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Networking Arrangements Between Holders Of Regional Channel 3 Licences

Volume 178: debated on Friday 12 October 1990

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Lords amendment: No. 111, after clause 34, insert the following new clause—

(".—(1) This section has effect with respect to the making of arrangements which—

  • (a) apply to all the holders of regional Channel 3 licences, and
  • (b) provide for programmes made, commissioned or acquired by or on behalf of one or more of the holders of such licences to be available for broadcasting in all regional Channel 3 services,
  • being arrangements made for the purpose of enabling regional Channel 3 services (taken as a whole) to be a nationwide system of such services which is able to compete effectively with other television programme services provided in the United Kingdom; and any such arrangements are referred to in this section as "networking arrangements".

    (2) Any application for a regional Channel 3 licence shall, in addition to being accompanied by any such proposals as are mentioned in section 15(3)(b) to (d), be accompanied by the applicant's proposals for participating in networking arrangements made under this section; and—

  • (a) where a person has duly made such an application, the Commission—
  • (i) shall, as soon as reasonably practicable after the closing date for applications for the licence, send details of his proposals for participating in such arrangements to the Director General of Fair Trading, and
  • (ii) (without prejudice to the operation of section 16(1)) shall not proceed to consider whether to award him the licence as mentioned in that provision unless it appears to the Commission that any such proposals are satisfactory; and
  • (b) section(Conditions requiring holder of Channel 3 or 5 licence to deliver promised service) shall apply to any such proposals as it applies to the proposals submitted by the applicant under section 15(3)(bb) to (d).
  • (3) The Commission may publish, in such manner as they consider appropriate, general guidance to applicants for a regional Channel 3 licence as to the kinds of proposals which they would consider satisfactory for the purposes of subsection (2)(a); but before doing so the Commission—

  • (a) shall consult the Director General of Fair Trading, and
  • (b) if he requests them to make any change in the guidance, shall incorporate the change in the guidance.
  • (4) Each regional Channel 3 licence shall include conditions requiring the licence holder to do all that he can to secure—

  • (a) (in the case of a licence granted before the relevant date) that, by that date, networking arrangements have been made which—
  • (i) have been entered into by all the holders of regional Channel 3 licences, and
  • (ii) have been approved by the Commission; and
  • (b) (in any case) that, so long as he provides his licensed service, there are in force networking arrangements which have been so entered into and approved (unless there are for the time being in force any arrangements made by the Commission under subsection (5)).
  • (5) If—

  • (a) no such arrangements as are mentioned in subsection (4)(a) are made by the relevant date, or
  • (b) any such arrangements are so made but cease to be in force at any time before 1st January 1995,
  • the Commission may themselves draw up such networking arrangements as they consider appropriate; and, if they do so—

  • (i) they shall notify all the holders of regional Channel 3 licences of those arrangements, and
  • (ii) those arrangements shall (subject to subsection (6)) come into force on a date determined by the Commission.
  • and each regional Channel 3 licence shall include conditions requiring the licence holder to give effect to any arrangements made by the Commission under this subsection as for the time being in force.

    (6) No arrangements made by the Commission under subsection (5) shall come into force at any time after 31st December 1994.

    (7) Where—

  • (a) any such arrangements have come into force in accordance with subsection (6), but
  • (b) any networking arrangements are subsequently—
  • (i) entered into by all the holders of regional Channel 3 licences, and
  • (ii) approved by the Commission,
  • the arrangements referred to in paragraph (a) shall cease to have effect on the coming into force of the arrangements referred to in paragraph (b).

    (8) Where any arrangements have been approved by the Commission under subsection (4) or (7)(b), no modification of those arrangements shall be made by the holders of regional Channel 3 licences unless it too has been so approved.

    (9) Where any arrangements have been made by the Commission under subsection (5), they may (whether before or after the date specified in subsection (6)) make such modification of those arrangements as they consider appropriate; and, if they do so—

  • (a) they shall notify all the holders of regional Channel 3 licences of the modification, and
  • (b) the modification shall come into force on a date determined by the Commission.
  • (10) Without prejudice to the generality of their power to refuse to approve any arrangements or modification under subsection (4), (7)(b) or (8), the Commission shall refuse to do so if they are not satisfied that the arrangements in question, or (as the case may be) those arrangements as proposed to be modified, would be appropriate for the purpose mentioned in subsection (1).

