Examination of Witnesses (Question numbers
1-19)
OFCOM
1 DECEMBER 2009
Q1 Mr Whittingdale: This is the annual
joint session of the Culture, Media and Sport and Business, Innovation
and Skills Select Committees to take evidence from Ofcom on its
annual report. I welcome its Chairman, Dr Colette Bowe, and its
Chief Executive, Ed Richards. Dr Bowe, I believe you want to say
a few words before we start.
Dr Bowe: Thank you very much.
We very much appreciate this opportunity to talk to you about
what we have been doing this year and some of the things we hope
to do next year. This morning we would like to cover the whole
range of what we do in Ofcom. You will know that our activities
range across telecoms, spectrum, including the arrangements for
delivering the Olympic Games, and broadcasting. All of these are
activities that we are required to carry out by statute. Our primary
statutory duty is to look out for the interests of consumers and
citizens and that is an area in which I take a particular, personal
interest. In a moment I should like to say a little more, but
perhaps I may first hand over to my colleague to say a word or
two.
Mr Richards: This has been an
unusual year for us in the sense it is the first time since we
have been in existence that we have regulated in the context of
a recession. That has been a challenge and we have had to be as
alert and sensitive as can be to the circumstances of a lot of
the companies with which we work. In that context we have always
tried to put the interests of consumers and citizens first, but
this year has created a very different environment. We have tried
to get on with the job in that context. We have done an awful
lot of relatively unglamorous activity which often is not talked
about. We have been involved in 80,000 spectrum licences; 3,000
different interference investigations throughout the length and
breadth of the UK; 20,000 consumer inquiries to us every single
month; and, as is more widely known, thousands and thousands of
broadcast complaints. In the midst of that we have made some important
regulatory decisions or developed regulatory policy in some areas:
the market investigation into pay television; next generation
access and fixed telecommunications regulation; the reforms we
have proposed in relation to the ownership and regulation of radio,
which is a sector under particular pressure; significant milestones
in moving us forward on the efficient use of spectrum; and the
very important deregulatory milestone where for the first time
in the history of telecoms in the UK we have been able to deregulate
BT in the retail narrow band market. We have tried to do all that
in the context of delivering better value for money. I am pleased
to be able to tell you that this year we fully expect to deliver
our fifth consecutive reduction in real terms budget and we shall
aim for a similar objective in 2010-11.
Q2 Mr Whittingdale: Obviously, these
are extremely difficult times for the media and the telecommunications
industries and their customers. Dr Bowe, at the beginning of the
year you told us that we should judge your success on what you
achieved for citizens and consumers. What progress do you think
you have made?
Dr Bowe: We have made progress
on a number of fronts and no progress on a further one to which
I shall come. On the consumer front I should like to mention some
important milestones. We have done some ground-breaking research
into broadband speeds and we should like to develop that. We have
had the greatest number of hits ever on our website for our report
on broadband speeds.
Q3 Peter Luff: Last week the Culture,
Media and Sport Committee took evidence from Mr Richards as part
of its inquiry into broadband speeds, so we have covered that
in a previous evidence session.
Dr Bowe: In that case I will not
dilate, but as the Chairman asked me about things that I had signalled
when I met Members in January I wanted to take credit for that
in addition to the credit Mr Richards is taking. We are all smiling
about this, but it is the thing that everybody wants to talk to
you about when they get onto telecoms; it is the thing people
really mind about. As to other things we have done for consumers
this year, we have made some improvements to how the alternative
dispute resolution schemes work. This is a very important part
of the consumer protection world for which we take responsibility.
We should like to make more progress on that next year. One of
the problems is that not enough is known by consumers about how
they can gain access to these schemes when they reach a deadlock
with suppliers. I should like us to have much greater ability
to publicise to consumers the fact that if they have reached the
point with their supplier where they believe they cannot take
it any further or make progress they can go somewhere else. I
have a very strong personal interest in this because previously
I was the founding chairman of the big ADR scheme called Otelo.
