Joint Committee on the Draft Communications Bill Minutes of Evidence

Examination of Witnesses (Questions 220-239)



Baroness Cohen of Pimlico

  220. In both the Telewest submission and, to a lesser degree, in yours there appears a radical statement of objection to really how BT, as a dominant monopolist, has been handled. Is that really what you are after with an economic regulator? One of the big problems in our market is a dominant player on whom Oftel has made very little impact. Is that fundamentally what you are saying?
  (Mr Carter) I would not say it is fundamentally what we are saying.

  221. But it is part of the reason for looking perhaps at rather stronger economic regulation?
  (Mr Carter) I think our view would be, even where we are today with 300 or so licensed telecommunication operators, it is difficult to look at the telecommunications market without observing that the major player owns the infrastructure and therefore owns access and controls access, and that the control of that access has deliberalised in a slower way than you might have wished. Going forward, that would be something that one would wish to change.

Lord Pilkington of Oxenford

  222. We sit here for hour after hour on Monday evenings, and you say these things. Could I ask you to be specific? In about three or four weeks' time we shall have to put some comments on this Bill. Could you give us a clause you would like us to alter? What would you say is the real sharp point that you would like this Committee to put to HM Government?
  (Mr Carter) I think we would say—and my friends from Telewest may wish to augment this—that there are three things we would draw specifically to the Committee's attention. Our apologies if these are not grand points, but we believe they are useful points. The first, which is a minor point and which we believe to be an omission, is on must-carry rules. This is the requirement of different platforms to carry public sector channels, channels given must-carry status. There are two issues as a subset of that. One is that at the moment there is an inequitable regime between the rules as applied to BSkyB and the rules applied to the cable platform, whereby BSkyB get paid for the privilege of carrying these channels and we do not. That seems to us to be at best odd and at worst unfair. The second issue is a judgement issue on what gets must-carry status. I thought it would be useful to give you a proxy on that. For every digital channel that you give must-carry status to or an official DTH platform status to, that takes the capacity on our networks which is equivalent to providing 500,000 broadband connections. So there is an opportunity cost as well as a commercial issue, because we expand exponentially, in providing must-carry status to these channels. So that is one specific thing that we would encourage you to look at. The second specific thing that we would encourage you to look at is speed of regulation. We believe this regulation is designed to regulate one of the fastest moving industrial sectors in the country, and one which, by definition, we want to move faster, so putting a specific requirement on the speed at which the regulatory regime, however light touch or heavy touch it is, executes its duty seems to us to be a critical issue. Then the third issue is the one that we have alluded to already, which is, is the Bill future-proof? It is going to be a reality in business planning terms for 2004, and in 2004 the world is going to be a different place to what it is today. So that should be the litmus test for the way in which you read the clauses and read the regulations. Those would be our three specific points.
  (Mr Taylor) One more, I think, was the point we put into our paper, on Article 8 of the Framework Directive, quoting the various provisions in the European Framework Directive which talks about encouraging efficient investment in infrastructure and innovation. That seems to be missing from clause 3 of the Bill. If anything were to be called for, it would be for that to be covered. It could be argued that clause 4, which is a line of good community obligations, covers it, but I do not think it is specific enough, and I think that putting that provision in on the face of the Bill into clause 3 would be a particularly good thing.

