House of Commons - Culture, Media and Sport

Select Committee on Culture, Media and Sport Third Report

3 Ofcom: preparedness and handover

29. The Office of Communications Bill was introduced in the House of Lords in July 2001 as a paving measure to facilitate the establishment of Ofcom, ahead of any powers to be given it by a separate Communications Bill. We welcome the establishment of a single communications regulator, which we and our predecessor Committee have consistently called for since 1998.

30. During the Lords' Second Reading on 15 October 2001, Baroness Blackstone elaborated on the need to make practical progress towards setting up Ofcom: "Folding three statutory organisations, one non-ministerial government department and an agency into a new statutory body is extremely complex. We have to bring together five separate groups of professional expertise based across 20 or more offices around the country, with differing pay systems, pension schemes and organisational cultures, without disrupting this important industry and while maintaining effective protection for consumers."[29]

31. The Office of Communications Act 2002 received the Royal Assent on 19 March 2002, its function to secure a more orderly transition to the new regulatory system by:

Establishing the Office of Communications
Giving Ofcom a single preparatory function
Placing the existing regulators under a duty to assist Ofcom to prepare.

32. Section 1 of the 2002 Act established Ofcom as a statutory corporation with not more than six and not less than three members. The power to make appointments is conferred upon the Secretary of State. The intention was that appointments would be made by the Secretary of State for Trade and Industry and the Secretary of State for Culture Media and Sport acting together. The Secretary of State is also given power to make orders to alter those limits - for example to increase the size of the Board as its preparatory function became supplemented by regulatory functions. The Office of Communications (Membership) Order 2002 increased the maximum membership of Ofcom from six to nine. In our previous Report on Communications, we referred to the experience of the US Federal Communications Agency to the effect that a small executive body functions most effectively. We believe that any further increase in the size of the Ofcom Board would require specific and overwhelming justification.

33. Lord Currie of Marylebone was appointed as Chairman of Ofcom for a five-year term from 1 August 2002. The appointment of the first Board members was announced by the Secretaries of State on 25 September 2002, and the Board, with the Secretaries of State's approval, appointed Stephen Carter as Chief Executive from 1 March 2003.

34. A Shadow Content Board was appointed in April 2003.[30] Its function is not to make licensing decisions, but to ensure such decisions are informed by a wide range of views: from the nations and regions, ethnic communities and disabled people. It will oversee the so-called Tiers 1 to 3 of content regulation. Tier 1 concerns content issues related to harm and offence, accuracy and impartiality, fairness and privacy across all radio and television broadcasters including (with some exceptions) the BBC. Tier 2 concerns matters such as quotas for regional, original and independent production, again across all broadcasters including the BBC. Tier 3 relates predominantly to the public service broadcasting remit of commercial television broadcasters, ITV (Channel 3), Channels 4 and 5; but not the BBC —for whom the Governors retain this positive content function.

35. Section 2 of the Office of Communications Act gave Ofcom the single function to prepare to assume functions at a later stage. It also provided some statutory protection against regulatory uncertainty during the transitional period, by including a provision that Ofcom not interfere with existing regulators nor with the Secretary of State in relation to her functions relating to wireless telegraphy. The latter was in practice a reference to the Radiocommunications Agency. For the purposes of the Act, the term 'existing regulator' meant the other four: Broadcasting Standards Commission; Director General of Telecommunications; Independent Television Commission; and the Radio Authority. The important point about Section 2 is that it provided for the performance of day to day regulatory duties until Ofcom formally assumed its responsibilities on 29 December.

36. Section 4 of the 2002 Act added to the functions of existing regulators, imposing on them a duty to comply with directions by the Secretary of State to prepare schemes for the transfer of their property, rights and liabilities to Ofcom.

37. Well before this paving legislation was enacted, planning proceeded apace to develop a more detailed structure for Ofcom, and to identify practical steps towards this. At the heart of the transitional arrangements was a steering group representing the existing regulators. The Regulators' Steering Group commissioned Towers Perrin to prepare a report to inform the transition to Ofcom. A scoping study was published in October 2001.

