Supplementary memorandum submitted by
In its oral evidence to the Joint Committee
on 19 June, the BBC was questioned in detail about its fair trading
Committee members and the BBC witnesses alike
made extensive reference to ITN's written evidence andin
the absence of ITN witnesses appearing before the Committeewe
thought it would be useful to clarify some of the points raised.
We are grateful that you have agreed to accept this additional
written submission, and are happy for it to be published alongside
our first paper submitted to the Committee on 10 June.
In responding to ITN's concerns about the proper
enforcement of the BBC's Fair Trading Commitment, the BBC had
four standard responses, each of which were deployed during the
evidence session on 19 June. They are:
ITN has misunderstood the issue and
the BBC's commercial activities are already subject to external
regulation by the OFT.
ITN's case is based on alleged breaches
of fair trading, none of which has been upheld by the OFT.
The BBC's fair trading arrangements
have been given a "clean bill of health" in a Government
commissioned study conducted by Professor Richard Whish.
Parliament and Governmentreinforced
by the recommendations in the Davies Review of BBC fundinghave
instructed the BBC to supplement licence fee income with revenues
from commercial services, but commercial rivals are seeking to
restrict the BBC's access to commercial markets.
ITN believes that all four points areat
bestdisingenuous, and fail to address the legitimate concerns
we have raised in our submission to the Committee. We hope that
the Committee will find it useful if we address each of the four
points raised by the BBC, which in turn might help clarify the
public policy position.
(1) ITN HAS MISUNDERSTOOD
ITN has never denied that the BBC is subject
to competition law. But as the BBC publicly conceded for the first
time during its evidence session on 19 June, the Fair Trading
Commitment is a set of safeguards on and above competition law,
which are solely enforced by the BBC Board of Governors. The Commitment
was designed to protect the use of the licence fee and to prevent
the BBC from exploiting its unique privileges to "crowd out"
rivals in solely commercial markets. Copy correspondence between
ITN, the BBC and the OFTalready submitted to the Committeeprovides
demonstrable proof that while the OFT (and in future OFCOM) has
responsibility for enforcing the Competition Act (1998) in the
communications sector, the BBC Board of Governors remains exclusively
responsible for enforcing the Fair Trading Commitment.
(2) ITN'S CASE
This argument is deeply misleading. All of the
cases outlined by ITN in our submission to the Committee specifically
relate to infringement of the BBC Fair Trading Commitment, not
competition law. They concern BBC commercial services that have
been supplied at below market rates (and sometimes free of charge)
which are unlikely to breach the Competition Act (1998) and therefore
are not issues that could be investigated by the OFT. But they
do break the terms of the BBC's Fair Trading Commitment, which
explicitly requires the BBC to charge a fair market rate for its
commercial services and deliver a return to the licence fee arm
of the Corporation.
In short, the OFT has never upheld a complaint
about the BBC's Fair Trading Commitment, because it does not enforce
By contrast, ITN did submit a formal complaint
to the Board of Governors about a specific breach of the Commitment
by the commercial news service, BBC World. Despite providing the
Governors with definitive proof that BBC World was being supplied
free of charge to WLIW21 in the USin clear breach of the
Commitmentthe Governors refused to uphold the complaint.
Indeed, Baroness Young of Old Scone (then the
Governor responsible for Fair Trading) wrote to ITN on 25 July
2000 claiming that all commercial deals are subject to confidentiality,
so she could not respond to our specific complaint, but that the
management of BBC Worldwide had assured her that the BBC World
deal fell within the terms of the Fair Trading Commitment. A copy
of our letter to the BBC and Baroness Young's response is attached.
We do not believe this was an adequate or transparent
response to what was a serious complaint and have no confidence
in the Governor's enforcement of the Commitment.
(3) THE BBC'S
In its evidence session, the BBC countered criticism
about the enforcement of the Fair Trading Commitment by referring
to the (favourable) review of the Commitment conducted by Professor
Richard Whish in May 2001. Once again, this is misleading. The
review, "examined the BBC's Fair Trading Commitment and Commercial
Policy Guidelines which are designed to ensure that the BBC does
not compete unfairly with commercial companies" (footnote:
DCMS press release 8/5/02). In short, Whish only examined whether
or not the rulesas draftedwere sufficient to regulate
the BBC's commercial activities. The review did not examine the
actual enforcement of the Commitment.
