Delighted to have this opportunity to speak to you today.

This is one of my first opportunities to speak to a broadcasting audience since being appointed to the Ofcom board.

It's difficult to think of a more relevant and timely topic for debate than today's: public service broadcasting and communications will form a major - if not the major element of debate during passage of the Bill.

We all know that public service broadcasting represents a significant intervention in the market for broadcasting
It has a major effect on the market in communications and networks.

It is an intervention that has produced for the UK a broadcasting environment that can be seen, without exaggeration or sentimentality, at its best as truly world-class.

Even in a multi-channel world, public service broadcasting has strong public support and its channels retain great popularity.

But like any public policy, this intervention needs to be examined rigorously and continuously to ensure that it moves with the times, and particularly now, to see how it can be made to work in the converged future.

I'm appearing here with a dual guise.

Having been appointed to the board of Ofcom I am looking forward with the other board members and considering its role, responsibilities and instruments.

But I remain director general of Oftel until Ofcom is up and running.

And I am of course today giving my personal views and perspectives.

Wearing two hats may have its confusions but does offer a unique opportunity to take lessons from the past and apply them to the future.

That is what I'll attempt to do this afternoon.

I aim to firstly, wearing the Oftel hat, discuss our experiences in working with and controlling a player with market power - in this case, in telecoms.

Oftel has learnt a lot in how to evolve a market from one player to many: allowing new entrants to come in and make the experience better for the end user - in that case, the telephone user in their home or business.

Then I will move to discussing what I feel are the lessons that can be drawn from that experience for the future of regulating public service broadcasting in Ofcom.

Wearing the Oftel hat: what are the lessons from regulating into competition in telecoms?
What did Oftel do?

The last thing I'd want to do would be to suggest that the situations of public service broadcasting now and of telecoms in the mid-1980s are the same.

There are many differences: not least that there was only one, dominant incumbent player in telecoms, whereas broadcasting is a mixed and flourishing ecology.

But regulating telecoms offered a tremendously valuable insight into how to make an ecology flourish and secure real benefits for consumers.

So what was Oftel dealing with at its inception in the mid-80s?

Compared to today, telecoms consumers experienced much higher levels of failed calls, slower repairs, delays in having a telephone installed and paying about 50 per cent for the privilege. There were many fewer telephone boxes. There has been an average 1per cent rise in telephone households each year since 1984.

So what did Oftel do to encourage competition?

The key thing to remember about telecoms is that they need to be two-way.

As the end user, the customer needs to be able to call who they want and to receive calls.

So if you want to enter the market and provide a competing service to the incumbent, you need to be able to offer a service that can connect any phone user, to any other phone user.

The policy aim at the time was to encourage competition because it would benefit consumers in three ways:

• by driving down prices;
• by encouraging innovation; and
• by providing choice.

And there were three ways for a new company to enter and compete in the telecoms market:

• you could build your own national network to every household and business in the land;
• you would pay the operator of the existing network to carry calls for your customers; or
• you could opt to have a mixture of the two: building some new provision and buying some.

The first option - to build a wire-based network is frighteningly expensive and takes many years.

So it is the second and third options that have actually been taken up in the UK: some build and some buy.

But either option meant that the new entrant would need to have access to BT's network so that their calls could be transferred across the country and be able to call BT's customers.

But BT, like any company with an effective monopoly aiming to maximise its profits and its market position, is not going to voluntarily give access to the valuable and unique asset of its national network.

This is where regulation needed to step in and - in the words of another DG - "make it happen".

So Oftel went down the road of requiring BT to open up and provide access to its network.

This brought a whole range of complementary regulation in its wake.

Oftel needed to be able to set the prices at which new, competing companies get access.

There is not much point in requiring BT to offer access, if the cost of such access is so high that it is not worthwhile for a new entrant to bother trying.

We developed a range of principles and tools to enable us to set prices, based on how likely the market was to becoming competitive and its maturity.

We introduced the concept of fair, reasonable and non-discriminatory pricing to require BT to offer its services to any new entrant, and to do so on the same terms as it did to its own subsidiaries.

We needed to stop and prevent BT from engaging in any predatory pricing or predatory behaviour - such as very low pricing - which might put a new entrant out of business.

We regulated how BT behaved when it launched new services to ensure that other companies also had a fair crack of the whip - but doing this in a way which did not discourage BT from innovating.

And we aimed to ensure that BT did not exploit its power in one market area to achieve similar exploitation in another.

This means, that in the new broadband retail market, Oftel had to make sure that BT was not able to exploit its strength in the wholesale network to crowd others out of the broadband market.

