Communications Bill

Public Bill Committee, 19 December 2002.

Standing Committee E

Clause 85 - Conditions about network access in

John Greenway (Conservative, Ryedale)

On Tuesday afternoon, during the stand part debate on clause 78, I raised the issue of proposals under which the European Commission could overrule Ofcom's assessment of what might be significant market power on the grounds, as the Minister rightly explained, that that power was necessary to deal with the supervision of international markets, rather than domestic markets within member states. I have a suspicion that clause 85 is another part of the fabric of the supervisory arrangements in respect of international markets and the interface between what Ofcom does and the view that the Commission might take.

I would like the Minister to confirm one or two points of meaning. Under clause 85, Ofcom may decide in ''exceptional circumstances'' on significant market power conditions in respect of network access. I have a suspicion that conditions additional to those in clauses 83 and 84 might need to be imposed on the provider, but those must be submitted to the Commission for approval, and Ofcom can apply those conditions only when they have been approved. Essentially, I have two questions for the Minister. Is the intention behind the requirement on Ofcom to seek the Commission's approval before imposing certain conditions to pre-empt and thus avoid the type of cases that we were concerned about under clause 78 arising, and so prevent friction between our regulator and the Commission?

The second request is for some information on what is meant by ''exceptional circumstances''. Presumably, the Minister, his Department and the shadow Ofcom have in mind certain cases or situations that might require use of the provision. If so, it would be helpful to the Committee and the wider telecommunications industry if the Minister would enlighten us about what might constitute exceptional circumstances. Then, with your agreement, Mr. Atkinson, the Committee might react to what the Minister says.

Andrew Lansley (Conservative, South Cambridgeshire)

I rise to endorse the questions asked by my hon. Friend the Member for Ryedale (Mr. Greenway). More particularly, there is a risk that the Minister will say that the Government have reflected in the Bill the fact that the directives, in particular, article 8(3) of the access directive, give us the opportunity to go to the Commission in exceptional circumstances. Will he track back a bit to the point at which the Council

agreed the directive? Clearly, it anticipated exceptional circumstances in which the network access conditions specified in the directive would not necessarily suffice to secure access or interconnection. Does the Minister know of an example that the Commission had in mind when providing the exceptional ability to go beyond what is specified in the directive?

Stephen Timms (Labour, East Ham)

The hon. Member for Ryedale has set out fairly the reasons behind the clause. The access directive, to which the hon. Member for South Cambridgeshire (Mr. Lansley) drew attention, recognises that, in exceptional circumstances, national regulatory authorities may wish to impose other obligations for access or interconnection beyond those set out in clause 83, so clause 85 provides that such proposals shall be considered case by case. However, the initial measures may be imposed only with the specific approval of the European Commission.

I find it difficult to cite some examples of the exceptional circumstances that might arise. If we could anticipate what they would be, we would reflect them in the Bill. It is because we do not know what they might be that we left the arrangements more open. The Committee will recognise that unexpected circumstances—perhaps one-off situations—may arise that demand a response from the regulator when a provider has significant market power. We want the regulator to be able to do that in such circumstances. I cannot give particular examples, but the type of situation that we have in mind will be clear to the Committee.

John Whittingdale (Conservative, Maldon and East Chelmsford)

The Minister says that the Committee can imagine that one-off circumstances could arise, but that he could not think of anything that could cause such a response because it would be exceptional and we could not anticipate it. That seems to be a contradiction.

Stephen Timms (Labour, East Ham)

I do not think that there is a contradiction. Clause 83 sets out several types of network access conditions that the access directive allows to be imposed on providers with significant market power. Circumstances may arise in which something exceptional beyond those conditions is required. The clause will ensure that the regulator has the power to impose such conditions, subject to the specific approval of the European Commission.

John Greenway (Conservative, Ryedale)

In that case, the Minister might like to consider the first half of my remarks as dealing with the main point, rather than concentrate on the exceptional circumstances. He is saying that, if the Government could think of such circumstances, they would allow for them in the Bill, but given that something could arise that they have not foreseen, they must make provision for it. That is fine, but the requirement for the Commission to give its approval is the key part of the clause. Presumably, that provision will prevent the conflict that we discussed when dealing with clause 78, although many of us would be worried if our regulator found that what he wanted to do in circumstances in which there may be an abuse of market power in this country was overruled by the Commission.

Stephen Timms (Labour, East Ham)

The hon. Gentleman makes a fair point. The role of the European Commission provides a safeguard. He is right to draw our attention to the fact that it ensures a level playing field across Europe for the way in which the facilities might be used.

Question put and agreed to.

Clause 85 ordered to stand part of the Bill.

Andrew Lansley (Conservative, South Cambridgeshire)

On a point of order, Mr. Atkinson. I apologise if I am anticipating an announcement by you, but the Select Committee on Trade and Industry published its report on radio spectrum management at 9 o'clock this morning. It is available in the Room to members of the Committee and I hope that they will take the opportunity to consider it before they leave for the recess.

Peter Atkinson (Conservative, Hexham)

As if by magic, it was delivered at 9 o'clock.

John Whittingdale (Conservative, Maldon and East Chelmsford)

Further to that point of order, Mr. Atkinson. That news is extremely welcome. Members of the Committee may recall that, about a week ago, I asked whether it would be possible for the Trade and Industry Committee to produce its report before we reached that part of the Bill that relates to radio spectrums. My hon. Friend the Member for South Cambridgeshire, who is a member of that Committee, said that he thought it unlikely and that the report would probably not appear before the new year. I wish to record the thanks of this Committee to the Trade and Industry Committee for dramatically speeding up its deliberations to produce the report.

Stephen Timms (Labour, East Ham)

Further to that point of order, Mr. Atkinson. I do not want to be excluded from the enthusiasm that has greeted the news. I, too, am grateful for the timely publication of the report.

Peter Atkinson (Conservative, Hexham)

That is all very good. The report is only 18 pages long.Clause 86 Conditions about carrier selection and pre-selection

Clause 86 - Conditions about carrier selection

Andrew Robathan (Conservative, Blaby)

I beg to move amendment No.85, in

clause 86, page 82, line 43, at end add

'with a facility to override that selection on any occasion by dialling a code determined by OFCOM'.

The amendment relates to override facilities. Article 19 of the universal service directive requires facilities to be available for carrier selection, whereby a caller can decide over which network to direct the call by dialling a code. That is welcome. Carrier pre-selection, whereby people can decide in advance to turn over all their calls to a particular network is also provided for.

The directive requires the pre-selected choice to be capable of being overridden on a call-by-call basis by the dialling of an appropriate code. However, it is not clear that the Bill provides for that. The amendment would make it clear that the override facility must be available and that the carrier pre-selection facility must include a way in which to override the pre-selected choice on a call-by-call basis by dialling

an appropriate code. If that facility is not available, consumer choice and the ability of consumers to find the cheapest option for making an individual call will be limited.

While I am on my feet, will the Minister comment on whether subsection (3)(b) reinforces local loop unbundling and whether it is intended to allow greater access to broadband, which we discussed at length in a previous sitting?

John Whittingdale (Conservative, Maldon and East Chelmsford)

My hon. Friend the Member for Blaby (Mr. Robathan) has ably put the case for the amendment and I do not want to repeat what he said, but carrier pre-selection is important. The Committee has already spent some time looking for ways in which to increase competition for domestic telecommunications customers. There may be various other means, but carrier pre-selection is clearly a way in which customers are facilitated with greater choice. For a long time, one of the principal complaints from alternative providers was that carrier pre-selection was not available.

All those with experience of competition or choice in telecommunications will remember having to punch in a different number every time they dialled to access the network of the alternative operator. Some operators supply a box to plug into the wall. The technology to make that unnecessary has been available for a considerable time, if only the main provider would agree to pre-selection, but there has been a certain amount of foot dragging. Less than a year ago, one of the main alternative providers was complaining to me about the failure to make any progress in obtaining pre-selection. Thankfully, we now have it—because of the efforts of Ofcom and, it appears, the European Commission. I hope that that will give competition in the market a real boost.

Amendment No. 85 seeks to create a level playing field. Now that we have obtained carrier pre-selection, the consumer makes one call to BT to say that in future he wants all his calls to be routed through a particular operator. He does not need to take any further actions or decisions. However, it seems fair that a facility should exist whereby, in certain instances, he can go back to the main operator. The amendment would ensure that that was possible. It would also ensure parity of treatment and clear competition among all the providers—even if one is dominant and the others are smaller and have to use BT's network.

Andrew Lansley (Conservative, South Cambridgeshire)

I confess that this is not an area of the Bill that the Joint Committee considered, so I am on my own here. I will follow my hon. Friends' lead.