38. Following this initial scoping work, key recommendations for Ofcom, determined by the consultants advising the DTI and DCMS, namely Towers Perrin, Ernst & Young and Differentis, were published in November 2002. The executive summary of the consultants' final report, Creating Ofcom, gave the core recommendations around the organisational design for Ofcom. These proposals envisaged the organisation divided into four major groups: Strategy and Development; Regulatory Policy and Compliance (covering content and consumer protection, competition and markets, and allocation of scarce resources such as spectrum and numbering); Regulatory Operations (day to day issues such as routine licensing); Corporate Services.

39. The structure of Ofcom that has emerged has clearly been informed significantly by the consultants' reports.[31] There are nine groups in all, three covering the policy areas of Strategy and Market Developments, Competition and Markets, and Content and Standards. Other groups are: Operations, Commercial, Human Resources, External Relations, Communications and an Office of the CEO.

40. Ofcom has also been working to establish offices in Cardiff, Glasgow and Belfast.[32] Management offices are also being established in the North and South of England.[33] Recruitment for the National Advisory Committees, as required by Section 20 of the Communications Act 2003, has also been underway. Similarly for the Advisory Committee on Older and Disabled People. We firmly support Ofcom's engagement with wider communities throughout the United Kingdom, and hope this will continue without any unnecessary replication of function.

41. The set-up phase of Ofcom and the costs of transition from the five legacy regulators to Ofcom was funded by loans from the DTI totalling £52.3 million. These loans cover the cost of:

Restructuring and redundancy costs
Project management and consultancy support through the pre-operational and transitional periods
Fitting out Ofcom's London HQ building, Riverside House
Capital expenditure on information systems and telecommunications equipment and associated set-up costs
Other associated transitional expenditure, such as office relocation costs.

Ofcom, the Treasury and the DTI have agreed those loans must be repaid according to a four-year schedule beginning March 2004.[34]

42. Overall, Ofcom has achieved a substantial reduction in staffing levels. The five legacy regulators employed 1152 staff, whereas Ofcom will have a total staff complement of 880 —a 23% reduction.[35] In the financial year 2004-05, the cost of Ofcom will be £136 million plus the repayment of the start-up loan and VAT on top.[36] Despite the staff reductions this is similar to the combined cost of the five separate legacy regulators.[37]

43. In written evidence to the Committee,[38] Ofcom states that the above cost includes £8 million a year in respect of new, additional duties imposed by the Communications Act. The Act has given Ofcom 263 functions and duties compared with the 128 duties imposed on the five legacy regulators under the previous legislation.[39] This is the basis for Ofcom's claim that, on a "like-for-like" basis, the single regulator will cost some 5% less than the five it replaces. While recognising that high quality regulation, even "light touch" regulation, comes at a price, Ofcom needs to ensure it delivers good value for money. The Committee will scrutinise Ofcom's annual reports to assess the degree to which this is achieved.

Accountability and transparency

44. The previous Committee recommended the establishment of a separate Department of Communications assuming the broadcasting and media responsibilities of the Department for Culture, Media and Sport, the telecommunications and Internet responsibilities of the Department of Trade and Industry, and the Cabinet Office's responsibilities for electronic delivery of government services. Because this recommendation was not adopted by the Government, the result is greater complexity, duplication and opaqueness in Ofcom's relationship with Government. A further consequence is that Ofcom will be accountable to Parliament through both this Committee and the Trade and Industry Committee. We look forward to continued cooperation with Ofcom to ensure clear lines of accountability.

