July 1997

CONTENTS

Consultation

Chapter 1 : Introduction

Chapter 2 : Background to the proposed modifications

Chapter 3 : Market background

Chapter 4 : The case for unifying the regulatory regime

Chapter 5 : Outline of proposed modifications

Chapter 6 : Timescale and procedure

Chapter 7 : Conclusions and questions

Annex A : Details of new Access Control licence

Annex B : Details of proposed amendments to Value Added and Data Services Class Licences

FORMAL NOTICE AND CONSULTATION

Department of Trade and Industry notice concerning revocation of the value added and data services class licences

This document in part gives notice required under the terms of the Value Added and Data Services class licences (see below) of the Secretary of States’s intention, on or after the 17 July 1999, to revoke the Class Licence for the Running of Telecommunications Systems by PTO Group Associates to Provide Value Added and Data Services and the Class Licence for the Running of Telecommunication Systems Providing Value Added and Data Services, both issued on 30 April 1987.

The document also gives notice of the Secretary of State’s intention to issue a new class licence for running of telecommunications systems for the provision of Access Control Services.

A formal notice to this effect has been published on 17 July in the Financial Times and the Daily Telegraph.

Any comments on these aspects of the proposals contained in this document should be sent, by 14 August 1997, to:

Alan Proud, CII Directorate, Department of Trade and Industry, 151 Buckingham Palace Road, London SW1W 9SS

Oftel Notice and Consultation

The Document also gives notice of the Director General of Telecommunications’ intention to modify the existing Value Added and Data Services class licences in relation to the conditions which apply to the running of Access Control Systems under either of those licences. Pursuant to Section 12 of Telecommunications Act formal statutory consultation will be undertaken at a later date.

Written comments on these part of the proposals should be sent to:

Sandy Grom, Oftel, 50 Ludgate Hill, London EC4M 7JJ

The initial Oftel consultation period will run until the 14 August 1997. There will then be a further period up to 28 August 1997 during which comments are invited on any submissions made to Oftel during the initial period.

Written comments on this part of the consultation will be made publicly available in Oftel’s library except where respondents indicate that their response or parts of it are confidential. Respondents are therefore asked to separate out any confidential material into a confidential annex which is clearly marked as such. In the interests of transparency, respondents are requested to avoid confidentiality markings wherever possible.

Respondents may find it convenient to send all their comments to one address. Oftel will be happy to forward comments relating to DTI’s responsibilities to DTI for consideration.

Comments on the Oftel part of the consultation can also be sent to Oftel on the Internet (if they are relatively short) by using the following e-mail address:

intsection.oftel@gtnet.gov.uk

Confidential responses should not be sent via the Internet.

Oftel intends to set up a link between this document and any comments about it placed on respondents’ own Internet pages. Please contact Cate McLaurin at Oftel (tel: 0171 634 8752) to organise this.

Click here to return to contents

CHAPTER 1

Introduction

1 The Department of Trade and Industry (DTI) and Oftel have previously signalled their intention (see, for example, DTI’s consultation paper of November 1996 on The Regulation of Conditional Access Services for Digital Television and Lord Simon’s parliamentary answer of 19 June 1997 (Hansard, column 134.2) to extend the regulatory regime which now applies for conditional access services in respect of digital television broadcasts so that it also applies to control of access to other types of service. The current regulatory regime¹ was introduced in order to implement EC Directive 95/47/EC on the use of standards for the transmission of television signals (the Advanced TV Standards Directive) which deals with conditional access only insofar as it relates to digital television broadcasts². The scope of the regime reflects the scope of the Directive.

2 However market developments make clear that conditional access technology will be used to control access to services other than television programmes, transmitted using broadcast networks, or switched networks – involving point to point transmission – or partly by both. In some cases, both broadcast and non-broadcast services will be supplied via the same consumer equipment. Examples of communications services delivered by broadcast or other communications networks where control of access may be economically significant but which are outside the scope of the current regulatory regime are:

• digital radio broadcasts
• digital data broadcasts (eg software download services)
• non-broadcast information services
• non-broadcast interactive services, for example games and home shopping

3 The operators of conditional access services enjoy an important gate-keeping position. While it is important to reward the investment and innovation of these operators, significant distortion of competition could result from abuse of this gatekeeping role to the detriment both of the consumer and of long term market development.

4 Unifying the regulatory framework for all conditional access services in respect of digital transmission will help to achieve the key DTI and Oftel objectives of fair, efficient and sustainable competition in both networks and services. In addition, it will help secure efficient licence enforcement and fair trading by ensuring that companies offering paid for content delivered over networks (whether broadcast or non-broadcast) are operating under the same regulatory principles. And finally, the market for digital interactive services is currently an embryonic (albeit rapidly developing) market in which consumers have little experience and effective competition cannot be said to be developed; unification of the regulatory framework will help to protect consumer interests.

Conditional access and switching

5 It is difficult to distinguish in a way which is meaningful both in conceptual and technological terms between a conditional access service and conventional switching of telephone calls on traditional telephony networks. Mobile telephone networks use conditional access technology in handsets and base stations to ensure that the right call is delivered to the right handset. Other developing technologies used in advanced wire or fibre based systems will also use conditional access technology to deliver the right message to the correct terminal (eg passive optical fibre networks). The access control functions of future networks are, therefore, likely to use both traditional switching and conditional access, singly or in combination.

6 The regulatory structures applying to the provision of switching and the provision of conditional access need to be aligned to avoid market distortions caused by differing regulation. Given the existing set of licences (both individual and class) that cover services involving switching, this will be a complex operation. This paper only covers the detail of the proposed unified framework for regulation of conditional access services; there will be further consultation in due course on how to align the respective rules for conditional access and switching.

Current rules for conditional access services

7 At present conditional access services in respect of services outside the scope of the Directive may be provided under:

• the Value Added and Data Services ( VADS) class licences

Class licence for the running of telecommunication systems by PTO group associates to provide value added and data services granted by the Secretary of State under Section 7 of the Telecommunications Act 1984 (30 April 1987)

Class licence for the running of telecommunication systems providing value added and data services, granted by the Secretary of State under Section 7 of the Telecommunications Act 1984 (30 April 1987)

• the Telecommunications Services Licence (TSL)

Class licence to run branch systems to provide telecommunication services, granted by the Secretary of State under Section 7 of the Telecommunications Act 1984 (9 September 1996)

• the Self Provision Licence (SPL)

Class licence for the running of self provided telecommunication systems, granted by the Secretary of State under Section 7 of the Telecommunications Act 1984 (9 September 1996)

• most individual licences except for the international facilities licences

8 In order to implement the Advanced TV Standards Directive, the ability to provide conditional access services for digital television broadcasts was removed from all licences granted before 7 January 1997. Amendments to (or equivalently revocation and reissue of) all the above licences will be necessary to achieve a substantial degree of unification of the regulatory regime for conditional access services across the digital domain.

