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Home > About Ofcom > Accountability > Annual Reports and Plans > Ofcom Annual Report 2004 - 05 > Core Areas
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Telecommunications
Strategic review of telecommunications
Modern economies cannot operate without access to a well-functioning telecommunications market. For the UK to be truly competitive, it must depend in large part on the range, quality and ability to innovate of one of the country's most dynamic sectors, employing around 250,000 people in the UK alone and with a collective turnover of around £45 billion in 2004.
In April 2004 Ofcom published Phase 1 of its strategic review of the telecommunications sector; the first such analysis of the sector for 13 years, intended to set out Ofcom's perspective on the future evolution of the industry.Phase 1 of the review examined the prospects and challenges for the sector now and over the next ten years. Phase 2 - also published during the period under review - then put forward options for public consultation. The concluding Phase 3 - to be published after the period under review - will set out Ofcom's recommendations and future approach.
Phase 1 posed five key questions in order to frame discussion through the subsequent phases of the review. Those questions were:
- In relation to the interests of citizens and consumers, what are the key attributes of a well-functioning telecoms market?
- Where can effective and sustainable competition be achieved in the UK telecoms market?
- Is there scope for a significant reduction in regulation, or is the market power of incumbents too entrenched?
- How can Ofcom incentivise efficient and timely investment in next generation networks?
- At varying times since 1984, the case has been made for structural or operational separation of BT, or the delivery of full functional equivalence. Are these still relevant questions?
The Phase 1 report provided an outline of Ofcom's perspective on the balance between regulatory intervention to protect consumers and the encouragement of greater competition, innovation and choice. The report also set out a number of emerging developments in the telecommunications sector and asked for views on the most appropriate regulatory strategy in the future in light of those developments:
- changes in competition in voice services with the growth in the use of mobile phones in place of fixed-line calls and the future growth of innovations such as Voice over IP (Internet Protocol);
- demand for broadband and the future of technologies beyond DSL and cable which might offer even faster speeds;
- evolution in network design and changes to the competitive landscape as switched-circuit networks of the past give way to Internet Protocol (IP)-based next-generation networks in the future;
- realignment, alliances and consolidation in the telecoms industry; and
- the future of Universal Service arrangements which ensure that as many people as possible are able to benefit from basic fixed-line voice and internet services, including the funding of these arrangements.
In November 2004 Ofcom published its Phase 2 report, which set out proposals for a new regulatory framework.
These proposals were informed by more than 120 responses to the Phase 1 public consultation from individuals and organisations with an interest in the future development of the telecommunications sector. The report also set out the findings of a substantial research programme undertaken by Ofcom into the structure of the market as well as consumer and business attitudes towards the choices available within it.
The consultation responses and Ofcom's own research indicated that:
- the telecoms sector is changing rapidly; the transition from an industry based on delivering voice calls over traditional switched-circuit networks to one delivering data over internet protocol networks is gathering pace;
- these changes suggest grounds for optimism about the scope for competition in many parts of the telecoms value chain. However, crucially, they do not remove the problem that, for fixed-line services, the BT access network remains an enduring economic bottleneck;
- as a consequence and despite 20 years of regulatory intervention, competition in fixed line telecoms remains fragile, with a market structure that is unstable, dominated by BT and challenged only by providers who are largely fragmented and with limited scale; and
- the behaviour of consumers is changing with the arrival of new mass-market technologies, although more choice is leading to more confusion.
A large majority of respondents to Ofcom's Phase 1 report believed that Option 2, above, would be too disruptive and expensive. Their preferred route, which was endorsed by Ofcom, was for Ofcom to explore the feasibility of Option 3. However, as the report made clear, if real equality of access was not delivered, Ofcom would undertake an Enterprise Act investigation with subsequent potential referral to the Competition Commission.
In the Phase 2 report Ofcom also called for views on how consumers could be better informed about other telecoms suppliers and on ways to make the switching process simpler. Views were also invited concerning a number of Universal Service issues including the provision of public pay phones.
| In its Phase 2 report, Ofcom put forward three options for public consultation to address the problem of bottlenecks in fixed access: Option 1: Full deregulation, removing the existing mesh of regulation completely and relying on competition law to resolve complaints. However, given BT's dominant status this would be unlikely to encourage competition and, therefore, would not serve the interests of the consumer; Option 2: An Ofcom investigation under the Enterprise Act 2002, with the potential outcome of a referral to the Competition Commission; or Option 3: Requiring BT to allow real equality of access to its networks. This would require behavioural and organisational changes within BT to ensure that in its wholesale activities, BT delivers the same benefits to its competitors as to its own retail activities. |
Supporting projects
Ofcom also undertook a number of projects in tandem with the strategic review, intended to support wider work to improve the regulatory framework. Those projects were:
- an analysis of options for interconnection with BT's 21st Century (21CN) next-generation network. Telecoms providers are dependent on interconnection arrangements in order effectively to share access on BT's network. Ofcom therefore began an assessment of the regulatory implications for interconnection agreements associated with the move from switched-circuit infrastructure to networks based on internet protocol;
- an analysis of the value of BT's copper network. Ofcom determined that an assessment of the fair return on this asset was an important input to its wider work on pricing for a broad range of BT's wholesale products and services; and
- a consultation on Ofcom's approach to risk when assessing the weighted average cost of capital to BT. Respondents were asked for views on a number of issues relating to risk and return; in particular, on the permissible returns calculated for the companies regulated by Ofcom.
Broadband and Local Loop Unbundling (LLU)
Work to support the further development of broadband is an important priority for Ofcom. During the period under review, a number of projects were undertaken to support the growth of infrastructure competition in the wholesale broadband market, with particular focus on Local Loop Unbundling.
Key work undertaken in the period under review included:
- a market review of the Wholesale Local Access market (Local Loop Unbundling). This was intended to explore options to support the growth of infrastructure-based competition in the local access market, in turn stimulating the emergence of new and innovative high-speed data and multimedia services over the 'last mile' between the local telephone exchange and the customer's premises. At the outset of the review, BT offered, on a voluntary basis, a reduction of 70 per cent in charges to providers for local loop connections. Subsequently, and at the conclusion of its initial work on LLU, in December 2004 Ofcom announced:
- a reduction of 60 per cent in charges for the transfer of an existing fully-unbundled local loop connection;
- a reduction of 36 per cent for providing a new fully-unbundled local loop connection;
- a reduction of 70 per cent for providing a new shared local loop connection;
- a reduction of 70 per cent for rental of a shared local loop connection; and
- that the appropriate rental charges for a fully-unbundled line were to be subject to a separate review by Ofcom of the cost of BT's copper network, to be completed after the period under review;
- the establishment of the Office of the Telecommunications Adjudicator, independent of both the regulator and the industry, to provide swift and effective mediation in disputes between LLU operators and to work with industry to develop the robust provisioning processes needed to support the growth of the market. In July 2004, Peter Black was appointed by Ofcom as the Independent Telecoms Adjudicator. At the time of his appointment, BT and 11 other leading organisations had already signed up to the independent Adjudicator scheme. In February 2005, 31,000 lines had been unbundled; up from 12,000 in May 2004. However, the Adjudicator made it clear that further work was needed to improve operational performance if LLU order volumes were to accelerate over time;
- completion of the Wholesale Broadband Access market review. This included moves to give greater certainty for alternative carriers competing with BT in the provision of wholesale broadband access to Internet Service Providers. Many alternative carriers are reliant upon BT's DataStream products in order to compete with BT in the wholesale market. However, Internet Service Providers can also buy IPStream wholesale broadband products directly from BT, in competition with products offered by BT's competitors using DataStream. Ofcom therefore imposed an obligation on BT to offer its DataStream wholesale broadband products on the basis of a retail-minus margin to its IPStream wholesale broadband products; and
- a reduction from £50 to £11 in BT's wholesale charges to ISPs to migrate a customer's connection from a service based on BT's IPStream broadband products to one based on BT's DataStream products.
Consumer policy
Mis-selling and 'slamming' in fixed-line services
The growth in competition in the fixed-line telecoms market is delivering significant benefits to consumers, with greater choice and lower prices than were available in the past. However, as competition grows, so does the potential for unethical or misleading sales and marketing tactics as rival companies seek to win business.
During the period under review, consumer complaints to the Ofcom Contact Centre and complaints from industry indicated that mis-selling and so-called 'slamming' - where a consumer is switched from one provider without their knowledge or consent - was an emerging problem within the fixed-line telecoms industry.
In April 2004, Ofcom proposed that existing voluntary guidelines on marketing these services should become mandatory; all providers would therefore be required to draw up formal Codes of Practice consistent with the guidelines, then comply with these in all sales and marketing activity.
