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

Examination of Witnesses (Question numbers 40-59)



  Q40  Ian Stewart: I am the founder and current chair of the All-Party Community Media Group which includes community radio. Is the funding regime for such a great success as you put it adequate?

  Mr Richards: Without any doubt the funding regime is one of the most difficult issues. When I visit community radio stations it always comes up as an issue. The other day I was discussing with them the consequences of the recession and unsurprisingly they said it had been really tough this year. What local advertising they are allowed to buy or sell has fallen off and they face more difficult circumstances. Clearly, there is an argument for looking at that regime and increasing funding, but that is a matter for the department rather than Ofcom because principally it comes back, first, to whether there is more or less public money available—there is a modest amount at the moment—and, second, whether community radio stations are able to buy or sell more advertising. Most of the ones I talk to do not believe there is much scope in that area because they face very aggressive and effective competition from the fully licensed commercial radio stations. Finally, it is worth noting that the latter sector would be concerned if community radio became something other than that. That is an additional concern.

  Q41  Ian Stewart: That is not my experience having been in discussion with the commercial sector. The concern is about the micro-end of the commercial sector; to some degree, it is the tail wagging the dog. You will be aware that local community television is the next phase. Do you understand the implications of the restrictions on the community radio sector which in turn means we may not be able to get the exciting plans for local community television off the ground?

  Mr Richards: The primary restriction is the amount of money available. Are you referring to the funding restriction?

  Q42  Ian Stewart: There are also regulatory restrictions.

  Mr Richards: The primary problem with regulatory restriction is the amount of other funding that they can access. A lot of the stations I have spoken to—not all of them—have said that that is not necessarily their biggest problem because they are not sure they could sell that much more even if they were allowed to. Therefore, how much of a real obstacle that poses is an empirical question. They usually tell me that life would be a lot easier and they could do a lot more if the amount of public money available was greater. I have to say to them that of course I recognise that but they must talk to the department about it; it is a funding issue for government, not the regulator.

  Q43  Ian Stewart: This morning you have gone on record as saying this is an extremely successful and exciting initiative, much more than anybody thought it would be. What input can you make as Ofcom in advising the government about how to make the best of such an exciting and successful enterprise in future?

  Mr Richards: First, as I alluded in my answer to Mr Sanders we must and will continue to do everything we can to identify more spectrum and open up new opportunities. Second, we can be part of the debate with the department about whether there are issues in the funding model that provide obstacles that could be reconsidered. One other example is not about the funding regime per se but the application model and the criteria set for successful application. We have always felt and have told the department that those are quite high thresholds for some potential community radio stations. One sees this as one talks to them and realises how dependent they are on the time of volunteers and so on. They are not businesses with large numbers of people who are available to write applications. That is a challenge. In the past we have asked the department whether there is a way to look at those criteria and the application model to make it easier so more people can enter that area. The kinds of areas where that might be of benefit are obvious. The last thing young people who currently operate pirate stations want to do is fill in endless bureaucratic forms. They might be tempted by a community radio licence but not if it involves form-filling that is completely alien to them and they do not want to do it. We have pushed the department on that a little and we are very happy to do so again.

  Q44  Ian Stewart: Are you also aware that the ability of some organisations to complain before an application is made is a great problem and precludes certain areas of the country from having any community facility at all?

  Mr Richards: Yes.

  Q45  Ian Stewart: What is your attitude towards that?

  Mr Richards: That is one issue we come across in different forms. The differential ability of some organisations and parties to complain and obstruct ahead of smaller organisations or individuals who might and often do have a legitimate interest is a real problem that we encounter all the time. One of the hardest tasks but most important challenges is make sure we recognise complaints that are made about obstacles presented by more powerful organisations or entities as a way to prevent smaller, less powerful but often more innovative organisations from having opportunities. That is a serious challenge and is one of the reasons you have a strong and well resourced regulator to stand up to those situations.

  Q46  Ian Stewart: Will you keep the Committee informed of any progress you may make along these lines?

  Dr Bowe: Perhaps I may go beyond that. I have been listening to this exchange with great interest. I believe I heard you say that we were micro-regulating this sector in an unhelpful way. Perhaps I may suggest and my colleague and I talk to the all-party group. If there are specific things you want to put to us we are more than happy to hear about them. I hope you have picked up from this that we are big supporters of community radio.

  Q47  Ian Stewart: That was why I wanted you to be on the record.

  Dr Bowe: Excellent! Can we meet the all-party group?

  Q48  Ian Stewart: You can do so but you will need to move fast because, as the Queen would say, we are abolished; we go at the next election.

  Dr Bowe: We will move fast but we would very much like to do that.

  Q49  Mr Whittingdale: I want to ask about Channel 4. There is no equivalent of the BBC Trust—there is really only Ofcom as an external regulator.

  Dr Bowe: Yes.

  Q50  Mr Whittingdale: You have just appointed a new chairman of Channel 4 and retain responsibility for approving the overall framework within which it operates. How satisfied are you with your level of oversight into the workings and finances of Channel 4?

