WEDNESDAY 14 FEBRUARY 2001
  
                               _________
  
                           Members present:
              Mr Gerald Kaufman, in the Chair
              Mr David Faber
              Mr Ronnie Fearn
              Mr Alan Keen
              Miss Julie Kirkbride
              Mr John Maxton
              Mrs Diana Organ
              Ms Claire Ward
              Derek Wyatt
  
                               _________
  
                 RT HON CHRIS SMITH, a Member of the House, Secretary of State for
           Culture, Media and Sport, and MS PATRICIA HEWITT, a Member of the
           House, Minister for Small Business and E-Commerce, Department of
           Trade and Industry, examined.
  
        Chairman:   Secretary of State, we welcome you, not for the first time in
  recent weeks and not for the last time in the weeks that remain before Easter. 
  We are delighted to see you here and we welcome Patricia Hewitt, a newcomer
  to our revels, who I hope will enjoy being questioned as much as we shall
  enjoy questioning her.
  
                               Mr Fearn
        609.     Could I ask straight away why the White Paper is so vague on
  media ownership reform as a whole, but so specific on its proposals for ITV
  ownership?
        (Mr Smith)    Chairman, if I could just allow myself two words of
  pleasantry first, may I say that it is always a pleasure to appear in front
  of you - particularly in such rapid succession.   On Mr Fearn's question,
  first we must remember that although we make very specific proposals for
  removing the bar on the ownership of the two London franchises and the 25 per
  cent rule on ITV, what we do not do, of course, is remove the provisions of
  normal competition policy in relation to ownership matters within ITV.  That
  will remain very much and very firmly in place.  If there were to be,
  therefore, a move towards amalgamation of ITV companies, they would have to
  satisfy the  competition authorities that this was not an anti-competitive
  move in the same way that they would have had to do before.   On the broader
  question of cross-media ownership, we flag up in the White Paper the fact that
  this is a complex area; that it is subject to rather detailed percentage
  provisions at the moment in the current legislation; we also indicate that
  there are two fundamental principles that need to be borne in mind - the first
  is diversity and the second is plurality and the two are not, of course, the
  same - and that any sensible approach to policy in this area has to take
  account of both of those principles.   What we go on to say, however, is that
  there is no clear measure of agreement in the world outside about how you
  should do so.   There are a number of different mechanisms in different
  countries and a number of different proposals emerging from different
  quarters, and what we have said is that we would like to hear more from what
  people have to say on this, so we very deliberately said we wish to consult
  more widely and over a longer period before we come to a resolution on this
  matter because there are such widely differing views on this and no one place
  anywhere around the world seems, as yet, to have hit on  absolutely the right
  way forward.
  
                               Chairman
        610.     Could I interrupt one moment there, Secretary of State, since
  Mr Fearn is talking and you are responding about cross-media ownership, and
  ask one small question so you can dispose of what I think we all hope is a
  chimera.   The Daily Mail came before us yesterday and, in their document,
  they expressed concern that any efforts whatever that might be made to control
  content on the Internet might result in control of or interference with what
  properly constituted newspapers - like the Daily Mail or other national
  newspapers - are doing because they provide content or even their entire
  newspapers on the Internet.   Now I very much hope that there is absolutely
  nothing in anybody's minds that would justify such fears, but it would be very
  useful if you could dispose of them.
        (Mr Smith)    There is no justification for those fears.
        (Ms Hewitt)   Chairman, it is certainly a pleasure for me to appear
  before your Select Committee.   We are not proposing any new regulation of the
  Internet, nor are we proposing censorship of the Internet.   It is very
  important to make that  clear because clearly there are rumours or beliefs to
  the contrary.   The law that applies off-line also applies on-line and,
  clearly, that will remain the case whether it is the law on paedophile abuse
  of children, money laundering, the law of libel or anything else.   I do not
  think the Daily Mail or anybody else would expect that to be different. Our
  concern with the Internet is simply to make sure that everybody can use it
  safely and securely.  For instance, therefore, in the field of illegal
  pornographic content we have helped to set up the Internet Watch Foundation
  which is really a model for co-regulation where the industry itself has agreed
  that, where there is an illegal site identified on the Internet, the Internet
  service providers will simply take it down.   Similarly various departments,
  including the Department of Education, have worked with the industry to ensure
  that there is good filtering software available, for instance, to parents
  through the National Grid for Learning so that parents can make their own
  choice about what they and their children have access to on the Internet.  
  There are no new proposals for regulation of the Internet.
        Chairman:   Thank you very much. 
  
                               Mr Fearn
        611.     Thank you for that explanation.   It is a pity that part of
  it is not in the White Paper itself.   Yesterday we had a witness here who
  said when I asked him a question that he thought it was a very poor White
  Paper.  Is that because there is lack of explanation in the White Paper, or
  lack of direction?
        (Mr Smith)    I think you will find a wide spread of views about the
  quality of the White Paper.   It has been rather warmly welcomed by rather a
  large number of people but there will always be some who will disagree or be
  disappointed.   What we were setting out to do in the White Paper was to
  propose some fairly radical changes to the structure of regulation and to set
  out proposals for a broadly lighter touch approach to regulation but at the
  same time to seek to protect the genuine public interest.   We think on the
  whole we have the balance right; the consultation period for most of the
  elements of the White Paper has, of course, just come to a conclusion; we have
  been reading through those responses very carefully, and there are some
  proposals that we will, indeed, wish to take up and consider further.  On the
  whole, however, the broad  consensus that we have been able to discern is that
  the proposal for a converged regulator is right: that the combination of
  lighter touch with public interest that we are proposing is broadly right and,
  of course, there will be points on the margins that people wish to disagree
  about in detail.
        612.     Last July you told the House of Commons that the review
  preceding the White Paper was considering the role of the BBC board of
  governors which currently, you said, "acts as both judge and jury, managers
  and regulators".   Why does the White Paper do so little to remedy this
  situation which you have criticised?
        (Mr Smith)   The White Paper does quite a lot in this respect.   Firstly,
  it sets out, under the first tier of broadcasting regulation, proposals for
  all broadcasters including the BBC to be subject to external regulation in
  relation to matters such as impartiality, taste and decency, and also a final
  arbitration on complaints.   That is new as far as the BBC is concerned.   In
  the second tier of regulation for broadcasting the BBC as a public service
  broadcaster is included and there a number of matters relating, for example,
  to independent production quotas and regional programme making are  included
  and will be externally regulated.   In addition, we propose to impose a
  requirement on the BBC for the first time to deliver news and current affairs
  in peak time.   In addition to that, of course, economic regulation of the BBC
  as opposed to content regulation will be subject to all the provisions for
  both OFCOM's activities and the competition authorities and the detailed
  external analysis of fair trading that we have put in place.   So there is a
  lot there that looks quite sharply at what the BBC is doing and wants to make
  sure that it is delivering the best possible public service broadcasting to
  the public.
        613.     Finally, Mr Chairman, can I ask about the deaf and the hard
  of hearing?  There does not appear to be a lot of direct involvement in the
  White Paper because of the deaf and hard of hearing.   What are we doing for
  them?
        (Mr Smith)   The reason that we did not flag this up very much in the
  White Paper, other than saying we wanted to make progress, was that we were
  still coming to the end of a fairly detailed consultation period on, very
  specifically, issues about audio description, signing and subtitling.   We
  published proposals and tabled them in the House - in fact,  about two weeks
  ago - as a result of that consultation process and we have proposed that we
  should make very substantial changes, particularly in relation to people who
  are deaf and hard of hearing.   We have proposed that the target for digital
  terrestrial television should rise in the ten year period of the target from
  50 per cent subtitling to 80 per cent subtitling, and we have also proposed
  that the same requirements that we have, up to now, envisaged in the document
  - 80 per cent subtitling for DTT - should also apply to cable and satellite. 
   Now those two essential proposals, 50-80 per cent and that 80 per cent
  applying across the board to cable and satellite as well as DTT, have been
  very warmly welcomed by, for example, the Royal National Institute for the
  Deaf.
  
