Joint Committee on the Draft Communications Bill Minutes of Evidence

Examination of Witnesses (Questions 348-359)



  Chairman: Welcome, gentlemen.

Nick Harvey

  348. ISPA, in evidence to us, made a point that others have also made, that Oftel's slow decision-making has hampered effective competition and particularly innovation in the market and you argue for a service-level agreement between OFCOM and the industry to try and improve that. Now, the Bill itself in clause 6 imposes a duty on OFCOM to publish and meet promptness standards and certain deadlines. Is that not going far enough? Is it not really more important that regulatory decisions are fair and meet the needs of the consumer and competition rather than simply conforming with artificial deadlines that might suit the industry?
  (Mr Lansman) I think it is a trade-off. I think what the Internet has shown us is that the speed with which Oftel has managed decisions has to speed up, but I think you have to get the balance right between going too far and not getting the fair decisions you are suggesting. I think that is one of the difficulties OFCOM will face in trying to speed things up and adapt to a modern, fast-moving environment. At the moment we are also very concerned that we get the fairness right. It is the principles of both competition and fairness and I think the point you are making is valid, that balance is the answer.

  349. Do you believe that aspects of the communications industries have themselves contributed to slowing up Oftel's work?
  (Mr Melville) I would not say so, from a Freeserve perspective. The slow take-up of broadband has been a tragedy for many companies and the content companies that were around two years ago that are not there anymore. I certainly do not think that the industry itself can be blamed. We have a very clear view that we believe we understand where blame lies and that sits very firmly at the feet of BT and that unfortunately the emerging approach to what has been described as light-touch regulation is making a bad situation worse.

  350. What do you mean by that specifically?
  (Mr Melville) Well, we certainly welcome the primacy of competition, as it is described in the Bill, but it has to be recognised that in particular broadband is a key enabling technology for this new, exciting, converging industry over the next two to three years and it sits and has sat for the last three years entirely in the hands of BT. BT is a vertically-integrated, dominant incumbent and light-touch regulation needs to be appropriate to the status of the incumbent. If it is not, it allows, and we believe this is what has been happening over the course of the last couple of years, and particularly in fact over the last three to four months, if it is not, an absence of firm, clear, competitive analysis by the regulator allows the incumbent to move forward at a pace which is unmatchable by the other players.

  351. Not too light a touch?
  (Mr Melville) At the moment, I see it as less a light touch as light blue touch-paper perhaps.

Mr Lansley

  352. Can I just ask do you see a distinction between the types of regulation which have been used for BT and what will be used because there is a lot of detailed argument we do not need to go through as to whether Oftel should have continued to use licence conditions to try and deliver the objective or use competition policy to deliver the objective?
  (Mr Melville) I think it is quite clear that over the last 12 months it has been increasingly difficult for Oftel to determine which route ought to be undertaken. Should it be the telephone licensing route or should it be the Competition Act and emerging enterprise route? That means that companies who wish to bring complaints are facing a serious difficulty as well because different appeal regimes flow from the choice that you elect to move under. We welcome the primacy of competition law and I am quite sure that Oftel do as well, though one has to say that I was concerned to hear Mr Morris talking about the confusion in terms of the interaction between the Competition Commission Appeal Tribunal, for example, the OFT and OFCOM as it will emerge. This is why we have said in our submission to you that we think the establishment of competition, for example, is extremely important within the structure of OFCOM because we believe that that will serve as a forerunner to help resolve those kinds of difficulties and may also help provide a focus for competition expertise which clearly is going to be the way forward for managing this sector. I think we are looking forward to the end of the licensing regime and the emergence of real competition, but it really does require a different approach from the regulator than perhaps we have seen in the past.

Lord Crickhowell

  353. BT of course has been the whipping boy and I was quite rough with them the other night, but how far has our failure been the result of the monopoly situation here and the slowness in tackling it compared with the successes in a number of other countries where the broadband highway is much broader and faster and the success has been much greater? Has it just been a monopoly factor or have there been successes elsewhere which are actually leading a number of British companies to basically do their business there because they can see the advantages of doing that rather than here? Is it just the regulatory regime or some other major factors?
  (Mr Melville) If we look at Germany, it certainly is not the availability of rich media content, is it, that is driving applications, but it is price, pure and simple, and availability. In Germany, the incumbent has been able to steal a march on the rest of the industry, very much so, and I think DSL in Germany, DeutscheTelecom have about 90 odd per cent of the market. Over the last three months since the reduction of wholesale prices by BT in February, we would estimate that BT's share of the broadband DSL market has moved from 18 to about 80 per cent, and we heard from the Oftel figures yesterday that over 50 per cent of the broadband market is now in the hands of BT. When you invite comment, as you did previously, on the availability of broadband services in areas which are not covered by BT, the rural point which has been made previously, I come back on my point, we are in the hands of BT. Two years ago we had companies approaching Freeserve who were ready, able and willing to introduce broadband Internet access into rural areas, but they were not able to because unbundling did not happen and still has not happened, so access to exchanges has not been permitted. We believe that it is fundamentally a question of price, not content. We do believe that traffic and networks, the network equation that Mr Verwaayen was talking about on Monday, network traffic, is absolutely right, but presently we gifted the last 12 months to the cable operators and we are about to gift the next two years to BT.

