Examination of Witnesses (Question numbers
60-79)
OFCOM
1 DECEMBER 2009
Q60 Peter Luff: But the Government
has committed to meeting the cost of it, not partially compensating
for it.
Mr Richards: And this is a debate
about exactly how much that cost is.
Q61 Peter Luff: Do you need an amendment
to the Digital Economy Bill to give you this power? Is it simply
a treasury decision?
Mr Richards: Ultimately, where
public expenditure of this kind is concerned the government and
treasury must be comfortable with what is being spent.
Q62 Peter Luff: There is a huge windfall
from these auctions and this is a small proportion of the total
cost.
Mr Richards: We certainly expect
it to be a small proportion of the total cost. To be very clear,
your description of what is going on in the sense that people
are being moved from one place to another is absolutely right.
That is why we think compensation is absolutely necessary. It
is not the only area where major spectrum reforms, which are to
the greater good, will require compensation; there are other areas
as well. What is taking place here by way of consultation is perfectly
sensible.
Q63 Peter Luff: It is consultation
on a very limited proposal.
Mr Richards: But the point of
the consultation is to elicit the evidence and detail of the kind
you have just read out. If it is the case that this compensation
does not meet appropriately the needs, requirements and consequences
of the move clearly that must be taken into account.
Q64 Peter Luff: That is a helpful
comment and I will bank it. I want to ask about security of tenure
until 2018. The change is in 2012 and it gives six years. This
kit has a long lifespan. Can we not provide more security of tenure,
say another four, five, six, seven or eight years? Is that really
enough security of tenure?
Mr Richards: That is something
we are looking at. We try to avoid permanency in all sorts of
areas. That has been debated in all sorts of other circumstances,
but security of tenure is a concern that we are looking at. I
reiterate we want to ensure that PMSE users have the spectrum
they need to operate well. I also have a personal interest in
this.
Q65 Peter Luff: That knowledge always
reassures me. It is a fine theatre.
Mr Richards: There is no molecule
in me that does not want to make sure that the users of PMSE are
able to conduct their business securely and effectively in future,
but we are engaged in one of those debates where it is difficult
to reach exactly the right answer. I believe the consultation
will elicit useful information some of which it appears you have
but we do not yet have. We will then be able to take it forward
and discuss it with the government.
Q66 Ian Stewart: You are aware that
local community television has also made a strong bid for that
spectrum and should be considered seriously?
Mr Richards: Yes. Local television
is very interested in out-of-group interleaved spectrum which
could also be used for PMSE. Other in-group spectrum has been
identified primarily for local television, and there is other
spectrum which we have dedicated to PMSE. Therefore, there is
some spectrum identified for both interests and other spectrum
that can be used for either.
Q67 Mr Clapham: I move to the important
area of privacy. I refer to the example of Connectivity. They
made it plain that the whole idea was to provide a directory service
that would allow individuals to trace the numbers of people they
did not know. That caused a great deal of concern. I believe that
the service was then suspended.
Dr Bowe: This is 118?
Q68 Mr Clapham: Yes. We then had
the T-Mobile issue where millions of numbers and addresses were
sold to brokers who then passed it on. What can we do to make
security tighter so this cannot happen? Do you have in mind any
measures that could be introduced to provide greater security?
Dr Bowe: Before my colleague goes
into that I should say that although we are watching these issues
with interest for the most part they are not within our powers
to address. I do not want to push it aside; it is an important
topic, but I say that as a preface to our response.
Mr Richards: This is a very difficult
issue for us because obviously it is to do with an area for which
we are primarily responsible. That is true of all the privacy
issues that one sees emerging on electronic networks or telecoms
services. We are at one of those interesting points where often
we are asked about this, but the reality is that we are on the
edge of our remit. Privacy issues of this kind, both T-Mobile
and 118, have been dealt with by the Information Commissioner
and the appropriate use of that data is absolutely a matter for
him. We have been in touch with his office. As you would expect,
there has been some discussion about the right way forward. I
am aware that an examination has been made of the 118 issue. They
are reviewing their position. Our understanding is that it is
likely to return to the market in due course but only with an
approved body of data with which the ICO is happy. We have applied
pressure to make sure that in circumstances where a model of that
kind re-emerges any consumer who finds himself on that database
and wants to be removed from it is able to do so pretty promptly
and easily. That is where the consumer protection concern arises
as far as we are concerned. We have tried to inject that privately
into the thinking so far and we will have to see where we are
when the business re-emerges, if indeed it does, during 2010.
Q69 Mr Clapham: You regard this really
as a matter of choice; it is for the consumer to decide whether
or not he remains on the list of a service provider that offers
to sell the numbers?
Mr Richards: There are two versions
of it. First, there is the T-Mobile case which was straightforwardly
unacceptable and wrong. I do not think we can take any other view
of the illicit sale of private data. Second, there are cases of
the 118 kind where at some point people have ticked a box or apparently
expressed their willingness to have their information used for
other purposes. Our view is that we need two clear stages: first,
it must be the case that people have elected to permit the data
to be used in that way; second, if they change their mind and
want it removed they must be able to do so quickly and effectively.
