Ofcom offers post-Brexit insights to Parliament

In December 2016, Ofcom, the UK’s independent communications regulator, submitted written evidence to the Culture, Media and Sport Select Committee’s inquiry into the impact of Brexit. Highlighting the communications sector as a “vital pillar of our economy” and that “the industries that Ofcom regulates… make up 3% of GDP”, Ofcom noted the importance of the safeguards which the European legal framework provides to UK consumers. It noted that the UK’s exit from the EU offers the country an opportunity to make “choices about replicating or replacing” the existing laws, with Ofcom believing the overriding priority must be ensuring that UK consumers and businesses continue to enjoy competitive communications services, putting the sector at “the heart of negotiations”.

What is required after Brexit?

Ofcom (and its predecessor Oftel) has worked closely with EU regulators to shape the current EU frameworks in telecoms, postal services, wireless and broadcasting, which define the duties, powers and independence of national regulators. Central to Ofcom’s ideas on post-Brexit regulation of the communications sector is the following “triple test”, which will help decide which laws should continue to apply in the UK by asking of each law and measure:

1. Does it prioritise the interests of UK consumers and the wider public?
2. Does it promote competition and investment?
3. Does it support the ability of UK companies to trade successfully in the EU, and globally?

Ofcom believes that ensuring that new UK laws and regulations satisfy all three conditions will allow the UK to retain what works in the EU framework, improve deficiencies in the framework and avoid (possibly inadvertently) making things worse, through weakening powers and protections.

The positives of the EU frameworks

Ofcom provides an example in the broadcasting sector, where the “Country of Origin” principle in EU law allows broadcasters to transmit across the entire EU, provided they comply with the rules of the country in which they originate. Ofcom believes that preserving the principle post-Brexit will prevent UK companies facing added hurdles which could cause pressure to move operations to the EU, to the detriment of the UK industry and audience. Given the significance of this principle, Ofcom highlights the importance of constructive discussions with other European countries; it is only as a result of agreement with other EU Member States that the benefits of the Country of Origin principle can continue to apply to UK-based companies, and vice versa.

Improving the existing frameworks

Ofcom believes that the European telecoms framework requires reform, with Brexit potentially making any changes easier. For example, Ofcom considers that the current requirement to carry out market reviews every three years creates uncertainty and would prefer longer review cycles, particular markets being examined only when the circumstances necessitate this. Further, Ofcom believes there are currently loopholes and ambiguities in the EU frameworks that could be remedied by the UK’s departure from the EU.

In respect of mergers and takeovers, Ofcom notes a “dramatic shift” towards fewer, bigger and more integrated companies selling TV, phone and broadband to customers. Ofcom contrasts the Competition and Markets Authority’s (CMA) approval of BT’s purchase of EE in early 2016 with the European Commission’s (the Commission) prohibition of Three’s attempt to acquire O2 just four months later, in what appears to be a barely veiled criticism. Ofcom strongly supported the Commission’s decision as protecting competition and UK consumers from increased prices. Ofcom is concerned about the approach that may in future be taken in merger decisions, when more mergers come within the CMA’s remit, noting the importance of ensuring that “UK regulators have the expertise and capability to referee these complex transactions”. Further, Ofcom supports a greater role for public interest or policy concerns in merger decisions where companies hold “particular strategic significance for the UK”.

Ofcom highlights the risks of the concentration of power and of consolidation in the communications sector and the need to ensure there are safeguards against this in the UK, to protect consumers. Ofcom notes that such arguments were made without success to the Commission and sees Brexit as an opportunity to “put this right in UK law”.

Ofcom is concerned about consumer vulnerability to market power in the communications sector, highlighting its review of retail prices paid by (largely elderly) consumers without broadband who only have landlines. Ofcom notes the Commission’s cautious approach to retail regulation and the ban on this proposed for 2020. Ofcom believes that post-Brexit UK regulation should keep the door open to retail intervention, to be used where competition and market forces alone do not afford UK consumers sufficient protection.

Ofcom also suggests that there is some scope for deregulation and the removal of undue bureaucracy. For example, it considers the EU state aid rules create difficulty in publicly funding projects, such as the roll-out of broadband to rural areas and small businesses, and may be “a prime case for reform”.

Preventing any possible weakening of powers and protections

Ofcom recognises the risk that the benefit of reduced roaming charges in the EU will be lost to UK consumers after Brexit. This is supported by a leaked European Parliament Committee document which states that the EU rules banning roaming charges from June 2017 will no longer apply to the departing UK. Ofcom believes negotiations with EU Member States will be required to protect UK interests.

In its Digital Communications Review, Ofcom has concluded that Openreach (BT’s infrastructure division) must become more independent from the BT Group and legal separation between Openreach and the rest of the BT Group is seen as a way of preventing Openreach prioritising BT’s interests ahead of others using its network. Ofcom has notified and is preparing plans to take to the Commission, and intends to use the powers given by EU law to make the changes. Ofcom warns that it is vital that its post-Brexit powers should still allow it to take these important steps.

Comment

Ofcom’s implicit criticism of the current merger control approach taken by the CMA is of particular interest. This, along with Ofcom’s clear view that EU regulation within the communications sector has a number of imperfections, will ensure that Ofcom seeks a central role in the Brexit process, wherever that touches its sphere of interest. Ofcom wants to protect the future needs of consumers, businesses, viewers and listeners and to maintain a role in the global debate over how the fast-moving sectors within its remit should be regulated, cross-border 5G technology being an example of this.

Whether Ofcom can retain its “influence at the heart of European and international discussions” as Brexit progresses will become clearer in due course. For both UK citizens and companies, the UK’s position “in a world outside of the EU” will be of great importance.