Examination of Witnesses (Questions 1-19)
LORD CURRIE
OF MARYLEBONE
AND MR
ED RICHARDS
22 APRIL 2008
Q1 Chairman: Good morning. Gentlemen,
welcome to this now annual event, the review of your Annual Plan,
which gives us the opportunity to range quite widely over Ofcom's
responsibilities and issues. This year we are reversing the order
and the Business and Enterprise Committee is beginning and the
Culture, Media and Sport Committee will come second, so telecoms
first and broadcasting second. As I always do—although perhaps
it is a little unnecessary on this occasion—can I ask you
to introduce yourselves for the record and perhaps say a little
bit about your Annual Plan in overarching terms?
Lord Currie of Marylebone: I am
Lord Currie, Chairman of Ofcom. On my left is Ed Richards, the
Chief Executive. You have the Annual Plan; I think it is a continuation
of what we set out last year. It sets out very clearly our major
objectives and we are very happy to answer questions on any aspect
of that or, indeed, any other aspects of Ofcom's operations.
Q2 Chairman: Members of my Committee
gave you a fairly rough ride on a couple of issues last time round,
one of them was mobile phone number portability. I think you may
have some good news to report on that front, if I am right.
Lord Currie of Marylebone: Yes,
indeed we have made significant progress on that, although it
is fair to say we are subject to litigation on the question and
that may well slow us down, which would be very unfortunate since
we believe number portability is very much in the interests of
telecoms' consumers in the interests of developing a much more
competitive and effective telecoms market. It is unfortunate that
we have been litigated. It is a more general aspect of Ofcom's
life that litigation is on the rise and inevitably it slows down
the processes of policy formulation and implementation.
Mr Richards: Just to enlarge on
that briefly, we have moved to two day porting from five days
already, so there has been very substantial progress. By September
2009 we want to move to two hour porting. That is, as David says,
very clearly in the consumer interest; we believe in it very strongly.
It will move the UK to amongst best practice in the whole world,
where we are currently not placed. It is very unfortunate that
a mobile phone operator is seeking to stop this through the courts.
Q3 Chairman: Certainly members of
my Committee would encourage you to be robust in pursuing your
timetable; it is very desirable indeed in terms of competition
in that very important sector of the communications industry.
We also pressed you quite hard on what was a very lively issue
a year ago—I have had a few constituents bringing it up
again very recently actually—which was direct debit discounts
and the issues around there. There is some change there that you
would like to report on.
Mr Richards: Again we have done
a very substantial piece of work during the course of the last
year and have reached a series of important policy conclusions.
On direct debit we have agreed with BT that BT are going to introduce
something called BT Basic which will provide the core protection
to all low income users such that there is no premium for not
paying by direct debit for low income users (pensioners and income
support families). Outside of those low income users where we
felt the risk was greatest in relation to people not having bank
accounts and things of that nature, what we have said is that
if there is to be a direct debit discount then that must be very
clear and transparent to all consumers. If it is very clear and
transparent and therefore people are able to exercise choice in
the market, then such discounts are legitimate. That has been
the central finding on direct debit. However, in that piece of
work we also looked at other areas of very significant consumer
concern, one of which is the issue of early termination charges.
Very interestingly the number of calls that we have had through
our call centre on this has grown very substantially over the
last 12-18 months which has demonstrated very clearly that it
is a significant issue. What we have said on early termination
charges is that they should never be more than the rest of the
contract. In other words, they cannot exceed what people have
signed up for and where any of the costs that are still outstanding
can be avoided then the company should avoid them. That again
is a significant change which we think is very clearly in the
consumer interest. That is being consulted on at the moment and
we expect to issue a statement before the summer.
