Check against delivery

Introduction

• Here to talk re UK telecommunications market and how I see its future and future of Oftel in an exciting new era for telecommunications
• Also want to talk about the effects of convergence

New legislation for a new and converging environment

• Key issues are facing the Government and telecoms regulators - due to the EU's 99 Review of telecoms legislation and due to the effects of convergence.
• Quoting from latest Commission document on 99 Telecommunications Review 'Europe needs a regulatory framework that is open, flexible and adaptable while giving sufficient legal certainty' - we couldn't agree more so let's try to ensure this is what we get
• Convergence already happening in the economic sense. Increasingly communications market becoming globally focussed and data based. There are market players and alliances within and across the traditional boundaries of telecommunications, broadcasting and IT
• Need to develop coherent approach to economic regulation in light of convergence both within existing legislation as far as possible and when formulating new legislation

Evolution of regulation in the UK

• Oftel in business of managing the transition towards a market which is fully competitive or as fully compeititve as possible
• For example, once we used to make determinations of BT's interconnection rates. Was necessary at the time. But now, with compeititon we don't need to intervene so extensively and are able to use price cap regulation. Good for everyone. Consumers get more choice through more competition. Price cap retains downward pressure on prices. Less detailed regulation by Oftel gives more flexiblity for BT to innovate.
• Believe market should always be free to operate without intervention where it is delivering the best results for consumers. But we still need take care to ensure that the benefits of competition are shared fairly amongst all users and not just the lucky few
• We also recognise that new services can lead to new competition problems many of which may be unpredictable - regulatory regime must be flexible enough to allow for intervention to free up the markets involved
• Oftel reorganisation in order to meet challenge of fast changing competitive environment and to be better placed to anticipate future developments in the market. Three Directorates 1/ Regulatory Policy 2/ Compliance and 3/ Business Support. Smaller and more focussed senior management; multi-disciplinary teams; more streamlined structure overall. Resulting in better communication, better policy making and management, and faster case handling.

A few facts and figures

• Since price control started in August 84, effective price of telephone services fallen by approx 50% in real terms. Cost of phoning most European countries has fallen by 80%, in real terms.
• About 300 licencees; many hundreds of service providers
• Cable operators pass roughly 50% of all UK households; will reach 70% of the population by 2002
• BT's market share of telecoms markets Quarter 4 1997/98: International calls: 52%; National calls: 74%; Local calls: 84%

1998 Competition Act

• Current UK legislation competition powers not as effective as need to be
• Competition Act gives Oftel competition powers concurrently with OFT, including power to fine operators up to 10% of their turnover and to make 'dawn raids'
• Means for first time have real powers to deal with abuses of dominant positions and anti-competitive agreements. Prohibitions on such behaviour come into force from March next year.
• This gives Oftel the assurance that reduction in detailed regulation will not in general give rise to competitive abuses to the detriment of consulers - there will be very considerable disincentives for operats to misbehave and we know that if we do catch a wayward operator we will have the power to deal with it effectively and speedily

New challenges

• NRAs should put in place the best regulatory regime for consumers in their respective countries within a broad European framework of principles.
• Markets will develop – sometimes rapidly – we need a regulatory framework flexible enough to respond to those developments
• Should apply the overriding principle of "Forbearance" - empowers (and in some circumstances requires) the regulator to forbear from applying rules where the underlying regulatory objectives are being met in some other way. This implies that clear and transparent regulatory objectives have been set – that hasn’t always been done in the past

• Need a coherent regulatory regime for dealing with competition problems. Coherence within telecoms sector certainly – but also coherence between telecoms regulators, broadcasting regulators and competition authorities. (NB I’m only talking about competition issues here – not arguing for a single regulatory approach for regulation of content)
• As competition grows and deepens, can rely increasingly on competition law. But likely to need sectoral rules to deal with certain competition issues for some time. We’ve set out our initial ideas here in our recent submission to the EC on convergence
• And of course – no-one should think that growing competition will solve all the problems of social access and consumer protection. We will continue to need rules here too – although our preference is for voluntary undertakings and industry codes of practice to the maximum extent.

What sectoral rules?

• Current European regulation based around idea only ex-monopolist cause competition problems. But not true as new entrants can in time develop market power. (e.g. need to regulate mobile call termination rates)

• Already said that we should be relying increasingly on competition law to sort out competition problems. In those cases where that won’t work, we should generally use threshold conditions - so that the rules apply only to those with real market power to distort or restrict competition.

• Rules should not be based on technologies as such rules could be out of date as soon as they came into force
• Neither are "sunset clauses" useful. Such conditions, which expire automatically on a certain date, irrespective of the state of the market are inappropriate.

• There is a continuing need to ensure that a basic level of telecommunications services are available to all - universal service. In a liberalised, but essential, service like telecoms arrangements have to be in place to ensure that rural consumers, low spending consumers, low income consumers and those with special needs are able to get access to the network.

Need to keep a constant eye on the universal service obligation to ensure it remains appropriate. The EU review will be looking at this over the next few years. We in the UK are reviewing our own arrangements this year.

Should not be rushed into any decision about raising level of universal service provision. Should first ask ourselves what underlying policy objectives are and whether or not "universal service" is the most will be an interesting debate.

• Has been criticism that some consumer protection provisions in existing Directives are unduly burdensome on new entrants – not thought through. Fair cop – probably occurred because there was insufficient focus on the consumer angle right from the planning stage. Need to get this right for the 99 Review. Strong consumer protection absolutely essential – but we don’t necessarily need heavy-handed regulation to achieve it. Regulator doesn't need necessarily to impose data publication requirements on telcos - for example we have encouraged the fixed link industry to publish comparrable quality of service measures on a voluntary , industry funded basis. It needs to be consumer focused and accessible - but not laying down targets for the industry to meet.

• Need strong cooperation between NRAs to deal with international issues - IRG and its sub-groups the mechanism for this. I think IRG has got off to a good start. But we need to find ways of convincing interested parties that the NRAs can and will co-operate so that similar problems get dealt with similarly in all parts of the Community. Otherwise there is bound to be pressure for a Euro-regulator – even though this would be a second-best solution.

Regulatory changes planned for 1999

Will be consulting on Oftel's work programme for 1999/2000. A few areas will feature prominently however:

• the EU 1999 Review.
• Review of Price Control. Current price control expires in 2001. Starting work this year to decide whether there needs to be a successor control and if so what form it should take;
• Mobile telecomms. Will shortly issue consultation documents on the whole state of competition in the mobile market. Also Oftel contributing to Government's work towards the auction of third generation mobile licences;
• Access to Bandwidth. Late last year issued a consultation on issues concerning provision to consumers of new services such as highspeed Internet access, video on demand etc. need to consider way forward.
• Coherent economic regulation across convergent sectors – working very closely with other UK bodies to get this right
• Competition Act 1998. 1999 vital year in preparing for new powers;
• USO review
• customer info - encouraging greater provision to help customers exercise choice and rights

Conclusion

• Oftel evolving as the market does
• We recognise our limitations – dealing with huge and fast moving markets with a rapidly increasing number of competitors and more and more complex services.
• Must avoid stifling the market because that would limit benefits to consumers and as well as being economically very detrimental.
• Cannot get too involved in detailed regulation as competition develops therefore. Have to target our resources very carefully, be flexible and where we have to act, do this quickly and effectively.