House of Lords - Explanatory Note
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Clause 75: Circumstances required for the setting of SMP conditions

190.     Clauses 75 to 90 concern OFCOM's powers and duties to identify markets, determine whether persons have significant market power (SMP) on those markets, and to impose SMP conditions on persons whom they have determined as having SMP.

191.      Clause 75 sets out when a person shall be taken to have SMP in relation to a particular market. A person will only be taken to have significant market power where he is, alone or with others, in a position of dominance in a market. A position of dominance must be construed in accordance with any applicable provisions of Article 14 of the Framework Directive, which (at its paragraph 2) defines dominance as 'a position of economic strength affording the person the power to behave to an appreciable extent independently of competitors, customers and ultimately consumers'. A determination of joint dominance must take into account, in particular, the criteria for joint dominance set out in Annex II to the Framework Directive. This implements Article 14 of and Annex II to the Framework Directive.

Clause 76: Market power determinations

192.     Subsection (1) provides that before making a determination that a person has SMP, OFCOM must first identify the markets in which they consider it will be appropriate to carry out a market analysis and then carry out that analysis. When identifying appropriate services markets and when making SMP determinations in relation to a services market, OFCOM are obliged to take due account of all relevant European Commission guidelines and recommendations - the first such recommendation was published by the European Commission on 11th February 2003: the recommendation can be viewed on the European Commission website (http://europa.eu.int/information_society/topics/telecoms/regulatory/maindocs/documents/recomen.pdf). The way in which a market is to be identified or a market determination made is by the publication of a notification under subsection (4). This clause implements Articles 15 and 16 of the Framework Directive. The Electronic Communications (Market Analyses) Regulations 2003 (S.I. 2003/330) empower Oftel to carry out market analyses and to make proposals for market power determinations and the setting of conditions in advance of the passing of the Bill. Paragraph 8 of Schedule 18 to the Bill provides that proposals confirmed under those Regulations have effect under this clause and other relevant clauses after the provisions of the Bill have been commenced.

Clause 77: Proposals for identifying markets and for market determination proposals

193.     Before identifying a market for the purposes of making a market power determination or making a market power determination, OFCOM must publish a notification of what they are proposing to do. A notification under this clause must state that OFCOM are proposing to identify that market or to make a market power determination, set out the effect of the proposal, give their reasons for making the proposal and specify the period (not less than one month from the date of the publication of the notification) within which representations about the proposal may be made to OFCOM.

194.     Subject to clauses 79 and 80, subsection (6) provides that OFCOM may give effect, with or without notifications, to a proposal notified in accordance with this clause, provided they have considered every representation about the proposal made within the period specified by them and they have regard to every international obligation of the United Kingdom (if any) notified to them by the Secretary of State.

195.     This clause implements Articles 6, 7 and 16(1) of the Framework Directive.

Clause 78: Delivery of copies of notifications under ss. 76 and 77

196.     OFCOM must send a copy of every notification published under clause 76(4) or 77 to the Secretary of State. OFCOM must also send to the European Commission: (i) a copy of every notification published under clause 76(4) with respect to a market power determination in relation to an SMP services market; and (ii) a copy of every notification published under clause 77 which relates to a proposal to identify a services market or to make a market power determination in relation to such a market; and which in OFCOM's opinion would affect trade between member States. A copy of a notification falling within (ii) must also be sent to the regulatory authorities of every other member State.

197.     In all other cases when it appears to them appropriate to do so, OFCOM must send a copy of a notification published under clause 77 which relates to a proposal to identify a services market or to make a market power determination in relation to such market to the European Commission and such of the regulatory authorities of the other member States as OFCOM think fit.

198.     The various requirements in this clause to send matters to the European Commission implement Article 16(2) of the Access Directive, Article 36(2) of the Universal Service Directive and Article 7(3) of the Framework Directive.

Clause 79: European Commission's powers in respect of proposals

199.     During the period given for representations under a notification under clause 77 relating to an SMP services condition, the European Commission may inform OFCOM that they believe that the proposed market identified in the notice or OFCOM's proposed market determination may not be compatible with the single European market, or with any Community obligations. In such a case, OFCOM may not give effect to their proposal for a further two months. OFCOM must withdraw their proposal if in accordance with the procedure in Article 7(4) of the Framework Directive the Commission, within that two-month period, decides that the proposal must be withdrawn. This implements Article 7(4) of the Framework Directive.

Clause 80: Special rules for transnational markets

200.      When the European Commission identifies a transnational services market that includes the United Kingdom, OFCOM is required to make arrangements with all other relevant regulatory authorities to deal with the following issues:

  • the identification of the market;

  • assessing whether a person has SMP in the relevant transnational services market(s);

  • the setting of appropriate SMP services conditions as well as the modification or revocation of such conditions; and

  • the procedures to be followed to secure that OFCOM and other regulatory authorities comply with their agreed arrangements.

