Clause 87 - Conditions about regulation of services etc. for end-users
Communications Bill
9:15 am
Mr John Whittingdale (Maldon and East Chelmsford, Conservative)
I shall be brief. I may be going down the same unproductive road that my hon. Friend the Member for Ryedale tried to take a few moments ago by seeking to explore with the Minister the circumstances in which this clause might be put into effect.
Ofcom will have very wide-ranging and extensive powers. Clause 87 deals with the services market for end users of public electronic communications services, and it gives additional powers to Ofcom where the access-related conditions and the significant market power conditions that previous clauses provide to it are insufficient to allow it to perform its duty under clause 4, which is the obligation to ensure that European Community requirements are met.
There is already concern about the extent of the regulator's powers, but this clause seems to give it almost limitless powers. There is the safeguard, which we referred to in our discussion of the previous clause, which is that notification has to be given to the European Commission—which, presumably, is able to say that this or that goes beyond the requirements of the directive, or to prevent Ofcom from acting in a certain way. Can the Minister tell us what circumstances he envisages might arise that would lead to the implementation of the powers in the clause?
Mr Stephen Timms (Minister of State (e-Commerce & Competitiveness), Department of Trade and Industry; East Ham, Labour)
The clause deals with the possibility of significant market power conditions being set when Ofcom has determined that a person has dominance in the services market for the end-users of public electronic communications services. However, the clause provides an additional test, which is whether Ofcom has been unable to perform its duties under clause 4 in full because of the setting of access-related conditions under clauses 69 to 72 and significant market power network-related conditions under clauses 83 to 86.
The hon. Member for Maldon and East Chelmsford may find some reassurance in the fact that the test relates to the requirements on Ofcom in clause 4 to act in accordance with the six EC requirements. Those requirements are: promoting competition; aiding the development of the European internal market; promoting the interests of all citizens of the
European Union; not favouring particular forms of network, services or associated facilities or favouring the means of providing such things; encouragement of network access and service interoperability; and encouragement of compliance with standards of interoperability.
If it is Ofcom's view that it has not been able to carry out its duties to act in accordance with those six requirements because of other conditions, Ofcom may, under the terms of the clause, set conditions placing obligations on the provider. The provision is therefore not quite as wide as it might appear to be at first sight. It is constrained in the way that I have mentioned. I hope that that gives the hon. Gentleman some reassurance. The provider may also be obliged to have its cost account systems annually audited, and to publish an annual statement as to its compliance with those systems, if those have been obliged in accordance with subsection (6).
However, this is a rather different discussion from that which we had earlier about things that could be done only with the explicit approval of the European Commission. There is a requirement in subsection (7) to provide information to the European Commission, but that is a little different from needing permission from the Commission, which was the case under the earlier clause.
Mr Mark Hoban (Fareham, Conservative)
I am slightly perplexed as to the nature of the remedies that could be imposed as a consequence of Ofcom having concerns about significant market power, both in this case and others. Would Ofcom be limited simply to making sure that there are price controls, and that there are transparent cost accounts for providers, or could it go so far as to force companies to break themselves up if they have significant market power?
Mr Stephen Timms (Minister of State (e-Commerce & Competitiveness), Department of Trade and Industry; East Ham, Labour)
I am reluctant to speculate about precisely what kinds of steps might be taken under the clause. Certainly, there will be not only tariff-related measures. However, if there were, the provider might be obliged to use such cost account systems as Ofcom directs, as I have said. However, Ofcom is certainly not confined to tariff issues, and it may range well beyond them.
Mr Andrew Lansley (South Cambridgeshire, Conservative)
I am prompted to rise by the nature of the Minister's response to my hon. Friend the Member for Fareham (Mr. Hoban). Article 17 of the universal service directive is relevant to the issue under discussion. Sometimes, reading the directive gives one an idea of what a clause is intended to achieve; clause 87 does not specify what that is. The article is quite substantive. Paragraph 2 says that ''obligations imposed''—that is, if those obligations cannot be met through the other imposition of access-related or SMP conditions—
''may include requirements that the identified undertakings do not charge excessive prices, inhibit market entry or restrict competition by setting predatory prices, show undue preference to specific end-users or unreasonably bundle services. National regulatory authorities may apply to such undertakings appropriate retail price cap measures, measures to control individual tariffs, or measures to orient tariffs towards cost or prices on comparable markets, in order to protect end user interest whilst promoting effective competition.''
