Clause 1 - Functions and general powers of OFCOM
Communications Bill
11:00 am
Mr John Whittingdale (Maldon and East Chelmsford, Conservative)
I had not anticipated leaping to my feet quite so soon but, unfortunately, we have already seen a demonstration of the effects of knives in our being unable to complete our debate on the sittings motion.
Given that clause 1 sets the scene for the establishment of Ofcom, it would be useful to make a few general observations about the regulation of utilities and public limited companies and, in particular, the challenges facing Ofcom as a newly established regulator covering a considerable variety of industries. As members of the Committee will be aware, Ofcom will take on the functions of five regulators that currently perform different functions. There is some overlap between the Independent Television Commission and the Broadcasting Standards Commission and one or two other areas that are currently divided up among the five regulators, but in the main the embrace of Ofcom will take in all the activities covered by those regulators and, in some cases, extend a little further. Ofcom will also take on responsibility for some of the work of the Office of Fair Trading.
It is instructive to consider that Oftel was the first of the five regulators to be set up, as a result of the Conservative Government's privatisation of British Telecom. Oftel was to some extent a trailblazer among the utility regulators. Some might think that it has been less successful than other regulators. Certainly, if one considers the state of the market that Oftel regulates, its prime objective of encouraging and promote competitive markets—
Mr Andrew Lansley (South Cambridgeshire, Conservative)
My hon. Friend was involved in these matters at an early stage, so he will recall that Oftel did not have a prime duty to promote competition. It had a range of duties, one of which was the promotion of competition. I make that point because it will be salient later.
Mr John Whittingdale (Maldon and East Chelmsford, Conservative)
My hon. Friend is entirely right, and I stand corrected. That is an important distinction, which we will examine when we consider the first group of amendments. One reason why Oftel has been slightly less successful in achieving competition might be that that objective was not given sufficient priority. My hon. Friend the Member for Ryedale (Mr. Greenway) and I were involved in such matters in a previous life, and we might be able to draw on our experiences when we come to debate the subject.
Oftel has to some extent been overtaken in achieving competitive markets by one or two of the
regulators that have been set up since. I should like to focus on that.
Mr Michael Fabricant (Lichfield, Conservative)
Does my hon. Friend give Oftel at least some credit for announcing this morning that a competitive system of directory inquiry telephone lines will be introduced? My hon. Friend the Member for South Cambridgeshire (Mr. Lansley) points out that there was no prime directive to introduce competition, but Oftel has introduced it to some degree, although perhaps not as much as the Independent Television Commission or the Radio Authority.
Mr Roger Gale (North Thanet, Conservative)
Order. May I suggest before we stray that we do not do so?
Mr John Whittingdale (Maldon and East Chelmsford, Conservative)
My hon. Friend the Member for Lichfield (Michael Fabricant) makes an important point, because it is clearly a prime function of Ofcom, as the successor to Oftel, to carry on its work in promoting competitive markets. His example demonstrates that some progress has been made, but it is some 10 years since Oftel came into existence.
Mr Andrew Lansley (South Cambridgeshire, Conservative)
I shall try to restrain myself, Mr. Gale, but should like to complete my point. My recollection is that Oftel said on about 1 July that, notwithstanding the fact that the Telecommunications Act 1984 imposed a range of duties, it would treat the promotion of competition in telecommunications markets as its principal objective. That is one reason why the transition from Oftel to Ofcom will be smoother.
Mr John Whittingdale (Maldon and East Chelmsford, Conservative)
I do not want to anticipate our debates on amendments that stand in my hon. Friend's name, because they will address the crux of that matter and whether we should put the promotion of competition into the Bill, but I agree entirely that that is perhaps the most important duty of a regulator.
Ofcom is a huge body. Its scope is so vast and its powers so great that it is extremely important that proper checks and balances are built into the Bill to ensure that there are safeguards and rights of appeal, that the regulatory principles are given proper prominence, that Ofcom will work to strictly defined criteria, and that it is properly accountable. The industry was once in public ownership and was therefore subject to regulation from Ministers, who had the power to issue directions, set prices and instruct management. Although we have left that behind through privatisation, there is a danger that we have merely substituted ministerial regulation with regulation by an independent body, which is a system of less accountability than the original system under which Ministers operated. That has not necessarily happened, but it is a danger that should be borne in mind. We must build in measures to ensure proper accountability.
It is legitimate to ask the question now, because it is difficult to foresee another stage at which it could be asked. Do we need to strengthen the powers of Parliament to scrutinise decisions made by Ofcom? That issue has been raised in many of the debates so far—on the paving Bill and in the White Paper and the Joint Committee. Should a stand-alone Select Committee of the House have the role of monitoring
Ofcom and act as a body to adjudicate on or consider complaints against Ofcom? We must be sure that there is proper accountability of Ofcom, because it will be an enormously powerful body.
When regulators have been set up in the past, a separate consumer body has often been established—bodies such as Energywatch, which was set up to represent the interests of energy consumers and which works alongside the regulator, Ofgem. Similarly, Postwatch was set up to consider the interests of postal users and works alongside Postcomm. No equivalent body is being suggested under this Bill. We will consider the role of the consumer panel, but that is a different entity built into the process of Ofcom. No separate organisation is charged with fulfilling the same sort of tasks as Energywatch and Postwatch. We should bear that in mind.
The principal duty of a regulator is to work towards its own destruction. If a regulator is truly successful it will create conditions in which there is no longer any need for regulation. However, that will never be fully possible in the telecommunications sector, because it is highly unlikely that we will ever achieve competing infrastructure networks. I am not even sure that that would be desirable, because it would be a hugely expensive, and not wholly necessary, operation. It is possible to achieve great competition using only one network if the regulatory principles are properly in place. There will, however, be a need for regulation of telecommunications as long as we have a single infrastructure under single ownership.
