2007/8 Report Annual Ofcom

Annual Report / M O B I L I T Y

P A R T I C I P A T I O N C O N T R O L

I N N O V A A T C C I O E S N S S E R V I C E S

A V A I L A B I L I T Y

C O M P E T I T E I I C O O N H C

R C E E A O L C D I N N I B E O T G E O R S N M E P T V E • • N C S O T M C R A K U • R R M K O S E T M • S W R T • O M B E F R N T A O A R A D • L K B P A N E D M • T U R E S T R • C U M E T P C O S U B R I O T L I S E D A A R R F I N Annual Report and Accounts for the period 1 April 2007 to 31 March 2008

Presented to the House of Commons pursuant to the Office of Communications Act 2002, Schedule 1 (Sections 11 and 12). Ordered by the House of Commons to be printed 26 June 2008. HC 608 London: The Stationery Office Price £18.55 2 www.ofcom.org.uk

Contents Ofcom Annual Report and Accounts for the period 1 April 2007 to 31 March 2008

© Ofcom copyright 2008 The text in this document (but not the Ofcom logo) may be reproduced free of charge in any format or medium providing that it is reproduced accurately and not used in a misleading context. The material must be acknowledged as Ofcom copyright and the title of the document specified. Ofcom Annual Report & Accounts 2007/8 3

A INTRODUCTION C OPERATING AND E ACCOUNTS FOR THE 4 Chairman’s Message FINANCIAL REVIEW PERIOD 1 APRIL 2007 6 Chief Executive’s Report 29 Performance and evaluation TO 31 MARCH 2008 35 Statistical data 72 Certificate and Report of the Comptroller 45 Financial Performance B CORE AREAS OF ACTIVITY and Auditor General 11 Driving forward a market-based 74 Income and Expenditure approach to spectrum D STATEMENT OF ACCOUNTS Account AND CORPORATE 14 Promoting competition 75 Statement of Total and innovation in GOVERNANCE Recognised Gains and Losses converging markets 48 Foreword 76 Balance Sheet 16 Improving compliance and 52 The Ofcom Board 77 Cash Flow Statement empowering citizens and 54 Corporate Governance consumers 78 Notes to the Accounts 55 Board Committees 20 Delivering public outcomes as platforms and services converge 58 Non-Board Committees 25 Reducing regulation and 60 Statement of Responsibilities minimising administrative 61 Statement on burdens Internal Control 26 Maximising our impact 65 Remuneration Report on international policy development 4 www.ofcom.org.uk

Chairman’s Message

David Currie

Britain’s citizens and consumers have taken to the current generation of digital communications services in ever greater numbers.

ine in ten But we have also begun to look ahead definition television could not be households to the next generation of digital accommodated within the spectrum in the nations services: very high speed broadband currently available. However, the and regions of for residential and business solution which Ofcom put forward the UK now have consumers, high definition digital has now received widespread television and new wireless services. acceptance and will allow three digitalN television. A majority slots suitable for high definition of households have broadband Next generation broadband channels from next year and a fourth connections with increasing Ofcom has been addressing the in 2012. The BBC Trust will be speeds, falling prices and more issues involved in regulating to overseeing the launch of the BBC’s widespread availability than assist competitive investment in high definition service on DTT any other major developed next generation broadband. The and Ofcom will conduct the selection economy. The deployment of commercial decision to invest will process for the other slots. When Edge, Wi-Fi and 3G mobile have be determined by many factors. this process is concluded viewers fuelled the explosive growth We are therefore working closely will have a wider choice, without of mobile broadband. Over the with the Government’s review led having to wait on the possibility past year Ofcom has continued by Francesco Caio to address all of new nation-wide spectrum to oversee and support the the supply-side issues in the round. becoming available after digital competitive marketplace television switchover. that brings these benefits. High definition TV High definition television via satellite Public Service Broadcasting and more recently via cable is An area where Government and the product purely of commercial Parliament will play a pivotal role investment and innovation. Digital is in the follow-up to Ofcom’s second terrestrial television (DTT), however, statutory review of public service is constrained by the amount of broadcasting. The accelerating pace spectrum available. And, well of change in household viewing and into the year just passed, many the economics of broadcasting means experts were still arguing that high that the current model of public Ofcom Annual Report & Accounts 2007/8 Section A: Introduction 5

Chairman’s Message

service broadcasting, combining that, with its emphasis on People have all given generously of the BBC with commercial empowering viewers, media literacy their time and advice; and I and my broadcasters to give viewers plurality, and accredited self-regulation, meets colleagues on the Ofcom Board are will not survive the full transition the objectives with which Ofcom very grateful for that. to digital and that a new model and the Government entered the The independent Ofcom will be needed; one that also takes European negotiations. Consumer Panel acts as a strategic advantage of the opportunities We are now similarly engaged conscience for Ofcom to ensure offered by convergence to meet with the revision of the framework that the consumer interest remains public purposes in new ways. set of directives on communications front and centre to Ofcom’s thinking. The traditional regulatory levers networks and services. I am pleased It has done so very effectively under have decreasing purchase. Ofcom’s that the Commission has taken up, the chairmanship of Colette Bowe role will therefore primarily be as one possible remedy available who, during 2007/8, came across to lay out detailed evidence, the to national regulators, functional to join the main Ofcom Board. options and their consequences. separation of the enduring monopoly Her successor, Anna Bradley, is an It will then be for the Government parts of an incumbent’s business from equally determined and thoughtful and Parliament to determine the rest, where greater deregulation champion of the consumer interest. the model that will best serve is then possible. Alongside the arrival of Colette citizens’ interests. We live in an increasingly Bowe, there have been a number interdependent age and some of other changes this year to the Radio spectrum decisions can only practicably composition of the Ofcom Board. In spectrum there is already much be taken at European level. Sara Nathan, a founder member in the civil sphere that can be International roaming charges of the Board and former deputy liberalised and brought into wider for mobile phones is one such chairman of the Content Board market use. Over the last year issue. I welcome the part that retired from the Board on Ofcom has made a start on what the European Regulators’ Group, 31 December 2007. Stephanie Liston will be the greatest set of spectrum of which Ofcom is a leading stood down from the Board at the releases in the UK’s history, creating member, played in developing the end of March 2008. And shortly scope for many new wireless services Commission’s original proposal to after the end of this reporting year and bringing social and economic produce regulation which is both Ian Hargreaves, who has been benefit. But traditionally about half workable across Europe and brings on the Board since 2002, first as a of the available and readily usable real benefits for consumers in lower non-executive director and latterly spectrum has been reserved for prices for international voice calls. in an executive capacity, departed to military and other public sector In carrying out its wide-ranging join the Foreign and Commonwealth uses. The review of this spectrum work, Ofcom receives invaluable Office as its Director of Strategic last year has created greater assistance and advice from a Communications. Mike McTighe, opportunities for more of it to be number of Boards and committees. Chairman of Pace, Colette Bowe and brought into wider use and sharper First and foremost, of course, is the Tim Gardam all joined the Board incentives to do so. The Ministry Content Board which, in addition during the year, bringing a high of Defence now plans to release a to the advice they have given to the level of experience and expertise significant proportion of its spectrum Ofcom Board, has taken a number in commercial, technical, consumer holdings and to consult on how. of significant decisions on and broadcasting issues to the Board. Broadcasting Code issues and has To them and to my other colleagues International overseen the development of robust on the Board my thanks for their International developments play viewer protection measures over help and wisdom over the past year. an increasing role in the way we the use of premium rate telephone regulate. During 2007/8 agreement services in broadcast programmes. David Currie was reached within the European In addition to the Content Board, Chairman Union on the Audio-Visual Media the Ofcom Spectrum Advisory Services Directive, which sets Board, the National Advisory the framework for cross-European Committees and the Advisory content regulation; a framework Committee on Older and Disabled 6 www.ofcom.org.uk

Chief Executive’s Report

Ed Richards

The interests of citizens and consumers are at the heart of everything we do at Ofcom.

hether Citizens and consumers are already Promoting competition it is technical reaping the benefits of competition. There is far more that can be done spectrum Over half of all households have and over the last year we have policy or broadband from one of more than taken a range of further steps to a decision 500 different providers. There are promote competition. 22 million UK households with We have laid the foundations concerning the Broadcasting W digital television, whether it is to enable viewers to receive high Code, all of our work is driven terrestrial through their aerials, definition channels on digital by seeking to meet the interests satellite or cable. Today, there are terrestrial television, starting in the of the UK’s citizens and consumers. more mobile phones than there Granada region next year. This will In what is now a £50bn market, are people in the UK, with services mean that consumers will be able promoting competition and offered by five network operators to choose between terrestrial, cable protecting the citizens interest and many more retail-only providers. and satellite television to watch the has delivered tangible benefits – And one in five adults now owns a ultra-clear pictures offered on HD. lower prices, greater choice, new digital radio set, offering listeners a We released new radio spectrum to services and the introduction of choice of up to 60 stations. the market, including the frequencies innovative technologies. In the In last year’s report I talked about known as the L-Band, with a larger future we face major new challenges how convergence had begun to come amount planned for release over the with next generation networks of age, with consumers being able next two years. In particular, we to buy a bundle of different services plan to release the highly sought- and digital convergence affecting from a single provider. after spectrum that will be freed-up so much of what we do. Our research this year has through the switch to all-digital highlighted how convergence is television in the UK. This spectrum, benefiting people, with the UK and other bands we will release over having some of the lowest average the next few years, will further enrich prices of communications services competition in the provision of the and bundled products offering wireless services that people are significant discounts for consumers. today demanding. Ofcom Annual Report & Accounts 2007/8 Section A: Introduction 7

