Joint Committee on The Draft Communications Bill Appendices to the Minutes of Evidence


APPENDIX 18

Memorandum submitted by the Consumers' Association (CA)

EXECUTIVE SUMMARY

  This evidence by Consumers' Association (CA) focuses on a number of key issues for consumers, rather than attempting to deal with the entire scope of the Bill. We will respond to the draft Bill in full at a later date.

  Deregulation should not be an OFCOM policy objective in itself, rather the aim should be to achieve appropriate levels and forms of regulation. The pace of change must follow actual consumer needs and expectations, rather than technological progress.

  Improved consumer representation is central to effective and appropriate regulation, including co-regulation. The proposed Consumer Panel and Content Board should be more fully integrated into the regulatory processes outlined in the draft Bill.

  The nature of the Consumer Panel's relationship with OFCOM is central to its effectiveness. It must have genuine independence of remit and resources, but also direct access to regulatory information and decision-makers.

  There is the potential for conflict between effective economic regulation and OFCOM's other policy objectives. OFCOM's key objective, and measure of success, should be ensuring an effective market, which serves consumers well.

  The Telecoms Ombudsman scheme is a key test of whether industry is willing to take responsibility for further self-regulation. OFCOM must be actively involved in proposing, trialling, and monitoring any further such initiatives to ensure that they are fit-for-purpose.

  The draft Bill proposes greater reliance on competition law rather than sector specific regulation in communications. This will require a clear division of responsibility between OFCOM and the OFT, and consistency with the Enterprise Bill.

  It is important for OFCOM to ensure coherence by regulating all 3 tiers of broadcasting. The regulator cannot deliver on its duties relating to an overall public service broadcasting remit without greater oversight of the BBC.

  CA urges the Joint Committee to ensure that the consumer voice is adequately represented in the debate over the draft Communications Bill by taking oral evidence from CA and other consumer representatives.

For further information, please contact:

  Peter Jenkins (Senior Public Affairs Officer) 020 7770 7612 [email protected] or

  Allan Williams (Senior Policy Officer) 020 7770 7243 [email protected]

INTRODUCTION

  Consumers' Association (CA) is an independent UK consumer organisation with over 700,000 members. Entirely independent of Government and industry, we are funded from subscriptions to our consumer magazines and books, including Which?. We are also a member of BEUC, the umbrella organisation of European consumer bodies. Our Director is Dame Sheila McKechnie.

  The history of CA involvement in communications policy issues can be traced back a quarter of a century to the deliberations of the Annan committee on the future of broadcasting. More recently we have produced policy reports on issues of consumer representation, communications regulation and ombudsman schemes. CA is involved more directly with alternative forms of regulation through establishing Which? Webtrader, a self-regulatory scheme for e-commerce. In addition we have participated in the DCMS Viewers' Panel, the Telecoms Ombudsman working group, and continue to be involved in the government's Digital Action Plan.

THE DRAFT BILL

Regulatory reform

  CA is concerned by the assertion at the beginning of the draft Bill that deregulation will necessarily bring benefits for consumers as well as businesses. Deregulation should be contingent on whether competition and industry co-operation can deliver the same benefits as formal regulation. CA has welcomed the more realistic "carrot and stick" approach to co- and self-regulation, which has recently been adopted by Oftel, and we urge the committee to consider whether deregulation should be a policy objective in itself.

  The policy document (3.1.2) masterfully understates the way that OFCOM's raison d'etre—convergence—has been undermined by rapid changes in the fortunes of the industry and much slower changes in consumer demand. While convergence in networks and services has been extensive, CA reports on digital television and Internet usage have demonstrated that few consumers change as seamlessly between various means of reception and communication[41]. Consequently, there is a need to ensure that reform does not run ahead of consumers, ensuring that existing forms of regulation are maintained where necessary.

  Despite this, there remain good reasons for regulatory reform. CA has argued in favour of a converged regulator for the communications industries since 1997[42], but it is clear that OFCOM cannot deliver benefits without attention to the purpose of these reforms and the challenges that OFCOM will face to deliver on them. CA believes that the key purpose of regulatory reform should be to advance the consumer interest, through promoting effective markets where possible, and through providing more formal protection where necessary.

