Select Committee on Culture, Media and Sport Minutes of Evidence

Memorandum submitted by the Independent Television Commission (ITC)


  1.  Convergence is driving economic growth and consumer choice, but it will develop in unpredictable ways. Consumer behaviour and preferences can be the only guide to public policy. For example, no regulator and few pundits would have predicted two years ago how text messaging would drive the take-up of mobiles, with over one million messages every hour now passing over the networks, creating a £1 billion industry from scratch and supplanting direct mail as the advertising medium to launch a new TV channel.

  2.  Against the backdrop of rapid and unpredictable change, the regulatory framework must avoid built-in obsolescence even before it reaches the statute book. The role of the regulatory framework—and of OFCOM within it—is to enable the market to fulfil its potential. Where there is a need to intervene the test should be consumer interest—the promotion of choice for consumers, through diversity of output and plurality of ownership.


  3.  OFCOM should, as far as possible depend on competition rather than regulation. In terms of networks and infrastructure, the UK is already well placed. There is established competition in telecommunications and mobile networks and digital broadcasting platforms. These provide a wide range of services—mobile, Internet and TV channels—to significant parts of the population.

  4.  The networks are in place and the investment made. Their economic value lies in the traffic on them. If customers can get access to new services, and service providers can get access to customers, then the market—and OFCOM—can rely fully on competition. The key, therefore, is access:

    —  in telecommunications to the local loop—the last mile;

    —  in broadcast systems to the set-top box or receiver—the gateway to the home.

  The issue is the same in both cases: the tendency of those who control access to networks and gateways to give preference to running their own services through them, rather than those of competitors.

  5.  Communications markets are often characterised by oligopoly: a few large players, barriers to entry and significant costs to consumers if they switch supplier. But if the access terms are right, that need not be a concern: competition can do its job of delivering growth and consumer choice. Access is a deregulatory issue.

  6.  So what is needed? Ideally, OFCOM should have the ability, through a Significant Market Power test agreed at European level, to intervene occasionally before an abuse of dominance, to ensure access on fair and reasonable terms for competing service providers. The test must fit the facts. Operators may not individually be dominant in economic terms; they may not actively collude. But where they share the incentive to prefer their own services over others' and where the market will support only a few such network or gateway operators, then reasonable access conditions should apply. Failing this, the specific arrangements for fair, reasonable and non-discriminatory access which has applied in the UK digital TV market should continue: they have certainly not hindered, and have probably stimulated, the most wide-ranging and successful DTV market in Europe.


  7.  Competition is a necessary condition for the delivery of diversity in output. It has brought a great expansion in choice in both radio and television. New services supply a much greater range than hitherto in a wide range of genres: films and sport, news, children's programming, factual and arts. But despite 10 years of multi-channel competition, the new services are taking time to deliver well-funded original output. Large scale spending on original output requires a guarantee of large audiences. To date, these have been provided by the free-to-air national networks, with their privileges of cheap or free spectrum, special places in programme guides (whether printed or electronic) and well established brands. As technology evolves, other models may come to apply: audiences may build a critical mass for individual programmes delivered by broadband or stored in Personal Video Recorders. But there are no guarantees.

  8.  For these reasons, the UK has devoted a bigger share of resource to public service broadcasting than any other nation. Direct funding from the licence fee, the opportunity cost of spectrum and of schedules that do not simply chase ratings equates to a public service subsidy of some £4 billion a year. The Nation is entitled to know whether it is getting value for money. That is an important element in holding the public service broadcasters accountable.

  9.  The White Paper—rightly in the ITC's view—proposes greater flexibility in how public service broadcasters deliver against their remits. But greater freedom also requires greater honesty and openness. While much must rest on the broadcasters themselves, a key role for OFCOM will be to report publicly on what the public service broadcasters say, in the light of extensive consumer research and objective, fact based assessment of the state of the industry. The ITC has already begun this task this year with the most extensive survey yet on what audiences expect from public service broadcasting. We will work closely with the National Consumer Council to design better consumer input. These reports will provide the objective basis for what will, for some years to come, be a continuing national debate on the role of public service broadcasting.

