Examination of Witnesses (Questions 1-19)
OFCOM
2 MAY 2006
Q1 Chairman: Good morning, and may I
welcome you to the first of what I hope will be a regular joint
session of the Trade and Industry Committee and the Culture, Media
and Sport Select Committee to take evidence from Ofcom. I believe
it is going to be a concurrent meeting of the two committees.
Although I know that you are keen on convergence, we have actually
split it into two halves. I shall be handing over to my co-Chairman
approximately halfway through. At the time when the Communications
Bill was being debated, I was certainly concerned that there was
not going to be sufficient parliamentary scrutiny or accountability
of Ofcom. I have talked about this with both Lord Currie and Stephen
Carter. I think it is worth putting on record that the idea of
this session, at least in part, came from Lord Currie and Stephen
Carter, and I think that that is very welcome. Can I begin by
focusing on the broadcasting side? I invite Alan Keen to start
the questions.
Lord Currie of Marylebone: Might
I, by way of introduction, say a word? We have certainly welcomed
the initiative of the select committees in holding this joint
session on our Annual Plan. As you have said, we were established
in recognition of the very convergence of the communications sector
and I think the need for a single body to regulate electronic
communications and the broadcast media. It is our hope that this
joint session between the two committees will become an important
component of our parliamentary accountability. The communications
sector is at a hugely exciting and dynamic stage. New technology
and new investment in the market is bringing huge new opportunities
and new services at ever keener prices. At the same time, it is
creating new opportunities for Britain's creative industries,
something this country does naturally very well indeed. We have
new outlets therefore for those talents. This dynamism creates
new challenges, both for legislators and for regulators, and therefore
we very much welcome the opportunity to talk about those challenges
here today and at future sessions of the committees separately,
but also I hope annually with both of you together. Thank you
very much.
Chairman: It certainly is our intention
I think that this should perhaps become an annual session, perhaps
to coincide with your forward look.
Q2 Alan Keen: Could I start with
the BBC? I wonder if you could give us your views on the difference
it is going to make having the new Trust rather than Governors
that we are dealing with, and the changes as well?
Lord Currie of Marylebone: The
new arrangements with the new Trust do introduce a separation
between the management of the BBC and its governance. We have
been charged to make the new arrangements work. There is quite
a complicated set of arrangements between Ofcom and the BBC. Just
as we have worked hard to make them work in the past, we will
certainly be working hard to make the new arrangements work. We
have meetings in train with the Trust to make sure that happens.
Q3 Alan Keen: Previously of course
I always felt that the Chair of the Governors was like an executive
chairman and was very close to the Director-General, who is the
equivalent of the chief executive in a normal commercial company.
You have mentioned separation already. You will deal only with
the Trust rather than the executive, as it were?
Mr Carter: No, we will deal with
both. We will have a co-regulatory relationship with the Trust
because there are aspects of BBC regulation for which we are singularly
responsible. There are aspects of regulation for which the Trust
will be singularly responsible. There are aspects where we are
jointly responsible. We will also have a relationship with the
executive because, in those areas of regulation where we are the
regulator, we are regulating the executive, not the Trust. So
there is a matrix of relationships to be worked out. If you read
the White Paper, one of the things that comes through quite clearly
is that there is quite a bit of work in the detail of administration
and responsibility that needs to be done. We are in the process
of doing that with the Trust. We are approaching that task because
we need to make it work as effectively as possible.
Q4 Alan Keen: Could I then move on
to Channel 4? How strongly coupled will the review of Channel
4 and the Public Service Publisher idea be? Are those coupled
closely? How do you see that working?
Mr Carter: We think that all of
these questions essentially start from the same source question,
which is: how much money, as a country, do we want to spend on
public service broadcasting? That is the first question. We have
to answer that question, which is a question, as I understand
the protocols, largely for Government rather than for Parliament:
where do we want that money to go; do we want it to go singularly
to the BBC for the next five or 10 years or do we wish it to go
to other parties? If we do want it to go to other parties, which
other parties? We have proposed the notion of a Public Service
Publisher. Then of course, once you have answered all those questions,
you then need to ask how you regulate that and hold it to account.
