Select Committee on Culture, Media and Sport Minutes of Evidence

Examination of Witnesses (Questions 440-459)



  440. That is very fair, in view of the fact that the Bill is before Parliament next week, and, as you say, it is for Parliament to decide. But the question does arise, does it not, that, let us say, OFCOM had charge of the BBC, let us say that OFCOM could do to the BBC what it did to MTV and imposed a hefty fine on MTV for breaches of the watershed, that, although it did not fine Channel Four over incest in Brookside, it took a very strong view about it, but if the BBC were to be fined, in the end, what would be the point, since it is we, as licence-payers, who would be paying the fine; so the BBC gets away with it anyway?
  (Mr Bolt) Yes; there are wider arguments, there are many other public bodies which do worthy things are still fined.

  441. There are one or two people around who argue for privatising the BBC; but we will not go into that now.
  (Mr Bolt) Health authorities, for example, can be fined.

Michael Fabricant

  442. In their evidence earlier on, I do not know whether you were in to hear it, Telewest talked about the unsatisfactory nature of OFCOM being responsible to two Government Departments; they said also that life was not easy when it takes six months to get an appointment to see the Secretary of State for Culture, Media and Sport. You have got pretty firm ideas, it seems to me, about where you see OFCOM going, you have got pretty firm ideas too, I think, about where you see the BBC should be relating to OFCOM; and yet, as the Chairman said, the Bill is going before Parliament next week, and, if this Government Bill is like many other Government Bills that come before Parliament, it is unlikely to be changed a great deal by the time it is enacted. So I just wonder, what has been your experience, in relationships with both the Secretary of State for Trade and Industry and the Secretary of State for Culture, Media and Sport; to what extent you have been successful in steering Government policy, such that much of your input will be reflected in the Bill that comes before Parliament next week?
  (Ms Hodgson) We have been very impressed by the collaboration between the two Departments and by the access that all of us, both as a group and individually, have had.

  443. So maybe you have been booking all the appointments and that is why Telewest could not get in?
  (Mr Stoller) We have seen the co-operation between the two Departments working, I was going to say perfectly well, that sounds a bit grudging, working well, and certainly we have been able to put our points; whether our points will be taken by Government and then by Parliament is a matter for them and for you.

  444. So you have not had sight of the draft Bill in any form yet?
  (Mr Stoller) A number of us are working, and are invited to work, on some parts of that; and most of that is to look at technical drafting. I certainly have not seen the full Bill, and I doubt that colleagues have.

  445. So I cannot tempt you then, rather like the serpent and the apple, to make an observation regarding either of the two Departments and their co-operation with you?
  (Mr Edmonds) If I may, Chairman, you can tempt me, and I would like to rise to it, because at the outset of the OFCOM process, when the White Paper was published, the five of us came together. The five of us went jointly to both Secretaries of State and said, "You have set in the White Paper some objectives that you would like to secure, you have said in the White Paper that you would like to build OFCOM. We have said we would like to be part of the process of creating a world-class regulator. We believe that one way in which we can assist that process is by working together," which we firstly did, drafted a memorandum of understanding, so our own actions were correlated better; "but, secondly, we would like to work with Departments." We set up the regulator steering group, the five of us, with Under Secretaries from the two Departments; and throughout the process we have tried to drive the mechanics, the logistics, the preparations, in a way that has meant both the Departments have been linked in, and we have been linked out to both Departments. How successful that has been, I suspect, Sir, you will have to wait until the Bill is published; but, in terms of trying to work with the process and trying to work with the Departments, I think it has been a remarkably successful experiment.

  446. And finally, Chairman, if I may, to change the subject, what role do you think OFCOM will have, and what role ought OFCOM to have, in analogue television switch-off?
  (Ms Hodgson) I think David Hendon and I might answer that. We expect and intend that OFCOM would build on the activities that are already under way. The ITC has been driving what is called an equalisation process, to ensure that the six multiplexes have the same coverage; that is about halfway through, that programme. We have also persuaded the broadcasters to a power increase programme. Those two things together will ensure that the core coverage is, when it is completed, 73 per cent for the `pay' multiplexes and 85 per cent for the `free to air' multiplexes, with another few transmitters, but without further major build; at switchover, when power can be increased, that will go up about 10 per cent. So that is a pretty good progress on that front. We are working with the Departments on information, for example, for local authorities, blocks of flats, about reception. We have changed our cross-promotion rules to make it easier for the broadcasters to drive take-up. We are working with our colleagues here, and David might like to pick this up, a little bit on the Digital Action Plan. And the ITC, currently, with 18 companies in the business, is running a GoDigital project in three pilot areas.