    (11) Where the Commission have—

  • (a) approved any arrangements or modification under subsection (4), (7)(b) or (8), or
  • (b) given with respect to any arrangements or modification the notification required by subsection (5)(i) or (9)(a),
  • they shall, as soon as reasonably practicable after giving their approval or (as the case may be) that notification—

  • (i) publish details of the arrangements or modification in such manner as they consider appropriate, and
  • (ii) comply with the appropriate requirement specified in subsection (12)(a) or (b).
  • (12) The appropriate requirement referred to in paragraph (ii) of subsection (11) is—

  • (a) in the case of any such arrangements as are referred to in paragraph (a) or (b) of that subsection, to refer those arrangements to the Director General of Fair Trading, and
  • (b) in the case of any such modification as is so referred to, to inform him of that modification;
  • and Schedule (References with respect to networking arrangements) to this Act shall have effect with respect to any reference made under paragraph (a) above and matters arising out of any such reference, including the subsequent modification of the arrangements to which it relates.

    (13) In this section "the relevant date" means the date which the Commission determine to be that by which any such arrangements as are mentioned in subsection (4) would need to have been made by the holders of regional Channel 3 licences in order for the arrangements to be fully in operation at the time when those persons begin to provide their licensed services.")

    Read a Second time.

    I beg to move, as an amendment to the Lords amendment, amendment (a), in subsection (5)(b) of the new clause, to leave out 'before 1st January 1995'.

    With this it will be convenient to take the following:

    Amendment (b) to the proposed amendment, to leave out subsection (6).

    Lords amendments Nos. 440, 441 and 501.

    I have to inform the House that Lords amendment No. 111 involves privilege.

    I express my appreciation to the Minister for the amendment, which reflects decisions taken earlier in the light of the view expressed strongly in Committee that there should be a networking arrangement reinforced by statute so as to avoid the possibility of complete chaos when the franchises are awarded. There should be additional safeguards when new companies come in. I must express regret that the Government have not thought fit to make that a continuing obligation on the ITC. The purpose of my amendments is to ensure that the obligation to have in place a networking arrangement is a continuing one.

    I take this opportunity of raising with the Minister points that have been put to me by the Campaign for Quality Television about the role of the Office of Fair Trading in the underpinning of the networking arrangement provided for by the Bill. That arrangement is set out in the schedule and referred to in the new clause. It has been expressed strongly, most notably in a speech by Mr. Richard Dunn of the Independent Television Companies Association at aFinancial Times conference, that there would be serious risks if the Office of Fair Trading were to be involved in the networking. The sort of competition criteria that might appeal to the Office of Fair Trading would not necessarily be the same criteria as would be in the mind of the ITC in putting forward its proposals. The purpose of the networking arrangements is to ensure that quality broadcasting is available across the board.

    My noble Friend Lord Thomson of Monifieth said in another place that the difficulty with network arrangements in television is that
    "while there is not a conflict, there are often tensions pulling different ways between the most competitive system in the terms in which the OFT is bound to look at the matter and the system that provides the viewer with the best possibility of a rich variety of programming."— [Official Report, House of Lords, 11 October 1990; Vol. 522, c. 493.]
    I am sure that the Minister has read Richard Dunn's speech and I hope that he will address the arguments that he made. They are serious arguments. We had some debate earlier about the appropriateness of bringing the Office of Fair Trading into the regulatory process. Some of us, particularly myself, moved amendments to seek to remove the Office of Fair Trading from the oversight because that seemed to double the regulatory role. It would have taken away from the governors of the BBC their responsibility and, in this respect, would have reduced the role of the ITC. It is clear that the ITC can be overruled by the Office of Fair Trading according to the terms of the new clause. The House is entitled to an assurance that the carefully balanced quality provisions to which the Minister has devoted so much attention will not be damaged.

    9.15 pm

    I have given notice to my right hon. and learned Friend the Minister of my intention to raise a matter that was raised in the other place by Lord Boston of Faversham. It relates to the matter just mentioned by the hon. Member for Caithness and Sutherland (Mr. Maclennan)—the involvement of the Office of Fair Trading. Lord Boston asked Lord Ferrers three questions; I should be grateful if my right hon. and learned Friend would put on record the substance of Lord Ferrers's reply, which was given in a letter to Lord Boston on 18 October.

    First, Lord Boston asked whether the OFT would play any role in the process of selecting applicants for ITV franchises. If it did, that would clearly undermine much of the work that we did in Committee to strengthen the tender procedure and to make it rather more transparent than it has been in the past. Secondly, would any unhelpful delay result from the OFT's involvement which might prove commercially damaging to ITV companies? Thirdly, what does my right hon. and learned Friend intend to do to ensure that, should the Director General of Fair Trading feel that the agreed network arrangement is uncompetitive, exemption from the Restrictive Trade Practices Act 1976 will be provided?

    I think that the answers given in Lord Ferrers's letter are satisfactory, but it would be helpful if the House could be told—on the record—exactly what they are.

    Opposition Members are glad that the Government have honoured the earlier undertakings to give the ITC powers to establish a networking system. I do not think that the hon. Member for Caithness and Sutherland (Mr. Maclennan) required anything more than a slightly more detailed explanation from the Minister.

