Examination of Witnesses (Questions 60-76)
MR TONY STOLLER, MR DAVID VICK AND MS EVE SALOMON
THURSDAY 23 MAY 2002
60. In your evidence to us you mentioned the arrangements which are currently being made for bringing OFCOM together particularly in relation to staff and, whereas the Government have expressed reassurance about issues relating to transfer of public undertakings and the fair deal of staff pensions but are not proposing to introduce draft clauses before the Bill is presented, you are asking us to press for those draft clauses to be published sooner. Is that because you have a particular concern that you wish to see expressed in legislative form?
(Mr Stoller) I think we have two concerns, and I speak not only for the Radio Authority but also as the Chairman of the HR group for the five regulators, and if you will forgive me for putting my concerns in this order, the first concern is we all have to deliver our current statutory remits. The Radio Authority is determined, as I am sure the other bodies are, that we will not be distracted by OFCOM preparations from doing a first class job in the meantime. The second concern we have is that OFCOM should have available to it a proper pool of talented people with experience and able, the Chairman used the phrase, to hit the ground runningcertainly to hit the ground walking briskly. As far as the Radio Authority is concerned, and I am sure it applies to the others as well, we think our people are entitled at the earliest possible opportunity to know exactly where they are going to stand if they move to OFCOM, though clearly there is no guarantee that there will be jobs for all the people in the existing organisations. We think that is also in OFCOM's interest because that would help us to keep the good people. There are the undertakings in the Bill and we feel pretty strongly that your Committee just as much as our staff ought to be able to see the proposed clauses to give effect to the undertakings. If that is so, you can make sure that OFCOM has its pool of good staff: you can make sure that the existing requirements of Parliament can be carried out by the current regulators: we can be absolutely clear with our people who at the moment are relying on things that we ourselves cannot rely on in detail: and also you in your own scrutiny can be clear that existing staff are not being treated over fairly or over harshly, so we very much hope you will have an opportunity to review the wording of this.
61. I can see the merit of that but at the same time the Towers Perrin report suggested that not only were there downside risks associated with the loss of key staff or motivation of staff in the course of bringing OFCOM together but equally financial risks associated with cherry-picking and staff beginning to say, "Well, our comparabilities move us all up", and it all begins to rise to the highest level rather than to find the appropriate market level for staff and so on. Can you assure us that in this process the regulator is coming together in the way you describe, or the working group is going to be very aware that it has to look to avoid those upside costs, the risks of cost inflation in staff and remuneration and so on, and does not take decisions in the desire of being able to do the things that you mention and decisions which would effectively pre-empt OFCOM when your chairman and the board are appointed?
(Mr Stoller) Yes, I give you that assurance unequivocally. We are brutally aware that OFCOM will have to set its own terms and conditions and will have to make its own decisions about the basis on which it employed staff; that it will decide, or not, to employ those within the existing regulators in the areas it wants them or not, but OFCOM needs to be able to fish in a pool of talent, and the experience of the FSA coming together was that their great concern in the end was not how many of the people from the existing regulators they had to take on but how few might be available to them, and there is a balance to be struck here. We cannot as five regulators, let alone as the Radio Authority, commit OFCOMof course not. OFCOM will have its own existence and ideas. What we can do, however, is first of all do as much work as possible to enable them to get on with things quickly to identify what the options are in exactly the sort of areas you are talking about and, secondly, try and make sure there is a pool of talent they can go to if, indeed, they decide to take whichever of those options they do in terms of recruitment.
62. Can I come in on this because I am genuinely puzzled by what is being said? Those who have read the pages of The Times will know I was critical of the way the Bill was being put together and expressed fears that we might be starting to have a war between warlords. What you are saying slightly suggests that there are some tensions there that cause these anxieties. You have, however, said that surely this is a matter for OFCOM and it seems to me, and I am surprised, that you think there are going to be clauses in the Bill specifying employment terms and so on. After all, this is going to be an Act for the long term. Surely these are matters for OFCOM and the board, or possibly for guidance from ministers on these matters, and I am extraordinarily puzzled and slightly worried by the implication that there is some sort of great tension here that creates these anxieties. It seems to me that here you have an OFCOM still without a chairman or a chief executive or a board, and I am not saying that this was exactly my anxiety about the matter but this is the way it is put together and the fact is they are going to be there before very long, and surely these issues about recruitment and the terms on which people are taken on are absolutely those for the board? I certainly saw them as that when I chaired a regulatory body, and I am astonished that you want us to see that clauses are added to this Bill on this kind of point.
