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16|10|07

Ofcom Annual Lecture - Citizens and Consumer in a Converged World

Ed Richards, Chief Executive, Ofcom

Introduction

Good afternoon.

Welcome to the Ofcom Annual Lecture.

This year we are in rather more exclusive surroundings than previous Ofcom Annual Lectures.

It's the first time I have ever been here and its rather intimidating standing where Ben Jonson, John Locke, John Dryden, Tony Benn and many others cut their teeth.

The surroundings in some ways are more appropriate than they seem - we are in an old hall but here to discuss new technologies.

And across the United Kingdom, we are an old country embracing new technologies - embracing them with a spirit and a fascination as alive as anywhere in the world.

Today's lecture is taking place at a very significant moment for the communications industry.

Tomorrow in the Copeland area of Cumbria, the digital switchover process begins for real.

What we can say clearly now, is that the strategic questions about Digital Switchover as a policy are long over- although implementation will of course present enormous challenges, some of which we probably only partially understand.

But it presents a good opportunity to turn to some of the new strategic questions that a post-switchover world brings, and to pose some of the questions that arise in an increasingly digital world, which features more competition, more choice, more complexity and more change than at any time in my experience of the communications sector.

I would like to start by taking you through some of the key findings from our latest Communications Market Report - which describes the environment in which we need to take regulatory and policy decisions.

And then I would like to talk about some of the areas in which we need to focus our effort in order to meet the duties that Parliament set us - to further the interests of the citizen and the consumer.

Ofcom's Communications Market Report

Let me begin with some reflections on our Annual Communications Market Report, our review of trends and developments in the UK's Communications market, highlighting four areas: consumption, mobility, control and participation.

Consumption

First, what is happening in the way we consume media and communications services?

Extraordinarily, each person now spends approaching half their waking hours, cumulatively more than fifty hours a week watching television, listening to the radio, surfing the internet or making calls on fixed and mobile phones.

At the same time the cost of this activity is declining, partly driven by the rise in bundling. In the last year, the amount of people taking more than one service from the same operator has increased by over a third to 40% of all households.

Mobility

And what features do we most value in our products and services today?

Firstly, we want more mobility.

The number of mobile connections continued to grow in 2006, despite perceived market saturation. There are now almost 70 million mobile connections and in 2006 for the first time there were more mobile-only than fixed-only households.

Mobility is increasingly at the heart of the communications experience across the sector, from wi-fi hotspots to iPods, Blackberries and mobile TV.

Control

Alongside mobility, people are demanding more personal control. We want to access and enjoy content at a time convenient for us.

Digital recorders, including Sky plus, V plus and Freeview Playback are increasingly popular. Penetration is now at 15% of all homes, and 28% of Sky homes.

Over four in ten adults with the internet have used it to download audio and audio visual content, and many more use the internet for streamed radio or TV programmes.

Participation

Of course, one of the most important consequences of the changes we are seeing is the revolution in participation.

Today, people want not only to view content but to create or contribute to content.

All of us can share pictures, videos, thoughts and ideas globally in seconds, creating a network of hundreds or thousands of others with a shared interest.

Only now, do electronic communications make that possible on a meaningful scale.

Only in this generation will we see the full significance of this profound change.

Summary of CMR

What the Ofcom CMR tells us above all else is that our communications markets are in a reasonably healthy state:

The pace of change continues and many challenges remain:

For industry, new threats to existing businesses, pressures from more intense competition and the uncertainty that accompanies fast technological change.

For consumers the many opportunities of choosing between new suppliers, new services, but also the prospect of more complicated products, packages and pricing and indeed the threat of rogue operators exploiting the new and unfamiliar to engage in underhand sales practices.

And, of course there are many challenges for a converged regulator.

So, what I would like to do with the rest of our time is to consider some of the challenges posed to securing the citizen and the consumers' interest in the digital age and how Ofcom, in collaboration with Government and industry might respond.

Citizenship in A Converged World

I would like to start with one of our twin duties; the citizen's interest.

In many cases our interests as citizens and as consumers are the same.

But it is important to identify the occasions where they may not be and what to do in those circumstances.

We will shortly publish a discussion paper reflecting on how we interpret Ofcom's role in furthering the interests of citizens.

