Joint Committee on the Draft Communications Bill Minutes of Evidence

Supplementary memorandum submitted by ntl and Telewest Broadband


  In our original submissions, we made the point that, although OFCOM will have a key responsibility to protect the interests of consumers, if Government wants the UK to be a G7 leader in broadband by 2005 (and digital by 2010), the investment climate in the UK ought to be as good as, if not better than other G7 countries over that period, particularly as all G7 countries have similar objectives.

  Consequently, OFCOM will have a pivotal role in translating Government broadband and digital broadcasting objectives into reality.

Proposal A: OFCOM should have a defined responsibility, under Clause 3 of Part 1 (General Duties of OFCOM), "to encourage efficient investment in infrastructure and promote innovation".


  In our original submissions, we made the point that OFCOM will need to:

    —  regulate for convergence—not just for today but for the future generations of users and services;

    —  understand the supply chain economics/dynamics; and

    —  recognise that regulation in one part of the chain can have a knock-on effect on other parts of the chain.

  Because of the nascent nature of the market, any potential regulatory intervention could create distortions in the market. To minimise this possibility, we suggested that there might be a role for an Economic Advisory Board to review OFCOM's regulatory proposals with a view to assessing the potential for unintended effects through the supply chain. This was not intended as an additional layer of regulation but as a "backstop", in the early days of OFCOM's existence, to review the potential impact of proposals.

Proposal B: OFCOM should be mandated to carry out comprehensive regulatory impact assessments with the intent of reviewing the impact of its proposals on markets as a whole, not just on the company/companies that is/are the target for the regulation.

  Although the "policy narrative" that accompanied the draft Bill (paragraph 5.2.3) provides for the addition of conditions to cover this point, these are not currently included. We believe that a Clause should be inserted to cover this point.


  As a means of achieving "light touch" regulation, it may be worth considering a provision that appears in the Railways Act 1993 (as amended by the Transport Act 2000) where the regulator has duties in Section 4 to:

    —  impose on operators—the minimum restrictions which are consistent with the performance of his functions"; and

    —  "enable persons providing services to plan the future of their businesses with a reasonable degree of assurance".

Proposal C: Clause 5 (1) of the draft Bill could incorporate such wording to strengthen the duty to secure light touch regulation.


  In our original submissions, we pointed out that, although the "policy narrative" (in the introduction to Chapter 3) states that "OFCOM will have no power to regulate content on the internet", the Content Board is given a remit in Clause 18 (2) (a) to consider:

    ". . . matters that concern the contents of anything which is, or may be, broadcast or otherwise transmitted by means of electronic communications networks".

  In Clause 22 (1), an "electronic communications network" is defined as "a transmission system for the conveyance—of signals of any description" and, in Clause 22 (10) (a), "signal" is defined as "anything comprising speech, music, sounds, visual images or communications or data of any description".

Proposal D: These areas need clarifying to avoid the definition of licensable content being extended beyond that covered in Clause 154 (television licensable content) and supported by the definition of an "electronic communications service" in Clause 22 (2). One possible modification is to incorporate wording to differentiate between content that is purely broadcast (using the "push" model) and that which is "pulled" by consumer choice.


  We consider the current must carry provisions to be inadequate in terms of linking must carry status to the discharge of public service broadcasting obligations, and in terms of their inequity in the treatment of comparable platforms.

  The Government has rightly sought to specify in some detail what PSB means and what explicit deliverables it is looking for from PSB operators. However, it has not linked this to the granting of must carry status for individual channels. It is important that it is only individual channels, which contribute to the delivery of PSB in their own right, that should be eligible for must carry status. For instance, it would clearly be inappropriate for must carry status to be granted to Granada Men and Motors because Granada retained a commitment to regional production.

Proposal E1: Rules governing commercial channels' eligibility for must carry need to be tightly linked to their contribution to PSB objectives.

  As we pointed out to the Committee, capacity on cable networks is finite and, therefore, adding more digital TV channels uses capacity that could be used, for example, for broadband services. This notion of a more complex opportunity cost is not reflected in the Government's stated policy, which would look only at compensation for the direct cost of capacity set aside. From a wider economic perspective, it is important that must carry does not lead to widescale misallocation of resources.