Chief Executive’s Report

We have continued work on member Richard Ayre identified in followed a warning that if the sector a significant project to promote a report as a “systemic failure” in didn’t clean up its act then we would investment in the next generation the responsible use of premium rate issue tough new regulations. of super-fast broadband networks, telephone services by broadcasters. We have made it easier for people while promoting and sustaining During the year we moved to to switch mobile phone provider, with competition in the telecoms sector. restore trust by introducing a the mobile telephone number transfer At the same time we have continued series of new regulations to make process (known as ‘porting’) cut from to promote competition through broadcasters directly responsible for five days to two, with plans to bring the Undertakings by giving BT’s consumer protection, particularly this down to two hours next year. competitors equivalent access to in relation to the use of premium In fixed-line telecoms, we have the wholesale products they need rate telephone services. We took extended new rules to prevent to provide services to end-users. enforcement action against a number ‘slamming’, when a customer’s And we have reshaped the of broadcasters for breaching that telephone account is moved to regulation of the radio sector, to trust and imposed the biggest fines another provider without their help commercial radio and smaller in broadcasting history. apparent consent. To ensure that stations remain competitive. In our investigations into the rules are being adhered to we Section B of this Report highlights broadcasting standards, we issued launched a widespread investigation further projects we undertook in sanctions against television and into slamming and have taken 2007/8 to promote competition. radio companies who had breached enforcement action against a number our Broadcasting Code, which of companies that have engaged in Securing the public interest is designed to protect consumers. this practice. We recognise that the market is The most high profile was our Section B of this Report not perfect – this is why regulators sanction against Channel 4 over outlines further projects where we exist. Take public service Celebrity Big Brother, which we felt have improved compliance and broadcasting (PSB), for example. was mishandled by the broadcaster. empowered citizens and consumers. We believe that there are many During 2007/8 we also defended very good programmes made by challenging programmes that were, Ofcom: more efficient purely commercial broadcasters; in our view, in the public interest. at a lower cost programmes that are made in the One example was our ruling on Ofcom is predominantly funded UK, that reflect the culture and Channel 4’s Dispatches programme, by the companies that it diversity of the UK and help to Undercover Mosque. We found that there regulates. We receive payments inform us about the world in which was no evidence that this programme from broadcasting licensees and we live. We also recognise that the had misled viewers and that in fact communications providers, as well market alone will not provide enough it was well-produced journalism that as payments for the management of of this type of programming and our served the public interest. the UK radio spectrum. Because our review of PSB, which we began in With competition comes risk; in operating costs are a net cost to our 2007/8, will consider this issue. particular, the risk of companies stakeholders, we are committed engaging in overzealous or to improving our own efficiency. Empowering consumers sometimes unacceptable practices to On a like-for-like basis our budget We have also proposed new guidance win or retain customers. In 2007/8 for 2007/8 was £130.2m, lower to require communications providers we significantly increased our efforts in real terms than the budget for to disclose the true cost of their services to protect consumers and empower the previous year. In addition, our and to make sure that any additional them to take full advantage outturn for the year was £200,000 charges on consumers’ bills reflect of competition. below budget and this sum will be the providers’ direct costs. In mobile telecoms, we published remitted back to stakeholders in the In broadcasting, the year was a proposed new mandatory code form of lower regulatory fees. dominated by the issue of trust, of practice to stamp out misleading To cover the cost of establishing following what our Content Board sales and marketing practices. This the organisation Ofcom received a 8 www.ofcom.org.uk

Chief Executive’s Report

£52.3m loan from the Government. During the financial year we ‘CITIZENS AND CONSUMERS completed the repayment of the loan, together with the accumulated ARE REAPING THE BENEFITS interest. Therefore, from 2008/9 onwards the loan will no longer be OF COMPETITION’ recouped through regulatory fees from stakeholders. We are maintaining our focus of this Report highlight some of capacity on digital terrestrial television on reducing costs. Our budget the areas where we have achieved that we are creating for new services for 2008/9 is £133.7m, this is this through deregulation and such as high definition TV. 1.5 per cent lower in real terms simplification. This is an important In television broadcasting, we will than the previous year’s budget area of our work which we take very refine our proposals to sustain and and 17.5 per cent lower in real seriously. We always seek to take develop public service broadcasting terms than our original full-year opportunities to reduce or simplify in the UK. We started a public budget set in 2004/5. regulations that are consistent with debate on this shortly after the The reduction in our operating meeting our other duties and we are period under review with the budget is driven by a consistent desire always interested in hearing ideas publication of a consultation, which to improve our operational efficiency. from stakeholders on how we can set out a number of future options On 31 March 2008, Ofcom’s achieve this. for PSB. We will develop these headcount was 812; this compares proposals in autumn 2008 with with 1,152 which was the combined Outlook: the year ahead a second consultation. We will also actual headcount of the five This is another very signficant continue our investigation into the organisations we replaced. year for Ofcom. It promises pay-television market with a second When Ofcom was created we major developments across the consultation due to be published inherited a variety of different communications sector, in which later in the year. information and telecoms systems. Ofcom has an important role to play. In radio, we will implement a We are now part-way through a We set out our work for the coming new regime for the regulation of programme to integrate the IS year in our Annual Plan, published analogue commercial radio stations’ systems, which are used in areas in April 2008. formats. We will also contribute as diverse as licensing, field In spectrum, we plan to release fully to the cross-industry Digital operations and human resources. rights to use radio frequencies at Radio Working Group, which is During 2007/8 we made further 2.6 GHz. This spectrum examining the future digital options progress in creating a single has been identified for a wide for radio broadcasters. IS system operating across the range of different uses, including In telecoms, we will continue organisation. wireless broadband, such as the new our work to promote efficient and Further details of the IS project technology known as WiMAX. timely investment in super-fast plus finances can be found in We will also conduct further work on fibre optic telecoms networks, Section C, with the full accounts the release of the most valuable radio while encouraging and sustaining in Section E of this Report. spectrum that will be freed-up through competition. In doing so, we will As well as being committed the switch to digital television – the work closely with Francesco Caio, to reducing our financial burdens Digital Dividend. This will be released who is undertaking a separate review on our stakeholders we are in 2009. Related to this, we will invite of next generation access for the also committed to reducing our public service broadcasters to submit Government, considering matters regulatory ones. Sections B and C applications to use the additional that fall largely outside Ofcom’s remit. Ofcom Annual Report & Accounts 2007/8 Section A: Introduction 9

Chief Executive’s Report

We will continue to ensure that BT Group complies with its Undertakings – giving its competitors equivalent access to the wholesale products they need to provide services to consumers. One of the outcomes of the Undertakings was the creation of Openreach, an operationally separate business responsible for local access and backhaul telecoms network. In 2008/9 we will publish a consultation on Openreach’s financial framework to take account of changes in the market. In the area of consumer policy, we aim to introduce a code to address the differences between headline advertised broadband speeds and the actual speeds that customers receive. We will also finalise our new rules and guidance on the mis-selling of mobile services and additional charges on consumers’ bills. We will continue to take enforcement action against companies that do not compete fairly and we will ensure that all communications providers are members of a dispute resolution scheme to deal with customer complaints. David Currie’s Chairman’s Message highlights some of the important work we have undertaken internationally during the financial year. In 2008/9 we will work with the Government to ensure that the interests of UK citizens and consumers are fully represented in the European Commission’s review of the European framework for electronic communications.

Ed Richards Chief Executive 10 www.ofcom.org.uk

Section B

This section of the Annual Report sets out Ofcom’s main areas of work between April 2007 and March 2008. This is grouped under a ‘strategic policy framework’. This was established in our Annual Plan for 2007/8 and sets out Ofcom’s main policy priority areas over the next three years.