Consultation

  CA urges the Joint Committee to consider whether the consultation process has allowed effective input and scrutiny process of the draft Bill, in particular the release of additional media ownership clauses and changed to the BBC agreement after its publication. We also note that much of the detail of the proposed regulatory regime will be set out in statutory instruments and other secondary mechanisms. It is important to ensure proper Parliamentary scrutiny of all the proposed reforms, and adequate consumer input into this process.

  The need for improved consumer representation is aptly illustrated by the difficulties encountered by consumer representatives in responding to the Joint Committee within the short timescales allowed. One of the Bill's key provisions recognises the need for consumer representation to be properly resourced within the regulatory structure, in order to ensure effective input into policymaking and to redress the balance of lobbying power with industry. We trust that the Joint Committee will also ensure that this balance is maintained by taking evidence from consumer representatives as well as industry and the existing regulators.

Policy objectives

  CA believes that there are clear benefits to be derived from the creation of OFCOM, but that these will not be delivered simply by creating a single, more coherent structure (3.1.5). We would urge the Joint Committee to consider how OFCOM will operate and set priorities where there is currently overlap (eg on EPGs, which raise both content and economic issues) or gaps (eg digital switchover) between the existing regulators. It is vital that legislation adequately defines how the existing regulators' priorities and approaches are to be taken forward within OFCOM. It may also be that, in some cases, integration and the ability to respond to technological change may lead to OFCOM identifying a need for new forms of regulation, rather than its removal.

  CA also urges the Joint Committee to consider how OFCOM will discharge the range of wider public policy priorities set out in the draft Bill (3.1.6). While objectives such as the promotion of media literacy are welcome, they raise some concerns. Firstly, they are not part of the existing regulators' remits, and will requite additional skills, staff and resources if OFCOM is to carry them out effectively. Secondly, there is the potential for conflict between efficient regulation and other public policy priorities, as recent criticism of Oftel's approach to broadband roll-out has demonstrated. It is possible to foresee tensions, for instance, between priorities relating to deregulation and consumer protection. It is therefore essential to ensure that OFCOM's core objective is effective economic regulation in the consumer interest, rather than other public policy priorities.

  Although we agree that OFCOM should not regulate the Internet in any formal sense (3.2.2), the benefits of the network economy which the draft Bill anticipates are largely dependent on consumer confidence. Consumers do not necessarily need to know how or by whom they are protected, only that an appropriate level of protection is in place. This does not necessarily mean that they expect the same levels of protection online as elsewhere: sometimes less eg over content; sometimes the same eg advertising standards; sometimes more eg data protection[43]. CA itself has developed a self-regulatory scheme for e-commerce, Which? Webtrader, but we do not share the government's optimism that all issues can be left to self-regulation. As convergence progresses, it is vital that OFCOM should have backstop powers and be able to step in where industry cannot or will not take a responsible attitude to consumer protection.


CONSUMER REPRESENTATION

Purpose

  Consumer advocacy fulfils a complimentary but quite different role to regulation. Effective consumer representation in communications is needed both to redress the existing lack of attention to consumers, and to reflect the potential for consumers to both shape and be profoundly affected by technological change. It is central to preventing market and regulatory failure, ensuring both access and efficient regulation. CA has argued that representation should distinguish issues of economic regulation (choice, value, redress, disadvantaged consumers etc.) from those relating to content[44]. We therefore welcome the twin approach outlined in the draft Bill.

  CA welcomes the governments intention to ensure that OFCOM is accountable to its stakeholders, but the language of the draft Bill is at best unclear in identifying who they are. Various terms are used to describe the consumer in the draft Bill and supporting documents: customers; persons; citizens; the public; end-users; and domestic and small business customers used jointly. CA is particularly concerned that the definition of customers may be limited to those who are in a contractual relationship with a provider, excluding many (eg those who are unable to access a service or who are indirectly affected by it) from OFCOM's protection. It is essential that OFCOM should have a duty to protect all consumers and citizens, not just those who are purchasers of particular goods and services.

  The draft Bill proposes to create a Content Board and a Consumer Panel, which CA warmly welcomes, but we urge the Joint Committee to seek greater clarity on a number of issues. Firstly, it is essential to ensure that the roles of the two bodies are distinct, and that the relationship between them is adequately defined. Secondly, the nature of their input into OFCOM decision-making should be clarified and highlighted throughout the legislation, particularly in relation to the withdrawal of formal regulation. Thirdly, there are a range of practical issues concerning appointments, budgets, access to information, remit-setting and the need for representation of all consumers. These issues are addressed below.

