Chapter 6: Competition
Ofcom's competition powers
183. Any competition regime must be capable of
keeping pace with a changing competitive landscape. This
is a perennial challenge for competition policy across the board,
but it is especially pronounced in the media sector on account
of the extraordinary technological innovations that have been
witnessed over recent years. In many ways, convergence brings
benefits in terms of potentially enabling more competition to
emerge, more open markets and lower barriers to entry, which should
help innovation and bring better value for consumers. But there
are also risks associated with market concentration and monopoly
power. Moreover, converged markets are much more complex and pose
bigger conundrums to competition authorities than the single media
markets of old. During this inquiry, we heard calls for more effective
"ex ante" (literally—before the event) broadcast-specific
competition powers to be given to Ofcom. In essence, Ofcom's existing
media competition powers, it was argued, should be strengthened
to match its powers in telecoms markets.
184. Ofcom has extensive ex ante powers in relation
to competition in telecoms markets. It also has more limited ex
ante powers in relation to competition in licensed services, though
these are not often used. The latter, specified in Section 316
of the Communications Act 2003, allow Ofcom to impose on licence
holders (i.e. only those that hold broadcast licences) any conditions
that "Ofcom consider appropriate" for securing "fair
and effective competition in the provision of licensed services
or of connected services."[88]
185. Ofcom explained the status quo as follows,
essentially outlining that their powers to intervene in media
content markets are considerably weaker than their powers to intervene
in telecoms markets:
"The ex-ante telecoms competition regime
(determined by EU legislation) requires specified markets to be
reviewed every three years, and requires the regulator to impose
remedies in response to a finding of market power in order to
promote competition …
The ex-ante broadcasting competition regime is
different in many respects. For example, the legislation includes
provision for the regulator to take action when a licence holder
engages in a 'practice' which would be 'prejudicial to fair and
effective competition'"[89]
186. In essence, the ex-ante broadcasting competition
regime does not provide Ofcom with an obligation to conduct a
periodic market review and impose remedies (even if market power
is undisputed) unless a licence holder is thought to be engaging
in practice prejudicial to fair and effective competition. In
telecoms, Ofcom can arguably use its powers to inject competition
into a market—for example by promoting competitive entry (to
counter the bottleneck power of an incumbent). In contrast, ex
post competition powers tend to be more about ensuring that the
process of competition is working effectively and is not distorted
by the actions of one or a group of market players. Ofcom's Section
316 powers arguably do not provide as much scope for promoting
competition (in broadcast markets) as its telecoms powers (in
telecoms markets) do.
187. Evidence to this inquiry has parted on the
question of whether the ex ante regime for telecoms, which seems
to have people's confidence, should be transposed to the broadcasting
regime. Powerful and influential voices were heard on both sides
of the argument. On the one hand, BT, for instance, made the case
for a new model of regulation that applies across media and telecoms:
"BT believes the focus of the next Communications
Act should be to fulfil the promise of the last Communications
Act: to deliver a properly converged regime to reflect the realities
of the converging elements that form today's communications industry.
We believe that to do this requires adopting
measures that ensure the regulation of media sectors is consistent
with the model of regulation applied to the telecommunications
sectors …
To align this [telecoms] regime to the media
sectors would simply involve copying the powers that Ofcom has
for telecommunications and applying them to media: the powers
to define markets, identify market failures (including, but not
limited to, market power), and the design of remedies to promote
effective competition and provide a consistent level of protection
for consumers."[90]
188. On the other hand, as Professor Tommaso
Valletti told us, market power may be transitory rather than persistent
and you should be cautious about being too interventionist ex
ante:
"In the markets, any time there is innovation
… in policy terms you want to be very careful … because
you would expect the new Google, the new innovation, the new thing,
and you prefer to back off and wait for things to happen instead
of being too interventionist ex ante, which is a big risk for
innovation."[91]
189. Some concern has been expressed that ISPs
and bundled service providers may abuse their control of audience's
internet access to their own advantage. Convergence has resulted
in people often buying bundles or a range of services (telephony,
broadband, TV) from the same supplier. While landline and broadband
packages remain the most popular type of bundle, 19% of UK homes
have a triple-play bundle of fixed voice, broadband and multichannel
TV (up 3% on 2011).[92]
190. The reason this is considered an issue arises
from the fact that, even though the triple-play bundle presents
a single proposition to the consumer, its constituent elements
(broadband, telephony, and premium TV content) are regulated in
different ways, and different treatment of competition issues
in the broadcasting and telecoms sectors, it is argued, may risk
distorting competition for retail bundles of services.
