Joint Committee on The Draft Communications Bill Minutes of Evidence


Examination of Witnesses (Questions 421 - 439)

MONDAY 17 JUNE 2002

MR JOHN FORREST, MR PHILIP LANGSDALE, MR WILLIAM WEBB AND MR ANDREW SLEIGH

  Chairman: Good evening. Lady Cohen will start the questioning.

Baroness Cohen of Pimlico

  421. Before I ask anybody about spectrum management or otherwise, I ought to disclose I am a non-executive director of the Defence Logistics Organisation, and somewhere in there I have defence communications systems which use a lot of spectrum. OFCOM has been given by the Bill a general duty "to encourage, in the interests of all persons, the optimal use for wireless telegraphy of the electro-magnetic spectrum". Do you think this is the right formulation? How often will it conflict with OFCOM's other objectives? Is OFCOM better placed than the Radiocommunications Agency to resolve conflicts?

  (Mr Forrest) My Lord Chairman, our view on the duty of OFCOM is that we think it is absolutely right that there should be this duty for optimal use of spectrum. However, the difficulty I think is in defining what is optimal. We have already heard in the previous presentation some of the complexity of the various issues associated with technology, for example. One of the things we think that is very important here in order to be able to understand the meaning of optimal and for OFCOM to carry out such a duty is that it should have for example very strong technical expertise. We have noted the FCC, for example, in the United States recently have very strongly increased the strength of their technical branch because of the difficulty of handling many of the issues associated with the new technologies which come forward. We would certainly see as part of this duty of OFCOM that it needs to have the very strong back-up in certainly the technical areas but also in the areas of understanding the way different services develop, because we think there will be conflicts here, for example, with universal services and local TV, which will need to be resolved. With your permission, my Lord Chairman, perhaps Philip Langsdale might like to comment on that.
  (Mr Langsdale) The issue is one which has already been referred to the Committee, which is one of balancing the universal coverage of spectrum against the optimum use. Clearly given the need to deliver signals strongly into rural areas and for universal coverage, it is more inefficient in its use of spectrum and therefore there is a challenge for OFCOM in balancing how much spectrum to give to broadcast TV versus the need for universal coverage.

Lord McNally

  422. Your evidence has a very powerful gypsy's warning. It says that you feel ". . . strongly that there is a need for clarity in the respective roles of Ministers, OFCOM and various Advisory Committees." The dangers of Whitehall turf wars are legendary. I wonder whether you feel the Bill has got it right in terms of the balance of power between OFCOM and the Secretary of State?
  (Mr Forrest) Our understanding is from what is said in the Bill that ministers would retain policy aspects associated with spectrum management and that OFCOM would handle what I would call the managerial issues, the day-to-day issues, and implementing that policy. We think, however, that there are going to be some grey areas between these two. Ministers must obviously retain the ability to intervene in a number of circumstances and we feel strongly there is a need for ministers to have the appropriate advice in order to be able to make this separation work. To leave ministers without the ability to call on advice in terms of the actions of Oftel or indeed in the way new technologies and new services are developing we think would be risky. That is why we were disappointed to see that the Bill did not have any reference to SMAG or indeed to the Cabinet Advisory Committee on spectrum which is mentioned in Professor Cave's Report. So we understand the way the separation is being proposed in the Bill but we do think more definition of the terms of reference of these various bodies is needed.

  423. Do you see OFCOM as being in the main the decision-maker or is there going to be lots of second-guessing by ministers?
  (Mr Forrest) We have not, my Lord Chairman, debated this issue at length but we certainly think, as I said, there are grey areas that you are identifying here.

  424. You mentioned the importance that OFCOM be technically equipped to carry weight in this area. We have had previous evidence which has expressed concern that what has been rather disparagingly termed the "fluffy" end of broadcasting would dominate OFCOM. As you see it now, will there be enough technical expertise there to make it a big beast in the Whitehall jungle?
  (Mr Forrest) My Lord Chairman, there is not that detail obviously in the Bill at this stage, which is why we have flagged up this particular point. There can be a tendency when one is making changes in the way that these systems are organised, our structures are organised, to rely on external consultants. We have seen this in areas like transport, for example. It is a danger in our view to leave expertise fragmented and it is very important we feel, whether the expertise resides in OFCOM or associated with advice to ministers, that expertise must be there and must be clearly available, and must be available to ministers.

Lord Pilkington of Oxenford

  425. As you know better than I do, the Ministry of Defence has a large chunk of the spectrum. Is your view that they should sell off the bits they do not use? My colleague knows much more about this than I do. It seems a very large amount, should they sell it or should it be handed to OFCOM and they sell it?
  (Mr Webb) As a general principle if they are not entitled to sell it, either directly themselves or through some intermediate management organisation which they perhaps have appointed, it is difficult to see what the incentive is on them to relinquish their spectrum voluntarily unless there is some other external pressure. But, as we know from the past, it is difficult to be certain about whether that spectrum is being used efficiently. So I would say in general it would seem appropriate for them to be able to sell it directly themselves but I would note that there is enormous restriction on the use of the defence spectrum through international treaties and particularly usage which would probably prevent much of that spectrum being sold or traded in the near term.

