Memorandum submitted by the Independent
Television Commission (ITC)
INTRODUCTION
1. Convergence is driving economic growth
and consumer choice, but it will develop in unpredictable ways.
Consumer behaviour and preferences can be the only guide to public
policy. For example, no regulator and few pundits would have predicted
two years ago how text messaging would drive the take-up of mobiles,
with over one million messages every hour now passing over the
networks, creating a £1 billion industry from scratch and
supplanting direct mail as the advertising medium to launch a
new TV channel.
2. Against the backdrop of rapid and unpredictable
change, the regulatory framework must avoid built-in obsolescence
even before it reaches the statute book. The role of the regulatory
framework—and of OFCOM within it—is to enable the
market to fulfil its potential. Where there is a need to intervene
the test should be consumer interest—the promotion of choice
for consumers, through diversity of output and plurality of ownership.
INFRASTRUCTURE
3. OFCOM should, as far as possible depend
on competition rather than regulation. In terms of networks and
infrastructure, the UK is already well placed. There is established
competition in telecommunications and mobile networks and digital
broadcasting platforms. These provide a wide range of services—mobile,
Internet and TV channels—to significant parts of the population.
4. The networks are in place and the investment
made. Their economic value lies in the traffic on them. If customers
can get access to new services, and service providers can get
access to customers, then the market—and OFCOM—can
rely fully on competition. The key, therefore, is access:
— in telecommunications to the local
loop—the last mile;
— in broadcast systems to the set-top
box or receiver—the gateway to the home.
The issue is the same in both cases: the tendency
of those who control access to networks and gateways to give preference
to running their own services through them, rather than those
of competitors.
5. Communications markets are often characterised
by oligopoly: a few large players, barriers to entry and significant
costs to consumers if they switch supplier. But if the access
terms are right, that need not be a concern: competition can do
its job of delivering growth and consumer choice. Access is a
deregulatory issue.
6. So what is needed? Ideally, OFCOM should
have the ability, through a Significant Market Power test agreed
at European level, to intervene occasionally before an abuse of
dominance, to ensure access on fair and reasonable terms for competing
service providers. The test must fit the facts. Operators may
not individually be dominant in economic terms; they may not actively
collude. But where they share the incentive to prefer their own
services over others' and where the market will support only a
few such network or gateway operators, then reasonable access
conditions should apply. Failing this, the specific arrangements
for fair, reasonable and non-discriminatory access which has applied
in the UK digital TV market should continue: they have certainly
not hindered, and have probably stimulated, the most wide-ranging
and successful DTV market in Europe.
DIVERSITY IN
CONTENT
7. Competition is a necessary condition
for the delivery of diversity in output. It has brought a great
expansion in choice in both radio and television. New services
supply a much greater range than hitherto in a wide range of genres:
films and sport, news, children's programming, factual and arts.
But despite 10 years of multi-channel competition, the new services
are taking time to deliver well-funded original output. Large
scale spending on original output requires a guarantee of large
audiences. To date, these have been provided by the free-to-air
national networks, with their privileges of cheap or free spectrum,
special places in programme guides (whether printed or electronic)
and well established brands. As technology evolves, other models
may come to apply: audiences may build a critical mass for individual
programmes delivered by broadband or stored in Personal Video
Recorders. But there are no guarantees.
8. For these reasons, the UK has devoted
a bigger share of resource to public service broadcasting than
any other nation. Direct funding from the licence fee, the opportunity
cost of spectrum and of schedules that do not simply chase ratings
equates to a public service subsidy of some £4 billion a
year. The Nation is entitled to know whether it is getting value
for money. That is an important element in holding the public
service broadcasters accountable.
9. The White Paper—rightly in the
ITC's view—proposes greater flexibility in how public service
broadcasters deliver against their remits. But greater freedom
also requires greater honesty and openness. While much must rest
on the broadcasters themselves, a key role for OFCOM will be to
report publicly on what the public service broadcasters say, in
the light of extensive consumer research and objective, fact based
assessment of the state of the industry. The ITC has already begun
this task this year with the most extensive survey yet on what
audiences expect from public service broadcasting. We will work
closely with the National Consumer Council to design better consumer
input. These reports will provide the objective basis for what
will, for some years to come, be a continuing national debate
on the role of public service broadcasting.
