Digital Economy Bill

Lord Ashton of Hyde Excerpts

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

[Lord Mitchell (Non-Afl)]

My Lords, I too support these amendments. At each stage of the Bill in your Lordships’ House, I felt terribly frustrated by the Government’s lack of ambition. I said in Committee and on Second Reading that the gigabyte should be king. According to something I read a couple of days ago, in 10 years’ time 50 billion devices will be connected to the internet worldwide. This country will account for some 8% to 10% of that—4 billion or 5 billion devices. We have to have the gigabyte capability in this country to deal with such massive growth. The Government’s response to something so crucial to our nation’s development is meagre, and I hope they and the Minister will reconsider.

[The Parliamentary Under-Secretary of State, Department for Culture, Media and Sport (Lord Ashton of Hyde) (Con)]

My Lords, I thank the noble Lord, Lord Mendelsohn, for his attention and for meeting us. I also thank noble Lords from the Lib Dem Benches. We have had interesting discussions and I think that they have been beneficial on both sides. I will apply that to the rest of the day’s proceedings so that we do not waste time being nice to each other for the rest of the day.

Amendments 1 and 2 seek to include a series of additional specifications on the broadband universal service obligation, all of which were discussed in Committee. Noble Lords, during the course of the Bill and already today, have commented on the Government’s lack of ambition. Let me say straightaway that the Government share the ambition for widespread availability of fibre-to-the-premises connections. More extensive fibre connectivity is crucial to the UK’s future digital economic growth—we agree on that. But the UK’s fibre market is still at an early stage of development. The Government want to encourage the market to do more to deliver fibre as widely as possible and we are already taking steps to drive FTTP deployment. In the Autumn Statement we announced more than £1 billion to support digital infrastructure, targeted at supporting the rollout of full-fibre connections and future 5G communications. Where we differ crucially is that we believe that it would not be appropriate for the universal service order to include a target for FTTP connections. Let me be absolutely clear why this would be a mistake.

I remind noble Lords that the regulatory regime for electronic communications is shaped by four European directives, adopted in 2002 and implemented in this country through the Communications Act 2003. Amendments 1 and 2, if they are to achieve what the noble Lord, Lord Mendelsohn, and others are seeking, must be consistent with this legal framework: in particular, the universal service directive. I struggle to see how a target for a 2 gigabits per second USO could possibly be compliant with EU law. First, the purpose of universal service requirements in the EU directive is not to force the development of a nascent market, such as the UK’s fibre market, but to ensure that a baseline of services is made available to all users where market forces do not deliver this. The USO is a safety net to prevent social and economic exclusion, not a statement of ambition: we are setting the minimum, not the maximum. This amendment is upside down, placing a ceiling on ambition rather than acting as a safeguard for those less well served by communications providers.

Secondly, the EU directive requires us to consider cost. Universal fibre to everyone’s door will be expensive as FTTP coverage is currently low. According to Ofcom’s latest Connected Nations report, only approximately 1.7% of UK premises have access to FTTP services. So clearly it would be very expensive to address this in the short term.

The recitals to the universal service directive indicate that any change in the scope of universal service,

“should be subject to the twin test of services that become available to a substantial majority of the population, with a consequent risk of social exclusion for those that cannot afford them”.

I have already explained that fibre to the premises is available to less than 2% of UK premises. This is far from a technology available to a “substantial majority” of the population. Furthermore, under the directive, connections provided under a broadband USO should be capable of supporting,

“data communications, at data rates that are sufficient to permit functional Internet access, taking into account prevailing technologies used by the majority of subscribers and technological feasibility”.

It may perhaps be argued that a sensible level of universal service for today should nevertheless be delivered using only fibre to the premises so as to be future- proof. But again, this suggestion would not be compliant with EU law. The directive requires that universal service be implemented using,

“the most efficient and appropriate approach”,

which is also proportionate and minimises market distortions. To require fibre-to-the-premises connections capable of 2 gigabits per second would clearly not be the most efficient way of delivering for today’s needs and would in fact cost many billions of pounds.

