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Lord Donoughue: My Lords, I wish most strongly to support what I consider, apart from the sporting items, to be the most important central issue of the Bill.

As we know, the Government propose to regulate conditional access services for digital, through licence, under the Telecommunications Act 1984 and for them to be regulated under the Act by Oftel. We accept that. As we have said, we are very sympathetic to arguments, which my noble friend Lady Dean and I put at previous stages, that the ITC should be the regulator since the issues are broadcasting ones. The Government have resisted that; and we acknowledge that, because to us what matters is not who regulates but that there should be regulation. We believe that we should apply to analogue what the Government apply to digital.

I follow the noble Viscount, Lord Astor, and shall not repeat all the arguments. The heart of the matter, which should be borne in mind, is that the conditional access system controls who receives broadcast programmes. Conditional access in Britain, under analogue now, is dominated by Videocrypt, which is installed in over 95 per cent. of UK satellite receivers. It is owned by one company, News International, licensed to Sky. Therefore, the leading satellite broadcaster also controls access by its broadcasting competitors to home satellite receivers. That is a position of potential abuse which should be regulated.

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On digital, the Government say openly that there is a future danger that one or two providers of conditional access may come to dominate and restrict choice through the conditional access gateways. That is a future danger. The present reality is there, in one monopoly provider of analogue conditional access systems. So the same concerns and the same solution--the Government's own solution, which we support--should apply.

The Government's main argument seems to be that analogue is a transitional technology. I accept everything that the noble Viscount, Lord Astor, said in questioning that. Analogue will be the majority technology for at least the next decade. That is the gap that should be regulated. Monopoly control by just one provider over that decade will, in broadcasting practice, provide the basis to purchase dominant control of film rights and sports rights, to see it into, in a dominant position, the digital decades after that.

The Government may also say that present competition law offers sufficient remedies against dominant abuse. We do not accept that. Competition law, as we know, operates slowly and unpredictably. Inevitably, there will be a long period of uncertainty which will effectively deter new broadcasters from entering and investing in rights unless they have the confidence that they will have what they do not have under the present analogue system; namely, equal and unfettered access to all pay-television homes. Only this amendment will secure that.

On a final general point, as we said at Second Reading the key question with this whole digital landscape ahead is how to get it off the ground. It needs incentives to broadcasters, viewers and manufacturers. But the refusal to regulate analogue works in a contrary direction.

Leaving one dominant controller in that privileged position on analogue conditional access gives it an incentive to stay with analogue, and with that privilege, and not to move forward to the more regulated digital. For all those reasons I urge support for this amendment.

Lord Colwyn: My Lords, I have listened again to my noble friend's explanation and to that of the noble Lord, Lord Donoughue. In fact, I re-read the argument advanced in Committee. Again, I do not think it is necessary to introduce new licensing requirements for analogue conditional access and subscriber management systems.

My noble friend took me to task during my short speech in Committee, as it was clear to him that I may not have had as much time to study the amendment as I should. However, I have done a little more homework and wish to make some more points.

First, until new European legislation forced the Government to accept licensing for digital conditional access systems, they were opposed to the idea. Rather, they argued that there is no need for the licensing of any conditional access system because current competition policy in the form of MMC, OFT and other safeguards is sufficient. To force additional regulatory obligations onto as yet uncommitted manufacturers or operators of

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digital conditional access systems would be foolhardy, creating strong disincentives for them to invest in the first place.

Secondly--and here I want to answer the question that my noble friend asked me in Committee--it is also the case that, while analogue satellite channels reach only 15 per cent. of all UK homes, those digital channels that replace them will eventually reach virtually all UK households. Furthermore, it can be argued that the analogue market is unlikely to grow much further because virtually no analogue transponder capacity is available on the independent Astra satellite system. If a case is to be made for any further regulation, it should apply much more to the huge potential of digital than to the limited achievements of analogue.

I am treading a little more carefully this time. I am reluctant to disagree with my noble friend Lord Astor, whose knowledge of this issue I respect, but I am informed by Sky that, whatever the number, location and variety of subscriber management systems used by a satellite broadcasting company, consumers will never need to change their black-box decoder. The decoder is part of the conditional access system and it functions on a wholly separate basis to the SMS.

