Check against delivery

Introduction

First of all I’d like to echo the welcome from David [Love]. Like DTI, Oftel considers that the 1999 Review is one of the most important issues for telecommunications – indeed communications – regulation in the UK. So I am very happy indeed to see such an audience here today. Also very grateful to Jean-Eric to find the time to join us and give us an update on current thinking of DGXIII.

A few words on why this Review is so important. Because its outcome – even if a few years away – will be a framework for regulation in all the EU member states. Thus the Review has the potential to have a key influence both on the way the communications market develops and the benefits for consumers. The Review will also affect the rules that apply to those providing communications services – which of course also impacts on manufacturers of the equipment used.

So all in the industry – users, operators, service providers and manufacturers – have an interest. More than that, the legislators and regulators need your help. We need your input to help us understand how the market and consumer demands will develop. Unless we have this understanding we reduce the prospect of achieving the optimal regulation. But it’s not just us in the UK who need your input. I am sure the Commission too will appreciate your views and experiences – all the more so coming from the European market with the longest experience of liberalisation.

I want to focus today on explaining Oftel’s initial views of the key issues for the Review. Then I’ll say a few words about our activities over the next few months and how you can input your thoughts to us.

In your briefing pack is a copy of Oftel’s "overview" paper prepared last year as a response to the initial Commission paper. Today I’d like to expand on some key points and to set out Oftel’s overall approach. I should stress these are Oftel’s initial views. We still have more thinking to do as the debate unfolds. But it is important that we have a debate – so if you think we have gone off the rails, please tell us!

Overall Aim

First we need to be clear about the overall aim of EU regulation. Put simply it is to achieve a single market in communications while ensuring a high level of consumer protection. It is useful to keep this aim in mind. 

Objectives of the Revised Regulatory Framework

We need to translate the overall aim into objectives for the new framework.

Oftel’s preliminary thinking envisages 3 main objectives. The primary objective is to obtain the best deal for the consumer, in terms of value for money, quality of service and choice. This is of course Oftel language. Others may express it differently– but the meaning is clear. The next 2 high level objectives are concerned with delivery. We believe that effective competition is the best way to the primary objective. So it should be clearly stated. But there may be circumstances where competition is not yet effective or where it doesn’t deliver all that is desirable – market failures if you like. So the third objective must be adequate and appropriate protection of the consumer and a guarantee of access to appropriate communications services for social reasons.

These are high-level objectives. What they mean in terms of detailed regulation needs further work. However as a start Oftel would suggest they are underpinned by some principles of regulation – the how, rather than the why.

Principles of Regulation

The first principle is: only regulate where necessary. The regulator is not there simply to perpetuate its own existence; regulators should only be active where there is a good reason – and I’d say more shortly about when we think there is good reason. But when the regulator is imposing sectoral rules rather than applying general horizontal law, those rules need to be consistent and coherent with the general law, in terms both of how they are formulated and of how they are implemented.

Second, technologically neutral. It is a truism to say that the communications technology is fast –moving. And remember we are designing a framework that will start in 2003 and we hope will last for a good few years thereafter. So the regulatory framework must not be tied to a specific technology or means of delivering a service. There should be a generic approach to regulation ie the principles and rules should be capable of being applied even if the technology changes – as it will.

Third, and related, the regulation should be flexible and adaptable. Not just to embrace technological developments but also differences in the development of competition in the different markets. A single set of rules applied to all markets could lead to over-regulation of those markets that are competitive. And over-regulation would result in under-investment and under-innovation. But in markets where there is less competition there could be under-regulation in markets resulting in a lack of competition which would delay innovation and benefits for consumers

So, in Oftel’s view, we need a flexible framework which NRAs - yes, not surprisingly we do think they should exist – can apply according to local market conditions. But this is fully consistent with the idea of a common European framework for economic regulation. We strongly support the desirability – indeed the need – for a consistent framework at European level to set the overall structure in which national regulators will operate. We don’t think the overall structure should set out every last detail!