The priority areas are:

Driving forward a market- Delivering public In addition, we set out a seventh based approach to spectrum; outcomes as platforms priority of moving towards more 1 4 and services converge; consistent legal and economic frameworks, which we said would Promoting competition Reducing regulation and be an area of focus in the second and innovation in minimising administrative and third years of the strategic 2 converging markets; 5 burdens; and policy framework. Improving compliance Maximising our and empowering citizens impact on international 3 and consumers; 6 policy development. Ofcom Annual Report & Accounts 2007/8 Section B: Core Areas of Activity 11

Making spectrum available Driving for new wireless services

forward a DELIVERING THE DIGITAL DIVIDEND Radio spectrum is a finite and market-based extremely valuable resource, the essential ingredient for all wireless approach communications. Demand is increasing all the time with changes to spectrum in technology and consumer trends, and the use of spectrum underpins at least three per cent of UK GDP. The Digital Dividend – the spectrum that will be freed-up through digital television switchover – will be some of the most valuable spectrum to be released in the UK in the next 10 to 20 years. The Digital Dividend is valuable because it is in the sought-after UHF band where transmissions V Q cover large geographical areas I F ? F with relatively few transmitters, J L and penetrate buildings well. The spectrum is suitable for a wide range of uses, such as ultra-fast wireless broadband, mobile television and more digital terrestrial television channels. Following a major public

consultation, Ofcom announced @

L in December that the most effective J way to maximise the value of the M Digital Dividend to society was to B Q take a market-led approach to its F Q release, with an auction for most F L of the spectrum planned for 2009. K A B This approach means that I F S B O V companies and organisations will have the freedom and incentive to offer services using the spectrum that are highly valued by customers. We identified one case where spectrum should be reserved for a particular use, to avoid market failure. We therefore announced that we would award spectrum for programme-making and special events (mainly used for wireless microphones) by means of a ‘beauty contest’. 12 www.ofcom.org.uk

Driving forward a market-based approach to spectrum

Ahead of the auction, Ofcom will up to four new channels in high organisations to trade, share publish a further consultation later definition (HD) when digital or release their considerable in 2008/9 on the design of the award switchover is completed in 2012, spectrum holdings. to ensure that the auction process with the first three channels The proposals were of particular encourages competition. available as switchover takes place significance to the Ministry of in the Granada region from 2009. Defence, which has the largest RELEASING SPECTRUM FOR The upgrade can take place without holdings of public sector spectrum. MOBILE BROADBAND SERVICES existing viewers of Freeview losing We also pressed ahead with plans their services. To view the new Removing restrictions for another important spectrum channels viewers would need to on how spectrum is used auction, which will see the largest buy a new set-top box and have single release of radio spectrum in a ‘HD Ready’ television set. OPENING UP MOBILE SPECTRUM the UK. We demonstrated that new With the number of active mobile The spectrum is in the 2010-2025 channels and services could be phone subscriptions in the UK – MHz and 2500-2690 MHz bands delivered to Freeview homes using at nearly 70 million – comfortably (known as 2.6 GHz), which is the broadcasters’ existing spectrum exceeding the UK’s headcount, higher frequency than the Digital holdings and without using any of mobiles are an integral part of Dividend. This makes it suitable the valuable Digital Dividend, which the way we live and work. for a wide range of wireless services is discussed in the section above. We are doing more with our including WiMAX. After considering the points raised mobile phones, such as accessing during the consultation period we the internet, watching video clips COMPLETED SPECTRUM AWARDS announced the detail of how we and listening to music. Ofcom completed two further would upgrade DTT in April 2008. In September 2007 Ofcom spectrum auctions during the year, In this announcement we discussed announced plans to open up the building on the awards that were how the commercial public service radio spectrum that mobiles use, held in the previous year. broadcasters would be required creating more opportunities for The awards were: to submit proposals to Ofcom operators to offer new services • the bands between 10 and 40 GHz. on how they proposed to use to consumers. This could include Following an auction in February the extra capacity on DTT. significantly better rural coverage, we awarded licences to ten Separately, in June 2007, faster web browsing and downloads, companies; and we announced that from 2014 greater interactivity, better quality • the 1452-1492 MHz band, broadcasters would have to pay indoor coverage and lower prices. the so-called L-Band. Following a charge, known as Administered There were two main aspects to an auction shortly after the Incentive Pricing, according to our proposals. reporting period, Ofcom awarded the amount of spectrum they use. First, we proposed to remove a a licence to use the spectrum to This brings television broadcasters restriction that limits what the 2G a single company. in line with most other spectrum spectrum can be used for. At present, users and promotes efficient use operators can only use this spectrum Making efficient use of this finite resource. for services such as voice calls, text of the spectrum messaging and relatively low-speed FREEING UP VALUABLE internet services. By removing DELIVERING HD ON FREEVIEW PUBLIC SPECTRUM this restriction, operators have the Digital terrestrial television Public bodies use around half of potential to offer a much wider range (DTT) has been one of the great the radio spectrum below 15 GHz – of services. broadcasting success stories of recent the most sought-after and congested There are two spectrum bands times, with Freeview now in nearly frequencies. Independent experts currently used for 2G services: 900 15 million homes. have estimated that the spectrum MHz and 1800 MHz. The 900 MHz In November 2007, Ofcom held by the public sector could have band carries many advantages, with announced proposals to build on a market value of between £3bn signals travelling further and better that success by upgrading DTT. and over £20bn. indoor coverage. This would mean that Freeview In January 2008, we announced Second, we proposed that some viewers would be able to receive new plans to allow public 900 MHz spectrum currently used Ofcom Annual Report & Accounts 2007/8 Section B: Core Areas of Activity 13

Driving forward a market-based approach to spectrum

by 2G operators should be opened A number of airlines have expressed that had advertised events on up to others in the future. an interest in offering these services. illegal stations. We will further develop these During 2007/8 Ofcom undertook proposals during 2008/9. Spectrum enforcement 881 separate enforcement actions against illegal broadcasters; this REMOVING REGULATION TO 3G ROLLOUT OBLIGATIONS included 43 raids on studios used PROMOTE WIRELESS SERVICES It was a condition of the 3G mobile by illegal stations and the seizure From cordless phones and wireless licences that networks cover at least of 838 illegal transmitters. headsets to car key-fobs and WiFi, 80 per cent of the population by there are hundreds of wireless 31 December 2007. ILLEGAL EQUIPMENT devices that are permitted to In assessing compliance with this Ofcom is also responsible for taking operate without a licence. obligation, O2 was found to reach action against the manufacture In April 2007 Ofcom announced only 75.69 per cent of the population, and sale of equipment that does not proposals to create even more a shortfall that meant around 2.5m comply with UK regulations. Such licence-exempt uses of radio people could not access its service. equipment can cause interference spectrum, and open up high- In February 2008 Ofcom issued to other radio users. frequency bands for innovative O2 with a notice under the Wireless In March 2008 Ofcom won a applications such as digital Telegraphy Act for breach of licence. major court case against a company cameras, personal audio players This proposed that if the 80 per cent selling illegal radio equipment. and other equipment capable of obligation was still unmet by the Although the company concerned transferring data. end of June 2008, Ofcom would was not responsible for the way the We also announced in August shorten the term of O2’s licence equipment it sold was being used, 2007 that Ultra Wideband (UWB) by four months, equivalent to a and the judge accepted that the technology could be used without financial sanction of at least £40m. company was well-intentioned and a licence. UWB allows the transfer In May 2008 we confirmed that professional, there was evidence of large quantities of data, and O2 had met its obligations. the equipment was being employed has the potential to promote the in transmitters used by illegal convergence of communications ILLEGAL BROADCASTING radio stations. They were causing devices such as PCs, DVD players, During the year Ofcom maintained interference to air traffic control in MP3 players and digital cameras. its effort to take illegal radio stations both the Republic of Ireland and off the air. We estimate that there Northern Ireland. USING MOBILE PHONES ON AIRCRAFT are more than 150 illegal stations The company and two directors We also enabled airlines to operating in the UK, half of them were fined £10,000 and ordered offer mobile services onboard broadcasting across London and to pay costs of more than £90,000 – UK-registered aircraft. the South East of England. These the largest sum awarded to Ofcom Following a consultation, we illegal stations can cause serious in a court case involving the sale announced in March 2008 that interference to other radio users of illegal equipment. the system would operate via an such as the emergency services During 2007/8 Ofcom undertook on-board base station, which would and legitimate radio stations. 96 separate enforcement operations route passengers’ calls to a satellite In February 2008, we conducted relating to non-compliance with link for onward connection to the a major operation against illegal UK regulations, which led to the ground. The base station would broadcasters in London, working removal of 31,686 illegal items from be unavailable during take-off and in partnership with the London the market. landing, but could be switched on boroughs of Hackney, Haringey, by the crew above a minimum height Tower Hamlets and Islington, of 3,000 metres. as well as the Metropolitan Police. Services would be subject to The operation resulted in three approval by the relevant UK and arrests, one studio raid, the removal European aviation authorities. of 22 illegal transmitters and warnings issued to 20 nightclubs 14 www.ofcom.org.uk

NEXT GENERATION ACCESS In September 2007 we published Promoting Ofcom is now considering how proposals looking at how existing to promote investment in the next telecoms regulation could evolve – competition generation of broadband networks, based on the current principles while sustaining competition. of promoting competition, and Most broadband networks are maximising innovation and the copper-based – this is the wire that need for equivalence of access innovation goes from the telephone exchange for market players – to promote to your home or place of work. investment in NGA. in converging To date, copper networks have been In addition, we published separate sufficient to meet consumer demands. proposals on fibre networks to new Increasingly, consumers are now property developments, shortly markets demanding faster broadband speeds, after the period under review. due to new internet services, such as With these two important pieces video downloads. One way to deliver of work Ofcom is working closely this is over networks based on fibre- with the Government, which is Broadband is a UK success story. optic cables, with potential speeds conducting its own review of next Our own research has shown that of up to 100 Mbs. generation broadband, considering more than half of all UK households Fibre networks, known as Next issues that fall outside Ofcom’s have a broadband connection, served Generation Access (NGA), offer a remit, such as business rates and by around 500 different internet large future opportunity for UK planning regulations. service providers. businesses and consumers and their Furthermore, over 99 per cent potential impact on the economy of the UK is now connected by could be significant. But the cost of a broadband-enabled telephone laying a fibre network is very high, exchange, meaning that most people with some industry estimates putting who do not yet have it have the it at tens of billions of pounds. opportunity to take the service. In addition, headline broadband speeds have doubled in 12 months and prices have fallen by nearly 10 per cent.

