Examination of Witnesses (Questions 180-195)|
MONDAY 27 MAY 2002
180. Just finally, one of the things that worries
me about the whole Competition Act and the enterprise of doing
it after the fact is we have a market out there with the Internet.
If I were a company that wanted to get round some of the rules,
I would be setting up an ISP with different bases in different
countries and applying the rules in different countries according
to what I could get away with at any one time. How are you going
to cope in a world like that rather than the slow-moving world
that you are used to?
(Mr Vickers) I am not sure it is that slow moving.
There are all sorts of ways in which national competition authorities
and supra-national competition authorities like DG Competition
in Brussels (and I would say the same for consumer protection
agencies as well) are increasingly working together, and there
are a number of examples in the consumer protection area where
European Directives have been implemented in the UK where we not
only can but have taken cross-border action. That would be part
of the answer to the question. You spoke also about how fast-moving
circumstances can be and I think one of the merits of what is
sometimes called ex post regulation is that it can, to
a substantial degree, deal with issues of that kind. The Microsoft
matter in the US is being pursued under the 1890 Sherman Act passed
nearly a century before Microsoft was thought of.
181. The reality is that by the time that is
resolved, the issue that Microsoft is trying to protect itself
from will be long gone.
(Mr Vickers) That also links to the point about deterrence
which we had earlier on. The so-called ex post legislation
has ex ante effects via deterrence.
(Ms Bloom) We have a lot of complaints and in a not
insignificant number of them somebody will complain to us for
example about refusal to supply. We will be investigating a case
and a bit later they will phone up and say, "You can drop
that case now because the company we were complaining about is
now supplying us because we had complained to you and they had
realised the strength of your powers." That was a quite rapid
self-enforcement. That only happens in some cases and we have
to go right through some of the cases. So far we have only had
four which have gone through to a prohibition decision and we
have fined companies, but self-enforcement is quite a useful mechanism.
Baroness Cohen of Pimlico
182. It strikes me as rather odd that you can
appeal against an awful lot of things to the Competition Appeals
Tribunal against a background where it has been made clear in
competition that things will go to OFCOM because they know the
industry. There is going to have to be an awful lot of people
under the auspices of the Competition Appeals Tribunal who know
enough to deal with these appeals. Is the Competition Appeals
Tribunal ready for this?
(Dr Morris) I should preface my answer by saying that
the Competition Appeals Tribunal, which is currently part of the
Competition Commission, will be completely split off from the
Competition Commission under the Enterprise Bill. That is in order
that there will be an appeal against the decision by the Commission
that will go to the CAT.
183. How many of them are there?
(Dr Morris) How many people in the Tribunal?
184. What does the Appeals Tribunal look like?
(Dr Morris) It has a President and 21 members part
time and on any particular appeal the President and two others
will sit. They come from a variety of backgrounds. Some of the
others are lawyers, but they are also economists and accountants
from the industry and so on. Then there is a relatively small
support staff, a registrar and I am not sure of exact number,
15 or 16 support staff. It is quite small but, of course, at the
moment it is only dealing with appeals largely against decisions
of the Office of Fair Trading under the 1998 Competition Act.
Baroness Cohen of Pimlico: I think the answer
to that question was no, but I am not really quite sure.
185. On appeals the EU legislation requires
there to be a full appeal on the merits of the case and that is
provided for on decisions of OFCOM under this legislation, but
if OFCOM uses the powers under the Competition Act there is an
appeal on merits to the Competition Appeals Tribunal. If OFCOM
were to use the powers of the Enterprise Bill when it becomes
an Act there would be an appeal not on merits but only on grounds
of judicial review. Does that cause a problem in relation to the
EU legislation or are the kinds of decisions covered by the Enterprise
Bill, ie merger decisions of market investigations, not intended
to be appealable on the merits by the EU Directive?
(Dr Morris) That is quite a complicated area unfortunately.
If we take the Competition Act, first of all, as you say, there
is scope for a full appeal and if we look at what is proposed
under this Act where there are decisions about the existence of
significant market power or possible remedies under that, there
will once again be (because of the European Directive) scope for
appeal. In each of those cases there is a first tier decision
body, OFCOM, and then there is an appeal. There is a particular
problem which perhaps I could come back to in that area. To try
and answer your question on mergers, the situation is different,
there is a first tier body which would make a reference to the
Competition Commission in order to investigate a merger and then
there is a second tier full investigation by the Competition Commission.
