Clause 90 - Notification of contravention of condition

Communications Bill – in a Public Bill Committee am 10:15 am ar 19 Rhagfyr 2002.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Photo of John Greenway John Greenway Ceidwadwyr, Ryedale 10:15, 19 Rhagfyr 2002

I beg to move amendment No. 105, in

clause 90, page 84, line 41, leave out from 'OFCOM' to second 'that' and insert

'find, on the basis of an investigation in which the undertaking has had a proper opportunity in which to make representations'.

Photo of Peter Atkinson Peter Atkinson Ceidwadwyr, Hexham

With this we may discuss the following amendment: No.106, in

clause 90, page 85, line 8, leave out 'making representations' and insert 'stating his views'.

Photo of John Greenway John Greenway Ceidwadwyr, Ryedale

We are in similar territory to our previous discussion. Clause 90 gives Ofcom powers of enforcement in respect of all types of conditions pursuant to clause 41. Where Ofcom has reasonable grounds for believing that a person is or has been in

breach of any condition, it may notify that person accordingly, allow them time to make representations and take steps to make them comply.

The amendment focuses on whether there are ''reasonable grounds for believing''. Notwithstanding the Minister's earlier remarks on Ofcom's duty under clause 3 always to act in a proportionate and measured way, it seems to us inappropriate for a person to be expected to remedy notified contraventions only on the basis of there being reasonable grounds for believing that there may have been a contravention. It also does not seem reasonable and appropriate that remedying a notified contravention should be required to be done at the same time as the person concerned is making representations. The requirement to remedy should be in place only after there has been a finding of guilt, which would occur after a full investigation in which the person concerned would have had a full opportunity to present their case and make their representations.

My hon. Friends and I think that the amendment is a more reasonable way of dealing with the matter. There ought to be an investigation and a finding that there is a problem as opposed to Ofcom simply saying that it thinks that there are reasonable grounds for believing and therefore intends to impose a condition with which, although they can still make representations, a service provider or supplier must comply. That approach does not seem to be correct.

The problem is that the clause does not correctly implement article 10 of the authorisation direction, which states:

''Where a national regulatory authority finds that an undertaking does not comply with one or more of the conditions of the general authorisation . . . it shall notify the undertaking of those findings and give the undertaking a reasonable opportunity to state its views or remedy any breaches''.

Ofcom's saying that it has ''reasonable grounds for believing'' is not a finding. Faced with a finding of guilt, an undertaking has a clear choice between remedying the matter or maintaining their innocence, which would risk enforcement action and the imposition of a penalty. It is not as though Ofcom does not have strong powers to deal with an undertaking where there has been a clear finding of guilt or a breach. We think that the group of amendments would bring the clause more in line with the requirements of the directive, and put in place a process that achieves greater equity and makes better sense.

At this juncture, I should also comment that the enforcement requirement of other clauses in part 2 uses the same formulation as the one that we are complaining about. I suggest that the Minister should keep our concerns in mind; we would like all those clauses to be changed to refer to a finding of a breach, and not have Ofcom's action on an undertaking, which could be draconian, based merely on ''reasonable grounds for believing''.

Photo of Stephen Timms Stephen Timms Minister of State (e-Commerce & Competitiveness)

Clause 90 is the first of a group of clauses up to clause 100 that set up a new system for enforcement action against those who breach any of the conditions of entitlement. The system will replace the arrangements under the Telecommunications Act

1984 for enforcing breaches of licences issued under the Act. Because of the importance of the matter, I shall put the amendments in context and outline the main provisions of the new enforcement regime.

Critics of the current system, including those mentioned during the debate on the previous clause, have commented that it is unduly weighted against those who have sought to have an alleged breach investigated and enforced. They have a point, which I think was the import of our earlier debate. They have been concerned that the system does not provide enough incentives to avoid breaches, or sanctions against repeating them; and that it is too slow and inflexible in its operation. As a result, the effective, competitive development of the industry, and its delivery of greater choice and lower prices, has been hampered.

