Memorandum from the Department of Trade and Industry and the Department for Culture, Media and Sport on the impact of the Enterprise Bill on the draft Communications Bill
HOW THE ENTERPRISE BILL AFFECTS OFCOM AND THE COMMUNICATIONS BILL
1. The Committee asked for a paper on how the Enterprise Bill provisions affect OFCOM and the Bill more generally, with specific reference to newspaper ownership.
2. The Enterprise Bill has limited impact on the draft Communications Bill. Indeed, there are four specific areas where there is a read across from one Bill to the other. These are:
Consumer protection provisions;
Competition provisions; and
3. These four issues are dealt with seperately below.
4. The Appeals mechanism in the draft Communications Bill for decisions taken by OFCOM under part 2 of the Bill provides that the appeals should be heard by the Competition Appeals Tribunal. The Enterprise Bill seperates the Competition Commission Appeals Tribunal (CCAT) from the Competition Commission reporting side and changes the name of the CCAT to the Competition Appeals Tribunal (CAT). These changes are fully taken into account in the drafting of the Communications Bill. The Committee will be aware that the Competition Commission (CC) have suggested that it is better placed than the CAT to hear appeals on price control issues. The Government will consider this proposal, taking account of any views of other stakeholders, and will discuss with both the CC and the CAT to ensure that the most appropriate appeals mechanism is included in the Communications Bill.
Consumer protection provisions
5. At the time of the publicaton of the draft Communications Bill there was a possibility that the Enterprise Bill would have an impact on the provisions for establishing codes for consumers. We do not now expect this to have any impact on the drafting of the Communications Bill.
6. The central policy intention behind the competition provisions of the Communications Bill is that OFCOM, in respect of communications issues, should be able to exercise the powers of the Director General of Fair Trading (DGFT) under the Competition Act 1998, and his powers to make monopoly references under the Fair Trading Act, concurrently with the DGFT. The implementation of this intention will be subject to the changes made by the Enterprise Bill to the powers of the DGFT.
7. The Enterprise Bill does not significantly change the DGFT's powers under the Competition Act, and has no significant implications for OFCOM's proposed responsibilities under that Act.
8. The Bill however does substantially reform the Fair Trading Act. The key changes which are relevant to OFCOM are that the concept of a monopoly reference will be replaced by that of a market investigation reference, and the central issue in such an investigation will be whether the structure of a market, the conduct of firms operating in a market, or the conduct of their customers prevents, restricts or distorts competition (not, as at present, whether there is a monopoly which has effects contrary to the public interest). The Enterprise Bill will give Oftel concurrent powers with the OFT in relation to market investigation referencees in the telecommunications sector. Although Oftel has concurrency with OFT under the Fair Trading Act monopolies regime, the scope of its concurrent powers is in practice curtailed by provisions which reserve the power of making monopoly reference in respect of many telecommunications markets to the Secretary of State. Under the Enterprise Bill no markets will be "reserved" in this way. The Communications Bill, having been amended so as to reflect the outcome of Parliament's consideration of the proposals in the Enterprise Bill, will transfer Oftel's powers in relation to market investigations to OFCOM.
9. The other key change to be effected by the Enterprise Bill is, to take Ministers out of the process in most merger or monopoly cases. So far as OFCOM is concerned, this would mean that any decisions on remedies following a reference of a market to the Competition Commission would be for the Commission rather than the Secretary of State (other than for markets where the Secretary of State has registered that national security issues or another "specified public interest consideration"see paragraph 16 belowmay arise).
10. In the telecommunications sector, the Commission will be able (as the Secretary of State is now following an adverse report of the Commission on a merger or monopoly reference), to make such modifications to a licence granted under section 7 of the Telecommunications Act as are expedient to give effect to orders of the kinds permitted by Schedule 8 to the Bill remedying competition problems indentified in a merger or market investigation. When making such modifications in a market investigation case, the Commission will be obliged to have regard to the duties of Oftel referred to in section 7(5) of the Telecommunications Act. The relevant provisions of the Enterprise Bill will require amendment in due course to reflect both the transfer of responsibilities from Oftel to OFCOM and the shift to a non-licence-based system of regulation in the telecommunications sector.
11. Similarly, section 193 of the 1990 Broadcasting Act presently provides the Secretary of State with a free-standing power to amend networking arrangements by order, as a result of a Fair Trading Act merger or monopoly report. Under the Enterprise Bill, this provision will be amended so that the power of the Secretary of State to modify networking arrangements is triggered following a report under new mergers and market investigation regimes. The order making power will also be extended to the OFT and the Competition Commission as they will be the decision makers in the new regime: the authorities excerising this power will have to have regard to the duties of the ITC under section 2(2) of the Broadcasting Act 1990. In order to bring this power into line with the equivalent order making powers in other sectoral regulatory legislation (eg in relation to telecommunications, noted above), the Enterprise Bill will amend the power in the 1990 Act so that it will only be available when making an order under Schedule 8 to the Enterprise Act instead of being free-standing. The relevant provisions of the Enterprise Bill will require amendment in the light of the transfer of the ITC's responsibilities in this area of OFCOM.
