UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 494

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

business and Enterprise committee

and

culture, media and sport committee

 

 

ofcom annual plan 2008-09

 

 

Tuesday 22 April 2008

LORD CURRIE OF MARYLEBONE and MR ED RICHARDS

Evidence heard in Public Questions 1 - 110

 

 

USE OF THE TRANSCRIPT

1.	This is an uncorrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee, and copies have been made available by the Vote Office for the use of Members and others.
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Oral Evidence

Taken before the Business and Enterprise Committee and the Culture, Media and Sport Committee

on Tuesday 22 April 2008

Members present

Peter Luff, Joint Chairman

Mr John Whittingdale, Joint Chairman

Janet Anderson

Mr Adrian Bailey

Mr Brian Binley

Philip Davies

Mr Lindsay Hoyle

Rosemary McKenna

Adam Price

Mr Adrian Sanders

Mr Mike Weir

Mr Anthony Wright

________________

Witnesses: Lord Currie of Marylebone, a Member of the House of Lords, Chairman and Mr Ed Richards, Chief Executive, Ofcom, gave evidence.

(Peter Luff took the Chair)

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 to 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.

Q20 Mr Hoyle: I think we need a bit of memory jogging here.

Mr Richards: That is not what I believe happened. I think there were isolated incidences of government intervention in South Wales and in the Highlands and Islands, and there is an instance in South Yorkshire at the moment, South Wales being objective one and South Yorkshire being objective one. However, by and large, the 99.6% broadband basic coverage was delivered by BT as a DSL copper based provider in reaction to the initiative taken by cable who seized the market some years ago. By and large that is what delivered it. It was not government intervention that delivered that availability, or indeed that range of options.

Lord Currie of Marylebone: I think it is worth saying that you will start to see the same thing happening with faster speeds. There has been a 67% increase in usage over the year and operators need to make sure they have big enough pipes to let people do what they want to do. There is an acknowledgement of the issue by the operators and I think that realisation will grow.

Q21 Mr Wright: Bearing in mind the huge costs involved in carrying out this work, is it now the case that the public sector will have to take the lead on this rather than the private sector? Is it not the expectation that the public sector is going to pick up this tab?

Lord Currie of Marylebone: Clearly that is a decision for government, but I would have thought that the costs we are talking about here are very considerable and I think it would be an unnecessary use of public funds. If the commercial private sector can deliver a very large part of what is needed, as has happened with broadband, then we should let the market deliver and then government take a view on which parts the market will not deliver to. That is the approach we took on delivery of broadband; the same approach is relevant as we go for higher speed broadband.

Mr Richards: It is worth remembering what happened with first generation broadband. There were many, many people who said, "This broadband is fantastic, it's really important, but it will only ever reach 60% of the population and government needs to fund the remaining 40%". That was a commonly made argument at the time. In fact, the market and commercial operators delivered in excess of 99% and, had government intervened and used money at that point in time to fund the final 40%, it would have been essentially a waste of tax payer's money that could have been spent on schools, hospitals or whatever else you want to spend it on. In our view, in this generation, it might be the case that in due course there is a decision for government to make about that, but it is best to see how far the commercial operators will take it first in order to then make sure you are only paying for what is absolutely necessary for reasons of social inclusion. That debate will happen, it will take place and it is a very important one. However, I think it is important not to pre-empt what the market will provide by itself.

Lord Currie of Marylebone: Our task is to make sure that the regulatory framework gives clarity to allow commercial operators to make this investment. We need to make sure that regulation does not get in the way. It is not our task clearly to fund any such activity; that is not the business of regulators.

Q22 Mr Weir: You have talked about the 99% that currently get broadband, but if we are talking about going on to fibre optic connections what are the alternatives available for hard to reach households and businesses where it will never be economic to put this new system in?

Mr Richards: We do not know at the moment when it will never be economic. If you went back six to 12 months you would not have found a single person in the country who would have said that it was economic anywhere. That has already changed. You will already find people in all sorts of places saying that now they think they might be able to see a case in the urban areas. That will change again in 12 months' time. Technology moves on, the costs change, the revenue associated with services of that kind change as well. It is not a static picture; it will change. I am nervous about drawing lines about where it is and is not economic when the technology is changing and developing so fast.

Q23 Mr Weir: I understand that but the fundamental difference between broadband and fibre optics is that for fibre optics you are going to have to lay new cables by and large and it is going to be a very expensive process. Even in rural areas there was an existing telephone network that could take broadband with variations in the exchange, but fibre optics is fundamentally different. Is it likely that anyone is going to take the option of laying new fibre optic cables all over, say, the Highlands and Islands of Scotland?

Mr Richards: In the circumstances that we have a very expensive roll out of fibre optic cable beyond the exchange, it is highly likely that there are areas where it may not make economic sense to do it. That is why there will be a significant question about that in due course, but I do not think you should pre-empt it. Let us remember where we are. At the moment fibre roll out beyond the exchange in the UK is limited to new build like in Ebbsfleet and Wembley; it is only in new build. So it is not actually currently, beyond the commitment from cable, being rolled out anywhere. We have to get the core roll out and the core economics organised, people rolling it out in urban areas and so on as a first step and then see how far that will go. Just to illustrate again the uncertainty, we talk about fibre roll out beyond the exchange, there are two very different versions of that. There is fibre that goes to the local cabinet and there is fibre all the way to the home. The costs of those two things are completely different, so which are we talking about? One of them might be uneconomic, the other one might be economic. There are all sorts of decisions and all sorts of questions that need to be considered and answered before arriving at that final question which is where will the market not provide. We will get there and it is a question that we will need to address, and it is something that I think will emerge over the next two or three years. You are likely to be right; it is likely that there will be areas where fibre beyond the exchange is very difficult in economic terms and that will then throw up the question of what is the Government's policy on a broader inclusion universality question in relation to superfast broadband.

Q24 Mr Weir: You can turn that on its head and ask whether broadband would have extended so far had that network not already existed. That is still a fundamental question, that there was an existing telephone network built up by the GP over many years and that formed the basis for the extension of broadband. What I am hearing from you I think is that we are going to get fibre optics in the larger urban areas but the chances of getting beyond that are fairly remote, at least in the foreseeable future.

Mr Richards: I would not want to be as certain as that at this stage because the lesson from the current generation broadband is that we got a lot further than anyone ever anticipated.

Q25 Mr Weir: Because the network was already there. That was the main reason. You are not going to tell me that we would not have had broadband in the Highlands of Scotland had the network already been there.

Mr Richards: You are taking the extreme case and there is somewhere between your extreme case and the urban areas where there will be a line.

Lord Currie of Marylebone: It would be foolish to make a judgment on this at this point. This is a developing thing and we need to follow it through.

Chairman: We need to move on now but we will return to this next year with absolute certainty.

