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Chairman’s Message

Ofcom was established as a converged regulator, in significant part to help steward the transition by Britain’s electronic communications industries from analogue to digital, bringing new services and enhancing quality and choice for consumers and citizens.

In the four years since I was first appointed as Chairman of Ofcom, that transition has accelerated rapidly: at the beginning of 2003 nearly one in three homes and businesses were still not connected to broadband-enabled exchanges; and the consensus was that one megabit per second was likely to be the maximum speed achievable. Today broadband availability is close to universal and consumers can get broadband speeds 24 times as fast as the 2003 consensus. Over the same period, digital television take-up has risen from 45 per cent to over 70 per cent of homes; and there is now a clear region-by-region programme of digital switchover, which will give all households a choice of at least two means by which to receive digital television. In radio, the DAB market has grown from a few thousand sets to more than three million today. And, in mobile, 3G services – which had not then launched – are now used by more than four million customers.

These are all signs of a healthy, innovative market meeting consumer needs. Effective regulation has an important part to play in underpinning the dynamism of the sector; and Ofcom has sought to assist the market to function effectively by promoting competition and protecting consumers from demonstrable abuses of the market. Equally, however, regulation that is past its sell-by date can distort the market and prevent innovation. Ofcom has therefore continued its programme of targeted deregulation; for example, towards the end of 2005/6 we consulted on proposals to remove retail price controls in the fixed-line telecommunications market.

Competition and choice are generally better safeguards of the consumer interest than regulation. Today almost nine million households make their phone calls via providers other than the incumbent and more than four million residential users – and one and a half million small businesses – also rent their phone lines from competing operators. At the same time, Ofcom has taken firm action against mis-selling by a small minority of operators to ensure that consumers can have confidence in the integrity of a competitive market.

During the year Ofcom completed its four strategic reviews of key component parts of the communications sector – telecommunications, radio spectrum, radio and public service broadcast television – and the focus has moved on to delivery against the main challenges identified in those reviews.

The BBC, with its new Charter and significant changes to governance and regulation, will remain central to providing audiences with high quality, distinctive content in this new world. In the coming year Ofcom looks forward to building an effective co-regulatory relationship with the new BBC Trust. This will include the new role given to Ofcom by Government of conducting rigorous and independent Market Impact Assessments of BBC new service proposals as part of the BBC Trust’s Public Value Test.

A theme consistent to all of our strategic reviews is the arrival of true convergence in the communications sector – at the corporate level with mergers and acquisitions between formerly different parts of the sector and in the convergence of platforms, of devices and of content and services.

That convergence is rightly acknowledged by the European Commission in its draft Audiovisual Media Services Directive, which contains many sensible and forward-looking proposals to liberalise aspects of broadcasting regulation, that reflect the changing nature of television. However, the Commission also proposes to extend state regulation beyond broadcasting into a whole range of new media services. Ofcom has, and will continue to argue, alongside the UK Government and many in the sector, that in this area European Union-wide regulation is undesirable in its damaging effect on innovation. We also believe that these proposals are almost certainly unworkable in extending regulation beyond a manageable and limited number of broadcasters to thousands of services, and indeed individuals, creating content on new media platforms. We have made clear our view that the application of criminal law in response to key public concerns, such as the protection of children, backed by effective self-regulation and co-regulation, is a much better way forward. The UK has a strong tradition in this regard with bodies such as the Internet Watch Foundation and the Advertising Standards Authority, the co-regulatory body for broadcast advertising, whose Broadcast Committee of Advertising Practice has, for example, proposed new restrictions on the content of television advertisements for food and drink products in response to important public concerns about dietary imbalance in children.

As foreshadowed in our last annual report, international events have taken greater prominence this year. In addition to the Audiovisual Media Services Directive, the European Commission has embarked on a review of the EU Framework for Electronic Communications, with significant input from the European Regulators Group (ERG), chaired this year by my executive Board colleague, Kip Meek. The ERG has also been working with the Commission to find a practical solution to excessive wholesale and retail prices for international mobile roaming across Europe. On the wider international stage, Ofcom is representing the UK’s interests at the International Telecommunication Union’s Regional Radio Conference – the largest and most significant international negotiation about the allocation of radio spectrum in more than 40 years.

In undertaking its work the Ofcom Board is assisted by a number of committees and advisory bodies. Philip Graf’s message, later in this Annual Report, gives an overview of the valuable work which the Content Board (itself a committee of the main Board with delegated powers) has undertaken this year.

The independent Ofcom Consumer Panel continues to provide thoughtful and constructive advice on issues of importance to the residential and small business consumer. We welcome the Government’s recognition of the Consumer Panel’s distinctive and strategic role in the Government’s wider proposals on consumer representation. The Advisory Committee for Older and Disabled People, the Advisory Committees for the Nations and Regions and the Ofcom Spectrum Advisory Board have all provided good counsel and made significant input to Ofcom’s policy-making. I would like to express the Ofcom Board’s appreciation to the Chairs and Members of these bodies for their time and advice.

While Ofcom is statutorily an independent regulator, we are also accountable to Parliament. In addition to the series of briefings to MPs and appearances before Select Committees, set out on pages 106-107, we warmly welcome the initiative taken by the Chairmen of the Culture, Media and Sport and Trade and Industry Select Committees to hold a joint hearing into Ofcom’s work. Convergent accountability for a converged regulator seems to us both sensible and forward-looking. The first such joint hearing took place just after the end of the 2005/6 financial year. We look forward to appearing at such joint hearings in the years to come.

As I enter into my fifth year as Ofcom Chairman and the organisation continues to mature, we are seeing a healthy and appropriate degree of change around the Board table. Last year our first Deputy Chairman Richard Hooper stood down. Richard was a critical member of the Ofcom Board and we greatly appreciated his wealth of experience and wisdom. In January 2006 Philip Graf joined as the new Deputy Chairman and Chairman of the Content Board. We also welcomed Stephanie Liston as a Non-Executive Member in September 2005 and Sean Williams as an Executive Member in January 2006 and the terms ofNon-Executive Members Ian Hargreaves and Sara Nathan were also extended. Finally, as Stephen mentions later in this Report, he intends to stand down as Ofcom Chief Executive this autumn. On behalf of the Board I would like to express our thanks to Stephen for all his hard work and achievements.

David Currie, Chairman

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