Digital Economy Bill

Debate between Lord Mendelsohn and Lord Clement-Jones

Report: 3rd sitting (Hansard - continued): House of Lords
Wednesday 29th March 2017 Lords Chamber

[Lord Clement-Jones]

The noble Baroness, Lady Drake, has asked a number of very pertinent questions, but I have one question—probably because I am a bear of small brain in these circumstances. Would the new section apply on full structural separation of Openreach from BT, if that were to arise in future?

[Lord Mendelsohn (Lab)]

My Lords, this group of amendments addresses two crucial issues—first, the Crown guarantee on BT pensions and, secondly, the relationship between Openreach and BT. In relation to the Crown guarantee, I have added my name to Amendments 33ZYEA and 33ZYEB in the name of my noble friend Lady Drake. These Benches support her arguments completely, and I hope that the clear, comprehensive and compelling case that she made will receive a good reception across the whole House. I thank her for her excellent and assiduous work on this matter.

It is clear that these government amendments do not yet have the robustness that assures this House, and I think that my noble friend’s unequalled expertise has come up with an impressive formulation. I look forward to hearing the Minister respond to these issues and would wish to hear some specific reassurances, if he is not minded to accept her amendments. It is important that nothing weakens the covenant on pensions; it is extremely important that the Crown guarantee is carried across and that nothing undermines the responsibilities of the trustees in exercising their duties properly. It is a colossal task. BT has the second-worst-funded pension scheme in the world, according to the MSCI survey of 5,000 company pensions, second only to Du Pont, which is the subject of a merger which will make it better funded, so BT will become the worst-funded pension scheme in the world. In addition to uncertainties about the Crown guarantee, that will put trustees in an impossible position, if these amendments are not addressed as my noble friend suggested. The Government and all those concerned in this discussion should be in a position to confirm—as indeed Matthew Hancock, the Minister responsible, did in a meeting with Members of this House—that the proposed arrangements for the pension scheme should ensure long-term assurance to pension holders whether Openreach is legally or structurally separated.

This brings us to Amendment 33M in my name and that of my noble friend Lord Stevenson of Balmacara, which proposes the structural separation of Openreach. I will make a few very brief points to support this view. This is not a negative statement about BT, which is an excellent British company and one that we hope will continue to grow and thrive. There are many keen to criticise BT’s behaviour in relation to the supply of broadband but this must be properly balanced by the realities of the regulatory framework and policy context it was given to operate in and which has incentivised and guided its approach. It is slightly unfair to create such arrangements and then criticise someone for following them, and many of the criticisms of BT have been unfair and misdirected.

The differences between the benefits of legal and structural separation are important to note. Legal separation, which has been proposed by Ofcom, is where the upstream business is established as a separate legal entity within the wider group but remains under BT’s complete ownership. It includes functional separation with independent governance. There is a clear benefit to a regulator that would lend itself to suggesting this approach. It certainly makes the regulatory task of overseeing this arrangement much more economic. But having one place to look at is a benefit only for the regulator. The alternative is structural separation, where the vertically integrated operation is split with no significant common ownership and “line of business” restrictions to prevent them re-entering each other’s markets. There are some issues that people think are reasons to achieve separation, such as improvements to service levels, broadband speeds and end-customer services, but these are not dependent on separation.

BT has contributed massively to getting us to where we are now, where we have—in relative terms to international peers—availability of superfast average speeds and lowish prices. But the challenge is the future, and this is where investment needs to be higher. Crucially the UK is lagging in fibre to the premises; the majority of the network is either fibre to the cabinet or cable. The future will require us to commit to FTTP. Other solutions such as G.fast will not keep us as a leading nation. Structural separation is the only mechanism that can sufficiently address the investment issues, and this was the matter that Ofcom did not adequately address in its proposal. The legal separation does not address the problem that strategic decisions on investment will still be dependent on BT, even though I hope that it takes note of the Minister’s exhortation for it to do better.

Ofcom’s statement of reasons for its approach says that this will provide improved investment outcomes from new models of investment such as co-investment and risk sharing. But BT has never lacked access to capital, which is why even Ofcom acknowledges that this model will be reviewed in order to ensure that the new structure achieves its objectives. This is not an equivocal “may” or “could”, but an emphatic “must” and “should” be reviewed. I hope that the Minister can confirm that this will be done and a broad timetable for it.

Our concern is that policy is drifting and opportunities to ensure that we maintain a leading position in the new communications technologies are being weighed down by compromise, confusion and a terrible lack of clarity. It is surely better to provide leadership and certainty by choosing the only arrangement that will ensure the necessary level of investment to make our broadband fit for the future.

