Select Committee on European Communities Twelfth Report


Letter from Lord Tordoff, Chairman of the Committee, to Ian Taylor, MBE, MP, Parliamentary Under-Secretary of State for Science and Technology, Department of Trade and Industry

11442/96 - Proposal for a Directive on the application of Open Network Provision (ONP) to voice telephony and on universal service for telecommunications in a competitive environment   

The above proposal has been the subject of recent scrutiny by Sub-Committee B. Mr Julian Farrell of your Department and Mr Andrew Tarrant of OFTEL attended the Sub-Committee's meeting on 30 January to brief the Sub-Committee on the proposal and offer a response to some of the points made by British Telecommunications plc in a memorandum it had submitted, and we are grateful to them for the assistance they provided.

  According to BT, it was essential that regulatory processes and structures were reformed and streamlined at Community level with only limited national variations. Further fragmentation into national markets, they claimed, would be to the detriment of customers and UK industry. BT was also concerned that the regulations applicable after 1998 to operators deemed to have "significant market power" were not sufficiently different from those applied at an earlier stage of liberalisation to operators with special or exclusive rights. In a competitive market such as the UK's, BT claimed, specific regulation should be required only exceptionally and should, contrary to the view expressed in your EM of 11 December, apply to all operators and not just to some.

  The Sub-Committee was not, however, convinced by these arguments. It agreed with your Department that large and powerful operators such as BT should continue to be subject to a substantial degree of regulation to prevent abuses of their dominant position. The extension of such regulation to all operators, however, would be unnecessary and would represent a considerable barrier to entry to the market. As a prospective new entrant to other Member State markets, BT itself has an interest in ensuring that barriers to entry are not too high.

  For these reasons, the Sub-Committee endorsed the position set out in your EM and agreed to lift the scrutiny reserve on this document. I would be grateful if you would let me know in due course the outcome of negotiations on this proposal.

10 February 1997

Letter from John W Butler, Director Regulatory Affairs, BT, to Lord Tordoff, Chairman of the Committee

  Thank you for copying your letter addressed to Ian Taylor of 10 February 1997 to BT. We are grateful to the Sub-Committee for considering our written comments and note that both the DTI and OFTEL were asked to comment on our paper during the meeting on 30 January. I would like to offer a few further thoughts in the light of the Committee's conclusions following that meeting, since there appears to have been some misunderstanding about BT's position.

  BT starts from a belief, which we understand is shared by both the DTI and OFTEL, that the UK telecommunications market is now not only arguably the most open in the world but it is also highly competitive. We believe there is a shared objective to remove unnecessary regulation and to use the extent to which competitive pressures exist in particular markets as the yardstick for deciding when the rules can be relaxed.

  Given this background we are surprised that the Committee concluded that "It agreed with your Department [the DTI] that . . . BT should continue to be subject to a substantial degree of regulation to prevent abuse of their dominant position". We would be surprised if this was indeed the view of either the DTI or OFTEL, since their policy is one of deregulation.

  As noted in our paper, the UK is moving towards using normal competition law principles rather than sector-specific regulation in recognition of the competitive nature of UK markets. It is the extent and maturity of competition that distinguishes the UK market from markets in other European countries.

  There may also have been some confusion about what it was that BT was advocating. We were not suggesting that a substantial degree of regulation should be applied to all operators. Moreover, we also agree that more regulation to ensure fair competition should be applied to those operators with significant market power than to others. However, we do believe that this should be reduced as competition develops. We believe that competition is delivering huge benefits to all customers already, sufficient to allow the level and complexity of regulation in the UK to be reduced. However, much of the Voice Telephony Directive is concerned not with competition issues but with general rules relating to matters such as the publication of price and service details, quality of service, lead times for connection and fault repair and so on. We do not consider that such requirements are needed at all in a competitive market, but if they are to be applied then it must be in the interests of customers for them to apply to all operators.

  Of course, the Sub-Committee is right to say that as a prospective new entrant in other Member State markets, BT has an interest in ensuring that barriers to entry are not too high. However, we do not believe that customer protection measures such as these would constitute a barrier to entry to the market. We would certainly expect to have to achieve high quality of service levels wherever we operate.

  I hope you will find these few comments useful and would be delighted to provide additional explanation of our views if that would be helpful.

10 March 1997

Letter from Ian Taylor, MBE, MP, Parliamentary Under Secretary of State for Science and Technology, Department of Trade and Industry, to Lord Tordoff, Chairman of the Committee

  The proposal for a Directive on the application of ONP to voice telephony in a competitive environment was the subject of Explanatory Memoranda (11442/96), submitted on 11 December 1996. Your Committee referred it to Sub-Committee B which subsequently cleared it by letter dated 10 February 1997. The Commons Committee considered it to be politically important, but not for debate (9th Report, Session 1996-97).

  In your letter of 10 February, you asked to be informed of the outcome of negotiations on the proposal. I am writing now to inform you that political agreement to adoption of a Common Position was reached at the 6 March Telecommunications Council. In my Explanatory Memorandum of 11 December 1996, I expressed some concern that some of the provisions in the Directive were over-regulatory. The text on which political agreement to a common position was reached is now considerably improved in comparison with the Commission's original proposal in this respect. In particular, the more detailed provisions concerning Connection of terminal equipment and use of the network (Article 9), Contracts (Article 10); Conditions of access and use and essential requirements (Article 13) have been slimmed down. There is also some scope for National Regulatory Authorities (NRAs) to disapply certain provisions of the Directive once competition is delivering equivalent results concerning tariff principles (Article 17) and itemised billing, tone dialling and selective call barring (Article 14). The more onerous provisions in the rest of the Directive apply only to operators with significant market power (at least 25 per cent of the relevant market).

18 March 1997

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