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18|12|03

Further to our discussions on this topic some months back, I am writing to set out our understanding of how the OFT and Ofcom will work together when Ofcom gains its full competition powers under the Communications Act 2003 ('CA03'). It is hoped that by setting out the arrangements for liaison in future we can ensure a productive working relationship, to the benefit of consumers and other stakeholders. We anticipate publishing a summary of this letter to provide public guidance.

This letter does not cover liaison between the OFT and Ofcom on mergers cases, which is being dealt with by Simon Priddis and his colleagues in the OFT's Mergers Branch, or on consumer protection issues, which is being dealt with by Colin Brown and his colleagues in the Co-regulation, Codes and Co-ordination Branch of our Consumer Regulatory Enforcement Division.

The remaining areas in which our two organisations will be working together fall under the following three categories:

• enforcement of the Chapter I and Chapter II prohibitions of the Competition Act 1998 ('CA98');⁽¹⁾
• exercise of market investigation and reference powers under the Enterprise Act 2002 ('EA02'); and
• other duties covered by the CA03 regime.

1. CA98 Enforcement

1.1 Ofcom's powers

As you know, Ofcom has been given the power, under section 371 CA03, to enforce the CA98 against parties to anticompetitive agreements (including decisions or concerted practices) or engaged in conduct abusing a dominant position, in relation to "activities connected with communications matters". This power is to be exercised concurrently with the OFT.

Under existing CA98 concurrency procedures (see 1.2 below), it is generally assumed that agreements or conduct relating to the sector covered by a concurrent regulator will be dealt with by that regulator.⁽²⁾ Section 369(1) CA03 defines these as:

1. the provision of electronic communications networks;
2. the provision of electronic communications services;
3. the provision of associated services and facilities;
4. associated apparatus; and
5. broadcasting and related matters.

It will be assumed for the purposes of this letter that categories a) to d) can to a great extent be equated with the concept of "telecommunications", as that term is used in section 50 of the Telecommunications Act 1984. As a result, our assumption is that the scope of Ofcom's jurisdiction under these categories of communications matters will be similar to the competition jurisdiction currently held by Oftel.

It will also be assumed that Ofcom's jurisdiction encompasses competition issues relating to the allocation, use or trading of spectrum, in so far as these activities are connected with communications matters, in accordance with section 369(1)(e) CA03.

In relation to broadcasting and related matters, it is relatively straightforward to define what is meant by "broadcasting", as the term "broadcast" is defined in section 405(1) CA03 as "broadcast by wireless telegraphy". In determining what activities may be viewed as "related matters" under section 369(1)(e), there will clearly be borderline cases. When such cases arise in the future, we would anticipate discussing them between us on a case by case basis with a view to determining which authority is better placed to investigate whether there has been an infringement of the CA98, in accordance with normal concurrency procedures.

1.2 Concurrency procedures

As you know, rules are already in place to co-ordinate the exercise of concurrent jurisdiction under the CA98. These rules, as set out in the Competition Act 1998 (Concurrency) Regulations 2000⁽³⁾ (the 'Concurrency Regulations'), are primarily designed to ensure that only one competent authority may launch a formal CA98 investigation (i.e. one using investigative powers under the CA98) into the same conduct. This is achieved by Regulation 5, which requires any authority proposing to open such an investigation to inform other authorities that may also have concurrent jurisdiction of its intention to do so and to obtain their agreement to this. By virtue of Regulation 7, formal investigative powers cannot be exercised until such agreement is reached.

Further information on the operation of concurrency procedures in practice is provided in the OFT's Concurrency Guidelines. These specify that cases will generally be investigated by the authority which is best placed to undertake the investigation.⁽⁴⁾ As noted above, the working assumption is generally that the competent sectoral regulator is better placed than the OFT to investigate agreements or conduct relating to its sector.⁽⁵⁾ In some cases, however, the OFT may be better placed to undertake an investigation. The Concurrency Guidelines suggest that, when establishing which of the OFT or the relevant regulators is best placed, one needs to consider factors such as the sectoral knowledge of the regulator, whether the case affects more than one regulated sector, the extent of previous contacts with the parties or complainant and recent experience of dealing with the same undertakings or similar issues.