  447. If I may interrupt, as other people want to get in, I think what I am really getting at is, have you got a date in mind, have you actually said to the Secretary of State, "You talked about a date, or your predecessors did, and that seems to have gone by the wayside; do you agree with people in the industry who say, `Well, until you do have a date, you're not going to get much digital take-up, because people wont see the urgency in it'"?
  (Ms Hodgson) The ITC certainly has written to the Government, talking about the prerequisites, integrated sets, a programme that will take us towards switchover, the importance of a digital set in every home, so that the idea of digital switchover is something that is positive for people, something that they are getting, rather than something negative which is being taken away from them. I do not know whether you want to add, David, about the GoDigital project, the Action Plan.
  (Mr Hendon) First of all, there is a limit to what I want to be drawn into, because I am different from the other people on this side of the table, in that I work for the Department of Trade and Industry, so I am reporting to the Secretary of State.

  448. And you might be sacked, or you might resign and not know about it?
  (Mr Hendon) So everything the Secretary of State for Trade and Industry believes, of course, I believe too. I think we understand what the industry is saying to us about the importance of a date, and I think it is always easier to know when to make an investment if you have got a clear idea of what the take-up will be. I think we have got to recognise that there are a lot of factors playing in that market-place, and the date is just one of those things; and if we set a date without reference to everything else then it could be more damaging than helpful. So I think that is a difficult political decision, as it were. From my own perspective, there are a couple of interesting things about spectrum. First of all, radio spectrum does not understand about national sovereignty, it just sort of carries on, regardless, and so there is an enormous job to do in agreeing the use of radio spectrum with other countries, and particularly the television frequencies, we have considerable problems agreeing how they should be shared with the countries around, not just Ireland but also on the Continent. And the problem we have got at the moment is that we have gone a lot further and a lot faster with digital TV than they have, and they are all beginning to wake up now to the need for digital networks. And so there is going to have to be quite a lot of sorting out of how these networks are going to co-exist in the spectrum, with analogue networks withdrawing at the same time; it is a very difficult technical problem to solve. And there is a sequence of international conferences where this work will be done, and we are, really, I think, in the lead, to quite some extent, in that respect, and I see OFCOM really as setting something of the tone, internationally. And then, of course, the other thing is that spectrum that is released after analogue switchover could be used for all sorts of things, but it is only really useful to industry if there is some sort of international agreement on what that spectrum will be used for. And the reason that the third generation auctions achieved such extraordinary values was because there was a perception at the time, maybe there is still a perception, of a huge opportunity and, going back to my point about investment, there was a real opportunity to invest in equipment, and so on, which would exploit that opportunity. And that is really the key to how we reuse spectrum that is released from analogue switch-off; so there is another great piece of work to do there. And, again, I think, OFCOM will be heavily involved in the international definition of that work.