That is not to say that the regulator should not work towards withdrawing from other parts of the market. Although it is not an exact parallel, it is worth considering the example of Ofgem, which has been successful in creating a competitive market in electricity supply and has now withdrawn almost entirely from trying to regulate prices in the area of supply. Although it continues to regulate prices in the monopoly area—infrastructure—there is now a competitive market for supply, with several companies offering supply contracts. That in itself has created problems, but I will not spend time on those today.
The example is instructive because the problems were not caused by the actions of the regulator. The regulator has been highly successful in carrying out precisely what was required in the original legislation. It was told to work towards creating a competitive market and to bring down prices for the consumer, and there is no doubt that electricity prices have come down. Ofgem was not told to give equal priority to maintaining diversity of supply, and, as a result, we now have one or two problems in the nuclear sector and the renewables sector. My hon. Friend the Member for Blaby (Mr. Robathan) is a renowned expert in combined heat and power, in which I take a close interest. CHP is suffering greatly. It is important to set out precisely what a regulator is expected to do.
Mr John Whittingdale (Maldon and East Chelmsford, Conservative)
The hon. Gentleman is right, and we want to spend a lot of time going through each of the objectives in clause 3 to ensure that they set the proper priorities and that all considerations are properly covered. From our experience of utilities that are now subject to great regulation, we know how essential it is to get the legislation governing their operation right if we are to avoid subsequent problems, such as those that we are now seeing in the energy sector.
The next thing that it is essential to get right is the people who will carry out the task—in other words, the people who are appointed to Ofcom. The board is already in place. The individuals on that board each bring their own strengths and experience, which will no doubt be valuable. I accept that the board should be kept small, although I am sure that in the not-too-distant future we will spend some time considering representation from different parts of the kingdom and considering whether certain sectors should have stronger representation than others. I am not sure that every sector and every part of the kingdom can be covered, but we will come on to that argument.
It is important that we get the personnel right. Undoubtedly the most important appointment is that of the chairman of Ofcom—Professor David Currie. When he was first appointed, it was suggested that he was another Labour crony. It was a matter of some criticism that, once again, someone with well-established links to the Labour party was being appointed to a key position. Professor Currie has a distinguished record and immense knowledge and experience in this area. I will come on to one or two of his observations on how he sees his task as chairman of Ofcom.
Mr Chris Bryant (Rhondda, Labour)
Will the hon. Gentleman clarify where in clause 1 the chairman of Ofcom is mentioned?
Mr Roger Gale (North Thanet, Conservative)
Order. I have listened to the hon. Gentleman's efforts to intervene from a sedentary position too often already. It is the Chairman who will decide what is in order and what is not. I have made it abundantly plain and I will do so once more, but only once more. During the opening stages of discussion of a Bill, I am prepared to allow reasonable rein, providing that that facilitates discussion.
I also say to the hon. Member for Maldon and East Chelmsford that Professor Currie is Professor Lord Currie. We should give people their proper titles.
Mr John Whittingdale (Maldon and East Chelmsford, Conservative)
Mr. Gale, you are of course entirely right and I stand duly corrected. I would say to the hon. Member for Rhondda (Mr. Bryant) that it is extraordinary to suggest that, in debating the functions and general powers of Ofcom, as covered by clause 1, we should not consider the experience of the chairman who will carry out those functions. It will be crucial to the future operation of Ofcom that the chairman should be someone with the right experience and qualifications to undertake the task.
I certainly think that Professor Lord Currie has qualifications that make him an admirable candidate.
However, I merely say now, as I did when his appointment was first announced, that because there has been much comment about his political activities—although I am sure that they are entirely separate—he will have to work hard to avoid any suspicion that his decisions have been in any way politically influenced. I am sure that they will not be, but there is a danger. Various appointments, such as the head of the Audit Commission, the chairman of the BBC, the director-general of the BBC, and now the chairman of Ofcom, have been of people with close ties to the Labour Government. That inevitably gives rise to suspicions that politics was involved in the appointments. I am sure that Professor Lord Currie is aware of that and that he will bear it in mind when he carries out his duties.
I draw the Committee's attention to a paper that Professor Lord Currie wrote, although I do not think that he was Professor Lord Currie when he wrote it—I am not sure when he was elevated to the peerage. The paper was written in May 2002 and is entitled ''Regulatory Creep and Regulatory Withdrawal: Why Regulatory Withdrawal is Feasible and Necessary''. I strongly recommend the paper to all members of the Committee because it makes salient points about the purpose of regulation, how regulators should function and, especially, the duties and functions of Ofcom. I imagine that the paper was written before Professor Lord Currie had any inkling that he might suddenly begin the task of carrying out those duties and functions. That makes it all the more interesting to read how he, as an academic, saw the job.
Professor Lord Currie is clear that competition should be the main priority for Ofcom or any regulator. He states:
''Where competition is reasonably robust or where it can develop to be so, it is usually better for sector regulation to withdraw and reliance placed on competition policy.''
He then flags up the danger of regulation, pointing out that price-cap regulation can discourage investment and innovation and that regulators
''may be tempted to rely on licence conditions as an easier way to regulate''.
However, he says that the prime duty of a regulator should be to try to encourage competition because that is of greater long-term benefit for the consumer than reliance on statutory intervention and regulation. I think that that principle is absolutely right.
Professor Lord Currie goes on to draw attention to a very real danger that the Bill takes account of, to an extent: regulatory creep. That has already happened in respect of several existing utility regulators. That may happen if part of market is regulated because a monopoly exists or there is a dominant player, and it is felt that all new entrants to that part of the market should be regulated similarly. Additionally, it might happen because the regulator has a tendency to extend the scope of regulation beyond the narrowly defined area in which there is clearly a public interest because a monopoly is positioned in two areas, even though there is competition and there is no public-interest need.
