UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 1083-i

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

Culture, Media anD Sport Committee

and

 

trade and industry committee

 

 

OFCOM ANNUAL PLAN 2006-07

 

 

Tuesday 2 May 2006

LORD CURRIE OF MARYLEBONE and MR STEPHEN CARTER

Evidence heard in Public Questions 1 - 144

 

 

USE OF THE TRANSCRIPT

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Oral Evidence

Taken before the Culture, Media and Sport Committee

and the Trade and Industry Committee

on Tuesday 2 May 2006

Members present

Mr Peter Bone

Mr Michael Clapham

Mrs Claire Curtis-Thomas

Mr Nigel Evans

Alan Keen

Peter Luff

Rob Marris

Mr Adrian Sanders

Mr Mike Weir

Mr John Whittingdale

 

Mr John Whittingdale was called to the Chair

________________

Lord Currie of Marylebone, a Member of the House of Lords, Chairman, and Mr Stephen Carter, Chief Executive, Ofcom, gave evidence.

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 half-way 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 sessions, 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 ten 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 that all that means is it is a route 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 news 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 per cent, 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.

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 db 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-very 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 now 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 a 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 switch-over 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 neutral 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 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 by 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 was 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 vitiate 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 took. 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.

Q40 Peter Luff As a point of fact, how constrained are you in this process by international agreements?

Mr Carter: Reasonably, and the start point is an international agreement. In fact it is going on and it will start next month. There is some national flexibility but 'reasonably' is the answer to that.

Chairman: There are no further questions on the broadcasting side. In that case, I am now going to hand over to my colleague, Peter Luff, who is going to take us through telecoms.

 

Peter Luff was called to the Chair

Q41 Chairman: Gentlemen, thank you very much. The only reason we took broadcasting first is that we did it alphabetically; telecommunications is much more important! I would like to begin by asking that general question which I press you nicely about now. How important, in terms of GDP, do you think the relative contributions of broadcasting and telecommunications are?

Lord Currie of Marylebone: First, the telecommunications sector is bigger, quite clearly, as a business, simply measuring it in terms of the businesses in the sector. If you then go on and ask what is the contribution more broadly, it is undoubtedly the case that telecommunications infrastructure networks are a major dynamic source of economic growth. Equally, one should say that public service broadcasting is a major contributor to the social, cultural and political wellbeing of the country. I would hate to have to balance one against the other.

Q42 Chairman: When we talk about infrastructure these days we think about road and railways primarily, perhaps sewage if we have that kind of mind, but telecommunications is probably the most important aspect of the nation's infrastructure now.

Lord Currie of Marylebone: I would agree with that. I think what we are increasingly going to see as telecommunications infrastructure becomes general, as very high speeds of electronic delivery is available to everybody, are our social working patterns shifting in much the way that electricity, when it came, changed quite considerably the way society worked and the way in which industry located and operated. I think we are just at the start of that transformation.

Q43 Chairman: With the fact of the convergence of the two sectors, it makes sense for you to exist as a single regulator but you must have a view of the relative importance of the two sectors to decide, in the context of your Annual Plan, how much resource you are going to devote from your organisation to the different parts. I repeat my question: how important are the two different parts of your work?

Mr Carter: It sounds as though we are dancing on pinheads here. They are equally important but the absolute answer to your source question is that we spend more time on matters telecoms than we do on matters broadcasting by some order.

Q44 Chairman: I can guess the reasons for that but it would help if you stated those.

Mr Carter: They are largely scale, complexity, partly a function of the historical regulatory regimes which preceded us because the licensing regime and the technical issues associated with that are more complex in telecoms than they are in broadcasting, and partly because the single largest player in broadcasting is not entirely our responsibility, the BBC, whereas all player in telecoms are our responsibility. There is a variety of reasons but there is no doubt that by volume of activity we spend more time on matters telecoms than we do on broadcasting, but they are equally important.

Q45 Chairman: It is a very difficult to answer in a joint committee. If we had separate hearings, I wonder what your answers might have been, but that is for another occasion. Can I ask another point of fact? There is speculation, or more than speculation, that the European Commission is looking to take a responsibility for telecommunications regulations to create a proper single market. Could you bring us up to date on that?

Mr Carter: Again, telecommunications is far more influenced by European rules than is the case for broadcasting where the principles of subsidiarity are more pre-eminent. We could have an interesting debate about why that is the case. Currently, there is a review of the existing European framework going on. We are engaged in that. We are fortunate in the sense that one of our executive board colleagues is currently Chairman of the European Regulators Group, so we are in a reasonably significant position to influence that. I think it would be inaccurate to describe it as a desire to create a single regulator. I do not think, beyond some of the more wild remarks on the fringe, that is the case, but there is no doubt that there is significant pressure to harmonise not just regulatory analysis but regulatory remedies across Europe. That is the case.

Q46 Chairman: So you are not concerned by that at this stage?

Mr Carter: We are deeply involved in it. I am not sure we would say we are concerned by it. I think we are advantaged by the fact - and I do not want this in any way, shape or form to sound boastful because it is not meant to be, genuinely - that across Europe, both in the newer accession countries and indeed in the larger, more established European countries, our regulatory approaches are generally regarded as quite significantly developed, and therefore we tend to be at the forefront of these discussions rather than at the back.

Q47 Chairman: Keep it that way because the importance of the services sector in the UK economy means that the competitiveness of the telecommunications sector is absolutely key. Briefly, tell us about your plans for a separate consumer voice within your organisation. You are consulting on that, are you not?

Lord Currie of Marylebone: No. We have a separate consumer voice already within Ofcom, which was set up in the Communications Act.

Q48 Chairman: But are you planning for an expansion of that role?

Lord Currie of Marylebone: No, I think it is fair to say that the Government is proposing to create a consumer voice. Currently, there are discussions going on about how such a body, which may have a wider remit, would interact with our consumer panel. On some versions of those, it might incorporate the consumer panel, but there is a number of different proposals on the table that are being discussed.

Q49 Chairman: When do you expect decisions to be taken?

Mr Carter: I think the current timetable is towards the end of the year.

Q50 Chairman: Let us move on to the strategic review, which is obviously one of the most important things you are doing in this sector. Can you give us an update on the progress that BT is making in implementing its undertakings?

Mr Carter: We can. Substantial activity has gone on since the undertakings were signed and agreed. We have seen the creation of the separate access division, Openreach, and all of the staff transfer and structural transfers that went along with that. We are now experiencing what I described to my board last week as the 'bump and grind of operational delivery'. That is creating some challenges for everyone involved. This is no small task. Openreach is a division that employs over 35,000 people. Going back to your earlier question about the relative size and scale, that makes it bigger even than the BBC by headcount. In terms of consumer outcomes rather than regulatory detail, I think we are seeing strides. I have to confess to taking some small moment of pleasure in driving past a billboard with 'broadband price wars' when we saw broadband services being offered at every faster speeds and ever lower prices. That is in no small part down to reductions in wholesale prices and ease of access and competitors entering that market.