The new regime addresses those concerns by introducing several new elements, as well as fully implementing the relevant provisions of article 10 of the authorisation directive. In future, Ofcom will be able to impose financial penalties on those found to be in breach, and to require them to remedy the consequences of the breach as well as—as happens at present—ordering them to comply in the future. Those are significant additional strings to Ofcom's bow. Third parties will be able to bring civil proceedings on their own initiative for the recovery of losses suffered, even where Ofcom has not previously taken action on the matter. There are special provisions to allow Ofcom to take rapid action in urgent cases, and fall-back powers for Ofcom to require the suspension or restriction of a person's entitlement to provide networks, services or associated facilities in the case of a particularly serious and repeated breach; failure to observe such requirements will be an offence.

Those changes are a significant enhancement of the regulator's powers. It would therefore not be right to introduce them without at the same time providing firm procedural safeguards for those subject to enforcement action. The new right of appeal on the merits to the Competition Appeals Tribunal, set out in clause 187, is a major safeguard. In addition, we propose the right for those subject to enforcement action to argue their side of the case before a definitive decision is taken, and that no penalty is to be posed against someone contravening a condition if they promptly take appropriate action to comply, and to remedy the consequences of the breach as soon it is brought to their attention.

Ofcom will have to publish guidelines on penalties, having first consulted the Secretary of State. The method used for calculating turnover for the purpose of penalties has to be approved by resolution of both Houses. Suspensions and restrictions of entitlement are possible only if strict conditions are met. In the case of third-party actions, it will be a defence for the provider to demonstrate that all reasonable steps were taken to ensure compliance and due diligence was exercised. Contrary to the hon. Gentleman's argument, we have an appropriate set of safeguards to protect those against whom action may be taken.

Photo of John Greenway John Greenway Ceidwadwyr, Ryedale

If I have understood the Minister correctly, that structure is fine, but the basic point is

that Ofcom may make a finding based simply on what it believes to be reasonable grounds rather than a proper finding. It is all very well for the Minister to say that if the undertaking states that it will not repeat the action, it will avoid the penalty, but if it does not agree and asks for evidence for the finding of guilt, it will have a point.

Photo of Stephen Timms Stephen Timms Minister of State (e-Commerce & Competitiveness) 10:30, 19 Rhagfyr 2002

The problem with the hon. Gentleman's argument is that it would build in additional delay precisely to damage the position of competitors to a dominant provider in the way we discussed during our previous debate. Under the provision as drafted, Ofcom can begin the enforcement process when it determines that there are reasonable grounds for believing that there is a breach of condition. I accept that in urgent cases—they are defined quite narrowly in clause 94—Ofcom cannot take further action until it has a definitive decision on whether there is or has been a breach, having allowed an opportunity for the subject to make representations and, if appropriate, to take corrective action voluntarily. Even when it does then find that there has been a breach, Ofcom cannot impose a financial penalty or take any other enforcement measures if appropriate corrective action has been taken within the period of at least a month, except in urgent cases that are allowed for in the notification of contravention.

The clause as drafted enables Ofcom formally to notify the subject of the case against it and to give it time to react before reaching a definitive view. To that extent, the amendment would make no change. However, it would prevent Ofcom from starting enforcement action on the basis of a ''reasonable cause to believe''. It is important that Ofcom should be able to do that to promote competition and safeguard against anti-competitive arrangements rather than having a definitive decision that there was a breach. That change in the amendment would risk frustrating the main purpose of these measures: to allow Ofcom to act speedily and effectively in the interests of competition.

Ofcom will still have to have a reasoned case and evidence to back it up before issuing a notification, so it will have to have ''reasonable cause to believe'', which is not same as suspecting or thinking it possible. There will have to be reasonable cause before acting.

Amendment No. 106 aims to replace the reference to ''making representations'' from the subject of a contravention notice before Ofcom makes a definitive decision with one allowing his views to be stated. That is the phrase used in article 10 of the authorisation directive. We have discussed previously the precise words. The word ''representations'' in this context is well understood by the industry and, indeed, it features in amendment No. 105. It is used in the same sense elsewhere in United Kingdom law—for example, in proceedings under the Competition Act 1998 and the Consumer Credit Acts. It has a more precise meaning than ''stating views''. ''Making representations'' implies that the subject of a notification would be

expected to produce reasoned arguments and evidence against the alleged breach, whereas simply ''stating views'' could involve a flat denial. We need people to go further than that.

