CULTURE, MEDIA AND SPORT COMMITTEE INQUIRY INTO AUDIO-VISUAL COMMUNICATIONS AND THE REGULATION OF BROADCASTING “BEYOND THE TELEPHONE, THE TELEVISION AND THE PC – III”

Oftel’s Second Submission

March 1998

This document contains one diagram (click here to view) which is reffered to in the summary and in section 5.1.
Click here to view diagram
 

Contents
 

Summary of recommendations

Section 1: Introduction
 
Section 2: The future of the electronic communications sector

Section 3: The imperative to change: why new rules are needed

Section 4: The new rules and how they should be applied

Section 5: The institutional structure of regulation

Section 6: Meeting specific policy objectives

Annex A: Public Service Broadcasting

Annex B: Mechanism for applying and enforcing the rules

Annex C: Electronic communications rule set

Summary of recommendations

 
Introduction
 

1 Oftel welcomes the opportunity to present to the Select Committee its analysis of the future of electronic communications, including broadcasting, and its proposals for change.

2 Electronic communications are fundamentally changing. The process of change began earlier for telecommunications than for broadcasting, but both are now converging with digitalisation and the decline of capacity constraints. These changes mean that the basis on which broadcasting has been regulated as a national, public, wireless, point-to-multipoint service should change. Technologically-based distinctions between wired and wireless communication, and point-to-point and point-to-multipoint communication are eroding fast. And the boundaries between public and private communication and national and international services are blurring.

3 Oftel’s remit as defined in the Telecommunications Act already addresses the converging electronic communications domain. The Act defines Oftel’s jurisdiction as concerning systems “for the conveyance through the agency of electronic, magnetic, electromagnetic, electrochemical or electromechanical energy of (a) speech, music and other sounds, (b) visual images, (c) signals serving the impartation of any matter otherwise than in the form of sounds or visual images and (d) signals for the actuation or control of machinery or apparatus.” Oftel, however, fully recognises that its expertise lies in economic regulation and consumer protection rather than in cultural and content issues.

4 In this document Oftel uses the term electronic communications to mean all communications which use electromagnetic transmission. The term thus includes broadcasting and telephony and certain features of devices attached to electronic communications networks. Oftel recommends that this definition of the electronic communications industry is adopted as the proper scope for policy making and legislation.

Why change?

 5 Oftel suggests that the changes in legal instruments (legislation), the new rules, and regulatory structures proposed below need to be implemented at the earliest opportunity if the UK economy and individual citizens are to benefit fully from the Information Age. There are a number of reasons for this recommendation.
 

•  The successful application of many of the existing rules rely on the ability to control service delivery by attaching conditions to the operation of, or access to, an electronic communications system. This can only continue to be successful if the system operator controls the service characteristics – and this link is rapidly breaking down.
• Current institutional structures are fundamentally based on this assumed link between systems and services, although various stop gap methods have been used to overcome the immediate failures that have arisen as this breaks down. But the consequence has been a proliferation of regulatory bodies, overlapping jurisdictions, and conflicting statutory duties and objectives.
• A positive climate for investment – which is absolutely necessary to deliver Information Age services – is incompatible with such regulatory uncertainty.

6 Oftel recommends that the regulation of the electronic communications industry should be grounded in the following principles:
 

• Promotion of competition in the interests of consumers.
• Wealth creation and jobs in the UK.
• Access for all, including the disadvantaged, at affordable cost to the information and communications services they require for participation in political, economic and social life.
• Interoperability and interconnection of networks systems to establish “any to any” communications.
• Facilitating consumers’ control over the types of content they wish to use.
• Predictable and consistent regulation – but only when needed.
• Regulatory transparency and accountability.
• Sufficient regulatory flexibility to deal with changes to technologies and markets.

The Telecommunications Act 1984 and much of the Broadcasting Acts 1990 and 1996 be replaced by new legislation for the electronic communications industry.

The legislation should be designed to promote and regulate effectively an “open state” in which the erosion of distribution scarcity will be close to complete, and content suppliers will be able to supply services to customers on a direct commercial basis by way of access control systems.

The legislation should also provide for specific rules to manage the transition to that “open state.”

11 On content rules, Oftel recommends that the regulator should not tilt at windmills and try to achieve what cannot be done. A shift from the broadcast transmission of content over relatively few channels – to which Government has controlled entry – to user browsable content including video on demand, means that content regulation must change. Oftel recommends that the focus of regulation must shift from the direct regulation of content to regulation to enable control of access to content and from statutory to consumer-centred regulation. In consequence content regulation should be based on
 
Self regulatory classification of browsable or user selected content, referenced to content codes drawn up by self regulatory bodies in consultation with the relevant statutory body.

• The principle that access to possibly offensive content should be possible only if consumers elect to have such access.
• Effective enforcement of general principles, defined in law, by a statutory content regulator.

Rules for Transition

13 Oftel recommends that the following additional rules should be required during the period of transition (however long that might be) to the “open state.”
 
Rules to inhibit dominant incumbent firms from abusing their market power.

• Rules to deal with joint dominance – ie collusive behaviour by firms and/or vertical agreements and vertical integration of firms.
• Rules to deal with the market power exercised by firms with control over capacity constrained systems.

Meeting Specific Policy Objectives

15 Section 6 addresses more precisely how the proposals above would meet particular competition, social and cultural concerns. Of key importance are recommendations in three areas.

 How can consumers be given maximum choice of supplier, of information, and of services?

 16 Oftel recommends that new rules on opening up interfaces and making infrastructure available to third parties on fair, reasonable and non-discriminatory terms are required, so that others can supply services over existing infrastructure while rewarding investment in infrastructure creation. Specifically the general authorisation for operation of an electronic communications system should require publication of interface specifications.

How to guard against an unfair division of society into information “haves” and “have nots”?

17 Oftel’s recommendations focus on getting everyone connected on an affordable basis to networks within an access control system, if necessary via Universal Service Fund arrangements. In addition, the public availability of terminals and training is required, with particular emphasis on those with disabilities.
 

How can the benefits of public service broadcasting be safeguarded?

18 Oftel proposes that the Government should continue to support established not-for-profit public service broadcasters. It will be important to link the BBC licence fee more closely to the costs of its inputs. Oftel believes that public intervention is necessary during the transition and probably also even in the “open state,” to ensure all UK citizens have access to the impartial high quality information required for their participation in economic, social and political life because mature electronic communication markets may not adequately supply “merit goods” and serve minorities. However, Oftel recommends that Channels 3 and 5 should be freed from their obligations as public service broadcasters and the spectrum/franchises to run commercial terrestrial broadcasting services should be auctioned.