  Dr Bowe: From my point of view I am very satisfied. It is the responsibility of Ofcom to appoint the chairman and board of Channel 4. In order to be able to carry out that responsibility adequately we keep ourselves very well informed of our understanding of Channel 4 as a business and public service broadcaster. You mention that we have just appointed a chairman. We are extremely pleased that somebody of the calibre and stature of Lord Burns is willing to take on the chairmanship of Channel 4. We have very close contact with the channel and keep a close eye on it as both a business and a broadcaster. We believe that we have a communicative, good and solid working relationship. It is a completely different model from the one that is embodied in the BBC Trust, but we believe that it works and delivers.

  Mr Richards: The relationship is very good. We have never had a problem with the clarity of that relationship. In my time at Ofcom the board of Channel 4 has taken its responsibilities in relation to the public service remit more and more seriously, which we welcome. That has happened under Luke Johnson's chairmanship and it has been a good thing. I do not believe we have any concerns on that front. Clearly, if Channel 4 is to be more definitively the other public service broadcaster alongside the BBC because it is publicly owned and is therefore distinct from ITV and Five the weight of expectation on that front will increase and become very clear, but the primary responsibility for that must obviously be the channel's board.

  Q51  Mr Whittingdale: There is a charge that Channel 4 tends to demonstrate its fulfilment of the public service remit by the odd worthy high-brow programme but the rest of the schedule is almost exclusively American imports and rather low-brow material. Do you look to see whether Channel 4 is fulfilling its public service remit?

  Mr Richards: Yes, we do. We like our analyses of these things and have a good deal of data about that kind of problem. Historically, there was a time when Channel 4 was heavily reliant upon American imports. It still has some powerful American imports but less so than it used to. The bigger issue in recent times has been its reliance on Big Brother as a format and driver of revenue, but in Channel 4 there is always a balance to be struck while it operates with the present model. It is a commercial public service broadcaster and so it cannot do what you would expect of the BBC. If someone gives you £3.6 billion of public money you can choose your schedule. If you have to raise money in the market by selling advertising you have to find a sufficient mix of programming or number of programmes which will definitely sell advertising and raise enough money. In Channel 4 there is always a balancing act about making sure you have enough programmes that are profitable so you can break even alongside those programmes that you want to do more for public service reasons but which you know will not be as profitable as some other choices you can make. Therefore, the schedule balance on Channel 4 is demanding and it is more difficult to achieve your public service goals than it ever would be on the BBC. You see those challenges being met every week in the schedule. They are in for a very important period in their history. Whatever one thinks of Big Brother it was fantastically commercially successful for the channel. It has announced that it is to go and its replacement will provide an enormous opportunity and challenge. It has to be replaced with innovative public service programming which also brings in enough money to make sure the channel is viable.

  Mr Whittingdale: I hand over to Peter Luff.

  Q52  Peter Luff: I want to explore three issues with you this morning from the BIS perspective: spectrum, mobile telephony and pay TV. We considered broadband speed at length last week with Mr Richards. Starting with spectrum, simply and factually what impact has the Digital Britain Report had on the process of releasing spectrum from mobile telephones?

  Mr Richards: The Digital Britain Report is a very important moment in the development of the plans to release spectrum. This is extremely important to us and the country. The two significant releases, 2.6 GHz and 800 MHz—the so-called digital dividend—are both extremely valuable in terms of what they can do economically for the country and are extremely important to consumers, both private individuals but also businesses. They are the raw material that will provide the input to the next wave of mobile broadband which everybody expects to be crucial. That is the important background to this. We were making progress in relation to the release of those chunks of spectrum but, as is well known, there were considerable differences of opinion between the mobile operators and inevitably that would slow it up.

  Q53  Peter Luff: That is putting it politely.

  Mr Richards: I always try to be polite about our licensees. Those considerable differences of opinion meant that we faced a delay in the release which no-one wanted in terms of long-term development but was the reality in the short-term. In light of that the Government considered whether there was an opportunity here using the wider range of powers within its control alongside the power and influence of government to try to find a solution that enabled us to move forward more quickly. That is now on the table. There are clauses in the Bill that would enable that to happen. It would result in a power of direction to Ofcom with which we are completely comfortable. We are supportive of an early resolution. The details of the proposals have been hammered out between government and the players so that is a matter for them. We have not been directly involved; we have offered only technical advice and support. We await the next stage of that process.

  Q54  Peter Luff: Can you give any indication now of the timescales for the auction of the 900 MHz, 800 MHz and 2.6 GHz bands?

  Mr Richards: It is totally dependent on whether or not this direction goes through. If it does we aim with a fair wind to auction the 2.6 GHz at the back end of 2010 and probably the 800 MHz in the first half of 2011. It is a moving feast in both cases and we are very clear that we want to release them as soon as possible and are doing everything we can in collaboration with other parties in the UK but also international colleagues because one of the risks of delay is the absence of international agreements over the clearance. We are doing everything we can to try to smooth the path to ensure early release. That is the approximate timescale, but we certainly want to keep the Committee up to date on that area. It will evolve.