In normal circumstances it would be single determinant with no
relevance at all, unless there is a so-called public interest
gateway, and then there would be a right of appeal. At that point
it would be essentially JR. That all fits because in the merger
case you have already had a two-stage process and therefore the
appeal is JR. Under, for example, the Competition Act essentially
that says certain things ex ante have been deemed to be illegal,
they are prohibited and the only question for the OFT is has the
company or particular set of companies breached that prohibition?
If they decide they have they fine them and therefore it is right
in that situation with a single decision at that point that the
appeal should be a full appeal.
(Mr Vickers) In both cases there is a two-tier structure.
In one case we decide subject to appeal and in the other case
we refer. That is subject to JR but everything in public administration
is subject to that in any event.
186. I wanted to pick up a thread I wanted to
explore earlier on which I want an opinion and where sadly I got,
in Lord Pilkington's words, a not very clear answer. You must
as a body spend a considerable amount of your time and resources
looking at competition issues to do with the communications industry
as will come under this Bill. As people have pointed out, there
are concurrent powers with Oftel and OFT. This legislation is
going to extend that hugely across the sector potentially to newspaper
mergers of the smallest variety, so there will be an awful lot
of people looking at similar issues to the OFT and potentially
second-guessing who is best to act or co-operating as to who is
best to act. OFCOM run the danger of becoming a huge monitor rather
than the fleet-of-foot, nimble regulator it is supposed to be
focusing on specific issues of its duties. Do you not think as
an opinion that it would be more effective to give OFT all the
sector specific powers in the various bits of sector specific
legislation and let the OFT get on and pursue the enforcement
of competition issues whilst drawing on the expertise on sectoral
regulators, so that bodies like OFCOM can sharpen their focus
and get on with the business of being faster and fleeter of foot?
(Mr Vickers) As a first point, please do not underestimate
the range of activities that the OFT has. There are two ways you
can do it. You can have concurrency arrangements with sector regulators
applying competition law in their areas, or you can cut it the
other way and have competition powers exercised by one body right
across the piece. Either way of doing it could be made to work.
I think the way things have worked in the concurrency arrangements
under the Competition Act, although it is early days, is so far
so good. I would expect the same in the OFCOM world.
187. Just something that is slightly intriguing
me. Mr Morris said, "I suppose you will be getting on to
newspapers later" and of course we have not. I just wondered
whether that was prompted by the fact that he had some wise piece
of advice to the Committee perhaps on cross-media ownership that
he wanted to get on the record.
(Dr Morris) I do not think so. It was more that this
is an area in which the Competition Commission's involvement has
not been that great. I should restrict my comments to areas where
we have some competence. I think that boils down to two areas,
one of which is we do have experience of the newspaper merger
regime. We do not have draft provisions yet, but there are the
broad proposals that have been spelt out and essentially they
say that the newspaper merger regime should rely and build upon
the standard merger regime that exists more generally, and that
does seem to me to be a very sound way forward. The problemand
it is quite a problemis how do you specify the new exceptional
public interest gateway that will need to be specified to deal
with the obvious public interest issues that do arise under newspaper
mergers? At the moment the legislation under the FTA under the
special newspaper regime requires us to look at competition issues,
but also issues of the accurate presentation of news and the freedom
of expression of views. We do that, but the precise meaning of
those words is not critical because the overriding criterion at
the moment under which we are required to operate is a public
interest criterion, and so if we felt there were problems of that
nature but not necessarily precisely fitting those words it would
not matter because we could come to a public interest finding
more broadly. Under the new regime for mergers in the Enterprise
Bill the test will be whether a merger leads to substantially
lessening of competition or not. If we adjudge that it does not
lead to a substantial lessening in competition, it has passed
the test. However, for newspapers that would not be sufficient,
so there is a proposal that there will be a special provision
to deal with public interest issues. The wording now becomes absolutely
critical because if some public interest issue is not properly
picked up under that wording, there is no way in which the Commission
under the Act will be able to allow for it under the primary test.
That is a pure competition test. I think there are relatively
few problems about applying the accurate presentation of news
conditions. We have operated that since 1965. We largely have
to rely on whether there have been complaints on that issue, we
cannot go checking stories ourselves, but where it is an issue,
and the Sullivan Post (?)case was one issue where it came
up, I think we have been able to deal with that. Hopefully that
was alright. When we get to freedom of expression of views, traditionally
the Commission has regarded that as an issue of whether there
has been editorial independence or not, and we go to great lengths
to check that editors do have independence in that respect. Of
course, that does beg the question that perhaps no editor has
ever had any pressure put upon them because owners appoint editors
which they do not need to put pressure on because they are like-minded.
