HL Deb 15 July 1997 vol 581 cc914-20

3.15 p.m.

Report received.

Clause 2 [Charges for wireless telegraphy licences]:

Lord Inglewood moved Amendment No. 1: Page 2, line 22, after ("fit") insert ("and subject to subsection (2A).").

The noble Lord said: My Lords, the amendment relates to certain anxieties drawn to my attention by mobile telephone operators, in particular by two firms: Orange and One 2 One. As your Lordships will no doubt know, the mobile operators have committed billions of pounds of investment during the past 10 years or so and they have created a competitive, efficient and world-class mobile telephone sector which has contributed significantly both directly and indirectly to the fortunes of this country.

One 2 One is an operator licensed in 1993 to provide personal communications network or mass-market-type services. Since it began it has invested approximately £750 million in constructing its mobile telecommunications network. It plans to invest up to a total of £1.3 billion by 2001. Last year, One 2 One traded at a lost of £276 million and it does not expect to break even until 2001. Orange, which is owned by Hutchison, is in a similar category. Both have been operational for only three years. They face strong competition in the form particularly of Cellnet and Vodafone at a time when, due to the buoyant and competitive market, the average revenue per subscriber is declining rapidly.

I do not believe that there is anything between us on either side of the House about being in favour of competition. We can agree that we wish to see the evenhanded treatment of players on this playing field—that is, those who have been allocated spectrum—in order that they can compete against each other. The anxiety which I wish to draw to the attention of the House is the problem that is inherent where the allocations of spectrum and the consequent investment necessary to utilise that spectrum are not synchronised. Rather, they are happening at different times so that there are several different business cycles in play at one time.

The previous government, which I had the honour to serve, affirmed at paragraph 4.6 of their White Paper Spectrum Management into the 21st Century that the framework of spectrum pricing to be put in place would be: predictable in order to help users plan ahead". It also stated that there would be: transitional arrangements to avoid disrupting existing business plans and investment already committed to by users". The personal communications network operators obtained great comfort from that statement, although they questioned whether a three-year transitional period was sufficient because they are some years behind Vodafone and Cellnet in reaching profitability.

The amendment that I have tabled to Clause 2 is intended to reaffirm what was said by the previous Administration. It places a positive obligation on the Secretary of State in setting administrative pricing to allow an appropriate transitional period. The amendment to Clause 2 (2)(c) provides for the scale of existing investment to be a matter to be considered by the Secretary of State in determining administrative pricing, thus offering all mobile operators—I hasten to add not only One 2 One and Orange—significant comfort in knowing that the scale of their investment will not, as it were, be used against them in setting the level of the prices of the spectrum.

The amendment is intended to be a probing amendment and it may well be that the Minister will say that it is not necessary. He may also tell me that it is in some way defective in its drafting. However, I hope that I have clearly made the point about which I am anxious. I hope that he will consider it to be serious and one about which he can give some comfort to the industry. I beg to move.

The Minister of State, Department of Trade and Industry (Lord Clinton-Davis)

My Lords, I am grateful to the noble Lord for putting the position as he has. He says that this is a probing amendment. I think it is right that he should have tabled it for that purpose because it gives me an opportunity to express the Government's view on the issues.

The noble Lord may be right in saying that I shall argue that the amendments are not necessary. However, I wish to hold the House in suspense because I know that noble Lords are awaiting my remarks with great eagerness. I should never use the argument against the Opposition that something is wrong with an amendment simply because it is defective in its drafting. I have suffered all too often from those arguments and I do not propose to inflict them on the noble Lord. He does not have the facilities for drafting that we have. That does not mean to say that there cannot be a cock-up now and then but the noble Lord is more likely to have one than I am.

The noble Lord expressed concerns which I know he has discussed with parts of the industry. Therefore, it is appropriate that I should deal with the amendments. He is right to say that operators have invested very large sums of money in their systems and, not unnaturally, they wish to be able to make a reasonable return on them. The last thing in the world they want is to have their carefully considered business plans disrupted by violent swings in the level of licence fees.

I am now able to put the minds of your Lordships at rest. The noble Lord was right to anticipate that I would say that I cannot accept the amendments. The first amendment is really introductory, so perhaps we may look first at Amendment No. 2. The main concern is that the duty to have regard to sums invested in any telecommunications system would be extremely impractical to observe and to carry out. There are large numbers of telecommunications systems. The term includes not just the networks of the large operators but tens of thousands of small private systems. Ascertaining the amount of investment made in each individual licence system would be a gargantuan task and would also be a significant burden on licensees. I am sure that that is the last thing in the world the noble Lord would want.