  Q55  Peter Luff: I know it all sounds so "anoraky", but it is of huge importance to the future of the digital economy of this country. Let us move from the macro to the micro. Perhaps I may remind you of what the Digital Britain Report said about radio microphones and Programme Makers and Special Events (PMSE) users: "The Government will facilitate this re-planning and will meet the costs incurred by broadcasters and PMSE users as a result of these changes." I emphasise "will meet the costs". Why do you propose just a limited programme of compensation for users?

  Mr Richards: There are lots of issues and questions behind that text.

  Q56  Peter Luff: It seems pretty clear to me.

  Mr Richards: The first element is that in discussion with the government we made clear we felt there would be a cost and that the process of moving people would require some kind of compensation. We are very supportive of that principle and have helped to drive forward that thinking. Perhaps I may backtrack as this is a controversial issue and a campaign is under way. I should like to set out the full range of issues.

  Q57  Peter Luff: It is a very strong campaign that is making some very powerful enemies at present. We have made such good progress on this issue; do not throw it all away now.

  Dr Bowe: That is why my colleague would like to back up for a moment so you can see how we have handled it so far. We know that we have worked very well with you on this and would like to get this on the record.

  Mr Richards: Why are we doing this? Nobody likes being evicted or moved out of their spectrum holdings at any point in time. The reason we are doing it is precisely the one you have mentioned: there is a huge opportunity for more efficient use of spectrum which will enable all these new services around mobile broadband which are worth billions to the UK consumer and business. Therefore, there is a powerful set of reasons for doing it. First, we are very clear that PMSE users are a very important group of spectrum users and there is no intention on our part other than to make sure their interests are appropriately protected. We thought about this very carefully over a period of time. The first point is that for PMSE users we have given a considerable period of notice for the changes that must take place. It is not something that will emerge tomorrow; it will not happen until 2012 and the period of notice is between four and seven years. Second, we have to ask ourselves: have we identified spectrum for PMSE users which will meet their needs? We have identified channel 38 and interleaved spectrum between channels 21 and 30 and 39 and 60. The hard question is: is that really enough? The answer to that is that we have modelled the use and tested the greatest demand that has been required for PMSE in the past and we believe that that allocation more than meets it. If others take a different view we need to hear that but that is what our evidence suggests. The final element, with which you began, is: even if there is enough spectrum and it is clear where it is and the move is demonstrably in the interests of the UK as a whole, which we believe it is, should there be compensation for that move? We have said that, first, there should be; second, we have consulted on the sum of £15 million to £30 million. That is derived from a very simple estimation of the amount of kit out there. Let us assume that it is half-way through its useful life. If you apply those two criteria the range with which you come up is between £15 million and £30 million. The government and treasury are aware of this, but the fundamental question of whether it is enough money or it should be whole life and the number must go up must go back to government because they will be writing the cheque, not Ofcom. All compensation payments of this kind for spectrum changes of this form are agreed individually by the treasury with us. We are not at liberty to make individual judgments about that; it is government approved.

  Q58  Peter Luff: I am inclined to believe you and not the treasury, but what they say to me privately is that it is your responsibility.

  Mr Richards: It is our responsibility to estimate the issue and that is what we have done with the consultation, but you are familiar with the way public expenditure works and there is no doubt that we are not in a position to promise tens of millions of pounds to private companies.

  Q59  Peter Luff: You need to be advocates for the sector whose interests are being threatened by this move. The sector derives no benefits whatsoever from these spectrum changes; it causes only disruption to existing practices. You have rightly identified the huge public benefits that flow from the broader aspects of these changes, but it is right in these circumstances to compensate generously a sector that has just been messed around with for reasons, albeit very powerful ones, not of its own making. Further, you do not offer security of tenure in the new band. I believe that the proposal goes up to 2018. This kit has quite a long life and you do not propose to compensate full cost and you give security of tenure for only six years. No wonder they are becoming a bit worried. We have had to fight very hard to get to the situation we have reached, which I accept is a great improvement on where we were. I have an interest: my son trained as a sound technician at LAMDA. I got a letter yesterday from LAMDA saying that they will not qualify for compensation for their kit under your ruling and cannot afford to replace it. They say that what you are doing will dramatically drive up the cost of hiring the kit they need for major musical productions. That is a crucial part of the training of young actors. They say that they will not be able to put on musical productions any longer under your proposals. Obviously, that is a devastating blow to LAMDA and the broader arts sector; the same is true for RADA, the Central School and Bristol Old Vic. This is not a light matter. This stuff may be half-way through its working life but these schools will be using it for years and years. You will take it away from them and they will have to buy in or hire new expensive stuff. Hire companies will put up the price. This is a really big issue.

  Mr Richards: It is a big issue and we take it very seriously. We are not doing any of this lightly.

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