Joint Committee on Draft Communications Bill Report


(i) The general duties of OFCOM

15. One of the central organising principles of the draft Communications Bill is that the operation of the new regulatory framework should be the responsibility of OFCOM as an independent regulator, operating at arm's length from the Government.[14] The Office of Telecommunications (Oftel), one of the five regulators whose functions OFCOM will inherit, undertakes its work in accordance with duties laid down by Parliament.[15] Three of the other existing regulators - the ITC, the BSC and the Radio Authority - also have a great deal of statutory independence, deriving in considerable measure from the deep-rooted tradition that it would be wrong for the Government itself to have direct control over broadcast content. The fifth current regulator - the Radiocommunications Agency - is an Executive Agency subject to control by Ministers.

16. In granting statutory independence to economic regulators, Parliament has sought to set parameters for the work of those regulators by laying down general duties and, in many but not all cases, setting out a hierarchy for those general objectives.[16] As Dr Kim Howells MP, the Minister for Broadcasting, said in a previous Ministerial incarnation: "General duties lie at the heart of the regulatory process. They set the framework in which regulators … exercise their functions under the utilities Acts."[17] If duties are not stated with sufficient clarity in legislation, there is potential for regulators to exercise their functions in a manner at odds with the intentions of Government and Parliament. In determining OFCOM's general duties, Parliament will do much to set the terms under which that body will perform its functions.

17. The Communications White Paper proposed that OFCOM have three central regulatory objectives:

  • "protecting the interests of consumers in terms of choice, price, quality of service and value for money, in particular through promoting open and competitive markets;
  • maintaining high quality of content, a wide range of programming, and plurality of public expression;
  • protecting the interests of citizens by maintaining accepted community standards in content, balancing freedom of speech against the need to protect against potentially offensive or harmful material, and ensuring appropriate protection of fairness and privacy".[18]

18. Clause 3(1) and (2) of the draft Bill seek to give statutory effect to these and other objectives for OFCOM. Subsection (1) lists seven duties for OFCOM in carrying out their functions. Subsection (2) sets out eight factors to which OFCOM "shall have regard" in performing its duties under subsection (1). These subsections establish the general duties of OFCOM subject to two qualifications. The first qualification is that, in undertaking functions relating to electronic communications networks and services and the management of radio spectrum, OFCOM is required to give priority to five requirements set out in Clause 4 which seek to give effect to the policy objectives and regulatory principles established for national regulatory authorities under Article 8 of the EC Framework Directive.[19] There is no indication in the Directive or the draft Bill of priority between the five requirements, which relate to the promotion of competition, the development of the internal market and the promotion of the interests of citizens; OFCOM is granted discretion in resolving conflicts between the requirements.[20] The second qualification is that, like other sector-specific regulators with Competition Act powers, OFCOM's general duties do not apply when it is exercising those powers unless the relevant duty is a matter to which the Office of Fair Trading (OFT) can have regard.[21]

19. Notwithstanding these qualifications, there is no doubt that the final framing of the general duties proposed in Clause 3 will be central to the way OFCOM does its job. The wording of these general duties has accordingly been the focus of some of the evidence that we have received and a number of comments have been made about the current proposals.

20. The draft Bill has been criticised on the grounds that the interests of consumers, which were at the forefront of the objectives proposed in the White Paper, have not been fully reflected in the general duties or indeed in the draft Bill as a whole. One of the authors of that White Paper as the then Secretary of State for Culture, Media and Sport, the Rt Hon Chris Smith MP, was concerned that the word "consumer" had been replaced by the word "customer", a phrase which he argued implied "a purely commercial relationship".[22] The term "consumer" only appears in the title of the Consumer Panel, whose role we consider separately below, and in Clause 248, where the word has a distinct meaning.[23] Several organisations argued that the use of the terms "customer" or "end-user" in the draft Bill where the White Paper and the EC Directives used the term "consumer" was both a source of confusion, and more importantly, appeared to exclude from OFCOM's consideration those not in a commercial relationship with a communications provider and those unable to access services.[24] The Government failed to provide a convincing explanation for its decision not to employ the language of its own White Paper in the draft Bill.[25] We recommend that, in the general duties of OFCOM and elsewhere in the Bill where a specific commercial relationship between a customer and a service provider is not being referred to, the term "consumer" be used in preference to the term "customer" and that consumer be defined so as to encompass all those who benefit or might benefit from the provision of services and facilities in relation to which OFCOM has functions.