On this basis, factors which may point towards Ofcom undertaking an investigation include: the desirability to ensure consistency of regulation within the ambit of Ofcom's regulatory responsibilities; the fact that Ofcom may in some circumstances be in a better position to appreciate the relationship between CA98 cases and regulation within its sector; and the specialist experience, and knowledge, of Ofcom staff of the communications sector. Factors indicating that the OFT may be better placed to undertake an investigation may include whether the conduct involves potentially criminal, covert, hard core cartel activity or has effects on competition beyond the sectors covered by Ofcom.

In practice, the OFT's first step after receiving a complaint concerning an agreement or conduct relating to a sector covered by a concurrent regulator is to contact that regulator, usually by telephone or email in the first instance, to discuss whether the regulator has an interest in the case. If it is decided, following such a discussion, that the regulator is better placed than the OFT to undertake an initial investigation of the complaint, it is passed across and the complainant informed accordingly.

As regards liaison concerning complaints related to communications matters going forward, the case handler dealing with a complaint which may relate to one of Ofcom's sectors would normally anticipate contacting Ofcom within three working days of receiving the complaint. We have agreed that Heather Clayton (or, in her absence, Keith Loader) at Ofcom should take on the role of initial contact point for the OFT for discussion of future cases involving communications matters. Ofcom, in turn, has agreed in normal circumstances to contact the OFT within three working days after receiving a complaint raising issues under the CA98. I (or, in my absence, Tanja Salem (telephone: 020 7211 8748)) would be your initial contact point at the OFT.

The OFT generally adopts the informal procedure for allocating cases described above well before the formal requirement under Regulation 5 of the Concurrency Regulations is triggered. At present, agreements on case allocation under Regulation 5 are confirmed through an exchange of letters between the OFT and the relevant sectoral regulator. This process is administered by the concurrency team in our policy co-ordination branch (led by Neil Feinson), in consultation with relevant sectoral branches. As you know, the operation of the concurrency arrangements is overseen by the Concurrency Working Party ('CWP'), in which Ofcom already participates as an observer.

1.3 Transitional arrangements

(a) Existing cases

The OFT is currently investigating a number of cases concerning conduct that could be viewed as relating to "communications matters". These include one telecoms case in which a formal investigation using the OFT's CA98 powers has been launched, and on which a Regulation 5 letter has been obtained from Oftel, and at least one broadcasting case in which a formal investigation has been launched. It is our understanding that the OFT will continue to investigate these cases after December this year and will be responsible for any final decision on whether or not the CA98 has been infringed.

(b) New cases commenced before 29 December 2003

We will continue to discuss complaints received by the OFT that relate to telecoms matters with Oftel, following the procedure set out above, until Oftel is replaced by Ofcom. Since Ofcom will not acquire formal CA98 powers until the relevant provisions of the CA03 come into force on 29 December, it will not be possible for the OFT to transfer complaints concerning broadcasting and related matters to Ofcom before that date. As a result, any initial investigations of such complaints will be undertaken by the OFT. The OFT will keep Ofcom periodically informed of developments on any such cases.

If an initial investigation commenced by the OFT during this period suggests that a formal investigation should be commenced, i.e. there appear to be reasonable grounds to suspect that an infringement has taken place, we will then discuss with Ofcom whether it would be appropriate to seek to transfer the case to Ofcom immediately Ofcom acquires the powers to undertake such an investigation. If it is decided that the case should not be transferred, the OFT will be responsible for taking any final decision on whether or not the CA98⁽⁶⁾ has been infringed.

(c) Cases commenced after 29 December

These will be dealt with in accordance with normal concurrency procedures, as outlined at 1.2 above.

(d) Cases involving Articles 81 and 82 EC Treaty

From 1 May 2004, the OFT and, with respect to its sectors, Ofcom will gain powers to apply Articles 81 and 82 EC Treaty. The Concurrency Regulations will apply in determining which of the OFT and Ofcom will investigate a case falling under Community competition law where a UK authority is considered well placed to deal with the case.

