CONSULTATION ON REPORTING SIDE PROCEDURES AND PRACTICES

5 July 1999

A. INTRODUCTION

1. On 1 April the Competition Commission assumed responsibility for the inquiry work previously undertaken by the MMC. This consultation paper invites comments on the procedures and practices used by the Commission in carrying out these functions. It particularly seeks views on ways in which present procedures and practices, described at paragraphs 20 to 28 below, might be made more open with better flows of information to all those interested. This consultation is undertaken in the belief that greater awareness of the issues, arguments and background information of an inquiry on the part of the parties and the public generally is likely to lead to the Commission being better or more quickly informed, with the result of improving the effectiveness of the Commission’s investigations.

2. Paragraph 19(1) of Schedule 7 to the Competition Act 1998 provides that each group of members selected by the Chairman to carry out an investigation may determine its own procedure, subject to any special or general directions given by the Secretary of State. No such directions have been given. However, paragraph 19(2) of Schedule 7 provides that, in determining its procedure to carry out an inquiry, the group of Commission members concerned must have regard to any guidance issued by the Chairman. It is the intention that changes in procedure resulting from this consultation will be reflected in that guidance.

Relationship with other exercises

3. This consultation is not concerned with the rules of procedure for the new Appeals Tribunals within the Competition Commission. This will be the subject of a separate consultation exercise conducted by the DTI later this year. Nor is it concerned with the actual content of Commission reports. Later this year, the DTI will be consulting about possible changes to merger control: the current exercise relates to inquiries under the present regime. Separately, the OFT is also conducting its own exercise about the way it operates.

4. Those wishing to respond to this consultation paper should do so by 10 September and should write to Peter Radley, Room 338, Competition Commission, New Court, 48 Carey Street, London, WC2A 2JT (tel: 0207-271 0230 and fax: 0207-271 0367) who will also answer any queries. This consultation paper has also been published on the Internet. Details of how to access the paper electronically can be found on the Commission’s website www.Competition-Commission.org.uk. Electronic mail responses to the consultation should be sent to info@competition-commission.org.uk.

B. BACKGROUND

5. There are several reasons why now is a good time to review procedures:

C. OBJECTIVES WHICH PROCEDURES MUST FULFIL

6. Procedures have to serve aims and objectives. They are not ends in themselves. The Commission’s procedures reflect the nature of the Commission’s functions, which are to carry out investigations as opposed to deciding a dispute between parties on the basis of evidence provided by those parties. Accordingly, the Commission’s procedures and practices have evolved to enable three main aims to be met:

7. In considering changes, there are six key criteria against which proposals will be measured:

These objectives are considered further below.

8. Respect for the law. The reporting side of the Commission exists to carry out investigations and make reports on matters referred by the Secretary of State for Trade and Industry, the Director General of Fair Trading and the sectoral regulators. Present procedures are designed to enable the Commission to fulfil these duties and to operate in accordance with administrative law and the relevant legislation. This, for example, requires the Commission to take into consideration any representations made by persons having a substantial interest in the subject matter of an investigation and to protect the confidentiality of information provided in the course of an inquiry. The procedures must also take account of the European Convention on Human Rights (ECHR). When the proposed Freedom of Information legislation is enacted, this will also need to be taken into account, but this paper is not intended to address that issue.

9. The effectiveness of the Commission’s procedures requires information to be gathered and its quality tested in a way which allows the best possible understanding of the issues in the time available. This is central to the Commission’s functions. The Commission’s reports must above all be thorough, and their conclusions and recommendations robust and soundly based.

10. Fairness. In addition to the points at paragraph 8 above, for the Commission’s conclusions to carry weight, it is essential that the Commission is perceived to act fairly.

11. Timeliness is an important aspect of the Commission’s work and is a major concern for the parties to an inquiry who wish to minimise the uncertainty for their businesses. It is also important to enable measures required to remedy matters that are contrary to the public interest to be taken as quickly as possible. All references are made with a deadline set by those making the references. Normally, three months are allowed for a merger reference, two months for a newspaper reference, six months for a utility reference and nine to twelve months for a monopoly reference. In certain circumstances, the Commission can seek an extension. The pressure of work involved in carrying out a thorough investigation against a tight timescale is already considerable; and we believe the proposals for greater openness should not add significantly to the time taken for inquiries.

12. Inevitably the Commission’s procedures place a considerable burden on the parties to an inquiry, and it is important that this burden should be kept to a realistic minimum. Companies supplying information to the Commission and providing representatives at hearings have to continue to run their businesses while responding to the Commission’s requests. Consumer organisations have limited resources and competing priorities. The burden placed on participants in the inquiry process needs to be both proportionate to the public interest and consistent with the likely importance of their input to the inquiry.