201.     This implements Articles 2(b), 15(4) and 16(5) of the Framework Directive.

Clause 81: Review of services market identifications and determinations

202.     Where OFCOM have identified and analysed a services market for the purposes of making a market power determination, OFCOM must, at such intervals as they consider appropriate, carry out further analyses of the identified market for the purposes of reviewing the determinations made on the basis of the earlier analysis and deciding whether to modify any SMP condition set on the basis of that earlier analysis. (subsection (2)). Where OFCOM determine that a person to whom any SMP conditions are applied no longer has SMP, they must revoke every SMP services condition applied to that person by reference to the market power determination made on the basis of the earlier analysis.

203.     Subsection (3) requires OFCOM to carry out further analysis of a services market as soon as reasonably practicable after the European Commission makes any recommendation that affect the matters that were (or could have been) taken into account in the earlier market analysis.

204.     Before carrying out further analysis for the purposes of subsection (2), OFCOM may review any of their decisions identifying the appropriate markets that they considered in their earlier analysis. Where OFCOM conclude that the appropriate markets have changed, OFCOM must identify the markets they now consider to be appropriate and those markets must be the identified markets for the purposes of further analysis.

205.      Clauses 76 to 80 apply in relation to the identification of a services market for the purposes of reviewing a market power determination and in relation to the review of such a determination.

206.     This clause implements Article 16(1) and (3) of the Framework Directive, Article 7(3) of the Access Directive and Articles 16(3) and 18(2) of the Universal Service Directive.

Clause 82: Review of apparatus market identifications and determinations

207.     Where OFCOM have identified and analysed an apparatus market for the purposes of making a market power determination, OFCOM must, at such intervals as they consider appropriate, carry out further analyses of the identified market for the purposes of reviewing the determinations made on the basis of the earlier analysis and deciding whether to modify any SMP condition set on the basis of that earlier analysis (subsection (2)). Where OFCOM determine that a person to whom any SMP conditions are applied no longer has SMP, they must revoke every SMP apparatus condition applied to that person by reference to the market power determination made on the basis of the earlier analysis.

208.     Before carrying out that further analysis OFCOM may review any of their decisions identifying the appropriate markets that they considered in their earlier analysis. Where OFCOM conclude that the appropriate markets have changed, OFCOM must identify the markets they now consider to be appropriate and those markets must be the identified markets for the purposes of further analysis.

209.      Clauses 76, 77 and 78(1) apply in relation to the identification of an apparatus market for the purposes of reviewing a market power determination and in relation to the review of such a determination.

Clause 83: Cases where review required

210.     This clause prohibits OFCOM from setting an SMP services condition by a notification (other than by a notification which also makes the market power determination by reference to which the condition is set) unless (i) the condition is set by reference to a market power determination which has been reviewed under clause 81; or (ii) the condition is set by reference to a market power determination made in relation to a market in which OFCOM are satisfied there has been no material change since the determination was made.

    * A change is material for the purposes of this clause if it is material to the setting of the condition in question or the modification or revocation in question.

211.     OFCOM must not modify or revoke SMP services conditions applying to a person except where: (i) for the purpose of determining whether to make the modification or revocation, they have carried out further analysis under clause 81 of the market in question and reviewed the market power determination for the time being in force in that person's case; or (ii) they are satisfied that there has not been a material change in the market identified or otherwise used for the purposes of the market power determination by reference to which the condition was set or last modified.

212.     OFCOM must not modify SMP apparatus conditions applying to a person except where, for the purpose of determining whether to make the modification or revocation, they have carried out a further analysis under clause 82 of the market in question; and reviewed the market power determination for the time being in force in that person's case.

Clause 84: Conditions about network access etc.

213.     Clauses 84 to 89 make provision about the subject matter of SMP services conditions. Where OFCOM have identified a provider of a public electronic communications network or a person who makes available associated facilities in connection with such a network as having SMP in a services market, they may impose such SMP conditions authorised by this clause, as they consider appropriate. These may include conditions requiring the provider to confer entitlements on other providers regarding the provision of network access, the use of that network, and the availability of facilities. Such conditions may include provision for securing fairness and reasonableness in the process and should be set having taken into account the matters set out in subsection (4). These include the feasibility of providing network access; the need to ensure effective long-term competition in the markets; the investment made by the person initially providing or making available the network or facility in respect of which an entitlement to network access is proposed; the technical and economic viability of installing and using facilities that would make the proposed network access unnecessary; intellectual property rights; and the availability of services throughout the European Union.

214.     Subsection (6) provides that SMP service conditions may require a person with SMP to publish such information as OFCOM may direct for the purpose of securing transparency in relation to network access. They may require such a person not to discriminate in relation to any matter connected with network access. They may require such a person to publish the terms and conditions on which the provider will enter an access contract and to modify those terms and conditions.