My hon. Friend the Member for Maldon and East Chelmsford (Mr. Whittingdale) is a little more familiar with the introduction of carrier selection or pre-selection than I am. In this context, pre-selection is more prevalent than selection. My first question to the Minister is therefore about the time scale and the extent of the impact that pre-selection will have on individual users. There is a substantial difference between carrier pre-selection and selection. Pre-selection is the basis of a contract—at the moment, people can readily pre-select cable rather

than BT or other network providers—but I presume that selection means that there would be no pre-existing contract. Will carrier selection mean that we will all, from any telephone, have the opportunity to choose whatever network provider we desire; or will there have to be some kind of contractual relationship?

My second point is slightly more tortuous. It relates to the transposition of the provisions of the universal service directive into clause 86. The relationship is close, but article 19(2) of the directive allows for:

''User requirements for these facilities''—

by which is meant provision for interconnection—

''to be implemented on other networks or in other ways''.

Article 19 was originally about the public telephone network, and clause 86 is about public electronic communications networks and services. That is fine, because article 19 also refers to ''other networks''. However, the phrase ''or in other ways'' might not be covered by clause 86.

Article 19 refers to telephone numbers and individual calls, and the definition of ''relevant connection facility'' in clause 86(6) refers to the use of telephone numbers. That has a direct bearing on the question raised by my hon. Friend the Member for Ryedale about broadband. If, at some point, users' requirements suggest that interconnection and carrier selection are desired in relation to broadband facilities, it does not follow that those users will use telephone numbers. It does not follow that they will work on the basis set out in clause 86(6). However, article 19 clearly anticipates such a possibility because it uses the words,

''on other networks or in other ways.''

We have covered the other networks, but not the other ways.

Stephen Timms (Labour, East Ham)

I have looked carefully at the amendment and it appears that that point is already covered in the Bill. The requirement in paragraph (6)(b), is to enable

''that selection to be made either—

(i) by the use of a telephone number on each separate occasion on which a selection is made; or

(ii) by designating in advance''.

The first of those options covers the use of a code in the way in which the amendment envisages. Perhaps the confusion is with the use of ''telephone number'', rather than ''code''. If it is accepted that a telephone number can include a code, that point is already covered in sub-paragraph (i). Either one dials a code, or one does not, in which case the pre-selection takes effect.

John Whittingdale (Conservative, Maldon and East Chelmsford)

I am grateful for that reassurance. The Minister will understand that that is a requirement under the directive and the Bill should accurately reflect that.

The Minister believes that the point is already covered, but he should understand that we do not just wake up in the middle of the night and think, ''That's a good point to raise.'' We raised the point about selection because various interested parties who operate in this area have expressed a concern that

the drafting of the Bill is not clear. The purpose of the amendment is to make it clear. Does the Minister object to the amendment on that basis? If the amendment clarifies a point that he says is already contained in the Bill, I am not sure why he would object to including it.

Stephen Timms (Labour, East Ham)

Because I think that the amendment would muddy the waters. At the moment it is clear that the selection is made either by the use of a code or by pre-selection. An addendum to the second option which takes one back to the code, as is specified in the first option, would make things less clear. The key is that the reference to a telephone number in sub-paragraph (i) could include a code—there would generally be a code. Once that is grasped, the Committee will see that the point is already covered in that formulation.

The hon. Member for Blaby asked me whether subsection (3)(b) referred to local loop unbundling. We attach much importance to that, and he is right to emphasise it. The clause is, however, clearly about carrier selection and pre-selection and it does not refer to local loop unbundling.

The hon. Member for South Cambridgeshire asked me about selection and pre-selection. Both are covered in the clause. Regarding the question on other networks and, in particular, the impact on broadband, I think that that is covered, because a number will still need to be dialled and an address will need to be provided. The point is covered in the Bill. It is, however, important that that provision is future proof. The hon. Gentleman is right to draw attention to that.

Andrew Lansley (Conservative, South Cambridgeshire)

I think that the Minister is correct. The definition of telephone numbers in clause 52(5) is very wide, as it includes any code, number or means of selecting a route for an electronic signal, so it is probably future proof. However, I wish to draw his attention to whether under the new regime one can individually make selection at will, rather than on a contractual basis.

Stephen Timms (Labour, East Ham)

I am glad that the hon. Gentleman agrees that that definition of telephone numbers is wide.

The clause covers selection both on a call-by-call choice basis and on a pre-programmed formal agreement basis.

Andrew Robathan (Conservative, Blaby)

I was particularly interested in the comment of my hon. Friend the Member for South Cambridgeshire about other ways, but we may have to return to that later, as there seems to be a large gap.

On the amendment, I am not entirely satisfied that the Minister has addressed the points that have been made. As my hon. Friend the Member for Maldon and East Chelmsford said, good legal advice was taken and it suggests that there is confusion—which was also mentioned by the Minister. The requirements of the directive must be taken into account. We consider—and the legal advice suggests—that the drafting may not be as good as we have come to expect from the excellent civil servants who support the Minister. If there is confusion, problems might arise in the future.

I do not think that subsection 6(b)(ii) makes it likely that people will override. They will designate in advance, and they will then be less likely to override. The amendment is intended to give them that override facility throughout. That would enhance consumer choice. I hope that the Minister and his civil servants will think further about that, but I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 86 ordered to stand part of the Bill.

Clause 87 - Conditions about regulation of services etc. for end-users

John Whittingdale (Conservative, Maldon and East Chelmsford)

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?

Stephen Timms (Labour, East Ham)

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.

Mark Hoban (Conservative, Fareham)

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?

Stephen Timms (Labour, East Ham)

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.

Andrew Lansley (Conservative, South Cambridgeshire)

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.

Stephen Timms (Labour, East Ham)

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.

Andrew Lansley (Conservative, South Cambridgeshire)

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—

Peter Atkinson (Conservative, Hexham)

Order. That is a very long intervention.

Andrew Lansley (Conservative, South Cambridgeshire)

I am sorry, Mr. Atkinson. I got carried away.

Stephen Timms (Labour, East Ham)

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.

Brian White (Labour, North East Milton Keynes)

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?

Stephen Timms (Labour, East Ham)

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.

Clause 88 - Conditions about leased lines

John Whittingdale (Conservative, Maldon and East Chelmsford)

Clause 88 deals with an important area in which we are seeking to achieve a competitive market. Government and Opposition are probably on common ground in thinking that creating the conditions for greater competition in telecommunications is a desirable objective.

Unfortunately, the Minister was not able to join us for our interesting discussion on local loop unbundling. However, I am sure that he will have taken advantage of the intervening period to read our

debate. I was gratified to hear him say this morning that he attached importance to local loop unbundling—even though progress towards that end has been almost invisible.

The absence of LLU means that the ability of alternative operators to lease lines has become all the more significant. Earlier this year, one of the main competitors to BT said:

''Without LLU, the main source of competition is at the service provider or re-seller level. This too got off to a very poor start in the UK—although not as badly as in some European countries. If LLU had lived up to expectations, reselling of BT's wholesale product would only have been a temporary solution; but it looks now as if it will be the main show for at least the next two or three years.''

I suspect that it might last even longer than that. Alternative operators are able to lease lines and offer a competing product to the consumer, and it appears that that is the main area in which consumers enjoy genuine competitive choice. For that reason, I am keen to explore clause 88 with the Minister and to discuss how he thinks Ofcom will seek to promote that further.

The truth is that alternative operators who have tried to take advantage of the provisions and offer a competing service have run into a series of obstacles that have made it harder for them to do that. One alternative operator has talked to us about the problems that it has encountered and it has drawn attention to a number of difficulties. Oftel is addressing some of those difficulties, but they will certainly require more intervention by Ofcom when it is up and running. For example, on fairly simple point, that alternative operator said:

''If BT could provide us with wholesale ADSL circuits in a timely fashion, at the right price to stimulate the market, could guarantee the level of service and provide the features needed by business users, we would be happy. But sadly, this is not been the case.''

That operator acknowledged that

''BT has made progress in getting the lead times for installation down to a reasonable period'',

but said that it still had difficulty in obtaining ''a decent ordering system''. That was meant to have been in place before autumn last year, but the operator said that

''current processes are cumbersome and error-prone.''

Repeated complaints have been made. Although those have to some extent been dealt with because Oftel has intervened, pricing remains a matter of concern. For a long time, alternative operators complained that they were being charged more by BT for a wholesale ADSL line than BT Openworld—a BT-owned provider—was charging its retail customers. Operators pointed out that BT appeared to be retailing its own service at less than cost. Following much protest and intervention by the regulator, BT reduced its prices by enough to reduce any penalties that it might face under the Competition Act 1998, although not sufficiently to remove completely the squeeze on margins. It is possible now for alternative operators to employ some margin from business ADSL lines.

