TUESDAY 20 FEBRUARY 2001

There is a view of Oftel, the organisation of which I have been Director General for three years, that we are market-focussed, competition-obsessed, and believe only in the power of the untrammelled marketplace.

My aim is to assure you that as we move into a world of unitary regulation for communication, the precepts on which Oftel stands - support for competition, and clear regulatory action when markets fail - support the production and delivery of high class content.

I do not accept the concept that competition and culture are somehow opposing forces. Nor do I accept that the intellectual approach which has secured enormous benefits for UK consumers in the area of telecommunications holds any risk as we create a new regulatory framework for communications.

Indeed, an anxious telecommunications company told me this morning that the White Paper used the word broadcasting 592 times; but telecommunications appeared on only 78 occasions. His worry was that fluffy content would sweep away the Oftel rigour!

I believe that competition is the most effective way of producing for the consumer lower prices and higher quality. Regulators should exist to minimise barriers to competition. But we do not simply sign up to the tenets of Milton Friedman or even Adam Smith.

Oftel only exists because markets fail. Our approach is to create the conditions, which enables the private sector to maximise the opportunities present in markets.

Working to create OfCom in the next two or three years, my personal goal is to ensure a logical organisational structure, with a clarity of approach, so that all those in the communications sector can plan their businesses with the minimum degree of doubt about the regulatory constraints they may face.

Convergence of technology demands that this happens. The differences between television, radio, telephony, and the PC for the conveyance of different messages, images and data, are increasingly becoming historic.

People use different networks to seek different types of broadcast content, but much of that content is already transferable, and will be increasingly so in the future. The same service is delivered over a range of different networks.

The converged world changes the way in which people interact – not only with broadcasters, but with our banks, shops and even friends. At the most basic level, much of life is now arranged through electronic data transmission rather than through telephone calls. That data can be to a PC in an office, a palmtop in a briefcase, to a television or to a mobile phone.

The content is the same, but the appropriate delivery mechanism depends on the circumstances of the individual.

There is, for example, a marketplace for news - we can start the day by listening to the Today programme in the bedroom; watch the Webcast version on digital television; get updates on route to the office through a WAP phone, and shortly through third generation mobile phone technology; and on arrival at the office can watch both a stream of numbers and of people on Bloomberg informing what has happened overnight and what is likely to happen in the business world, world-wide, for the rest of the day; or listen through a PC whilst browsing other new services from around the world.

We can choose to watch a free to air film; or subscribe to a satellite channel; or watch a video on demand via an asymmetrical digital subscriber line.

Regulation must reflect the fact that consumers are increasingly indifferent between the different methods of delivery. The choice that we make is governed by convenience. This means that we need always to examine critically whether regulation is still needed. If it is needed, we need to determine its form and we must make sure that it is applied consistently across the competing technologies.

We can rely increasingly on competition law. In sectors where there are high barriers to entry; and where there are strong incentives to deny others access to consumers, special sectoral rules are needed – and this is as relevant to the new world of electronic communications services as it is to the old world of traditional telephony.

The vision that I have for the future of the converging communications sector is, I believe, broadly the same as the vision for those who produce and make programmes. I want to see regulatory underpinning that removes barriers, that provides value for money, and gives us choice.

In the digital age, competition remains the best vehicle to deliver these goals. Competitive markets provide innovation in content and investment in new services. With the development of digital platforms, though still in a very early stage of market development, the evidence for this is compelling.

But competition alone is insufficient and is why the thrust of the Oftel approach is ‘competition plus’. That means consumer protection, consumer information, quality of service initiatives, commitment to universal services.

This fits totally with the philosophy of broadcasting regulation – the commitment to public service broadcasting, the protection of children, the plurality of opinion. I believe that these components can be effectively managed within a single regulatory roof.

It is not the regulator as nanny. It is the regulator, protecting, informing and empowering people.