What has been the outcome of Oftel's regulatory interventions?

So Oftel has intervened where it needed to in the market for telecoms with the aim of making the service better for the end user.

But what good has this done?

Well, the telecoms landscape has changed radically in the last 18 years.

Prices for the main telecoms services to the home have halved in the period since 1984.

The price of mobile phone calls likewise have fallen, with a range of players in the market.

There has been a massive and enthusiastic take up of flat rate, unmetered internet access which has made a huge contribution to expanding Internet use.

And there's been a significant reduction in BT's market share - both in homes and businesses.

With newer broadband services - fast, always-on Internet access, the UK is developing one of the most competitive markets around with services provided by the cable companies, BT and a wide range of independent services providers.

Consumers now have choice and they are exercising it.

And Oftel has used its discretion with mobile provision, with limited regulation in that market which has four players.

Regulation must always be flexible, regularly reviewed and responsive to the market circumstances.

So what's Oftel's relevance to the public service broadcasting realm?

What are the implications of this for Ofcom's competition role in public service broadcasting?

How can we manage public service broadcasting into a competitive future?

And what's Oftel's angle anyway?

There's probably some scepticism about any similarities between telecoms and PSB.

And what could the Philistines of EC4 bring to the table anyway?

Similarities between PSB and telecoms

With telecoms, Oftel entered a world where there was one company with a presence in nearly every home in the UK - the dominant incumbent.

This does largely remain the case in the provision of telephone lines into homes, although there is a lot of competition.

Because of this ubiquity, BT is obliged to provide a basic telephone service to consumers across the UK in response to 'reasonable demand'.

This is BT's universal service obligation.

Based on this requirement, Oftel has been able to ensure that everyone, including for example vulnerable groups who might not be commercially attractive - such as poor people or those in rural areas - are able to have a telephone service.

And BT is required to offer pricing plans to suit those vulnerable groups, such as low user schemes for those making few calls.

Oftel had to manage the telecoms ecology to help it evolve, ensuring that the universal presence was maintained, while allowing new providers and services to enter the market.

Similarly in broadcasting, there is a strong penetration of television and radio into people's homes and their lives.

This was the historic rationale for public service broadcasting.

Television was an intimate medium, enjoyed in the home and in the early days, shared by the family in one room.

It could be used for good or ill.

Also, broadcasting spectrum was a scarce national resource that public policy felt should be harnessed to achieve desirable ends.

Hence the development of public service broadcasting as a way to support the public good that broadcasting could represent.

But times have moved in the 80 years since the formation of the BBC and the public
service broadcasting settlement can no more remain static than any other aspect of public policy.

Television has experienced massive change in that time.

Viewers are no longer tied to the rooftop aerial, but in the UK have three major delivery platforms in terrestrial, satellite and cable.

There are now a very wide range of channels available, over 90 free to view television channels are available to satellite viewers in the UK.

We heard from Andrea this morning about how viewer habits are evolving with this new landscape.

Viewers are more prepared to pay for television on top of the licence fee.

There is much more multi-channel viewing - in 2002, the amount of programmes on multi-channel TV attracting more than 1 million viewers more than double the previous year.

And for the first time, at Christmas, multi-channel viewing exceeded the viewing figures for ITV1.

We have more sophisticated digital technology, with conditional access systems enabling viewers to choose and pay for the programming they want, and for programmes to be tailored to viewer demand.

The public need no longer be spoon-fed what the great and good think they need.

The hegemony of the large public service channels is changing and their position needs to change also.

Oftel has experience of managing a market from an environment where there was one dominant player into a multi-player competitive world.

We can bring this learning into the future world of public service broadcasting.

What is the significance of the public service broadcasting settlement?

We know that despite the evolution in television I've outlined that there are still only five major players in UK terrestrial broadcasting.

But what is the significance of such a structure?

Strong players have positions of power both in terms of their relationships with end users - in this case viewers - and their position vis-à-vis suppliers.

Their outputs and behaviour are bound to have an impact on other market players.

And public service broadcasting as an entire entity has, as a group, got particular aspects of complementarity, common obligations and privileges.

An analogy with telecoms is that there is a universal service element to public service broadcasting.

If you have a television service into your home, not only are you paying the licence fee, but you are also required to be provided with the public service channels.

The company providing the television service into your home must make them available, using a variety of technologies depending on how you receive your broadcasts.

And as a group of broadcasters, there are a range of obligations on the public service channels such as provision of news services.

