WEDNESDAY 15 MAY 2002

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Members present:

Mr Jimmy Hood, in the Chair
Roger Casale
Mr William Cash
Mr Michael Connarty
Mr Wayne David
Mr Terry Davis
Mr Mark Hendrick
Mr Jim Marshall
Miss Anne McIntosh
Mr Bill Tynan

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MR DOUGLAS ALEXANDER, MP, Minister for E-Commerce and Competitiveness, MR MATTHEW CONWAY, Head, European Communications Policy, and MR RICHARD BARTELOT, Head, European Information Society, Department of Trade and Industry, examined.

Chairman

  1. Minister, welcome to the European Scrutiny Committee. It is nice to see you here. Could I give you the opportunity to introduce your colleagues.
  2. (Mr Alexander) Matthew Conway and Richard Bartelot can explain their own positions.

    (Mr Conway) I am Matthew Conway, Head of European Communications Policy in the DTI.

    (Mr Bartelot) I am Richard Bartelot, the Head of European Information Society and policy in the DTI.

  3. Minister, your department has generally had a good record of keeping the Committee informed of progress and legislative proposals. Those on the telecoms package were of particular importance, yet we were not given an opportunity to scrutinise the texts after the Common Position and before they were adopted. Could you explain to us how this scrutiny failure came about?
  4. (Mr Alexander) With your permission, Mr Chairman, I have set out from the Department's point of view in a few paragraphs our understanding of the position and then perhaps you can ask me any questions that you would have. In the run-up to the 6 December Telecoms Council, it was clear that the Belgian Presidency would seek a second-reading deal between the Council and the European Parliament. However, the terms of that deal, which of course had to be acceptable to Member States, did not come together until the day of the Council itself. On that day itself, I had to cancel my own attendance at the Council because, as you will recall, my wife gave birth to our son on that day. The terms were subsequently communicated to the Parliament by the Presidency and adopted at the Parliament's second reading on 12 December. Since that second reading was acceptable to the Council, it was subsequently adopted as an "A" point at the 14 February Education Council. In the light of your Committee's letter of 10 April, I have of course reviewed my Department's actions in relation to scrutiny of these matters. I think it would be fair to say that there is some uncertainty in the detail of the scrutiny process. When second-reading deals are in the offing, negotiations are rapid and timetables evolve on a daily basis. My Department awaited the Commission's opinions in relation to this second-reading deal first in December and then in the New Year. However, by early February, no such opinions had been forthcoming. It was having recognised that there were at this stage no formal documents to deposit with the Committee that I wrote to you to set out the terms of the deal. That was on 7 February - the day that, it subsequently transpired, the Commission did choose to publish its opinions. The letter could certainly have been sent earlier. I apologise for that the failure to seek guidance from you sooner and that this deprived the Committee of the opportunity to exercise effective scrutiny of the terms of that deal. I can, however, assure the Committee that neither my officials nor I were aware on 7 February that the Directives would be placed on a Council agenda for formal adoption only seven days later. As is often the case, "A" points emerge suddenly and without warning from the Secretariat-General of the Commission. As the terms of the deal had already been finalised, it did not seem that placing a parliamentary scrutiny reserve was in the United Kingdom's interests. There was no realistic possibility of clearing explanatory memoranda with the scrutiny committees in time for them to lift the reserve and, given that the deal was highly favourable to the United Kingdom, nothing of value from the point of view of the package would have been gained by delaying adoption from 14 February to a subsequent Council. In summary then, as I stated in my letter of 29 April, I accept that we could have kept the Committee informed of developments leading to the second-reading deal - even in a rapidly changing environment - and that we should have alerted the Committee much more promptly to the terms of that deal when it was reached, without waiting for the formal documentation to trigger that acton. I have since ensured that better action will be and is being taken to ensure the Committees are updated by my Department. First, there is the proposed Communications Data Protection Directive, which is now approaching second reading in the European Parliament and which may well also benefit from a deal that avoids conciliation. I have already written to the Committee to explain the likely parameters of such a deal, and I hope that it will be able to clear the Government's proposed approach to enable us to negotiate as effectively as possible in the United Kingdom's interests. Second, although only a preliminary working version of the European Commission's eEurope 2005 Action Plan is currently available, I submitted an explanatory memorandum on it to you last week to ensure the maximum opportunity for early and effective scrutiny, including during this session, if desired. The broader issue of how the scrutiny procedures might better accommodate the reality of second-reading deal is one for the Government as a whole rather than just from my own Department. I understand that the Committee is taking forward its concerns on that basis. Our approaches to the Communications Data Protection Directive and the eEurope Action Plan 2005 may not work in the context of other negotiations, so I do not put them forward necessarily as any kind of template. However, I hope that you will see them as a constructive development and I would welcome any thoughts that you may have on them. I hope that they also demonstrate the importacnde with which I view effective scrutiny of proposals within my areas of responsibility.