In Committee my noble friend Lord Inglewood touched on the wider implications of these amendments. To change the rules governing a well-established analogue market-place would undermine investment confidence and place a large questionmark over the Government's general commitment to regulatory stability. There is no need for this amendment.

Lord Thomson of Monifieth: My Lords, from these Benches we also strongly support the amendment moved by the noble Viscount, Lord Astor. I do not intend to go over the arguments around this subject that we have had on a number of occasions, but simply add a couple of points. First, the present system is not working well, certainly not from the point of view of many cable operators. The truth is that BSkyB has a vertical integration of all the three processes that go into this form of programming. As I have said repeatedly, that is wrong in principle, but the only way to deal with it is to have an effective regulatory system, an effective licensing system.

Cable operators, for instance, would like to offer a wide range of programming packages which they are prevented from operating because of the dominant control that BSkyB has over those arrangements. They would like to do "mini" basic packages of several channels, rather than having to produce the great packages that suit BSkyB's economic interest. I do not labour the point. I say simply that the present system already calls for an adequate licensing control.

I mention one other argument that has not so far been fully developed. It concerns the future and the Government's hopes of making a success of the digital revolution. The fact is that BSkyB's dominance of analogue conditional access will allow it to build a dominant position in digital pay television. BSkyB has two enormous advantages in the transition to digital broadcasting arising from its existing dominance of the analogue market. It already knows the identity and

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detailed viewing habits of the core audience in this field. A successful service depends on the acquisition of the most attractive pay television rights--largely films and sport. Key rights holders sell pay television rights as a package, including both analogue and digital transmission. Therefore, if BSkyB continues to enjoy a virtual monopoly of high value pay television rights and controls conditional access for the existing network of 3.5 million direct-to-home viewers, it alone will have the benefit of established scale in bidding for new rights and it alone will be able to spread the cost of such rights over both digital and analogue receiver networks. That situation calls for the kind of licensing system for which the noble Viscount argued. As the noble Lord, Lord Donoughue, said, along with sporting issues this is probably the most important issue in the Broadcasting Bill. I hope that the noble Viscount will receive from the Minister as forthcoming a response to his amendment as I recently had to mine.

Lord Annan: My Lords, I hope that the noble Lord will take account of the remarks of the noble Viscount, Lord Astor. He is absolutely right in saying that nothing is more difficult to forecast than the future in television. I thought his case very strong.

Lord Inglewood: My Lords, we return again to this subject, as a number of noble Lords said. I am extremely grateful to all those who have taken part in the debate for, I think, the fourth time. That reflects the importance that noble Lords who have spoken attach to the proper control of conditional access arrangements, which is also the concern of the Government. I shall be brief but that is not to dismiss the views expressed. Rather, I do not wish to detain the House reiterating arguments I have previously expounded at length. Indeed, the opinion of the House on the central issue has already been tested.

As explained, the amendment seeks to establish a common regulatory regime for both analogue and digital conditional access. My noble friend models his approach around that of the Telecommunications Act. I am happy that we agree that this is in principle the right framework and that Oftel is the most appropriate regulator. Indeed, the Government's own proposals cover fully the regulatory effect of the amendments as they apply to conditional access services for digital television. Where we differ is on the judgment of whether it is appropriate to extend this form of regulation to analogue services.

I can only summarise again the Government's judgment, which was supported in the vote on Tuesday. I entirely understand the anxieties of those opposing us on the issue but we believe they are not justified on the facts. We remain of the view therefore that the amendment is not appropriate. We consider it risks doing more harm to UK interests than good.

The background to this judgment is that analogue conditional access is an established part of the market which has strictly limited potential for growth and which is likely to give way relatively quickly to digital markets. At this very moment the OFT is addressing concerns about behaviour in the market. Its

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investigations will conclude during the passage of the Bill. This process provides for any further action which may be necessary if those concerns are substantiated. Further specific regulation of an established, and limited, market is not appropriate without substantiation of this kind. The potential for damage to investment confidence in UK markets because of concern about regulatory instability is very clear, as can be seen from our experience in the last several years in the cable sector. I referred to that on Tuesday. In the absence of confirmation of the need for specific regulation from the competition authorities, the benefits which might flow from the amendment are unclear. That, in a nutshell, is the Government's position. And it is why I very much hope that my noble friend will agree to withdraw the amendment, which we cannot accept.

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