13. Costs. All public bodies have a duty to be cost effective and to keep their demands on the Exchequer, and ultimately the taxpayer, to a minimum. Changes in procedure designed to achieve greater openness may well involve additional costs. It will be important to ensure that any extra costs are kept to a realistic minimum and are in proportion to gains from the openness they are designed to achieve.

D. FUNCTIONS

14. The reporting side of the Competition Commission has a large number of different functions (called in the Competition Act 1998 ‘the general functions of the Commission’). These are largely derived from the Fair Trading Act 1973 and privatisation statutes.

15. These functions broadly give rise to three different types of inquiry:

16. In a monopoly inquiry, the Commission is asked to establish whether a monopoly situation (either scale or complex) exists, whether action is being taken to exploit or maintain the monopoly situation or which is otherwise attributable to the monopoly situation and (normally) whether any matter operates or may be expected to operate against the public interest. If there is an adverse public interest finding, the Commission may recommend remedies for the Secretary of State’s consideration.

17. In a merger inquiry the Commission is asked to investigate and report on whether a merger situation exists or is in contemplation and, if so, whether it operates or may be expected to operate against the public interest. If there is an adverse public interest finding, the Commission may recommend remedies for the Secretary of State’s consideration.

18. Special provisions apply to newspaper mergers. The public interest criteria that are applied here include the need for accurate presentation of news and free expression of opinion.

19. Regulatory references under the privatisation statutes usually arise from proposals for licence changes by a regulator which are disputed by the licensee. They often involve price controls. Licence modification references are made by the regulator concerned. The issue referred to the Commission is whether a particular matter operates or may be expected to operate against the public interest. If the Commission finds that there is an adverse effect on the public interest which could be remedied or prevented by a licence modification, the regulator is required to make a licence modification.

E. PRESENT PROCEDURES

20. The circumstances of individual references vary widely and give rise to very different types of investigation. Thus for example a monopoly reference may involve a large number or just a few parties and may or may involve specific allegations of misconduct, while a regulatory inquiry may give rise to complex technical issues. It is therefore necessary for the detailed procedure adopted by the particular group undertaking an inquiry to take account of the particular circumstances of the case. Although procedures are therefore flexibly applied, they are broadly common to all types of inquiry. They are designed to enable the Commission to:

These are not separate stages in an inquiry, but overlap to a large extent.

21. At the outset the Commission identifies parties likely to have an interest in the matter under investigation, eg the parties to a merger, customers, consumer bodies, trade associations, trade unions and public bodies with relevant responsibilities, and invites them to provide evidence. It is normal practice to place advertisements in the press (national, regional and/or trade specific as appropriate) inviting interested parties to comment. Also at an early stage the group conducting an inquiry will often make site visits to see the industry concerned at first hand.

22. The main parties to an inquiry, ie those most directly affected by the outcome, such as the parties to a merger, will be asked to provide detailed information about their activities, often by means of a questionnaire. Questionnaires may also be sent to other interested parties. In some inquiries expert consultants may be commissioned to undertake surveys or other work relevant to the investigation and the main parties are consulted when this is done.

23. In all inquiries close regular contact on progress is maintained between staff and the main parties through correspondence, telephone and informal meetings. These exchanges enable the Commission to obtain and clarify information and views.

24. At an early stage the group undertaking an inquiry will hold oral hearings with third parties. Hearings with main parties will be later. Those attending are given notice of the issues that are to be explored and the procedure to be followed. They may be legally represented at hearings if they wish but this is not necessary. Shorthand writers attend each hearing and it is standard practice to send to those attending a copy of the full transcript of the hearing, asking them to confirm its accuracy and to make any additional points they wish.

25. In the light of evidence which has been collected, the group identify the public interest issues which they consider may arise. These issues are then canvassed with the main parties at one or more hearings. In advance of hearings with main parties the Commission sends an ‘issues letter’ giving notice of the issues that the group propose to raise at the hearing. This will also include any information that the parties may need to have in order to respond properly to the issues raised. From time to time, matters may be raised at a hearing that were not referred to expressly in the issues letter. In such circumstances the person concerned will be invited to add to their oral answer in writing.

26. The Commission usually raises with the main parties not only public interest issues but also hypothetical remedies to possible public interest detriments. Often these are raised at the same hearing as the issues, but this does not mean that the group has reached any conclusions on the public interest issues. Where this happens the issues letter sent to the party concerned before the hearing will inform the party of the intention to discuss hypothetical remedies and these will be set out in the letter. When hypothetical remedies are discussed at a separate, later, hearing details are provided in advance to the party concerned in a separate ‘remedies letter’.