                               Mr Wyatt
        614.     I am sure you are aware that, in 1936, the Home Office
  uncertain whether to plump for Logie Beard's 205 lines or Thorn's 405 had a
  competition which was supposed to be for six months but after two months they
  realised there was a sharper picture on 405 lines so poor old Logie was done
  over, really, having invented it.   There was an example of the government
  saying that this was  important and that they would tell the TV manufacturers
  the rules.   In the digital environment, do you think that you ought to say
  to the TV manufacturers that there must be Internet access on every television
  set by, say, 2004?  If you are sympathetic to that, does it require an Act of
  Parliament, or can you do it without?  OFCOM is quite a long way away,
  probably two and a half years, but we want to get there, so what do you think
  of that?
        (Mr Smith)    I will ask Patricia to say a word or two about the Internet
  and policy on spreading access to the Internet in a moment.   As far as I am
  aware, and I will check this, we have no power to issue any such instruction
  at present. What we will wish to see, however, and we flagged this up in our
  discussion of the powers and duties of OFCOM, is OFCOM ensuring that viewers
  can make a ready and easy choice between different platforms of digital
  television.   Whether we should go further and include powers in the Bill that
  sets up OFCOM to take action on Internet access is a matter which we would
  need to give some greater thought to.   It is certainly our hope that Internet
  access will come as part of the development of digital  television.   It is
  an obvious way of getting Internet access into every home in the country for
  those who wish it.   Certainly the experiments up to now in, for example, On
  Digital's service for Internet access have been extremely popular and very
  successful.
        (Ms Hewitt)   First of all, could I add to the point that Chris has
  just made about what the digital television companies are saying about the
  popularity of their interactive on-line services, basically Internet-based
  services.   E-mail, for instance, through television as well as access to
  particular sites is proving very popular.   Clearly not everybody is going to
  want to access the Internet at home through a PC so Internet access through
  digital television - or, indeed, analogue but basically digital television -
  and through mobile devices with the arrival of third generation is absolutely
  crucial to making the Internet a truly universal medium.   As I understand it,
  there is already a requirement under European regulation for television sets
  to have at the back one of those slots into which you can put the card for a
  digital converter.   There is not, at the moment, the requirement for all
  television sets to have built in  the integrated digital function, or
  separately the integrated Internet function.   My understanding is that it
  would not be possible to impose such a requirement unilaterally within the
  United Kingdom alone but, because this is an issue I have been discussing
  recently with digital television companies and manufacturers, I have asked my
  officials to take another look at this to see whether we should be pursuing
  this issue if not at national level then possibly at European level.   In the
  meantime, we are already seeing the arrival of the 79 Internet-enabled
  television set - a small, relatively portable set - within the shops; we are
  seeing quite a rapid take-up curve for digital television with the possibility
  of Internet access; and we are working with the manufacturers and the digital
  television companies on the issue of much clearer labelling of television sets
  so that consumers can find out much more easily whether what they are buying
  is an integrated digital television set that will give them interactivity and
  digital television or whether it is one that requires one or more set top
  boxes to get the additional services they want.
        615.     Thank you for that answer.   On the same  principle of
  whether the government could do more, today the Financial Times has a page on
  the new smart economy - what I call version 2.0 - but just reading from it,
  this is about David Lewis Waller who runs a web development company in Bangor
  in North Wales who cannot get access to broadband because he is over three and
  a half kilometres from the broadband access.  Could we as a government, like
  we do with water and gas and electricity in a planning regulation by insisting
  that they are there, now insist in planning regulations and say, "And you must
  also lay either the pipe or the co-axle cable or the carbon fibre", or
  whatever it is?  Could we insist that one system is laid in every planning,
  whether it is for new build for offices or new estates?
        (Ms Hewitt)   In a sense there are two questions in that because,
  clearly, anything done on the planning side is not going to help the gentleman
  quoted in the FT today or many others who live too far away from the exchange
  to get broadband through ADSL even if the exchange itself is modernised to
  make ADSL available.   We cannot, I am afraid, overcome that particular
  technical problem although what is very clear from the industry is that the 
  price of laying fibre direct to the end user is falling very rapidly and,
  certainly for new build, is beginning to become competitive with ADSL or
  cable.   As you indicated, yesterday we published our new broadband strategy
  designed to try and get the market for broadband working much more effectively
  than it is at the moment.   The planning issue, of course, is really one for
  my colleagues at DETR, and I have asked them to look at the issue of what is
  appropriate to include in the planning guidance, given the restrictions
  obviously within which they operate, and for what it is proper to lay down
  planning requirements.
        616.     Finally - and I would love to ask lots of questions but I
  appreciate time is short - we had a private presentation because we needed to
  understand your area more from an Internet guru, I suppose, who really said
  that you must switch off, tomorrow is not quick enough, and that one way that
  the government should do this is by providing a digital box for every home
  which he felt - although this has been disputed by On Digital - could cost as
  little as 10 or 20, and it is really the same question here.   What we have
  done is laid out a whole lot of philosophy but no government  action.  If this
  digital question is really important and if we are to be the most competitive
  nation in the world, can we not ease up the analogue bandwidth separately and
  sell it, and reinvest that in the box?  Is there not some clever way in which
  we could enable the switch-off much faster and the box?
        (Mr Smith)   The first part of the answer to that is that this is a
  proposal which has been made by quite a number of people over quite a period
  of time, and there are serious problems with it.   At the moment the cost of
  a set top box is somewhere around the 2-300 mark.   It is almost certain
  that, during the course of the next 3-4 years, the cost of set top boxes, as
  happens with virtually all electronic goods, will come tumbling down.   What
  we do not know, as yet, is what figure it will end up at and, of course, one
  of the points to be borne in mind is that, if those set top boxes are to
  include provision for Internet access, that may make them a little bit more
  expensive as well.   The cost will come down, however, and we will be talking
  certainly below 100 - quite possibly below 50 - within a few years.   If at
  this stage we were to envisage, either through government action or through
  the  broadcasters or manufacturers, making available to people set top boxes
  either at an artificially low price or for free, if we were to put in place
  such a proposition now it would almost certainly mean that people intending
  to switch to digital now would put off doing so until such time as the free
  or cheaper boxes became available.   It is very difficult to envisage anyone
  doing anything of that kind at this stage.   What the manufacturers, the
  broadcasters and others will wish to do in a few years' time, of course, we
  can only guess.   No one would have predicted four years ago that both digital
  satellite and digital terrestrial would be offering free set top boxes to
  people who took out a subscription.   That has undoubtedly driven the take-up
  of both platforms very substantially.   In this rather rapidly changing world,
  therefore, I think it would be foolish for us to make assumptions now but
  obviously what decisions either the commercial players or, indeed, a future
  government might want to make on this are very much a matter for speculation.
        Chairman:   Are you not going to ride your hobby horse about the fund? 
  I was going to ask a question. 
        Mr Wyatt:   I did not think I had time for that.
        Chairman:   I am giving you time in order that I can ask a question!
  
                               Mr Wyatt
        617.     We have had large numbers of people coming to talk to us, and
  we have had greatest sympathy, really, for the community radio people because
  if, for instance, a school has a community radio system, it has to close it
  at 4.00 pm and the community cannot go in because the air waves stop at the
  school gate - unbelievably - in the 1992 Broadcast Act.   Even if we could
  unbundle that bit, therefore, and allow the community to use the facilities
  to create community radio, the next problem is there is no funding.   What we
  would like you to reflect on is that that is a public service in our book; it
  is a different public service than has previously been thought of but it does
  serve huge numbers of people locally and it is very different radio and very
  popular at local level so, understandably, they need money.   Would it be a
  good idea for the licence fee not to go one hundred per cent to the BBC but
  to OFCOM, and for community people - radio or community television or
  community Internet or whatever - to have an  opportunity to bid for a finite
  portion of that, perhaps 5 per cent or 10 per cent so that the BBC would get
  its 90 per cent, so that we would have another way of developing a different
  series of talents and services that the BBC has, frankly, given up on.
        (Mr Smith)    I would make three points, if I may, Chairman, in answer to
  Mr Wyatt:  firstly, we do have proposals in the White Paper for the creation
  of an access radio fund.   We are working on a number of propositions about
  how such a fund could be brought into being and we are in quite detailed
  discussion with the radio authority about how that might shape up, and I would
  be very keen on pushing this forward.   Secondly, on the issue of the school
  radios that close down at 4.00 or 5.00 in the evening and what might be
  possible during the course of the evening, I know that the radio authority
  have considered this matter and are nervous about this proposal being a
  possible back door to a local commercial licence.   I think personally they
  may be being too nervous on that subject:  certainly I will want to continue
  discussing this with them to see whether other local use could be made of such
  frequencies.   In relation  to the third point, the hiving off of a segment
  of the licence fee income, we have, of course, put in place a planned progress
  in licence fee income for the BBC over the next six years.  To disrupt that
  settlement at this stage now that we are into it with them basing all their
  forward plans on an expectation of that income would, I think, be difficult,
  but I am always open to new ideas. I will, of course, consider the point that
  you have made but I would have to emphasise that at the moment I see
  difficulties in taking it forward.
  
