Communications Act 2003 (Maximum Penalty for Contravention of Information Requirements) Order 2011

My Lords, telecommunications are a vital part of the UK economy, worth over £35 billion in GDP alone. Perhaps more significantly, they help to underpin our online and internet economy—the largest per capita ICT market in the world and the driver of innovation and growth in the UK. It is absolutely critical that in this fast-moving and dynamic sector we have the necessary regulatory framework capable of keeping pace with market developments and technological change. This is why the Government have implemented the European framework on electronic communications. Those changes became law on 26 May this year. The changes to the framework are, first, good for business, which will benefit from the improved regulatory framework to encourage investment, and, secondly, they will provide greater competition and innovation among electronic communications providers. They will be beneficial, too, for consumers, who will gain from access to higher-quality and lower-cost communications services. Benefits for the former will include improved, reasonably priced choice of supplier and contract terms. For the latter, they will include strengthened rights on privacy and confidentiality, with faster switching processes and improved accessibility. The UK approach to implementation has been light touch and has the support of business. It has been informed by a comprehensive and open dialogue with the people concerned, as well as a determination to avoid all over-regulation. The framework contained a number of amendments granting new powers to Ofcom, the independent regulator. The powers will make certain that Ofcom has the appropriate tools to carry out its statutory functions effectively. These functions include the ability to make regulatory decisions on the markets. In order to make them effective, Ofcom needs access to information held by communications providers. If the providers do not comply with information requests, it will hinder Ofcom in fulfilling its duty as the communications regulator. This could prevent Ofcom making informed decisions relating to remedy of the market and consumer protection. This could have detrimental impacts on both the communication markets and the consumer. Amendments to Article 10(3) of the authorisation directive as well as to Article 21a of the revised framework directive require that Ofcom be able to levy dissuasive financial sanctions for most breaches of the regulatory obligations, including its information-gathering powers under Sections 135, 136 and 191 of the Communications Act 2003. Ofcom already has powers to impose financial penalties for breaches of these provisions, but the current limit for such penalties is only £50,000. Having reviewed the maximum level of the penalty, the Government no longer believe that this level of penalty is sufficiently dissuasive to prevent non-compliance with information-gathering requests. The Government see the ability to levy an increased penalty for failure to comply with an information request as key to making certain that Ofcom has the necessary information available to make effective and correct regulatory decisions. Recent changes to the Ofcom enforcement regime in relation to silent calls raised the maximum level of penalty that Ofcom can levy for breaches from £50,000 to £2 million. This amendment to the Communications Act 2003 will mirror that increase in the maximum level of penalty in respect of non-compliance with requests from Ofcom for information. Other financial penalties in the Communications Act have been increased, too, to sums above the current penalty. For example, there will now be no financial advantage to companies refusing to answer an information request and taking a £50,000 penalty, as the maximum level of penalty will be £2 million. The use of this power by Ofcom must be appropriate and proportionate to the breach of the information-gathering powers under the relevant sections of the Act. The Government are clear that the UK has no discretion on the implementation of these provisions. We must therefore provide for dissuasive penalties, as they are the law and are required by the European directive. The Government consulted on a change to the level of penalty as part of our wider consultation last year on the implementation of amendments to the European framework for electronic communications. Respondents from across both the telecommunications sector and the consumer rights groups were broadly supportive of this proposal. They recognised that it is of fundamental importance to the conduct of Ofcom’s regulatory functions under the framework that it is able to gather whatever information it needs. Respondents also agreed that it is important that Ofcom is able to levy dissuasive penalties, particularly on those operating short-term scams where the potential gains can exceed the amount of the fine. The people concerned also struck a cautionary note, arguing that, given the high level of the potential fine, its levy should be proportionate to the type of breach of the information requests. I am pleased to say that this is recognised in our approach. The Government are aware, however, that not all the people concerned agreed with the proposed increase in the level of sanction. Some suggested that the current level of penalty for failure to comply is already dissuasive and claimed that there is little evidence that companies are not complying with information requests. The Government have looked long and hard at the level of the sanctions available to Ofcom under its information-gathering powers. We have worked closely with the regulator, Ofcom, to analyse and test its powers, including its current enforcement powers. We firmly believe that Ofcom’s enforcement powers in relation to the information-gathering requests made under Sections 135, 136 and 191 of the Communications Act 2003 are not equivalent to the other enforcement powers available to Ofcom and are not genuinely dissuasive. Therefore, we will increase the level of fine that Ofcom can levy for failure to comply with an information-gathering request up to a maximum of £2 million. This will be done for the following reasons. First, the Government are aware that some communications providers have refused to comply with an information request or have provided inaccurate information on a number of occurrences during the years 2009 and 2010. Some respondents claimed that the current level of sanction available to Ofcom was already sufficiently dissuasive. The Government, however, have seen evidence that suggests that there is a lack of deterrent effect in the current regime. This means that businesses can, and do, take the risk of not providing accurate information as requested or providing any information. Potentially, therefore, they gain financial and other business advantages through the delay, and even the avoidance, of the full effect of Ofcom’s enforcement powers under the Act. This in turn can have significant detrimental impacts on both markets and consumer protections. Secondly, non-compliance or delayed compliance with information requests under Sections 135, 136 and 191 of the Communications Act 2003 hinders Ofcom in fulfilling its duty as regulator. We see the ability to levy an increased level of penalty for failure to comply with an information request as key to making certain that Ofcom has the necessary information available to make effective and correct regulatory decisions. Thirdly, increases in the level of sanction in other areas—for instance, silent calls—could provide communications providers with an incentive to refuse to respond to an information request and face a penalty of a maximum of £50,000 rather than answer the request, demonstrate a breach of other regulatory burdens and risk a far higher penalty. Fourthly, the penalty will apply only to those who do not comply properly with Ofcom’s information requests. Two million pounds is the maximum level of fine that Ofcom will be able to levy, and the penalty imposed in any specific case must be, as I said, proportionate to the breach. Her Majesty’s Government believe that this order is a necessary and important change to the powers of the regulator, Ofcom. This change will help to make certain that Ofcom is able to make fully informed decisions on the market it regulates; this can only be good for business and good for consumers. Therefore I commend this order to the Committee.