Mr Brian White (North East Milton Keynes, Labour)
Is not one of the issues that individual regulators have been prone to make their own interpretations? Ofcom has a board comprising several people, so the problems about which the hon. Gentleman is concerned should be avoided. The fact that Ofcom has been set up with a board addresses several of the issues that he mentioned.
Mr John Whittingdale (Maldon and East Chelmsford, Conservative)
I hope that that is correct. Ofcom brings together a board, which represents a slightly different model from existing regulators, but I am not convinced that that alone will be sufficient. It is almost classic public choice theory. We understand from the newspapers that Ofcom will employ not 1,100 people, which is the total number employed by the existing bodies, but 900 people, which is still a lot of people. Ofcom has a big task so I do not necessarily suggest that it should not employ those people, but 900 people will want to extend the scope of their employment and to justify their existence. Classic public choice theory highlights the likelihood that they will seek to extend into other areas. That would be dangerous and we must guard against it. Regulation has already extended into areas where it can be shown that doing so may damage, not assist, the promotion of the public interest.
It is worth considering the issue that justifies regulation. Let us consider Professor Lord Currie's own view of why it is necessary to have a regulator and the limitations that need to be placed on that regulator. A short passage from his paper, which is relevant to Ofcom and its functions, states:
''Many see the justification for government intervention or regulation as market failure. But it is not. There are two criteria: the presence of a market failure and the absence of government failure. Since government intervention is often ill-targeted and ineffective, the second of these criteria rules out a great deal of would-be intervention. Intervention is justified only when the market failure is considerable, so that blunt government intervention can be helpful; or if the intervention is very well targeted. Well-targeted intervention is especially difficult in fast moving, innovative sectors such as telecoms.
Failure to recognise this point can readily lead to regulatory creep.''
That is an important warning and I am delighted that the person who delivered it is the person who is now in charge of the regulator. I hope that he will genuinely continue to bear it in mind, because it recognises the limitations of regulation and a warning of what can go wrong if regulators attempt to intervene. Professor Lord Currie pointed out that each individual intervention in the market may address a specific problem, but taken together they can have a cumulative effect. He says that
''overlaying too many interventions stifles the operation of the market and generates unforeseen interaction effects between the various interventions. The result can well be incoherence and stagnation.''
Even though Ofcom will have a powerful role, I hope that such prescient warnings are borne in mind.
I draw attention to two specific areas that Ofcom will have to address and about which Professor Lord Currie has expressed views. It is important that the Minister says whether those views played a part in the decision to appoint Professor Lord Currie as chairman of Ofcom. The two matters are relevant and topical,
and the first relates to the structure of industries that the regulator will oversee. Professor Lord Currie said:
''The withdrawal of regulation is only possible with the right industrial structure. The withdrawal from price cap regulation that we have observed in gas and electricity in the UK''—
a point to which I have already referred—
''was feasible only because of the separation of distribution from supply.''
At the time, Professor Lord Currie did not realise that he was to become the regulator and goes on to say specifically:
''It is for that reason that we believe that the fastest and best route to regulatory withdrawal in telecoms is for BT to separate its distribution business from its business of supplying services. That would make it much harder for Oftel to defend its current regime of regulatory intervention, which is in danger of spilling over into regulatory micro-management.''
Professor Lord Currie goes on throughout his paper to make the case that the best and most effective way in which to promote competition in the area where it is possible to achieve competition, while regulating the monopoly area of activity, is through separation. I am not advocating separation, but the fact that the person who has been chosen by the Government to chair Ofcom is himself on record as advocating a separation is something that people with an interest in such matters will note. The Government may wish to say whether the decision to appoint Lord Currie as the chairman was influenced in any way by his statement on the record that he believed that the most effective way to achieve competition in telecoms was to separate BT's ownership of the infrastructure from the services that it provides.
Mr Chris Bryant (Rhondda, Labour)
Does the hon. Gentleman therefore think that there would be any read across into the vertically integrated market in digital satellite television?
Mr John Whittingdale (Maldon and East Chelmsford, Conservative)
No. That is an entirely different area, but I am happy to debate it, and I am certain that we will do so at length.
Mr John Whittingdale (Maldon and East Chelmsford, Conservative)
I take your warning on board, Mr. Gale. The hon. Gentleman's question is interesting, and he was right to raise it: it will feature in our discussions of several clauses.
So far, I have deliberately focused my comments on the role of Ofcom as a telecoms regulator because that is what the beginning of the Bill deals with and, as I have said, not enough attention has been paid to that part of Ofcom's role—especially in comparison with the enormous amount that has been spoken and written about Ofcom's work in terms of regulating or setting the rules that govern the ownership and content of television and radio broadcasting. I keenly look forward to debating that during our consideration of the Bill.
Lord Currie's paper addresses another interesting matter that also gives an indication of his thinking—and I would be interested to know whether his views are shared by the Minister and the Government.
Mobile telephony is one part of the telecommunications market that already has a functioning competitive market, and therefore Ofcom has much less justification to intervene in that area of it than it does in others. Lord Currie stated:
''In our judgement, the mobile communications sector corresponds to the case described above. It is subject to rapid technological change and competition is effective. In these circumstances, regulation needs to be light-handed to avoid slowing innovation and investment and the dispersion of new technologies. Regulation to cap prices to avoid excessive profits, of the kind familiar in the slower moving fixed-line sector, may well be highly counterproductive and work to the severe detriment of customers and to the overall competitiveness of the UK economy.''
That is a very topical issue. The mobile telephony sector is currently complaining to the OFT about Oftel's intervention in its market; it is arguing that it is a properly functioning, competitive market.
