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 œ79 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 œ10 or œ20, 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 œ2-300 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 œ100 - quite possibly below œ50 - 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 œ40 a month, you have got cable modem offerings of about œ34 a month and œ25 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, œ30 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 œ20 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 œ399, 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.