The Content Board

  Although CA itself does not have a remit for content issues, we support the proposed creation of a Content Board (4.1). It is important to maintain the current level of lay input and representation of particular groups within the structure of content regulation, particularly on issues of standards. OFCOM should ensure that this body is more diverse and representative of all consumers than the existing bodies, including disadvantaged groups, elderly and disabled consumers, and members from all regions and nations of the UK. Experience suggests that this can be more easily achieved through ensuring time-limited appointments, adequate resources, training, access to expertise and a clear remit[45].

  Although the work of the Board will largely be defined by OFCOM itself (4.1.3), it may be useful to define some of its responsibilities and powers in legislation. Given the expectation that minimum content standards will be flexible in relation to changes in audience expectations, OFCOM should be obliged to consult the Board when considering changes. As with the Consumer Panel, the board should also have a right of access to OFCOM information and complaints data, and to research commissioned by OFCOM and the Consumer Panel (4.1.6).

The Consumer Panel

  At a practical level, it is essential that the consumer interest should provide a counterbalance to the industry and other interests seeking to shape regulatory decision making. CA therefore welcomes the proposals in the draft Bill for a Consumer Panel to advise OFCOM. However, we are concerned by the suggestion in the draft Bill that the Panel's role should be restricted to issues of access, service delivery and consumer protection (4.2.3), and by unnecessary restrictions on its access to information. We agree that the Panel should only have limited responsibilities to address content issues.

  At a strategic level, in the context of a regulatory regime focusing so heavily on the promotion of competition, it is vital that the consumer voice is heard on all the key issues of economic regulation. The Panel's ability to publish opinions and the duty placed on OFCOM to give public reasons when it disagrees (4.2) is consistent with the "supercomplaint" regime proposed in the Enterprise Bill, under which bodies including CA can ask the OFT to investigate competition concerns in "problem" sectors. CA urges the Joint Committee to explore the extent to which the Consumer Panel can adopt a parallel role within OFCOM.

  CA is extremely concerned that the draft Bill fails to deliver on one of the key advantages of the Panel's semi-detached relationship with the regulator—that of access to information—by maintaining the regulator's discretion to withhold information which is commercially confidential or provided in confidence (Clause 96.6). Such discretion has historically prevented adequate scrutiny of regulatory decisions, such as Oftel price controls, based on confidential data. Such clauses not only exclude OFCOM from the provisions of the Freedom of Information Act which are intended to promote corporate and regulatory accountability, but are entirely unnecessary, since companies are already protected from harmful disclosure by the public interest tests contained in that Act. CA urges the Joint Committee to recommend the removal of this provision, in the interests of ensuring the effectiveness of the Consumer Panel in advising OFCOM.

  It is regrettable that the Panel's remit is barely mentioned elsewhere in the draft Bill, given its importance to effective and accountable regulation. The Panel will also need to provide effective input to OFCOM on competition issues, ensuring that analyses of effective competition consider whether markets are effective for consumers, paying particular attention to disadvantaged consumers. The Panel should also be closely involved when considering rolling-back formal regulation. CA has worked closely with Oftel and industry on the telecoms Ombudsman scheme and a code of practice on disconnections, and further moves towards greater co- and self-regulation will require the involvement of consumer representatives, which the Consumer Panel should provide.

  For these reasons, the Consumer Panel's independence must extend to the ability to define its own remit, which may extend beyond that of OFCOM. This is essential if the Panel is to advise other bodies (4.4.3), avoiding the danger of regulatory capture or being seen as OFCOM's Panel. While we agree that the Consumer Panel is not best placed to handle content issues, it should be able to consider them at the request of the Content Board or where they raise competition concerns (eg relating to programme supply and rights) without an invitation from OFCOM (4.2.3). This independence of remit also requires adequate resources to ensure that the Panel is able to undertake proactive work in addition to the legitimate demands of advising OFCOM.