There have been other attempts to make it easier to offer competing services. For example, there have been long arguments about whether BT should enter into a service level agreement with alternative operators. BT enters into contracts with all of its customers, so why should a service level agreement for wholesale ADSL prove so difficult to obtain? Similarly, BT designs its services, including its wholesale DSL products, for its own retailer, BT Openworld, whose customer base is primarily residential. Alternative operators have asked whether there are enhancements that might allow DSL to compete with that business, but it is fair to say that such requests have met with a lack of enthusiasm. I am told that

''The standard response to such requests is 'This will have to go in the development stack'.''

In all those areas, there has been resistance from the main provider to allowing alternative suppliers to develop and offer services on the same, equal basis to that which is offered by BT's own subscriber. Oftel has addressed that during the last year, although it seems to have taken it a long time to get round to it. For example, three or four months ago Oftel announced that BT should be able to supply a wholesale service to alternative suppliers that would allow them to offer their customers one telephone bill for charges and line rental. Previously, that was not possible: subscribers who took on an alternative provider received two bills—one from the alternative provider for call charges and one from BT for the line rental charge.

Undoubtedly, having one bill will help. David Edmonds, who we now know will be on the board of Ofcom, said at the time:

''Operators made it clear that providing a single telephone bill would enable them to offer a variety of packages to consumers such a single flat rate charge for all calls and the abolition of the line rental.''

That is a step forward. We have recently begun to make progress and only last month Oftel published

''detailed proposals to enable service providers to offer residential and business consumers a new service covering line rental, calls and bills over BT's network.''

That comes from a consultation document and the precise requirements need to be properly consulted on, so we are not there yet. I hope that the Minister will acknowledge that Ofcom should treat this matter as a priority. As hon. Members have said, it is likely to be the main area in which we achieve true competition.

Despite all the moves to open up BT's network and encourage alternative providers to enter the market, progress is still limited. More than 50 per cent. of the retail market is provided for by BT Openworld—BT's own service. The next biggest provider is Video Networks Ltd., which is a specialist provider of a home choice video service. After that, there are three or four internet service providers, but they have far smaller shares in the market. Does the Minister envisage the development of a genuine competitive market of which each main provider has a significant share, rather than there being one dominant player owned by BT?

Chris Bryant (Labour, Rhondda)

The hon. Gentleman makes important points about ensuring that competition is robustly regulated so that consumers and, importantly, retailers get a better deal. However, does he see any read-across from the BT situation to that of Sky? Sky also operates a platform. It sells conditional access to retailers—broadcasters. Yesterday, the Office of Fair Trading failed to find against Sky on exactly the same charges.

Peter Atkinson (Conservative, Hexham)

Order. The hon. Member for Maldon and East Chelmsford should not pursue that line. We are talking about leased lines, not Sky.

John Whittingdale (Conservative, Maldon and East Chelmsford)

The hon. Member for Rhondda (Mr. Bryant) is very keen to have his debate, because that is the second time that he has raised the issue—he intervened on me in the first sitting. I promise that we will have the debate when we reach the relevant part of the Bill, as you have said, Mr. Atkinson. However, the hon. Gentleman said that the ''OFT failed to find'', which suggests that he knows better that the OFT.

Chris Bryant (Labour, Rhondda)

Too right.

John Whittingdale (Conservative, Maldon and East Chelmsford)

Given the choice, I would probably go with the OFT in this instance.

I return to our interesting question about the ownership of the network by BT and the ability to introduce competing providers of retail services. Obviously, that must be subject to regulation, which is a major part of the clause. For understandable reasons, the Minister was unable to attend the first few sittings of the Committee when we debated the early parts of the Bill. At that point, I said that there are some who believe that the BT supplier will always be in an advantageous position, regardless of the strength of the conditions in the Bill that are intended to ensure that there is a level playing field and open access. Regardless of how much one tries to ensure that there are Chinese walls and separation of accounting systems and so forth, a competitive market will not be achieved while the main service provider also owns the infrastructure.

I was interested in the comments on that of Lord Currie, the incoming chairman of Ofcom: as the Minister knows, he has argued in the past that the only way of achieving real competition in the long term is to separate the ownership of the infrastructure from the service provision. The Minister for Tourism, Film and Broadcasting replied to the debate when Lord Currie's remarks were discussed, and I asked him whether he saw any faults in the argument of the incoming chairman of Ofcom; sadly, he resisted my invitation to comment.

Can this Minister be drawn out a little on whether he sees any strength in that argument, or is he confident that the Bill will make it absolutely certain that we can achieve proper separation, so that the main service provider—BT Openworld—will be competing on an entirely equal basis with the other service providers that are leasing lines from BT? That is a very important matter, and it must be addressed satisfactorily if we are to have the competitive market that we all want.

I acknowledge that the regulator is now making good progress on that, although there is further to go. This matter also affects normal telephony services—the old narrow band services.

Brian White (Labour, North East Milton Keynes)

Since BT was privatised in 1984, there have been several opportunities to split the company into different parts. Can the hon. Gentleman explain why the Government that he supported did not take any of those opportunities, in particular that which arose in the early 1990s?

John Whittingdale (Conservative, Maldon and East Chelmsford)

That is a very interesting point. BT was the first privatisation. In the early 1980s, the privatisation of a major utility was regarded as a pretty revolutionary idea, so the combination of a privatisation and a complete change in structure to achieve greater competition was probably considered to be a step too far.

The same arguments then applied to the gas industry. It was transferred en bloc into the private sector, but a competitive market was achieved later on when the supply was separated from the ownership of the transmission network. The hon. Gentleman is right that there is a valid argument that that should happen to BT, and perhaps that argument should have been had earlier—certainly, the idea has been floating around. I have discussed this matter with BT, which says that it is technically impossible. It argues that telecommunications is not like gas and because of the nature of the telecommunications business one cannot separate service provision from ownership of the infrastructure. I am not wholly convinced about that, and I would be interested to hear the Minister's view.

Mark Hoban (Conservative, Fareham)

As several venture capital companies have put together bids for BT's lines, is it not clear that commercial interests believe that it is possible to separate the infrastructure from the provision of services?

John Whittingdale (Conservative, Maldon and East Chelmsford)

That is right. A bid—or an expression of interest, at least—was recently made, which the BT board firmly rejected.

On this matter, there is both a technical debate as to whether it is possible and a debate about whether it is desirable. I do not expect the Minister suddenly to announce a dramatic Government policy on this during this sitting. However, I would be interested in his reaction to the technical arguments about the theoretical possibility, and whether he is absolutely confident that the provisions of this clause will have the same effect in achieving a genuinely competitive market, which the rather more drastic action of separation would be designed to achieve. That is important for narrowband access, where the regulator has recently stepped in to ensure that wholesale charges are reduced, which has helped to reduce the charges that, for instance, ISPs charge for narrowband access to the internet—the service where one pays a flat rate for being constantly logged on. Such a market is also important if we are to achieve take-up of broadband.

The other day, my hon. Friend the Member for Ryedale said that he still regarded the cost of broadband as prohibitive for many people, and I am sure that he is correct. Of course, there has been

considerable progress in reducing that cost. To some extent, that is due to pressure from the regulator. It is a matter of national interest. If we are to achieve the take-up of broadband, which all agree is in the national interest, achieving greater competition that will bring down prices to the consumer will play an important part.

Brian White (Labour, North East Milton Keynes)

In Germany, the expansion of broadband was brought about by a lack of competition. The regulator and Deutsche Telekom operated together to introduce broadband. That completely contradicts the hon. Gentleman's argument.

John Whittingdale (Conservative, Maldon and East Chelmsford)

I am aware of that argument. It is the case that some have argued—principally BT—that if prices are to be cut to stimulate demand, suppliers will be in danger of being accused of indulging in anti-competitive practices. The hon. Gentleman has raised a point. There will always be a balance between the desirability of achieving greater competitive markets and the rolling out of broadband at lower prices in order to obtain greater take-up.

The clause raises several important issues, and has provided an opportunity for the Minister to respond to some of the concerns.

Stephen Timms (Labour, East Ham)

We have had a wide-ranging discussion—wider than I thought when I saw that the title of the clause was ''Conditions about leased lines''.

Let me address some of the points raised by the hon. Member for Maldon and East Chelmsford, which are important and interesting. He talked about local loop unbundling and the roll-out of broadband. I hope that local loop unbundling will take place in the UK on a significant scale. We now have the regulatory framework to allow that to happen. The reason that the take-up of local loop unbundling has been rather slow is more to do with the general shortage of investment into the sector than any remaining problems in the regulatory arrangements, or any blockage on BT's part. We have an arrangement that will work well, and some businesses are being built on the basis of unbundling local loops and using them to provide cost-effective broadband services to customers. We will see more of that in future.

I was in Japan recently, and it is certainly the case there that local loop unbundling has been the key to delivering extensive broadband availability, a high level of broadband take-up and low broadband charges. That is an interesting example of the effectiveness of competition in delivering the objectives that we all share.