Lord Currie of Marylebone: I think Stephen is absolutely right to say that we are in the process of getting operational delivery. BT, in their undertakings, have committed themselves to very considerable change. I am absolutely sure that they are determined to deliver that, but of course it is not an easy task. It is our job to keep them up to the mark. If you go back two or three years and thought where was local loop unbundling then and where is it now, I think the transformation has been very considerable, to the benefit of consumers.

Q51 Chairman: So you are broadly satisfied with the progress being made?

Mr Carter: We will give you an answer to that in October. There are five critical delivery dates between now and then and significant delivery dates on systems equivalence, systems access, planning and back-call. These are all very important constituent elements of a programme that needs to deliver. It would be inappropriate for us to say right now that we are doing anything other than monitoring those responsibilities.

Q52 Chairman: It is not the case that the jury has not yet reached a verdict; it is not in a position to reach a verdict yet?

Mr Carter: No, it is not.

Q53 Chairman: I know one of the competitors to BT who desperately wants this process to succeed obviously, and it must, is a little bit concerned about any other changes to regulation affecting the sector before the review is complete. Can you comment on that?

Mr Carter: It is always very dangerous for people to see one regulatory decision as contingent upon another regulatory decision, not least because, going back to your question about the European structure, the European structure requires us to look at the market in vertical analysis, which I think is one of the limitations of the European framework. We have to make stand-alone decisions about different areas of regulation. It is absolutely accurate to say that we have identified four or five individual markets where we think deregulation can be pursued.

Q54 Chairman: What are those?

Mr Carter: That is in: business lines, leased lines; in retail price controls, most visibly and significantly in the application of price controls to the line rental charge; what is called combined pooling of prices where people wish to bid for commercial contracts and at the moment they are not allowed to pool pricing on a market where they are regulated with a product from a market where they are not, for reasons that are obvious. There are others. And we are consulting on some or all of those at the moment. If you work back from a good place, if we were to meet again in September or October, assuming that we were to find ourselves with the necessary level of delivery on the access part of the infrastructure, it would be disappointing, I think, in our view, were we not to see the march of deregulation continue.

Q55 Chairman: So are you going to add any areas, any areas earmarked out of that process at present?

Mr Carter: Not in the near term.

Chairman: We will turn to price control and Peter Bone.

Q56 Mr Bone: Thank you, Chairman. I think most people would agree that in 1984 when BT was privatised things went very well; we saw lower prices and obviously more competition and better quality. But in that bundle of privatisation there were price protections and I understand now that there is talk of giving up the price controls. Will that benefit consumers or will that be to their detriment?

Mr Carter: We would not do it if we did not believe after consultation - so just to be clear we are consulting on that at the moment - that ultimately it would be to their benefit. The proposals that we are consulting on contain two important safety nets, one of which is that for those vulnerable consumers who are on any form of income support there is a widely available, easy to use price guaranteed alternative. So for consumers who are looking for low line rental with very, very, very low call usage there is a light user scheme that is part of that proposal. Therefore that is an important ongoing safety net. So the removal of retail price controls from the complete package of lines and calls will not remove that - in fact, if anything, we have bolstered that provision. Secondly, you would have to look at the alternative provision and, as you rightly say, at the moment there are many alternative providers and the number and economic sustainability of those is increasing on both counts. Ultimately that acts as a more effective control on price than the Regulator determining once every five years whether it is RPI minus zero or RPI minus one.

Q57 Mr Bone: I certainly agree with you in principle on that and what you have just said has touched on something I was concerned about, that the vulnerable groups who, actually, you are not talking about removing total price control?

Mr Carter: No, we are not.

Q58 Mr Bone: Can I just go back to the fact that BT is still dominant in the sector and it has more than 50 per cent of the market share? Is there a danger that if you completely do away with price controls - and maybe this would have happened anyway in the current situation - that BT, if it wanted to, because of its strength could sell at ridiculously low prices to knock other competitors out of the market and when they have gone they can put the prices way up?

Mr Carter: We would have powers to deal with the exact situation that you describe; we could do an own initiative investigation on predatory pricing, and we are a competition authority in the sector so we would be able to deal with that. Indeed, we have examples of that in other areas, so I would not be unduly concerned about that specific concern. What we are trying to balance here is really the point that the Chairman made in his opening remarks about the importance of the sector. Since we have inherited our responsibilities to the Telecoms Regulator we have never taken it as our job to beat up the incumbent telecoms provider; that does not seem to me to be the definition of good regulation. The definition of good regulation is to have effective controls where they are necessary and where they are not necessary to get out of the way and allow market services to compete, because you are right to say that BT is the majority provider of fixed calls, but when you then look at lines and calls together and then lines and calls and mobile calls together, and then you look at voice services and other forms of communication over a four to five year period, this market is changing at a substantially rapid pace, and it would not be to our overall industrial competitors to be too restrained by traditional market definitions. You need to be aware of them and you need to have effective controls, but if you are overly restrained by them what you end up doing is regulating for yesterday very effectively and then tomorrow's products and services somehow or other do not come as thick and as fast as you would want them to, and we are always trying to get that balance about right. There are judgments and there are analyses to be done but that is why we have said we think now, after the undertakings, with effective implementation, with real competition, with increasing alternative forms of call-like services, now is the time to remove retail price controls, apart from for that vulnerable group of society who are on some form of income support.

Q59 Mr Bone: So, in summary, it will be cheaper for most consumers and you are still going to look after the vulnerable?

Mr Carter: If you wanted to regard telecoms as a utility, which we believe increasingly is not a helpful classification, if you go back to your 1984 start point and you look at your utility prices in gas and electricity and you compare what is happening in telecoms then prices are going down in telecoms.

Q60 Chairman: Before I bring in Michael Clapham and broadband I have one last regulatory question. When you are doing a regulatory impact assessment ahead of a deregulation - and when you do significant issues are involved - you can deregulate without doing a regulatory impact assessment; that is correct, is it not?

Mr Carter: We could.

Q61 Chairman: Do you?

Mr Carter: I would not like to say we never have because I have a sneaking suspicion you might have a bit of paper in your hand that says, "Ah ha!"

Q62 Chairman: No, I am asking that question because I do not know the answer!

Mr Carter: I would hope we have not, I think is the appropriate answer.

Q63 Chairman: So you think the norm should be that you do one?

Lord Currie: Any significant deregulatory change should have a regulatory impact assessment, yes.

Q64 Mr Clapham: Turning to broadband services they are particularly important, particularly in rural areas in relation to diversification which is taking place in the economy, of course. I note that there has been an increase in take-up of broadband but we still have significant numbers in rural areas that do not have access. What are you doing to ensure that people who do not yet have access are going to have access in the near future? For example, what discussions have you had with BT regarding this and what kind of responses have you had from them?

Lord Currie: BT have enabled the vast majority of exchanges around the country, even in rural areas, so the extension of broadband is very widespread and of course there have been initiatives by the Scottish Parliament, the Welsh Assembly and in Northern Ireland to extend the coverage to those areas where it is generally uneconomic to have an exchange enabled for broadband. So we are very nearly at the point where the vast part of the country can get broadband at a reasonable speed. Of course, they may not get the speeds that are possible in urban centres where the competition is much more intense but over time one could expect to see technology and other changes bringing those speeds in in a much more widespread way. So I think the picture is a very different one now from what it was three or four years ago when there was concern that Britain was way behind at the take-up in the availability of broadband around the country.

