| The benefits of self and co-regulation to consumers and industry - July 2001 | ||||||||||||||||||||
ContentsSummary Oftel’s approach to self- and co-regulationChapter 1 Introduction: the position of self- and co-regulation in Oftel strategy Chapter 2 Summary of responses to June 2000 consultation document Chapter 3 Lessons from past self and co-regulation Chapter 4 Oftel’s plans to extend effective self- and co-regulation Annex 1 List of respondents to consultation Annex 2 Experience from specific self and co-regulatory initiatives Summary – Oftel’s approach to self- and co-regulation S1 Oftel's goal is to achieve the best deal for the consumer in terms of quality, choice and value for money of telecoms services. Effective competition is the main means by which the goal can be delivered. Where effective competition is achieved, the need for sector specific regulation will in many cases be eliminated, in others significantly reduced. S2 Where effective competition has not been achieved, or there are other requirements for consumer protection, Oftel will seek to intervene, to the minimum extent necessary, in instances where the benefits of such regulation exceed the costs. The form of regulation can be one or more of the following:
S3 Oftel seeks to ensure that regulation is appropriate to the level of competition and the need to protect consumers. Where effective competition develops, a reduction in formal and sector-specific regulation should be expected. Self and co-regulation may play a part in this reduction, although this will not happen in all cases. Where a market is declared effectively competitive, self- or co-regulatory activities might be continue to be necessary to provide some specific protection for consumers. Self- and co-regulation also enables new regulation to be introduced in a way that is more consistent with Oftel’s appropriate regulation strategy S4 Oftel will not make an indiscriminate shift or apply a deliberate bias towards less formal regulation as an end in itself. Oftel will use a cost-benefit analysis for individual issues to ask why, and then what, regulation should exist. This process will apply irrespective of whether the level of regulation is expected to rise or fall. S5 The role of self- and co-regulation is to make it easier to regulate at the minimum level necessary to achieve Oftel’s objectives. Oftel can better achieve this over time by both enhancing its decision-making processes and improving the effectiveness of self and co-regulatory mechanisms. S6 Oftel will continue to promote a better common understanding of the circumstances and ways in which self- and co-regulation are best pursued. It may be useful, following discussions with stakeholders, to develop some brief guidance on the appropriate method of regulation for the circumstances; the role for Oftel staff; and assessing the effectiveness of initiatives. Experience will also be shared, to better understand the circumstances where self and co-regulation are most likely to succeed. Early experience suggests that consumer information initiatives and areas where stakeholders have a greater co-incidence of interests in co-operating are most suitable for self- and co-regulatory measures. S7 As for mechanisms to promote effective self- and co-regulation, Oftel is not seeking to create inflexible structures that inhibit market developments or prevent creative responses to individual regulatory challenges. However, Oftel does see merit in linking together various initiatives and improving communication among stakeholders. Oftel would like to work with stakeholders to develop models of working arrangements for self- and co-regulation, as this should improve the efficiency of such initiatives. Oftel also intends to discuss with stakeholders the idea of developing a dedicated web site facility (perhaps initially based on the Oftel web site) to host the outputs of self and co-regulatory activities and provide an appropriate outlet for further self- or co-regulatory initiatives. Chapter 1 Introduction: the position of self- and co-regulation in Oftel’s strategy 1.1 In June 2000 Oftel issued a consultation document, Encouraging self- and co-regulation in telecoms to benefit consumers. This follow-up statement:
1.2 This document does not reproduce all the arguments from the consultation document, but rather focuses on areas where more clarity is needed details what Oftel intends to do next to extend effective self- and co-regulation. 1.3 The June 2000 consultation document invited views on a number of specific questions, covering the role of self- and co-regulation, and the priority areas and processes for their application. The responses to these questions, with Oftel’s comments on those responses, are addressed in Chapter 2. 1.4 This introductory chapter describes the position of self- and co-regulation in the regulatory framework, the benefits of extending the policy, and the main regulatory and market changes that will provide a further impetus for effective self- and co-regulation. Self- and co-regulation: part of the regulatory choices 1.5 Oftel’s goal is to secure the best deal for the consumer, with 4 high-level objectives to achieve this:
1.6 Self- and co-regulation are just 2 of the 4 means of meeting these objectives:
1.7 Co-regulation covers three scenarios:
1.8 Each of these can legitimately be termed co-regulation, as Oftel is involved to the useful purpose of "oiling the wheels" - encouraging progress and providing assistance in areas where the market is not delivering desired outcomes. There will be some differences in the factors important for the success of each type of co-regulation, but for sake of providing a broad overview this statement does not distinguish further between these three types. Where co-regulation is applied, Oftel will seek to identify which type it intends should apply, and within individual projects will consider the priority of the different success factors. 1.9 It should be noted that over the lifetime of some projects (for example number portability or carrier pre-selection) the focus of activity for developmental activities will shift to co-regulation (or potentially even self-regulation) once high-level strategic and legal requirements have been defined by formal regulation. Of course, even where more of the details are left to stakeholders, Oftel will investigate all allegations of anti-competitive behaviour and will act decisively where these are proven.