45. As noted earlier, we and our predecessor Committee have consistently made recommendations aimed at securing openness and transparency in regulatory decision-making. One reason is to allay any concerns that industry might exert undue influence over a single regulator (regulatory capture). In this context, we were pleased that Mr Clive Jones, Joint Managing Director of ITV (Carlton Communications), indicated a willingness to defer to Ofcom should the latter choose to take evidence in public.[40]

46. We note that Ofcom has instituted public consultations and meetings, as well as a website which includes notes of board meetings. However, Lord Currie said: "I think we should be absolutely clear that the Ofcom board, in reaching decisions, will not be meeting in public."[41] When pressed on this issue, he offered the following explanation: "One of the things I have been very keen to ensure that the Ofcom board does is to work very effectively to get its collective mind around the issues, and that requires free and open interchange between the board members, and I think that would be severely prohibited if we met in public." [42]

47. To ensure maximum transparency in regulatory decisions, and to provide a further safeguard against regulatory capture, Ofcom should hold hearings and meetings, including board meetings, in public with full minutes published promptly. Publicly funded, and theoretically publicly accountable, bodies should not operate in secrecy.

48. Section 3(3) of the Communications Act requires Ofcom to have regard, in all cases, to "the principles under which regulatory activities should be transparent, accountable, proportionate, consistent and targeted only at cases in which action is needed." This adds further weight to our recommendations on transparency and accountability, and further embodies Ofcom's functions as a "light touch" regulator. It is important to bear this in mind given the very wide range of duties imposed both by the Communications Act which also provides for the concurrent exercise by Ofcom of powers under the Competition Act 1998 and the Enterprise Act 2002 across the whole of the communications sector.

49. In preparing to execute these functions, Ofcom has published an Annual Plan,[43] a programme of work that identifies three major reviews: public service television; the entire UK telecommunications market; and spectrum. We note that Ofcom is holding a public consultation on the Annual Plan, including a series of public meetings. Ofcom has already initiated several formal consultations covering all three regulatory sectors: networks and services, broadcasting and spectrum. Some of the ongoing or recent consultations which relate to matters touched upon by the present inquiry are identified below:

The Ofcom Review of Public Service Broadcasting (PSB) Television
Ofcom's proposed guidance on regional production and regional programming
Consultation on the draft code on providing television access services (for example, audio description and subtitling)
Consultation on Ofcom guidance for the public interest test for media mergers
Outline procedure for statutory sanctions in content cases
Guidelines for the handling of fairness and privacy complaints
Consultation on Reviews of Financial Terms for Channel 3 Licences
The Future Regulation of Broadcast Advertising
Guidelines for the handling of standards complaints and cases (in programmes, advertising and sponsorship)
ITC/Ofcom joint consultation on ITC Rules regarding Advertising Sales Arrangements.

Review of public service broadcasting

50. Under Section 264 of the Communications Act, Ofcom is required to report on the extent to which the BBC, Channels 3, 4 and 5, S4C and the public teletext service have, taken as a whole, fulfilled the purposes of public service broadcasting. To this end, Ofcom is taking wider account of the television ecology, including broadcasters which are not subject to formal public service remits.[44] This necessarily involves defining the purposes of PSB in the first place; to move away from the "you know it when you see it" rule of thumb. The Ofcom Review of Public Service Broadcasting is particularly relevant in the context of the Government's current review of the BBC's Royal Charter.

51. Our report on Communications included the following observation: "The balance of evidence submitted to us, including from the current regulators, was in favour of the BBC being regulated entirely by Ofcom."[45] When the previous Committee advocated a single communications regulator in 1998, the recommended duties included "oversight, for all broadcasters, including the BBC, of broadcast content regulation and the commercial activities of broadcasters, with direct oversight of their implementation". The present arrangements are untidy and lack consistency. The BBC's Royal Charter review will provide an important opportunity to adjust the relationship between the BBC and Ofcom.

52. On 28 January 2004, Lord Hutton published his Report of the Inquiry into the Circumstances Surrounding the Death of Dr David Kelly C.M.G.[46] His conclusions relating to the role of the BBC Governors will also merit careful examination in the context of the Government's review of the BBC's Royal Charter.

