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Baroness Buscombe: Under Clause 62, the Secretary of State is under an obligation to make what is called the universal service order, which sets out a number of matters which must be provided throughout the UK by universal service providers. The price for services is of course an important matter because the cost of providing a service in Cornwall, for example, may be very different from the cost of providing a service in London. It may therefore be appropriate for the universal service order to contain guidance about pricing, and Clause 62 provides for that. However, Amendment No. 97 makes it mandatory for the universal service order to contain guidance relating to the pricing of services. That is really a matter for the regulator, who is independent of government, and there seems to me to be no reason for it to be mandatory for the Government to seek to influence the regulator.

However, the amendment requires the word "pricing" on its own to be left out, and that unduly restricts the Secretary of State's power. We should by all means give the Secretary of State power to include within the universal service order guidance about relative pricing. I am with the noble Lord on that point. He and I part company over whether or not the Secretary of State should have power to give guidance about pricing generally. We believe that that would be useful and the Secretary of State should have that power. However, it should not be mandatory for him to exercise it.

The thrust of Amendments Nos. 98 to 101 is to give the Secretary of State power to modify any proposals made by Ofcom which relate to the pricing of certain services and functions. Clause 62 provides for the Secretary of State to make a universal service order which must deal with certain specific functions and services to be provided or made available or supplied throughout the UK.

Clause 64(1) provides that Ofcom can set universal service conditions for securing compliance with the obligations set out in the universal service order. The effect of this amendment as regards pricing of the various services and functions is that Ofcom, instead of setting universal service conditions, must publish proposals which have then to be approved by the Secretary of State. The Secretary of State can then modify those proposals.

That, we believe, seems to be wrong in principle. Ofcom is intended to be an independent regulator and these matters should be left to it and not subject to interference by the Government. Nor do I think it is a sensible use of the time of the Secretary of State or Ofcom. It involves an order being made by the Secretary of State, Ofcom then publishing proposals consistent with that order, and then the Secretary of State reconsidering those proposals. The Secretary of State is therefore involved at two stages.

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I would have thought it better for the Secretary of State to consult Ofcom at an early stage so the universal service order is quite clear as to what the Secretary of State requires. Clause 62(4) contains such a provision and we believe that that is a much better solution than the one proposed in the amendment.

Lord McIntosh of Haringey: First, I apologise for misplacing Amendment No. 95A, which led me to a number of errors. I said that it was in Clause 61. In fact, it is in Clause 62. I said that Clause 61 was about the must-carry obligations, which indeed it is, but Clause 62 is about the universal service obligation. I therefore misrepresented the European directives with which Clause 62, and therefore Amendment No. 95A, are concerned. Clauses 62 and 64 to 66 implement articles 3 to 7 and 9 to 11 and Part A of Annex 1 to the universal service directive. I apologise for that, but it cannot be put right in Hansard.

I agree with much of what was said by the noble Baroness, Lady Buscombe. We said in response to the Joint Committee that we do not think Ministers should do more than offer general guidance on the pricing of the universal service. We envisage that by way of guidance on the pricing of universal service obligations—this, after all, implements the universal service order and we have published a draft of the guidance for consultation—charges for essential elements of universal service should be offered on the basis of geographically average prices. That addresses the point made by the noble Lord, Lord Avebury. However, beyond that, we believe that decisions should be left to Ofcom.

We are deliberately setting the framework for dealing with the electronic communications sector over the coming years, setting up a high-powered regulator to deal with the detail in the manner prescribed in the Bill. We do not want to reserve all the details involved in the amendment to government. There is no need for government to take political decisions on the pricing of the universal service. It would not be desirable for the telecommunications industry and it would not be desirable for consumers.

Clause 65 requires Ofcom to keep universal service tariffs under review. It provides that universal service conditions can require the use of a common tariff for the provision of network services, apparatus, associated facilities, directories and directory inquiry facilities set out in the universal service order. In cases specified by Ofcom, special tariffs may be required. I believe that these measures are sufficient to secure fair pricing for universal services under Ofcom and there is no need to resort to further intervention by Ministers.

