Welcome etc.

This morning I am going to talk about how Oftel can ensure that its aim of ensuring the best deal for consumers can keep pace with the rapid developments of in communications.

First I will focus on the Oftel strategy and what it means by appropriate regulation. I will discuss Oftel’s views on different types of regulation, including formal, co-, and self-regulation. And how these different forms can be accommodated in a single regulatory strategy.

I will provide examples of where co-regulation and self-regulation is already being practised and areas which are currently under development. Of course, ICSTIS is a pioneer – and a very effective and respected one at that – of voluntary self-regulation.

I want to give particular weight to my recent challenge to the industry to develop a workable ombudsman scheme.

Finally, I will discuss the various ways that Oftel is ensuring that regulation is in fact delivering benefits for consumers.

This is the most important point. Regulation does not and should not primarily exist for the benefit of the government or industry. Its goal must be to ensure that the consumer receives the best deal in terms of choice, quality and value for money.

Rapid speed of change in the telecoms market

Since liberalisation began, 16 years ago, technology has changed so quickly and become so widely available that the way we communicate now exceeds the expectations of all but the most imaginative of science fiction writers.

Far from being the year of Orwell’s nightmare, 1984 was the first time that choice of telephone service became a possibility for consumers. That is, without having to move to Hull.

It’s worth remembering that in 1984, the first generation of mobile phone licences had only just been issued. There was no world wide web. No mass Internet. No broadband access. No cable TV. No premium rate services.

This explosion of technologies and services has had a profound impact on the telecoms industry as a whole.

Operators, service providers and regulators now face new demands and pressures. Consumers now not only expect but demand to be able to use other telephone companies, access the Internet, send e-mails, and communicate on the move. And not only do they expect more services, consumers demand better quality – both for customer services and the reliability and quality of the network. They also demand better value for money.

One fact is unassailable. And that is that consumers are now getting a better deal than they were back in 1984. The real cost of telephone service has fallen by 50% in the last 16 years. 96% of homes are now have telephones, compared to about 80% in 1984. And reliability has also improved.

The challenge for Oftel and other regulators, such as ICSTIS, is to adapt to these changes.

To ensure that Oftel’s goal of providing the best deal for consumers in terms of choice, quality and value for money continues, the way we regulate has to change as well. Regulators must be as innovative and responsive as consumers, operators and service providers.

This is the challenge facing all communications regulators. Including Oftel, ICSTIS, ITC and the Radiocommunications Agency. For example, ICSTIS has to respond to new challenges such as premium rate services accessed via the Internet and through interactive TV services.

Effective competition is the best way to ensure that consumers get the best deal. But I firmly believe that the best way for regulators to continue delivering for consumers is to apply appropriate regulation. That is, regulation that is effective but not overly burdensome.

Oftel’s strategy and appropriate regulation

Let me explain what I mean by appropriate regulation , in the context of Oftel’s strategy.

Oftel’s four high-level objectives are:

• Ensuring effective competition
• Ensuring consumers are well informed
• Ensuring consumer are adequately protected
• Preventing anti-competitive practices

These objectives overlap and complement each other.

As I have just said, effective competition is the best way to deliver the best deals for consumers.

A well informed consumer knows what rights they have and is, therefore, empowered to stand up for themselves. The consumer becomes better protected by being better informed.

A well informed consumer is also aware of their choices and is equipped with the information to make those choices.

In turn, such a consumer is more confident in seeking the best deal and therefore is more likely to play a greater role in ensuring the market delivers the right outcomes. Which leads to more effective competition.

And the greater the level of effective competition the less opportunity there is for anti-competitive practices.

In this situation of rapid change, increasing choice, and greater consumer demands regulators must keep pace with the market.

To keep up with the consumers and industry, regulators must ensure that their processes are responsive, flexible and fast. Regulators must ensure that when they intervene they do so with the long-term benefit of consumers in mind. And just as importantly they must know when not to intervene and allow the market to deliver.

Oftel’s strategy implies two questions.

First. ‘Is regulation of any type needed in a given situation?’ If it is not, then the best way to move forward is to deregulate or not to regulate in the first place.

If the answer is yes, regulation is needed this raises the second question. ‘What type of regulation is most appropriate?’

I believe that the answer to this question is that co-regulation and self-regulation are the future of much telecoms regulation in this country.

By co-regulation, I mean that the telecoms industry, users and regulators work on a co-operative basis to ensure the best deal for consumers. However, the regulator would usually identify the need, and initiate and set the framework for the work. The regulator would also monitor the effectiveness of co-regulation and ‘trouble shoot’ problems that arose.

Self-regulation is when the industry and users co-operate to ensure the best deal for consumers, without requiring the intervention of the regulator.