Proposed new rules

9 It is proposed to make the following changes:-

(i) The Secretary of State will grant a new class licence (the “Access Control³ class licence”) covering provision of conditional access services in respect of non-broadcast services and digital non-television broadcasts⁴. Its provisions will be aligned as closely as possible with those in the January 1997 Conditional Access class licence. Inter alia, this class licence will regulate the operation of conditional access services in respect of:

• digital radio broadcasts
• digital data broadcasts (eg software download services)
• non-broadcast information services
• non-broadcast interactive services, for example games and home shopping

(ii) The VADS class licences will be withdrawn with effect from 17 July 1999 on the basis that they are no longer required; services within the scope of the VADS licences can be provided under other licences (eg the TSL) subject to a regulatory regime which is no more onerous (and in many cases less onerous). A statutory notice to this effect is being published by DTI in parallel with this document. (Earlier revocation is impossible as 2 years notice of revocation of that licence is required.)

(iii) In the interim Oftel will amend the VADS class licences so that any operator providing conditional access services in respect of non-broadcast services and digital non-television broadcasts under those licences prior to revocation may do so only under the same terms and conditions as apply under the Access Control class licence.

(iv) DTI will revoke and reissue the TSL and SPL later this year, making equivalent changes to those described above in sub-paragraph (iii) for the VADS licences. DTI will also take the opportunity to make any other (unrelated) changes which may be necessary to bring the licences up to date. (In particular, the “Fair Trading Condition” which has been inserted into BT’s and a number of other licences and which is to be inserted into virtually all licences in due course will be inserted into the TSL at that stage.) DTI will consult on these changes in its normal way towards the end of the year and will include any other changes required for these licences under the Licensing Directive.

(v) Oftel will modify all individual licences (except for International Facilities Licences (IFLs)) to include the conditions of the new class licence and, as noted above to align the rules governing conditional access and switching. The effect will be that the regulatory regime governing supply of conditional access services will not vary according to whether the supplier is operating under an individual licence or a class licence. (This is a requirement of the EC Licensing Directive. The amendments will be made as part of the process of implementing that Directive, possibly later this year, but in any event not later than 31 December 1998.)

The effect of the modifications

10 There are three main effects of the proposals on which comments are sought in this paper. First, the regulatory regime governing operation of conditional access services in respect of non-broadcast services and digital non-television broadcasts will be substantially the same as that governing conditional access services in respect of digital television broadcasts. In particular, companies offering conditional access for such services will be required to do so on fair, reasonable and non-discriminatory terms.

11 Second, a person operating a conditional access service would be subject to equivalent licence conditions in respect of that service, irrespective of the licence under which the service was supplied.

12 Third, the no longer required VADS licences will be revoked.

13 However, no changes to the regulatory regime will be made in respect of operation of any service other than conditional access services under this exercise; nor in respect of conditional access for analogue broadcasts.

14 Normal practice would be to revoke and reissue all the class licences to reflect the changes proposed. This course will be adopted for the TSL and SPL. However, the VADS licences cannot be revoked before 1999. The desirability of establishing a regulatory framework which is substantially unified, coupled with the ability to make modifications before digital interactive services via television receivers are introduced points to the course proposed in this paper, namely modification of the VADS licences as early as possible, followed by eventual revocation.

Structure of the document

15 Chapter 2 explains the background to these modifications. This includes a brief description of the VADS, TSL and SPL Licences and what they were intended to cover. Changes in the market have meant that modifications are necessary and these changes will be briefly described. The conditional access licence and its effects will then be described as this is the regime Oftel and DTI propose to extend.

16 Chapter 3 provides a brief assessment of the increasingly converging telecommunications and broadcasting markets. It is the kind of convergence implicit in the provision of interactive and television programme services through a single digital set top box which makes these changes necessary.

17 Chapter 4 summarises the public interest case for unifying the regulatory regimes for supply of conditional access services. Chapter 5 summarises the proposed modifications and the effect they will have. Chapter 6 sets out the timescale for licence modification and the procedures to be gone through. Chapter 7 draws together the arguments presented in this document and sets out a number of questions on which Oftel would welcome comments. Finally, Annex A provides a draft text of the proposed new class licence and Annex B a draft of the proposed modifications to the existing VADS licences.

1. The Advanced Television Services Regulations (SI 1996 no 3151) and the Advanced Television Services (Amendment) Regulations (SI 1996 No 3197); together with the Telecommunications Act class licence issued on 7 January 1997, referred to here as the ”ConditionalAccess (Digital broadcast Services)January 1997 Conditional Access class licence”.

2. Although the Directive refers to conditional access to ”digital television services”, it is in fact constructed so that the relevant provisions confer rights or safeguards only on broadcasters. It is not clear whether the term is intended to cover only television programmes or the wider category of services which are broadcast and intended for reception by television receivers. Common UK usage of the terms in the Directive cannot necessarily be assumed.

3. The new class licence uses the term ”access control” for simplicity of legal drafting. There is no inference of any difference in nature between ”access control” and ”conditional access” services. This document will use the more familiar term ”conditional access” when referring to the concept.

4. It is not proposed to make any change in respect of conditional access to analogue broadcasts (See section 4).

Click here to return to contents

CHAPTER 2

Background to the modifications

18 The January 1997 Conditional Access class licence covers those offering conditional access services in respect of television broadcasts in the digital domain. Conditional access services are the means by which service providers restrict access to their services to those who are authorised to receive them. The licence distinguishes a number of elements of conditional access services including:

• subscriber management including the preparation of smart cards
• subscriber authorisation, which is usually conducted via messages sent over the air to the consumer receiving equipment (eg ‘set-top box’ or integrated digital television)
• encryption of the broadcast data stream so that the content can only be viewed by a person authorised to do so

19 The regulatory regime has been designed to ensure that those who offer conditional access services for digital television broadcasting cannot significantly prevent, restrict or distort competition in the broadcasting market through the provision of these services and control of the set top box – for example, by excluding other broadcasters from the market or allowing them to enter only as part of the conditional access operators’ own package of services. The main provisions of the licence can be summarised as follows:

(i) Service obligation – requiring operators of conditional access systems to provide technical conditional access services on fair, reasonable and non-discriminatory terms enabling broadcasters to gain access to viewers through any base of decoders which can receive their signals;

(ii) Transcontrol – requiring conditional access operators to co-operate with cable operators so that they are able to decrypt, de-multiplex and rebroadcast television services using their own conditional access systems without incurring unnecessary or unreasonable expense;

(iii) Fair Trading – prohibiting the prevention, restriction or distortion of competition with respect to conditional access services;

(iv) Essential interfaces – requiring conditional access operators to make interface information available to facilitate interoperability

(v) Prohibition of linked sales (making one sale conditional on purchasing another) and also prohibition of undue preference or discrimination;

(vi) Intellectual Property Rights ( IPR) – enabling the Director to take steps, within his power, to prevent IPRs being used to restrict the provision of services at all or only on unreasonable terms;

( vii) Publication of charges, terms and conditions for the supply of technical conditional access services;

(viii) Obligation to keep separate financial accounts – separating different elements of the Licensee’s conditional access business and other business activities;

( ix) Code of practice on the confidentiality of customer information.