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[Lord Ashton of Hyde]

My Lords, that was encouragingly short. I thank noble Lords for their amendments. The noble Baroness, Lady Janke, proposed that any broadband USO must require the provision of a social tariff for broadband services. As my noble friend Lady Buscombe noted in the debate in Committee, when Ofcom was commissioned to provide advice to the Government on the design of the broadband USO, we specifically asked it to consider a social tariff to ensure that the USO is affordable for all.

The Government are presently considering Ofcom’s technical analysis, which was published on 16 December, and will publish a consultation on the detailed design of the USO. In relation to a social tariff, Ofcom noted that a social tariff might be appropriate but did not provide any indication of the costs involved and said that more work is needed. I confirm to the noble Baroness that we are sympathetic to the need for a social tariff, but it is absolutely right that further work is done first. I will briefly explain why.

First, we have a highly competitive broadband sector that delivers low prices. Bargain-basement broadband is readily available in the UK, and many people on lower incomes do not use fixed lines for their connectivity needs, preferring to rely on mobile. The ONS reports that more people use mobile phones to access the internet than any other medium.

Secondly, social tariffs work by cross-subsidy. The majority of users who pay the standard rate subsidise the beneficiaries. It would be irresponsible to force these costs on to consumers before we knew how much they are.

Thirdly, if we want a social tariff, do we want to use the USO to deliver it? That would impose the cost on the universal service provider. It might be better, for example, that the social tariff be required from all providers. I would therefore be concerned if we included a specific requirement for this in primary legislation now. However, I hope the noble Baroness will be happy with the assurance that I have given on this. We do not want it to be a source of unnecessary risk at the moment.

I turn to Amendment 4 and the noble Lord’s encouraging words trying to lead me in the direction he wants. I am afraid that at the moment, for a variety of reasons, we do not think that there is a need for such a reporting requirement. In relation to paragraph (a) of his proposed new clause, as I noted in Committee, it will be crucial to monitor progress in implementing the broadband USO. It is an important consumer measure but the reporting requirements should be decided once the design of the USO has been finalised, and not before. That will be done later.

The matters covered in paragraphs (b) and (c), regarding the percentage of premises connected via fibre to the premises, are already reported annually through Ofcom’s Connected Nations report. Paragraph (d) proposes reporting on measures taken to increase take-up of superfast broadband. This would largely repeat current reporting by Ofcom and the DCMS’s annual report.

Paragraph (f) proposes annual reporting on the number of community schemes set up each year and the level of subsidy required to achieve this, but there is no government-led community broadband programme, so we do not think there is any point in this reporting requirement.

On paragraph (g), we agree that it is important to ensure that consumers know their rights, particularly when it comes to switching. The Bill includes a number of provisions aimed at making it easier for consumers to exercise those rights, from making explicit Ofcom’s powers to set switching conditions and to require payment of automatic compensation, through to easier access to the information needed to make better decisions. The Bill’s measures are testament to the Government’s ambition to ensure that consumers are informed and empowered.

Finally, I would add that the Government will be publishing a consumer Green Paper in the spring, which is almost upon us, which will review where markets may not be working for all. With that explanation, I would be grateful if the noble Baroness could withdraw her amendment.

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Moved by

[Lord Ashton of Hyde]

6: Schedule 1, page 107, line 41, at end insert—
“Code rights and land registration
13A_ Where an enactment requires interests, charges or other obligations affecting land to be registered, the provisions of this code about who is bound by a code right have effect whether or not that right is registered.”

[Lord Ashton of Hyde]

My Lords, the Committee debates afforded the opportunity to cover many areas of the Electronic Communications Code in detail and I and my officials have reflected further on the points raised. The government amendments tabled following this are intended to provide greater clarity and make it easier for the code to be applied in practice.

Amendment 6 concerns land registration. During the debate, the noble Lord, Lord Foster, drew our attention to the relationship between the code rights and land registration rules and questioned whether the revised code provided adequate clarity on this. Having revisited this area of the revised code as a result of this, and taking into account his helpful comments, we have now tabled Amendment 6. This amendment makes it clear that the code rights will bind site providers whether they are registered as part of an agreement—for example, a lease—with the Land Registry or not. This will ensure certainty for operators and landowners and support continuity of service for consumers.