(Mr Stoller) If I may, there is an undertaking already in the policy now to do that so we are not jumping to do anything in particular. It is normal practice, as I understand it, for the transition provisions for staff to be set out within legislation, and it is important to do so. If those transition provisions do not exist on the face of the Bill, then there is no transition or continuity for staff. The implication of that is that all the existing staff will be redundant automatically, generating a huge bill. The only way of avoiding that is to have something in the schedule of the Bill, and it is our understanding that in what is currently Schedule 2 of the draft Bill there will be the need to include transition provisions. Given that that is to happen, it seems to be so central that, in our view, it is something this Committee should see. It certainly does not arise out of any tension between the regulatorsindeed, if anything, we are getting further ahead than any tension might suggest. We are working well together, and one of the areas where we have to work together if we are to provide the incoming chair and board of OFCOM with a range of options is to tease out exactly these sorts of issues but, if that Clause does not appear in the Schedule of the Bill, then there will be no automatic transition and there will be automatic redundancy.
63. Before we leave the structure of OFCOM, can I just ask whether you consider with the experience you have had up to now that it remains necessary for OFCOM to have a radio group as distinct from it being orientated around specific outcomes and certain processes? It is Thursday morning and not Friday afternoon, so I think we can reasonably ask that question, because on the face of it it seems to be utterly inconsistent with the principle of trying to bring the regulators together so that content regulation and economic regulation is undertaken with consistency across the communications sphere?
(Mr Stoller) It is our clear view that there are some functions which the Radio Authority currently carries out which will need to be done by a separate radio function within OFCOM. Those are overwhelmingly linked to the licensing activity which is, unusually for the Radio Authority compared to the other four bodies, a very dominant activity. It is a specialist task and will need to be carried out in a specialist way. Alongside it will go other tasks which relate directly to that. You have already heard, and we would agree, that there are going to be areas of content regulation which do not fall within a radio group but are done more generally within the content pillar, but it seems to us that, of our 45 people, something like 20-25 are doing radio-specific things and they will need to go on doing that. They will also need to have access to radio specialists within OFCOM. The risk otherwise is that all of the expertise which has been built up to do things like licensing in particular will have to be re-invented, and that seems to us to be pointless.
(Mr Vick) The important point is it is competitive licensing. The other bodies license, but we license varying and commercially attractive licences all the time which attract a large number of applicants. We are currently dealing with 15 or 16 applications for a particular regional licencea very valuable licence. Therefore, from our point of view, having access not just to people who can deal with the mechanics of the advertisement and looking at the basics of the groups themselves but actually having access to people with the necessary technical skills, programming skills and financing and market analysis skills, is absolutely essential for us to be able to perform our task adequately. The statutory criteria upon which local licences are awarded will not change in the new Communications Act, therefore there will be a need to retain an effective mechanism for implementing those requirements, and for that we need access to specialist staff and an effective decision-making process.
64. I must confess, Chairman, I am utterly unpersuaded by any of that. It seems to me that, if there are these particular skills particularly to do with things like financial market analysis and determining the extent to which competition should apply and licensing, these are precisely the type of skills that should be shared with and part of the economic regulation and function of OFCOM generally, and that it would be much to the benefit of OFCOM within the whole structure to have access to those so that the understanding of competition in the telecommunications sphere is increasingly complemented by an understanding of competition in the media sphere. It takes me on to this: in your evidence you say that you and the commercial radio companies have together agreed a proposal for a three plus onethree commercial regional companies plus the BBC. The structure you propose, including the structure of having a radio group, seems to be geared around the prospect that competition will not apply; that there will be competitive licensing and this is a managed market. Why should that be the case? Why should we not go to competition? Why would competition not deliver sufficient plurality, or at least give it the opportunity to show that it would deliver sufficient plurality? It is not proposed in the Bill there should be three regional ITV companies of a regionally distinctive character so why does radio plurality prescribe that that should be the case?