20 The VADS licenses came into force in April 1987 and were intended to allow the provision of a wide range of emerging telecommunication services. Examples of such services include communication services – electronic mail, voice mail and videoconferencing, processing services – electronic funds transfer and teleshoping, and a range of data services – financial/business services (company news and accounts) and transport and shipping information. At the time the licences were granted the Government wished to ensure a period of regulatory stability for such services to encourage investment in their development and so provision was made that the VADS class licences could not be revoked until 1999. However, it is believed that the VADS licences are now no longer required since services which may be supplied under these licences could also be supplied under the TSL, SPL or (in some cases) an individual licence.

21 The latest versions of the SPL and TSL came into force in September 1996. These are the licences under which most systems are run. The telephones of residential subscribers, organisations’ internal systems based on PABXs, and private systems on which value-added and data services are provided are all examples of systems normally run under the SPL or the TSL. The SPL covers a system if the licensee is not offering services to others; this covers most residential subscribers. The TSL covers a system where the licensee is offering services to other subscribers. It includes the ‘200 metre rule’ which restricts the length of links between premises which may be provided by the licenses. Those providing services over longer links must apply to the DTI for an individual licence.

22 None of the VADS, SPL, TSL or individual licences were drafted with supply of conditional access services in mind. With a few exceptions, they do not contain any of the provisions summarised in paragraph 19 above. Nevertheless, again with a few exceptions, they permit supply of conditional access services (other than in respect of digital television broadcasts). The Government’s view and Oftel’s view is that such a regulatory distinction is inappropriate. In the interests of consistency and certainty for players in this market therefore, it is proposed to modify the relevant licences and bring supply of conditional access services for all services (except for analogue broadcasts) into one regulatory domain. The arguments are considered in Chapter 4.

Click here to return to contents

CHAPTER 3

Market background

The relevant markets

23 The 1997 Conditional Access class licence distinguishes between a number of different elements that together comprise conditional access services: encryption; subscriber management (SMS); subscriber authorisation(SAS); but excludes from that definition the closely associated customer management services. Any platform for the provision of services where there is intended to be a degree of exclusivity on the part of the viewer – eg subscription TV, pay-per-view events, interactive services etc – would essentially involve some permutation of the same basic package of services, that is, some form of control over access to the service together with related administrative services.

24 These separate elements constitute inputs into the provision of services to the retail customer. That is, these services are essentially wholesale services which form a part of the platform infrastructure through which subscription services can be provided to the customer.

25 Although the conditional access services listed above are necessary for the provision of both pay-TV and interactive services, they do not have to be supplied by the same firm. There can be very different supply and demand conditions surrounding the different services so that in principle they could be represented as separate product markets. However, in practice it is likely to be possible to exploit economies of scope (and possibly scale) in the SMS, SAS and customer management functions. There is also likely to be a close association between a particular encryption technology and the organisation of these associated administration services.

26 Conditional access services can very easily form a bottleneck to competition in downstream markets. For instance, in the case of direct-to-home satellite delivery, the set-top box (STB) acts as an interface between the delivery mechanism and the customer. Customers may have more than one set-top box but they seem rather unlikely to wish to possess more than one general type. Any broadcaster wishing to deliver a programme to that customer (and to receive payment for it) would therefore need access to the encryption technology embodied in that type of STB.

27 At present defining a market in terms of the provision of CA services is probably sufficient for the purposes of assessing competition. If competing encryption systems are developed there may then be case for reviewing this position and distinguishing between the various services that comprise CA services.

Convergence

28 The imminent introduction of digital broadcasting accompanied by the delivery of interactive services delivered via a television set is a manifestation of a process popularly known as convergence. There are two main drivers of convergence: technology and market developments. In technology, the most obvious examples are the development of broadband technologies, digitalisation and compression; the use of broadcast spectrum for mobile telephony; the computerisation of switching in telecoms networks and the growth of Internet and development of new online services. Technology convergence seems to involve: over time being able to do the same thing over different networks; common technologies increasingly being used in different networks or products; and increasingly competition for the same inputs between different networks.

29 The economic drivers involve companies wishing both to extend into new and more profitable markets, for example, telecommunications companies entering the cable television market, but also to exploit potential economies of scope. These economies of scope are themselves one outcome of ongoing technological convergence – digitalisation has brought the process of offering cable TV and voice telephony much closer together for example.

30 Regulation too has a role in driving convergence. However, it does not always reflect current reality and a conditional access licensing system which distinguishes between broadcast services received via a TV set and set-top box on the one hand and non-broadcast services received in the same way is one such example. For example, details of holidays discussed during a television travel programme could appear on-screen during the programme and invite the viewer to press a particular button on his handset to obtain further information. To the viewer, this would undoubtedly seem part of the same service. However the provision of further information could either be by the broadcast or public switched telephone network. It makes no sense if the licensing system for conditional access distinguishes between these cases.

Click here to return to contents

CHAPTER 4

The case for unifying the regulatory regime

31 As noted above, the January 1997 Conditional Access class licence imposes on those offering such services inter alia a responsibility to offer them on a fair, reasonable and non-discriminatory basis. This is because they are an important gateway in delivering services such as pay television to consumers. Abuse of this gateway position could mean that consumer choice of services is artificially restricted. A company offering conditional access services in respect of other services however, would have no such obligation as the law stands at present. Hence there is a potential for anti-competitive behaviour by a company offering conditional access services in respect of services other than digital television broadcasts. It might, for example, unduly favour an associated company in the terms of supply of conditional access services; it might refuse to supply such services to certain parties; or it might supply only on some onerous condition. Such actions could very easily distort competition significantly in a downstream retail market.

32 The above regulatory approach was born of concerns about anti-competitive practices affecting supply of television programmes transmitted in digital form. The same competition concerns could arise over supply of other digital services, information and interactive services in particular, whether supplied wholly via broadcasting networks, wholly via switched telecommunications networks or partly by both.