I think we could make further improvements to that by way of signposting.
Another important initiative for consumers is the introduction
of emergency mobile roaming. Most of us probably know of cases
where people who live in particular rural areas that have problems
with roaming have occasionally got themselves into very difficult
situations because of the inability to get a signal. From the
autumn of this year we have worked with the industry to introduce
emergency mobile roaming so that the signal will roam onto the
nearest network. As a refinement of that we are also working to
introduce a particular version of this which will work for people
with hearing and speech impairment so they can text the emergency
services. That is a very important and helpful step forward for
those with disabilities. I also said at the beginning of the year
that I took a strong personal interest in issues to do with people
with disabilities. We have made progress on that this year. There
are a number of things we can point to, for example improvements
to the text relay service. We are working with the industry to
enable people to have a better choice as to which mobile handset
works for them with hearing aid. You may think that by this stage
of the development of the industry we would have cracked this
problem but it is only now that we are making real progress. It
is important for people to know this; it is also important that
those in shops who sell mobile handsets are able to give advice
when people inquire as to what will work with their hearing aids.
There are a number of matters on the disability front about which
I could talk more. One further point is that the ink is just dry
on a new EU framework directive which will, importantly, give
the national telecoms regulators across the European Union the
ability to require telecoms operators to take action specifically
in regard to people with disabilities; in other words, to use
technical regulatory language, if it is justified we shall be
able to require telecoms operators to do specific things for their
customers solely because they are disabled, not simply for consumer
protection. I believe that will be a really important step forward.
I said at the outset that I signalled a personal interest in one
area about which we have not made much progress: public service
content for children. This goes wider than television, it is about
content. I said at the beginning of the year that this was an
area in which I was particularly interested. I am sorry to say
that I do not think we have made much progress on it this year.
It is very good that the BBC has announced that it will devote
an additional £25 million to UK-originated children's content
over the next three years. It should be congratulated for that,
but the reality is that the BBC already provides most of the good
quality children's content. You will be aware that in the Digital
Economy Bill now before the House there is a new requirement on
Channel 4 to produce content for older children aged about 12
to 13, but I believe that as a nation we fail to address this
issue. As regulators we have relatively few levers, if any, in
our hands. This is an issue about which we ought to be having
a lively national debate; otherwise, we are sleepwalking into
a situation where we do not have UK-generated content of a high
quality for our kids. I believe that would be a very bad outcome.
Q4 Mr Whittingdale: We may return
to one or two of those issues later this morning. Turning from
your achievements to some of the criticisms, you will be aware
that the leader of the Conservative Party has drawn attention
to the level of salaries of Ofcom which is certainly excessive
compared with other regulators. Equally, James Murdoch has accused
you of being a wonderful machine for mission creep, steadily expanding
and regulating more. How do you respond to that?
Dr Bowe: I shall respond on pay
and my colleague will deal with mission creep. It will not surprise
you to know that I also have something to say about mission creep.
Perhaps it is helpful to say that the pay of the senior executives
of Ofcom is set by a remuneration committee of the Ofcom board.
In setting that pay we have regard to market conditions and the
kind of competitive markets in which we are engaged. To give you
a feel for those competitive markets, of the eight most senior
executives in Ofcom five have been recruited from the private
sector so we have to be aware of the salaries in our industry.
I do not say for a moment that we should aim to match them because
I do not believe that is the right way for a public body to go,
but it is very important that we get people of adequate quality
to deliver good quality regulation. I make no apologies for the
fact that as a board we seek to attract high-quality people into
Ofcom. If I heard your opening remarks correctly, I believe you
said that Ofcom's salaries were high compared with those of other
regulators. With immense respect, I am not sure that is wholly
true. There are some other regulators who not only pay higher
base salaries but also provide very generous final salary pension
schemes. That is not the case in Ofcom. The only people in Ofcom
who have a final salary pension schemeat the moment there
are 133 such people out of a total staff of just in excess of
800are those who joined the organisation at the outset
from other regulators where such schemes were in place. Ofcom
itself does not offer such schemes to its recruits; it does not
offer them to people it seeks to recruit from other sectors. I
attach a good deal of importance to that. What we are talking
about here is an industry that turns over £50 billion a year
and is run by enormously successful major commercial interests.
