Examination of Witnesses (Questions 440-459)
PAUL BOLT,
PATRICIA HODGSON
CBE, DAVID EDMONDS,
TONY STOLLER
AND DAVID
HENDON
TUESDAY 26 FEBRUARY 2002
440. That is very fair, in view of the fact
that the Bill is before Parliament next week, and, as you say,
it is for Parliament to decide. But the question does arise, does
it not, that, let us say, OFCOM had charge of the BBC, let us
say that OFCOM could do to the BBC what it did to MTV and imposed
a hefty fine on MTV for breaches of the watershed, that, although
it did not fine Channel Four over incest in Brookside, it took
a very strong view about it, but if the BBC were to be fined,
in the end, what would be the point, since it is we, as licence-payers,
who would be paying the fine; so the BBC gets away with it anyway?
(Mr Bolt) Yes; there are wider arguments, there are
many other public bodies which do worthy things are still fined.
441. There are one or two people around who
argue for privatising the BBC; but we will not go into that now.
(Mr Bolt) Health authorities, for example, can be
fined.
Michael Fabricant
442. In their evidence earlier on, I do not
know whether you were in to hear it, Telewest talked about the
unsatisfactory nature of OFCOM being responsible to two Government
Departments; they said also that life was not easy when it takes
six months to get an appointment to see the Secretary of State
for Culture, Media and Sport. You have got pretty firm ideas,
it seems to me, about where you see OFCOM going, you have got
pretty firm ideas too, I think, about where you see the BBC should
be relating to OFCOM; and yet, as the Chairman said, the Bill
is going before Parliament next week, and, if this Government
Bill is like many other Government Bills that come before Parliament,
it is unlikely to be changed a great deal by the time it is enacted.
So I just wonder, what has been your experience, in relationships
with both the Secretary of State for Trade and Industry and the
Secretary of State for Culture, Media and Sport; to what extent
you have been successful in steering Government policy, such that
much of your input will be reflected in the Bill that comes before
Parliament next week?
(Ms Hodgson) We have been very impressed by the collaboration
between the two Departments and by the access that all of us,
both as a group and individually, have had.
443. So maybe you have been booking all the
appointments and that is why Telewest could not get in?
(Mr Stoller) We have seen the co-operation between
the two Departments working, I was going to say perfectly well,
that sounds a bit grudging, working well, and certainly we have
been able to put our points; whether our points will be taken
by Government and then by Parliament is a matter for them and
for you.
444. So you have not had sight of the draft
Bill in any form yet?
(Mr Stoller) A number of us are working, and are invited
to work, on some parts of that; and most of that is to look at
technical drafting. I certainly have not seen the full Bill, and
I doubt that colleagues have.
445. So I cannot tempt you then, rather like
the serpent and the apple, to make an observation regarding either
of the two Departments and their co-operation with you?
(Mr Edmonds) If I may, Chairman, you can tempt me,
and I would like to rise to it, because at the outset of the OFCOM
process, when the White Paper was published, the five of us came
together. The five of us went jointly to both Secretaries of State
and said, "You have set in the White Paper some objectives
that you would like to secure, you have said in the White Paper
that you would like to build OFCOM. We have said we would like
to be part of the process of creating a world-class regulator.
We believe that one way in which we can assist that process is
by working together," which we firstly did, drafted a memorandum
of understanding, so our own actions were correlated better; "but,
secondly, we would like to work with Departments." We set
up the regulator steering group, the five of us, with Under Secretaries
from the two Departments; and throughout the process we have tried
to drive the mechanics, the logistics, the preparations, in a
way that has meant both the Departments have been linked in, and
we have been linked out to both Departments. How successful that
has been, I suspect, Sir, you will have to wait until the Bill
is published; but, in terms of trying to work with the process
and trying to work with the Departments, I think it has been a
remarkably successful experiment.
446. And finally, Chairman, if I may, to change
the subject, what role do you think OFCOM will have, and what
role ought OFCOM to have, in analogue television switch-off?
(Ms Hodgson) I think David Hendon and I might answer
that. We expect and intend that OFCOM would build on the activities
that are already under way. The ITC has been driving what is called
an equalisation process, to ensure that the six multiplexes have
the same coverage; that is about halfway through, that programme.
We have also persuaded the broadcasters to a power increase programme.
Those two things together will ensure that the core coverage is,
when it is completed, 73 per cent for the `pay' multiplexes and
85 per cent for the `free to air' multiplexes, with another few
transmitters, but without further major build; at switchover,
when power can be increased, that will go up about 10 per cent.