21. Concern about the draft Bill's reflection of the White Paper's objective relating to consumer interest is more than merely terminological. The Government's policy in the White Paper was that it would be for the regulator to resolve any conflicts between the three objectives set out there.[26] This position has been maintained with respect to the fifteen general duties listed in subsections (1) and (2) of Clause 3: in any particular case, it shall be for the Board of OFCOM to resolve a conflict "in the manner they think best in the circumstances".[27] In its inquiry into the White Paper in the last Parliament the Culture, Media and Sport Committee noted and supported arguments for a clearer priority between objectives.[28]

22. Several submissions argued that OFCOM's duty to further the interests of consumers should be seen as its "over-arching" duty.[29] It was also suggested by some that OFCOM's primary concern should be the "long-term" interests of consumers, so that any conflict between short-term and long-term interests was resolved with emphasis on the latter.[30] NTL argued that the consumer duty ought to refer to promoting consumer interests through competition and that "it would be better to have competition identified as the primary duty in advance to avoid any future conflict".[31] A model of such an approach is already available in section 9 of the Utilities Act, which sets out as the principal objective of gas regulation as being "to further the interests of the persons who are customers … wherever appropriate by promoting effective competition". Dr Howells noted at the time of the passage of this legislation that "the duties form a hierarchy, which is designed to assist regulators in resolving potentially conflicting regulatory objectives".[32]

23. We see merit in an approach which gives emphasis to the promotion of consumer interests through competition. Promoting vigorous competition, where attainable, is likely to be a surer means than other regulatory action of satisfying consumers, because, where transparency is guaranteed, markets naturally capture consumers' wants. Furthermore, giving priority to the promotion of competition is likely to make other regulatory action less necessary, consistent with the objective, discussed further below, of achieving focused and cost-effective regulation.

24. However, we are also persuaded that there are public interests relating to the regulatory framework that are not encompassed in a consumer-driven objective and are not properly reflected in OFCOM's general duties as presently drafted. The concept of citizens' interests was to the fore in the White Paper and is referred to in the Policy document accompanying the draft Bill, but fails to feature in the duties set out in the draft Bill itself.[33] As with the term "consumers", this is more than a matter of semantics. Evidence we received reflected genuine concern that the democratic, social and cultural interests of citizens, most notably in relation to broadcast content, were not given due weight in the formulation of OFCOM's general duties.[34] This concern was also apparent in many contributions to our online forum. Steve Buckley of Public Voice summed up the concerns expressed with the following argument: "the interests of citizens should come first and the duties of OFCOM should spell out the need to promote the interests of citizens as well as consumers".[35]

25. Broadcast content is not the only area where it will be the duty of OFCOM to serve a wider public interest beyond that of consumers. In a review of radio spectrum management commissioned by the Government and published in March 2002, Professor Martin Cave pointed out that, in the management of radio spectrum for which OFCOM will assume primary responsibility, consumer and competition interests have to be balanced against the public service use of spectrum. He proposed an additional duty on OFCOM "to maximise, by ensuring the efficient allocation and use of the spectrum, the overall value derived by society from using the radio frequency spectrum".[36] In evidence, Professor Cave told us that he was pleased that the wording of paragraph (c) of Clause 3(1) captured - in the phrase " in the interests of all persons" - the wider public interest in the use of spectrum, while preferring the term "efficient" he proposed to the word "optimal" employed in the Bill.[37] We share the Government's preference for the term "optimal", reflecting as it does the combination of economic, social and technical considerations that must determine the use of spectrum, although we examine later in this Report the relationship between the general duty in respect of spectrum and the duties created in the Wireless Telegraphy Act 1998.[38]

26. Patricia Hewitt and Tessa Jowell understandably told us that they would oppose the idea of a primary duty on OFCOM that would secure priority for either economic and competition issues or cultural concerns at the expense of the other element. However, Tessa Jowell said encouragingly that, "if the Committee comes up with a drafting that neatly and elegantly elides those two functions, then obviously we would look at that gratefully and seriously".[39] The Communications Green Paper of July 1998 stated:

    "The regulatory process starts with Government. Regulators must have a clear legislative framework within which to operate. With greater clarity of duties and objectives comes improved accountability for their delivery - to Parliament, to Ministers, and to consumers."[40]

—  The draft Bill as it stands does not provide the clarity of duties and objectives that the Government itself has sought. It would be an abdication of responsibility by Parliament and the Government to set out fifteen general duties without a clear hierarchy. We agree with Patricia Hodgson, Chief Executive of the ITC, that a failure to establish such a hierarchy "may have a danger of paralysing decision-making".[41] We recommend that it be the principal duty of OFCOM, in carrying out its functions -

    (a)  to further the long-term interests of all citizens by -

      (i)  ensuring the availability of a diversity and plurality of high quality content in television and radio and

      (ii)  encouraging the optimal use for wireless telegraphy of the electro-magnetic spectrum; and

    (b)  to further the long-term interests of consumers by promoting the efficiency of electronic communications networks and services, and broadcasting

—  and to do so wherever possible by promoting effective competition in national, regional and local communications markets throughout the United Kingdom.

