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13|01|04

Oxford IPPR Media Conference, 13 January 2004

Stephen Carter, Ofcom Chief Executive

Introduction

Good morning, Ladies and Gentlemen. The flyer for this Conference proclaimed that this was your 'first chance to hear and engage with Ofcom, after it goes fully live'. After three years' gestation, 300 hours of Parliamentary debate, 500 amendments and the rest - many of you might be forgiven for thinking: 'Give me a break!'

Certainly, we have had more than our fair share of coverage, with all the obligatory press profiles of Ofcom over the Christmas Season. It is something of a relief now actually to get on with the work in hand. There is plenty of it.

The last time I spoke formally to assembled media moguls and policy wonks was at the RTS symposium in Cambridge. A few weeks afterwards one of my few remaining friends in broadcasting told me that the general view was: 'Seems competent enough; a bit managerial and competition-focused and free-market for our taste, but there you are. We'll have to make the best of it. He'll learn'.

Time will tell on the 'competent' bit. But I make no apologies for believing that free and competitive markets deliver not just consumer benefits but also wider social objectives. The players, competing vigorously, may not intend those wider benefits, but they often, if inadvertently, deliver them more effectively than any planned government or regulatory action could.

As a regulator, particularly a new one, we forget that at our, the sector's and the citizen-consumer's - peril. Indeed, looking at the range and scale of Ofcom's remit brings that into even sharper focus. It puts a premium on resisting the temptation to think that a few bright people in Riverside House can set the world to rights. We need to be very selective.

The title on the IPPR's flyer: 'Public Service Communications' is aptly chosen. It is about putting the genius of the communications sector as a whole not just the state funded sector.

At Cambridge, I spoke of markets in transition. From analogue to digital, from narrowband to broadband, and, in wireless spectrum, from an economy of command to an economy of supply. In each case, those transitions expand choice, and the scope for innovation.

They can put power in the hands of the consumer rather than the provider. I said then that Ofcom's role was to act as a steward for that transition. And if we successfully help make those transitions over the next decade, then the chances are that we will have a stronger communications sector and the citizen- consumer better served than they are today.

That theme is what lies behind our recently announced review of the telecommunications market. It is what has underpinned the range of decisions we have already taken, be it on the remedies around the Carlton/Granada merger; our decision on wholesale broadband access; licensing new spectrum for rural wireless broadband; and, indeed, opening up large chunks of the radio spectrum to market trading; not to mention the Independent Codes. But what if, as a consumer economy, we become fully digital and broadband; but as a society, we leave behind 30, 13 or even 3 per cent of people who either do not get it, do not want it or cannot afford it?

Picture this: Great Aunt Bronwen, who lives in the Rhondda. Because of the steep valley sides, digital is a pipe dream, even if she were interested in it. She gets four television channels. One has fuzzy reception. One is in Welsh. She wouldn't mind a bit of that saucy Channel 5 stuff or even that Big Brother that everyone keeps going on about, if only she could get it. Her phone cable is aluminium - an economy drive from the 1970s. But it means that this 'broadband Britain' that that nice Mr Blair keeps talking about is probably just another bit of London fancy. Her nephew, Chris, has kindly given her a mobile, just in case her car breaks down, so she can always call the AA. But she is not quite sure how to use it. She would call Chris, but has mislaid his phone number. And what she has read in the press about this 118 thing does not encourage her to try them. If they do get her a number, she suspects darkly that it will cost her a fortune and she will in any case probably be put through to a Tandoori Restaurant in Middlesbrough.

Around the country, there are a great number of 'Great Aunt Bronwens', I have one myself, although in Scotland not Wales, and their perceived lot usually raises the call that 'something must be done.' The question is what, when and by whom? We reach for the nationally planned, government led, solution, at our peril. Why? Because it is invariably more expensive to introduce and when it arrives it never quite delivers as well as originally hoped. But equally, it cannot simply be “let the market prevail, it will eventually seek out the pound in Great Aunt Bronwen's purse”. Why? Because we live in a country where broadcasting is in our bones, it is a valuable and cherished part of our cultural and political heritage. Therefore leaving it to the metaphorical risk and profit takers alone would be a dereliction of a national asset.

Ofcom's role for the citizen-consumer

So let me take those issues facing our metaphorical Great Aunt in reverse order.