Professor Currie's paper does not suggest that there should be no regulation, but he makes the point that mobile telephony has already achieved a state where there are four players in the market that each have a roughly equal share of it: of course, there is a market leader and a market trailer but each of them has a sizeable chunk of the market, and there is about to be a fifth entrant into it when and if 3G is launched. There is also considerable churn between customers; they transfer between mobile suppliers.
Theoretically, those characteristics are among the tests for whether a competitive market exists. Therefore, we can say that there is already much more competition in mobile telephony than there is in fixed line provision. For that reason alone, as Lord Currie has suggested—and as I proposed on Second Reading—Ofcom should focus its attention more on trying to encourage competition in the fixed line sector, where we have not made as much progress as we should have, than on spending a lot of time examining mobile telephony. It faces huge challenges in other regards that are all to do with the enormous sums of money that it has had to commit to 3G and the fact that it will have to commit more to establish its infrastructure.
The mobile telephony market is already under severe pressure and there is a considerable amount of competition in it and yet, to date, Oftel has felt it necessary to micromanage, to scrutinise individual tariffs and to intervene. It seems to me that its attention would have been better focused on areas in which a great deal more progress would be necessary to achieve a competitive market. The reason why I raise those arguments is, first, because they are strong and, secondly, because they were made by the chairman of Ofcom. It is incumbent on the Government who decided to appoint Professor Lord Currie as the chairman of Ofcom to show whether they agree with some of the views that he set out in his excellent paper.
I felt that this was an opportunity to raise big, general questions before we consider the amendments, which will focus on narrower aspects of the Bill.
Mr Simon Thomas (Ceredigion, Plaid Cymru)
I welcome you to the Chair, Mr. Gale. I served under you in Committee on the Office of Communications Bill. You got us
through that much shorter Bill in good time, and I look forward to getting through this longer Bill in good time, too.
I welcome the fact that the Bill gives a commitment to establish Ofcom offices in Wales, Scotland, England and Northern Ireland. That is an important matter, and one that I raised with the Minister when we were considering the Office of Communications Bill. He gave a commitment that such offices would be established, and I am pleased that the provision is in the Bill. However, an office is one thing, but whether it is properly staffed, its resources, and how it works in its territories is another. I suppose that, so far as those matters go, we will wait and see. I want to explore such issues to find out to what extent Ofcom will relate to Wales, Scotland and Northern Ireland, and to not just broadcasting but other important measures, such as access to broadbrand and the regulation of the radio spectrum. Those are vital issues for the economy, particularly that of Wales and other rural areas. Having Ofcom representation and an Ofcom office will be important in such areas.
So far, the Bill does not require an office in, say, Cardiff to contact the National Assembly, which may be 500 yd down the road. There would be no relationship between that office and the National Assembly for Wales. Likewise, there would be no relationship between offices in Scotland and Northern Ireland and their devolved Administrations. Ofcom will have to consider that carefully. I hope that we can amend to Bill to give Ofcom a duty in that respect, but if we cannot, I hope that the Minister will say something about how he expects Ofcom will relate to the devolved Administrations through the offices established in those countries.
Mr Chris Bryant (Rhondda, Labour)
The hon. Gentleman might be interested to know that Lord Currie said last night that he had been in Cardiff only two days previously in order to do precisely what the hon. Gentleman suggests.
Mr Simon Thomas (Ceredigion, Plaid Cymru)
That is an encouraging start, and it brings me neatly to my next point, which is to ask whether Ofcom, as well as having offices in the nations of the United Kingdom, will also hold meetings in those nations. I should not like Ofcom to become a London-bound body. An important ITC report on regionalisation had the working title ''Beyond the M25.'' It is important that Ofcom takes its work out of London to not only Cardiff, but Bangor and Caernarfon, which are important centres of broadcasting in Wales, and into Scotland and Northern Ireland, too. People would then know what Ofcom was doing on their behalf.
The hon. Member for Maldon and East Chelmsford has already mentioned how powerful Ofcom will be. Ofcom will affect not only what people see and hear on the television and radio but what they do daily, whether they can get the mobile phone service or broadband service that they want, and whether their business can get on to the web fast enough to establish itself in a rural area, for example. Ofcom would be a poor body if it located itself in the metropolis and did not consider how it rolled out and maintained its activities in different regions. It is good that the Bill
says that Ofcom is establishing offices, but it remains to be seen how the offices will relate to the people in those nations. I look forward to hearing the Minister's views on that.
My second and final point is on what sort of functions and powers Ofcom is taking on. We know from clauses 1 and 2 and the schedule that Ofcom is taking on the regulatory functions of five current regulators, some of which have clear representational roles. For example, the Radio Authority and the ITC both have territorial representational roles. Regarding Ofcom's functions, I am concerned that there is no mention, either in the clause or anywhere else in the Bill, of two vital issues. The first is access to broadband and the second is the digital signal and switching off the analogue signal. If the five current regulators, whose functions Ofcom is taking on, have a regulatory function, but no obligation to achieve their aims, Ofcom is in danger of continuing the current situation.
Mr Andrew Robathan (Blaby, Conservative)
Given that the point about digital switch-off was made by a Liberal Member for the north of Scotland, does the hon. Gentleman not think that it is a pity that no Liberal has cared to attend the Committee?
Mr Roger Gale (North Thanet, Conservative)
Order. I nearly put this on the record earlier on and I now feel obliged to do so. The hon. Member for North Devon (Nick Harvey) was present earlier and sent a note to the Chairman indicating courteously that he had other business that detained him this morning.
Mr Simon Thomas (Ceredigion, Plaid Cymru)
That certainly answered the intervention, Mr. Gale. I am, of course, aware that there is another Liberal Member on the Committee.