*an access contract is defined in subsection (12) as any contract for the provision, by a dominant provider, of network access, or of associated facilities made available in relation to a public electronic communications network.

215.     Subsection (7) provides that OFCOM may set SMP services conditions obliging a dominant provider to maintain separate accounts for such different matters relating to network access or the availability of associated facilities as OFCOM may direct.

216.     Subsection (9) provides that OFCOM may set SMP services conditions requiring a person with SMP to comply with price-controls, rules on cost-recovery and cost accounting systems in relation to matters connected with network access or the availability of associated facilities. OFCOM may also, by setting such conditions, direct the provider to adjust its prices.

217.     This clause, together with clauses 85 and 86, implement Articles 8 to 13 of the Access Directive, Article 6(2) of the Authorisation Directive and Article 16(4) of the Framework Directive.

Clause 85: Conditions about network access pricing etc.

218.     OFCOM may not set conditions under clause 84(9) unless it appears to them from a market analysis that the provider in question might charge excessive prices or engage in other anti-competitive pricing behaviour. The condition must also be perceived by OFCOM as being efficient and pro-competitive, and as resulting in the maximum benefit to end-users. In setting an SMP services condition falling within clause 84(9), OFCOM must take into account the extent of the investment that the person to whom the condition is to apply would need to make if the condition were to be applied.

Clause 86: Conditions about network access in exceptional cases

219.     In exceptional circumstances, OFCOM may decide that SMP services conditions additional to those set out in clauses 84 and 85 (SMP services conditions about network access) need to be imposed on a provider. Such additional SMP services conditions must be submitted by OFCOM to the European Commission for approval and OFCOM can only apply them once they are approved.

Clause 87: Conditions about carrier selection and pre-selection

220.     Where the relevant market is one relating to services for the provision of public fixed line telephone networks, OFCOM may set conditions obliging providers with SMP to make a relevant connection facility available to any person to whom they provide a public electronic communications service, or to make interconnection facilities available to a person providing an electronic communications service. OFCOM must also set pricing conditions to ensure that charges imposed by the provider with SMP do not constitute a barrier to use of the facility. Conditions set by OFCOM under this clause may impose obligations relating to the manner in which a relevant connection facility is to be made available or in which the facilities for interconnection that are to be made available to a person providing an electronic communications service. This clause implements Article 19 of the Universal Service Directive Article 6(2) of the Authorisation Directive and Article 16(4) of the Framework Directive.

*relevant connection facility is defined in subsection (6) as a facility which allows the end-user to select which carrier to use. This may be specified on every occasion of use (carrier selection), or by designating a carrier in advance (carrier pre-selection).

Clause 88: Conditions about regulation of services etc. for end-users

221.     This clause deals with the situation where the relevant services market is one for the end-users of public electronic communications services, and where access-related conditions, and SMP conditions other than under this clause, imposed by OFCOM are not sufficient to allow OFCOM to perform their duty under clause 4. In such a case, OFCOM may set conditions obliging the provider to comply with such regulatory controls as OFCOM consider appropriate.

222.     If such regulatory controls are imposed on tariffs, or on other matters to which costs are relevant, the provider may be obliged to use such cost accounting systems as OFCOM direct, to have these systems annually audited and to publish an annual statement as to its compliance with these cost accounting systems. OFCOM must provide the European Commission with whatever information they require about conditions authorised by this clause. This clause implements Article 17 of the Universal Service Directive, Article 6(2) of the Authorisation Directive and Article 16(4) of the Framework Directive.

Clause 89: Conditions about leased lines

223.     Where the relevant services market relates to the provision of such leased lines as are identified by the European Commission in the List of Standards published in the Official Journal of the European Communities, OFCOM may set and apply conditions obliging the provider to apply, so far as required by Annex VII of the Universal Service Directive, the principles of non-discrimination, cost orientation and transparency to dealings regarding leased lines. This clause implements Article 18 of, and Annex VII to, the Universal Service Directive, Article 6(2) of the Authorisation Directive and Article 16(4) of the Framework Directive.

*a leased line is defined in subsection (4) as an electronic communications service consisting in the reservation of a fixed amount of transmission capacity between fixed points on the same or different electronic communications networks.

Clause 90: Conditions about apparatus supply

224.     Where OFCOM determine that a supplier of electronic communications apparatus has SMP in an apparatus market, OFCOM may set conditions requiring the supplier to maintain accounting separation between such activities and other matters and also may set price controls in relation to the hiring of telephones which are hardwired to an electronic communications network. The SMP apparatus conditions may only apply to apparatus in respect of which the supplier has been found to have significant market power.

*A telephone is hardwired to an electronic communications network under subsection (4) if the telephone has to be physically attached to apparatus in the network by means of a tool before it can be used.