Firstly, Directory Enquiries, historically a sort of public service information bureau. Was Oftel right to open it up to competition? My answer is an undoubted 'yes'. Over time competition is almost always better than monopoly. Monopoly has the merit of predictability, even if only of the 'one size fits all' sort. The transition to competition reduces that predictability.

Oftel did a great deal of work, for which I do not think they were ever given proper credit, to help make that transition happen effectively. But are we today where we would want to be? Here, the answer has to be that the jury is still out.

There is no doubt that 118 services have improved a long way from the mish-mash in August when they were introduced. As someone who has had responsibility for call centres in my time, I could confidently have predicted that rough-edged start. There was a sudden surge that many were simply not geared up to cope with. Some providers have withdrawn. That is the market as discovery mechanism. There are also some who can put the old 192 service to shame in terms of price and quality of service. But, overall, this is one area where we and the industry, together, have to make it work.

Ofcom will take an active interest in this issue: we want the system to be a success and be seen to be a success. We will have during January our Consumer Panel up and running under the chairmanship of Colette Bowe. I have no doubt that they and she will want to make this a priority. No doubt, there are perceived problems with DQ; how big are they in practice?

The first task - as ever, for an evidence-based regulator - is some fairly intensive research. Are price comparisons accessible to the consumer? Are there meaningful comparisons on quality of service? Is the level of service improving or stalled? So, in Quarter One, Ofcom and the Consumer Panel will jointly research these issues. There is then, in principle, a range of options for the way forward. But where we want to get to is informed consumers benefiting from competition, driving up service standards and keeping prices down, for the benefit of all users, Great Aunt Bronwen included.

Let me turn now to Broadband. Here there are two issues: roll-out, or put another way coverage, and take-up, or put another way competition. Or, in Great Aunt Bronwen's terms, can she get it and why on earth should she want it? And, in our terms, what sort and from whom?

There has been substantial progress on roll out - at least of one particular sort of broadband - DSL at 512k. But there is a way to go yet in terms of the availability of genuinely liquid bandwidth that is the norm in the Far East and is the sort of bandwidth this audience is interested in and should be making product for. Adam Singer refers to 'disposable bandwidth' for broadband in the same way that household electricity is disposable energy, fuelling a range of devices and services way beyond what any Government or monopoly provider could dream of. It is that disposability that permits the competition and innovation that will drive take up and give us the 'Broadband Britain' to which we should truly aspire.

In terms of roll out, one, little-noticed announcement over Christmas may prove to be part of the answer for rural areas. That is the allocation of newly-released spectrum for rural wireless broadband services. A more powerful variant of wi-fi, it will give communities who cannot get fixed-line broadband infrastructure, bandwidth of up to 1Mb a second. Ofcom will license these services under a light touch regime which will allow service providers to offer the service at a nominal cost of £1 for each terminal. We expect these services to start to come onto the market during this year.

It is easy to get hung up on - or confused by the delivery systems and the technology. But we also need to address the question of take-up.

Our recent decision on Wholesale Broadband Access may sound as dry as the Australian Outback. But what it is about is securing a greater range of competition upstream in the value chain so that the ISPs can offer a much wider range of services to the consumer; and can differentiate themselves not just on price or the show-biz gossip on the home page but in a whole range of other ways that will encourage take-up. In part, that is a question of margin.

To put it in context: today, rival carriers like Tiscali buy BT's upstream product for £10.75 a month. BT sell their downstream product to Internet Service Providers for £12.75. So a margin of £2.00. From which the Tiscalis of this world need to meet their own network capital costs; their operating and maintenance costs; customer service, billing and sales and promotion costs.

But that is still service competition. As an analogy, the quality of meals on competing trains run on someone else's track rather than truly competing infrastructure. On that, later this year Ofcom must conduct one of the last of the EU Directive-led market reviews: namely the local loop or the 'last mile'. On the basis of the evidence, we will need to decide whether this really is a 'natural infrastructure monopoly' where the sunk costs preclude anything more than niche business-to-business competitive offerings; or whether one can get to a system that creates real incentives to invest in physical alternatives. Other countries in Europe have come to different conclusions on that question; and we will look carefully at that evidence from other markets in reaching our decision.