That slightly goes back to your first question about how do you
divvy up the responsibilities, in this instance between the Trust
and ourselves or between ourselves and the board of Channel 4?
The first question is: do we want competition; do we want a range
of providers? We believe that we would like both of those things.
We think the viewer, the listener, the surfer, are well served
by competition in public service broadcasting and have been over
the period. We see no reason why you would not want to maintain
that. We accept that there are voices, we would describe them
largely as siren voices, that say this is a route to top-slicing
the BBC. We do not see it that way. We think it is perfectly feasible
for Government to make the decision to fully fund the BBC at whatever
level they think is appropriate, and then make alternative provision
for alternative providers of public service broadcasting.
Q5 Alan Keen: How will you assess
the public's view? The change at the BBC did not introduce any
direct democracy. I know it would have been very complicated to
do, but it did not introduce any direct democracy. How will you
take account of the public's views on this yourselves? Government
has to take account of that when it is setting the licence fee
for the BBC, but how do you see it?
Lord Currie of Marylebone: If
you look back to the Review of Public Service Broadcasting, which
we completed last year, we used a number of ways of finding out
what the public thought. We consulted very widely, but we also
engaged in very significant market research to see what people
actually thought about what they saw on the screen and what they
were prepared to pay. That type of research very much informed
what we did in that review. I have no doubt we will be applying
the same methodology of finding out what people actually think
through research in the review of Channel 4 going forward.
Q6 Alan Keen: Would it be part of
your remit perhaps to recommend that there should be some more
direct democracy so that the public were involved more directly
rather than just market research?
Mr Carter: I suppose the great
thing about running a broadcasting business is that the ultimate
form of democracy is whether or not people watch, listen or use
what it is you do. It is still the case that our public service
broadcasters across the piece, whether it be the BBC or Channel
4, or indeed the commercial broadcasters—ITV and Channel
5—are successful in viewing share or listening share on
radio, or indeed on hits on line. There is equally no doubt that
the market is changing very fast now. You see the take-up of new
services changing very fast. That is one of the reasons why we
have said, publicly and privately, that whatever the financial
settlement for the BBC, there should be a review in five years'
time to see quite what the public appetite and the public position
is at that stage. I think you are seeing so many changes that
to set something in stone now for 10 years, or 11 or 12 years
once you get to the end of the debating process, is a very long
period of time. I am not sure it would be feasible to introduce
direct democracy in the parliamentary sense, or in the plebiscite
sense, into the running of a broadcasting business—and the
BBC is a broadcasting business—but more measured accountability
we think definitely is feasible.
Q7 Alan Keen: Can we move on to ITV
and Channel 5? What public service content should there be and
what are your thoughts on promoting public service content?
Lord Currie of Marylebone: ITV
and Channel 5 have clearly made a significant contribution to
public service broadcasting. We will do all that we can to ensure
that that continues. Having said that, we have to recognise that
as we move into the digital age, as the pressure of fragmentation
of audiences happens, the traditional model that we have had for
commercial public service broadcasting is coming under great pressure.
The traditional deal was that in return for relatively cheaper
spectrum, the regulator could demand public service broadcasting
obligations. As spectrum becomes more plentiful, as audience share
fragments, the ability of the regulator to extract that part of
the bargain is undoubtedly under pressure. We have seen some of
that in the changes that we have made already in our arrangements
with ITV. ITV has very considerable public service broadcast obligations
but, over time, some of those likely to diminish somewhat because
of those commercial pressures.
Alan Keen: This is fascinating. It is
very difficult to ask you questions that require predicting what
is going to happen. Thank you very much.
Q8 Chairman: Can I press you a little
on your new responsibilities in relation to the BBC? The big change
is the role of Ofcom in carrying out market impact assessments
of proposed BBC new services. Who will decide whether or not a
particular BBC service should be subject to a market impact assessment?
Lord Currie of Marylebone: Ultimately,
as I understand it, it is a matter for the Trust to determine
whether a service should be subject to that scrutiny, though clearly
Ofcom would have a final vote on those questions.
Mr Carter: If it is a new service,
it will be evident because it did not exist before. I think where
there will be grey areas are where there are changes to existing
services. One of the things that the Trust is required to do,
early doors, is to establish what the baseline of the existing
services is. They are going through that at the moment. As the
service licences are issued for all the existing services, those
service licences will say, "For service X, here are the following
components of that service". There will still be room for
debate around what is a material change to an existing service.
