Clause 83 - Conditions about network access etc.
Communications Bill
6:45 pm

Mr John Whittingdale (Maldon and East Chelmsford, Conservative)

I beg to move amendment No. 199, in

clause 83, page 79, line 33, leave out 'unduly'.

Mr Peter Atkinson (Hexham, Conservative)

With this it will be convenient to discuss amendment No. 200, in

clause 83, page 79, line 35, at end insert—

'(this condition to be interpreted in the light of Article 10(2) of the Access and Interconnection Directive)'.

Mr John Whittingdale (Maldon and East Chelmsford, Conservative)

Clause 83 is obviously especially important, as it specifies the ability of Ofcom to set conditions when it has identified a provider of communication services as having significant market power. In terms of the conditions that may be imposed on that dominant provider, one of the key obligations is likely to be non-discrimination. By that, I mean a requirement that will prevent the dominant provider from discriminating in favour of the dominant supplier's own downstream businesses, as opposed to supplies of the same services by third party competitors.

I hesitate to name BT again, but it is the obvious example. It supplies services in competition with other providers on its own network. Obviously, BT's competitors could be placed at a significant disadvantage if the incumbent—in other words, BT—were able to reduce the quality of service, or charge higher prices.

Under the current BT licence, which is to be replaced by the new regime established through the Bill, BT is required not to show undue discrimination or undue preference to itself. However, it is not a requirement of the access and interconnection directive that discrimination must be undue for there to be a breach of the non-discrimination obligation. I refer the Minister to paragraph 17 of the article's preamble and article 10 of the directive, in which there is no reference to a materiality threshold—in other words, the degree of discrimination necessary for the measure to come into effect.

That is a reflection of European Union competition law, under which there is no need, in the case of an abuse of the dominant position, to prove that there is hindrance of competition. It is enough to show that conduct is likely to produce such an effect. There is also no need to show that the effect would be substantial. Therefore, the requirement for the discrimination to be ''undue'' is not in accordance with European law. The risk is that the mere existence of the word ''unduly'' will imply that Ofcom must consider there to be a threshold of material effect above and beyond that required under European law. Not only is the provision a mis-implementation of the European directive, but it potentially puts BT's competitors in the United Kingdom at a disadvantage compared with those operating in other European Union member states. For that reason, we have tabled amendment No. 199, which would remove the word ''unduly''.

Amendment No. 200 is also connected with the principle of non-discrimination. It is designed to ensure that the UK implementation of the principle is interpreted in accordance with the provisions of the access and interconnection directive, which states in article 10(2) that

''Obligations of non-discrimination shall ensure, in particular, that the operator applies equivalent conditions in equivalent circumstances to other undertakings providing equivalent services, and provide services and information to others under the same conditions and of the same quality as it provides for its own services, or those of its subsidiaries or partners.''

That is a clear definition and a fairly specific requirement. Given that it is set out in those terms, it would be helpful if we could include a reference to the directive and the language in it in the Bill. That is the purpose of amendment No. 200.

Mr Richard Allan (Sheffield, Hallam, Liberal Democrat)

The hon. Member for Maldon and East Chelmsford has picked up on an important point. I hope that the Minister can respond on an issue that Ofcom will face that has not been dealt with well enough in the case of the Oftel regime—the matter of billing by BT's incoming supplier. It is perfectly possible to purchase all one's telephone services from a third-party supplier, but the line still has to be rented from BT.

BT has no duty to pass on billing information to the third-party supplier, so one receives only a single bill from the third-party supplier, and with that, all the promotional material—the most important bit—for the third-party supplier services. One is left receiving both the billing from BT, and so its presence in the home, and, importantly, all its promotional material. It is clear that BT will have to face such issues. The concern must be whether we are leaving a gap that allows the incumbent supplier to say that that faces due discrimination. There is an argument that the incumbent supplier will have to change its accounting systems and that that will be expensive. One has to respond to that and to allow a certain amount of leeway. However, the interposition of the word ''unduly'' creates a position whereby a third party can prove that there is a problem with a competitive market and that a supplier is discriminating in favour of itself. In future it may not be BT, but another company seeking to defend its position and to impose barriers to a truly competitive market. Under the current terms, it may argue that that is not undue discrimination because it is a small infringement and it would be expensive to change it.

There is a balance between the extent to which the infringement of the competitive market takes place and the way in which that judgment is made. The hon. Member for Maldon and East Chelmsford helpfully pointed us to the European Union law framework, which is a fairly basic one that says that we must promote competitive markets and we cannot say that a practice is only slightly anti-competitive and is therefore okay. As making those judgments between the potential cost imposed and the infringement will turn on the definitions in the Bill, I hope that the Minister can clarify his understanding of the way in which it will operate in the context of the real world decisions that regulators face and will face in future.