Two points arise from that. First, the Minister did not speculate, but the directive sets out specific examples of when the obligations ''may include requirements''. All those are tariff-related requirements, yet the hon. Gentleman said that he wants to go beyond such requirements. I am surprised that he said that and did not confine himself to the directive. Is he interpreting ''may include requirements'' as ''may include requirements, but may include other requirements that are not tariff related''?
My second question is wide in scope and we shall return to it when we deal with how Ofcom applies competition law. The problems that the measures are intended to address are associated with anti-competitive behaviour of one form or another. We are making available a regime of competition law to the national regulatory authority. Unless I am mistaken, we are not necessarily acting in the same way as other EU member states, but in a better way. We are enabling the national regulatory authority to be the competition authority for such purposes and to pursue effective competition where possible through the application of competition law rather than ex ante regulations.
Let me highlight a classic instance in which the power to apply ex ante regulations is offered to Ofcom. It can choose between using that power and applying directly the regime under the Competition Act 1998, for example, if it identifies anti-competitive behaviour such as predatory pricing. It is open to the Government to think about specifying that Ofcom should, in such circumstances, apply competition law provisions where possible and only consider the application of specific conditions and ex ante rules when they believe that that would not be effective.
Mr Stephen Timms (Minister of State (e-Commerce & Competitiveness), Department of Trade and Industry; East Ham, Labour)
The hon. Member for South Cambridgeshire is right to draw attention to article 17 of the directive that sets out examples of costs and tariffs. The Bill makes it clear that the conditions envisaged are not entirely restricted to such examples, although I imagine that they often would be. It gives details about the particular ways in which Ofcom may set such conditions when a tariff matter is in question. The way in which the Bill has been drafted does not make such matters the exclusive preserve of the conditions that may be introduced in such cases.
I agree with the hon. Gentleman about the benefits of our approach. It is right. As he outlined, the ability to exercise competition powers is an attractive feature of such a structure. I am not sure whether he wants me to expand on a particular point.
Mr Andrew Lansley (South Cambridgeshire, Conservative)
Let me explain. The Joint Committee said that it would be an advantage if the Bill included a provision requiring Ofcom to consider the use of its competition powers in preference to the application of ex ante rules. That is not something that the Government saw fit to do. Their response was that Ofcom would do that in any case because the drive towards treating the sector alongside other sectors under competition law would be part of the process of trying to arrive at more effective competition and a more normal application of minimum regulation.
We agree about the objective, but the Better Regulation Task Force's document on economic regulators suggests that, when ex ante powers are available to them—and the situation that we are discussing is a good example of that—they tend to use them. They tend to use them in preference to using competition law—
Mr Andrew Lansley (South Cambridgeshire, Conservative)
I am sorry, Mr. Atkinson. I got carried away.
Mr Stephen Timms (Minister of State (e-Commerce & Competitiveness), Department of Trade and Industry; East Ham, Labour)
In its report, the Joint Committee made some observations on that point, and the Government have responded to those observations. We said that we understood the Committee's concern that sectoral obligations should be limited to situations in which the general competition regime was unlikely to provide an effective means of control. However, we added that we believed that that concern was adequately dealt with through the process by which the obligations would be devised, set and enforced—especially for significant market power conditions. This issue may well arise in other parts of the Bill, but we feel that we have dealt with the concerns.
Mr Brian White (North East Milton Keynes, Labour)
One way in which Ofcom will differ from other regulators will relate to the operation of the Enterprise Act 2002, which will create a completely new landscape for competition policy in this country and will encourage enterprise. How should Ofcom operate in relation to the Enterprise Act?
Mr Stephen Timms (Minister of State (e-Commerce & Competitiveness), Department of Trade and Industry; East Ham, Labour)
My hon. Friend will know that work on this Bill developed in parallel with work leading up to the Enterprise Act. He is right to mention that Act. Since their election, the Government have had the objective of sharpening competition throughout the economy. In the Bill, we deal specifically with the telecommunications market, but it is equally important that we sharpen competition throughout the enterprise sector. That is what the Enterprise Act and some earlier legislation will do. The two pieces of legislation developed in parallel, and in planning how best to introduce changes, the philosophy has been consistent.
Question put and agreed to.
Clause 87 ordered to stand part of the Bill.