We have been very concerned about the former and the ICO has been
carrying out that check, and we have also been injecting the latter
into the dialogue. Obviously, it is no good if five years ago
you said you were happy to do it but you do not have the ability
to change your mind and have your details removed. Both parts
of that are important.
Q70 Mr Clapham: The 118 situation
comes down to choice and obviously relates to the way you would
scrutinise it and the T-Mobile issue is one that falls into the
remit of the Information Commissioner?
Mr Richards: Yes. The illicit
sale of private data of that kind is a pretty open and shut case.
We were aware of it because it was a big company from our sector
but it was an ICO call, quite rightly in our view.
Dr Bowe: This issue raises some
very interesting questions for consumer protection. All of us
at times have either ticked or not ticked a box without thinking
much about what we are doing. The fact that a business model is
now emerging where years after you have done it somebody may want
to create a commercial opportunity out of it starts to change
the game a bit for consumer protection. Our role—this is
an area where again we would like to work with the Information
Commissioner—is about publicising to people that this is
what can happen and they should be very careful.
Q71 Peter Luff: You are making a
point that is much broader than telecommunications.
Dr Bowe: This is a consumer protection
issue right across the piece and in part it is the issue of whether
people opt in or opt out. It is also about doing something at
one point and years later a business emerges which has your number
and your permission to use it. One matter that underlies this
is the broad consumer protection issue about the use of data that
we may not realise we have provided.
Q72 Mr Wright: Your report accepts
that pay TV has seen substantial growth in recent years and now
has a value of up to £4 billion. Clearly, there was concern
amongst other providers leading to consultation that you held
in 2008 which came to certain conclusions. But one of the matters
that has not been decided is whether you should force Sky to give
sport and film content to their competitors at a competitive price.
Will there be a decision on that?
Mr Richards: We expect to publish
a final statement in March of next year. At the moment we are
going through a huge volume of submissions and responses to our
last consultation. Many of them are very important, well argued
and provide evidence that we need to consider very carefully and
we are in process of doing that. We expect to conclude that process
between now and the start of next year and our board will move
towards making final decisions towards the tail end of the first
quarter of 2010.
Q73 Mr Wright: Do you accept that
from Sky's point of view—it was highlighted in a newspaper
article by Mr Murdoch—if any regulation by Ofcom is forced
upon them it would devalue their future investment in television?
Mr Richards: We do not necessarily
see it that way. A number of different things are going on. Ofcom
has not made a decision on it yet, so in a sense there is nothing
from which one can assess the consequences. In what we have argued
and proposed in the documents so far we have been careful to ensure
we take a broad view of where the consumer interest lies and what
the constituent parts of a healthy pay television and broader
television environment are. We have made clear that we think a
good outcome requires high-quality content and obviously investment.
Both of those things are pillars of our approach. The intervention
we proposed in the last consultation would be designed to address
our concern, which we have documented very carefully, about the
restriction of choice and availability of the premium channels,
football and movies, and also the risk that the restricted distribution
of those channels will dampen innovation and investment in new
platforms, particularly IPTV but also digital terrestrial. Our
concerns here are about the consumer interest and the health of
competition. Those things encapsulate investment and high-quality
content as well, so they are uppermost in our minds when thinking
about the implications of the responses we have received.
Q74 Mr Wright: Presumably, you would
agree with the Premier League that any move in this direction
will impose restrictions on their ability to invest in the sport.
There is a balance here between what the consumer wants to pay
to watch and the ability of the Premier League or Sky in terms
of film programming to provide content at a reasonable price to
stop that invasion. Do you take on board what the Premier League
says in terms of investment in the sport in particular?
Mr Richards: We are considering
what the Premier League has said about those issues. A number
of sports bodies have given us responses and those are the arguments
and the evidence we are considering at the moment. That is one
argument. Let me reiterate that one of our criteria for this investigation
is to make sure there is a continued healthy environment for investment
in high-quality content including sport. We are very conscious
of that issue and have been careful to consider it. Indeed, that
is one of the reasons why in earlier consultations we considered
a range of different approaches to the problem brought to us by
the four parties who argued for a much more interventionist approach
than the one we have proposed. One of the other options open to
us in that area is to go further upstream and start to intervene
in the sale of the rights. One of the reasons we proposed a wholesale
obligation was our concern about the consequences of intervening
in the sale of rights in terms of the amount of money that rights
holders could generate and therefore the quality of content. That
is an example of where we have been very conscious and careful
about striking the right balance among a number of competing interests
and arguments which are sometimes slightly in tension with one
another.
Q75 Mr Wright: Recently there was
a case in which Setanta closed down and could not deliver the
last England World Cup qualifying match and sold its right to
an internet provider so it could be watched only on the internet.