Institutional Change

19 Oftel recommends that there should continue to be a clear division of responsibility between Government and regulator, and that the regulatory structure and arrangements for consumer representation should be changed.

20 Oftel agrees that Government should set the overall policy framework: define social policy goals eg: the composition of universal access; and ensure financial support for provision of services missing from the market – notably public service broadcasting. The Government also has the central role in overall radio frequency spectrum allocation policy and in national security matters.

21 The regulatory role is to ensure effective implementation of Government defined goals, to provide effective economic/social and cultural regulation of a specialised sector using their expertise and to do so independent of day-to-day control by Government.

22 Oftel recommends that the existing structure of electronic communications regulation requires reform. It imposes significant costs on the UK economy and on Government. Moreover it does not provide for an active representation of consumer interests or clear and appropriate means for consumers to secure redress.

23 As set out in the diagram (click here to view diagram) Oftel recommends that two regulatory commissions be established.

• an Electronic Communications Standards Authority, responsible for cultural content issues and for the supervision of public service broadcasting contracts.
• an Electronic Communications Commission, responsible for competition, economic and social issues such as universal access.

25 In addition Oftel recommends the establishment of a statutory Electronic Communications Consumer Council to advise the regulatory commissions and act as a focal point for consumer representations and redress.

Introduction

 1.1 Oftel’s Document Beyond the Telephone, the Television and the PC. II (the first part of Oftel’s submission to the Select Committee) considered the technological developments which are changing the telecommunications, broadcasting and the IT industries. Oftel also identified public policy objectives for the converged electronic communications sector.

1.2 In this paper, its second submission to the Select Committee, Oftel puts forward concrete proposals for the achievement of these objectives. Notably, to establish a regulatory regime which benefits UK consumers and the broader economy and which will enable the UK to capitalise on its existing strengths in the electronic communications sector. Central to Oftel’s analysis and its proposals is the recognition that historical, technologically-defined, distinctions between point-to-point and point-to-multipoint electronic communications, between national and international electronic communications, between wired and wireless electronic communications and between the content supplied in any particular media or mode of carriage are fast eroding. These changes have profound implications for public policy, industrial strategy, consumer interests and regulation in the United Kingdom.

 1.3 In this submission Oftel outlines its answer to the question:

“How can regulation maximise benefits to UK citizens and consumers in the new digital electronic communications marketplace?”

NOTE: In this document Oftel uses the term electronic communications to mean all communications which use electromagnetic transmission. The term thus includes broadcasting and telephony, certain features of devices attached to electronic communications networks.

1.4 To address that question, Oftel believes that because there is a fundamental change in both an eventual “open state”converged electronic communications environment and the more immediate problems of a period of transition must be considered. Although, in reality, this “open state” will not be a steady state (because technical change will continue) the change is so significant that it needs to be addressed independently of other possible, future changes. There are two fundamental transformations of the sector (which have already started) which are responsible for this, and against which all future policy options must be tested. These changes are:

• the erosion of distribution capacity scarcity
• content suppliers being able to supply services to customers on a commercial basis by way of access control systems.

1.5 The first condition will be met as a result of digitisation and continued investment in satellite, cable and other distribution methods, while the second will come about through the spread of access control systems to most distribution networks. A5-10 year time horizon for this transformation to take place is probably realistic. Until this happens the UK will be in a transition, where some, but not all, own access control systems (which allow them to enter into a direct commercial relationship with the suppliers of electronic information delivered over electronic networks) and transmission capacity is increased, but still does not meet all potential demands.

1.6 Oftel believes that it is both possible, and realistic, that the positive potential of technological change will be realised through well-functioning competitive markets serving the interests of UK consumers. But the long term might conceivably be characterised by oligopoly by relatively few firms dominating markets. If this happens, consumers are likely to forego potential benefits in the form of new and improved services which are likely to arise only from vigorous competition. Additionally, there will be a continuing risk of abuse of market power to the detriment of consumers.

1.7 Accordingly, rules will be needed to manage the specific problems of transition to foster a positive open state and outcomes which will maximise benefits to consumers.

1.8 The pace of change does not leave much time to get the rules right. The fundamental changes have already started, and they undermine the foundations of the current regulatory regime. By the time a legislative slot is found for a new Electronic Communications Bill to put the regulation of the sector on a sound footing the commercial structure of the sector could already be set.

1.9 In this submission Oftel proposes a portfolio of “rules” for the achievement of an outcome that maximises the benefits to consumers and UK plc (See Section 4). Getting the rules right is the most important part of getting regulation right. The institutional mechanisms for the application and enforcement of the rules is a secondary, albeit important, issue. However, Oftel believes that institutional change is needed if the rules are to be fairly applied and effectively enforced. The submission is organised as follows:
 

• Section 2 describes the differences between the media and electronic communications sector and the rest of the economy. It considers how far contemporary changes to the electronic communications sector, often called “convergence,” will make it like the rest of the economy and how far the unusual social, economic and technological characteristics of the sector are likely to be permanent.
• Section 3 draws conclusions from the analysis of convergence which is set out in Section 2. It identifies the implications of convergence for the UK’s established systems of rules and regulation of electronic communications.
• Section 4 describes the new rules required for convergence.
• Section 5 evaluates alternative regulatory structures for the application of the rules defined in Section 4.

Section 6 describes application of the general rules in Section 4 to specific issues and how they will serve consumers needs and interests.

A – The role of Public Service Broadcasting in an “open state”

B – The foundation of the new rules and how they should be enforced

C – A tabular description of the necessary rules

The future of the electronic communications sector
 

Getting it right – economic benefits for the UK
 

2.1 Electronic communications, in the form of telephony, broadcasting and IT, contributes around 5% of UK GDP, provides around 700,000 jobs, and is growing fast. The UK is the EU leader in this sector which the 1993 Delors White Paper on Growth, Competitiveness and Employment identified as one of the most promising for wealth and jobs generation in the 21st century.

2.2 Electronic communications also has a wider influence on economic growth and prosperity because it provides major inputs to other industries. For example, telephony is a key input for insurance and banking, computing services are vital to a wide range of service and manufacturing sectors and UK broadcasting (and the saleable information sector generally) contributes to overseas trading partners’ perceptions of the UK. Information and communication technologies have significantly improved productive efficiency and the UK’s international competitiveness. If the UK can maintain its lead in electronic communications it will have a key source of competitive advantage in the 21st century.

