Joint Committee on the Draft Communications Bill Minutes of Evidence

Examination of Witnesses (Questions 244-259)



  Chairman: Can I apologise for the delay. We shall kick off with the general duties of OFCOM.

Lord McNally

  244. You are probably the most competitive group that we will see—Orange, Vodafone, T-Mobile, O2 and Hutchison 3G. Can I put it to you, as I did before, are you just champing at the bit ready to start competing under this new regime? Does it look good for you?

  (Mr Dunn) I do not think we are champing at the bit. I think we are already deep in the middle of very intense competition. I think the new regime to us is disappointing, because it is more of the same. Our industry has shown that it is highly competitive. It has been practically the major success of the liberalisation of telecoms in this country, and I think that needs to be recognised by less regulation, not a slide into more regulation, which is what we have been experiencing. I do not think the Bill addresses our concern in that area.

  245. In some ways, then, you are echoing the last evidence that the Bill has set ambitious aims for television and radio, but is being less ambitious in promoting genuine competition in telecoms. Is that fair?
  (Mr Dunn) I think that is fair and I think that is what we believe. We believe that that can be resolved, in our view, by simplifying and clarifying the primary duties of OFCOM to come. We think that there should be two primary duties only, which are set out in our paper. The first of those, with regard to economic regulation, should be that the primary duty should be to promote the interests of the consumer through competition.

Mr Grogan

  246. I think you are taking a very different approach to the previous evidence we have just heard tonight. You probably would know the difference between light touch and appropriate and so on. For example, in your recommendation number five you say that the light touch regulation should be strengthened in various ways. Could you expand upon that? Presumably the last thing you would want is additional duties on OFCOM, to promote, for example, broadband and so on. You would see that as unnecessary, would you?
  (Mr Dunn) Perhaps I could stop and say that we are going to farm the questions out between us, and that actually for Vodafone it is Rob Borthwick rather than Richard Feasey.
  (Mr Borthwick) On light touch regulation, I think we would say that for sector-specific interventions light touch means minimalist, justified by regulatory assessment, so showing as a substantial net benefit will be effective as rights of appeal. So we would say that light touch was not the same, for example, as appropriate; we see it much more in terms of minimalist and the substantial justification for that.

  247. You mentioned the rights of appeal. Are you content with the Bill's position regarding that?
  (Mr Lijnkamp) Yes indeed, we are, the merits of the case being that to produce the grounds for the appeal is a very important step forward. We congratulate the Bill on making that change.


  248. Are you reasonably happy with the Bill's provisions regarding appeals against OFCOM decisions?
  (Mr Lijnkamp) Yes.

Lord Crickhowell

  249. I would like to ask you about cost, but I think I am going to assume that as you want light touch you want it to be cheap as well. I suppose the question I am asking is, have you reason to fear that the new regulator will not, in an area where there is clearly going to be competition, go for a light touch? Is there any evidence that you need the specific requirements that you are asking us to include, to compel a light touch? Will you not be so busy dealing with the obvious monopoly of areas elsewhere that he will actually be quite glad to have an area where he can relax on? As you indicate, the EU Regulation to which the Bill anyway has to comply, does put competition as a priority, so do you need to specify this? What is your reason for thinking that you have to go for specific adequate protection? Why do you think it is not going to go down the light touch route?
  (Mr Dunn) This is primarily from our current experience, I have to say. In the current Telecoms Act, in terms of the duties of the regulator, there is a number of them, and that is replicated, in fact increased, by the new Communications Bill. There is a very large number of duties. There is no single primary duty. That means that the regulator faces a number of different draws on his attention, if you like. The risk is that we shall see what we have seen now, which is that where there is a complaint, even where there is not a position of dominance or of market power, the regulator feels compelled to look to one of those duties as a reason to take an interest, to act maybe. The risk really is that the focus is drawn away from those areas where the regulator really should be concentrating his attention, and becomes dispersed amongst a whole different area of activities which do not actually warrant regulation under any general process of competition law.

  250. If, out of all those things that you recommend in your evidence, there was one above others that you think made a difference, that you would like to see in the Bill, would you say which one it is?
  (Mr Dunn) It is the first one, the primary duty with regards to economic regulation.

