Select Committee on Business and Enterprise Minutes of Evidence


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 preserve—regional 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 time—something round about £65 million—is 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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