33 Moreover, in view of the convergence of telecommunications and broadcasting markets it is quite inappropriate for there to be one regulatory regime for conditional access services which applies in respect of digital television broadcasts and another which applies in respect of other services in the digital domain. As the example in paragraph 30 illustrates, there will be plenty of cases at the margin where it is not at all clear which regime applies. Service suppliers need clarity about the rules governing terms of supply.

34 The current conditional access regulatory regime was put in place after wide consultation and the controls in the regime have received wide support. That consultation envisaged the extension of the regulatory regime beyond digital broadcast television as soon as possible. There was no dissent from that proposition. DTI and Oftel have therefore concluded that it would be in the public interest to so extend the regime and propose to proceed as set out below. Lord Simon confirmed the Government’s intentions on this point in a parliamentary answer on 19 June.

35 Oftel and DTI have also considered whether the regime should be extended further to cover analogue broadcasting. A regime which was unified as far as possible across the full range of telecommunications and broadcasting services has strong conceptual appeal. The difference in this case is that supply of conditional access services for analogue broadcasting is an established market. In order to sustain investor confidence in UK market opportunities across the board, there is a strong presumption against changing the regulatory regime for an established market in the absence of a case of anti-competitive practice, proven by the competition authorities. Further, BSkyB, the main supplier of conditional access services for analogue television broadcasts has given undertakings to the Office of Fair Trading about the terms of its supply of such services. These undertakings have similar effect to the January 1997 Class Licence. Moreover, only a minority of homes receive analogue pay television and although the number will grow somewhat in the short term, it is expected to level off and in due course decline as digital broadcasting takes off. In contrast, conditional access in the digital domain is likely to be relevant to virtually all households in the medium to long term. On balance, therefore, it is not proposed to extend the regime to cover analogue broadcasting.

Click here to return to contents

CHAPTER 5

Outline of proposed modifications

January 1997 Conditional Access class licence

36 This licence will be unchanged. It authorises the supply of conditional access services over a telecommunications system only in respect of digital transmission of broadcast television services.

The Access Control class licence

37 This will cover provision of conditional access services in respect of non-broadcast services and digital non-television broadcasts. Its structure will mirror very closely the structure and detail of the existing January 1997 Conditional Access class licence as set out in paragraph 19 above. Issue of this licence will leave 5 differences between the regulatory regimes for conditional access, as between digital television broadcasts services and other services (apart from analogue broadcasts).

(i) There will be no counterpart of the Advanced Television Services Regulations. This means that one element in particular of the regulatory regime will not exist for non-broadcast services and digital non-television broadcasts – the requirement for operators of conditional access systems to co-operate with broadcasters in advance of such operators coming under the auspices of the class licence. It further means that those affected by the regulations will not be able to take direct action against the CA service provider in court. Rather, all enforcement will fall to Oftel.

(ii) The existing January 1997 Conditional Access class licence applies to all operators, whether or not they possess significant market power. (This is a requirement of the underlying EC Directive.) This is out of line with the regime for telecommunications networks where the obligation to supply telecommunications services (including the somewhat analogous obligation to interconnect) is imposed only on those operators with significant market power. In extending the regulatory regime for conditional access to cover services other than digital television broadcasts, DTI and Oftel believe it is appropriate to impose an obligation to supply (together with several other obligations which flow from that) only on those operators with significant market power (in the market for supply of conditional access services or a related market).

(iii) Those who provide services only to themselves are not subject to the existing regulatory regime. This was most likely an unconsidered side effect of the drafting of the underlying EC Directive. There is no objective justification for this in the case of a provider with significant market power; if such an operator was active in the supply of downstream services, it might be able to ‘close the gateway’ to customers unless a broadcaster agreed to onerous terms. Therefore, DTI and Oftel have concluded that it would be wrong to replicate this feature of the current class licence, in drawing up the new class licence. The new class licence will apply to all who operate conditional access services, whether or not they offer to supply to that except for those operators without significant market power (in the market for supply of conditional access services or a related market)

(iv) In addition, certain services (some types of subscriber management services, for example the supply of smart cards) are deemed to be telecommunications services by the above-mentioned regulations; thus bringing them within the scope of the Telecommunications Act, even though such services might not otherwise lie within the scope of the Act. This was done in order to ensure the proper implementation of the Advanced TV Standards Directive. There are presently no means short of primary legislation for replicating the ‘deeming process’ in respect of non-broadcast services. Ancillary services, such as supply of smart cards, will nevertheless fall within the scope of the Telecommunications Act if they are essential to, or inseparable from, a Telecommunications service. In most instances, therefore, the supply of smart cards will be subject to regulation as an essential ancillary service, under the terms of the Access Control class licence

(v) Those who have an individual licence will be excluded from operating conditional access services (in respect of digital non-television broadcasts or non-broadcast services) under the Access Control class licence. They may of course do so under their individual licence. In practice, this is not considered to make any substantial difference to the terms of operation as between individual licensees and others. However, as mentioned above, these terms will be aligned as part of the process of implementing the EU Licensing Directive, beginning later this year.

38 DTI and Oftel believe that these minor discontinuities in the conditional access regulatory regimes, as between digital television broadcasts on the one hand and non-broadcast services and digital non-television broadcasts on the other hand, will be of no real significance (particularly if the Government’s proposed reforms to general UK competition law are implemented). This proposition is perhaps least immediately obvious in the case of self-provision (indent (iii) above). The argument here which qualifies the interpretation of the January 1997 Conditional Access class licence is as follows. A provider of conditional access services which was not dominant is unlikely to have an incentive to withhold supply from a party requesting it. A dominant provider which withheld supply would be likely to be considered to be abusing a dominant position. If subject to EU competition law, such a provider would very probably be obliged to supply which would then in any case bring it within the scope of the appropriate class licence. The proposal on this point therefore fully reflects the thrust of EU competition law. The Government’s proposals to incorporate EU competition law into UK domestic legislation would leave little practical difference on this point between the conditional access regimes which apply to digital television broadcasts on the one hand and non-broadcast services and digital non-television broadcasts on the other hand.

The VADS licences

39 Oftel proposes to amend these licences as follows (prior to planned revocation in July 1999). A provision will be inserted to the effect that any person relying on these licences as authorisation for supplying conditional access services (except in respect of digital television broadcasts or analogue broadcasts) will need to abide by the provisions of the Access Control class licence. (Supply of conditional access services in respect of digital television broadcasts is of course possible only under the existing January 1997 Conditional Access class licence.) A formal statutory consultation on this modification will be undertaken at a later date by Oftel.