Deciding upon the level of regulation 1.10 Where regulation is necessary, it is important to understand how best to regulate,. However, it is important not to lose sight of the primary question, which is whether, in each particular case, there should be any regulation at all. 1.11 Oftel’s strategy is to apply regulation only where necessary, and to the minimum extent necessary, to achieve its objectives. Ideally, competitive markets would deliver the required benefits to consumers and no regulatory intervention would be needed. Therefore the first and most important question in Oftel decision-making on individual issues should be whether market forces, buttressed by non-sector-specific legislation, will deliver the necessary benefits to consumers quickly enough. If the conclusion is that the market will not adequately deliver, the next question is why and, if appropriate, what form any regulation should take. 1.12 Decisions on whether and how to regulate will be taken by Oftel following analysis of the costs and benefits of action in individual cases. In general, where effective competition develops and can be sustained without ongoing intervention, a reduction in formal, sector-specific regulation would be expected. However, This this is not an end in itself. Oftel will regulate where and as necessary to achieve its objectives, and applying new or higher regulation in particular cases may be entirely consistent with Oftel strategy. Formal regulation will continue to be relevant where there remains an operator or operators with market power. Oftel will also need to regulate where and as necessary to ensure adequate consumer protection. 1.14 The value of self- and co-regulation is that they can provide alternatives to formal regulation – depending on the commercial interests involved - and provide the flexibility to regulate at the minimum level necessary to achieve Oftel’s objectives. Self- and co-regulatory mechanisms may represent stages in a move towards less regulation, or the means to avoid the need to introduce new more intrusive, formal regulation. Therefore, whilst some self- and co-regulatory activity may represent an increase in the overall ammount of regulation, such activity may be less burdensome, more flexible and more proportionate than the alternative. 1.15 In cases where formal regulation is removed, self- or co-regulatory alternatives may take its place. This should not happen automatically: controls may be removed completely in some instances where a market becomes effectively competitive. It is important to consider whether self- or co-regulatory steps are necessarily part of a path to reliance on market forces. Oftel and its stakeholders need to avoid using self- and co-regulatory mechanisms just because they can exist and work effectively. Figure 1: how regulation changes as competition develops
1.16 The diagram above illustrates the role of self and co-regulation among the options facing the regulator. The route taken will depend on the appropriate level of regulation in each particular case and of course, if warranted, the direction of change could be towards a higher level of regulation. From past experience, most changes to existing regulation have been from formal regulation to market forces, with self- and co-regulatory approaches used more in areas where formal regulation did not exist already. 1.17 The diagram below illustrates the progress of regulation as competition develops. The level of regulation will fluctuate in the short-run, as different (but appropriate) levels of regulation are applied to individual issues. In the longer term, regulation should trend downwards: this is represented below by the line LR1. By making self- and co-regulation more feasible choices, and thus enhancing flexibility, the average level of regulation can fall for each given point in time, as shown below in the shift downward from LR1 to LR2. Figure 2: the effect of enhancing self- and co-regulatory mechanisms
1.18 It is not possible to generalise about the speed of this process. One reason for this is that it is difficult to predict the development of competition and consumer demand in the context of rapid changes in technologies, products and markets. 1.19 Against this background, Oftel will continue to encourage a shift to more self and co-regulation rather than heavier regulation. It will do this by enhancing stakeholders’ and its own understanding of where different levels and mechanisms of regulation work, and by making self- and co-regulatory mechanisms more effective in practice. The relationship between effective competition and self and co-regulation 1.20 Use of self- and co-regulation needs to be considered in the context of Oftel’s overall strategy of ensuring "appropriate" regulation. A key element of that strategy is to assess whether regulation is necessary. One key type of assessment is effective competition reviews of specific markets, the criteria for which were published by Oftel in its August 2000 Effective Competition Review Guidelines. Effective competition relates to the benefits realised by customers, in terms of, for example, keen prices, high quality of service, reasonable choice, and substantial innovation. It is clear enough that where effective competition is considered to have developed, formal obligations applying to particular operators with undue market strength should be removed. However, there is a need to clarify the implications of the effective competition outcome for pursuing self- and co-regulation. 1.21 Even in effectively competitive markets (whether telecoms-related or not), there are instances where some form of action is needed by a third party to protect consumers; the relevant third party will vary according to the circumstances. Many of the existing self- or co-regulatory initiatives in UK telecoms are aimed at some aspect of consumer protection, and such initiatives may continue to be required even where a market has been found to be effectively competitive. Effective competition reviews may suggest new measures where consumers are not adequately protected or their reasonable expectations are not being met. In some cases, formal obligations may exist irrespective of the review findings (eg. the Revised Voice Telephony Directive impacts on fixed telephony providers). In others, there may be a need for meausres to ensure that competition can be sustained in the medium-term. Each case will have to be viewed on its merits. 1.22 The following diagram illustrates the relationship between issues settled by, revealed by and unaffected by a finding of effective competition. The key issue is that some initiatives contribute to both promoting competition and protecting consumers. Figure 3: Possible outcomes following a decision that effective competition exists
1.23 Following a finding that competition is not effective, Oftel decides on the appropriate form of regulation. New or continuing formal obligations are less likely if Oftel believes that particular issues of concern are being, or can and will be, addressed through self- and co-regulatory actions, so avoiding the risk of consumer detriment. The benefits of effective self- and co-regulation 1.24 For self- and co-regulation to flourish, they have to provide clear benefits. Oftel believes that they do, and has classified them below into those that are particular to either consumers or providers, and those that are general to all. In practice of course the benefits in each class will often be closely linked. For example, customers should benefit to the extent that the benefits to providers promote effective competition. Of course the benefits listed below will only be realised if self- and co-regulation are applied in the appropriate circumstances, with the necessary energy and commitment from all stakeholders. Benefits to consumers 1.25 The benefits of self- and co-regulation to consumers include
Benefits to providers of telecoms services 1.26 The following benefits are specific to providers:
General Benefits 1.27 These benefits are more generally concerned with the effectiveness of regulation:
The wider context 1.28 Looking ahead, the policy on self- and co-regulation has to be seen in the context of the impetus provided by two major developments in the regulatory framework:
New EU Framework 1.29 The draft Framework Directive embodies the principle that regulation should be proportionate: Member States shall ensure that in carrying out the regulatory tasks specified in this Directive and the Specific Directives, the national regulatory authorities take all reasonable measures which are aimed...…. at achieving the objectives set out in paragraphs 2, 3 and 4. Such measures shall be proportionate to those objectives. 1.30 This gives a clear steer that as markets become more competitive, but where there are still concerns for consumers, a proportionate approach can be achieved by enhancing the effectiveness of self-and co-regulatory structures; this will also provide a wider choice of effective regulatory levers. 1.31 It is anticipated that the new EU regime will also bring two important changes:
1.32 Over time, these changes should reduce the profile of ex-ante sector-specific formal regulation, and create more opportunities for stakeholders to resolve common problems by co-operating among themselves to meet the needs of consumers, with input as necessary from the regulator. It is worth noting that different Directives are likely to offer varying scope to avoid the use of formal regulation. There are still likely to be some areas where the European legal framework leads to formal regulation being necessary. The White Paper and OFCOM 1.33 The White Paper sees a key role for self and co-regulation: Regulation will be effective but kept to the minimum necessary for ensuring that the interests of citizens and consumers are fully safeguarded……..OFCOM will have a duty to…..roll back regulation promptly where increasing competition renders it unnecessary. It will encourage self-regulation and co-regulation where these will best achieve the regulatory objectives. (White Paper, paragraphs 1.3.9 and 8.11) 1.34 The White Paper states that regulation must be able to adapt quickly to changing markets, technologies and expectations, with regular reviews of the level of regulation. Regulation will not be based on detailed laws, but the regulator will be responsible - in consultation with stakeholders - for developing and managing the rules within broad statutory requirements. 1.35 It is important that stakeholders recognise the importance of a positive approach to the opportunities suggested by the White Paper. On codes of practice, for example, the prospect of Ofcom intervention is raised if stakeholders do not respond to the challenge: Ofcom will have a principal duty to protect the interests of consumers and will have powers to take action if the industry does not develop an effective consumer protection regime. (White Paper, paragraph 7.4) The same is true in relation to effective redress and creation of an effective ombudsman scheme. The impact of regulatory and market changes 1.37 A major part of the background to these regulatory changes is the convergence of electronic communications and growth of broadband services. Given that the benefits of fast-evolving services are so sensitive to regulation, convergence provides extra impetus to ensuring that the tools of regulation are available and are used appropriately and efficiently. It could be argued that because major structural reform of UK communications sector regulation is on the horizon, it is premature to do further work in the interim to develop particular mechanisms of self and co-regulation among telecoms stakeholders specifically. That view fails to recognise the continually developing nature of electronic communications services, which require a flexible but coherent framework for self- and co-regulation irrespective of legislative timetables. OFCOM is some way off, and Oftel will need to make appropriate decisions in the meantime. Indeed the experience gained prior to OFCOM should provide a better basis for successful self- and co-regulation in the future. Sharing such experience will necessarily be part of the preparation for OFCOM by those bodies whose current activities will be part of its remit. 1.38 There are then imperatives as well as benefits to creating effective self- and co-regulatory mechanisms, within a framework of applying the appropriate level of regulation. In doing so it is important to address the difficulties of extending and managing self- and co-regulation. The next chapter, in examining the responses to consultation, provides some useful indications of the challenges faced. Chapter 3 considers some of the practical experience and suggests lessons for future initiatives. Chapter 2 Summary of responses to consultation document 2.1 There were 21 responses to the consultation document, including two on behalf of a number of companies. A full list of respondents is provided at Annex 1. 2.2 Most respondents to the consultation document recognised that self & co-regulation would play a greater role in the telecommunications sector, and supported Oftel’s intention to rely on an appropriate mix of formal regulation, self- and co-regulatory initiatives, and market forces plus non-sector specific regulation, depending on the circumstances. Only two respondents could really be classified as more negative than positive about the opportunities for self & co-regulation - one consumer-based and one industry-based. Among the rest, there was variation between those who were generally positive about the opportunities for self- and co-regulation, and those who agreed with the overall strategy but had reservations about its potential scope and the extent to which it could be applied. 2.3 Generally, the operators were the most supportive of the proposals, seeing scope for such initiatives mainly in the field of consumer protection. There was concern that any measures should not merely create an additional layer of regulation, and that, in general, where self & co-regulatory initiatives were successfully operating, this should lead to a corresponding withdrawal of formal regulation. Consumer groups were however more cautious. In general, they viewed the telecommunications market as not having reached a level of competitiveness sufficient for successful self-regulatory regimes. Any self-regulatory schemes considered would need to provide equivalent or greater protection than formal or statutory regulation. They did, however, see scope for co-regulatory initiatives as long as issues of transparency and resources were addressed. The views of consumer groups 2.4 Overall, consumer organisations felt that co-regulatory initiatives were more likely to be appropriate and easily applicable than self-regulatory initiatives. They were wary of any increase of self-regulation, with some of the reasons for this being limited resources, difficulties experienced by previous self-regulatory initiatives, and the current limits to the competitiveness of markets. Consumer representative organisations felt that Oftel needed to be closely involved in any self or co-regulatory initiatives. It was also felt that Oftel needed to retain its backstop powers and be prepared to act to protect consumers where necessary and address market failures. 2.5 The Public Utility Access Forum (PUAF) was least positive towards self- & co-regulation. It was not convinced that "benefits to all parties" would necessarily flow from self- & co-regulation. PUAF felt that, common ground between those consumers and the providers would be difficult to find, where unprofitable customers were concerned. PUAF also considered that providers should be challenged to state examples of where consumers had suffered from regulation. 2.6 Oftel response: Oftel agrees that co-regulation is more likely to be easy and appropriate than self-regulation in the short-run, given the challenges indicated by previous experience (see chapter 3 below). Oftel does not intend to withdraw from areas where it would be appropriate for it to remain involved, and will keep a watching brief on the effectiveness of self-regulatory initiatives. Oftel considers that, if there is no likelihood of common ground between providers and unprofitable customers, this would tend to suggest that formal regulation is the most appropriate course of action. In general, while Oftel considers that there should be no presumption in favour of self and co-regulation, there should equally be no presumption in favour of formal regulation. The views of service providers 2.7 Service Providers were also wary of an increase of self-regulation, for many of the same reasons as consumer groups, including the level of resources available to smaller potential participants in initiatives. Centrica Communications, on behalf of the Service Provider Interest Group, considered that there were still deficiencies in the current regulatory regime which needed to be addressed to create the right environment to implement self & co-regulation successfully. In Centrica’s view, Oftel should therefore focus its efforts on creating the right market conditions. 2.8 Oftel response: Oftel has to make decisions in the context of individual projects as well as at a more strategic level. To make the right decisions and minimise the level of regulation for individual areas, it needs to promote a better structure of self- and co-regulation. This is not incompatible with seeking to provide the right market conditions where this is deemed to be necessary. Operators’ views 2.9 Operators in general supported a move towards a greater use of self & co-regulation with a corresponding withdrawal of formal regulation, viewing such moves as a natural consequence of a more competitive market. However there was general agreement that self or co-regulatory regimes are not appropriate for areas where there are conflicting commercial interests. Operators considered that where self or co-regulatory initiatives are implemented formal regulation should be withdrawn. Whilst in general operators saw self- & co-regulation as a natural consequence of an increasingly competitive market, they suggested that there was a need for established processes and procedures to evaluate the utility of proposed self - or co-regulatory schemes in comparison with a move to reliance on market forces. 