The amendment would not assist with speedy and effective decision-making, nor would it assist the subject. Ofcom might just conclude that the case was justified because it had not received representations to persuade it otherwise. I hope that the hon. Gentleman will accept that the way in which the provision is set out in the Bill has achieved what is a difficult balance.

Photo of John Greenway John Greenway Ceidwadwyr, Ryedale

In his final comments, the Minister used the word that was coming to my mind—balance. We understand that natural justice must be balanced with the need to ensure that Ofcom has the necessary opportunity to act speedily. While he was making his extremely persuasive argument, a thought crossed my mind about how a constable's powers to arrest are often enshrined in the basic premise of reasonable grounds to believe—although those grounds do not always turn out to be completely accurate. I say that from personal experience, although of some time ago.

The Minister has made a persuasive case. We all acknowledge that Ofcom, as the policeman of the telecommunications industry, must have the proper powers that it needs for that role. Whether or not this matter is debated in the other place, we have put concerns that have been expressed on the matter on the record. It remains to be seen how it will work in practice. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of John Whittingdale John Whittingdale Shadow Secretary of State for Culture, Media and Sport

I beg to move amendment No. 107, in

clause 90, page 86, line 8, after 'condition', insert

'consisting of the same behaviour'.

The Minister, in response to my hon. Friend, explained that the clauses now under consideration impose a tougher regime. We have some reservations about certain aspects of that, to which we shall turn shortly.

The Minister quite rightly said that if there is a tougher regime, there must be stronger safeguards. The amendment seeks to strengthen a safeguard. Clause 90 rightly requires Ofcom to give a period of notice during which an operator in contravention of the conditions has a chance to put that contravention right. The clause specifies that period as one month, and we do not argue with that.

Subsection (7)(a) says that where

''OFCOM have reasonable grounds for believing that the contravention is a repeated contravention''

the period need not be a month. Clearly, returning to the theme of the previous life of my hon. Friend the Member for Ryedale, in the case of a persistent offender, it is probably right not to have to go through the same lengthy process every time that person commits the same offence. However, our concern is that this provision might be applied where someone is suspected of different offences. It could, therefore, lead to unfairness, so there may be a case for strengthening the safeguard.

One can envisage circumstances in which an operator is in breach of the conditions in two completely different ways. It could even be that two completely separate parts of the business have each contravened the conditions by doing completely different things. In such circumstances, it would be hard to justify not giving the same one-month period of notice for each separate contravention.

The amendment would make it clear that the shortened period of notice available to Ofcom in the case of a repeated contravention should be available only if two contraventions are essentially the same offence. We have therefore suggested adding to ''contravention'' the words

''consisting of the same behaviour''.

Photo of Stephen Timms Stephen Timms Minister of State (e-Commerce & Competitiveness)

The real problem would be in determining whether, in what are often complicated circumstances surrounding a particular breach, there was indeed ''the same behaviour''. For example, would that include behaviour by a different set of people, whereby the same action was taken by employees in another business unit or another part of the country, or a breach that was caused in respect of a similar, but slightly different product? Our view is that it is reasonable to limit the scope for such arguments in the interests of effective decision making. Of course, conditions will have to be clearly drafted, and they will be drawn up in consultation with all interested parties, so it should be possible to clear up any serious doubts before they are imposed. Any decision by Ofcom regarding enforcement under part 2 will subject to full appeal on its merits, in accordance with clause 187. That provides a further safeguard.

The shorter notice period that the hon. Member for Maldon and East Chelmsford mentioned will apply only if there is a repeated breach and it has been determined that a shorter period would be appropriate under subsection (7). That is perhaps a slightly narrower set of circumstances than he envisaged.

I understand the hon. Gentleman's point, but there is a real problem involved in trying to establish what ''the same behaviour'' would amount to. On that basis, I hope that he feels able to withdraw the amendment.

Photo of John Whittingdale John Whittingdale Shadow Secretary of State for Culture, Media and Sport

I accept the Ministers' assurances that there are other safeguards that might allow an operator faced with such circumstances to take action if it was clear that what had happened was deeply unreasonable. Given that I accept his argument that the amendment might create a loophole in some areas, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

Photo of Andrew Lansley Andrew Lansley Ceidwadwyr, South Cambridgeshire

Subsection (10) enables Ofcom to decide, in relation to contraventions of conditions, whether the most appropriate way of proceeding is by reference to its powers under the Competition Act 1998. I apologise for revisiting the second part of our debate on clause 87, where I sought to achieve a similar objective.