Q65 Mr Clapham: I suppose the upgrading of the exchanges and the removal of the distant limits have certainly helped. My brief says that 99.6% of access but of course the 0.4% that do not have access are quite significant and, as I say, they tend to be in rural areas. Rural areas at this present time are under a great deal of pressure to diversify in order to be able to ensure sustainability, so it is important that they do have access. In terms of the alternatives, has wireless access been discussed with BT and, if so, what is their response to providing that kind of access to and from rural communities?

Mr Carter: You would have to ask BT that specific question but on wireless generally, in answer to your question what are we doing about the un-served or the underserved, one of the things we are trying to do is to get as much spectrum as possible out to the market for alternative providers to provide services to the un-served and the underserved, which rather goes back to our conversation about what do you do with the release spectrum and many others. We had our first auction last week for some spectrum that had previously been allocated for cordless telephones, digital cordless telephones that are no longer needed. Over the next 18 months, two years we will probably hold auctions for about 300 megahertz of spectrum. Is there a likelihood that you will see increasing wireless services? Absolutely there is. The mobile operators are increasingly delivering their 3G licence obligations; and you will have mobile broadband services. As we were saying, we are holding BT firmly to account on the access services division and the cost of wholesale access to the local loop and we would hope to see local loop unbundling going to maybe 1000, 1200 exchanges in effective competition. That will not give you 100% coverage but it will give you north of 70% coverage. I think the combination of all of those things will get us to a position of multiple broadband service providers offering multiple speeds. Will there be small residual pockets of the population, largely rural that will be completely un-served? It is possible. It is possible and I do not think we could sit here today and say no, that would not be the case; but I think what we would say is that the ingredients for minimising that are looking a hell of a lot rosier today than they have for quite some time.

Q66 Mr Clapham: Coming back to your responsibilities and some of the things you said earlier about having the responsibility for the economic implications, in terms of broadband there are clearly important economic implications.

Mr Carter: Indeed.

Q67 Mr Clapham: Does that impact on to your responsibilities at all? Do you see it as impacting on to your responsibilities?

Mr Carter: I would say that we have put broadband provision and broadband take-up at the centre of what we have done pretty much from the very beginning. Why have we done that? Again, it goes back to your comments and the Chairman's opening comments - connectivity at speed and ease of use is central to a services-based economy; if you do not have high-speed, reliable and resilient connected networks you do not have an economy - you do not have it industrially and you do not have it domestically. Whilst debates about spectrum allocation for broadcasters are an important base they are a subsidiary question to the quality of industrial connectivity for the country - they absolutely are. We have always taken the view - and I believe we are right in this - that you do not reach for a single provider straight away because often in these debates you are trading coverage and competition and I do not think we are competition-obsessed but we believe that effective competition does ultimately provide the better outcomes for customers. But there are also coverage questions and you are constantly trying to get that balance right and I think in broadband we are pretty much there. Broadband coverage, as you rightly say, is 99.6%; that is 1.2% higher than you will get to with digital terrestrial television or with analogue television. That does not mean that there are not some people who are un-served but it is a substantial place to be.

Q68 Mr Clapham: But in terms of some of the discussions you have had has it all been considered about extending the universal obligation of BT?

Mr Carter: To Broadband?

Q69 Mr Clapham: Yes.

Mr Carter: There is much debate about that; we have not taken a view on that yet. As you know, there is a universal service on traditional telephone services and therefore on dial-up by definition. We have not taken the view that to impose a universal service obligation on broadband is the right thing to do, we believe the market is too nascent. Not least, I have to say, that it is the case today that 99.9% of households are covered with ADSL broadband and yet we only have 60% penetration. So there are many thousands of people who could get broadband today from multiple providers at very cheap prices who choose not to.

Q70 Mr Clapham: I accept that point, but as I explained in my opening remarks, I am particularly concerned about some of the rural areas and rural areas, as I say, facing diversification because of changes in the economy and it is important that they do get the access.

Lord Currie: If I may say on that point, if you were to compare the position now for the rural economy compared with, say, ten or 20 years ago, the connectivity of the rural economy is much greater and that allows location of new services in all parts of the United Kingdom in a way that would not have been possible ten or 20 years ago. So there is a huge opportunity, which is why I think the penetration of broadband is going to have quite significant implications over time, about where people live and where business is located. I think we will see the start of that process.

Q71 Mr Clapham: Can I turn to look at some of our competitors? In terms of where we fit into a league table we are about midway, I understand?

Mr Carter: On take-up?

Q72 Mr Clapham: In terms of take-up, and although we are perhaps doing better than some of our main competitors like Germany and Italy in Europe there are others that are doing better: for example, the Dutch are doing better and I understand that Korea is doing much better. Is there anything that we can learn from those countries to help us, particularly with, as I say, the rural section?

Mr Carter: This is such an interesting subject we have discussed this for a long time. We are a converged regulator and you will not find many people who are more fascinated by broadcasting than me, but I would observe that one of the things that I do think hampers us as a nation is that we are a bit more interested in broadcasting than we are in broadband in connectivity. What is interesting about some of the countries you have described is their benefits of connectivity are greater than ours. There are some cultural issues there as well as some hard infrastructure questions. There are also, I think, some issues of government policy - government policy in Korea is a different thing than government policy in most countries - and there are questions about what is our position as a country on some of these questions. It does not, again, address specifically the rural access question but it would frame the debate in a way. But I think we would say that we are comfortably going in the right direction - we are talking about fixed broadband - but we should not forget mobile. We have four GSM mobile networks and 2G mobile networks; we have five 3G networks in varying degrees of deployment, all of whom are talking about or offering increasing broadband services. So our network provision is not simply fixed network provision, you are seeing alternative networks, and that is before we are beginning to see wire-fine, wire-max services at scale begin to be deployed. We are not in a bad place.

Q73 Mr Clapham: Finally, with regard to your discussions with the DTI, are they happy with what we are doing with regards to connectivity?

Mr Carter: My own view is that you should ask the DTI; I think it would be wrong for us to speak on their behalf.

Q74 Mr Clapham: But your indications are that they are?

Lord Currie: I think we have had good discussions with the DTI and they are very supportive of what we have been doing and they are pleased at the progress achieved - which is both the combination of technology and of course we hope effective regulation. But as Stephen says, it is better to ask them directly what they think; they may give you a different answer to the one they gave us, but let us hope that is not the case.

Chairman: I think John wants to converge on this.

Q75 Mr Whittingdale: We occasionally seem to fall into the trap of talking about people either having broadband or not having broadband, but you have rightly made the point that speed is equally important.

Mr Carter: Yes.

Q76 Mr Whittingdale: We now have providers talking about being able to provide up to eight megabytes but the key words seem to be "up to", and one commentator I read said that in order to get eight megabytes you would have to be able to look out of your bedroom window and actually see the BT vans around the exchange. Is there a concern that where we may fall behind internationally is in the speeds that we are able to offer, that our network actually is not going to be able to provide the very fast speeds that modern application is going to need?