Q4 Chairman: One of the other issues
we cross-examined you on last time round was the digital dividend
review. I had a particular interest in the programme making and
special events sector (PMSE). Can I thank you publicly for the
enormous changes you have made there which I think largely address
the concerns of the sector and safeguard pop concerts, broadcasting,
theatre and so on. There are still a few loose ends to tidy up
there again. It is getting fashionable at Prime Minister's Question
Time to ask Gordon Brown to have a meeting to discuss something;
Ed, can I ask you if I can have a meeting to discuss with the
industry the final remaining loose ends to make sure the package
is actually finally sorted and not trouble the Committee with
the details today.
Mr Richards: I would be very,
very happy to do that; it is important to resolve everything such
that people feel that there is a secure future for this very important
sector.
Q5 Chairman: There is one slightly
bigger issue with the DDR which I think does need to be addressed
in public at this stage. You say in your draft Annual Plan that
you will be conducting the major awards for spectrum allocation
at the auction in 2009, but the final Plan does not say that.
The PMSE sector itself says that leaving it until 2012 would be
a good idea to safeguard the London Olympics and also individual
players in the mobile phone sector, for example, say that leaving
it to 2012 is a good idea. Apart from anything else, it is interaction
with the European harmonisation proposals. Where are we on the
auction of the digital dividend spectrum?
Mr Richards: At the moment we
are still proposing to conduct the auction in 2009. There are
arguments for a delay, some of which are articulated by the organisations
that you describe. There are very strong arguments on the other
side as well. Clearly if you delay the auction as soon as any
of that spectrum becomes available in a sense our duty is to bring
it into valuable economic use. Every month that we delay is a
delay to that economic use. Our general instinct on this is to
try to release the spectrum for use as soon as we can, consistent
with any broader arguments that will be made to us. I am sure
those arguments would be put to us again during the course of
the next few months; we will listen very, very carefully to them.
Our instinct is to get the spectrum into the market for good economic
use.
Q6 Chairman: Are you in discussion
with the Olympics Delivery Authority about safeguarding spectrum
to make sure they can be properly covered?
Mr Richards: Yes, very much so.
We have had a series of meetings with the organisations preparing
for the Olympics. I have met Tessa Jowell to discuss the spectrum
issues; they are very significant issues and there is a long way
still to go on those issues. There was a very clear commitment
given in relation to the Olympics and that is one that the UK
must honour so we are working very closely with those agencies
to ensure that we can do that. It is a non-trivial task; it is
worth emphasising that. It is not a situation where you can click
your fingers and produce the spectrum that is required.
Q7 Chairman: Or the equipment.
Mr Richards: Or indeed the equipment.
You have a situation where you are going to have literally hundreds
of organisations wanting spectrum—whether it be security
forces or broadcasters—right the way across the range of
those involved in delivering successful games. It is going to
need a lot of preparation and a lot of collaboration between now
and then.
Lord Currie of Marylebone: We
can, I think, learn from the Chinese experience in planning for
this. I was in Beijing recently and got a commitment from the
Chinese to allow us to monitor what they are doing so that we
can learn the lessons from their experience in this area.
Q8 Chairman: So the 2009 figure is
still your target but you are in discussions about whether you
will actually change that target.
Mr Richards: Yes, we need to listen
to all those arguments and if compelling arguments for a different
date emerge then clearly we will want to take account of those.
At the moment we do not feel that those are yet persuasive but
things could happen at a European level, things could happen at
an industry level, so of course we need to be alert to those changes
as we make final decisions.
Q9 Chairman: You are required to
be leaner and meaner, your budgets are being cut, so is it really
a sensible use of these very valuable resources—tax payers'
money—for you to produce research that categorises users
of Facebook and MySpace into alpha socialisers,
attention seekers and the like? Should you not be sticking to
your core function as a regulator?
Mr Richards: In all honesty I
genuinely believe that one of the things that we do quite well
is, through market research, understand the communications sector
that we have to regulate. I think a historic weakness of regulators
across a variety of sectors in the past was not paying enough
attention to understanding the markets they regulate because then
they were not making properly informed decisions and were not
making necessarily good decisions. We have put a lot more money
into research and in a sense we have done so unashamedly. I hope
we have a good reputation for understanding the markets that we
regulate and I think that is the only way you can make good decisions.