One in five households already have digital TV sets. We are the first country to launch digital on three different platforms. The massive take-up in the early months shows no signs of slowdown. New products to attract new consumers are still being launched.

This gives the UK an advantage in exporting expertise and products to markets emerging more slowly elsewhere. But we cannot predict what the drivers are in the future.

The example of mobile phones is the most dramatic. There were 5.7 million subscribers in 1996. There were 40 million last month, with 67% of the population of owning a mobile.

Though the initial application was voice telephony, the key application in the youth market is short text messaging. No one predicted the rise from 50 million messages a month to 750 million in 2,000.

But content – as ever – is key. Who would have thought 37% of messages had told someone they loved them. And 13% had told someone they dumped them.

Who would have thought that 400 people on the Vodafone network received a message on 14 February saying – phonetically - as its Valentines Day I’d like to ask you something. Will you marry me? There are no records about the responses.

Mobiles have moved from an expensive extra to a mass-market device.

This has everything to do with competition. And something to do with regulation. We have prevented abuse. We have protected the consumer from the bottleneck of calls to mobile controls, which reduced bills by 33%.

The industry agreed to Europe-wide standards. There has been massive investment in technology and new services. Price competition means calls that have dropped in price by a quarter since January 1999.

Common European standards, innovation and competition supported by the minimum necessary regulation – I would argue a good lesson as we move to the converged world.

As digital broadcasting expands, there is another important lesson.

Regulatory obligations should only be imposed if benefits outweigh the costs.

Too much regulation has the potential to harm investment, the build-out of networks, or the development of innovative products.

That is a real issue for any regulator considering requirements on networks to carry specific broadcasting services – just as it is an issue for me looking at third generation in the mobile market.

These issues are those faced by Oftel every day. The problem of fast moving markets. The issue of promoting competition and ensuring that anti-competitive practices end. But always only the minimum regulation to allow competition to deliver services to consumers.

The regulator should not be the sponsor of the sector. The regulator should not be a super manager of a wide-range of companies. The regulator is there to prevent abuse in markets. The regulator is there to protect the consumer.

In most cases the answer to the question – should we regulate, should we intervene – will be no. That means for the industry an understanding that regulation is consistent. It means a regulator which is independent, with proper independence from Ministers and, indeed, politicians collectively.

Independent regulation is key. Business needs clarity and predictability to plan, invest and deliver, especially in risky markets. An independent regulator gives certainty and stability that politicians cannot.

The White Paper emphasises the essential independence of the regulatory role.

The White Paper, of course, also argues for content and economic regulation under the same roof. As this was something that I had argued for, I was delighted with the outcome.

Telecommunications regulation is detailed and hard. For much of the last three years, I have been involved with issues like local loop unbundling, flat rate access to the Internet, and the mobile market.

I know more than anyone needs to about the air conditioning requirements in telephone exchanges. But even this apparently technical and mundane activity has created enormous media interest. Because unbundling creates competition.

And that competition – in spite of some hitches – will create the opportunity for consumers to access broadband – not for its own sake, but for the speed, the volume, and the quality of the content that will be carried.

The work that we have done to create in the UK the most solid platform for unmetered and cheap internet access has serious implications for the future investment plans of the private sector. Our decisions have significant economic implications for operators, for business, for the economy generally.

And, serious questions about a framework for open access to networks will certainly be at the heart of OfCom. This is a basic issue in regulation of all networks.

It is relevant to decisions that I have taken about unmetered internet access, about access to mobile networks, and access to broadband. It is an issue at the heart of convergence.

We need to ensure that we have a clearly general approach. And in a world of different delivery networks for the same content, it is vital that it is clearly understood. Our thinking is based on the premise that open access should be imposed only if certain criteria are met.

First, the company should have economic power in the relevant market. Second, the benefits should outweigh the costs. Third, open access should be a proportionate response to the problems in a particular marketplace.

We emphasise a test of market power because mandating open access to networks without an economic test would leave any network owner, who may have invested billions of pounds, as a virtually powerless respondent, unable to make decisions over the products that they supply to their consumers.