Lord Currie: When I took the position of Chairman of Ofcom people told me quite definitely that engineering prevented more than one meg. going down the copper wire. There has been a transformation over the last three years and I do not suppose that that transformation is going to slow down. That is one reason why the question of where fine-wire is installed in the network is very much an open question. Clearly the core part of the network, yes, but is it sensible to take it to the curve? Is it then sensible to take it into the home? That really does depend on what the limits are on the copper wire infrastructure we already have, and we have seen those limits shifting all the time. So, yes, there must be a concern, we need to be concerned about that question about whether there are limits on what speeds can be achieved, but all I would say is that the transformation we have seen over the last few years is pretty dramatic. If it slows down then we will have a basis for worrying about it and it will be for commercial operators to decide whether fibre investment makes sense to deliver those even higher speeds.

Chairman: Can we turn to mobile telephony and Bob Marris?

Q77 Rob Marris: Mr Carter, I imagine that you go to Brussels from time to time for the European Regulators' Group and so on. Do you have a mobile phone?

Mr Carter: I do but I have it turned off!

Q78 Rob Marris: Pleased to hear it! Mine is on silent! If you are in Brussels how much does it cost you to make a call to the UK with your UK mobile phone?
Mr Carter: More than it should I think is the answer to that question. As you know, the Commission and indeed the European Regulators' Group are spending quite a bit of time on exactly what is the right solution to high roaming prices.

Q79 Rob Marris: Does it not suggest that when you said earlier that effective competition provides better outcomes that that is not always the case because we have the four main operators and the five 3G operators and so on, yet it still costs an awful lot of money when you are using a UK mobile phone within the European Union to make a call to the UK or indeed a local call within a country where one is sited. What is Ofcom doing to contribute to the process of changing that?

Mr Carter: I take the point and it is a point well made and consistently made by people. As I am sure you know, it would equally cost you a lot if you were on a Spanish call phoning home to Spain or if you were on an Italian phone calling home to Italy, so it is not a uniquely UK problem.

Q80 Rob Marris: I am also aware from the Trade & Industry Committee visiting India in March that in a market of 1.2 billion people and a larger geographic area albeit with, I suspect, a lower density of mobile phone use, on Airtel you can get a one rupee, which is about 1.3 pence, call anywhere in India on any network. That is rather a lot less than, say, a call from Italy £2 up to £4.

Mr Carter: I am not defending the intra-European current price tariff, what I am saying is it is not solely a UK issue and, as a consequence, it is somewhere between a difficult and an intractable regulatory problem for us to solve without moving in concert with the rest of Europe, which is one of the reasons why you have seen the Commission come to this question because, by definition, you need some form of bilateral, ideally multilateral approach to the problem.

Q81 Rob Marris: Why? If I am using a UK mobile phone in France calling the UK, why do I need a multilateral decision rather than, for example, Ofcom cracking down on my UK mobile phone operator charging me what I personally regard as overly high prices? Why does it need a pan-European approach? That may be more desirable but why does it need one and why can you not do anything now?

Mr Carter: Because of the way the current framework directive works in market definitions it would be difficult - not impossible, I take your point - for us to unilaterally impose either a retail or wholesale regulatory control on a UK operator. Having said that, we have a proposal on the table from the Commission, which is being consulted on, which has multilateral dimensions. In answer to your specific question, what are we doing, we are doing two things. One, we are participating at what you would describe as the highest level of those discussions through our chairmanship of the ERG; secondly, as a consequence of that we are doing quite a substantial amount of the heavy lifting and the analysis as to what would a good regulatory solution look like. I have to say, for the record, we are not instinctively attracted to a retail price control, not least because it is a lot easier to impose them than it is to remove them, as retail price controls on fixed telephones would identify; and our preference would be either for the industry to deal with the disparity in price tariffs, which they are themselves, and there are some signs of that; and/or secondly to have a sensible workable wholesale piece of regulation which saw past through to retail prices. We would not be happy just to have a wholesale price solution where there is no benefit to the end consumer, but we think you could achieve that without necessarily having to go the whole hog to retail price controls.

Q82 Rob Marris: I would suggest to you that that approach is a bit lily-livered. I have a Vodaphone and I have just gone on to Vodaphone Passport. From memory, if I am within the European Union and I am making a call it is 75 pence for the first minute. That does not suggest to me, given the state of technology and the relative cheapness of technology around the world compared with what it was 15 years ago, say, that the industry is doing a very good job of driving down prices through competition. If one accepts that - and you may not - that suggests to me that Ofcom correspondingly is not doing a very good job in stimulating the industry, either through retail price control or through discussions in driving down the prices.

Mr Carter: I am not sure that our positions are as far apart as the transcript of this discussion might lead you to believe.

Q83 Rob Marris: I am glad to hear it!

Mr Carter: We do not disagree with your fundamental analysis that prices are too high; all we are really debating is what is the most effective way of getting them lower, and we are just making an observation at this stage that imposing retail price controls is quite a heavy-handed solution. I know we are not averse to doing it, we have done it in mobile call termination, I am just saying that if we could find an alternative which was a combination of a wholesale price control and an industry solution which was more competitive than the one you have described, because I will take your point that that would be a better outcome. If that does not happen it will not really matter what we think because the Commission will decide that there will be a retail price control and unless that is vetoed at the Council of Ministers then that will become the law.

Q84 Rob Marris: With respect it does matter what you think because you have already said today that you could in fact do it unilaterally although you would find that harder to do.

Mr Carter: We could but now the multilateral process is underway I think it makes sense for us to work within that framework.

Q85 Rob Marris: Mobile phones and international calls - and you are more of an expert than I am - have been around for at least ten years and probably longer; how much longer is the consumer going to have to wait given, as you have readily acknowledged in response to the Chair, that we are a service economy, we are a trading economy and the European Union is a major trading partner? How much longer are we going to have to put up with these costs to consumers and to UK business?

Mr Carter: I think probably less than six to eight months.

Q86 Rob Marris: You think that the European multilateral approach will produce a result within six to eight months?

Mr Carter: I think that either you will see a significant industry reaction or you will see a European solution.

Q87 Rob Marris: How low do you think prices might go?

Mr Carter: That is a little like what level should the assistance programme go. I do not think it would be appropriate for us to conjecture at this point as to what is an appropriate price plan, but we take your point that it needs to go down and we are making that very clear.

Q88 Rob Marris: I would have to disagree with you, I am afraid; I think it would be important for you to have some idea of how low the price should go because that should inform your decision as to whether you push for some kind of RPC or an industry-led competition. You cannot judge, surely, whether the industry-led competition, if the multilateral talks go that way, is producing an adequate outcome for the consumer unless you have a yardstick by which to measure it, namely what could happen if you did it by another regulatory method, namely RPC?

Mr Carter: And we are doing that analysis right at this point in time.

Q89 Rob Marris: So you are in fact going to form a view on how low prices should go; you just do not have it yet to give to us today?

Mr Carter: Correct. We are working with the Commission on their consultation at this point in time.

Chairman: My colleagues might have some supplementary questions on this specific area of questioning.

Q90 Mr Bone: At the beginning of that exchange I thought you said that there was an EU directive stopping you doing this, but I just wanted to know whether that is yes or no?

