Joint Committee on the Draft Communications Bill Minutes of Evidence

Examination of Witnesses (Questions 369-379)



  Chairman: Thank you very much for joining us. Janet?

Baroness Cohen of Pimlico

  369. In the evidence you submitted in writing you argued that OFCOM's general duties should include a specific reference to encouraging sufficient investment in infrastructure and promoting innovation. Will the primacy of competition not do that? Why do you feel the need for a special one?
  (Mr Parrish) For two reasons. One, first of all, is that a lot of investment in order to bear fruit has to be long term and therefore the way in which the regulation is approached should ensure that a long-term view is taken. Secondly, the regulation should be pragmatic insofar as what we end up with is something that actually works. There have been examples, notably the unbundling of the local loop, where we struggled to try to do something and where essentially we failed to arrive under the current legislation under which OFTEL operates, which is pragmatic. So it is pragmatic in the long term that we have been encouraged in promoting that interest in investment as a particular objective of OFCOM.

Lord McNally

  370. Are you asking OFCOM or the Government to back winners, which in other circumstances the private sector is always saying is no business of either regulators or government?
  (Mr Parrish) Absolutely not. I think very much the reverse of that. In fact, we recognise that of the people who will decide what services are of value to the community in 15 years' time none of them are this room because we are mainly middle aged people and we know nothing of what people will want in the future. We are not saying that. We are saying you have to have an open and competitive environment which allows entrants to invest and invest in the long term. Mr Cooke has some examples of some things which were done very well in the past which has allowed new industries to develop.
  (Mr Cooke) Perhaps we could look back at what we think we did well and perhaps also take the opportunity to look forward. Looking back at what we did well in terms of long-term decisions, I think deregulation in the 1980s, the licensing of the wireless technologies (both digital and mobile phone) to the GSM standard and digital broadcasts to the DVB broadcasting standard were examples of a long-term strategic view. For example, with GSM and in matters that concern spectrum, by its nature you need a long-term view. The United Kingdom played a pioneering role in getting harmonised spectrum for those wireless technologies and that benefited both the industry and the consumer and the operators and that is now a global business and a global market in which the United Kingdom continues to be a major player. The same with digital video broadcasting. Looking back, that was a very long-term strategic view particularly where spectrum is concerned it is important to have harmonisation and harmonisation in particular technologies. With 3G, for example, it was over ten years ago that we agreed to harmonise the spectrum on a global basis for that particular technology. That was a very forward looking strategic view. Those are the examples that I would cite of past areas where we have needed a longer-term strategic view.

Baroness Cohen of Pimlico

  371. I myself do not see the point of including words in the Bill unless they have some active, definable purpose. If we had a specific reference to encourage innovation what would that do?
  (Mr Parrish) I have been told, first of all, that Oftel has been guided to is a significant extent in carrying out its duties by the statement of those duties in the legislation. This legislation does include a statement of the purposes of OFCOM and it seems to me that getting those stated correctly and getting our priorities right is a very important task, but we do not stop there. We also make other proposals which would, if you like, enact that intent in other ways. We are proposing the creation of an economic advisory board which would have some statutory recognition and perhaps solve the problem that we addressed earlier today of not being able to refer in consultative terms to bodies specifically which are not statutory bodies. The role of this body would stretch right across the broad range of issues and would not just be confined to content and it would look at the economic implications for the longer term and the short term of the legislation. Similarly, we propose a very open, transparent process with public hearings where possible so that everybody understands the basis on which decisions are being made and are guided in their long-term decisions by an understanding of what it is that OFCOM is trying to achieve.