The hon. Gentleman asked me to comment on the possible break-up of BT. I agree with the principles to which he referred relating to securing a fully competitive telecommunications market. I agree that we have made some good progress in that direction in recent months. Oftel and the director general have made some important announcements—for example, about the single bill for people who have telephone services from providers other than BT. I believe that

the powers in the Bill and the arrangements that we are establishing with Ofcom will allow us to deliver the competitive market that we want.

On the specific issue of a break-up of BT, Ofcom will be able to exercise powers in the Enterprise Act 2002—which was mentioned by my hon. Friend the Member for Milton Keynes, North-East (Brian White)—including the power to make market investigation references to the Competition Commission. That opportunity will be available to Ofcom, should it wish to take it. I am aware that there has been a good deal of interest in the matter of late, with many people calling for a break-up of BT.

I do not think that that is a matter for Ministers—indeed, under the Bill, it will be for Ofcom to consider—but I should say that those who call for the break-up of BT find it difficult to say exactly where the split should be made between the lines and the rest of the network. For example, are we talking about the local exchanges as well as the local network? Some tricky definitional points must be clarified before any such proposal could be seriously addressed. Is it technically impossible? I am sure that the answer is no, but it is certainly very complex, not least in terms of defining precisely where the split should be made. Because it would be such a complex process, it would inevitably be extremely time-consuming and would absorb an enormous amount of energy and effort from everybody in the industry, almost certainly for some years. That would have to be taken into account in deciding whether it was a fruitful road to embark upon. As I said, it will be a matter not for Ministers, but for Ofcom, especially under the powers in the Enterprise Act.

The clause deals with the conditions regarding the availability of leased lines. It enables Ofcom to set SMP conditions where a party has been found to have dominance in the market for leased lines, but the market in question will be limited to such leased lines as are identified by the European Commission in the list of standards published in the Official Journal of the European Communities, which we have not yet seen. Ofcom will need to go through a procedure whereby it identifies a market for review, conducts the market review, sets conditions to combat dominance, and decides in the light of the analysis what those conditions should be. Annexe 7 to the directive, which is headed, ''Non-discrimination, cost orientation and transparency'', sets out some of the areas in which those conditions can be envisaged and gives details of precisely what they might address.

Let me conclude this interesting discussion by reaffirming that it is very important in this part of the telecommunications market, and in the market as a whole, that competition is not unfairly blocked by any provider with significant market power. The hon. Member for Maldon and East Chelmsford said, I believe, that BT has about 50 per cent. of the broadband market. Let me clarify that. BT Openworld has about 50 per cent. of the ADSL market, but more than half the broadband connections in the United Kingdom are from the cable television operators NTL and Telewest. Those

are not ADSL connections. Therefore, looking at all broadband provision, BT Openworld has only about 20 per cent. of the retail broadband market, which is a much smaller proportion than in most comparable markets.

The hon. Gentleman rightly made the point that we have recently seen good progress on competition. We have seen in the broadband market—in some ways, for the first time—the real benefits of infrastructure competition. It was the sale of cable modems by the cable operators before BT was serious about broadband that put pressure on BT to reduce prices, which has led to the substantial growth in the broadband market of recent weeks—we passed the 1 million mark in October, and 28,000 connections a week are now being sold. That is rapid progress. We need to go much further, but there has been a lot of movement in the right direction.

John Whittingdale (Conservative, Maldon and East Chelmsford)

I am grateful to the Minister for such a comprehensive and persuasive reply, especially on whether BT should be separated into different parts. That would be an incredibly complicated exercise, and I am not saying that it is necessarily the right thing to do. However, I am grateful that he acknowledges the importance of the debate.

On the Minister's point about BT Openworld's share of the market, of course he is right that, for people fortunate enough to live in an area where there is a cable provider, genuine competition and choice are available. There are, however, three categories of area. Some areas have both BT and cable available, providing quite strong competition. Sadly, there are far too many areas of the next type, where neither ADSL through BT nor cable is available. Such areas are found in many of our constituencies—

Peter Atkinson (Conservative, Hexham)

Order. I had a feeling that this was an intervention, but it appears to be turning into a speech.

John Whittingdale (Conservative, Maldon and East Chelmsford)

I shall bring it to a conclusion very quickly, Mr. Atkinson.

In the third type of area, which is found in parts of my constituency, ADSL is available but there is little likelihood that there will be a cable provider, at least in the foreseeable future.

Stephen Timms (Labour, East Ham)

The hon. Gentleman is right. However, we can look forward to much more extensive availability of broadband via wireless, providing another dimension to competition; in addition, it is available almost everywhere by satellite, although at a rather higher cost. There are several avenues through which broadband competition will sharpen, one being the power line, which is now being re-examined, although people lost interest in it for a while. The use of the electricity network to support broadband now seems to be a realistic possibility.

It is absolutely vital to have strong and sharp competition in the broadband market, including for those who resell. There are, I think, more than 150 resellers of BT's wholesale ADSL product. There is a significant degree of effective competition, but we—and Ofcom—need to be vigilant to ensure that that competition is as sharp as it should be. I am well aware

of the concerns of several competitors with BT who have not had enough opportunities in the past.

Question put and agreed to.

Clause 88 ordered to stand part of the Bill.

Peter Atkinson (Conservative, Hexham)

We had a very wide and interesting debate on clause 88, which is perfectly permissible under the rules of order. However, I remind the Committee that clause 89 is a rather narrow clause, so we should perhaps keep to the terms of the amendments.Clause 89 Conditions about apparatus supply

Clause 89 - Conditions about apparatus supply

John Greenway (Conservative, Ryedale)

I beg to move amendment No.103, in

clause 89, page 84, line 24, after 'apparatus', insert 'in that market'.

Peter Atkinson (Conservative, Hexham)

With this it will be convenient to discuss amendment No.104, in

clause 89, page 84, line 26, leave out from 'section' to end of line 29 and insert 'are—

(a) conditions requiring the dominant supplier to maintain such a separation for accounting purposes between matters relating to the supply of electronic communications apparatus in that apparatus market and the rest of the supplier's business as a whole as may be described in the conditions; and

(b) conditions imposing price controls in relation to the supply (whether by sale or hire) of telephones for hardwiring to an electronic communications network.'.

John Greenway (Conservative, Ryedale)

You are right to say that clause 89 is narrow, Mr. Atkinson, but it is important and the Conservatives profoundly disagree with it. We discussed earlier Ofcom's regulation of the apparatus supply market, which is not required by the directive. It is unnecessary for Ofcom to regulate that market at all because the market is already competitive. We are not happy with the clause for those two reasons.

The Minister made a robust defence in the sense that there are still a number of people with apparatus that is hard wired. His point seemed to be that the whole purpose of the Government's approach was to protect those consumers, and if that was his argument, that is fine. The Government's intention may be to give Ofcom powers in respect of any supplier who has a significant market power position in the hard-wire apparatus market, but the clause goes beyond that. Amendments Nos. 103 and 104 endeavour to limit the powers to the hard-wire market only. That is why amendment No. 103 adds the words ''in that market'' to line 24—''that market'' is the hard-wire market.

Amendment No. 104 makes it clear that any conditions imposed by Ofcom should relate only to the hard-wire apparatus market part of a supplier's business. The clause should not be a Trojan horse that allows Ofcom to regulate the rest of the supplier's business. Allowing Ofcom to do that would be wholly disproportionate and, in any event, we have already concluded that the directive does not require it. It would be contrary to the entire philosophy of the directives taken as a package and to the principles of good regulation.

The Conservatives would prefer that the clause was not in the Bill, but I hope that the Minister is prepared

to say that he will think about whether the wording should be amended to make it absolutely clear that the provision is simply about ensuring proper regulation of the apparatus supply market as it relates only to the hard-wire market.

John Robertson (Labour, Glasgow Anniesland)

Will the hon. Gentleman tell me what hard-wire market he is talking about? Will he give me an example? I do not know of any hard-wire market.

John Greenway (Conservative, Ryedale)

That is a good question and one that the Minister ought to answer—it is his Bill. The note on the clause states:

''Where OFCOM determine that a supplier of electronic communications apparatus has SMP in an apparatus market, OFCOM may set conditions requiring the supplier to maintain accounting separation between such activities and other matters and also may set price controls on the supply of telephones hardwired to an electronic communications network.''

The clause goes beyond that: the note on the clause and the wording of the clause are not the same.

Andrew Lansley (Conservative, South Cambridgeshire)

I am following the argument very carefully and it seems to me that the question asked by hon. Member for Glasgow, Anniesland (John Robertson) has been answered. The hard-wire telephone market is the market in which BT rent hard-wired telephones—200,000 of them—to customers who have chosen not to take them out and replace them with telephones that are not hard wired.

John Robertson (Labour, Glasgow Anniesland)

That is not a market.