2.3 Liberalisation and competition have improved productivity, lowered prices and stimulated innovation. For example, the price of telephony has halved in the last ten years and competition has fostered the development and introduction of new services. In broadcasting the growth of independent production, fostered by the opening of programme supply markets, has realised similar benefits. Prices of IT hardware continue to drop very rapidly.

2.4 The electronic communication industries also provide other important benefits to UK citizens, including improved access to valued entertainment and information from around the globe available 24 hours a day, on demand; and delivery of high-quality education services to remote locations. Choice and diversity has increased and is likely to increase through, for example, additional TV channels and the development of interactive services. The transformation of the sector will also make possible better delivery of Government services into the next century.

2.5 Because of its relevance to a wide range of economic sectors, and the opportunities it offers for innovation and growth, the electronic communication sector’s importance to the economy is likely to increase substantially over the next few years. Many of the fundamental changes to the sector which will shape its character are happening now. Getting the right regulatory and competition framework for this sector is vital.

Distinguishing features of the electronic communications market

2.6 The electronic communications sector is, and will remain, different from other sectors of the economy. Some of its distinctive features may be short term but others are likely to be permanent. These features have significant implications for regulatory practice. They are relevant both to an ‘open state’ – when there is universal access control (ie all consumers can enter into a direct commercial relationship with the suppliers of electronic information delivered over electronic networks) and no scarcity of transmission capacity – and to the period of transition.

2.7 What makes the electronic communications sector different from other sectors of the economy? Firstly, both the telephony and broadcasting industries have been shaped by their particular histories. In both sectors, Government sponsored the creation of dominant incumbents. First through publicly owned statutory monopolies and later, when commercial firms were permitted to enter markets, through public authorities’ limitation of market entry to favoured firms. The legacy of dominant incumbents continues to shape UK electronic communications and will do so for some time. Secondly, the economic characteristics of production and/or consumption of electronic communications are unusual. Not least because of what are called the network externalities (network access, interoperability and call termination) which arise because there are two ends to the call. Correcting the network externalities in the public interest requires commercial arrangements which are unlikely to arise without regulatory intervention. There are also regulatory issues concerning the realisation of the potential social benefits which arise from the non rival characteristics of information (whereby an extra unit of consumption of information – for example, one more person watching a television programme – can be achieved without an increase in costs).

2.8 In addition, the costs of providing wire-based services are such that most customers are unlikely to take service from more than one supplier – this, combined with the high costs of switching suppliers and/or externalities can lead to a bottleneck in access to networks. This provides a key basis for regulatory involvement. The same conditions apply to access control systems in broadcasting, that is, customers are likely to have only one set-top box. A further key difference between the electronic communications sector and other economic sectors, lies in the ‘market failures’ which exist. For example the various externalities, (costs and benefits which can not be reflected in price mechanisms), associated with the provision of telecommunications networks – to take one example, the separation of call payment from choice of terminating operator provides the latter with an ability to set high prices. In broadcasting, a sector specific feature (albeit one which may have beneficial social consequences) lies in the fact that it introduces economic inefficiencies to charge for marginal usage, because marginal costs are zero. This makes licence fee and advertising funding potentially attractive funding methods. On the other hand, these funding mechanisms do not reflect people’s willingness to pay and, because they do not allow consumers to signal their preferences via price, they result in a different economic inefficiency. However, direct payment will itself exclude some customers who could be served at no extra cost. So, although new technologies will allow pay per view and subscription-based charging, a tension between funding systems which offer access for all and those which necessitate the exclusion of some will remain. Striking the appropriate balance in the public interest may require regulatory involvement.

2.9 The broadcasting sector has, in addition, traditionally been distinguished from most other sectors by a number of public policy, rather than economic, considerations. These considerations include; concern over the content of programmes; a desire to ensure plurality and diversity of ownership in the commercial provision of content; securing commercially (and politically) neutral reporting; and a desire to ensure that some classes of information are made available to all citizens at affordable prices. These public policy concerns will remain, although some of them may be met through unfettered operation of the market if competition is effective.

2.10 Moreover, it is possible that effective competition will not develop in all sections of a converged digitalised electronic communications market. Five years or more into the future, the electronic communications sector may still be characterised by high barriers to entry in the provision of new transmission networks or new access control systems (although the networks which do exist may not be capacity constrained); by economies of scope and scale within transmission networks; commercial disincentives to interconnection and interoperability with competing networks (including transmission networks and networks of competing computers and computer software) and by very low (or zero) marginal costs of consumption of content. Moreover, even if content providers enjoy unfettered access to transmission systems, intervention and regulation are likely to be required to reduce negative externalities (too much "bad" content) and maximise positive externalities (ensure enough “good” content).

2.11 During the period of transition from the status quo to a mature “open state” (a period which will last for at least the next five years) there are likely to be significant sections of the population who neither have access to non capacity constrained networks nor to conditional access systems.

Maximising economic benefit from use of the radio spectrum
 

2.12 The economic value of radio spectrum is now well recognised. In 1995/96 the total contribution of radio based services to UK GDP was estimated at £28bn, and to be growing at 11.5 % every year. In the fastest growing area of cellular telephony growth rates are over double this figure and most analysts expect this level of growth to be maintained over the next decade. As consumer demand for interactive multimedia services grows, demand for mobile multimedia services, as well as for services to home and office, is likely to rise in line with established trends for voice telephony. These trends will provide strong incentives to reallocate radio spectrum. Traditional, relatively inefficient uses of spectrum, such as analogue terrestrial broadcasting, will give way to high value added services, such as mobile multimedia, assuming spectrum prices reflect true market values. Reallocating spectrum offers Government the potential to realise greater revenues from a public asset and offers UK plc opportunities to do its business more efficiently (and develop a new portfolio of manufacturing and service products for export).

2.13 Digitalisation and alternative transmission media, such as fibre optic cable and communication satellites, will progressively reduce barriers to entry to conventional “one to many” broadcasting markets, and hence will reduce the importance of spectrum scarcity as a factor constraining access to this market. However, increasing demand for mobile provision of multimedia services, for which radio is the only viable medium, means access to spectrum will remain a bottleneck for providers of these services for the foreseeable future. Spectrum allocation problems show both that policy and regulatory issues must now be thought through in a “converged” way, and that a consistent policy and regulatory framework is required if access to the electronic communications market is to be both transparent, fair and equitable on the one hand and economically efficient on the other.

