APPENDIX 40
Memorandum submitted by the Independent
Television Commission
INTRODUCTION
1. The ITC is the statutory regulator for
commercial television and is one of the five regulators to be
merged into the Office of Communications (OFCOM). The ITC welcomes
the Select Committee's Inquiry and this opportunity to set out
its observations on the forthcoming legislation and OFCOM. The
new framework for the communications sector aims to combine deregulation
and market-led development, while seeking to secure key social,
cultural and economic objectives. That puts a premium on focus
and priorities for the Communications Bill and OFCOM.
2. The ITC believes that there are three
core areas of focus:
— Moving to competition rather than
regulation whenever possible.
— Creating an investment-friendly regulatory
framework
— Creating a new and sustainable settlement
for public service broadcasting.
COMPETITION RATHER
THAN REGULATION
3. Broadcasting and telecommunications regulation
have historically developed along different paths. In broadcasting
the framework has relied on an initial structural intervention
in legislation to achieve social purposes—the biggest of
which is public service broadcasting—but thereafter relying
on competition and the market without detailed economic regulation.
This approach has been carried forward into the regulation of
digital television platforms. For example, BSkyB's platform is
subject to the initial requirement to offer fair, reasonable and
non-discriminatory access to other service providers. But the
detailed terms are left to commercial negotiation with regulation
only as a long-stop. Similarly, the ITC's regulation of Electronic
Programme Guides simply requires operators to give due prominence
to the public service broadcasting channels and to adopt a fair
system overall. The design of that system is left to the operator
with the regulator acting only as backstop.
4. In telecommunications, the incumbent
still has a very high market share; and the huge investment costs
of network development leads naturally to a tendency to monopoly
or oligopoly. This has required, for almost 20 years, more detailed
pricing and behavioural regulation.
5. In the world of convergence, the goal
has to be to move towards competition, with regulation being only
a backstop. This will be vital if OFCOM is to be a lean but effective
regulator. Nowhere is this more necessary than in relation to
broadband which will emerge from competition from network and
service providers. It provides both "always on", high-speed
Internet access and a range of new, content-rich, interactive
services. Cable is currently leading the way both in terms of
the number of broadband subscribers and in innovative content/public
services such as Telewest's Living Health service in partnership
with the NHS. As the Select Committee noted in their last Report
there is a close linkage between broadband and digital television.
That is true of competition between cable and digital satellite,
where the mass of broadcast capacity to the viewer, coupled with
interactivity and a return path allows for a wide range of visually
rich interactive services which provide a "proxy for broadband"
which should help stimulate demand for the real thing.
6. For DSL-delivered broadband, Local Loop
Unbundling and competition with the incumbent will be important
in the medium term, but the benefits may take some time to flow
through. In the meantime, there may be lessons to be learnt from
the emerging doctrine from the FCC in America, where the approach
is increasingly to rely on effective access rules and to roll
back detailed regulation where there is the potential for competition,
rather than waiting until the actuality of competition is proven.
This approach rests on the assumption that detailed regulation
may itself limit or distort the emergence of competition.
7. In the UK, price cap regulation has been
admirably effective in improving efficiency in the use of existing
networks. It is inherently less suited to a situation where there
is the need for a quantum jump in infrastructure investment. One
of the early tasks for OFCOM, therefore, should be to revisit
the timetable for rolling back detailed price regulation. As a
general principle, the stronger and more effective access rules
are, the less the need for detailed, prescriptive regulation.
8. Clearly, there are key differences between
the American and British markets which militate against a "blind"
adoption of the FCC's approach. In America the incumbent was broken
up many years ago. The FCC deals with a range of local incumbents
rather than, as in Britain, one national incumbent. In the UK's
case, the clearer the separation between the retail and network
businesses of the incumbent, the easier it would be to adopt the
American model.
INVESTMENT FRIENDLY
REGULATION
9. Ownership rules in the media, designed
to secure plurality, have become increasingly out-of-date and
are acting as a barrier to the free flow of capital in the media
industry. The ITC welcomes the Government's most recent consultation
on media ownership.