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Promoting competition and innovation in converging markets

DEREGULATION IN platforms and content providers, BT’s Undertakings COMPETITIVE MARKETS and the increasing importance of In 2005, Ofcom accepted a Ofcom seeks to regulate only where convergence, pay-TV’s past may series of Undertakings from there is a clear need. When there not necessarily be an accurate BT Group. These were designed is effective competition in a market guide to its future. to promote equality of access – which offers consumers choice In March 2007, Ofcom received to all communications providers, and lower prices – then Ofcom a submission from BT, Setanta, with the aim of promoting seeks to deregulate where possible. Top Up TV and Virgin Media effective competition. In the previous reporting period requesting an investigation into As part of this, BT Group we removed retail price controls the pay-TV market, and whether was required to set up a new on the line rental and calls for BT to consider a reference to the operationally separate business customers, some 22 years after they Competition Commission under responsible for BT’s local access were first imposed. This significant the Enterprise Act 2002. They and backhaul network. BT named deregulation was enabled by the alleged that competition in the this Openreach. rapid growth of competition and industry was not working effectively, Communications providers use continued reductions in the cost and that there were certain a range of Openreach products to of phone services to customers. characteristics preventing it. allow them to offer retail services to In November 2007 Ofcom BSkyB disputed this, citing why it business and residential consumers. published a review of the wholesale believed competition was working, The Undertakings and the broadband market. In it we proposed and how customers benefited. creation of Openreach have delivered to remove regulation in areas of the In December 2007, Ofcom many benefits, with nearly three- country where strong competition published a consultation seeking quarters of telephone exchanges was now in place. stakeholders’ views on the market; now ‘unbundled’, meaning that The European Commission backed we will publish further findings as BT’s competitors have access to these proposals in February 2008 part of our investigation in 2008/9. the network. and we announced the deregulation Separately, in October 2007, However, following complaints after the period under review. BSkyB made a joint proposal with from telecoms companies that National Grid Wireless to replace Openreach was not sufficiently The pay-TV market its free-to-air channels on digital focused on meeting the needs From its fledgling days in the terrestrial television (DTT) with of all its wholesale customers, early 1990s, pay-TV has burgeoned pay-TV services. This proposal in March 2008 Ofcom announced into a market serving more than would see Sky Sports 1 and, in the a new package of incentives 11 million customers. It also evening, Sky One and Sky Movies for Openreach to offer a high- generates more than £4bn, making SD1 replacing Sky News, Sky Sports quality service to its customers. B @ it the largest source of revenue for News and Sky Three on DTT. The new rules require Openreach K B the broadcasting industry. Ofcom published a public to compensate all communications D O However, there are some warning consultation on the proposal to providers where it fails to provide B S signs which need to be considered, which we received around 450 and repair services according to K

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F K K L S > Q F L K

> @ @ B P P 16 www.ofcom.org.uk

Clamping down on Faster number porting Improving mobile mis-selling The UK has one of the most In summer 2007 Ofcom issued the competitive mobile phone markets compliance mobile phone industry an ultimatum. in the world, with five network We warned that it must clean up its operators and a large number and act in the area of misleading sales of retail-only ‘virtual’ operators. and marketing practices, or face For consumers to take full significantly tougher regulation advantage of this competition they empowering to ensure compliance. need to be able to switch operators We were particularly concerned simply and easily. Customers also citizens and about two trends: where customers want to keep their mobile number are given false or inaccurate when they change suppliers – this is consumers information when buying a mobile a process known as number porting. contract, and the offer of certain Following a public consultation ‘cash-back’ inducements by Ofcom announced in November sales agents where the cash 2007 that from 1 April 2008 Everything we do at Ofcom is never actually materialises. consumers would be able to receive designed to benefit the citizens In July 2007, the five mobile phone calls using their existing number and consumers of the UK. operators signed up to a voluntary within two days of moving to a new Indeed, Ofcom’s legal foundation, industry code. This defined a best- mobile network, down from five days. the Communications Act, practice approach to marketing and In addition we announced plans to requires us to do so. selling mobile services, either directly move to two-hour transfers by One of the ways we further or through third-party sales agents. 1 September 2009. citizens’ and consumers’ interests The voluntary code did not lead is by promoting competition, to a reduction in the number of New rules to tackle slamming whether this is in radio and television customer complaints. By January The disconcerting discovery that services, mobile and land-line 2008 we were receiving an average you have been ‘slammed’ (that your telecoms services or internet, of 700 complaints a month telephone account has been moved fixed and wireless. compared with 460 in July 2007. to another provider without your Competition brings many benefits Having issued the warning, apparent consent or knowledge) is for us all. Lower prices, greater in March 2008 we proposed new just one of the mis-selling techniques choice, and technology and service mandatory rules to stamp out employed by certain fixed-line operators. innovations; these are just some misleading sales and marketing This, and scams like it, were of the plusses. practices. This was a new General addressed by Ofcom in May 2005 But Ofcom also wants to ensure Condition, a legally enforceable rule when providers were required that all consumers can take full that communications providers must to comply with a new General advantage of these benefits and adhere to. The maximum penalty Condition of Entitlement (GC 14.5), that the players in the market do not for a breach of the rule is a fine of which prescribed a code of practice abuse the trust of their customers. up to 10 per cent of relevant turnover. for sales and marketing activities. The section below sets out some We expect to have the new rules The rules were originally of the work we have done in 2007/8 in place by summer 2008. introduced for a two-year period, to protect and empower customers. but were extended in May 2007 in the light of numerous consumer complaints. In addition, Ofcom extended the GC 14.5 rule to include the sales and marketing of Local Loop Unbundling (LLU) technology – phone lines running between homes or offices to the exchanges, which are not operated by BT. Ofcom Annual Report & Accounts 2007/8 Section B: Core Areas of Activity 17

Improving compliance and empowering citizens and consumers

CONSUMER INVESTIGATION AND ENFORCEMENT CASES Consumer protection enforcement was a high priority for Ofcom in 2007/8. During the year Ofcom:

• Issued notifications of contravention of mis-selling rules to: – The Post Office – Universal Utilities (trading as Unicom) – Economy Calls Limited

• Issued notifications of persistent misuse and imposed financial penalties totalling £35,000 as part of its silent and abandoned calls enforcement programme to: – Abbey National – Complete Credit Management Limited

• Imposed a penalty of £50,000 on Telecoms Billing Probes into fixed-line Services (TBS) Limited for persistent misuse (it was sending mis-selling and compliance misleading and unsolicited text messages to consumers); In March 2008 Ofcom announced a wide-scale investigation into • Issued a notification of contravention to Virgin Media mis-selling in the fixed-line market. for failure to make Caller Location information available to the emergency organisations. In issuing this notification The investigation covers all types Ofcom used its power to deal with urgent cases requiring of mis-selling including: remedial action to be completed within a little over three • slamming; weeks rather than the normal deadline of one month after • when communications providers a notification is issued; pass themselves off as other companies; • when communications providers • Issued a notification of contravention to Telecom Plus fail to provide important information plc (trading as The Utility Warehouse Discount Club) for preventing customer transfers without the customer’s to consumers, for example, the express consent; minimum contract duration or details of early termination fees; and • Issued a further notification of contravention to Spacetel • when communications providers UK Limited requiring it to implement a compliant technical refuse or make it difficult for solution that enabled it to meet its General Condition 18 consumers to transfer to a obligations in relation to providing number portability to BT; different supplier. Ofcom opened an investigation • Issued a notification of contravention and imposed a penalty of £30,000 on Prodigy Internet Limited for failure to programme when it introduced new comply with requirements to provide information to Ofcom; rules to protect consumers from mis-selling and slamming in 2005 • Issued a notification to Primus Telecommunications and took enforcement action against Limited in relation to a contravention of its duty to pay eight communications providers an administrative charge to Ofcom; and during this period. This helped to reduce fixed-line • Successfully prosecuted TBS for not providing information to Ofcom during a persistent misuse investigation into the mis-selling complaints to Ofcom company. TBS failed to provide information in response from a peak of 1,200 per month in to two formal information requests. The City of London 2005 to around 350 per month in Magistrates’ Court awarded the statutory maximum fine January 2008. of £5,000 for each offence and fined TBS a total of £10,000. But the rise of new products is The Magistrates’ Court also required TBS to pay Ofcom’s now fuelling an increase in consumer internal and external costs in full. complaints, which is why Ofcom is extending its investigation. For details of Ofcom’s investigations and enforcement cases on behalf of consumers, see the following table. 18 www.ofcom.org.uk