27. As an investigation proceeds, draft material for inclusion in the report is produced. Extracts of the draft factual material relevant to a party and the material summarising a party’s views are sent to the party concerned to confirm its accuracy. Also at this ‘put back’ stage parties are invited to identify material which they consider should be excised either from the Commission’s report to the Secretary of State or industry regulator concerned, or from the published version of the report.

28. In producing its reports the Commission is required to give definite answers to the questions asked in the reference and it must also give reasons for the conclusions drawn. The conclusions chapter may also include recommendations to remedy any adverse effects that have been identified. The report will also include the background information on which the conclusions and recommendations are based.

F. PROPOSALS

29. In its Green Paper ‘A Fair Deal for Consumers – Modernising the Framework for Utility Regulation’, Cm 3898, which was published in March 1998, the Government raised the question of introducing greater openness into the Commission’s procedures for handling licence modification references. At paragraph 7.51 it suggested that

‘moving to a more open approach in licence modification references would be consistent with the proposals for improving the transparency of the regulators’ own procedures. It would help to reassure both the companies and the regulators because each would know exactly what was said about their proposals or operations, leading to a stronger sense of justice and confidence that the Commission had not been misled by one party or the other. More transparency would also allow greater and more effective engagement of third parties in the process, in addition to the regulator and regulated company. The consumer arguments might then be aired more vigorously. Other third party interests could be part of a more open process. Further, by exposing the arguments to wider scrutiny there would be a likelihood of better, more soundly-based decisions’.

30. The Green Paper identified (paragraph 7.52) a number of possible ways of increasing the openness of the Commission’s procedures in regulatory inquiries which are equally applicable to all forms of inquiry undertaken by the Commission:

31. In putting forward these ideas, the Green Paper acknowledged various difficulties associated with greater openness:

32. Nonetheless, the Green Paper reached the view that the benefits of greater openness probably outweighed the risks, and the Government’s policy statement in July 1998 concluded (conclusion 7.13) that

‘The Government expects the (Commission) to push ahead with further experiments in the use of open hearings. It would also encourage the (Commission) to make greater disclosure of written evidence to the interested parties and, where possible, more widely. The relevant consumer council should be regarded as an ‘interested party’ for the purposes of participating in inquiries. It has concluded that the (Commission) should not be required to consult on draft conclusions’.

33. These conclusions, though put forward in the context of regulatory inquiries, apply equally to all forms of inquiry undertaken by the Commission. Following publication of the Government’s policy statement, the Commission set up a small internal working party to consider what measures to improve the openness of its procedures it might adopt. Following informal consultations with those most closely involved, the working party set in hand a number of experimental steps described at paragraph 34 below and also put forward various proposals for change within the existing framework (described at paragraph 35 below). The Commission has also considered the impact of the ECHR. Our present view is that it does not require any fundamental changes to existing procedures. The various measures outlined at paragraphs 34 and 35 are subject both to the results of the present consultation, including the parallel exercise being undertaken on the Commission’s behalf by Bell Pottinger Good Relations in which the consultants are exploring the in-depth views of those most closely involved with the Commission’s work, and to any further evidence that may emerge. However, for all inquiries currently underway and for those starting after the publication of this paper, it is proposed to give effect to the changes and continue with the experiments described below.

34. The Commission’s recent experiments with greater openness have covered:

35. For some time the Commission has published on its website an open invitation to submit evidence to each inquiry and it has also published the names of the members undertaking each inquiry. The further steps that it now proposes to increase the openness of its procedures are that it should:

36. The Commission believes that on balance these developments are proving beneficial, in improving the effectiveness of its own work and in providing extra opportunities for the parties involved to respond to points of potential importance to them. However, the preparation costs of the joint hearing in the Mobile Phones reference were substantial, not only for the Commission but also for the parties. Consequently the Commission’s preliminary view is that joint hearings should be held only where the issues are exceptionally complex. The Commission would welcome comments on all these proposals and on the experiments that have taken place both from the parties and also from those who were not directly involved, including those who read the issues and remedies statements when they were published.

37. Details of how to respond to this consultation paper are set out at paragraph 4 above. All responses will be carefully considered and made publicly available on request unless respondents indicate to the contrary. A list of all respondents will be published on the Commission’s website (details at paragraph 4). Respondents are invited to publish their responses themselves on their own website and to establish a link with the Commission’s website to allow direct access to interested parties. Respondents prepared to set up such a link should contact Francis Royle, the Commission’s Press Officer on 0207–271 0242 or by e-mail on info@competition-commission.org.uk to arrange this.

Last revised 01/00