10. In particular, the ITC supports the
Government's proposals:
— to remove the 15 per cent TV audience
share limit. The ITC agrees that the issues raised in any merger
between the ITV companies are a matter for competition law (in
respect of the airtimes sales market) rather than plurality concerns;
— to simplify the rules on national
and local radio ownership;
— to sustain the independence of the
Nominated News Provider to ITV and its ability to supply news
to other channels, while raising the maximum shareholding permitted
in the News Provider from 20 per cent to a level which ensures
a minimum of three shareholders.
11. Regulation itself can act as a deterrent
to investment. The ITC is therefore undertaking a rolling review
programme of its regulation of television licensees to ensure
that it imposes no unnecessary cost burdens. The ITC has already
moved away from detailed, genre-based regulation of the output
of Channels 3, 4 and 5, giving the Licensees flexibility, against
high level public service objectives, to set out publicly their
programming policies and demonstrate how they are performing against
those policies. This foreshadows the self-regulatory "Tier
Three" approach to licensing envisaged in the Communications
White Paper. By the time the Communications Bill is debated in
Parliament there will have been nearly two years of experience
to draw on. Similarly, the ITC is relaxing many of the constraints
on air-time sales, recognising the development of competition
in the market.
TOWARDS A NEW
SETTLEMENT FOR
PUBLIC SERVICE
BROADCASTING
12. The ITC strongly supports the conclusion
in the Select Committee's previous report that "there is
an enduring future for public service broadcasting, provided it
is recognised that that future will not be like the past".
Television is at the heart of social expression and democratic
debate; its narratives help to define our culture, identity and
the face we show to the world. While a single definition of "public
service broadcasting" may remain elusive, there are a number
of characteristics which distinguish "public service broadcasting"
from other forms of broadcasting.
13. The ITC tested this in an extensive
public survey in 2000, against a range of possible characteristics.
There was strong and consistent support for a number of key characteristics:
— Availability on a universal or near
universal basis
— Affordable (with a strong emphasis
on free at the point of delivery)
— Containing a high proportion of original
UK content
— Containing a diverse schedule and
mixture of programmes, including high quality national and international
news
— Reflecting the Nations and Regions
to themselves and the constituent parts of the UK to the UK as
a whole.
14. Audiences put a strong emphasis on accessibility,
(available and affordable) and on range and quality. New technology
and competition has brought real benefits (eg the pioneering role
of Sky News Active; new arts, history and factual channels) but,
also increasing pressures towards commodity TV. There is probably
general agreement about the need to meet market failure (viewers
identify a broad mix of programmes, news and regional output)
but the UK has also had higher ambitions including:
— innovation and diversity
— support for a national dialogue (cultural
and political) and so on
— an effective global contribution.
15. Other key features of public views are:
— A graduated set of expectations about
"public service", with the BBC (and especially BBC 1)
being at the top of the pyramid, followed by Channel 4 then ITV
and Channel 5; and recognition that some of the new multi-channel
services provided at least some of the viewer benefits traditionally
associated with Public Service Broadcasting.
— People now expect a more transparent
and explicit "deal" between the costs and benefits of
public service broadcasting. In the case of ITV the core expectations,
in return for privileged spectrum access and guaranteed, universal
carriage on the digital television platforms, are: sustained investment
in high quality, original, UK programming; effective regional
programming; high quality domestic and international news in peak
viewing hours.
— News and current affairs coverage
was felt to be an important component of public service broadcasting
but the traditional forms of coverage of public and political
debate are increasingly failing to inform and engage the public.
This is a worrying trend, given the importance of the broadcast
media for the democratic process. A new response is necessary.
But it is vital that such a response is not a resort to the lowest
common denominator, tabloid coverage of issues. This will be an
important strand in the ITC's audience research programme in the
coming year.
16. The ITC believes that it is an important
part of its role to survey and assess changing public expectations
to provide an informed factual basis to assist policy makers and
Parliament in the run up to and through the forthcoming legislation.