Lord Crickhowell

  223. I am surprised by your answer about not understanding the difference between light touch and appropriate and proportionate, because the great weight of evidence that we are getting tonight, from the documents that I have, draws a pretty clear distinction between where a monopoly does not exist and the markets are working (and you can try to withdraw the really light touch, and it should be a prime objective to withdraw in that situation), and where there is a monopoly—you have all identified the monopoly and are pretty powerfully critical of the BT monopoly—where you say, "No, we've got to have very tough regulation." Indeed, you spoke about the speed of regulation. When we come to the BT written evidence, there are a great many clauses about there being all sorts of protections against unfair actions by the regulator and appeals and so on. Clearly there is a real danger that their objective is to slow everything down. So surely there is an absolutely clear distinction between appropriate and proportionate, which may be very tough and very speedy, to destroy a monopoly, if indeed the solution is not to break up the monopoly altogether, and a vertical integration which I suspect quite a lot of you would like. So why the confusion? Why your doubt as to the difference?
  (Mr Carter) I think what we were saying—and Malcolm may well wish to chip in—is that we do believe that there are some sectoral-specific regulatory issues which will continue to need to be focussed on, and that will be particularly the case in the telecommunications market, although we would also draw the Committee's attention to some of the control and regulatory issues in relation to content in digital television. The second issue we would absolutely agree with you on, I am tempted to say correctly, is on the appeals dimension; that self-evidently what would be not progress from our perspective is that the appeals process becomes an obfuscation method for the predominant monopolist in a particular market to string out the debate for an x amount of time. I think we have all seen examples of that in recent times. Probably the most recent noticeable one was the OFT inquiry into the pricing of television content which took, I think, nearly two years or so to reach a decision or to make a decision, which seems to us to be not the definition of progress. So we would agree with you on those two points.
  (Mr Taylor) I think that when we talk about the role of regulation, I do think we can move towards a light touch regime with this particular Bill, but again it comes down to the interpretation of the duties. I think the issue is how they are carried out. The issues that we face really are whether the issues that we confront, that could be deemed to be targets for sector-specific regulation, are in fact issues relating to competition law. Many of the issues relate to the speed at which you can achieve something like access, which we want on fair, reasonable, non-discriminatory terms. If you spend a lot of time trying to define those terms, if the regulator sits in the middle of that process, it can slow the process down, when in fact the denial of access may well be better addressed under some form of competition laws. I go back maybe four or five years. We had a situation under the old licensing regime that was something along the lines of cease and desist, if something was deemed to be holding the process up or was deemed to be anti-competitive. I think what we are wanting to avoid is an over-involvement in, if you like, prescriptive regulation, a move towards much more of an open regime, but along the lines of fair, non-discriminatory, transparent type obligations.


  224. You clearly seem unhappy at the moment with the appeal procedures and the time they take. How clear are the provisions in the new Bill for making you less unhappy?
  (Mr Carter) Relatively happy, apart from the fact that there does not seem to us to be an explicit reference to the need to recognise the nature in which the market operates, which is the point about speed. I think that is really the point that we would underline.

Lord Crickhowell

  225. What about the costs of OFCOM to the industry? Somewhere in your evidence you talk about vying for what is inhabiting the same stable. You have five of you all coming together, all pretty large and substantial. Do you see scope for reducing the burden? Are you happy about the way it is being structured? How do you see the costs falling on industry?
  (Mr Carter) Having just integrated nearly 17 companies into one, we definitely lay testament to the belief that there are cost benefits from putting separate organisations into one place. I think we currently pay about £2-3 million a year in licence fees to the ITC, Oftel, etcetera. It is difficult for us to ascertain, in the way in which it is sketched out at the moment, what the material saving would be. I do not think we have approached this from the perspective that cost reduction is the primary aim. I think the primary aim is effective regulation, converged regulation which recognises the nature of the industries that we are working in, the industries that we are all working in. It would seem to us—and this was the point that we were making in our submission—that if all we ended up with was a kind of common landlord situation where you had five relatively independent tribes, with no material benefits in knowledge sharing, back-office support, transfer of debate and convergence analysis and therefore in decision-making and recommendation, then that would seem to us to be probably worse than the status quo.

  226. What you are describing as "tribes" I, during the paving Bill, described as "warlords". I feared that they would battle away in their own interests before we had a board. We have not yet got a chairman, let alone a board. Is there anything you would like to see specifically going into the Bill, or do you see any other mechanism for actually making sure that we do get one organisation that not only obtains cost benefits, but, perhaps even more important, works and thinks as a collective whole rather than as five separate warlords?
  (Mr Carter) Again, my colleagues may have a view, but I think it will certainly, "early doors" come down to the quality of the management and the leadership and the way in which it is structured from the off. Part of that will be determined by what are the appropriate criteria for making those selections. Again going back to our opening discussion with Lord McNally about getting the balance right between content and competition, we would hope that an equal interest would be paid to attracting talent from the emerging industries as well as from the established industries, in ensuring that we do get a management regulation and senior executive staff who understand about developing broadband content, who understand about operating converged platforms, who understand the emerging high-speed technologies, as well as analogue and linear broadcasting. Those are very different areas and they generate very different perspectives. So getting that broad church of skills right is going to be critical, I think, in getting the right balance of skills in economic regulation.

Lord Pilkington of Oxenford

  227. What background would you like the chairman to come from, from your side of the industry? Chairperson, I am sorry.
  (Mr Carter) I think the answer to that is beyond me.