Paul Farrelly

  372. I wanted to touch on your proposals for an economic advisory panel. This is not a unique proposal from Intellect. The cable operators came up with an economic regulation board similar to the content board. Adopting your proposals and theirs would mean that OFCOM would have two boards and two panels. The consumer panel that you referred to was proposed generally because it was felt that consumers found it very difficult to get into the regulatory process, certainly far more difficult than the industry. Is there not a danger with your proposal for an economic advisory panel that it would make the whole process unwieldy and potentially a recipe for paralysis because this panel would seek to second-guess every decision OFCOM made?
  (Mr Parrish) I do not think it is any more true of this panel than any other. I cannot say the difference between that and a body representing consumers or a content panel. OFCOM is going to need a lot of help. Perhaps if I were to put it in perspective. The total revenues of all television companies in this country of everybody's broadcasts is about £7.5 billion per annum and that includes what the consumer pays for content. The revenues of the companies providing telecommunications services—and that is service alone without ascribing any value to the content—is about £30 billion, upward of four times that, so it is a much bigger industry and it is very, very complex industry. We have talked a lot today about broadcasting content. What we are talking about in the future is controlling a much more complex industry and I think everybody is going to need all the help they can get.
  (Mr Hochhauser) Could I pick up a point in this context. Lord Puttnam, you asked earlier about Mr Verwaayen's comments on local loop unbundling. We as a company (Video Networks) would have benefited greatly and we would be benefiting greatly now from the introduction of local loop unbundling. Frankly, failure to take into account the true economic and perhaps business implications of what Oftel were proposing at the time for the introduction of local loop unbundling, the so-called bow wave process, essentially caused companies to drop out of the ability to plan and therefore raise money at the right time and it has given us a two-year delay for the period of the contract. Had there been a requirement for Oftel to fully take into account not just the need for competition—and of course people need it—but the practical issues of making every single telephone exchange available to every single company that wants to put their equipment, they would have seen it was impractical and does not allow for any raising of money for the provision of a service like ours. Had there been a requirement—and a panel is applying one good example of how to do that—to make sure that that view was put across to the regulator in the case of OFCOM, we would be in a very different position than we are in now. We are desperate for local loop unbundling. We only have one product which is still costing us £50 a month.

  373. Was there a gulf in understanding or an unwillingness to understand the problem?
  (Mr Hochhauser) There was a consultation process and these points were put but there was no requirement for the regulator at the time to necessarily use those in guiding a practical solution to the introduction of local loop unbundling. What we are talking about here is putting more teeth into the requirement for the regulator, in this case OFCOM, to take into account economic and general business plans rather than just going along with the mantra "competition good; no competition bad."

  Chairman: That is very helpful. Thank you very much indeed.

Lord Crickhowell

  374. In your submission you talk about the importance of OFCOM's actions and decision making being transparent and the importance of meaningful consultation and so on. You suggest that it is important that OFCOM should hold open meetings and public hearings on the lines of the US FCC. You spoke a few moments ago about public meetings whenever possible. The Government has said that it wants public meetings. Do you want anything actually written into the Bill on this? Do you want to be specific and what do you mean by "whenever possible"?
  (Mr Parrish) I think I still have a piece of work to do on "whenever possible". Yes, I would like words written into the Bill. We have been advised by the Bill team not to actually suggest words to them but we will work on them.

  375. You might come back to us if you have any further thoughts.
  (Mr Parrish) Yes.

  Chairman: I think that is an invitation.