  Chairman: Mr Verwaayen made a pretty robust response to the business of the impact of unbundling. No one has yet come back to us to say that what he said was wrong. It would certainly be very welcome, therefore, if there was another scenario to paint on that unbundling issue because the case he made was pretty compelling.

Lord Pilkington of Oxenford

  354. You say in your submission that you want greater clarity as to how OFCOM will interact with other bodies, such as the IWF, ICSTIS and the Telecoms Ombudsman. You seem to want that. The problem is that they do not have a statutory foundation, any of those bodies, so it is rather difficult for the Bill to lay down precise requirements for you. What I would like you to say is what you meant when you said what you would like the Bill to do because it is the Bill that we are concerned with.
  (Mr Perry) I think that this comes down to the issue of whether you are regulating conveyance or content and whether or not that content is covered by other existing laws. For example, the IWF in the work that it does is basically carrying out the Protection of Children Act 1978 and, therefore, the legislation it has been done under is a content regulation measure. Therefore, I think we have to be clear whether or not the object of this Bill is to regulate all kinds of content irrespective of whether there is other legislation which is already regulating it or whether, particularly in Internet space, it is specifically excluding the regulation of all kinds of content which just happens to be carried by the Internet rather than just happens to be carried by terrestrial transceivers or satellite transmission. There is an argument which has been put for, for example, video-on-demand to be regulated under a self-regulatory scheme and the question that has to be asked is: is that video-on-demand over any transport medium, over just broadcast transmission medium or would it cover video-on-demand over the Internet? What is the difference between video-on-demand over the Internet and accessing your fairly average subscription websites these days which do not have multi-media?

  355. The Government have said that they do not want to regulate the content of the Internet and I accept the fact that there are Acts of Parliament which make obscenity a criminal offence. That is a fact, the Government have said that, but are you saying you do not trust the Government and you want bigger safeguards in the Bill?
  (Mr Perry) I think I am saying I would like to be sure about what the Bill is specifying, and the Bill does leave a few things open in terms of how things could change in future and how it could change the way those things would be done. If we are talking about content in the Internet, the Internet in that sense perhaps has no content in the same way as broadcasting masts and satellites up in space do not have any content, but are merely conveying that content and, therefore, if we can make sure that when the Bill talks about not including content, it means it is not including the core of the network, but maybe some content sitting on a server of some kind which is on the fringe of one these networks. I had the privilege to go to SkyTV's transmission centre and the Sky subscription movies that you buy are sitting on effectively computers in the same building as the transmission equipment, so where does one network begin and another network end? I think that is where we have got to be really clear in this Bill. If we are talking about content in the Internet or on the Internet, let's make sure that it is not excluding the content that is on the fringe of the Internet between the person who is wanting it served up and wanting it to be delivered through this just simple mechanical medium of the person at the other end who is then doing it.

  356. Are you not asking the impossible? Some of my colleagues have said and you are saying these things are going to be so close to each other. Someone else on this Committee said that basically what you are saying when you are protecting your own side is that you cannot regulate broadcasting either.
  (Mr Melville) I think you can regulate any kind of content however it is delivered as long as the person who is originating that content and offering it for distribution is somebody who comes within your remit, whether it is the existing law like the law on obscene publications or whether it could be a measure such as this Communications Bill which will define certain kind of broadcasting content, which is what we currently understand is delivered by the existing broadcasters of either TV or radio. It is making sure that you understand what is the content and, in a way, who is the publisher of this information. The difficulty that arises with the Internet is that many of us are publishers in our own right. It has already been mentioned that Members of Parliament have web sites which have content on them. They are indisputably content providers. I do not think they would seek to be regulated by this Bill in what they put on there, although of course they are regulated by all the other measures like libel and so forth in other Bills. I think it is a question of a web server with this content on it coming under a Regulation of Investigatory Powers Act sort of definition, and that is part of the network. What I am saying is that in a Communications Bill sense maybe that should be not part of the network. It should be something which is connected to the network but just outside it.