  228. It is not beyond HM Government.
  (Mr Carter) Certainly not beyond the Committee, I am sure.

  229. We must be choosing him or her?
  (Mr Carter) Absolutely.

Anne Picking

  230. My question is about the Consumer Panel. Are you content with the Bill's provisions for that? Do you think the Consumer Panel will be effective and efficient? Will it be an asset or will it be an irritant?
  (Mr Taylor) Certainly we would hope it would not be an irritant. Certainly we would hope it would be an effective group, but at the moment the Bill provides for a fairly wide-ranging construction of the Consumer Panel and potentially fairly wide-ranging responsibilities, particularly in relation to regulation of content. If I read the Bill, the Consumer Panel could effectively get involved in a whole raft of, if you like, launching competition cases, giving advice on a whole raft of provisions. In essence, it ought to be representative, it ought to be very effective, but it should not, as much as I hate to say it, override the seriousness of the whole economic regulation focus of what I think OFCOM needs to have in this brave new world over the next ten years. It should not be too interventionist, because I think the market has got to find its feet, it has got to find new commercial models in broadband, for example, it has got to find new ways of working and funding. In theory it should not capture the debate, put it that way, it should be open to sensible debate.
  (Mr Carter) The only point I would make on that is that in our industry, certainly today and even more so in the future, the definition of success is satisfying the customer. We are a customer service business, so in that sense we do not have quite the same content perspective as some of the other organisations that Malcolm Taylor is referring to. So there is definitely a role, and the way it works well—and I would say at this point that I think the kind of complaints resolution procedure does work well at the moment, but within the Oftel constraint—is where there is a speedy mechanism for identification of an issue that has boiled over the normal provision of customer service and requires resolution in another way. Maintaining that would be important, as you merge together these businesses of pure content and other businesses that are providing service to millions and millions of customers. There are different consumer interests, and you have to get that balance right.

Mr Lansley

  231. Can I go back to the competition and sector regulation issues that you have already touched upon. In particular, Mr Carter, in your evidence to us, in effect, you have said you want to see competition powers used, you want to see the market that you are involved in move towards one in which competition powers can be used and are sufficient for that purpose, but you are not there yet, and sector-specific regulation has to be retained. What is it that gives you such confidence, on the basis of past experience, given other things that you have said to us about the lack of competitive markets, that using the current sector-specific regulation makes you confident that that is the best route?
  (Mr Carter) One of the truths of working in the cable industry is that one has to be an eternal optimist. I think we are definitely of the view that it is possible to run those kind of concurrent powers in tandem and that is a good thing. What we want to avoid happening is a situation where you have a kind of divergence of interpretation, to a point whereby there is conflict. There are some sectoral-specific issues, they need to be given due focus and require a deeper understanding of those areas. Equally, I think we would say that the overarching requirement to create a competition environment, light touch, is one we would welcome. So it is really what underpins our belief that the general thrust of the Bill to create that regulatory environment is a better situation than the one we find ourselves in at the moment. But the proof of the pudding is going to be in the eating or is going to be in the regulating.

  232. Of course, we are going to move to a world in which we have new Competition Act powers that have not in this sector been used. We are going to have the Enterprise Act in due course, with a whole set of new provisions relating to market investigations and so on and whole new sector-specific powers in relation to market powers, so it is very difficult to judge at this stage how the two things are going to be used by the regulator in relation to one another. Would there be any advantage, in your view, in trying to use the structure of the legislation to give a steer towards the regulator to move towards the use of competition powers, a sort of presumption in favour of the use of competition powers where possible, and sector-specific regulation only where necessary?
  (Mr Carter) Yes, I think we would say that. That is part of what underpins our cri de coeur that the Committee should have as its litmus test that this legislation is going to become reality in terms of implementable decisions and regulation in 2004, and that, I think, does require an understanding of the new emerging rules on sector regulation and on the new emerging Enterprise Bill. Again going back to our opening dialogue on this issue, I think we are uniquely in a position to have a view on this, being an industry which has in large part been funded by international capital, in the main American capital, to create an alternative telecommunications infrastructure. I think it is fair to say that this country is newer to embracing competition organisation than our friends across the pond, and therefore the kind of presumption that you suggest is a healthy one to try to accelerate that imbalance.

  233. Mr Doherty, your evidence to us appears to be a bit more concerned about the whole issue of how OFCOM and the OFT will relate to one another. When we took evidence from Oftel and the OFT there was not any recognition that there would be difficulty in managing this concurrency between the two bodies, they work it out between them, that is all very nice, and everybody will know what happens if only they care to look at the working group rules and so on. Do you have any specific idea of how this can be dealt with?
  (Mr Doherty) Do you mind if Malcolm takes this, as he understands this?
  (Mr Taylor) We started from the base of always supporting the use of concurrent powers going back to 1998 and through the implementation of the Competition Act, and I think we have continued to support that fundamentally because in theory that ought to give us, if you like, the internet speed regulation and reaction through the regulator that ought to have the skills. I think what we have questioned is first the fact that those powers have not really been used in all seriousness so far, through experience, and also that we do see potential conflicts arising through jurisdictional overlaps, potentially between the OFT, the regulator and the European Union. I think we just need to step back a little bit and make sure that we are very clear on what we are trying to achieve and where concurrency can bite, because from our side of the industry we want to see the action taken as rapidly as possible, and make sure it works, and we want to get to a situation where it will work effectively, because in theory it ought to work more effectively with the skill base from the industry that understand the industry, rather than divorced from them.

