Examination of Witnesses (Questions 80-99)
LORD CURRIE
OF MARYLEBONE
AND MR
ED RICHARDS
22 APRIL 2008
Q80 Adam Price: One of the key factors
in evaluating the relative advantages of the different options
would be the amount of money that we are talking about. You have
suggested, in relation to the top slicing scenario, the possibility
of using the ring fenced digital switchover monies which suggests
that you have in mind a figure around about £100-£150
million. Is that a fair assessment?
Mr Richards: Not necessarily,
no. The reason we drew that distinction was not because we had
a certain amount of money particularly in mind, it was because
we wanted to draw a distinction between what we call the excess
licence fee and core licence fee. One of the arguments that is
made in this area is that if you consider a wider distribution
of the licence fee it could only ever come at the cost of the
BBC services. That is clearly not right because we are all paying
the excess licence fee and it is there to fund digital switchover.
Once digital switchover has taken place that funding will be available
and you could do one of three things with it: you could reduce
the licence fee (that money is no longer necessary so the licence
fee could go down); you could let the BBC spend it all on more
BBC services; or you could use it for other purposes to support
public service broadcasting. Those are very clearly the three
options and we wanted to draw a distinction between that and what
you might call the core licence fee which is being spent on actual
BBC programmes and services where clearly you would have to have
a different kind of debate which would be: is using that money
for something else better than the current use of it by the BBC?
Lord Currie of Marylebone: Ultimately,
how much money is needed is a choice. We can look at the range
of PSB programming that you want to preserveregional news,
children's programmes -and we can order them. How far down that
list you wish to go determines how much money you will need to
sustain them. There are choices here and so the Government's decision
that we will be posing in due course is: do you want to go down
this road of having an alternative to the BBC and how much do
you want to fund it? That will be the choice.
Q81 Janet Anderson: I wonder if we
could turn to the question of local, commercial radio. You obviously
recognise the challenging economic climate now facing the radio
industry and local radio stations have been struggling recently.
Would you re-visit your licensing policy and the requirements
for local content if there is clear evidence that large numbers
of stations are not financially viable?
Lord Currie of Marylebone: There
is a duty placed on us in the Communications Act by Parliament
who place great store on the localness of provisions in radio.
The evidence is that it is valued. Simply to water that down would
be to run away from that duty. Clearly there is a commercial pressure
on radio and we need to think about ways in which we, as a regulator,
can assist them in that position.
Q82 Janet Anderson: So you think
there might be other ways of assisting them.
Lord Currie of Marylebone: We
are looking at DAB and the way in which DAB is organised; there
may be things we can do in that area. Running away from a localness
requirement may not be the answer.
Q83 Janet Anderson: That brings me
onto DAB. There seem to be different views about the future of
DAB radio. Some people think it is an economically viable platform
and others do not. How do you feel about that? Do you share those
concerns or do you think the problems have been overplayed?
Mr Richards: It is very clear
that the DAB business needed to restructure and change. That is
a different question to whether we think it has no future. We
would not accept that. We think there is an economically sustainable
path for DAB. There are 6.5 million sets out there.
Q84 Janet Anderson: Is that 16% of
households?
Mr Richards: That is right. We
think there is an economically sustainable path but we also take
the view that it did need to restructure. GCap's decisions in
this area have forced that restructuring. You will see changes
to the services and you will see changes to the cost structure
but in our view at the moment we can see an economically sustainable
future and that is one we would support. DAB offers a very important
service which listeners who have it generally value very highly.
It is one of a series of important digital platforms. Digital
listening is expanding all the time, whether it be through DAB,
the Internet, digital television and so on and so forth. I think
we see it as an important part of the future for digital radio.
Q85 Janet Anderson: What would you
say is the most attractive thing about DAB radio? If you were
trying to sell DAB radio to someone, what would you say? Why should
they buy one?
Mr Richards: Personally I think
the most attractive thing is the ease of selection of stations,
the ease of just turning and selecting is fantastic. I think there
is an issue about the sound quality at the margins of the coverage,
but if you are in a good quality area the sound quality is excellent.
Many people I know, once they have a digital radio in a good quality
reception area, regard it rather like a toaster. They say, "I've
got that now and I'm never going back; the sound quality is great".
There is also a broader range of services which I think are attractive
as well. It is the only way that you can get some of the BBC digital
services and access to some local commercial stations which are
made available on the national mux or the regional and commercial
muxes. I think there are a variety of reasons to believe that
it is an attractive service but it needs to be economically sustainable
and that is the process that we are going through at the moment.
We are optimistic about that.
Q86 Janet Anderson: The Digital Radio
Working Group, which I believe Ofcom is a member of, what is it
doing?
Lord Currie of Marylebone: They
are looking at a range of issues about the future of radio, one
in particular is the whole question of analogue switch off. Parts
of the radio industry argue that we should be considering analogue
switch off for radio as we are doing for television. Radio is
in a very different place. You mentioned the percentage of households
that have digital, whereas nearly 90% of households have digital
television. It is a more difficult issue but it is one that is
being considered, amongst others.
Q87 Janet Anderson: How long do you
think it is going to take to persuade more households to take
on digital radio? How many years are we talking about, do you
think?
Mr Richards: For sure years, and
I think a lot depends on the current restructuring. What is the
service proposition to people coming out of that? Is there an
improvement in coverage? Can we raise the coverage level from
85% or 90% at the moment to more like what television is? Can
that signal be more robust? Are there new services available as
a result of that which people might be attracted to? Probably
in the next three to 12 months we will see what the proposition
looks like and then see how consumers respond. There have been
some very considerable successes. There are millions of sets out
there and many people are very happy DAB listeners. There will
be a restructuring. I think it is entirely plausible there will
be some form of industry relaunch and we will take it from there
and see how much momentum is created.