Q26 Mr Whittingdale: Can I put to you two observations that have been made in this field who might be said to have some vested interest in it? You will be aware first of all that Tiscali drew attention to the pressure being put on the ADSL network by the advent of the BBC iPlayer and suggested that perhaps content providers should make some contribution to the cost of the network. How do you respond to that?

Mr Richards: It is one version of how the network upgrades that people are talking about and that we have just been talking about may happen. It is not necessarily the only way it can happen and it is not necessarily the way we would anticipate it would happen. It comes back to the central question that if more people want more capacity the demand on the network is going up, investment has to go into the network, there has to be an adjustment and a change to the economic models that are in place in order to fund that investment. That is at the heart of what we are talking about. I am not convinced myself that the right answer to that is to get the BBC to pay for the use of the iPlayer because in a sense what is happening is that you and I, as consumers, are making a decision about what kind of content we want to access over our broadband connection. That is our decision and that places a demand on the network. However, in a sense that is the access demand we are placing so I would have thought that the most sensible place for that burden to fall - for that relationship to change and modify over time - is in the relationship between the organisations providing the network and you and I and the decisions we make about how much we want from that network. I would not rule out content led type models in which people pay for certain content in relationships with network operators as well. I think we are in a period of discovery at the moment; I do not think we know all the answers to these questions, as we have just been saying. This is a period of significant technological and market change; there is a lot of innovation in technology and in the networks, there is a lot of innovation on the content side of which the iPlayer is a very good example. YouTube is another example; YouTube is a far more intensive user of bandwidth and capacity than the iPlayer. People always refer to the iPlayer but YouTube has got extraordinarily high usage for video. All of this is unfolding at the moment.

Lord Currie of Marylebone: Although Tiscali did raise that question, other operators have disagreed with the proposition.

Q27 Mr Whittingdale: If it happened you would have to do it. It is difficult to see how an ISP could put a charge on the BBC. You would have to somehow put a levy on. Is that something you would at least consider as part of the overall development of this or would you just about rule it out?

Lord Currie of Marylebone: I rather doubt whether we have the powers to do that.

Mr Richards: I think we would be pretty disinclined to go down that route. The core relationship is the one I have described which is: what demand do you and I, or any other consumer or user, want to place on the network and we should then buy from the network operator in line with that kind of capacity. My mother has a far lower demand on her network than my young cousin who is peer to peer file sharing, using the iPlayer, using YouTube and so on and so forth; they are very different consumers. It is not like a uniform, homogenous telephone system of the past; there are very different consumers with very different patterns of demands. As in any other market you would expect the market to provide different services to those different patterns of demand.

Q28 Mr Whittingdale: Having poured cold water on that idea, can I put another suggestion to you? Ian Livingstone recently said that if BT were going to be expected to invest in next generation broadband they might have to be relieved of the universal service obligation. How do you respond to that one?

Mr Richards: It is a connection that is indirect rather than direct in my view. I think what Ian Livingstone was talking about was the broad range of change in the market and if you look at what is happening in the market BT does face more competition than it has ever faced; it has a lower retail share in broadband than any other incumbent in any other European country so it faces tougher competition in this country than probably any other European country. The point that Ian Livingstone was making was that in that situation at some point we are going to have to look at the distribution of the burden of the universal service obligation which currently falls square on BT. I think in that sense he is right. I would see that as having an indirect connection rather than a direct connection with the question of investment in next generation access. There is a question about what is the cost of the investment or the returns associated with it. You can see it as a stand alone question.

Q29 Mr Weir: Do you remain content with BT's progress to date in implementing its Undertakings and Strategic Review of Telecommunications?

Lord Currie of Marylebone: In very broad terms yes we are. If you look at the progress that we have made since the agreement on the Undertakings the transformation in the market place has been enormous. There have been something like four million unbundled lines, which is more than we were talking about when we entered into the Undertakings. There have been some technical breaches of the Undertakings of a small kind, but the broad direction of travel that BT has accomplished is very considerable.

Q30 Mr Weir: Are you intending to put any requirements on BT Group or are you happy with the way things are going?

Lord Currie of Marylebone: We do have to think what equality of input and equality of access means in the new world, as we move into the next generation networks and next generation access. There is a lot of work in thinking about what the Undertakings should look like in that future world and that is a task that is under way and a considerable amount of work is going on there. That is a very significant area of work.

Q31 Mr Weir: We have talked about next generation and the many providers of services, but they are all reliant on BT's system at the end of the day. Do you see yourselves pushing BT to move to next generation if you do not feel it is moving fast enough to allow other providers to provide services if they wish?

Mr Richards: What we have made clear in our consultations on this so far and in some comments we made on it two or three weeks ago is that we cannot force BT to do anything. It is a company and it has to act in its shareholders' interests; we cannot impose on it an obligation of that kind. What we can do and what we are doing is making sure there is a clear regulatory environment so people know where they stand on these investments and also ensure that there is scope for other companies to enter that market wherever that is possible. There are at least two or three different things we have done in relation to that but the most important thing is to start by reminding ourselves of what David said earlier which is that cable have already said that they will move to a 50 Mbps service which is a very substantial change and we will see what impact that has on the market. We have set out a proposal for what is called sub-loop unbundling which would allow other players to access the local cabinets and put fibre in beyond the exchange. We have also recently announced our intention to have a survey of ducts. What this would involve is sampling a range of ducts around the whole country and asking a question about whether that could provide a route to competition or market entry by other players, other than BT. In other words, if the ducts are shareable then they could be used by another party. This is precisely what has happened in France; it has been looked at and will happen in France. It is used in Germany and in Spain. We are now looking at that as well. The way we see this is that it is not for us to impose on anybody because I do not think we have the powers to do that, but it is for us to make sure that we are not leaving any stones unturned, we are exploring every avenue to make sure there is a contestable option, that innovation can take place and there are a range of providers who could offer these kinds of services. Clearly BT are an important part of this story, but I do not think they are the only part of the story.

Q32 Mr Wright: In terms of the mobile spectrum usage, how have Vodafone and O2 responded to the proposals to liberalise usage of the 2G spectrum, in contrast to Orange and T-Mobile?

