Select Committee on Culture, Media and Sport Minutes of Evidence

Examination of Witnesses (Questions 20-39)


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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