2.10 Oftel response: Oftel agrees that it is important to ask whether any regulation is needed when formal regulation is removed. Whilst conflicting commercial interests do not promote collaborative working among stakeholders, there are examples (see chapter 3 below) of where co-regulation has been effective in improving outcomes despite the conflicting interests involved. Co-regulation may be harder in such instances but at least in some cases it may also be worth the effort. Views on institutional arrangements 2.11 There were also varying views on the institutional structures required to facilitate future self- and co-regulatory initiatives. In general, consumer groups were more receptive than operators to a type of body like the Australian Communications Industry Forum (ACIF), although one operator (Worldcom) also considered an ACIF-like body as appropriate. Other consumer groups supported the development of a Consumer Communications Council., as had been suggested I the Utilities Bill in 1998. Adequate resourcing and funding was identified by all consumer organisations as being essential. Generally, operators favoured a more ad-hoc and incremental approach, based on self- and co-regulatory bodies for specific issues rather than a new "umbrella" structure. 2.12 In terms of mechanisms to promote self & co- regulation, the clear theme from stakeholders is that they must be transparent and flexible enough to accommodate market developments and the views of a range of stakeholders. A number of stakeholders called for some initiatives to be selected as trial schemes to examine working practices, assessing issues such as representation and resources. 2.13 Oftel response: Oftel acknowledges that a general lack of support for an ACIF-type structure would make it difficult to establish one in the current regulatory environment. Oftel’s fuller view on this is given in chapter 4 below. Regarding the Consumer Communications Council model, Oftel has already confirmed that it supports the government’s approach of a Consumer Panel for Ofcom combined with an Ombudsman to handle consumer complaints. Oftel agrees that self and co-regulatory mechanisms should be transparent and flexible. However, Oftel considers that specific trial initiatives would add unnecessary delay , given the experience that already exists of self and co-regulation. However, Oftel will evaluate the progress of individual initiatives, to build the lessons already learned about the operation of self and co-regulation. Areas on which to focus 2.14 Stakeholders were divided – and not only on consumer group/provider lines - about the areas that are suitable for self- and co-regulation. Oftel had identified in its consultation document a number of potential areas that may be suitable for self and co-regulation. There were various views on the initiatives most suitable for self- and co-regulation. Some felt that the first step was to establish the right market conditions, and the institutional framework and processes for self- and co-regulation, before any new areas could be identified. Some also proposed a more rigorous analysis of past and proposed initiatives before new areas were considered. It was also generally felt by the most respondents that self- & co-regulatory initiatives were unsuitable where the commercial interests of the parties could be divergent. 2.15 Oftel response: Oftel has undertaken a further review of the effectiveness of previous initiatives. This has indicated that the area of promoting effective competition can be more subject to co-regulation than indicated in the consultation document. But this would only happen in the right situations and with a clearer understanding in particular cases of whether the conditions exist to produce the desired outcomes given the divergent interests involved. Responses to specific questions in the consultation document 2.16 The consultation document asked the following specific questions, and the key points from the responses are summarised below. Q 1: Do self- and co-regulation have a key role to play in the future of increasingly competitive telecoms and converging markets? 2.17 The overwhelming majority of respondents believed that self – and co-regulation would play an increasing role in the telecoms market – partly given the changes due at EU level – but there were differences of opinion as to extent and scope that such initiatives could be applied. The Operators Group saw an increasing use of self & co-regulatory initiatives as an inevitable element in the transition to a more fully competitive market. The Operators’ Group also thought that, where self & co-regulatory initiatives where enacted, formal regulation should be withdrawn to avoid adding an ‘extra’ layer of regulation. BT was in broad agreement with Oftel’s views as to when self-regulation is appropriate, seeing its main development in the application of industry standards relating to consumer protection. The Federation of the Electronics Industry (FEI) was in fact very supportive of an increasing use of self & co-regulation, but it disagreed with Oftel’s preliminary view that some areas might not be applicable to such initiatives. Centrica Communications, on the other hand, agreed with the principle that self & co-regulation will have an increasingly important role to play, but had concerns as to whether telecommunications markets were competitive enough for this type of regulation to play a key role. 2.18 Self-regulatory schemes were not seen as appropriate where the commercial interests of the parties to be regulated were sufficiently divergent as to preclude co-operation. The Operators Group, while supporting co-regulation in consumer protection and interconnection and interoperability, did not feel it appropriate for commercially contested areas. Orange also felt that careful consideration needed to be given to any proposed Oftel withdrawal from initiatives designed to address instances of market failure. 2.19 Consumer representative bodies were by contrast more sceptical about self- and co-regulation, doubting whether telecommunications markets were competitive enough to justify reliance on self-regulatory measures. However it was felt the current market conditions are better suited to co-regulatory than self-regulatory schemes. The National Consumer Council (NCC) submitted that before any formal regulation could be removed any self or co-regulatory schemes should have shown themselves to be providing at least the equivalent level of consumer protection. The NCC also questioned whether the consensus-based approach of many initiatives would necessarily provide the best solution. The Scottish Advisory Committee on Telecommunications (SACOT) highlighted the example of premium rate services as an example of the difficulties that a self- regulatory scheme can face in an industry which is in a dynamic state of technological and market change. 2.20 The retention by Oftel of its powers of enforcement and role of arbitration was seen by consumer groups as necessary to safeguard any failures in proposed initiatives. Both the National Consumer Council and the Consumers’ Association felt that any self-regulatory schemes would need the direct involvement of Oftel, including in monitoring developments. 2.21 There was a variety of comments about the practical operation of initiatives. The issue of adequate resourcing for consumer bodies, suppliers and other stakeholders was seen as g crucial for the effective operation of self & co-regulatory schemes. PUAF considered that larger companies and better resourced consumer bodies tended to dominate working groups. Consumer Communications for England called for greater consistency in self and co-regulatory initiatives. It also suggested that working groups should be characterised by more clarity of consumer representatives’ roles, more transparency in the selection of group representatives and greater accountability. The NCC questioned whether self and co-regulation really provided more speed & flexibility. It also thought that working groups should tend to work directly to the regulator, and should in most cases require a senior representative from the regulator. 2.22 Oftel response: Many of the responses seemed to infer a general bias toward less regulation as the mechanism to extend self- and co-regulation. Oftel’s approach is rather to regulate at an appropriate level in each case. To do this, Oftel will need to maintain appropriate involvement in co-regulation and sufficient awareness of self-regulation. Direct Oftel leadership of and involvement in involvement in self-regulation would actually amount to co-regulation. Oftel’s involvement need not however be as close nor at such a senior level, at least not in every case, as the NCC has suggested. Improved mechanisms of self- and co-regulation must however be developed to provide sufficient confidence that formal regulation can be relaxed. Q 2 Do you agree the framework set out for assessing when self and co-regulation are most likely to be effective? 2.23 The following diagram produced in the consultation document described the framework for self and co-regulation.
