Examination of Witnesses (Question numbers
40-59)
OFCOM
1 DECEMBER 2009
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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