Improving compliance and empowering citizens and consumers

COMPLIANCE INVESTIGATION Contract Regulations 1999. The • a charge should only be made We also announced in draft guidance was framed around after consumers have had a fair March 2008 an industry-wide the need for providers to be upfront chance to settle their bill; and investigation into the requirement about their charges, and that those • any charge should only reflect the that communications providers charges should be demonstrably fair. direct cost providers incur by a late must be a member of one of The guidance addressed a number or failed payment. the dispute resolution schemes, of specific areas. which are designed to deal with Minimum contract periods consumer complaints. Extra charges for not paying and early cancellation charges Under Ofcom rules, all by direct debit • Providers must be clear about the communications providers must • Providers must make clear in length of a contract, and any penalty join an independent dispute advertised prices what any extra for breaking the deal early; resolution scheme (such as Otelo charges for paying by cash or • there should not be a subsequent or Cisas). The investigation will cheque would be; contract period without a clear target all communications providers • if extra costs are not clearly seen benefit to the consumer and cost that are not a member of such as being part of the main price under to the provider; and schemes. We asked companies the contract, charges should only • if a customer ends a contract to confirm either that they will reflect the provider’s direct costs; early, he or she should never have join such a scheme or to provide although to pay more than the payments evidence for not being classified • where extra charges are left on that contract period. as a communications provider. prominent, normal competition Following consultation, we are We will take action against providers – and not regulation – will due to publish final guidance in who fail to join a scheme with the provide price discipline on autumn 2008. maximum penalty being a fine of up behalf of consumers. to 10 per cent of relevant turnover. ACCESS TO EMERGENCY SERVICES Protection for low-income As new voice services evolve, CURBING UNFAIR ADDITIONAL households regulation must evolve with it. CHARGES ON CUSTOMERS’ BILLS A new service for people on low In July 2007, Ofcom launched a On the surface, it looks good: incomes – BT Basic – was due to be consultation requiring the providers competition has visibly driven introduced in mid-2008. It will not of certain types of Voice over down the headline prices we levy an extra charge for customers Internet Protocol (VoIP) services all see advertised for fixed-line, who choose not to pay by Direct to offer access to emergency calls. broadband, mobile and pay-TV Debit and, unlike previous social This followed research, which services. In some cases, however, telephony products, will be open to showed that 78 per cent of VoIP extra charges can lie in wait which consumers who have pre-pay mobile users without this facility assumed are either unfair, or not clear when phones and/or broadband services. that they could access the emergency you sign on the line, or both. services, or were not sure. In February 2008, Ofcom Charges for late and In December 2007, we announced proposed to introduce new guidance failed payments that from September 2008 all VoIP for communications providers, • Providers should make consumers services that allow users to make spelling out our view of the law more aware of these charges; national calls must also provide and what providers must do to access to 999 and 112. comply with the Unfair Terms in Ofcom Annual Report & Accounts 2007/8 Section B: Core Areas of Activity 19

Improving compliance and empowering citizens and consumers

Helping the consumer or a customer was promised ‘cash back’ BROADCASTING sums of money which do not materialise. The Central Operations broadcasting The Ofcom Central Operations function Consumer complaints included: team logged 22,000 complaints deals with questions and complaints • broadband migrations; from the public. Any complaints from viewers, listeners, customers • mis-selling; not resolved by the team were of telecoms companies and users • delayed installation of service; passed to the Content and Standards and licensees of wireless • the charge raised when bills are Group for further investigation. communications services. not paid by direct debit; The greatest cause for complaint During the period under review, • silent calls; about television and radio programmes Central Operations logged more than • inadequate customer service was material which viewers or listeners 166,600 cases as a result of telephone by service providers; found harmful or offensive, including enquiries and received more than 70,000 • problems with loss of service; and racist comments, strong language, completed internet forms, emails, letters • issues relating to contract terms. sexual portrayal and religious offence. and faxes. Of those, around: Where appropriate, Central Operations Concerns about competitions and • 152,000 related to telecommunications; meet with companies to discuss ways in voting were also raised. • 57,600 related to spectrum issues which their service to customers can be Around 12 per cent of complaints and licensing; improved. Details of companies, which were received about The X Factor Final • 5,000 were general enquiries; and demonstrate persistent problems, are results and around nine per cent • 22,000 related to broadcasts. passed to Ofcom’s Competition Group of complaints were received about for potential formal investigation. Big Brother 8. TELECOMS Other programmes generating Some 10 per cent of all customer SPECTRUM significant complaints* were: complaints in telecoms were where The Ofcom Licensing Centre (OLC) • Bringing Up Baby; customers had experienced problems is part of Central Operations • Eastenders; with changing broadband service or and dealt with more than 57,600 • Hell’s Kitchen; the provision of service in a new enquiries from users and providers of • Coronation Street; property. Issues include ‘tag on line’ radiocommunications services, • News Knight with Sir Trevor MacDonald; and problems with Migration as well as other members of • Diana: The Witnesses in the Tunnel; Authorisation Codes – a reference the public. These related to: • coverage of various news items that enables customers to switch • guidance for radiocommunications throughout the year and broadband provider smoothly users on licensing issues relating • the operation of various quiz shows and with minimal disruption. to the Wireless Telegraphy Act; and channels. Also, 10 per cent of customer • Wireless Telegraphy Act licence complaints were about mis-selling. fee queries; and * Celebrity Big Brother, which generated over This includes where a customer was • Ofcom’s online Sitefinder service, 44,500 complaints, is not covered here as it switched to a new service without which enables the public to identify was transmitted in January 2007, before the their knowledge or consent; a customer the location of mobile phone base period under review. signed up to a service based on stations by postcode. information they later find untrue; 20 www.ofcom.org.uk

• revenue generation had been a in London in November 2007 Delivering major driver of growth in PRS; attended by the Chief Executives • some broadcasters were in denial of Ofcom, Channel 4 and Five; the public over their responsibility to deliver Director-General of the BBC; the on the transactions they offered; Chairman of the BBC Trust and outcomes as • an apparent lack of transparency the Executive Chairman of ITV. in the supply chain of telecoms At the meeting the industry operators, producers and executives committed to a series of platforms broadcasters – creating a lack of measures including: formalising a clarity over responsibilities; and cross-industry group to share best and services • a concern of broadcasters over practice and consider common a lack of clarity between Ofcom approaches to PRS issues; addressing converge and premium rate telephone the relationship of all links in the regulator ICSTIS (later renamed supply chain, including clarity PhonepayPlus). on contractual and compliance The inquiry recommended that issues; and developing proposals for Restoring trust new licence obligations should be industry-wide training, to include in broadcasting imposed on broadcasters, making freelancers, on ethical standards them directly responsible for and editorial best practice. THE “SYSTEMIC FAILURE” OVER consumer protection and PRS PREMIUM TELEPHONE SERVICES compliance. It also recommended SANCTIONS FOR BREACHING TRUST The issue of trust was the dominating that both television and radio During the reporting year, Ofcom theme for broadcasters during 2007. broadcasters should ensure imposed a number of fines (and Many broadcasters had lost the trust independent, third-party verification other statutory sanctions) against of their most important stakeholders of PRS activity. broadcasters for serious breaches – their audiences – through the abuse In the same month as of its Broadcasting Code involving of premium rate services and other publishing Richard Ayre’s inquiry, the abuse of trust. A number of interactive services. This included Ofcom moved to implementing further investigations are still some of the nation’s most popular its recommendations. ongoing. The fines imposed include: television programmes. We also published a consultation • Channel 4: £1.5m. The Richard A premium rate telephone service on the regulation of dedicated & Judy programme was found (PRS) can provide competition entry participation TV services – typically, to have conducted its You Say We Pay and voting, recorded information or quiz, psychic and adult chat services game unfairly, by selecting competition live conversation for callers. Callers which all rely heavily on interaction finalists early before their phone are charged a higher rate on their with viewers using PRS. In April lines had closed. Viewers calling in phone bill – up to £1.50 per minute 2008 and following the consultation after the shortlist had been compiled on BT lines. Call charges are split Ofcom proposed new rules to toughen stood no chance of being selected. between the service provider and the the regulation of these services. The programme also operated a network operator who leases the PRS In December 2007 we announced ‘staggered selection’ for selecting telephone number to the provider. a new framework agreement with finalists, meaning that entrants did In July 2007, Ofcom published the PhonepayPlus that includes closer not have a fair and equal chance findings of a major inquiry into PRS working ties and a new arrangement of winning. This practice was also led by Richard Ayre, a non-executive where Ofcom can give PhonepayPlus found to have occurred in the member of the Ofcom Content direction on important issues. making of Deal or No Deal. Board and former Deputy Chief • GMTV: £2m. Ofcom imposed its Executive of BBC News. The inquiry, REBUILDING TRUST IN largest-ever financial penalty against launched after the high volume of BROADCASTING GMTV, following misconduct in its investigations into programmes using In a further drive to restore public viewer competitions between August PRS, found: trust in broadcasting Ofcom and the 2003 and February 2007. The • compliance failures were systemic; BBC Trust jointly hosted a seminar channel was found to be operating: Ofcom Annual Report & Accounts 2007/8 Section B: Core Areas of Activity 21