    Chairman: I am pleased that you acknowledge that, Minister, but when we cut to the chase, and I have listened to your explanation, I have to tell you that that is an explanation we hear all too often, that it has landed on you the day before or on the day of the Council meeting. It is not just in your particular case, Minister; it is often the case that those attending Council meetings are not Government Ministers. Indeed, the lead decisions are taken i.e. in the best interests of the executive. As Parliament, we are concerned about this. We are scrutinising that what the executive is doing in our name is doing that properly. This is what concerns us. What has happened in this particular case unfortunately it is not uncommon across departments, and this is something that has been concerning this Committee for some time now.

    Mr Cash

  5. Minister, when you were making your submission just now, you made one or two quite interesting observations, not least of which was that you clearly assumed that this was beneficial. You really were wrapping it up by saying: well, whatever would have happened, it was gong to happen anyway and this was going to be of advantage to the United Kingdom. Actually, that is a mortal sin, as far as we are concerned because you are not allowed to decide what we decide, nor what Parliament decides. It may well be that in certain circumstances you would be right but I am afraid to say that the way in which you put it across is based on assumptions which undermine the whole scrutiny process. So think we want to pay a bit of attention to that.
  6. (Mr Alexander) I certainly have no intention of communicating that if that has been the interpretation that has been placed on my words. I would make several observations. First, we were clear in policy terms and in terms of objectives we were pursuing that there were merits in the proposed deal but that is a separate issue from the position of scrutiny. I sought to express clearly my genuine and profound regret that the Committee was not kept better informed on the basis of a letter. Equally, I was trying to make clear that there was no attempt by my Department, or by any officials within it, to seek to circumvent the scrutiny procedures. We find ourselves in a position where, in the absence of any received documentation at a point at which we could have submitted an explanatory memorandum, a judgment had to be reached within the Department as to what was the appropriate way forward. That explains the fact that there was not a formal communication to the Committee during both December and January. On reflection, I fear that that judgment was wrong on the part of the Department. It would have been more helpful to the Committee, and I think would have been more consistent with our ambition, to ensure that at every stage the scrutiny committees are kept informed of our developing policy thoughts with regard to what is emerging in the European Council if a letter had been forthcoming earlier, and I make no explanation other than that. It was simply a wrong judgment within the Department as to what was the best way to follow the procedures set down. When I alluded to the fact that there is some confusion or at least some concern around process and around the guidelines presently set down, I suppose I was reflecting the fact that it is still a document-based approach to the process of scrutiny whereby the trigger for me coming to this Committee, as our officials understand it, is actually receipt of the document from the European Commission. Actually, the reality of the development both of the co-decision procedure and the experience of the co-decision procedure over many years is indeed that the advent of second-hearing reading deals as a way of these matters being dealt with challenges all of us. I understand your Committee has taken forward some work in that regard, as to how we can make sure that consistent, not just with the procedures that are set down in Europe but actually with the new decisions that are increasingly being taken in certain quarters, the Scrutiny Committee is given its rightful place in that process. I am certainly respectful at a ministerial level of exactly all that you have set out in terms of the important function we perform for Parliament. I think the danger, frankly, and as I say I speak only for my Department's point of view and I would not wish to prejudge what is a cross-government view, is that actually the document-based procedure reflects the fact that there is a series of protections in place for the third stage of this process when you reach conciliation. In fact, in terms of practice and usage, there seems to be an increasing incidence of a second-reading deal being used to circumvent the need to go to conciliation and the protection that is actually in place, not least for this Committee, kicks in automatically in terms of the next stage of the process, which will be conciliation. I fear that where our Department has fallen down has been in exactly that dilemma of how to deal with the reality that there was a rapid emergence of our second-reading deal but without the formal information coming to us from the Council that would trigger an explanatory memorandum coming to you at an earlier stage. All of that notwithstanding, I fully accept that in those circumstances, as time dragged on between the Telecoms Council in December and the subsequent letter that came only in February, it is a matter of regret that the Committee was not kept better informed.

    Mr Connarty

  7. I heard the comments made earlier and I am very pleased your family is all healthy and robust, from what I gather. The question really is: could you not have anticipated, given your very lucid explanation of the process, that this might have happened? You will recall that you actually signed a letter in fact promising that we had basically cleared the draft of the competence position, which we received, and that we would get the final text. I think it was quite specific, that you would submit an explanatory memorandum on the new text. Given that that was a promise made by you as a Minister, and clearly it was in consultation with your officials and even drafted by your officials, is it not a fact that your promise when you were called away was not carried out and that therefore this explanation in hindsight should really have been anticipated? It is not as though your officials did not know the process and did not understand the procedure. We have had correspondence, for example, with Stephen Wall of the Cabinet Office at No.10 to really focus on this co-decision process. It was clearly well known to everyone in advance and the promise was made in that knowledge.
  8. (Mr Alexander) There are a couple of points. First of all, I reiterate the point made in my introductory submission, that it is absolutely the case that neither I nor officials when the letter was sent to you in February were aware of the fact that only within seven days in fact the decision then would be advanced at the European level. There was no attempt on our part to do anything other than follow the procedure. It was only by the stage when we got to February that a judgment was reached that it was important to communicate to you the present position. I am not sure how I can state it mor clearly than that a judgment had to be reached between December and February and I fully accept that in retrospect the wrong judgment made. The only caveat I would add to that is that there was no intention or ambition to usurp the appropriate function of the Scrutiny Committee. It was merely that we fell down between what is a formal process, which we were seeking to follow to the letter, and the reality of the emergence of the co-decision making procedure as we are increasingly coming to understand it. I am fully aware of the work that your Committee is undertaking with Stephen Wall and what I understand was a recent meeting with UKREP and officials in Brussels on this specific matter. I do certainly feel from a departmental point of view that we are similarly on a journey of understanding in terms of what is the best way to make sure that not just the formal processes but actually the spirit of the scrutiny position was upheld in what is, as I say, an emerging process which, while consistent with the technical process by which these co-decisions emerge at a European level, would fully reflect where the checks and balances are in the system at the moment. As I say, our understanding is that more formal checks exist at the stage of conciliation and in fact there is an increasing level of usage of a series of discussions which actually usurp the conciliating procedure.

