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16|09|04

Ofcom publishes Annual Report and Accounts for 2003 - 04

Ofcom today published its Annual Report and Accounts for 2003-2004.

The Report and Accounts cover two types of activity during the 2003-04 financial year. Between 1 April 2003 and 28 December 2003, Ofcom was in its set-up phase prior to assuming its powers on 29 December. The Report and Accounts then provide details of the first period of Ofcom's operations as regulator between 29 December 2003 and the end of the financial year on 31 March 2004.

The Report and Accounts, which were audited by the National Audit Office, have been laid before Parliament.

2003-04 was a transition year which marked the establishment of Ofcom, the closure of the five organisations that Ofcom replaced (the Broadcasting Standards Commission, the Independent Television Commission, the Office of Telecommunications, the Radio Authority and the Radiocommunications Agency), the closure of those organisations' final accounts and Ofcom's first actions as the new regulator in the early months of 2004.

The 2003-04 Accounts are therefore more complex than will be the case in future years; they reflect the transfer of the assets and liabilities from Ofcom's predecessor organisations and the measures required to harmonise those organisations' differing accounting arrangements.

The transition

In the first nine months of its financial year, Ofcom's small executive team:

• Established the organisation on time and within budget.
• Took on the responsibilities of the five previous organisations.
• Put in place the structure required to implement the provisions of an extensive new rulebook - the Communications Act 2003.

Although the Communications Act doubled the number of statutory duties performed by Ofcom's predecessors, the transition team sought to use the bringing together of five organisations into one to rationalise headcount and increase efficiency, cutting staff numbers by 25% compared to the combined headcount of the previous organisations. Ofcom has subsequently stated that it will continue to seek greater efficiencies over time and that it will seek to be an "RPI minus regulator" by reducing its operating budget by 5% in each of 2004-05 and 2005-6.

Ofcom's revenues are mainly derived from payments for the management of spectrum and licence fees from industry. However prior to assuming its statutory powers on 29 December 2003, Ofcom did not raise any such revenue; therefore Ofcom's Accounts, in this set-up period, show an operating deficit of £23.3m.

After assuming its powers on 29 December 2003, Ofcom recorded an operating deficit of £1.8m as a result of timing differences; this deficit will be recovered in 2004-05.

During the set-up, Ofcom was funded by a loan from the Department of Trade and Industry. The outstanding balance of the DTI loan was £46.0m as of 31 March 2004. The Government has decided that the set-up loan must be repaid through payments for spectrum management and from Ofcom's licensees; the relevant repayments will therefore be funded through income from licensees and spectrum management activity during the period to 2007-8.

Ofcom inherited a range of liabilities from its predecessors such as the funding of redundancy costs; the Accounts set out the necessary provisions for those liabilities.

The provisions also include £22.2m, charged to the Income and Expenditure account, for a range of properties across the UK which Ofcom inherited from the previous organisations. Ofcom is actively marketing those properties for disposal, and the provision reflects a worst-case outcome on the assumption that none is successfully sub-let. When property is sub-let or assigned, the provision will be adjusted and a credit will be reflected in Ofcom's Accounts.

Regulatory activity 29 December 2003 - 31 March 2004

The Report sets out Ofcom's early activities including the wide range of consultations it was required to undertake under the new statutory framework of the Communications Act 2003.

In telecommunications, Ofcom:

• Initiated its Strategic Review, the first since the review of the BT/Mercury duopoly 13 years ago.
• Set out its framework for broadband regulation, paving the way for substantial reductions in wholesale prices and encouraging competitive infrastructure investment, particularly in local loop unbundling.

In broadcasting, Ofcom:

• Played an active role alongside the Independent Television Commission and the Office of Fair Trading in response to the merger of Carlton and Granada.
• Began to establish a framework for digital switchover, to maintain and sustain Public Service Broadcasting and to modernise television standards on harm, offence and child protection.
• Developed a new process for the licensing of new FM commercial radio stations, with extensive input from industry.

In wireless communications, Ofcom:

• Embarked upon its Strategic Review of Spectrum Framework - Ofcom's long-term approach to the management of an important and finite national resource.
• Undertook a public consultation on proposals to allow spectrum trading between wireless communications service providers.

The year ahead

Ofcom's Annual Report for 2003-04 provides only a brief snapshot of Ofcom's work thus far. The year ahead will bring completion of work in significant commercial areas:

• In television with the conclusion of the Review of Public Service Broadcasting.
• In telecommunications with the conclusion of the Telecommunications Strategic Review, including options for Ofcom to step back from regulation.
• In wireless communications services with the further development of the Strategic review of Spectrum Framework, the liberalisation of spectrum use and the implementation of spectrum trading.

The Chairman of Ofcom, David Currie, said: "Our aim is to help establish a framework within which the sector can flourish for the wider benefit of all citizen-consumers. We hope that in our early decisions we have begun to meet some of the expectations which lay behind Parliament's decision to create Ofcom."

Stephen Carter, Chief Executive of Ofcom, said: "The last 18 months were challenging. It is perhaps only now becoming clear what the nature, reach and scope of Ofcom's responsibilities are in practice."

He added: "We hope this report will contribute to an understanding of our role and approach to this vital and converging sector of the UK economy."

Ends.

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