Memorandum submitted by Intellect |
1. Intellect is the new association representing
the information technology, telecommunications and electronics
industries in the UK formed through the merger of the CSSAand
Intellect represents over 1,000 members including the major manufacturers
of both business and consumer electronic equipment, semi-conductors
and electrical component suppliers and software companies and
a broad range of operators and service providers. Intellect is
committed to improving the environment in which our members do
business, promoting their interests and providing them with high
2. The purpose of this draft bill is to
establish a new policy framework appropriate to the needs of a
dynamic, converging, high bandwidth communications sector. Industry
has urged government to avoid being too prescriptive when seeking
to legislate for this fast moving sector. We therefore welcome
the flexible regulatory approach set out in the draft bill, but
note that this flexibility comes at a cost of increased regulatory
uncertainty for business. Ultimately, the success of this legislation
will depend upon the way in which OFCOM and the Secretary of State
interpret and exercise the flexible powers set out in this draft
bill. Careful consideration must therefore be given to the way
in which OFCOM's objectives are prioritised and to the checks
and balances that are built into the processes it follows in carrying
out its duties.
3. The importance of the communications
sector to the UK economy has been well documented and the government
has set ambitious targets for the UK to be a world leader in broadband,
digital television, e-business and the knowledge economy in the
course of this decade. These targets are a major challenge for
OFCOM and the proposed new regulatory framework. In particular
OFCOM will need to ensure that the UK is able to attract significant
levels of sustained capital investment in infrastructure and services
if the UK is to have "the most dynamic and competitive communications
industry in the world".
4. The challenge set to OFCOM to regulate
a diverse and dynamic sector for a variety of political, economic
and societal objectives should not be underestimated. The OFCOM
board will have to master a wide range of issues and at times
will have to strike a delicate balance between conflicting objectives
and interests. The decisions taken by OFCOM will have an impact
throughout an increasingly complex value chain. OFCOM will need
to have a clear understanding of the impact of its decisions on
all the elements of the value chain and will need to be comprised
of people of the highest calibre. Effective implementation of
the "Good Regulatory Principles" set out by the Better
Regulation Task Force will be essential.
5. As mentioned above, there will be instances
where OFCOM will have to strike a balance between conflicting
policy objectives and it is therefore vital that those objectives
are properly articulated in the Bill. Given that OFCOM will play
a pivotal role in delivering the government's objectives, in particular
relating to broadband and digital switchover it is a concern that
more prominence is not given in the draft bill to the need to
create a regulatory environment that encourages long term sustained
investment and innovation in communications networks, services
content and applications.
6. We are concerned that more prominence
be given to this objective in the General Duties set out in Part
One Section three of the draft bill. Article 8 of the new EU Framework
Directive requires NRAs to "encourage efficient investment
in infrastructure and promote innovation".
We consider it essential that this provision is given equal weight
with the other general duties of OFCOM and is therefore be made
explicit in Part One Section three.
7. There have been suggestions that a specific
objective for broadband should be written into the bill. Intellect
believes that the deployment and take-up of broadband services
is central to the communications agenda that this bill addresses.
However, we do not believe that direct reference should be made
to broadband in the Bill. Definitions and understanding of broadband
services will change over time as the market and technology develops
and any explicit reference would risk being technology specific
and potentially inhibiting the market.
Regulating for investment and innovation
8. As stated above we welcome the flexible
approach taken in the draft Bill but note that its success will
depend, to a very large extent on the way in which the OFCOM Chairman,
Board, CEO, and staff interpret and exercise the powers and provisions
set out in the Bill. It is essential that senior appointments
including the Chairman, CEO and other OFCOM board members reflect
the right combination of skills and experience from across the
whole communications value chain and that the board is not unbalanced
towards any part of the sector.
9. OFCOM needs to regulate to ensure that
convergence actually happens. This means regulating not only to
ensure effective use of scarce resources such as spectrum and
existing investments in current technologies in the interests
of consumers but also to encourage dynamic market development
(increasing the level of investment and innovation undertaken
by firms) for the benefit of future generations of users and service
providers. Balancing the short-term and long-term interests of
consumers will be a constant challenge for OFCOM.
10. The communications supply chain is becoming
increasingly complex, major players now include internet service
providers, hardware and software companies, independent programme
makers, content developers, and rights holders as well as broadcasters,
and traditional network operators. None of these players can exist
in isolation and it is vital that all players in the value chain
are able to make a sufficient return on their investments to attract
the necessary high level of capital that will be required. OFCOM
must avoid regulation in one part of the chain having unforeseen
effects on other players and creating distortions in other parts
of the market.
11. OFCOM will have to regulate three different
layers of the communications sector for different purposes: (a)
content; (b) transactional aspects; and (c) electronic communications
networks and services. Each must be regulated in the context of
the objectives that apply to that layer. OFCOM must avoid the
use of inappropriate regulation of one layer in order indirectly
address issues in another layer.
Concurrent powers with the OFT
12. Intellect is concerned about the risk
of double jeopardy if there is insufficient coordination between
OFCOM and the OFT. OFCOM's relationship with the other Competition
Authorities needs to be clearly delineated and well understood.
