Joint Committee on the Draft Communications Bill Minutes of Evidence

Memorandum submitted by AOL UK

  AOL UK warmly welcomes the draft Communications Bill and strongly supports its fundamental premise, namely the need for the UK's future regulatory systems and structures to reflect the emerging capabilities of the digital communications revolution. We also welcome the proposed creation of the new convergence "super regulator", OFCOM, a body which we believe has the potential to act as a pathfinder for media and telecommunications regulators across the world for years to come.

  AOL UK fully supports the additional consultation offered by a draft Bill and welcomes the scrutiny of the draft legislation by this Joint Committee of both Houses of Parliament. We are committed to doing all we can to help Members of the Committee ensure that the legislation supports the growth of a vibrant, innovative and competitive digital communications industry in the UK, to the benefit of consumers and the economy as a whole.

Getting the Regulatory Balance Right—Broadcasting versus Telecommunications

  While AOL UK welcomes the proposed creation of OFCOM, we would urge Members of the Committee to ensure that the new body's responsibilities toward the regulation of broadcast content standards do not overwhelm its equally vital role in ensuring full and fair competition in the telecommunications infrastructure market.

  We would suggest that the complexities of broadcast content regulation—from so-called "taste and decency" issues to aspects of media ownership and programming availability—require fundamentally different skills and resources to the detailed mechanics of economic regulation.

  It is perfectly possible for OFCOM to combine these functions successfully. Indeed AOL UK believes that for a future converged communications industry regulator not to attempt to bring these differing disciplines under one roof would potentially undermine the UK's ability to compete in the digital economy at a global level.

  However it is extremely important that OFCOM achieves a successful balance—in terms of resource and senior executive focus—in building on the twin pillars of content regulation and economic regulation.

  Furthermore we would add that if economic regulation were to be managed effectively—with timely and robust intervention wherever the market itself fails to deliver competition—the outcome would be a vibrant and competitive environment for the transmission of content. Consumers would benefit directly as competition amongst infrastructure providers ensured that the delivery of quality content and services became a key market differentiator.

  Without such competition—stimulated and supported by robust economic regulatory action where required—there would be no such incentive. Weakness in one of OFCOM's pillars would undoubtedly compromise the other.

The Structure of OFCOM

  In practice, any detailed assessment of OFCOM's future structure and capabilities will have to await the announcement of its constituent senior management team together with an outline indication of the size of staff within each of OFCOM's departments.

  In making such an assessment, we would ask Members of the Committee to be mindful that the economic regulation of telecommunications infrastructure is a highly specialist area requiring experienced and knowledgeable staff. We would also suggest that the breadth of OFCOM's overall remit combined with pressures on senior executives' time would bring the risk that the often highly technical (if not seemingly arcane) details of telecommunications regulation, which nevertheless are key to the fostering of effective competition in the sector, would attract less attention internally than other challenges in the area of broadcast content regulation which would be more likely to capture the attention of Parliament, the media and others.

  In looking at the staffing requirements of OFCOM, it is worthwhile noting that Oftel has suffered from a high turnover of staff, which affects both the speed of decision-making and the general level of industry and technological knowledge of the regulator. Therefore, it may be worth investigating the option of releasing some OFCOM employees from civil service pay scales.


  AOL UK would like to draw the Committee's attention to a number of specific issues within the Bill of potential concern for Internet and Interactive Services Companies.

1.   Regulation of Internet Content

  AOL UK supports the government's clear policy intention not to seek the regulation of Internet content. In the light of this we would welcome greater clarity in certain parts of the draft Bill, in particular—

  1.1  The Content Board (Clause 18, page 15, line 9).

  As presently drafted the functions of the Content Board of OFCOM would appear to include Internet content and therefore, in the light of the government's stated policy that the Communications Bill will not give OFCOM any powers of regulation over content on the Internet, we would appreciate more clarity in the drafting of this section.

  1.2  Meaning of Television Licensable Content (Clause 154, page 132, line 19).

  Although the policy documentation accompanying the legislation states that this section does not extend regulation to Internet content, we would still suggest that there are a number of potential causes for concern.

  It appears that some current Internet services and many future digital services may be unintentionally caught by the definitions of "television licensable content". Although the Bill attempts to narrow this area by stating that this form of content is that which is "available for reception by members of the general public" (Clause 238, page 194, line 28), AOL UK believes that the definition remains flawed.

  A present Internet service caught by this definition could include the webcast of a music event for which the consumer pays an additional fee. In fact, it would appear that anything based on "push" technology over the Internet would be caught in this way.

  AOL UK suggests that this definition be re-drafted in order to provide clarity that it is the content "owner" or "provider" who carries the liability for an Internet "push" event such as a webcast, and not the content "deliverer"—the Internet Service Provider (ISP).

  Traditional broadcast media outlets are both the "owner" of the content as well as the delivery mechanism, in the sense that they select programmes for broadcast (either those produced by others and then purchased or those produced in-house) and then deliver those programmes to their audiences. However, while ISPs provide the means for consumers to access the Internet, given the global nature of the online medium it is not possible for ISPs to assume control over content which can be accessed via their services but which does not reside on their servers.

  The Government has acknowledged this in making plain its policy intention not to seek regulation of Internet content. The present drafting of the Clause outlined above cuts across that intention and as such would raise unintended ambiguity in the legality of numerous future digital services for UK consumers.