And part of Ofcom's work will be taking a view of the overall public service broadcasting landscape as a whole, seeing how the different channels complement each other and achieve their remits to the benefit of viewers.

And overseeing this in the context of the overall broadcasting ecology of the UK.

We are all aware of contemporary, relevant issues in public service broadcasting.

The ITC has done intensive work on programme supply and the treatment of in particular independent producers.

90% of the work of independent producers is commissioned by the five main public service broadcasters.

Although it is unlikely that any one of these broadcasters could be seen as dominant in the strict sense of the word, it is clear that they are individually and collectively in positions of real strength in these negotiations.

If the independent producers are innovative and creative, then there is a relevant role for a regulator to ensure that such innovation and creativity can be rewarded.

For example, if a programme concept can form the basis of a spin-off idea such as a computer game, then the original producers should be able to negotiate these issues freely.

Ways to achieve this have included regulating the terms of trade under which broadcasters trade with independent producers to help the producers to fully exploit their innovations.

This morning's panel on competition and new services highlighted another area of sensitivity for public service broadcasting.

Public service broadcasters, particularly the non-commercial ones, are not like commercial companies.

Their incentive is not to maximise profits, but rather to maximise outputs.

They will instinctively seek to diversify beyond their core services with no clear-cut commercial limitations.

It is here that the regulator has a role in clarifying the range and limits of public service broadcasting.

If everything a public service broadcaster does is, by definition, public service, then where does that leave other, commercialbroadcasters and producers?

If a public service broadcaster can step in and compete with the commercial sector, then this makes commercial innovators very vulnerable to losing market share to the public service channel - possibly fatally.

Richard Lambert's report on News 24 highlighted some of the issues that can arise where there is a lack of clarity between commercial and non-commercial activities and the importance of transparency and appropriate cost allocation.

The public service broadcasters have traditionally got integrated, vertical supply chains.

This can enable them to lever their strength, position and resources from their traditional activities into new ones, whether that be programming to be sold commercially abroad or new product areas at home.

Although the public service broadcasters are not homogeneous.

There are substantial differences between the BBC, for example, with its integrated supply and scheduling, and ITV's separation of programme supply, controlled by franchisees, from purchasing and scheduling which are controlled by the ITV Network Centre.

There isn't a one size fits all prescription, but good regulation takes into account all the different ways that the market can be made to work for the good of all: producers, broadcasters, network operators and viewers.

Putting on the Ofcom hat - developing regulation that protects consumers, enables competition and preserves what matters.

The challenge for the future regulation of broadcasting, and public service broadcasting in particular is to find an approach that preserves the many, tremendously positive aspects of UK broadcasting.

Public service broadcasting aims to correct market failure and to supply programming where it otherwise might be absent.

Benefits that public service broadcasting objectives have secured have included greater diversity, a better service for minority groups, plurality and regional programming.

Richard Lambert's report included a run-down of the areas that he felt that a public service news organisation should be covering, which included:

• more detailed analysis of international news;
• incorporating wider and deeper coverage into the main programming – mainstreaming a quality agenda;
• coverage of the diversity of life across the UK;
• giving a perspective on major news stories from beyond London;
• offering scheduled programming from the nations and regions;
• using regional examples to illustrate major stories;
• better prioritisation of resources - one channel is not going to be good at everything; and
• better use of interactivity to enhance the range of offerings to the viewer.

Lambert in particular thought that if there was one thing a public service news channel should offer, it was good regional coverage.

So there are a range of obligations that can be laid upon public service broadcasters - in the same way that Oftel has imposed a range of obligations upon telecoms companies.

And these obligations can and should be graded to be heavier on some broadcasters than others, depending on the degree of privileges enjoyed and the strength of their position in the market.

For example, Oftel distinguishes between markets that are not competitive - where one players is clearly dominant - and markets where there is effective competition in prospect, and grades its regulation accordingly.

These obligations should be carefully calibrated so as not to hamper the UK from being able to make the most of its world-beating players.

The grading of obligations at the moment is, as the ITC have said to the Scrutiny Committee, imprecise and could be both more refined for some and more onerous for others.

The position of PSB in the wider ecology

Public service broadcasting doesn't exist in a vacuum.

That has been part of its traditional rationale in terms of content regulation.

Public service broadcasting has had a role in shaping perceptions, in educating the public, in engendering shared experiences.

It also has an effect on the wider industry.

Oftel's traditional stakeholders have been the providers of communications networks.

Public service broadcasting interventions affect them and their businesses.

For example, the Bill's provisions on must-carry and must-offer for public service broadcasters influence how network providers conduct their businesses.