*Apparatus in relation to SMP apparatus conditions is defined in clause 148(1), as apparatus designed or adapted for a use which consists of or includes the sending or receiving of communications or other signals (within the meaning of clause 29) that are transmitted by means of an electronic communications network.

Clause 91: Notification of contravention of condition

225.     Clause 91 gives OFCOM powers of enforcement in respect of all types of conditions set pursuant to clause 42. Where OFCOM have reasonable grounds to believe that a person is or has been in breach of any condition, they may notify that person accordingly, and allow him a specified period of time in which to make representations to OFCOM and to take steps to comply with the condition or remedy the breach. That period must be one month, other than in the circumstances provided for by subsections (6) and (7) or where the case is an urgent case (see clause 95(3)).

226.     OFCOM must not give such a notification where they decide that a more appropriate approach lies under the Competition Act 1998, in which case they must publish a notification to that effect.

227.     This clause, and clauses 92 to 98, implement Article 10 of the Authorisation Directive in the context of the enforcement of the conditions of entitlement.

Clause 92: Enforcement notification for contravention of conditions

228.     If, by the end of the period specified in clause 91, OFCOM are satisfied that the condition about which the provider was notified has still not been fully complied with, subsection (2) allows OFCOM to serve an enforcement notification on the notified provider. Such a notification requires the notified provider to take such steps as are specified in the notification to comply with the notified condition and remedy the consequences of any contravention, within the period specified in the notification. Those persons to whom an enforcement notification has been given are under a duty, enforceable by OFCOM via civil proceedings, to comply with it.

Clause 93: Penalties for contravention of conditions

229.     This clause allows OFCOM to impose a penalty on a notified provider where a notification of contravention under clause 91, has been issued, and the notified provider is in contravention of any of the conditions specified there and has not, within the period allowed by OFCOM for the making of representations, taken steps to comply with the condition(s) concerned and to remedy the consequences. OFCOM may also impose a penalty where a person is in contravention of a requirement of an enforcement notice under clause 92. OFCOM must notify the decision to impose a penalty, the reasons for it, and the period within which the penalty is to be paid to the person on whom it is being imposed within one week of that decision.

Clause 94: Amount of penalty under s. 93

230.     In deciding on the amount of a financial penalty under clause 93, OFCOM are required to consider whether the penalty is appropriate and proportionate, and to take account of any representations made by the person concerned, and any steps taken by him to comply with the notified condition. The penalty shall not, in any event, exceed 10 per cent of the turnover of that person's relevant business for the relevant period.

*relevant business is defined in subsection (5) and (6) as, broadly, business consisting of the provision of an electronic communications network, electronic communications service or associated facilities, and the supply of directories, directory enquiry facilities or electronic communications apparatus. In the case of a penalty imposed for the contravention of an SMP apparatus condition, the relevant business is only business consisting of the supply of electronic communications apparatus.

*relevant period is defined in subsection (5) - subject to exceptions for providers who have not been carrying on business for a full year, or who have gone out of business - as one year, that year ending on 31 March.

Clause 95: Power to deal with urgent cases

231.     This clause gives OFCOM additional powers where they determine that there are reasonable grounds for suspecting that a contravention of a condition of entitlement (other than an SMP apparatus condition) has caused, or creates a risk of, either a serious threat to public safety, public health or national security; or serious economic or operational problems or any communications provider or provider of associated facilities or any person who uses them.

232.     In such exceptional circumstances, OFCOM may in a notification of the contravention under section 90, reduce the one-month period allowed to the person who is alleged to be in breach of a condition to make representations and to take steps towards compliance. In addition, OFCOM may suspend the person's entitlement to provide networks, services and/or associated facilities, or may restrict that entitlement in some way (subsection (4)). OFCOM may postpone the entry into effect of the suspension and may also impose such conditions on the person whose service is to be suspended as they consider necessary to protect customers (including requirements for payment of compensation to customers for loss or damage or for annoyance, inconvenience or anxiety caused in consequence of the suspension). Such conditions have effect only where the direction is confirmed in accordance with clause 96.

Clause 96: Confirmation of directions under s.95

233.     As soon as reasonably practicable after suspending or restricting a person's entitlement under clause 95(4), OFCOM must give that person an opportunity of making representations to them about the grounds on which it was given and its effect and of proposing steps to remedy the situation.

234.     As soon as practicable after the period allowed by OFCOM for making representations, OFCOM must determine whether the contravention providing the grounds for the suspension or restriction did occur and whether the circumstances made it an urgent case justifying the suspension or restriction. If OFCOM decide that the contravention did occur and that the suspension or restriction was justified, they may confirm the direction. If not, OFCOM must revoke the suspension or restriction. They must notify the person concerned of their decision.

 
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Prepared: 6 March 2003