Ofcom Annual Plan 2009-10 - Business, Innovation and Skills Committee Contents

Examination of Witnesses (Question numbers 1-19)



  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 scheme—at the moment there are 133 such people out of a total staff of just in excess of 800—are 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-operate—obviously, we will want to do that within those restrictions—we 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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