    There is no argument about the fact that those who will be bidding for licences will need to know what kind of networking arrangement is in operation before they can make their bids. Will the Minister confirm that, at present, 10 of the 15 existing ITV companies have set up a body called Netco to make network programmes, and that five have said that they do not wish to make them—although one is in a bit of a dither whether to make them or not?

    I understand that a safeguard exists in that, as at present, the tariff for network programmes will relate to ability to pay, measured by advertising take. I also understand—perhaps the Minister knows more about this than I do—that Netco has yet to agree on the volume of network programme hours, and on how they will be allocated.

    That brings us to the question of the involvement of the Office of Fair Trading. One suggestion is that it should be based on what has happened over the past three years. That may be the point at which the OFT will start to take an immediate interest in the matter. Its job is to ensure that arrangements do not restrict, distort or prevent competition. If it concluded—which it might do—that the formula of basing arrangements on the practice of the past three years breached some or all of its conditions, it could have a considerable impact on the arrangements. It could impose extra costs on network programmes and in turn cut the cash available for regional programmes. That could subsequently have an impact on the ability of regional Channel 3 licence holders to meet the so-called quality thresholds, by which the Minister sets so much store, as he reminded us again tonight.

    People are puzzled as to why there is a need for two referees, who could find themselves using different sets of rules on the same pitch. The hon. Member for Ryedale (Mr. Greenway) questioned the involvement of the Office of Fair Trading. After all, the Government appoint the members of the ITC, and to that extent are right to trust its judgment. In another place, the Minister of State described the rules specified for the OFT as a mere formality. If it will simply be a matter of sending the OFT a letter and receiving one in return, there does not seem much point to it. If it is a formality, the OFT does not seem to have got the message because it has, I understand, already set up a special unit to deal with that aspect.

    I am unclear also about the OFT's powers. If it does not like a proposal, will it write to that nice George Russell saying, "We don't like this proposal. Yours sincerely, OFT", or will it be able to prevent the proposed networking arrangement on the grounds specified?

    Like any other business persons, ITC members must have regard to the competition rules, and in that sense they do not need a second reminder—a watchdog or a nanny peering over their shoulders, prompting them that in making commercial arrangements they must take competition law into account.

    I hope that the Minister understands that competition must relate directly to the circumstances of a particular industry or trade, and that one concept cannot be wheeled round from shop to shop and be made to apply to all situations. That point is made by the Centre for Communication and Information Studies at the polytechnic of central London, which says:
    "In Germany, the Federal Cartel Office has a different regulatory policy towards broadcasting from that of the Federal Constitutional Court".
    Perhaps we can learn something from the methods used in Germany, even at the risk of upsetting the right hon. Member for Cirencester and Tewkesbury (Mr. Ridley).

    Currently, in the independent television network system cost-effective, studio-made programmes such as "Coronation Street" and "Blind Date" subsidise more expensive programmes such as "World in Action", "First Tuesday" and "The South Bank Show". I mentioned "Blind Date" because in a media survey of Back-Bench Members, it came out as top of the pops. I share the fear that the OFT might prevent such a sensible arrangement which, although it may not fit any other industry, has served independent television well. Nevertheless, it may attract criticism from the OFT, which could weaken the Bill's quality provisions. I hope that the Minister can assure the House that none of the fears that I have expressed is well-founded.

    Mellor, Mr. Speaker. I was about to say that I had forgotten the name of the chap sitting opposite me when I discovered that you, Mr. Speaker, had forgotten my name—but never mind. That serves me right for being cheeky.

    We all grow older, Mr. Speaker. It is happening to me as well. At your age, Mr. Speaker, these things happen.

    The House welcomed the Government's decision, announced during the passage of the Bill, that we should not rely purely on the commonsense position of there being a network, although obviously the ITV system could not operate without a network. However, because of continuing concern about the previous network and the cartel thereby created, because of what some regarded as the unconscionable amount of time that was being taken to get another network and because of dark suspicions that one or two people were delaying settling on the basis that the Bill would not address those issues, it seemed of the essence that the Bill should address those issues. They were discussed between Departments and we achieved an acceptable proposition, whereby for a transitional period there is a back-stop provision to allow a network arrangement to be imposed.

    With respect to the hon. Member for Caithness and Sutherland (Mr. Maclennan), this is essentially a short-term problem and I do not think that we should be justified in giving the ITC the power to impose networking arrangements in the longer term. Although I have made it clear that, where it has a right to impose, it should do so with a firm hand, it would not be right for it to impose networking arrangements over a long period without going back to what I regard as a previous generation of regulation. It needs to regulate where it is necessary to do so, and where it is not necessary we should accept that the aim of the Bill is to remove restrictions.