    Miss McIntosh

  9. For the record, I do have a financial interest in BT and I think it is now called MmO2. I am very grateful to the Minister providing us with ths opportunity to clarify matters. In his letter of 11 February, and in his remarks now, Chairman, he places great emphasis on not having an explanatory memorandum to submit to us but, with the greatest respect, I think the failure to observe the scrutiny reserve should have very little to do with the existence or non-existence of an explanatory memorandum. There is a general point and a specific point I would like to raise here. The specific point is: Minister, when you drafted this letter on11 February, you appear not to have been aware that the Council were not going to produce at very short notice texts that were going to be pushed through at that February Council. Is that normal practice because if that is the practice, alarm bells should have been ringing. Why did the matter appear then on the agenda as an "A" points with only seven days warning? Would it not have been better to have taken it off the agenda at that time?
  10. (Mr Alexander) As I sought to explain in my introductory statements, my understanding is that "A" points do emerge very rapidly and without long prior notice. Needless to say, I have spoken with officials to be clear as to exactly the basis on which I took the decision to write to you at that stage in February, and they were certainly (uncited) at the reality that only within seven days an "A" point emerged at that particular stage. In that sense, the judgment that was reached on my behalf and by myself at the beginning of February to write to you was actually a recognition of circumstances retrospectively, the fact that there had not been an explanatory memorandum provided to the Scrutiny Committee and a judgement reached that, given that we had now expected someone to come to us from the Commission in December who had not arrived, and indeed in January had not arrived, respectfully the position was that it was envisaged that, despite that, we would get in touch with you to clarify the position. I think there was the unfortunate coincidence of the facts, and needless to say I was conscious of that when I saw the terms of your letter inviting me to the Committee today because I could well understand that, on the basis of soon after an "A" point appearing at the Council, there were reasonable grounds for concern as to what knowledge we have within the Department.

  11. I think you and I probably share an awareness that there is a systemic problem here. You as Minister are responsible for exercising the scrutiny reserve. Circumstances conspired for decisions to be left to a very late stage. Nevertheless, this Committee has a scrutiny role which we take very seriously, and which we would exercise. Just learning from the example that is before us today, can you advise the Committee as to how we can be absolutely sure that this will not happen again, not just in your Department but in other departments?
  12. (Mr Alexander) There are a couple of points. First of all, I can assure you that the experience of what we witnessed in December, January and February will ensure that I will oversee very closely the work of my own department in this regard to ensure that where there are similar circumstances where judgments are being made to await official documentation, then there is the possibility of ensuring that the Scrutiny Committee is informed by means of a letter and that that will be followed. As I related at the beginning, in the terms of some of the outstanding issues in the communications package, I hope that I have given credibility to that claim on the basis of the information we have already provided on the outstanding directive and indeed on the other issues in Action Plan 2005. Certainly that proactive approach is one that I would adopt as an individual Minister and seek to ensure that we furnish the Committee with all the appropriate information, being cognisant of the formal responsibilities, but also seeking to ensure that we reflect the reality of that decision-making procedure. I do think, on a wider governmental point, in terms of how we can best learn from this experience, I understand that there is a fairly wide-ranging discussion and investigation taking place within this Committee in terms of what is the most appropriate way forward. I was intrigued to see the discussions which took place between your clerks and Bill (Slow) of UKREP in Brussels where one suggestion that was mooted - and I am very conscious that it is in your domain rather than mine to advise as to the way forward - would be that the approach that would now be within my Department, the DTI, should be adopted more generally, and that is the proactive approach, but that that be anticipated by the Committee so that there could be guidance given to Ministers to say that if there are circumstances where, for example, there are contentious issues, those should be brought to our attention and we want to be updated on developments as they are taken forward. That seems to be one possible way that the Committee might consider formalising what is, as I say, an emerging series of circumstances in relation to the second-reading group.