Mr Richards: They disagree with our current proposals, O2 and Vodafone; others agree with them. T-Mobile and Orange are more in agreement and some do not think we have gone far enough. It is worth going back and just asking ourselves why we are doing this. It is a difficult policy area and there is no easy answer. The reasons we want to push forward with second generation liberalisation are two-fold. Firstly, allowing liberalisation of those licences will allow that spectrum to be used for a range of other services, in particular 3G services, mobile broadband. It will allow much cheaper roll out and a much wider roll out of 3G services of mobile broadband across the country. There are very significant economic benefits and availability benefits for the UK as a whole of doing this. In a sense that is our core purpose. We have to act in the consumer interest and that is what we are seeking to do. Getting from where we are today to that point is very difficult. One of the problems we have is that the 900 MHz spectrum held by O2 and Vodafone is absolutely key to competition in mobile broadband. It confers a significant advantage and therefore what we have proposed is that in order to be allowed to use that spectrum in a liberalised way they should hand back three lots of 2 x 5 MHz paired spectrum which we would then release to the market. Our intention there is to try to ensure there is fair competition in the future, so we are trying to ensure there is liberalisation with those broader economic benefits alongside fair competition. Clearly what we have put out is a consultation. We are now in the process of listening to the responses we have had. Vodafone and O2 have put in very interesting responses with good evidence, so have the other MNOs, so have other companies. Where we are at the moment is in the middle of a consultation which is one of the best kind. We are learning new things, people are providing us with new, further evidence, real technical information and that will allow us to move the debate forward.

Lord Currie of Marylebone: The prize here is to get the extra advantage of this liberalisation of the 2G spectrum, as Ed has said, without unbalancing what is possibly the most competitive mobile market in Europe. We want to keep that; we do not want to unbalance it and give undue advantage to one or two players as a consequence of the 2G's liberalisation. That is why it is a technically difficult exercise to pull that out.

Q33 Mr Wright: What are the next steps in the process then?

Mr Richards: We have gone through a consultation, we are in dialogue with industry and others at the moment and we will have to make a decision whether we move to a statement or whether we move to a further consultation in light of the evidence that we have received. We may well do the latter - although we have not yet made a final decision on that - because we have had good quality interaction and good quality evidence from a number of parties which means that we can revise our thinking in that area.

Q34 Mr Wright: How did the distribution of the 900 MHz and the 1800 MHz come about in the first place?

Mr Richards: It is historic, of course. What we are having to deal with is the outcome of historic decisions over many, many years. The 900 MHz was awarded many, many years ago to O2 and Vodafone when there were only two operators. Then some years later our predecessors released the 1800 MHz to T-Mobile and Orange and then there were the 3G auctions which you will all remember. So at different points over many, many years spectrum has been allocated and that has given us a particular competitive mixture. I think we do benefit in this country from having five players. You can see evidence of that in lower consumer prices and so on. We are now at a different point in that cycle and, as David says, we need to make sure that we deliver the broader economic benefits but we do not end up distorting competition so much that UK consumers lose out as a result of those decisions.

Lord Currie of Marylebone: This is a particularly important example of the general problem of moving from the old regime of command and control where government and the regulator decided how spectrum was used and how it was allocated to a more market based system that we believe will deliver very considerable benefits to UK citizens and consumers, but that transition is a difficult one to manage.

Q35 Mr Hoyle: I do not know whether you have any ability to actually try to persuade mobile operators to mast share instead of creating steel forests right across the country. I just wondered if that was something you could take up with them. Moving on to the proposed European Telecom Market Authority, how is Ofcom engaging with the European Commission on its proposals for a European super quango for the telecom market?

Mr Richards: Very extensively. We have worked very closely with our colleagues on the European Regulators Group. We do not think the European super quango is the right answer. We think that there does need to be more effective coordination and collaboration across Europe but you can do that through a network of national regulators who remain independent as opposed to being essentially run by the Commission.

Lord Currie of Marylebone: We are worried that the Authority as proposed would not be independent of the political processes and independent regulation, we believe, has given very considerable benefits.

Q36 Mr Hoyle: So we are better off with a UK quango than a super quango.

Lord Currie of Marylebone: It is for others to judge that question. We think that the centralisation at European level would not be desirable.

Q37 Mr Hoyle: So I can take that as a yes. To what extent will the ETMA have the power to dictate to national regulators on telecom issues? Do you really believe it will have power, that it will have teeth, or will it be a bit of a toothless tiger like yourselves?

Mr Richards: We are certainly not a toothless tiger; we will no doubt come onto that in due course. If it was created as the Commission proposed I think there is a risk it would make non-independent decisions and decisions which would not be very well informed about national and local markets. The truth is that there is an enormous difference between, for example, the UK market - which is highly developed and relatively competitive - and a country like Poland where the fixed network that we were talking about earlier is limited to about 60%. There are great differences and you need to have a real knowledge of the national and local markets within that national market to make good decisions.

Lord Currie of Marylebone: To be clear, you need better coordination amongst the national regulators in order to deal with the pan-European issues that do arise. We are not saying that the status quo is right; we do need to strengthen European regulations and make them more effective.

Q38 Mr Hoyle: Presumably the worry would be who would serve on the ETMA? Would it be dominated by the French and Germans who would have absolutely no interest in the UK?

Mr Richards: I do not think we are going to get there. I do not believe it will happen. I think what we will have is a much more coordinated, strengthened, European Regulators Group and that is a group that we play a very full part in and represent the UK interests very fully. I think we can take that issue forward.

Q39 Mr Hoyle: So it is a bit of a dead duck.

Mr Richards: That is a matter for the European Parliament and the Council of Ministers, but I think the argument for it has not been won. I think the argument for a strengthened European Regulators Group has been won.

Q40 Mr Hoyle: We will stick with our own quango.

Mr Richards: We will stick with our own independent regulator.

Q41 Mr Sanders: Moving on to mobile phones and their use of aircraft, do you believe there is a demand for passengers to use mobile phones on aircraft? What do you see as the risks to passenger welfare were they able to do so?

Lord Currie of Marylebone: We have to remember that mobiles can be used in different ways. I would have thought there is probably quite a considerable demand for people to be able to use their mobiles for data purposes, e-mail and so on. I tend to be a little more sceptical personally as to whether there is a demand for people to make voice calls. However, we have got to a position where it is increasingly inappropriate for a regulator to make those decisions when technically it is possible. To make it illegal to use mobile phones on an aircraft when it is perfectly feasible so to do seems to us to be a disproportionate regulatory action so we have permitted it. I think it is very interesting question as to how the airlines respond. I personally would not travel on an airline which allowed voice calls from any seat in the aircraft but they may find ways of managing the process in a way which does not have a consumer detriment and does allow those people who wish to use mobile phone for voice mail to do so. I think it is for airlines to manage. They own their customers; they know what their customers want and I think they will respond to the market demand.

Q42 Mr Sanders: One of the other issues that you presumably would be looking at is the charging policy of the airlines because it would be effectively the airline that would control the network provider and what they would charge to ensure that passengers would not be ripped off.

Lord Currie of Marylebone: There clearly needs to be transparency on pricing so that passengers know what they will be paying if they make a call. Whether there would be a case for going any further than that - in other words to price cap such calls - I think is a more difficult question that we would have to think about. Certainly transparency is something we would look for.

