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20|07|05

Ofcom Annual Lecture: Trends in Television, Radio & Telecoms

Ed Richards, Ofcom Senior Partner Strategy & Market Development

The accompanying slides are available in Related Items

Introduction

The occasion for this lecture is the publication of Ofcom's Communications Market Review for 2005. Parliament gave Ofcom the duty to provide an annual factual and statistical report on the state of markets that we regulate.

We published the first one last year with the idea that it might be or become a kind of annual temperature check for the communications sector. We were then approached by Derek Wyatt and one or two other Parliamentarians who suggested we use the report as the basis for a lecture. We were delighted to agree. There are copies of the document at the back.

What I'd like to do this afternoon is to:

Let me just begin with a few words about Ofcom.

OFCOM

Ofcom was conceived many years ago, but born only 18 months ago, 29 December 2003.

We have aimed to proceed with a clear strategic framework and deliver the predictability and clarity that companies and the general public value.

Our strategic reviews are now complete or nearing completion.

In public service television broadcasting: we see a new settlement for commercial broadcasters as we prepare further for the fully digital age.

In radio: a transition from input to output regulation and proposals to increase the scope of radio services both in analogue and digital form.

In spectrum: a clear move towards a comprehensive liberalisation and trading regime, away from a more command and control model to one in which companies and ultimately consumers will determine the most valuable uses of spectrum.

And in Telecommunications: to a real focus on enduring economic bottlenecks, with equality of access for competitors, backed by organisational and behavioural incentives for BT to underpin that equality of access.

I am not planning on recounting these initiatives in detail this afternoon, today is about considering the future.

But, I'd like to keep one thought in the back of our minds as we work through some of the trends and developments taking place in the communications sector.

I have described much of what Ofcom has been doing as an institution, but of course Ofcom was conceived as an idea.

The idea that electronic communication networks would converge, with content of all kinds being available across a range of different distribution platforms.

It was an idea born of anticipation, born of the future, hastened by stock market highs in which the foundations of common sense in communications industries seemed set to be ripped up and remade by a prospective technological revolution.

Then came the crash, the lows, the hangover, the re assessment, and by established media and telecoms companies, the retrenchment to traditional business.

So where stands the idea as opposed to the institution today?

Twelve days ago we witnessed one of the most tragic days in the history of our country, here in London.

Much has already been spoken, written and thought about the significance and meaning, the consequences and implications of this terrible event. Much more remains to be said about the challenges which have been thrown into further stark relief for our country and indeed for the world.

But, amidst these tragic events, amidst the turbulence and horror of the day, we also saw the next small steps in the evolution of the role that communications services and technologies play in our society today.

They are but trivial and incidental to the gravity of the events of the 7th July, but I think they illuminate some of the developments which I would like to discuss today. What we saw on the 7th were:

Much of what we saw in how people communicated with each other, how they shared information, how they found information and followed events offered an acute illustration of many of the trends that we see more generally in the UK today.

We have summarised these developments as more digital, more broadband and more mobile, but hidden within this headline are some very important underlying trends.

Last year, NAR was overtaken by subscription revenues for the first time ever. [SLIDE 1 - TV revenues growing and subscriptions continue to outstrip advertising]

This year, mobile revenues have outstripped fixed calls and access revenues reflecting a second symbolic change in the economic foundations of the communications sector. [SLIDE 2 - Mobile revenues now great than fixed]

Digital television is growing at the rate of Sheffield every month. [SLIDE 3 - Monthly digital tv uptake 250,000 pcm - more than the whole of Sheffield]

Now for the first time ever, more people are accessing the internet through broadband than narrowband users. [SLIDE 4 - More Broadband connections than narrowband]

All this in the context of an ever increasing footprint or availability of digital platforms, underpinning the rising take-up. [SLIDE 5 - Digital adoption is increasing]

There has been a rapid movement towards the mass market of two of the newer technologies, Digital television and Broadband with others coming through fast. [SLIDE 6 - Digital technologies are entering the mass market]

There is a compression of timescale, as technologies move up the adoption curve:

So there is a wave of change being led by digital technology, and intriguingly, what permeates many of these changes is the gradual unfolding of convergence.

I don't want to suggest we get carried away again; these are green shoots, far from fully mature developments.

If we take convergence as a simple idea, of two or more things coming together, then what we see is precisely that process, driven by the transition from analogue to digital.

Convergence in technology:

Convergence in business:

And convergence in the consumer sense: This leads to many interesting questions; but let's start with two:

What are people up to?