                               Chairman
        618.     Now that Mr Wyatt has taken you by surprise by asking you
  that question, Secretary of State, could I put a question to you which I have
  been asked to put to you by an organisation that operates in Manchester called
  Radio Regen which is a not-for-profit community media and urban regeneration
  project, funded by Manchester City Council the European Social Fund and is a
  registered charity.   I say all that to make it clear that I am not advancing
  some commercial interest by putting the question.   They are active in my
  constituency both in working with two high schools for their own radio
  stations but also in community radio within my constituency.  They tell  me
  that at the radio authority access radio seminar on Monday of this week they
  were given the impression that the radio authority were prepared to start
  piloting community radio with appropriate independent monitoring as soon as
  they get the go-ahead from your department and, therefore, they asked me to
  ask you if you would ask the Radio Authority to commission a pilot scheme
  because they say it is all that is missing for them to get on with quantifying
  the benefits of community radio ahead of legislation.
        (Mr Smith)    I take it from the question, Chairman, that they might be
  envisaging proposing themselves as a pilot scheme here?  If the Radio
  Authority were to come to me with such a proposition I would certainly look
  on it with great sympathy and very constructively.   I do not know, obviously,
  the individual circumstances of the particular proposal but local community
  based not-for-profit radio is undoubtedly a very important part of local
  communities:  it can provide great social benefit; and if there are ways that
  we can find within the spectrum of constraints that we have at the moment of
  giving it a further boost, I would love to do so.
  
                               Mr Maxton
        619.     Can I return to the Internet and television?  There is a
  danger of looking at the Internet as somehow a nice little add-on that you put
  on television sets so that everybody can, at least, exchange e-mails and do
  a bit of shopping and that is it.   The Internet and broadband access which
  is much wider than just the Internet, is not just a matter of that:  it is key
  to the way in which our economy develops in this country in relation to other
  countries.   First of all, therefore, can you tell me what is your definition
  of "broadband"?
        (Ms Hewitt)   "Broadband" can cover a very wide range of rates.
        620.     But you have a definition in the White Paper?
        (Ms Hewitt)  We have a definition and we use it to cover a range of
  speeds but considerably higher than narrow band frequency - in other words,
  from about 512 kilobytes right up to very, very fast always on Internet.
        621.     But I thought in the White Paper in one of the annexes it
  defines it as 2 megabytes?
        (Ms Hewitt)  That is one of the definitions we use but there is, in
  fact, a much broader range which  starts somewhat below that and goes right
  up to ten and beyond.
        622.     Let us start with 2 megabytes.   How many residential homes
  in Britain have access to 2 megabyte broadband at the present time?
  
        (Ms Hewitt) At the moment 40 per cent of homes and businesses are in
  the area of BT exchanges that have been enabled to carry ADSL.
        623.     ADSL is about 500 gigabytes.  It is nothing like two
  megabytes?
        (Ms Hewitt) No.  It depends.  It starts at 500 and of course, as we
  get local loop unbundling and as other operators start offering other versions
  of DSL, we will get much higher speeds, up to two and indeed beyond two,
  depending on the technology, the number of users, how far you are from the
  exchange and so on, and the quality of the copper wiring.  We start from that
  figure of 40 per cent of exchanges already enabled with the caveat that
  obviously not everybody living within the exchange area will necessarily be
  close enough to the exchange.  ADSL in particular only works within about
  three to three and a half kilometres.  We also have about 50 per cent of homes
  covered by cable roll-out and of course the cable companies are now starting
  to make cable modems available, also offering speeds up to broadband width. 
  On top of that, and I am sure you have seen the map we have published in that
  broadband report, we have now allocated licences for broadband fixed wireless
  access which potentially cover 60 per cent of the population, although in
  reality, as we say in that report, of course not everybody living within the
  licence area will actually be reached by those services.  On top of that we
  have the growing prospect of fibre to the end user, although at the moment
  because of the cost that is really only a big business proposition; similarly
  satellite, which of course can reach anywhere but where at the moment the
  costs rule it out for anybody except big business, but those costs will come
  down.  The upshot of this is that our preliminary analysis is that 15 to 20
  per cent of the population are likely to be left out of the broadband market
  as it is currently developing and as we can see it going forward for the next
  three to four years.  I am sorry that is not a one sentence answer.
        624.     It is not an answer to the question either.
        (Ms Hewitt) There is not one number on this, I am afraid.
        625.     There are now parts of America which have access with DSL
  technology of up to seven megabytes.  That is with genuine video quality
  access.  We are nowhere near that, are we?
        (Ms Hewitt) We have got very expensive fibre IP backbone networks from
  a very large number of providers.  As I say, the cost of fibre to the end user
  is falling quite fast.  As we get more roll-out of cable modems and as we get
  local loop unbundling we have got the prospect of other operators coming in
  with other forms of DSL, not simply the asymmetric DSL which BT is currently
  putting into the exchanges.  As you rightly say from the American example,
  those other DSL technologies, even using the existing copper wire, will enable
  much higher bandwidths and you can then get, whether it is from a provider or
  whether it is consumer to consumer, broadcast quality video on the Internet.
        Mr Maxton:  At the moment, both in the USA and in France, you are six
  times more likely to have broadband access than you are in the United Kingdom,
  and many times more in Germany than you are in the United Kingdom.  Are we not
  in danger of lagging very far behind in all of this in comparison to other
  countries, not just in terms of the number of people but also in terms of
  costs to the consumer in terms of access?  I am not blaming this Government
  because the decisions that caused this were taken back in the late eighties
  and early nineties, but what are we now going to do about it?  What are we
  going to do to ensure that BT upgrade their own network to make it profitable?
  
                               Chairman
        626.     This is a matter that the Secretary of State himself spoke
  about to the Financial Times on Monday.
        (Ms Hewitt) Indeed.  Getting broadband networks out there beyond the
  backbone networks to the end user, whether it is the small business or the
  consumer at home, is hugely important.  I do not accept some of the very
  pessimistic views that are around that we are hopelessly lagging behind.  If
  you look for instance at Oftel's latest bench marking study what you will find
  is that, specifically on the issue of local loop and of DSL or ADSL
  availability, we started behind Germany and the USA on local loop unbundling. 
  That is certainly something that I think is a great pity but, as you have
  yourself indicated, it is because the last administration and the previous
  Director General of Oftel were not interested in local loop unbundling.  They
  were pursuing a policy of getting competition from the cable networks against
  the local loop rather than getting competition on the local loop as well,
  which is the policy that we are pursuing.  We have started behind and that is
  why at the moment DSL and unbundled local loops are more available in Germany
  and in America than they are in the United Kingdom and the price is somewhat
  lower in both of those countries.  In fact, in France we are probably a bit
  ahead or directly comparable in terms of the number of exchanges.  We are
  actually ahead in terms of the number of exchanges that have been modernised
  and in terms of price again we are a bit better.  But on top of what is
  happening with local loop unbundling, which Oftel is driving through with a
  set of very tough decisions, and we are completely backing them on those
  decisions, you have got the availability of broadband coming through cable. 
  I think it is fair to say (and they would accept it) that the cable operators
  themselves have been very slow to roll out cable modem.  Perhaps a lot of the
  criticism has been directed at BT and the cable companies have escaped
  unscathed but they are now rolling those out and of course, compared with a
  retail price for ADSL of around 40 a month, you have got cable modem
  offerings of about 34 a month and 25 a month.  What we are seeing from those
  two technologies alone is the beginning of a very competitive market place. 
  You have got other providers coming in.  You have got over 40 providers now
  also offering ADSL based on the wholesale deals they are doing with BT, again
  a consequence of regulatory action.  You have got other providers like Tele
  Two coming in with their own infra structure and making high speed Internet
  services directly available to the end user.  On top of that, as I say, we
  will have other sources like broadband wires coming into play very soon, I
  think.  Therefore, the goal that we have set is to have the most extensive and
  competitive broadband market in the G7 by 2005.  The independent estimates
  that we have published suggest that already on the basis of the market
  investment taking place by 2003 we will be ahead of Germany and France.  That
  is why, although the goal we have set is a stretching one, I am quite
  confident that we can reach it.
  The Committee suspended from 4.42 pm to 4.52 pm for a division in the House
  