2.24 There was a mixed response from stakeholders to this framework. Although most broadly accepted it, some respondents felt that a process of trial and review was needed to assess whether co-regulation was appropriate, with Oftel brokering this process. It was also suggested that in some situations there could be an urgent need to achieve outcomes, which could not wait for the convening of stakeholder groups. In such a case Oftel could initiate formal regulatory control to kick-start the process, with migration later towards a more co-regulatory approach. 2.25 The Operators’ Group broadly agreed that Oftel’s framework was likely to be effective, although they also believed that it should also take into account commercially-provided solutions such as outsourcing. Worldcom, however, viewed Oftel’s proposed framework as flawed, seeing fundamental legislative and institutional reforms as necessary for the effective delivery of a total co-regulatory framework for telecommunications. PUAF and Centrica were also not convinced about the utility of the framework. Centrica proposed a change to the model, in that it should be considered whether stakeholders had the capability to support the initiative, and if not then interim formal regulation should be considered (with a view to migrating to self- or co-regulation later). The Consumers’ Association, while supporting the framework, believed that Oftel needed to broker and manage the process. 2.26 Oftel response: Oftel’s view on trialing initiatives have already been given. The suggestions that urgency and the capability of stakeholders to support initiatives should be considered are sensible ones which Oftel will incorporate into its decision-making, although it is questionable whether formal regulation as an interim measure could in practice be introduced very quickly in the vast majority of cases. Q 3 Are the areas identified for further self and co-regulation appropriate? 2.27 The potential areas identified (price transparency, contract terms, metering and billing, dispute resolution) in the consultation document as being suitable for self- and co-regulatory initiatives, provoked mixed responses as to their suitability. Few respondents identified all areas as being suitable. Some operators and consumer groups felt that billing or tariff transparency would be suitable for such initiatives, others did not. As regards contract terms, the Operators Group felt that co-regulatory mechanisms in the areas of complaint handling and dispute resolution should not take precedence over suppliers’ own internal procedures, and should not promote homogeneity in service offerings. Some respondents stated that the suggested areas provided little detail or vigorous analysis and should properly be the subject of separate consultation exercises. One Operator thought that getting the framework and process to develop such initiatives should be Oftel’s priority before attempting further initiatives. 2.28 Some comments were also received on which of Oftel’s objectives were most suited to self and co-regulatory solutions. The NCC considered that the "effective competition" was most suited to formal regulation and that "well informed consumers" mostly to co-regulation given the limited degree of common interest among providers. SACOT shared this view on informing customers, and suggested a need for formal powers require price information to be released in a form that makes it comparable. 2.29 Oftel response: The specific areas put forward were examples of possible self/co-regulation initiatives, but there was no intention to make a case for a specific way forward for those initiatives without a separate consultation of their own. In terms of informing consumers, operators wanting regulation to be relaxed have an incentive to ensure customers are well informed as that is one of the specific criteria factored into Oftel’s effective competition reviews (which could lead to reduced formal regulation). Q 4 What other areas should be considered? 2.30 Issues identified included areas such as data protection, numbering, services for disabled people and areas which help to roll out advanced services in such a way as to make them accessible to most prospective users. More generally, respondents took the view that future initiatives would depend on a number of circumstances ranging from: where Oftel has power to act and thus could be a credible ‘threat’; to where initiatives are unsuccessful; to a review of all areas of regulation to ensure that they continue to fulfill the Better Regulation Taskforces principles of better regulation. It was felt by a number of respondents that a flexible, gradualist, staged approach was desirable. The Operators Group felt that before any self/co-regulatory approach is adopted stakeholders should agree that there is a well-defined and non-transitory market failure substantially affecting consumer interests. 2.31 Oftel response: Oftel will continue to develop its understanding of the circumstances in which different levels of regulation are appropriate in the light of these points and growing experience of self- and co-regulation generally. Q 5 What areas should be priorities, and what are the crucial issues in resolving them? This produced a wide range of answers and responses. Areas suggested included doorstep- selling, contract terms, dispute resolution and services for disabled people. Other respondents suggested that the priority was to work on the practicalities and processes of implementing self- and co-regulatory initiatives, and felt that Oftel needed to take a role in brokering, proposing and trialing new initiatives. Others felt that the proper market conditions need to exist before proposals can be taken forward. Some suggested that the priority should actually be areas where statutory regulation does not provide the consumer with demonstrable benefits. 2.32 Oftel response: Oftel will be looking to work with stakeholders to develop self and co-regulatory mechanisms. Oftel project managers in the areas identified will continue to evaluate the scope for self- and co-regulatory mechanisms providing the most proportionate regulatory response at appropriate points in their work. Q 6 How should self- and co-regulation be developed? a. can consumer groups participation be achieved by minimising the costs of their involvement in the ways identified? b. should licence conditions exist even where self/co-regulation is taking off? c. what form of institutional arrangements for self/co-regulation are appropriate? 2.33 Consumer groups felt it was essential for the success of any self/co-regulatory initiative that consumer representatives be fully resourced and funded. Issues such as the level of representation and voting rights need to be addressed. The possible establishment of Consumer Communications Council through a Communications White Paper was seen by consumer groups as an important step in effective consumer representation. Consumer respondents also felt that licence conditions should remain as backstop powers for Oftel where possible, only being removed after successful trial periods and when proven to be providing above the previous level of consumer protection. 2.34 Operators generally felt that once self/co-regulatory schemes had proved themselves, wherever possible licence conditions should be removed. There was general consensus that any process for setting up self/co-regulatory schemes should be open, transparent and accountable. Other respondents highlighted the need to formalise procedures and processes and objectives in creating such schemes. The National Consumer Council suggested that Oftel should set its own standards for an adequate co-regulatory scheme and have guidelines as to when to intervene in initiatives. In terms of institutional structures there was a range of views, from having a number of umbrella institutions, each of which would comprise a number of single issue bodies, to ACIF-type structures. 2.35 Oftel response: Oftel acknowledges the issues of consumer resources and the importance of clarity about the processes, roles and objectives of self and co-regulatory initiatives. Oftel has welcomed the government’s proposal for a Consumer Panel for Ofcom and an Ombudsman to handle consumer complaintsdisputes. Consumer involvement is also considered in chapter 4 below.