Digital Economy Bill

Debate between Lord Mendelsohn and Lord Clement-Jones

Report: 1st sitting: House of Lords
Wednesday 22nd February 2017 Lords Chamber

[Lord Clement-Jones (LD)]

My Lords, Amendment 5 is an enhanced version of Amendments 14 and 15 in Committee, which the noble Lord, Lord Stevenson of Balmacara, introduced, but it includes additional principles that I raised and which were contained in the Government’s 2016 paper Switching Principles: Government’s Response and Action Plan. It deals with two issues very close to the interests of consumers: billing and switching. As the noble Lord, Lord Stevenson, said in Committee, mobile phone billing is,

“one of the most complicated areas of domestic expenditure”.—[Official Report, 31/1/17; col. 1145.]

There may be, in particular, some danger of vulnerable customers getting into difficulty and it should be possible for a consumer to set a cap on expenditure on their mobile phone.

As my noble friend Lord Foster pointed out in Committee, most mobile phone contracts are similar to credit card contracts, in that,

“they are a credit agreement, paying retrospectively for services that have been received. Yet with the credit card, of course, a limit is imposed upon you, which is not currently the case with mobile phones”.

He cited evidence from Citizens Advice that,

“in 2014-15 it helped no fewer than 27,000 customers who had problems with mobile phone debts”.—[Official Report, 31/1/17; col. 1147.]

He reminded us that Ofcom alerted us to this problem five years ago and proposed that it could be addressed by mobile service providers offering an opt-in cap to their consumers. The remainder of the amendment would give explicit power to Ofcom to set the gaining provider-led switching rules, which we all want to see, and sets out the principles which the rules must follow—the very principles which the Government themselves have set out.

We would like to see both these aspects enshrined in primary legislation. In her reply to these amendments in Committee, I am afraid that the Minister—the noble Baroness, Lady Buscombe—was not convincing when she talked of providers offering apps, warning text messages and the like to manage usage, the Government’s expectations for providers to manage bill shock, and of course the guidance issued by Ofcom, which I am sure every consumer reads avidly. That is not enough in this day and age. This is not a draconian requirement. This is a voluntary, opt-in capping system that is being proposed.

As regards switching, the Minister said that Ofcom was being given the necessary powers by Clause 2 and had an existing overarching duty to consumers. This is a much more explicit duty. It also ensures that the Government’s own principles are enshrined in a duty to make rules, which the Minister, however, could not assure me were the ones in contemplation by Ofcom. I hope that the Government will welcome this carefully thought-through amendment as being very much in the interests of consumers when mobile phone usage is, if anything, even more important than broadband. I beg to move.

[Lord Mendelsohn]

My Lords, I support the amendment and thank the noble Lord, Lord Clement-Jones, for an outstanding summary. In relation to caps, it is important to understand the consequences of bills which cause stress to people in particular circumstances, and why this is another part of ensuring that we have the right social impact in such policies. Mobile phones are not luxury products. Actually, low-income households are more reliant on their mobile phones than other households: they are five times more likely to be mobile- only—that is, no landline or broadband—than the highest earning groups. The major cause of mobile phone debt is unexpectedly high bills which are usually caused by consumers using services not included in their standard monthly tariffs—very frequently with no real conception about how the complexity of the tariff has an impact on their bills. These unanticipated bills can make it harder for consumers to budget, especially if they are on a low income. Unexpected bills can exacerbate a consumer’s debt problems. Citizens Advice reports that 70% of its clients who receive mobile phone debt service also receive advice on other debts. The consequences are significant and only these measures outlined in this amendment will in our view have the impact to address this problem. In other ways, complicated information and other consequences will limit the capacity of people to manage their debts.

I must confess that I think ensuring roaming capacity —not a national roaming programme—for those people in the absence of service in order to increase their ability to access mobile services is a terrific idea. I thought it was a very good idea when I first heard it, so I got one, and it is outstanding. I have cracked many of the problems of very poor mobile service, including in that far-fetched place, which never seems to have decent service, called Hampstead. I now have perfect service—it is an absolutely terrific system.

I think that there is a very strong case for this. We are not talking about a national programme, but it certainly addresses a large part of the problem about coverage. There seems to be no particular issue: it gives us good customer experience, it is not particularly difficult to roll out, and that is why it is sensible and worth while for it to be in this Bill. Now that I have another phone, I of course endorse the provisions on switching, but I would make this point about switching and compensation. These strengthen and make explicit the powers of Ofcom to require certain changes in relation to compensation to make sure that companies automatically compensate customers who experience poor levels of service. I think there is a very strong consensus, and that Ofcom will come to the conclusion that it is vital that consumers are financially compensated. An automatic compensation scheme will act as an incentive to telecoms companies to improve their performance.