Clause 92 - Penalties for contravention of conditions
Communications Bill
11:00 am
Mr Andrew Robathan (Blaby, Conservative)
We are discussing powers in relation to penalties for contraventions, so we must consider the Competition Act 1998. I am concerned about clause 92, which provides Ofcom with a power to impose a penalty, following notification, if an operator contravenes its general conditions. As we already know, the fine could be up to 10 per cent. of turnover, as set out in clause 93. Those are special new powers in the communications sector and I would be grateful if the Minister could clarify why they are necessary. At the meeting of the scrutiny Committee on 8 July, the Secretary of State for Culture, Media and Sport said:
''The existing policy of all of our economic regulators in the various sectors is . . . to keep their markets under review and to withdraw from sector-specific regulation as soon as those markets become competitive.''
She went on to say that Ofcom would have a duty
''to review the markets and withdraw from sector regulation when competition is operative''
and to say that that was ''quite clear''.
The Government have said that the Communications Bill is a deregulatory bill. They have made clear their intention that Ofcom should rely more on a competition law-based approach than on sector-specific regulation, especially in highly competitive markets. In addition to Ofcom having the power to fine under the Communications Bill, the Competition Act 1998—which my hon. Friend the Member for South Cambridgeshire mentioned—allows Ofcom and the Office of Fair Trading to impose a penalty of up to 10 per cent. if an operator infringes competition law. Will the Minister explain the supplementary powers? I cannot find them in the directive.
If Ofcom is to be given such powers, does the Minister believe that the fining mechanism available to Ofcom when there is a breach of conditions by SMP operators is, in fact, too weak? I am asking not about the amount, but whether the mechanism is correct. The Bill provides that fines may be imposed only once the provider has failed to comply with the notification given by Ofcom. That notification would describe the breach and would require compliance within a month of the date of the notification. In cases in which a fine is merited—which are likely to be serious breaches—would it not be a more effective deterrent to have available an immediate threat of fines, rather than having a delay of a month?
This drafting has been produced by some high-priced lawyers. However, as it stands, the Bill is unlikely to have a deterrent effect any greater than that of the weak provisions in the Telecommunications Act 1984, which operates a ''two strikes and you're out'' policy, rather than offering the possibility of an immediate penalty. Furthermore, given the potentially serious effects on competition of the failure of an SMP operator to comply with the conditions imposed on it, the fining mechanism seems out of line with the provisions of the Competition Act, under which fines are available immediately upon a decision by the regulator that the prohibition of the abuse of a dominant position has been breached. I would like the Minister to tell us why he is giving Ofcom those special powers. Are the powers justified? Why do we need the clause at all?
Mr Stephen Timms (Minister of State (e-Commerce & Competitiveness), Department of Trade and Industry; East Ham, Labour)
I am not entirely clear whether the hon. Gentleman supports or opposes the introduction of the arrangements.
Mr Stephen Timms (Minister of State (e-Commerce & Competitiveness), Department of Trade and Industry; East Ham, Labour)
The regulator currently has no power to impose fines for licence breaches under the regime in the Telecommunications Act 1984. The Director General of Telecommunications can direct that a licensee amend its behaviour, but that is all that he can do. However, the power for regulators to impose penalties for breaches of regulatory obligations has become a much more common and widespread feature of UK regulation than it was in 1984. In many overseas jurisdictions, notably the USA, it has been an important feature for a much longer period.
General competition law under EU and UK regimes allows for fines. The rationale is, essentially, that since we are in the main dealing with economic and commercial regulation and there may often be a commercial gain in breaking the rules, an economic sanction provides an effective deterrent against breaking the rules and a fair penalty for doing so. The hon. Gentleman suggested that that was inconsistent with what happens elsewhere, but that is not so—a celebrated example is Ofgem's fine of some £2 million against London Electricity for repeated mis-selling of energy services. An ability to impose fines is a common feature of UK economic regulatory regimes. Our view is that it should be in place for the telecommunications sector as well.
If Ofcom were not given the power to impose financial penalties, it could ultimately be forced to apply more rigorous controls on a provider's business—perhaps even to the extent, in the event of further contraventions, of restricting or entirely suspending their entitlement, since that would be the only means by which it could ensure compliance. In our view, such measures should be reserved for the most serious cases. Part of our aim in the Bill is to ensure that we do not discourage the development of competition and consumer choice, or unnecessarily restrict choice.
Ofcom's powers are subject to safeguards and controls. Ofcom will have to publish guidelines on the penalties, having first consulted the Secretary of State. Clause 93, which we are coming to, lays down rules for imposing and calculating penalties, and decisions on the imposition of penalties will be subject to the full right of appeal to the Competition Appeal Tribunal.
Mr John Whittingdale (Maldon and East Chelmsford, Conservative)
The ability to fine is already available to the OFT and Ofcom through competition law. Is the Minister arguing that Ofcom might want to impose a penalty that it is not able to impose under the provisions of the Competition Act 1998?
Mr Stephen Timms (Minister of State (e-Commerce & Competitiveness), Department of Trade and Industry; East Ham, Labour)
Ofcom may well need to impose a fine under the conditions set out in the clause. It was suggested earlier that that would be contrary to the authorisation directive.
Mr Andrew Robathan (Blaby, Conservative)
I understood from what was said previously that sector-specific powers came about because of the authorisation directive. Can the Minister tell me if that is correct?
Mr Stephen Timms (Minister of State (e-Commerce & Competitiveness), Department of Trade and Industry; East Ham, Labour)
Article 10(3) of the authorisation directive permits the imposition of penalties, but only after a one-month period in which to correct a breach. That is, of course, allowed for in the clause.
Mr. Robathan rose—
Mr Peter Atkinson (Hexham, Conservative)
Does the hon. Gentleman wish to make another speech? He is perfectly entitled to do so.
Mr Andrew Robathan (Blaby, Conservative)
No, Mr. Atkinson.
Question proposed, That the clause stand part of the Bill.
Clause 92 ordered to stand part of the Bill.