Oftel’s recent consultative document – ‘Encouraging self and co-regulation in telecoms for consumers’ – looked at these issues in some depth.

The direction of the current EU review of communications directives is also moving towards this thinking.

Of course, ICSTIS is one of the best examples of self-regulation. The industry finances a body to independently supervise the content and promotion of premium rate services. Networks voluntarily submit themselves to enforcing a code of practice.

However, other bodies have also sprung up as a response to consumer demands or concerns. The Internet Watch Foundation emerged to counter widespread consumer concern about unsuitable material on the Internet. It is now acknowledged as an international leader.

It must be remembered that self and co-regulation is not necessarily an easy option either for the industry or the regulator. I’m sure that anyone who has been involved in these types of initiatives will acknowledge that they can be – to say the least – challenging in terms of time and resource commitment and willingness to compromise.

It must be remembered that the aim of self- and co-regulation is to provide a more appropriate, flexible and responsive regulatory regime with the end result of providing a better deal for consumers.

To be effective self and co-regulation must be carried out in the right spirit.

It is not a way for the industry to escape regulation or avoid obligations to consumers. It is also not about the regulator just rebranding existing work or extending its remit.

Self and co-regulation is about the industry taking greater responsibility for its obligations and producing a better outcome for consumers. And accomplishing this by working constructively and co-operatively with consumers, government and other stakeholders.

Australia has been actively pursuing self-regulation in telecoms since 1996. And their experience has shown, that with the correct structure and true involvement from the industry and consumers, co-regulation can be a success.

The Australian experience also demonstrates the importance of backstop powers. Even self- and co-regulation requires enforcement powers for dealing with those companies that are not participating in the true spirit.

To pick a topical and relevant example, earlier this month I issued a statement entitled ‘Regulation of Premium Rate Services’. In this statement, I announced my decision to go ahead with a modification to telecoms licences. This redefines premium rate services so that the current co-regulatory arrangements for live services apply to all premium rate services.

The statement sets out five areas which threaten the current model of voluntary self-regulation. This includes the changing number and nature of network operators and the first signs of increasing resistance to voluntary sign-up to ICSTIS’ codes.

The modification will effectively mandate the code of practice. This will ensure that a fair and level playing field exists for competing PRS operators and service providers.

This modification underpins the ICSTIS Codes of Practice. It will allow me – as a backstop, not as a matter of practice – to enforce decisions made by ICSTIS on all premium rate services.

For example, ICSTIS may investigate complaints about a competition line where callers never received their prizes. It may decide to use its severest sanction of recommending to a network operator that the service is ceased.

If a network operator was slow or unwilling to carry out ICSTIS’ recommendation, it would be able to refer the matter to me. I would then be able to direct the network concerned to terminate the service.

Let me be clear – I will not hesitate to do this if I have to. But the effective co-regulation we have in place should make this a very rare occurrence.

Of course, I recognise that the great majority of those you involved in this industry have been running your businesses in accordance with the voluntary arrangements. I do not believe that these proposals will impose any significant changes on you, but will secure longer term consumer confidence in your industry and sustain its commercial viability.

Self- and co-regulation in practice

There are a number of examples of where co-regulation is already being used in Oftel’s work.

Typically, co-regulation has been used in the areas of providing information for consumers and the development of codes of practice.

Since 1995, the industry, consumers and Oftel have co-operated to publish the Comparable Performance Indicators booklets on fixed telcos’ quality of service. These booklets are published and funded by telcos. The governing body of this initiative is a joint forum of residential consumer and business user groups, operators and Oftel.

A similar process is used for the mobile telcos’ network performance surveys.

Phonebills.org.uk is a website that enables consumers to compare the costs of fixed residential telephone services. It was established to meet consumer demands for an easy way to compare prices.

It was first launched in December 1999 with direct access operators. It has recently been expanded by the industry to include companies offering indirect access and calls & access services. There are plans for further operators to join in the near future. This will make the site even more useful for consumers.

The common theme of these initiatives is that they provide essential information on quality of service and cost that would otherwise be impossible – or at least very difficult – for consumers to find.

In the area of developing codes, a consumer and industry group has been developing an industry code of practice for interim carrier pre-selection.

Self and co-regulation is now moving into areas that previously would have been regarded as the territory of sector specific regulators.

I am pleased to be able to announce today the next steps in the most ambitious co-regulatory initiative so far – the possible establishment of a Telecoms Ombudsman for dispute resolution. I have written to Chief Executive Officers of all the major companies making clear my personal support for the scheme and pressing them to commit their companies to it. I expect that they will rise to the challenge.

Consumer groups, operators and Oftel have been working together for some months to establish a new mechanism for alternative dispute resolution. The goal is that the new mechanism should be independent, transparent, timely and inexpensive.