Mr Carter: No, if that is the way it came across I apologise. What I said was the way the framework directive, which is the legal framework for the way in which all telecommunications regulations is conducted, makes for some complexities in making unilateral decisions in markets where, in this instance, the receiving party or the calling party is in a different geography. The current proposal from the Commission is to come up with the regulatory solution that exists outwith the framework directive, so it will be a stand alone unilateral decision on the question of international roaming prices. Part of the reason why the Commission have reached for that solution is because they recognise that the framework directive does not naturally lend itself to markets that work in different geographies - that is the point I was trying to make, clumsily.

Q91 Mr Bone: I think a lot of people in this country think that making a telephone call from Europe back home is a rip-off at the moment and some people would say that you are showing some complacency on this matter and waiting for the European Union to act when many people would look to you to act quicker?

Lord Currie: I think they are right to look to us but I think it is also right that this should be an issue tackled at a European level. The interconnections of networks and systems are such that a unilateral solution I suspect would have unintended consequences that would cause difficulty. A European-wide approach to this makes every sense and, as Stephen has said, we are working very hard to bring such a solution about.

Q92 Mrs Curtis-Thomas: It does not make much sense to me actually, given that there are already facilities, such as the Vodaphone system, to reduce call charges, why we have to wait and take a European lead on this. My question is, if I wanted to know what the call charges are for each phone provider at this specific time so that I can compare and contrast those in order to get the best deals for myself where is the independent advice containing that information available for me to access?

Mr Carter: I think that there is only one single provider, uSwitch.

Q93 Mrs Curtis-Thomas: No, it does not actually; it covers domestic telephone lines, it does not cover mobile. I have looked, gentlemen, and I cannot find any independent advice at all, which is why we may have only four million users for 3G because I suspect quite a number of people would like to go on to 3G but the cacophony of noise surrounding rates, tariffs, incentives is so great I think it is substantially confusing the market place and undermining the public's confidence. So what are you going to do about that?

Mr Carter: I am not sure that I would agree with your contention that there is a lack of consumer confidence in the mobile market per se, but in answer to your specific question about provision of independent data, that is not something that we do, for a whole host of reasons not least it would be almost undoable because, as you have rightly observed, the prices and the market change and the tariff structures change on an almost daily basis. The reason why they do that is because there are multiple providers and the reason why there are multiple providers is because there are millions of people choosing these new services on a daily basis. So, ironically, because it is such a competitive market - we have five operators and seven virtual operators - there are multiple choices. I accept the point that that makes it a difficult market through which to navigate, I do take that point, but I am not sure it is the case that there is a lack of confidence in the market.

Q94 Mrs Curtis-Thomas: My colleague has just said that people feel ripped-off by mobile phone providers and I think they do and I think they have a right to feel that, but when they try and navigate their way from where they are to a preferred position the information presented to them is such that they do not know when they are better off. There has been an acknowledgment by other regulators that there should be some clarity in the market, even though there may be market changes. I grant that this is a challenging area but given the level of usage and the current level of demand surely there must be an incentive to provide some very clear information for the consumer? I have checked uSwitch, I have checked all the other providers; they manage to do it, they manage to give people a portfolio of costs for their particular usage, so why not in mobile phones?

Mr Carter: I do not think it would be appropriate for us to answer for every mobile provider what they do or do not do.

Q95 Mrs Curtis-Thomas: Forgive me, but is your job not to ensure that people like me do not get ripped-off? Is that not your job? I am not just talking on behalf of myself.

Mr Carter: Is your rip-off observation a general statement about mobile charges or specific to international roaming? I thought the gentleman's previous comments were in relation to international roaming charges?

Q96 Mrs Curtis-Thomas: Yes, in fact specifically for international mobile charges.

Mr Carter: And we would agree with that, which is why we are pursuing a solution on international roaming as we speak.

Q97 Mrs Curtis-Thomas: Forgive me, but if you look into my constituents I represent some of the poorest people in the UK today and they do not have an option of a landline they have an option of a mobile telephone, and I am trying to ensure that they get the best deal possible for that particular provider and at this time when I write to them I can say, "You can go to these places to get a best deal, except in one of the most important areas you cannot, you are stuck with whatever your ability to rationalise the different prices will give you." I think something needs to be done in this area; I think you have a duty to do something in this area.

Mr Carter: Perhaps we should have a specific conversation either separately or in writing about what exactly it is you would like us to do and if we can do it we will do it.

Q98 Mrs Curtis-Thomas: I would like to see mobile telephony going on to uSwitch so that people can do a comparative analysis on tariffs.

Mr Carter: uSwitch is a commercial organisation and I am sure if you had that conversation with uSwitch they would entertain that.

Lord Currie: Could we write to you on this specific question because it is clearly an important one?

Mrs Curtis-Thomas: Yes, you can.

Q99 Mr Evans: Who do you think is to blame for the high international roaming charges?

Mr Carter: Who is to blame? I am not sure that we are in a position to allocate blame. I think that all operators in all countries are currently charging higher prices because each of the geographies have different peculiarities - the market structures are different. But it is undoubtedly the case - and whilst I sense the ire around the table we do not disagree with any of the points being made and we are dealing with them, I would have to say at some speed - that for many millions of people, including myself, I did not pay for this handset. We had a conversation earlier about the price of Sat-top boxes where the gentleman there was rightly saying that a free Sat box costs around £100. One of these costs considerably more than £100 but we get it for free and one of the ways in which I get it for free is because there is a cost subsidy from call charges. So there are structural issues in the market which are also relevant issues to understand - they do not excuse the pricing - and one of the things we are doing in the analysis of the market is to work out where those cost subsidies exist, where they are legitimate and where they are not, and then I am extremely confident that by the end of this calendar year you will see some significant reductions in those prices.

Q100 Mr Evans: You do not think that the main operators are making excessive profits because of this international roaming rip-off?

Lord Currie: No, I think they are making the pricing above cost in that particular service delivery but that, as Stephen said, is offset by lower prices elsewhere. Overall I do not think you would argue that the mobile companies are making excess profits, but the fact that these cost subsidies may be inappropriate is something that concerns us. One of the reasons it may have happened is that in the past a majority of a very large part of international roaming was business-related, but that is changing quite significantly and that is a structural shift in the market that calls for shifts in pricing ranges.

Q101 Mr Evans: Can I ask you both, have you had the operators before you? Have you discussed with them the international roaming charges and have you asked them to reduce their prices and, if so, what did they say to you?

Mr Carter: Yes, yes and "We are looking at it extremely closely."

Q102 Mr Evans: So why have they not done it?

Mr Carter: Whilst I would accept the comment made by the gentleman on the left that international roaming as a service has been available for some time and so these high prices have been in the market for some time,I think my Chairman's point is a very valid one that one of the consequences of cheaper air travel and increasing travel is the visibility and the penetration of pre-pay mobile services, and the visibility of expensive international roaming has only really come to the fore in the last two or three years and there is no doubt in my mind that the mobile network operators have been slow off the mark in dealing with that. And as I made an observation to one of them a couple of months ago it is a sorry state of affairs when European politicians or domestic politicians are more in touch with your customers than you are. So I agree with the point. But since the European initiative, which is actually relatively recently, the level of engagement has accelerated and, as I say, I think we will see some significant progress over the next six to nine months.

