Examination of Witnesses (Questions 20-39)
OFCOM
2 MAY 2006
Q20 Mr Evans: Do you think it is
`regulatable', if there is such a word?
Lord Currie of Marylebone: That
is a very interesting question. One of the pieces of work we have
going on at this time is exactly that question. Stephen may wish
to comment further. My own opinion is that the view that says
nothing can be done ignores the fact that technology advances
and more may be able to be done than the traditional view. One
does not want to stifle this fantastic communications network.
We need to be very careful, therefore, if we do introduce regulatory
approaches, that they are of a kind that does not kill the creativity
and the dynamism of the internet.
Mr Carter: I would agree with
that entirely. If you compare the internet to traditional broadcasting,
to take those as analogies, in broadcasting it is relatively easy
to work out how to regulate it because you can find the party
to whom you can issue a licence and who essentially sits in the
pivot position in the relationship with the viewer or the listener.
With the internet, there are so many different players in the
value chain, whether they are the network operator or the service
provider or the content host or the content creator, and it is
very difficult to work out how you would create a regulatory regime
that would be effective. David is absolutely right to say that
it is not accurate to say you could not regulate the internet
in any way shape or form; you self-evidently could, and there
are countries around the world that do it, some using harsher
regimes and others less so, but it is do-able. Behind the debate
about regulating the internet is, we believe, a much bigger debate
about consumer literacy. Essentially that is really what it boils
down to. That is not just true for the internet; it is becoming
increasingly true for broadcasting and other media services. The
thing that makes self-regulation and co-regulation work effectively
is when the user has a higher level of knowledge, comfort and
familiarity with the services they are getting. In that case,
you can feel more comfortable that self- and co-regulation will
work well. Absent that, you have vulnerable groups of society
that are exposed to being exploited or manipulated. That creates
the appetite for harsher intervention. We are trying to investigate
both of those to try and avoid the latter.
Q21 Mr Evans: As a matter of interest,
do you get many letters from people complaining about the content
on the internet?
Mr Carter: Very, very few. We
get infinitely more, to the order of thousands more, about commercial
scams or technology scams than we do about content on the internet.
We still get more complaints about inappropriate content on television
than we do on-line.
Q22 Chairman: For instance, when
BT launch their new service that they are speaking about now,
although that is essentially over the internet and to some extent
is video on demand, you are satisfied that the Act will allow
you to oversee that and regulate it?
Mr Carter: Theirs is a hybrid
service. The television content is free-view. The television service
will be provided over the aerial, so in that sense that will be
licensable content, but the on-line content would be unregulated
by us.
Q23 Chairman: Given that most people
seem to think that the future lies in on-demand television delivered
via broadband, is it of concern to you that that does not seem
to be fully taken into account by the existing legislation?
Mr Carter: Is it of concern to
us? I would say at the moment it is of significant interest to
us, which is slightly different from it being of concern to us.
I am not trying to be pedantic or semantic. Why do we say that?
We say that for two reasons: firstly, because the large-scale
services that are available on-line, which in that sense are unregulated,
are almost invariably services of interest, services that are
being provided by parties that are regulated in another place.
There is a spill-over effect of a regulatory environment of good
sense, good judgment rules, which carried on to the new distribution
platform. Today it is not a large-scale concern. Over time, that
is going to change. That is why it is of such significant interest
to us and why we are doing the piece of work that David refers
to, to look at the implications as these services become larger
scale.
Lord Currie of Marylebone: To
add to that, it seems to me that as these new services become
available, a company like BT will wish to ensure that the content
it is providing is, at the very least, labelled effectively so
that people can navigate intelligently and so people know what
it is that they are going to be receiving. I think helping people
to navigate in this new world is an essential part of media literacy.
There is more onus on the individual and less on central regulation.
We are going to have to find the right balance over time. It may
be that, after a number of years, Parliament decides that the
legislation is not quite right and needs to be tweaked. That is
a debate that we will have.
Chairman: This is an area which, as you
know, the DCMS Select Committee is going to be looking at in more
detail, and so I think we will return to it perhaps when next
you are before us.
Q24 Mr Sanders: As you know, the
DCMS Select Committee published its report recently into digital
switch-over. I know you have yet to respond to that. I am sure
you will in due course. What do you see as your core roles in
the Government's digital switch-over programme? Where does Digital
UK come into that equation?