Proposal E2: The Government should be required to explicitly consider the costs, including the opportunity costs, of must carry obligations before they are imposed.

  The current draft of the Bill does no more than repeat the language of the European directives. Europe, in turn, has left the detail of when compensation payments should be made to individual Member States. Therefore we have no clarity at all at present about the circumstances in which payments might be made. This problem is compounded by the raising of the prospect that payments could be made in either direction.

Proposal E3: The Government should specify the basis on which it would grant compensation for carriage.

  On balance, we accept the specific carve out of new platforms from the must carry rules but, at present, the Bill discriminates against the cable platform in favour of the DTH platform.

  Cable operators will be required to carry any designated services, but equivalent rules will be applied to the DTH platform only when analogue switch-off has occurred. It is hard to understand the logic of any such linkage. BskyB is the leading provider of digital TV in the UK with more than twice the number of subscribers of our two companies. If there is a case for ensuring that subscribers can access a core suite of services on the cable platform, surely that case must be redoubled in respect of the DTH platform.

  BskyB claims, misleadingly, that the issue is already addressed because DTH operates an open platform and the terms of access to that platform are regulated. However, this misses the point that BskyB automatically receives payment for conditional access services it offers to public service broadcasters, whereas cable operators receive no equivalent payments, despite facing significantly higher costs. The Government has said it will not impose any payments for the existing suite of must carry channels on cable. So the current inequity would continue for an indefinite period of time.

  This could be addressed by introducing rules imposing must carry requirements on the DTH platform which apply from commencement of the Bill. Such requirements should be subject to all the same safeguards listed in our other recommendations above.

Proposal E4: The must carry rules imposed on different platforms should be non-discriminatory


  We noted the concern of the committee about the application of concurrent powers in the sector. Whilst the theoretical case for concurrent powers is sound, the granting of concurrent powers to OFTEL has not been a success in practice. If concurrency is to be given to OFCOM across an even wider jurisdiction, lessons must be learned from this experience.

  OFTEL has never had to specify under what circumstances it will use competition powers as opposed to sector rules. This surfeit of choice seems to lead to a degree of paralysis and contributes to delay in overall case handling times, as there is an initial protracted period of examination before the decision about which route to pursue is taken.

Proposal F1:

  Therefore, we believe that there is a need for a clear decision-making process around the use of concurrent powers, as opposed to the use of sector rules. The Bill could address this problem by requiring OFCOM to:

    (a)  produce guidance on where it will apply sector rules as opposed to competition powers, and

    (b)  set a deadline for initial examination of any case to determine whether concurrent powers should be used of no more than two weeks from receipt of a complaint.

  Applying competition law is a separate discipline to applying sector economic regulation and a world away from content regulation. This must be reflected in the way OFCOM is structured and how reporting lines are set.

Proposal F2:

  A functionally separate competition law team should be established within OFCOM, reporting to a suitably qualified board member—or to the proposed Economic Advisory Board.

  If other functions and duties start to impinge on competition case handling, this would lead to a unique body of case law developing in communications. Such inconsistency is undesirable as a matter of principle but, given the nature of the other duties (eg PSB, spectrum management), our view is that it would also lead to an undesirable reduction in focus on consumer benefits and tilt towards producer interests. If the Committee considers this concern far-fetched, it is worth noting that the Towers Perrin report, agreed with the individual regulators, explicitly proposed that certain competition should be considered in a "strategic" way (ie with a view to squaring competition concersn with other functions and duties.)

Proposal F3:

  Other duties of OFCOM—eg spectrum management or public service broadcasting—must not influence competition decisions. Competition cases should be considered only on the grounds that could be considered by the OFT.

Proposal F4:

  To ensure that OFCOM's concurrent powers are carefully and consistently applied, there should be an explicit requirement in the "duties" section of the Bill that requires OFCOM to ensure there is no inconsistency in its competition rulings with those of the OFT, the European Courts, or the European Commission.

June 2002

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