    I have always been concerned about the transitional period. Having decided that there should be intervention, the question arises of who should do it. I noticed a certain strand to the debate—I do not say this critically, but it is an observation worth making—of hon. Members regarding the OFT as rather a boring body and asking, "What has it got to do with this?" I see the OFT as a vital public watchdog. Whatever our political differences, we surely agree that the competition policy must be enforced by a strong independent body. If a body is given an overview on competition, although one wants to give primary responsibilities to the specific specialist regulator, one cannot push the OFT to one side. Much thought, which is reflected in the schedule that their Lordships were kind enough to accept, has gone into giving the OFT a role while not usurping the function of the ITC.

    Paragraph 2 of Lords amendment No. 501 sets out the competition test. It makes it clear that the OFT's role is not a formality. If the circumstances arise, it must apply the competition test, which is based on the Competition Act 1980 and on paragraph 3 of article 85 of the EEC treaty. Arrangements satisfy the test if they do not have, or are not intended or likely to have
    "the effect of restricting, distorting or preventing competition in connection with any business activity in the United Kingdom."
    If they do have such an effect, however, they can still satisfy the test if they
    "satisfy the criteria set out in paragraph 3 of Article 85 of the E.E.C. Treaty."
    That is inevitably complicated because EC law is involved, but that is the test that must be applied.

    If the OFT finds that the networking arrangements fall foul of the test, paragraph 5 says that it must publish the report and send a copy to the director and to the nice Mr. Russell. He is not so described in the schedule; he is merely described as the ITC, but we know that that means the nice Mr. Russell. Paragraph 6 requires the nice Mr. Russell to ensure that, under licensed conditions, the licensees modify the arrangements in accordance with the report of the Monopolies and Mergers Commission.

    Before giving way to the chap whose name I forgot, I should say that the nice Mr. Russell is 55 years old today, so perhaps somewhat belatedly we should send him happy birthday wishes.

    I willingly join the Minister in extending happy birthday wishes to that nice Mr. Russell.

    Can the Minister give the House an assurance that, in looking at the proposed networking arrangements, he will look at the specific needs and requirements of the industry against the general background of the OFT's requirements rather than use a blanket approach? That is the point in a nutshell.

    9.30 pm

    The OFT has to apply a competition test that relates to the industry under consideration. That may be why it is necessary for someone to have some specialist awareness within the OFT. I appreciate that it is possible to criticize those arrangements. Obviously, it is possible to criticize any arrangement. If we isolated the OFT, people would ask, "What is the point of having a competition body such as the OFT and pushing it to one side, not giving it a role even though specialist competition issues are involved?"

    Our starting point is the fact that, had we not made any of those provisions, the networking arrangements would have been caught by the restrictive trade practices legislation, under which the Director General of Fair Trading and the restrictive trade practices court have a role. The Bill is permissive because it exempts approved networking arrangements from those provisions to ensure that they do not unnecessarily constrain the development of a network. We thought that it would be unjustifiable if, at the same time as removing the provisions of the restrictive trade practices legislation from this area, we also removed the role of the DGFT, particularly bearing in mind his wider competition responsibilities, which I mentioned.

    The hon. Member for Birmingham, Erdington (Mr. Corbett) mentioned the Netcom proposals. I understand that they are still under discussion by the ITV companies. As far as I am aware, they have not yet been agreed or approved by the IBA. I understand that the chairman of the ITV association may be having informal discussions with the OFT. That is the process that would have to be followed through.

    My hon. Friend the Member for Ryedale (Mr. Greenway) mentioned some comments that Lord Boston made in another place, which were the subject of a letter from my esteemed colleague, Lord Ferrers. I shall deal briefly with that matter, but I shall happily let my hon. Friend have a copy of the letter. Three points were raised, the first of which concerned applicants' proposals for participating in networking being sent to the Director General of Fair Trading. He certainly will not play any part in the selection process for applicants for a Channel 3 licence, which I think was Lord Boston's concern. Lord Boston was concerned also about delay because of OFT approval. I repeat Lord Ferrers' assurance that there is no need for any delay. The ITC will have to refer networking arrangements to the OFT, but they can be implemented pending OFT consideration, so there should not be any delay.

    There was concern that the competition test went a bit too wide. I set out what the test is. Lord Boston suggested that this should be restricted to the provision of licensed services and services connected with them. Lord Ferrers' view was that, in practice, that is probably how it will work out. That was his judgment on advice. It is unlikely that any networking arrangements will have any outside effects. In so far as they do, it is probably right that the OFT should be able to take them into consideration, but that is an unlikely proposition.

    I have done my best to respond positively. I feel that in agreeing with the Lords amendments—as I hope we shall—we are closing what some people at the beginning thought was a major gap in the Bill because no provision was made for imposing a networking arrangement. I am glad to have played a part in ensuring that that should happen. What we have done is in accordance with the spirit of the Bill, doing what is necessary, but not doing more than is necessary.

    Amendment to the Lords amendment, by leave, withdrawn.

    Main Question put and agreed to.