  Regarding the composition of the panel, it is essential not to confuse and conflate the many different elements of effective consumer representation. Representation, consultation, research, lay input and expert advocacy are all necessary but distinct roles, which may be performed by OFCOM, the Consumer Panel or the Content Board. However, CA believes that the role of the Consumer Panel should be primarily one of expert consumer advocate, along the lines of the Financial Services Authority (FSA) Consumer Panel. Although the Panel should have a duty—and access to adequate resources and advice—to represent the interests of all groups of consumers, it may not be possible for it to be representative in a strict sense. On issues relating to appointments, we are content that the draft Bill follows the FSA model.

Complaints and disputes

  It is essential for consumers to have access to rapid and accessible alternatives to the courts in order to obtain redress. CA has worked closely with Oftel and industry to propose and develop a telecoms Ombudsman scheme, and we welcome the approach set out in the draft Bill. We regard the scheme as a test for whether self-regulation can deliver the same standards of consumer protection as formal regulatory mechanisms. The scheme also presents a challenge to operators to deliver on the oft-stated desire to achieve appropriate levels of consumer protection through greater self-regulation. CA would urge to Joint Committee to seek greater clarity in legislation over the timescales for, and levels of, industry participation required for schemes to be judged adequate by OFCOM (Clause 41.2).

OFCOM

Light touch regulation

  CA is against the presumption that the majority of regulatory objectives can be reduced to or achieved through the promotion of competition and the roll-back of formal regulation. The White Paper suggested that OFCOM would be over-reliant on industry to deliver its primary duty of protecting the consumer interest, and would only take action if industry failed to develop codes and mechanisms to provide adequate consumer information, protection and redress. We are pleased that the draft Bill takes a more realistic approach to co- and self-regulation, recognising that relying primarily on industry to protect consumers could fatally undermine OFCOM's own primary duty to protect consumers.

  As already indicated, CA is concerned that deregulation should not be a policy objective in itself. We welcome the suggestion that regulation should be rolled back "where no longer needed" (3.1.1), but this requires extreme clarity on how regulation is deemed to be unnecessary, and the extent to which it can be rolled back. In many key areas such as universal service, regulation is designed to protect disadvantaged consumers whom the market does not protect or serve adequately, and to deliver wider public policy goals relating to social inclusion. Consequently, the ultimate test of efficient and appropriate regulation is its effectiveness in protecting and delivering benefits to consumers.

  It is crucial that OFCOM takes a lead in proposing, brokering, trialling and reviewing areas where regulation might be rolled-back. Legislation must require OFCOM to take full account of actual consumer behaviour and needs and not technological potential, industry promises or simple trend analysis when considering the withdrawal of regulation. The regulator should also retain strong backstop powers to limit and sanction co-regulatory failure in the short term, and to maintain its efficient operation in the future. CA believes that criteria and mechanisms for evaluating the success of alternative forms of regulation should be established as a matter of urgency.

  We would also welcome greater clarity regarding the grounds on which industry codes will be judged to have failed and OFCOM will take action. Any withdrawal of formal regulation should be conditional on ensuring that consumers remain protected by and represented within alternative regulatory structures. Co-regulatory schemes with adequate consumer involvement and regulatory backstop powers would deliver equally flexible light touch regulation without the disadvantages associated with self-regulation, but there are important resource implications. The Consumer Panel will have a key role to play by representing consumers in these processes.

Competition powers

  CA welcomes the recognition that competition provisions need to remain both flexible and contextual. However, while supporting the general position, we are concerned about the potential for confusion of responsibility between OFCOM and the OFT which concurrency provides. We are also concerned about the reliance on the discretion of the regulator to apply either general or sector-specific competition rules. We would urge the Joint Committee to consider two issues: the need for a clear division of responsibility between OFCOM and the OFT; and the need to ensure consistency between the Enterprise and the Communications Bills.

  At the moment, it is unclear how OFCOM will exercise its competition powers, given the ongoing reform of both communications and competition regulation. The "competition agency as watchdog" role is centrally important to advancing consumer welfare. The prevention of competition abuse is hindered by the complex web of firms, regulations, market structure and established patterns of market behaviour by firms and consumers, so it will be essential for OFCOM to use its knowledge of the sector to ensure that the competition regime in communications is consistent with that applied by the OFT.