Andrew Lansley (Conservative, South Cambridgeshire)

Well, we can discuss that. There is a continuing market if person A continues to have a contract with person B to provide a piece of equipment.

John Greenway (Conservative, Ryedale)

I am grateful to my hon. Friend. As always, what he says adds considerably to the power of our argument.

I was about to conclude my remarks but, having given way, I shall summarise the position again. It is patently obvious to anyone who compares clause 89 with paragraph 216 on page 41 of the notes on clauses that the two do not match. If adopted, our amendments—or something similar—would at least restrict the clause to that which, according to the notes on clauses, is the Government's objective and intention.

We need to hear the Minister's explanation before we consider how to pursue the matter. However, given that the hon. Member for Glasgow, Anniesland does not think that there is a hard-wire market, we look forward to his support if we seek to divide the Committee on the amendment.

Stephen Timms (Labour, East Ham)

I understand that the argument that the clause might lead to the setting of disproportionate conditions might appear to have some merit. However, Ofcom is required by clause 3 to act in a manner that is proportionate as well as accountable and consistent, and to target cases in which action is necessary. What

Ofcom is allowed to do is tightly constrained by the general requirements of its operation.

I resist the amendment because I believe that if market power determinations call for certain conditions, Ofcom should be free to set those conditions. We should not constrain its ability to do so in the way that the amendments propose.

However, I can give the hon. Member for Ryedale some comfort. I am aware that he and his hon. Friends have tabled an amendment to clause 146, which sets out a large number of definitions on a rather similar theme. The amendment to clause 146 would somewhat narrow the definition of apparatus that is the subject of this clause. When we get to that debate, I may be able to say something that will give him some comfort about the points that he raised. Given that we will return to the topic under a later clause, I ask the hon. Gentleman to withdraw the amendment.

John Greenway (Conservative, Ryedale)

On the basis of what the Minister has said, although we remain of the view that clause 89 should not be included in the Bill, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The Chairman, being of the opinion that the principle of the clause and any matters arising thereon had been adequately discussed in the course of debate on the amendments proposed thereto, forthwith put the Question, pursuant to Standing Orders Nos. 68 and 89, That the clause stand part of the Bill:—

The Committee divided: Ayes 11, Noes 5.

Clause 90 - Notification of contravention of condition

John Greenway (Conservative, Ryedale)

I beg to move amendment No. 105, in

clause 90, page 84, line 41, leave out from 'OFCOM' to second 'that' and insert

'find, on the basis of an investigation in which the undertaking has had a proper opportunity in which to make representations'.

Peter Atkinson (Conservative, Hexham)

With this we may discuss the following amendment: No.106, in

clause 90, page 85, line 8, leave out 'making representations' and insert 'stating his views'.

John Greenway (Conservative, Ryedale)

We are in similar territory to our previous discussion. Clause 90 gives Ofcom powers of enforcement in respect of all types of conditions pursuant to clause 41. Where Ofcom has reasonable grounds for believing that a person is or has been in

breach of any condition, it may notify that person accordingly, allow them time to make representations and take steps to make them comply.

The amendment focuses on whether there are ''reasonable grounds for believing''. Notwithstanding the Minister's earlier remarks on Ofcom's duty under clause 3 always to act in a proportionate and measured way, it seems to us inappropriate for a person to be expected to remedy notified contraventions only on the basis of there being reasonable grounds for believing that there may have been a contravention. It also does not seem reasonable and appropriate that remedying a notified contravention should be required to be done at the same time as the person concerned is making representations. The requirement to remedy should be in place only after there has been a finding of guilt, which would occur after a full investigation in which the person concerned would have had a full opportunity to present their case and make their representations.

My hon. Friends and I think that the amendment is a more reasonable way of dealing with the matter. There ought to be an investigation and a finding that there is a problem as opposed to Ofcom simply saying that it thinks that there are reasonable grounds for believing and therefore intends to impose a condition with which, although they can still make representations, a service provider or supplier must comply. That approach does not seem to be correct.

The problem is that the clause does not correctly implement article 10 of the authorisation direction, which states:

''Where a national regulatory authority finds that an undertaking does not comply with one or more of the conditions of the general authorisation . . . it shall notify the undertaking of those findings and give the undertaking a reasonable opportunity to state its views or remedy any breaches''.

Ofcom's saying that it has ''reasonable grounds for believing'' is not a finding. Faced with a finding of guilt, an undertaking has a clear choice between remedying the matter or maintaining their innocence, which would risk enforcement action and the imposition of a penalty. It is not as though Ofcom does not have strong powers to deal with an undertaking where there has been a clear finding of guilt or a breach. We think that the group of amendments would bring the clause more in line with the requirements of the directive, and put in place a process that achieves greater equity and makes better sense.

At this juncture, I should also comment that the enforcement requirement of other clauses in part 2 uses the same formulation as the one that we are complaining about. I suggest that the Minister should keep our concerns in mind; we would like all those clauses to be changed to refer to a finding of a breach, and not have Ofcom's action on an undertaking, which could be draconian, based merely on ''reasonable grounds for believing''.

Stephen Timms (Labour, East Ham)

Clause 90 is the first of a group of clauses up to clause 100 that set up a new system for enforcement action against those who breach any of the conditions of entitlement. The system will replace the arrangements under the Telecommunications Act

1984 for enforcing breaches of licences issued under the Act. Because of the importance of the matter, I shall put the amendments in context and outline the main provisions of the new enforcement regime.

Critics of the current system, including those mentioned during the debate on the previous clause, have commented that it is unduly weighted against those who have sought to have an alleged breach investigated and enforced. They have a point, which I think was the import of our earlier debate. They have been concerned that the system does not provide enough incentives to avoid breaches, or sanctions against repeating them; and that it is too slow and inflexible in its operation. As a result, the effective, competitive development of the industry, and its delivery of greater choice and lower prices, has been hampered.

The new regime addresses those concerns by introducing several new elements, as well as fully implementing the relevant provisions of article 10 of the authorisation directive. In future, Ofcom will be able to impose financial penalties on those found to be in breach, and to require them to remedy the consequences of the breach as well as—as happens at present—ordering them to comply in the future. Those are significant additional strings to Ofcom's bow. Third parties will be able to bring civil proceedings on their own initiative for the recovery of losses suffered, even where Ofcom has not previously taken action on the matter. There are special provisions to allow Ofcom to take rapid action in urgent cases, and fall-back powers for Ofcom to require the suspension or restriction of a person's entitlement to provide networks, services or associated facilities in the case of a particularly serious and repeated breach; failure to observe such requirements will be an offence.

Those changes are a significant enhancement of the regulator's powers. It would therefore not be right to introduce them without at the same time providing firm procedural safeguards for those subject to enforcement action. The new right of appeal on the merits to the Competition Appeals Tribunal, set out in clause 187, is a major safeguard. In addition, we propose the right for those subject to enforcement action to argue their side of the case before a definitive decision is taken, and that no penalty is to be posed against someone contravening a condition if they promptly take appropriate action to comply, and to remedy the consequences of the breach as soon it is brought to their attention.

Ofcom will have to publish guidelines on penalties, having first consulted the Secretary of State. The method used for calculating turnover for the purpose of penalties has to be approved by resolution of both Houses. Suspensions and restrictions of entitlement are possible only if strict conditions are met. In the case of third-party actions, it will be a defence for the provider to demonstrate that all reasonable steps were taken to ensure compliance and due diligence was exercised. Contrary to the hon. Gentleman's argument, we have an appropriate set of safeguards to protect those against whom action may be taken.

John Greenway (Conservative, Ryedale)

If I have understood the Minister correctly, that structure is fine, but the basic point is

that Ofcom may make a finding based simply on what it believes to be reasonable grounds rather than a proper finding. It is all very well for the Minister to say that if the undertaking states that it will not repeat the action, it will avoid the penalty, but if it does not agree and asks for evidence for the finding of guilt, it will have a point.

Stephen Timms (Labour, East Ham)

The problem with the hon. Gentleman's argument is that it would build in additional delay precisely to damage the position of competitors to a dominant provider in the way we discussed during our previous debate. Under the provision as drafted, Ofcom can begin the enforcement process when it determines that there are reasonable grounds for believing that there is a breach of condition. I accept that in urgent cases—they are defined quite narrowly in clause 94—Ofcom cannot take further action until it has a definitive decision on whether there is or has been a breach, having allowed an opportunity for the subject to make representations and, if appropriate, to take corrective action voluntarily. Even when it does then find that there has been a breach, Ofcom cannot impose a financial penalty or take any other enforcement measures if appropriate corrective action has been taken within the period of at least a month, except in urgent cases that are allowed for in the notification of contravention.