The proposals were strongly supported by both industry and consumer groups. In November 2004, Ofcom therefore confirmed that these guidelines would be put in place. Shortly after the period under review, companies were advised that the requirement would be retained for two years (at which point it would be reviewed) and that under Ofcom's enforcement powers, the maximum penalty for persistent and serious breaches would be up to ten per cent of turnover.
Cost of calls to mobiles
In June 2004, Ofcom concluded a market review of mobile call termination. This is the service provided by mobile network operators to other telecoms providers which allows callers (from fixed or mobile networks) to make calls to a particular mobile subscriber, by 'terminating' or completing the call to the mobile handset. Mobile call termination was the subject of a decision in 2001 by the previous regulator, Oftel, proposing a significant reduction in the charges made by the mobile operators for termination. A subsequent enquiry by the Competition Commission in 2002/3 broadly supported Oftel's conclusions. Judicial review proceedings brought by three of the mobile operators in 2003 against the Competition Commission and Oftel were unsuccessful.
The market review undertaken by Ofcom concluded the process of analysing the mobile call termination market under the new regulatory framework introduced by the EU Communications Directives in 2003. As with the previous regulatory review, Ofcom concluded that it was appropriate to impose controls on the prices charged by the providers of termination over the 2G GSM networks, to ensure that these charges were reduced to align with costs.
The GSM operators with 900 MHz networks were required to reduce average termination charges from around eight pence per minute to 5.63 pence per minute, with effect from September 2004. For operators using 1800 MHz networks, the reduction was from around 9.5 pence to 6.31 pence per minute.
Ofcom has also taken steps to ensure that these reductions flow through to lower retail prices for consumers and businesses making calls to mobiles. In the retail market for making calls from fixed lines to mobile, where BT has Significant Market Power, Ofcom will monitor BT's behaviour to ensure that the benefits of lower termination rates are, as far as possible, fully passed through to consumers.
Pre-paid calling cards
These are commonly used by students, visitors from overseas and people with family and friends abroad who make regular international calls. Ofcom found that a number of companies were offering products and services to consumers on a misleading basis. As a result, Ofcom secured undertakings from several major providers, who agreed to sign up to new standards governing the advertising of prices and contract details and to make their terms and conditions more accessible.
Universal Service Obligations
Universal Service Obligations (USO) are intended to ensure that basic fixed-line telecoms services are available to all UK customers at an affordable price. In January 2005, Ofcom published its review of USO. Key areas of focus included:
- Public Call Boxes: These can be expensive to maintain and BT has been seeking to reduce its obligations in this area. Ofcom recommended that decisions to remove public call boxes should only be taken in consultation with local people and organisations;
- Low-Cost schemes: BT is obliged to offer low cost services for people on low incomes. Ofcom asked for views on current schemes and whether they could be targeted more effectively;
- Telephone Line Provision: BT's standard charge for installing a phone line is £74.99. Currently, if an installation costs BT more than £3,400, the customer must pay the surplus above this figure. Ofcom asked whether this £3,400 level remains valid; and
- Customers with disabilities: Ofcom urged providers to work towards making the Typetalk text relay service available via the internet.
Premium rate services
In August 2004, and in response to growing concern about the abuse of premium rate services (PRS), Ofcom and the premium rate services regulator ICSTIS began a review of the PRS market intended to strengthen consumer protection and increase confidence in the governance of the industry.
The review was prompted in large part by the rapid growth in so-called 'rogue dialler' scams, in which dial-up internet users are unwittingly duped by malign software within spam email or pop-ups which switch their dialler settings to expensive premium rate numbers. However, the review also sought to address the broader framework within which premium rate services operate.
In December 2004, Ofcom published its conclusions. These included:
- consumer refunds: network providers should delay sharing call revenues with premium rate service providers for at least 30 days. This would allow ICSTIS to assess any complaints and possible fraud;
- co-operation: network providers should be required by the ICSTIS Code to provide detailed information on the companies with which they do business, and on call revenues and traffic where a complaint has been received;greater fines: the DTI should consider increasing the maximum fine (currently £100,000) for a breach of the ICSTIS Code. ICSTIS should also amend their Code, to be able to fine network providers as well as service providers;
- customer service and information: ICSTIS should require companies to have effective customer service and refund policies in place. Telecoms companies should offer practical information available, including call barring facilities;
- ICSTIS governance: the existing committee should be converted into a Board that includes members with industry expertise, and an advisory committee of industry stakeholders should be created; and
- ICSTIS and Ofcom: a Memorandum of Understanding should be agreed which makes clear the roles of the two organisations, and ensures appropriate accountability to Ofcom.
Work to take these conclusions forward continued after the period under review.
Number Translation Services
In October 2004, Ofcom published new proposals to address industry and consumer concerns about Number Translation Services (numbers beginning 084 or 087) used for pay-as-you-go internet access, helpline enquiries, telephone banking and thousands of other consumer-facing services.
Whilst 0845 and 0870 numbers are typically advertised as costing the consumer the same as a local rate or national rate call respectively, over the years the growth of competition in fixed-line telecoms - and consequent substantial reduction in average call costs - means that those comparisons are no longer valid. As a result, there is a significant differential between the price per minute of a call to an 0870 number and the typical price per minute for a call to a national-rate geographic number. Ofcom therefore concluded that a lack of transparency on costs and the potential for confusion meant that the potential for consumer detriment was high. Additionally, telecommunications providers were seeking clarity on the terms under which BT should be obliged to offer call termination for these services.
Ofcom published proposals for public consultation which set out:
- the removal of links between BT's 0845 and 0870 tariffs with BT local and national rates;
- the introduction of new price ceilings for calls on BT's network, of four pence per minute for calls to 0845 numbers and eight pence per minute for calls to 0870;
- new guidance to prevent misleading advertising linked to those numbers, in co-operation with the Advertising Standards Authority;
- new guidance for Government departments and associated public bodies on the appropriate use of these numbers; and
- extending ICSTIS's powers to include the use of these numbers.
The consultation also sought views on options for the future of revenue-sharing - the mechanism by which the organisation which is called via an 0845/0870 number can choose to share some of the monies raised with the telecoms provider supplying the number.
In parallel Ofcom also consulted on its finding that BT has Significant Market Power in the NTS call termination market. Ofcom has therefore proposed that BT be required to provide call termination to other companies on fair and reasonable terms and conditions which were identical to those offered to its own retail activities.
These consultations will be brought to conclusion in 2005/6.
Directory enquiries
During the period under review, Ofcom and the premium rate services regulator, ICSTIS jointly published two market research reports analysing the development of the 118 directory enquiries market which was liberalised under Ofcom's predecessor, Oftel in August 2003.
The first report, published in June 2004, found that:
- the top 30 providers (accounting for at least 95 per cent of the market by volume) were providing requested numbers with an average accuracy of 87 per cent;
- half of all providers were typically cheaper than the old BT 192 rate of 40p. However, average call costs across all providers were higher than under 192; and
- consumer awareness of 118 services was high. However, there remained a high degree of confusion, largely as a consequence of a lack of objective public information in the early period of liberalisation.
In March 2005, Ofcom and ICSTIS published a follow-up study using identical methodology; the National Audit Office also published its analysis of whether the decision by Ofcom's predecessor, Oftel to liberalise the market had delivered benefits to consumers.
Both studies indicated that whilst accuracy levels and average pricing remained constant and the benefits of liberalisation were beginning to appear - in the form of a greater range of prices and innovation in the creation of new services - consumers remained confused by the market and therefore unable to exercise informed choice.
As a consequence, Ofcom committed to further monitoring of the market - leading to publication of price and performance data to help consumers make more informed decisions - and to reflecting the lessons learned in any future market liberalisation.
Numbering
In July 2004, Ofcom published its strategic approach to telephone numbering, including details of plans to add an extra number sub-range for use across Greater London - (020) 3.
The addition of (020) 3 for London is part of Ofcom's wider approach to telephone numbering, intended to achieve three key aims:
- forward planning to meet current and future demand for all types of telephone numbers without causing significant disruption;
- flexibility to cope with unforeseen changes in consumer behaviour, in technology and in developments in different parts of the United Kingdom; and
- stability, by avoiding change for change's sake.
Ofcom also published proposals for the regulation of new Voice over Internet Protocol (VoIP) services. This technology uses internet networks to route voice calls instead of traditional switched-circuit networks, offering significant cost efficiencies to businesses and consumers.
Ofcom's general approach to these new voice services has been to seek to remove as many regulatory barriers to entry as possible in order to allow a young market sufficient space to develop over time, whilst ensuring that the key requirements for consumer protection are met.