Mr Bryant

  449. I guess I start, in thinking about OFCOM, by wondering what we want regulation for, in any sense at all, in this market, and I guess it is to ensure that there is a robust competitive market, and to ensure that there is a consumer focus that delivers universal access and choice, and things like that, and that there is an efficient use of resources, and then that there is an accepted system for taste and decency. But it seems to me that politicians, and we have done it again today, always get obsessed with the taste and decency issues and never look at any of the competition issues; we are very good at being Mary Poppins. And my worry is that, actually, in terms of regulation in Britain, we are brilliant at the Mary Poppins style of regulation, in all of these services, I think we do a very good job; alright, there may be moments when broadcasters get it wrong, but, broadly speaking, we have a very robust system which has the confidence of the people of Britain, which is not true in other countries in the world. But when it comes to competition we are pathetic; on any of the competitive issues in this area we have failed to deliver, I think. My first question really then is about conditional access pricing. We had Sky in, who still have not replied in written form on the issues that we asked them then, I presume that they will get round to it eventually, but maybe they deliberately did not do so before you were coming along today. As I understand it, the conditional access price regime is not regulated really at all in this country, in theory it is, and Sky say it is, but, as I understand it, nobody signed off the rate card that they use at all?
  (Ms Hodgson) Do we not have an opportunity, with OFCOM, to make a considerable step forward in this area; in preparation for OFCOM, David and I have been working pretty hard on some of these issues, particularly this one. And, as you may know, David has got a consultation out at the moment about the terms for this very subject, access via the satellite platform, and we are responding to it, and I hope very much that you will see a considerable improvement in the way decisions are taken.
  (Mr Edmonds) If I could second that; yes, we have had an interesting consultation. We propose to make a statement on some principles in this area, which I think will go a long way towards perhaps giving the clarity that you want in this particular area, Mr Bryant. I am not sure though, if I may defend, that it has been such a disaster, in competitive terms, as perhaps you suggest. The rate card is there, yes, the rate card is set by the company, it is a guide then for negotiation with those companies who want to buy conditional access; and, on the whole, as I think you heard from Sky, several hundred agreements actually have been reached, as a result of commercial negotiation, and I think it is a good thing. Where we do have a complaint, as you know, we have had a complaint from ITV, that is then looked at in the context of the competition rules that we apply, and, clearly, I cannot comment on what that decision might be, because we are reflecting on it at the moment.

  450. It has not led to an exactly competitive market in the two premium areas of channels, has it, i.e. sport and films?
  (Mr Edmonds) No; in the sense of looking at lots of competition coming from other areas, no.

  451. And, indeed, as far as I can understand it, the Sky card, Sky pay to the company that manages it the same price for all of their channels that they have, all their sports channels and all their other channels as well, as ITV would pay to put ITV Sport on there. Surely, that is anti-competitive?
  (Mr Edmonds) I think that those kinds of arguments have been made, and I would ask that you look at the response that we are going to make in the light of the consultation document, rather than me saying now it is anti-competitive.

  452. I think it is the ITC that regulates, I think, I might be wrong, advertising on Sky then. Why have I never yet seen an advert on Sky for ITV Sport?
  (Ms Hodgson) ITV Digital has been discussing with Sky a number of advertisements that they wanted Sky to run; Sky had some problems with those advertisements, ITV Digital complained to the ITC. The Monday before last, the ITC wrote to both Sky and ITV Digital, saying it was minded to make a direction; we gave dates for both companies to come back. After they had come back, we did make a direction, last Friday, and I can let you have the details of that outside the meeting.

  453. And do you think it is fair, or do you think that vertical integration within Sky, so that, this is a point that Mr Keen made, when Sky were here, that you had various different parts of the value chain all tied up into one organisation, that ensures, inevitably, they are there to make money, but, inevitably, that they seek to get the best value out of the shared ownership, across the vertical integration? Do you think, for instance, then it is fair that the Discovery Channel is signed up exclusively to Sky, so that it cannot be available on ITV Digital until the year 2006?
  (Ms Hodgson) The vertical integration you speak of has one substantial benefit and raises very serious competition questions. The substantial benefit is that it enables Sky to launch and reckon to get some return on the high risk of pioneering satellite, multi-channel television and then digital television, in this country; clearly, it raises very substantial competition questions, some of those, in relation to films and sport, are, as you know, before the OFT at the moment, and they have made a preliminary "finding". I think that one of the most important solutions to this question is the terms of access. I think your first question was absolutely key; the terms on which competing channels can get access to this delivery system, which is undoubtedly a dominant gateway. I think the outcome of the current deliberations, following the consultation that David is undertaking, will be absolutely vital to the health of competition between services in this country.

  454. I asked Telewest whether it was fair then to suggest that the present regime, because of `must carry' rules, and so on, means basically that public service broadcasters in this country subsidise the roll-out of Sky set-top boxes, because they have to pay for conditional access, whereas, on cable, cable has to carry all the public service broadcasters and does not get a penny for it; would you agree?
  (Ms Hodgson) The terms that the public service broadcasters have to pay are crucial; and, as we know, the BBC, Channel Four and ITV are paying very different sums. It is why, again, I repeat, the outcome of this current consultation and, going forward, the charges are very important indeed.
  (Mr Edmonds) The fundamental principle is, of course, fair, reasonable and non-discriminatory prices. You started your question about competition; that is an understood concept in competition, fair, reasonable and non-discriminatory does vary between categories. But it is something, I think, that competition economists and competition lawyers understand. As Patricia says, it will be at the heart of what we move forward with.