Amendments 8 to 12 are about valuation. The noble Lord, Lord Grantchester, spoke in Committee of his concerns, and the concerns of stakeholders, that paragraph 23 of the revised code was not clear enough. Paragraph 23 sets out the basis on which the consideration for an agreement to confer code rights is to be assessed. I take this opportunity to thank the noble Lord, Lord Grantchester, for taking the time to meet me and discuss these comments further, and for the effort he has made to get to grips with this complex area. I also acknowledge the contributions made by the Royal Institution of Chartered Surveyors and the Central Association of Agricultural Valuers, which have provided invaluable assistance to officials in developing amendments that will address these concerns.

The Government are clear that landowners should be paid appropriately for allowing code operators to use their land. That is why the revised code requires a price to be paid for that use, rather than creating a system where the landowner solely receives compensation. However, the Government are equally clear that the public need for digital communications services is such that landowners, whoever they are, should not be able to extract additional value from the fact that their land is being used specifically for the provision or use of electronic communications networks. Paragraph 23 therefore introduces a “no scheme” basis of valuation which ensures that any such additional value is not taken into account when the value of a code agreement is assessed. The no scheme basis of valuation is central to the aims of these reforms, which are to deliver improved coverage and connectivity for UK consumers by making it easier and cheaper for digital communications providers to roll out their infrastructure. The amendments tabled here do not change the Government’s policy position.

Amendments 8 to 10, to new paragraph 23 in Schedule 1, provide that the market value of an agreement to confer code rights must be assessed on the basis of four clearly expressed assumptions. Their combined effect will ensure that operators do not pay elevated prices for using land to provide infrastructure and deliver electronic communications networks.

Amendments 11 and 12 make corresponding amendments to new paragraph 63 in Schedule 1, which deals with the valuation of Crown tidal land. This group also contains a number of minor technical amendments. Amendment 8 simply updates and corrects a cross-reference. Amendment 13 recognises that there is no property chamber of the First-tier Tribunal in Wales, so that code disputes in Wales can be dealt with only by the Upper Tribunal.

Finally, Amendments 15 and 16 are consequential on the devolution of the management functions of the Crown Estate commissioners to the Scottish Ministers under the Scotland Act 1998, as amended by the Scotland Act 2016. I will reply to the amendment in the name of the noble Lord, Lord Grantchester, after he has spoken to it, and beg to move Amendment 6.

[Lord Grantchester (Lab)]

My Lords, I thank the Minister and his team, especially Kellie Hurst, for meeting and looking at the difficulties around the communication code. The meetings were indeed very constructive, focusing on the issue of value. I am grateful to the Minister for his introductions to the amendments today and for his kind words.

In Committee, we wondered how far this code got the balance correct between property rights and the public benefit. We all recognised the public interest in accessing modern communication channels at as low a price as possible. The Government finalised their position, after representations from operators, to a further qualified use of market value, which resulted in a clouded understanding that might not have been helpful but for this clearer use of language now proposed. In references to the new code as being on a no-scheme basis, there had been interpretations that this imported a compulsory purchase compensation basis that gave rise to general misapprehensions about the code by parties with a compulsory purchase experience. The code is now clearer that value is based on agreement as reflected by market value, qualified by the public interest in references to a no scheme basis in that the disregard is of the use of the rights for the electronic communications network.

Amendments 6 and 7 are clarifications to new paragraph 13 in Schedule 1, as prompted by the noble Lord, Lord Foster, and technical corrections are to new paragraph 15.

Amendments 8, 9 and 10 to new paragraph 23 are the pertinent amendments, with further clarifications in Amendments 11 and 12 to new paragraph 63, which now makes clear that the core principle remains that the consideration is to be assessed as the market value of agreement conferring the code rights. It is not compensation for loss. That is then further defined in new paragraph 23(2) in Schedule 1 and interpreted and qualified in proposed new sub-paragraph (3A).

