[Ladies and gentlemen etc] Delighted to be here. Very conscious of the history of Oftel speeches to this Conference.
Having been the Deputy DG at Oftel for just 7 weeks, I have hard acts to follow.
But this is not my first experience of telecomms regulation. In 1983 and 1984 I was in DTI as part of the team on the Telecommunications Bill, which became the Telecomms Act, which of course set up Oftel. It is fitting that I now arrive at Oftel – some 14 years later.
I have returned to telecomms by way of regulation of financial services particularly insurance. And, for the last 4 ½ years, Brussels – and I will say more about Brussels later.
As you have heard from previous speakers, we must be forward-looking. I will give you my first impressions of the major regulatory challenges now facing Oftel. I shall also indicate how Oftel intends to respond.
Where are we now?
The world has changed hugely since 1984 when there were only two national fixed PTOs. Though it has taken some time, we are now seeing the emergence of really effective competition in the market for domestic telecomms - in its widest sense. All the ideas are at last coming together.
All these developments make new demands of Oftel as regulator. As technology advances, as new products and services are introduced and as the market place changes, so the regulator must respond and adapt.
I say "adapt" deliberately. Continuity is important.
We want to build on the current approach to regulation, which – I believe I can safely say – is recognised as being of a high standard. In the 13 years since it began, Oftel has established a high reputation among regulators. Even those it regulates have good words for our effectiveness in encouraging and ensuring competition.
But we have no intention of resting on our laurels. We need to continually improve.
You will see continuity in the objectives of regulation. Oftel exists to protect the consumer.
Our task is to ensure the regulatory framework delivers those things important to consumers. This means access to telecommunications services, reliability of service, competitive prices, innovative products and services, quality and choice.
The main way in which we do this is through promoting competition.
Our aim remains competition wherever possible and regulation only where necessary.
But our consumer protection responsibilities, for example, mean that some regulation is necessary. We must protect the needs of all consumers including those who live in remote areas, those on low incomes, and those who cannot use standard apparatus.
We have continuity. But we also have to change and adapt. First, we need to keep the rules under review so that, as sustainable competition is well established we can retire prescriptive rules which have outlived their purpose and rely increasingly on competition law.
Second, we need a sound understanding of developments both technological and economic in the market place. We must ensure the regulatory framework not only protects consumers but also takes account of the need to promote innovation and investment.
Third, the regulator needs to be able to respond quickly and flexibly to new developments. Fourth, we need to work closely with other regulators especially when, under current legislation, our responsibilities overlap.
And fifth, we need to be very aware of the public policy drivers for change and to play our full part in such debates.
The items on this list are not new. And steps have already been taken to address them. Oftel has already acted to pull back from detailed regulation. Retail price controls focus on the bottom 80% of residential customers who account for 25% of BT’s revenues. On network charges Oftel has drawn back from itself setting the charges to ensuring compliance with a framework within which BT sets the charges.
We will continue to examine whether there are further areas where regulation can be eased.
A question often asked is: when will competition be sufficiently well established that it is possible to rely only on general competition law? And perhaps get rid of Oftel altogether?
I don’t think we are at this stage yet. For 2 reasons. First, our regulatory role goes wider than curbing anti-competitive behaviour. As I have already mentioned, our consumer protection role necessitates some regulation for objectives that a competitive market does not deliver.
Second, there remain features of the telecomms market which continue to require specific regulatory action. These features have been well rehearsed. I am talking about the familiar concepts of barriers to entry, bottlenecks, vertical integration and network externalities.
So, for the foreseeable future I believe Oftel must continue its twin track approach: on the first track, being pro-active in promoting competition and acting decisively to stop anti-competitive behaviour. The Competition Bill now before Parliament will give us enhanced powers in enforcement. We will not hesitate to use them.
And on the second track using our regulatory powers to set specific rules where competition is not effective in delivering our objectives.
Next is better co-operation with other regulators particularly the Office of Fair Trading and the Independent Television Commission. This has already been put in hand and continues to deepen.
Now Oftel itself. We are currently reorganising ourselves to meet better these new challenges. Instead of organising ourselves by subject matter – divisions which can become outdated and lead to a compartmentalised approach, we shall focus on our 2 core processes. First, shaping and managing the regulatory framework; and second, ensuring compliance both with licence conditions and competition law. As a result our present 10 branches become 2 new directorates – Regulatory Policy and Compliance – backed up by a Business Support unit.
The objective is a more flexible structure, better able to respond quickly and consistently to new developments. We intend to go "live" with this new organisation early next month. I note that across the Atlantic, the FCC has just announced that it will re-organise itself in a not dissimilar way – but not until next year at the earliest.
The last challenge – awareness of the key public policy drivers for change - is one on which I want to focus for the rest of my speech. This illustrates the role of the regulator in influencing the debate and highlights some key current regulatory issues. I refer to the forthcoming 1999 review by the European Commission of the EU regulatory framework. This review is likely to lead to proposals for legislation some time in 2000. But any new legislation probably won’t take effect until 2003. So we need to focus on issues which will be relevant then, rather than issues which are current now.
One thing is clear. Telecomms regulation cannot any longer be considered only from the national perspective. UK regulation must be seen in the EU context.