After public consultation, Ofcom decided to allow the providers of new voice services to use either a new non-geographic code (056) or the existing geographic number series. The latter option means that new entrants will have a better opportunity to compete with existing providers by enabling customers to switch from one network to another without having to change their existing geographic telephone number.
Ofcom also sought views on how other aspects of the regulation of telephone services might be developed, including important issues about the quality of telephone access to the emergency services. Ofcom proposed allowing freedom for a wide range of different services to be provided to consumers. However, Ofcom also made it clear that providers must ensure that consumers received high quality, timely information about the capabilities of the services offered.
Performance and evaluationOfcom is required to make a determination on applications for telephone numbers within three weeks of receipt of all relevant information. During the period under review, that requirement was met consistently. The one exception related to applications for geographic telephone numbers for new voice services when Ofcom accepted applications on the understanding that determinations would be outside the normal timescale pending Ofcom's statement of its allocations policy. |
Business markets
During the period under review Ofcom completed a number of projects of particular importance to larger businesses.
In June 2004, Ofcom published the concluding statement of its Leased Lines Market Review. As a result of its findings, Ofcom also published a consultation on the longer-term charge control for Partial Private Circuits (PPC) terminating segments, to take effect from October 2004. Ofcom proposed establishing a charge control that would reduce BT's charges to other operators for PPC terminating segments by eight to 20 per cent in real terms over four years. These proposals gave BT a degree of geographic pricing flexibility, to allow them to respond to any differences in competitive pressures.
International liaison
Throughout 2004/5, Ofcom continued to engage at the European and international level across a range of telecommunications and radio spectrum matters, including ongoing support for the further development of the EU Telecommunications Framework, contributions to international forums such as the International Telecommunication Union (ITU) and work ahead of the Regional Radio Conference in 2006. Further details of Ofcom's work in spectrum appears later in this Report.
There was particular focus on developing greater co-operation between the UK and the Republic of Ireland in communications matters. In May 2004, Ofcom and the Republic of Ireland Commission for Communications Regulation (Comreg) established a Joint Working Group to address a range of communications issues of concern to people in both Northern Ireland and the Republic.
In January 2005, the Joint Working Group published its first report on cross-border telecoms issues, including an assessment of the problem of inadvertent roaming, where mobile telephone users close to the border are connected to the other country's base stations and incur international roaming charges. The research found that 43 per cent of Northern Ireland customers had been connected to a cross-border base station whilst still in Northern Ireland, with a third of those customers incurring international roaming charges as a result.
Spectrum
Spectrum framework review
Radio spectrum is an important and finite national resource upon which almost all modern electronic communications depend. The Communications Act 2003 requires Ofcom to secure the optimal use of radio spectrum; under that Act and under the Wireless Telegraphy Acts and other wireless communications legislation, Ofcom is also empowered to take enforcement action to stop unauthorised use of radio spectrum and to investigate complaints about interference.
In 2004/5 Ofcom embarked on a comprehensive review of options for the future use - and future management - of UK radio spectrum. The spectrum framework review is intended to:
- bring greater flexibility and a new market-led approach to the management of spectrum, to enable wireless communications licensees to make more efficient use of frequency allocations;
- encourage investment and innovation in wireless communications; and
- achieve this through a deregulatory approach wherever feasible and appropriate in order to reduce the regulatory burden - and therefore costs - for licensees.
Demand for spectrum, traditionally managed by the regulator, has increased dramatically in recent years. However, in Ofcom's view, centralised command-and-control administration has led to excessive regulation and an inefficient system which has limited scope for the development of innovative, high-value services. The spectrum framework review proposes to address these shortcomings in four ways:
- by allowing the market to decide the best use of spectrum allocations, except where there is a clearly defined market failure which requires regulatory intervention;
- by allowing licensees to trade their rights to use spectrum in an open market (known as spectrum trading) as well as to change the way they use their spectrum rights in order to develop new technologies and offer different services (known as spectrum liberalisation);
- by defining more clearly the rights of all spectrum users, so that they can plan for the future with greater confidence; and
- by increasing the amount of licence-exempt spectrum, where feasible and appropriate, to allow businesses to bring new technologies and services to market without the need for a licence.
At the beginning of the period under review, this market-led approach had not been extended to any part of the UK radio spectrum; by 2010 Ofcom expects that this approach will govern the allocation and use of more than 70 per cent of all civilian radio spectrum in the UK.
However, Ofcom will continue to control licences where signals cross international boundaries or where this is necessary to meet other international obligations, for example to harmonise the use of spectrum. Ofcom will also continue to monitor, and act against, interference between spectrum users. It will introduce trading and liberalisation in a phased way to make sure that these initiatives do not result in harmful interference to other users.
Spectrum trading and liberalisation
In September 2004, Ofcom published further details of its proposals to allow the users and providers of wireless services greater flexibility in the use of their licences through spectrum trading and liberalisation. Providers of a broad range of services are required to hold Wireless Telegraphy Act licences, which set out specific limitations on the kind of services that can be offered on specified bands of frequencies. Following a generally favourable response to a public consultation on its proposals, Ofcom confirmed that the following licence classes would become tradable from December 2004 and liberalised from January 2005:
- Analogue Public Access Radio;
- National Paging;
- Data Networks;
- National and Regional Private Business Radio;
- Common Base Stations;
- Fixed Wireless Access;
- Scanning Telemetry; and
- Fixed Terrestrial Links.
Spectrum use in 2G/3G mobile and fixed wireless broadband access
In a separate public consultation, published in January 2005, Ofcom asked for views on the most appropriate implementation of trading and liberalisation rights to spectrum used for mobile telecommunications services and fixed wireless broadband access.
Allowing trading in - and liberalisation of - spectrum rights in bands used for current and next-generation mobile services would enable new entrants to compete in a market which plays a central role in the UK economy; thereby broadening choice for consumers and businesses and stimulating innovation.
However, existing providers have made considerable investments in existing networks over time. Those providers are concerned that the introduction of spectrum trading and liberalisation - and consequent change in market structure - might have a commercial impact on their businesses.
Ofcom is therefore seeking to achieve the right balance between supporting greater competition and innovation in a significant and dynamic market whilst recognising the importance of providing certainty for the providers responsible for establishing that market.
The conclusions of that work will be published after the period under review.
Digital switchover in television
In April 2004, Ofcom submitted to Government - and subsequently published - its first research report on the prospects for switching from analogue to wholly digital broadcasting in television in the UK.
The report set out Ofcom's belief that digital switchover will benefit consumers, broadcasters and the economy as a whole. Digital broadcasting is more efficient than analogue; switchover would therefore release spectrum for new uses in the future, an objective in line with Ofcom's statutory duty to secure the optimal use of radio spectrum.
The research indicated that, whilst consumers were naturally attracted to the benefits of digital television and were adopting it via satellite, cable and digital terrestrial platforms in increasing numbers, the market alone would not deliver full switchover across the UK. It was also clear that, for technical reasons, transmission coverage for digital terrestrial television would only match that of the current analogue networks once analogue transmissions had ceased.
Ofcom concluded that there was a need for clarity on switchover timing, clarity on the regulatory framework for broadcasters and clarity for consumers on the options available. The report also recommended the establishment of a new body, SwitchCo, which would draw on expertise from broadcasters, retailers, consumer and viewer groups, Government, Ofcom and others to lead progress towards switchover. Shortly after the period under review, Ofcom's proposals were taken forward as SwitchCo was formally incorporated and a Chief Executive, Ford Ennals, appointed.
In September 2004, in accordance with the Communications Act, Ofcom consulted on draft Digital Replacement Licences (DRLs) to replace the existing analogue licences of Channel 3, Channel 5 and the Public Teletext Licensee. Ofcom proposed the inclusion of a number of obligations relating to digital switchover in those licences, including the achievement of switchover by a backstop date of 31 December 2012 for each licensee and a requirement to extend digital terrestrial transmission (DTT) to the 1,154 transmission sites currently used for analogue broadcasting. Those proposals were confirmed after public consultation; all of these offers were accepted by the existing licensees and the new licences are now in force.
In February 2005, Ofcom published an advisory report to Government setting out its detailed engineering analysis of how digital switchover might be achieved by the 2012 date in the DRLs. The advisory report indicated the sequence in which each UK region should move from analogue to fully digital transmission; that sequence was derived from technical research intended to minimise the risk of interference to (and from) neighbouring regions and from other EU nations.