                               Chairman
        627.     We adjourned in the middle of an answer by Patricia Hewitt
  and I understand she would like to complete her answer, which seems only fair.
        (Ms Hewitt) Chairman, I am most grateful to you because what I think
  might be helpful to the Committee is if I just spelt out the definition of
  "higher bandwidth" and "broadband services" that we are using and which were
  contained in a footnote in yesterday's report on the broadband strategy and
  I am afraid I did not have the footnote in my head at the point when Mr Maxton
  asked his question.  We would define higher bandwidth networks as more than
  384 kilobits per second, current generation broadband as two megabytes and
  above, and next generation broadband as ten megabytes and above.  Generically
  we incorporate the whole as being broadband and higher bandwidth.
  
                               Mr Maxton
        628.     Can I move on to continue on the theme?  Is not one of the
  major barriers the disincentive for BT as both the owners of the network and
  the providers of services on the network to maximise the profits and the money
  that can be made from the network and is there therefore a case for separating
  the two out into two separate companies?
        (Ms Hewitt) BT of course are currently themselves considering
  restructuring which would include separating within the United Kingdom their
  wholesale and retail businesses.  Clearly there may well be some gains in
  terms of regulatory simplicity and transparency, particularly to other
  operators, were that to be done.  It is also a very complicated issue and the
  restructuring of BT raises a lot of issues about, for instance, where the
  licence would sit, where the universal service obligation would sit, what the
  regulatory implications generally would be.  My officials and those of Oftel
  are in discussions with BT at the moment about that.  On the issue of
  disincentives, I think the situation has changed very significantly largely
  as a result of regulatory action.  BT is now under an obligation as a result
  of the licence amendment that they agreed last year to unbundle the local
  loop.  They are also under an obligation, again a regulatory obligation, to
  offer access to their networks, including their upgraded networks, on fair and
  non-discriminatory terms.  In other words, they are not allowed to
  discriminate between their own retail arm and other operators.  They have to
  charge the same wholesale price for network connections to their own retail
  arm and other operators.  That is extremely important in getting these
  services rolled out.  They are also making very substantial investments,
  probably totalling about four or five billion pounds over some years, in the
  ADSL upgrading of those exchanges.  They have a very clear incentive to get
  a return on that investment both by maximising the success of their own retail
  operation and by ensuring that they have as many other customers, basically
  wholesalers and resellers, connected to those networks as well.  I think that
  through tough regulatory action we have given BT the right set of incentives.
        629.     Will you give OFCOM greater powers to ensure that that
  regulatory pressure will be likely to continue and in fact is made greater?
        (Ms Hewitt) We make it very clear in the White Paper that there are
  occasions when you need tough regulation and issues to do with access to basic
  networks is precisely one of those occasions.  Therefore what we propose in
  the White Paper is that OFCOM should have the same toolkit if you like, the
  same set of sanctions available to it, that Oftel already has but in addition
  it should have the power to fine for breach of regulatory conditions which
  Oftel does not have at the moment.
        630.     Does not the fact that we have had to invite in order to
  cover this area the Secretary of State from one Department and yourself from
  another Department perhaps indicate that the time has now come when we require
  one department of communications to cover this area which is so important to
  our economy and will be of even greater importance to our economy?
        (Ms Hewitt) My feeling is that we have had a model of joined-up
  working in preparing this White Paper and the different Departments have got
  different expertise which we have pooled and we have learned from each other
  in the process of preparing this White Paper.  That process of joint working
  is now being taken forward as we look to draft the Bill.  I think that is very
  valuable.  I guess on reorganisation of Government Departments it is really
  a question you might need to ask the Prime Minister.
        Mr Maxton:  Maybe we should have him before this Committee.
        Chairman:   I think it would be a good idea.  Whether he comes is a
  different matter.
  