Companies without a viable business do not invest. And they do not innovate. To mandate general open access on all networks is not a sensible proposition.

In practice, the principle is that if a given broadcaster cannot sell content on the network on which they want to sell that content, the network should only be obliged to carry where the refusal is due to the market power of the network operator. This is solid economic theory.

It is about intervening in company decisions only where necessary to protect the interests of consumers. For if companies do not supply a range of attractive content, they may not survive for long.

The rates of attrition in the independent service provider sector and the growing in mobile telephony shows that consumers are demanding, discerning and ready to switch. There is, of course, a key exception to this fundamental principle.

Access to public service broadcasting is a separate issue. This should be dealt with by special rules. This is what broadcasting regulators do now, and we are working with government to develop this for the future as a part of OfCom.

We are already working together better to understand, complement and develop each other’s approach.

In telecommunications, the key issue of universal service has meant significant interventions in markets to ensure that some services are available to everyone.

It has meant that the provision of telephony to all parts of the UK, with over 94% of homes having a fixed line. It means payphones throughout the country, even in uneconomic locations. It means cheap telephony for some groups in society. And it means a wide range of special services for those with disabilities.

Over the years, Oftel has brought the same rigour to universal service, as we have to competition analysis.

In public service broadcasting, it is widely believed that untrammelled competition may not necessarily meet the aspirations of consumers.

The argument is that there is, and will continue to be, a potential market failure in the supply of certain types of programming, and in the overall provision of voice in radio. This will be a key issue for OfCom.

Expanded choice will help to address the issue, as competitors may well provide more of the diversity required of public service broadcasts. But we will still need, and must ensure, that public service broadcasting continues.

The White Paper commitments to public service include roles for the BBC, Channel 4 and S4C, as well as commitment to the commercial provision of public sector broadcasting – the role of ITV – in the future digital age.

So I envisage a strategy that will include obligations of must carry; which must give due prominence on electronic programme guides and access to the associated services necessary for public service broadcasting. And competition rules to ensure that the public can find their way through electronic programme guides.

And there are other areas where we need rules set in advance to tackle potential market distortions. Rules about interoperability, interconnection, and bottlenecks – all areas that need appropriate action. For the regulator must be ready to intervene where the market fails.

The next big challenge is information for the consumer. In the competitive digital age, viewers must be able to make informed choices about the platform on which they decide to receive digital; about the programming to which they subscribe; and about the selection service that they can use.

These new choices – more complex when third generation is launched, when television over IP is more common, and new higher bandwidth technologies come into the consumer marketplace – require information. And the regulator must ensure that information is comprehensible and comprehensive.

My thesis tonight is that none of this should diminish the ability of companies to create high quality content and the differentiation that is expected in other marketplaces.

I do not accept that broadcasting is so different from other markets that the competitive approach is anathema. Broadcasting has special features. The media is hugely powerful. Pluralism is a real concern.

This does not mean that the competitive process cannot and should not apply. It can and it should – to deliver the benefits of the digital revolution.

The change sweeping broadcasting, as well as telecommunications, means that some services are disappearing. But the new world, with its uncertainties, equally offers positive opportunities – whether the huge range of channels in television or radio catering for different audiences, or through the delivery of video or voice or music through information technology.

The funders of new channels need to be sure about regulation. Content as well as economic. The approach of the White Paper with general rules on watersheds, taste and decency, and specific rules on independent quotas is sensible and comprehensible.

But the White Paper also argues for a freer range for broadcasters to take their own decisions, to impose their own standards – of course, taking account of positive obligations imposed on the free to air stations.

The ITC recognised that this removes to a degree the regulator from sitting in judgement. Judgements and decisions whether or not to watch programmes are best left to viewers. The imposition of taste on the basis of anyone knowing what is best for the public is an arguable premise.