I believe that in Ofcom we need people who are able to address
the many complex issues raised in the regulation of such an industry
in the interests of consumers and that the salaries we pay are
appropriate to attract those of the right calibre who contribute
to what is widely regarded as a successful regulator.
Mr Richards: I make two big points
in response to the second part of the question. First, we are
absolutely a creature of statute, so the notion that bound by
nothing we can wander around selecting things to do is simply
not a description or world I recognise. Everything we do must
be in line with our statute and is set by a framework agreed by
Parliament. In that context everything we do is challengeable,
appealable to the courts, judicially reviewable and so on. We
work to a very clear framework and have a set of duties with which
most Members of the Committee will be familiar and we are unable
to go beyond those duties and responsibilities. To add a little
colour to this, there has been an interesting development in this
area. It is often the case that people observe or criticise us
for being over-regulatory, but in some cases one finds that it
is a response to a specific area of activity. You quoted James
Murdoch as making that observation. We know full well that Sky
and Mr Murdoch are uncomfortable about our investigation into
pay television obviously because Sky is at the heart of that investigation.
It is worth remembering that the source of that investigation
was not an Ofcom initiative but a serious, significant complaint
by four separate companies. Having been presented with that complaint
we are bound to consider issues of that kind. You would be very
surprised if we did not do that. Therefore, an initiative of that
kind is frequently not ours; it is brought to us by other parties.
The second observation is that it is often those companies that
are concerned about our activities in one area that would be most
concerned if we were not active in another. Mr Murdoch is concerned
about the pay television investigation, but equally Sky now has
a very strong position in the broadband market. If we removed
regulation from the broadband market that business would be under
serious threat. Therefore, on the one hand there is concern that
we might be doing too much; on the other hand, within the same
company in this case there would be a concern if we did not do
enough. From our perspective we must take the issues as they arise
and ask ourselves whether there is something about which we need
to be concerned in line with our duties. Is it consistent with
the responsibilities that Parliament has placed upon us? We must
then make the best judgement we can and be willing to defend that
against appeal.
Q5 Mr Sanders: I want to return to
your opening statement about people with disabilities texting
emergency services. While that is extremely welcome I hope you
recognise that this is related not simply to those with disabilities.
There are people who could endanger themselves by communicating
verbally with the emergency services in certain scenarios and
for those the ability to text the emergency services would be
an enormous benefit. The possibility of having universal and comprehensive
texting of the emergency services ought to be an aim.
Dr Bowe: I completely take that
point. It works on the basis that you register to be able to text
the emergency services. I am thinking of the implications of your
point. What I do not know is whether anybody can register to text
the emergency services, but I completely take your point. If you
wish to pursue this perhaps we can take it away. You are absolutely
right that it is a really important point. I find it amazing that
we have not reached this point earlier. I am aware of someone
who was badly injured in a country area and died as a result of
an inability to roam onto an emergency service. It is extraordinary
that it has taken until now to get to this point. Perhaps we can
take that outside and pursue it further.
Q6 Mr Clapham: I turn to the relationship
between Postcomm and Ofcom. You will be aware of the Hooper Report
and the recommendation that Postcomm should go over to Ofcom.
All of us expected that there would be legislation but it did
not transpire. We are now in a situation where Ofcom is left in
what has been described as a less than ideal position. What progress
is being made to work closely with Postcomm and how is it being
followed through?