We can see this in the competitive position of television platform providers which is analogous to telecoms.

In telecoms the competition is not even across the UK.

There is much provision of networks somewhere like the City of London, but sparse in rural areas like the Highlands.

In digital television, there is a similar position.

We've got two fully digital platforms: terrestrial and satellite, and an evolving digital cable platform.

The BBC controls one digital platform via Freeview.

This gives them a strong position, in a vertically integrated platform.

There is limited space for new entrants onto digital terrestrial.

So if a new entrant wants to come onto digital, the effective universal option is satellite, and that means Sky.

In the future, Ofcom needs to maintain platform regulation to ensure that the position of providers - particularly Sky - does not become a bottleneck.

Oftel has been responsible for regulating this aspect of Sky's business since its inception, and over 180 conditional access agreements are now in place, enabling third party broadcasters to appear on satellite.

This has involved Oftel making judgements about the fair and reasonable price broadcasters should pay and the benefits broadcasters represent to the platform provider - including the public service broadcasters.

Oftel has had to balance the removal of barriers to new entrants with Sky's right to earn a reasonable return on its substantial investment.

So there is a need for Ofcom to regulate broadcasting in a variety of ways: its public service role and to regulate platforms effectively.

Ofcom needs to take forward the lessons Oftel has learnt from both television and telecoms regulation, alongside the content regulation expertise of other partners to achieved a well-rounded approach.

This is the real value of the Ofcom merger.

Mainstreaming Oftel's core competences into Ofcom

Oftel brings into Ofcom its experiences of: ·

• economic regulation;
• dealing with a dominant incumbent firm;
• managing differing economic and public policy objectives; and
• managing the transition from dominance to a competitive environment.

Ofcom will need to have a role in regulating the future of public service broadcasting.

It will need to help public service broadcasting to evolve.

And it will need the tools to do so.

I've already noted the substantial intervention that public service broadcasting represents and the different grades of obligations placed on different broadcasters.

But this intervention has got to take place in a robust framework to judge what is appropriate, to achieve what ends.

Ofcom may need to have better, stronger and more judicable ways to define, measure and report on public service broadcasting.

These need to go beyond what is in the Bill, and enable Ofcom to make judgements that stick and are firmly grounded.

Ofcom will need to do a lot of thinking about the definition of public service broadcasting.

The EU's Universal Service Directive allows for must-carry privileges for public service broadcasters.

This begs the question: what is a public service channel?

Why was Artsworld not public service?

Or Discovery?

Their educational merit and serious intent are not in dispute.

There is a need for a clear definition to create a climate where competition and diversity can flourish.

New entrants must not be held back from coming into the market for fear that a public service broadcaster will exploit its strength to enter the market which they have pioneered.

Ofcom will need to be equipped to make judgements about the cost and value of public service broadcasting - and about how this can be managed alongside broadcasters' commercial activities.

Chris Bryant's panel discussed how to value public service broadcasting this morning.

Ofcom needs to be able to weigh up the value of public service benefits and their outcomes, and the inter-relationships between support for public service broadcasting outputs and commercial outputs.

These different areas of activity need to be adequately separated out and scrutinised.

And finally, Ofcom needs to take forward the ITC's work on programme supply and undertake ongoing scrutiny and judgements on this market.

This market is probably not going to respond to the general competition law powers.

Therefore, Ofcom needs to equip itself to make sure that this market works effectively - to provide good public service broadcasting alongside a flourishing competitive commercial sector.

Concluding remarks

Recognising that the broadcasting environment is evolving is not a threat to the traditional public service broadcasters.

They have shown that they can evolve to make the most of new technology and markets as the BBC have done with its website.

The public service channels - although likely to gently decline in market share - remain the primary choice of most viewers.

They retain great public support and affection and remain a key element of cultural policy.

Tessa Jowell described the BBC licence fee as venture capital for the nation.

What Ofcom must ensure is that the impact of this venture capital is of benefit to everyone. By this I mean ensuring it is compatible with increasingly competitive broadcasting and programme making markets so they can all deliver what viewers and listeners want.

The total cost of public service broadcasting is in excess of £4 billion each year - this must be well used to benefit the nation and to enable public service broadcasting to play its part - but not dominate - the nation's televisions.

Ofcom needs to make sure that public service broadcasting policy keeps moving forward.

To create the conditions for it to thrive in this increasingly competitive market, developing a supportive but not uncritical ecology to support it.

And a key way to do this is to mainstream the competences and values learnt at Oftel, together with the complementary skills and experience of our four partners, into the Ofcom future.