  The Enterprise Bill contains a number of key provisions which CA would like to see mirrored in the final Communications Bill. CA has particularly welcomed the powers given to the OFT in respect of industry codes of practice. In a lighter-touch regulatory system, consumers may increasingly rely on codes as a reassurance that they are selecting a reputable firm. Unfortunately some codes of practice are largely cosmetic and offer little consumer protection. Although we welcome the procedures for the approval of codes in the draft Bill (Clause 40), CA would like greater detail on the grounds for approval. We look forward to OFCOM ensuring that codes are both effective and meaningful to consumers.

  CA is keen for consumer organisations to assist with ensuring markets work effectively, so we are pleased to see that super-complaints will be given a statutory basis in the Enterprise Bill. It is envisaged that super-complaints will concern situations where markets rather than the activities of particular companies fail to work for consumers. CA also supports the new approach to market investigation, combining of the complex monopoly provisions with the ability to seek out problem sectors. However, as with all such reforms their success will depend on the willingness of the agencies to use their powers fully. We would expect OFCOM to work closely with the Consumer Panel to identify and address such problem sectors.

  We would urge the Joint Committee to consider whether the operation of an effective competition regime in communications may be compromised by other public policy objectives, particularly if OFCOM is responsible for their delivery. CA is particularly concerned that, as in the case of broadband roll-out and analogue switch-over, dominant players may be allowed to reinforce and perpetuate their dominance in the interests of achieving particular policy goals. This creates a clear conflict of interest if the regulator is responsible for both effective competition in the consumer interest, and the delivery of other public interest objectives.

Networks and services

  CA urges the Joint Committee to consider the EC directives on electronic communications as part of its deliberations. We are concerned that their implementation through Statutory Instruments, rather than alongside the draft Bill, may mean that they are not given adequate Parliamentary scrutiny. Related to this, there is a danger that the obligation on OFCOM to contribute to the development of the internal market may lead to "levelling-down", in the interests of harmonisation. It is essential to ensure that existing forms of UK consumer protection are maintained in the implementation of the EC directives.

Spectrum

  CA welcomes the powers of direction on issues of spectrum management which the draft Bill maintains. Although we recognise the merits of relaxing the rules restricting spectrum to particular uses, there are a number of concerns about the initial auction and subsequent trading of spectrum[46]. Consumers participate in these markets indirectly through the purchase of equipment and services, and are therefore vulnerable to the impacts of spectrum trading on costs, longevity, quality and access to these products. CA is concerned that the introduction of spectrum trading should not be considered an end in itself, but should only be introduced with adequate safeguards and where it is likely to deliver measurable benefits for consumers.

  These powers of direction are particularly important or the management of the proposed switchover from analogue to digital television. CA remains adamant that no reallocation of broadcast spectrum can be considered until the switch-off of the analogue television signal has been successfully completed, ensuring universal access to free-to-air digital services. Spectrum reserved for public service broadcasting should include sufficient capacity for future enhancements to terrestrial broadcasting, such as local public service broadcasting and interactivity. CA does not support the proposed application of spectrum pricing to public service broadcasters, nor the sharing of their spectrum allocations with commercial users without further analysis of the effect on service.

OFCOM and the BBC

  CA has long argued that OFCOM should have a greater role in regulating the BBC, for two reasons: to ensure effective and accountable regulation of the BBC against its public service remit; and to ensure that OFCOM can effectively oversee the whole broadcasting ecology. This is not some spurious argument about "levelling the playing field", rather such reform is vital to the legitimacy of both the BBC and OFCOM. CA is disappointed that the draft Bill tends to support the BBC's own position, which argues that it is enough to bring regulation of the BBC closer to that of other broadcasters[47]. While we support the application of the programme policy statement process to the BBC, this alone does not address our concerns.

  To deal first with the BBC's own accountability, we are not convinced that the BBC's editorial independence depends upon, or is even a function of, the opaque and unaccountable way in which it is governed. The recent reforms of the Governors appear to be merely a response to the perceived threat of OFCOM oversight, consisting of little more than a reorganisation of the executive secretariat. Ironically, the best guarantee of the BBC's future independence, distinctiveness and the legitimacy of its funding is to ensure adequate oversight within OFCOM.

  As a shadow for OFCOM and a consumer representative on issues of economic regulation, the Consumer Panel needs to scrutinise the competition implications of content issues, including choice, access and pluralism. The BBC current arrangements substitute lay advice (from bodies which are not adequately representative) and general research (which is designed mainly to give legitimacy to the BBC's own proposals) for genuine consumer consultation and representation of the sort which will be provided to OFCOM through the Consumer Panel (properly resourced, expert, with access to research and the ability to get its opinions published and considered. The Panel's remit therefore has to include the BBC under OFCOM.