Q43 Mr Hoyle: What power do you think you would have to control an aircraft, mid-flight internationally? What evidence have you taken about Emirates who have already introduced using mobiles on aircraft? Have you done any in-depth study? Have you had any reports on the effect that that has had? What pricing structure have they used and where would you pay your bill to under an international phone call?

Mr Richards: We have not done the price analysis because the UK based services do not exist at the moment; we have only just permitted it. Bear in mind also that the second big concern we have is clearly safety. Historically people have associated the absence of using mobile phones with safety issues. That is actually a matter for the CAA and the EASA (European Air Safety Agency) and we have made it very clear that those hurdles need to be cleared before any of this happens. I think the core question for us was: do we have good reasons for not allowing this, given that our duty is to permit and encourage spectrum to be used wherever it can be? The conclusion that we came to was that really we had no grounds for doing that. We were clear that the CAA and EASA had responded on safety; we checked that with them and made it clear that that hurdle would have to be overcome before it happens. After that, as David says, it is a matter for the airlines and I think consumers will exercise choice on this. I am with David; personally I would be quite attracted to the idea of being able to use e-mail but I would not want to sit on a plane full of people making voice calls. I am sure some there will be different services on offer from different airlines. The pricing question is one we have not got to yet; we have not thought about it in detail. We will no doubt have those questions referred to us as soon as real services begin.

Q44 Mr Binley: Most consumers would congratulate you on the role you played in international roaming charges and you have brought some sanity to that pricing structure. The Government was concerned about it actually in terms of recouping what was said they lost in income by increasing domestic charges, trying to recoup lost revenue from other areas of the domestic market. What evidence have you found for that?

Mr Richards: We have not found very much evidence of that so far. It is something we are monitoring. It comes back to the market research point we were discussing earlier. We look at the market and changes in pricing and cost to consumers very, very carefully and we do that throughout the year. We have not found any evidence of that yet but one of the reasons why we felt slightly more relaxed about that issue than I think some of our peers in other countries is entirely because of the point we raised earlier, that there is a five player competitive market in the UK as opposed to a two or three player market in other countries. Therefore if there was an attempt to recoup prices through other charges there was always the competitive discipline of the other players to reduce that. It rather allows me to connect back to the question that was asked earlier because it illustrates how important it is that we keep that competitive structure and why that debate about the liberalisation is so important.

Q45 Mr Binley: Just to follow on from there, you have a three year programme of price reduction in terms of roaming charges. There is still room within the market place for reduction, is there not?

Mr Richards: On termination rates, yes. Our termination rates are in the lowest quartile in Europe. They are going to reduce in real terms every year for the next three years to 2011. That will take us to a point after which I think I agree with the premise of your question: will we, at that point, want to look at either further reductions or indeed a different approach to this question? I think we will. We have never made any secret of the fact that we are not enthusiasts for termination rate regulation. If there was a better way of doing it we would like to find it. It is complex, it is cumbersome, it is endlessly argued about; you can always take a different view. We have tried to make the best judgment we can; we defend that judgment. It is cost orientated to support consumers. It is a complex set of regulation which if, in some years to come, we could rid ourselves of collectively I think that would be a terrific outcome.

Lord Currie of Marylebone: Litigation is getting in the way of us having that debate about what the future might be beyond 2011.

Q46 Mr Binley: So you need us to act in this place.

Lord Currie of Marylebone: We would like to have a debate on this issue and it would be a very good issue for your Committee to take up.

Q47 Mr Binley: Can I move onto the transfer of data because that is one of the areas where there is great suspicion that cost is being recovered. Do you think regulation will be necessary in this respect?

Mr Richards: It is possible that it will. I have said very publicly that I felt the data roaming charges were too high and that they should come down. I think the market is catching up with consumers and I wanted to signal to the mobile operators that they needed to do something on this before regulation had to come in. People are using mobile broadband now; they are downloading things when they travel and move around. That is happening and therefore the market needs to respond. Prices have come down. I think every single one of the mobile operators have reduced those charges. The Commission, alongside us, will look at those prices next year with a view to considering whether regulation is necessary for 2010 on. That is the timetable and I think the answer to your question is that it depends what the operators have done between now and then and where we are.

Q48 Mr Binley: That seems a pretty slow moving process and you seem to be able to be a pretty effective administrator; the two do not really go together, do they? What might you do if you feel that this thing is not moving as quickly as it should or as effectively as it should, and when you might do it?

Mr Richards: As with voice roaming it requires a European intervention; we cannot do it as a national regulator. We are prisoners of the Commission's process. They have said they will review it in 2010 and make a decision on that. I think in the meantime all we can credibly do - which we are doing - is firstly make clear our sense of where we are, which is what we did in my public statement on it that they were too high. Secondly, we need to do everything we can with the European Regulators Group to get the analysis right, understand the position and prepare the ground for making good decisions. As a matter of fact, we lead the European Regulators Group on this topic; we lead the working group so we are heavily involved in that analysis and will push it forward as fast and as far as we can.

Q49 Mr Binley: I think there is a real need out there to do something in this area. Moving onto mobile selling, the second highest number of complaints to Consumer Direct behind second-hand cars. That is not a great compliment to the industry, is it? What has been the industry's response so far to your proposal to introduce formal regulatory measures to protect consumers from mobile mis-selling?

Mr Richards: The short answer to that is that the industry is not good enough. The response was not good enough and that is why we are going to introduce a mandatory code. The voluntary code was not effective enough; the complaints have not come down sharply enough and therefore we are going to move to a mandatory code and that will enable us to introduce sanctions to prevent mis-selling.

Q50 Mr Binley: My concern about this is how do you monitor it? This is about coal-face operations; how does your organisation get to coal-face to monitor effectively in order to know what is going on?

Mr Richards: We have a call centre; we have the Ofcom Advisory Team; we take thousands of calls every week from consumers. The reason we have a very good understanding of this is because we have tracked this data ever since Ofcom was created, we can see what is happening and mobile mis-selling has gone from being no issue at all to being a very significant issue. We have to tackle it and the mandatory code is what will be necessary.

Q51 Mr Binley: I am slightly unhappy about that. It is all very well to be reactive to complaint, but I want to know what you are doing about going out there and actually seeing what salesmen are doing when they sell the phones. That is where the action is and very often the companies do not really have control and knowledge in that respect.

Mr Richards: We get thousands of calls about this and we will take cases, go to the operators and say, "This is what people are telling us is happening. This is not acceptable. You need to take responsibility for this." The key point on this that the mandatory code will change is that it will be the direct responsibility of the mobile operator. Part of the problem here is this vast range of agencies and sellers they have and some of those have been irresponsible. We must make sure that the mobile phone operators have proper control of their sales agents. The voluntary code has not worked to our satisfaction, we have therefore introduced a mandatory code.

Chairman: We will move onto the broadcast section now. Thank you very much for that; it has been very interesting. It has been a bit of a rattle through a whole range of complex issues but I think we are very happy with the answers.