Dr Bowe: I should like to reiterate
a point made by my colleague a few moments ago in regard to mission
creep. We are servants of the statute. If the statute is not changed
then we cannot undertake activity. The preparatory work we undertook
in anticipation of this regulatory change was funded other than
by our stakeholders; it had to be done by government, because
it would be quite wrong for us to undertake work outside the boundaries
of our statute for which we charged regulated firms. I should
like to link our answer to the fact that we can do only what the
statute says. This has meant we have had to rethink how we work
with Postcomm. I do not believe it has left us in an awkward situation
because we would have had to reorganise ourselves in various ways
to take on this work, but what has been a matter of concern is
the implications for Postcomm it having been taken to the point
where it believed legislation would change its status but that
has not happened. That takes us into the area of how we are making
this work at the moment and perhaps that is more a matter for
my colleague.
Q7 Mr Clapham: I take on board that
you are not able to regulate the services of Postcomm without
statutory underpinning, but you are being urged to work together.
Dr Bowe: Yes, but there are limitations
on that. I do not want to mislead you. We can do only that which
we are enabled to do by statute. It would be wrong for us to devote
the money that is paid to us to do our statutory duties to other
duties that people would quite like us to do. That takes us right
back to the discussion about mission creep. I do not in any way
wish to be unhelpful to Postcomm. I have great admiration for
our colleagues in Postcomm whom we have come to know over the
past year and with whom we have done a good deal of collaborative
work, but it is wrong for a body such as us to go beyond what
the statute says. If you want us to take on new responsibilities
you need to change the law to enable us to do it. That said, my
colleague can tell you more about what is happening on the ground
at the moment.
Mr Richards: There is very little
to add and it is very much an echo of the point Dr Bowe made about
our statutory duties. We are extremely conscious of that. The
material manifestation of that is that to every single thing we
do we allocate a cost and charge somebody for it. That is one
of the reasons we are so conscious of what we do and how much
it costs and we try to drive down the overall cost. If we started
to do work on post we would have to allocate people's time and
the cost associated with that and charge it to somebody and at
the moment we have no vires to do that. Because we have
been urged to look at ways to co-operateobviously, we will
want to do that within those restrictionswe have done what
we hope is good practice in any inter-regulator relationship,
of which this is a particular example. We discuss and offer advice
and will respond to requests for guidance by Postcomm as we would
with a series of other regulators. That is the kind of dialogue
you would expect us to have to identify best practice in those
sorts of areas. We do that and have a very good dialogue with
Postcomm on that front. We are also looking at whether there is
a possibility of identifying any secondments that might work from
Ofcom to Postcomm, but again we would have to do that in the context
of the job that we need to do under our existing duties. Therefore,
we can look at that but we cannot guarantee that anything of that
kind would take place.
Q8 Mr Clapham: Is it fair to say
that it is close working but there cannot be any joint working
and we are now waiting to see where government wishes to go if
there is to be a transfer?
Dr Bowe: That is a very fair summary
of where we are. We emphasise our desire to be fully co-operative
with Postcomm but within the limits of our statutory powers on
which we have dilated this morning.
Q9 Mr Hall: I turn to the reactive
part of Ofcom's work which means dealing with complaints and issuing
fines. The information before us is that in 2004 just under £0.5
million worth of fines was imposed; in 2008 that went up to £4.7
million. Can you tell us what the 2009 figure is likely to be
and perhaps provide some explanation for the huge increase in
the fines imposed on broadcasters by Ofcom?
Mr Richards: The rise was because
of the premium rate telephone scandals. I very much hope that
that is a one off and we never see the like of it again. You will
recall that there was a series of major incidents where the public
was misled
Q10 Mr Hall: Duped?
Mr Richards: Duped, or whatever
words you want to use to describe it. It was a major set of issues
and it has taken a considerable period to work through all those
cases. Now all of them are done and the fines related to them
are complete. The numbers this year will be a lot lower than that.
I believe there are some broadcasting fines, but there are other
consumer fines to do with silent calls and things of that nature,
but the overall number to which you are referring will certainly
be lower. I hope we never have to resort to fines of that kind
again. It is important that we have those sanctions and that when
situations like this arise we use them, but we really do not want
to get to a point when we have to issue fines of that kind on
a regular basis. I hope that was a one-off year that will not
need to be repeated.
Q11 Mr Hall: Is there an estimate
for 2009?