Surely, the best way to provide pay-per-view for sports and films
is via normal MTV channels rather than go down the route of the
internet where not everybody has a computer and access to that
content. Is that new technology as far as you are concerned in
terms of taking into account the future of pay TV?
Mr Richards: You make a very fair
point about the Setanta case and the England game that was available
only on the internet. The way we see it is that we do not believe
all eggs should be put into any one basket. The thrust of our
concern is that that premium content, particularly football and
movies, is available as widely as possible and people are able
to watch it on internet-based television services as well as other
platforms including Sky and cable. We want to see wider availability
of what we have described as must have content because people
value it so highly and many millions of our fellow citizens want
to watch it. The current restriction on the availability of it
on different platforms is one of our concerns. The second concern
is that if that restriction on availability remains we are unlikely
to see innovation and investment in the development of other platforms
which have been enabled by technological change and evolution.
We would like those to be developed because we believe that is
in the wider interests of both competition and in the long run
the consumer. Our argument so far is that that can be achieved
in a way consistent with investment in high-quality content and
companies who takes risks being able to make returns in line with
those risks where they are successful. We are trying to ensure
that we keep all of those things in line, but we are looking through
all of the responses very carefully at the moment and have not
made a final decision. A number of organisations have presented
us with serious arguments and evidence in response to the consultation
every bit of which we shall examine carefully.
Q76 Miss Kirkbride: What role will
Ofcom play in the proposed merger between Orange and T-Mobile?
Mr Richards: I think our role
will be a very important one because in a nutshell it is crucial
in a merger of this kind that we stand up for the consumer. At
the moment the merger has not been notified to any competition
authority. When it is it will probably be notified to Europe and
then there will be a discussion as to whether it is dealt with
by the European Commission or brought back here to be dealt with
by the Office of Fair Trading. Whichever route is taken we shall
provide evidence and argument about the merger and the consequences
for competition and consumers. It is important that we play that
role because there is something approaching a consensus in the
City and the investment community that there must be consolidation.
Views are expressed in the industry that there should be consolidation.
That view is qualified in some areas but the view is that somehow
consolidation must happen. Therefore, somebody must ask very robustly
whether it is in the interests of the consumer and, if it was
approved, what conditions may need to be imposed to ensure that
the consumer as well as the companies benefit. I see that unequivocally
as our role and one which is extremely important.
Q77 Miss Kirkbride: Have you done
any work on those precise issues and whether or not it is right
that there should be consolidation, in particular what safeguards
the consumer might need to have in place were it to proceed?
Mr Richards: There are two elements.
In the past year or so we have done a mobile sector assessment
which has allowed us to understand the economics of the sector
and where consumers benefit or otherwise. That has put us in a
very good position to be able to make an argument and express
our concerns, if we have any, in relation to this issue. Because
we are aware of the proposed merger, even though technically it
has not been notified yet, we have begun to do a little bit of
work about the issues that may arise. We have not made that public
yet and it is still very much work in progress. The tension at
the heart of it as far as we are concerned is whether if there
is a loss of competition do consumers end up paying for it by
way of higher prices or a lower quality service? That will be
a central issue for us. Where do the benefits of this merger fall?
Weighing on the other side is the investment argument. We talked
earlier about the release of spectrum and how important that is
for the next generation of mobile broadband. I think the argument
to be put is that a merger of this kind will support that investment
and make those network deployments more likely. Clearly, we shall
consider that seriously because it is in the interests of consumers
to have those networks built, investment put in and new services
developed. It is a very interesting case and those are the issues
that we shall be trying to weigh in the balance ahead of making
a submission to whichever competition authority ends up taking
the lead.
Q78 Miss Kirkbride: What you have
said so far rather suggests that possibly there is quite a good
case for some consolidation in order to get the investment in
this highly investment-led industry. Can you give us a flavour
of where the consumer problems might arise that you have identified?
Mr Richards: There are two arguments
each of which need to be weighed. Where might consumer concern
arise? Quite straightforwardly, it would arise from a loss of
intensity of competition in the market. It will be for the merging
parties to demonstrate and give us and the relevant competition
authority confidence that that will not happen so that consumers
will not benefit. Inevitably, one hears conversation in the City
about this kind of thing and occasionally people say that this
merger is very attractive because it will reduce pressure on prices.
What does that mean? It means a loss of competitive intensity
and implies higher prices, so we shall be concerned to see that
that is not the outcome and UK consumers can be confident that
they will still get a very attractive deal from a competitive
market from which they have benefited over the past few years.
Q79 Miss Kirkbride: Do you think
there might be any difference between the adjudication in Europe
and the OFT and that those two authorities may see things slightly
differently?
Mr Richards: From the point of
view of competition analysis I would expect their approach to
be very similar. It is one of those cases where there will be
a discussion about where it is appropriate to take it. There are
precedents at the European level. Equally, the substantive issues
are primarily UK-based, so there will be an interesting discussion
but the underlying approach to the question will be very similar.
It is a competition analysis with which we are very familiar and
on which we would work with them.
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