I regard this as tidying up loose ends, because we have always had the balancing act of meeting these twin objectives at our heart and in our minds.

Let me say personally that I have never had any difficulty with this notion, indeed I have always been a strong supporter of this relatively straightforward concept.

Indeed, there are many people who claim credit for its creation and I am certainly among them!

The citizen and the consumers' interest had a sticky start to life. Some of you will remember the official position at the beginning of our journey: that the word "citizen" had a specific meaning in Immigration Statutes, which meant that it could not be used in this more philosophical form in the Communications Act.

Fortunately, the concept was rescued by some wise members of the House of Lords, unencumbered by the straightjacket of legal advice, who simply voted the concept in.

It was a quick solution for a simple but powerful idea.

It requires each of us only to hold two straightforward ideas in our heads at the same time.

That we are both private individuals who transact in the market place with suppliers of many kinds, as consumers.

But at the same time, we are members of a community, citizens of a society in which we make judgements about what is in the wider public interest.

A simple but powerful idea.

It is an idea that is at the heart of our work in so many crucial areas. And in particular, where we are concerned with trying to identify the citizen interest and ensuring it receives proper attention.

Let me review a handful of examples which illustrate how busy we are today in tackling this challenge.

Of course one of our first concerns is to ensure the universal supply of critical communications services which are vital to the ability of citizens to participate in society and the economy.

Today this is largely focused around the universal service obligation, which is targeted at the provision of basic telephony and internet access.

I have no doubt that the time is not far off in which we will need to consider what we mean by and what the implications are of a USO for broadband.

But let me concentrate today on some issues that are already firmly part of our in tray.

Firstly, public service broadcasting.

The pressures of multi-channel television, changes in media consumption habits, the growth of on demand services and of internet advertising are all coming together to put enormous pressure on our existing PSB system.

So in response, we have brought forward our Second PSB Review, which will need to tackle some tough questions.

Most fundamentally, is plurality in public service broadcasting - the competition for quality we have enjoyed for many years in our mixed ecology of PSB - something we can and should reinvent for the 21st century digital age?

But also some other very difficult questions:

We will do this aware of the concerns already raised with us about the vulnerability of certain programme genres, in particular children's programming and regional news.

Let me take what we have found in our work on children's programming as one clear example.

Children have never had so much programming available to them.

Between 1998 and 2007 the number of dedicated children's channels in the UK has increased from six to twenty five and total hours of childrens' programming has increased by 500%.

But spend on original programming by the commercial PSBs has more than halved since 1998.

Original British children's programming now makes up only 17% of the total output.

And yet that 17% delivers some 38% of all viewing - demonstrating very clearly that where high quality original UK content is made, there is a real demand for it.

That gives us a pretty clear challenge and one that I suspect will be replicated in other areas.

Let me be clear what we see as the aim here.

It is to secure a plurality of provision of universally available, UK originated, high quality public service content that meets the purposes of PSB across the whole of the UK.

It is to create a system which supports creativity, innovation, originality and universality which is as successful in the digital age as it has been at its height in the analogue age.

Secondly, our work on the spectrum released by digital switchover, which we are considering in our Digital Dividend Review.

The release of the DDR spectrum is a unique opportunity.

It is 112Mhz of prime spectrum which is suitable for an enormous range of services. It is unlikely that we will have an opportunity such as this again in the next 20 years.

With spectrum of this importance, it is even more critical that we consider the potential benefits to citizens.

We are continuing to do so in our assessment of whether there is a case of sufficient strength to persuade us to modify our starting point that a market-led approach is the best way of ensuring the efficient use of spectrum.

The challenge is to weigh an identified citizens' interest against the general efficiency of market mechanisms to ensure the best outcome for society as a whole.

During our consultation on DDR, two key issues have caught most of the headlines, PMSE and the desirability of providing HD TV services on the Freeview platform. Let me take each in turn.

Programme Making and Special Events Services, devices like wireless microphones, make a very important contribution to the UK's social, cultural and economic life.

They enrich all of our lives, whether we like opera, theatre, or indeed rolling around in the annual mud bath at Glastonbury. Personally, I have been known to enjoy all three.

And when we published our initial consultation late last year, PMSE quickly emerged as a critical issue which divided opinion.