That pushes the issue one stage further back to the issue of the
owners. In general it is not a problem provided you have a plurality
of views. In particular we have found that in the local newspaper
areabasically we have never had a national newspaper merger
casethere is the commercial necessity that you appeal to
a very wide spectrum of views at local level, and therefore the
notion that an editor will be pushing one very virulent, persistent,
hard-line case is relatively rare. We did have the Kidderminster
hospital case but there, in a sense, the problem was not too little
freedom of expression, I think people thought there was too much
freedom of expression. The key thing is you have got a plurality
of views. There was a proposal to bring, as I understand it, plurality
into EPI, but it is very difficult to see quite how that would
work. I do not think there is a great problem at the level of
national newspapers. We as a competition authority could relatively
easily ensure that there is sufficient competition and hence plurality
of views. At the local level it is quite difficult. There are
vast swathes of Britain where essentially it is only one local
newspaper that has any editorial content. When we get a merger
we look at the degrees of overlap and we try to preserve diversity
in the area of overlap. One is often aware that in all of this
area and all of that area there is no problem with the merger
because there is no diversity to start with and the merger does
not make a difference to that. We have even had cases where there
has been diversity of overlap, but it is quite clear if the merger
does not go through that one set of titles will fail and therefore
again the merger does not make a difference to diversity. I think
the Bill ought to be an opportunity to stand back and say quite
what is happening on the issue of plurality and diversity of views,
particularly at the local level.
188. Do you only do this in isolation to the
print media or do you look across sources of news to radio news
and to television news in the localities?
(Dr Morris) In every local newspaper merger that we
have hadand we have had a large numberwe always
consider the question to what extent might there not be a competition
or a plurality problem because of local radio, local television
and other media. To date we have always concluded that local newspapers
are still sufficiently distinct, but in recent years that judgment
has been getting a much finer judgment, it is much less obvious.
I suspect there will come a point where using the usual sorts
of the tests of market definition we will conclude that newspapers
and other types of media have now started at the local level to
merge into a single market, but we have not hit that point yet.
189. Is it your expectationand perhaps
this is something we should discuss subsequently with the Bill
teamthat this is something that will be dealt with by of
specifying as public interest some form of words that deals with
the issue of plurality of local or indeed other media ownership
in the Enterprise Bill or subsequently amending the Enterprise
Bill through the Communications Bill?
(Dr Morris) At the moment the proposal is to do this
in relation to mergers. That is fine, but it is just that one
can only then tackle it where you have a merger and where there
is an element of overlap. It is quite possible that the vast majority
of people in the country could be faced with only one local newspaper
with editorial comment. One can ensure
190. Sorry to interrupt, it is not newspaper
transactions as with the local case, it might be just the case
with acquisition under the Fair Trading Act?
(Dr Morris) I am sorry, I missed that point.
191. Essentially a merger can only be conducted
with the consent of the Secretary of State. If you align this
with the merger provisions you require a merger for that to happen
in the first place.
(Dr Morris) There is a potential problem there under
the proposals which is if there is a merger it involves two enterprises
ceasing to be distinct. That would mean that if someone bought
a newspaper chain and they opened a fish shop that would be sufficient,
but if a wealthy individual with no other interests just bought
a newspaper there might be concerns about whether he or she is
a fit and proper person but, as I understand it, that could not
be caught under the merger regime because it is about convergance
of control not transfer of control.
192. We approach the 9 o'clock watershed so
I will be brief. To put the opposite view to Mr Farrelly's, could
you argue, as Patricia Hodgson did last week, that there is a
tradition of taking quicker decisions in the communications sector
than there is in the competition sector? You said there are very
good reasons why these things take a longer time, but given the
duty of promptness and given that you will have a section of lawyers
and economists and specialists looking at the communications sector,
should it be possible to come to decisions quicker? I know you
will not want to go into the detail of the recent decisions that
have been referred to, but did satellite decisions, regarding
access and so on, to channels take rather longer than the other
sorts of decisions you take? Was it above average or was it about
par for the course?
(Mr Vickers) With the Competition Act, as we have
said previously, it is early days so the track record under that
Act is not a lengthy one. There is, however, the experience of
the European Commission which goes back several decades and there
are other authorities around the world which have longer experience
still. I do not see any reason necessarily to presume that cases
would be taken forward more quickly under one set of institutional
arrangements or another. What needs to be done under the Competition
Act involves various staging posts of the case. The first is a
decision as to whether there are reasonable grounds to suspect
that an infringement has occurred. When that hurdle is crossed
various powers of investigation and information gathering come
in. Then if it comes to it one gets to the so-called rule 14 notice
stage where there is a proposed decision and then parties have
rights to make representations, which they do sometimes voluminously
in writing and also at oral hearings. And then all these need
to be taken into account of course before any final decision is
reached, whichever way it goes. That is rightly part of the process.