Chapter 3 Lessons from past self and co-regulation 3.1 This chapter looks at a range of past self and co-regulatory initiatives in telecoms to:
3.2 The two aspects to be considered when looking at the success of a self or co-regulatory initiative are whether the initiative achieved its objectives and whether the level of regulation applied was the minimum necessary to achieve the objectives. . The question of how to regulate in particular cases is the focus of this chapter, not whether regulatory action should have been taken Oftel makes observations about some existing initiatives and tries to draw lessons for the future role and operation of self- and co-regulation. The discussion is deliberately confined to telecoms as the future prospects for self- and co-regulation among UK telecoms stakeholders is best indicated by their specific experience. 3.3 The analysis is not divided between self-regulatory and co-regulatory initiatives. Many initiatives have included varying levels of regulation according to the issue and the stage of the project. Also, many of the same lessons are indicated by both self-regulatory and co-regulatory initiatives. Even within co-regulation, there is a variation in the background, for example in whether or not backstop powers exists if initiatives do not work. Equally, som key success factors, such as the contribution of specific individuals, are not easily caught in such a detailed analysis. 3.4 The specific initiatives that Oftel has examined are: Well informed consumers
Adequately protected consumers
Effective competition benefiting consumers
3.5 Annex 2 looks at each of these initiatives individually, considering whether the level of regulation was proportionate and what particular lessons can be drawn from each initiative for the future conduct of self and co-regulation. General Lessons learnt from self- and co-regulation in UK telecoms 3.6 The first and most important observation is that there has been a broad range of self- and co-regulatory initiatives that have generally been successful, in terms of both achieving the desired outcome and doing so with (broadly) the minimum level of regulation necessary. In many cases, no specific formal regulations were available as an alternative means to address problems.. 3.7 Indeed, rather than merely achieving adequate outcomes, self- and co-regulatory routes have often enabled better outcomes than formal regulation. Such improvements were achieved because self- and co-regulatory initiatives were able to mobilise extra expertise (eg NICC), to benefit from greater flexibility in terms of how to secure outcomes (eg comparable performance indicators), and to secure funding of initiatives from outside Oftel’s budget (eg Big Number Campaign 3.8 There are examples of initiatives meeting three of Oftel’s four objectives, ie:
3.9 The majority of those past initiatives involving Oftel are in the first two categories, but it is clear that self- and co-regulation can be appropriately used to promote effective competition. This has been more of a challenge where the interests of participants were more asymmetric, including where co-regulation has been used as one means to implement obligations on particular companies (eg carrier pre-selection, number portability). The value in such initiatives of mobilising stakeholder expertise (including on technical issues) has been significant, which suggests that ways need to be found to resolve more effectively the sensitive commercial issues that can detract from progress on the practical ones. 3.10 However, despite the general success observed so far, self- and co-regulation are not necessarily easy options. They can take time, resources and commitment from all participants, and in the case of co-regulation this includes Oftel. They require appropriate objectives and working practices in the same way as more formal measures. Whilst the flexibility of less formal measures is a benefit, the ad hoc and inconsistent arrangements may also damage the speed of progress; where ready models for organising initiatives have been available, it has been easier to get projects started quickly. Apart from practical issues, commercial considerations can make it hard to secure agreements or rapid action. In particular cases this may be due to a lack of experience with a more collaborative approach or the absence of formal authority to resolve such commercial issues. Co-incidence of interests 3.11 The degree to which stakeholders perceive that they have a common interest in producing any solution, let alone a particular solution, has been an important factor influencing the overall success of initiatives and the ease of arriving at agreements and mechanisms to address problems. The perception of common interest is at least as important as the reality, and will be influenced partly by the tangibility and immediacy of the benefits of co-operation. From its examination of self- and co-regulatory initiatives, Oftel concludes that those initiatives best classified as self-regulatory have tended to exhibit a clearer appreciation by stakeholders of a co-incidence of interests between them. In those circumstances there has been less need for an Oftel role to help to secure outcomes. 3.12 By contrast, Oftel’s involvement in co-regulatory initiatives has often involved persuading stakeholders of the value of addressing problems, particularly in areas of improving information to customers where the co-incidence of interests exists but may not be so clear, nor the benefits of co-operation so quantifiable. 3.13 On occasion, self and co-regulatory initiatives have strayed into decisions that are too commercially sensitive to be agreed quickly and easily. This can be a particular challenge to self-regulatory initiatives, as Oftel’s lack of routine involvement in them means that there is no built-in way to escalate issues rapidly to a more formal level where appropriate. When deciding how issues might be addressed in the future, Oftel will therefore be wary in the future of putting too much reliance on self-regulation where there is significant likelihood of major commercial disagreements. Oftel’s role 3.14 The initiative for co-regulation, and even much of what is better classified as self-regulation, has often come not from providers but from Oftel. This has included establishing groups - for example to arrange for the detailed implementation of obligations on particular operators (eg local loop unbundling, mobile number portability) - and persuading stakeholders to take action to secure particular outcomes seen by Oftel as desirable for consumers (eg Phonebills.org web site, Big Number Campaign). It is true that there are examples of initiative from elsewhere in self-regulation - for example in the Internet world - in response to clear/sudden market opportunities. There are also other areas in which Oftel has not been involved but which may be covered by self-regulatory mechanisms such as codes of practice. However, where Oftel itself has been involved it has generally provided a significant impetus to action. 3.15 Whilst limited stakeholder leadership need not hamper implementation, in the short-term it is reasonable to assume that there are not significant prospects for stakeholders spontaneously assuming a far greater share of the responsibility for driving self and co-regulation. There are recent signs of some independent action by stakeholders to consider areas for extending self-regulation – with an industry-led workshop on the subject held in February 2001. This is welcome, although it is too early to predict the outcome. Whilst Oftel must prioritise its resources, the experience of previous self- and co-regulation suggests that it should be cautious about its immediate expectations of stakeholders to assume the lead in initiatives. 3.16 Using past experience to look further ahead, Oftel’s role in co-regulation, and even some self-regulation, may be particularly useful at two specific stages of a project. Firstly, at the start of initiatives, Oftel can usefully bring together many and diverse participants. This role should continue to be useful in many cases until the experience of self and co-regulatory initiatives is more widespread and entrenched among stakeholders. 3.17 The second stage where Oftel may have a role is post-implementation, in monitoring the success of self- and co-regulatory initiatives to ensure that Oftel’s objectives continue to be met as market conditions change. The changing regulation of premium rate services is an example of adapting to market developments, in that the level of regulation is being increased as it has become harder to control standards across a growing number of operators. Effective monitoring is important given the time that may be required to increase the level of regulation if self-regulation is not working. Reducing the level of regulation is likely to be quicker, unless new mechanisms need designing. The level of regulation and powers may also be adjusted following periodic Oftel reviews of specific markets and consumer protection measures. Summary of lessons learned from self- and co-regulation 3.18 The following table summarises the key lessons from experience of self- and co-regulatory initiatives, covering both the encouraging factors and the experiences from which to learn for the future. For the latter, the issues to address are subdivided into those concerning acceptance of the policy, implementation and the monitoring of initiatives.