Anne Picking

  251. My question is still about the Consumer Panel. Do you welcome it? Do you think it will be meaningful? Should it be meaningful?
  (Mr Brown) It is something we do welcome. We are quite relaxed about it. Five years ago we had our own Consumer Panel of seven million customers. Now we have 45 million. We have to respond to their concerns and meet their demands. Yes, we look forward to it. Our only concern is that it might be used as an opportunity to add traditional regulation over and above general horizontal consumer protection regulation that affects the whole industry.

  252. How would you like to overcome that?
  (Mr Brown) I think that would be easily answered by adopting our initial proposal about having competition law as the primary vehicle for intervention.

Mr Lansley

  253. You are not proposing that the sector-specific powers, particularly the significant market power conditions, should not be there, since clearly the EU Directive requires them to be there, apart from anything else, and probably any practical assessment of the market at the moment suggests that they could not be done away with for some time to come. So given that that is the case, I am not sure I quite understand why you go on in your evidence to suggest to us that fines for economic infringement should be limited to the use of Competition Act powers or competition legislation powers. Surely some form of enforcement and, if necessary, deterrent needs to be applied to the use of significant market power conditions?
  (Mr Borthwick) I suppose our concern about the fines—and we do not want to overstate this—is that at the moment in the telecoms area where we have licences there are no specific fines for inadvertent contraventions of your licence. We are concerned that a general fining power associated with third party rights to take action might act against innovation in the part of the market in which we happen to be. We would say that regulation in general should be moving towards competition-based approaches and when we look at other sectors of the economy such as high tech sectors, for example software, we would ask would you introduce a generalised fining power in these other sectors where you are seeking to promote innovation and we think the answer is no. We see generalised fining as a bit of levelling up of regulation from some parts of the communications sector across the sector.

  254. How would you propose there should be a sufficient deterrent against a breach of conditions?
  (Mr Borthwick) For example, at the moment there is a requirement in our licences to take corrective action. I suppose fining might be appropriate if you had repeated and substantial breaches, but I guess we are concerned that in this case OFCOM will be setting down the rules against which we operate in a telecoms environment as a general authorisation and fining us if we breach them and we are concerned about that combination.
  (Mr Dunn) If we are looking at light touch regulation, the fines that are being proposed in the draft OFCOM Bill now would be easier to use than the Competition Act fines and we do not see the justification for that here in this sector where there is not a breach of competition law.

  255. Can I be sure that when you are thinking about the use of competition powers in this context as preferable to ex ante regulation that you are thinking not only about the Competition Act but also the Enterprise Bill and Enterprise Act as it would become. If I were to be devil's advocate in this respect it might be that you do not like the way the licence conditions work at the moment because it has given rise to the investigation into termination charges and its impact on you, and the assumption might be that collective dominance (as we have seen in the recent Commission cases) is not going to extend to the four operators with the market shares of the kind that you have at the moment, but market investigations under the Enterprise Act, when it comes along, could have exactly that kind of investigation parallel to the kind conducted under your licence conditions at the moment, and you are more content to go through a market investigation by the Competition Commission under the Enterprise Act when it becomes law than to have the current situation as it is applied.
  (Mr Dunn) We understand exactly your point and we look at it in a slightly different way. We say if the powers exist under competition law why do you need sector specific regulations to mirror those powers? There is no need for it and we do not think we should be treated in that respect (where there is not a breach of competition law or an abuse of dominance) any different to any other sector of the economy.

  256. I only asked the question because I wanted to understand. Competition powers are not necessarily light touch regulation. It can lead to some very powerful regulation indeed against broader competition conditions rather than narrow sector conditions.
  (Mr Dunn) Indeed.

  Chairman: I am afraid you have got ten minutes to think about that question.

  The Committee suspended from 20.29- 20.36 for a division in the House.

  Chairman: Again I apologise.

  Baroness Cohen of Pimlico: Before I ask any questions I must declare that my eldest son is operating a sales department for Orange in Münster where he lives.

  Chairman: You cannot ask any questions.