The clause as drafted enables Ofcom formally to notify the subject of the case against it and to give it time to react before reaching a definitive view. To that extent, the amendment would make no change. However, it would prevent Ofcom from starting enforcement action on the basis of a ''reasonable cause to believe''. It is important that Ofcom should be able to do that to promote competition and safeguard against anti-competitive arrangements rather than having a definitive decision that there was a breach. That change in the amendment would risk frustrating the main purpose of these measures: to allow Ofcom to act speedily and effectively in the interests of competition.

Ofcom will still have to have a reasoned case and evidence to back it up before issuing a notification, so it will have to have ''reasonable cause to believe'', which is not same as suspecting or thinking it possible. There will have to be reasonable cause before acting.

Amendment No. 106 aims to replace the reference to ''making representations'' from the subject of a contravention notice before Ofcom makes a definitive decision with one allowing his views to be stated. That is the phrase used in article 10 of the authorisation directive. We have discussed previously the precise words. The word ''representations'' in this context is well understood by the industry and, indeed, it features in amendment No. 105. It is used in the same sense elsewhere in United Kingdom law—for example, in proceedings under the Competition Act 1998 and the Consumer Credit Acts. It has a more precise meaning than ''stating views''. ''Making representations'' implies that the subject of a notification would be

expected to produce reasoned arguments and evidence against the alleged breach, whereas simply ''stating views'' could involve a flat denial. We need people to go further than that.

The amendment would not assist with speedy and effective decision-making, nor would it assist the subject. Ofcom might just conclude that the case was justified because it had not received representations to persuade it otherwise. I hope that the hon. Gentleman will accept that the way in which the provision is set out in the Bill has achieved what is a difficult balance.

John Greenway (Conservative, Ryedale)

In his final comments, the Minister used the word that was coming to my mind—balance. We understand that natural justice must be balanced with the need to ensure that Ofcom has the necessary opportunity to act speedily. While he was making his extremely persuasive argument, a thought crossed my mind about how a constable's powers to arrest are often enshrined in the basic premise of reasonable grounds to believe—although those grounds do not always turn out to be completely accurate. I say that from personal experience, although of some time ago.

The Minister has made a persuasive case. We all acknowledge that Ofcom, as the policeman of the telecommunications industry, must have the proper powers that it needs for that role. Whether or not this matter is debated in the other place, we have put concerns that have been expressed on the matter on the record. It remains to be seen how it will work in practice. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

John Whittingdale (Conservative, Maldon and East Chelmsford)

I beg to move amendment No. 107, in

clause 90, page 86, line 8, after 'condition', insert

'consisting of the same behaviour'.

The Minister, in response to my hon. Friend, explained that the clauses now under consideration impose a tougher regime. We have some reservations about certain aspects of that, to which we shall turn shortly.

The Minister quite rightly said that if there is a tougher regime, there must be stronger safeguards. The amendment seeks to strengthen a safeguard. Clause 90 rightly requires Ofcom to give a period of notice during which an operator in contravention of the conditions has a chance to put that contravention right. The clause specifies that period as one month, and we do not argue with that.

Subsection (7)(a) says that where

''OFCOM have reasonable grounds for believing that the contravention is a repeated contravention''

the period need not be a month. Clearly, returning to the theme of the previous life of my hon. Friend the Member for Ryedale, in the case of a persistent offender, it is probably right not to have to go through the same lengthy process every time that person commits the same offence. However, our concern is that this provision might be applied where someone is suspected of different offences. It could, therefore, lead to unfairness, so there may be a case for strengthening the safeguard.

One can envisage circumstances in which an operator is in breach of the conditions in two completely different ways. It could even be that two completely separate parts of the business have each contravened the conditions by doing completely different things. In such circumstances, it would be hard to justify not giving the same one-month period of notice for each separate contravention.

The amendment would make it clear that the shortened period of notice available to Ofcom in the case of a repeated contravention should be available only if two contraventions are essentially the same offence. We have therefore suggested adding to ''contravention'' the words

''consisting of the same behaviour''.

Stephen Timms (Labour, East Ham)

The real problem would be in determining whether, in what are often complicated circumstances surrounding a particular breach, there was indeed ''the same behaviour''. For example, would that include behaviour by a different set of people, whereby the same action was taken by employees in another business unit or another part of the country, or a breach that was caused in respect of a similar, but slightly different product? Our view is that it is reasonable to limit the scope for such arguments in the interests of effective decision making. Of course, conditions will have to be clearly drafted, and they will be drawn up in consultation with all interested parties, so it should be possible to clear up any serious doubts before they are imposed. Any decision by Ofcom regarding enforcement under part 2 will subject to full appeal on its merits, in accordance with clause 187. That provides a further safeguard.

The shorter notice period that the hon. Member for Maldon and East Chelmsford mentioned will apply only if there is a repeated breach and it has been determined that a shorter period would be appropriate under subsection (7). That is perhaps a slightly narrower set of circumstances than he envisaged.

I understand the hon. Gentleman's point, but there is a real problem involved in trying to establish what ''the same behaviour'' would amount to. On that basis, I hope that he feels able to withdraw the amendment.

John Whittingdale (Conservative, Maldon and East Chelmsford)

I accept the Ministers' assurances that there are other safeguards that might allow an operator faced with such circumstances to take action if it was clear that what had happened was deeply unreasonable. Given that I accept his argument that the amendment might create a loophole in some areas, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

Andrew Lansley (Conservative, South Cambridgeshire)

Subsection (10) enables Ofcom to decide, in relation to contraventions of conditions, whether the most appropriate way of proceeding is by reference to its powers under the Competition Act 1998. I apologise for revisiting the second part of our debate on clause 87, where I sought to achieve a similar objective.

As I understand it, the subsection can be included in the Bill because the directive is silent about prescribing

the way in which the national regulatory authority has to act once a contravention of conditions has arisen. It has the discretion either to apply penalties directly or to use its Competition Act powers. I am taking this from the Government's response to the scrutiny Committee. The Committee wanted Ofcom to have the flexibility to apply either competition powers or ex ante sector-specific powers, and to do so according to its discretion. The Government's argument—I think it must be true—is that the directive does not permit that discretion in relation to a market that is determined not to be effectively competitive. The national regulatory authority is required to set SMP conditions or access-related conditions, as appropriate. That means that that discretion cannot be offered to Ofcom. That is important. We should pause for a moment to recognise that although the Bill sets up a structure that is designed to give Ofcom the flexibility to use its two sets of powers, in practice—because of the directives—the structure of the legislation limits the exercise of its discretion in relation to markets that are not effectively competitive.

In the first instance, Ofcom will have to act through its SMP conditions, but that will not be required in every respect: it will not be required in relation to contravention of conditions, or in relation to the apparatus supply market, about which we have spoken and to which we shall return, because that is not as prescribed in the directive but has been added by the Government. Nor will that probably be required in respect of clause 87, which relates to exceptional circumstances. Those are anticipated in the directive, but do not have prescribed processes for the application of significant market power conditions. A discretion exists for the national regulatory authority to use competition powers rather than anything in the directive.

I shall make two points. I recognise that I might be stretching the debate a little, but I should first like to ask the Minister to consider, in addition to subsection (10), whether it would be possible for Ofcom to use its discretion to apply Competition Act powers under clause 87 to the apparatus supply market under clause 89. Can a parallel provision be introduced for those two clauses?

Secondly, I have a technical question on subsection (10). Is it right for Ofcom to consider only Competition Act powers? The contraventions that Ofcom may be considering—we can leave out market investigations because it would be dealing with individuals—could not only be anti-competitive behaviour as implied in chapter 1 of the Competition Act, or abuse of a dominant position as implied in chapter 2, but cartel behaviour of the kind that could lead to prosecution under the Enterprise Act 2002. Should the clause therefore refer to both the Competition Act and the Enterprise Act, or to competition powers that are separately defined elsewhere in the Bill?

Stephen Timms (Labour, East Ham)

Let me make a general point. Some of the points that the hon. Gentleman referred to were raised in the scrutiny Committee and, as he said, in the Government's response. There is an important

difference between the approach taken in the Competition Act and the sectoral approach taken in the Bill. The fact that the Bill applies to a sector rather than the whole economy requires a different approach. The Competition Act lays down general requirements to be applied to specific situations case by case; the Bill lays down in advance specific rights and obligations. In the latter's case, the risk of inadvertent breaches by persons acting reasonably and in good faith is likely to be small. The consequences of such a breach under sectoral rules are also much less severe. For those reasons, we have taken the view, which was put to the scrutiny Committee, that it would not be appropriate to align further the regimes of the Competition Act and the new legislation. It would not be appropriate to act under the Competition Act if the directives mandated imposition and enforcement of obligations through the processes set out in them.

The hon. Gentleman asks why we did not add a reference to the Enterprise Act, which has been referred to frequently this morning. Ofcom has concurrent powers under that Act. The Act deals with wider issues concerning market-wide investigations, whereas the Competition Act 1998 has strong provisions on cartels that are more relevant in this case. Ofcom has access to those powers in the Enterprise Act.