Mr Carter: We are the regulator,
so our primary responsibilities are on the regulatory issues in
relation to switch-over. That leads us into some detailed work
on the transmission contracts for the transmission companies and
between the transmission companies and the broadcasters for the
building out of the transmission network for digital terrestrial;
and for spectrum, spectrum licensing to the broadcasters and indeed
the spectrum release that comes about as a result of analogue
switch-off. Then we have some other international responsibilities
in the spectrum area as well. We are a joint party along with
Government and the broadcasters in the accountability of Digital
UK, and so we sit on the joint ministerial group that reviews
Digital UK's work and the progress towards switch-over. Digital
UK's job is to lead the digital switch-over process: consumer
awareness, consumer information, the planning timetable, and working
with their shareholders, who are the broadcasters, to make sure
that the necessary communication campaigns have been co-ordinated
across the different broadcasters. So theirs is the project-management
responsibility for the delivery of the information to viewers
in different regions.
Q25 Mr Sanders: Do you have any role
at all to play in ensuring that vulnerable groups, including older
people, receive assistance with the switch-over process?
Mr Carter: We have a role in so
far as we have a voice round the table, and we have expressed
a very clear view that there will need to be an assistance programme
for vulnerable groups. Ultimately, the scope and scale of the
assistance programme is a matter for Government.
Q26 Mr Sanders: Have you had any
say on who should fund that assistance programme, to what extent
it should be, where the parameters of it should lie, and what
is the definition of a vulnerable group?
Mr Carter: We do have a view on
some or all of those matters. Ultimately, it will be funded by
the taxpayer. Therefore, whether or not it comes from the BBC
licence fee or it comes from the Consolidated Fund or the general
exchequer or from the Department of Trade and Industry, in a sense,
quite candidly, is of academic interest. The question, it seems
to us, is: one, what is the appropriate level of assistance; and,
two, how do we ensure that that assistance is platform-neutral?
What do we mean by that? What we mean by that is that we are talking
about turning off the analogue terrestrial signal and ensuring
that all parties have access to digital television. That does
not mean that all parties have to have access to digital terrestrial
television. Many people may wish to choose digital satellite or
digital cable or indeed television over broadband. That choice
should be available to the vulnerable groups in the same way as
it is available to the less vulnerable groups. There is a question
about platform neutrality in the application of the assistance
programme.
Q27 Mr Sanders: You say that one
of the things you are concerned about is the appropriate level
of assistance. What is your answer to that? What is the appropriate
level of assistance?
Mr Carter: We do not have a view
on the numbers yet because there is quite detailed work being
done on how you run such a programme or whether or not there are
cost advantages to doing it at scale at certain points in time.
The price of the receiving equipment is only going down, and so
I cannot say to you today, and nor should I, that the answer is
`X pounds'. That work is underway and ultimately it will be a
matter to be decided by Government. We are involved in that process
and I am afraid I cannot give you the specific numbers today.
Lord Currie of Marylebone: It
is worth adding that our Consumer Panel, which is independent
of Ofcom but was asked quite specifically by the Secretary of
State to comment on the definition of the groups that should be
assisted, has itself expressed views on that. That is not an Ofcom
view; that is an independent Consumer Panel view.
Q28 Mr Clapham: Could I ask, in relation
to that point you made about the consumer group, whether you are
aware of any kind of plan by the appropriate department to communicate
with Social Services departments down the line in local authorities
with regard to dealing with the vulnerable groups?
Mr Carter: There are the commercial
aspects of digital switch-over. By `commercial', I mean the communication
with viewers and listeners in our houses. Then there are the public
responsibilities that run through the public services. There is
quite a detailed work stream associated with those activities
in all parts of government and all government departments. That
is a big part of the work programme.
Q29 Mr Weir: I want to go back to
what you were saying about digital being platform neutral. Are
you sure that everyone will be able to have access to digital
by the switchover date, given that there are still some areas
where you cannot get it through your aerial and the only option
is to have a digital satellite system, which is considerably more
expensive than the set-top boxes that are available. When you
are talking about platform neutral, there is no real choice there
because you either go to satellite or you do not get digital at
all. Is that something that you are going to be concerned about?