As I understand it, the subsection can be included in the Bill because the directive is silent about prescribing

the way in which the national regulatory authority has to act once a contravention of conditions has arisen. It has the discretion either to apply penalties directly or to use its Competition Act powers. I am taking this from the Government's response to the scrutiny Committee. The Committee wanted Ofcom to have the flexibility to apply either competition powers or ex ante sector-specific powers, and to do so according to its discretion. The Government's argument—I think it must be true—is that the directive does not permit that discretion in relation to a market that is determined not to be effectively competitive. The national regulatory authority is required to set SMP conditions or access-related conditions, as appropriate. That means that that discretion cannot be offered to Ofcom. That is important. We should pause for a moment to recognise that although the Bill sets up a structure that is designed to give Ofcom the flexibility to use its two sets of powers, in practice—because of the directives—the structure of the legislation limits the exercise of its discretion in relation to markets that are not effectively competitive.

In the first instance, Ofcom will have to act through its SMP conditions, but that will not be required in every respect: it will not be required in relation to contravention of conditions, or in relation to the apparatus supply market, about which we have spoken and to which we shall return, because that is not as prescribed in the directive but has been added by the Government. Nor will that probably be required in respect of clause 87, which relates to exceptional circumstances. Those are anticipated in the directive, but do not have prescribed processes for the application of significant market power conditions. A discretion exists for the national regulatory authority to use competition powers rather than anything in the directive.

I shall make two points. I recognise that I might be stretching the debate a little, but I should first like to ask the Minister to consider, in addition to subsection (10), whether it would be possible for Ofcom to use its discretion to apply Competition Act powers under clause 87 to the apparatus supply market under clause 89. Can a parallel provision be introduced for those two clauses?

Secondly, I have a technical question on subsection (10). Is it right for Ofcom to consider only Competition Act powers? The contraventions that Ofcom may be considering—we can leave out market investigations because it would be dealing with individuals—could not only be anti-competitive behaviour as implied in chapter 1 of the Competition Act, or abuse of a dominant position as implied in chapter 2, but cartel behaviour of the kind that could lead to prosecution under the Enterprise Act 2002. Should the clause therefore refer to both the Competition Act and the Enterprise Act, or to competition powers that are separately defined elsewhere in the Bill?

Photo of Stephen Timms Stephen Timms Minister of State (e-Commerce & Competitiveness) 10:45, 19 Rhagfyr 2002

Let me make a general point. Some of the points that the hon. Gentleman referred to were raised in the scrutiny Committee and, as he said, in the Government's response. There is an important

difference between the approach taken in the Competition Act and the sectoral approach taken in the Bill. The fact that the Bill applies to a sector rather than the whole economy requires a different approach. The Competition Act lays down general requirements to be applied to specific situations case by case; the Bill lays down in advance specific rights and obligations. In the latter's case, the risk of inadvertent breaches by persons acting reasonably and in good faith is likely to be small. The consequences of such a breach under sectoral rules are also much less severe. For those reasons, we have taken the view, which was put to the scrutiny Committee, that it would not be appropriate to align further the regimes of the Competition Act and the new legislation. It would not be appropriate to act under the Competition Act if the directives mandated imposition and enforcement of obligations through the processes set out in them.

The hon. Gentleman asks why we did not add a reference to the Enterprise Act, which has been referred to frequently this morning. Ofcom has concurrent powers under that Act. The Act deals with wider issues concerning market-wide investigations, whereas the Competition Act 1998 has strong provisions on cartels that are more relevant in this case. Ofcom has access to those powers in the Enterprise Act.

The hon. Gentleman asked me specifically about whether there was an opportunity to use the Competition Act in the context of clauses 87 and 89. I would welcome the opportunity to reflect on that during the rapidly approaching break. I suspect that the outcome will probably not offer him much comfort, but I will be happy to undertake such reflection during the coming fortnight.

Question put and agreed to.

Clause 90 ordered to stand part of the Bill.