Memorandum submitted by Telewest Communications
plc
1. Telewest Communications is one of the
leading broadband cable communications companies. The company
employs more than 6,000 people throughout the country to support
its regional operations which, currently, are delivering cable
television, telephone and Internet services to over 1.4 million
homes and 40,000 businesses.
2. As one of the companies that will be
offering digital broadcast (and other) services, Telewest has
a very direct interest in the outcome of the Government's current
consideration of the Report of the Independent Review Panel into
the Funding of the BBC.
3. Telewest agrees that the role and funding
of public service broadcasting needs close review as we move into
the digital, multimedia age and we recognise that the BBC has
made a strong case for additional funding through the licence
fee to provide "buoyancy" to compete in the digital
age.
4. We accept that the BBC has a role to
play and that it needs to be able to continue to fund its core
commitments from licence fee income, at least for the period until
the Charter Review and, perhaps, beyond. However, we remain to
be convinced that the BBC needs additional funding to meet a core
public service remit and, even if this were to be determined,
we believe that the options for providing such additional funding
need more investigation.
5. We also support the objectives of Government
to encourage the widespread take-up of digital broadcast services
in preparation for analogue switch-off and we wish to play our
part, with others in the industry, to promote the take-up of digital.
6. In this context, Telewest has just announced
its own plans for digital roll out starting on 30 October. These
plans involve a significant investment in network upgrades and
in the provision of resources to support the services. In fact,
we anticipate investing up to £200 million in the provision
of digital services (of which £80 million has been committed
to date) and we have already announced that we plan to recruit
840 new staff in the coming months.
7. Having made this commitment, we will
do all that is necessary to encourage take-up of digital services.
By the same token, we cannot support any move that could threaten
the pace of take-up.
8. We recognise that the Independent Review
Panel made a number of proposals for the future funding of the
BBC including part privatisation of BBC Resources and BBC Worldwide.
It also made recommendations in relation to the accountability
of the BBC, particularly in the way that it spends the licence
fee income. We have some views on these issues and we include
these below.
9. However, the main proposal, for the introduction
of a supplementary licence fee applicable only to digital customers
(the digital levy), is that which gives us most concern.
10. We acknowledge that the Review Panel
received evidence, primarily from London Economics, that indicated
that a potential negative impact of the digital supplement could
be balanced by the strength, as a driver, of BBC content. We find
it difficult to accept this argument.
11. Consequently, we believed it essential,
as part of the alliance of broadcasters and manufacturers, to
commission independent economic consultants, Nera, to provide
a second opinion. Since this report, which has been provided as
part of the submission from the alliance, suggests that digital
take-up could be deferred by three years, we have to conclude
that the digital supplement proposal poses a significant threat
to our digital investment. (To avoid duplication, we have not
appended a copy of the Nera Report to this submission.)
12. Therefore, Telewest strongly opposes
the recommendation of the Independent Review Panel for the introduction
of a digital supplement.
13. In any event, it seems to be totally
contrary to the Government's core objective, to encourage take-up
of digital broadcast services on a wide scale and to enable the
programme for analogue switch-off to be finalised within the framework
set out by the Secretary of State in his statement on 17 September.
In this respect, we would note that a significant proportion of
our customers tend to come from middle to lower income groups
as a result of the historical nature of our construction programme
in higher density urban areas.
14. Furthermore, it is possible that the
proposal could also work against other Government policy objectives
for e-commerce development, such as the provision of digital interactive
services using the television.
15. In respect of the role of BBC content
as a driver to digital, we do believe that the BBC has strong
brand recognition for quality, diverse programming. However, whilst
we would expect that our customers will wish to continue to receive
BBC content, we do not believe that enhanced and expanded BBC
output will be the key driver to digital take-up that the Review
Panel suggests. This is not borne out by viewing figures for BBC
Choice and BBC News 24.
16. We have stated above that we believe
that the case for additional funding, to support the BBC's public
service broadcasting remit, needs more investigation. The starting
point must be to question how much funding is required to fulfil
its core public service broadcasting obligations. Since attempting
to define public service broadcasting is fraught with difficulty,
perhaps a better approach would be to place some boundaries around
how a core public service remit can be delivered within current
funding.