The SPL and TSL

40 DTI proposes to revoke and reissue these later in the year and will consult in the normal way at that time. There may be several amendments to be made for various reasons. The ones relevant to this paper will have the same effect on the operation of conditional access services as described in the previous paragraph for the VADS licences.

Individual licences

41 These licences (except for IFLs) will be modified in respect of operation of conditional access services as part of the process of implementing the EU Licensing Directive. (There may of course be other unrelated changes to be made at the same time.) A typical modification is likely to involve the importation of the conditions of operation of conditional access services, as set out in the January 1997 Conditional Access class licence, into individual licences. To the extent that a similar condition already exists in the individual licence, alignment will be necessary to meet the terms of the Directive.

Overview of the licence changes

42 Once the above proposals have been put into effect, supply of conditional access services in respect of digital transmission will be possible under the following licences:

For digital television broadcasts:

only permitted under the January 1997 Conditional Access class licence

For non-broadcast services and digital non-television broadcasts:

permitted under the following licences – in each case, terms summarised in paragraph 19 will apply

• the Access Control class licence
• the TSL and SPL
• most individual licences (except for international facilities licences)
• the VADS licences (until revocation on 17 July 1999)

not permitted under any other licence

Click here to return to contents

CHAPTER 6

Timescale and procedure

43 The following timetable has been set.

44 Oftel’s normal administrative procedures for public consultation will apply, as summarised on page 2. Comments received in relation to the proposed issue of the Access Control class licence or the revocation of the VADS class licences will be passed to DTI for action.

45 Oftel may not proceed with a modification to a class licence (except by way of an MMC reference, as discussed below) in the case that there are any representations duly made and not withdrawn. (The procedure differs from that for an individual licence where the corresponding pre-condition is to obtain the licensee’s consent.) If representations are not withdrawn, Oftel considers whether the objections are valid and, if not, may refer to the MMC for a view as to whether there are adverse public interest effects of the existing licence which could be remedied by licence modifications. If the MMC finds such effects, Oftel may proceed with an appropriate modification.

Click here to return to contents

CHAPTER 7

Conclusions and questions

46 This paper confirms DTI’s and Oftel’s earlier stated intention to extend the regulatory regime for supply of conditional access services to apply to services other than digital television broadcasts.

47 In order to implement this intention, changes will be necessary to the SPL, TSL and individual licences (and to the VADS licences prior to their proposed revocation). These changes affect only the terms on which conditional access services for digital transmission for non-broadcast services and digital non-television broadcasts may be supplied. Use of the authorisations provided by those licences to supply other telecommunications services will not be affected.

48 DTI and Oftel would welcome comments on any aspect of this paper but in particular on:

(i) the conclusion that the regulatory regime should be extended to cover operation of conditional access services in respect of digital non-television broadcasts and non-broadcast services but not in respect of analogue broadcasts. (DTI and Oftel);

(ii) the general proposition that the conditions governing the operation of conditional access services should not vary according to the licence under which the services are operated (DTI and Oftel);

(iii) the drafting of the new Access Control class licence (DTI);

(iv) the nature of the licence modifications proposed to the VADS licences prior to proposed revocation (Oftel);

(v) the proposed timetable for the amendments (DTI and Oftel);

(vi) whether the VADS licences should be revoked as from July 1999 (DTI).

Click here to return to contents

ANNEX A

Draft Class Licence for Access Control Services

CLASS LICENCE FOR THE RUNNING OF TELECOMMUNICATION SYSTEMS FOR THE PROVISION OF ACCESS CONTROL SERVICES GRANTED BY THE SECRETARY OF STATE UNDER SECTION 7 OF THE TELECOMMUNICATIONS ACT 1984 ON 1997

TABLE OF CONTENTS

THE LICENCE

SCHEDULE 1: CONDITIONS INCLUDED UNDER SECTION 7 OF THE ACT

PART 1: Definitions and interpretation relating to the Conditions in Schedule 1

PART 2: Conditions included under section 7 of the Act.

1 Service obligation for operators of Access Control Systems to provide Technical Services.

2 Transcontrol

3 Fair Trading

4 Linked sales

5 Essential Interfaces

6 Prohibition on undue preference and undue discrimination

7 Publication of charges, terms and conditions for technical services to be applied

8 Intellectual Property

9 Obligation to keep separate financial accounts

10 Requirement to furnish information to the Director

11 Code of Practice on the Confidentiality of Customer Information

12 Licensee’s Group

13 Exceptions

SCHEDULE 2: REVOCATION

SCHEDULE 3: AUTHORISATION TO CONNECT OTHER TELECOMMUNI-CATION SYSTEMS AND APPARATUS TO THE APPLICABLE SYSTEMS AND TO PROVIDE ACCESS CONTROL SERVICES BY MEANS OF THE APPLICABLE SYSTEMS

Click here to return to contents

CLASS LICENCE FOR THE RUNNING OF TELECOMMUNICATION SYSTEMS FOR THE PROVISION OF ACCESS CONTROL SERVICES GRANTED BY THE SECRETARY OF STATE UNDER SECTION 7 OF THE TELECOMMUNICATIONS ACT 1984

THE LICENCE

1 The Secretary of State, in exercise of the powers conferred on him by section 7 of the Telecommunications Act 1984 (“the Act”) hereby grants to all persons of the class defined in paragraph 2 (each such person being hereinafter referred to as “the Licensee”) a Licence, subject to the Conditions set out in Schedule 1 and to revocation as provided in Schedule 2, to run within the United Kingdom the telecommunication systems referred to in paragraph 4(a) below (“the Applicable Systems”) and authorises the Licensee to do all or any of the acts specified in Schedule 3:

Provided that – nothing in this Licence shall apply to any Applicable System in so far as it is employed for the purposes of the provision of services other than the services authorised in paragraph (2) of Schedule 3.

COVERAGE

2 This licence is granted to each person running an Applicable system who provides services authorised by paragraph (2) of Schedule 3

except

(a) any person providing those services under an authorisation contained in a Licence which is not granted to all persons or persons of a class; or

(b) any person in respect of whom the Secretary of State or the Director has revoked this Licence in accordance with Schedule 2

DURATION

3 This Licence shall enter into force on 1998 and shall remain in force [until 31 July 2001] in the first instance but unless previously revoked in accordance with Schedule 2 shall thereafter be subject to revocation on three months notice to expire on or after that date.