1.4 Notifications

As you know, the CA98 regime currently provides for parties to notify agreements or conduct to the OFT for formal guidance or an individual exemption from the CA98's prohibitions. The DTI has recently proposed removing the CA98 notification regime. If this occurs, we would have to assess our consideration of pending or newly made notifications in the period leading up to the removal of the relevant provisions, in line with our other investigation and enforcement priorities.

The arrangements for the handling of notifications by concurrent regulators differ from those outlined above concerning the handling of complaints, in that all such notifications must be sent to the OFT in the first instance, after which the OFT must forward a copy to any concurrent regulator whose sector is affected by the notified conduct.⁽⁷⁾ Should the OFT receive a notification after 29 December 2003 that relates to communications matters, it will therefore be obliged to forward a copy to Ofcom. Should the OFT receive such a notification before that date, we will inform Ofcom that we have received it and, to the extent possible, inform Ofcom about its subject matter and meet Ofcom to discuss it, if requested to do so.

1.5 Scope for joint working

As indicated above, the concurrency rules operate on the basis that CA98 cases will be allocated between authorities and that, once allocated, a case will be handled by one authority until a final decision is reached, unless it is transferred. As a result, there is formally no scope for the OFT and Ofcom to undertake a joint investigation under the CA98. Indeed, such an approach could risk confusion over which authority was responsible for any final decision or for resolving procedural issues arising in the course of the investigation.

The Concurrency Regulations do provide for the sharing of staff between authorities, however. Under Regulation 9, an "officer" may be transferred from one competent authority to the authority investigating an infringement. During the term of such a transfer (effectively a secondment), the transferred officer would essentially act as an employee of the host authority. As such, he or she would not be involved in any investigation as a representative of his or her home authority and thus such a transfer would not strictly speaking create a joint team.

1.6 Ongoing liaison

Ofcom already sits on the Concurrency Working Party, albeit as an observer. From 29 December, Ofcom will be able to participate in the CWP as a full member.

Since 1998,⁽⁸⁾ the OFT has held regular meetings with representatives of the ITC and Oftel (together with the OFT, known as the Group of 3 or 'G3') to discuss various issues of common interest and to co-ordinate competition policy in the communications area. Since April 2003, when Ofcom started attending these meetings, they have been referred to as 'G4' meetings. This arrangement, which has worked well, effectively came to an end with the last G4 meeting on 10 December. This reflects the fact that relevant personnel have already moved from Oftel and the ITC to Ofcom's premises. Clearly, once Ofcom gains its full powers at the end of December, the ITC and Oftel will cease to exist.

The move from a G4 to a 'G2' provides us with an opportunity to revisit current arrangements for liaison in this area. Clearly, some form of ongoing liaison between the OFT and Ofcom will be valuable. Given the ease of arranging bilateral, as opposed to multilateral, discussions, a less formal framework is required. With this in mind, we have agreed that the two of us should meet on a regular basis, inviting relevant case handlers or other officials to meetings as appropriate.

2. EA02 Investigations and References

The EA02 permits the OFT to refer a market to the Competition Commission for further investigation, by means of a market investigation reference, if it "has reasonable grounds for suspecting that any feature, or combination of features, of a market … prevents, restricts or distorts competition".⁽⁹⁾ Such references are prepared by colleagues in the OFT's Markets and Policy Initiatives Division ('MPI').

As you know, Ofcom will have the power under section 370 CA03 to make market investigation references relating to "commercial activities connected with communications matters". As such, Ofcom's concurrent jurisdiction in this area is slightly narrower than that under the CA98, which is not qualified by the requirement that the conduct being investigated be commercial in nature.

Section 370 CA03 mirrors the CA98 concurrency arrangements by requiring the OFT and Ofcom to consult each other before exercising concurrent functions in this area.⁽¹⁰⁾ As the market investigation reference provisions of the EA02 are the responsibility of MPI, you should contact Graham Winton in that division (telephone: 020 7211 8504) to discuss arrangements for liaison on these matters.