Baroness Cohen of Pimlico

  257. Not even about the Internet? I address this question generally because we are trying to remember to ask everybody. The Government say they do not intend to regulate Internet content but we do fear occasionally that the Bill as drafted takes off in this direction. Are you concerned about this?
  (Mr Borthwick) We would agree with the Government's approach that it is inappropriate to attempt to regulate Internet content. Nevertheless, I think it is also correct that there are public policy issues which do arise around certain types of Internet content. We from the mobile industry recognise that as we go forward and develop new services there will be increasingly environmental elements to these services and that will give rise to an element of concern about the content, particularly concern about the content if it involves children's use of mobile phones. We see going forward a continued need for self-regulation in the mobile space. We have worked with organisations such as ICTISIS, the premium rate regulator, and also with the Internet Watch Foundation. We see a continuing need for an element of self-regulation in the content space. We would not agree with an intense formal regulatory mechanism or environment but that is not what the Bill imposes.

Paul Farrelly

  258. I was going to ask questions about broadband but I think the vibes we are getting is that you do not really want OFCOM to get involved in this as a primary duty and it would be let the market decide at the end of the day. If you want to talk about broadband please do. What I was going to ask you is really it would be very helpful to this Committee to hear from you how you expect as far as possible your industry to develop over the next five to ten years. In what respects, if any, is this draft Bill deficient? As you see it, is it (in the jargon) future-proofed?
  (Mr Borthwick) I will not talk specifically about broadband but I will say that the present established players in the mobile industry have competed extremely hard on coverage. Coverage quality is the principal non-price area of concern to consumers. With that competition in coverage we now have mobile access to 98 per cent of homes in the United Kingdom in terms of population covered. We believe that for the same four players and the additional player that is soon to enter there is the scope to give rise to the same dynamic in terms of competing on service coverage as existed in 2G in the 3G market. Not in terms of talking about broadband but in terms of talking about new services, including new 3G services, we believe there will be competition in coverage terms and that will give rise to a beneficial public policy. In terms of the direction of the Bill and in terms of future-proofing, I guess what we would say is that the Government talks about moving towards a competition-based approach and that is generally accepted as being the framework within which the Bill has been constructed with some additions from Brussels. We would look to have a clear encapsulation of that in the Bill. The other thing we would say is we believe that light touch regulation should run through the Bill almost like letters on a stick of rock and light touch that is what we are looking for. That is what we believe will give rise to an innovative regime in the future.

Lord McNally

  259. I read somewhere recently that a quite significant percentage of the population now use only mobiles for telephone communication. Is that a trend that you anticipate continuing and how will it change the dynamics of the telecoms industry? We have heard about BT dominance but with you guys competing like mad and with more people finding the mobile with its wide variety of increased facilities the equipment of choice, is that going to change the industry significantly?
  (Mr Dunn) I think it will slowly. The latest figures about the number of people totally reliant on the mobile for communications is six per cent and that has grown quite a lot in the past couple of years. On top of that if you break down the services people use communications for—we certainly see mobile becoming the dominant medium for personal voice communication in the future. For low rate data—text messaging, which has taken off remarkably—mobile is probably going to play a much bigger part, especially with the benefits of the personal services you can obtain through mobile. With regards high rate data, fixed is always going to have an advantage over mobile for that. I think we will see mobile data used in quite different ways to fixed data.
  (Mr Rumbelow) Our view of 3G is very much as an investor into the United Kingdom we learned the experience through introducing 2G initially and our investment into 3G here is taking what we have learned from that and taking mobile data to a new way, and that is we see people using this as a "snacking" mechanism and getting data on the move for a specific purpose, for a specific reason—maybe in terms of location of services, maybe in terms of news, maybe in terms of sport, with some very personalised services they will take with them wherever they wish to go. The investment that the industry has made historically, particularly in the infrastructure and the way that has developed particularly over the last eight to ten years, shows that there is a commitment by the industry to making that happen for 3G services as well. Therefore there is a real opportunity for broadband to be seen as a mobile service and that would be an extensive way in which we would be able to continue the success which mobile has had here in the United Kingdom in the way we have 45 million customers and way the usage has gone over the last few years.

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