17. In Chapter 1 of the Panel's Report,
the first recommendation is that "the BBC should be funded
sufficiently to remain a full service public service broadcaster
across the UK's rapidly developing broadcasting market".
We believe that such a definition, using the term "full service
public service broadcaster", is far too inviting to the BBC
to expand its core remit into the areas currently occupied by
commercially provided services.
18. Our main concern is that the public
service remit, as defined by the Panel, could be interpreted as
a requirement by the BBC to launch new thematic channels (and
possibly new general interest channels) designed to compete for
market share with commercially provided channels. This may occur
with or without due evaluation and consultation of the objectives.
19. The reason that we have this concern
is that the BBC could argue for the extension of the "must
carry" principle to all licence fee funded services. In other
words, if the BBC were to use additional licence fee revenue to
launch an expanded range of channels, probably competing with
others in the commercial market, they could argue that they should
become "must carry" for the cable industry, ie to be
provided at no cost but to be carried free.
20. This could not only have significant
opportunity cost for Telewest, if an increasing amount of bandwidth
is absorbed for public service channels, but it could also be
that these new channels were launched in direct competition with
existing commercially available material, to the possible detriment
of those commercial providers.
21. The potential for anti-competitive behaviour
by the BBC cannot be ignored if licence fee funds are used to
develop an increasing range of channels and services competing
directly with those provided by other commercial broadcasters.
22. In essence, if Telewest were obliged,
under an extension of the "must carry" principle to
provide, at no cost and no financial benefit, new BBC channels
to all customers, it may have no alternative but to drop other
channels from its line up.
23. As a minimum, we believe that the BBC
should be obliged to pay for carriage of channels beyond the current
"must carry" provision, in the same way that (we assume)
it pays for carriage over the privatised transmission network
operated by Castle.
24. In terms of its public service remit,
we believe that the BBC should be urged to focus on viewer reach
rather than viewer share. We would prefer to see the BBC concentrating
on using licence fee income to support the quality objective referred
to by the Secretary of State—to set a benchmark for quality
production. This suggests that a limited range of quality channels
is a better option than an expanding range of diverse interest
channels.
25. With this focus, a number of options
may exist that make the digital supplement or alternative licence
fee funding unnecessary.
26. As suggested above, it may be possible
to contain the public service remit, to be supported by licence
fee funding, to a finite number of channels at this stage.
27. Any subsequent assessment of the need
for further public service activities should occur via transparent
consultation with all affected parties. If a case is made for
such additional services, the financial options should be reviewed
and should include consideration of whether other broadcasters
should have the opportunity to meet the need.
28. In terms of the proposals for other
options, we do not support advertising on the core public service,
although if the BBC were to launch additional commercially based
services, this may be an option as would sponsorship or a subscription
based service.
29. We are relatively ambivalent on the
part privatisation of BBC Resources and BBC Worldwide. On balance,
we do not see these moves as essential and they may not be long
term solutions to the funding needs of the business. Either may
provide some shorter term buoyancy but retention may present a
better opportunity to provide a regular income if developed effectively.
30. In respect of various other recommendations
contained in the Review Panel's Report, we agree in particular
with the following:
— that the BBC should be allowed to
retain additional efficiency savings and commercial revenues to
fund a rise in programme provision and that these savings should
be periodically assessed by outside consultants appointed by the
Secretary of State.
— that the Director-General should
ensure that expenses for central management and bureaucracy should
be commensurate with equivalent outside organisations.
— that further development of beeb.com
should involve private capital.
— that, if any increase in licence
fee is ultimately agreed, a flat rate increase across the board
is preferable to a digital supplement. We take this view subject
to a case ultimately being proven.
— that there should be clear organisational
and accounting separation between the BBC and its commercial subsidiaries
and that there should be greater transparency in its accounting
arrangements.
— that the Office of Fair Trading should
be asked to review the BBC's Fair Trading Commitment and
Commercial Policy Guidelines.
— that the National Audit Office should
be asked to carry out the reviews proposed and that a separate
commercial audit firm should also be appointed for fair trading
purposes.
October 1999
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