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Lord Inglewood: I am grateful to those noble Lords who have spoken for spelling out a number of most important points. I can assure the Committee that we always listen to the points that are made. With apologies to the Committee, I shall take a little time to explain the Government's position. I hope noble Lords will then feel that their points have been covered and that the position the Government have taken is the right one in the particular circumstances.

Perhaps I may begin by touching on the final point made by the noble Lord, Lord Donoughue, in his opening remarks. He is quite right in respect of the possible problems where one has a physical link, as in the cable system, between the conditional access and the transmission system. We on this side of the Committee are pleased that those on the Benches opposite entirely concur with us on the potential mischief that would arise were the state of affairs the noble Lord described to take place.

What we are talking about here is the matter of the market for conditional access and the way in which this might be regulated in the public interest. As has been explained, conditional access services are the means by which a broadcaster or multiplexer may ensure that only

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those who have a valid contract with them may receive and view their commercial programme offerings and that they get paid. We are at one with them in the generality of their concerns. These services are the "gate" through which programmes reach the consumer. As a result those who control that gate exercise significant power. The potential for anti-competitive behaviour or for abuse of a dominant position therefore demands regulation to ensure that the market for digital television services can both develop and operate fairly and effectively in the national interest.

That is why, on 15th January this year, the Government published proposals for the regulation of conditional access services for digital television. I should explain that the Government's proposals do not appear in the Bill only for the simple reason that they can be implemented under existing legislation. They provide a comprehensive and flexible approach for dealing with this problem, and fulfil our obligations under the European Directive on Television Standards, which impose a specific set of legally binding obligations which we must transpose into domestic law.

After careful consideration, and after extensive consultation between the Department of Trade and Industry, which published the proposals, my own department, Oftel and the ITC, the Government concluded that the DTI should issue, and Oftel should enforce, licences for digital conditional access services which, inter alia, will stipulate that the services system must provide fair, reasonable and non-discriminatory access to potential users. That is spelt out in terms in Article 4 of the television standards directive.

The ITC will be closely consulted on both the issue of licences and their enforcement. Both the DTI and Oftel have given clear commitments on this. The Government remain of the view that this arrangement will serve the interests of the developing market best, ensuring the greatest degree of certainty and consistency.

The amendments we have been considering, with the exception of Amendment No. 187, envisage regulation via the ITC. But all conditional access services already require a licence under the terms of the Telecommunications Act 1984. They are therefore already subject to regulation by the Office of Telecommunications, Oftel, on the core issues addressed by the amendments. The Government's proposals are therefore limited to amending the conditions which the relevant Telecommunications Act licences would include. As the amendments before us now show, the powers of the ITC require extension to deal with conditional access--a step which would place operators under the risk of regulatory double jeopardy.

The core activity of Oftel is the economic regulation of telecommunications. Conditional access systems are telecommunications systems being concerned with controlling the transmission and receipt of signals. Oftel has a long and, as I hope noble Lords on all sides will agree, effective track record in dealing with anti-competitive behaviour in markets where a small number of operators may occupy dominant positions.

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The director-general exercises powers to enforce licence conditions and to regulate potential anti-competitive behaviour. He also has powers to exercise functions over the Director-General of Fair Trading as they would apply to this area. That is not to say that the ITC will not have a vital role in the area of conditional access which, after all, might, in the digital future, have a significant bearing on the content of broadcast services. It is for this very reason that our own proposals require the ITC to be so closely consulted. The draft code of conduct which the ITC recently issued was a very important contribution to the discussion which led to the Government's proposals. It is also a very important contribution to the creation of a detailed regulatory regime.

It is worth noting that Oftel and the ITC already co-operate in the licensing of broadcasters. Our proposals for further co-operation on conditional access do not in any way affect the powers of the ITC proposed in this Bill or which already exist.

I turn now to the detail of the amendments that we are discussing. As has already been said, it is clear that we share a common purpose in seeking to regulate conditional access although I believe that the Government's proposals provide a more comprehensive framework containing more effective safeguards for providers and consumers, while providing greater clarity for those being regulated. For example, Members of the Committee opposite require all service providers, with the exception of existing cable operators, to apply for an individual licence. It seems to us that this would be an unnecessarily bureaucratic process because they will not be competing against others for the licence as would be the case, for example, for a broadcasting licence and this licence has no bearing on the supply of content.