As my chairman makes clear, ultimately that is a matter for the
Trust and the White Paper is very clear on that. There is an administrative
intention to have a clear baseline established as to what the
current services are and what they are licensed to do.
Q9 Chairman: That does not seem to
me entirely satisfactory because there will be some new services
which, quite plainly, are significant departures from anything
the BBC has done before, but there will be others where it may
be a change in the nature of the distribution, and there you are
saying that it will be the BBC that will be able to turn round
and say, "No, this is not really any significant change;
there is no need for Ofcom to become involved", and you cannot
challenge that.
Mr Carter: We could choose to
challenge it but the White Paper is creating a new self-regulatory
structure called the BBC Trust. In that instance, the BBC Trust
will be exercising a regulatory responsibility. My observation
would be that if they consistently flout their responsibilities
in the way you describe, then that will call a relatively new
regime into disrepute rather quickly. I am sure there will be
grey areas.
Q10 Chairman: Will you publish your
market impact assessments?
Mr Carter: We will.
Q11 Chairman: With the fact that
the BBC, even though you may decide that a new service has a significantly
damaging effect on the market, is still in a position to decide
to go ahead on the basis of public value, what would you see as
your reaction, should that happen?
Lord Currie of Marylebone: I think
it depends very much on how the BBC Trust sets out the case for
the public value considerations. Clearly, the Trust has to balance
these concerns. I would expect that if it goes against the analysis
in terms of the market impact assessment, it would have to have
well justified reasons for so doing. I would expect those to be
in the public domain.
Q12 Chairman: You could appeal to
the Secretary of State essentially if you really felt that something
was not in the public interest?
Lord Currie of Marylebone: Is
that within our powers? I am not sure.
Mr Carter: It is a technical question
to which I do not know the answer, Chairman. It is an interesting
one. We should look into that. If the dispute was playing out
in the public manner that you describe, I am not sure that we
would need to make an appeal. I think she would notice.
Q13 Chairman: Let us leave it as
a theoretical question. Can I very quickly ask you about, and
forgive the pun, a particular hot potato in your lap, and that
is food advertising? Obviously you are aware that you have been
tasked with drawing up proposals for the regulation of food advertising.
The timetable for that has slipped pretty badly. The original
consultation was supposed to be completed by now, but you have
now asked the industry to try to come up with its own proposals.
Is it realistic to believe that these new regulations will be
in place by the beginning of next year or is that likely to slip
as well?
Lord Currie of Marylebone: Can
I be clear on the reasons why we have been careful and considered
in the way we have approached this question? We are dealing with
quite significant commercial interests. It is very important that
we go through a process that in our view is not liable to be challenged
legally, because that would set the timetable back even more.
So we have been considered and careful in what we have done, very
much researched based and very much evidence based. We expect,
at the end of the consultation process, to form a view. There
is a timing question about the introduction of new regulations
on advertising, but I would expect us to have reached a decision
to be on the timetable you are talking about, subject to my chief
executive confirming that that is our expectation.
Mr Carter: I would never contradict
my chairman, certainly not in front of a joint select committee.
The chairman is absolutely right. The timetable we will meet.
The slippage, as you describe it, Chairman, has been for a variety
of reasons, some of them so that we do pursue the necessary processes.
There are multiple interests in this. If you do not mind me saying
so, it would not be accurate to characterise our current consultation
as: we have now asked the industry to come up with an answer.
We have said, "Here are three options. Absent a co-regulatory
solution from industry, we will choose one of the three of them".
We have laid out very clearly what the alternative options will
be. Those range across different restrictions, some of them more
severe than others, and the severest is substantial. Rather going
back to the opening questions about public service broadcasting
on the commercial broadcasters, if you took the total investment
in children's programming on broadcasting today, even if you included
the BBC, it probably would not be more than £200 million.
That is a lot of money. If you were to take the most severe proposals
that are being talked about for the banning of advertising of
any of those products, it would remove more than that from the
commercial broadcasting food chain. That may not be the wrong
decision. We are not saying ipso facto there are not other
issues. There are; there are significant social issues here. Ultimately,
our job is to balance the communications issues with the social
issues. There are other parties that can take a more singular
view just of the social issues. That is not our responsibility.