Q88 Rosemary McKenna: Our inquiry
into Quiz Call television about 18 months ago astonished us with
the outfall from that because the one day that we held that inquiry,
only into Quiz Call television, allowed the whistleblowers to
come out and everything then came out after that. The fallout
is still going on today. You heard Lindsay Hoyle mentioning the
distortion in how children are being selected for programmes.
When you reviewed the framework for regulation of premium rate
services what persuaded you that ICSTIS and Phone Pay Plus was
worth retaining as a separate entity?
Lord Currie of Marylebone: We
looked very carefully at our relationship with ICSTIS and we have
made significant adjustments to it so that Phone Pay Plus is in
effect an agency for Ofcom working in this specialised area. We
have introduced processes that ensure that there is not a regulatory
overlap or confusion. As premium rate services migrated to mainstream
broadcasting I think it is fair to say that we did not adjust
the regulatory framework fast enough. We have now got the relationship
in this area right. That was one of the very important shifts
we made. We did not feel that bringing the organisation into Ofcom
would give us additional benefits, indeed we saw some downsides
from that. We are confident that the present arrangement is a
robust one.
Q89 Rosemary McKenna: There was a
lot of concern about the length of time that it took for ICSTIS
to actually come up with their recommendations or to complete
their inquiry. It certainly caused this Committee a lot of concern.
Mr Richards: I think the relationship
is much better now. That experience tested the relationship in
a way that it had never been tested before and, as David said,
I think it was found wanting. As a result of that we looked into
it and we have changed that relationship; they are much more of
an agency of Ofcom now rather than something which we cannot control.
That was the problem, that we saw these issues and we did not
find we could exercise effective control. That has changed. We
are confident we have got to a much better place. The reason for
not bringing them into Ofcom is that there would be real dis-benefits.
Outside of the Quiz area they do deal with difficult, complex
premium rate issues, many of which were on mobile which is a specialist
area and on balance we thought that they do that well, let them
carry on doing that well and we will make sure we have the strategic
relationship right such that if anything blows up in the way that
Quiz TV did we can intercede quickly and effectively.
Lord Currie of Marylebone: You
said the scams are still going on but I would like to get the
evidence. We have been very firm with broadcasters in saying that
they must clean up their act. Michael Lyons and I have both been
quite clear on that and if there is evidence we need to get it
and act on it quickly.
Q90 Rosemary McKenna: Are you satisfied
that the £2 million penalty imposed on GMTV was sufficient?
When you look at the income that they received at that timesomething
round about £65 millionis a fine of £2 million
sufficient to frighten off the others?
Lord Currie of Marylebone: The
maximum fine we could levy under the powers given to us is a little
bit above the £2 million mark but not very much more, and
that is certainly not commensurate with the £60 million.
Having uncovered it, GMTV did actually cooperate and act effectively
after the event.
Q91 Rosemary McKenna: Do you know
how much they have paid back?
Mr Richards: No, but I am sure
we can find out for you.
Q92 Rosemary McKenna: It would be
interesting to find out how much they have paid back to the individual
viewer and what proportion then was given to charity.
Lord Currie of Marylebone: Could
we write to you on that?[2]
Q93 Rosemary McKenna: Yes, we would
like that very much.
Mr Richards: It is worth very
briefly adding that we have not got to the end of this story.
There will be further announcements on other cases in the next
few weeks. I think there are about 20 outstanding cases. We hope
to get through it all in the end and be able to draw a line under
it by the summer, but in the next few weeks you will see some
further announcements and decisions in this area.
Q94 Chairman: Those announcements
are going to have a significant impact on the balance sheet of
the companies concerned. Everybody knows they are coming so why
does it take so long for you to reach a decision?
Mr Richards: Essentially it is
because they are quasi judicial processes and when we go through
these processes we have to gather the evidence, we have to provide
a case; the company is then allowed to come and put its own version
of events and quite often they come with QCs with piles and piles
of evidence. They can appeal the process. It is a quasi judicial
process and therefore it takes longer than we would ideally like.
We would like to have wrapped this up some time ago. If you are
talking about potentially fining people millions of pounds you
have to do it properly.
Lord Currie of Marylebone: I hope
by the summer we will have drawn a line under the past cases and
we can look forward to avoiding this type of scandal recurring.
Q95 Mr Hoyle: What is the maximum
amount of the fine?
Mr Richards: It varies because
it is 5% of turnover. It varies according to who the licensee
is. Unfortunately this is quite a significant complication. GMTV
is a separate licensee to ITV.
Q96 Mr Hoyle: What was the maximum
you could have fined them?
Mr Richards: That was about 3.9%
I think, so we could have gone up to 5%.
Lord Currie of Marylebone: About
£2.7 million.
Q97 Mr Hoyle: So you were a million
short of what you could have fined them to send a real warning
to the industry.
Mr Richards: I would not put it
like that.
Q98 Mr Hoyle: I will put it another
way then, that you were soft on them.
Mr Richards: No, I would not accept
that. You have to look not only at the offence but what has been
done in light of the offence. Actually GMTV took some quite swift
and serious action; various people were sacked and people left
the organisation. They put their hands up and so on and so forth.
You have to take into account those sorts of things as well.
Q99 Rosemary McKenna: That is absolutely
true; the BBC did not do that.
Mr Richards: You are right to
raise the BBC. The maximum fine for the BBC is far, far lower.
The maximum fine we are allowed to fine BBC is £250,000.
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