  426. Do you not see a contradiction? I see what you are saying, namely that no one knows anything about all those funny little masts on the building across the Thames. So OFCOM would be able to make, as we have heard from previous evidence, allocation based on where need is but what you are suggesting is that the Ministry of Defence would operate separately. In other words, it would be Professor Cave's free market ad infinitum. Is that what you want, because there is an awful lot of spectrum there?
  (Mr Webb) That is correct. I think in general when we look at trading we are suggesting that the current owners of the spectrum, and Professor Cave has suggested this himself, be free to trade that spectrum. I think your question is almost asking whether there should be a special case for the Ministry of Defence—

  427. They are almost the BT of the spectrum, are they not?
  (Mr Webb) Because they have so much perhaps?

  428. They have a lot.
  (Mr Webb) Yes, but I do not see any strong rationale for why that should cause them to be treated differently in that respect.

  Lord Pilkington of Oxenford: You are not very free market men, are you!

Brian White

  429. Rather unusually, the Regulatory Impact Assessment identifies above five possible risks, things like interference, changes of use contrary to international law, buying up spare company stock, competitiveness and so on. Do you think the Bill has got those downsides right and are there any particular provisions you would like to see in the Bill to tackle that?
  (Mr Forrest) My Lord Chairman, I will take that first, if I may, and then ask Philip Langsdale to respond. I think our concern, as we stated in our evidence, is that the issues, particularly of interference and harmonisation, although stated, have not been taken quite seriously enough. There has been, under the activities of the Radiocommunications Agency, a very good focal point and a very good mechanism for dealing with interference. What is proposed here is a change in that regard, so that interference may well be debated, may be settled or there may be litigation between those directly involved in that interference. This is a situation which happens quite frequently in the USA. It certainly makes the lawyers very rich. We are concerned that more thought goes into understanding how, in the new environment as it is proposed, interference matters can be tackled in as efficient a way as they have been just now. I am sure there are mechanisms for this. We also think, on the basis of harmonisation, that the processes that are indicated may take some considerable time, because it is easy at this stage to think that other countries within Europe may fall into the kind of framework that we are talking about, but there are many issues that need to be debated. Therefore, again we are concerned that the risk assessment makes light of that particular aspect. Perhaps I can ask Philip to comment further.
  (Mr Langsdale) Thank you, my Lord Chairman. I think our main concerns about the risks of the Bill also hinge around the step change which is continuing to happen in the technology and the technical environment and the sheer unpredictability of that. We can sit here and we can be reasonably confident we know what is going to happen, but actually it will happen in a different way. I think the Bill needs to give sufficient flexibility and have sufficient flexibility written into it to cope with new ways of technology change, to cope with the very different ways in which people will be using broadband and digital. Again, I do not think we know what those ways will be at this stage. This brings me back to John's point that OFCOM needs to be concentrated so that it has the right access to a technical understanding, technical insight and ability to manage those changes and pre-empt them.

  430. We have looked at these risks in other countries, and there are aspects of spectrum trading, as I understand it, around the world. Have you looked at those risks in those other countries?
  (Mr Forrest) My Lord Chairman, no, we have not as yet. We are aware of some of the activities that have gone on, for example, in New Zealand and in Australia. This certainly does give some useful experience, I think, for the detailed mechanisms to be used in spectrum trading. I think that is the next stage of the process, to make sure that in the environment where spectrum trading is allowed as a result of what has been happening within the European Community legislation, we get the best possible mechanisms for spectrum trading which would mitigate those risks.

  431. Are there risks assumed with spectrum auctions as well as spectrum trading?
  (Mr Sleigh) I do not think that there is a significant difference between those two. The way I always look at this is to relate spectrum to the property market, and to argue that the forms of trading and selling that you can adopt in dealing with property are broadly equivalent to the approach that you would take with spectrum. There are very similar considerations that apply. Auctions we know are effective when the market is not well established and you are not able to establish a price readily by other means. I think that one of the risks that does need to be dealt with here is how a good market for trading spectrum, or however it is going to be transferred, is created. Currently, because of the regulatory way it is handled today, there is not an established market mechanism by which this is done, and therefore there is a move into relatively uncharted territory here. That is clearly something that needs to be looked at carefully in the way that it is handled.

