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
(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
usand indeed Patricia Hodgson last week reflected this
viewthat 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
(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 partycomplainant
if you likecould very well come to us or to a concurrent
regulator where that was appropriate under the Competition Act,
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 itit
is not that a different answer depends on who is applying the
Actand 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 Actto focus on
that part of the questionapplies 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.
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.
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 areasI
am thinking for example of newspaper mergers and perhaps we will
come to thatwhere 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 situationand it might be a little
fanciful but it could happenwe 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.
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 earlierand
one can imaginethe 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.