Mr Richards: We would have to
come back to you on that to give you a precise estimate. I would
be perfectly happy to do that. I cannot remember the number off
the top of my head, but it is certainly not as high as the premium
rate phone scandal peak.
Q12 Mr Hall: We look at the sum of
money that has been imposed by way of fines, but what about the
number of complaints about particular aspects of broadcasting,
not the number of people who complain under the Act? How does
that match up over the four years?
Mr Richards: If we separate out
broadcasting and the consumer, which is typically telecom, the
picture is a very interesting one. There was a huge number of
complaints about some very high profile cases.
Q13 Mr Hall: I shall come to two
of those in a minute.
Mr Richards: The ones that stick
in our memory are the premium rate scandals and the Celebrity
Big Brother incidents which also caused a huge peak. In terms
of total volume the numbers have fallen since those peaks, but
if you strip out those massive one-off incidents and look at the
five or six years of Ofcom's existence the picture is extremely
interesting. When Ofcom was created a lot of people had the notion
that gradually they would become more comfortable with the diversity
of content in this environment, that is, online content and television
content with thousands of channels, and that generally speaking
complaints would decline. The opposite has been the case. There
has been a steady though not huge rise in the underlying number
of complaints, an awful lot of them generated by cable and satellite
channels. That is the intriguing underlying picture. It is not
a sharp rise, but the underlying position is that people have
continued to complain about particular television services despite
many predictions that they would tail off.
Q14 Mr Hall: Do complaints come from
the general public because broadcasters are trying to push the
boundaries to the absolute limit and have gone as far as they
possibly can in terms of watershed, for example in relation to
sexual content and foul language? Are broadcasters pushing you
as far as they can go?
Mr Richards: There are probably
two sets of issues. First, you have to separate out the very major
incidents like the premium rate and big Celebrity Big Brother
incidents where specific cases have arisen. More generally over
that period I do not believe there has been a particular change
among the big public service broadcasters. Those organisations
have always tested the boundary in the interests of innovation
and experimentation. That has been the case for a very long time
and broadly speaking that is still the case, but I believe the
boundaries are reasonably well understood by those organisations.
The increase in the volume of complaints has tended to come from
cable and satellite channels which are being run on much lower
budgets and are probably examining the boundary of what is and
what is not acceptable more regularly. Inevitably, in the context
of a smaller operation they are doing so with probably a less
well-established compliance operation. Clearly, the BBC, ITV and
organisations like that are familiar with the broadcasting code,
have serious compliance operations and are very careful. In the
case of some of the other channels, of which there are now hundreds,
the compliance operations are much more minimal and therefore
you are likely to stumble across further issues.
Q15 Mr Hall: The incident involving
the Russell Brand and Jonathan Ross Radio 2 broadcast and the
offensive material left on Andrew Sachs' answerphone attracted
huge national attention and resulted in a crisis for the BBC.
In the end Ofcom imposed only a £150,000 fine when it could
have imposed a maximum fine of £250,000. Is the limit on
the penalty that you can impose a factor in the increase in the
number of complaints because broadcasters are just prepared to
take the hit?
Mr Richards: For the BBC it is
very different from anybody else.
Q16 Mr Hall: But £250,000 out
of their budget is next to nothing.
Mr Richards: That is specific
to the BBC, so fines on other broadcasters could be substantially
higher. The principal reason for the difference is that if we
fine the BBC that is licence fee-payers' money which is public
money.
Q17 Mr Hall: Which goes into Ofcom?
Mr Richards: No fines come anywhere
near us; they come through Ofcom without touching the walls and
go straight into the treasury's pot. Therefore, all you are doing
is taking money from the licence fee-payer and giving it back
to the taxpayer.
Q18 Mr Hall: I would not be too worried
about that.
Dr Bowe: It is a slightly convoluted
way of doing it.
Q19 Mr Hall: The maximum that you
can fine the BBC is £250,000. Is that sufficient?
Mr Richards: That is fundamentally
a matter for Parliament.
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