I am concerned about two issues. First, how can we be sure that the Government's commitment that the analogue signal will not be turned off until 95 per cent. of the population have access to a proper digital signal will be transferred as a function and duty of Ofcom? If the Government want that to happen, it must be achieved by Ofcom. Secondly, how will Ofcom deliver the Government's general promise that there should be equality and parity of access to broadband throughout the country? I am concerned that that is not written into the Bill as one of the powers and obligations of Ofcom. That allows Ofcom open to interpret the Bill very literally.
The hon. Member for Maldon and East Chelmsford mentioned how Ofgem has, perhaps, wandered away from what the House thought that it was passing in the Utilities Act 2000. He was right to do that. We were only able to bring Ofgem back on track when the Government saw fit to bring forward the social and environmental guidance for that body, which provides a much wider context for that regulator. I do not think that we will have the time or the energy to return to the Bill in future, so it is, therefore, important that we consider some of the facets that are missing from the duties and powers of Ofcom.
How are we to control the digital-analogue switch-off, or switch on—how an hon. Member might regard that matter would depends on whether he was a pessimist or an optimist—and how we are to control
the parity of access to broadband services in all areas of the United Kingdom? Those aspects are currently missing from the functions of Ofcom.
That is all I want to say about the clause. I hope that the Minister will reply to some of my points.
Mr John Greenway (Ryedale, Conservative)
My hon. Friend the Member for Maldon and East Chelmsford has raised the fact that Ofcom will be extremely powerful. However, in clause 1 stand part debate we need to be clear how the various mechanisms relating to Ofcom's powers work.
As I understand it, and as the hon. Member for Ceredigion (Mr. Thomas) has pointed out, clauses 1 and 2 and schedule 1 restrict Ofcom's responsibility to those functions that are currently carried out by the five existing regulators. Although clause 1(3) appears to give Ofcom the power to do almost anything it likes in respect of those functions, which makes it powerful, it is still restricted in terms of pursuing its functions. Other powers will be granted to Ofcom as we proceed through the Bill. It would be helpful if the Minister could endeavour to explain to what extent he believes that Ofcom will have the flexibility that it needs in regulating and developing a future market in telecommunications and the media. In the original sittings motion debate, I was about to refer back to the experience that you, Mr. Gale, and I had in 1990. The ink had barely dried on the Bill and Royal Assent had been granted, but some of its provisions were already out of date.
The issue is important for the industry. I rather hope that, by the time our proceedings have finished and the Bill has been to another place—presumably in the summer—we will all be satisfied that we have a Bill that creates a new regulator, notwithstanding its huge powers, to which my hon. Friend the Member for Maldon and East Chelmsford referred. The regulator must have the flexibility within the framework that we have set to adapt to the changes that will undoubtedly take place in the marketplace.
If we are lucky enough to catch your eye, Mr. Gale, we will concentrate on teasing out precisely what Ofcom's duties will be, especially whether it will have, for example, powers to further the cause of deregulation, which, judging by what my hon. Friend said, is something in which the chairman, Lord Currie, deeply believes. We also want to examine the extent to which Ofcom can encourage self-regulation in areas where that is not the order of the day. It is vital that the Minister deals with the issue in the stand part debate and we are clear about the precise powers that Ofcom will have in relation to particular functions, and how limited those functions may be.
For the first time, another regulator will have powers over the BBC. I understand that there is to be a revised version of the BBC agreement. When will that be published? Some promise has been made that it would be done by the time we reached the relevant clauses, and some indication of when it would appear was discussed by the Joint Committee. I am sure that this Committee would find it helpful to know.
Several hon. Members rose—
Mr Roger Gale (North Thanet, Conservative)
Order. I was about to say that, because the hon. Member for Ryedale has raised the issue, I would permit the Minister to respond if he wished to do so. Otherwise, the matters he mentioned refer to clause 193, so there is time for the Minister to gather his thoughts.
Mr Michael Fabricant (Lichfield, Conservative)
It is a pleasure to serve under your chairmanship, Mr. Gale. I note that the Bill refers to previous Acts, some of which are on the Table. One Act that is not there—perhaps because the Bill does not refer to it—is the Marine, &c., Broadcasting (Offences) Act 1967, which curtailed both our careers, Mr. Gale, at an early stage.
Clause 1 sets the terms of the Bill. My hon. Friend the Member for Maldon and East Chelmsford—to whom, with your permission, Mr. Gale, and his, I will henceforth refer as my hon. Friend the Member for Maldon—has already said that the clause mentions many things relating to functions and general powers, but does not address sufficiently the promotion of competition.
One of the things that I welcomed about the Radio Authority and the Broadcasting Act 1996 was talk of a light touch. My hon. Friend referred to regulatory creep and there might be a considerable danger of that occurring if it were not for the views of Lord Currie. Regulatory creep must be avoided at all costs. Provisions on the promotion of markets should have been included in the clause. When we served—
Mr Roger Gale (North Thanet, Conservative)
Order. I am sorry to interrupt the hon. Gentleman so early in his speech, but he will find that such markets issues are covered fairly comprehensively in clause 3.
Mr Michael Fabricant (Lichfield, Conservative)
Thank you for that advice, Mr. Gale. I was looking earlier at provisions on the general duties of Ofcom and I wondered whether my remarks would be in order. I felt—maybe I am wrong—that the promotion of markets should have been referred to in clause 1 and perhaps repeated in clause 3. References to the general power and philosophy of Ofcom are made in clause 1, although they are addressed in greater detail in clause 3.
Mr Roger Gale (North Thanet, Conservative)
Order. I pointed out to the hon. Gentleman that the provisions might well have been included in clause 1, but they were not.
Mr Michael Fabricant (Lichfield, Conservative)
As the provisions are not included, it would be out of order to discuss them. If only they were included. There is a need to discuss the promotion of certain markets, although we will do that when we reach clause 3. I am concerned about that because of the penetration of broadband, but I shall discuss that in more detail when we reach clause 3.
