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

Examination of Witnesses (Question numbers 60-79)



  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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