Memorandum submitted by AOL UK
AOL UK warmly welcomes the draft Communications
Bill and strongly supports its fundamental premise, namely the
need for the UK's future regulatory systems and structures to
reflect the emerging capabilities of the digital communications
revolution. We also welcome the proposed creation of the new convergence
"super regulator", OFCOM, a body which we believe has
the potential to act as a pathfinder for media and telecommunications
regulators across the world for years to come.
AOL UK fully supports the additional consultation
offered by a draft Bill and welcomes the scrutiny of the draft
legislation by this Joint Committee of both Houses of Parliament.
We are committed to doing all we can to help Members of the Committee
ensure that the legislation supports the growth of a vibrant,
innovative and competitive digital communications industry in
the UK, to the benefit of consumers and the economy as a whole.
Getting the Regulatory Balance RightBroadcasting
While AOL UK welcomes the proposed creation
of OFCOM, we would urge Members of the Committee to ensure that
the new body's responsibilities toward the regulation of broadcast
content standards do not overwhelm its equally vital role in ensuring
full and fair competition in the telecommunications infrastructure
We would suggest that the complexities of broadcast
content regulationfrom so-called "taste and decency"
issues to aspects of media ownership and programming availabilityrequire
fundamentally different skills and resources to the detailed mechanics
of economic regulation.
It is perfectly possible for OFCOM to combine
these functions successfully. Indeed AOL UK believes that for
a future converged communications industry regulator not to attempt
to bring these differing disciplines under one roof would potentially
undermine the UK's ability to compete in the digital economy at
a global level.
However it is extremely important that OFCOM
achieves a successful balancein terms of resource and senior
executive focusin building on the twin pillars of content
regulation and economic regulation.
Furthermore we would add that if economic regulation
were to be managed effectivelywith timely and robust intervention
wherever the market itself fails to deliver competitionthe
outcome would be a vibrant and competitive environment for the
transmission of content. Consumers would benefit directly as competition
amongst infrastructure providers ensured that the delivery of
quality content and services became a key market differentiator.
Without such competitionstimulated and
supported by robust economic regulatory action where requiredthere
would be no such incentive. Weakness in one of OFCOM's pillars
would undoubtedly compromise the other.
The Structure of OFCOM
In practice, any detailed assessment of OFCOM's
future structure and capabilities will have to await the announcement
of its constituent senior management team together with an outline
indication of the size of staff within each of OFCOM's departments.
In making such an assessment, we would ask Members
of the Committee to be mindful that the economic regulation of
telecommunications infrastructure is a highly specialist area
requiring experienced and knowledgeable staff. We would also suggest
that the breadth of OFCOM's overall remit combined with pressures
on senior executives' time would bring the risk that the often
highly technical (if not seemingly arcane) details of telecommunications
regulation, which nevertheless are key to the fostering of effective
competition in the sector, would attract less attention internally
than other challenges in the area of broadcast content regulation
which would be more likely to capture the attention of Parliament,
the media and others.
In looking at the staffing requirements of OFCOM,
it is worthwhile noting that Oftel has suffered from a high turnover
of staff, which affects both the speed of decision-making and
the general level of industry and technological knowledge of the
regulator. Therefore, it may be worth investigating the option
of releasing some OFCOM employees from civil service pay scales.
UK INTERACTIVE SERVICES
AOL UK would like to draw the Committee's attention
to a number of specific issues within the Bill of potential concern
for Internet and Interactive Services Companies.
1. Regulation of Internet Content
AOL UK supports the government's clear policy
intention not to seek the regulation of Internet content. In the
light of this we would welcome greater clarity in certain parts
of the draft Bill, in particular
1.1 The Content Board (Clause 18, page
15, line 9).
As presently drafted the functions of the Content
Board of OFCOM would appear to include Internet content and therefore,
in the light of the government's stated policy that the Communications
Bill will not give OFCOM any powers of regulation over content
on the Internet, we would appreciate more clarity in the drafting
of this section.
1.2 Meaning of Television Licensable Content
(Clause 154, page 132, line 19).
Although the policy documentation accompanying
the legislation states that this section does not extend regulation
to Internet content, we would still suggest that there are a number
of potential causes for concern.
It appears that some current Internet services
and many future digital services may be unintentionally caught
by the definitions of "television licensable content".
Although the Bill attempts to narrow this area by stating that
this form of content is that which is "available for reception
by members of the general public" (Clause 238, page 194,
line 28), AOL UK believes that the definition remains flawed.
A present Internet service caught by this definition
could include the webcast of a music event for which the consumer
pays an additional fee. In fact, it would appear that anything
based on "push" technology over the Internet would be
caught in this way.
AOL UK suggests that this definition be re-drafted
in order to provide clarity that it is the content "owner"
or "provider" who carries the liability for an Internet
"push" event such as a webcast, and not the content
"deliverer"the Internet Service Provider (ISP).
Traditional broadcast media outlets are both
the "owner" of the content as well as the delivery mechanism,
in the sense that they select programmes for broadcast (either
those produced by others and then purchased or those produced
in-house) and then deliver those programmes to their audiences.
However, while ISPs provide the means for consumers to access
the Internet, given the global nature of the online medium it
is not possible for ISPs to assume control over content which
can be accessed via their services but which does not reside on
The Government has acknowledged this in making
plain its policy intention not to seek regulation of Internet
content. The present drafting of the Clause outlined above cuts
across that intention and as such would raise unintended ambiguity
in the legality of numerous future digital services for UK consumers.