A transparent mechanism should be established to ensure that in
each case where action on anti-competitive grounds is under consideration
a rational choice is made between the use of sectoral regulatory
powers and competition act powers and between action initiated
by OFCOM or the OFT on a basis that is seen to be both reasonable
13. As a consequence of giving concurrent
powers to OFCOM and other regulators, Intellect is concerned that
there is a serious danger, as the need for sector specific regulation
withers away, that we will result with several sector specific
competition bodies rather than one central competition body.
Transparency and consultation
14. There is a real need for effective implementation
of Good Regulatory Principles set out by the Better Regulation
Task Force. The current reference in the draft bill that OFCOM
shall "have regard to" the five principles is too weak.
For example having identified and reviewed regulation deemed an
unnecessary burden, it is not sufficient for OFCOM simply to "have
regard" to removing it. OFCOM should also have to set out
the appropriate remedial action and incorporate this in its work
plan. The reference to the five principles should therefore be
15. It is essential that OFCOM's actions
and decision-making are transparent. In particular it is important
that there are effective and meaningful mechanisms for consultation
if OFCOM is to gain the trust and confidence of the industry.
We believe that current mechanisms, based on written consultations
and submissions are insufficient and recommend that OFCOM should
hold open meetings and public hearings on the model of the US
FCC. This would be particularly beneficial for providing clarity
on the thinking behind OFCOM's decisions when it has had to resolve
16. OFCOM must be fully accountable for
its actions. OFCOM should be required to undertake comprehensive
regulatory impact assessments, which assesses the impact of its
actions on the market as a whole and not just the organisations
targeted for regulation.
17. We also believe that an Economic Advisory
Panel should be created to review OFCOM's regulatory proposals
with a view to assessing the potential for unintended effects
through the supply chain. This would have an advisory role similar
to the Consumer Panel.
18. Although the government has clearly
stated that it does not intend to extend content regulation to
the internet, the draft bill does not preclude such intervention
in the future. The definition of licensable content, the broad
remit of the content board, and the powers of the Secretary of
State to modify these provisions all leave plenty of scope for
the extension of content regulation beyond broadcasting to any
other form of electronic communications ne twork in the future.
19. OFCOM must ensure that European and
International harmonisation of spectrum regulation is one of its
primary objectives. Intellect supports the introduction of spectrum
trading, however, the UK must not become a spectrum island by
allowing changes to the use of spectrum being traded. Seeking
and maintaining harmonisation must be a priority.
20. It is important that the engineering
and technical expertise currently within the Radiocommunications
Agency is retained within OFCOM.
21. The achievement of digital switchover
represents a major spectrum management challenge for OFCOM. Despite
the recent demise of ITV Digital, Intellect continues to believe
that switchover can be achieved by 2010. However, substantial
and radical improvements will be required to the coverage and
quality of digital terrestrial television (DTT) in order for this
to happen. Over inflated expectations about the spectrum dividend
that might be realised when analogue terrestrial television is
switched off could hamper the transition process. It is essential
that sufficient spectrum is made available to allow for efficient
DTT frequency planning and to ensure that DTT operators have sufficient
incentive in extending DTT coverage.
22. From the perspective of Consumer Electronics
manufacturers it is essential that technical standards are open
and non-proprietary in application so that there is complete interoperability
between platforms and between services.
There is a risk that the provision of Broadband
in rural communities will be disadvantaged if the regulatory environment
does not consider their requirements fully.
Broadband Wireless Access (28 GHz) and Fixed
Wireless Access (3.5 GHz and 10 GHz) Operators are not addressing
the residential market and will not find it cost effective to
serve rural communities.
Current Regulatory Environment:
The current regulatory environment in the UK
does not permit commercial services in license-exempt spectrum
(2.4 GHz, 5 GHz).
The Radiocommunications Agency (RA) and the
DTI have carried out two consultations relating to this issue.
The outcome of both consultations is still pending.
1. "Use of Licence-Exempt Spectrum
For Provision of Public Telecommunication Services"RA
2. "Consultation On The Revision Of
The Cordless Class Licence"DTI
A positive outcome is anticipated, possibly
by Summer/Autumn 2002, allowing commercial services in license-exempt
Restrictions after Policy Revision
The draft revised "Cordless Class License"
limits deployment to effectively indoor distribution and is not
intended to allow service outdoors. Each premises require an individual
Cordless Class License and interconnection between sites / premises
using license exempt spectrum is not allowed.
The "Telecommunications Service License"
limits the connection to a maximum of 20 sites (the "20-site
rule"). If more than 20 sites are to be served by a single
Wireless-LAN base-station then the Operator requires a different
license; a PTO license which costs £40K and will take approximately
four months to obtain plus there are additional costs associated
in generating a "business-case".
The regulatory environment after the implementation
of the European Union Communication Directives / Spectrum Decision,
which is expect to occur Autumn 2003, is an unknown quantity.
"Intellect" recommends the Broadband
needs of rural communities be given greater priority and consideration.
The regulatory environment should be sculptured to allow the use
of license-exempt spectrum in the 2.4 GHz and 5 GHz bands without
undue service provision and / or geographical restrictions but
at the same time taking into account any issues relating to unfair
competition with licensed BWA / FWA / 3G Operators.
1 Computing Services and Software Association. Back
Federation of the Electronics Industry. Back
Framework Directive Article 8 2(c) OJ L 108 24.4.2002. Back