191. An additional concern was expressed over
the effectiveness of competition in the market for premium content
(sports and in particular first-window pay TV movies), particularly
as market power here may be used to attract customers to bundled
services where other elements of the bundle are subject to different
competition. Again, some witnesses argued for new powers to be
awarded to Ofcom to investigate and/or intervene in this market.
192. In evidence to us, Ed Richards, CEO, Ofcom,
called for Ofcom to have a general duty to promote competition
across converged media markets in place of their current broadcast-specific
duty under Section 316. Ofcom claims to have experienced problems
with Section 316 due to a lack of clarity in the drafting and
because it applies only to companies which have broadcast licences,
and so misses out many parts of the converging audiovisual sector
(as discussed above):
"Our regulatory duties need to be updated
to cope with convergence. There is no question about that at all
in my mind …
We do not need many new powers. It is not about
a huge swathe of new powers. We need clear powers that are able
to deal with the relevant markets and we do not have that at the
moment, so Section 316, which deals with fair and effective competition,
is just not clear enough and it is not clear enough for us, it
is not clear enough for the companies, it is not clear enough
for anybody. If I had said that to you a year ago, you might have
said, 'Well, maybe he would say that, would he not?' but we have
since had a court case in which a judge has looked at it, and
he described it—in words that I will not be able to remember,
but I will happily send to you—as 'tortuous' and 'capable
of being interpreted in completely different ways by two different
parties', so it just is not clear …
I think we should have a very straightforward
duty to promote effective competition. Then everybody knows where
they stand …
The second to mention is what I call scope, where
it is more detailed, but you need to make sure that the scope
of that duty to promote competition meets the relevant market,
and the relevant market is exactly as you suggested in your question,
the converged markets. The area where people are buying bundles
of telecoms and TV services, pay TV, free TV, upgraded pay TV,
broadband, superfast broadband, telephony. It needs to be able
to cope with that converged market. More and more people are buying
that bundle of products together and the regulatory system must
be able to address that competitive dynamic …"[93]
193. BSkyB have expressed considerable concern
about the change proposed by Ed Richards:
"The change proposed by Ed Richards would
give Ofcom significant new powers to intervene in markets where
it believes that significant market power exists, regardless of
whether it has evidence of abuses of a dominant position or whether
firms have engaged in practices which Ofcom considers are or would
be prejudicial to fair and effective competition …
This would be the application of a form of regulation
that was specifically designed for the telecoms sector, which
is typified by dominance by former state monopolies, slow or no
innovation, high barriers to entry and, importantly, slow growth.
The UK broadcasting sector shows none of those characteristics.
In fact it evidentially delivers excellent outcomes for UK consumers,
is growing strongly, providing funds for rapidly growing investment
in high quality original UK television programmes, and resulting
in the creation of new jobs at a time of significant economic
difficulty …
Providing Ofcom with the additional powers that
it seeks to intervene in the sector is unnecessary and risks having
a significant negative impact at a time when UK media companies
face substantial threats from global competitors."[94]
194. We have not had the time to carry out a
comprehensive review of broadcasting competition powers (which
would be a lengthy undertaking). Nevertheless, it is clear to
us that Section 316 of the Communications Act as currently drafted
is flawed, and hence requires either clarification or modification
in any new communications Bill. In particular, we think that the
following issues should be considered:
· the scope of Ofcom's media-specific competition
powers—should they apply only to broadcast licensees, or
more widely as Ofcom has suggested?
· the nature of those powers—the extent
to which they should be extended to the promotion of competition;
· when those powers can be used—in
particular, can greater certainty be given to the sector by making
it clearer when Ofcom can (and cannot) use ex ante powers of this
nature?