2. The Application of the Authorisation Regime
to electronic communication services (Clause 23, page 19, line
The bulk of the economic regulation responsibilities
of OFCOM, as well as the transposition of the new EU telecoms
legislation, is detailed in Part 2 of the draft Bill. The EU legislation
primarily establishes a framework in which national regulators
are to exercise their discretion, and this is reflected in the
Under the current telecommunications regulatory
regime, licenses are required to run a telecommunications system.
The draft Bill provides for the abolition of the current licensing
regime, to be replaced by a system of general authorisations for
both the provision of electronic communications networks and services.
For many under the existing licensing regime this will be welcome.
However, the general scope of the Bill is necessarily wide to
cover the entire converged communications industry, and this has
the consequence of bringing within the scope of the authorisations
regime a number of activities previously free of administrative
OFCOM would be able to exercise discretion in
deciding which communications industry activities would require
authorisation. However, Members of the Committee should note that
the administrative charges levied on authorised operators will
be a key revenue stream for OFCOM.
While larger organisations may be in a position
to absorb the costs and administrative burden of meeting conditions
imposed under the general authorisation regime, as long as they
are not unduly onerous, we believe that the related costs could
constitute a market entry barrier for the kind of small and medium
sized businesses that are important for driving innovation in
the sector. This seems contrary to the aims of government policy
in rolling back regulation and is therefore unwelcome.
3. General Conditions (Clause 39, Page 36,
AOL UK's concerns about the possible expansion
of authorisations to electronic communications services generally
is reinforced by the fact that many of the conditions that would
be imposed via this framework mirror provisions of general consumer
protection laws and thus create a sector specific parallel regime.
This seems unnecessary in principle, not least given that in a
dynamic and competitive market with a wide choice of suppliers,
the ultimate sanction against a poor business offering remains
the loss of custom. In the ISP market, competitive forces have
led AOL, for example, to establish very effective internal customer-protection
processes. The Committee should be aware that the costs and administrative
burden of such a parallel regime would constitute a significant
barrier to market entry to smaller organisations.
4. Management of the Number Space (Clause
44, page 41, line 43)
The draft Bill creates a regime for the allocation
and management of telephone numbers. OFCOM is required to ensure
"best use" is made of numbers "to encourage efficiency
and innovation". AOL UK believes that an additional policy
aim should be to manage the number space with a view to minimising
the costs of routing calls across the telephony network. For example,
the cost charged for providing unmetered Internet access is 20
per cent higher than it need have been simply because of the choice
of the numbers available for dialling flat-rate ISPs.
5. Universal Service (Clause 50, page 47,
The draft Bill provides that the Secretary of
State defines the scope of Universal Service and that OFCOM then
administer the provision of this service as well as the organisation
of a Universal Service fund to which market players would contribute
to cover any costs incurred by the Universal Service provider.
This drafting appears to be at odds with existing European legislation,
which already defines the services that are part of Universal
Service, and provides that any burden should be financed either
from the respective government's general expenditure or from a
No justification is provided for why the UK
Government's social policy objectives in the converged communications
area should be financed by the UK communications industryin
contrast to the practice for all other aspects of social policy.
Additionally we would note that such a proposal could have an
adverse effect on new entrants to the market by addingperhaps
significantlyto their operating costs.
Moreover, EU legislation requires that all services
mandated beyond those specified in the EU Directive must be financed
from government funds. This is not reflected in the draft Bill.
6. Significant Market Power Conditions (Clause
63, page 58, line 24)
The conditions that can be imposed on dominant
players in markets that are not effectively competitive are at
the heart of the OFCOM's powers with respect to economic regulation.
Economic regulation will henceforth be a two stage process:
(i) the identification of markets and the
designation (if any) of dominant (called "significant market
power" or SMP) players within them; and, where dominant players
(ii) the imposition of appropriate regulatory
safeguards to promote consumer interests.
Once an operator has been designated as having
SMP, OFCOM is then able to impose one or more obligations as appropriate
to address the lack of competitiveness in the market and thus
promote consumer interests. The Bill seeks to transpose the list
of possible obligations set out in the EU legislation, but it
has not done so entirely faithfully and this has been at the expense
of a number of points that were important parts of the compromise
in Brussels. In particular the provisions covering reference to
interconnection offers and the application of the non-discrimination
principle are not as clear and certain as will be needed.
AOL UK believes that the draft Bill is an admirably
forward-looking piece of legislation and we commend the intentions
behind its creation. We support much of what is set out within
it and fully endorse the concept of a converged regulator sufficiently
empowered to stimulate competition and protect consumers in the
digital economy. Additionally we also welcome the policy recognition
that self-regulatory schemes are more appropriate for Internet
content, and we request that this be reflected in future drafting.
We would strongly urge that OFCOM's role as
economic regulator should be put at the forefront of Parliamentary
scrutiny, for without open, transparent and effective competition
in the UK telecommunications market it is unlikely that the diversity
of digital content and services foreseen by the Bill's creators
will emerge to any meaningful extent in the future. We have identified,
above, a number of specific concerns about elements of the draft
legislation which appear to run counter to the Government's intention
to keep regulation to the necessary minimum. We would respectfully
request that Members of the Committee examine these areas further.
We would like to thank the Committee for the
opportunity to share our thoughts on the Bill and would be delighted
to contribute further if required.