They are spending more. [SLIDE 7 - Households spend rises on mobile, pay tv and internet]

They are spending more on mobile, TV, particularly internet. [SLIDES 8 - Household communications spend outstrips inflation over the past 5 years]

They are actually spending slightly less time on TV or radio, but more on the internet and mobile services. [SLIDE 9 - Little change in tv/radio time, but more time spend online and on mobile]

Perhaps most importantly, they are doing different things with different devices and platforms. Just a few examples from the many available: [SLIDE 10 - Broadband subscribers use the internet for more data-rich activities]

We can see this also with radio over internet and television. [SLIDE 11 - Radio listening over internet and tv is increasing]

And in many countries Television over DSL is already well advanced; in this country HomeChoice are already offering an attractive service to 15,000 users. In Italy Fastweb has more than 150,000 tv over DSL subscribers. In France, Neuf and Free together have around 350,000 tv over DSL, triple play subscribers.

I believe that what is going on here, is not a revolution as had some predicted, but it is a gentle, gradual, evolving, historic act of liberation.

The liberation of consumers, viewers, listeners, to determine their own viewing, their own listening, their own schedule, their own compilations, their own content and even their own services.

Let me illustrate with a simple example from television alone (an adaptation of work by Simon Walker at the BBC). [SLIDE 12 - Stages of Television/Video evolution]

What's going on here and in so many other areas is a gradual transfer of power from broadcaster, distributor and supplier, to viewer, listener and consumer.

The traditional means of control, which have rested squarely on scarce spectrum and mono functional distribution systems are gradually facing challenges, not least from each other, from the increasing flexibility of different distribution systems, either through network enhancement (DSL, cable, mobile), reception device capability (PVRs, PCs, Televisions) or through a combination of these systems and devices.

We see consumers enjoying their new freedoms:

For companies, for businesses, it is also a time of change.

Arguably a time of more restless change than we have ever known. For decades the licence fee and the three or four channel free to air advertising model funded tv, and in telecoms the plain old telephone service held sway.

In less than two decades pay tv and mobile telephony transformed the landscape.

Now further changes beckon:

The Linear advertising model is under threat as viewers access on-demand services or skip ads through PVRs.

Legal and illegal downloading changes the levers of control, the means of access, the packaging and bundling of services, and of course threaten the economic model itself.

VOIP is undermining the traditional voice telephony model.

Please don’t take any of this to suggest a fixed view about what will or will not prevail; that TV over DSL will, for example, capture huge numbers of subscribers. Or that network, server based models will prove more attractive than the phenomenal rise in the capacity and ease of use of local storage propositions. We are making no such predictions.

What we see is a welcome period of change, of new technologies forcing established ones to respond. For consumers, viewers, listeners we see real benefits.

No company is now able to hold its head up without a credible digital or next generation strategy:

And even beyond the principle of its existence as a funding model, rightly guaranteed for another 10 years, the Licence Fee faces fundamental questions in this world.

How will we tackle the fact that paying the Licence Fee requires possession of a television tuner, but reception via broadband to a mobile or a home computer/media hub without a tuner does not?

Where, in this new world, should the balance be struck between a free on-demand fully licence fee funded public service - which places the new services free at the point of use, as opposed to the option of charging for these next generation services and thereby reducing the need for further increases in the level of the licence fee?

The former extends the linear Licence Fee model into a non-linear on-demand world. The latter recognises the premium value of on-demand access, the additional costs involved and the differential access to such services. Both approaches have merits and demerits. But, we should be very clear. This is a major strategic choice for the country.

All we can safely predict is that there will be more change, more instability.

There is and will be uncertainty, there will be successes and failures. Will we see somewhere a rerun of the VHS/Betamax, BSB/Sky face offs? Certainly we will; there are already many candidates.

Regulation

So where stands regulation on these shifting sands?

I'm not going to suggest for a second, that we face the intense pressure and challenges faced by many of you as you confront these challenges on a daily basis in your companies. But we do in our own way face some important longer term challenges too.

There has been an extraordinary speed of change in only two years. [SLIDE 15 - Speed of change since Ofcom was created]

When I was involved in helping with the Communications Act someone once asked me whether I though it would last for 10 years? I said I was certain it would not.

All Communications Acts tend to be overtaken by market and technological change.

Fortunately, I think the framework for economic regulation is in pretty good shape.

Changing markets, the changing structure of our industries will bring forth new questions of market definition, new economic bottlenecks, fresh issues of dominance, and accusations of the abuse of market power.

But our concurrent competition powers, our strong economic and legal teams give us confidence that we can adapt and respond to ensure that fair competition prevails and we see plural, open markets in as many areas as possible. Increasingly, we aim to apply our economic regulation consistently across the whole communications sector.

But, Ofcom is, of course, not only an economic regulator. The Government and Parliament set out a wide set of responsibilities for content issues too, reflecting our twin sponsors: DTI and DCMS.

In a celebrated debate, which won strong support from many in this audience today, Parliament and Government was clear; Ofcom should seek to further not only the consumer interest but also the citizens interest. We should balance our economic responsibilities with our duties to promote and protect critical aspects of content, whether it be public service television taken in the round, localness and a diversity of services in radio, regionalism and a creative, innovative independent sector or indeed minimum standards across all licensed broadcasters.

