Is anybody there?

You can complain to Ofcom about anticompetitive practice if you like, but will it take any notice? Robbie Downing investigates

In the flurry of consultations that Ofcom kicked off to celebrate its birth last year, it would be easy to overlook the draft guidelines on handling complaints about anticompetitive conduct. The consultation deals only with procedural issues and has not attracted front-page reporting like the wide-ranging review of regulation of the UK telecoms market has. But the outcome of the consultation on complaints will have a major influence on the role Ofcom plays in fostering competition in the UK telecoms market, particularly those sectors where there is a dominant player.

The key points in the consultation on complaints relate to the evidence required by Ofcom to support a complaint, and the management of complaints by the regulator, including timescales.
The guidelines resulting from the consultation will signal to the market the likelihood of Ofcom intervention, and thereby will potentially have a direct impact on market behaviour.

Before looking more closely at Ofcom’s draft guidelines, however, it is worth describing some of the key developments that form the backdrop to the consultation.

The new Communications Act, which came into force at the end of 2003, not only gave Ofcom its powers to regulate telecoms and broadcasting, but also incorporated the new EU telecoms framework, which shifts the focus of regulation more strongly on competition law principles. In addition, the EU telecoms framework sets aggressive binding deadlines for national regulatory authorities reviewing complaints, and requires the availability of an appeal on the merits of regulatory decisions.

The Communications Act channels telecoms regulatory appeals to the Competition Appeal Tribunal (CAT). We have already seen several appeals to the CAT in the few months since the Communications Act came into force.

Oftel, in fact, consulted on the same procedural issues before its demise. One major impetus for that review was the CAT’s ruling in favour of Wanadoo (formerly Freeserve) on Oftel’s rejection of a complaint about broadband pricing. In its judgment of April 2003, the CAT addressed the burden on complainants to establish their case and signalled an end to the traditional informal approach to UK telecoms regulation. It did not set a particularly high evidential bar for complaints, but commented that the threshold was higher for sophisticated complainants with the resources to present a properly supported case.

Finally, on 1 May 2004, to coincide with the enlargement of the EU to 25 members, Regulation 1/2003 came into force. This had the effect of modernising EU competition law by decentralising its application to national authorities and courts. As a result, Ofcom will now play a lead role in the application of EU competition law to the UK telecoms market.

The regulatory environment has shifted markedly towards a more formal complaints procedure. So how does the Ofcom consultation sit with these developments?

There are certainly some positive statements in the consultation.
First, Ofcom says its investigations will be open and transparent.
Unless there are confidentiality concerns or tactical considerations, such as the undesirability of alerting the target of an investigation, details of all investigations will be published on the Ofcom website.

Second, complainants can expect regular contact with the team working on the investigation and regular updates on its progress.
Finally, Ofcom acknowledges the new binding EU deadline of four months for review of a regulatory complaint. It is worth highlighting the fact that, by comparison, the Competition Act procedure is much less demanding. Ofcom has set only non-binding targets for dealing with complaints: six months for a non-infringement decision and as long as 12 months for an infringement decision. This is likely to encourage a shift from reliance on the Competition Act to pursuing cases on the basis of a regulatory obligation under the Communications Act, where it is possible to choose. Ofcom has announced that it will conduct a further consultation on how it will choose between its powers under the two acts.

While there are positives to be drawn from Ofcom’s draft guidelines, there are also issues where it is vital that Ofcom strikes the right balance, so complaints that require consideration for the good of the market are not dismissed out of hand. The key point in the draft guidelines is that Ofcom sets relatively onerous requirements for the evidence in support of a complaint, particularly in terms of economic analysis.

For example, Ofcom says an allegation of predatory pricing must be supported by an analysis of costs. Furthermore, it will only accept a complaint where there is a statement by an officer (preferably the chief executive) that due care has been taken in checking the evidence submitted is accurate.

The principal concerns of Ofcom’s proposed approach are:

  • That, as the sectoral regulator, Ofcom frequently has access to far more information than the complainant.
  • Especially in the case of a pricing complaint, the complainant can only estimate the relevant numbers, while Ofcom has significant powers of investigation that it could exercise to obtain full and accurate information.
  • In setting a high cost to complain, such as requiring complainants to engage external economists, Ofcom is likely to discourage complaints, which will signal to the market that anti-competitive conduct may escape investigation.
  • Finally, too-ready rejection of complaints will lead to traditional judicial review proceedings rather than appeals to the CAT, which is the body best placed to deal with underlying substantive issues. The CAT has significant expertise in the field of competition law and will increasingly have expertise in the field of communications aswell.

By way of comparison, the Office of Fair Trading (OFT) sets a much lower threshold for evidence in its ‘Making a Complaint’ guide (OFT 427).

In addition, the draft guidelines do not state that Ofcom will give reasons for rejections. In line with its policy of openness and transparency, it is vital that Ofcom does give reasons so that complainants can verify it has acted properly and reasonably. The absence of reasons may encourage more hopeless judicial reviews and will undermine the quality of Ofcom’s decision-making. It is widely recognised and accepted in public law circles that an obligation to provide reasons improves decision-making by requiring the persons responsible to focus properly on why they are making that particular decision.

To conclude, Ofcom is dealing with an important issue in reviewing its approach to complaints. For the benefit of the market, it should make sure it strikes the right balance. Ofcom should not rely on lack of resource to justify avoiding controversial issues. Ofcom expects to issue the final version of the guidelines in June.

Robbie Downing is a partner in Baker & McKenzie’s London IP/IT group. He was assisted in this article by associate Richard Pike