Examination of Witnesses (Questions 244-259)|
MONDAY 10 JUNE 2002
Chairman: Can I apologise for the delay. We
shall kick off with the general duties of OFCOM.
244. You are probably the most competitive group
that we will seeOrange, 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.
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,
(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
248. Are you reasonably happy with the Bill's
provisions regarding appeals against OFCOM decisions?
(Mr Lijnkamp) Yes.
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.
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
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.
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
(Mr Borthwick) I suppose our concern about the finesand
we do not want to overstate thisis 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
(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.
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)
(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.
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 forwe certainly see mobile becoming
the dominant medium for personal voice communication in the future.
For low rate datatext messaging, which has taken off remarkablymobile
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
reasonmaybe 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.