So we listened to people's concerns and have proposed significant additional safeguards, proving I hope that an Ofcom consultation is genuinely just that.

We feel no all consuming need to prove that we are right, only to strive to try and get it right when the decision needs to be made.

Secondly, high definition television services.

Let me be clear that Ofcom believes that HD offers an exciting improved experience for viewers.

We are far from indifferent to HD, but we remain firmly platform neutral and pro-competition in our approach.

We also remain open to argument and evidence for a non market allocation where there is an identifiable public interest that clearly outweighs the opportunity cost associated with it.

In terms of the DDR, we have yet to reach a conclusion, although, to date, we have not been persuaded of the argument that the best way to maximise the social and economic benefit of the released spectrum is simply to gift some or all of the released spectrum to broadcasters.

Separately, of course, we are working with the broadcasters and others, as our duties under the Communications Act require, to ensure that the spectrum they already have is used in as efficient a manner as possible.

And here we have a great opportunity. For some time now Ofcom has been developing a proposal which would enable us to clear an entire multiplex and convert this to an improved compression and transmission standard.

If we can make this proposal work, then there is a very major prize.

Success would mean not only the doubling of capacity for one universally available Multiplex, but also for the first time, a migration path for the entire Freeview platform which would offer an enormous increase in capacity.

This proposal holds out the prospect of HD services on Freeview, using existing capacity, as early as late 2009 and at far lower cost than any alternative proposal.

For us it means a far more efficient use of scarce spectrum and supports our duty to promote competition in the communications sector.

We will set out our proposals later this year.

Thirdly radio, which faces similar challenges to TV in terms of audience fragmentation, on-demand services and internet advertising, but where finding a solution is arguably more urgent.

Our work on the Future of Radio has highlighted numerous issues, but one area has proved to be particularly contentious: localness.

Some have called for a huge relaxation of regulation in relation to localness, some in the industry even call for a complete removal of all regulation. They believe that localness is either no longer valued or that it's value is significantly outweighed by its cost.

The problem is that the evidence is to the contrary.

What our research tells us is that people continue to want to hear local programming. They want to hear that programming and know that the presenter they are listening to drives down the road they drive down.

And as citizens, when there are nationwide floods or major local incidents such as the attempted bombing of Glasgow airport, we want to know that reliable and trustworthy local news and information is available on our commercial radio stations - as indeed it was in both these circumstances.

But we are not convinced that the market alone will deliver this if left to its own devices.

We recognise very clearly the significant economic challenges faced by the radio sector, but our forthcoming proposals will not involve eliminating the obligation to deliver local programming or its reduction to a negligible level.

Finally, the issue of harmful content online.

This is an issue which has recently come to the forefront of public debate, but one that we at Ofcom have been quietly thinking about for some time.

Clearly some of the examples of harmful content on the internet we are seeing have no place in our society.

By way of illustration, let me highlight a report shown on BBC London a month or two ago, which examined some of the appalling content freely available today.

In this case it included the torching of an Asian figurine in what was a shocking and disturbing display of racism.

One of these clips, one of the worst, remained on a major video sharing website for some six months, despite its deeply offensive content.

Even worse, despite the producers reporting the piece as offensive every day for a week, pretending to be normal users, the piece was not taken down until they identified themselves as BBC journalists.

This case, at the very least, demonstrates that a voluntary take down policy was ineffective in this one instance.

Let me say that while I do not yet claim to know precisely what the right answer is in this area, I do not regard this kind of situation as one that can be in any way acceptable to any of us as citizens.

What we need is a policy response that is based on the data and evidence of the prevalence of this kind of content and of the potential harm it causes.

This will require a combined solution involving Government, industry, consumers and, where necessary, the regulator.

We need to understand the risk of harm and then what we can practically and proportionately do about it - balanced of course with the widely shared desire to protect the wonderful freedoms and openness that lie at the heart of the internet.

These freedoms and openness are well worth protecting and nurturing, but we cannot do so in a way which ignores the wider issues that are raised by the rapid march of the internet and broadband networks into our living rooms and into the lives of our children.

So we welcome the Byron Review and look forward to making our contribution to that work. It is in an important area and one which is rightly receiving attention from across the political spectrum.

