Select Committee on Culture, Media and Sport Appendices to the Minutes of Evidence


Memorandum submitted by the Independent Television Commission


  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.


  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.


  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.


  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:

    —  distinctive services

    —  innovation and diversity

    —  support for a national dialogue (cultural and political) and so on

    —  citizenship: enabling

    —  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.


  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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