Joint Committee on the Draft Communications Bill Minutes of Evidence


Memorandum submitted by Intellect

INTRODUCTION

  1.  Intellect is the new association representing the information technology, telecommunications and electronics industries in the UK formed through the merger of the CSSA[1]and FEI[2]. Intellect represents over 1,000 members including the major manufacturers of both business and consumer electronic equipment, semi-conductors and electrical component suppliers and software companies and a broad range of operators and service providers. Intellect is committed to improving the environment in which our members do business, promoting their interests and providing them with high value services.

  2.  The purpose of this draft bill is to establish a new policy framework appropriate to the needs of a dynamic, converging, high bandwidth communications sector. Industry has urged government to avoid being too prescriptive when seeking to legislate for this fast moving sector. We therefore welcome the flexible regulatory approach set out in the draft bill, but note that this flexibility comes at a cost of increased regulatory uncertainty for business. Ultimately, the success of this legislation will depend upon the way in which OFCOM and the Secretary of State interpret and exercise the flexible powers set out in this draft bill. Careful consideration must therefore be given to the way in which OFCOM's objectives are prioritised and to the checks and balances that are built into the processes it follows in carrying out its duties.

  3.  The importance of the communications sector to the UK economy has been well documented and the government has set ambitious targets for the UK to be a world leader in broadband, digital television, e-business and the knowledge economy in the course of this decade. These targets are a major challenge for OFCOM and the proposed new regulatory framework. In particular OFCOM will need to ensure that the UK is able to attract significant levels of sustained capital investment in infrastructure and services if the UK is to have "the most dynamic and competitive communications industry in the world".

  4.  The challenge set to OFCOM to regulate a diverse and dynamic sector for a variety of political, economic and societal objectives should not be underestimated. The OFCOM board will have to master a wide range of issues and at times will have to strike a delicate balance between conflicting objectives and interests. The decisions taken by OFCOM will have an impact throughout an increasingly complex value chain. OFCOM will need to have a clear understanding of the impact of its decisions on all the elements of the value chain and will need to be comprised of people of the highest calibre. Effective implementation of the "Good Regulatory Principles" set out by the Better Regulation Task Force will be essential.

OFCOM's Objectives

  5.  As mentioned above, there will be instances where OFCOM will have to strike a balance between conflicting policy objectives and it is therefore vital that those objectives are properly articulated in the Bill. Given that OFCOM will play a pivotal role in delivering the government's objectives, in particular relating to broadband and digital switchover it is a concern that more prominence is not given in the draft bill to the need to create a regulatory environment that encourages long term sustained investment and innovation in communications networks, services content and applications.

  6.  We are concerned that more prominence be given to this objective in the General Duties set out in Part One Section three of the draft bill. Article 8 of the new EU Framework Directive requires NRAs to "encourage efficient investment in infrastructure and promote innovation"[3]. We consider it essential that this provision is given equal weight with the other general duties of OFCOM and is therefore be made explicit in Part One Section three.

  7.  There have been suggestions that a specific objective for broadband should be written into the bill. Intellect believes that the deployment and take-up of broadband services is central to the communications agenda that this bill addresses. However, we do not believe that direct reference should be made to broadband in the Bill. Definitions and understanding of broadband services will change over time as the market and technology develops and any explicit reference would risk being technology specific and potentially inhibiting the market.

Regulating for investment and innovation

  8.  As stated above we welcome the flexible approach taken in the draft Bill but note that its success will depend, to a very large extent on the way in which the OFCOM Chairman, Board, CEO, and staff interpret and exercise the powers and provisions set out in the Bill. It is essential that senior appointments including the Chairman, CEO and other OFCOM board members reflect the right combination of skills and experience from across the whole communications value chain and that the board is not unbalanced towards any part of the sector.

  9.  OFCOM needs to regulate to ensure that convergence actually happens. This means regulating not only to ensure effective use of scarce resources such as spectrum and existing investments in current technologies in the interests of consumers but also to encourage dynamic market development (increasing the level of investment and innovation undertaken by firms) for the benefit of future generations of users and service providers. Balancing the short-term and long-term interests of consumers will be a constant challenge for OFCOM.

  10.  The communications supply chain is becoming increasingly complex, major players now include internet service providers, hardware and software companies, independent programme makers, content developers, and rights holders as well as broadcasters, and traditional network operators. None of these players can exist in isolation and it is vital that all players in the value chain are able to make a sufficient return on their investments to attract the necessary high level of capital that will be required. OFCOM must avoid regulation in one part of the chain having unforeseen effects on other players and creating distortions in other parts of the market.

  11.  OFCOM will have to regulate three different layers of the communications sector for different purposes: (a) content; (b) transactional aspects; and (c) electronic communications networks and services. Each must be regulated in the context of the objectives that apply to that layer. OFCOM must avoid the use of inappropriate regulation of one layer in order indirectly address issues in another layer.

Concurrent powers with the OFT

  12.  Intellect is concerned about the risk of double jeopardy if there is insufficient coordination between OFCOM and the OFT. OFCOM's relationship with the other Competition Authorities needs to be clearly delineated and well understood. A transparent mechanism should be established to ensure that in each case where action on anti-competitive grounds is under consideration a rational choice is made between the use of sectoral regulatory powers and competition act powers and between action initiated by OFCOM or the OFT on a basis that is seen to be both reasonable and fair.