Lord Currie of Marylebone: A key
point that is not widely necessarily fully understood is that
the digital signal currently covers significantly less of the
country than it will when analogue switch-off happens, and the
analogue signal can, at that point, be boosted. It cannot be boosted
before that for technical reasons. Many of the people who cannot
currently get the digital terrestrial signal will be able to get
it. The target that has been built into all the planning is that
the coverage, in percentage terms, for digital terrestrial should
be the same as that for the analogue signal currently—not
absolutely 100% but the same very high level of penetration.
Q30 Mr Weir: Before any area is switched
off from the analogue signal, will it be certain that everyone
who can get the analogue signal in that area will be able to get
digital terrestrial television?
Mr Carter: Pretty close to 100%.
I have a handy little league table here in my briefing pack which
tells me that in your constituency only 43% of people can get
digital terrestrial television coverage, which is a pretty low
ranking by comparison to many of your colleagues round the table.
The person you want to be, I think, is Alan Keen who has 100%
coverage in his constituency. As my chairman makes clear, part
of the process of analogue switch-off is that as you dial down
the analogue signal, you can dial up the digital signal, so you
will increase the coverage. Is it the case that 100% of the people
who get it today will be the same 100% who get it tomorrow? No,
there will be a marginal degree of slippage. I literally mean
thousands of households across the entire country. Clearly, one
of the questions is: if you happen to be one of those marginal
thousand of households, if I was that person, I would not be interested
in being classified as a marginal household. I want to know how
I am going to get television. The choices you would have there
would either be digital satellite, digital cable, or provision
by broadband.
Q31 Mr Weir: In my constituency there
is no cable television and there is never likely to be because
of the nature of it.
Mr Carter: But satellite coverage
in your constituency is pretty good.
Q32 Mr Weir: That takes us back to
the point that a satellite system is considerably more expensive.
Mr Carter: It is not if you only
want to have the terrestrial channels. If you want to have the
full pay satellite product, it is more expensive. I will leave
others to make the judgement as to whether that is `considerable'.
If you want to have a free satellite service, it is almost exactly
the same price as a digital terrestrial service.
Q33 Mr Weir: I am afraid I cannot
agree with that. I can go into a shop and buy a set-top box for
about £25 now. I cannot get a satellite system for that.
The cheapest I have seen is about £150, and that is a considerable
difference in price.
Mr Carter: I defer to your knowledge
of the retailers in your locality. Our understanding of the differential
is that there is a differential between the cheapest digital terrestrial
box and the cheapest free satellite box, but the differential
is not of that order of magnitude on average.
Q34 Mr Weir: If you can sell satellite
systems for £25, you will make a fortune in Angus, and you
are welcome to set up.
Mr Carter: Sadly, I am conflicted
on that, but there will be people who I suspect will be selling
free satellite services at increasingly competitive prices.
Q35 Chairman: Can I turn to the area
in this process for which you are certainly responsible, which
is the allocation and management of spectrum? You have suggested
that you see that this should be essentially market-led. How is
that going to support the development of public service broadcasting?
Mr Carter: The process of digital
switch-over itself will benefit public service broadcasting in
two ways. Firstly, going back to the previous exchange, it will
increase the coverage of digital terrestrial services across the
entire country, and in particular for Channel 5, which is a commercial
public service broadcaster whose current coverage is about 80+%;
that will go up to 98.5% coverage. That is the first benefit.
The second benefit is that all the commercial and public service
broadcasters will get pre-allocated digital terrestrial spectrum,
so they will have access to capacity in the digital world at,
in some instances, zero cost and, in other instances, administrative
costs. That then leaves the question about what do you do with
the efficiently released additional spectrum, which is just north
of 110 MHz of spectrum. We are consulting on that question right
now as we speak. We have put our view that our interpretation
of the Act, and indeed our responsibility, is that the most efficient
way of allocating that spectrum to the market is to run an auction.
Could the public service broadcasters bid for that? They most
certainly could. If they wish to get additional spectrum, they
could either bid individually or they could bid jointly in a consortium,
or alternatively someone else could bid for it. If someone else
bid for it and they were the winning bidder, then that would tell
you that they are the people who can do the most developed and
dynamic services with that. That will not leave the broadcasters
absent spectrum. That would not be an accurate description.
Q36 Chairman: Let us take this released
spectrum, there is a huge variety of potential uses with enormous
differences. It could be used for broadcasting high definition
television; wireless broadband; and mobile applications. Are you
suggesting that you do not think that you, as the agents of government,
should take any view, and that we should just see who is going
to bid the highest to determine what application it should be
used for?
