2 November 2001

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Introduction - slide 1

The Competition Act is playing an increasing role in the delivery of Oftel’s regulatory role. It is good to have this opportunity to take stock and reflect on how it has worked.

My talk is very much ‘work in progress’. We have only had the Act’s powers 19 months. While the concept of regulating anti-competitive behaviour was not new to us, details of the processes were – and also to the industry we regulate. It has been a learning process for both the regulator and the regulated. We have been greatly aided and assisted by close working – and joint training –with the Office of Fair Trading (OFT).

Outline of the talk - slide 2

I propose to start with the factual bits. A quick look at the new powers the Act gave us and what use us we have made of them.

Then I want to explore perhaps one of the most interesting and complex areas – how competition law fits with existing sectoral regulation. I want to look at this in two parts: first, how we handle this now. Second, looking ahead to the new sectoral framework under the forthcoming new EC Directives.

Of course the new Directives are not finally agreed between Council and the European Parliament. But the broad shape is pretty clear. So I don’t think I will infringe negotiating privileges of the Council or the European Parliament to talk about it. There are two key things about the new directives that are worth emphasizing today. First, they confirm the continuation of sectoral regulation but second, they bring the two forms of regulation closer together. We welcome this. But it will bring new challenges.

What new powers? - slide 3

The first key point to note is that ‘economic’ regulation in the sense of regulating against anti-competitive behaviour is not new to Oftel. From 1984 there were licence conditions dealing with anti-competitive behaviour. And for several years there was in main licences a condition modelled on articles 81/82 of the EC Treaty.

But the Competition Act did give us new powers of investigation. And powers to fine. Breaches of licence condition at present do not attract fines.

Also new was ‘concurrency’ with OFT and the other regulators with Competition Act powers. Some scepticism has been expressed about this. But I can say categorically that I believe this has not been realised. No turf battles, arrangements worked quickly and smoothly. There has been contact at all levels. It has helped us in other work eg the new EC Directives of which more shortly.

The key benefit of concurrency is to enable joined up regulation. Giving the sectoral regulator concurrent competition law powers avoids any ‘gaps’ or turf battles. It enables a coherent approach to regulation. And, I hope, assists in swifter problem solving. I hope to show today that this is indeed starting to happen.

The Competition Act also imposed new disciplines in terms of market analysis. To the benefit of all our work, both sectoral and Competition Act. The same training is applicable to both, same people work on both. There are benefits in terms of predictability – so this is vital to our stakeholders.

Experience to date - slide 4

We have published three decisions under the Competition Act.

One chapter 1 non-infringement decision on vertical agreements in the telephone equipment market. One non-infringement chapter 2 – BT's Surf Together and one non-infringement of both Chapters 1 and 2 in respect of computer telephony integration. There are a further six cases under investigation. We have had no notifications of Chapter 1 agreements. And no request for guidance.

Some may say this is rather few. Especially when many complaints cite the Competition Act together with possible licence breach. Why? Well a bit of the ‘kitchen sink’ about this if I may say so. But there is also a serious point as well. It is rarely clear at the time a complaint is made and when Oftel first looks at it whether the dispute is more appropriately tackled under the Competition Act or licence conditions. We do need to examine.

Where cases could involve a breach of both licence and the Competition Act, we cannot fetter our discretion in advance. The point at which we decision on which route is taken may vary. However, there can be no ‘double jeopardy’. In other words, it is not the case that if we cannot get the target under one route we will use the other.

We have publicly stated that we will use the Competition Act where possible and this remains our position. We are investigating more instances of anti-competitive behaviour under the Competition Act and I expect this to increase. But it is important to note that sectoral rules and the Competition Act are not always direct substitutes. The Director General’s duties under sectoral legislation go wider. So these issues have to be taken into account. For these reasons, we are developing guidelines to identify how best to apply the Competition Act given our wider responsibilities. And we hope to issue a draft by the end of the year.

Interaction with sectoral Regulation - slide 5

The first and main question is if you have Competition Act powers, do you need sectoral regulation as well?

I will answer this straightaway. Yes, we do. For the moment. And for the foreseeable future. And it is the reason why Oftel exists as a separate body, not just a Division of the OFT. No, I am not just trying to preserve regulators' existence. This is a world-wide phenomenon. The key thing about all telecoms regulators is that we are working to achieve a transition from a monopoly – often originally state owned – to a competitive market place. This, and the particular features of telecoms, are what distinguishes sectoral regulators from competition authorities.