(Mr Stoller) I think our view is that there are various prescriptions already in the legislation as proposed, or at least in the media proposals as they are there. Some of these are designed to let competition run and some are designed to ensure a degree of plurality. It applies to an example within television that national television shall comprise effectively the same formula that we have advanced for radio, which is three separate national television companies plus the BBC.
65. Not on a regional basis?
(Mr Stoller) Absolutely not, but you must remember that, as far as commercial radio is concerned, and we are only talking about local commercial radio, local commercial radio is conceived of essentially local licences which are awarded to operators on the clear understanding that they will be providing local radio; they are awarded against four statutory criteria, which are not going to change in the new legislation, three of which have a clear local prescription within them. It would, of course, be possible to take all of that and change it and make commercial radio national and let it work perhaps on a competition basis as we believe commercial and national radio should be operated, but that is not the proposal, and while you go on having a system built essentially around local radio we think this is the best way of delivering what it is that the legislation is proposing.
66. But the answer to our questions cannot be, "Well, that is not the proposal". We are trying to see whether the proposal has benefit?
(Mr Stoller) Yes. Should the legislation provide that? Yes, I think it should. The legislation should be protecting local plurality because these are not just market issues. There are in any area where you have a multiplicity of radio outlets, a whole range of issues relating to the availability of local information, local democratic activity generally, local employment, and choice of local music. Now, the experience of other nations who have deregulated is quite clear: if you do not preserve local plurality, you do not get any of these advantages. We have come across recently a couple of examples. In New Zealand, which completely deregulated and also imposed no national restrictions on ownership, apart from those Maori owned stations, all New Zealand commercial radio stations are owned by two groupsone is Can West, the other is Tony O'Reilly's Independent Group. There is no local radio arising from the locality. If you go to Australia, you will find that those stations owned by the American group Clear Channel are programmed 7,000 miles away in America. Even in the US, which since 1996 has substantially deregulated, there is huge concern about the effect of concentration upon local output to the extent that the FCC, which is not by nature regulatory, is seeking to introduce a whole new tier of low powered FM stations to try and get back that local output which they have lost. I think it is hugely in the public interest that the legislation should lay this down; I am very pleased with what the Government is proposing. There is now a formula which Government has adopted for its own policy as a way of delivering that particular objective.
67. You spoke of there perhaps being a separate radio code from a television code. Are you happy that the objectives for the codes set out in the Bill are not, to use your phrase, a television solution being applied to the radio medium?
(Mr Stoller) Yes, we are.
68. There is nothing you want to add to them?
(Mr Stoller) No. We are content as they stand; we are content with the Bill as it looks; we think it can deliver sufficient separateness but also sufficient commonality.
69. Moving on to digital radio, you said in your memo that the draft Bill continues to promote and support the growth of digital radio but that some further slight modifications will be needed to ensure that the digital industry is not needlessly hampered by regulation. What modifications or further provisions do you think would be needed to achieve that?
(Ms Salomon) Perhaps I may start by saying that digital radio in the UK is in the spotlight of the entire world. We are years ahead probably of most other western nations in the development of digital radio, and this has been down to the successful implementation of the 1996 Broadcasting Act which really had an excellent vision of how to regulate for a completely new technology. However, after a few years of applying the 1996 Act, we are seeing some strains on a piece of legislation which was really built on a theoretical basis for a new industry. I cannot go into too specific areas nowI will put them in writing perhaps in more detail to you laterbut one particular area has to do with the rules for varying digital licences which do not mirror what is currently available nor, indeed, what is going to be available if the Bill goes through in its current form in terms of intentions for analogue radio. Whereas in analogue radio there will be what looks like four different possible reasons for changing an analogue radio licence, there is only one for digital radio, and we feel that the two should be mirrored which will enable the regulator to apply greater choice for digital radio and also ensure incidentally that digital radio provides more choice for listeners. That is one area. Another is that the development of digital radio has been driven by a big carrot in the 1996 Broadcasting Act which says that if you provide a service digitally then you can get your analogue licence renewed automatically, which has been a great incentive and the radio industry has followed up on that. However, a drafting problem is that the provision says that if you provide a digital service you will get your analogue licence renewed, and there is no definition of what that digital service could be. What we have found is increasing pressure on us to accept very part-time digital radio services as sufficient for getting analogue renewal, and we do not think that legislation should go down that route because it will make a mockery of the legislation and mean that there will not be adequate investment in digital radio.