53. Section 264 of the Communications Act provides a definition of the key features of public service broadcasting. In essence, the PSB remit involves the provision of a balanced diversity of high-quality programming, which meets the needs and interests of different audiences.

54. More detailed obligations are indicated in subsection (6). These include obligations relating to culture, news and current affairs, sport, education, entertainment, religion and other beliefs, science, social issues, matters of international significance, programming for children, and local programming. We note that reference to UK feature films appears on the face of the Act. Ofcom is also required to have regard to the number of programmes within the services which are made outside the M25 area. In addition, Ofcom must consider the costs to the broadcasters of fulfilling their public service television remit and their available resources.

55. We questioned Ofcom on some of the key features of public service broadcasting. These included: news provision; regional programming; community radio; audio description; feature films; children's programming and advertising. We attach particular importance to the first of these, and consider the specific issue of ITV's national news bulletins later in this report.

56. The Communications Act also gives Ofcom powers over the output of regional programmes, with licences providing the means to ensure that appropriate infrastructure is in place.[47] Stephen Carter told us that Ofcom's review of public service broadcasting would inform the re-licensing of Channel 3 and Channel 5, and help "get to specificity around the regional production quota."[48] The Communications Act 2003 obliges Ofcom to include conditions in the licences of commercial public service broadcasters to secure compliance with obligations as to independent production, regional production, original production, and regional programming. Similar obligations apply in relation to the BBC by dint of the Corporation's Agreement with the Secretary of State.

57. We questioned Ofcom specifically on the regional commitment of Channel 3 companies, which will be reviewed during the course of this year. While acknowledging the "quite clear regional output obligations" placed on Channel 3 broadcasters, Lord Currie claimed to put these in the context of other commitments: "The first point to make is that regional commitments on public service broadcasters have to be balanced against other commitments that are placed on them. They operate in a commercial market place that increasingly has been quite difficult for them, and therefore the more that is put on the regional side the more there will be trade-offs to be considered amongst the various obligations placed upon them."[49] We really do not see why this should be so. Ofcom is a regulatory body, not a charitable organisation. There is no statutory provision for trade-offs that would water down regional obligations contained in law or licence; nor has Ofcom any remit for even entertaining such trade-offs.

58. The protection and maintenance of regional commitments by Channel 3 licensees will be the first major test for Ofcom. It is essential that it pass this test, since faith in its decisions will otherwise be undermined. Furthermore, we see no reason why this process should not be conducted in public.

59. In 2001, in response to our recommendations in previous reports,[50] the Radio Authority launched an experimental "access" radio scheme, involving 15 small-scale community radio services.[51] Ofcom later announced that this pilot scheme would be extended until 31 December 2004. On 10 February 2004, the Secretary of State issued a written ministerial statement, announcing publication of a draft Community Radio Order for public consultation.[52] The draft Order proposes to introduce a new tier of very local, not-for-profit (or not profit-distributing) radio. Such radio stations could serve small communities, whether based on geography, ethnic or cultural background or other common interest. We welcome the draft Community Radio Order, allowed for by Section 262 of the 2003 Act, while drawing attention to the provision for grants made in Section 359. These offer the opportunity to turn into facts Stephen Carter's "warm noises" that community radio is a "good thing".[53]

60. The Royal National Institute of the Blind submitted evidence to us on the provision of television audio description services.[54] As the RNIB points out, the additional narrative this provides to explain visual sequences is as important to visually impaired people as subtitles are to hearing impaired people. We consider both to be touchstone indicators of a broadcaster's commitment to public service television. Channel 5 should be congratulated for taking a lead among public service broadcasters in exploiting available facilities to launch, in November 2003, an audio description service on digital satellite.[55] We are concerned that the BBC has chosen to quibble over technical standards and that ITV has argued that its regional programming prevents any audio description.[56] We look to Ofcom to promote the development of television services for deaf and visually impaired people across all broadcast platforms, in line with the requirements of the Communications Act. In particular, we recommend that BBC and ITV networked programmes are made available with suitable audio description via digital satellite for the 500,000 Sky subscribers who are blind or partially sighted.