Any competition authority in the United Kingdom obviously has
to go through steps like that or exactly that if we are talking
about the Competition Act.
(Ms Bloom) Those are the steps if you are leading
to an infringement decision with potential significant powers
to fine or impose directions requiring the company, for example,
to lower its prices or do something very significant in terms
of future business. John mentioned early days. We have only had
four prohibition decisions and the most recent one, quite a small
case, was the fastest and it took ten months to go through the
process he described. It would be difficult for anybody to get
it much shorter than ten months just because of the need to observe
the rights of defence which John described.
(Mr Vickers) That process is not the end of the story
because then there are appeal rights to the Competition Appeal
Tribunal and on points of law potentially above that to the Court
of Appeal, and similarly in the European context appeal rights
from the Commission to the European court system.
(Dr Morris) Could I raise one difficulty about the
appeals mechanism because it comes from a number of questions
from Baroness Cohen and it relates to this. Under the new regime,
appeals, for example, about substantial, significant market power
will go to the Appeals Tribunal and that seems very sensible.
Also it is envisaged that price control cases will be appealed
to the CAT. I think that is rather like a lose rivet on a plane.
It is a very small part of the craft but it would be extremely
damaging to the whole regime. At the moment those appeals come
to the Commission and I hasten to say this is in no sense trying
to cling on to work. We have had three such cases of any significance
over the last 280 and we need more work like a hole in the head.
There is a very fundamental point here which is on price controls.
We act as the appeal body across the whole regulatory regimegas,
electricity, telecoms, and recent acts have extended that to postal
services, airports, air traffic, rail traffic, the whole worksand
we have therefore developed the expertise and the resources to
deal with that. We have had 17 cases. The proposal now is in one
sector and one sector only where there have only been three significant
cases, to take that appeal function away and place it with the
CAT. I think splitting it off and placing it anywhere would be
very damaging. It will certainly require increased resources and
raise the possibility of inconsistency. To place it with the CAT,
which I think is an extremely competent and able body, would be
particularly disastrous because, firstly, it is not designed to
deal with such cases, it has no economists or accountants or business
people on its staff, but much more importantly it is the one body
in the UK to which we cannot provide any advice. We cannot even
liaise with them because it is the appeal body for our own decisions,
so there would be no possibility of testing whether this inconsistency
was emerging. I think it therefore flies in the face of everything
the Better Regulation Taskforce is talking about. I think it has
only come about because people have said under the European Directive
there has to be a full appeal, but that is precisely what we will
provide, and then it is said, yes, but it has got to be a judicial
procedure. It has not. It is quite clear that a quasi judicial
or non-judicial procedure is right provided we publish our decision,
which we do.
193. I think you are saying there is a danger
it could take even longer with that particular clause in there.
I am sorry to harp on about the satellite channel and the other
premium channels but they are of some public interest. Can I ask
you for the record how many people you had working on that particular
case and could you see some merit in the platform and content
being separated for transparency to enable you to investigate
these sorts of cases in the future, or indeed OFCOM?
(Ms Bloom) Just on the numbers, it is something of
the order of up to six people on the team, but that is not six
full time because, for example, some of the economists would be
working on other work as well. I would have to come back on what
the full-time number would be.
194. I would be interested to know.
(Mr Vickers) On the other hand, there might be some
people not on the team as such who have been contributing something
to that case. The issues having to do with the relationship between
content and infrastructure are among the questions in that case.
You were moving on to a much wider issue about the structural
arrangements, and issues of that kind arose in some of the regulated
industries post privatisation. I do not think I can usefully say
anything in the context at hand on this.
195. Just one final question then, do you think
what we are embarking on will last ten years or is there any way
we could make it last a little bit longer? Is there anything Parliament
should look at in particular? What are our prospects of not coming
back to this in ten years? As a marginal seat I am not sure I
will be here in ten years, but what are our chances?
(Mr Vickers) I am tempted to say pass!
Chairman: Thank you. You really have been more
than helpful. I am very sorry that we took so much of your time.
I am particularly grateful to you for being here, it has been
very helpful. Can I also apologise to the transcriber and thank
her for testing her incredible patience. Thank you very much indeed.
2 Note by witness: There are currently eight members
of the immediate team. We estimate this is equivalent to around
four full-time staff. The team includes lawyers, economists and
financial analysts. Most of these have considerable experience
on competition analysis.
In addition to the immediate team, the
investigation is drawing on significant external consultancy advice
in accounting and economic analysis.
Lastly, the Director General and various
senior staff play a role at key points in the investigation.