(Mr John Whittingdale took the Chair)

 

Chairman: Can we start off by looking at your recent publication of the public service broadcasting review. I am going to ask Adrian Sanders to begin.

Q52 Mr Sanders: You are required to carry out a review of public service television broadcasting at least once every five years. You have published the findings from the first phase of your second review. Would you agree that nothing very surprising has emerged?

Mr Richards: I would not quite agree with that. It is not surprising only in the sense that the forecast and projections that we made in the first public service broadcasting review have broadly proved to be right. It is worth going back to that first PSB review where, when we published it, a substantial number of people regarded us as making heretical statements, predicting things that could not possible happen, anticipating things that were not right. Actually, by and large, they have all pretty much happened.

Lord Currie of Marylebone: One of the reasons for bringing the review forward is that the pressures on commercial public service broadcasting have been more intense perhaps than even we anticipated.

Q53 Mr Sanders: You are calling for greater clarity up to 2011 from people to really make a decision as to which side of the fence they fall. How important is it that you actually have that divide between somebody declaring that they are a public service broadcaster and that they are not a public service broadcaster?

Lord Currie of Marylebone: Clearly the BBC is the cornerstone of public service broadcasting and that role must be absolutely preserved. It is also important that we have effective alternatives, that there is plurality of provision of public service broadcasting. The reason we need clarity on that question is because we need to know who is playing in the public service broadcasting space. If there are commercial companies that are currently delivering but decide not to as part of their strategy, we need to understand that.

Chairman: I think it is fair to say that your conclusions were very similar to the ones which we drew in the Select Committee report so in the main we thought yours was an excellent review. Can we focus, however, on one or two specific areas of particular concern?

Q54 Rosemary McKenna: Moving to children's programming you identified what we have also identified, the decline in funding for children's programming. I do agree with your suggestions on how that might be addressed in the future, particularly the BBC's role in delivering programmes. I am also very happy that Channel 4 has announced that they are going to be investing in programmes for older children. However, you say that no commercial digital channel has identified or established a business case for significant investment in high quality UK programming for older children and that this is unlikely to change. Why do you think that is?

Mr Richards: The economics of quality, original children's programming are very, very difficult. The way the economics work is that you are making something which sells into a global market and the way you can cover the costs and make profit on it is to sell into a global market. That global market is dominated by American and, to some extent, Japanese programming. That is why, if you look at the dedicated children's channels on cable and satellite, there is so much American programming. I am not criticising it, I am just observing it. Some of it is very, very good, but it is American programming; it is infused by American culture and not British culture. To make commercial children's original programming work the costs are relatively high and you have to be able to sell it in global markets as well as just your domestic market. Clearly if it is drama which is about the United Kingdom - we all think about our favourites in that area - it is less likely to sell well in international markets. That is at the heart of it.

Q55 Rosemary McKenna: The BBC has been incredibly successful with things like Teletubbies and Balamory which goes on to have options, the packaging they sell and all the toys and everything. They are based in UK culture and I think it is really important that children should have programming that reflects their culture. Do you not think there are opportunities out there for the digital channels?

Mr Richards: It is much easier for young children. Teletubbies is a very good example of this. Teletubbies is something that, because it is not using drama - compare it with Grange Hill or something like that - it can be reversioned (it does not even use English, it uses whatever you call Teletubby language) very easily for resale in any market. It is much easier for very young children, something that can be sold more generally. It becomes much harder as the children become older; as the drama or factual programming connects to British society it is much harder. Teletubbies is a good example of what you can do at the younger age; it is much, much harder as you go through the ages.

Q56 Rosemary McKenna: Yet parents tell us that the BBC provision is absolutely vital to them, for young children; they can watch television without adverts and all the attendant issues that they might not be happy about. They really value that. It just seems to me that somebody is missing an opportunity.

Mr Richards: It may be and indeed it is worth saying that the area of children's provision that we were least worried about was the younger age group. Channel 5 does have part of their channel which is focussed at the younger age group with Milkshake and that appears to work commercially. It may be that parts of that can develop but there is very little evidence now so far over many years that real substantial investment will go into original UK focused programming.

Q57 Rosemary McKenna: Do you not want any powers to enforce that?

Mr Richards: I think the days of our being able to impose that on ITV or Channel 5 are declining fast. That is why our argument in the PSB review is that we now need to decide as a society what we value in public service broadcasting; we need to decide as a society where we want plurality, where we want providers other than just the BBC (that may not be everywhere, it may be in other areas; it certainly is in news for example and parents tell us that it certainly is in children's programming). If that is the end that we will, we then need to agree what the means are. The means that we have all grown up with are not there any more so we need to find a new way of doing it. I think the Channel 4 proposal to extend its remit to older children is something that we have supported publicly; I think it is potentially a very exciting initiative, but it takes you back to the question of Channel 4's finances and is that a remit that they can economically sustain for the next decade.

Q58 Philip Davies: We are seeing this reduction in children's programming because it is expensive and you need to find a world-wide market but that has always been the case. The one thing that has changed is that you have introduced this ludicrous nanny state restriction on advertising for children's programming. That is what has changed in the last year. Given that we have a Bill on Friday before Parliament asking us to go further down this particular route, can you comment on what effect your restrictions have had on children's programming?

Lord Currie of Marylebone: As you well know the debate on this question is somewhat bifurcated and although you may regard what we did as nanny state there are many who think it was far too weak. The other key point to make is that the decline in children's programming has been going on for the last five years; it has been a steady decline and is not something that has been created by the measures we have taken on advertising.

Q59 Chairman: They are not going to help.

Lord Currie of Marylebone: No, and we have done a lot of work to balance the question of the need for quality programming on the one hand with the intellectual and cultural diet the children get and the physical, dietary needs on the other. We made a very careful balance in our analysis. We were very conscious that we were having to make a rather difficult judgment in that process.

Q60 Chairman: Having drawn that balance it would be fair to say that you would not be happy if on Friday further measures were brought in would which would tip the balance in one direction.

Lord Currie of Marylebone: The judgment of the Ofcom Board is that the balance we struck was the right one. Clearly it is possible for reasonable people to take a different reasonable judgment on that question. It would not be one that the Ofcom Board would have supported.

Mr Richards: We are due to review this and the effect of our changes in July. The idea that the problem in children's television has been caused by those changes is complete nonsense. The reductions in children's television, in commercial provision, began seven years ago - they have declined every year since - prior to when the prohibitions came in. You simply cannot equate the two things together; it is disingenuous in the extreme. Our changes will make a £20 million to £25 million impact. The significance of the pre 9 pm watershed is that we estimated the impact on programming generally would be somewhere in excess of £200 million and that was one of the reasons we drew the line where we did. There is a very, very substantial difference.