  13. Do you find it satisfactory that with no text appearing in December and January, the Belgian presidency should then produce a text which they expect to be adopted at quite short notice? I say for the record that your official is shaking his head. If that is unsatisfactory, then I do not see that we are any further forward. That really is the crux of the matter. How can we actually resolve the matter?
  14. (Mr Alexander) Consistent with my ministerial responsibilities, I fully accept responsibility for the actions of all of my officials but I cannot be held responsible of the Belgian Presidency. It is a fair point: if this is a means by which there is a view that you can avoid the conciliating procedures as a means of expediting decisions, then I do think it is a challenge not just for Government but also for this Committee and for Parliament to ensure that we do work together to ensure that the vital role of the Scrutiny Committees, and indeed Parliament more generally, recognises that reality. As I say, I will limit my observations to two: one, that we do have a heavy document-based procedure at the moment and the error of judgment which was mine and that of my Department, in terms of noting these Meetings to Committee earlier between December and February, was reflective I think of perhaps a rather blinkered view of what are our formal procedures in terms of ensuring that when a document is received, we then put to the Scrutiny Committee an explanatory memorandum. In that sense, we have certainly learnt from this process, but I think also consideration needs to be given to how we can ensure that there is appropriate dialogue between the Scrutiny Committee and those Ministers charged with responsibility for representing the United Kingdom's interests at the appropriate point at which decisions are actually being taken.

  15. Minister, accepting your humility, which is admirable and not necessarily shown by every member of the Government, could we agree, where there is a text which clearly is substantially amended, on what method you use for reaching agreement on it which would enable this Committee to exercise its scrutiny role and enable you to exercise the reserve?
  16. (Mr Alexander) Again, in terms of my own Department and my own brief, I would certainly give that undertaking consistently. What I said at the beginning was that we would seek to inform you by means of letter, even if there has not been formal documentation received by the DTI. As I say with genuine humility, this has been a learning process for ourselves as well. I am conscious, however, that this is a cross-departmental issue and actually I am encouraged by the fact that your Committee is looking at this and discussing it not just with UKREP but with the Cabinet Office and Stephen Wall and others because I have to say that from a Minister's point of view, certainly it would be very helpful to have clarity on what is the best and most appropriate means to ensure that the Scrutiny Committee receives the appropriate place it deserves within the system. That is certainly the ambition that I have and I am sure it is shared by many Ministers. Our difficulty is that at the moment the formal procedures in terms of the political scrutiny Committee do not always accord with reality on some of the decisions taken, regrettable though that is.

    Mr Casale

  17. I think that if any of my constituents were reading tomorrow the report of our session today, they would find a lot of difficulty in terms of some of the procedural complexities that we are now discussing. I think one thing they would understand is the powerful way in which the telecoms industry is shaping their lives, both as consumers and as citizens. They would probably accept the need for some kind of European regulation. They might well look to me, especially as a member of this Scrutiny Committee, to give some guidance as to whether what is being proposed here is a good thing or a bad thing, and I am sure they would be doing that, as we were, if they could get the chance to actually express a view on that. My question to you, Minister, is this: I am sure there were plenty of opportunities throughout the process of arriving at this deal, this package, for the telecoms industry itself to make its voice heard. I wonder if you could comment on that and let us know what representations perhaps you as a Minister received directly from the telecoms lobby, which is very strongly represented in Brussels and able to feed their views into the process. We find ourselves being one of the best scrutiny committees in the European Union. It seems to me that there are very few opportunities for my constituents and the constituents of other Members to make their voices heard in relation to these very important matters.
  18. (Mr Alexander) I will make a couple of observations and then I will ask Matthew to speak in terms of the specific representations on the communications package. I certainly think it is the case that the reputation of the Scrutiny Committee of this House of Commons extends far beyond these shores. In terms of the exercise of its powers, I think probably the Danes come a rather distant second in terms of concerns, and that is reflective of the importance that not just Parliament but the Government attaches to the abuse of Parliament in terms of many important European matters. There is a number of systemic opportunities for the telecom sector to communicate with my Department, with the Department of Trade and Industry, and we have established an information-based partnership which represents a very wide cross-section of organisations , both telecom providers and a range of software organisations speaking to some of these issues in particular. We also have the Broadband Stakeholders Group, which speaks specifically on the issue of broadband, which has some relevance to the European Action Plans, which have also been covered. But I think, in terms of the detail of the lobbying and discussions that actually took place on the particular package, I would ask Matthew Conway to speak.

    (Mr Conway) We recognised very early that this was a very important package of legislation. By "very early", I mean 12 months before the proposals had even hit the table from the Commission, in July 2000, and we took the view that it was very important actually to get the views not only of the telecoms industry but also of the broadcasting industry, because there are links here with the content, through the package itself and the infrastructure, and the consumer routes as well. From about the summer of 1999, under the chairmanship of OFTEL, as that seemed the most appropriate thing to do, there were monthly meetings of a focus group, which brought together all of the government departments with interests: OFTEL, the DTI, the Department of Culture, the Radio Communications Agency, even the Televison Commission and the regulatory authority, those being the principal bodies, and representatives of the fixed and mobile industries: representatives of broadcaster and representatives of consumer bodies. On a monthly basis from about the summer of 1999 all the way through to December of last year that group met and it discussed the issues. The views of those parties were taken on board where they were helpful to the Government, which took them into account in our approach. Where they were not, and where we disagreed, we explained why. I think that partly explains why it is that we think the industry is so supportive of the outcome and that the United Kingdom's position, on going in, is one that is fully informed by all of the private sector stakeholders involved, and was not just government in its ivory tower taking a view as to what was right.