These content responsibilities stretch across both public (BBC and Channel 4) and private sector and are at the heart of our twin duties to citizen and consumer.

It is in one or two of these areas that I would like to take the debate a little further this afternoon.

I hope I have laid out the challenge that confronts us in terms of changing technology, markets and consumer behaviour.

We already know that some of our more cherished ways of doing things are going to have to change.

The impact of the rise of digital television is but one example; in our PSB review we set out how the traditional analogue model had changed, is changing and will eventually, as switchover approaches, recede to a fraction of its original size and scale.

We already see the capability and the propensity to access audio and video content in different ways at different times and over many different platforms.

How do we think about the watershed when the ten year old is watching a PVR stored 18 rated movie on Saturday morning, while the parents are doing the shopping?

It's not intrinsically different to what is possible with a VHS; it’s the ease of access and the immediacy of the access that makes a difference.

How do we think about impartiality of news services for a television home media hub, where the viewer can access not only the traditional, impartial broadcast news services but a range of entirely partial, opinion driven audio and video services over broadband and internet?

The content regulation model will have to evolve. David Currie and Stephen Carter have already, in separate contributions, already suggested that the time for a debate is soon. I want to endorse that view and give you a practical reason and a couple of simple ideas about the problem.

The practical reason for pressing ahead, is that the debate about TVWF has begun:

If we seek a consistent approach, in a world where distinctions according to different distribution mechanisms becomes less and less practical, then the question is do you regulate up to the highest common factor or regulate down to the lowest common denominator?

Do television standards apply to all content, or do the absence of standards on the internet apply to all television and radio?

In a world where significant numbers have video capable broadband access, the question really can be posed as starkly as that.

Or is there a compromise somewhere between these starkly opposed positions. Will, in reality, traditional services endure, with everyone accepting a fringe of alternative activity that is beyond the regulatory ambit. A sort of tolerable and tolerated black economy? Accepted because it remains marginal to the main event.

Or is there a consistent framework that is beyond general law, but perhaps not as detailed as present day broadcast regulation?

Perhaps the difference can be addressed by a combination of greater personal responsibility alongside practical technologies which enable filtering and labelling. Alongside market choices by companies seeking to offer viewers and web surfers a safe environment, or by opt-in regulation to specified public service standards' which might then be kite marked or certified to indicate, an impartial news service for example. Or indeed there may be by other forms of self regulation which yield similar results.

For a flavour of what might condition the debate let me just show two final pieces of information. [SLIDE 16 - Perceived reasons for regulating television: overwhelmingly in favour of protecting children]

So we know very clearly where the public want us to begin; protecting children is a priority. But much more intriguing is the changing perception of where responsibility for protecting children lies. [SLIDE 17 - Who is perceived as responsible for protecting children from unsuitable material?]

This shows a very significant change towards broadcaster responsibility, not away from it.

We don't fully understand what's going on here yet, but it's clear that the idea that the public think its now just up to parents to look out for themselves and that companies have no responsibilities in this area is quite wrong.

Equally, as the country accelerates into the digital age, there will be questions about access, about universal service.

Again, we will be moving from a world in which this was relatively easy - terrestrial TV and a fixed voice/basic internet service - into a more complicated picture.

What will come as a right in the future? Mobile? Broadband? If so at what speed or for what service capability. For VOIP or full digital TV?

In approaching these issues we need to take great care to balance the legitimate interests of universal provision, of the interests of all of our citizens, with not only the economic cost but also with the danger of pre-empting the market.

Remember the clarion calls for large scale intervention to provide basic broadband available to all only a handful of years ago. Yet without intervention, by the end of 2005, there will be 99.6% availability of ADSL.

CONCLUSION

Let me return to where I began. Ofcom was an idea before it was an institution.

The idea was a converged regulator for a converged future.

Did Parliament get it right?

I think Parliament was ahead of the curve. The changes I have described show that the forces foreseen 3, 5, 10 years ago are indeed, gradually unfolding.

We can now enjoy seeing consumers, viewers, listeners, surfers make the most of what I have described as a gradual but historic act of liberation; the transfer of power into their hands to choose, to select, to schedule and to create, as a result of converging markets and services, powered by the flexibility of digital technology.

We can witness the development of new businesses and the evolution of the old, reform of the established and the radicalism of the new.

And finally, we should welcome a new debate; a debate which needs to begin in earnest. Ofcom is a creature of statute. Our role is to try to implement and enact the will of Parliament.

And our timing could be no better with the new Select Committee Chairs, new Committees and relatively new Ministers for broadcasting and telecommunications. For it is Government and Parliament to lead and, in due course, determine the outcome of this debate and for Ofcom to follow their guidance.

End.


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