The hon. Gentleman asked me specifically about whether there was an opportunity to use the Competition Act in the context of clauses 87 and 89. I would welcome the opportunity to reflect on that during the rapidly approaching break. I suspect that the outcome will probably not offer him much comfort, but I will be happy to undertake such reflection during the coming fortnight.

Question put and agreed to.

Clause 90 ordered to stand part of the Bill.

Clause 91 - Enforcement notification for contravention

John Whittingdale (Conservative, Maldon and East Chelmsford)

I beg to move amendment No. 236, in

clause 91, page 86, line 14, leave out subsections (1) and (2) and insert—

'(1) If, after following the procedure in section 90, OFCOM then proposes to give the notified provider an enforcement notification, it shall first—

(a) give written notice of its proposed action stating the matters to which they have taken objection, the action they propose and their reasons for it;

(b) inform the notified provider that any oral or written representations made to OFCOM within the period specified in the notice will be considered, and give the notified provider a reasonable opportunity to make such representations; and

(c) subject to subsection (2), if so requested by the notified provider, give the notified provider or its authorised representatives an opportunity to inspect the documents in OFCOM's file relating to the proposed decision.

(2) OFCOM may give the notified provider an enforcement notification if the notified provider—

(a) is or has been in contravention, in any of the respects notified, of a condition specified in the notification under section 90;

(b) has not taken the necessary steps to remedy the contravention; and

(c) has received a notice under subsection (1) and been afforded the opportunities to make representations and to access OFCOM's file as set out in that subsection.'.

The Minister will appreciate that the penalties possible under the Bill are fairly substantial. Therefore, when dealing with a possible imposition of a fine amounting to anything up to 10 per cent. of turnover, it is only right that we should have proper safeguards, and give an opportunity to the company faced with that penalty to make its case.

Under the clause, the procedure for enforcement of notification of contraventions is in two stages. A company is given notification that a contravention has occurred. If that is not put right after a certain time, there is enforcement. That is a shortened form of the procedure that takes place under the Competition Act 1998. Under that Act there is a three-stage process before a fine is levied. First, there is notification that a contravention has occurred. There is then a statement of objections, after which comes the enforcement notice. The statement of objections is quite important because that sets out why Ofcom believes that the company is in breach of the conditions. It also allows the company access to the evidence on which Ofcom will base its decision.

It is natural justice that, if a company is to be faced with such a draconian penalty, it should have an opportunity to see the evidence that has led Ofcom to reach its decision, and to make representations to Ofcom against it. It would seem strange if the process for the imposition of penalties under the Bill were different from the process laid down in the 1998 Act. The amendment would bring the process into line with that of the 1998 Act by inserting an additional safeguard, which would allow the company to see why it was faced with a huge penalty, and to make representations against that.

Stephen Timms (Labour, East Ham)

The hon. Gentleman is right that there are two stages in the process as set out in the Bill. The amendment would add a third stage before an enforcement notification could be issued. I hope that I can persuade him that that would not be the right thing to do. I appreciate that hon. Members may feel that it would be unreasonable for Ofcom to be able to force a contravening provider to take particular action without the provider having had an opportunity to question it or to propose alternatives, but that is not the case in this example. The operator will have known at the initial stage, via the contravention notice issued under clause 90, of the case against him, and will have had an opportunity to make representations and to take corrective action if he wished.

The hon. Gentleman rightly made the point that the process is in some respects different from that under the Competition Act. That refers to the point that I was making in response to the hon. Member for Ryedale. It is important to recognise and reflect on the differences between general competition law and a sectoral regime such as that in the Bill.

Broadly, the 1998 Act lays down general prohibitions in regard to anti-competitive agreements and conduct, leaving industry free to operate as it wishes, unless or until prevented from doing so. However, what is anti-competitive in a given case—and so whether or not there is a breach—can only be established after a full investigation. By contrast, the sectoral regime in the Bill lays down a variety of specific obligations that will be the subject of consultation in advance, so the risk of genuinely inadvertent breach is much smaller. I hope that the hon. Gentleman will withdraw the amendment.

John Whittingdale (Conservative, Maldon and East Chelmsford)

I accept that the provision deals with a sectoral breach, and that there may be a case for slightly different—or differently phrased—rules for such breaches. If the Minister assures me that the opportunity for the company to have access to all the relevant evidence and to make representations is included in the Bill, I shall accept that I need not press the amendment. Will he give me that assurance?

Stephen Timms (Labour, East Ham)

On the point of ''access to file'', it will of course be for Ofcom to set out the process. It would certainly be in line with good practice for Ofcom to operate as the hon. Gentleman suggests. I hope that Ofcom will consider the matter seriously and sympathetically, and will consider that, in practice, it is important how such access is given. However, that is a matter for Ofcom to determine in light of good practice elsewhere.

John Whittingdale (Conservative, Maldon and East Chelmsford)

So we are placing our trust in Ofcom. On that basis, and given what the Minister has said, I will withdraw the amendment, although I still have a small doubt as to whether Ofcom will behave as sympathetically as the Minister believes that it will. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

Andrew Lansley (Conservative, South Cambridgeshire)

As I understand it—the matter was discussed by the scrutiny Committee—the nature of the penalties that we shall discuss are such that the proceedings and the notification might be held as criminal proceedings for the purposes of article 6 of the European convention on human rights. One of the benefits that flow from that for those subjected to proceedings is that there is a presumption of innocence. I am not sure that I see where that is said in the Bill.

Perhaps the Minister would make it clear that, although Ofcom may have reasonable grounds for believing that there is a contravention, in practice proceedings beyond that point will continue on the basis that it falls to Ofcom to prove its case. The Minister should also make it clear that there is a presumption of innocence towards the person against whom the notification is made.

Nick Palmer (Labour, Broxtowe)

I may be missing something, but has it been foreseen in the practice of Ofcom that if the representations made by the provider are satisfactory to Ofcom, the regulator will formally inform the provider that it no longer has that notification hanging over it? There is provision for an

enforcement notice, but so far as I can tell, there is no provision for responding to representations. A company might feel that there is an indefinite threat over it.

Stephen Timms (Labour, East Ham)

Clause 91 is an important part of Ofcom's tool kit for enforcing conditions of entitlement. Essentially, it allows Ofcom, after issuing a contravention notification under clause 90 and considering any representations made and corrective action taken by the provider concerned in response to it, to issue an enforcement notification directing the provider as to the corrective action he should take, and to set a time limit for him to do so. That practical and positive enforcement action is clearly an important complement to the power to impose financial penalties under clause 93, which we will come to shortly. The enforcement notification is the second stage in the process; a contravention notification must be issued first.

In response to the hon. Member for South Cambridgeshire, Ofcom, as a public authority, is subject to the European convention on human rights and must therefore act in a way that is compatible with it. We feel that that, coupled with the right to a full appeal against any decision, makes the arrangements compliant.

I think that I can give my hon. Friend the Member for Broxtowe (Dr. Palmer) the assurance—indeed, I am sure that I can give him the assurance—that the information that he spoke about can be given. No express provision is required in the Bill. However, I am grateful to him for raising the point.

Question put and agreed to.

Clause 91 ordered to stand part of the Bill.

Clause 92 - Penalties for contravention of conditions

Andrew Robathan (Conservative, Blaby)

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?

Stephen Timms (Labour, East Ham)

I am not entirely clear whether the hon. Gentleman supports or opposes the introduction of the arrangements.

Andrew Robathan (Conservative, Blaby)

I am asking a question.

Stephen Timms (Labour, East Ham)

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.

John Whittingdale (Conservative, Maldon and East Chelmsford)

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?

Stephen Timms (Labour, East Ham)

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.

Andrew Robathan (Conservative, Blaby)

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?

Stephen Timms (Labour, East Ham)

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—

Peter Atkinson (Conservative, Hexham)

Does the hon. Gentleman wish to make another speech? He is perfectly entitled to do so.

Andrew Robathan (Conservative, Blaby)

No, Mr. Atkinson.

Question proposed, That the clause stand part of the Bill.

Clause 92 ordered to stand part of the Bill.

Clause 93 - Amount of penalty under s. 92

John Whittingdale (Conservative, Maldon and East Chelmsford)

I beg to move amendment No. 232, in

clause 93, page 87, line 38, leave out 'ten' and insert 'five'.

The Minister has explained that he believes it necessary for Ofcom to have an additional power to fine, which we accept. However, there is a question about the size of the fine. From day one, the rationale of the Bill is that it is supposed to be applicable across the whole communications sector. It should take account of the convergence of multi-media and that the barriers between telecommunications and broadcasting would be broken down. Surely, therefore, there is a case for consistency throughout the sector?