What knits all these examples together - universal access, PSB, local radio services, the DDR and harmful internet content - is our concern to identify the citizen's interests in the context of and alongside successful, well functioning markets.

The Consumer Interest in A Converged World

Of course, our duty is not only to further the interest of citizens but also those of consumers.

It is of course effective competition that is the primary mechanism for securing the consumer interest.

Effective competition is what drives lower prices, better quality of service and product and service innovation.

That is where we start and it is an area in which we have made significant progress in many areas of the communications sector.

To take but one example, today more than 60% of UK homes have a choice of four or more network operators and dozens of service providers for broadband. Many in urban areas have the choice of six or seven operators with average headline speeds trebling in the last 18 months to over 4.6 Mpbs.

This is a long way from the fixed line monopoly or duopoly which we experienced for so many years.

However, we need to pay careful attention to what makes competition work successfully.

Again, we need a clear vision of what we are trying to achieve.

This begins with competition based on a range of companies providing competing alternatives throughout the supply chain.

But it also means a sufficient level of confidence or trust among consumers in their ability to exercise choice and derive benefit and not harm from doing so.

And it means a level playing field among companies such that good practice is not undercut by bad practice in the contest for consumers' money.

So it isn't just the number of players in a market, although that is crucial.

Competition works best when consumers have confidence in a range of competing suppliers, when they are able to switch suppliers conveniently and easily.

Confidence And A Level Playing Field

And it is in those areas that Ofcom has a further important role to play.

Our approach is threefold:

Firstly, we must help empower consumers with the information, tools and sometimes processes that can help them make the most of competition.

Secondly, we need to protect consumers where they face the risk of direct harm.

Thirdly, we require a robust and effective enforcement regime to ensure that all providers comply with the rules set by Ofcom.

Let me take each of these in turn.

Consumer Empowerment

Firstly, consumer empowerment.

As communications markets become more complicated, it is critical that consumers are supported by a framework which helps them take advantage of our liberalising and increasingly competitive markets.

Let me give a few simple examples to illustrate what I mean.

In 2006, problems associated with changing broadband suppliers represented the biggest single subject of complaints to Ofcom.

Customers were finding themselves trapped between suppliers, often without service for many months, frustrated at their inability to find out who was responsible and, in a very direct sense, almost punished for exercising their choice.

So, early this year we put in place new rules requiring all providers to supply Migration Access Codes to customers wanting to switch providers.

That was a significant step.

Since the rules were introduced the level of complaints to Ofcom and calls to BT Wholesale's helpdesk have halved.

And we have tackled the same problem in the mobile market.

In mobile, it was simply taking too long to migrate customers from one network to another.

Customers often have to wait around five days and endure a complex and time consuming process if they want to change their network contract but retain their own mobile phone number.

So, in July of this year we announced that we were requiring current processes to be completed in just two working days.

And it may be right to go even further. So, we are now consulting on proposals that in just over two years' time, numbers will need to be ported from an existing supplier to a new supplier within two hours.

Consumers would be able to walk into a shop on the high street, make a choice and have their number ported to the new service and working for them by the time they get home.

We also want to be able to hold providers to account for service and delivery standards and to be able to seek recourse where these are not met.

The dispute resolution system we have for the communications sector today - where a customer is in disagreement with their supplier - has been successful in giving consumers access to independent and expert redress at no cost to them.

Increasingly it is looked to as a model by other sectors.

But it takes too long before consumers can use the system and not enough people know about it.

In many ways it is an unsung success story.

So we will shortly be making proposals to shorten the maximum period a consumer has to wait before unilaterally invoking the system to eight weeks. At the same time we will consult on a range of new measures to ensure that companies' inform consumers properly of their rights to independent dispute resolution.

Secondly, consumer protection.

Where consumers face a risk of direct consumer harm, we will not hesitate to take action to protect them - this provides a floor of minimum standards we expect all companies to adhere to as they compete for business.

Let me take the example of mis-selling to consumers.

Fixed line mis-selling accounts for around 10% of all complaints to Ofcom. But it is not just the number of complaints that is of concern. It is also the nature of those complaints.

Let me share just two complaints we have received this year, to illustrate why we care about tackling this issue.