2.14 The Wireless Telegraphy Bill is expected to receive Royal Assent in the next few weeks. By introducing auctions for the allocation of major new radio spectrum an important step towards technology and application neutral allocation of a scarce public asset (and realisation of economic value for the public) is being taken. The first such auction, for the mobile multimedia service known as UMTS, is expected to take place early next year. For the first time the market rather than the Government will set the price of spectrum access. However, this represents only one step towards the creation of a true market in radio spectrum, an essential development if the full benefits of convergence are to be realised and a satisfactory return achieved from a public asset. Oftel believes that further measures, to build on the Wireless Telegraphy Bill, are needed such as the introduction of secondary spectrum markets, so that spectrum can be traded between users to reflect shifting patterns of demand. The long term objective should be to remove the regulatory role as far as possible and rely on market forces, backed by general competition rules, to optimise use of this valuable public resource.

2.15 The future of analogue broadcasting spectrum is itself a sensitive issue affecting almost everyone in the UK who rely on it for access to their primary source of information and entertainment – terrestrial television. Oftel will be responding fully to the joint DCMS and RA enquiry on spectrum allocation in due course. But, to foreshadow an important element of Oftel’s response to the enquiry, Oftel believes that, except when a specific public service obligation applies to spectrum users (eg the fire service, the police and public service broadcasting) spectrum should be priced to reflect its full economic value. Oftel proposes that the value of spectrum be determined by establishing spectrum markets (ie auctions) subject to any necessary international considerations.

2.16 Oftel also advocates a more flexible and transparent approach towards management of the radio spectrum. This should include, insofar as it is consistent with international constraints and obligations, removal of the existing demarcations between broadcasting and telecommunication services to facilitate the development of convergent multimedia services. This would build on the precedent of digital broadcasting licences which permit up to 10 per cent of transmitted content to be for non-broadcast applications and which make possible the inclusion of text and images in digital sound radio services. It would facilitate market entry for firms delivering interactive multimedia services, for which conventional wired infrastructures may not be suitable, and move towards "technology neutral" electronic communications policy and regulation thereby promoting efficiency and innovation.

2.17 The current two-tier licensing regime under which radio services are licensed under the Wireless Telegraphy Act and either the Telecommunications or Broadcasting Acts should be replaced by a single authorisation. It should make specific provision for consumer interests, an issue which is increasingly important in a free market environment and which Oftel has already raised in connection with the current Bill.

Why new rules are needed

Introduction – the Need for Change

3.1 Oftel is in no doubt that regulation of telecommunications and broadcasting must change. Existing UK arrangements are not sustainable. Already there are strains in the system. There are overlaps and duplications in regulatory jurisdictions – for example, both ITC and Oftel regulate electronic programme guides – leading to possible ‘double jeopardy’ for companies and confusion for customers. Rules are currently based on particular delivery mechanisms, not on the services delivered to end customers, and produce a tilted playing field inhibiting fair competition and consistent regulation.

3.2 In a “converged” digital world voice, data and audio visual content will all be delivered across many distribution networks. Individual messages will be routed across both wired and wireless transmission media – whether via terrestrial broadcast, mobile radio, satellite, cable, fibre or copper. Increasingly, these alternative message paths will both be substitutes for each other and interdependent on each other. More and more, consumers will actively engage with the services offered and choose the content they receive. These changes are already upon us. By the time any new primary UK legislation takes effect UK consumers are likely to be able to:

• emulate what French viewers are already doing in the Canal + “Second World” service. “Viewers” create their own television by interacting, via an avatar, with other viewers in an on line video environment;
• select information and entertainment services (including moving pictures) over the World Wide Web from any of a host of UK and overseas sources;
• instruct a service provider to tailor news and information services to their own personal specifications;
• choose whether to access a film (possibly the same film) via conventional scheduled television, via a near video on demand service or via a true video on demand service. Choice of the delivery medium will, unless a new regulatory regime is implemented, determine whether content regulation, affecting matters such as the “watershed” or content quotas (eg the independent production quotas or the European content quotas prescribed in the “Television without Frontiers” Directive), apply; and

receive individual E-mail delivered over the broadcast network.

The changing regulatory mandate in broadcasting and telephony – redressing the new market failure

3.4 Under the “old” conditions, of spectrum scarcity and a reliance on advertising to fund commercial supply of audiovisual content, regulation has been used to achieve:

• universal service at affordable cost – nationwide roll out of BBC radio and television, Channels 3 and 4,
• universal service in voice telephony.
• positive programming requirements (ie, securing positive externalities by ensuring quality, diversity, impartiality in widely consumed programmes) – delivered by the BBC radio and television services, by Channels 3, 4 and 5 (as conditions of licence) and through subsidies via the Gaelic Broadcasting Fund.
• negative programming requirements (ie, minimising negative externalities) – a requirement in ITC licences (for terrestrial and non-terrestrial broadcasters) and in the BBC licence.
• stimulation of independent production through a 25% quota imposed on the BBC and monitored by the OFT.

 3.6 In consequence, public policy goals which require a supplier to behave in a way that is not in its commercial interests can no longer be secured by attaching highly specific conditions to the licences of particular suppliers – since doing so disadvantages the licensed firms relative to competitors using alternative delivery means (and which are not constrained by similar licence conditions). Where companies face effective competition, their inability to finance additional obligations means that the regulator is often unable to enforce obligations prescribed in licences if the firm in question either petitions for licence conditions to be eased or simply decides to ignore the licence requirements. Anticipation of this result weakens the effectiveness of the obligations even further. This is not to say that the old regime has, or will, disappear overnight. Only that it cannot provide a long term basis for fair, consistent and effective regulation in the future.

3.7 Failure to establish a new regulatory framework that will work effectively is likely to have very serious consequences. A positive climate for investment is incompatible with regulatory uncertainty which, in turn, follows inevitably from a plurality of regulators each requiring different and possibly conflicting objectives to be met. Lack of investment now will result in the UK falling behind other countries in the provision of Information Age services and, because of the importance of electronic communications as inputs to economic activity in general, in other sectors of the economy.

3.8 The UK cannot wholly create its own electronic communications destiny. Its decisions, (or lack of them), will determine both the extent to which firms locate in the UK and the extent to which it can continue to influence international, and particularly European, policy and regulatory agendas. Failure to address these issues does not mean the status quo will continue. Rather it means that the status quo will fail, and change will be imposed on us by others.