  234. There is no way we can legislative ourselves out of the jurisdictional problem between ourselves and the European Union, is there?
  (Mr Taylor) That is right.

  235. It will exist between any industry and the OFT and the Commission. But the skills base is something we can do something about. Does that mean you would favour us understanding that concurrency actually means it is going to be OFCOM in all reasonable circumstances, as, on the face of it, to have another sector regulator intervening has been the practice since March 2000, because OFT has not even attempted to institute a Competition Act investigation in relation to the telecommunications industry where Oftel has powers? So would it not be simpler to say that?
  (Mr Taylor) I think it would be more definitive and put the necessary competition expertise into Oftel to make that happen. Otherwise there is going to be competition for the same skills. There is only a certain number of those people with those types of skills available.

Baroness Cohen of Pimlico

  236. The question I am down to ask I am not enormously interested in. Can I just have one more go at the whole question of the relationship of the dominant telecoms provider, because in this question seems to me to lie the future of where we are going, how much you can move the dominant supplier over and give competition a chance. What else can we do for you? What else can the Bill do for you? You started out by looking for an economic regulator, which I took as a kind of code for saying that is how we can sort out this problem. Is that your best offer, or do you want something in the Bill? You are allowed to address directly the problem which you actually have, which is being up against a dominant telecoms supplier.
  (Mr Taylor) Again, the starting point for putting that position down and even getting to the point of suggesting a separate Economic Advisory Panel was the fact that you have to question, after 17 years of sector-specific regulation in the telecoms sector, why we have not got a more competitive situation, and you have to question the effect of the economic regulation on supply today and the regulation of the dominant player. Today I would sense that we have more concern about predatory behaviour than about, for example, an RPI-X formula for setting prices. Really that is, I think, the issue that we have to resolve. Whichever way you look at it, much of the regulation, although it may have been directed at the dominant player, has an indirect effect on the whole of the market and many players in the market.

Mr Lansley

  237. Would you not say that actually the problem that some of your evidence has referred to, whether it is in relation to BT or in relation to BSkyB in content and carriage, is about the vertical integration of those and their respective market shares? In fact, in terms of what you are saying—I am not going to put words into your mouth—are you saying to us that actually you have to look hard at whether competition powers can be used to try to deliver a more competitive market place, rather than simply try to deliver customer benefits within a monopolistic situation?
  (Mr Carter) If I understand your question correctly—and my colleagues from Telewest may have a different view—we would not subscribe to the view that vertical integration per se is unacceptable. To go back to the question about is the cry for powerful economic regulation all we want, we think that is a pretty big "all". One of the issues, I think, is when you get into the operational reality of disaggregating some of the operational issues, it will be nigh on impossible, sitting here today, to write into the Bill detailed provision that would preclude or prevent the things that you wish to preclude or prevent, and I think would end up typing the regulator up in knots and the operators up in knots. That is why we believe there is a need for a powerful and overwhelming focus on competition, because lines and access—to take that as an example—is quite a specific issue, and in trying to lay that out in detailed terms in the Bill, by the time it became law it would be redundant, because the market would have moved on, there would be another way of constructing a wholesale market to allow players access.

Lord Crickhowell

  238. You are curiously saying that it has all been a bit of a disaster, it has not actually happened, but we must not relax. You do not give us anything very positive which might take things forward. One of the other people giving evidence suggests that one of the problems is the unjustifiably high level of proof that discrimination has occurred, and that there is a need to reverse that and say that the monopoly provider has to show that he is not discriminating. Do you think the balance is right as to where the onus of proof lies, that all the appeal procedure then can follow it, that the existing provider has not been treated unfairly and so on? Could we turn it round and actually make it much more an obligation to open up, and you have to prove that you are not blocking things?
  (Mr Taylor) We could do that to a certain degree, but I am not convinced that that would necessarily alone be the solution to the problem.

Lord McNally

  239. Would the solution to the problem be breaking up BT, and that you are just too polite to mention that?
  (Mr Taylor) There is a strong lobby, I know, for achieving that.

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