Delivering public outcomes as platforms and services converge

– ‘early selection’ of competition Code, and Ofcom imposed a sexism and terrorism; and that the finalists before lines had closed; and statutory sanction on Channel 4 portrayal of the mosque speakers – unfair selection processes, where (and S4C), requiring it to broadcast was misleading. We also received two callers did not have an equal and a statement of its findings on three complaints from participants in the fair chance of being selected. separate occasions. programme who claimed that they • BBC: £50,000. Ofcom’s first fine were treated unfairly and had their against the BBC arose from breaches SUPPORTING CHALLENGING TV privacy infringed. of the Broadcasting Code during Ofcom also sought to defend the In our investigation we found the live transmission on BBC1 of broadcasters’ and the audience’s that the Dispatches programme had Blue Peter on 27 November 2006. right to freedom of expression. uncovered matters of clear public The BBC was fined £45,000 for It is essential that broadcasters interest, had handled the material using a child studio guest to pose continue to investigate and responsibly and that there was no as the winner of a viewer telephone explore issues of public interest. evidence that the audience had been competition. The broadcaster was The year found Ofcom misled. We also found that there fined a further £5,000 for repeating adjudicating on a number of had been no unfairness to those the show on CBBC but failing to controversial and challenging featured in the programme and any make it clear to viewers that the programmes which received a infringements of privacy that had competition had already closed. significant number of complaints. occurred had been warranted in • Five: £300,000. The channel These included news reports of the public interest. was found to have faked winners the execution of Saddam Hussein and misled the audience on five (BBC News and Sky News), Public service separate occasions during its Diana: The Witnesses in the Tunnel and broadcasting review Brainteaser on Five quiz programme. Bringing Up Baby (both Channel 4) Public service broadcasting (PSB) A further 11 similar or identical and Weekend “Nazis” (BBC1). may not be a term we use in our instances of unfair competitions The highest profile was Channel everyday conversations. It may in the programme, and its spin-off 4’s Undercover Mosque, from its not be something we actively notice Memory Bank, also occurred. investigative current affairs series when we watch television, listen to Dispatches, included secretly filmed the radio or view something on the Safeguarding standards footage taken from mosques and internet. But it is one of those things in broadcasting other organisations. that we would miss if it were gone. The undercover recordings PSB programmes reflect life in CELEBRITY BIG BROTHER featured the teachings of several the UK and our cultural identity. Celebrity Big Brother 2007 provoked speakers which the programme They increase our understanding strong feelings among the public, alleged to be homophobic, anti- of the world, stimulate our knowledge with Ofcom receiving over 44,500 Semitic, sexist and condemnatory and interests and make us aware complaints about the programme. of non-Muslims. The programme of different cultures and viewpoints. This unprecedented response was stated that it had discovered They are the sort of programmes you driven by concerns about what they extremism being preached in miss when you go abroad on holiday, saw as the bullying of a housemate, this country: “… an ideology of or the programmes you might record Shilpa Shetty. Many believed that bigotry and intolerance spreading while you are away. the behaviour in the Big Brother through Britain with its roots in PSB is currently provided by House was motivated by racism. Saudi Arabia”. publicly owned broadcasters (the We launched a full investigation Ofcom received 364 complaints, BBC, Channel 4 and S4C), and while the programme was still and there appeared to be evidence commercial broadcasters (ITV1, on air, and found that Channel that the complaints were part of Five and Teletext). 4 had made serious editorial a campaign. They alleged bias While the market alone provides misjudgements, compounded by and offence to Muslims; that the many programmes that could be a major failure in its compliance speakers’ views were offensive to classed as PSB, our research has process. The channel was found non-Muslims; that the programme shown that this is not enough to to be in breach of the Broadcasting glorified racism, anti-Semitism, satisfy the demands of audiences. 22 www.ofcom.org.uk

Delivering public outcomes as platforms and services converge

In May 2007 Ofcom announced Radio sector reforms SIMPLER FORMAT REGULATION that it would bring forward its In April 2007, we published We decided to simplify the Format review of PSB by two years. The Future of Radio, a framework regulation of analogue radio This is because PSB is at a for future regulation and licensing licences, bringing it line with DAB crossroads. Audiences value of radio, taking into account the Format regulation. This removed competition for the BBC, but the ongoing transition of analogue radio unnecessarily detailed requirements underlying economics of commercial to digital platforms including Digital from analogue Formats, while public service broadcasting are Audio Broadcasting (DAB), digital maintaining diversity of radio increasingly difficult. And while television and the internet. services for listeners. audiences place a high value The radio sector faces significant on UK-made public service challenges, including competition SIMPLER OWNERSHIP RULES programming from a mix from other technologies such as the We recommended to the of providers, there is a risk that internet, as well as increased listening Government simpler rules for this will not be provided to the on digital platforms that puts greater the ownership of radio stations, same degree in the future. pressure on local analogue stations. which would allow further The following month we set out Our proposals aimed to address these consolidation within the industry options for Channel 4’s long-term issues with proportionate regulation, while protecting plurality within future, following an independent and make sure that listeners continue local commercial radio. study of the broadcaster’s finances, to receive choice and diversity as which concluded that its current radio makes its transition to digital. COMMUNITY RADIO funding model is likely to become Having consulted on the We also recommended that the unsustainable. This issue will be framework, we announced a series Government should simplify the considered in the PSB review. of radio sector reforms. criteria for community radio licences, In September 2007 we published allowing us greater flexibility in the terms of reference for the THE IMPORTANCE OF considering licence applications. PSB review and in April 2008, LOCAL CONTENT And we argued for a five-year shortly after the period under Our research showed that when extension on community licences. review, we published the first it comes to key local information phase of our review. such as travel, weather and news, This set out alternative ways that listeners use radio as the default PSB could be funded in the future medium. They were also concerned to meet the demands of audiences, that quality would suffer if this including content which is widely content were not made and available, free at the point of use delivered locally. and which serves all communities We therefore proposed that all within the UK. FM local radio stations should The review is intended to generate provide at least ten hours of locally a wide debate about the future of made programming each weekday, PSB. As well as inviting responses and four hours on weekends. as part of a formal consultation, But to assist flexibility, smaller we also launched an online blog stations would be able to share for people to debate the issues in a large proportion of this the review. programming (outside breakfast) We plan to publish the second with other nearby stations. phase of the review in autumn 2008. Ofcom Annual Report & Accounts 2007/8 Section B: Core Areas of Activity 23

Delivering public outcomes as platforms and services converge

COMMUNITY RADIO’S COMMUNITY RADIO LICENCE AWARDS MAIDEN CENTURY Licence awards to serve the following They’re small, they are not-for- communities were made during profit and they reach people the year: with the unique common bond of living within the same 5km MAY 2007 NOVEMBER 2007 area. They’re also a success story. Inverness Leeds In just three years, the UK’s Isle of Bute community radio stations have North and South Queensferry DECEMBER 2007 mushroomed all over the UK. Dumfries Doncaster, South Yorkshire Indeed, in March 2008, Ofcom Bangor (Northern Ireland) Harthill, South Yorkshire announced that the 100th station Enniskillen Market Weighton and Pocklington, had gone on-air. East Riding of Yorkshire While some stations are JUNE 2007 Penistone, South Yorkshire designed to serve communities Derry/Londonderry Thorne and Moorends, South Yorkshire as a whole, others have a single Aldergrove and Antrim Wirral focus. For example, Newport on Ballykinler the Isle of Wight has a station Holywood JANUARY 2008 caring for the needs of the elderly; Badenoch & Strathspey Llandudno, North Wales Birmingham has a station for the Rhyl, North Wales Muslim community; there’s a JULY 2007 Preston, Lancashire Christian station in Cumbernauld; Stonehaven and the Mearns, South and, in London, a station for Aberdeenshire FEBRUARY 2008 experimental radio art. St. Boswells, Borders Rossendale Valley, Lancashire By the reporting year-end, Dunoon, Argyll Bollington, Cheshire Ofcom’s Radio Licensing Glasgow Biddulph, Staffordshire Committee had awarded 162 Barrhead, East Renfrewshire Knowsley, Merseyside community radio licences, with a Lisburn second wave of licensing under way. Belfast MARCH 2008 Moss Side, Central Manchester SEPTEMBER 2007 North Manchester Stevenston, Saltcoats and Ardrossan, Bolton North Ayrshire Lincoln Newcastle-upon-Tyne Newark on Trent, North Nottinghamshire Sunderland Grantham, Lincolnshire Middlesbrough

OCTOBER 2007 Hartlepool Bishop Auckland Catterick Garrison South Craven, Yorkshire.