Members of the Committee will know that I, in common with the rest of the Government, approach this matter from a deregulatory standpoint. We must ask whether each new regulatory provision is justified. In the case of conditional access services for digital television, we have decided that regulation is necessary, but the additional burdens of the licensing regime proposed by the noble Lords cannot, it seems to me, be justified in terms of achieving necessary and effective protection beyond that inherent in a system of general licences.

The Government's proposals cover all that is necessary to support effective competition and to guard against the abuse of any dominant position. This would include controls to prevent excessive pricing, unreasonable contract terms, undue preference for, or discrimination against, particular supplies and making service conditional on the use of particular transmission facilities: in fact all the issues, and more, covered by these amendments. These conditions would be applied automatically to all operators through two-class licences. The Director-General of Oftel would, however, then be able to require an operator to apply for an individual licence if he breached those conditions, behaved anti-competitively or abused a dominant position. That means that the regulatory burdens fall where regulatory attention is needed and avoids the onerous requirements that would be imposed on all

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licensees, large and small, by this group of amendments. After all, we do not want to discourage new entrants to this market by subjecting them to inherently unnecessary administrative bureaucracy.

The powers of enforcement available to the Director-General of Telecommunications are very wide. He can enforce licence conditions by arbitrating in cases of disagreement; for example, where two operators fail to agree terms for service provision, by issuing orders for compliance. Where orders have been issued he can seek injunctions against non-compliance or anti-competitive behaviour and, ultimately, revoke licences. Further, any third-party affected by non-compliant or anti-competitive behaviour can seek damages for the full amount of any loss suffered as a result. This protects their interest in a way which is much more effective than a straightforward fine on the transgressor, or a two-year revocation, as proposed in these amendments.

I would now like to turn to the question of analogue conditional access. We differ from the noble Lords opposite on whether conditional access services for existing analogue television should be regulated under a special regime, as advocated by this group of amendments. The Government have considered this question carefully, and have reached the conclusion that it is unnecessary for reasons that I shall now explain.

First, it is clear that the conditional access to analogue systems is a transitional and temporary matter. We may argue about the exact time-frame, but this Bill is concerned with the development of digital services in terrestrial television and about digital broadcasting via other delivery systems. I see little value in introducing specific additional regulation into a developed sector of the market which is going to decline rather than increase in significance, beyond the existing comprehensive and effective provisions of general competition law. And let us not forget that now only about 20 per cent. of households have access to analogue pay-TV, for cable and/or satellite. That figure will be much greater for digital, which will allow terrestrial pay-TV for the first time and simultaneously, and yet quite independently, will vastly increase the number of channels available via cable and satellite.

Secondly, we have a widely recognised reputation for regulatory stability. This has allowed us in the UK to sustain a high degree of investor confidence with remarkable consequences. Let us be under no illusion: the building of cable networks, providing sustainable competition to the dominant telecommunications operators, is a long-term, high-risk project--one which investors assess with care and caution. Yet the consistency we have given to reasonable, responsible and effective regulatory stability for the cable companies has led to over £10 billion being invested in this technology and in the future in the UK during this decade. The investment in 1994, for example, was more than double that in the entire period from 1986 to 1991, which is the year in which we announced our cable policy. The development of digital services is just as long-term and high-risk a project as the building of cable resources. A sudden shift in the system of regulating an established market with limited shelf-life, already subject to effective regulation under competition

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policy, would undoubtedly damage investor confidence in opportunities for digital terrestrial. And as is generally recognised, investor confidence, or the lack of it, will be the crucial pre-condition for the success or failure of digital terrestrial television in this country.

Thirdly, of course, specific intervention in established markets is justified in some circumstances, but the Government believe that general competition law provides all the necessary protection in this case to deal firmly with any problems which might remain in the transitional period. The Committee will be aware that the Director-General of Fair Trading is currently active in this field. He is undertaking a review of BSkyB's arrangements for the wholesale supply of programming.

The domestic regulation of conditional access in the analogue environment is covered under existing general competition law. It is the Government's view that the remedies available are sufficient to deal with the present transitional situation. In order to illustrate the point I will spell out the action which can be taken.

The Director-General of Fair Trading has a general duty to monitor markets to ensure that they operate in a competitive manner. As the Committee is aware, the Director-General of Fair Trading is presently carrying out a review of BSkyB's position in the wholesale market for the supply of programming to cable companies, following complaints from within that industry. This will specifically cover related services such as access to encryption, subscriber management and transponders. His review is due to be completed in May this year, after which he will decide if further action is necessary.

The Director-General of Fair Trading can make inquiries into a monopoly situation, which can lead him to accept undertakings from a monopoly or to refer the matter to the Monopoly and Mergers Commission. If it finds the case to operate against the public interest this may then require the Director-General of Fair Trading to seek and then monitor suitable behavioural undertakings. The Secretary of State may also choose to make an order.