How we achieve this flexibility within a consistent EU framework needs further work. But Oftel supports Commission thinking on the use of threshold conditions, where obligations or rules are imposed on market players with an appropriate degree of market power. We already have something similar in existing Directives through the Significant Market Power trigger. But we think this can be improved. Another idea worth pursuing is the North American principle of forbearance. Here, the regulator may decline to apply a particular rule if the objective can be achieved as well without it, and must it disapply it if the objective is better reached without its imposition.

In many ways this more flexible approach makes greater demands of both the Commission and the national regulators. The Commission’s role as competition authority is likely to become even more important as competition is introduced and established. A flexible regime will also increase the Commission’s role in supervising the effective and consistent implementation and application of the Community framework.

For the regulators, the quid pro quo for more flexibility is a greater responsibility for getting it right, and greater responsibility for any market failures. There will also need to be greater co-operation both with the Commission and other regulators to encourage the development of common approach to regulatory issues across the regulators of the Community. Of course work on this common regulatory culture has already started through our work in the Independent Regulators’ Group.

All this assumes the continued existence of national regulators rather than a European regulator as some have suggested. This is because, we believe, only a regulator based at the national level can be close enough to the market and the players to have an accurate understanding and appreciation of the true state of consumer choice and competition, and therefore of the most appropriate regulatory action – or indeed inaction – for the circumstances.

So what we propose is flexibility within a harmonised framework. This is fully consistent with the principle of subsidiarity – that is action at EU level only where the objective cannot be achieved by the member States and can be better achieved by the Community. What we need to debate in coming moths is precisely what should be harmonised at EU level and what can be left to member states. But we are clear that, as with the existing directives, some flexibility is need at member state level. Otherwise we run the risk of sub-optimal results. If everyone is restricted to the pace of the slowest, which means less is delivered for consumers through competition. If there is too little harmonisation, the single market will suffer.

A further principle for the regulation of the communications market is that the regulator must be securely independent both from organisations providing services and day to day political pressures. And the regulator must operate via transparent and accountable procedures.

The final principle I’d like to place on the table, is definitely not the least and is linked to the first. It is the need to rely as much as possible on general horizontal EC law, such as that on competition or on consumer protection, for the economic aspects of regulation. Detailed sectoral rules should only be imposed solely where necessary and justified and I’ll now expand briefly on when we think this will be the case.

So I’ve set out a number of principles that I think need to underlie the objectives:

• Don’t regulate unnecessarily, and if you do, be consistent with the general law;
• Be neutral as to choice of technology;
• Have a flexible, adaptable framework;
• Have national regulators to implement the framework on the ground, with greater co-operation between them;
• Have independent regulators, using transparent and accountable procedures;
• Have coherence and consistency across all markets;
• And rely on general law where possible, with sectoral rules only if justified and necessary.

Justification of Sectoral Rules

Where do we think those sectoral rules will be justified? Put another way, what are the areas where the circumstances of the communications sector means that special rules are likely to be required? For the foreseeable future, we believe they will be needed to address such issues as universal service, interoperability and aspects of consumer protection. In addition the need for some sectoral rules to promote and underpin competition will remain – in other words to achieve effective competition it will probably not be sufficient to rely on general competition law. This is an important area. We are developing our thinking but this slide [PRESS] illustrates are where we think specific rules are likely to be appropriate to deal with restrictions or distortions of competition. where:

• operators with a degree of market power have incentives to seek commercial advantage by refusal to interconnect with other operators or grant access to service providers on reasonable terms;
• there are network externalities such as network access, interoperability (including numbering and addressing) and call termination; or
• a supplier has control of "bottleneck" services or products, thereby preventing or restricting service providers from competing for customers or preventing or restricting end-users from accessing the service.

Consumer Protection and Universal Service

I’d now like to return to the 2 other areas where we believe sectoral rules will continue to be necessary - consumer protection and universal service about which I am sure that Linda Lennard and Mark Purdy will talk more later.