M > O Q F @ F M > Q F L K 24 www.ofcom.org.uk

Delivering public outcomes as platforms and services converge

COMMERCIAL RADIO LOCAL DAB LICENCE AWARDS LICENCE AWARDS Ofcom’s Radio Licensing Committee Ofcom’s Radio Licensing made nine awards of local DAB Committee awarded a commercial licences during the year: FM licence during the year. Following eight applications JUNE 2007 for the South Wales licence, Location Hertfordshire, Bedfordshire and Buckinghamshire the Ofcom Radio Licensing Licensee NOWdigital Committee awarded the licence to XFM South Wales Limited, JULY 2007 a wholly owned subsidiary of Location Derbyshire GCap Media. Licensee NOWDigital (East Midlands) Ltd

NEW NATIONAL DAB SEPTEMBER 2007 LICENCE AWARD Location Herefordshire & Worcestershire In July 2007, Ofcom’s Radio Licensee MuxCo Hereford & Worcester Ltd Licensing Committee awarded the new Digital Audio Broadcasting Location Northeast Wales and West Cheshire national radio multiplex licence Licensee MuxCo Northeast Wales and West Cheshire Ltd to 4 Digital Group Limited. The shareholders behind this OCTOBER 2007 consortium are: Channel 4 Radio, Location Northamptonshire Sky News Radio, Emap Digital Licensee NOWdigital Ltd Radio, UTV Radio, The Carphone Warehouse Group NOVEMBER 2007 and UBC Media Group. Location Oxfordshire Licensee NOWdigital (Oxford) Ltd

DECEMBER 2007 Location North Yorkshire Licensee MuxCo (North Yorkshire) Ltd

@ JANUARY 2008 E Location Gloucestershire L F @ Licensee MuxCo (Gloucestershire) Ltd B FEBRUARY 2008 Location Lincolnshire Licensee MuxCo (Lincolnshire) Ltd

@ L K Q B K Q Ofcom Annual Report & Accounts 2007/8 Section B: Core Areas of Activity 25

Reducing regulation and minimising administrative burdens

Ofcom is committed to reducing Reducing its regulatory burdens on its stakeholders. A desire to remove regulation unnecessary and out-of-date regulation underpins all our work. K Significant areas of deregulation L and Q F > in 2007/8 include: F M F @ • Removing regulations on certain Q minimising O wireless services, April 2007 > M • Increasing the allowed power administrative levels for broadcast at the frequency 5.8 GHz, May 2007 burdens • Making Ultra Wideband technologies licence exempt, August 2007 • Proposals to remove conditions on 2G spectrum licences, September 2007 P B O S F @ B • Proposals to deregulate wholesale broadband markets, November 2007 • Simplifying radio Formats, November 2007 • Recommending simplification L I @ L K Q O of Community Radio regulation, November 2007 • Recommending simpler radio ownership rules, November 2007 • Removing restrictions on a spectrum licensee at 3.5 GHz, November 2007 • Allowing public bodies to trade and release spectrum, January 2008 • Considering requests from local stations to co-locate, February 2008 • Proposals to simplify rules on distribution of television advertising, March 2008 • Removing regulatory restrictions on mobile use on aircraft, March 2008 26 www.ofcom.org.uk

• include a strong commitment to • a common position on the Maximising politically independent regulation; regulation of VoIP, covering • give regulators power to introduce numbering, number portability, our impact on ‘functional separation’: splitting the and emergency 112 access; and monopoly parts of an incumbent • a pilot programme for monitoring international telecom operator’s business from regulators’ compliance with its its more competitive elements; common positions. • reinforce regulators’ legal powers The financial year 2007/8 also policy to tackle new scams and abuses, saw the adoption of International rapidly and robustly; and Roaming Regulation. To ensure development • strike the right balance a coordinated monitoring of the between promoting consistency development of roaming markets, and harmonisation in European the ERG issued a set of guidelines regulation, and the need to reflect for National Regulatory Authorities different national conditions. On this and a common methodology for point Ofcom raised some concerns Authorities to use in data collection. Ofcom’s activities and those about the Commission’s proposal for of the companies it regulates a new EU-funded regulatory agency. World Radiocommunication are increasingly influenced by Conference international developments. Ofcom European Ofcom played a major role in represents the UK on radio spectrum Regulators’ Group representing the UK at the World matters in key international groups The European Regulators’ Group Radiocommunication Conference, and participates in international (ERG) is a forum of national held in October and November forums on telecoms and broadcasting telecommunications regulators that 2007. This was organised by the matters. Ofcom also works closely has a role under the EU Regulatory International Telecommunication with the UK Government to develop Framework to advise the European Union and updated the global policy positions on proposals for Commission on the practical framework for spectrum use. new EU regulation. application of the Framework. We worked with the Government Ofcom was a member of the Board and a wide range of stakeholders European of the ERG during 2007, having been to identify the UK’s priorities for Framework Review its chair during 2006. During 2007 the Conference, which was attended The current EU Communications the ERG continued to engage in close by some 2,800 delegates from Framework has been a major success dialogue with the Commission over 164 countries. for Europe, providing a common the future of regulation in Europe, Our priorities for the 2007 basis on which to liberalise telecoms as the Commission developed Conference included identifying markets. Once a broadband laggard, its thinking on the review of the opportunities for the development the EU has made real progress in Framework. Ofcom contributed of advanced mobile communications broadband take-up. significant resource to the ERG’s systems, and identifying opportunities The European Commission is now output. This included: for further liberalisation of the use proposing a new Framework. During • a detailed opinion on regulatory of the spectrum, especially in the 2007/8 Ofcom was active in the approaches to next generation access upper part of the UHF band debate about what the Framework (NGA) networks, which is expected which is currently allocated for should include. Ofcom argued that to form the basis of the Commission’s broadcast use. it should: Recommendation on NGA due in We secured our objectives from • help the EU to liberalise its spring 2008; the Conference, allowing us to approach to allocating radio • detailed common positions move forward with release of spectrum. It should be left to the on the regulation of wholesale the digital dividend and further market to identify the best uses broadband access and wholesale spectrum liberalisation. for this vital resource; local access markets; Ofcom Annual Report & Accounts 2007/8 Section B: Core Areas of Activity 27

Maximising our impact on international policy development

Text and data roaming charges EU content regulation In January 2008 we raised concerns Ofcom engaged with the about European roaming charges Commission and other EU regulators that were highlighted in a report on a number of content-related by the ERG. initiatives this year. The Audio We pointed out that the cost of Visual Media Services Directive sending a text from abroad is high: was adopted in December 2007, an average charge of 21 pence per and Ofcom worked with the roaming text sent from Europe Commission and other European compared with an average of regulators to ensure consistency 5.6 pence per text sent within the in its implementation. UK, but with very low associated In addition, Ofcom contributed marginal cost. to a number of initiatives, We said that a more significant including the Creative Content longer-term issue was the price for Online Communication, Children’s data roaming. The average price Use of Mobile Phones for Content charged by UK operators for using Services, the Media Literacy data roaming services within Europe Task Force, the Safer User of last summer was £4.11 per Mb and the Internet Programme and the these prices represent a significant Commission’s consultation on the price hurdle to the use of mobile communication state aid rules for internet while abroad. public service broadcasting. We called on industry to take the initiative on this issue and warned that if it failed to act we may need to see further action at the European level. We also highlighted the issue of call charges abroad. It is common practice to charge a full first minute for any national or roaming call made, regardless of length. If the call lasts longer than a minute, the remainder is charged per second or, sometimes, per thirty- second interval. This means that a twenty- or thirty-second call could be charged as if it took one minute. This practice adds up to 20 per cent, on average, to consumer bills and Ofcom raised this issue at a Plenary meeting of European regulators. V F Q F I ? L J K L Q F F K K L S > 28 www.ofcom.org.uk

Section C

Operating and Financial Review In this section we explain how we evaluate our performance and then focus on three key areas: the extent to which we have met our objectives and applied our regulatory principles; our effectiveness in service delivery and performance; and our financial performance. Ofcom Annual Report & Accounts 2007/8 Section C: Operating and Financial Review 29