  19. Thank you very much and I am pleased to hear that so much work was done to consult industry. Would you accept my basic point, Minister, that there is really a very great difference between the opportunities that representatives of industry have to feed their comments in about this package and the very limited opportunities that the citizen has to do the same?
  20. (Mr Alexander) My official comment is reflective of those opportunities for the consumer organisations to contribute to this discussions but I think that is an important part of those discussions. As I have already stated, I think it is a matter of regret that the elected representatives of those consumers, parliamentarians, were not given a greater opportunity to exercise their views of this important package. But I can assure you, and I hope that Matthew Conway's words have given you some comfort, that there are serious and genuine efforts within the Department to make sure that we canvass views widely, although this a very big package of measures. I would hesitate to take the views of the focus group as a particular Labour approach to ensuring that consultation takes place but it is an ongoing process of dialogue with industry. There is certainly a range of organisations as well as consumer groups contributing to what I think is broadly a supportive view in terms of the reforms in this package.

    Chairman: Our Committee is a very good focus group, Minister.

    Mr Connarty

  21. In fact, we are crossing over the first part, which in a sense is to look at scrutiny, and the second part, which is to look at the Directives. As someone who is a member of the Information Committee of the House and took part in quite a number of the European seminars about the information society that we hope Europe will be, I followed the Lisbon process with some interest. I am very pleased that you are here to talk about where you think the Directives actually take us in our ambitions for both a European and a United Kingdom information society. Could you explain the ways in which you think these new Directives will be beneficial to British industry but also to the ambitions that we have spoken of again and again for the new information society, for the people of the United Kingdom, as referred toby Mr Casale?
  22. (Mr Alexander) With our permission, first I will address the four Directives: the Framework, Access, Authorisation and Universal Service Directives, and then perhaps make observations on the European Union more generally on why I think we are winning for Britain and Europe specifically on those measures. The package of measures I really believe are the cornerstone of the Europe agenda. The achievement of the second-reading deal meant that it could be agreed by the end of 2001, in line with the Lisbon commitments, without going to conciliation. That explains some of the conversation that we have just been having in terms of decisions that were reached by others. I would draw the emphasis of the Committee to the benefits for regulators, operators and consumers. I think it stretches across the board. May I say, first of all, just a word about the regulators. From July of next year, Europe will have for the first time a coherent regulatory framework applying even-handedly to all networks and services. Previously there were 26 Acts which applied across the Community, agreed at different times over the course of the 1990s, and that will be replaced by just a handful of different Directives agreed side by side. I think there is great merit in terms of the clarity that that is bringing to the whole package of measures that we are taking forward. Other elements of the package are just as welcome. There is permission for the radio spectrum to be priced and traded in the interests of efficient usage. I think it is hard to underestimate the economic value of this spectrum in years to come and to that extent to have clarity in terms of the way forward on that I think is important. Aligning significant market power, the threshold for regulatory intervention, with the concept of dominance enabling regulators to recover all of their costs during the process I think again is a significant step forward. We really put in place through these Directives the building blocks for Europe and the next stage of Europe. To try and put those observations in context, the Lisbon Summit I regard as a significant factory for a British approach to the way forward for Europe. It was seen as being broadly pro-competition, deregulatory and advancing the interests of consumers and business alike, and being very clear as to what were the objectives that were actually being set for Europe more generally. In terms of the specific initiatives that you mentioned in the eEurope Action Plan, I think it is a matter of pride for the United Kingdom that it broadly reflected much of the work that we had been taking forward at a British level in terms of getting the United Kingdom on line. Actually many of the thoughts and indeed specific targets that were set in terms of the Europe Action Plan were reflective of a great deal of work that had taken place in terms of UK on-line. A specific point that I would make would be that there were really three main areas that Europe 2002, which followed on from Lisbon, identified: first of all, cheaper internet through competitive communications services; secondly, confident and early adoption of e-commerce through a coherent legislative framework, of which I have just spoken, and encouragement for consumers and SMEs; and, thirdly, a step change in skills and training to cope with ICT and e-commerce. It involved 64 measures. I have to say that the latest bench marking survey is extremely positive in terms of the progress that has been made at a cross-European level. To some extent it is emotive of the way that we can advance policy making which combines a role not just for government but actually for industry in advancing our ambitions for getting Europe on-line and actually closing some of the gaps we face with the United States. I think that underlies much of the thinking in terms of what the emerging Europe Action Plan should be for 2002 and 2005. I have already been in touch with the Committee to set out where I think the broad parameters in Europe 2005 will lie. Those discursions are obviously being taken forward, but I would perhaps highlight broadband, an issue that I know the Member has considerable interest in, as being one of the areas where I think we will see real progress between Europe 2002 and Europe 2005. There is a broad recognition at all levels of Europe that there does need to be greater focussing. If there was a criticism to be made of Europe 2002, it is perhaps that it could have been more tightly focussed. There is a greater focus in terms of the work that we want to take forward in eEurope 2005 and one of the key focuses for that work will be actually rolling out broadband networks across the European Union.