The most important thing is that it is accepted that the market is currently under extreme pressure, as my hon. Friend the Member for Maldon pointed out. I could refer to the telecommunications industry or, as my hon. Friend did, to the independent television industry but I shall not. I shall save time by referring to the state of the radio industry because radio, like television, has experienced a major fall in the amount of advertising that it carries.
It is interesting to look at the share values of two or three radio groups to see how they have changed during the past year. Capital Radio's 52-week high share price was 867.50p; it is now about 535p. The Chrysalis group, which operates the Galaxy radio stations, among others, had a high of 287p, but has fallen to 153p. GWR, which is well known to many hon. Members, had a 52-week high share price of 289p; the price has fallen to 121p. There is a great need for a regulator who will promote in the broadest possible way not only television, but radio and competition in areas such as telecommunications generally.
I have a specific micropoint for the Minister. I was confused by the explanatory note because clause 1—maybe it was clause 3—mentions the spectrum. Anyway, my hon. Friend the Member for Maldon mentioned the frequency spectrum. Pages 4 and 5 of the explanatory notes include mention of pre-commencement regulators. The notes say:
''Those regulators are the Broadcasting Standards Commission, the Director General of Telecommunications, the Independent Television Commission and the Radio Authority.''
However, the notes continue:
''The expression does not include the Radiocommunications Agency, as the Agency is an executive agency of the Department of Trade and Industry and acts in the name of the Secretary of State, and although functions of the Secretary of State are transferred to OFCOM by the Bill, the office of the Secretary of State will not cease to exist, unlike the other four regulators.''
I am not sure what that means in practice. If there is to be promotion and correct and optimal use of the spectrum, the agency primarily involved with that will be the Radiocommunications Agency. How will Ofcom be able to function if that agency acts completely separately from Ofcom?
One reason for setting up Ofcom is that it is recognised that, even if we do not have joined-up government, at least we have joined-up technology. Digital bits are digital bits whether they are used to broadcast television or radio or to carry thousands of telephone conversations down one fibreoptic line. If the Radiocommunications Agency is to be excluded from Ofcom's ambit, that is a major error that must be adjusted. When I saw a note being passed to the Minister, I hoped that an answer might be forthcoming. Perhaps one will arrive later, but if it does not, we must return to the matter.
My hon. Friend the Member for Maldon mentioned the introduction of 3G. That will be an interesting time. It will not be in great use with radiotelephony—telephone calls.
Mr Andrew Lansley (South Cambridgeshire, Conservative)
Let me attempt to answer my hon. Friend's question. Clause 1 gives effect to the transfer of functions in clause 2, which includes those of the pre-commencement regulators and the relevant functions of the Secretary of State. Clause 390 defines the pre-commencement regulator as the four regulators referred to but not the Secretary of State. Only those functions of the Secretary of State specified in the Act under the Secretary of State's powers are to be transferred to Ofcom.
Mr Michael Fabricant (Lichfield, Conservative)
I am grateful to my hon. Friend. In a way, I feel that he has a greater grasp of the Bill
than the Minister or even the civil servants, but perhaps I am being unkind and uncharitable. However, although my hon. Friend has explained the meaning of the explanatory notes, he has not explained the mechanism whereby Ofcom will be able to optimise use of the frequency spectrum as well as it might do were the Radiocommunications Agency not an integral part of Ofcom.
Mr Andrew Lansley (South Cambridgeshire, Conservative)
There is nothing in clause 1 that suggests that the powers and functions currently exercised by the Secretary of State through the executive agency—the Radiocommunications Agency—will not be transferred to Ofcom. Subsequent parts of the Bill will show how those powers are to be transferred to Ofcom. There is no deficiency in the powers available to Ofcom on spectrum management.
Mr Roger Gale (North Thanet, Conservative)
Order. I am permitting this fascinating duologue to continue in the hope that we may obviate the necessity to return to the subject later.
Mr Michael Fabricant (Lichfield, Conservative)
Thank you, Mr. Gale. I had better move on quickly to another topic in the hope that I may be allowed to return to the subject later.
Some hon. Members have been contacted by the Communication Workers Union, which suggests that there should be greater accountability in the Bill. The union says that
''In our view, regulators should be the instrument of policy and not the determinant of it.''
I wholeheartedly disagree. As I said on Second Reading, the whole point of the Bill is to meet the need for a flexible architecture—the very point made by my hon. Friend the Member for Maldon. He said that when the 1990 Broadcasting Bill was enacted—
Mr Michael Fabricant (Lichfield, Conservative)
Oh, I apologise. It was my even more honourable Friend the Member for Ryedale.
Mr Michael Fabricant (Lichfield, Conservative)
No, no. More honourable.
My hon. Friend the Member for Ryedale made the powerful and eloquent point that the 1990 Act became almost obsolete within a year because of changes to technology. The Communication Workers Union suggests the slight change that Ofcom should make an annual statement, although I believe that that will happen anyway. My hon. Friend the Member for South Cambridgeshire, who has disappeared, might be able to point out where in the Bill that will apply.
I do not intend to speak at length about any of the clauses. The Office of Communications Bill was small, but this Bill is very large, and my hon. Friend the Member for Maldon has said that we need more time to debate all the clauses. I wish to pick out a few more key points from clause 1 and ask the Minister some specific questions.
Subsection (2) states:
''OFCOM shall also have any functions in relation to telephone numbers that are conferred on them by the law of the Isle of Man or any of the Channel Islands.''
Will the Minister tell us precisely what that means? Is there no standardised system in that area, such as the use of 07 numbers for mobile telephony, and why is the provision required in the clause?
I welcome subsection (5)(b), which says that Ofcom shall have
''power to promote the carrying out of such research and development by others, or otherwise to arrange for it to be carried out by others''.