  10.  For the remainder of electronic content, the ITC agrees with the White Paper's broad approach to simpler, streamlined regulation graduated according to a medium's pervasiveness and invasiveness (ie how much conscious prior choice the consumer has over the selection of material). Self-regulation for the Internet; simpler standard codes drawn up with the industry for most broadcasters, a hierarchy of obligations for the public service broadcasters coupled with a competitive, plural market, should continue to satisfy consumers' and citizens' needs.

  11.  The ITC supports the White Paper's approach to a hierarchy of positive content obligations on the public service broadcasters. The BBC remains the basis of the public service system and BBC 1 the cornerstone. ITV must compete with it BBC 2 and Channel 4 complement it. Channel 4—as long as it retains its non-profit status—extends choice and serves a broader range of interests. Analysis of schedules and output over time shows that Channel 4 has held up well against the tests of range and diversity. ITV contributes a significant public service in UK investment regional production and high production values in well funded peak-time programming.

  12.  It will be important that OFCOM's role in regulating content is flexible. Its regulation should remain under regular review so that it can be loosened or withdrawn as consumer expectations change in line with the changing pervasiveness and invasiveness of individual electronic media.


  13.  There is a need to balance the consolidation which is driving investment in the sector with ensuring plural sources of information and ownership. Detailed ownership constraints on the face of primary legislation have become too inflexible for today's fast changing market. But there would be disadvantages in resting solely on competition law and a "public interest" test. Defining public interest is complex. That introduces greater uncertainty for players in the market and, given the power of media companies, is subject to more effective political lobbying in this sphere than any other. The regulator needs the protection of some, simpler but objective rules, in secondary legislation. What should those rules aim to achieve?

  14.  In television and radio, the BBC has a 40-45 per cent share of voice. The interests of plurality suggest a need for at least two to three other significant operators in the market, especially in news where the tendency to concentration is highest. This could be achieved by a much simplified set of rules such as:

    —  sustaining a third national television news force that is not subject to influence by the other two and with the ability to create scale in output, probably by being guaranteed more than one owner;

    —  a move to competition rules to determine ownership in any single medium;

    —  relaxing current cross-media rules to permit any operator to have for example a 25 per cent share in each of the television and newspaper markets (subject to competition rules) with a higher threshold, say 40 per cent between newspapers and radio or television and radio.

  15.  Such an approach would create substantially more freedom than today for operators to create and follow market opportunities. If such rules were embedded in secondary legislation they could evolve flexibly as technology and the market evolves.


  16.  The White Paper proposes a range of duties and functions for OFCOM, some economic, some public interest or social. There is a range of public interest duties Parliament may decide to give OFCOM: universal service; positive programming obligations; protection of rural services or special requirements for the disadvantaged; promoting pluralism; access to listed sporting or national events etc. Each of these has some impact on competition: they are not actions that even a perfectly functioning competitive market would necessarily provide. There is, thus, an inherent tension in OFCOM's prospective duties. The ITC believes it would be wrong to leave their resolution entirely to OFCOM. We hope that Parliament will provide guidance on how such tensions should be addressed. The ITC believes that—as a broad guideline—competition should be the main objective. In a small number of key areas, public interest might have primacy. But OFCOM should have to assess whether measures to achieve those public interest goals are likely to have a limiting effect on competition and, if so, say publicly why it believes the benefits outweigh the cost. OFCOM should keep market and technology developments under regular review to assess how far competition has developed and whether there are other, more deregulatory ways of achieving core public interest goals.

  17.  There is also an inherent tension in the structure of OFCOM. Competition regulation is best carried out by a small core of professionals, where economic and competition expertise and streamlined decision making are of the essence. Judgements on content issues need to be rooted in research and strong consultation to gather and reflect a broad and representative blend of opinion: "what consumers expect". OFCOM's structure needs to be able to embody and reflect the tensions between carriage and content in a way which is transparent and accountable to Parliament and the public and able to command—throughout the UK—widespread acceptance and respect for its decisions. A unitary OFCOM will therefore need adequate arrangements for representing key interests of the nations and regions as well as the interests of consumer accountability and redress.

February 2001

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Prepared 26 February 2001