  13.  As a consequence of giving concurrent powers to OFCOM and other regulators, Intellect is concerned that there is a serious danger, as the need for sector specific regulation withers away, that we will result with several sector specific competition bodies rather than one central competition body.

Transparency and consultation

  14.  There is a real need for effective implementation of Good Regulatory Principles set out by the Better Regulation Task Force. The current reference in the draft bill that OFCOM shall "have regard to" the five principles is too weak. For example having identified and reviewed regulation deemed an unnecessary burden, it is not sufficient for OFCOM simply to "have regard" to removing it. OFCOM should also have to set out the appropriate remedial action and incorporate this in its work plan. The reference to the five principles should therefore be strengthened.

  15.  It is essential that OFCOM's actions and decision-making are transparent. In particular it is important that there are effective and meaningful mechanisms for consultation if OFCOM is to gain the trust and confidence of the industry. We believe that current mechanisms, based on written consultations and submissions are insufficient and recommend that OFCOM should hold open meetings and public hearings on the model of the US FCC. This would be particularly beneficial for providing clarity on the thinking behind OFCOM's decisions when it has had to resolve conflicting objectives.

  16.  OFCOM must be fully accountable for its actions. OFCOM should be required to undertake comprehensive regulatory impact assessments, which assesses the impact of its actions on the market as a whole and not just the organisations targeted for regulation.

  17.  We also believe that an Economic Advisory Panel should be created to review OFCOM's regulatory proposals with a view to assessing the potential for unintended effects through the supply chain. This would have an advisory role similar to the Consumer Panel.

Content Regulation

  18.  Although the government has clearly stated that it does not intend to extend content regulation to the internet, the draft bill does not preclude such intervention in the future. The definition of licensable content, the broad remit of the content board, and the powers of the Secretary of State to modify these provisions all leave plenty of scope for the extension of content regulation beyond broadcasting to any other form of electronic communications ne twork in the future.

Spectrum

  19.  OFCOM must ensure that European and International harmonisation of spectrum regulation is one of its primary objectives. Intellect supports the introduction of spectrum trading, however, the UK must not become a spectrum island by allowing changes to the use of spectrum being traded. Seeking and maintaining harmonisation must be a priority.

  20.  It is important that the engineering and technical expertise currently within the Radiocommunications Agency is retained within OFCOM.

Digital switchover

  21.  The achievement of digital switchover represents a major spectrum management challenge for OFCOM. Despite the recent demise of ITV Digital, Intellect continues to believe that switchover can be achieved by 2010. However, substantial and radical improvements will be required to the coverage and quality of digital terrestrial television (DTT) in order for this to happen. Over inflated expectations about the spectrum dividend that might be realised when analogue terrestrial television is switched off could hamper the transition process. It is essential that sufficient spectrum is made available to allow for efficient DTT frequency planning and to ensure that DTT operators have sufficient incentive in extending DTT coverage.

  22.  From the perspective of Consumer Electronics manufacturers it is essential that technical standards are open and non-proprietary in application so that there is complete interoperability between platforms and between services.

June 2002

 WIRELESS-LANS: RURAL BROADBAND COVERAGE ISSUES IN UK

Issue:

  There is a risk that the provision of Broadband in rural communities will be disadvantaged if the regulatory environment does not consider their requirements fully.

  Broadband Wireless Access (28 GHz) and Fixed Wireless Access (3.5 GHz and 10 GHz) Operators are not addressing the residential market and will not find it cost effective to serve rural communities.

Current Regulatory Environment:

  The current regulatory environment in the UK does not permit commercial services in license-exempt spectrum (2.4 GHz, 5 GHz).

  The Radiocommunications Agency (RA) and the DTI have carried out two consultations relating to this issue. The outcome of both consultations is still pending.

  1.  "Use of Licence-Exempt Spectrum For Provision of Public Telecommunication Services"—RA

  2.  "Consultation On The Revision Of The Cordless Class Licence"—DTI

  A positive outcome is anticipated, possibly by Summer/Autumn 2002, allowing commercial services in license-exempt spectrum.

Restrictions after Policy Revision

  The draft revised "Cordless Class License" limits deployment to effectively indoor distribution and is not intended to allow service outdoors. Each premises require an individual Cordless Class License and interconnection between sites / premises using license exempt spectrum is not allowed.

  The "Telecommunications Service License" limits the connection to a maximum of 20 sites (the "20-site rule"). If more than 20 sites are to be served by a single Wireless-LAN base-station then the Operator requires a different license; a PTO license which costs £40K and will take approximately four months to obtain plus there are additional costs associated in generating a "business-case".

  The regulatory environment after the implementation of the European Union Communication Directives / Spectrum Decision, which is expect to occur Autumn 2003, is an unknown quantity.

Recommendation

  "Intellect" recommends the Broadband needs of rural communities be given greater priority and consideration. The regulatory environment should be sculptured to allow the use of license-exempt spectrum in the 2.4 GHz and 5 GHz bands without undue service provision and / or geographical restrictions but at the same time taking into account any issues relating to unfair competition with licensed BWA / FWA / 3G Operators.

June 2002


1   Computing Services and Software Association. Back

2   Federation of the Electronics Industry. Back

3   Framework Directive Article 8 2(c) OJ L 108 24.4.2002. Back


 
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Prepared 9 July 2002