Q61 Philip Davies: You are doing a review in July but we are debating this on Friday in Parliament. It is a bit late in the day to be having a review in July if something has already passed in Parliament beforehand. In terms of your perspective, your view is that on Friday people should be very reluctant to go further down the line of increasing restrictions. Is that what you are saying?

Lord Currie of Marylebone: It is very much a matter for Parliament to make its decision but I would hope that parliamentarians would read the very substantial body of evidence we have produced.

Q62 Philip Davies: Do you not think that this whole episode has done a lot of damage to Ofcom's reputation? In your annual report you make a big play that you will operate with a bias against intervention, that you will seek the least intrusive regulatory methods, that you will strive to ensure that your interventions are evidence based. In the earlier session with DBERR you were talking about how independent you are, but the whole episode of the introduction of this ban - which has no evidence behind it whatsoever, it was, as you were indicating, because some people were banging on about doing nothing and some people were banging on about doing lots of things so you found a cosy compromise - all it has really done is to show that Ofcom are quite weak and cave in under a bit of pressure and on the whole are a bit of a government patsy and just do what government wants to do. Do you not think that this has undermined the whole of Ofcom's basis for existence?

Lord Currie of Marylebone: That is a complete misrepresentation. We engaged in a very considerable body of original research commissioned in order to get to the heart of these sensitive issues. We then struck a balance. You quote our regulatory principles; we do have a bias against intervention but the second part of that principle says that where necessary we will intervene decisively and this intervention was one where we judged it was appropriate to intervene.

Mr Richards: I do not think we have ever done a more evidence based piece of policy, to be honest with you. The research and analysis that went into that was absolutely extensive and I think the independent judgment that we made where we were uniquely placed to make that independent judgment - it is well known there are MPs of all parties who disagree with what we have done from different perspective - which is illustrated by the fact that we were not willing to support a pre 9 pm watershed ban and the reason we were not was because, even though we could recognise the impact that this commercial advertising was having on a broader concern for society (in other words childhood obesity), we also had to bear in mind our duties in relation to quality programming, including children's programming. That is why we took the judgment that an impact of £200 million would not be acceptable but a much more limited impact, which would reduce the exposure of children to that advertising, would be a proportionate measure. Indeed, the provisional data that we have already had prior to the full review in July demonstrates that it has had a very real effect. I think the reduction in exposure of children to HFSS advertising in, for example, dedicated children's channels is 49% and there are other examples of reductions as well.

Q63 Philip Davies: By how much has obesity reduced?

Mr Richards: That is clearly, as we said right the way through, not an outcome which we can conceivably be held responsible for. When we embarked upon the work in this area, at the start, the middle and the finish, we made it very clear that all we could do was take a responsible judgment in light of our duties and our responsibilities, but the wider issue of obesity is clearly going to be influenced by many, many, many different factors, the vast majority of which are outside of our control. We were very clear about that right the way through the process.

Q64 Philip Davies: In your annual report you very helpfully produce a graph of all the activities that children do whilst they are watching television: 30% are using a mobile phone; 27% are playing computer games; 26% are talking on the phone; 22% are on the internet; 20% are listening to music; 8% are listening to a radio station. Surely it is blindingly obvious that if they are doing all of these things they cannot possibly be taking note of adverts going on at the same time, so how on earth can you possibly claim to be evidence based when your evidence is completely at odds with what you have been trying to do.

Lord Currie of Marylebone: If that were the case I think the commercial advertisers would not be advertising on those stations.

Q65 Adam Price: S4C has led the way in prioritising children's programmes through the creation of its new dedicated children's channel. You mentioned in the review the possibility of an expanded role for S4C in producing children's programming for the whole of the UK. Could you say a little bit more about that and have you discussed this idea with S4C?

Mr Richards: We have provisionally and I think there are two aspects to it. The first is that we ask ourselves where could we go to try to address this challenge in relation to children's programming and actually S4C are a substantial commissioner of children's programming. I think they are possibly the second biggest in the UK after the BBC; way behind the BBC but second biggest. The question we asked ourselves was: is there anything in relation to that investment that could enable it to be used more widely for English speaking children as well? I think that is an open question. In some cases I think it will be very difficult; in other cases, particularly programming for younger children again where it could easily be co-produced or reversioned in English, that has to be an opportunity. What we would absolutely not want to see is that idea convert itself into an idea which in any way undermined or diluted S4C's central purpose. S4C can only be successful and will only do what it is there to do if it has a clear focus on providing a content television service to Welsh speakers. It has to start there and then we have to ask ourselves the secondary question: is there anything else we can do to generate broader benefit as well? We pose the question in that spirit really.

Q66 Adam Price: In order to make it attractive for independent producers to co-produce or to do reversion, would there need to be any change in the contractual relationship, the ownership of the resale rights for instance for wider markets?

Mr Richards: There could be and that is where you could see benefit to S4C in terms of the cost of commissioning. There is a scenario there in which it is a co-production with an independent or another broadcaster, the costs therefore are shared and you ensure that the core programme is what S4C want for their channels but also it is enabled to be reversioned and reused in English as well. I think that is potentially quite an exciting area of exploration. As I say, we do not agree with those who would see that as a way of trying to siphon off money that is for S4C into something else. There is a great danger, in my view, of confusing organisations in terms of their purposes. If you try to get organisations like S4C to do other things as well they will just flounder because they will not be able to focus on what they are there to do. Let us keep S4C doing what it does well, providing the service that it should provide for an important community in the UK. If there are any other secondary opportunities, let us explore them.

Q67 Mr Hoyle: Still on children's television, programmes where there are game shows on where you try to encourage the public to come on that programme, actually the public do not get on, they are actually only taking children from acting schools and it is a big con. Have you heard about this?

Mr Richards: No, that is the honest answer to that. We have not heard about it. We have not had any complaints about it.

Q68 Mr Hoyle: Will you look into it?

Mr Richards: Yes, we will look into it.

Q69 Mr Hoyle: Somebody came back to me and said he could not believe that Cbeebies have been asking for children to go on but everyone was from acting school except one child from my constituency.

Mr Richards: We would be very happy to look into it; we have not come across it. We are planning a second seminar session with the broadcasters on the whole issue of trust in broadcasting and that will actually provide a very good opportunity for us to raise it very directly.

Q70 Philip Davies: How important is it for ITV to maintain its sub-regional news bulletins?

Mr Richards: That is something we are going to consult on in the autumn, in the second part of our public service broadcasting review. We are aware that ITV wants to make changes and clearly we have set out the challenge for commercial public service broadcasting. What we have found in our research on this so far is that viewers value regional news very highly and if we were to prioritise or be clear about what the relative priorities of public service broadcasting from the commercial sector are in the future I think our view is that regional news would be very, very high up the list. We would enter the consultation on their proposals with that spirit.