  23. May I ask a small supplementary? There is a huge divergence between the UK broadband access and German broadband access and use, with two million people in Germany on broadband access and 250,000 in the UK. Although in a sense we are the drafters of the plan, we seem to be slightly lagging in action. How much is that to do with the fact that the German Government still has a large interest in the main provider and therefore has put a substantial amount of public investment into the field where we have not?
  24. (Mr Alexander) There is a number of different factors. One is that historically in Britain we went for binary infrastructures. Decisions were taken many years ago now to try and introduce competition into the telecoms market. It was a decision made, I think by Donald Cruikshank, who was then at OFTEL, in terms of establishing essentially a binary infrastructure, given a cable network across the country as well as in common with the BT network. That gives us some distinct advantages. For example, we have 50 per cent broadband coverage on the basis of our cable network already. But, on the other hand, it meant that the lever for opening telecommunications liberalisation was not solely the incumbent's backbone in the United Kingdom. Frankly, a very different approach has been taken by the regulator in Germany - indeed, that has come to the attention of the European Commission in recent months - in the sense that there was seen to be a far less regulatory approach, a less pro-competition approach, taken by the German regulator than the position that has historically been taken by OFTEL. The result of that has been that certainly the incumbent provider has seen significant rises in the number of subscribers for DSL connections in Germany. Concerns have been expressed as to whether that has been on the basis of competitive pricing. You will appreciate that I would not wish to be drawn on that specific matter. I would then draw a contrast with where we are in the United Kingdom. Frankly, there was a slow uptake in terms of ADSL and cable connections to broadband. One of the first challenges that I set for myself when I assumed office last June was to try and ensure that we make real progress by altering what was previously a high cost, low demand market into something that was a far more attractive offering to the consumers. Indeed, I was the first Minister publicly to challenge BT to leverage its investment, which is not inconsiderable, in broadband more effectively by offering a product to consumers which was fairly priced but, on the other hand, had a more competitive levy for a mass market roll-out. I am glad to say that challenge has been accepted by BT. We are now in a position where historically we have the second lowest narrowband prices anywhere in the world and, as a result of the changes that BT have introduced, we now have the second lowest broadband prices anywhere in the world. This is already having a measurable impact in terms of the rate of broadband subscribers. Last week I met with the ATU who have just signed up their 200th subscriber. We are moving rapidly towards half a million subscribers in the United Kingdom and I think we are beginning to see the levels of growth in broadband subscription of a similar magnitude to where we were in terms of some of the earlier stages of mobile telephony where, by getting the competition environment right in the United Kingdom, we have moved to a position where we need ubiquity in a very limited number of years. So our goal is clearly that we want a competitive and extensive broadband market in the United Kingdom. We have held to our guns in saying we want a competitive environment but we are not in any way soft on the incumbent or on anyone else. There has been a company-neutral view of regulation and I pay tribute to the work that David  Evans of OFTEL has been doing in driving forward that competition environment. But I think we are now just beginning to see the fruits of exactly that approach. We do not just have competition between the cable companies and BT but we are also seeing a massive rise in the number of subscriptions. I think the present figure is now 20,000 subscriptions a week. If there are concerns in terms of us having been left behind by Germany, there is very significant progress being made in Britain.

    Mr Tynan

  25. Minister, obviously you will have realised that this Committee does take the scrutiny reserve very seriously. The fact that your Department has a good record in the past will help today as regards our attitude towards the failure to preserve the scrutiny reserve the last time. I would like to move on to competition and the fact that you have identified an indication in documents that in the past there was a failure of the dominant operators to open up their networks fully to alternative operators. Do you see changes being taken as regards the threshold for significant market power to open up to continental markets to competition, particularly where the national champions have been dominant? Do you see that?
  26. (Mr Alexander) I would make a quick observation in response to your question. I think certainly, yes, that is a step forward. In terms of the representations that we were receiving from industry, I had a particular discussion, I recollect, with a senior representative of BT who was concerned to ensure that there was access to genuine competition at the European Level. As I say, I would pay tribute to our work at a British level in terms of the work of David Evans at OFTEL in driving forward that work. I know that there has been a level of criticism directed both at the Government and at OFTEL with regard to local loop unbundling but I think there are very particular factors which have affected the success or lack of success in the local loop unbundling market, in particular whether we did get the regulatory framework in place in the United Kingdom. There was the point at which the correct regulatory framework coincided with a significant loss of confidence in the telecoms sector. So that, while there is now a regulatory framework in place, which allows for local loop unbundling and for people to come in an operate within BT exchanges predominantly, such has been the loss of confidence in the market that frankly the financing has not been there for any companies who would otherwise be able to take forward those opportunities. Nonetheless, I am heartened that we are very successful in terms of driving the broadband market, in terms of a wholesale product being offered by other companies like AOL and a range of different companies. In fact, we have been successful in ensuring competition in the British market. Indeed, the test that we have set for ourselves is a competitive and extensive market and actually, in terms of competition, I think we have a very strong story to tell. In terms of the market dominance position, I will ask Matthew Conway to deal with that.