61. Our Sixth Report of Session 2002-03 called for increased levels of support for film production and exhibition of British product from the public service broadcasters. We note Ofcom's assurance that British films will form an explicit part of the PSB review.[57]

62. Children watch a wide range of television programmes, some aimed directly at them (such as cartoons), and some targeted more towards their parents' tastes (such as soap operas, natural history and sport).[58] The PSB review will aim to identify more clearly than was possible during our evidence session with Ofcom what elements of children's programming constitute public service broadcasting.[59]

63. Of more immediate concern to us is advertising scheduled to coincide with children's programming, particularly that which promotes an unhealthy diet.[60] The Secretary of State has written to Ofcom "to consider proposals for strengthening the existing code on advertising food to children."[61] In his reply, Stephen Carter wrote: "We share your view that child obesity is an important and urgent social issue, and we are therefore giving significant priority to a major project which will inform the best approach to take to any changes to the broadcast advertising codes. We aim to complete the project, including consulting on, and implementing any rule changes, during the first half of 2004."[62]

64. There already exists a robust body of research establishing that a significant risk factor for childhood obesity is food and drink with high fat and/or sugar content, most recently in the report of a working party of the Royal College of Physicians, Royal College of Paediatrics and Child Health and the Faculty of Public Health Medicine.[63]

65. We believe there is no justification for delay in securing responsible food and drink advertising aimed at children. A precautionary approach is justified, regardless of the desirability of further research into the effects of food promotion to children.

66. More generally, Ofcom ought to adopt a robust stance in ensuring the spirit as well as the letter of all existing public service commitments is maintained. In the longer term, the welcome adoption of light touch regulation must not be allowed to result in denying citizens the option to watch high quality public service television.

The digital transition

67. The number of households with digital television, satellite, cable or terrestrial, has now passed the 50% mark. Government policy is eventually to switch off the conventional analogue broadcasts, thus widening availability of digital television and freeing spectrum for alternative applications, subject to availability and affordability criteria.[64] When these objectives were first announced in September 1999, the Government said that digital switchover could start to happen as early as 2006 and be completed by 2010. Speaking at a Westminster Media Forum in December 2003, Lord McIntosh of Haringey, Minister for Media and Heritage, referred to plans for the switchover, and of Ofcom's "critical" role in their development.[65]

68. Stephen Carter told us: "The switchover issue is ultimately a decision of Government. Clearly we recognise that, and we will do whatever is useful to assist the process of reaching that. We do support an accelerated move to switch-off. It is important to appreciate that this is Ofcom in a supportive role rather than in the lead on this particular question."

69. We believe Ofcom should attach priority to ensuring its regulatory decisions are consistent with the promotion of an expeditious switchover to digital broadcasting.

70. We note that during this period of transition, from analogue to digital, many viewers have no choice about how they receive digital television. With Freeview only available in roughly 60% of the country and digital cable available to even fewer homes, poorer households who fear committing themselves to a monthly subscription service have had to turn to the free-to-view satellite option. Since this service was closed to new customers at the end of 2003, we believe that the twin issues of universal access to, and social exclusion from, free-to-air digital television services must remain an important issue. We recommend that Ofcom address itself to this as a matter of urgency. We are aware that the Government may be considering region by region switchover.

29 HL Deb 15 October 2001 c 351 Back

30 Ev 29 Back

31 Ev 30 Back

32 Ev 30 Back

33 http://www.ofcom.org.uk/about_ofcom/offices/office_locations Back

34 Ofcom news release, 26 November 2003 Back

35 Ev 30 Back

36 Ev 41, Q79 Back

37 Open Day: A User's Guide to Ofcom, 16 December 2003 Back

38 Ev 30 Back

39 The duties under the new and old system have been identified in From Commencement to 1^st Quarter: Foundation and Framework, Ofcom, 2003 Back

40 Ev 24, Q 69 Back