The noble Lord, Lord Avebury, said that the Bill does not accurately reflect the directive. We believe that it does, particularly in the difference in the obligation specified in articles 9.1 and 9.2 of the universal service directive. But I appreciate that he has raised a precise point and I would like to write to him to explain it in more detail.

Lord Avebury: It is a pity that the Government did not address the point properly in the reply that they

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made to the Joint Committee. It is clear in paragraph 156 of the committee's report that it did not believe that there is a mirroring in the Bill of the division of responsibility between NRAs and member states in Articles 9 and 10 of the Universal Service Directive. The Minister has said that he disagrees with that opinion. If he had given the reasoning for his conclusion to the Joint Committee, it might well have been accepted. I do not know.

I shall have to discuss the matter with members of the Joint Committee, as I was not a serving member. I should particularly like to take the advice of the noble Lord, Lord Puttnam, before deciding whether this is a matter to which we should return on Report. In the mean time, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 97 not moved.]

Clause 62 agreed to.

Clause 63 agreed to.

Clause 64 [Subject-matter of universal service conditions]:

[Amendments Nos. 98 to 100 not moved.]

Clause 64 agreed to.

Clause 65 [Tariffs etc. for universal services]

[Amendment No. 101 not moved.]

Lord Avebury moved Amendment No. 102:

    Page 66, line 38, leave out subsections (3) and (4) and insert—

"( ) Universal service conditions must secure that a designated undertaking, in providing facilities and services additional to those referred to in the universal service order, establishes terms and conditions in such a way that the customer is not obliged to pay for facilities or services which are not necessary or not required for the service requested by the customer."

The noble Lord said: As currently drafted, subsections (3) and (4) of this clause implement the Universal Service Directive in a way which, we say, "gold plates" the EU rules. The approach will adversely affect universal service providers in a way that we do not believe was intended by the directive.

The universal service order, made by the Secretary of State under Clause 62, sets out the extent to which the things specified in subsection (2) of the clause must be made available and supplied throughout the United Kingdom, while under Clause 63 Ofcom has the power to designate universal service providers, who are persons to whom the order applies.

Subsections (3) and (4) of Clause 65, which this amendment proposes to remove from the Bill, are intended to implement Article 10(1) of the EU's Universal Service Directive, though the Explanatory Notes do not actually say so. Article 10(1) requires that if designated undertakings—USPs under this Bill—provide additional services beyond those mandated by the USO, they must,

    "establish terms and conditions in such a way that the subscriber is not obliged to pay for facilities or services which are not necessary for the service requested".

In the case of Kingston Communications and BT, the products and services provided under the USO include telephony services and calls, public payphones, and

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special services for low-income users. So the directive says, as we have it in Amendment No. 102, that if they provide services outside those specified in the USO they must not charge the customer for other facilities or services that are not necessary for the particular service requested.

The directive says nothing about the charges made for services provided under the USO, but the Bill as drafted wrongly interprets Article 10(1) as meaning that customers of the basic services shall not be required to "subsidise" other services, meaning services provided outside the USO. This would mean that any normal profits generated from products supplied under the universal service obligation, such as telephone calls, cannot be invested in the start-up and development of new products and services.

Telecommunications is a dynamic and rapidly developing industry with new service capabilities becoming available, such as broadband access—a subject that we have just discussed—which are of economic and social value to customers. It is perfectly normal for such new service introductions to be initially loss-making and, therefore, in effect subsidised by the profits generated by more mature services. If the ability to rely on some degree of internal cross-subsidy is removed, service innovation will be severely restricted and ultimately consumers will suffer.

The prices of the products and services provided under the universal service order are already constrained by competitive forces or by direct controls by Oftel, providing the market and regulatory pressure that the directive intended. Both Kingston Communications and BT would be harmed by the current wording, but Kingston would be hit much harder because of its size. I beg to move.

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