                               Mrs Organ
        631.     To follow up on a couple of questions that have been asked by
  members of the Committee, Ronnie Fearn asked about the concerns that many
  people have about the need to increase subtitling, audio description and
  signings, both on terrestrial digital and cable and satellite, and you talked
  about, as a result of the consultation, the targets that you have set.  Can
  I ask about those targets?  Are they voluntary or are they statutory, and if
  they are statutory what penalties will there be if those targets are not met
  by the providers?
        (Mr Smith)  The existing targets are statutory.  Fifty per cent has to be
  reached on DTT by the tenth year.  The extension of 50 per cent to 80 per cent
  would require, I think I am right in saying, secondary legislation in order
  to achieve.  The extension of the targets to cable and satellite would require
  primary legislation because that is not in the existing legislation.  We have
  said that we would like to seek the first legislative opportunity that we have
  in order to do so.  That might conceivably be at the time that we bring
  forward any Bill to establish OFCOM.
        632.     Like the Chairman, I too and I think all of us in this
  Committee recognise the real role of community radio.  We have talked about
  diversity and plurality and we think it is very important that there is a real
  place for community radio.  In the way that he talked about his community
  radio, I have got Cinderford FM.  One of the problems that they encounter is
  the cost of the 28-day licence, the inability to run a continuous radio
  station because they do not have those funds.  Mr Wyatt touched on that with
  the access fund.  Do you think it would be helpful if you had an experimental
  expansion of community radio prior to new legislation so that first of all we
  might see the explosion that might carry on in community radio that is there
  underneath but has not been able to fulfil itself, and also to learn some
  lessons ready for the legislation?  Would you be prepared to do that?
        (Mr Smith)  I am certainly prepared to consider such a proposal.  There
  are technical practical issues to be taken account of in relation to the
  spectrum that radio signals use and the overall geographical area that might
  be covered and so forth.  Provided that those technical issues can be resolved
  I would very much welcome looking at what sort of pilot scheme could be put
  in place to encourage the growth of community radio to see what the extent of
  demand is, to see what might be possible, and to see what the problems could
  be.  I would certainly look very sympathetically on such a proposal but we
  would need to be sure of course that there were not any technical impediments
  to doing it.
        633.     Their impediment of course is always the problem about the
  financing of it.  Mr Wyatt asked about the access fund.  You said that you
  were not happy about using any slicing away from BBC's licence fee.  Is there
  a political will to take it either from taxation or to take it from maybe
  ring-fenced local authority funding?
        (Mr Smith)  We are examining a number of possible avenues on this.  It is
  something on which we have not yet come to a conclusion.  I think it would be
  difficult to try and slice it out of local authority funds.  It is certainly
  an issue on which quite a number of people have expressed views to us through
  the consultation period and we are considering those very carefully.
        634.     Do you have any view about which one you favour?
        (Mr Smith)  At this stage I would have to say not yet.
        635.     Lastly, about the questioning that Mr Maxton had, when Ms
  Hewitt was talking initially about the people that were covered through BT,
  40 per cent of homes covered, 50 per cent covered by cable roll-out, this
  makes it sound as though it is 40 per cent accessible but actually they are
  lying on top of each other, are they not?  What are we going to do about that? 
  You came with a figure that you felt 15 to 20 per cent were left out.  I think
  that is a very cautious assessment.  I suspect that there are many more and
  that there are many businessman like the one that was having his article
  written in the Financial Times.  Are we saying then to those individuals, "The
  Government is not going to do anything about it.  You are going to be left on
  the margin.  There is no opportunity for you to make use of this revolution."? 
  We are not going to do it other than the regulatory framework that you have
  outlined.  Are we just going to wipe off 25 per cent of the country's homes
  and businesses?
        (Ms Hewitt) No, we are certainly not, and that is precisely why we
  have published the broadband strategy published yesterday.  You will see, if
  I can recommend The Broadband Strategy, that the map that we publish shows
  where there is an overlap between the technologies and where there is only
  one.  Roughly, we believe that by 2003 50 per cent of homes and businesses
  will have access to ADSL and cable model and another 25 per cent would be
  covered by exchanges that had ADSL but not cable modem.  On top of that we
  think there might be around ten per cent with broadband wireless.  It is a
  mixture of overlapping and separate technologies.  That is our analysis of the
  market as it currently looks going forward.  What we have set out in this
  report is a strategy to drive the market into the rural areas in particular
  where otherwise people would be left without the broadband networks.
        636.     But commercially there are going to be some areas that they
  are never going to want to go into.
        (Ms Hewitt) What we are doing so far are two crucial things here.  One
  is to pull together all the public sector procurement of broadband that is
  already planned.  As a very rough initial estimate we believe there will be
  half a billion pounds worth of investment over the next three years to get
  broadband connections into schools and colleges and hospitals and GP surgeries
  and police stations and public sector office accommodation.
        (Mr Smith)  And public libraries.
        (Ms Hewitt) And public libraries, absolutely crucially, many of which
  will be in rural areas.  At the moment what the private sector is telling us
  is that this is all very fragmented, so they are being asked to tender for
  little pieces of broadband in different parts of the country.  We are going
  to get that brought together under the aegis of the regional development
  agencies or the devolved administrations in other parts of the country so that
  we get better value for money on our own procurement but, crucially, so that
  the private sector can say, "Ah, in this area or within this market town there
  is already this demand.  There are already these networks going to be built. 
  Therefore, for a relatively modest additional investment, we can do something
  much bigger".  That is absolutely crucial and, as I say, very much welcomed
  by the private sector.  We have also announced yesterday a new fund, 30
  million, as a challenge fund for the regional development agencies and the
  devolved administrations to come up with innovative new ways of getting
  broadband into areas which it would not otherwise reach.  We give some
  examples in the report, for instance, the Tees Valley broadband development,
  where, even before we created our pump priming fund, our challenge fund, they
  have created a public/private partnership that is putting in place a 45
  megabyte broadband network covering 17 different centres across the Tees
  Valley so that, even if you have not quite got it into every home that might
  want it, you have centres where people can go and use it.  All of that we
  think will stimulate the market but we are creating a broadband stakeholder
  group that will enable us to track this much more effectively, keep an eye
  also on what is going on in other countries through our bench marketing
  studies, and, if we see that we are still not getting the speed and the
  extensiveness of development that we need, we can take further action in
  future.
        637.     Are we not aiming at, say in a decade's time, if we are not
  going to get through to the commercial sector, that the challenge bidding or
  public procurement is going to give us virtually total cover one way or
  another?
        (Ms Hewitt) We have set the goal for 2005 of the most extensive and
  competitive broadband market in the G7.  Despite the demand that many of us
  have for broadband, this is still a very, very new market.  The technologies
  are developing very quickly.  Nobody can say with great confidence beyond a
  couple of years ahead where the demand is going to go or what the applications
  and services will be that will drive the demand for consumers or for small
  businesses.  Therefore, to try and set a target for 2010 is really not
  feasible.  We have the 2005 target.  We have a process whereby we can make
  sure that we are hitting that target and we have put in place, particularly
  with the challenge fund and the public sector procurement exercise, a
  mechanism whereby we can drive this much more effectively into rural areas. 
  If that is not working as we go forward, we will have to look at what other
  action we need to take to make sure businesses and consumers particularly in
  rural areas are not left behind.
  