Chairman: A somewhat unusual position for politicians to be in, I accept that. This is a very interesting area, you can see the passions but we must move on because there are several areas to cover.

Q103 Rob Marris: I have one final question on the area, Chair. Are you pursuing this issue in series or in parallel? That is, if the European multilateral approach breaks down and you have a plan B that you are already working on, are you then going to turn around and say, "Oh, it has broken down, perhaps we had better look at the unilateral approach in the UK"?

Mr Carter: Both.

Q104 Rob Marris: So you are doing it in parallel. On 3G, is it a bust or not? People have paid a lot of money for these licences; take-up is very slow; do you think it was a commercially wise decision for the companies to make that huge investment? The reason I ask, before you say "That is a commercial decision", is because we have been talking about release of spectrum on re-platforming and all those kind of issues that we talked about on the CMS kind of things, but what is going to happen when those auctions take place and what kind of approach do you think those bidders will take to what happened on the 3G stuff where take-up has been slower than most commentators expected?

Lord Currie: My guess is that they will be rather more aware of the risks this time around than they were last time and I think that will affect the types of bids we see. Clearly that does not alter the fact that an auction approach to release in the spectrum makes sense. I do not think that the Chancellor can expect the bonus that he benefited from back then.

Q105 Rob Marris: Given what we also talked about with Mr Clapham about broadband take-up and so on, does it disappoint Ofcom that the 3G take-up has been lower than had been forecast?

Lord Currie: Disappointed? I think we are talking about a new technology and new technologies sometimes succeed beyond any reasonable expectation and sometimes fail. It is not for us to comment whether this is a failed technology or whether take-up is just somewhat slower, but in a dynamic market of the kind we have you do expect some big successes and you also expect some failures. It is possible that 3G is in that category, but I really would not want to speculate. It is really for the commercial players themselves to make those judgments.

Q106 Chairman: Will the Chancellor be making so much money from future spectrum auctions as he did from that one, that is the bottom line? Significantly less.

Lord Currie: It is very hard to predict these things.

Q107 Chairman: Not that hard.

Lord Currie: It would be unwise to write it in.

Q108 Mr Weir: Moving to the premium rate services, one of the things that we MPs - certainly I do - get complaints about on telecom is premium rate services and in particular rogue internet diallers where no one seems to take responsibility for what is happening. I notice that in December 2004 you published a review on this subject, but I would ask how you are taking this forward as your annual plan does not seem to give much mention to this area.

Mr Carter: There is a dedicated co-regulator, ICSTIS, which was set up specifically to regulate the premium rate industry and, as you rightly refer to, largely because of a spike of concern around rogue diallers we, in conjunction with the DTI - in fact at the DTI's request - did a review of the powers and the rules around operators in that market, and that resulted in an increase in powers to ICSTIS and an increase in fining capability and also some changes to the prior permissions regime and also some changes to the payment regime between different services providers so that if people were being scammed there was a reasonable time period whereby one operator could identify the problem and recoup the money before the money had been paid on to the other operator. The early signs are that that, on that particular problem, is beginning to bite.

Q109 Mr Weir: The period was 30 days, is that correct?

Mr Carter: Correct.

Q110 Mr Weir: Given that people get telephone bills generally on a quarterly basis do you think that is a long enough period? It can be some time before you realise that you have been a victim of a rogue dialler.

Mr Carter: We accept that and of course it is not the case - because there is this double lock mechanism because there was an extension in the prior permissions regime, so that there is an obligation on the service provider that is allocating the numbers, so you are not wholly dependent upon the money transfer as a safety. The collective view at the time was that the 30-day extension was a sensible place to start and, as I say, the early signs are that it is biting reasonably effectively.

Q111 Mr Weir: One of the other recommendations is that ICSTIS should require companies to have effective customer service and refund policies in place. Do you think that is working because again that is one of the complaints, that people go to the company and cannot get them to take effective action when they have perhaps very large bills from rogue dialling?

Mr Carter: It would be worth asking ICSTIS for their own independent view because they are the independent committee for the supervision of, and they will have their own view, but I think they would say that the new regime again has worked well. We have coupled that with an increase in resource and budget for ICSTIS - we are the budget setting body for ICSTIS or approval body - and that has given them more resource to handle the overflow of complaints so that that allows them to draw the problem to the attention of those providers who are not living up to those service obligations. I am not sure that I would describe it yet as a virtuous circle, I think that would be a too rose-tinted view of it, but I definitely think that on all of those measures you are seeing it improving.

Q112 Mr Weir: You also recently announced changes to the 08700 numbers.

Mr Carter: We did.

Q113 Mr Weir: A number of government departments and others are getting some 18 months after the current numbering review to implement these recommendations. Why so long a period?

Mr Carter: Generally, I think, when you are making major changes in markets it is a good idea to have a glide path, just because (a) it is good regulatory practice and (b) it allows people to adjust their businesses and services, and whilst there are aspects of the 087 number range, which have been called into some question, I think we have been reasonably alive to those and, as you say, we have made some quite significant changes: i.e. we have removed revenue share or are proposing the removal of revenue share. You need to allow businesses time to migrate services on to alternative numbers. As it relates to the government departments and public authorities, of course they have the choice not to use those in the first instance. That is not a matter for us, we have issued guidance on that matter and ultimately it is a matter for individual departments and the Central Office of Information.

Chairman: We have two more areas to pursue and we will go on to Directory Enquiries. Rob Marris.

Q114 Rob Marris: Mr Carter, can you name me four Directory Enquiries' telephone numbers, out of the 200 that there were - there may not still be 200?

Mr Carter: I do not know but I am not even sure that I should even if I could. I could certainly name you three but then what would happen is that the 197 I did not name would phone me up within a second and say, "So what is so good about them?" to which I think the answer is, as you have rightly observed, now more than one and that provides competition.

Q115 Rob Marris: Do you think it has worked?

Mr Carter: If I am allowed, it was not done on our watch.

Q116 Rob Marris: No, I realise that; I checked that and it was done by Oftel in 2003.

Mr Carter: My own personal view - and I think this is also our official view - on balance, yes.

Q117 Rob Marris: Has it brought the price down?

Lord Currie: There is quite a wide range of prices in the market. I am not sure that on average it has brought it down but, interestingly, if you do look at our recent survey what it shows is that some of the most accurate providers of information are not necessarily the more expensive. So there is still quite a range in the market place and my perception will be that a market which was totally new, started off with quite a lot of difficulties of adjustment, is now settling down and that seems to be the evidence from the research that we have conducted recently.

Q118 Rob Marris: The impression of many, including me, is that the prices are higher and that the accuracy is not much greater taken across the piece. Is that not what you are finding, both in terms of prices and in terms of accuracy?

Mr Carter: It is undoubtedly the case that there are a number of providers where the price charged is higher than the previous charge of 192 - unarguably. We do not know the accuracy number because there was not a baseline on accuracy previously. So no one knows that - that is pure hypothesis. One of the issues is, and what that teaches you about deregulating or liberalising markets, that it is a good idea to do a baseline analysis, so that you can do a compare and contrast to see whether or not there has been progress, which is why I say that on balance we think it has because, as my Chairman points out, there are actually a number of providers providing considerably cheaper and highly accurate services. Interestingly there are also more expensive providers providing accurate services, so there is a spread across the market.