Anne Picking

  376. Do you agree with the Government's claim that Clauses 154 and 155 as drafted would not require licensing of video-on-demand services and how would you view the idea of bringing such services within the scope of licensed content by subsequent secondary legislation?
  (Mr Hochhauser) You have a video-on-demand member on the panel here. I am not sure whether the definition in the Bill does specifically exclude being on-demand, it has been interpreted as such, the intent is certainly such. We have been informed the intent is such as to exclude video-on-demand from the need for regulation so I am taking it that is the intent. It would be for the legal view to take a view whether in fact the wording, the definition of broadcast, would actually exclude video-on-demand but perhaps I could answer your question specifically as to whether video-on-demand should or should not be regulated. Our view is that it should not be regulated because video-on-demand gives the customer total freedom to choose, to choose what to watch and to choose when to watch, and to choose how to watch. It is the ultimate in choice. We have this in life anyway. A person can go to a video store. A person can go on the Internet, we heard earlier, and make that choice. We have to ask ourselves is it our duty here to regulate people—who can choose in every single way what to watch—whether they should be held back? Should we regulate what it is they watch in a way that is not covered by other legislation? There are obscenity laws. There are defamation laws. There are laws on misselling. It is not relevant in a video-on-demand situation to stipulate how many minutes per hour advertising should appear anyway because the customer chooses what to watch. Therefore video-on-demand lends itself to customers making their own selections and making their own choices. There is the question of the protection of children. There is the technology, the use of PIN numbers, the use of cards, the use of technology certainly to allow protection of children either before or after nine o'clock in the evening, it becomes irrelevant. It is a stronger protection than a watershed. The question is again do we see ourselves protecting those children whose parents do not particularly want their children to be protected? I would maintain not. I think it is up to parents to decide what their children should and should not see. Part of our contribution to the process at the moment is to consult others in the industry to put forward a code of practice which would allow us to introduce, and indeed we already have, methods by which children can be protected for those parents who want their children to be protected and then rely on other legislation to protect against wrong conduct.
  (Mr Parrish) Perhaps I could help the Committee out of what I think is probably a trap. We have this statement that there is no intent to regulate Internet content, at the same time a set of words which makes it possible to do so because there is the thought that a whole lot of stuff is going to move on to the Internet in future and we might want to regulate it later. What I would propose quite simply is that we specifically exclude at this point the Internet from content regulation. If at some later time we think we may have to regulate Internet content we can bring forward more primary legislation. OFCOM is responsible to the Houses of Parliament and OFCOM should determine when the regulator is given more powers. I do not think you can square a circle by having one intent to not regulate the Internet content and try and have a definition which tries to do so.

Mr Lansley

  377. Have you not just described what the Bill intends to do? Are you proposing an alternative mechanism of defining the Internet for the purposes of excluding Internet content from regulation? The Bill is constructed around the proposition of trying to define "generally available" to members of the public. Yes, availability for reception by members of the general public. Are you looking for a different definition than that as a means? Are you looking for a boundary around the Internet that says any content—
  (Mr Parrish) I might want to fall back on an earlier definition of, say, broadcasting which talked about two lots of separate people being able to receive the same material simultaneously. There are words which I think we should use to make it absolutely clear.

  378. Does the Internet not allow that to happen?
  (Mr Hochhauser) If we establish in a broadcast a service that is specifically designed for the simultaneous reception in two or more homes, the Internet is not designed specifically for that purpose. It so happens that certain content can be simultaneous.

  379. Is not web casting precisely designed for that purpose? Is it not like broadcasting in that sense? If you try to put a boundary around the Internet you will be inviting people, maybe rightly you want to do this, you may want to say "Well, people can pull it off the Internet if they want it". That is a different argument.
  (Mr Hochhauser) The reason we are all having difficulty here is because we are coming at it, in looking at content regulation, with a number of different parameters in mind. One of them is does the customer control what they see. In traditional broadcast the customer has not controlled what they have seen. Simultaneous reception in free-to-air broadcasting generally is being made available with very little control. Therefore, the question we have to ask ourselves is in an era where people can control what they see and how they see it, is there a role for content regulation. The Internet video-on-demand would argue against. The second issue perhaps to be borne in mind is practicality. Is it practical to regulate the content in certain environments? I am sure people were thinking about regulating in the previous Act. Actually the Internet should have been regulated under the previous definitions but was not because from a practical standpoint it is practically impossible to deal with that except obviously under existing legislation. It is very difficult except trans-nationally and totally internationally to deal with that situation. The third issue is in a world where band width is not rationed is there a rationale for regulating content? One could say that in a world where there are three channels, four channels, five channels, yes we can impose certain restrictions on, as I mentioned earlier, the number of minutes per hour of advertising content or what proportion of content should be national against international but in an era where increasingly band width is less rationed, and certainly for those delivery mechanisms where band width is less rationed, we again have to ask the question is it right to regulate the content.

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