Even if the data could be obtained, vastly differing amounts of investment and depreciation would be shown. I know that the amendment does not refer to depreciation but I believe that that is a factor which would be highly relevant. Having regard to substantially different investments would lead to considerable difficulties. For example, should it be the case that licensees in the same licence category are charged different amounts dependent on the stage reached in their investment cycles? I am advised that that might lead to a charge of being discriminatory. The noble Lord will know that that is not acceptable under the regulations. Nor is it acceptable in terms of the Treaty of Rome which does not define the words "discriminatory" or "arbitrary". In the final analysis the courts—the European Court of Justice—decide whether discrimination is practised.

There is the further point that the aim of the Bill is to permit the value of the spectrum to be reflected in licence fees. Logically, the value of the spectrum does not depend on the amounts that the licensee happens to have invested. I hope that the noble Lord will have been carried by that argument, which is forceful and practical.

I turn now to the proposed new subsection (2A). We intend that fee changes should be phased in gradually so as not to disrupt business plans. But I do not consider that adding the proposed provision would be helpful or advisable. The amendment refers to "an appropriate transitional period". As I indicated, I do not wish to appear to be unduly critical of the draftsmanship, but that is a vague expression. What is appropriate? It will differ from case to case. In my submission, that suggests strongly that such a detailed matter should be left to the regulations rather than appear on the face of the Bill. For example, the proposals that are currently the subject of consultation suggest a phasing-in period of three years. I do not know whether, at the end of the day, following the consultations, that will be regarded as sufficient. That is the whole purpose of any consultations. I have underlined over and over again in the course of our debates, although I know that they have been short, that the consultation must be full and relaxed and an exercise in which people feel that their views are properly taken care of. We want them to be able to make those representations freely.

However, I do not wish to pre-empt those consultations. The Bill as amended already provides sufficient checks and balances against fees being raised too quickly. We have discussed that previously and I did not notice any sign of dissent. A statutory duty to consult has been added to augment the ongoing and extensive non-statutory consultation practised by the agency. That will provide ample opportunity to assess the effects of changes on businesses.

The Secretary of State is required to have regard in particular to factors including the economic benefits arising from the use of wireless telegraphy. That covers the effect on licensees' businesses of either the amount or the speed of fee changes and provides ample scope for licensees to make representations if they consider that the changes are proceeding too rapidly and that their businesses will suffer in consequence. The effects on businesses will be taken into account also and published before the regulations are made along with the compliance cost assessment which was published with the Bill. In fact, phasing is an issue only when there is a sizeable shift in fees. That is likely to occur only when we are moving from the present regime to the new one.

We have already made proposals in the consultative document to phase in the initial changes over three years. Thereafter, I envisage a process of rather more gradual adjustment. Phasing in such circumstances would be unnecessary. It would slow the ability to use the pricing powers to respond to changes in spectrum demand and usage, making them a less effective spectrum management tool. I believe that the noble Lord and I agree that having an effective spectrum management tool goes to the very heart of what we are seeking to do.

Businesses which feel that their interests have not been properly taken into account or that their businesses will suffer have a remedy: they can approach Members of your Lordships' House or Members of another place to raise the issue in Parliament. That is not impossible. Indeed, having seen how this matter has progressed in its own small way, I perceive that it is very possible.

Finally, the drafting has some unintended effects. I do not seek to make a point about the drafting but I wish to point out that the proposed subsection (2A) appears to rule out any possibility that fees might be reduced or remain the same. In practice, the proposals on which the Radiocommunications Agency is currently consulting would involve most licence fees either staying the same or being reduced by as much as nearly 50 per cent. in many cases.

I believe that our approach to spectrum pricing so far and the proposals in the consultative document demonstrate that we are sensitive to the concerns of businesses. We have certainly not been unmindful of the representations made to us either directly or through Members of your Lordships' House. I can assure noble Lords that we shall continue to take proper account of matters such as existing investment and the phasing in of fee changes. Nevertheless, for the reasons that I have given, I hope your Lordships will agree that it is neither necessary nor appropriate to introduce such details into the Bill. Therefore, in the light of my explanation and the assurances that I have given, I hope that the noble Lord will feel able to withdraw the amendment that he quite properly moved.

3.30 p.m.

Lord Inglewood

My Lords, I thank the Minister for taking such a thorough look at the problem, which I believe we all agree is, in his words, difficult. I am sure that it was helpful to your Lordships to have canvassed the legal context widely, bearing in mind the European and other considerations that must be brought into play.

I should like to make just two points before I withdraw the amendment. The first is in terms of the value of spectrum. The latter only has a value to someone if it is of some use. A person may have a use for spectrum solely by virtue of having invested an enormous amount of money in infrastructure to enable him to use that spectrum; and, indeed, may only have carried out such investment on the understanding that he would subsequently be able to take advantage of the spectrum.