3.9 At the heart of the existing regulatory failure is a reliance on the licensing (and hence control) of communication systems in order to achieve particular characteristics of the services delivered over them. When the organisation running the system does not know, and can not control, what services are running over it that organisation is not in a position to deliver the service specification. If such objectives are to be obtained from regulation then the provision of the service (not the transmission system) must be subject to the relevant rules. When service providers face competition then those rules must apply to all such service providers if they are to be effective. This means regulating them directly – which in the case of content providers would mean the regulation of all content providers (pictures, text, multi-media – because all of them will be capable of using all forms of content) who use electronic communication systems to deliver their messages to their customers. In a world of no capacity constraints (and hence the possibility of unlimited number of content providers, located anywhere in the world) this is neither realistic nor desirable.

3.10 Even when the existing regulation appears to directly addresses the service in question (eg the positive programming requirements in the Channel 3 and Channel 5 television licences) the service definition is co-extensive with definition of a delivery system and, more importantly, the power to impose these requirements arises from the scarcity of suitable delivery systems. As suitable delivery systems multiply and services and systems become "decoupled," and provision of services is less and less closely mapped onto particular, scarce, delivery systems, this regulatory approach comes under more and more strain, and is likely to fail.

3.11 Other issues arising from Oftel’s review of the established UK regulatory regime are discussed below, and the principle policy issues which will characterise converged electronic communications markets are identified.

Interoperability
 

3.12 Interoperability of networks and of customer equipment has traditionally been assured through a standardised definition of the interface between customers’ equipment (be it a telephone or a TV) and the system to which it is attached (the telephone network, the particular frequencies used for TV broadcast in the UK respectively). Again, this mechanism assumes that the service being delivered is specific to the network to which the equipment is attached. Once system and services are “decoupled” established practices are insufficient to secure interoperability and to ensure that customers’ equipment will successfully deliver the service available over the network. However, this decoupling will not necessarily achieve interoperability through competition alone. Regulatory intervention is required to secure the public interest in new circumstances.

3.13 Moreover, services are being offered in such a way that it is the service provider(s), not the customer, who controls the specification and operation of the system. Many powerful new services can only work if a number of different players, none of whom can efficiently supply all elements of the delivery and service chain, agree to use interoperable equipment and software. This interdependence offers firms with market power at one point in the chain the ability to set the terms on which the whole chain operates. If the interoperability required to enable a complex system of interactions is to be achieved, without endowing particular firms with the ability to lever their bottleneck market power in one part of the system across the whole of it, regulatory intervention is required.

Regulatory tradition in the IT sector

3.14 IT service providers are increasingly drawn into the provision of services based on, or which require interoperation with, public electronic networks. Historically the IT sector has not been subject to sector specific regulation like broadcasting and telecommunications. Isolated, non-networked systems, without any public character did not raise public policy concerns. Competition, and competition law, has hitherto been seen to be sufficient to secure the public interest in IT. However, extensive private networked systems, such as those used for computerised reservation systems, have already aroused significant competition concerns. Such systems are already subject to special behavioural rules (albeit resulting from the application of standard competition law rather than sector specific regulation). Similarly, although the internal operation of IT systems has not led to regulatory intervention (eg to impose standards), the emergence of very dominant positions by proprietory operating systems has lead to action under competition law resulting in restrictions on dominant suppliers.

3.15 The networks over which IT services are delivered are becoming more extensive (the Internet covers most of the world), more public (anyone can get access to the Internet) and the system – network and equipment attached to it – is becoming more generalised and not service specific. All these trends indicate that interoperability will become more and more an inescapable public policy issue. And because the range of services that can be delivered over systems such as the Internet is so vast, interoperability will necessarily be complex. The centrality of these systems to the information economy also means that interoperability issues have a significant impact on the rest of the economy.

3.16 If the networked part of the IT sector is becoming more like the telephony and broadcasting sectors then, inevitably, consideration must be given to whether it will also be subject to similar market failures and, therefore, whether regulating it in a similar way as the other sectors will be beneficial. The very close similarity of characteristics of public network IT services to the developments in electronic communication services suggests that similar regulation will be appropriate across all parts of the sector. Indeed, convergence is making them economically indistinguishable. Thus, market forces alone are unlikely to secure the positive outcomes which the public interest demands, whereas a well conceived system of rules applied by an effective regulator across the whole electronic communications sector including, therefore, the public network aspects of IT, could do so.

Conclusion

The existing regulatory structure has two, inter-related, fundamental weaknesses.

1 The successful application of many of the existing rules rely on the ability to control service delivery by attaching conditions to the operation of, or access to, an electronic communications system. This will only be successful if the system operator controls the service characteristics – and this assumption is rapidly breaking down.
2 The institutional structures are also fundamentally based on this assumption, although various stop gap methods have been used to overcome the immediate failures that have arisen as this breaks down. But the consequence has been a proliferation of regulatory bodies, overlapping jurisdictions, and conflicting duties and objectives.

The new rules and how they should be applied

Introduction
 

4.1 The previous section explained why existing rules and regulations for electronic communications are inadequate to meet contemporary and future challenges. In this Section Oftel proposes a new set of rules for the regulation of electronic communications to meet the needs of the UK into the 21st Century, and describes briefly the mechanisms through which they could be applied. The next section explores the nature of the institutional structure best suited to deliver the new rules. The final section explains in more detail how these new rules would secure specific economic and social policy goals.

General principles of effective regulation
 

4.2 A stable and predictable regulatory regime is vital to foster investor confidence and enable infrastructure and service development to flourish. This regime should:

• reflect the importance of competition as a means to provide what the consumer wants;
• secure the independence of the regulator or regulators and a clear division of responsibilities between Ministers and regulators;
• promote consistency and coherence in the rules and their application;
• ensure transparent and accountable procedures;

impose detailed rules only where necessary.

Reflecting the importance of competition

 4.3 Although the long term distinguishing features of the electronic communications market mean that for the foreseeable future the sector will not conform fully to standard competitive market structures, as competition increases electronic communications markets will become more like other sectors of the economy. This means that electronic communication regulation should change. The frameworks and the detailed rules provided by the Telecommunications and Broadcasting Acts should be replaced by different – and slimmer – frameworks and rules appropriate to digitalised and converged electronic communications. The proposals for radio frequency spectrum allocation in the Wireless Telegraphy Bill should be extended to foster a fully functioning market in radio spectrum, including secondary trading, and consolidated with new legislation for electronic communications. This means a split in the Radiocommunications Agency between the functions which should remain a Government responsibility (eg international negotiations over allocation of the orbit/spectrum resource) and others which should properly form part of the remit of the regulator(s) of electronic communications.