Q119 Rob Marris: We heard earlier about uSwitch; is there a kind of "uEnq" that one can look up to find out where this information is, because if I ask you to provide it you will probably provide a similar answer that you did to Mrs Curtis-Thomas?

Mr Carter: We have published, we have done specific work on the Directory Enquiries market and as my Chairman has alluded to we have published that twice now and that is accessible on our website.

Q120 Rob Marris: In terms of costs and accuracy?

Mr Carter: Costs and accuracy.

Q121 Rob Marris: Is on your website?

Mr Carter: Mm. Well, it was; whether it is still on the site today, again, I do not want to mislead you but it certainly was.

Q122 Rob Marris: You can do that for Directory Enquiries but not for the mobile phones?

Mr Carter: To be clear, we did it at a point in time ---

Q123 Rob Marris: As a snapshot.

Mr Carter: We did a snapshot at a point in time. We do not claim that it is up to date market priced accurate information. We did two depth pieces of research at specific points in time.

Lord Currie: The reason for that was obviously to address the concerns about developments in this area.

Q124 Rob Marris: So how does the consumer find out, given if you call up these people they will probably charge you for the call?

Mr Carter: Ultimately you find out in your bill.

Q125 Rob Marris: It is a bit ex post facto is not it, to be an informed consumer?

Mr Carter: It is ex post facto but, again, it is like most markets, that is ultimately how you find out whether or not you have paid too much for the service you have just bought, and you then do not buy again.

Q126 Rob Marris: Hang on; in most markets I usually know the price before I buy the service.

Mr Carter: And you would know the price in that instance.

Q127 Rob Marris: How do I find out, that is all I am asking?

Mr Carter: Increasingly what most people are doing is doing it on line where they pay nothing.

Q128 Chairman: If I were going to go on to your website to check the price and accuracy I am better off going on to the free services on the Internet.

Mr Carter: Indeed.

Q129 Mr Evans: Stephen, I know you were very careful to say that it did not happen under your watch and if I were sitting where you are I would say that too and perhaps emphasise it even more because the impression I get is that most people out there think that it could have been done better.

Mr Carter: I mean, I ---

Q130 Chairman: We will take that as a yes, shall we?

Mr Carter: Possibly there are definitely lessons to be learnt from it and we have been pretty public about those lessons and I think that is the way we have approached it and the research has given us some quite good tips about if you are going to liberalise the following markets how do you do it in a more measured way, and one of the key lessons that comes out of it - slightly relating back to the lady's question - is about consumer information. One of the thing that happened when that market was liberalised was previously everyone had got used to 192, a single service provider that had been around for a long, long time, and then there was a flurry of new providers who were all arguing their own case; but there was no neutral point of information at the point of the transition. So, for example, if you go back to our proposals on retail price control deregulation one of the things that we are proposing there is that over the summer period if we do deregulate retail price controls we will have a public information campaign explaining that change of rules, so that there is a neutral point of information at the point of the transition. That was a lesson we learned out of Directory Enquiries, so we have tried to learn lessons where we can.

Q131 Mr Evans: You said that you can name three of the numbers. I could only name one this morning when I started to think myself and it is probably the one of the three that you can name.

Mr Carter: Very probably!

Q132 Mr Evans: So would it not have been better in some regards to have treated 192, which was hugely popular, you could say that everybody knew the number and it was cheaper in many respects than some of the services that are currently available - and I agree with Claire that for the vast majority of people out there they do not have the faintest idea what they are paying for Directory Enquiry services when they get through - to have controlled it or regulated it somewhat like Camelot and then put it on the market every seven years for somebody else, like a franchise?

Lord Currie: That would have been another approach to deregulation, that is certainly right. It is worth recalling that quite a lot of people did not appreciate that they were paying for 192 calls under the old regime, so the old regime is not necessarily rosy in the way it is looked at.

Chairman: It was kindly priced, just below the sum that showed an itemised bill, I think, so that you did not know - 49 point something pence!

Q133 Mr Evans: Can I ask you, Lord Currie, looking at the options and the franchise route; do you think that would have been better for the consumer?

Lord Currie: I do not know. It certainly would have been an alternative but I am not sure that it would necessarily have been an appropriate way for transition because what we now have is a regime in which any new entrant could come in, and they will only do that if they have a sensible business case. But I think that is a better regime than one where there are only a certain limited number of franchises.

Q134 Mr Evans: The vast majority of people are using just two of those numbers and the majority just one because that is the one they know.

Mr Carter: You raise very interesting questions. On a larger scale this is what the cable industry has just gone through in 20 years - 110 multiple service operators rationalised now down to one. You could ask in retrospect was it a good idea to licence 110 MSOs? It probably was not but at the time I am sure that it was done out of a desire to drive regional infrastructure at a local level in individual geographies; I am sure that was a well-intentioned decision. It is a very interesting area this question about what is the optimal level of competition and when does a small number of competitors become a kind of collusive market, and you always have to be alert to that, and what you are seeing in Directory Enquiries is the customers aggregating in the main - not entirely - around three or four providers.

Q135 Mr Evans: Can I ask one final question on it, which is do you not think therefore that it would be useful, because you said people find out how much they have been charged when they see it on their bill, that before the number is give people are told how much they are going to be charged for the information?

Mr Carter: It would undoubtedly be useful but whether or not we should mandate it, which I suspect is what is behind your question, is a question I would like to take away.

Q136 Mrs Curtis-Thomas: I have heard some very interesting language to defend some of your actions and I quite like it, simply because it appeals to what I want. You talk about a neutral point of information, and then you have talked about the need for visibility in terms of pricing. You have also referred to the fact that you have made the charges associated with Directory Enquiries available on your own website, which is interesting, but when I searched for comparison of Yellow Pages or Directory Enquiries charges your website did not come up to provide me with that information.

Lord Currie: I think there is an important distinction that Stephen was making between informing people at the point of, in effect, a regime change, moving from 192 to a variety of 118 numbers, which is what Oftel, we felt, should have been done more, and which we have been aiming to do in other products, from providing information on a continuous basis in an established market. The latter is a very difficult task technically and probably almost impossible to keep up to date, and we are not clear that that is the role for us to be doing that.

Q137 Mrs Curtis-Thomas: I am rather confused, you see, because there are a huge number of gas, oil, electricity and energy providers in this country and yet that task is managed by them, but it seems to me that you cannot even manage it for the Directory Enquiries service providers. I do not think that is rocket science, I think it can be done and I think that it needs to be done to allow people, in your own words, to have a neutral point of information in this very important and costly area, and it is costly for lots of people. Why are you running away from what seems to be a very reasonable ask on behalf of the people of this country?

Mr Carter: I suspect we are not going to agree on the question of how much consumer information should we provide. I will say three things and my Chairman may wish to add in. Firstly, we give this a lot of time and discussion within Ofcom as to where and when we should provide a neutral point of information, and on three or four occasions we have done it. There are specific reasons why we have done it and normally they have involved either a market transition or a particular investigation where there has been a high level of abuse, where there has been a consistent record of failed delivery by the operators. We have decided not to set ourselves up as a permanent independent broker of information across the entire market, for two reasons: firstly, because it would be substantially resource intensive and we do not have the resource to do it; secondly, because we do not believe it is technically doable; and thirdly, there are alternative providers in the market who do it - there are commercial providers. If it is the case that they do not in the areas you are interested in then clearly that is an issue that we should take up with you separately and we can look at the specifics of the case upon which you are asking us to provide more information.