As the Minister said, proposed new sub-paragraph (3A), regarding market value, makes four assumptions that clear up the misapprehensions and misunderstandings brought to us and considered in Committee. Assumption 1 recognises that the code right is within the agreement and that everything under it is relevant, save the intended function for a network. Assumption 2 reflects the Government’s policy that the operator’s freedom to assign the agreement and its qualified freedoms to upgrade or share apparatus are to be disregarded. Following these two disregards, assumption 3 affirms that the code right in question is otherwise to be assessed as it is in the real world and not some hypothetical one. Assumption 4 follows the Law Commission’s report and recent government policy in assuming there is more than one suitable site available as a means to exclude perceptions of ransom value brought forward by operators, even though the definition and interpretation of market value excludes ransom value.

Amendments 11 and 12 translate what I said above to new paragraph 63 in Schedule 1 concerning Crown land, and Amendment 13 is a technical correction of new paragraph 94. We will all be grateful that there has been a lot of proofreading and for Amendments 15 and 16 regarding the transfer of duties to the Scottish Government. We are also very grateful that the Minister listened to the concerns we raised in Committee and, in re-examining the situation, recognised that improvements could be made. We are in agreement with the amendments and, like the Minister, I am grateful to the Royal Institution of Chartered Surveyors and the Central Association of Agricultural Valuers for their technical expertise, which helped to recognise misapprehensions and clarify our drafting. These amendments make a massive improvement.

It could be said that with these improvements there should be fewer disputes and therefore fewer problems concerning the code of practice to be drawn up between operators and site owners. Granted that this may well be the case, and that the Minister said in Committee that the large superstructure of an adjudicator’s office and staffing may be costly, cumbersome and unnecessary, anxieties nevertheless remain. Wide experience in other areas operating under a code of practice is that, where there is a wide disparity between the relative economic strengths of parties involved in an activity, market power tends to lead to abuses against the smaller party with the use of unfair practices and a transfer of business risk. As Ofcom is a regulator with little or no experience or much expertise in this area, Amendment 14 proposes that it appoint an expert independent adjudicator to rule on disputes brought under the code of practice.

It would be an error to assume that the new regime will immediately work without there being a hitch or problem in the operation of the new code. Parties acting under it must recognise that any code of practice has to be abided by and has teeth with which to enforce compliance, and must have confidence that they have recourse should they consider the code to have been breached. I welcome the Minister’s assurance in this respect.

[Lord Ashton of Hyde]

My Lords, I thank the noble Lord, Lord Grantchester, for explaining his amendment, which seeks to introduce a statutory regulation by Ofcom of the code of practice for the Electronic Communications Code and to create a code adjudicator to examine breaches of the code of practice and impose sanctions. The Government understand the need to ensure that the Ofcom code of practice has real impact on industry behaviour. The Electronic Communications Code will modernise the way digital communications are deployed, and it is essential in this new market that the legitimate interests of all parties are respected.

Under paragraph 102 of the revised Electronic Communications Code, Ofcom has a duty to develop and publish a code of practice. The development of this code must be in consultation with key stakeholders, including both industry representatives and landowner interest groups. This ensures that relevant parties have the opportunity to directly influence industry standards of best practice.

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Moved by

[Lord Ashton of Hyde]

7: Schedule 1, page 108, line 33, leave out “90(2)(b)” and insert “90(2)(a)”

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Moved by

[Lord Ashton of Hyde]

15: Schedule 1, page 160, line 22, after “Commissioners” insert “or the relevant person”

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[Lord Fox]

My Lords, I am fortunate to follow the noble Lord, Lord Stevenson, whose comprehensive support of his amendment means that I need say very little, but I will make a couple of points.

We have talked in various debates on the digital economy about how wireless and broadband are converging, but there is one area where we do not want them to converge. The paroxysms that we are putting ourselves through around the broadband issue are because of how broken that market is, and there is a firm danger that we may be sending the wireless market down the same route. As the noble Lord, Lord Stevenson, pointed out, we had an equitable spectrum distribution, but there is a clear and present danger that we will move even further from that equity, with two dominant players and two very small players. The purpose of this amendment is to work in advance of that, so that we will not subsequently be debating the brokenness of the wireless market as we have been, from time immemorial, in respect of the broadband market.