4.4 Competition in both infrastructure and services has been an effective instrument for the achievement of public policy objectives in telephony and IT. Promotion and development of competition within the telephony and related markets has benefited stakeholders – consumers, investors and the national economy as a whole. Its most significant positive impact has been in the improvement of the quality, choice and price of services received by customers. Competition, complemented by regulatory powers to ensure achievement of social policy goals and to deal with the long term structural market failures which distinguish the communications market, is therefore likely to be the best means of stimulating innovation, quality, choice and lower prices for consumers in the future. In consequence, as competition increases sector specific regulation should be conducted with an increasingly light touch and with an increased reliance on general competition law.

4.5 This approach has been successful in traditional telecommunications. As competition has increased, Oftel’s regulatory focus has shifted from protecting consumers against potential monopoly abuse to promoting effective competition. Oftel has done so by policing competition and fair trading rules and preventing anti-competitive behaviour in the marketplace

4.6 This shift in emphasis, together with the introduction of the Competition Bill, will have a profound impact on the way regulation works. Oftel believes it to be a powerful model with general implications for the questions considered by the Select Committee. Sector specific regulation was set up at a time when UK competition law was relatively weak. In consequence, there was a danger that new entrants could not be confident of fair competition in markets where incumbents had such powerful established positions – positions which past Governments had seen as necessary to secure the public interest in both telecommunications and broadcasting. Thus, additional rules were applied to the incumbents to enable competition to thrive and to secure an effective market. In telecommunications, Oftel was charged with the duty and power to foster and encourage fair competition through ex ante rules which proscribed anti-competitive behaviour more specifically, and thus more effectively, than the Competition Act 1980 and Fair Trading Act 1973.

4.7 The Competition Bill (if passed), in harmony with established EU competition law, could mark a critical step in the evolution of regulatory control in UK telecommunications as it removes many of the weaknesses of the existing general competition law. The Bill prohibits abuse of dominance and anti-competitive agreements. It gives sector-specific regulators, such as Oftel, concurrent powers in their sectors with the Director General of Fair Trading to enforce these prohibitions. Oftel’s enforcement powers proposed under this new Competition Bill will be more effective than enforcement under the Telecommunications Act 1984. It, along with other sector specific regulators, will have strong investigatory powers, power to make interim orders and will be armed with a powerful deterrent to anti-competitive behaviour through the new power of the Director General of Telecommunications to impose a fine of up to 10% of UK turnover.

Securing regulatory independence and a clear split of responsibilities

4.8 In the terms of reference for the Utility Review, the Government has recognised the importance of a long term stable framework for regulation. It has stated that “arm’s length” regulatory independence will be maintained within a framework that clearly establishes the respective remits of Ministers and of regulators. Oftel welcomes this approach which is well suited to the challenges of a converged communications market. The independence of the regulator from Government – and from the industry it is regulating – will promote a stable regulatory environment and thus encourage private sector investment in capital intensive industries.

4.9 But independence does not mean that regulators can ignore Government policy. Oftel recognises that it is for Government to establish a policy framework and to define objectives, especially social and environmental objectives. The regulator’s role is to devise appropriate structures and procedures to secure these objectives.

Ensuring consistency and coherence

4.10 Consumer and investor confidence depend on the existence of a consistent and coherent regime for regulation of electronic communications. The risk of confusion is real. There are no less than fourteen statutory and self regulating bodies for media and communications in the UK. General competition authorities and international bodies, such as the European Commission and the International Telecommunications Union, further complicate the picture. Individual firms may be subject to regulation by several different authorities and firms competing in the same market are subject to different regulatory regimes.

4.11 Ensuring that the regulatory regime reflects the relevant economic market makes for consistency and clarity. Convergence means that sectoral regulation, based on outdated technological distinctions between point-to-point and point-to-multipoint communication media, will become increasingly untenable. Just over the horizon are technological changes which will increase the transmission efficiency of Internet networks when handling point to multipoint information streams (ie broadcasting). This will dramatically increase the capability of these networks to deliver large amounts of real time broadcasting. A regulatory regime which ignores this, because it is based on the distinctions of yesterday, wastes resources; but even more seriously, may damage development of the communications market. At the very least, it would lead to the artificial segmentation of new technology to fit into an artificially sectionalised regulatory structure. At worst, divided powers and responsibilities could inhibit effective regulation of anti-competitive behaviour.

4.12 Some commentators suggest that overlaps and divisions of responsibility can be dealt with by working groups of different regulators. Oftel believes this can only be a temporary measure. It does not solve the problem of different and conflicting statutory duties. Moreover, ad hoc working groups with no clear statutory responsibilities or accountability do not provide the clear and consistent regulatory environment which Oftel’s experience suggests is essential to the satisfactory development of the UK communications sector.

Ensuring transparency and accountability

4.13 Oftel welcomes the Government’s commitment to reviewing communications regulation as part of its review of Utility Regulation. Oftel’s response to that review emphasised the importance of transparency and openness in regulatory process and practice. Oftel believes these are the keys to ensuring the accountability and legitimacy of any regulatory regime in the eyes of customers, industry and Parliament. In a rapidly evolving communications market it is particularly important for regulators to consult openly with both operators and consumers. Oftel’s experience shows that open consultation strengthens effective regulation. The requirements for accountability and transparency should apply to all the regulatory elements, no matter what their precise relationship with Government and/or suppliers of communications services. Thus, if the BBC Board of Governors maintains its regulatory functions – for example by retaining responsibility for defining the BBC’s Public Service Broadcasting remit – then it too should adhere to the expectations of accountability and transparency which apply to other regulators.

Detailed rules – only where necessary

4.14 Detailed prescriptive rules can themselves be a barrier to entry and inhibit the development of effective competition. In the new world of convergence, regulation should focus on encouraging competition, diversity, choice and innovation as well as on realising the social objectives mandated by Parliament. Old style regulation, based on controlling the activities of a handful of companies with privileged access to a scarce resource is no longer possible or productive. Getting the rules right is essential if UK citizens are to enjoy the benefits of the Information Age. Keep the ‘wrong’ rules too long and regulation will stifle the very innovation and competition it should encourage; lift the ‘right’ rules too early and competition may never fully develop.

4.15 The challenge of the future for communications regulation is to balance competition-based regulation with effective powers to deal with market failures and to deliver social goals whilst ensuring the protection of consumers.

4.16 In meeting that challenge Oftel suggests that to avoid the dangers of over regulation the starting point should be: Where and why is regulation necessary – rather than how do we regulate a market.

Where is regulation necessary?

4.17 To answer this question, distinctions must be drawn between rules needed during the transition from the status quo to a converged “open state,” (rules which are likely to be progressively lifted), and the rules necessary in the long term for effective regulation of a converged communications market.