27. We envisage that this principal duty would replace the current text of Clause 3(1)(a) to (d). We would then expect the other general duties set out in the rest of subsection (1) and in subsection (2) to be retained. Provided that greater clarity is given to OFCOM's objectives by the insertion of a principal duty as we have suggested, we consider that, with one exception, these other duties provide a satisfactory statement of OFCOM's objectives. That exception is the absence of any reference to the promotion of investment. OFCOM will have a duty in relation to networks, services and radio spectrum under the Framework Directive to promote competition by "encouraging efficient investment in infrastructure, and promoting innovation".[42] It would be mistaken to imagine that OFCOM itself can determine the investment climate in the communications sector, but it could have an adverse impact on that climate if it does not give the matter sufficient consideration. It would be undesirable to rely on the indirect effect of the EC Framework Directive, not least because investment and innovation matter in the broadcast sector as well as in networks and services.[43] While there should not be reference to one particular technology or service in formulating such a duty, we are persuaded of the case for a general duty relating to investment and innovation.[44] We recommend that Clause 3(2) be amended to require OFCOM to have regard to the desirability of encouraging investment and innovation in communications markets.

14   Cm 5010, p 77. Back

15   See in particular section 3 of the Telecommunications Act 1984. Back

16   Economic Regulators, Report by the Better Regulation Task Force, July 2001 (hereafter Economic Regulators), pp 28-29, 46-47; Better Regulation Task Force Report on Economic Regulators: Government Response (hereafter Economic Regulators: Government Response), para 7. Back

17   HC Deb, Standing Committee A, Utilities Bill, 29 February 2000, cols 232-233. Back

18   Cm 5010, p 79. Back

19   Clause 3(4); Policy, para 6.2.3; Directive 2002/21/EC of the European Parliament and of the Council of 7 March 2002 on a common regulatory framework for electronic communications networks and services (hereafter Framework Directive), Article 8. Back

20   Framework Directive, Article 8; Clause 4 (10). It should be noted that OFCOM's general duties can also be overridden by its requirement to provide information to the European Commission under Clause 15, see Clause 3 (4). Back

21   Q 176; Clauses 3(6), 247 (11) and (12) and 248 (11) and (12). Back

22   Ev 550. Back

23   Clause 248 refers to consumer protection functions under the Fair Trading Act 1973 that are likely to be repealed when the Enterprise Bill becomes law, see Enterprise Bill (HL Bill 92 as brought from the House of Commons on 19 June 2002), Schedule 25, paragraph 5. Clause 205 of the Enterprise Bill proposes a definition of "consumer" for the purposes of the enforcement of certain consumer legislation distinct in kind from the definition proposed in this Report. Back

24   Ev 535-536, paras 3, 5; Ev 90; Ev 319; Ev 551, para 7; Ev 469, Ev 578, paras 4-5; Ev 573, para 5. Back

25   Ev 408 Back

26   Cm 5010, p 79. Back

27   Clause 3 (5); Policy, para 5.1.2. Back

28   HC (2000-01) 161-I, paras 25-27. Back

29   Ev 561, para 5; Ev 536, para 4; Ev 320; Ev 578, para 3. Back

30   Appendix 105. See also Memorandum submitted by COLT; Ev 61; Ev 88; Ev 556. Back

31   Ev 61. Back

32   HC Deb, Standing Committee A, Utilities Bill, 29 February 2000, col 233. Back

33   Cm 5010, pp 10, 79; Policy, pp 9,23. See Ev 550. Back

34   Ev 302, para 1.1; Ev 308, sections 6 and 7; Ev 300, para 3.1; Ev 477, para 3.3; Ev 177, para 5.1; Ev 613, para 6.1. Back

35   Q 793. Back

36   Review of Radio Spectrum Management: An independent review for Department of Trade and Industry and HM Treasury by Professor Martin Cave, March 2002 (hereafter Cave Review), pp 90-92. Back

37   Q 470. Back

38   Ev 38. Back

39   QQ 954, 956. Back

40   Cm 4022, p 37. Back

41   Q 6. Back

42   Framework Directive, Article 8 (2)(c). Back

43   Ev 66; Ev 538, para 2.2. Back

44   Ev 62; Ev 550; Ev 328, para 20; Ev 130, paras 5-7; Ev 84; QQ 217, 274, 369. Back

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