The report also concluded that switchover could begin in 2008 and be completed by 2012. However, final decisions on timing would rest with Government, once the interests of all consumers have been taken into account and safeguards put in place for vulnerable members of society. A further consultation in February 2005 set out technical options for how full coverage of the UK population with digital terrestrial services could be achieved at switchover.
During the period under review, the International Telecommunication Union held the first session of its Regional Radio Conference. The objective of this conference, whose concluding session is scheduled for May 2006, is to agree a common frequency plan for digital television broadcasting across Europe and neighbouring countries.
Ofcom leads the UK delegation to the conference; it also continues to lead bilateral and multilateral discussions with neighbouring countries during the intersessional period. In that forum, the UK's objective is to achieve an efficient frequency plan which allows conversion to all-digital television broadcasting by 2012 while recognising the requirements of neighbouring countries and delivering a substantial dividend of cleared spectrum.
New spectrum awards
In January 2005, Ofcom published details of 12 new spectrum band allocations which might be made available via a series of spectrum awards between 2005 and 2008. These proposals were the first time that the UK regulator had provided advance notice of potential new spectrum allocations in this way. The document was intended to help provide greater clarity for the market and therefore enable better use to be made of the bands as they became available.
The bands identified were (with examples of potential applications):
- 410-425 MHz, 870-921 MHz (part only). Possible uses: radio services for business, emergency services, programme making;
- 1452-1492 MHz ('L' band). Possible uses: broadcast multimedia, new mobile applications, digital radio;
- 1781.7-1785 MHz paired with 1876.7-1880 MHz ('DECT guard bands'). Possible uses: innovative, low-power GSM applications;
- 1790-1798 MHz. Possible uses: broadband applications;
- 2010-2025 MHz and 2290-2302 MHz. Possible uses: next generation mobile applications or wireless broadband;
- 2500-2690 MHz. Possible uses: next generation mobile applications and wireless broadband. In terms of the amount of new spectrum available, the allocation of the 2500 MHz bands would be the biggest spectrum auction undertaken in the UK to date; and
- 10 GHz, 28 GHz, 32 GHz, 40 GHz. Possible uses: significant capacity for a range of new services.
Three other bands were identified, but without a date specified for potential release:
- 174-230 MHz (part only) ('Band III');
- part of 470-854 MHz (spectrum released by digital switchover in television); and
- 3.6-4.2 GHz.
Further deregulation and licence-exemption
In February 2005, Ofcom announced a consultation on its proposals to reform the licensing rules for ships' radio in order to reduce the regulatory burden and costs for maritime wireless communications users. It proposed to remove the current requirement to renew ships' radio licences each year, and introduce new licences that would remain valid for the lifetime of a vessel. A web-based licensing system would be established as an alternative to the postal service, with licences issued free of charge for electronic applications.
Ships' radio exists primarily for the safety of human life at sea, although some maritime users are deterred by the current licensing system and its annual charge of £20. Ofcom believes the new approach will encourage users to comply with the law and use equipment that is appropriately licensed. Users would still be required to record changes such as the name or ownership of a vessel.
In January 2005, Ofcom published its proposed policy on the use of Ultra Wideband (UWB) devices and services. UWB devices transmit data at very high speed but at very low power, using a wide range of frequencies. Potential applications range from multimedia and consumer electronics - for example, connecting DVD players, computers, cameras and peripherals wirelessly - to the development of new wireless components for the automotive industry and other engineering sectors.
Ofcom asked for views on whether UWB devices should be allowed, given the potential for interference with a range of users including 3G mobile telecoms providers, wireless broadband providers and radio astronomers. UWB is already permitted for specialist uses such as fire-fighting and aviation, and Ofcom asked for views on whether it should also be made available, subject to appropriate technical restrictions, on a licence-exempt basis.
Ofcom's spectrum management activity includes providing day-to-day support for the holders of more than 200,000 Wireless Telegraphy Act (WT Act) licences - from boat owners and minicab firms to mobile phone companies and broadcasters. The radio spectrum licensing revenues collected by Ofcom are passed to the Consolidated Fund of the UK Exchequer via the Department of Trade and Industry, in accordance with a direction from the Treasury. In the period under review, £140,367,674 was paid to the DTI in respect of spectrum fees received.
The Field Operations team is responsible for investigating the many causes of radiocommunications interference and for taking enforcement action against illegal broadcasting and other abuses of UK radio spectrum. The team provides 24-hours a day, 365 days a year cover to ensure that vital safety of life services are kept free from interference.
Licensing activity
Sharing the radio spectrum
There were 2,605 amendments in WT Act licences during the period under review; the degree of flexibility and potential for variation in use has been greatly extended under the terms of new spectrum trading and liberalisation initiatives brought forward by Ofcom in 2004/5.
Wireless Telegraphy Act licensing
Ofcom issues around 30 different kinds of non-discretionary WT Act licence. These are generally referred to by the name of the equipment they licence, such as Ships' Radio Licence and Satellite Network Licence.
The non-discretionary licence types are divided into three larger categories: A, B and C.
- Category A are simple licences which involve no frequency assignment, site clearance or international co-ordination.
- Category B are more complex licences which involve frequency assignment but do not involve site clearance or international co-ordination.
- Category C are the most complex licences involving frequency assignment and site clearance and/or international co-ordination.
At the end of the period under review the total number of licences on issue was 213,746.
Ofcom is required to report on its spectrum management activity in detail; the tables which follow set out the non-discretionary and discretionary WT Act licensing activity undertaken during the period under review.
Performance and evaluationKey performance indicators (KPIs) are currently in place for each category of licence. These measure the time taken by Ofcom to issue the licence and vary according to the licence type. For Category A licences the KPI is for 100 per cent of valid licence applications for new or varied services to be awarded or rejected (with explanation) within seven days of receipt by Ofcom. The KPI for Category B licences is 90 per cent of valid licence applications for new or varied services to be awarded, or rejected with explanation, within 21 days; the remainder to be awarded or rejected within 42 days of receipt by Ofcom. Category C KPI is for 100 per cent of valid licence applications for new or varied services to be awarded or rejected (with explanation) within 42 days of receipt by Ofcom; except, where international clearance is involved, applications to be awarded or rejected within 60 days or an explanation of the delay to be given. The KPIs for licensing have improved on those outlined in last year's Annual Report. We have improved our IT arrangements to deliver a better service and have ensured that Ofcom colleagues are properly trained in using the system. This has taken us closer to our KPI objectives; the trend continued upwards in the latter half of the year. Overall customer service satisfaction levels are at 90 per cent, with 85 per cent satisfied with the speed of receipt of licences. |
Field Operations
Enforcement, monitoring and interference
Ofcom's Field Operations team is permanently on call to take action against illegal transmissions, to resolve interference and to undertake compliance audits of radiocommunications installations in every part of the UK. With main offices in London, Glasgow, Cardiff and Belfast, regional offices in Surrey and Merseyside and 24-hour spectrum monitoring services in Hertfordshire, the team undertook almost 15,000 assignments during the period under review.
The Field Operations team undertakes audits of mobile phone and TETRA base stations as proposed in the Stewart Report in 2000. During the period under review, 76 audits were completed upon request, with the highest level of emissions from mobile base stations being recorded as 1/1058 of the maximum safe levels defined by the International Commission on Non-Ionizing Radiation Protection (ICNIRP).
Illegal broadcasting remains a significant issue for Ofcom, with a negative impact on both licensed radio broadcasters and on the effectiveness of radiocommunications networks vital to safety of life, including the aviation industry and the emergency services.
Ofcom is working more closely with local authorities to target persistent illegal broadcasters, many of whom threaten local authority personnel, damage property and intimidate local residents to get access to the locations needed for their transmitters and studios.
Ofcom also supports the Commercial Radio Companies Association in its ongoing campaign to seek injunctions against illegal broadcasters who prevent listeners from receiving transmissions from licensed broadcasters. Taking action against illegal broadcasters is physically demanding and potentially hazardous; many operations now require close police support to reduce the risk of assault on Ofcom staff.
Broadcasting Cross-Sector
Advertising co-regulation
In May 2004, and following a wide-ranging public consultation, Ofcom confirmed its intention that responsibility for the regulation of the content of broadcast advertisements should be delegated to the Advertising Standards Authority (ASA), the industry self-regulator for the non-broadcast sector.
The decision, which established a new 'one-stop-shop' for all advertising standards and consumer complaints, reflected a number of stakeholders' responses to the earlier public consultation. These included:
- establishing an Advertising Advisory Committee, independently chaired, to bring lay and expert input to the code-making body, the Broadcast Committee of Advertising Practice (BCAP);
- Ofcom's right, as a last resort, to insist on changes to the broadcast advertising codes, and to retain a right of veto over proposed changes; and
- clearer definitions of which advertising regulation functions would be contracted out, and which would remain within Ofcom.