In terms of what broadband actually does for the citizen-consumer, email, 'always-on' and, in time VoIP, is fine as far as it goes. An important and convenient product. But that is not very far. To paraphrase Clausewitz, it is the continuation of traditional telecommunications by other means. It is not - yet - the sort of life-enhancing, socially-changing engine that Caxton's printing press was. And it should be. The UK's media community, so far, has taken the infrastructure products that they have been given and designed their services to run over that. Shouldn't it be the other way round?

In terms of services, in the short-term, file-sharing and internet gaming may be a big draw for the under 30s, but early evidence suggests that it is 'public service' too that can draw in a wider group of citizen-consumers. That may be the chance to see, over high-speed webcam, a favourite grandchild performing at the school concert; or a virtual face to face with a nurse on broadband NHS Direct. As to what the eventual balance will be between market-led and public services, that is anyone's guess. Ofcom's job is to help create a framework which enables and encourages take-up to the stage where there is a natural 'tipping point'; and broadband becomes, like the mobile phone, something that, even if Great Aunt Bronwen does not buy it for herself, a dutiful nephew will see her kitted up, because they know she needs to be.

Ofcom's role is a Trinity: telecommunications, broadcasting, and the thing that binds both together: spectrum. We are undertaking major reviews of all three this year. So let me now turn to broadcasting.

Digital Switchover

Those same challenges of roll out (coverage) and take up (competition) face us in the transition to digital switchover. So far, the process has been essentially market-led. Despite some bumps on route, it has done extremely well; among the fastest take-up curves of any technology, ever. More than half the population now has digital. And the market has a fair bit of steam in it yet. BSkyB remains a formidable growth engine. Cable is recovering modestly; and Freeview has continued to grow strongly, attracting both a different demographic and a different type of viewer from those whose primary interest is in premium movies and sports. And who knows what more could be done with the DTT spectrum?

2004 will be a year of transition, during which the key strategic decisions need to be taken; so that we can move beyond 'not just whether but when'. It also needs to be a year in which we move from the loose confederation of Government, broadcasters, platform operators and manufacturers that has got us this far, to a coherent vehicle that will actually implement the switchover process. Along with Britain's bid for the 2012 Olympics, this is a Grand Projet and I believe it needs to be structured as such.

What is Ofcom's role in this? The actual decision on when to switch-off and its consequences remain, rightly, one for Government. But the other 95% is for the market. Broadcasters, retailers, manufacturers, and, indeed, regulator. As regulator, we certainly cannot be the implementing vehicle. So Ofcom will not lead. But we will be engaged, and certainly in a rather more converged way than were the old regulators.

Our first and obvious role is in spectrum management, pricing and allocation; working with the broadcasters to secure the right coverage, region by region, to make switchover possible. An early issue is planning the transmission roll-out beyond today's 80 transmitters. The BBC say that they want to see a DTT network that mirrors the current analogue network. Good. Though - as with BT's commitment to roll out broadband nationwide - that should not be taken as carte blanche for a shopping list of quids pro quo.

On the roll-out and coverage, there remains a range of issues to be sensibly resolved: not only where the costs of multiplex development and transmission roll-out fall, but also a forward looking approach to the next set of transmission contracts and the efficiency with which the multiplexes are used. All bear on the effectiveness of the switchover process, but if we can get it right then it should be relatively straightforward for individual viewers; and I hope, ensure that Great Aunt Bronwen gets more than her current four channels.

Secondly, Tessa Jowell has asked us to report on current and prospective take-up, and, equally importantly, consumer issues around awareness, late-adopter attitudes and the second-set/VCR challenge. We aim to involve Ofcom's Consumer Panel in that; and complete our report by 31 March, in order to inform the set of decisions the Government and key stakeholders need to take by the early summer.

Thirdly, there is our role in setting the incentives for broadcasters to speed the full roll out of a digital infrastructure and to contribute fully (whether in cash or in air-time) to the consumer information and promotion campaign that will be needed.

We have three potential funding instruments at our disposal. The first of these is the pricing of the radio-spectrum. We will be consulting on that later this year. But we are clear that the pricing mechanism needs to encourage, not forestall, the broadcasters' moves toward switchover.

Secondly, there is air-time. Peak air-time on Channel 3 is worth £70,000 a minute. So just two minutes an hour for citizen-consumer information over a year plus equivalent over day-time, is worth over £35 million a year in paid for advertising. One only needs to watch any of the BBC channels to see the power and presence of effective cross-promotion.