I should admit that, back in 1983, those of us in DTI working on the T Act never went to Brussels to discuss our plans. Nor, it is fair to say, did our friends in the Commission show much interest in what we were doing. It is a measure of how far the Single Market has come that this now appears extraordinary.
It is European legislation which sets the framework for our national legislation. What is on the EU agenda is on our agenda.
It is therefore essential that all of us play a full part in the forthcoming debate. Oftel is determined to do so. Indeed Oftel with its unrivalled - at least in the EU - 13 years’ experience of liberalisation has much to offer this debate.
The 1999 Review is ambitious. It will cover all the important regulatory challenges including:
These are fundamental issues, which go to the heart of current regulation. This only underlines the importance of the 1999 Review.
I will highlight 2 items on this agenda.
Access to end users/Local Loop Unbundling
First, infrastructure and services competition. Oftel’s view is that the question is less about a choice between the two and more about how to secure the maximum potential for both network and services competition. A thriving market must have competition at both the network and services level. Nevertheless regulation can affect the balance between these. The complexity of these issues is becoming increasingly apparent. One example is the current debate on Local Loop Unbundling – a subject which seems to be attracting the attention of all.
But it is not just because of the EU debate – important as that is – that Oftel needs to consider whether LLU is appropriate for the UK. We need to do so because xDSL technology has now put interactive services within reach of a mass market which is currently served by copper loops. At first sight, this looks like great news for customers.
But – as often – a second and maybe third look is needed at the question
of whether LLU is an appropriate way to promote these new services in the UK. Or whether there are other mechanisms which will achieve the objective more effectively.
The UK is in a different position from most of our EU partners. For those member states who see no real prospect of competition in the local loop, LLU is key to opening up a bottleneck. But LLU is a more complex issue for the UK. High levels of investment in alternative network infrastructure have taken place here. We have extensive competition in the local loop including the residential sector. And this competition is growing all the time.
So we need to consider this issue very carefully and in depth. We need to look at the possible benefits to consumers and the possible effect on existing and planned investment. The impact of LLU will be crucially dependent on the terms, conditions and charges on which it were made available. The charges in particular.
We need to analyse whether a balanced and fair framework can be put together which delivers consumer benefits without undermining network competition. Or whether those consumer benefits can be delivered in a more effective way by other means.
This approach underlines our regulatory philosophy: we want to be responsive to new developments - to approach them in an open minded way and to consider carefully what potential they have for delivering benefits to customers - whilst giving due weight to the market’s need for continuity.
Oftel continues to be committed to long term, sustainable competition, not short-term regulatory fixes adopted in isolation from the broader picture. Oftel is keenly aware, as it always has been, of the need for the regulatory framework to provide the right climate for investment and innovation. We need to consider LLU beside what we already have to see if there is a fit. We need to correlate our approach with that of our partners in Europe.
These are difficult issues. We don’t yet have all the answers. Oftel wants to have a genuine dialogue with UK industry and consumers about LLU, in particular whether it will bring advantages in delivery of broadband services. In a new consultation document, we will set out the questions which we believe need to be answered. I look forward to hearing your views.
Consumer Protection Issues
Consumer protection is also key in the context of the EU Review. The purpose of a Regulator is to protect the interests of consumers. If what we don’t achieve that aim, then we might as well not be here. And we need to remember that the EC Treaty contains a clear objective of ensuring a high level of consumer protection
Protecting consumers’ interests can be delivered in many ways. One of the less positive aspects of some of the existing European legislation – though I hasten to add that I am in general very positive about most of it - is that it can be very prescriptive. It contains rules which, while suitable for newly liberalised markets with little by way of competition, are unnecessary in a more mature and more competitive market.
I hope that the EC review will give us an opportunity to remove or relax some of the more intrusive rules. We can only argue for this if we can demonstrate that the interests of consumers are better met through working with operators in a constant process of dialogue and voluntary co-operation. In particular
It will undoubtedly assist our powers of persuasion in other EU capitals if the industry’s behaviour proves beyond reasonable doubt that you don’t always need detailed intrusive regulation to get the best deal for consumers.
Industry Input to EU Review
I’m sure that I don’t need to convince any of you of the importance of the EU 1999 Review. And if by any chance some of you weren’t fully seized of its importance I hope you are now. How you can contribute?
We are talking about a process which is likely to lead to proposals for new legislation in 2000. That legislation is not likely to be in force in the member states before 2003. We need to be forward-looking.
It is vitally important that both Oftel and DTI get as much input as possible from all of those who are affected: from you the industry; from consumers; and from the relevant regulatory bodies. You should make your views known in the UK and to the European Commission and European Parliament. I hope that those of you who operate in other European markets will be talking to the governments, industry and regulators in other European capitals too. This review gives all of us the chance to influence the future regulation. Industry must use this opportunity to the full.
Oftel intends to play as large a part in the Review as possible from our standpoint as expert and experienced regulator.
We have already started our thinking and are in contact with key players. Early next year we will be holding an industry workshop to discuss the European challenges ahead. I hope many of you will participate. The 1999 Review is an opportunity for all to contribute. It is important that you do so.
So, in summary, Oftel wants to achieve a regulatory framework that:
Who in this room would not agree with these priorities?
I look forward to working with you and our partners in the rest of the EU to achieve this.