INTERPRETATION

4 In this Licence –

(a) “Applicable Systems” mean telecommunication systems of any description by means of which there may be provided but only in so far as there are actually so provided Access Control Services except that such a telecommunication system run by a person other than the person providing particular Access Control Services shall not be treated as an Applicable System by reason only of the fact that there are conveyed by it without distinction Messages comprising such Services together with Messages comprising other services;

(b) “Access Control Services” means telecommunication services by means of which access by consumers to Other Telecommunication Services may be controlled so that only those consumers who are authorised to receive such services do so and, without prejudice to the generality of the foregoing includes –

(i) Encryption Services, that is to say –

(aa) any encryption or scrambling of signals for Other Telecommunication Services; and

(bb) the conveyance by the Applicable System of encryption or scrambling information;

(ii) Subscriber Authorisation Services, that is to say –

(aa) the actuation or control or the remote actuation or control of decoders; or

(bb) the initial transmission of messages connected with (aa) above;

(iii) Subscriber Management Services, that is to say –

(aa) the preparation, or preparation and supply to consumers of Essential Components; or

(bb) the preparation from consumers’ orders of instructions for authorisation signals for transmission to decoders,

(cc) or both;

(c) ”Technical Services” includes

(i) Encryption Services

(ii) Subscriber Authorisation Services;

(iii) Subscriber Management Services; and

(iv) any other Access Control Service

or a part of any of the above where failure to provide such a part means that Other Telecommunication Services could not be accessed and used by consumers;

(d) “Access Control System” means a system which is used for the provision of Access Control Services to the extent that the System is so used, provided however, that a telecommunication system run by a person other than the person providing any such Services shall not be treated as an Access Control System on the ground only that it conveys without distinction signals connected with the provision of such Services together with other signals;

(e) “Other Telecommunication Services” mean telecommunication services other, than Digital Television Services or any of the services specified in section 72 (2)(a) to (e) of the Broadcasting Act 1990 [and to which access is obtained by consumers by use of Terminal Equipment];

(f) Digital Television Services has the same meaning as in the Advanced Television Standards Regulations 1996;

(g) “Essential Component” means the smart card or other technological component in electronic or tangible form, which is necessary for the reception of authorisation signals and thus to enable consumers to access and use Other Telecommunication Services, in or upon which is mapped the consumer’s viewing entitlements, for insertion or incorporation into or other interoperation with the decoder;

(h) “Message” means anything falling within para-graphs (a) to (d) of section 4(1) of the Act.

(i) “Terminal Equipment” means telecommunication apparatus which is connected directly or indirectly to another telecommunication system by means of which telecommunication services are provided to the public and which is used for the transmission, reception or storage of Messages.

(j) Any word or expression used in this Licence shall, unless the context otherwise requires, have the same meaning as it has in the Act. The Interpretation Act 1978 shall apply for the purposes of interpreting this Licence as if it were an Act of Parliament. For the purposes of interpreting this Licence, headings and titles shall be disregarded.

6 For the purposes of this Licence references to “the Applicable Systems” are references to all or any of the systems run by the Licensee under this Licence unless the context otherwise requires.

SCHEDULE 1: CONDITIONS INCLUDED UNDER SECTION 7 OF THE 1984 ACT

PART 1: DEFINITIONS, INTERPRETATION AND APPLICATION

1 In this Schedule unless the context otherwise requires – “Appeal Period” means:

(a) where the Licensee appeals against neither conviction nor sentence, the period within which such an appeal might have been brought; or

(b) where the Licensee appeals against conviction or sentence or both,

(c) the period ending on the date on which such Appeal is finally disposed of,

and in sub-paragraph (b) above. “Appeal” includes appeal and application for leave to appeal or further appeal.

Associated Person means any member of the Licensee’s Group or a person with a Participating Interest in a member of the Licensee’s Group or in whom a member of the Licensee’s Group has a Participating Interest;

Conditional Access System means a telecommunication system by means of which access to Digital Television Services may be controlled so that only those viewers who are authorised to receive such services do so;

Essential Interface means an interface at which, in the opinion of the Director, it is essential that interoperability between the Applicable Systems and the Third Party’s Access Control System, Conditional Access System or Transmission System, as the case may be, is available;

Group means a parent undertaking and its subsidiary undertaking or undertakings within the meaning of section 258 of the Companies Act 1985 as substituted by section 21 of the Companies Act 1989; and “Licensee’s Group” means a group in respect of which the Licensee is either a parent undertaking or a subsidiary undertaking;

Major Office means the Licensee’s registered office and such other offices as the Director, having consulted the Licensee, may direct;

Participating Interest has the same meaning as in Section 260 of the Companies Act 1985 as amended by Section 22 of the Companies Act 1989;

Significant Market Power shall be interpreted in accordance with Article 4 of the Directive of the European Parliament and the Council on interconnection in telecommunications with regard to ensuring universal service and interoperability through application of the principles of open network provision (ONP) (97/##/EC);

Technical Services Business means the business of providing Technical Services and includes the running of such parts of the Applicable Systems as are used for the provision of those services, and the installation, maintenance, adjustment, repair, alteration, moving, removal, or replacement of such Systems and any apparatus comprised therein;

Third Party means a person who provides Other Telecommunication Services;

Transmission System means a telecommunication system which transmits Messages comprising programmes, channels or other information to consumers and any point to point telecommunication system connected thereto (including, without prejudice to the generality of the foregoing, a studio or outside broadcast link) which conveys such Messages to the point of reception by consumers, and includes a multiplex and a cable system but does not include any Access Control System;

Transmission System Operator means a person operating a Transmission System on behalf of a Third Party.

2 Notwithstanding section 4(6) of the Act, any requirement imposed by or under the Conditions of this Licence (howsoever expressed) to connect or keep connected to any of the Applicable Systems any other telecommunication system or to take any action to ensure the interconnection or interoperability between such systems or to do any other thing which necessarily involves such interconnection or interoperability shall, unless the context otherwise requires, be taken as a requirement which may be satisfied by a connection to the Applicable System of that other system by means of a third telecommunication system to which the Licensee is authorised to connect the Applicable System by paragraph 2 of Schedule 3.

3 Any reference in any Condition in this Schedule, howsoever expressed, to the Director notifying the Licensee about any matter, affording the Licensee an opportunity to make representations, taking representations by the Licensee into account, or explaining, or giving reasons for, any matter to the Licensee, shall be without prejudice to any obligation of due process or similar obligation which the Director is or may be under by virtue of any rule or principle of law or otherwise.

4 Expressions cognate with those referred to in this Part shall be construed accordingly.

PART 2: CONDITIONS

Condition 1

SERVICE OBLIGATION FOR OPERATORS OF ACCESS CONTROL SERVICES

1.1 This Condition applies where the Director (either of his own motion or following representation from any person) has determined that the licensee has Significant Market Power in the provision of Access Control Services or in a related market.