Q71 Philip Davies: What factors would influence your decision?

Mr Richards: The value that we identify that audiences place upon it, the costs associated with the provision (which is very important) and the opportunity costs in relation to the provision as well (in other words, what would the value of that slot be if it was not regional news). The central question that we will ask ourselves when we look at it in the round will be: which components of public service broadcasting do we think the viewers most value? Which are the most important in relation to the duties we have been given by Parliament? What is their cost? Which ones can we credibly expect ITV to deliver in the future? As I say, I think regional news is very high up the list indeed.

Q72 Rosemary McKenna: On the question of support in terms of Scotland and the public service broadcasting requirement where you are saying there is a real possibility that the costs will not cover the benefits that are there at the moment, you say that as soon as two years from now it will be in some difficulty. How should the public service content be maintained? It is very crucial in terms of the devolved settlement that there is a plurality of provision. It is quite clear also at the moment that STV are working extremely hard and are improving their content. In two years' time are they going to be in such difficulty that they are not going to be able to maintain that? How can we deal with that?

Mr Richards: It is a very difficult issue. We do think the challenge here will come in the next two or, at best, three years. We have a two-fold approach to it. We will look at the possibility of an evolved model, so how much value is there in the licences? What can we expect the ITV companies - or STV in your case - to deliver? What can we credibly impose on them through licence obligations? Alongside that we will ask ourselves if there is an alternative approach which we also need to consider because of how stretched that model is. I think that is where we get into the broader range of questions that we have opened up in the PSB review where we ask ourselves about the model of public service broadcasting that we want in the future. Is it the evolved model that we have just described? Is it a BBC only model which would mean that you would potentially lose plurality in those areas? Or is there another model which might involve BBC and Channel 4 with a strengthened PSB remit and some broad, competitive funding, so some other funding which would be potentially available for national, regional news or programming of other kinds. That is the big debate that we are now entering. The reason we brought the PSB review forward two years was because we saw this problem coming and I think we - I am using the "we" very collectively now, Parliament and government as well as ourselves - do have to understand how we are going to answer those questions in the next two or three years.

Lord Currie of Marylebone: Ultimately it is a matter for government because the funding stream is something that government will have to arrive at. We can help the debate and identify options.

Q73 Rosemary McKenna: Surely in terms of a purely commercial operation it is up to them to ensure that they provide the requirement that is put on them.

Lord Currie of Marylebone: There is a great deal of self-help they can do in terms of enhancing the economics of their business, but ultimately if we are putting regulatory burdens on them that they cannot sustain they will walk away and that is the dilemma.

Q74 Mr Weir: I agree with Rosemary about the need for plurality. I represent the northeast which was covered by Grampian Television and became part of STV, but what STV now do - I agree with Rosemary they are trying very hard - is that they do a regional news programme that is broken up with opt outs for both Dundee and Aberdeen covering the former Grampian area. That is something the BBC does not do; we get one programme reporting Scotland which is very much central Glasgow based. I would be extremely worried if you were suggesting that STV would no longer have to produce regional news programmes in that way because that would seriously impact upon the plurality and the news outside the central areas of Scotland.

Lord Currie of Marylebone: We fully understand that. What we are saying is that there is a dilemma here. It may well be that without an additional funding source that is the position we will arrive at. We are not saying that that is a desirable situation at all.

Q75 Mr Weir: What is the pressure that is driving this?

Mr Richards: It is really important to understand that we do not have infinite powers just to make them do these things. This is the crucial change. In the past that has been the case but that has gone. We have to now exercise a judgment about what is economically possible to put in the licence obligation. The question that we are just going to let them off or something of that kind is not going to happen. We recognise this as a very, very important issue, but the value of the licences that they hold is declining, will decline further and has been in decline for many, many years now. There comes a point, which we estimate to be somewhere between 2009 to 2012, when, if we are loading them up with obligations that involve costs or which require them to show programmes and exclude another programme which would raise far more money, they will simply hand the licence back and say, "Get someone else to do it".

Q76 Mr Weir: You are not seriously suggesting that a company being told they have to produce a half hour news programme from 6 to 6.30 is going to hand the licence back because it cannot fit another Australian soap opera in.

Mr Richards: Regional news is, by some distance, the biggest cost to the ITV network of any PSB obligation there is. It is very costly to produce; it secures significantly lower audiences than they could secure with whatever soap opera. It is a very serious question.

Lord Currie of Marylebone: I think it is absolutely essential to make sure we grasp this point. We see the value of regional news but we do have to understand that its production is under huge pressure and we have to find a solution to that if we want it to continue.

Mr Richards: Our view about the centrality and importance of news is very clear and we have said it on so many occasions I do not think we need say it again. The research we have done supports our own view on the centrality of news and we have argued very strongly for the plurality of news. Do not misunderstand where we are coming from in terms of desirability; we absolutely want to secure it, we absolutely want to make sure it is delivered for many, many years to come. It remains an open question about whether we can actually do that. What we want to make sure is understood is that over the next few years we may have to look at another way of doing it. That is what we are doing at the moment. I hope that we will be able to say that this is a central part of their obligations and actually, when you look at it in the round, there is enough value in these licences for them to do that and we can retain that model. However, I cannot sit here in front of you today and guarantee that that would be the case; that would be completely irresponsible of us.

Q77 Adam Price: You have estimated by around 2010 the costs of public service broadcaster status will exceed the benefits in Scotland. Do you have similar outline dates in mind for Wales, Northern Ireland and some of the English regions as well?

Mr Richards: It is very similar in Wales. Northern Ireland is slightly better placed because the audiences tend to be higher and therefore the opportunity costs associated with it are not as great. It varies slightly, but broadly speaking the same challenge is going to be there in Wales as well. Clearly, just as in Scotland, it is a very, very big issue in Wales. Imagine Wales without regional news from ITV as an alternative to the BBC, that is quite a significant issue.

Q78 Adam Price: Would you say that because of the weakness of the print media in Wales that actually the plurality issue is even starker?

Lord Currie of Marylebone: We are certainly very aware of that. That is an important factor that gives extra salience to this issue.

Q79 Adam Price: You identified the possible need for additional funding and you have outlined four potential options in broad terms. I think the Culture, Media and Sport Committee in its report also identified two of those options which are the possibility of top slicing the licence fee and general taxation. Of the two additional options that you have set out, using regulatory mechanisms is one option but also introducing industry levies of different kinds, are they realistic options or are you merely adding to the list to give the impression that you have not already made your mind up?