  455. But it seems to take a very long time for just pure competition rules to deliver outcomes in the market, and at a time when, in my patch, Sky has a monopoly?
  (Ms Hodgson) It is very important to move fast. You will remember, when the BBC was trying to get onto the satellite, OFTEL was able, informally, to aid that path, and I am sure David will move as fast as he can. There has been a tradition of the communications decisions being much faster than the competition decisions, and I hope that we will make sure that that not only continues but is improved under OFCOM.

  456. Can I ask one parochial question then, which is about coverage in Wales. It would be nice to see the Rhondda B transmitter digitised in the near future. I think it covers about nearly 20,000 homes, so I cannot see why it should not be, fairly soon. But also mobile `phone coverage; clearly, in Wales, in large chunks of Scotland, there is still a very significant problem in large areas. What is the solution to this?
  (Ms Hodgson) On the broadcast one, and then I will hand over on the mobile `phone one; on the broadcast one, we are now working with the BBC, particularly on the Welsh, Scottish and outlying territory, where territory is difficult, to get the signals in. As you know, the powers under the 1996 Act allowed the licences for difficult areas to include the requirement for the first roll-out, but does not, we do not have statutory powers, and all the legal advice is that we have to be very careful in directing, when it might be against the business interests of the companies concerned at that particular moment. I think that is something, again, under a new Bill, that Parliament might want to consider.

Mr Doran

  457. There are two areas I want to explore. One is the principles behind the new OFCOM, and the other is the culture of the new body. On principles certainly, on the broadcasting side, we reformed broadcasting law in 1990, again in 1996, and, five, six years later, here we are, doing it again. What makes you think we will not be back again in five or six years' time, having to look at it, given the pace the industry changes?
  (Mr Stoller) I think it is important, we are all agreed, it is important that OFCOM, in whatever form it finally takes, has sufficient internal flexibility to be able to move with the technology, and indeed with the markets; we hope as well that the legislation will allow that degree of flexibility. One of the reasons why you have had to battle repeatedly with broadcasting legislation, certainly, and telecommunications I guess is the same, is that the legislation has often been very tight, and to change it has required primary action.

  458. But on ownership rules we are still talking percentages, for example?
  (Mr Stoller) Absolutely. It is our hope, I think across all of us here, that OFCOM will be given sufficient high level principles to act to, but not a huge amount of detailed direction, about, for example, a percentage here or a percentage there. That, I think, is difficult, because those percentages have a major effect on the outcome, and for Parliament to let go that level of control is going to be difficult; and it may well be that there is a compromise to be struck between the amount that is able to be changed over by primary legislation and the amount that is able to be changed by secondary legislation. And I know this is a delicate area, and I tread into it with the greatest of care. But I think it is certainly true, on the ownership rules, that if the ownership rules are set out in great detail, in a way that can only be changed by primary legislation, it is almost inescapable that all this will be back in front of you in a few years' time. One of the things which we have been able to do on the radio side is to find a high level principle that we think will carry through for some time; we have argued, and I am sure you know, that, within local areas, where there are sufficient licences, there should be three owners of those licences plus the BBC. That is the sort of high level principle which OFCOM can find different ways of implementing, as circumstances change. As it happens, if you take that principle and apply it to other media, or cross-media, it seems to us that also works pretty well.

  459. Have you any sign though that the Government is listening to you?
  (Mr Stoller) I have signs that we are saying it. I do think there is a balance to be struck, and I know how difficult it is. But, clearly, if OFCOM is going to work fast, as Patricia has already said, effectively and flexibly, you have to let it off the leash a bit; therefore, you have to be very clear about the high level principles, which are going to be sacrosanct, and it is going to be a difficult and careful drafting job.
  (Mr Edmonds) Can I, if I may, put a very brief supplement, which is, of course, we are moving into a world that is now going to be very heavily governed by the European Directives, which are going to be implemented over the next 18 months in the UK, which relate to communications networks. A framework, a very flexible framework, a framework based certainly on the economic side, the competition side, of regulation, based on market analysis, actually, I think, is going to give OFCOM the ability to intervene proportionately, to intervene, I think, swiftly but to intervene perhaps in a more limited way. So the domestic legislation is incredibly important, but it is against a background of a European framework that is going to be quite different.

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