In one case reported to us, a door to door salesman knocked on a door claiming to be from an electricity company. When met at the door by a young girl with a learning disability, the daughter of the owner, he claimed he was there to check the electricity meter and asked the girl for her signature. A few days later that signature was used to change her telephone provider.

In a second case reported to us, a woman over 80 years old explained that she was told by a salesman that her telephone provider was being taken over by another company and she therefore had to change suppliers.

She was asked to sign a contract and refused, but put her initials on the paper for him. Those initials were then used to transfer her to another communications provider against her will.

That is the reality of what some mis-selling looks like today and it is why we have increased our activity in this area, including opening formal investigations into the practices of some of the largest providers, including Tesco and the Post Office, with an enquiry into another major provider currently underway.

But as well as cracking down on the worst, we are also encouraging the rest to be like the best.

So we are taking steps to ensure that all operators understand what best practice looks like and what we expect from them, so there can be no doubt about what levels of compliance we require on behalf of not only vulnerable but all consumers.

The problems of fixed line mis-selling now appear to be being replicated in the mobile world.

Here consumers are finding themselves signed up to long term contracts by third party resellers who have misled them into changing their provider or service package, often with the promise of cash-backs that sometimes simply do not materialise.

In July of this year we put in place a voluntary Code of Practice, following assurances from industry that they would tackle this problem.

I am afraid to say that there is a lack of evidence to date that this will be sufficient to ensure that consumers will be protected.

So, this week we will start a formal review into these practices and the effectiveness of the voluntary code.

And if it is found that the voluntary code is proving inadequate, then we will have no choice but to set mandatory standards backed up by the full weight of Ofcom's powers.

Finally, enforcement.

Our minimal floor of consumer protection must be supported by strong and effective enforcement to ensure compliance.

That means careful monitoring of market data and consumer complaints, clear investigation processes and open dialogue with industry.

And it means focusing on the most significant areas of consumer harm and within those on the most egregious cases.

For example:

Our enforcement action is not an end in itself, it is intended to change behaviour and deter others.

So we may well ask Parliamentarians in the future for the ability to impose stronger sanctions where we believe that our current powers are insufficient.

We must also recognise that enforcement is one area where we are not yet a converged regulator - at least in relation to our powers.

For example, in broadcasting we can fine for past breaches of a mandatory code. In telecoms, we are only able to fine after a company has failed to comply with an enforcement notification which sometimes feels a little bit like barn doors and horses that have bolted.

I am sure we will return to this topic in the future.

Conclusion

Let me summarise:

Our starting point is that in Ofcom we must always stay in touch with consumers, with companies and with technologies.

We must stay close to what is happening in our markets and seek to understand them as well as the companies that operate in them.

In the absence of this, we have no chance of succeeding in our dual central endeavour.

Firstly, to identify and, often working with others, secure the citizens' interest.

This means a clear vision for PSB in a digital age, an aspiration to guide us as we re-imagine PSB for the 21st century.

It means a commitment to the public purposes for radio set out by Parliament four years ago.

It means striving to understand where the citizens' interest lies in spectrum policy, for example in the context of the digital dividend review.

It means thinking hard about our role in access and inclusion, for example the future question of a broadband USO.

And it means engaging in a big debate about how and whether content will need to be regulated in a digital age, about how we nurture and protect the freedoms and creativity of the internet while ensuring that its dark side does not have an impact on our society that no sane citizen of this country would want.

Secondly, securing the consumers' interest, which we do by focusing on competition, on investment and innovation as our first port of call.

But in today's markets it also means paying attention to empowerment, protection and enforcement, to underpin the consumer interest in its broadest sense.

Finally, for those of you will have noticed so far the absence of the word deregulation, or the phrase 'light touch', from this lecture, do not worry (or indeed celebrate)!

For the avoidance of doubt (and misrepresentation) we have a substantial agenda for deregulation and for the simplification of regulation. We see real opportunities here in content regulation, in telecoms and in spectrum policy and licensing.

I can assure you that action on this front is firmly in our plans. But that has not been the focus of today's lecture; it will be the focus of another lecture on another day.

In the meantime, thank you to the Westminster Media Forum for hosting us and thank you all for listening.

END


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