Examination of Witnesses (Questions 220-239)|
MONDAY 10 JUNE 2002
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
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 sayand my friends
from Telewest may wish to augment thisthat 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
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 monopolyyou have
all identified the monopoly and are pretty powerfully critical
of the BT monopolywhere 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 sayingand
Malcolm may well wish to chip inis 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.
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 usand this was the point that we were
making in our submissionthat 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
(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
229. We must be choosing him or her?
(Mr Carter) Absolutely.
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 welland 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 constraintis
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.
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
(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.
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 sayingI am not
going to put words into your mouthare 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
(Mr Carter) If I understand your question correctlyand
my colleagues from Telewest may have a different viewwe
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 accessto take that as an exampleis 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.
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.
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