I am reminded of the old Independent Broadcasting Authority's major engineering research facility at Crawley Court near Winchester, which was subsequently sold off and became NTL. That facility was a major force in developing compression technology for the transmission of television over a narrow digital bandwidth spectrum. That tremendously important work was done with the BBC at its research centre in Surrey, and it has been paramount to Freeview's operation. Thirty-two radio and television channels are now available, which would not have been possible if the research had not been undertaken. I welcome the fact that Ofcom will have the power to commission such research.
Subsection (8) states:
''In this section 'telephone numbers' has the same meaning as in Chapter 1 of Part 2.''
I have looked through chapter 1 of part 2, especially clause 28, which details definitions, but I saw no definition of a telephone number. We need to know what that is if the Minister is to answer the question about telephone numbers in the Isle of Man and the Channel Islands.
Dr Kim Howells (Parliamentary Under-Secretary, Department for Culture, Media & Sport; Pontypridd, Labour)
What a fascinating debate.
The Office of Communications Act received Royal Assent in March 2002. Some members of the Committee will remember the process, which was a long drawn out affair even though the Bill was short. That legislation allowed us to start the work of establishing Ofcom. The Act gave Ofcom a single function: preparing itself to take on its regulatory functions at a later stage, when the provisions in the Communications Bill come into force.
Clause 1 sets out the functions that Ofcom will receive. By virtue of subsection (1), they will comprise the functions transferred from the existing regulators and any other functions conferred on Ofcom under the Bill or other legislation. Under subsection (2), Ofcom's functions will include any conferred on it by the laws of the Isle of Man or any of the Channel Islands in relation to telephone numbering—the hon. Member for Lichfield wanted to know about that. That is because telephone numbers in those islands are part of the United Kingdom system, which will be administered by Ofcom, but the authority to do things in the islands must be confirmed by their own laws. Although clause 395(5) makes provision for this legislation to be extended to the islands, they may prefer to have, as they do now, their own legislation on networks and services.
Subsections (3) and (4) allow Ofcom to do anything that might be incidental or conducive to carrying out
its functions. That includes the power for Ofcom to borrow money, which no hon. Members have mentioned. I thought that someone would, which is why it is in my brief—[Laughter.] However, let me make it clear that should Ofcom wish to borrow money, it can do so only with the consent of the Secretary of State or in accordance with a general authorisation that she has given them in that regard.
Under subsection (5), Ofcom will be able to undertake research and development work in relation to any of its functions and arrange for others to carry out research.
Mr John Whittingdale (Maldon and East Chelmsford, Conservative)
I do not want to take the Minister back too far, but he expressed some regret that we had not looked properly at whether Ofcom will be able to borrow money.
Dr Kim Howells (Parliamentary Under-Secretary, Department for Culture, Media & Sport; Pontypridd, Labour)
It was not regret.
Mr John Whittingdale (Maldon and East Chelmsford, Conservative)
Well, I do not want the Minister to feel that his brief was wasted. He said that borrowing will require the Secretary of State's consent. Is it the Government's view that borrowing by Ofcom will count towards the public sector borrowing requirement?
Dr Kim Howells (Parliamentary Under-Secretary, Department for Culture, Media & Sport; Pontypridd, Labour)
Borrowing must certainly be controlled, and I can imagine that there will be some very adult conversations at the Treasury about it. There will be times, as the hon. Gentleman knows, when the income flows to Ofcom, especially from licence fees, will vary. Ofcom may well need to make use of borrowing power sometimes, to smooth out cash flow over a period of time. I emphasise that Ofcom will need approval or authorisation from the Secretary of State before undertaking any borrowing.
We have previously given clear commitments that Ofcom will have a presence in the different nations of the United Kingdom, and we have agreed to the recommendation of the Joint Committee, which scrutinised the Bill, that there should be a requirement to underscore that commitment. I am glad that the hon. Member for Ceredigion welcomes the fact that that is in the Bill. However, I must tell him that I should not want to tie Ofcom down to meeting in Bangor, or even in Aberystwyth, before it meets in Pontypridd. It is a very pertinent point that Ofcom should not be seen as bound by the M25, or as a creature of the metropolis. It should have a vibrant working relationship with all parts of Britain. I am glad that the hon. Gentleman made that point.
We intend that, where appropriate, Ofcom should be able to contract out its functions to third parties. That is already the case with the Radiocommunications Agency, which contracts out certain functions to private companies. It is reasonable that Ofcom, too, should be able to do so. Subsection (7) provides for Part II of the Deregulation and Contracting Out Act 1994 to apply to functions conferred on Ofcom. Under that provision, the Secretary of State will be able to make an order to enable functions of Ofcom to be contracted to a third party. Under subsection (7)(b), those functions will include Ofcom's powers to make subordinate legislation except where exercisable by statutory instrument. That provision will allow Ofcom to
contract out, for example, the development of codes and standards. I hope that the Committee welcomes that.
I shall deal briefly with some points that have been made, especially the issue raised by the hon. Member for Maldon and East Chelmsford—it is important that we get East Chelmsford into the Committee record—in relation to the appointment of Lord Currie and the board of Ofcom. Lord Currie's appointment as chairman of Ofcom and the appointments of non-executive members of the board were made fully in line with the Nolan procedures for public appointments. Under that process, appointments are open and are made on merit. I hope that the hon. Gentleman accepts that.
I shall address another matter raised by the hon. Member for Whittingdale—[Laughter.] Did I say Whittingdale? I am sorry—the hon. Member for Maldon and East Chelmsford. Whittingdale is probably a village just outside East Chelmsford. The hon. Gentleman asked about the case for regulating mobile telephony and quoted Lord Currie's paper. As I am sure the hon. Gentleman is aware, Oftel's proposals for the revision of existing controls on mobile termination charges have been referred to the Competition Commission. I would like to answer his question, but it would be inappropriate of me to comment on the matter at this stage. I do not want him to think that I have missed the point he made, because it is important.