Indeed, when ITN contacted DCMS to make a submission
to the Whish review, detailing specific breaches of the Fair Trading
Commitment and the demonstrable failure of the Board of Governors
to take our formal complaints seriously, we were explicitly told
that these issues fell outside Professor Whish's remit and that
we should not make a submission.
The BBC's assertion to the Committee that actual
compliance with the Fair Trading Commitment has been sanctioned
by the Whish report is therefore completely untrue.
(4) PARLIAMENT AND
. . . INSTRUCTED THE
BBC TO SUPPLEMENT
The BBC is quite right that both Parliament
and Government have sanctioned the Corporation's entry into commercial
markets as a means of supplementing licence fee income. Unlike
many commercial operators, ITN believes this is a laudable objective
and that BBC Worldwide should be allowed to enter any commercial
market it wishes to.
However, in entering commercial markets with
deals that clearly breach its own Fair Trading Commitment, the
Corporation is breaching the checks and balances put in place
to protect commercial markets from a potential dominant BBC. In
doing so, it is actively fuelling opposition to an otherwise sensible
policy objective, which cannot be in the public interest.
The Essence of the Debate
It is ITN's belief that the BBC has deployed
each of these arguments as a diversion, in the hope of complicating
the Committee's deliberations about the future enforcement of
the BBC's Fair Trading Commitment. So whilst we feel it is important
to address each of the arguments in turn, we also believe it is
worth briefly re-stating why ITN remains so concerned about this
Over the last three years ITN has encountered
frequent and demonstrable breaches of the BBC's Fair Trading Commitment.
We have tested the existing regulatory regime by submitting a
formal complaint to the BBC Governors about the operation of BBC
World in the US market. Their response was clearly inadequate,
but neither the OFT nor the Government itself has any direct locus
on the enforcement of the Fair Trading Commitment, so ITN had
no other body to take forward its complaint.
When ITN challenged the BBC about this clear
regulatory failure, Gavyn Davies publicly denied that enforcement
of the Commitment was even the responsibility of the Governors.
As the correspondence we have submitted to the Committee clearly
demonstrates, the OFT confirmed ITN's understanding that responsibility
for enforcing the Commitment rests with the Governors. In short,
seven years after the Commitment was first published and four
years after the Competition Act became law, the BBC Board of Governors
cannot even agree with the OFT about exactly who has responsibility
for enforcing the Commitment. Under these extraordinary circumstances,
how can ITN, other commercial rivals and consumer groups have
any confidence that the Fair Trading Commitment is being properly
Unusually, the solution to this public policy
problem is comparatively simple. In its draft Bill the Government
has set out how and why OFCOM will take responsibility for enforcing
the Competition Act (1998) in the communications sector. Indeed
Gavyn Davies himself has made it clear that he believes all forms
of economic regulation should be externally enforced.
By recommending the addition of a new clause
in the draft Bill that empowers OFCOM to enforce the Fair Trading
Commitment, Parliament would not only solve this clear regulatory
failure, but would also be supporting a policy solution that fits
squarely with both the Government's (and Mr Davies') belief that
economic regulation should be externally enforced. In so doing,
such a clause would eliminate the majority of concerns expressed
by commercial operators and consumer groups about the detrimental
effects of the BBC's commercial activities, protecting diversity
in emerging markets and thereby upholding the public interest.
We hope that your Committee will feel able to
recommend this approach in your final report.
Finally, we note that you have asked the BBC
to produce a paper for the Committee that pinpoints the key differences
between competition law and the Fair Trading Commitment. ITN warmly
welcomes this suggestion and hopes that this signals the seriousness
with which the Committee takes this issue. However, the correspondence
between ITN, the OFT and the BBC that has already been submitted
to the Committee shows a clear difference of opinion between the
BBC and the OFT about these issues. We would therefore urge the
Committee to seek separate guidance from the OFT about its understanding
of the differences between competition law and the Fair Trading
Commitment, and that both papers are published as part of your
In the mean time, if ITN can be of any further
assistance to your inquiry, please do not hesitate to contact