In relation to social networking and issues of that kind, that
is one of the most explosive areas of growth in content and in
terms of the use of the networks that we regulate.
Q10 Chairman: You do not regulate
the Internet.
Mr Richards: We regulate the networks
of the Internet.
Q11 Chairman: Not the content.
Mr Richards: We do not regulate
the content but we need to understand how content is changing,
how it is consumed and what it means to different people in order
to then make intelligent judgments about things like public service
broadcasting. As consumers, viewers and listeners we are just
consuming and enjoying media. We have a specific responsibility
in relation to radio and television but you cannot understand
that and make good decisions unless you understand what is happening
in the broader communications market and that includes content.
Lord Currie of Marylebone: You
said that our budgets are being cut but I should emphasise that
that is a decision made by Ofcom; we set our budget and we believe
we can deliver cost effective regulation but it is a decision
made by the Board.
Chairman: Thank you, I am grateful for
that clarification.
Q12 Mr Wright: Turning to the question
of broadband, it was not that long ago when constituents of mine
were complaining that they could not get broadband. Now it has
turned round to the speed of broadband and there is certainly
growing customer dissatisfaction with the speed bands not matching
up to what has been advertised. What is Ofcom doing about that?
Mr Richards: I think that is a
very accurate description of the way consumer concern has changed.
We have now been able to ensure slightly in excess of 99% availability
which is as good as pretty much anywhere in the whole world and
now, you are right, the issue has turned to advertising saying
that up to 8 Mbps or up to 16 Mbps should be received but that
is not happening. We have certainly noted a growing level of concern
about this. What we have done on this is that for the past two
or three months now we have been in collaboration and discussion
with industry. What we have asked them—in a sense challenged
them—to do is to sign up to a voluntary code on broadband
speeds. We are deep in discussion with them at the moment. I would
say that some of those discussions are difficult and I hope that
we will get there. We think it is very, very important that such
a voluntary code does exist which will feature things like commitments
about clarity and clear communication and accurate information
to consumers, so you are actually told what your access line speed
can deliver and not sold 16 Mbps if actually your access line
speed is simply not capable of delivering more than two. However,
it is very challenging and if the Committee feels this is an important
issue it will certainly help us to send the signal that this is
something that consumers care about and in which industry needs
to step up to the plate on because I am not yet sure we will be
able to deliver a voluntary code. If industry does not agree a
voluntary code then clearly we will have to move further to mandatory
codes; that will take longer. What we should do is move quickly
and swiftly to a voluntary code.
Q13 Mr Wright: I am pleased to hear
that if they cannot negotiate with a voluntary code then you are
going to look at a mandatory one. If we are looking at the timescale
here, what is the timescale that you are looking at for them to
sign up? Are you going to give them a deadline or is it just going
to be on-going negotiation? As time goes on, as you say, we are
going to lose that window of opportunity to press the service
providers to give a service which the customers quite clearly
are not getting in many cases.
Mr Richards: I would like to be
able to get industry to sign up to a voluntary code in the next
few weeks. I think this is a near term issue which needs to be
dealt with now. We have done a lot of work on this over the past
few months. Of course there are different perspectives amongst
different industry players but we have done a lot of work on it
and I think we should aim for a voluntary code in the public domain
in the next few weeks, not months. That is the aim.
Q14 Mr Wright: So to get it on the
record, by the end of June we would expect a voluntary code in
place.
Mr Richards: There is still some
work to be done and I cannot guarantee a voluntary code. This
is the point I want to underline. I cannot make industry sign
up to a voluntary code. We can do everything we can to pre-consult
with them, discuss with them, listen to their views—which
we are doing and have been doing—but ultimately a voluntary
code is a voluntary code. It is up to industry to accept that
this is a big issue of consumer interest and to sign up to such
a code. We would aim to do that in the next few weeks.