Ofcom said it was satisfied that the new system would be effective, adequately funded and would have a sufficiently independent co-regulator. It would, however, monitor its effectiveness closely and, if necessary, reimpose direct statutory control. Parliamentary approval was received in July, and the new co-regulatory system was duly launched in November 2004.
Ofcom continues to regulate on issues relating to political advertising, the amount of advertising permitted on television and the distribution of advertisement breaks. Ofcom also retains the powers, where necessary, to impose statutory sanctions in relation to broadcast advertising upon referral to Ofcom from the ASA.
Broadcasting Code
In July 2004, Ofcom published a consultation on a draft Broadcasting Code, replacing the six separate Codes for television and radio which Ofcom inherited from the previous broadcasting regulators.
The draft Code, written to reflect the requirements of the Communications Act 2003, presented a unified set of rules for both radio and television. Drawing on Ofcom's audience research, the draft Code was designed to give a shorter, simpler and clearer guide to broadcasters. The Code, once finalised, will apply to all broadcasters (with certain exemptions for the BBC).
Principal changes proposed:
- protecting the under-18s. For the first time, the statute explicitly requires the regulator to protect those under eighteen. Ofcom's particular focus is children (defined as under-15s). This statutory duty is supported by the public - Ofcom's research indicates that 85 per cent of adults believe that the protection of children and young people should be a priority for the regulator; and
- protecting freedom of expression for adults. The draft Broadcasting Code proposed new standards on matters of harm and offence which place greater emphasis on the context of a programme, the channel and time of broadcast and the audience's expectations.These changes are intended to support Ofcom's statutory duty to guarantee an appropriate level of freedom of expression.
The public consultation on the draft Code elicited the largest number of responses Ofcom has received to date in connection with any of its activities; more than 900 individuals and organisations gave their views.
The final Code, reflecting those responses, was published shortly after the period under review. It can be found on Ofcom's website at www.ofcom.org.uk
Complaints about television and radio programmes
Ofcom has a statutory duty to consider and adjudicate on complaints from listeners and viewers about television and radio programmes transmitted by UK broadcast licensees, S4C and the BBC.
Complaints are first assessed by specialists within the Ofcom Contact Centre (OCC). Those which are not resolved by the OCC are then passed to the Content and Standards Group within the Ofcom Executive for further investigation.
In November 2004, the Advertising Standards Authority (ASA) took on responsibility for investigating complaints about television and radio advertisements. Details of the ASA's activities and statistics relating to Ofcom's handling of advertising complaints during the first ten months of 2004 can be found at www.asa.org.uk
Programme complaints
During the period under review, the Content and Standards Group reached decisions on a total of 4,184 programme complaints, of which 3,994 were complaints about programme standards and 190 were complaints about fairness or alleged breaches of privacy.
Of the programme standards cases closed:
- three programmes/issues were subject to statutory sanctions (five complaints);
- 74 programmes/issues were found to be in breach (438 complaints);
- 54 programmes/issues were resolved (582 complaints); and
- 1,018 programmes/issues were not upheld (2,969 complaints).
Programme fairness and privacy
Ofcom has delegated certain functions in relation to programme fairness and privacy complaints to the Ofcom Fairness Committee, comprising members of the Content Board on a rolling basis. The Fairness Committee is chaired by either the Deputy Chairman of the Content Board or Kath Worrall (member of the Content Board). It adjudicates on more complex fairness and privacy complaints referred to it by the Content and Standards Group which, on occasion, require hearings.
Of the fairness and privacy complaints closed:
- 17 were complaints upheld (of which eight were upheld in part);
- 50 were not upheld;
- 11 were resolved (following appropriate action taken by the broadcaster); and
- 112 were not entertained or discontinued.
Content Sanctions Committee
Cases which the Executive believe may warrant the consideration of a statutory sanction are referred to the Content Sanctions Committee, comprising five members drawn from the Ofcom Board and the Content Board. The Content Sanctions Committee is quorate with three Content Board Members. The Content Sanctions Committee is chaired by either the Chairman of the Content Board or Kip Meek (member of the Ofcom Board and the Content Board).
During the period under review, four cases were referred to the Content Sanctions Committee (including one advertising case). The Content Sanctions Committee fined:
- Digital Television Production Company in respect of its service XplicitXXX
£50,000 - Galaxy Radio Manchester Ltd in respect of its service Galaxy 102
£ 2,500 - Playboy TV UK/Benelux Ltd in respect of its service Playboy TV
£25,000
During the period under review the Content Sanctions Committee revoked one broadcasting licence - that of the teleshopping channel Auctionworld - for serious and repeated breaches of the Advertising Standards Code. It also fined the channel £450,000. However, the company went into administration before the fine was paid and its licence was revoked in December 2004.
All monies received in fines are passed to the UK Exchequer.
Broadcasting transmission market
During 2004/5 Ofcom began a review of the UK market for the transmission services used to deliver television and radio broadcasts to viewers and listeners. The review was begun in accordance with the European directives on telecommunications markets, as broadcast transmission falls within the scope of that framework.
The review is intended to assess whether competition is effective in a market of increasing importance in the context of digital switchover in television and the growth of digital radio. In particular it seeks to assess whether regulatory intervention is required in order to protect the interests of broadcasters - and therefore, ultimately, viewers and listeners. Ofcom will publish its conclusions after the end of the period under review.
Media literacy
The Communications Act 2003 requires Ofcom to promote media literacy, which Ofcom has defined as the ability to access, understand and create communications in a variety of contexts.
As well as work funded directly by the Department for Culture, Media and Sport, Ofcom also funds and undertakes a range of activities in support of media literacy. This includes:
- work in the development and implementation of Codes;
- consumer research - including studies of the ease of use and consumer uptake of technology;
- analysis of complaints and enquiries to the Ofcom Contact Centre;
- development and promotion of information and advice relating to digital technologies; and
- liaison with industry and political groups in the UK and Europe.
In November 2004, Ofcom published its key priorities in fulfilling this statutory duty. These are:
- research: studies to discover the extent of media literacy, amongst adults, children and different sections of society;
- a common labelling system: a study to test the feasibility of a common labelling scheme for content across all broadcast and interactive platforms, and whether this will equip people to make more informed choices; and
- collaborating with stakeholders: supporting and promoting existing media literacy activity among broadcasters, the Government, infrastructure providers, content producers, education bodies as well as amongst consumers themselves.
During the period under review Ofcom established a cross-platform working group, including broadcasters, the British Board of Film Classification (BBFC), Internet Service Providers and the mobile telecommunications operators, to investigate how consumers would want to be informed about the nature of the content made available to them.
Television
Public service television broadcasting review
The Communications Act 2003 requires Ofcom to carry out a statutory review of public service television broadcasting in the UK. The review has two core aims:
- to assess the extent to which the analogue terrestrial public service broadcasters (BBC 1 and 2, ITV, Channel 4, five, S4C and Teletext) have met the purposes of public service broadcasting (PSB) as set out in the Communications Act; and
- to make recommendations to maintain and strengthen the quality of public service broadcasting in the future.
In April 2004, Ofcom published the findings of Phase 1 of its statutory review of public service television broadcasting. The Phase 1 report drew on many sources, including a survey of 6,000 multichannel television households (the largest survey of its kind yet undertaken) and comprehensive analysis of broadcasting data over the last five years.
Key findings of the report included:
- broadcasters were partially, but not completely, meeting their public service broadcasting purposes;
- the move towards the fully-digital world was posing a threat to the position of the analogue terrestrial broadcasters. For example:
- over the last five years, the main terrestrial channels' audience share had dropped from 87 per cent to 76 per cent of total viewing;
- their share among 16-34 year olds fell to 69 per cent;
- in 2003, share among ethnic minority groups was 56 per cent; and
- the share of programmes such as Newsnight and The South Bank Show was 50 per cent lower in multichannel homes, compared with analogue terrestrial-only homes.
- in future and in order to retain its relevance, public service broadcasting should be defined in terms of purposes and characteristics rather than particular genres or broadcasters; and
- there was a strong and enduring rationale for the continued provision of PSB, into the digital age.
Phase 2 of the review was published in September 2004. The report showed how the current analogue model had been sustained for many years by a combination of institutions, funding and regulation. However, Ofcom found that this model would not survive the transition to the digital age, and could erode by digital switchover, if not before.