So that is a pretty good progress on that front. We are working
with the Departments on information, for example, for local authorities,
blocks of flats, about reception. We have changed our cross-promotion
rules to make it easier for the broadcasters to drive take-up.
We are working with our colleagues here, and David might like
to pick this up, a little bit on the Digital Action Plan. And
the ITC, currently, with 18 companies in the business, is running
a GoDigital project in three pilot areas.
447. If I may interrupt, as other people want
to get in, I think what I am really getting at is, have you got
a date in mind, have you actually said to the Secretary of State,
"You talked about a date, or your predecessors did, and that
seems to have gone by the wayside; do you agree with people in
the industry who say, `Well, until you do have a date, you're
not going to get much digital take-up, because people wont see
the urgency in it'"?
(Ms Hodgson) The ITC certainly has written to the
Government, talking about the prerequisites, integrated sets,
a programme that will take us towards switchover, the importance
of a digital set in every home, so that the idea of digital switchover
is something that is positive for people, something that they
are getting, rather than something negative which is being taken
away from them. I do not know whether you want to add, David,
about the GoDigital project, the Action Plan.
(Mr Hendon) First of all, there is a limit to what
I want to be drawn into, because I am different from the other
people on this side of the table, in that I work for the Department
of Trade and Industry, so I am reporting to the Secretary of State.
448. And you might be sacked, or you might resign
and not know about it?
(Mr Hendon) So everything the Secretary of State for
Trade and Industry believes, of course, I believe too. I think
we understand what the industry is saying to us about the importance
of a date, and I think it is always easier to know when to make
an investment if you have got a clear idea of what the take-up
will be. I think we have got to recognise that there are a lot
of factors playing in that market-place, and the date is just
one of those things; and if we set a date without reference to
everything else then it could be more damaging than helpful. So
I think that is a difficult political decision, as it were. From
my own perspective, there are a couple of interesting things about
spectrum. First of all, radio spectrum does not understand about
national sovereignty, it just sort of carries on, regardless,
and so there is an enormous job to do in agreeing the use of radio
spectrum with other countries, and particularly the television
frequencies, we have considerable problems agreeing how they should
be shared with the countries around, not just Ireland but also
on the Continent. And the problem we have got at the moment is
that we have gone a lot further and a lot faster with digital
TV than they have, and they are all beginning to wake up now to
the need for digital networks. And so there is going to have to
be quite a lot of sorting out of how these networks are going
to co-exist in the spectrum, with analogue networks withdrawing
at the same time; it is a very difficult technical problem to
solve. And there is a sequence of international conferences where
this work will be done, and we are, really, I think, in the lead,
to quite some extent, in that respect, and I see OFCOM really
as setting something of the tone, internationally. And then, of
course, the other thing is that spectrum that is released after
analogue switchover could be used for all sorts of things, but
it is only really useful to industry if there is some sort of
international agreement on what that spectrum will be used for.
And the reason that the third generation auctions achieved such
extraordinary values was because there was a perception at the
time, maybe there is still a perception, of a huge opportunity
and, going back to my point about investment, there was a real
opportunity to invest in equipment, and so on, which would exploit
that opportunity. And that is really the key to how we reuse spectrum
that is released from analogue switch-off; so there is another
great piece of work to do there. And, again, I think, OFCOM will
be heavily involved in the international definition of that work.
Mr Bryant
449. I guess I start, in thinking about OFCOM,
by wondering what we want regulation for, in any sense at all,
in this market, and I guess it is to ensure that there is a robust
competitive market, and to ensure that there is a consumer focus
that delivers universal access and choice, and things like that,
and that there is an efficient use of resources, and then that
there is an accepted system for taste and decency. But it seems
to me that politicians, and we have done it again today, always
get obsessed with the taste and decency issues and never look
at any of the competition issues; we are very good at being Mary
Poppins. And my worry is that, actually, in terms of regulation
in Britain, we are brilliant at the Mary Poppins style of regulation,
in all of these services, I think we do a very good job; alright,
there may be moments when broadcasters get it wrong, but, broadly
speaking, we have a very robust system which has the confidence
of the people of Britain, which is not true in other countries
in the world. But when it comes to competition we are pathetic;
on any of the competitive issues in this area we have failed to
deliver, I think. My first question really then is about conditional
access pricing. We had Sky in, who still have not replied in written
form on the issues that we asked them then, I presume that they
will get round to it eventually, but maybe they deliberately did
not do so before you were coming along today. As I understand
it, the conditional access price regime is not regulated really
at all in this country, in theory it is, and Sky say it is, but,
as I understand it, nobody signed off the rate card that they
use at all?
