Select Committee on BBC Charter Review Second Report



43.  Radio frequency spectrum (used for analogue broadcasting and, in a more efficient way, for digital broadcasting) is a scarce and increasingly valuable resource. Its value has increased because competition for it has grown dramatically in recent years with the advent of spectrum hungry services such as mobile telephones. In the past the Government has allocated unpriced spectrum to public service users and in exchange, free-to-air broadcasters have been required to discharge public service broadcasting commitments.

Should the BBC pay for spectrum?

44.  In 2001 the Government commissioned an independent review, led by Professor Martin Cave, to look at the future of spectrum management and develop principles to promote efficient use of the radio frequency spectrum. Professor Cave published his report in 2002. He recommended that "spectrum pricing should be applied over the coming decade to all spectrum which is used for broadcasting". He also specifically recommended that "Ofcom should have greater oversight of the BBC's spectrum use".[12]

45.  Following these recommendations the Communications Act 2003 gave Ofcom a duty to secure optimal use for wireless telegraphy of spectrum (Section 3) and the power to charge for wireless telegraphy licences (Section 1 of the Wireless Telegraphy Act 1998 as amended by paragraph 145 of schedule 17 to the Communications Act 2003). Accordingly, the BBC needs a licence from Ofcom to establish or use wireless telegraphy apparatus to transmit its programmes and Ofcom may charge the BBC for that licence.

46.  In its report "Driving Digital Switchover" Ofcom stated that "We will consider charging companies who use the spectrum from 2006. This would give broadcasters an incentive to use as little as possible. If we decide to go ahead, charges could apply for the first time to the BBC, Channel 4 and S4C in 2006".[13] Lord Currie of Marylebone, the Chairman of Ofcom, told the Committee that Ofcom would be consulting on this proposal this year (Q 1438). If Ofcom do decide to charge the BBC and Channel 4 for spectrum the money paid will go directly to the Treasury. Private sector users of spectrum already pay the Government for the spectrum they use. We note that the Communications Act 2003 gives the Government the power to direct Ofcom in its decision about who to charge for radio spectrum. Section 156 of the Act empowers the Secretary of State to "by order give general or specific directions to OFCOM" with regard to radio spectrum.

47.  We took evidence from Professor Cave who explained the logic for charging public services for the use of spectrum: "Clearly, the commercial spectrum users will be under commercial pressures to economise on spectrum. There is, however, a concern… that if the public sector spectrum users get it free, they will get too much and we will have an imbalance… For that reason, I have proposed the extension of a system that was introduced in 1996 which means that public sector spectrum users actually make some kind of payment". He went on to argue that such a policy would have two benefits: "Firstly, it makes transparent or more transparent how much public services are actually costing… The second reason is that it provides signals for broadcasters to make sensible decisions about how to achieve their… objectives" (Q 1746).

48.  However, having argued that the BBC should pay for spectrum to ensure its efficient use Professor Cave also stated that the BBC currently uses spectrum efficiently (Q 1756).

49.  Many of our witnesses were strongly against making the BBC pay for spectrum. Lord Puttnam stated that "an already relatively cynical public [know] full well that this is double dipping. They are having their pockets picked for a licence fee and that licence fee is being picked again for that money to go back to the Treasury" (Q 1770). He argued that the licence fee would be much better spent on BBC services. Michael Grade agreed. He argued that "The justification for charging the private sector for-profit organisation for the use of the spectrum seems to me intellectually perfectly justifiable in the sense that this is a national resource, the airways belong to the nation, shareholders are making hopefully a decent return on their exploitation of that publicly owned utility... It seems to be inconsistent to apply the same logic to the BBC, because the BBC is there to provide a public service for which the public pays and to take money back through spectrum charging seems to me to be fundamentally illogical" (Q 1999).

50.  Andy Duncan, the Chairman of Channel 4, argued that as a not-for-profit public service broadcaster Channel 4 should also be exempt from spectrum charging. He suggested that the requirement to pay for spectrum might bite at exactly the same time that other pressures began to cause real problems for the channel. He went on to state that "Capacity has historically been a very good way of helping drive the public service model, both in our case and the BBC's case and, going forward, we think it is one of the best ways in which you could underpin Channel 4" (Q 1137).

51.  It is our conclusion that it would be illogical and unfair for licence fee payers to pick up the costs of ensuring the BBC uses its spectrum efficiently. This is particularly true when it is acknowledged that the BBC already uses its spectrum efficiently. Although we recommend that the BBC's use of spectrum should be kept under review we do not believe that licence fee payers should pay a charge that goes straight to the Treasury.

52.  We also recommend that Channel 4, as a not for profit public service broadcaster, should be exempt from spectrum charging.

53.  The decision as to whether to charge the BBC and Channel 4 for spectrum will have a direct impact on the quality of public service broadcasting and on the level of taxation to which the public is subject. The Government should therefore use their powers under Section 156 of the Communications Act 2003 to direct Ofcom to exempt the BBC and Channel 4 from any charge for radio spectrum.

54.  Finally we note that the Government stand to benefit financially from digital switchover in two ways. Firstly through receipt of the proceeds of the sale of analogue spectrum and second through receipt of spectrum charges placed on broadcasters (commercial and, under current plans, the BBC and Channel 4).

55.  In our first report we noted that "the Government will be in direct receipt of the proceeds of the sale of analogue spectrum" and explained that "although the value of this spectrum will not be known until it is sold it is undoubtedly a very valuable asset".[14] In the course of this inquiry Professor Cave told us that, although it is hard to estimate the value that may accrue to Government from the sale of spectrum, he estimated a value of between £0.5 billion and £1.5 billion (Q 1753). These are huge amounts even before the revenues from spectrum charging are added to them. These projected revenues will arise from the same decision as that which means the BBC will be required to cover the costs of switchover for the "vulnerable". They should logically be used to cover the costs of that decision. We therefore recommend that the proceeds from sale of analogue spectrum, and any receipts from the charging of broadcasters for spectrum, should be used to cover the costs of digital switchover.

12   Review of Radio Spectrum Management, An independent review for Department of Trade and Industry and HM Treasury, Martin Cave, 2002, para 124, p. 29. Back

13   Driving Digital Switchover, Ofcom report to the Secretary of State, April 2004. Back

14   First Report of Session 2005-06, para. 200. Back

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