When this amendment was debated in Committee, the Minister’s response was very much about leaving Ofcom to choose. He hazarded that, from the Government’s point of view,

“it also strikes us as unlikely that Ofcom, having determined appropriate rules …, would immediately nullify the results”.—[Official Report, 31/1/16; col. 1196]

In other words, it is up to Ofcom to decide, and it is not going to decide on this issue. That actually makes this amendment more important, not less. Ofcom has clearly recognised that there is a potential issue here, and it has gone tentatively down the route of limiting access to the 2.3 gigahertz spectrum while completely ignoring the 3.4 gigahertz spectrum. I think that the case has been made by the noble Lord, Lord Stevenson, for us to take account of that in the Bill and, for that reason, I support the amendment.

[Lord Ashton of Hyde]

My Lords, I thank all noble Lords who have spoken on this technical but important subject. The intention behind the amendment is that Ofcom is able to ensure competition in the mobile market. It also proposes that the Government commission and evaluate the current usage and allocation of mobile spectrum.

As has been said, Ofcom already has the power to set appropriate rules for its spectrum licensing, taking due account of competition implications. Ofcom must award licences by processes that are open, objective, transparent and proportionate to what they are intended to achieve and not unduly discriminating against particular persons or a particular description of persons. It is important to remind ourselves that Ofcom has been given the position of regulator of the telecommunications market in the United Kingdom. It already has a duty, when carrying out its radio spectrum functions, to have regard to the desirability of promoting both competition in the provision of electromagnetic communications services and the efficient management of radio spectrum for wireless telegraphy.

Reviewing the state of competition in the mobile market falls clearly within Ofcom’s remit. It considered many of the issues outlined in the proposed new clause in its recent consultation on the forthcoming spectrum auction. This included a proposal to apply a cap of 255 megahertz on the amount of immediately useable spectrum that any one operator can buy. Ofcom believes that the UK mobile market is currently working well for consumers and businesses, with strong competition between mobile network operators. It considers it unlikely that any of the four mobile network operators would cease to be credible as a national supplier of mobile services in the next few years, even if they did not obtain any spectrum in the forthcoming auction. Additionally, more useable mobile spectrum, such as the 700 megahertz band, will be available in the future. The reality is that Ofcom has considered the competition issues in some detail. Not everyone agrees with its conclusions, and Ofcom will take that into account as part of its consideration of the consultation responses. However, it is for Ofcom as the regulator to take a view on these issues, and it has already done so.

The noble Lord, Lord Stevenson, asked whether the current divisions are optimum. Ofcom is obviously more expert than I am, and we think it is for Ofcom to opine on that. As I said, Ofcom proposes to set a cap of 255 megahertz on the immediately useable spectrum. It has explained that, as a result of this proposed cap, BT/EE would not be able to bid for spectrum in the 2.3 gigahertz band. The cap will prevent a worsening of the current extent of asymmetry in immediately useable spectrum. I think that that indicates its views and I am not going to contradict it.

In addition, if the Government felt that it was necessary to direct Ofcom to undertake a competition assessment, they could do so under Section 5 of the Wireless Telegraphy Act, and they did so in 2010 ahead of the 4G auction.

The noble Lord, Lord Maxton, asked how Virgin supply a mobile network through EE. I am informed that the answer is that Virgin sublet part of EE’s spectrum access.

Given that Ofcom is already able to, and does, take into account competition issues, I hope that the noble Lord will agree to withdraw this amendment.

[Lord Stevenson of Balmacara]

I gather that the right way to respond is to say that I am obliged to the Minister for his response. The issue is really about how fair the market is going to be to the three groups concerned. Obviously, the regulator has got to decide to ensure that there is fairness in relation to the individual companies involved; there has to be respect for the overall pricing and impact that it has. But the missing ingredient is the consumers, and how they will be affected by decisions that are taken. I sometimes wonder whether the regulator has the position of the consumer centrally in its focus when it does so.