2.   The Application of the Authorisation Regime to electronic communication services (Clause 23, page 19, line 23)

  The bulk of the economic regulation responsibilities of OFCOM, as well as the transposition of the new EU telecoms legislation, is detailed in Part 2 of the draft Bill. The EU legislation primarily establishes a framework in which national regulators are to exercise their discretion, and this is reflected in the Bill.

  Under the current telecommunications regulatory regime, licenses are required to run a telecommunications system. The draft Bill provides for the abolition of the current licensing regime, to be replaced by a system of general authorisations for both the provision of electronic communications networks and services. For many under the existing licensing regime this will be welcome. However, the general scope of the Bill is necessarily wide to cover the entire converged communications industry, and this has the consequence of bringing within the scope of the authorisations regime a number of activities previously free of administrative requirements.

  OFCOM would be able to exercise discretion in deciding which communications industry activities would require authorisation. However, Members of the Committee should note that the administrative charges levied on authorised operators will be a key revenue stream for OFCOM.

  While larger organisations may be in a position to absorb the costs and administrative burden of meeting conditions imposed under the general authorisation regime, as long as they are not unduly onerous, we believe that the related costs could constitute a market entry barrier for the kind of small and medium sized businesses that are important for driving innovation in the sector. This seems contrary to the aims of government policy in rolling back regulation and is therefore unwelcome.

3.   General Conditions (Clause 39, Page 36, line 16)

  AOL UK's concerns about the possible expansion of authorisations to electronic communications services generally is reinforced by the fact that many of the conditions that would be imposed via this framework mirror provisions of general consumer protection laws and thus create a sector specific parallel regime. This seems unnecessary in principle, not least given that in a dynamic and competitive market with a wide choice of suppliers, the ultimate sanction against a poor business offering remains the loss of custom. In the ISP market, competitive forces have led AOL, for example, to establish very effective internal customer-protection processes. The Committee should be aware that the costs and administrative burden of such a parallel regime would constitute a significant barrier to market entry to smaller organisations.

4.   Management of the Number Space (Clause 44, page 41, line 43)

  The draft Bill creates a regime for the allocation and management of telephone numbers. OFCOM is required to ensure "best use" is made of numbers "to encourage efficiency and innovation". AOL UK believes that an additional policy aim should be to manage the number space with a view to minimising the costs of routing calls across the telephony network. For example, the cost charged for providing unmetered Internet access is 20 per cent higher than it need have been simply because of the choice of the numbers available for dialling flat-rate ISPs.

5.   Universal Service (Clause 50, page 47, line 27)

  The draft Bill provides that the Secretary of State defines the scope of Universal Service and that OFCOM then administer the provision of this service as well as the organisation of a Universal Service fund to which market players would contribute to cover any costs incurred by the Universal Service provider. This drafting appears to be at odds with existing European legislation, which already defines the services that are part of Universal Service, and provides that any burden should be financed either from the respective government's general expenditure or from a fund.

  No justification is provided for why the UK Government's social policy objectives in the converged communications area should be financed by the UK communications industry—in contrast to the practice for all other aspects of social policy. Additionally we would note that such a proposal could have an adverse effect on new entrants to the market by adding—perhaps significantly—to their operating costs.

  Moreover, EU legislation requires that all services mandated beyond those specified in the EU Directive must be financed from government funds. This is not reflected in the draft Bill.

6.   Significant Market Power Conditions (Clause 63, page 58, line 24)

  The conditions that can be imposed on dominant players in markets that are not effectively competitive are at the heart of the OFCOM's powers with respect to economic regulation. Economic regulation will henceforth be a two stage process:

    (i)  the identification of markets and the designation (if any) of dominant (called "significant market power" or SMP) players within them; and, where dominant players are identified

    (ii)  the imposition of appropriate regulatory safeguards to promote consumer interests.

  Once an operator has been designated as having SMP, OFCOM is then able to impose one or more obligations as appropriate to address the lack of competitiveness in the market and thus promote consumer interests. The Bill seeks to transpose the list of possible obligations set out in the EU legislation, but it has not done so entirely faithfully and this has been at the expense of a number of points that were important parts of the compromise in Brussels. In particular the provisions covering reference to interconnection offers and the application of the non-discrimination principle are not as clear and certain as will be needed.


  AOL UK believes that the draft Bill is an admirably forward-looking piece of legislation and we commend the intentions behind its creation. We support much of what is set out within it and fully endorse the concept of a converged regulator sufficiently empowered to stimulate competition and protect consumers in the digital economy. Additionally we also welcome the policy recognition that self-regulatory schemes are more appropriate for Internet content, and we request that this be reflected in future drafting.

  We would strongly urge that OFCOM's role as economic regulator should be put at the forefront of Parliamentary scrutiny, for without open, transparent and effective competition in the UK telecommunications market it is unlikely that the diversity of digital content and services foreseen by the Bill's creators will emerge to any meaningful extent in the future. We have identified, above, a number of specific concerns about elements of the draft legislation which appear to run counter to the Government's intention to keep regulation to the necessary minimum. We would respectfully request that Members of the Committee examine these areas further.

  We would like to thank the Committee for the opportunity to share our thoughts on the Bill and would be delighted to contribute further if required.

June 2002

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