Ofcom therefore proposed a new framework for the digital age, with new funding and a new settlement in place to safeguard quality before the old model became unsustainable. Key findings in the Phase 2 report included:
- recognition of the increasing importance of a properly-funded, independent, public service-focused BBC, funded through a licence-fee model;
- Channel 4 should remain as a not-for-profit, free-to-air broadcaster;
- ITV should play to its strengths in public service broadcasting, with high quality, UK-originated programmes, news, regional news and current affairs;
- a new approach to programming for the Nations and Regions, with greater out-of-London production by ITV and a proposed rebalancing of some non-news BBC regional output;
- five should commit to UK-originated programming and to being a market-led public service broadcaster;
- recognition of the importance of a strong independent production sector operating under the terms of new Codes of Practice drawn up in line with Ofcom guidelines; and
- the establishment of a new Public Service Publisher (PSP) model, using new technologies and distribution systems to meet audience needs in the digital age.
In February 2005, Ofcom published the third and final phase of its review. The Phase 3 report contained specific conclusions with regard to the commercial public service broadcasters, and specific recommendations for Government with regard to the BBC, which will help inform the review of the BBC Charter in 2005/6.
The report also recommended to Government that:
- the Public Service Publisher model, as proposed in Phase 2, should be developed further to ensure provision of public service content was available across multiple digital platforms in the future;
- plans for local television and broadband services should be developed; and
- a new model of governance, accountability and regulation should be introduced, with a clear framework for the governance of the BBC and a consistent cross-sector approach to regulation.
In February 2005, the commercial public service broadcasters (ITV, Channel 4 and five) provided an assessment of their public service output in 2004 and their policies for 2005, as required under the Communications Act 2003. Ofcom concluded that these responses met statutory requirements. However, Ofcom also advised broadcasters that more emphasis on strategy and purposes would be required in the future.
Television production sector
The Communications Act imposes a statutory requirement on commercial public service broadcasters to ensure that a proportion of their programmes are made in the UK but outside the M25 area around Greater London. The BBC is also obliged to meet the terms of a similar requirement under the BBC Agreement.
In April 2004, Ofcom published specific guidance to help broadcasters meet that statutory duty. Ofcom's conclusions were that, in order to qualify as a regional production, that production must satisfy at least two of the three following criteria:
- the production company must have a substantive business based outside the M25;
- that at least 70 per cent of the production budget must be spent outside the M25; and
- that at least 50 per cent of the production staff should be working outside the M25.
The definition came into force in January 2005.
In Ofcom's Annual Plan for 2005/6, published after the period under review, Ofcom subsequently announced plans for a review of the content production sector.
Licensing of new television services
All UK broadcasters are required by law to be licensed by Ofcom in order to be able to broadcast. Between 1 April 2004 and 31 March 2005, Ofcom received 165 applications and licensed 163 new television channels for broadcasting on satellite, cable and Freeview.
During the same period, 29 licences were handed back or revoked by Ofcom. One of these was the licence for the teleshopping channel Auctionworld, which Ofcom fined and subsequently revoked for serious and repeated breaches of the Advertising Standards Code.
Reviews of financial terms for Channels 3, 5 and Teletext
The Channel 3, Channel 5 and Public Teletext licensees are liable to make additional payments to Ofcom for the licences that they hold, in accordance with relevant statutes. In 2004/5 these payments amounted in total to approximately £232m.
These payments are remitted to the Consolidated Fund of the UK Exchequer.
The licensees may ask Ofcom periodically for a re-determination of these financial terms. In the expectation that at least some licensees would request a re-determination from 31 December 2004, Ofcom undertook a significant amount of preparatory work during the period under review to enable it to conduct a new valuation of the licences in the first half of 2005.
In particular, in June 2004, Ofcom consulted on the methodology for valuing these licences. Ofcom published a statement following that consultation in October 2004. All Channel 3 and Channel 5 licensees (except for Channel Television, which holds the licence for the Channel Islands) requested a review of financial terms on 31 December 2004. Ofcom concluded these valuations and set new payment terms after the period under review.
Television advertising
Television advertising code
In July 2004 Ofcom published the findings of its research into the role of television advertising in the context of the wider public debate on childhood obesity. The study, which was undertaken in response to a request from the Secretary of State for Culture, Media and Sport, included interviews with more than 2,000 children, parents, teachers and nutritionists, together with an analysis of academic research and an analysis of characteristics of the food advertising market.
The findings suggest that television advertising had a modest effect on children's food consumption, although its significance was small compared to other factors such as exercise, trends in family eating, demographics and food labelling.
Ofcom concluded that there was no case for a ban, as such a move would be neither proportionate nor, in isolation, effective. However, Ofcom's research did indicate potential areas of targeted change - particularly in portrayal and scheduling - which Ofcom would seek to explore further once the Health White Paper had been published and the Food Standards Agency had completed its work on nutritional profiling.
In the same month Ofcom also published new draft rules on the television advertising of alcoholic drinks. Research commissioned in 2003 by Ofcom's predecessor, the Independent Television Commission, demonstrated the case for strengthening alcohol advertising rules to address four main areas of concern:
- advertisements which appear to condone anti-social or self-destructive behaviour;
- advertisements which appear to link alcohol with sexual activity or attractiveness;
- the need for measures to reduce the appeal of alcoholic advertising to young audiences; and
- advertisements which appear to condone the inappropriate handling or serving of alcohol.
Ofcom believes that tightening the existing rules on defined areas of alcohol advertising would assist the Government's wider strategy for reducing harm caused by alcohol. Work to put the revised rules into practice and to develop the associated guidelines was taken forward by the Advertising Standards Authority after the period under review.
The television advertising market
In 2003, the Competition Commission approved the merger of Carlton and Granada. Recognising the concerns of the advertising community about the extent of market power of the new ITV plc, the Competition Commission put in place the Contracts Rights Renewal (CRR) remedy, overseen by an independent Adjudicator.
In 2004/5 the independent CRR Adjudicator considers that the CRR remedy has to date been broadly successful in its aim of protecting advertisers and media agencies in relation to the terms on which they purchase airtime on ITV1.
Ofcom has continued to support the Adjudicator in monitoring the CRR remedy and ITV plc's compliance. In 2005/6 Ofcom will carry out a full review of the advertising market.
In December 2004, Ofcom published a report on the economics of the television advertising market, including an analysis of the price elasticity of demand for television advertising and forecasts of television net advertising revenue (NAR) to 2014.
The report demonstrated that multichannel television advertising revenues are more sensitive to changes in supply than traditional advertising revenues for the commercial public service broadcasters. It also set out forecasts for the development of television NAR over the next decade; whilst traditional NAR is expected to remain broadly constant, multichannel television NAR is expected to grow at around nine per cent per year in real terms.
Television access services
The Communications Act requires television broadcasters to offer access services, such as subtitling, signing and audio descriptions, which allow disabled people to benefit from television programmes. Those statutory obligations also extend to the Electronic Programme Guides (EPGs) available via multichannel set-top boxes; EPGs must carry information which enables disabled people to identify programmes which are broadcast with access services enabled.
During the period under review, Ofcom published its Access Code - setting out details of broadcasters' obligations to provide access services - and its EPG Code, requiring broadcasters clearly to identify relevant enabled programmes. Both Codes were published after public consultation and reflected changes proposed by groups representing disabled people.
Radio
In December 2004, Ofcom published the first of its two-part review of the commercial radio sector, together with a broader analysis of options for the future of radio. The proposals were designed to support moves towards greater choice for listeners and the development of a less intrusive regulatory environment. Support for the further growth of digital radio is also a key priority for Ofcom.
Digital Audio Broadcasting (DAB) delivers greater choice, on-screen information, ease of use and reduced audio interference. Phase 1 of the review examined options to increase availability, enable greater choice and innovation and remove unnecessary regulation in DAB radio. Ofcom asked for views on a number of potential options, including:
- allocating three more blocks of VHF Band III spectrum to provide complete local DAB radio coverage across the whole of the UK;
- allocating one or two more blocks in order to provide more DAB national stations across the UK;
- whether these one or two blocks should be allocated without the restrictions of Broadcasting Act licences (which govern matters such as ownership and the types of service which must be provided);
- raising the current 20 per cent limit on the use of DAB digital radio multiplexes for non-programme related data such as multimedia downloads; and
- replacing specific requirements about audio bit-rates for DAB digital radio services with a system of co-regulation, to define audio quality standards.
Ofcom also asked for industry and public views on the allocation of ten medium-wave frequencies, for new community radio or local/regional commercial services.
Phase 1 of the review proposed a different style of regulation for local analogue commercial radio, focusing less on how programming is produced (input regulation) and more on the experience of the listener (output regulation).
