MINISTER FOR TOURISM,
FILM AND BROADCASTING
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| JANET ANDERSON MP MINISTER FOR TOURISM, FILM AND BROADCASTING |
The Commission’s work in the sphere of Economic Regulation is undertaken in support of wider policy, regulatory and licensing objectives. It can also involve co-operation with other regulatory bodies.
A major area of work in 1998 was the valuation of Channel 3 licences to set new financial terms. The Broadcasting Act required the ITC to set terms which reflected what the licences would fetch if put out to competitive tender. Our methodology had to reflect the changing competitive situation in the television industry and the need for ITV companies to invest in quality programming to maintain audience share but it also had to be fair to the public purse.
This was based on the ITC’s own detailed financial modelling, using methodology developed in consultation with the licensees and following a full public consultation on terms. Eleven of the Channel 3 licensees expressed an interest in June in applying for licence renewal at the earliest opportunity, ie, up to four years before the end of the current licence term. The 11 licensees were Anglia, Border, Carlton, Central, GMTV, HTV, Meridian, Tyne Tees, Ulster, Westcountry and Yorkshire.
Three of the licensees – Central, Anglia and Border – who had expressed an interest in renewal from next year, said they did not intend to apply on the terms proposed by the ITC. They may apply again over the next two years. The other eight licences were renewed with effect from 1 January 1999.
The ITC announced the following terms for licence renewal for the 11 licensees on 25 November:
|
Licensee |
Cash sum (£m) |
Percentage of qualifying revenue |
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Anglia |
6.905 |
17 |
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Border |
0.075 |
3 |
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Carlton |
16.060 |
20 |
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Central |
10.200 |
14 |
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GMTV |
4.070 |
23 |
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HTV |
2.090 |
7 |
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Meridian |
11.605 |
23 |
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Tyne Tees |
2.015 |
16 |
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Ulster |
0.550 |
5 |
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Westcountry |
1.160 |
13 |
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Yorkshire |
7.670 |
22 |
In accordance with the provisions of the Broadcasting Act 1996, Channel 5 and SDN asked the ITC to determine the appropriate price Channel 5 should pay for the use of its ‘gifted’ capacity on the digital multiplex operated by SDN. The first step was to determine the methodology. The ITC decided that the capacity had a commercial value but the value should encompass the public policy objectives. A price was, therefore, set on a commercial basis, with a review point at four years.
The ITC’s licensees pay annual fees to cover its running costs. The previous licence fee structure had been in effect for several years, with the fee scales adjusted each year to deliver the required yield. In the light of the introduction of digital television and the growth in the ITC’s work involving non-terrestrial services, Economic Regulation conducted a review of the licence fee structure in consultation with the licensees. New tariffs were introduced for 1999 which ensure that licence fees reflect more equitably the costs involved in regulating the different types of commercial television service.
Following a complaint about the practice of requiring cable operators to purchase two Sky movie channels before they could obtain the Disney Channel, the ITC investigated the terms of supply of The Disney Channel. As a result of this investigation, the channel was made available to cable operators on an ‘à la carte’ basis from 2 March 1998.
Following an extensive investigation into channel bundling that was undertaken in three phases, the ITC announced on 26 June 1998 that Minimum Carriage Requirements (MCRs) are to be prohibited on pay-television channels. Additionally, viewers are to be able to purchase premium channels in combination with any basic channel package. The ITC had concluded that the removal of MCRs would lead to smaller, cheaper basic channel bundles, making access by viewers to premium channels and pay-television generally cheaper. Viewers would not have to pay for channels they did not want.
The prohibition took effect on 1 July 1998 for all new agreements.
For pre-existing contracts, the prohibition applies from 1 July 1998 for digital services, and from 1 January 2000 for services broadcast for analogue reception. The ITC also decided there should be two exceptions:
Under the first exception, the ITC exempted three cable-exclusive channels: L!ve TV, Channel One Liverpool, and Performance – The Arts Channel. An exception was also granted to BBC licence fee-funded channels so that subscribers would be able to acquire these channels, which they had already paid for through their licence fee, alongside any basic bundle of services.
The ITC took its decision in the light of its interpretation of its statutory duties. Two of the ITC’s licensees, Flextech and The Sci-Fi Channel, challenged the ITC’s decision in the courts by means of Judicial Review asking:
• whether the ITC’s decision could interfere with existing contractual rights;
• whether the ITC has the power under Section 2(2)(a) of the Broadcasting Act 1990 to ensure fair and effective competition in the interest of viewers;
• whether the definition of MCRs was so ambiguous as to be legally uncertain;
• whether Flextech and Sci-Fi had been properly consulted prior to the direction being issued.
The judge rejected, emphatically, the applications for judicial review, on all counts.
In the light of the responses received to previous consultations, the ITC is continuing to investigate the practice of the ‘Bundling of Television with Telephony’, and the deep discounting of the prices for BSkyB’s premium channels, including the cable companies’ complaint about the prices charged for the first premium channel taken. Early in 1999 the ITC plans to launch a further round of consultation on the bundling of television and telephony.
The launch of digital television is taking place against a highly competitive background. Following a number of complaints from competing operators about the information being provided to potential subscribers, the ITC decided in December 1998 to issue a Direction to ONdigital, SDN, Digital 3 and 4, all Channel 3 licensees, and Channels 4 and 5, prohibiting the provision of misleading information regarding competing services or the denigration of such services. An identical Direction was issued in 1997 to cable and satellite licensees.
This action is intended to ensure that no viewers are misled by broadcasters on any digital television platform (terrestrial, satellite or cable). The ITC considered also that the behaviour of licensees could impede the successful launch and development of digital television.
The ITC attaches considerable importance to co-operation with its fellow regulators, principally the Office of Fair Trading (OFT), the Office of Telecommunications (OFTEL) and the Competition Directorate of the European Commission, and to ensuring that there is, so far as practicable, a consistent and co-ordinated approach. Although the ITC does not have concurrent competition duties with the OFT, it is an observer member of the Concurrency Working Party on which other sectoral regulators are represented.
The Economic Regulation Group represents the ITC in the Standing Committee on Competition in Communications (the Group of Three), a joint group comprising the ITC, OFT and OFTEL. The purpose of this group is to co-ordinate work on competition issues in which one or more body has an interest. Together with Engineering Division, Economic Regulation represents the ITC on the Group of Six, which in addition to the members of the Group of Three, includes two departments from the Department of Trade and Industry and one from the Department for Culture, Media and Sport.
In addition, both Economic Regulation and Engineering Division participate in the ITC/OFTEL joint working party on Electronic Programme Guides.
 
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