Lord Currie of Marylebone: Clearly
if we do not succeed in getting industry to sign up to it we have
to then think about what alternatives there are to a voluntary
code.
Q15 Mr Wright: Surely part of the
negotiations about getting industry to sign up to this voluntary
code is the threat that if they do not sign up to this voluntary
code this is what you are going to do. Now is the time to do that
rather than waiting until all negotiations are exhausted. Surely
that is the message to send out, that if you do not do this by
such and such a date then you will put in place mandatory powers
to force them into that position.
Mr Richards: Clearly that is part
of the overall picture. Generally speaking on these things it
is better and quicker if you can get industry to sign up to a
voluntary code and that is what we would definitely prefer to
do. I am highlighting it because it has proven slightly more difficult
than I had hoped to find consensus and therefore it is possible
that we will not be able to and, of course, we have to reserve
the option that you are describing.
Chairman: I think we would encourage
you to be robust in your negotiations to get a voluntary code
if possible.
Q16 Mr Weir: We have seen the success
of the BBC's iPlayer and similar types of things and that seems
to be stretching the capacity of the existing broadband network.
Do you think the main telecoms providers are being short-sighted
in stating that they do not yet see a business case for investing
in next generation networks?
Lord Currie of Marylebone: It
may well be that over the next two to three years we see a business
case emerging for investment in next generation access and we
may see a number of experiments. The thing which has struck me
over the time I have been in this position is just how good we
have been at stretching the copper wire and making it do more
and more. Clearly there are limits to that but they seem to be
ever more elastic. That of course does reduce the commercial case
for investment in next generation access. I believe we are going
to see a rise in demand; I believe we will see a case developing
and we will see investment coming, particularly if cable delivers
on its promise of very high speed broadband. That will be a driver
which will force fixed line operators to invest more heavily in
access.
Q17 Mr Weir: With the expansion of
the iPlayer, Sky and all the rest of them, you are going to reach
the saturation point long before the network is in. Cable is all
very well, but my experience of cable is that you get it in the
urban areas but outside that it simply does not exist so the rest
of us are reliant on the old copper wires, if you like, and there
has to be massive investment to get that greater use into all
areas of the country. That has to be done before the system collapses.
Mr Richards: There will have to
be changes. As David says, over the next two or three years you
will see changes. What is essentially happening is that new software—iPlayer
is effectively a form of software—is coming into the market,
people are enjoying them, they are using them, they are placing
heavier demands on the networks. In those circumstances people
want ever faster speeds, they want ever greater downloads. Over
time what you will see happening is different price bands arising
for different speeds and download capacities. That is exactly
what you would expect to happen. As a result of that you will
see change.
Q18 Mr Weir: It is not just price,
it is capacity. If you have someone living in my constituency,
largely rural, who does not have access to cable, the only way
they are going to get these services is through the copper network.
If you have iPlayers, iTunes and everybody else going online to
download music instead of buying it in the traditional way, then
how long can the existing network cope with that before it just
seizes up completely?
Mr Richards: The connection I
am trying to make is between price and the network. No-one is
going to upgrade the network for free. These are businesses running
the networks. If your constituents want more capacity, a higher
grade network—that is the case for consumers across the
UK—there is a financial cost associated with upgrading to
deliver greater capacity and the business models for the different
companies involved in this will have to adjust. Different prices
will arise in order to ensure that there is revenue to cover the
costs associated. I think that is what will happen. In a sense
it is what we saw happen when broadband arrived. There was a new
service with first generation broadband, it was put into the market,
it involved investment and people paid for it.
Q19 Mr Weir: Is it not the case that
broadband only became widespread when the Government also stepped
in to pay for it?
Mr Richards: No, that is completely
untrue. That is absolutely not what happened.
Mr Weir: That is not my recollection
of what happened.
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