Thirdly, there are the terms of the Channel 3 Licence Payments. Thus far, the debate on these has, perhaps unsurprisingly, been couched in terms of “Can we stop paying the Levy please, otherwise we won't be able to carry on meeting our public service obligations?”.

It is important to couch this debate in the right terms. The Licence Payments are not simply an imposition dropped on an unsuspecting group of companies. It is payment for an asset that has a real value - radio spectrum that reaches 99.4 per cent of all households. Advertisers give ITV a big price premium because it is a mass audience channel with universal reach. The analysts expect a significant premium throughout the rest of this decade. So the asset has a continuing value.

The commercial public service broadcasters pay for it in cash and kind. They have a range of obligations put on them via their licences to deliver a series of public policy objectives: quality programming of range and diversity; specific programming such as regional and children's; and, in ITV's case, obligations around a regional presence and regional news. The PSBs have been 'gifted' digital spectrum, again as a quid pro quo, in that case for helping to enable the transition to digital switchover.

So the 'ITV question' is not whether it should be a payment of £260 million, £120 million or whatever; but 'what is it for?' How as a society do we get our biggest bang for our buck; what is the right mix between the two; and within the different types of contribution in kind? That is a bigger question; something that we will look at in the context of the Public Service Broadcasting Review (of which more in a moment).

Hitherto, the Licence obligations/Licence payment equation has been both a bit of historical accident - what a group of people promised to get for some licences 13 years ago - against what are very different market conditions; but also a different blend of social and viewer expectations today. And it has been a pretty blunt instrument; not least because there are 16 separate Channel 3 Licences which fall to be considered at different times. The Communications Act is still predicated on area by area licences. But we will be talking to the ITV companies to see whether, by mutual agreement, we can align the dates over which the financial terms of their licences are settled, in order to have a more coherent and sensible debate about what is Licence Payment to the Exchequer, what is incentive to speed switchover and what is needed to 'maintain and strengthen' public service broadcasting within the framework of the Act.

The Public Service Broadcasting Review

That question of priorities goes to the heart of Ofcom's PSB Review. As Ed Richards reminded an RTS audience recently, as a country we spend over £4 billion a year on public service broadcasting. That would be enough to put another 150,000 bobbies on the beat. It would (don't forget Great Aunt Bronwen) double the number of hip operations the NHS could do each year (another 93,000). Closer to home, it would provide, at wholesale, nearly 50 million set top boxes - two for each household. Switchover solved at a stroke.

So how much should we invest overall? And how do we get the best social and cultural bang for our buck?

Like other very clever people, Ed is the master of the deceptively simple question. He has posed a dozen or so, which get to the core of 'PSB: What? And how? I will not attempt to address them today. They are for the Review. If we can answer even most of them we will be doing well. What I want to do, instead, is give a flavour of some of the emerging early headlines from the survey of over 6,000 people across the UK whose views we are researching as one element in the evidence that will feed into our Review. They are, if you like, a proxy for Great Aunt Bronwen.

The responses fall into three buckets. First, there remains strong support for range and quality - the mixed schedule - across all the terrestrial channels. That view and the continued resilience of the networks in the USA suggests that the radical narrowing of the range of each network may happen but not for a good while yet.

Impartial and accurate television news comes out very highly, not just as important to individual viewers but to society as a whole. Pace Hutton, the broadcasters do this OK. And drama and serious factual, unsurprisingly, score highly.

Secondly, soaps and sport are seen as an important part of PSB, not just for the individual viewer but for their wider benefit to society as a whole. The 'water-cooler' national moments remain part of our social and cultural fabric. Digital and interactive do not replace this; they can enhance it. By that I mean not simply voting people on or off Pop Idol or Big Brother; but also, in programmes like Restoration, The Big Read, or The Gulf War on Trial, engaging people as active participants in cultural and public policy debate

As I say, the results suggest that vox pop is considerably less snooty than vox dei about the social value of soaps. Well-scripted, they can provide a context within which parents can discuss issues with their children which they might otherwise find more difficult to raise. At its most basic, as Andrew Graham puts it, there is a social value in children learning that 999 not 911 is the Emergency Number that we use here.