10. For the remainder of electronic content,
the ITC agrees with the White Paper's broad approach to simpler,
streamlined regulation graduated according to a medium's pervasiveness
and invasiveness (ie how much conscious prior choice the consumer
has over the selection of material). Self-regulation for the Internet;
simpler standard codes drawn up with the industry for most broadcasters,
a hierarchy of obligations for the public service broadcasters
coupled with a competitive, plural market, should continue to
satisfy consumers' and citizens' needs.
11. The ITC supports the White Paper's approach
to a hierarchy of positive content obligations on the public service
broadcasters. The BBC remains the basis of the public service
system and BBC 1 the cornerstone. ITV must compete with it BBC
2 and Channel 4 complement it. Channel 4—as long as it retains
its non-profit status—extends choice and serves a broader
range of interests. Analysis of schedules and output over time
shows that Channel 4 has held up well against the tests of range
and diversity. ITV contributes a significant public service in
UK investment regional production and high production values in
well funded peak-time programming.
12. It will be important that OFCOM's role
in regulating content is flexible. Its regulation should remain
under regular review so that it can be loosened or withdrawn as
consumer expectations change in line with the changing pervasiveness
and invasiveness of individual electronic media.
PLURALITY
13. There is a need to balance the consolidation
which is driving investment in the sector with ensuring plural
sources of information and ownership. Detailed ownership constraints
on the face of primary legislation have become too inflexible
for today's fast changing market. But there would be disadvantages
in resting solely on competition law and a "public interest"
test. Defining public interest is complex. That introduces greater
uncertainty for players in the market and, given the power of
media companies, is subject to more effective political lobbying
in this sphere than any other. The regulator needs the protection
of some, simpler but objective rules, in secondary legislation.
What should those rules aim to achieve?
14. In television and radio, the BBC has
a 40-45 per cent share of voice. The interests of plurality suggest
a need for at least two to three other significant operators in
the market, especially in news where the tendency to concentration
is highest. This could be achieved by a much simplified set of
rules such as:
— sustaining a third national television
news force that is not subject to influence by the other two and
with the ability to create scale in output, probably by being
guaranteed more than one owner;
— a move to competition rules to determine
ownership in any single medium;
— relaxing current cross-media rules
to permit any operator to have for example a 25 per cent share
in each of the television and newspaper markets (subject to competition
rules) with a higher threshold, say 40 per cent between newspapers
and radio or television and radio.
15. Such an approach would create substantially
more freedom than today for operators to create and follow market
opportunities. If such rules were embedded in secondary legislation
they could evolve flexibly as technology and the market evolves.
THE DUTIES
AND STRUCTURE
OF OFCOM
16. The White Paper proposes a range of
duties and functions for OFCOM, some economic, some public interest
or social. There is a range of public interest duties Parliament
may decide to give OFCOM: universal service; positive programming
obligations; protection of rural services or special requirements
for the disadvantaged; promoting pluralism; access to listed sporting
or national events etc. Each of these has some impact on competition:
they are not actions that even a perfectly functioning competitive
market would necessarily provide. There is, thus, an inherent
tension in OFCOM's prospective duties. The ITC believes it would
be wrong to leave their resolution entirely to OFCOM. We hope
that Parliament will provide guidance on how such tensions should
be addressed. The ITC believes that—as a broad guideline—competition
should be the main objective. In a small number of key areas,
public interest might have primacy. But OFCOM should have to assess
whether measures to achieve those public interest goals are likely
to have a limiting effect on competition and, if so, say publicly
why it believes the benefits outweigh the cost. OFCOM should keep
market and technology developments under regular review to assess
how far competition has developed and whether there are other,
more deregulatory ways of achieving core public interest goals.
17. There is also an inherent tension in
the structure of OFCOM. Competition regulation is best carried
out by a small core of professionals, where economic and competition
expertise and streamlined decision making are of the essence.
Judgements on content issues need to be rooted in research and
strong consultation to gather and reflect a broad and representative
blend of opinion: "what consumers expect". OFCOM's structure
needs to be able to embody and reflect the tensions between carriage
and content in a way which is transparent and accountable to Parliament
and the public and able to command—throughout the UK—widespread
acceptance and respect for its decisions. A unitary OFCOM will
therefore need adequate arrangements for representing key interests
of the nations and regions as well as the interests of consumer
accountability and redress.
February 2001
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