195. While not reaching a view on the answers
to these questions, we note that if Ofcom's competition powers
are extended in any way, such an extension should be accompanied
by a clear and high hurdle before they can be used, possibly along
the lines of the approach taken by the European Commission in
establishing criteria for the use of ex ante powers in telecommunications
markets. Following this approach, the use of ex ante powers would
be justified only in markets:
· Characterised by high and non-transitory
barriers to entry;
· Where market structure does not tend over
time towards effective competition;
· Where competition law by itself is not
sufficient to deal with market failures identified.[95]
196. Adopting this sort of language in a revised
Communications Bill would arguably offer greater clarity and certainty
to the industry than is currently the case with Section 316, and
safeguard against Ofcom using ex ante powers excessively and without
proper justification.
197. We recommend that Government should,
in the forthcoming White Paper and communications Bill, consider
clarification of Ofcom's existing ex ante competition powers for
the audiovisual sector. The aim of such clarification should be
to enable Ofcom to take effective action where necessary, but
also to ensure a high hurdle before an ex ante approach can be
adopted.
BBC's economic impact
198. The BBC represents a major market intervention.
It receives a significant injection of public funds, and inevitably
has a major impact on the creative economy. Much of its impact
is overwhelmingly positive—helping to promote innovation,
investment and support for a thriving independent sector—but
there are also risks. In particular, it was brought to our attention
that the presence of the BBC could in some circumstances act to
dampen prospects for innovation and growth in the private sector
(known as 'crowding out'). In evidence, the Telegraph Media Group
(TMG) wrote about their transition to a 'multimedia digital business,'
and suggested this might have some impact on the nature of their
product and market:
"The reality of this transition is that
the Telegraph is now fighting for both national and international
audiences from 'traditional' TV stations; as well as other newspapers;
and other online offerings. In return, we also see them competing
for our audiences."[96]
199. TMG argued that licence fee-funded online
content services create a market distortion responsible for limiting
innovation from the wider media landscape:
"This market distortion demonstrates itself
in many ways. For example, any organisation that wished to create
a paywall for their content—which, of course, content has
significant costs of producing—is undermined by the existence
of bbc.co.uk, shielded from commercial risk. Another would be
the sharing of content of BBC News (funded by the Licence Fee)
to bbc.co.uk."[97]
200. In times when the newspaper industry is
struggling, and newspapers are focusing on enhancing their online
offerings, it would be a cause for concern if the BBC's online
services were, in some circumstances, limiting innovation from
the wider media landscape and, in particular, jeopardising the
development of online newspapers and mobile applications developed
by newspapers. And yet, we also acknowledge that bbc.co.uk is
a much cherished and valued online source, which provides an excellent
service for the nation and beyond. It is, in our view, a prime
example of the way in which the BBC provides reliable and engaging
news and services for citizens, and demonstrates why the BBC is
such an intrinsic component of our democratic well-being.
201. The BBC's service to the public and its
support for the UK's creative economy is vitally important, and
the BBC should be encouraged further to enhance the support it
provides, and not scale back its activities as matter of principle
per se. A more strategic approach by the BBC in support of economic
growth would be welcome. However, to reassure the industry, it
should ensure that effective safeguards are in place to address
crowding out concerns as they may arise; the future of newspapers
matters as well.
- In the run up to the next BBC Charter Review,
we recommend that the Government invite the BBC Trust to consider
how best to make progress on two fronts: enhancing the BBC's overall
economic impact, and reassuring the market that there are effective
safeguards in place, possibly through the use of periodic and
independent market impact reviews.
88 Communications Act 2003, section 316 (1) Back
89
Ofcom Back
90
BT Back
91
Q 67 Back
92
Ofcom, Communications Market Report 2012, July 2012, p.
4. Available online: http://stakeholders.ofcom.org.uk/binaries/research/cmr/cmr12/CMR_UK_2012.pdf
Back
93
Q 611 Back
94
BSkyB 2 Back
95
EU Framework Directive Back
96
Telegraph Media Group Back
97
Telegraph Media Group Back
|