(Ms Hodgson) Do we not have an opportunity, with OFCOM,
to make a considerable step forward in this area; in preparation
for OFCOM, David and I have been working pretty hard on some of
these issues, particularly this one. And, as you may know, David
has got a consultation out at the moment about the terms for this
very subject, access via the satellite platform, and we are responding
to it, and I hope very much that you will see a considerable improvement
in the way decisions are taken.
(Mr Edmonds) If I could second that; yes, we have
had an interesting consultation. We propose to make a statement
on some principles in this area, which I think will go a long
way towards perhaps giving the clarity that you want in this particular
area, Mr Bryant. I am not sure though, if I may defend, that it
has been such a disaster, in competitive terms, as perhaps you
suggest. The rate card is there, yes, the rate card is set by
the company, it is a guide then for negotiation with those companies
who want to buy conditional access; and, on the whole, as I think
you heard from Sky, several hundred agreements actually have been
reached, as a result of commercial negotiation, and I think it
is a good thing. Where we do have a complaint, as you know, we
have had a complaint from ITV, that is then looked at in the context
of the competition rules that we apply, and, clearly, I cannot
comment on what that decision might be, because we are reflecting
on it at the moment.
450. It has not led to an exactly competitive
market in the two premium areas of channels, has it, i.e. sport
and films?
(Mr Edmonds) No; in the sense of looking at lots of
competition coming from other areas, no.
451. And, indeed, as far as I can understand
it, the Sky card, Sky pay to the company that manages it the same
price for all of their channels that they have, all their sports
channels and all their other channels as well, as ITV would pay
to put ITV Sport on there. Surely, that is anti-competitive?
(Mr Edmonds) I think that those kinds of arguments
have been made, and I would ask that you look at the response
that we are going to make in the light of the consultation document,
rather than me saying now it is anti-competitive.
452. I think it is the ITC that regulates, I
think, I might be wrong, advertising on Sky then. Why have I never
yet seen an advert on Sky for ITV Sport?
(Ms Hodgson) ITV Digital has been discussing with
Sky a number of advertisements that they wanted Sky to run; Sky
had some problems with those advertisements, ITV Digital complained
to the ITC. The Monday before last, the ITC wrote to both Sky
and ITV Digital, saying it was minded to make a direction; we
gave dates for both companies to come back. After they had come
back, we did make a direction, last Friday, and I can let you
have the details of that outside the meeting.
453. And do you think it is fair, or do you
think that vertical integration within Sky, so that, this is a
point that Mr Keen made, when Sky were here, that you had various
different parts of the value chain all tied up into one organisation,
that ensures, inevitably, they are there to make money, but, inevitably,
that they seek to get the best value out of the shared ownership,
across the vertical integration? Do you think, for instance, then
it is fair that the Discovery Channel is signed up exclusively
to Sky, so that it cannot be available on ITV Digital until the
year 2006?
(Ms Hodgson) The vertical integration you speak of
has one substantial benefit and raises very serious competition
questions. The substantial benefit is that it enables Sky to launch
and reckon to get some return on the high risk of pioneering satellite,
multi-channel television and then digital television, in this
country; clearly, it raises very substantial competition questions,
some of those, in relation to films and sport, are, as you know,
before the OFT at the moment, and they have made a preliminary
"finding". I think that one of the most important solutions
to this question is the terms of access. I think your first question
was absolutely key; the terms on which competing channels can
get access to this delivery system, which is undoubtedly a dominant
gateway. I think the outcome of the current deliberations, following
the consultation that David is undertaking, will be absolutely
vital to the health of competition between services in this country.
454. I asked Telewest whether it was fair then
to suggest that the present regime, because of `must carry' rules,
and so on, means basically that public service broadcasters in
this country subsidise the roll-out of Sky set-top boxes, because
they have to pay for conditional access, whereas, on cable, cable
has to carry all the public service broadcasters and does not
get a penny for it; would you agree?
(Ms Hodgson) The terms that the public service broadcasters
have to pay are crucial; and, as we know, the BBC, Channel Four
and ITV are paying very different sums. It is why, again, I repeat,
the outcome of this current consultation and, going forward, the
charges are very important indeed.
(Mr Edmonds) The fundamental principle is, of course,
fair, reasonable and non-discriminatory prices. You started your
question about competition; that is an understood concept in competition,
fair, reasonable and non-discriminatory does vary between categories.