This probing amendment seeks discover why the penalty available to Ofcom in clause 93 is up to 10 per cent. of the operator's turnover, when in clause 231, which deals with contraventions of licensing conditions for the broadcasting of television or radio programmes, the penalty is £250,000 or 5 per cent. of the qualifying revenue. Why is the penalty 5 per cent. in one part of the communications sector and 10 per cent. in another?

Andrew Lansley (Conservative, South Cambridgeshire)

I do not intend to delay the Committee for long, but this is an important point. I understand perfectly why the figure of 10 per cent. was chosen. It is to have a parallel penalty available to Ofcom in relation to the contravention of conditions in the Competition Act 1998. I am grateful that the Government agreed with the Joint Committee that there should be alignment, rather than misalignment in the sense that Ofcom would have the power to vary the 10 per cent. limit.

The amendment moved by my hon. Friend the Member for Maldon and East Chelmsford helpfully probes the basis on which the penalty will be applied. I do not want to change the 10 per cent. to 5 per cent. In practice, the maximum penalty needs to be closely aligned in case there is a small risk that the level of the penalty available would cause Ofcom to choose one particular route over another.

The calculation of the penalty is important none the less. As the Minister rightly said in an earlier debate, the structure of regulation when using sector-specific powers is different. Just as it is true that in sector-specific regulation one would be unlikely to come across inadvertent breaches of the rules—because the conditions that are applied are specific to given persons and specific as to what needs to be done—in the same way, it is debatable whether the structure of penalties needs to carry across to the rest of the industry or need to be specific to the contravention and person concerned. The conditions are specific.

In the Competition Act, there are general regulations and obligations that apply to all businesses. In sector-specific regulations, there are conditions that apply to specific businesses and every business in that particular sector should be aware of the nature of those conditions and the penalties that would flow.

When the 10 per cent. penalty is applied in the Competition Act, it is applied in a way that includes—this list may not be exhaustive, because I am working from memory—a penalty in relation to the contravention of the offence itself that is designed to reflect and penalise a firm in relation to any benefit accrued over the period of the contravention. That can be mitigated to the extent that the business had sought to limit the damaging or anti-competitive effects or remedy them when notified. The penalty also has a deterrent effect not only in relation to that business, but other businesses generally. Judging from what the Minister said, he thinks that that is true in this situation, too, but is it necessary? The deterrent element in the Competition Act powers is an important part of the penalty. Members of the Committee think that I am an anorak for the Bill, but they ought to try me on Napp Pharmaceuticals v. the director general of fair trading.

Does the Minister maintain the assertion that deterrents will be a part of the judgment of the penalty that is to be applied under clause 93? If not, it would be useful if he said so. There is a good case for saying that that is not necessary and that the penalty should be appropriate and specific to the contravention, and make it clear that businesses cannot benefit by behaving in a way that is contrary to the conditions.

If it were the Government's intention that a deterrent effect should be applied, where is such a provision in the clause? The Committee knows how little I like the word ''appropriate''. What does it mean? Does it mean the inclusion of a deterrent effect? We need to know whether it does, because it will make an enormous difference to the manner in which Ofcom applies penalties.

As for the application of Competition Act powers, although the Competition Commission upheld the director general's decision in the case of Napp Pharmaceuticals v. the director general of fair trading, it varied the penalty. One reason for doing that was the extent to which the penalty was required to have a deterrent effect and how that should be measured. Whether that applies in respect of the Bill will be an important aspect of the extent to which businesses factor in the risk associated with such penalties.

Stephen Timms (Labour, East Ham)

As the hon. Member for South Cambridgeshire said, it is likely that Ofcom will need to decide whether it is more appropriate to use the Competition Act powers or the sectoral regime to deal with a particular issue. The Competition Act sets a maximum turnover threshold of 10 per cent. The hon. Member for Maldon and East Chelmsford suggested that there was an inconsistency. The key comparison is with the Competition Act regime, not with what the Bill says about broadcasting, and the figure of 10 per cent. is consistent with the Competition Act.

As for licences under the Broadcasting Act 1996 whereby Ofcom will enforce a lower limit of up to 5 per cent. of qualifying revenue, the broadcasting regime is different in many respects from that for networks and

services. It serves a different purpose. It is not so closely focused on economic regulation, but includes a wide range of other potentially more subjective matters. It uses various methods and sanctions, including licensing, which the Bill will abolish for networks and services. There is not a material inconsistency in having different turnover percentages in the two different parts of the Bill.

As for how the penalties will be calculated, the turnover to be taken into account in that context is not the whole turnover of the company or the group, but only that which is relevant in respect of time and business activity. It could be a small part of the total. The hon. Member for Maldon and East Chelmsford pressed me to go further in setting out how the penalties will be calculated. When calculating penalties, Ofcom will be required to operate according to rules made by the Secretary of State, which will be subject to approval by resolution of both Houses. That will ensure that a fair and sensible basis is adopted after due consideration by those in the industry with an interest and Members of both Houses.

Subsections (1) and (2) require Ofcom to ensure that, in each case in which it chooses to impose penalties, the penalties are appropriate and proportionate to the contravention concerned. I know that the hon. Member for Maldon and East Chelmsford would like me to go further, but that is as far as I want to go today in spelling out the way in which the regime will operate.

John Whittingdale (Conservative, Maldon and East Chelmsford)

I accept the Minister's comments about bringing the penalty provision in line with the penalties available under the Competition Act 1998. In terms of the debate about consistency across the whole of the communications sector, perhaps it is argument in favour for increasing the penalty for broadcasters. That is an interesting question, which we might revisit when we reach clause 231. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 93 ordered to stand part of the Bill.

Clause 94 - Power to deal with urgent cases

John Greenway (Conservative, Ryedale)

I beg to move amendment No.108, in

clause 94, page 89, line 43, leave out from 'direction' to end of line 47.

Under the clause, where Ofcom has reasonable grounds for believing that there has been a breach and reasonable grounds for believing that the matter is urgent, it can take action by direction. Under subsection (6)(b), it can attach conditions to the direction. It is not appropriate for Ofcom to have such a potentially wide-ranging power to impose possibly damaging conditions on a provider purely on the basis of there being, in Ofcom's view, reasonable grounds for believing that there has been a breach and reasonable grounds for believing that the matter is urgent.

The amendment therefore seeks to remove the power to impose conditions. In responding to a similar amendment addressing the reasonable grounds issue, the Minister explained persuasively why it was important that Ofcom had the necessary powers. I suggest to him that even if the amendment were accepted, Ofcom would still be able to suspend an operator's entitlement to provide—what used to be the licence—either for the activity in question or its entire business. The issue is that the power to attach conditions is not limited to the activity in dispute because it gives Ofcom carte blanche. The regulation is poorly targeted and it could lead to disproportionate regulation. It goes beyond what is needed for Ofcom to be able to act speedily and incisively in the manner that the Minister described earlier today.

Nick Palmer (Labour, Broxtowe)

I wonder whether the hon. Gentleman is concerned by the fact that if the amendment were carried subsection (6)(b) would no longer have any discernable meaning. He would have been better advised to delete from the word ''and'' in subsection (6)(a).

Stephen Timms (Labour, East Ham)

On the particular point on which the hon. Member for Ryedale's remarks were focused, any conditions attached to the direction, which require the contravening provider to pay compensation to their customers, cannot take effect until and unless the direction has been confirmed, which is set out in clause 95(6). There is, of course, an option to appeal to the Competition Appeal Tribunal.

I am resisting the amendment on the grounds that it would remove Ofcom's ability to impose conditions on a provider subject to suspension or restriction for the purpose of protecting that provider's customers, and it would significantly reduce the effectiveness of those powers both as a deterrent and in their actual use. I hope that the hon. Gentleman will not press the amendment because I was able to make the point about the conditions being attached.

John Greenway (Conservative, Ryedale)

As it is Christmas, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 94 ordered to stand part of the Bill.

Peter Atkinson (Conservative, Hexham)

I shall mention some housekeeping arrangements for when we get back with regard to the tabling of amendments. Amendments can be tabled up to the rising of the House today, and they will be published on the blue papers on Friday 20 December. Amendments may be tabled on any working day during the Christmas recess. On Friday 3 January the Public Bill Office will open until 4.30 pm, and any amendments tabled after that time will be sent for publication in the blue papers on Monday 6 January. Any amendments tabled up to 4.30 pm on Friday 3 January will appear unstarred on Tuesday 7 January, and will therefore be eligible for selection at that day's meeting of the Committee. The Public Bill Office will open on Monday 6 January, but amendments tabled then will not be eligible for selection on Tuesday 7 January.

Finally, I remind members of the Committee that we reconvene on Tuesday 7 January. With Tuesday

being a Monday in the weird world of Parliament, we will start at 4.30 pm as opposed to 2.30 pm. Merry Christmas!

It being twenty-five minutes past Eleven o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order.

Adjourned till Tuesday 7 January 2003 at half-past Four o'clock.