4.18 To identify the right rules for the communications market Oftel tested the existing detailed rules, for both the broadcasting and telecommunications, by asking “What rules are required, over and above general competition law, to promote effective and sustainable competition and to deliver social policy goals?”

4.19 In answering the question Oftel took into account two considerations: First, the converged communications market will include certain public network aspects of the IT sector which, unlike broadcasting and telecommunications, has not experienced sector specific regulation. And, second, stronger competition law is being introduced in the Competition Bill – notably powers to deal with abuse of a dominant position and with restrictive agreements which have an anti-competitive effect.

4.20 Oftel concluded that, in the “open state,” most of the detailed prescriptive rules currently applied in both telecommunications and broadcasting can, and should, fall away. They are not necessary in a well functioning market subject to general competition law. Only a small subset of the rules presently applied to the broadcasting and telephony markets are required in the “open state.” In the short term, during the transitional period, some further detailed rules are necessary. But even during transition many of the existing prescriptive rules can be discarded.

Open State Rules

4.21 In the open state and beyond, Oftel envisages only five types of rule:

General competition law

4.22 The Competition Bill will (if passed) introduce powerful prohibitions on the abuse of a dominant position and on restrictive agreements which have an anti-competitive effect, and gives sector-specific regulators effective powers to apply them. These provisions will enable a communications regulator to operate within a clear framework of rules to which dominant operators, or operators entering into agreements, must adhere. The attraction of this proposed new competition legislation is that it will provide incentives for firms to police their own activities and ensure they are consistent with published guidelines. More importantly, it will enable regulators to withdraw from detailed prescriptive regulation, which may impede the development of the market, whilst retaining powerful sanctions for an expert sector-specific regulator to impose on firms engaging in anti-competitive behaviour.

General consumer protection law

4.23 The consumer protection afforded by general laws, such as the Trade Descriptions Act, the Unfair Consumer Contract Terms Regulations and the Weights and Measures Act apply to transactions in this sector as to other sectors of the economy. They have not traditionally been applied or enforced directly by a sector-specific regulator (as competition law has been), but rules based very closely on general consumer protection law have been included in licences and therefore come within the regulator’s scope. The appropriate mechanism for applying these rules may come down to a question of convenience or certainty of application.

Rules to deal with “permanent” market failures in the communications sector.

4.24 Inherent characteristics of electronic media and communications mean that some market failures are endemic – i.e a competitive market would not redress these failures. Such failures are not necessarily the result of firms’ abusive behaviour and are therefore not caught by the prohibitions in the Competition Bill. They arise out of the nature of the industries in question. Accordingly, specific rules are required to cover particular bottlenecks, notably call terminations on telephony networks and access control systems on all electronic networks.

4.25 Such ex ante rules are required for those who act as “gatekeepers” but escape the legal/economic definition of dominance (though they have the clear potential to become dominant). Control of access gateways can distort downstream markets. If such distortion occurs it would be extremely difficult to redress after the event. In order to prevent such distortions ex ante rules should apply where the consumer, or other end-user of services, faces significant switching costs in moving to another supplier or service. The rules should be subject to a carefully defined “trigger” to avoid catching any operator unnecessarily. They must also be applied in a way which is technology-neutral (ie so that it is the market, not the regulator, who determines the relative success of any competing technologies). They should be the minimum necessary to allow the downstream markets to function normally, without unnecessary restriction or distortion of competition.

4.26 Specific rules for ensuring interoperability between different operators, between operators and service providers, and between different service providers are also required. Such rules are likely to become increasingly important in the networked IT field. As service providers provide an increasing diversity of services across undifferentiated digital networks, relying on intelligence in consumers’ equipment, it will become even more important to ensure that the entry barriers constituted by the technical/proprietary control systems embedded in customers’ equipment are not used abusively. Oftel believes that specific rules to deal with this type of market failure will be required in the open state and beyond. It will be particularly important to build international consensus on the approach to this area.

Rules to ensure delivery of social and consumer policy goals

4.27 Social and consumer policy objectives will not all necessarily be achieved through the operation of well-functioning competitive markets. It is crucial therefore that a regulator has sufficient powers to ensure that such Government-defined objectives are met. One of the most significant of these objectives is universal service. Universal service is a dynamic and evolving concept – currently access to voice telephony at affordable prices is defined as the key constituent of the universal service “basket” because it is necessary for full participation in society. But in the foreseeable future, access to a digital and/or high capacity line might be defined as part of the universal service obligation. Consequently, rules and regulatory powers must be sufficiently flexible to respond to changes in the market and the needs of the consumer. It is equally important that such rules are enforced in an efficient and cost effective way, that their effect is competitively neutral and they do not inhibit competition and choice.

Rules on content

4.28 Competition between content suppliers will deliver much of what is required – but not all. There may be too much uncontrolled content which could cause offence, giving rise to “negative content” regulatory requirements, and not enough of other kinds of content, giving rise to “positive content” regulatory requirements.

4.29 Because those operating electronic communication systems are unlikely to know what content is being transmitted across their system any negative content rules would need to apply to all content providers, irrespective of the specific means of delivery used. Supplying the missing bits – ‘positive programming requirements’ – in an “open state” converged market would require a “contract” between the Government (through the regulator) and the content supplier. To be able to negotiate such a contract, the regulator would need to have something of value to the supplier. Formerly that “something" was access to a scarce resource – the radio frequency spectrum. But, in a future without capacity constraints, the “something” of value is likely to be financial resources either derived directly from Government or indirectly via Government sanctioned mechanisms like the BBC licence fee. In return for the “something” of value organisations such as the BBC would fulfill a contract to provide the missing bits – notably the positive programming requirement which has characterised public service broadcasting.

4.30 The loss of the ability to apply detailed positive or negative content requirements on the suppliers of electronic communication systems means that consumers could loose out, in the sense that they would loose control over the type(s) of content they would wish to see, or let their children see. To balance this potential loss of control, rules are likely to be required to enable customers to have more control over what is, and is not, available to them. The technological changes that are driving the sector to the “open state” can also provide the mechanisms to give individual customers much more control over what is, and is not, available to them. The principle of consumer protection that can, and should, be applied in the “open state” is one of individual control, not control exercised by the regulator(s).

4.31 To the extent possible, competition policy will deliver sufficient diversity in supply to ensure that economic market power is not concentrated to such an extent that customers are exploited economically. A well functioning competitive market will deliver much more diversity than this. However, it is possible that even in the “open state” the competitive market is insufficiently developed to deliver enough diversity of supply to meet the cultural and political needs of a well functioning democracy. Under these circumstances additional specific rules on media (and cross media) ownership will be required. Because of the importance to a well functioning democracy of diversity of supply it would be dangerous to abandon the existing special controls before it has been demonstrated that the “open state” will deliver adequate diversity. In any event, these rules will be necessary during the transition phase.