To that end, the ITC will, jointly with the BSC (see paragraph
19 below), be undertaking during the coming year public surveys
and extensive Citizens' Juries:
— to track in greater detail viewers'
expectations of public service broadcasting;
— to assess young families' use and
expectations of new media;
— to assess what steps broadcasting
and new media need to take to help re-connect the public with
the democratic process.
17. There is a number of specific measures
in relation to the commercial Public Service Broadcasters which
the ITC believes should be covered in the forthcoming legislation.
Regional programming and production needs to be reinforced: the
previous focus simply on the number of hours broadcast needs to
be buttressed by visibility for regional programmes within the
schedules; and regional production to be safeguarded by clear
"out of London" investment targets. More broadly, Channel
3 needs to be equipped to deliver against its core obligations.
In the case of virtually all other regulated services to the public,
the regulator is able to make a judgement, against economic circumstances
(whether unexpectedly favourable or unfavourable) whether the
regulated body can continue to deliver against its "social
contract". In the case of ITV and Channel 5 levy payments
are settled up to a decade in advance with no scope to adjust
them in the interim. The result can be either windfall gains in
exceptionally good times, or severe pressures on their public
obligations when there is a major downturn. Regulatory certainty
is important, but one of the key objectives for the forthcoming
legislation should also be to build in a degree of flexibility,
so that Parliament's and the public's objectives can continue
to be delivered effectively.
PREPARING FOR
OFCOM
18. The ITC welcomes the Select Committee's
continued endorsement of a single sectoral regulator able to take
a rounded view of all the issues affecting the Communications
sector.
19. In anticipation of the legislation the
ITC is working closely with the other existing regulators to undertake
as much preparatory work as possible for OFCOM, both to address
operational issues and the challenge of marrying together the
cultures of five regulators who have historically been concerned
with the different disciplines of content, economic and resource
allocation regulation. In particular:
— The ITC and the BSC have established
a joint programme and joint team for audience research and public
surveys;
— The ITC and BSC have a joint process
(within the limits of our respective existing statutory responsibilities)
for consideration of fairness and privacy complaints, to eliminate
"double jeopardy";
— The ITC and the RadioCommunications
Agency have established joint research for spectrum-related work
in the broadcasting field.
20. The Regulators' Steering Group brings
together heads of the five existing regulators and has provided
a valuable forum for cooperation to ensure an effective OFCOM
and a smooth transition.
21. OFCOM will be, potentially, a powerful
sectoral regulator. That power needs to be matched by accountability—both
to Parliament through the NAO, and to the consumers and audiences
whose long-term interest OFCOM will seek to serve. The ITC strongly
supports the proposal for an arm's-length Consumer Panel. But
the interests of users of the broadcast media, as citizens, also
need to be effectively reflected. They cannot be left to a "Friday
Afternoon job" for the Consumer Panel. Audience interests
are too important to be pushed to the margins by the other pressures
of the Panel's main job.
22. The ITC has argued for the compact main
OFCOM Board to be assisted by a Content Board, to which it can
look for advice and delegate issues affecting audience interests.
Such a Content Board could bring a greater breadth of lay involvement,
including effective representation from the Nations and regions.
That is a necessary but not sufficient mechanism for viewer accountability.
23. In the run-up to OFCOM, therefore, the
ITC aims also to reinforce the current forms of audience representation
used by the ITC and introduce some extra support. In particular,
the ITC aims to:
— Run a comprehensive programme of
audience and public research, (as noted above, and carried out
with the Broadcasting Standards Commission).
— Introduce a regular system of reports
from independent experts in specific programme genres whose findings
are tested by Citizens' Juries and which will be published on
a quarterly basis.
— Replace the current system of Viewer
Consultative Councils by more representive Content/Programme panels
reflecting a representative ethnic, gender and age balance for
each of the Nations and main English Regions, whose views and
findings can feed into OFCOM's Content Board.
10 January 2002
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