The issue of broadband was raised by the hon. Member for Ceredigion and others. There is no specific mention of broadband because the Bill is technologically neutral. We are committed to the roll-out of broadband across the United Kingdom, but we do not feel that it requires a specific mention in the Bill. The Bill is designed to put in place a framework that can respond flexibly to developments in technology, but it is not about one technology rather than another. However, I know how vital broadband is to constituencies such as that of the hon. Member for Ceredigion and, indeed, that of every other member of the Committee.
The hon. Member for Ryedale asked whether clause 1 gives Ofcom sufficient flexibility to deal with changing circumstances. We have endeavoured to make the Bill as technologically neutral as possible, which is why there is no express mention of either broadband or analogue switch-off. Clause 6 is directed towards self-regulation and allowing Ofcom to respond to changing circumstances. Clause 1, however, is written in the broadest possible terms, and any possible limitations on what Ofcom can do are best addressed when we come to the specific clause on the subject. That is a point that the hon. Gentleman made himself.
The Government have made a commitment to adhere to the criteria for analogue switch-off that were announced by my right hon. Friend the Member for Islington, South and Finsbury (Mr. Smith), then Secretary of State for Culture, Media and Sport, in September 1999. They remain in place, and we continue to believe that switching off analogue
terrestrial transmission could start as early as 2006 and be completed by 2010.
We believe that a successful alliance between Government, industry and consumers within the framework detailed by the action plan will enable the United Kingdom to meet the criteria for switch-over laid down by my right hon. Friend in 1999. The Government made a commitment to adhering to those criteria. Switch-over is a complex and long-term process. I believe that a decision as important as that must lie with the Government, and they must be accountable to Parliament for making it. The hon. Member for Ceredigion makes an interesting point, but I hope that Parliament will see fit to debate the subject fully.
Mr Simon Thomas (Ceredigion, Plaid Cymru)
I thank the Minister for those comments. Is he saying that Ofcom, as the regulator, will not involve itself in deciding when an analogue switch-off should take place, and that only the Government will decide that? Could he also use as much leeway as you will allow him, Mr. Gale, to say a little more about how the Government will work with Ofcom, as the main regulator, to ensure that that does not penalise any part of the United Kingdom?
Dr Kim Howells (Parliamentary Under-Secretary, Department for Culture, Media & Sport; Pontypridd, Labour)
My right hon. Friends the Secretaries of State for Trade and Industry and for Culture, Media and Sport will discuss those issues with Ofcom, and I am sure that during the course of those deliberations they will receive good advice. However, I do not want to commit either the Secretaries of State or the Government as a whole to saying that they will take a nod—or otherwise—from Ofcom on such an important matter. It is a broad subject that should be debated on the Floor of the House.
Mr Andrew Robathan (Blaby, Conservative)
I wish to make a genuine request. The Minister has twice referred to making the Bill technologically neutral, which relates to article 8 of the framework directive. I know that that is in the Bill, but I cannot find it. Will he tell me where it is stated?
Dr Kim Howells (Parliamentary Under-Secretary, Department for Culture, Media & Sport; Pontypridd, Labour)
The hon. Gentleman can look for himself.
As ever, the hon. Member for Lichfield made a fascinating contribution. I wish to supplement the brilliant answer—from which I learned a great deal—given to him by his hon. Friend the Member for South Cambridgeshire. The functions of the Secretary of State, exercised through the Radiocommunications Agency, will be transferred to Ofcom. The agency will cease to exist, but the Bill does not provide for it to cease to exist because it is not a statutory body. The hon. Gentleman made the same point in his intervention—I think.
Clause 1 provides a worthy description of what we intend to do, and I want it to stand part of the Bill.
Mr John Whittingdale (Maldon and East Chelmsford, Conservative)
I am mildly disappointed in the Minister's contribution. In answer to the points I made about the appointment of Lord Currie, he said that the Nolan principles had been followed. I never doubted that they had been and, as I said, I think that Lord Currie is well qualified to take on the post to which he has been appointed. However, it is the case that the
Government have chosen to appoint as chairman of the regulator someone who expressed quite controversial views on the function of the regulator only a few months before he was appointed. That is a serious matter.
Mr Chris Bryant (Rhondda, Labour)
Has not the hon. Gentleman already answered his own point? This is a deregulatory Bill and the gentleman in question is a deregulatory gentleman, as his comments have made clear, therefore his appointment is a perfect fit.
Mr John Whittingdale (Maldon and East Chelmsford, Conservative)
It may well be a perfect fit, and I am sympathetic to many of the views that Lord Currie has expressed, but I am not the chairman of Ofcom. The Government knew his views, which refer to very important public policy issues, when they chose to appoint him to the post. I recognise that, to some extent, these matters fall under the responsibility not of the Minister but of his colleague, the Minister for E-Commerce and Competitiveness, so I am disappointed that that Minister is not present to respond to some of the points that have been made.
Observers of this process, and those who wish to see how Ofcom will operate in the future, would be interested to know whether the Government appointed Lord Currie because they were sympathetic to his ideas. Are they sympathetic to the notion that there should be intervention to separate infrastructure, ownership and service provision in British Telecom, or did Lord Currie assure them that he had looked at that matter again and decided against such intervention? Do the Government have any views on an extremely important issue that affects the entire telecommunications sector?
Dr Kim Howells (Parliamentary Under-Secretary, Department for Culture, Media & Sport; Pontypridd, Labour)
As a notorious deregulator and free marketeer, I was very pleased that Lord Currie was appointed as the chair of Ofcom.
Question put and agreed to.
Clause 1 ordered to stand part of the Bill.