4.32 However, it should be recognised that these rules also have some potential costs. To keep them for longer than is necessary runs the risk of making it more difficult for UK firms involved in electronic communications to compete effectively in the international markets, where other producers will not necessarily be subject to the same kinds of constraints.

Rules for Transition

4.33 Oftel envisages three additional types of rules, needed for a limited period:

Transitional rules for ex-monopolists

4.34 Some rules beyond general competition law are necessary to prevent the residual advantages of incumbents being exploited in a way which frustrates the development of competition or unfairly exploits the consumer. These rules are likely to be transitory in markets such as communications which are not generally characterised by natural monopolies. They include such provisions as retail price control, the establishment of accounting systems to prevent unfair pricing or cross-subsidy, and direct control of the terms and conditions of interconnection.

4.35 These special rules are required for a limited period to establish conditions for competitors to enter, develop and stay in the market. Competition law, with its emphasis on waiting until an abuse has occurred and focussing remedies on individual abuses, is inappropriate to deal with the long-term and widespread advantages enjoyed by historically incumbent firms. As markets becomes more competitive, regulation through these special rules should wither away in favour of the exercise of powers defined under the Competition Bill.

Rules to deal with joint dominance, to the extent that these are not effectively dealt with under general competition law

4.36 The current telecommunications, radio and broadcasting industries are characterised to a high degree by oligopolistic market structures (or “joint dominance”) with high entry barriers, often as a result of the allocation of a scarce but essential resource such as radio spectrum. Even a mature communications market may be characterised by oligopoly given the high costs of building alternative networks and operating systems, and of creating commercially attractive content. This gives rise to the need for extra forms of control, going beyond the powers in the Competition Bill.

4.37 The proposed prohibitions in the Competition Bill do not deal effectively with anti-competitive parallel behaviour by companies where there is no agreement between. This is a potentially significant gap in the regulator’s powers and it is recognised in the present proposal to keep the complex monopoly provisions of the Fair Trading Act ( FTA) in parallel with the new Competition Bill.

4.38 The new competition legislation may exclude vertical agreements from the general prohibition on making anti-competitive agreements; Government is seeking to define the extent of exclusions. Vertical integration and complex vertical arrangements are a common feature of the telecommunications industry and there is a high likelihood of situations arising under which vertical agreements could be used by those with market power (though not necessarily dominant in terms of EU jurisprudence) to foreclose entry to parts of the communications market.

4.39 There is a particular problem where a valuable and scarce resource has been allocated to a small number of service providers. In this case, it is necessary to control, through regulation, the exploitation of that resource. The implicit contract between Government (which allocates the valuable resource) and the service provider (who agrees to do something in return as a condition of licence) needs to be monitored and enforced. These rules generally relate to specific outputs such as positive programme requirements, coverage obligations, and/or cross-subsidies to certain customer classes.

4.40 Such rules should only be needed, however, for a limited period. Once transmission capacity becomes available as a result of technological changes, and radio spectrum becomes a fully tradeable commodity, the need for them will disappear.

4.41 More generally, Oftel hopes that special rules to deal with joint dominance will not be needed permanently. In the longer term, either through the development of jurisprudence on the scope of “abuse of dominance,” or through changes in the competition law itself, that general competition law will be competent to deal with any remaining problems of joint dominance.

Rules no longer needed

4.42 Oftel’s approach implies that no other special rules are required and should no longer be imposed. That means getting rid of many detailed rules which have grown up over the years, both in telecommunications and in broadcasting. Some of the detailed rules may live on in a more flexible form as guidelines under the Competition Bill or under the rules of the proposed general authorisation; the rest should be dispensed with altogether.

How the Rules should be applied

4.43 Different types of rule call for different application mechanisms. The key provisions on competition are applied through general competition law, backed by criminal and civil sanctions; general consumer protection provisions are applied through the various general consumer protection laws. “Special rules” for electronic communications have traditionally been applied through a system based on a prohibitive licensing regime (ie a regime based on prohibiting everything that is not expressly allowed). Oftel considers that a system based on general authorisations, with a limited set of general rules backed up, where appropriate, by detailed guidance, is more likely to foster investment, innovation, diversity and competition. Such a system also fits well with the approach of recent EU Directives. More detail on how this new system of rules and how they would operate is in Annexes B and C.

4.44 Rules to ensure the delivery of public policy goals could also be delivered through such a general authorisation system, though some or all of them might be better dealt with through quasi “contracts.” For example, as is the case now with the BBC, public service broadcasting’s “positive content” could be provided in exchange for exclusive access to a particular type of funding. Universal service in telecommunication services could be provided in exchange for receipts from a universal service fund.

4.45 “Negative content” rules are best applied through self-regulation tailored to give consumers control over the information they access, with a statutory backup. Such control can be achieved largely through systems of classification and filtering. Although the principal mechanism for this should be self-regulatory, the key rules would need to be defined either in a general authorisation (applicable to all) or in the criminal/civil law.

4.46 The only rules which require prior authorisation (or “individual licensing”) should be the additional rules applied to operators with access to a scarce resource such as broadcasting transmission capacity and other radio spectrum. Within a few years Oftel expects transmission capacity to be widely available, and hopes that a true market in radio spectrum will have been established reflecting its economic value. Most of these special “scarce resource” rules (and therefore the need for prior authorisation) will therefore disappear.

How the Rules should be enforced

4.47 No regulatory mechanism is fully effective unless there are sufficiently strong sanctions to inhibit breach of the rules and to punish any such breaches. The current UK telecommunications regulatory regime couples a multitude (probably a surfeit) of detailed individual rules with weak sanctions and unwieldy enforcement mechanisms. The Competition Bill sets the standard for a regime of general rules backed by strong sanctions, including third party rights. Similar sanctions and enforcement procedures should be available for sector-specific communications rules. More detail on how these might work is provided in Annex B. The next Section explains the structural and institutional arrangements best suited to apply the various legal instruments needed.

Conclusion
 

• There are general considerations relevant to good regulatory practice – these should clearly be applied to any regulator(s) in this sector. But in addition, there are specific types of regulatory rules and instruments that should be applied. In particular: competition should be encouraged where this is possible;
• anti-competitive behaviour should be dealt with under the proposed Competition Bill where it is applicable;