1.2 Where a Third Party requires any Technical Service in respect of decoders or software administered by the Licensee, the Licensee shall offer that Service to that person on fair reasonable and non-discriminatory terms.

1.3 Where the Licensee provides any Access Control Service in accordance with the offer referred to in paragraph 1.2 above, the Licensee shall co-operate with the Third Party and do whatever is necessary and reasonable to ensure the interconnection or interoperability of the Applicable System and associated apparatus to enable theAccess Control Services to be provided and maintained.

Condition 2

TRANSCONTROL REQUIREMENTS IMPOSED ON THE OPERATORS OF ACCESS CONTROL SERVICES

2.1 Where a Licensee, in accordance with any obligation imposed by or under this Licence, provides to a Third Party any Technical Service in relation to the provision of Other Telecommuni-cation Services and that Third Party’s Other Telecommunication Services are provided to a cable operator for the purpose of retransmission the Licensee shall cooperate with the cable operator, including providing it with any necessary assistance and information, so that the cable operator is able to transcontrol and re-transmit the Other Telecommunication Services cost-effectively using its own Technical Services, without incurring unnecessary or unreasonable expense.

2.2 Nothing in 2.1 above shall prevent the Licensee charging and being paid for the assistance and information so provided.

FAIR TRADING

3.1 The Licensee shall not do any thing, whether by act or omission, which has or is intended to have or is likely to have the effect of preventing, restricting or distorting competition where such act or omission is done in the course of, as a result of or in connection with, providing Access Control Services or running an Applicable System.

For the purpose of this Condition such an act or omission will take the form of:-

(a) any abuse by the Licensee, either alone or with other undertakings, of a dominant position within the United Kingdom or a substantial part of it. Such abuse may, in particular, consist in:

• directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;

• limiting production, markets or technical development to the prejudice of consumers;

• applying dissimilar conditions to equivalent transactions with other parties, thereby placing them at a competitive disadvantage; or

• making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts; or

(b) the making (including the implementation) of any agreement, the compliance with any decision of any association of undertakings or the carrying on of any concerted practice with any other undertaking which has the object or effect of preventing, restricting or distorting competition within the United Kingdom.

3.2

(a) An act or omission of a kind described in paragraph 3.1 is not prohibited where:

(i) it has or would have no appreciable effect on competition; or

(ii) it has or would have no effect on competition between persons engaged in commercial activities connected with telecommunications and it would have no effect on users of telecommunication services.

(b) An act or omission of a kind described in paragraph 3.1(b) is not prohibited by this Condition if the agreement, decision or concerted practice contributes to improving the provision of any goods or services or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit and does not

(i) impose on the parties concerned restrictions which are not indispensable to attaining those objectives; and

(ii) afford such parties the possibility of eliminating competition in respect of a substantial part of the goods or services in question.

(c) This Condition shall not apply to any provision of an agreement insofar as it is a provision by virtue of which the Restrictive Trade Practices Act 1976 applies to that agreement.

(d) This Condition shall not apply to a merger situation qualifying for investigation under the Fair Trading Act 1973.

3.3 Whether any act or omission is prohibited by this Condition shall be determined:-

(a) with a view to securing that there is no inconsistency with the general principles having application to similar questions of directly applicable competition law, in particular those laid down by the Court of Justice of the European Communities on the scope of the competition rules contained in the EC Treaty and block exemptions adopted by the European Commission under Article 85(3); and

(b) having regard to –

(i) any decision taken, or notice issued, by the European Commission in applying the competition rules contained in the EC Treaty and any relevant pronouncement of the Director General of Fair Trading or report of the Monopolies and Mergers Commission; and

(ii) any guidelines on the application of this Condition issued from time to time by the Director.

3.4

(a) If it appears to the Director that an act or omission of the licensee is or was prohibited by this Condition he may make an initial determination to that effect (an “Initial Determination”).

(b) Before making an Initial Determination the Director shall give a notice to the Licensee:

(i) stating that he is investigating a possible contravention of this Condition;

(ii) setting out the reasons why it appears to him that this Condition may be being or have been, breached, including any matters of fact or law which he thinks relevant requesting within a reasonable period laid down by the Director such further information as he may require from the Licensee in order to complete his Determination; and

(iii) where appropriate, setting out the steps he believes the Licensee would have to take in order to remedy the alleged breach.

3.5

(a) Within 28 days of the Director –

(i) making an Initial Determination;

(ii) making a provisional order; or

(iii) giving notice of his proposal to make a final order under section 17(1) of the Act in respect of the contravention in question, the Licensee may notify the Director that it –

(aa) requires him to make a final determination (a ”Final Determination”) of the matter;

(bb) requires that in making the Final Determination he take into account a report of a body of experts appointed by him to consider the matter (”the Advisory Body”).

(b) Before making a Final Determination the Director shall –

(i) give a notice to the Licensee setting out the matters referred to in paragraph 3.4(b) and

(ii) if the Licensee has given notice under sub-paragraph (a)(aa) above, take into account the report of the Advisory Body on the matter.

(c) The Director shall then determine whether he is satisfied that the act or mission in respect of which the Initial Determination was made is or was prohibited by this Condition.

3.6

(a) Before making his Initial Determination or Final Determination the Director shall give the Licensee, and any other person whom he considers it appropriate to consult, such period within which to make representations (both orally and in writing) in response to the notice as he considers reasonable in all the circumstances.

(b) The Director shall notify the Licensee and any other person whom he considers it appropriate to notify of every Initial Determination and Final Determination made by him and of his reasons for making it; and he shall, if so requested by the Licensee, publish any report of the Advisory Body on the matter, subject to such exclusions as he may consider it appropriate to make of matters of a kind mentioned in section 48(2) of the Act.

3.7 The Director shall publish a description of his office’s procedures for the enforcement of this Condition including the steps taken to ensure that he has access to appropriate independent advice in enforcing this Condition.

3.8 This Condition shall not limit or affect in any way the Licensee’s obligations arising under any other Condition of this Licence nor limit the Director’s powers of enforcement under sections 16 to 18 of the Act.

3.9 On the coming into force of any Act or subordinate legislation which –

(a) contains a prohibition enforceable by the Director, or gives to the Director the power to enforce an existing prohibition, of any behaviour prohibited under paragraph 3.1;

(b) gives to third parties in respect of a breach of that prohibition at least the rights they have under section 18 of the Act in respect of a breach of a provisional or final order; and

(c) permits the imposition on the Licensee of monetary penalties in respect of the breach of that prohibition,this Condition shall cease to apply to the behaviour prohibited by, or the prohibition enforceable by, such Act or subordinate legislation.

[3.10 The prohibition in paragraph 3.1(b) shall not apply to acts or omissions done before 15 January 1998 in pursuance of agreements entered into before 15 October 1997].