Lord Currie of Marylebone: That
is one of the questions we are exactly consulting on: what is
the appropriate way in which we should allocate this spectrum?
We could have an auction in which effectively we privilege certain
groups, for example, the public service broadcasters, by saying
that they would have an implicit supplement to their bid, and
one would say one would accept their bid at a lower price than
an alternative bid, if one took the view that the public benefit
that flowed from the use of that spectrum for public service broadcasting
was such to make that worthwhile. Those are exactly the questions
we are looking at. That does not validate the argument that we
should use a market mechanism in this process. It is modified
by market processes in a particular way. There is also the possibility
that we may decide, if the arguments are strong enough, that it
should be pre-deal, but those are all open questions at the moment.
Q37 Chairman: In the past, we have
used auctions successfully to decide which operators should get
the specific spectrum, but we have never used an auction in order
actually to choose between completely different applications.
If that happens, is it not likely to be the case that the broadcasters
are going to lose out; they are not going to be able to compete
against the telecoms operators or mobile operators?
Lord Currie of Marylebone: That
is not clear to me. I think if broadcasters are sufficiently innovative
they could well be in there with competitive bids, but that is
a question we need to look at. Our general spectrum philosophy
is that the past 100 years of command and control where government
says "this piece of spectrum should be used for this purpose
and this purpose alone" has become increasingly inefficient
in a world where there are many different competing uses and that
it would be much better to have a process where the market can
drive those decisions rather than a central regulator who lacks
the information to make those decisions. That does not preclude
what I alluded to as the possibility that one might, in that process,
privilege certain groups, but one would be clear about what is
the nature of the subsidy, if subsidy is called for, that is actually
going to those particular uses.
Q38 Chairman: This is obviously a
very complicated decision. It is going to take quite a lot of
preparation. How do you respond to the criticism, which you will
have seen in our reports from the transmission companies, that
actually they need to know now? They are ordering antennae, bits
of kit, and it is very difficult for them if they have no idea
what the spectrum is going to be used for, particularly if they
are not going to know for at least another six months or more?
Mr Carter: You are absolutely
right, Chairman, to say that this is a difficult and complicated
decision and process. It is. I do not believe that the criticism
being tabled by the transmission companies specifically relates
to clarity around the 112 MHz of released spectrum. It rather
starts from clarity around the schedule, the roll-out, and the
multiplex allocations of the 256 MHz that the broadcasters are
going to have. We are working at quite some pace and scale to
ensure that all parties, including the transmission companies,
have got the clarity they need on that. I am reasonably confident
we will have that resolved by the summer. On this particular question,
we will reach a conclusion I suspect by the early part of 2007.
That will be a year before the first region, which is Border,
begins the process of releasing spectrum and five years before
the process is completed. I do not think we are being slow. To
go back to a phrase you used, if I may, and again I do not mean
this pedantically, we are not agents of government in that sense.
In fact, it is quite an important distinction that we are not.
We have quite specific responsibilities under the Act. It is entirely
possible for government to direct us if they chose to disagree
with the decision that we take. In that sense, ultimately there
is an override. What we are trying to do is to go through a very
public and transparent consultation process with everyone, including
all parts of government that have an interest, and there are multiple
parts of government that have an interest in this question, to
ensure that, by the time we make a decision, we are as fully informed
as we can be as to everyone's view, and everyone is as informed
as they can be about our decision-making process.
Q39 Chairman: With regard specifically
to the released spectrum, one potential application for that is
to offer high-definition television via digital terrestrial television.
If that option is going to be pursued, are you aware that transmission
companies have suggested that the economics of the broadcasters
is actually being adversely affected by the delay in knowing whether
or not that is going to be the application? Because they are not
going to have certainty, therefore their costs are going to go
up, if nothing else because they have to send a man up to the
top of the transmission tower twice.
Mr Carter: We are absolutely aware
that there are interrelated issues. In answer to the earlier question
when we were asked what our responsibilities were in digital switch-over,
I made the point that one of those is in managing the regulatory
issues around the transmission contracts. I think our judgment
would be that the regulatory terms upon which those contracts
had been granted, in particular the cost of capital that transmission
companies are entitled to earn on their investments, provides
for some flexibility because of uncertainty. We need to get on
and make those decisions as quickly as we can. The transmission
companies have a legitimate view, but they are only one party.
There are multiple other parties. We are trying to go through
a process of consulting with all of them.
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