70. I am glad Andrew Lansley provoked you into such a spirited defence of local commercial radio. On the Australian point, the point is it is programmed from 7,000 miles away in the United States?
(Mr Stoller) Absolutely.
71. Very "local"! The other buzzword now is "access" radio. I am old enough to remember when local commercial radio was going to be local and community-based and that, and now it is all owned by big groups and this Bill is going to make it easier for it to be so. Is access radio really going to be community-based radio, and how far have you got with this? How much co-operation are you getting from the commercial radio stations and the BBC to make it a reality?
(Mr Stoller) I think it would still be true to say that a large number of the commercial radio stations provide a good local community service, and I ought to start with that; perhaps particularly those small scale stations which the Authority has been licensing in recent years. These are really very tight areas and it is one of the reasons why we are nervous about the label "community" radio, because communities are served in all sorts of ways and a number of the existing commercial stations, whether in groups or not, will let you do that. What we have become conscious of, though, is the absence of that innovative, irreverent third tier, and we twisted the Government's arm the best part of a year ago to allow us to run some experiments in what we call access radio, and the experiments are going very well. Eleven of the licensees are on air already; there is a detailed independent evaluation being conducted; and I think unsurprisingly there is evidence that there is enthusiasm and energy out there to do this. There are, of course, two issues: one is the availability of frequencies. Access radio, if the Government chooses to legislate for it as we would like it to, is going to demand frequencies that we do not have within our gift. We can put some additional small-scale stations within the FM sub-bands that we use: we can also deploy AM to an extent: but if access radio is really going to flourish it is going to have to use space in the BBC national and local radio sub-bands. We know that space is there, and the BBC has already allowed us to put two of these experimentsone in one of their national bands and one in one of their local bandsand one of the great advantages we see of OFCOM is, because it will plan frequencies altogether rather than there being competitive teams in the BBC and competitive teams in the Radio Authority, that it will be able to make those sort of judgments, but frequency is going to be the first difficulty. The second difficulty, inevitably, is going to be finance. We are pleased to see that within the proposed legislation there is a suggestion there could be an access radio fund, and clearly some funding is going to be needed from various sources. What our experiments are doing among other things is trying to identify what is the maximum amount of commercial revenue that a non-profit distributing type of radio station should take: what are the different models: what effect would these stations, if they do take some commercial revenue, have on the local broadcasting licence holder of these commercial stations. There has been encouraging support so far from the NGOs. The Gulbenkian Foundation has put money into the evaluation and bodies like the Jerusalem Trust are funding set-up costs and training; so it seems to us in essence that there will be the need for some public funding and certainly it would be welcome, but in the end this funding point is not going to make or break access radio. It is a good idea if it is a good idea and if the frequencies can be found for it, and I think it is true to say that the commercial radio companies, although inevitably suspicious of competition for revenue and to a degree suspicious of competition for audiences, recognise this as something that will come just in the way, as you say in the early days, that commercial radio and independent radio came in, entered at the bottom of the market, and gingered up everything else. We think that access radio, if it were to work, could immensely enrich the radio scene in the UK.
72. But if it were successful would Associated Newspapers or somebody come and buy them up?
(Mr Stoller) No. They are to be strictly ring-fenced from the commercial sector; they will have, as the experimental stations have, a clear and very closely-defined remit built around the social gain they can deliver. We have a couple of experiments we are licensing in Manchester which are involved in social regeneration projects; we have a station we are licensing in London for the London Musicians' Collective with a clear aim to produce something new and original and creative which does not come from mainstream radio; and those licensees need to be held very strictly to this. If it simply drifts into the commercial sector, it is not worth doing.