Condition 4

PROHIBITION OF LINKED SALES

4.1 The Licensee shall not make the provision to any person of any Access Control Service in accordance with an obligation imposed by or under this Licence conditional upon the acquisition by any person of:

(a) any other service (whether an Access Control Service or otherwise) which is not part of the particular Access Control Service requested save where that Service cannot be provided without the provision of that other service; or

(b) any computer programme, telecommunication apparatus or telecommunication system, save where the Access Control Service requested cannot be provided otherwise.

4.2 Except where the Director has agreed otherwise, the Licensee shall not provide an Access Control Service in accordance with any obligation imposed by or under this Licence together with any of the things described in 4.1(a) or 4.1(b) above in a manner, or for charges, or on terms, or conditions more favourable than would have been available for providing the Access Control Service requested without that other thing.

4.3 Notwithstanding paragraphs 4.1 and 4.2 the Licensee may:

(a) where it supplies as part of the same transaction or interconnected series of transactions two or more items of apparatus for the provision of Access Control Services for connection to any of the Applicable Systems, offer quantity discounts or more favourable terms and conditions in respect of quantity in relation to such apparatus which it so supplies whether those items of apparatus are of the same or different descriptions;

(b) where the Director consents, impose such conditions as are incidental to the provision of the Access Control Service or the supply of the apparatus requested;

(c) where it provides by means of or in relation to any of the Applicable Systems and as part of the same transaction or an interconnected series of transactions, two or more Access Control Services or other telecommunication services (including Technical Services) which are of the same description or which are so related as to permit economies of scope when they are provided together, offer such quantity discounts or such more favourable terms and conditions in respect of quantity for those services as have been published in accordance with Condition 7.

Condition 5

ESSENTIAL INTERFACES

5.1 This Condition applies where a Licensee provides to a Third Party in accordance with any obligation imposed by or under this Licence any Access Control Service.

5.2 The Director may, having first notified the Licensee of his proposal, affording the Licensee adequate time in which to make representations, specify an Essential Interface.

5.3

(a) Where in pursuance of paragraph 5.2 the Director specifies an interface as an Essential Interface, and the Licensee thereafter makes that interface available to the Third Party in relation to the Licensee’s Applicable Systems, it shall do so in such a manner as it considers appropriate, but shall ensure such availability is in compliance with the Relevant Standard if the Third Party so requires.

(b) Relevant Standard means:

(i) an appropriate European or other international standard; or

(ii) in the absence of such a standard, any other standard specified by the Director after notifying the Licensee of his proposal and allowing the Licensee adequate time in which to make representations, provided that the Director shall not specify a standard if an appropriate European or other international standard is expected to be promulgated within a reasonable time, including, by way of example, if the European Telecommunications Standards Institute have published a work programme for the development of such a standard; to the extent that such a standard is necessary to ensure interoperability.

5.4

(a) Where in pursuance of paragraph 5.3(b)(ii) the Director specifies a standard as a Relevant Standard, he shall include in that Standard a technical specification. The Director shall use all reasonable endeavours to obtain the agreement of the Licensee and other relevant licensees to a technical specification applicable to the Standard, being a specification defined by reference to:

(i) an appropriate European or other international specification; or in the absence of such a specification, a specification defined

(ii) by reference to any other standard having currency within the Community at the time.

(b) Where after a reasonable time the Director has been unable to secure the agreement of the Licensee and other relevant licensees to a technical specification, the Director shall adopt for inclusion in the Relevant Standard an appropriate technical specification selected by him which has been promulgated by a recognised standards body, including, by way of example, the European Telecommunications Standards Institute, or the British Standards Institution, or other such body as is recognised by the Director as representative of all relevant telecommunications interests.

(c) In any event the Director shall specify a Relevant Standard in pursuance of paragraph 5.3(b)(ii) only if the owners of the relevant intellectual property rights have agreed to grant any necessary licences in respect thereof to the Licensee on reasonable terms.

(d) For the avoidance of doubt this Condition shall not: without prejudice to paragraph 5.4, prevent the Licensee using such interfaces as it considers appropriate in relation to the Applicable Systems; or

(e) where it makes available to the Third Party an interface which the Director has specified as an Essential Interface, require the Licensee to comply with the Relevant Standard if the Third Party does not require it to do so.

5.6 When implementing an Essential Interface, the Licensee shall not be obliged to conform with the Relevant Standard:

(a) if to do so would necessitate the Licensee:

(i) acquiring apparatus, software or other goods or supplies of any kind, or implementing any operation, incompatible with, as the case may be, apparatus, software or such other goods or supplies already at the time in use, in connection with any of the Applicable Systems, or, in the case of an operation, incompatible with any other operation being carried out at the time in connection therewith; or

(ii) incurring any cost, or having to resolve technical difficulties, disproportionate to the benefits to be gained from the implementation of the Relevant Standard;

(iii) provided that the Licensee shall take reasonable steps to incorporate the relevant Standard in its plans for System development, with a view to implementation of that Standard in connection with the Applicable Systems, but without the Licensee incurring any incremental expenditure disproportionate to the benefits to be gained from the implementation of the Relevant Standard which, but for the implementation of the Relevant Standard, would not have been incurred;

(b) if the Relevant Standard is inappropriate for the particular application for any reason, including, without limitation:

(i) that it does not afford the Licensee adequate protection for the security of the Applicable Systems; or

(ii) that its implementation would be liable to cause material impairment in the quality of any telecommunication service provided by means of the Applicable Systems; or

(iii) that it is technically inadequate in the light of technical developments which have taken place since it was originally created;

(iv) if the Essential Interface concerned is of a genuinely innovative nature and accordingly the use in connection with it of the Relevant Standard would not be appropriate;

(v) if compliance with the Relevant Standard would involve the infringement by the Licensee of any intellectual property right vested in any person; or if the Director so agrees.

5.7 Where paragraph 5.6(b) or (c) applies the Licensee shall notify the Director thereof, with an explanation why.

Condition 6

PROHIBITION ON UNDUE PREFERENCE OR DISCRIMINATION

6.1 The Licensee shall not (whether in respect of the charges or other terms or conditions applied or otherwise) show undue preference to or exercise undue discrimination against particular persons or persons of any class or description as respects:

(a) the provision of any Access Control Services; or

(b) the connection to any of the Applicable Systems of any other Access Control System, Conditional Access System or Transmission System which is not and is not to be comprised in any of the Applicable Systems,

in accordance with an obligation imposed by or under this licence.

6.2 The Licensee shall be deemed to have shown such undue preference or to have exercised such undue discrimination if it unfairly favours to a material extent