Chapter 4 Oftel’s proposals for extending effective self- and co-regulation4.1 Chapters 1 to 3 covered the reasons for extending self- and co-regulation, the general support provided both by stakeholders and by an assessment of past experience, and the challenges involved in pursuing the policy. This chapter ties these elements together by covering:
Oftel’s views on an independent stakeholder forum 4.2 Self- and co-regulation cannot become much more extensive unless sufficient stakeholders are committed to it. Chapter 2 revealed that there was in general a low level of enthusiasm for a formal independent stakeholder body like Australia’s ACIF. Given these views, it is difficult to see how, in the absence of formal powers, such a body could be established. For this reason alone, Oftel does not see any scope to establish such a body within the current regulatory framework. 4.3 Further, Oftel does not consider that such a body would necessarily be any better than effective alternative measures on a less formal basis. The previous experience of self- and co-regulation already gives some good examples of success based on stakeholder co-operation, and it is questionable in Oftel’s view whether compelling co-operation within a formal body would give any better outcomes. Further stakeholder involvement in self- and co-regulation may evolve naturally towards more formal structures, but whether this is the chosen route remains to be seen. 4.4 It is also important to provide a flexible basis for future developments. As regulatory, technological and commercial convergence occurs, the mix of stakeholders included in such a body would change. Issues such as voting rights and a fair basis for funding are hard to set in stone in the context of such dynamic changes. For these reasons Oftel does not intend to press for the inclusion in the Communications Bill of backstop powers to establish a statutorily-based independent stakeholder forum. 4.5 Previous experience suggests that self and co-regulation can work, but many initiatives have worked through the commitment of a limited number of participating companies and individuals. To extend self and co-regulation further, a broader base of stakeholders will need to build on this past experience by participating in initiatives and taking this opportunity to assume more responsibility for meeting consumer wants and needs. This may include finding ways to increase communication with, and involvement of, consumer representatives. If this opportunity to enhance self- and co-regulation is not taken there may be a need to reconsider more formal structures, perhaps on the ACIF model, at a later date How Oftel plans to extend effective self- and co-regulation 4.6 Despite rejecting the independent stakeholder forum model, Oftel nevertheless considers there to be a number of ways to improve the effectiveness of self- and co-regulation. The main planks will involve linkages between self- and co-regulatory initiatives and a clearer understanding of the circumstances in which different levels and mechanisms of regulation are most likely to be successful. The specific mechanisms proposed by Oftel to promote self- and co-regulation in the short-term are intended to be consistent with and complementary to regulatory changes anticipated in the future. Improving the mechanisms of self- and co-regulation cannot depend on Oftel alone. But Oftel intends to perform a catalyst role to facilitate developments. Promoting linkages between initiatives and stakeholders 4.7 There are two values of linking up existing self- and co-regulatory initiatives:
Using the Internet 4.8 To improve communication, Oftel plans to explore with stakeholders the potential of the Internet. This will cover the provision of information to consumers, and the sharing of information and views between stakeholders. 4.9 There already exists a web site dedicated to providing advising small and medium businesses (www.TelecomsAdvice.org.uk), funded by providers and run independently of Oftel. Oftel is currently considering how a similar service might best be made available to residential consumers. This may work essentially like Telecoms Advice, and indeed the two could be managed together. However arranged, such a a service could link together the relevant outputs of consumer information and consumer protection initiatives, including:
4.10 Links could also be provided to other web sites providing useful information, such as providers’ own sites and sites providing comparative information. For example, a number of web sites already provide comparative information to assist with selecting a mobile phone service. Oftel is currently considering the merits of an accreditation scheme for third parties’ web sites. Such a scheme could prove useful in promoting consumer confidence in quality existing information providers, for example by indicating that the information is up-to-date and unbiased. Links to such accredited sites could be provided on the consumer web site. Oftel would also hope to see best practice shared between the residential and business sites.