But it is something, I think, that competition economists and
competition lawyers understand. As Patricia says, it will be at
the heart of what we move forward with.
455. But it seems to take a very long time for
just pure competition rules to deliver outcomes in the market,
and at a time when, in my patch, Sky has a monopoly?
(Ms Hodgson) It is very important to move fast. You
will remember, when the BBC was trying to get onto the satellite,
OFTEL was able, informally, to aid that path, and I am sure David
will move as fast as he can. There has been a tradition of the
communications decisions being much faster than the competition
decisions, and I hope that we will make sure that that not only
continues but is improved under OFCOM.
456. Can I ask one parochial question then,
which is about coverage in Wales. It would be nice to see the
Rhondda B transmitter digitised in the near future. I think it
covers about nearly 20,000 homes, so I cannot see why it should
not be, fairly soon. But also mobile `phone coverage; clearly,
in Wales, in large chunks of Scotland, there is still a very significant
problem in large areas. What is the solution to this?
(Ms Hodgson) On the broadcast one, and then I will
hand over on the mobile `phone one; on the broadcast one, we are
now working with the BBC, particularly on the Welsh, Scottish
and outlying territory, where territory is difficult, to get the
signals in. As you know, the powers under the 1996 Act allowed
the licences for difficult areas to include the requirement for
the first roll-out, but does not, we do not have statutory powers,
and all the legal advice is that we have to be very careful in
directing, when it might be against the business interests of
the companies concerned at that particular moment. I think that
is something, again, under a new Bill, that Parliament might want
to consider.
Mr Doran
457. There are two areas I want to explore.
One is the principles behind the new OFCOM, and the other is the
culture of the new body. On principles certainly, on the broadcasting
side, we reformed broadcasting law in 1990, again in 1996, and,
five, six years later, here we are, doing it again. What makes
you think we will not be back again in five or six years' time,
having to look at it, given the pace the industry changes?
(Mr Stoller) I think it is important, we are all agreed,
it is important that OFCOM, in whatever form it finally takes,
has sufficient internal flexibility to be able to move with the
technology, and indeed with the markets; we hope as well that
the legislation will allow that degree of flexibility. One of
the reasons why you have had to battle repeatedly with broadcasting
legislation, certainly, and telecommunications I guess is the
same, is that the legislation has often been very tight, and to
change it has required primary action.
458. But on ownership rules we are still talking
percentages, for example?
(Mr Stoller) Absolutely. It is our hope, I think across
all of us here, that OFCOM will be given sufficient high level
principles to act to, but not a huge amount of detailed direction,
about, for example, a percentage here or a percentage there. That,
I think, is difficult, because those percentages have a major
effect on the outcome, and for Parliament to let go that level
of control is going to be difficult; and it may well be that there
is a compromise to be struck between the amount that is able to
be changed over by primary legislation and the amount that is
able to be changed by secondary legislation. And I know this is
a delicate area, and I tread into it with the greatest of care.
But I think it is certainly true, on the ownership rules, that
if the ownership rules are set out in great detail, in a way that
can only be changed by primary legislation, it is almost inescapable
that all this will be back in front of you in a few years' time.
One of the things which we have been able to do on the radio side
is to find a high level principle that we think will carry through
for some time; we have argued, and I am sure you know, that, within
local areas, where there are sufficient licences, there should
be three owners of those licences plus the BBC. That is the sort
of high level principle which OFCOM can find different ways of
implementing, as circumstances change. As it happens, if you take
that principle and apply it to other media, or cross-media, it
seems to us that also works pretty well.
459. Have you any sign though that the Government
is listening to you?
(Mr Stoller) I have signs that we are saying it. I
do think there is a balance to be struck, and I know how difficult
it is. But, clearly, if OFCOM is going to work fast, as Patricia
has already said, effectively and flexibly, you have to let it
off the leash a bit; therefore, you have to be very clear about
the high level principles, which are going to be sacrosanct, and
it is going to be a difficult and careful drafting job.
(Mr Edmonds) Can I, if I may, put a very brief supplement,
which is, of course, we are moving into a world that is now going
to be very heavily governed by the European Directives, which
are going to be implemented over the next 18 months in the UK,
which relate to communications networks. A framework, a very flexible
framework, a framework based certainly on the economic side, the
competition side, of regulation, based on market analysis, actually,
I think, is going to give OFCOM the ability to intervene proportionately,
to intervene, I think, swiftly but to intervene perhaps in a more
limited way. So the domestic legislation is incredibly important,
but it is against a background of a European framework that is
going to be quite different.
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