First, consumer protection. Oftel believes that some consumer protection rules are still necessary. The key is getting the right balance. Ultimately competition is we believe the best way to promote consumer interests. But equally we need to ensure a high standard of consumer protection. We need to ensure consumers have sufficient information to enable them to exercise choice. Consumers need rights to redress – and also need to be aware of the existence of these rights. And we need to protect the interests of the most vulnerable and disadvantaged to ensure that all benefit.

So it is important to look at consumer protection as a horizontal issue in the Review. Any rules must be a coherent part of the whole framework - and of course coherent with existing general consumer protection law.

Second, universal service. I’m sure this question will be central in the Review debate. All Governments want to ensure that the Information Society benefits all. The success of universal service policy has often led to calls that it should be extended. The question for the Review is whether or not the universal service model is an appropriate policy tool for delivering greater access to advanced telecoms services. Why shouldn’t the principles that worked so well for basic telephony be used to ensure that everybody could take advantage of the information society?

These are important questions that merit careful analysis. We need to be clear about the objective what we want to achieve. And is access to telecoms networks the solution or are their greater barriers to the Information Society posed by, for example, cost and complexity of equipment? And even if we are talking about telecoms networks, are we talking about simply access or are we also talking about price? And what level of service is involved? Can the regulator really predict what might become available in future? At the moment, I don’t have the answers. We need an informed debate. And Oftel intends to consult shortly on the current Universal Service obligation in the UK. This will also help focus our input to the 1999 Review.

I’ve now spent quite a bit of time talking about our view of the 1999 Review. I’ll now describe some of our activities over the next few months.

DTI and Oftel Review activities in 1999

There are 3 main strands, all closely linked. First, we are fully engaged in discussions with the Commission, discussing the issues Jean-Eric and I have both mentioned this morning. We also intend to make an input to the various consultants who have been appointed by the Commission to carry out studies that will feed into the Review.

Second, we are also actively promoting a dialogue on the Review with our fellow regulators in the UK and in other member states. We will also be looking to build on our existing links with the European Parliament following the elections in June.

Third – and this is where today’s workshop fits in – we want to develop our ideas in close consultation with all the key players in the UK. I hope today’s workshop will make a valuable contribution to this process. If so we are open to the suggestion of holding a follow-up workshop in due course.

We have also established a further mechanism – the 1999 Review Policy Focus Group. This group, set up to advise Oftel and DTI and made up of about a dozen individuals from all aspects of the sector – consumer groups, telecoms operators, service providers, users, broadcasters and IT people – meets once a month to talk informally and in detail about the Review.

How can you input your thoughts to us?

I said right at the start that we very much want your views and thoughts. So how are we going about getting them? I’ve already mentioned the Policy Focus Group. Details of Group members are in your briefing pack and on the Oftel web site so you can contact them. We are also using the various groups and fora that Oftel either facilitates or attends, such as the Public Utilities Access Forum or the Operator Policy Forum. Again, the details of the contact person within Oftel for each of those groups are contained in your briefing pack. Or you can contact Oftel direct. Jim Niblett, who will be chairing the second session after the coffee break, is leading our work on the 1999 Review, and his contact details are also in the pack. And of course you may wish to contact the Commission direct – contact details of DGXIII are also in the pack.

However you choose to make your input to the process of the Review, the key point is that to influence the outcome of the Review most effectively you need to make your points at the right time. If you have views about the "big picture" – the fundamentals of communications legislation – you need to put them across very soon. Waiting until formal legislative proposals are made early next year, or – worse still - until negotiations are complete and it is time for national transposition, will not be at all effective.

Conclusion

I hope that my presentation today has convinced you of the importance of the 1999 Review. I have concentrated on the overarching issues and the framework. There is much more work to be done on the detailed issues. However I hope that along with what Jean-Eric had to say you have been given a taster of the scope of the exercise. I also hope you have been suitably inspired to take as an active part as you can in the whole process.

It only remains for me to thank you for your attention, and to look forward to your questions – and to the help you are going to give us in this area over the next few years. Thank you.