Q14 Chairman: How do you intend to
carry out your review of the effectiveness of new regulations?
How do you measure whether or not they are effective?
Mr Carter: There is a detailed
regulatory impact assessment, which is has been done by the Food
Standards Agency and they are far more expert in this field than
we are. They have laid out a whole series of analyses which look
at the social externalities, the health benefits and the economic
benefits. In truth, the approach that we have taken is that it
would be highly unlikely that we would be able to do a regulatory
impact assessment that would be more technically informed in that
area than theirs, and so we have largely been led by the work
done by the FSA on that question.
Q15 Mr Evans: Do you think that the
BBC internet news services are so extensive that they act as a
barrier to commercial competition entering the market?
Mr Carter: I heard you very early
this morning in rather punchy form. I thought at that point that
your opening question might a tricky one! I do not think we know
the answer to that question, if you are talking about the proposed
services that the Director-General laid out last week in his Fleming
Lecture. Clearly, the BBC, as a contemporary broadcasting organisation,
rightly sees that it needs to take its services on to every platform.
The Director-General, rightly in my view, talks about reach rather
than old-fashioned `viewing share' because increasingly that is
the way in which you need to engage with your audiences, if you
can even call them that in the world we live in today. As the
BBC extends its reach, its distribution and delivery, you do have
to go through some quite rigorous processes. If you compare what
they are planning to do on-line by comparison with what they have
done on television, there was not a market impact assessment regime
when the multi-channel television process at the BBC worked; there
was not a BBC Trust; there was not an Ofcom. I am not saying necessarily
that all three of those things will act as a barrier to progress
for the BBC but they should act as a filter for that progress.
That is what they are designed to be. Over the next two or three
years, we will see their proposals go through those filtering
processes and we will see what comes out. I have no doubt that
you will see the BBC's position and reach on those new distribution
services increasing, and it should do.
Q16 Mr Evans: You understand the
fear as well of local newspapers that if the BBC goes into local
television in such a big way, it could damage the sales of regional
newspapers?
Mr Carter: I think we understand
the fear of multiple parties' reactions to the BBC's decisions
better than almost anyone else because we deal with all of their
various competitors and suppliers—and they are often the
same thing in many instances—on a regular basis across multiple
sectors and multiple platforms. Equally, we recognise that the
BBC has a significant role and is the pre-eminent public service
provider of news, information, entertainment and content. Those
are balances and we will go through the assessment process and
see what our judgments are.
Q17 Mr Evans: Did you take a view
as to why the ITN News Channel folded?
Mr Carter: We did not take a view
on that. That was a commercial matter for ITV in the main, although
clearly it was a commercial contract with ITN. ITN was not a public
service broadcasting channel in the same sense the BBC News 24
is. That was a matter for the management of ITV.
Q18 Mr Evans: You do not think the
BBC were partly responsible?
Mr Carter: There is no doubt that
the 24-hour news channel market is a busy market, and the ITV
News Channel was having to compete. The costs of competition are
high. I think it would be inaccurate, from what I know of the
commercials which is not 100%, to characterise that commercial
decision to close that channel as a casualty of the BBC's involvement
in the market. The sums of money involved were not sufficient
to lay the blame solely at the door of the BBC.
Q19 Mr Evans: Finally, can I ask
you about the internet. I know you are not responsible for the
internet, but you would very much like to be the regulator. Is
that right?
Lord Currie of Marylebone: No,
that is not our position. As you may know, there are some discussions
around this question in Brussels, with the extension of the `Television
Without Frontiers' Directive. Our concern is that up till now
we have relied on self- and co-regulatory mechanisms to handle
questions of regulation of the internet, with some success. Our
worry is that we may extend statutory regulations at a European
level in a way that provides responsibilities to national regulators
but that they are unable to deliver on those objectives because
the mechanisms are not in place. We certainly share the objectives
of Commissioner Redding in wishing to be concerned about content
on the internet, but we are concerned to get the right approach
to tackling those questions. We are not sure that what is being
proposed currently is the right one.
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