    (Mr Conway) One of the obvious tensions at the European level was that on the one hand it was the governments' objective to have swift and effective regulation - that is what our regulators are here for - and yet, on the other hand, to ensure that UK operators in overseas markets received a fair level of regulation that was not too swift and ineffective. We feel, that is UK operators feel, that the outcome of the package was the balance that was appropriate. On the one hand, we have the concept of significant market power that is in line with dominance, and so the point at which a regulator intervenes is the same point at which a competition authority would intervene. There is no cliff-edge between the two. You have a coherent line path from regulation to competition and the rules that support that are: if you have a dominant operator, you regulate; if you do not have a dominant operator, you do not regulate. Those are judgments; those are requirements. So regulators cannot say, "Well, there is a dominant operator but it just was not appropriate to do something". They have obligations on them to intervene in the market. Acting against that, there are balanced mechanisms to protect operators and to protect the Single Market. This Committee will have noted that on the one hand one major concession that the Council made to the European Parliament was to give a full right of appeal on merits to operators at a national level - not something that the Government initially agreed with, but the reality in the UK is that judicial review plus and review of OFTEL's decisions and competition frankly are not a million miles away from operating on merits anyway. So that was an easier concession for the UK than perhaps for many other Member States. Secondly, the Council met Parliament half-way in accepting that there were circumstances where the Commission itself should be able to step in to protect the Single Market, but not everywhere. We do not believe, or did not believe, that the Commission always knows the right response to a regulatory problem; it just sits too distantly in Brussels, and it is not a telecoms regulator. What the Commission does know, and has known for the last 45 years, is competition policy. That is why the override rights that the Commission was granted in this package relate to regulators determining where dominance exists and regulators defining markets in a manner that the Commission does not find appropriate. Those are areas where the Commission has expertise, where there was as much if not more to gain for the UK in other regulators being compelled to follow the appropriate response than perhaps OFTEL, in due course OFCOM, did in having its discretion fettered. Overall, that gives the sort of balance to the Single Market approach where regulators can act swiftly, but UK operators can have confidence in the situation that the Minister alluded to in Germany where, if there is a regulatory failing, which I also would not presume to comment on, that might not persist when this new package comes into force.

  27. Conversely, are there any obvious sectors in which companies from other Member States might seek acquisitions in the United Kingdom?
  28. (Mr Conway) I think this Government has conceivably welcomed inward investment. We welcomed competition. It would be hard to object to that, I suppose.

    (Mr Alexander) As a broad policy objective, we have always taken a view, for more than a decade now, that the way to advance the telecommunications sector, one of the most dynamic sectors in the economy, is actually to have a pro-competition regime. To that extent, I think it would be curious if we were in a position where we were saying we are going to resist the potential for investment coming in from elsewhere. If you look at the communications industry generally, it is probably hard to imagine a more internationalised industry in the sense that linkages between countries is increasingly their business and in that sense we are clearly of the view that there is scope for competition and we are keen to drive forward that competition. If you look, for example, at the development of the mobile market, it is very clear that a for company like Vodafone that pro-competition policy has allowed us to establish not just a significant mobile market in the United Kingdom but actually new leadership as we look to international markets. One of my jobs as E-Commerce Minister is to advance the interests of British companies seeking to move into exactly those kinds of markets. I have already travelled to India to advance the interests of such United Kingdom companies. I anticipate visiting China shortly in the months to come, again to promote the interests of British mobile companies in what is a market of truly vast proportions and potential. If you look at the success that we have had in terms of second-generation telephony, on the basis of there being pro-European standards across the world, I think again there are really significant opportunities for British companies if we get the right approach in the United Kingdom and work with our colleagues in Europe.

  29. So your view is that there is nothing to fear from competition coming from the other Members? In fact, you welcome it?
  30. (Mr Alexander) As I say, consistent with the regulatory obligations which are on OFTEL and subsequently OFCOM and indeed the package that Matthew has just spoken about at the European level, we regard the Directives that emerged in terms of the communication package as a significant victory for the United Kingdom's interests in telecommunications.

    Mr Hendrick

  31. To follow on from Mr Tynan's point, do you see any distinction between new investment and takeover?
  32. (Mr Alexander) Clearly that is a commercial matter. In terms of a City definition of a takeover, clearly then you are looking at genuine equity capital in the sense of 40 to 60 per cent emerging. It is clearly a matter for individual commercial companies to reach commercial decisions in terms of what is in the best interests of the shareholders. We would not preclude the possibility of there being acquisitions and indeed, as I say, if it you look at a company like Vodafone, its strength as a result of its international network has been on the basis of acquisitions. To that extent, it would be anomalous for the British Government to be suggesting that we want to promote British companies competing internationally. On the other hand, there is no scope for other companies to contribute to the work and prosperity of the United Kingdom.