Under the Competition Act 1980, inquiries into anti-competitive practices are also possible, which will usually be referred to the Monopolies and Mergers Commission if suitable undertakings are not forthcoming, following the Director-General of Fair Trading's initial inquiry into the specific practices complained about.

In addition, he has a duty to examine agreements between persons and companies under the Restrictive Trade Practices Act 1976. As we have seen this week in respect of the agreements for televising Premier League football matches, he can decide that such agreements contain significant restrictions on competition and refer the matter to the Restrictive Practices Court. The RPC will then decide whether such agreements are against the public interest and may order the parties involved not to enforce the restrictions of the agreement.

No competition system is infallible. However, this is a Bill dealing with the future, which is digital conditional access, rather than the past. The

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Government are committed to a vigorous response to proven anti-competitive activity in this area, as in others. It is also a Government committed to deregulation. I therefore suggest to the Committee that extending the Bill to analogue conditional access regulation would impose unnecessary regulatory burdens which we can all do without.

For the reasons I have explained, I hope that it is now clear that we share common cause on the broad purpose of these amendments. But I also hope that the Committee will understand the reasons why we have chosen to go in a certain direction.

Perhaps I may revert to the opening remarks of the noble Lord, Lord Thomson, about riding two horses. In this instance it is true that the Government are riding two horses, but they are both good runners. We do not see the need to pull one up and substitute another for it. I hope that that explains our position.

4.15 p.m.

Lord Thomson of Monifieth: I am grateful, as I am sure are other Members of the Committee, for the very great care and clarity with which the Minister has explained the background to these issues. I believe it is the general feeling as regards conditional access as it relates to future digital broadcasting between the ITC, DTI and Oftel as rival regulators, that there is in many ways a nicely balanced case. I am sure that the ITC will want to study closely what the noble Lord said. Although I was not wholly convinced by it, as the noble Lord, Lord Chalfont, said, it is not something over which any of us would want to die in the last ditch or even go into the Division Lobbies.

I was a great deal less convinced by what the Minister said about the view that we expressed, that the conditional access regulation system that is proposed for digital in the future should be applied to analogue satellite broadcasting now. I am bound to tell the Minister that I think that he will find that in the broadcasting world, where there are so many enterprising and conflicting interests, there will be a good deal of dissent from his view that the present system is working not too badly. It is a highly monopolistic system in which there is the coming together of two near-monopolies, the satellite programme-providing monopoly on the one side and the subscription regulation monopoly through conditional access on the other. I stick to my point of view which is that, as a general principle, the right way to deal with such a situation in the public interest is to reinforce the normal operations of competition law on which the Minister laid such great emphasis by a licensing system such as is proposed for digital when it comes along.

I was astonished that the Minister seemed to suggest that the present satellite broadcasting system, with its associated subscription machinery, was a short-term and temporary phase. The Bill deals with the next century in terms of new digital broadcasting and it would be a rash person who would forecast with any certainty exactly what that future will be. On Second Reading, I referred to the fact that the noble Earl, Lord Ferrers, had been mistaken in his forecasts about the way in

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which subscription satellite broadcasting would operate. The noble Earl had thought that it would be on an entirely pay-per-view system and that ordinary general subscription would not pay its way. That was an entirely mistaken forecast. I freely acknowledge that even with my interest in broadcasting I have been so frequently wrong in my forecasts that I have now stopped gazing into the crystal ball.

I find extraordinary the Minister's view that this is a short-term and temporary proposition, especially on the very day when BSkyB has announced a big increase in its operating profits and is bidding to take ITN's place in terms of independent television. It is extraordinary that the Minister discards our view about having some sort of system for analogue satellite on the basis that it is a temporary phenomenon on the part of BSkyB and satellite broadcasting.

I do not want to take up any more of the Committee's time on this, but I profoundly hope that in tabling other amendments we have not in any way shot the fox of the noble Viscount, Lord Astor, on Amendment No. 187. As the Minister continued with his totally unconvincing case in regard to his rejection of some form of licensing for analogue satellite, I began to feel that I had been not merely a little lazy, but extraordinarily prescient, in putting my name to the noble Viscount's amendment so that we can return to this specific issue in some detail a little later in our Committee proceedings. I hope that by that time the Minister will have had some second thoughts about his extraordinarily complacent view about the present satellite broadcasting situation being a short-term and temporary phenomenon.

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