In a multi-channel world, broadcasters will be more subject to the choice of the viewer and listener. But surely this does not mean that competition means that every broadcaster will compete with the same type of content, and only for the mainstream?

New channels already emerging shows that competition in a world where spectrum constraints are hugely diminished is delivering much more rather than much less. And for quality, all our experience in telecommunications is that people want more choice and better quality.

There is a role for cheap and cheerful telecommunications services, but the growing demand in future will be for the high quality, high bandwidth always on connectivity which will vastly enrich the range of potential uses for the consumer. Broadcasters will need to offer compelling content. Viewers will demand higher quality.

The competitive pay television marketplace has already led to an almost mind-stretching array of choice in films, culture and sport. And the rolling news services, available through different channels as well as from different networks, are a further illustration of competition and, I believe increased quality.

The residual fear is that commercial TV needs regulators to look over their shoulders to ensure that quality content is provided. My hope is that this need not be the case. My faith lies with the viewers.

Convergence means that not only do they have up to 400 TV channels but also broadcast streaming from the internet, downloads onto their mobiles, and access to content across the globe. The old technological restrictions of the broadcasting world have gone but the multiplicity of delivery means that the enduring value of broadcasting – compelling, diverse, content - is more accessible than ever.

This approach does not undermine public sector broadcasting. It will continue, with a crucial role. Competition helps public sector broadcasting by adding diversity. It provides a challenge for public service broadcasters as they see increasing competition in their core competence of high quality content.

It is arguable that public sector broadcasters need a competitive challenge as much as any of us. So new regulation is rarely going to be the answer in the new digital age. Indeed, my hope is that OfCom will roll back regulation as well as refraining from new.

There will be more self-regulation perhaps particularly in the hugely difficult area of internet. For television, the ultimate issue is for the viewer to be able to choose both content and delivery.

In this environment, the regulators must focus on the consumer and the problems they face. What are the barriers to switching service provider?

What are the entry problems for new broadcasters? Are companies pricing their activities excessively? Do platforms lock consumers in?

These are issues which need coherence in the regulator’s approach – whether by using sectoral rules or the Competition Act.

My final message is that no one should forget the costs of regulation – sometimes financial, sometimes more social. Every regulatory decision risks pushing the market in a way that is not of optimum benefit to the public. As markets becomes more complex, that potential risk increases.

The costs of a bad decision can be significant – a burden on network providers, or a major disincentive to invest, or a cut in the advertising revenue of competing commercial channels, a reduction in the market capitalisation of an affected company and so on.

So any rules and regulatory decisions that impede the development of competition must be challenged and totally justified.

Four key points as we start the complex process of the new framework:

• first the public as consumer and viewer must be at the heart of the framework;
• second, competitive markets must be the main vehicle for delivering services;
• third, we need to empower viewers;
• fourth, public service broadcasting gives UK viewers unparalleled quality television and that has to be preserved as we move into the development of competition in television and radio.

OfCom gives the UK the chance to create a worldclass regulator. To create a flexible legislative framework as we go into the converged, de-regulated competitive and digital communications era.

It is critical to get OfCom right. We need the right structure. We need the right degree of intervention. We need true independence from politicians.

Chris Smith said to the Royal Television Society in 1999: "I can imagine a future where broadcasting regulation is based in the first instance on competition law with a reduced set of distinctive media rules added only where strictly necessary".

OfCom gives us the chance to achieve this. There is an opportunity to move to more self-regulation for broadcasters underpinned by increasing competition encouraging broadcasters and content providers to innovate and diversify the content and services that they are providing.

If the regulator is left to do what is necessary to ensure that we move to a truly competitive marketplace, then we should be able to have the confidence to leave it to you the industry to get on with the job of creating and providing services.

We can then all rely upon the good sense of the viewing public to decide exactly what it is that they want to watch on their mobile phones, computer, watch on their wrist, fridge or even perhaps a screen in the corner of their living room run by a quaint old 20th century technology called the television.