3. Other Duties

3.1 BBC Independent Productions Monitoring

As you know, the OFT's duty to report on the BBC's compliance with its duty under section 186 Broadcasting Act 1990 ('BA90') to commission at least 25 per cent of qualifying programmes from independent producers will end on 29 December. Although the BBC will be under a similar duty after that date, compliance will be monitored by Ofcom, rather than the OFT.

The OFT published its last report on the BBC's compliance with this duty, for the year 1 April 2002 to 31 March 2003, on 30 October. To enable a smooth transition to the Ofcom regime, Ofcom has agreed to prepare and publish the next report, covering the period from 1 April 2003 to 31 March 2004. We are grateful for Ofcom's flexibility on this matter.

3.2 Channel 3 Networking Arrangements

At present, the OFT has a role, under Schedule 4 of the BA90, in reviewing the competition impact of Channel 3 networking arrangements. Primary responsibility for such reviews will pass to Ofcom when the CA03 comes into force. The OFT will retain some involvement, however, as it must be consulted before Ofcom makes any decision as to whether networking arrangements meet the CA03's competition test.⁽¹¹⁾ In addition, the OFT is entitled to receive a copy of any report Ofcom prepares setting out the results of any review of networking arrangements under section 293 CA03.⁽¹²⁾

We would anticipate that such consultation will take the form of a discussion of Ofcom's proposed approach in terms of first principles, to ensure that it is as far as possible consistent with OFT policy and precedent, rather than a complete re-investigation by the OFT of Ofcom's initial conclusions. Please could any requests for such consultation or copies of such reports be sent to me, in the first instance.

3.3 Channel 3 News Provision

At present, the DTI are required to seek the OFT's advice before deciding to remove any agreement relating to Channel 3 news provision from the scope of the Chapter I prohibition. In addition, the OFT and DTI are obliged to notify each other before taking certain actions affecting such agreements.⁽¹³⁾ Under section 372 CA03, the OFT and Ofcom will have joint responsibility in this area. Given that the CA03 does not set out how our authorities should share this jurisdiction, I suggest that we contact each other as and when a situation covered by section 372 arises to determine how best to proceed.

3.4 Other matters

The OFT is regularly consulted by the ITC and Oftel on matters that could have an impact on competition, such as changes in the regulation of Electronic Programme Guides or revision of the ITC's code on advertising airtime sales. This is very much appreciated by the OFT and we would anticipate that Ofcom will continue this practice.

We would also anticipate a continued role for the OFT advising the DCMS on competition issues arising from proposed new BBC services and look forward to working with Ofcom on such matters.

Following our discussions of the areas covered by this letter, I am confident that the above provides a good basis for future co-operation between our authorities. I also look forward personally to working with you and others at Ofcom in this extremely interesting and challenging area.

Yours sincerely

Becket McGrath
Director Media, Sport and Information Industries

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(1) Including Articles 81 and 82 EC Treaty from May 2004 – see section 1.3(d) below.

(2) See paragraph 3.8 of the OFT's Guideline 405, Concurrent Application to Regulated Industries (the 'Concurrency Guidelines'), dated January 2001.

(3) SI 2000/260.

(4) See paragraph 3.8 of the Concurrency Guidelines.

(5) It should be noted that the relevant test is whether the subject matter of the agreement or conduct relates to the sector, not whether the parties to the agreement or conduct are licensees of the regulator with respect to their regulated activities – see the Concurrency Guidelines, paragraph 2.2.

(6) And/or Articles 81 and 82 EC Treaty from May 2004.

(7) Regulations 4 and 5 of the Concurrency Regulations.

(8) See OFT Press Release PN25/98 of 21 May 1998.

(9) Section 131(1) EA02.

(10) Section 370(5) and (6).

(11) See Schedule 11, paragraph 6(2) CA03.

(12) Schedule 11, paragraph 5(3) CA03.

(13) Section 194A BA90 (as amended).

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