where chipping away has occurred to the point where there needs to be a re-balancing or re-regulation. I do not think we as yet have that culture. This is what troubles me. I come from the private sector and one of the things I know about the private sector animal is that it is not appeasable, it does not settle, it is constantly seeking new advantages, so that whenever the Government believes it has achieved balance that merely becomes a new point from which the private sector can decide to play. I suppose my question is this: how do you protect against a constant chipping away by the private sector of things which the Government believes it has put in place on behalf of its citizens and consumers? Where does real protection lie? I am very concerned about this Oftel/OFT double act. I have a nasty suspicion that the private sector will run a roller coaster through you over a number of years. Where is the sustainable protection?
  (Mr Vickers) In one sense it is where Parliament draws lines and if they are fixed and clear then that is the law.

  175. My point is that those lines tend always to be lines in sand, which are recognised by the public sector but seldom, if ever, by the private sector.
  (Mr Vickers) I am not sure I share the view expressed in that last remark. You spoke at the beginning of your question about the different culture in the US as regards competition issues to the one we have here in the UK. It is quite a striking fact that the US had competition law and anti-trust law since the Sherman Act of 1890; our Competition Act was passed in 1998. It was not the first piece of UK competition legislation, but it was the first in the UK with serious penalties to go with it. I would agree that there has been a different culture on the two sides of the Atlantic although, as was said earlier, the European framework for the trans-national competition matters has been in place for three or four decades. Commercial players and other players are constantly trying to seek advantage relative to one another and that operates in different fora. So far as that is happening in the competitive market-place, that is likely to give the consumer/the public better deals, that is fine. That is what the competition process is wanting to encourage.
  (Dr Morris) Chairman, could I make an observation. It may be slightly dangerous because it is not an area the Competition Commission needs to be involved in, but there are other areas—I am thinking for example of newspaper mergers and perhaps we will come to that—where there are clear competition criteria involved and also specified public interest issues involved. In the area of financial services there is scope within the FSMA for competition issues to be weighed up against various prudential, one might say public interest, issues in that area. It is possible that a regulator in the new regime could make a so-called market reference to the Competition Commission, for example in the area of broadcasting, and we would be required to look at the competition issues, but we would also be expected to take into account effects on consumers more generally, and therefore the specific role of the BBC would obviously come into that. I am bound to say that if we were faced with that situation—and it might be a little fanciful but it could happen—we would be very much hoping that there would be a very specific laying down of what the public interest role of the BBC was against which the various competition criteria could be arranged.

  Chairman: That is extremely helpful, Dr Morris, thank you very much indeed.

Mr White

  176. Can I go back to the Bill because I am confused. It comes back to definitions of competition functions. In Part V, clause 247, OFCOM and the OFT are put on a more or less equal position. In clause 248 it talks about the Fair Trading Act and it says that that is okay for monopolies and mergers because they are on a level playing field and there are certain safeguards put in there, and then it disapplies all the light touch, general duties of OFCOM in section 3. Part II does that. Then again, if you look at clause 248 it does exactly the same things with regard to consumer protection. I am confused by this. Can you explain what is going on and what is the difference between what OFT are doing and what OFCOM are doing?
  (Mr Vickers) I am certainly no expert on this Bill but let me try. Where we are speaking of Competition Act powers, there are indeed concurrency arrangements, so it could be either body, but the presumption in the OFCOM area is that OFCOM would lead on a case. It is rebuttable and Margaret mentioned earlier—and one can imagine—the hypothetical case of a cartel case where it might be judged that we at the OFT were best placed to take the case forward. There is concurrency but with a presumption that OFCOM would take communications cases. Under phase one of the merger regime the primary role is with us as OFT. In the case of some of the consumer protection powers, again there are concurrency arrangements where OFT typically has a co-ordinating role in the concurrency arrangements. You referred at one point to the disapplication of general duties. I may be wrong here but I think the logic behind that might be that if we are talking about the Competition Act, the law is the same whoever is applying it. It has to be applied as the Competition Act bearing in mind the jurisprudence, including the European jurisprudence. That goes back to the point earlier on that issue.
  (Ms Bloom) Can I confirm that point that the disapplication of the general duties is replicated in the other sector regulators. All the sector regulators who have concurrent competition powers can only apply those of their general duties the same as those applied by the Director General of Fair Trading in order to make sure that the competition powers are applied as they would have been under Community competition law.

  177. When OFCOM are making decisions about the citizen as opposed to consumer issues, you are saying that the Competition Act does not apply?
  (Mr Vickers) I think it might be the other way round. If the Competition Act is being applied by OFCOM then that is applied as the Competition Act full stop. There would not be additional citizenship considerations which would be brought to bear on that Competition Act decision.

  178. We come back to this situation that Oftel finds itself in where every time it makes a decision BT appeals and the other competitors automatically put a complaint in and you get the situation where that does not help anybody. If that kind of scenario developed under OFCOM, is that not going to defeat the purpose of the Bill?
  (Mr Vickers) I am not sure at all that it would defeat the purpose of the Bill and those phenomena may well arise under any conceivable arrangement. Oftel when it is applying what are now the licence conditions would have regard to its general duties whereas when it is doing Competition Act work that will be the Competition Act full stop.

  179. If I get this right, when the Enterprise Bill becomes the Enterprise Act, because the definition of "consumer" is different in the different Bills, we are going to have to re-write it when the Enterprise Act becomes law; is that right?
  (Mr Vickers) I confess I do not know about the definitions of consumer and how they might differ in different pieces of legislation. Of course, there are various references in the Communications Bill to provisions in the Fair Trading Act which will be supplanted by corresponding provisions of the Enterprise Act if and when it does become law.

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