Mr Stephen Timms (Minister of State (e-Commerce & Competitiveness), Department of Trade and Industry; East Ham, Labour)

I hope that I can reassure members of the Committee about what these words will be taken to mean. In a way, this returns to our earlier discussion about words being used in UK law that are familiar in UK law. In this case, the term ''undue discrimination'' is well established and well understood in UK law and will not support the lax interpretation about which the hon. Members for Maldon and East Chelmsford and for Sheffield, Hallam rightly expressed concern. The law recognises that some kinds of discrimination are entirely proper and necessary. Businesses routinely offer different terms in different circumstances, and if those differences in terms are based on objective differences—for example, a discount for a big order—that is not a problem. It would be construed as discrimination, but it is not undue discrimination, and there is no problem with it. It is only where equivalent proposals or customers in equivalent circumstances are treated differently that the question of undue or improper discrimination arises. The term ''undue discrimination'' does the job that the directive requires, and the Bill as it stands will give effect to article 10(2) of the access directive without the amendment being made.

The hon. Member for Sheffield, Hallam made an interesting point and gave a good example. Companies such as Centrica, with its One.Tel service, have complained for a long time that its customers get two bills while BT's customers get a single bill. Oftel recently made a determination on that so that it will be possible in future for One.Tel's customers to receive one bill instead of two, although there is some concern about how long that process will take. That is a good example of the kind of difficulty that arises, and which we certainly want the Bill to address. The form of words in the Bill does the job that is required.

Mr John Whittingdale (Maldon and East Chelmsford, Conservative)

I accept the Minister's assurance that the word ''undue'' is well established in English law and that the fear that it might create a certain amount of discrimination below a threshold is unjustified. These are not concerns that we have dreamed up: they have been expressed by competitors in the market. I hope that they will gain some reassurance from the Minister's words. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mr John Whittingdale (Maldon and East Chelmsford, Conservative)

I beg to move amendment No. 201, in

clause 83, page 80, line 20, at end insert—

'(9A) In relation to SMP conditions authorised by subsection (9), the burden of proof that charges are cost-orientated shall be with the dominant provider.'.

Another key element in the regulation of a dominant operator that enjoys significant market power is that the price of the services it provides in markets in which it is dominant should be cost-based. The dominant supplier is the only body that will have details on its own costs, and it will be required to make those details available for scrutiny by the regulator. Article 13(3) of the access directive places the burden of proof on the SMP operator that the charges are derived from costs, including a reasonable rate of return. However, there is no statement in the Bill as to where the burden of proof lies. Since it is a requirement of the directive that the burden of proof should lie on the SMP operator, we feel that that should be specified in the Bill.

Furthermore, although Ofcom has the power to ask for information from, say, BT, that process relies on Ofcom asking BT the right questions. If we go on to place the burden of proof squarely on the dominant operator—say, BT—that will ensure that the operator is required to provide correct and full information, notwithstanding any misunderstanding by Ofcom as to which costs are involved; that is, notwithstanding Ofcom's asking the wrong question in the first place.

Mr Stephen Timms (Minister of State (e-Commerce & Competitiveness), Department of Trade and Industry; East Ham, Labour)

The amendment is unnecessary. Subsection (10) gives Ofcom powers to include appropriate obligations where access price controls are imposed. It gives Ofcom powers to include presumptions in any conditions relating to access price controls. That could a presumption that it is for the operator to demonstrate that its charges are based on costs.

Ofcom should exercise its powers consistently with the directive, on the basis provided in the Bill. The hon. Gentleman is right about what the directive says, and I am confident that Ofcom will perform its duties. If anyone affected by regulatory conditions concludes that Ofcom has not correctly implemented a requirement, they will have a full right of appeal. If the Government take the view that any international obligation has been incorrectly implemented, they will be able to direct Ofcom under clause 5.

I think that the concerns that the hon. Gentleman rightly raises are addressed by the Bill as it stands.

Mr John Whittingdale (Maldon and East Chelmsford, Conservative)

I draw some reassurance from the Minister's comments. Although it would still be helpful if the matter could be set out in the Bill in black and white, the Minister has nevertheless drawn attention to other provisions in the Bill that may have the same effect. On the basis of our trusting mood, we accept the Minister's reassurances, and I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mr John Greenway (Ryedale, Conservative)

I beg to move amendment No.84, in

clause 83, page 80, line 40, leave out 'access' and insert 'services'.

This is a small, but none the less important query. Clause 83 deals with conditions about network access. However, its terms refer to the services market. We need to be clear that we are focussing on the right market, namely access markets, not services markets. Without the amendment, is there not a danger that obligations could be imposed in markets in which the provider does not have market power?

Mr Stephen Timms (Minister of State (e-Commerce & Competitiveness), Department of Trade and Industry; East Ham, Labour)

I hope that I can take further advantage of the trusting mood in the Committee and persuade the hon. Gentleman that this amendment is also unnecessary.

The concept of network access for the purposes of the Bill already includes services to any extent that is relevant. If he looks at clause 146(3) in line 40 on page 133 he will see that network access is defined in relation to services, facilities and arrangements. The point that he raises is covered there.

Mr John Greenway (Ryedale, Conservative)

I am grateful to the Minister and I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 83 ordered to stand part of the Bill.