                               Mr Faber
        638.     Could I go back to taking what you called unilateral action
  to try and promote the manufacture and sale of digital television and/or set
  top boxes?  You mentioned a moment ago joined up government or how well you
  have worked together.  Janet Anderson, in an answer the other day, said that
  the government has no plans to undertake any kind of forcing of the
  manufacture of digital sets because it would be "contrary to our international
  commitments."  Could you elaborate on that a little and what your
  understanding of that is?
        (Ms Hewitt) Janet Anderson's answer was saying exactly what I said
  earlier on.  There have been proposals -- there was one in that particular
  parliamentary question that she was answering -- that we should impose a
  requirement upon manufacturers that in future televisions, and presumably
  VCRs, should have to have an integrated digital reception capacity.  She was
  making the point, as I did earlier on, that our understanding is that that
  would not be compatible with our single market obligations under European
  Union treaties; but it is an issue that I have asked officials to look at,
  because there are already some European obligations -- specifically the one
  to have the slot at the back of the television set -- where we may need to
  look at developing those requirements further in the future.
        639.     How, as a government, are you going to increase the take-up
  of the manufacture or the take-up of digital sets?  When the broadcasters do
  come to see us, they are commercial organisations and they want to speed up
  the digital take-up and they say they would like to see the government take
  a lead in doing that.  How do you think you can do that and work with them to
  speed that up?
        (Mr Smith)  There are a number of ways in which this can be done and is
  being done.  The first thing is that take-up of digital television has been
  very fast.  We now have over 20 per cent of households in this country taking
  digital television after a little over two years since it was first launched. 
  There is still very strong growth.  Secondly, I suspect it will not so much
  be the technology that draws people into making the switch from analogue to
  digital; it will be the choice of programmes that are on offer, the quality
  of picture that is on offer and the range of opportunities that they have
  through their television set as a result of making the change.  Those will be
  the things that ultimately will drive whether people make the decision to
  change or not.  In all the research that we have so far done, there do appear
  however to be one or two stumbling blocks on the smooth path.  I would
  highlight two.  The first is that most people assume that digital television
  is subscription television.  Most people believe that in order to make the
  move to digital they have to take out a subscription and the only benefit they
  get from making the move to digital is the availability of subscription
  services.  This is not the case.  There is a range of both BBC and ITV
  services that become available to people for free if they simply make the
  switch to digital.  One of the important things that I need to bear in mind
  as I consider, for example, the BBC's application to me for authority to
  proceed with new digital services is both the impact that that may have on the
  existing commercial market, a very important point to consider, and also
  whether this is going to be to the advantage of digital roll-out or not. 
  These are issues that I will need over the coming weeks to consider very
  carefully.  The second feature that is coming through quite strongly in the
  research is that a lot of people are worried about investing in technology
  that may become obsolete.  They are worried about making the move now into
  digital and then finding that if they want to change to another platform of
  digital or upgrade to something in the future it will become more difficult
  for them.  That is one of the reasons why in the White Paper we talk about the
  role that is going to be needed in ensuring that consumers can make the switch
  between platforms in an easy fashion, so that if someone invests now in one
  particular digital platform they can at a later stage transfer to another.
        640.     Can I put a third potential problem to you?  You mentioned 20
  per cent of households.  That is not 20 per cent of television sets.  In a
  funny sort of way, as digital sets are sold more widely, it exacerbates the
  problems of turn-off because analogue sets are being put into the children's
  room or the kitchen.  Ironically, people are probably going to have more
  analogue sets lying around somewhere else in the house and suddenly the day
  is going to come when they are going to be told that those sets are useless
  to them.  It is a common misconception.
        (Mr Smith)  The average number of television sets per household is now,
  I think I am right in saying, approaching three.
        641.     And rising fast, I would think.
        (Mr Smith)  What tends to happen is that as people buy a new television
  set, instead of throwing out an old one, they move the old one to somewhere
  else in the home.  That is one of the issues that we need to bear in mind as
  we move towards contemplating digital switch-over.  One other very interesting
  thing that appears to be happening is that the figures show that, for
  households with children, the take-up of digital television is much greater
  and much faster than among households more generally, which says something
  about some of the reason this drive is happening.
        642.     It is still a problem though that very often the children are
  going to be watching an analogue set and they are going to want a new one too.
        (Ms Hewitt) I want to add, in a sense, a third barrier here which is
  the problem of many consumers not actually understanding the different sets
  that are available.  That is not surprising because it is changing very fast. 
  There is a lot of confusion and the labelling is often very unclear.  We have
  been working with the industry to look at how we can get much clearer
  labelling and much better guidance to consumers about the difference between
  an integrated digital television set which they can simply plug and play and
  an analogue set which may be a very high value, wide screen analogue set,
  which nonetheless needs a converter box to make it work digitally.
        643.     That was the point I was seeking to make.  In the article
  which the Chairman referred to in The Financial Times, you say that you are
  making steady progress towards switch-off between 2006 and 2010.  Whilst
  business I am sure would welcome that, as a politician, I admire your optimism
  because somewhere down the line there are going to be very difficult choices
  for politicians to name a date for switch-off.  Would you like to take us a
  little further through your thoughts as to how it has progressed?  For
  instance, do you foresee a situation where some form of subsidy may be needed
  to entice people to change over?
        (Mr Smith)  For reasons that I spoke of in answer to Mr Wyatt earlier on,
  I would not want to speculate at this stage on that issue.  However, progress
  will ultimately depend on two things.  The first is how rapidly and how far
  the price of either a set top box or the added price for an integrated digital
  set falls.  At the moment, those prices are high and it is of little surprise,
  given those prices, that many consumers have decided not to make a switch
  unless they are prepared to go for the subscription option at present.  Those
  prices will come down.  This is an inevitable feature of all markets of this
  kind, but what we do not know at this stage is how rapid that fall is going
  to be or what the bottom point of it is likely to be.  That is the first
  imponderable and it is a very important one.  The second task we have is
  making sure that the digital signal is available everywhere.  At the moment,
  digital terrestrial signals are available to somewhere between 60 and 70 per
  cent of the population.  That will over the course of the next year or so
  increase, but there will be a portion of the population, probably round about
  ten per cent -- we do not know the exact figure as yet -- that will not be
  able to be covered sensibly or affordably by digital terrestrial television. 
  We have to find the right means of getting digital signals to that final ten
  per cent before we can take the steps towards setting a date.
        644.     Could I deal with one other completely different topic in the
  White Paper briefly, which is the section that deals with the must have
  regulations, the carriage of public service television on all platforms.  We
  had quite a lot of evidence from the terrestrial broadcasters in particular
  in the last couple of weeks about the conditional access charges which Sky
  levy on access to their platform.  ITV told us that the reason they are not
  on the Sky platform is that they estimate it will cost them 20 million on
  current rate card.  The BBC would not give us a number, but told us it was
  substantially less than 20 million but they would let us know in confidence
  what it was.  It was an issue which I had not really grasped before and it did
  surprise me that, for instance, I am a cable customer paying a licence fee,
  effectively helping to subsidise Sky's operation through my licence fee;
  whereas my cable supplier or indeed any other digital terrestrial supplier is
  not able to levy that same amount.  Is this something you are concerned about?
        (Mr Smith)  It is certainly an issue that I am concerned about and indeed
  I would very much hope that ITV would make itself available on fair and
  reasonable terms to Sky digital subscribers at an early date.  However, the
  crucial question of what those terms should be is something that is partly a
  commercial matter up to the two organisations; it is partly also a matter for
  the regulators and for Oftel in particular.  When the BBC arrangement was
  reached with Sky, as far as I understand it -- and obviously this was a matter
  for the Regulator, not for me -- Oftel were quite strongly involved in
  assisting the two companies to come to a resolution.  I would hope that they
  might be willing to make their good offices available again.
        645.     I was not in any way decrying Sky's right to run a business
  and to make a profit but it seemed to me there were two anomalies.  The first
  is the one you have highlighted that ITV are not on the Sky digital platform,
  but the second is that Sky's competitors effectively, in providing a platform,
  do not have access to that same availability for charging.  If there is going
  to be a commercial arrangement, surely it should be the same for everybody?
        (Mr Smith)  As far as I understand it, in relation to the BBC provision,
  the basis on which a resolution was eventually reached was that the charge
  would reflect the actual costs to Sky of carrying the service.  It was an
  arrangement based on an assessment of cost rather than an assessment of
  profit.  That is an issue that you would need to explore further with the
  parties involved because of course I was not party to that arrangement.
  
                               Chairman
        646.     Your exchanges with Mr Faber and questions that Mr Faber has
  asked at previous sittings of this Committee do illustrate the confusion that
  is liable to arise in the mind of the householder, the individual who either
  wants to subscribe or simply to have access to digital television or to get
  a new set and the capabilities of the new sets.  For example, Mr Faber a short
  while ago asked ONdigital about the availability of how many sets of ONdigital
  with one ONdigital box.  Mr Prebble explained one box, one set.  In the case
  of Sky Television, that simply is not so.  You get one box and you can watch
  on any set in the house, on the same channel, but in the case of ONdigital you
  cannot even do that.  Your explanation has demonstrated that people may be
  confused about that as well, though you can watch on one set without having
  all the sets on.  There is confusion about that.  There is confusion too about
  how to gain access to digital television.  You said some people may not be
  aware that they do not have to subscribe, either to Sky Digital or ONdigital
  or cable, in order to get the free-to-air channels.  How are people to know
  how to set about that?  If you are a subscriber to Sky TV, you only have to
  pick up the phone and you can get your digital subscription.  If you want to
  subscribe to ONdigital, again you only have to pick up the phone.  What is
  more, both of them have loss leading offers to entice people, which is a
  justifiable business prerogative.  If a consumer in the market comes to me and
  says, "What do I do to get the BBC channels and, say, ITV2?" I would not know
  what to say, except, "Go to your dealer".  Presumably they would have to get
  a box.  Maybe the box would cost them a lot of money and maybe that might make
  it more attractive to subscribe to one of these services which come over a
  wide variety of channels.  Furthermore -- I am sorry this question is so long,
  but the situation is so complicated -- in obtaining a set what do they do? 
  If one goes into Dixons, an organisation with which I have dealings and which
  I respect, with the greatest possible respect to Dixons, they are going to
  want to sell you what is of greatest commercial advantage to them.  That is
  what they are in business for.  They have very good salespeople who are very
  knowledgeable and I am sure totally scrupulous.  Nevertheless, they are going
  to guide you to what is most advantageous for their commercial organisation. 
  If they were not, it would not be worth Dixons or some other organisation
  employing them.  There is enormous confusion because there are so many
  choices.  The man or woman in the street simply does not have the expertise. 
  Why should they?  They have lots of other things to do in their lives.  We put
  this to some of our witnesses earlier and to my surprise what they suggested
  is that the government ought to provide the plain man's or woman's guide to
  how to set about getting the equipment and making the choices.  I do not
  believe in the nanny state at all; I am really New Labour.  What can the
  government do to assist people in making these choices which are important and
  sometimes very expensive?
        (Mr Smith)  I shall try to answer that first, Chairman, and then Patricia
  may want to say a word or two about labelling and customer information.  You
  are absolutely right to identify a problem.  One of the problems is not so
  much that sales assistants in shops might conceivably want to steer the
  customer in a particular direction.  The problem quite often is that the level
  of confusion in the mind of the sales assistant is as great as it is in the
  mind of the customer.  So there is a very real problem.  We would like to
  proceed in all of this by a consensus approach across the whole industry,
  including the broadcasters, the manufacturers and the retailers, along with
  Government.  I do not think this is something on which the Government alone
  should take action and issue guidance.  The Government, I think, does have a
  role to play, in partnership with the rest of the industry.  We have been
  discussing this with the rest of the industry.  There is broad agreement -
  which in itself is remarkable, because we are talking about some fierce
  competitors here - about the types of messages that need to be put across. 
  What we have yet to determine is the best way in which to do so, and I think
  there are two ways that we need to press the industry very hard on this.  The
  first is making a very simple leaflet giving guidance about the real choices
  that people have available at the point of sale, so that when a customer is
  going into a store and does not know what the rich variety of options actually
  is, there is something there that is easy to read and understand, that will
  provide him with the facts.  The second is to persuade the broadcasters to use
  their unrivalled access to the audience to begin to demystify this whole area
  as well.  Those are two areas on which we are, as I say, in discussion with
  the rest of the industry, and I would certainly hope to reach conclusions with
  them as rapidly as possible.  Patricia, are we doing other things as well?
        (Ms Hewitt) Can I add to that that the third element in the mix is
  proper labelling of sets.  I recently had the experience as a consumer of
  having my main television set at home fall to pieces, so I went out, with the
  children of course, to find a new one.  Fortunately, I knew what I was looking
  for, which was an integrated digital television set, but I was only able to
  get it and get a wide-screen integrated digital television set at the
  excellent price of 399, by reading very, very small print in, as it happens,
  the Argos brochure.  So it was by the combination of just about being able to
  decipher the print and knowing what to ask for, and then finding one helpful
  assistant who knew and actually understood the technology, that I was able to
  get, reasonably affordably, the set that I wanted and which would meet the
  needs of many - not all, but many - of our constituents.  The labelling is not
  adequate.  Some of the integrated digital television sets carry a DVB label,
  but not all of them do, and in any case at the moment neither the consumer nor
  sometimes the marketing/retail assistant knows what the DVB label actually
  means, so getting that kitemark and then getting it marketed to consumers,
  particularly by the broadcasters and backed up by a set of clear messages from
  Government, is absolutely crucial.
        Chairman:   As we Jews would say, mazel tov on your bargain!
        Mrs Organ:  Also new Labour shops in Argos not in Currys.
        Chairman:   If you do not know what to ask, who is going to know what to
  ask?  I am thinking of all your constituents and the rest of our constituents
  round this table.  I shall call Mr Keen.
  