12. A further change will be a new power for the OFT and relevant sectoral regulators (including Oftel) to seek a court order for the disqualification of a director for serious breaches of competition law. Again, it is proposed that this power should be transferred to OFCOM. The Enterprise Bill also allows for designated consumer bodies to make "super-complaints" to the OFT concerning features of markets that appear to be significantly harmful to the interests of consumers; this scheme could be extended to allow for super-complaints to sectoral regulators. And the Bill introduces a new criminal offence relating to cartels; though OFCOM will not have the responsibility of prosecuting in any such case, it will have to be mindful, in concluding investigations under the Competition Act, of the need to co-operate with the OFT and SFO in the event that the investigation reveals the possibility that a cartel offence has been committed.
13. As the Committee is aware, the newspaper ownership provisions for the Communications Bill have not yet been drafted. This note sets out the relationship between the Enterprise Bill and the policy for newspaper ownership as set out in the Policy document that was published alongside the draft Communications Bill and that will be given effect to in draft clauses as soon as possible.
14. The Enterprise Bill makes substantial revisions to the UK's domestic provisions for controlling merger and acquisition activity in the UK (other than mergers covered by the special newspaper transfer regime). In particular, the Office of Fair Trading (OFT) will in future have the primary duties and powers in relation to the referral of transactions to the Competition Commission (CC) for detailed investigation. Final decision making power will rest with the CC in almost all cases whereas, as described above, under the current regime in the Fair Trading Act 1973 (the FTA) decisions over references to the CC and over action following a CC report are for the Secretary of State (the SoS).
15. The Enterprise Bill also makes amendment to the jurisdictional criteria that determine the transactions to which the merger control provisions apply (replacing the gross assets test with a turnover test) and replaces the substantive assessment of whether the transaction will/does operate against the public interest with a competition based test of whether the transaction may be expected to result in a substantial lessening of competition.
PUBLIC INTEREST CASES
16. Under the Enterprise Bill the Secretary of State retains a role in relation to the limited range of transactions raising defined public interest considerations. Primary responsibility for identifying such transactions rests with the Secretary of State, but the OFT has a duty to alert the Secretary of State to any cases that it believes may raise a specified public interest consideration. The Secretary of State can serve an intervention notice on the OFT to treat a particular transaction as raising a public interest consideration.
17. As regards that transaction a modified merger clearance regime then applies by which the Secretary of State can clear the case (if appropriate, subject to undertakings in lieu of a reference) or refer the transaction to the CC. Before deciding she will receive a report from the OFT. If the case is referred, the CC will then look at it against a constrained public interest test, having regard only to the specified public interest consideration and any substantial lessening of competition mentioned in the reference. The Secretary of State has the final decision on whether the merger will operate against the public interest (although she is bound to accept the CC's findings on competition). The Secretary of State also decides what action to take on a merger where she has made an adverse finding. At present the only specified consideration is the "interests of national security" (clause 57 Enterprise Bill).
18. The Enterprise Bill makes no revision to the existing provisions on newspaper mergers in the FTA, which will continue to have effect on the basis set out in clause 66(1) Enterprise Bill. This draws a clear line between the Enterprise Bill merger regime and the FTA provisions on newspaper transfers. A transfer falling within the newspaper regime cannot be the subject of a reference under the Enterprise Bill unless it is within section 59(2) FTA (exceptions to the Secretary of State's powers and obligations to refer qualifying transfers), in which case it is brought back into the Enterprise Bill regime by clause 66(2).
19. Clause 66 is a holding arrangement, designed to preserve the operation of the existing newspaper merger regime until such time as the new regime can be introduced. The new newspaper regime will require amendments to be made to these provisions.
20. Conceptually, the new regime is to operate as a further public interest consideration under the Enterprise Bill. However, in terms of how this is incorporated into the legislation it is anticipated that this may be more complex that simply providing for a further designation under clause 57 Enterprise Bill. To the extent that the jurisdictional scope of the newspaper regime will be wider than the standard Enterprise Bill criteria we wish to make special provision for the extended application of the newspaper public interest consideration. We envisage that this could operate in a similar manner to the "special public interest" provisions for defence contractors. However, the unique elements of the newspaper regimein particular its sector-specific application and the role that OFCOM is to play in the operation of the regimemean that the newspaper public interest consideration will incorporate some variations from both of these public interest regimes as currently prescribed in the Enterprise Bill.
32 The Enterprise Bill also includes "special public interest"1 provisions that apply to transactions involving "relevant government contractors" (whether as target or acquirer) ie government conractors (as defined in the Official Secrets Act 1989) who have been notified of confidential defence related information. The provisions extend the possibility of intervention by the Secretary of State to transactions with such contractors that do not qualify as a merger situation under the mainstream Enterprise Bill provisions solely because they do not satisfy the turnover/share of supply thresholds. Any such intervention is only in relation to the public interest consideration(s) specified in the notice (in this context, normally national security). Back