Ofcom put forward draft proposals which would require stations to demonstrate how they are adhering to their station formats - their agreed character of service, key programme promises and target audiences. The review also incorporated Ofcom's guidelines relating to the localness of stations; the protection of which was a new obligation for Ofcom under the Communications Act 2003.
In the review, Ofcom also invited views on possible deregulation in other areas, including:
- allowing stations to locate their studios within their licensed area instead of their Measured Coverage Area (MCA). A licence area is typically larger than the total area reached by a station's transmissions. This would therefore give stations greater flexibility in choosing studio locations;
- removal of all specific limits on automation (computer-controlled programming);
- clarification of the rules on networking (where the same programme runs simultaneously on inter-linked but separate stations);
- allowing groups of local stations to operate a central news hub, although retaining a local journalistic presence; and
- a new system of self-reporting, requiring all stations to maintain a file - available to the public and to Ofcom upon request - stating how they have complied with their commitments to format and localness requirements.
Phase 2 of the review, which aims to reach conclusions on a broad range of these issues, will be published after the period under review.
GCap Media plc
In December 2004, Ofcom completed its role in the statutory process associated with the merger between Capital Radio and GWR to form GCap Media plc.
The Communications Act 2003 required Ofcom to make sure that the character, quality and amount of local programming would not be prejudiced. Ofcom ruled that two of the 30 GWR licences would need to be varied if the merger proceeded; however, the proposed merger raised no other regulatory issues under the Communications Act. The merger was later approved.
FM commercial radio licensing
In May 2004, after its public consultation launched in February 2004, Ofcom announced a new FM local commercial radio licensing process designed to be as streamlined and as transparent as possible and which involves would-be applicants effectively writing their own formats.
Ofcom also announced it would aim to advertise one smaller (non-metropolitan) licence each month, and one larger (metropolitan or regional) licence every 2-3 months. Separate licences would be advertised in Cornwall, Plymouth and Exeter, rather than the proposed South West regional service, and new regional licences would be advertised for North-East England, the Solent Area and South Wales.
The first licensing timetable was published in May; during the period under review it has subsequently been updated on two occasions. During the year, the following licences were added to the timetable (all plans are subject to frequency clearance):
Ashford*
Kidderminster*
Belfast*
Cornwall*
Durham
Manchester
Banbury
Norwich
Ballymena
Solent Region
Torbay
Swindon
Barrow-In-Furness
Swansea
Northallerton
Ipswich
Warwick
Shrewsbury
Plymouth
Southend
Rotherham
Newry
Edinburgh*
Blackburn*
*License award made during the period under review
The Radio Licensing Committee - a sub-committee of the main Ofcom Board comprising members drawn from the Board, Content Board and Executive - was established during the period under review to oversee the licence award process.
In December 2004, Ofcom made its first awards of new FM commercial radio licences; Dunedin FM will serve the city of Edinburgh and the area surrounding the Firth of Forth, and Blackburn Broadcasting Company ('The Bee') will serve Blackburn, Darwen and Accrington.
In January 2005, Ofcom awarded the FM commercial radio licence for Ashford, Kent, to Lark FM (KM-FM Ashford); in February 2005, the licence for Kidderminster was awarded to Ace FM; and in March 2005, U105, owned by Ulster Television plc, won the licence to serve Belfast and the surrounding area, whilst Atlantic FM, owned by Atlantic Broadcasting Ltd, won the Cornwall licence.
Community radio
In August 2004, Ofcom announced its approach to licensing and regulating community radio.
A new type of low-cost radio licence for local groups interested in not-for-profit broadcasting, community radio allows local people to use relatively low power transmitters (the maximum coverage in urban areas would generally be within a 5km radius) to serve their immediate communities with radio programming intended to deliver some form of social gain.
Funding rules are strictly defined; no more than 50 per cent of a community group's funding may come from a single source, and where advertising or sponsorship is permitted, those revenue sources must only account for up to 50 per cent of a station's income. Sources of possible additional funding include grants from local or central government, the EU and the National Lottery.
The launch of this new tier of radio brought an enthusiastic response; Ofcom received 194 applications, of which 163 were from groups in England, 17 in Scotland, seven in Wales and seven in Northern Ireland. Decisions on the award of licences are made by the Radio Licensing Committee.
The Department for Culture, Media and Sport has provided a fund of £500,000 to help community radio stations begin operations. In January 2005, Ofcom published proposals on its management of that fund and the process it will follow in awarding grants.
In March, Ofcom awarded its first community radio licence to Forest of Dean Community Radio, for the provision of a service to everyone who lives, works or studies in the Forest of Dean area of Gloucestershire. Further community radio licences are expected to be awarded throughout the first half of 2005/6.
Investigations programme
Investigations and disputes
Ofcom has a number of roles and duties relating to identifying and responding to conduct which is anti-competitive. Responding to complaints or disputes filed by market participants - or in some instances by consumers - Ofcom's investigations programme ensures that the organisation responds quickly, firmly and effectively to breaches of regulatory rules or relevant law.
Under the Communications Act, Ofcom has responsibilities to enforce ex ante competition powers and to determine disputes between providers of electronic communications networks and services. Ofcom also has responsibilities under the Broadcasting Acts to enforce ex ante competition powers. Ofcom is empowered to enforce competition law concurrently with the Office of Fair Trading (OFT) and acts as the competition authority for the communications sector.
Ofcom's role under competition law includes:
- enforcing the Chapter I and Chapter II prohibitions of the Competition Act 1998;
- enforcing Articles 81 and 82 of the EC Treaty; and
- investigating markets and making references under the Enterprise Act 2002.
Within the investigations programme, Ofcom also considers consumer complaints under the Unfair Terms in Consumer Contracts Regulations 1999 for the communications sector.
Shortly before the period under review, Ofcom published new guidelines setting out its approach when investigating competition complaints and resolving disputes between companies. The guidelines provide companies with a clear, easy to follow tool-kit explaining how both small and large companies should prepare the evidence required before Ofcom will take forward a formal investigation.
Ofcom's new approach seeks to reduce the costs to industry of Ofcom's work and to focus scarce resources to deliver the best outcomes for consumers. Unsubstantiated complaints or those which could be better resolved elsewhere are now dealt with quickly at an early stage. Ofcom has also made it clear that it will only accept disputes supported with evidence of the failure of meaningful commercial negotiations. This allows Ofcom to focus on the most serious allegations inhibiting fair and effective competition in the sector or in relation to the most serious cases of harm to consumers.
Ofcom has published two six-monthly reports, setting out in detail its work in competition and economic regulation across the sector. The first of those reports was published in July 2004 and covered the period from January to the end of June 2004. In March 2005, Ofcom published its second report, covering the period from July to the end of December 2004.
Summary of complaint and dispute activity during the period under review
Between 1 April 2004 and 31 March 2005, Ofcom received a total of 257 complaints or dispute referrals. In addition, Ofcom identified 13 issues for possible investigation on its own initiative.
In total, 212 of these cases were rejected or redirected (either within Ofcom or to another organisation) upon receipt.
Of the remaining 58, Ofcom moved 48 into its enquiry phase (during which Ofcom decides whether to launch a full investigation into a complaint or to resolve a dispute) and ten were moved straight to full investigation. Of the 48 cases considered in enquiry phase, 19 resulted in full investigations being opened.
Therefore 29 (11 per cent) of the total requests received (including issues identified at Ofcom's own initiative) were found to warrant full investigation.
Ofcom opened a further three investigations during the reporting period. These were re-investigations of two cases against mobile operators that were remitted to Ofcom by the Competition Appeal Tribunal and one dispute referral (subsequently withdrawn) in which the enquiry phase commenced before the reporting period.
A total of 32 full investigations were therefore opened in the reporting period. In addition to these investigations, Ofcom inherited 17 ongoing investigations from Oftel which have all now been closed.
Supporting stakeholders
The Ofcom Contact Centre
The Ofcom Contact Centre (OCC) deals with questions and complaints from a broad range of viewers, listeners, customers of telecoms companies and users of wireless communications services.
During the period under review, the OCC answered more than 235,000 telephone enquiries and received more than 63,000 emails, letters and faxes. The OCC was asked by callers or correspondents to deal with around 222,000 separate cases and complaints. Of those:
- around 149,000 related to telecommunications (67 per cent);
- around 36,000 related to broadcasts (16.5 per cent);
- around 19,000 related to spectrum licensing (8.5 per cent); and
- around 18,000 were general enquiries(eight per cent).
The figures for complaints about broadcasting include email campaigns regarding the BBC's broadcast of Jerry Springer - The Opera.
This one programme accounted for more than 16,000 complaints to Ofcom; or 44 per cent of all complaints received about all radio and television programmes in 2004/5.