The third trend emerging is a strong feeling that PSB ought to be, but is not, providing sufficient innovation and originality.

If other, harder, evidence backs up these emerging findings what does it tell us - and, indeed, what questions does it pose for us for the direction of the PSB Review?

Firstly, the responses on the mixed schedule, and the value attached to accurate news, serious factual and high end drama, all suggest that PSB needs to remain - at least in part - a product of institutions. In a much smaller market, New Zealand's experiment with an 'arts council of the air' - now rapidly being back-pedalled from - reinforces that. Whatever the evolving mix, it needs institutions focused on PSB and with the scale of creative, journalistic and production resource to deliver those objectives.

Secondly, the responses on soaps and sport, at least suggest that, as a society, we want PSB to be drawn more widely than the proponents of the 'pure' market failure arguments would like. However, the corollary is that channels or services that are not classed as 'PSB' are perceived as delivering high social values. Discovery, Sky News, The History Channel and the rest may be coming into their own. We need to recognise that.

Thirdly, if PSB delivers the 'social glue'- the 'what everyone needs to know but is never formally taught' - the oral tradition if you like, that remains a vital expression of our culture and society that cannot be captured purely by the buy and sell of the market. So, as we have said our Review needs to consider market failure as one - but only one - of the rationales for and definitions of PSB.

What of concerns about lack of originality and innovation? These may be the little bit of the Victor Meldrew in all of us coming out. But if other, harder, evidence supports that, it may pose some questions about PSB and they may be structural ones.

I said at the Cambridge Symposium that digital had - so far - proved to be primarily a platform business. And it is one that - to date - the older, established players have not made their own. It has been the newcomer, BSkyB, not steeped in the broadcasting traditions, which has been the real winner and innovator who have successfully ridden and exploited the changing market dynamic over the last 15 years.

Are we seeing the beginning of a similar inflection point in the process of content creation that we have seen in content distribution? In terms of content creation, is our current PSB structure best adapted to cope with a world of the IPod, Sky-Plus, the DVD, 3G, genuine broadband, PS2 and video peer-to-peer?

A great deal has been said about Ofcom's role in plurality of media ownership. But what about plurality in programme supply and - via digital and broadband - content and channel supply? For these help drive innovation and enhance the citizen-consumer's experience.

Is it, perhaps, the flip-side of the strong institutions needed to deliver some aspects of PSB, that is leading commissioning decisions to become too centralised, recycling similar formats and relying on the same, limited, gene pool of talent? The rise of independent producers, able to proffer original ideas and formats, is some counterweight to this trend. But many independents are deemed to be only as good as the success of their last commission. That may produce incentives simply to repeat a winning formula to secure the next commission.

The answers to many of these questions may well not be in the gift of the regulator but I think it is right to pose the questions. And, within our gift, has been the key underlying public policy objective of the Programme Market Supply Review.

I return to Great Aunt Bronwen: Indies, mostly, secure their funding in the market. For most PSBs, one production less for a PSB is one less on their funding costs. It is one more on the City: Indies mostly must find their finance on the commercial market. So it is extra money into British television without the distorting lens of public policy intervention in the market. That is, Great Aunt Bronwen is not being 'touched' for funds as an unwitting and un-consulted 'Angel' for the programme. That has got to be a good thing socially. And we aim to create a tier of independents that are strong enough to add real plurality and innovation to the creative commissioning and production process.

Conclusion

I hope that this gives you some flavour of how Ofcom will approach our brief. In some 30 minutes I cannot hope to have captured it all. For example, radio listeners in the audience will be disappointed. Calm your collective excitement is all I can advise. The Ofcom Board will later this month be addressing the radio licensing issue. From what I've seen, it will lead to a more rational, cheaper and faster process. We will ask you your view.

But I wanted to you to understand the motives and forces which underpin us. Our 'style', if you like. Plumbing is over and now we move to substance. But do not forget that we start with 400 regulators fewer today than there were on 28 December. Our culture is independent, non-political; quite technocratic. We are people who consume the media avidly. We like TV. But as I said at Cambridge, television is important, but not as important as those who work in it think it is.

We are, fundamentally free-market and light-touch, tempered by a bit of social justice. In short, we are normal and fallible human beings faced with a huge and at times daunting job. It is one we intend to do well.

Thank you.