                                Mr Keen
        647.     I would like to say for everybody's benefit that we are not
  sponsored by Argos, Currys and Dixons.  Perhaps I should say as a Labour
  Member, we ought to mention the Co-Op.  You have made a great point this
  afternoon about joined-up working between departments.  That was highlighted
  a short while ago when Patricia Hewitt got to the end of a long list of public
  authority buildings that were going to have the broadband in several years
  like, say, police stations, and you lent across, Secretary of State, and
  whispered what I thought at first was "public lavatories".  It gave me this
  wonderful nostalgic memory of dad with his Daily Herald and packet of
  Woodbines, and I could picture that, but I realise that you actually said
  "public libraries".  Does it not really show the real need for sub-titling
  which you have already made a commitment to pursue?  Could I come on
  seriously, though, to the BBC.  You did tell the House of Commons a year ago,
  Secretary of State, that the public service role of the Governors of the BBC
  would be reviewed in the White Paper, but the public service role has not
  really had too much of a mention in the White Paper, has it, in detail?
        (Mr Smith)  The White Paper is very strong on its upholding of the need
  for public service broadcasting into the future, and seeing it as an essential
  part of the broadcasting landscape, especially as we move towards a multi-
  channel environment.  We are very clear in the White Paper about the role that
  the BBC in particular has to play as a benchmark of quality against which the
  rest of broadcasting has to be able to measure itself.  There is also, on the
  web site version of the White Paper, an immediate link through to the Smith
  Institute speech on public service broadcasting, which I gave about five or
  six months ago, and which set out, as near as I have been able to do in the
  course of the past year or so, a considered definition of public service
  broadcasting.  What, however, we decided not to do was simply to say that the
  BBC should be answerable to OFCOM in its entirety for everything it does.  The
  reason is the very particular role of the BBC as not just a public service
  broadcaster, but a broadcaster established by Parliament, subject to
  parliamentary charter, with very special rules and a remit that Parliament has
  established, and also, of course, the BBC as the recipient of the licence fee
  income.  That does put it into a different category from the rest of the
  broadcasting world.  What we looked at were those aspects that we felt could
  entirely legitimately become subject to monitoring and regulation by OFCOM,
  and those aspects which we considered ought to remain in a special form.  That
  is what we have set out in the White Paper.  I should use this opportunity
  perhaps just to pick up a very small point which I swept up in an earlier
  answer.  I may have inadvertently given the impression that impartiality was
  subject, in the case of the BBC, to regulation by OFCOM.  That is not actually
  the case, because it is actually specified in the basic remit and the charter
  of the BBC, therefore we have proposed that that should be left for the
  Governors to regulate.
        648.     It is obviously in the charter, but for the future do you not
  think that if OFCOM is going to take radio and everything else into one, is
  there not a case for OFCOM taking over the regulation of the BBC?
        (Mr Smith)  There is a case for OFCOM to have some roles in relation to
  the BBC, and we set out proposals for that, such as being the final arbiter
  of complaints, for example.  However, we do not think that it is sensible to
  throw out the public service structure of the BBC lock, stock and barrel. 
  That is why, in relation to the upholding of the remit, we believe that the
  role of the Board of Governors should remain in place.  The other point that
  is worth making is that OFCOM will have a very important role in commenting
  publicly, from time to time, on the overall state of public service
  broadcasting.  It is expected, under the third tier of regulation that we set
  out here, that OFCOM will publish reports that look at aspects of public
  service broadcasting, how they are being achieved, not just by those on whose
  activities OFCOM have a direct remit, but the BBC as well.  Those reports will
  be published, they will be available for public discussion, they will be
  available for parliamentary scrutiny, and I am absolutely certain that the
  Board of Governors of the BBC will wish to take account of what is in those
  reports, when reaching their decisions about the fulfilment of the remit of
  the BBC.
        649.     How will you make sure that the new legislation following the
  White Paper will not be incompatible with the review of the BBC's charter in
  2006?
        (Mr Smith)  The review of the charter is, of course, a matter fully for
  Parliament to decide, and nothing that we say in the White Paper diminishes
  the role of Parliament in making those decisions at all.
        650.     On a point which really is certainly not within the White
  Paper, unfortunately maybe, I had the opportunity yesterday of putting a point
  to the Chief Executive of the Daily Mail.  His job is not just print media but
  broadcasting as well.  I said to him was it not difficult to manage where
  broadcasting is strictly controlled, in that there is no possible dressing up
  of opinion as fact in the news, and yet the print media - and the Daily Mail
  is one of the culprits - certainly does that on a daily basis.  I complimented
  him on his paper being a good read, but I said that his editors do dress up
  opinion as fact.  Why cannot we control that, which is, after all, misleading
  the public?  Why cannot we look at that, not in this White Paper, but in the
  future?
        (Mr Smith)  We have taken, I think absolutely rightly, a very firm
  decision that we do not want to go even half a step down the road towards
  state control of print media.  That is down the road towards censorship.  It
  is not something that we wish to do, uncomfortable though that may be from
  time to time for us politicians.
        Mr Keen: Yes, it is nice to have the chance to make that point.
  