Brian White

  357. You mentioned the Regulation of Investigatory Powers Act. How do you see that impacting on this Bill?
  (Mr Perry) There are some interesting parallels. I made a note whilst hearing the previous evidence. There is a section in the Act, Section 12(4), which was put in in order to exempt, effectively, e-banking providers from being defined as public networks for the purposes of having an Intercept capability on them. That comes very close to what I was explaining just now about the people who have got that content out there; they are connected to the network but they are not communications companies. E-banking companies have e-banking facilities and they are only connected to the Internet because they need to be because of the content. Without that escape clause in the Act they would have been defined under other clauses in the Bill as public communications service providers. They managed to exclude themselves out of that but, in fact, other classes of content providers may not have excluded themselves as a result of that. What we are see here is a continuing lack of clarity which started off with the Regulation of Investigatory Powers Act as to what is a public network and what is a private network. There are many community networks. Are these private networks or public networks? I see a lot of work clarifying these definitions. It is not good enough to say that a public communications network is a network that is available to the public. We need to get a bit closer to what we are trying to define here.

Lord Crickhowell

  358. Not surprisingly, in your evidence you express views about charging and you say that it should be sector by sector and be proportionate and so on. We have got a single regulator so we have got to be careful that we do not breach that principle but again I come back to the Bill. Are you merely stating something that you will continue to state, and perfectly properly, once OFCOM is there or do you want to change? I have been having a look at Clause 29 on fixing charges and there it talks about OFCOM having to make a clear statement of the principles under which they fix their charges and it goes on, among other things, to say they have got to be "objectively justifiable and proportionate to the matters in respect of which they are imposed" and so on. Clearly the Bill has given, one, flexibility so that charges will be appropriate and, two, it requires that it should be out in open with its principles and therefore there will be plenty of scope for you and indeed Parliament to criticise. Are you happy with that or are you making more than just a "this is going to be important to us" statement?
  (Mr Lansman) I do not think we are arguing for a change in the Bill. I think what we are nervous about is the fact that if you look at classic telecommunications providers they have had a hands-off approach. They have gone from licensing to a situation where they will go for a notification. Service providers have gone from a situation where there is no question of them having to pay into a pot to a situation where there has been more regulation for ISPs to look at them putting their hands in their pockets and paying for part of OFCOM. As long as the balance is right and there is proportionality there and ISPs have a chance to either be involved in discussions to work out where that threshold is. Obviously no one government or industry wants to get to a situation where small ISPs and Internet companies are prevented or the barriers to entry are made too great by paying into OFCOM. No one wants that. It is getting the balance right. The wording in the Bill is satisfactory.


  359. To pick up a point that I find to be slightly paradoxical. You suggest—and I would welcome this—that your sector is represented quite rightly on the content board yet you do not feel that its remit should run into the area of Internet content for the reasons you have just given. Surely the type of content board of which you would like to be a member would think it logical to go right across the whole landscape of what is taking place in the media? Failure to be able to do that means that you are never going to be able to balance up what is happening at any one time. I show my prejudices slightly. My experience is that society and behaviour either ratchet up through activity or slip back through lack of interest. It would seem to me one of the things we would hope the content board might be doing is looking at ways in which behaviour and social inclusion can be accelerated by the way in which the content board operates and the way in which broadcasters, yourselves and creators of content go about their task. Can you explain this paradox to me and where you might be prepared to join the party?
  (Mr Collins) We would like representation on the content board if the content which we provide is to be covered by OFCOM and therefore the content board. The difficulty really comes in the role of the content board with regard to unlicensed content. There are are two aspects for the board, one would be promotional activity and one would be complementary activity. The promotional side would be with regard to Clause 10 in the draft Bill, the promotion of media literacy. Clearly there is a strong role for OFCOM to be involved in the promotion of filtering systems and ratings systems. We would be keen to work with the board on promoting such devices. The second area of complementarity, if you will, will be with regard to the already existing self-regulatory bodies—and this comes back to an issue we were talking about earlier—such as the IWF and ICSTIS. The content board would ensure that its work was complementary to the IWF's work and ICSTIS's work rather than duplicating the same tasks. We do see a role for the content board with regard to content but only in those areas. Should it be at a later date that we have new services that are broadly equivalent to broadcast services, then of course we have to look at it again. It is not written in stone that the content board should never touch Internet content.

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