The outcome of these discussions has been a consensus that a Telecoms Ombudsman would be the best possible result.

Under the current legislation, the Ombudsman will have no statutory basis. But consumer demand for an Ombudsman has been so strong that many of the industry are prepared to work with consumers and Oftel to develop, establish and fund an independent voluntary Telecoms Ombudsman.

Oftel cannot force the industry to establish an Ombudsman. And the scope of the Ombudsman has not been established yet. However, at the core, Oftel will have backstop enforcement powers for dispute resolution, that will be built into the process. And these powers will ensure that the Ombudsman is not merely a figurehead.

A joint consumer and industry working group is currently working to develop the framework to make this happen.

This is the most positive and far-reaching example of co-regulation so far.

What does the industry get out of this?

Providing practical working examples is the most effective way that the industry can influence the government’s thinking on the extent of regulation in the forthcoming Communications White Paper and subsequent Bill.

The greater the level of responsible self- and co-regulation that the government can see working, the less need there will be for formal powers and detailed regulatory requirements on the industry.

And, above all, the consumer gets quicker, more flexible, more authoritative dispute resolution than before. It should be a real win/win for all sides.

A place for formal regulation

Oftel believes that as effective competition is established the need for formal regulation will diminish. However, in areas where there is market failure or anti-competitive practices there will still be a place for formal regulation.

Anti-competitive practices can never be governed by self- or co-regulation. There is no incentive for a dominant operator to resolve such disputes with other operators without regulatory action. Oftel is now relying on applying the Competition Act to resolve anti-competitive behaviour. This is applying general horizontal regulation, rather than sector specific regulation. But as effective competition increases the opportunities for anti-competitive behaviour will decrease.

Measuring the deal that consumers receive

To ensure that consumers are truly getting the best deal from the telecoms market it is essential to measure their experiences.

A lot of thought at Oftel has gone into how we can measure whether consumers are getting the best deal from the market.

We have decided on a three pronged approach.

• Market research into consumers’ views and experiences
• Monitoring the market
• International benchmarking

In addition to measuring the success of Oftel’s goal in providing the best deal for consumers, this research fulfils another important function. It provides Oftel with the ability to make evidence based decisions.

In order to measure consumers’ views and experiences we have established our own omnibus survey. This survey is carried out quarterly by MORI on Oftel’s behalf.

The foundation of the survey is a set of questions that track the trends in certain key areas. It is also flexible enough to allow for specific questions on individual projects to be added on an ad hoc basis.

Oftel publishes the results of all its research on its website. Recently Oftel has published research on consumer switching behaviour and SMEs and consumers’ use of fixed, mobile, digital TV and Internet services.

I believe that the open sharing of research into the telecoms market can only benefit consumers in general. I invite all stakeholders – including consumer groups, user groups and the industry – to provide input to these processes.

Another important aspect of our research is our project into international benchmarking.

One measure of how good a deal consumers are getting, is to compare different markets. Consumers cannot be expected to know how much consumers pay for services in other countries except on an anecdotal basis.

We have rigorously compared key factors of the telecoms market in the UK with other countries. These countries include France, Germany, Italy, Sweden, and the United States. And so far we have compared the prices of fixed, mobile, Internet and broadband services.

The results disagreed with much of the anecdotal evidence available to consumers.

It has been commonplace to claim that Internet access in the UK is expensive. However, as we are now beginning to see the introduction of unmetered services, our research has found the UK is one of the cheapest markets for Internet access for residential consumers. This can be seen as a success of the regulatory regime and the UK industry’s response to market demand.

This is only the start of our international benchmarking. In the future we will be expanding it to cover issues such as quality of service.

Conclusion

In summary, it is clear that a new style of regulation is required to cope with the ever changing telecommunications market. It is necessary for regulation to be appropriate. That is, regulation must be flexible, responsive, speedy enough to match market developments, and not overly burdensome on the regulator.

However, I repeat: the essential role of regulation is to provide the best deal for consumers.

In this context, I strongly believe that self- and co-regulation will play an increasingly important – indeed central – role.

For this to work, the industry, consumers and government will have to work together. The results will benefit all.

As I have illustrated some backstop powers may be needed. These should not be seen as additional regulation. Rather these powers would only be used on those operators or service providers that act outside accepted bounds.

Also, a certain level of formal regulation will be required for the foreseeable future. Again, this is intended only to protect certain consumers and indeed companies.

To close, I would again like to applaud the industry and consumers for taking the first steps on creating a telecoms ombudsman. I encourage them to continue this work in a spirit of co-operation, knowing that the end result will be a benefit to all.

Thank you etc.

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