At the present stage along this road, I don’t believe that would be sufficient to rely on Competition law alone. Telecoms has special features. Listed here. The ability to create bottlenecks. And the asymmetry of interests and bargaining power. And in some parts of the market, a former monopolist with legacy of massive installed network. Competition law is not – yet – able to provide the detailed regulatory framework with sufficient certainty to fully replace sectoral regulation. Sectoral rules – often ex ante – provide a quick effective way of taking action. They deliver the sectoral duties to promote competition and protect consumers. And give confidence to new entrants. In short, they provide flexibility and discretion for the regulator to meet his differing duties to all stakeholders. However, as competition develops and regulatory intervention falls away, a clearer focus on the competition issues becomes possible and this will allow greater use of the Competition Act. As is already beginning to happen.

Interaction with sectoral regulation cont'd - slide 6

The main area where we still need sectoral regulation to achieve effective competition is access to, and interconnection with, dominant networks. Access and interconnection are the heart of the regulator’s work. They are essential to, and underpin, effective competition.

This is recognized in the new Directives. Let me quote from one of the recitals to the draft EC Framework Directive: "There is a need for ex-ante obligations in certain circumstances to ensure the development a competitive market". But equally important: "It is essential that ex ante regulatory obligations should only be imposed where there is not effective competition and where competition law remedies are not sufficient to address the problem". And the draft Access Directive specifically recognizes the issue of asymmetry in negotiating power as a key reason why NRAs should establish ex ante frameworks.

So the key sectoral powers we will retain are the powers to set ex ante rules on access and interconnection. These include powers to do such things as set prices, to require specified products to be provided, to ensure accounting separation and to ensure price publication. And to take steps to resolve interconnection disputes and in future to resolve disputes in four months. In passing let me note that it is extremely rare if not totally unknown for the Commission to publish an Article 82 decision within six months. But it is the overall regulatory picture that determines how successful we are in delivering benefits of competition to consumers. And in providing a sufficiently predictable regulatory framework to provide a climate conducive to investment.

Thus, it is important that we operate both sectoral and competition law powers within a coherent framework. Our aim is to be able to lighten sectoral regulation as competition increases – thus increasingly rely on Competition law. So we welcome some key features in the new Directives particularly regular reviews, prohibition on using sectoral powers if there is effective competition. And also greater flexibility to NRA in using the tools. It will not be the case that all the powers I’ve listed will be imposed in every case. The NRA can tailor the obligations to the requirements of the case.

A further step which will help us achieve this coherent approach is the greater convergence of the approaches to the two forms of regulation that will be brought about by the new.

Convergence of competition law and sectoral regulation - slide 7

The new EC Directives are the main driver. But the expected Communications Bill will also play a part.

First, and subject to the Council and the European Parliament agreeing, there will be the same threshold for intervention. Essentially dominance. It will be called significant market power for the purposes of sectoral regulation under the Directives. But it is very similar – some may say identical – to the concept of dominance under competition law. I’m sure many in the audience will have spent a long time pouring over this as it has developed. And may well in future. But today I just want to note this as an important step in aligning the two approaches.

Second, there will be a more formal alignment of the process of analysis of market power for the purposes of sectoral regulation. Oftel tries to adopt this approach now. But we will now have to do this for the regular review of the relevant markets in accordance with the Commission’s guidelines. We welcome this harmonisation both between member States and with competition law.

Third, the Directives give member states powers to impose fines for breaches of the rules – in future there will no longer be licences. And the UK Government has said that it intends to implement this in the forthcoming Bill to set up OFCOM.

It is important to note that there are some differences. Not least reflecting the different duties. One example is that the market analysis for ex ante regulation is likely to be forward-looking. But it is anyway for merger control. So it would be wrong to over-emphasize these differences. Convergence is a positive step. The key message is that greater convergence of the two regimes should make it easier for firms to comply. Which makes Oftel’s job easier too.

Future challenges - slide 8

There are more questions than answers. But at least thinking about the questions now gives us a better chance of answering them later.

The great debate over the SMP threshold in the Directives was of course over collective dominance. I think that most in the room today would agree that this is not a well-developed concept. So I am sure there will be plenty of work for all of us the first time a regulator tries to apply it.

Another area which exercises some minds is the of the regular sectoral reviews and subsequent competition complaints. If the regulator declares a market effectively competitive, does this influence how it approaches a complaint subsequently alleging anti-competitive behaviour? Is there scope for different market definitions here?

Looking to the practical side, I hope that the existence of fines no matter which regulatory route, will sharpen compliance without the formal involvement of the regulator. If so, I would like it to lead to speedier resolution of complaints. Which is a long way of saying that speed is not just in the hands of the regulator but the parties as well.

And my last point I hope sums up my overall theme. Yes, we do still need sectoral regulation. But my hope is that the more successful we are in using it, the more competition will grow and so the less need to rely on it. The Competition Act has been very useful. We have learned much over the past 19 months. And I expect to increasingly rely on it in future.