Lord Crickhowell

  432. We have been talking about some of the technical risks. I suppose one of the differences in the spectrum field is that if you trade, it does not necessarily lead to your neighbours' house falling down. Cave argues that there must be a shift in the balance of responsibility for interference management further towards industry, but another piece of evidence that we have received suggests that that must be balanced by OFCOM's responsibilities for setting and monitoring minimum standards. It has been pointed out that the illegal use of the spectrum in some frequency bands puts lives at risk. Are you satisfied, therefore, that on the one hand industry has the technical expertise, know-how and capacity to do it, and do you think it is ready to take on this extra burden? Are you confident that OFCOM will be adequately equipped to police the whole question of interference management?
  (Mr Sleigh) I think there are two issues to this. One is illegal abuse, where the equivalent is used in the police force to deal with people who are actually transgressing the law. For a number of reasons—and I think the technology reasons are quite strong here, for example, different ways of using spectrum, programmable radios, all sorts of things like that—this means that the issue of negotiating between conflicts which come from legitimate users is something which is going to be quite a deal more complex than the very simple allocating frequency approach that we come from with our legacy. So, as with other walks of life, I would see the commercial side playing a more important role in finding ways of negotiating acceptable solutions to interference, rather than only relying on clear regulatory apparatus that is the custom from the past.
  (Mr Forrest) Perhaps I could add, my Lord Chairman, that I think the industry is there. There are certainly a number of companies in this country that already do measurements of signal quality, study interference problems and will carry out that kind of service if required. So the industry is there. I am not sure it is quite ready for this challenge, but I would emphasise the further point that I think it is a little bit dangerous if particularly interference problems are just solved on a very localised basis or between two organisations, without taking account of the bigger picture associated with that radio environment. So it does mean that even though one puts quite a lot of this interference management, handling, rectification out into the commercial sector, I think there is still a need for bringing this information together to a focal point, and that comes back to the importance of OFCOM having the technical expertise to be able to take that role.

  433. Those who have been attending previous sessions will know that I usually at some point say, "Well fine, you're talking about general principles. How does it actually apply to the Bill?" Do you think the Bill is adequately drafted on this point, or do you think it needs toughening up? You finished up by answering the question and saying, "Yes, OFCOM has a role." Is it adequately drafted in the Bill, or should we be looking at some changes in the Bill?
  (Mr Forrest) My Lord Chairman, I would argue, as I did earlier, that it is disappointing that there is no mention of the importance of having technical expertise within OFCOM. Therefore, the answer to the question would be yes, it would be important to have that somehow stated in the duties and expertise of OFCOM.

  434. I am sorry, can I pursue that point, because I was a tiny bit puzzled when you made the original statement, in the sense that having been a regulator in a rather different field myself when I was responsible for trying to regulate the water industry, I do not think we needed to be told that we had to have vast expertise; I think that if we thought we needed expertise, we went and got that expertise from wherever it was available, as a regulator. Similarly, I suspect that government departments do think they are perfectly capable of looking for the right expertise, without having a clause in a Bill saying that they should do so. I am much more interested in the powers to operate and exercise whatever the advice is. Is the Bill adequately drafted so that OFCOM can police, having got its expertise?
  (Mr Forrest) My Lord Chairman, from that point of view I think we do not have a particular concern, so it is really a matter of how much detail it is felt there needs to be in the Bill. As I see it, the powers are there, yes.

Lord Hussey of North Bradley

  435. I have a fairly straightforward question. To what extent do you think it is logical to apply spectrum charging to satellite services, bearing in mind their inherent international character? It seems to me that Professor Cave rather suggests that it would be a good idea. What is your view on that?
  (Mr Forrest) My Lord Chairman, perhaps I may make an initial remark, and then hand over to my colleague William Webb. Our view—and I think this is a view you have heard before—is that it is difficult to justify treating different commercial uses in different ways. In other words, we see it as being important, wherever possible, that there should be as level a playing field in terms of spectrum charging as possible. The difficulty, of course, is that of implementation, because when we are talking about satellite services we are immediately talking about international or global operators.

  436. Yes, and something slightly different?
  (Mr Forrest) Yes, and coverage which does make it difficult. Maybe William may have a comment to make.
  (Mr Webb) Of course I would agree entirely with that assessment, and I would echo, I think, the importance of making sure that every service is treated the same way, to avoid distorting the market. With regard to satellite, it is a complicated area. There are many different kinds of satellites used in many different types of applications some of which are more tending towards national applications, others of which are much more international applications, and clearly they need to be treated in a slightly different manner, depending on their type of licensing and their application. I think this is an area that merits further study. My personal view, I would say, is that perhaps in the cases where there are strong international components of the satellite service it would be important to try to price that service on an international basis in some way, which would clearly require co-operation from other countries and perhaps from the European Union.

  437. It would not be easy, would it?
  (Mr Webb) No, it would probably not be easy and it would probably take some time.

Lord McNally

  438. When Sky were allowed to absorb British Satellite Broadcasting was there any discussion then of spectrum charging?
  (Mr Webb) I do not know the answer to that question.
  (Mr Forrest) My Lord Chairman, not to my knowledge.
  (Mr Langsdale) No, not to my knowledge, my Lord Chairman.

Brian White

  439. Last week I missed the Committee because I was actually visiting Astra. It is a misnomer that Sky bought out the satellite, so let us put that record straight. It was very interesting to visit Astra. One of the things they were suggesting was that they have ITU agreements, and there is the whole issue of the interference within both uplinks and downlinks. How would your proposals for charging affect that?
  (Mr Forrest) My Lord Chairman, I think this brings out the point about harmonisation, that although, as I said, it seems that the way in which charging for spectrum is done should be made as uniform as possible over different services, different transmission methods, once you get into the international dimension then you are right into the area of the European Commission and even wider ITU agreements, and hence the difficulty of implementation. The only way, I think, that it could be implemented is to achieve agreement in the international forum that everybody is going to go down the second route.


 
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