Secondly, as the allocations that we are discussing were made by government in pursuance of their own policy to effect competition in a particular market place, it would be perverse for changes in the general regime to directly undercut the competition that the original allocations of spectrum were intended to bring into effect. Finally, it is important for the long-term future of the industry—and, indeed, for all industries—that there should be investor confidence; namely, that those who lay out such very large sums of money can, as the Minister said, see a proper return in due course. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 2 and 3not moved.]

Lord Renton moved Amendment No. 4: Page 2, line 40, after ("regulations") insert ("made under section 1(3)").

The noble Lord said: My Lords, I suggest that we consider this amendment along with Amendment No. 5 with which it is grouped. On Clause 2 stand part in Committee, I referred to what I thought were some drafting problems to which the clause gave rise. Indeed, the Minister described it as a complex clause. I have tabled these amendments in the hope of achieving some clarity. In the meantime, I have received a helpful and courteous letter from the Minister, for which I should like him to know I am most grateful. I agree with some of the views expressed by the Minister in that letter, but not all of them.

We have before us an enabling Bill, which will enable Ministers to make regulations which will be the effective, operative part of the law. Therefore, we must try to get it absolutely clear what the scope of the regulations should be and how they are to be observed. If one looks at subsection (2), it is clear that we should not only make the drafting clear to capable lawyers, like the Minister, but that we must also make it clear to those lay people who may have to administer the law and, indeed, even more so, to those who will have to observe the law.

The Minister has pointed out to me that Clause 2 begins by saying: In exercising his powers under section 1 to prescribe sums payable in respect of wireless telegraphy licences of any description, the Secretary of State shall have regard, in particular, to the matters specified in subsection (2)". I should explain that that means subsection (2) of Clause 2, not of Clause 1.

Before I proceed any further, I should like to point out to the House that there is no power stated in Clause 2 to make regulations: there is merely a reference to the regulations which can be made under Clause 1. That brings me to ask your Lordships to consider subsection (3) of Clause 2 which reads: In this section— 'prescribe' means prescribe by regulations". I do so because it does not say which regulations; indeed, it does not say under which clause such regulations are to be made. I shall stop at that point for one moment. Bearing in mind the fact that there is no intention here of introducing a further power to make regulations, or prescribe by regulations, I believe that we should make it clear that these are regulations made under Clause 1(3). We can do no harm by putting that simple amendment into the Bill and, as I say, it may help to remove any doubt and to make the matter clear to lay people. I suggest that that is what we should do.

I was convinced by what the Minister said regarding the further point covered by Amendment No. 5. Therefore, I do not propose to put forward any argument in its support. I merely beg to move Amendment No. 4.

Lord Clinton-Davis

My Lords, the noble Lord is always courteous and thoughtful in the suggestions that he puts forward, even when he is wrong. I have crossed swords with the noble Lord on many occasions in the past, both in this House and another place, but we have always done so on the most friendly terms. Indeed, the noble Lord is good at engaging in what this House should do; namely, to undertake the detailed scrutiny of legislation. Therefore, it is right that he should go into such drafting matters, even though I happen to disagree with the conclusions that he has reached.

As the noble Lord said, I wrote to him as promised, albeit a day before or perhaps even on the same day that he tabled the amendments, setting out why I thought that the amendments were unnecessary and, indeed, inappropriate. However, I do not say that in a pejorative way; I just do not think that they are required. I should add that I copied the letter to other members of your Lordships' House who spoke in Committee and copies of it have also been placed in the Library of the House.

I am glad that the noble Lord has given me the opportunity to share those thoughts with other noble Lords this afternoon. I hope that I shall be able to convince the noble Lord, who is always very reasonable about such matters, that his first amendment is unnecessary. If one looks at the wording of Clause 2(1), it is evident that the power to set fees derives from Clause 1. Clause 2 is concerned with the way in which the power is exercised; indeed, it does not confer any new regulation making power. The phrase that the amendment would add is therefore redundant for that purpose. Having heard the noble Lord speak on many occasions in this House, I know only too well that he shares my view that unnecessary wording in legislation is something that one ought to avoid. For that reason, together with the other reasons that I have just put forward, I believe that the noble Lord's proposed amendment is superfluous; it would not add anything to the Bill. I am glad that the noble Lord raised the matter because it has enabled me to clarify the position, although I believe that it is already pretty clear on the face of the Bill.

I note that the noble Lord has effectively not said anything about the other amendment and, therefore, there is no need for me to address it. With all his experience in such matters, I hope that the noble Lord will find the argument that I put forward points to the fact that to amend the clause in the way suggested would neither be necessary nor particularly helpful. Nevertheless, I thank the noble Lord for having tabled the amendment and enabling me to say these few words.

Lord Renton

My Lords, I have listened carefully to that explanation by the noble Lord. Of course I would not wish to divide the House on this. I merely say that there are times when it is as well for us to be cautious when drafting. Perhaps there is a slight excess of zeal on my part. In case any of your Lordships should think that, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 5 not moved.]