I am also minded to reflect on the fact that, with the decision of the House to impose a different form of USO within the Bill, there may be implications for how Ofcom might have to operate in this market, and it may be sensible to give time for that to be reflected on and see how it works out as we move forward a little further.

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[Baroness Janke]

My Lords, I have resubmitted this amendment because we consider this to be a matter of concern. As I have said, the large majority of these counterfeit goods are sold through internet portals and their sale has often resulted in fires and damage. They undermine well-known brands and are a great danger. It is no surprise that the Electrical Safety Council is drawing attention to this issue and wants the Government to address it.

When I previously raised this issue, the noble Baroness, Lady Buscombe, mentioned Operation Jasper and the trials that are being carried out with counterfeit goods. I have since learned that electrical goods are not included in this project and that is why I have resubmitted the amendment. We need some action on this problem. If the noble Lord or the noble Baroness can assure me that they will take this forward—perhaps meet with the Electrical Safety Council—and look at how progress can be made, I will be happy to withdraw the amendment. But the Government must consider taking action on what is an increasing danger and a growing problem. It is perpetrated through internet portals and the people who provide the online retailing must look at the problem too and take some responsibility. I beg to move.

[Lord Ashton of Hyde]

My Lords, I am grateful to the noble Baroness for waiting patiently for the last group of amendments. By the standards of our Committee deliberations, this is pretty reasonable—we have done well. I am also surprised that Opposition Members have been longing to give us delegated powers and allowing us to say “may” instead of “must”, which we have nobly resisted. But this amendment has gone back to a more traditional view, which is to make the Government formally review and report on sale of counterfeit electrical goods on the internet. We did, as the noble Baroness said, discuss this very issue in Committee and a similar amendment was withdrawn. Being serious, the sale of any type of counterfeit goods obviously has the potential to harm consumers and the economy and, importantly, damage traders who do business legitimately; and it often supports organised crime. As my noble friend Lady Buscombe said, the Government take this matter very seriously, which is why the Intellectual Property Office is committed to tackling counterfeiting of all kinds.

Since we discussed this issue in Committee, the IPO has continued to push forward with the work outlined in the Government’s IP enforcement strategy. Officials from the IPO have now met with representatives of all the main online sales platforms in the UK to discuss what steps they are taking to tackle the sale of counterfeit goods, as well as devices which may facilitate copyright infringement. I am reassured to hear from those conversations that the main online players in the UK all share our concern about this issue.

We have also made it very clear that we expect these platforms to continue to develop and improve the systems they have in place to tackle counterfeiting. They have given us details of a number of steps they are taking to do just that. This is an evolving area, with criminal behaviour and technology both changing as we go along, so we will continue to engage with those platforms and their equivalents in countries such as China to ensure that IP rights and the safety of consumers remain a priority across the board. As a separate work stream, police, trading standards and industry representatives have continued to work on Operation Jasper, tackling the sale of counterfeit goods via social media. This work has been ongoing for some time and is an excellent example of the value of the collaborative approach in this area.

In addition to this work, the IPO has now started to gather data for the next edition of the annual IP Crime Report. It will be published in September of this year and will contain the best available evidence on the scope and scale of counterfeiting in the UK, and will include material about the sale of electrical goods online. In the light of such work and the other elements of the strategy that we have discussed previously, in the Government’s view it is not necessary to have a statutory commitment to review and report on counterfeit electricals this time. The noble Baroness made a generous offer, and I hope I have done enough to persuade her to withdraw the amendment.

[Baroness Janke]

I thank the noble Lord for his response. Certainly, his comment that electrical products are specifically being taken into account is reassuring. Will he write to me indicating in what way those goods are being incorporated in the trials, as there is a huge difference between a counterfeit handbag and counterfeit electrical goods? Although the response I received previously stated that trials were going on, it did not deal specifically with electrical goods. If the Minister would be kind enough to provide information on that in a letter, I will happily withdraw the amendment.

[Lord Ashton of Hyde]

I am certainly happy to do that. I have a note on counterfeit electricals that I cannot read, so I will provide that information in writing.

[Baroness Janke]

I thank the noble Lord. I beg leave to withdraw the amendment.