Examination of Witnesses (Questions 369-379)|
THURSDAY 13 JUNE 2002
Chairman: Thank you very much for joining us.
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.
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
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
(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.
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 servicesand
that is service alone without ascribing any value to the contentis
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
(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 competitionand
of course people need itbut 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 requirementand
a panel is applying one good example of how to do thatto
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
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
(Mr Parrish) Yes.
Chairman: I think that is an invitation.
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 peoplewho can choose in every
single way what to watchwhether 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.
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
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.