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Lord Donoughue: Before the noble Viscount sits down, will he agree that the black box technology is technology-neutral between analogue and digital? Therefore, logically he should take the same approach to both. Either he opposes a statutory attempt to deal with it or he supports it in both cases. I cannot see the logic of taking one position for one and a different position for the other.

Viscount Caldecote: Perhaps the noble Lord will allow me to take my own view. He will not press me into changing my mind by telling me that it is illogical. I am telling him why I think that it is logical. We must agree to disagree.

5.15 p.m.

Lord Colwyn: I must also apologise to my noble friend Lord Astor for the fact that I shall speak against his amendment. It worries me that when the Government have succeeded in cutting huge swathes from the forests of regulatory red tape which surround our industries, he is seeking now to introduce new ones

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in their place; that is, restrictive regulatory frameworks which serve no other purpose than to stifle the very incentives needed to attract new risk capital and investment to ensure the success of this young and exciting industry.

The amendment, if accepted, will introduce new, burdensome licensing requirements for analogue conditional access systems when there is absolutely no reason for doing so. Furthermore, it would send a message to other new technology industries that investment and success will be penalised through more restriction and regulation.

It does not stop there either. It would also introduce even more licensing requirements for television subscriber management services. Such a cavalier and ill-conceived approach to new regulation is disturbing, particularly when one examines the levels of free and fair competition that already exist in the markets into which it has been introduced.

Perhaps I could deal with the new licensing requirements for analogue conditional access first. We have heard from the noble Lords, Lord Thomson and Lord Donoughue, that the requirements are necessary because BSkyB has monopoly control over Videocrypt, the dominant analogue conditional access system in the UK. They say that new competitors could be exploited or prevented from entering the market altogether. That is simply not true.

In the six years since BSkyB pioneered its conditional access system, no applicant for its use has ever been turned away. Indeed, we have heard that there are now more non-Sky channels than Sky channels which use Videocrypt in the UK. It is actually in BSkyB's interest to expand the number of UK satellite channels. Quite simply, the more channels there are, the more customers there are and the bigger the audience.

In fact, instead of restricting competition, it is my view that BSkyB has fostered competition. It has created a conditional access system available to all. The UK Gold, the Discovery channel, the Children's channel and TV Asia, to name but a few, have all been able to tap straight into an established market. Ironically, without Sky it is questionable whether those competitor channels would exist at all. Like Sky, they do not enjoy automatic access to every television home, as do the terrestrial TV services, nor guaranteed income from a compulsory TV licence.

BSkyB has had to build its distribution system and audience, home by home, without the terrestrial broadcasters' privileges. Thanks to its original investment and willingness to take risks, new channels are able to gain access to new audiences at low additional cost and at a fraction of the risk. In any case, any abuse that occurred would be adequately dealt with by existing regulators such as the OFT, the MMC and the European Commission Competition Directorate.

Viscount Astor: If that is the case, why do we need conditional access for digital? Why cannot that be done under the same OFT? Neither of my noble friends seems able to answer that question.

Lord Colwyn: We are attempting to answer that question and the reply will come out as we proceed.

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BSkyB has had to build its distribution system and audience, home by home, without the terrestrial broadcasters' privileges. Thanks to its original investment and willingness to take risks, new channels are available at a fraction of the cost.

So where is the logic of this new regulation? What is the point of introducing licensing controls when there is no market abuse? The noble Viscount, Lord Astor, suggested that there was a potential for abuse. But I fail to see how he has arrived at that conclusion. It is clearly in BSkyB's interest to let as many companies use the Videocrypt system as possible.

There is an equal, if not greater, case against the amendment with regard to the question of licences for television subscriber management systems; that is, the billing, payment and customer service aspects, apart from the encryption and decoding functions of conditional access. What is the reason, I ask the noble Viscount, for introducing new licences for those when there are identical unlicensed systems used by cable companies and other UK industries? Would he intend, for example, to introduce licences for subscriber management systems used by American Express, Lloyds Bank and other financial and credit card operations? Furthermore, there are already at least two other UK-based satellite television services which use subscriber management services separate from that used by BSkyB and numerous other European systems such as those used by the French CanalPlus and Premiere in Germany. In short, anyone can create their own subscriber management service. There is nothing particularly complicated or exclusive about it. Consequently, there can by definition be no gateway control and no need for burdensome regulations.

