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19|07|05

Annual Report for 2004/5

Ofcom today published its Annual Report and Accounts for the period 1 April 2004 to 31 March 2005.

In 2004/5 Ofcom sought to deliver against four key priorities. These were:

1. to put in place swift and effective solutions to remove unnecessary regulation, resolve market distortions, reduce prices and take action to protect consumers;
2. to make significant progress in Ofcom’s strategic reviews of the sector;
3. to consolidate the post-merger efficiency gains of the prior year of establishment in order to improve effectiveness; and
4. to do all of this with an operating budget eight per cent lower in real terms than the operating budget for 2003/4.

The Report and Accounts were audited by the National Audit Office and were laid before Parliament this morning.

Deregulation and reduction in costs and liabilities

Unnecessary regulation imposes costs on business, stifles innovation and provides a barrier to market entry, increasing prices and diminishing choice for consumers as a consequence. Ofcom therefore seeks to be a deregulating regulator where feasible, operating under a bias against intervention and with a commitment to seek the least intrusive regulatory mechanisms to achieve specific policy objectives. The Report lists specific examples of targeted deregulation.

The large majority of Ofcom’s funding is derived from fees paid by communications providers, broadcasting licensees and users of the radio spectrum. Ofcom’s costs are therefore of importance to the sector which bears them, and Ofcom continually seeks to reduce these.

In 2004/5 Ofcom was able to deliver greater efficiency savings than anticipated. By delivering projects below its planned operating budget, Ofcom was able substantially to reduce the cost of regulation for the sector in 2005/6. Specifically, this means that regulatory fees for 2005/6 will reduce by an average of:

• 26 per cent for television licensees, a total cost reduction to the industry of £8.5m in real terms;
• 29 per cent for radio licensees, a total cost reduction to the industry of £1.3m in real terms; and
• Eight per cent for telecoms companies and communications providers, a total cost reduction to the industry of £2.0m in real terms.

Ofcom’s headcount (753 plus 30 DTI secondees as of 31 March 2005) is now 32% lower than the combined headcount of the five organisations it replaced.

During the period under review, Ofcom also took action to reduce exposure to the liabilities associated with the publicly-funded defined benefit pension schemes it inherited from its predecessors. Employees of public sector organisations are typically offered membership of these schemes as part of their remuneration. However, defined benefit pension schemes carry with them significant financial exposure for the public purse as retired employees place uncapped demands on public sector funds.

External recruits to Ofcom are offered a defined contribution pension only, which carries no cost or liability to the public payroll. Additionally, colleagues from predecessor organisations who were members of pre-existing defined benefit schemes were offered membership of a new Ofcom scheme; this capped exposure by limiting the level of pay increase which would attract defined benefits pensions.

As of 31 March 2005, 72% of Ofcom colleagues were employed on terms with a defined contribution pension plan; 23% were on Ofcom terms with the capped exposure defined benefit pension plan; and just five percent were employed on existing terms inherited from Ofcom’s predecessors.

This strategy - which is innovative in the context of the UK public sector - will significantly reduce Ofcom’s financial exposure in the longer term.

Regulatory activity 1 April 2004 - 31 March 2005

During the period under review, Ofcom’s four strategic reviews – in telecommunications, spectrum, public service broadcasting and radio – either reached their conclusion or passed important milestones.

Ofcom also took immediate steps to further market development and to protect the interests of citizens and consumers.

In telecommunications, Ofcom:

• took action to support lower prices and greater competition in broadband, including a 70 per cent reduction in local loop unbundling wholesale rental costs;
• took action to protect consumers from abuse of sales and marketing techniques, such as mis-selling and slamming, in fixed-line telecoms;
• required a reduction in mobile phone network termination charges, leading to lower prices for consumers;
• took action in the premium rate services market to strengthen consumer protection and increase confidence in the governance of the industry.

In spectrum, Ofcom:

• took action to support progress towards digital switchover in television, including clarity on timing, the establishment of SwitchCo and incorporation of switchover obligations in commercial public service broadcaster licences.

In broadcasting, Ofcom:

• finalised the new Broadcasting Code, with simplified rules and greater protection for children and protection of freedom of expression for adults;
• completed research into the role of television advertising in the context of the wider public debate on childhood obesity and took action to strengthen rules governing television advertising of alcohol;
• agreed measures to ensure broadcasters meet statutory obligations to provide access services such as subtitling and audio description; and
• launched the UK’s new third tier of radio – community radio – for local groups interested in not-for-profit broadcasting with a simple, low-cost licence.

Ofcom Chairman David Currie said: “The communications sector underpins the UK’s economic prosperity and our political democracy. Effective regulation plays a key role in ensuring those benefits flow to every consumer, business and community.”

Ofcom Chief Executive Stephen Carter said; “This sector is on the move, with more services, more coverage, more choice and rapid customer take-up.”

He added: “We will continue to seek to provide regulatory certainty, remove unnecessary rules, increase efficiency and reduce costs as the sector evolves.”

Ends.

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