  Moreover, it makes no sense for OFCOM to be responsible for the delivery of a general public service remit if it neither agrees nor monitors the remit of the BBC. The increasing complexity of the broadcast market means that broadcasting regulation needs to be viewed holistically, to ensure that the BBC's complex relationship with the market is not reduced to merely addressing market failure or duplicating existing offerings[48]. The fact that the BBC's performance, measured against its own aims and promises, will be measured and reported on by the BBC clearly undermines that role. Bringing enforcement of the BBC's remit under OFCOM would deliver on the draft Bill's intention to ensure coherent regulation across all broadcasters (8.2.3.1).

Content standards

  CA welcomes the proposed 3 tier system of content regulation, and the proposed approach to setting basic standards. As already suggested, it is vital that there should be adequate consumer input into setting these standards, particularly if it is anticipated that these will change to reflect changes in social attitudes and audience expectations (8.5.1). This will be a key role for the Content Board, through advice and research provided by the Consumer Panel. CA supports the proposal that OFCOM should consider content complaints from viewers, and we suggest that the regulator also should take the nature and volume of these into account in setting basic standards.

  Improved media literacy will also be necessary in a lighter-touch regulatory environment, and we welcome OFCOM's responsibilities in this area (8.6.5). However, we are concerned that OFCOM should not allow technologies such as filters or "net nannies" to substitute for genuine media literacy which allows consumers to protect themselves. As suggested above, it is also important that this policy objective is supported by adequate staff and resources, as it is not part of the existing regulators' remits.

Advertising

  CA has been extremely critical of self-regulation of advertising and the Advertising Standards Agency (ASA) in particular[49], and we believe that technological change is likely to exacerbate rather than improve the situation. This is an area in which convergence is increasingly evident, with advertising campaigns commonly co-ordinated between broadcast and print media, direct marketing, company websites and other channels. The Internet has eroded the distinction between advertising and editorial content, while allowing advertisers to provide information directly to consumers in ways, which would not be allowed through other media, such as the advertising of prescription drugs[50]. Meanwhile, the advertising industry has largely failed to take a responsible approach to the self-regulation of these new channels[51].

  CA urges the Joint Committee to support further co- rather than self-regulatory mechanisms for advertising. If the government's objective is to achieve regulatory coherence and coverage of new services, it follows that this principle should apply to the converging advertising industry. OFCOM's powers should enforce and ensure coherence in the regulation of advertising, since consumers are unlikely to be aware of the different regulatory standards and bodies when evaluating advertisers' claims. Improved consumer representation is also central to moves towards extending the co-regulation of advertising. The Consumer Panel will have a key role to play in OFCOM's regulation of advertising, but CA also expects the ASA to be one of the key external bodies to which it should provide advice.

Media ownership

  CA is unable to make detailed comments about media ownership at this time. We would urge the Joint Committee to consider what the proposed changes will mean for the viewer as both citizen and consumer. Here it is important to distinguish the consumer interest (which lies in maximising choice, value and access) from the public interest (which relates to plurality, diversity and democratic functions). We look forward to addressing this issue in our full response to the draft Bill.

June 2002


41   See CA research paper (2001) Turn on tune in switch off: consumer attitudes to digital television and Which? Online Annual Internet Survey (2001) The net result: evolution not revolution. Back

42   See CA policy report (1997) Communications regulation: making the right connections.  Back

43   See Which? Online Annual Internet Survey (2001) The net result: evolution not revolution.  Back

44   See CA consultation response (2001) The Communications White Paper.  Back

45   See NCC report (2002) Consumer representation: making it work.  Back

46   See CA responses (2002) to the Cave review of spectrum management and DCMS review of broadcast spectrum. Back

47   Compare BBC (2002) Governance in the OFCOM age with 8.2.1.1.  Back

48   See CA response (1996) BBC charter debate.  Back

49   See CA policy paper (1997) Self-regulation of advertising. Back

50   See CA policy report (2001) Promotion of prescription drugs: public health or private profit?  Back

51   See criticism of the ASA's Admark scheme in Computing Which? (July 2001). Back


 
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