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29|06|04

Ofcom Consults on Methodology for Reviews of Financial Terms for Channel 3 Licences

Ofcom today announced a consultation into a proposed valuation methodology for the reviews of financial terms for Channel 3 (ITV) licences. The new approach is aimed at determining a fair value for each licence as well as bringing clarity and transparency to the process.

The financial reviews will allow Ofcom to reflect any changes to licence holders' public service obligations that may result from its review into Public Service Broadcasting, to be completed this year. The financial reviews will also allow Ofcom to reflect in the valuation any obligations on licensees related to digital switchover.

Responses are invited by 6 August 2004. Ofcom intends to publish a statement on the results of the consultation, including a decision on the final methodology for the reviews, in September 2004.

Ofcom aims to achieve three policy objectives through the proposed methodology:

• To determine a fair value for each licence, within the framework of the Communications Act 2003, and to set licence payment terms according to a proportionate and objective process. The process should allow Ofcom to set payments that are reasonable within the context of the current market environment and that will continue to be reasonable during the licence period;
  
• To improve the clarity and transparency of financial reviews by providing applicants with more information and guidance than in the past;
  
• To simplify the process by reducing information requirements and reducing uncertainty. In order to promote a more clear and consistent regulatory environment, Ofcom agreed earlier this year to offer Channel 3 licensees the opportunity to align their review dates. All Channel 3 licensees will be able, if they wish, to apply for reviews from 31 December 2004.

Ofcom's proposed methodology is broadly similar to the past approach, and is based on a discounted cashflow valuation. However, Ofcom believes that it is important to take account of the fact that the regulatory environment for broadcasters has changed significantly since the auction of the Channel 3 licences in 1991 and since the original methodology for financial reviews was developed by the ITC in 1998.

In particular, regulatory reform has led to a less intrusive regime for broadcasting licensees. For example, more responsibility is being passed to licence holders with regards to complying with public service broadcasting obligations.

The full consultation on methodology for reviews of financial terms for Channel 3 licences is availablevia the link at the top of this page.

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