Mr Richards: They are actually credible in the sense that regulatory assets exist. Free spectrum will remain a possible choice. We can apply pricing spectrum or we can waive it. If we waive it that is clearly a value and we could consider that. There is an issue around the decisions we make on advertising levels which has its own problems as we know, but that is another form of regulatory asset which we could consider. There are genuine decisions and genuine options in that area. On the industry levy front, it is entirely credible in the sense that some other countries use it. It is used in Canada, it is used in Finland; President Sarkozy has very visibly floated it as his preferred approach to funding public service broadcasting in France. I think it is there, it is in play and I think it would have been quite wrong of us not to have included it. Indeed, industry levy is of course how Ofcom is funded so it is not that these mechanisms do not exist or cannot exist; they do. The question is what is the best approach to the nature of the problem or the challenge that we have here? In other words, what is the best approach for delivering public service broadcasting? Just to reiterate here what David said earlier, the decision on that is very much one that the Government will end up having to take. I think we see our role as genuinely laying out the range of options - these are the options and these are the pros and cons of them - and then we will have to hand that set of options over to government and Parliament and you will all have to debate it and decide the answer.

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 to £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 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 frightened 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?

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.

Q100 Chairman: You list as one of your priorities for the year preventing competition in the pay TV market which suggests to me that you think there is not sufficient competition in the pay TV market. It is something you are looking at. Can you tell us whether you have reached any conclusions as to whether or not there is a serious competition issue needing to be addressed here?

Mr Richards: We have not reached that conclusion yet. We are looking at the issue still. We expect to publish something on that before the summer. As you know it is an extremely complex set of issues. We have had an enormous response to this question. It is linked of course to the question of Sky's application to go onto DTT. We had over 400 responses to that application alone. We have had very substantial responses to our market investigation on pay TV; some of those have only just come in which has caused us to be a few weeks behind (we have literally only just received them). However we do intend to publish something on that and make clear where we stand before the summer.

Q101 Chairman: Is your examination simply going to concentrate on the Picnic proposal and Sky or are you going to be looking at the wider position of Sky within the market and possibly even consider recommending some changes to the structure of the company rather as you do with BT?

Mr Richards: There are two issues we are looking at. There is the specific issue about Sky's proposal to go on DTT. There is a separate market investigation into pay TV much more widely. In reality of course the two are connected and need to be considered closely together, but they are technically separate questions. We have to treat the application to go on DTT as a specific question which we need to answer. Of course we are looking at them in the round; we are looking at a broader view on this but we also need to deal with the specific DTT application within that broader context.

Q102 Chairman: That could ultimately lead to an Enterprise Act reference.

Mr Richards: It could indeed; that is one possible outcome.

Q103 Chairman: When do you expect to come forward with your conclusions?

Mr Richards: We would hope to do the next step before the summer. There may be further steps after that but we would certainly expect to say something before the summer.

Q104 Chairman: In terms of competition, do you have any concerns about the Kangaroo proposal of the BBC, Channel 4 and ITV all coming together to provide a single seller of archive TV programmes?

Mr Richards: That is an interesting question. We have not had any complaints or concerns expressed to us about that yet.

Q105 Chairman: You will have.

Mr Richards: It is possible that we will. We have to look at which economic market it is relating to and whether that economic market is actually very, very broad, in which case you might be less concerned about it and also look at the arrangements made between the parties. We are aware of the issue, we are aware of the question; we have not actually had any complaints in relation to it yet.

Q106 Chairman: If you received a complaint you would do something about it.

Mr Richards: Whenever we receive complaints about things of that nature we would have a look at it, we may not take it any further or we may do. We certainly respond and think carefully about any issues of that kind that are raised.

Q107 Mr Luff: I have a concern that economic regulators like you and Ofgem quite often end up making policy rather than simply being regulators. What I am curious to know is whether this is because you want to make policy or because the Government leaves a vacuum which you are obliged to fill. One thinks about the questions of children's programmes and advertising; one thinks about some of the issues around the PMSE sector, and convergence itself is raising a host of new questions about the way we regulate the various platforms. You say that regulatory approaches may need to be adjusted to reflect the new delivery mechanisms and ways of consuming communication services. The Government takes the decision that it is the regulatory mechanisms that should be changed and not the regulators. It is a public policy matter. You are not actually on the Convergence Think Tank but you contribute to its work as I understand it and that is good. Do you think that the establishment of the Convergence Think Tank was a shot across your bows for being too ambitious as a regulator, grabbing policy for yourself, or is it a helpful way of actually relieving you of a burden you do not want?

Lord Currie of Marylebone: We certainly regard it as a useful thing that the Government has done in creating that. We, as a regulator, have a set of clear duties given to us by Parliament in the Communications Act. Translating that into regulatory action requires one to think through the mechanisms and it requires one to think through how those mechanisms need to adjust in the light of the market developments. The issues you allude to I think are a perfectly legitimate part of what we are doing in pursuit of the duties given to us as an independent regulator by Parliament. There are some other issues which are outside those regulatory duties where government has to act. We touched on some of them today: the possible continuance of plurality in public service broadcasting which will need a funding mechanism which is not to do with us. Digital switchover is another case where it is a government action and we work closely with government on those issues. We hope our analysis helps to guide government in its policy decisions. There is a very clear distinction between those areas where government has to take the lead because it is its responsibility and us pursuing our regulatory duties given to us by Parliament.

Q108 Mr Luff: There s a clear conceptual distinction; I accept that. In practice it often gets muddier than that.

Lord Currie of Marylebone: You have to be pragmatic in that interpretation. I hope you are not suggesting that Ofcom is overstepping the mark in trying to do things which are beyond the very broad remit that Parliament has given to us.

Mr Richards: It is a question of judgment but we try very carefully to err on the side of caution in this. I think we recognise the line and the difference that you are describing. I think the discussion we had about public service broadcasting earlier is a good example. We will not say that the answer is X because we think that that is what government and Parliament should do. We see our job as setting out the range of options, helping wherever we can to bring evidence and research to that, the pros and cons and so on, but the decision in that area is not a policy decision for Ofcom, it is a policy decision for government and Parliament. We are very, very clear about that. In some cases Parliament has given us the decision making authority (the economic regulation of mobile call termination rates is an example). Where that is the case we clearly have to discharge that duty.

Q109 Mr Luff: To maximise the revenue for digital dividend review and secure full broadcasting of the 2012 Olympics there may be a public policy decision you are actually being asked to take as a regulator.

Mr Richards: In that case we are very clear. We do not have a duty to raise revenue from the auction of spectrum. We have a duty to optimise efficient use of spectrum which is why I made the remarks I did about bringing it into use as quickly as possible. The Government retains a right to direct us in relation to spectrum matters and could always do that, but it is not our job to raise revenue for the Treasury or anybody else; it is our job to bring it into efficient use.

Q110 Chairman: I think we have covered all the ground we intended. Can I, on behalf of both Committees, thank you very much.

Lord Currie of Marylebone: Can I express our thanks also. We do find these sessions stimulating but also useful. It is very good to hear your concerns and to have the opportunity to discuss in this way.