Chairman: I am going to cut off here, if I may, because we have three minutes and there is one area left and it was prompted by something you just said there, Stephen. I was going to say let us move on to telephone numbers, and I did not mean the numbering plan, but your budget because you said you did not have enough resources. I think John Whittingdale, my fellow Chairman, has a few thoughts about resources.

Q138 Mr Whittingdale: Yes. Stephen, in your message of your parliamentary bulletin you proudly tell us that Ofcom will deliver for less and you point out that you have achieved a real terms budget reduction for the third consecutive year, which is commendable. But your budget is still nearly £130m whereas the budget of the Telecom Regulator in France is £12.9m and the US Federal Communications Commission, which does include broadcasting, which I accept the French one does not, manages to cover the whole of America with £170m. Why are you so expensive?

Mr Carter: You speak from a position of knowledge I do not have, Chairman, on the French ART and FCC comparisons, and I will very happily go to France and indeed go to Washington and do the analysis and come back and answer your question.

Q139 Rob Marris: Just do not call home when you are there!

Mr Carter: We will go next year, it will be cheaper! What I can comment on with some degree of authority is how the numbers compare to the previous costs of doing regulation in this country, which is what we are responsible for; I do not know the reach of the US and the French authorities but I suspect that they are substantially different although the names and descriptions may suggest similarities. When I do compare them to the previous costs of regulation in this country we are as we say.

Q140 Mr Whittingdale: I was on the Committee considering the Communications Bill and one of the main justifications was the streamlining and reduced overheads that bringing together five regulators into one would achieve, so it is not surprising that you should at least come in slightly below, but you are far higher in your costs than other regulators like Ofgem and Ofwat and it appears that you are far higher than almost every other country's equivalent regulator. Are you actively seeking to achieve rather greater reductions in your budget?

Lord Currie: I think we are certainly looking to achieve economies over time and I think the reduction in costs that we have seen have been quite significant. It is worth recalling that we do have loan costs which come from the creation of Ofcom, the transition costs that arise from that. I would make the point that cheap regulation can be very expensive and I think that one of the things we have strived to do - and on which I hope we have delivered - is to have a highly professional, highly expert approach to regulation to ensure that within our regulatory body we have people who know the industry that we are regulating, and I think we are looking to achieve that but I think we are above all aiming to deliver very effective regulation because the truth of the matter is that the pay-offs we get from a well-regulated communications sector, which is so vital for the economy and for society, are huge relative to the regulatory costs of our organisation. That is not to say we are complacent about the costs, we are able to drive them down; but above all else it is important that we deliver effective regulation.

Q141 Mr Whittingdale: Can I press you on one aspect? I would be the first to admit that Parliament tasked you with a very large number of jobs to achieve within your first 18 months. Most of those have now been achieved and therefore one would expect that your need for resources would diminish, and in particular staffing numbers might diminish. But in actual fact starting numbers have gone up in the last year; why is that?

Mr Carter: Have they?

Q142 Mr Whittingdale: The figures we have are that in 2004 you had 727 members of staff and that in 2005 it went up to 753 in addition to 30 secondees from the DTI.

Mr Carter: Okay, I understand the point. As the Chairman alluded to, I think by the end of next year we will have virtually paid off the £55.5m loan that is set-off as well as dealt with the pension deficits which we inherited, which is a not insubstantial achievement, as well as taking the vast majority of the payroll of defined benefit pension costs and therefore capping that liability. So the ongoing running costs of the organisation are in a substantially healthy place. On the headcount point, the budget headcount for 2004 was 820 - we ran below headcount. I think our current headcount is about 760 and will stay there or thereabouts. As to further reductions, if you wanted to substantially downsize the organisation, just for the record the five previous regulators that we took over had 1200 people - we have 740. If you wanted to substantially downsize it Parliament would have to substantially rethink what it wants us to do. We are spending about £20m over the next three years to put in place integrated IT systems and that will give us some further headcount savings but not of a massive order of magnitude, Chairman. If I may, I think the "Of" comparison is not a helpful one. If you do an analysis of what Ofgem do and Ofwat do and what we have been asked to do they really are apples and pears comparisons - I am not saying one is lesser or higher, that is not the point - they are very, very different tasks, and that requires different people.

Lord Currie: Could I just add to that? The notion that somehow we have done things and therefore that is it I think is not right. Take telecoms, yes, of course, we have conducted and completed our strategic review of telecoms and we have undertakings from BT as a result of that. But we are now in the process of actually implementing that and really making that work. That is resource intensive in a different way from the previous work, and I think that is true of many of our areas of work, that actually we have done some hard strategic thinking but operational delivery is every bit as important.

Chairman: Because you have been such good witnesses and because actually I know that in general you are held in very high regard by the industries that you serve - and it is fair to say that - I am reluctant to let your chief tormentor back in again, but I am going to give Rob Marris the chance of the last question!

Q143 Rob Marris: I would expect - and do correct me if I am wrong - that the business you are in is in a sense a service industry and is very people intensive. You, Mr Carter, said that you were wary of comparisons with Ofgem but the figures we have - and correct me if I am wrong - is that Ofgem have 305 employees and a £34m budget, you in the corresponding year had 727 employees, just over twice the number, but you had four times the budget in round terms at £130m, and that does seem to be quite a large discrepancy. Either your staff are getting twice as much, which is a possibility and they may need it in your sector, or you are spunking away the money on something else. Which is it?

Mr Carter: I am sorry to be unhelpful, I am not in a position to knowledgably comment about the cost of running Ofgem. I can knowledgeably comment about the cost of running communications regulation and whilst I take the question it is not a comparator I can manage to; I can only manage to where we started from and where we started from we are now going into the fourth year of reducing our costs of between 7% and 10% a year as well as taking our headcount down by 60%. Could we do it further? I have to tell you that I cannot see further substantial reductions. It may be that the tasks that Ofgem are asked to do are substantially different but I am afraid I am not sufficiently knowledgeable on that question to be able to mention it.

Q144 Rob Marris: Do you think then we need an "Ofof to regulate the regulators if you are on the face of it twice as expensive?

Mr Carter: There are friends of mine who often say we could deal with another type of "off" that we could do with! I do think regulatory accountability on the numbers is important. At the moment we are subject to three external forms of scrutiny in addition to the joint parliamentary; we have two NAO studies being done on us at the moment, one a purely financial audit on the financial costs associated with the merger, one a value for money audit being done on the way in which we spend money, which I suspect rather goes to your question; then, thirdly, there is an independent case study being done on what lessons can be learned from regulatory mergers that could be transferred to other public sector mergers.

So we are certainly not sort of scrutiny and all of that we are doing within our existing budget.

Rob Marris: I am pleased to hear it, thank you.

Chairman: Gentleman, thank you from your joint Chairmen. Thank you very much indeed and we look forward to seeing you again next year.