Colleagues within the OCC resolved 87 per cent of all calls, emails, letters and faxes without recourse to other parts of Ofcom, including the majority of requests to Ofcom under the terms of the Freedom of Information Act 2000. The remaining 13 per cent were resolved within other functions across Ofcom; cases assigned elsewhere within Ofcom are tracked by the OCC through to ultimate resolution.
Telecommunications
The majority of customer complaints in telecommunications related to:
- so-called 'slamming', where a customer's supplier has been switched without their knowledge or consent;
- inadequate customer service by service providers;
- consumers being charged for cancelled services;
- mis-selling, where consumers agree to a service based on information supplied by the gaining provider which they later find out is untrue; and
- disputed premium rate services calls costs, particularly as a result of 'rogue' internet diallers. These were addressed by the premium rate services regulator ICSTIS rather than by Ofcom directly.
Where appropriate, the OCC meets with companies to discuss ways in which their service to customers can be improved. Details of companies which demonstrate persistent problems are passed to colleagues in Ofcom's Competition and Markets Group for potential formal investigation.
Spectrum
The OCC spectrum licensing team dealt with more than 19,000 enquiries from users and providers of radiocommunications services as well as other members of the public. These related to:
- guidance for radiocommunications users on Wireless Telegraphy Act licensing issues;
- Wireless Telegraphy Act licence fee queries; and
- Ofcom's online Sitefinder service, which enables the public to identify the location of mobile phone base stations by postcode.
Broadcasting
Eighty per cent of complaints received related to television and radio programmes and 20 per cent related to television and radio advertisements. During the period under review, Ofcom established a one-stop-shop for all advertising regulation through the delegation of responsibility to the Advertising Standards Authority (ASA). The ASA began handling broadcast advertising complaints on 1 November 2004.
The greatest cause for complaint in programmes was material which viewers or listeners found harmful or offensive, including bad language, sexual portrayal and religious offence.
The OCC received more than 36,000 telephone enquiries, written complaints and queries, of which:
- around 29,000 were complaints about television and radio programmes; and
- around 7,000 were complaints about television and radio advertisements.
Performance and evaluationShortly after the period under review, Ofcom developed key performance indicators for its handling of queries and complaints to the Ofcom Contact Centre. Ofcom will assess performance against those targets throughout 2005/6 and will report on these in its Annual Report for that period. |
External Relations
Parliament and public affairs, industry and stakeholder contact and the Nations and Regions
Ofcom is committed to ensuring its policy development and regulatory actions are informed by the views of all those with an interest in the outcome. The External Relations Group is responsible for the management of relationships with public and industry sectors, including those in the Nations and Regions.
- Ofcom in Wales, Northern Ireland, Scotland and the English Regions
- Engagement with Parliaments and Assemblies and the public sector
- Engagement with licensees, industry stakeholders' trade bodies and SMEs
- Acting as Ofcom's internal consultation champion
- European and international stakeholder relations
- Leading diversity policies and practice
- Liaison with Ofcom's independent advisory committees
Ofcom is accountable to Parliament. It has a statutory duty under the Communications Act to take into account in its decisions the views and interests of those who live in different parts of the UK; it also has a very broad range of industry and consumer stakeholders with disparate interests and needs.
Ofcom's National and Regional operations are structured to ensure colleagues outside London can draw on the full resources of the whole organisation to tackle issues which affect one part of the UK. Conversely, those operations will also ensure that the opinions, needs and special circumstances of diverse areas, and the views of their representative, receive full attention within Ofcom's mainstream considerations.
The External Relations Group is responsible for the management of those functions, as well as the management of Ofcom's relationships with the political and public policy community and with industry stakeholders, both national and international. The Group also champions Ofcom's consultation programme and its diversity policy and initiatives.
Nations and Regions
Ofcom seeks to bring the same converged approach to communications regulation in the Nations and Regions as it has in London.
Ofcom has three national offices, lead by a senior Director in each of Glasgow, Cardiff and Belfast, together with further regional offices for its spectrum management Field Operations teams.
Together with the England Directorate (based in Riverside House in London), the National and Regional functions help ensure sufficient attention on issues of importance, for example, to regional and remote communities, such as the availability of broadband and digital television and issues concerning telecommunications and spectrum use.
Advisory Committees
Details of the work of the Committees for the Nations and Regions are given on pages 96 and 97.
Details of the work of the Advisory Committee for Older and Disabled People are given on page 95.
Public & Political and Industry Relations
Two teams based in London manage public and political and industry relations, linking as appropriate with the Directors in the Nations. They also co-ordinate Ofcom's European and international relationships and related activities. This work extends to European and International stakeholder relations.
Support services
Supporting Ofcom
Ofcom's work is dependent upon support from colleagues in a number of professional support functions.
Finance
The Finance Group is required to identify the financial resources needed for each aspect of Ofcom's many activities to ensure the organisation has the funding required. Its role includes:
- appropriate management of Ofcom's finances and associated due diligence;
- management of discussions with licensees regarding charging principles for the coming financial year;
- implementation and collection of licences and administration fees agreed as a result;
- collection of licence fees for spectrum and additional payments for broadcasting on behalf of HM Treasury;
- preparation of Ofcom's Annual Accounts;
- maintenance of a Risk Register and identification of the priorities in, and mitigation of, risk exposure; and
- tracking of the progress of all strategic projects through the Corporate Management team.
Secretariat
The Secretariat provides administrative and governance support to the organisation, led by the Secretary to the Corporation. Its role includes:
- support for the Ofcom Board, Content Board, the Consumer Panel and other Ofcom Advisory Committees;
- support for the Executive Committee and a number of other internal decision-making groups;
- provision of internal advice on administrative law, due process and governance issues;
- responsibility for records management and compliance with the Data Protection Act and Freedom of Information Act; and
- maintenance of the Register of Interests and Register of Gifts and Hospitality.
Human Resources
The Human Resources Group provides specialist advice and support to the organisation on a range of people management matters. Its role includes:
- provision of expert advice to line managers on specific people management issues;
- ownership of recruitment strategy, including developments to support Ofcom's wider work in diversity;
- development of learning and development systems to support professional training and enable career progression;
- lead role in engaging with the Joint Consultative Group, consisting of the elected Ofcom Colleague Forum and the recognised trades unions; and
- development and maintenance of online business support systems to allow more effective line management responsibility for routine HR tasks such as recording annual leave.
Communications
The Communications Group is responsible for all of Ofcom's publications and events, for the management of its relationships with the media and analysts and for internal communications within the organisation. Its responsibilities include:
- design, production and distribution of all public documents;
- briefing media and analysts on all aspects of Ofcom's work;
- management of Ofcom's website and intranet; and
- effective internal communications.
During the period under review, Ofcom issued many major publications in print; around 60,000 copies of these were distributed to industry and members of the public. Around 1,000 Ofcom documents were published on Ofcom's website in 2004/5, excluding responses to public consultations.
Summaries of major publications were translated into Welsh; Ofcom also published shorter summaries which were granted a Crystal Mark from the Plain English Campaign, to ensure that as many stakeholders as possible were able to engage with significant policy consultations. Publications are made available in alternative formats upon request.
Research commissioned from independent media evaluation analysts demonstrated that, on average, 69 per cent of UK adults encountered newspaper or magazine reports on Ofcom's activities each month. Average monthly exposures per adult were 9.4. Of these articles, on average 45 per cent were in national newspapers, 25 per cent were in UK regional and local newspapers, 20 per cent were in specialist or trade journals and ten per cent were in consumer/leisure magazines.
Information Services
Ofcom inherited a joint venture between the Radiocommunications Agency and LogicaCMG for the provision of information services support. That arrangement was neither cost-effective nor sufficiently operationally flexible to meet Ofcom's needs, and was therefore unwound during the transitional period in 2003/4.
Throughout 2004/5 most IS services were provided to Ofcom by LogicaCMG under a renegotiated outsourcing agreement. Shortly after the period under review, Ofcom announced that it intended to bring these functions in-house in 2005, with the exception of the development of, and support for, IS applications.
The Ofcom IS team and its contractors are responsible for managing Ofcom's needs in:
- desktop support;
- computer network infrastructure;
- website and intranet infrastructure support;
- desktop telephony;mobile telephony;
- wireless data services;
- audio-visual presentation support; and
- applications development and support.
Facilities
The Facilities team is responsible for the overall management of Ofcom's working environment, including:
- all Ofcom offices across the UK;
- the management of all other general physical assets;
- health and safety in the workplace and in Field Operations; and
- physical security (electronic security is the responsibility of IS).
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