73. Taking up again your spirited answer to Mr Lansley, you seem to be very concerned about American ownership of Australian radio and you mention it in much stronger terms than the other memorandum we have had today from the ITC. You draw attention in your memorandum to the problems you see being caused especially by the removal of the prohibition on non EEA ownership, and you are concerned about protecting the quality and key characteristics of UK broadcasting, particularly local and regional broadcasting in that context. Do you see any advantage in reciprocity? Some people have said that this proposal came rather out of the ether at the last minute. Did you have discussions with the DCMS in the long discussions you had before the Bill? Did you advise on it, and what exactly would your stance be on it?
(Mr Stoller) The Authority's position, which is our published position, is that if there were to be an extension on foreign ownership, that should be on the basis of reciprocity, and that is still our position. We would like to see that. I have to say that from the discussions I had with the FCC in the spring, the Americans see very little prospect of reciprocity, as they are concerned much less with Europe than they are with Japan, so I am sure we should press hard with reciprocity; it seems to be necessary if we are really going to press for the benefits of free markets worldwide, but I am not entirely optimistic that we will get anywhere.
74. Secondly, you also referred to religious broadcasting in your memorandum, and you say that religious bodies should be prohibited from owning national radio licences because of the available spectrum. Could you amplify the reasons why you think that is the case, and what you would see religious bodies being able to bid for under the scheme? What licences might be up? If medium wave was digitalised, for example, would you see that as a possibility?
(Mr Stoller) The Radio Authority really has pioneered religious ownership of radio stations in the UK. You can listen in London to two religious-owned radio stationsPremier Radio or Liberty Radio which are permanent licensees. The RSL scheme, the short-term licence scheme which David Vick very much pioneered, is a major way in which religious organisations can get on air. For example, we licensed 23 stations for Ramadan this year, so this is an area we are actively interested in but where we also see the difficulties. As far as local radio is concerned, we believe those difficulties can be handled by whatever content restrictions you want to place, and therefore we would not want to see any restrictions. We are delighted that the Bill envisages removing the prohibition on religious bodies owning local digital licences, which was something in the 1996 Act which seems to us ripe for reform. The difficulty arises when you move into national analogue radio services of which there can only be very few. There will, as far as we can possibly foresee, only ever be three national commercial radio stations, and only one of those has a speech remit. The notion of that being subject to highest bid between different religions or different religious denominations seems to us to be horrendous. That is the position of the present legislation: that has been tested in the European Court and has stood up so we think that is right. We think the same applies to national digital radio where there is a similar, though not quite as intense, limitation on the number of frequencies. As far as access radio is concerned, four of the 15 experiments have clear religious elements within them, and the Radio Authority have recently been seeking views about the extent to which licensing of full scale stations on AM might be a way of serving a whole range of specific areasreligious bodies are one area, groups defined by their ethnicity or their language, and other areas. We think there is huge potential scope there. I was actually judging the Jerusalem Trust Radio Awards yesterday, there is a lot of enthusiasm but the idea of that enthusiasm, especially in its more extreme manifestations, being able to buy its way on to national airwaves seems to us to be the point too far.
Chairman: Thank you very much indeed. Stephen and Stuart, any issues you want to clarify?
Lord Crickhowell: Can I suggest we ask for some guidance on these transitional clauses?
75. That is exactly what I am hoping Stephen is going to do.
(Mr Pride) That is right. I just want briefly to remind the Committee that in the policy narrative, paragraph 3.7.2, there is a firm commitment about the arrangements for staff which the Government has already made and clearly will stand by. How that is to be reflected in the Bill is a separate question and in paragraph 3.7.3 the Government says that it proposes to consult not only the five regulators, the existing regulators, but also OFCOM as soon as OFCOM has been appointed. Of course that means that the time when we can come forward with whatever clauses are necessary in this area is not very imminent but certainly that is something the Government will be doing.
Chairman: Are you happy with that?
Lord Crickhowell: That is a very helpful clarification. Thank you.
76. Stuart, any other issues?
(Mr Brand) No.
Chairman: Thank you very much indeed.