4.11 To foster better communication between stakeholders and initiatives, Oftel also suggests that a web site facility could be created that could be accessed by the main telecoms stakeholder groups. This would probably exist separately from the consumer site in order that the latter is not cluttered by information irrelevant to the consumer. One option is that, at least initially, this facility may be hosted by Oftel. Some of the roles and benefits of such a stakeholder facility could be:
Funding and management issues 4.12 Funding would obviously be an important issue in setting up independent sites, and this need to be discussed with stakeholders. As there are benefits to stakeholder participation, there is some justification in stakeholders bearing the costs. Access to a stakeholder site (but not the consumer site) could however be limited to those that are prepared to fund it, or to those that might participate in self- and co-regulatory initiatives. To promote consumer representative access to information, it is desirable in Oftel’s opinion that they would not pay for access. There may however be opportunities to defray some costs if the site contains (non-sensitive) information for which others would be prepared to pay. Use of Oftel’s web site 4.13 Oftel has in the past agreed to host on its web site various documents produced by industry-led working groups. It is appropriate for Oftel to continue to host certain types of information; this will depend on the context of the work that is being done. For example, work done on behalf of Oftel that is analogous to consultancy, such as that of the Network Interoperability Consultative Committee (NICC), would be suitable for Oftel to host. The case is less clear-cut, however, when Oftel is not the direct client for the work and over time there is a case for an independent site to develop to give greater stakeholder ownership of the process. 4.14 Oftel’s role: Oftel will invite stakeholders to discuss the principle and practicalities of the consumer and stakeholder web site(s). It will facilitate discussions on issues including funding, management, access, and the content and format of the site(s). It will also provide such assistance as necessary to appoint a third party to manage the site(s). Promoting links between different stakeholders 4.15 Oftel‘s aim to facilitate more joint, self- and co-regulatory, working among stakeholders has recently been explored by Oftel in its February 2001 consultation document, Oftel’s use of public consultation. One of the questions asked in that document is whether the individual stakeholder groups which have formalised relationships with Oftel through fora such as the Operator Policy Forum should function in a more unified manner than they do now. Even if various fora are not combined, relations between them could be enhanced to promote more effective self- and co-regulation. 4.16 Oftel action: Oftel will complete its consultation process on this issue and if necessary adapt the current groups, or the relations between them, to promote better communication between the stakeholders involved. Working models for stakeholder groups 4.17 Often, considerable time has been spent by stakeholder working groups determining essentially administrative issues, such as who should arrange, chair and host meetings, and who should take and circulate minutes. In some initiatives this has been an ongoing problem, for example because the chair role has rotated between each meeting. Many groups have gone through a process of "re-inventing the wheel" rather than drawing on the experience and models of previous initiatives. Also, some more substantive issues can remain relatively ill-defined throughout the life of an initiative - such as how to reach agreements fairly and effectively, escalation procedures where groups cannot agree, and the appropriate roles of consumer groups and Oftel. 4.18 Spending excessive time on minor issues, and poor definition of roles, fails to make the most of the limited resource and diverse expertise available. Oftel would therefore like to develop with stakeholders some models for self and co-regulation, covering such administrative issues as well as more substantive ones. These models could be posted on the stakeholder web site proposed above so as to promote their use. Oftel has not produced any specific suggestions here, as such arrangements will necessarily require detailed discussion with stakeholders, but various models from initiatives such as mobile number portability and carrier pre-selection can be a starting point for discussions. 4.19 An effective commitment of resources to roles like chairing will partly depend on the interest that stakeholders have in the outcomes of the group. However, it may also depend on whether individual stakeholders perceive that they are bearing an equitable burden relative to each other. There may therefore be some value in maintaining an overview of how different stakeholders are contributing to self and co-regulatory work so that the burden can be more easily spread. This may mean that in some instances smaller stakeholders take a lead role, but perhaps drawing on secretariat support from another stakeholder. 4.20 Oftel action: Oftel will propose models for working groups, invite similar proposals from stakeholders, and seek to establish consensus on the appropriate use of such models. Oftel will also seek to secure stakeholder agreement on how to secure an equitable resource commitment between stakeholders across the range of self- and co-regulatory initiatives. Use of Memoranda of Understanding 4.21 In some circumstances, particularly where a significant financial risk is involved, a clear understanding of and commitment to objectives is required from the large majority of participants in order to adequately progress developments. In these circumstances, use of a Memorandum of Understanding (MoU) may be helpful. The UK ISUP (Interconnect Services User Part) MoU is an example of this approach (see Annex 2, A2.17). By providing greater certainty to manufacturers of future demand, the MoU has assisted the process of migrating signalling standards. 4.22 The MoU, whilst not a legally binding document, represents a stronger commitment from stakeholders to the objectives of the self or co-regulatory group. The UK ISUP MoU requires the signature of someone who can provide both technical and commercial commitment to the document on behalf of the organisation involved. For co-regulatory initiatives Oftel may also sign the MoU to the effect that it will keep its powers in reserve. 4.23 Oftel action: Oftel will consider with stakeholders the potential application of MoUs, including whether similar models of formal sign-up are worth applying to initiatives involving less of a long-term risk. Oftel guidance on appropriate regulation 4.24 Oftel needs to be clear and consistent in determining its own view of both why self- and co-regulatory measures are needed and how best to achieve objectives. By continuing to spread and deepen the awareness of self- and co-regulatory policy and experience across the whole of Oftel, it is more likely that the full range of viable options are considered and the appropriate decisions taken. 4.25. To promote this awareness, written guidance may be helpful, primarily to assist Oftel staff (for example market review teams) on the circumstances and ways in which self- and co-regulation are best pursued. This could be compiled using feedback from internal and external sources, and updated as markets develop and further experience is gained. The guidance would also be publicly available, to promote transparency in Oftel decision-making and to enable stakeholders to assist in developing the guidance as the experience of self and co-regulation grows. 4.26 Such guidance could include how to determine:
4.27 Oftel action: Oftel will arrange discussions with stakeholders, consider the need for written guidance and, if such guidance is produced, publish it on its web site. Effective use of codes of practice 4.28 Looking to the future, one particular mechanism for both self- and co-regulation that should play a greater role is the code of practice. Codes of practice can be a means to implement consumer protection requirements in telecoms, as well as a way to facilitate a shift to a greater reliance on consumer protection laws. The Government has emphasised the importance of codes of practice in the Communications White Paper, which said: We challenge the industry to come forward, even before legislation, with an effective code or codes of practice for service delivery, and with effective means of redress where service standards are not met (White Paper, paragraph 7.3) 4.29 Providers have an opportunity by their actions in developing codes of practice to influence the development of the new legislation. Whilst the Communications White Paper puts the onus on providers to develop codes of practice, Oftel will be willing to participate by invitation in groups established and led by industry. It would not, however, expect to take a leadership role in this areas as both it and Ofcom will need to form a view on the adequacy of such codes of practice in considering whether further intervention is needed. Oftel will keep its level of participation under review in light of the pace of developments. 4.30 It is of course crucially important that these codes of practice are effective. Things affecting the effectiveness of the code of practice include their content, enforcement and redress mechanisms, and monitoring and publicity. Annex 2 covers Oftel’s experience with codes of practice in some specific areas. 4.31 Oftel would also like to provide a better basis for development of codes of practice by ensuring measures are in place to promote consumer confidence in the credibility of such codes. This is an area that will need to be considered in conjunction with new communications legislation. The issue of consumer confidence is covered in a consultation document issued by the Office of Fair Trading in February 2001: The OFT’s new approach to consumer codes of practice. The issues raised in that document merit inclusion in discussion on codes of practice in telecomms. Looking ahead, Oftel supports the Communications White Paper proposal that Ofcom would be the appropriate party to formally recognise codes in the telecommunications sector. 4.32 Oftel action: Oftel will participate as necessary in groups established and led by industry to develop codes of practice
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