    Mr Cash

  33. Minister, have you found any relationship between the reluctance of the Germans to get engaged in this great trade process and their resistance to hostile takeovers, for example? Secondly, are you satisfied that in relation to the national regulatory authorities there is no corruption?
  34. (Mr Alexander) I think the package of measures that was adopted has achieved the balance that Matthew spoke to and which I would certainly affirm, which is that on the one hand we were keen on negotiating this package to try and provide a degree of regulatory certainty that operators actually want. If there was a convoluted, long, detailed process whereby, once a decision was reached by OFTEL or a successful decision by OFCOM, there could then be a multiplicity of routes by which appellate bodies could make determinations or indeed could be overturned alone by a European body, we anticipated that would cause a degree of regulatory risk which would not be beneficial to many companies. On the other hand, alive to concerns in terms of ensuring that other countries and other Member States achieve a level of regulation and transparency around those regulatory procedures that I feel we have achieved in the United Kingdom, we were keen to see this package negotiated. I would not wish to comment on the merits or demerits of individual regulators. I would be more comfortable speaking to the production of the package, which I think allows the game to be raised by regulators across the European Union. I am certainly confident that this marks a significant step forward in terms of getting the right kind of regulation in the European Single Market on the one hand and balancing the need for expedition and quick decisions with the appropriate security being provided for those people who feel they are making major investment decisions on the other. It is ultimately for the Commission rather than the United Kingdom to police the decisions of national regulatory authorities in terms of individual decisions. Historically, the United Kingdom has been firmly supportive of the right of the Commission to take a view on exactly those matters. As I say, hesitant though I am to be drawn into the merits or demerits of individual regulatory decisions in other Member States, I think there has been some concern expressed elsewhere in the Council at some of the regulators' actions. In that sense, we saw the package that has been negotiated as a significant chance for the interests of the United Kingdom.

  35. He did not answer my point about whether he was satisfied that there was no corruption.
  36. (Mr Alexander) I am certainly not aware of evidence of corruption in dividual regulators and clearly I would I suggest that, if there are members of the Committee who have evidence of corruption, they should bring that to the appropriate authority.

    Miss McIntosh

  37. You will be aware of my interest in the Communications Bill. Can you explain why the appeals procedure set out in the Communications Bill is not for referral to a special tribunal for the Competition Commission but I gather it is going to be a competition appeal tribunal? Would it not be better to have one procedure for all of industry rather than having a special appeal for the telecommunications?
  38. (Mr Alexander) I will make a couple of observations. One is that there is a discrete range of issues in terms of economic regulation. I think, from the content of regulation and the role of the Competition Commission, that is in relation to competition as distinct from content issues. I think it would be important to give assurance in terms of the scope for those issues. I have to say that while preparing my extensive brief for this Committee meeting, I did actually note that there were some concerns in terms of exactly what the appellate body would be in terms of that. Certainly I am happy to put that in a letter. In the limited time available to me, and I apologise for this, I was not able fully to formulate the answer to it. It was a question that, at least because of my appearance at the Enterprise Bill last week where I was speaking at great length about the merits of competition and the Commission Appeal Tribunal, actually I had identified. I would be very happy to give you a letter on that specific point.

  39. I would accept that. In the letter, can you explain why content should be treated any differently from any other competition matter and why OFT and OFCOM should have a duopoly over competition?
  40. (Mr Alexander) My sense is that some of that will stray into the issues relating to the establishment of OFCOM and the draft Communications Bill. I am certainly happy to narrate both the terms of the accompanying narrative which goes with the draft Bill and the relevant clauses of the draft Bill.

    Mr David

  41. Going back to the issue of regulation, I think what you said, Minister, and also Mr Conway, was eminently sensible, but there are some concerns about whether the market will actually like that in practice. I was wondering if you are aware of any concerns which have been expressed by the UK telecoms sector as to the abilities of the regulators, whether in this country or in the European countries, in their role of enforcement and also in terms of their ability effectively to identify those companies which have significant market power?
  42. (Mr Alexander) I have a couple of observations in response to your question. One is that there is a requirement in terms of the package that the regulators of other Member States have the resources in order to allow them actually to do their job. One of the reasons that we have established leadership in the field of telecoms regulation has been the fact not just of the individual expertise of members of staff but the fact that there is a willingness to support the regulator in terms of highly complex regulatory issues. When I meet with BT to discuss matters of regulation, they are able to provide batteries of lawyers armed with documentation. I think that it is very important, given the scale and ability of commercial operators in this field, to provide that volume of information and that we equip our regulators to be able to respond in kind. The other point I would make is that there is also specific provision in terms of the package to ensure that there is a means by which the costs that the regulator will incur in many of these issues can actually be recouped. In that sense, that is an added strength and foundation we provide to the national regulators, specifically in relation to the new powers that are being assumed. The final point that I would make would be that the ability of the regulator to recover costs means that there is a differentiation between the support provided, in this case by the Treasury but in other cases by the equivalent finance ministry at a European Member State level, from the regulators' power to make decisions. I think, consistent with some of the concerns that have been expressed in the Committee, that might also be a helpful counterweight to the suggestion that the independence was not real.

    Chairman

  43. Minister, I would like to thank you very much for coming along this morning. It has been a very quick hour. I suspect we would like to go on for another hour. I thank you for your candour and particularly for your reassurances and your assurances in your earlier comments that things will get better in the relationships with the Committee in keeping us informed of what you are doing and when you are doing it with particular attention to scrutiny reserves.

(Mr Alexander) Thank you. I am sorry that it was in such inauspicious circumstances that I had the opportunity to speak to the Committee but I am genuinely seeing a big interest from senior colleagues in discussions in terms of how we can better facilitate the scrutiny position, which I can assure you, from my point of view, we regard as extremely important. I will ensure that the undertakings I have given to the Committee in terms of how we take that forward within my own Department reflect the undertakings I have given to you today.