                                Ms Ward
        651.     Can I come back, Secretary of State, to the issue of OFCOM
  and the BBC?  You said that the BBC would set the benchmark as public service
  broadcaster, but do you not accept that actually it is very difficult for
  other broadcasters to be given a fair consideration against the BBC, when
  clearly they are not in the same ballpark?
        (Mr Smith)  I think, particularly in terms of ITV and Channel 4, in much
  of the original programming that they make they can very strongly stand head
  to head in terms of quality with the BBC.  However - and this is the point
  that I was trying, I think, to make - if we were to lose the BBC from that
  landscape, with its licence fee funding, then the pressure on the other
  broadcasters to equal them in terms of the degree of challenge and quality of
  the drama, or the comedy, or the sports coverage or whatever that they do, the
  pressure on them to perform well would be diminished, and I think that would
  be regrettable.
        652.     If you accept that LWT or ITV and Channel 4 equal the BBC in
  terms of some of their output as a public service broadcaster, then surely it
  would be right that they should all be regulated by the same body?
        (Mr Smith)  I would come back, I have to say, to the point that the BBC
  is in a different category because of its receipt of the licence fee income,
  because of the parliamentary charter under which it operates, because of its
  role as a public service broadcaster rather than a public sector broadcaster. 
  It judges itself to be fiercely and robustly independent of political
  influence, and rightly so.  All of those things, I think, lead to a conclusion
  that the model of economic regulation for the BBC done by OFCOM and by the
  competition policy rules and by fair trading rules, the fulfilment of the
  remit role of the BBC to be governed by the Board of Governors, and the
  balance to be sought in a number of other areas like complaints, like regional
  programming, like fulfilment of obligations of independent programming - those
  things can be regulated satisfactorily by OFCOM.
        653.     Perhaps I can give you an example.  Radio 2, certainly about
  ten years ago, was the sort of channel that my parents' generation and older
  people listened to.  Yow turn on Radio 2 now and it is playing music which is
  very much designed to attract 25-plus, 25 to 40-year-olds.  If you ask the
  BBC, they will define Radio 1 as being for 25 and under.  Given that Radio 2
  have decided to go for a market which is clearly not that which they used to
  provide for, and calls into question whether or not the 40-plus people are
  being provided for in the BBC sector now, do you not think that that shows
  that they are competing against other commercial channels and they are not
  being regulated to stop them doing that in the same way that those commercial
  channels are?
        (Mr Smith)  I have to confess, not being a comprehensive listener to
  Radio 2, I am not in a personal position to judge the comments that you have
  made.
        654.     Neither am I.
        (Mr Smith)  I do know, however, that the audience for Radio 2 is growing
  quite substantially at the moment.  You would need to ask the BBC about what
  research they have done, as I am sure they will have done, on the age
  breakdown, the geographical breakdown and so on of that audience.  What I
  would say, however, is that where there are significant changes to the nature
  of a channel, either on radio or on television, in what the BBC are providing,
  then that is a matter which ultimately would have to be considered by the
  Secretary of State under the terms of the agreement that is necessary for any
  radical change of the nature of the particular channel which the BBC were
  proposing or implementing.  So if it could be demonstrated that this was a
  completely different product, or even a very substantially different product,
  from the one that was in place under the charter, say, ten years ago, then
  there would be a role for the Secretary of State to consider that, obviously
  carefully and taking evidence from the BBC and others.
  
  
                               Chairman
        655.     Secretary of State, I would like to ask you three questions. 
  This sounds like "Any Questions".  This is a question from Sylvia Harvey,
  Professor of Broadcasting Policy at Sheffield Hallam University, who faxed me
  a letter this afternoon, and our colleague Helen Jackson mentioned it to me
  as well.  She has written to Sir Robin Biggam saying that she is concerned
  that the ITC is proposing to close all its regional offices plus its
  libraries.  She is worried that it is planning to close its office in
  Sheffield on 31 March, and she is worried that the offices in Newcastle-upon-
  Tyne and Manchester are also going to be closed, though there is a plan to
  reopen an office in Manchester to cover the whole of the north of England. 
  She is also very worried about the closure of the library which she says is
  the best "living archive" of broadcasting policy and regulation in the world. 
  I do not know, Secretary of State, if you are aware of this, but clearly
  Professor Harvey is an authoritative person and would not have contacted me
  were she not seriously concerned about this matter.
        (Mr Smith)  On the question of the ITC regional offices, this is
  something on which I have had some discussion with the ITC.  As far as I
  understand it from them, their proposal is simply to close physical offices,
  but to maintain regional official representatives readily contactable within
  the region, and indeed they have said that their intention is that the
  regional focus of their work should increase rather than decrease.  I will,
  however, ask them to write in detail to yourself and the Committee about the
  proposals that they have in place.  I would be very worried if they were
  retreating from having a presence in and a concern for the regions, but that
  is, as far as what they have certainly said to me so far is concerned, not
  their intention.  On the issue of the library, I think there are discussions
  under way about the possibility of the library being involved in the
  maintenance of the ITC's live archive.
        656.     Yes, she does not like that.  She says it will get lost, I
  think. This is the point.  Knowing what the British Library has done to its
  Round Reading Room, I would not trust the British Library an inch.
        (Mr Smith)  I would be interested to hear her detailed reasoning as to
  why the British Library, which already has a very remarkable sound archive,
  would not be the right repository, because obviously it is something that is
  at the moment under discussion.  Her views would, I am sure, be extremely
  valuable in that discussion.
        657.     What she says - I will not labour this - is that "To
  despatch" the ITC library's "collections to the British Library or elsewhere
  would be to destroy the vital link with the practice of contemporary
  regulation."  In a sense, Secretary of State, it is rather like the rumours
  that went around Manchester about them making major changes to the Henry
  Watson Music Library, which fortunately turned out not to be the case. 
  Anyhow, I have registered that.  Secondly, Secretary of State, when you come
  to us recently to discuss the National Lottery, I put to you a lesson that we
  learned from our experience in meeting lottery commissions in the United
  States, namely the fact that they were public bodies which conducted their
  activities in public.  Now we are dealing with another regulatory body.  My
  guess is that if the ITC met in public, these were matters which it would be
  required to discuss - the matters I have just been putting to you - with great
  openness.  Are you planning, when the legislation goes through to create
  OFCOM, for OFCOM to meet in public, except when it is dealing with matters of
  commercial confidentiality?
        (Mr Smith)  The problem with both the ITC at the moment and OFCOM once it
  is established is, of course, that it will be dealing with a very large number
  of commercial issues, and I suspect that there will be quite a large number
  of occasions when it would have to maintain the commercial confidentiality of
  both the work that it was carrying out and its discussions with parts of the
  commercial landscape and any conclusions that it reached.  However, with that
  proviso, it would certainly be my wish that OFCOM should be as open as it can
  be in the way in which it conducts its affairs, but always mindful of those
  practical difficulties and the fact that it will be dealing with a commercial
  world where there is a very active commercial competition and where there is
  a lot of information to which it would undoubtedly be privy that it would not
  be able to put into the public domain.
        658.     You will understand that this Committee has got a particular
  interest in OFCOM, because it regards itself in a way as its progenitor. 
  Finally, in your interview which was published in the Financial Times on
  Monday you spoke about three inquiries into the BBC:  an external inquiry into
  its commercial activities and two inquiries within your department, one on BBC
  News 24 and two on BBC Online.  Without stretching your patience, since I
  would like to close this meeting in six minutes, so that Mr Maxton can get his
  plane without missing anything, can you just tell us a little bit more about
  those inquiries, and also tell us what you would do or what you plan to do
  when the inquiries are concluded and report to you?
        (Mr Smith)  These were in fact three initiatives which we announced at
  the time of our response to the Davis report.  The first relates to the
  appointment of an eminent outside person to look very specifically at the fair
  trading provisions within the BBC and the very clear divide that needs to
  exist between the BBC's commercial operations and its licence-fee funded
  operations.  In fact, I announced a couple of weeks ago that Professor Wish
  has agreed to take on that role and over the next few weeks will be
  undertaking that work for us.  The other two initiatives that the article
  referred to were the provision that we announced at that time that once the
  new digital services of the BBC had been in place for a period, we would wish
  to conduct a review of how successfully or otherwise those digital services
  were fulfilling the promises which were originally made when they were started
  up and given permission to do so.  We identified at the time - I think in part
  at the urging of yourselves, Chairman - that News 24 should probably be the
  first of those exercises to be undertaken.  We also felt that it was
  appropriate to give News 24 at least a period to find its feet before
  conducting that inquiry, and also that in the immediate run-up to a general
  election - if that is what we are perhaps looking at in the next few months -
  it would not be a right and appropriate time to review a new service.  If
  there is an election within the next few months, I would certainly have hoped
  that it would be high on the list of priorities for my department to initiate
  after an election.
        Chairman:   Secretary of State, thank you very much.  You have wound up
  the inquiry with your customary frankness.  We thank Patricia Hewitt too for
  coming before us and demonstrating her great knowledge of the issues.  Thank
  you.