To sum up, I see no reason for new regulations in either the market for analogue conditional access systems or that for subscriber management services in analogue or digital television. The equitable and balanced status quo should remain.

The Earl of Stockton: I find myself in the happy position of being able to support my noble friend Lord Astor on this occasion. We are talking about ensuring that there is as prompt a transition as possible. His amendment is exactly in line with one that I tabled at an earlier stage in Committee to try to persuade the Government to put a finite date to the end of analogue transmissions. On that basis, I have to support him.

Lord Inglewood: Today, as last week, we have had an extensive and helpful debate on regulating conditional access and subscriber management. Perhaps I may begin by commenting to the noble Lord, Lord Thomson, that it is no part of my purpose either to baffle or batter him. If I had to do one or the other, I would rather baffle him.

I was pleased at the support that your Lordships gave to the proposals which the Government published on 15th January for regulating conditional access services for digital television, transposing the provisions of the EU Television Standards Directive of October last year into United Kingdom law. This amendment concerns the

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separate question of introducing a new regime for the existing conditional access services for analogue television which already fall within the scope of competition policy. As I said last week, the Government have considered this matter carefully but do not agree that a new system of regulation for analogue conditional access would be justified at this stage in the development of that market. I should like to repeat the case that I made last week and to do so in a concise way, not because I want to give the Committee short measure but because we have covered much of the ground already and I do not want to take up the Committee's time just for the sake of it. We take that view, as a deregulatory government, for three main reasons.

First, the analogue satellite market extends to only about 15 per cent. of UK households. We do not expect this market share to increase substantially because digital satellite is likely to be introduced within a couple of years and to replace analogue satellite equipment relatively quickly thereafter. Digital conditional access, by contrast, is likely to become important for virtually all UK households, and accordingly justifies a specific regulatory regime over and above normal competition law--as is clear from the EU directive, which quite specifically confines itself to digital conditional access. We have, as is only right, let potential investors in digital television know of the future regulatory arrangements in advance, before they commit themselves to substantial investments.

That brings me to my second point, which concerns fairness, investment confidence and regulatory stability. The amendment would change after the event the rules for operating in the time-limited analogue satellite conditional access market. The Government's reputation for promoting regulatory stability should not be jeopardised unless there is exceptional justification. The United Kingdom has been highly successful in attracting international investment precisely because the Government have earned the reputation over the years for not introducing new regulation unnecessarily and for not standing in the way of investors earning a return on successful projects. BSkyB's analogue satellite business has involved it taking very significant commercial risks, and it has continued to invest heavily in the business to promote its successful growth. We see the benefits of that investment around the UK, not least in employment in Scotland. If we move the regulatory goal posts now in the manner proposed, we also specifically risk jeopardising the investment confidence of prospective investors in digital television. They may well fear that if they start to earn profits on a risky investment in a few years' time, the Government will change the regulatory regime to their disadvantage. I therefore ask the Committee to consider most carefully the wider implications of this amendment.

The third reason is that competition policy offers proper safeguards. The Director General of Fair Trading is currently reviewing BSkyB's supply of programming to the analogue market, as mentioned by a number of noble Lords. I invite any noble Lords who are aware of evidence of such behaviour to ensure that it is brought to the attention of the Director General of Fair Trading in the context of his current investigation. The review is highly relevant to our debate. Any impact of BSkyB's

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conditional access market dominance on others affected by it can be assessed by that review. The Government believe that a proper process of inquiry by the competition authorities is the best way of responding to the concerns expressed today, which are entirely connected with the possible economic effects of an alleged abuse of a dominant position. Also, competition law has both domestic and European aspects. Where the operator of the only product abuses that monopoly position, those affected can make representations to the European Commission or challenge abuse in the courts, using European law.

I recognise the serious concerns which have been expressed during the debates on this subject in Committee. In restating that the Government, with their commitment to deregulation, do not regard the case for specific regulation as having been made, I am not seeking to deny those concerns. I am merely saying that the existing processes are adequate to deal with any mischiefs in the existing analogue market. For those reasons, the Government remain opposed to the amendment.


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