Performance and evaluation

We are committed This means that we need to sector. This is supplemented by a use a number of methods to review number of special communications to reviewing and our effectiveness. We measure: market reports, such as Ethnic • whether we are achieving Minority Groups and Communications evaluating our our objectives and applying our Services (June 2007) and the Nations performance, regulatory principles; and Regions Communications Market • our internal efficiency Report (May 2007). We also publish and then applying and effectiveness; reports on specific issues, such what we have learnt. • market developments; and as the take-up of digital TV and • stakeholder perceptions. broadband, and have an extensive We discuss below In the rest of this section we programme of market research. focus on the first two of these, In particular, we published a report the various ways in the extent to which we are called The Consumer Experience which we measure achieving our objectives and (November 2007), which provided applying our regulatory principles, a picture of the positive benefits our effectiveness and our internal efficiency and that competition has delivered and what the effectiveness, including service for consumers. delivery and enforcement. We also examine the impact results tell us. Ultimately, however, we believe of particular policy initiatives. that our performance should be For example, in December 2007 judged by reference to market we published our second report nlike a private company developments and the outcomes evaluating The Impact of the Telecoms that seeks to maximise that are delivered for citizens and Review. This sought to assess the Uprofits on behalf of its consumers. We measure these effectiveness of the action we took to shareholders, Ofcom does not have outcomes in a number of ways stimulate competition in the telecoms a single objective that lends itself to and publish the results during sector and thereby deliver increased easy measurement. There are three the course of the year. benefits for consumers. main reasons for this. First, although Progress against our Annual We also measure stakeholders’ our primary duty is to further the Plan is recorded on our website. perceptions of our performance, interests of citizens and consumers, We publish a table showing all seeking their views on a wide range including businesses, we have a wide our projects and planned outputs: of issues, including the quality of range of specific duties and a diverse http://www.ofcom.org.uk/about/ our outputs and how well we have range of stakeholders. Second, accoun/reports_plans/annual_ consulted. In addition, we conduct it is often hard to differentiate plan0809/projects/. This table regular surveys of those stakeholders between our impact on market is updated every quarter so that for whom we provide a service, such developments and the impact stakeholders can check when we as spectrum users and individuals of a wide range of other factors. will be publishing consultations who contact the Ofcom Advisory And third, deciding whether we they are interested in. The table Team (OAT), and the main findings are fulfilling our duties and applying also shows the extent to which are presented below alongside our our regulatory principles is often we deliver on our plans. key performance indicators (KPIs). subjective, meaning that assessing Every year we publish our report, Ofcom’s approach to regulation our performance in a measurable The Communications Market, which reflects the fast-moving nature of the way is not straightforward. provides a comprehensive picture of communications sector. The speed developments in the communications with which the communications 30 www.ofcom.org.uk

Performance and evaluation

sector is changing makes it especially the market affected by the impact FIGURE 1: important for us to have clear of the regulation and this is reflected OFCOM’S REGULATORY guiding principles. We are required in the size of the circles. PRINCIPLES by the Communications Act 2003 to The Figure provides a useful WHEN WE REGULATE have regard to the principles of better overview of Ofcom’s regulatory • Ofcom will operate with a bias regulation, namely that regulation decisions. From it we conclude that: against intervention, but with a should be transparent, proportionate, • in terms of the number of willingness to intervene promptly consistent, accountable and targeted. decisions, we reduced regulation in and effectively where required. When Ofcom was established, more cases than we increased it; and • Ofcom will intervene where there is a specific statuutory duty to work we built on these principles by • in terms of impact, the overall towards a public policy goal that developing a more specific set of net effect was a significant reduction markets alone cannot achieve. principles to inform our day-to-day in regulation. work. These are set out in Figure 1. Figure 2 shows that we are HOW WE REGULATE In line with these principles, we reducing regulation in a range • Ofcom will always seek the least have focused on evaluating Ofcom’s of areas, including: intrusive regulatory methods of performance in four key areas: liberalising the use of the radio achieving our policy objectives. • our success in reducing regulation, spectrum by, for example, removing • Ofcom will strive to ensure that • our interventions are evidence- where that has been appropriate; the need for some spectrum users based, proportionate, consistent, • the effectiveness of our to buy licences and allowing mobile accountable and transparent in both consultation with stakeholders; phones to be used on aircraft; deliberation and outcome. • the timeliness of our decision- • extending spectrum trading; • Ofcom will regulate with a clearly making following consultation; and • releasing more spectrum to articulated and publicly reviewed • our performance in carrying out the market; annual plan, with stated policy impact assessments to inform our reducing the regulation on objectives. • policy decisions. commercial radio stations; and HOW WE SUPPORT REGULATION • reducing the regulation of retail • Ofcom will research markets Reducing regulation telecoms markets to enable both constantly and will aim to remain A key element of better regulation consumers and businesses to benefit at the forefront of technological is ensuring that regulation is from increased competition. understanding. properly targeted and does not It also demonstrates that Ofcom • Ofcom will consult widely with all impose undue burdens on our is prepared to take firm action to relevant stakeholders and assess the impact of regulatory action before stakeholders. In December 2007, protect citizens and consumers where imposing regulation on a market. we published our Simplification Plan, necessary. For example: which sets out all the initiatives • we have acted to ensure that users we are taking to remove or reduce of Voice over IP services will have regulation. This shows how we are access to the emergency services; and fulfilling our duty under Section • we have introduced more stringent 6 of the Communications Act to regulation to protect consumers from minimise the regulatory burden the mis-selling of telecoms services. on our stakeholders. Figure 2 summarises Ofcom’s policy statements published during 2007/8. In this figure: • we have assessed how each decision affected the direction of regulation and have reflected this in the colour of the circles; and • we have assessed the impact of the decision by reference to the size of Ofcom Annual Report & Accounts 2007/8 Section C: Operating and Financial Review 31

Performance and evaluation

FIGURE 2: OFCOM’S KEY T ING ELE DECISIONS – DIRECTION ST CO A  M OF REGULATORY CHANGE C   S D  A  O   SIZE OF CIRCLES INDICATES R   B  AMOUNT OF REGULATION AND     SIZE OF MARKETS AFFECTED  Increased/new    Mixed/no change   Streamlined/co-regulatory   Reduced/forbearance     Source: Ofcom’s regulatory log                 SPECTRUM

1. Wireless Telegraphy Exemption: 16. Wireless Telegraphy Exemption: 32. Spectrum Framework Review: Radio Frequency Identification Equipment UltraWideband Equipment the Public Sector 2. Geographic number conservation measures 17. BT exemptions re Undertakings 33. The Future of Radio: Localness on 3. Protecting consumers from mis-selling 18. Number Availability: Supplying analogue commercial radio and stereo of telecommunications services numbers for 09 premium rate services and mono broadcasting on DAB 4. Replicability: the regulation of BT’s 19. UK Broadband application 34. Decision to make the Wireless retail business exchange line services for licence variation Telegraphy (Exemption) (Amendment) Regulations 2008 5. Changes to BT’s regulatory financial 20. The Future of Radio: the next phase 35. Decision to make the Wireless reporting and audit requirements 21. Telephone number portability Telegraphy (Automotive Short Range 6. Raising confidence in telephone numbers for consumers switching suppliers Radar) (Exemption) (No.2) (Amendment) (Amending General Condition 17) 22. Regulations in connection with the Regulations 2008 7. Public Call Boxes Consent for award of 10, 28, 32 and 40GHz Bands 36. Participation TV Part 1: protecting non-uniform charging for geographic 23. Signing on television viewers and consumers tariffing trials 24. Licence-Exemption Framework Review 37. Statement on the making of 8. WRC-07 agenda item 1.4 25. Regulation of VoIP Services: Access regulations in connection with the 9. Self-help TV relays and Digital Switchover to the Emergency Services award of 1452-1492 MHz 10. Future pricing of spectrum used 26. Award of available spectrum: 38. Service level guarantees: for terrestrial broadcasting 1452 – 1492 MHz incentivising performance 11. BT OSS Separation 27. Digital Dividend Review 39. The future use of the 169MHz 12. Guidance for PSBs commissioning 28. Spectrum Usage Rights Ex-ERMES Band from independent producers 29. Monitoring Compliance with 40. Amending the Wireless Telegraphy 13. Change to BT’s regulatory financial Charge Controls (Exemption) Regulations 2003 reporting obligations 2006/7 30. Statement on the Outline procedures for 41. Mobile Communications onboard 14. Spectrum award: 10, 28, 32 and sanctions in cases relating to broadcasting Aircraft (MCA) 40GHz Bands 31. Decision to make Wireless Telegraphy 42. Approval of amendments to the 15. Wireless Telegraphy Licence Licence Charges Regulations PhonepayPlus Code of Practice Charges - Amendment (11th Edition) 32 www.ofcom.org.uk

Performance and evaluation

FIGURE 3: ANALYSIS OF CONSULTATION DURATION

Consultation period Consultation period less than Consultation period less than at least 10 weeks 10 weeks and explanation given 10 weeks and no explanation given

Telecoms 5 13 1 Broadcasting 9 0 3 Spectrum 8 5 9 Other 1 1 0 Total 23 19 13* (42%) (34%) (24%)

*Nine of these documents were published after Ofcom revised its consultation guidelines which say that certain types of consultation may warrant a shorter consultation period. Consultation periods and responses Consultations are one of the key ways FIGURE 4: RESPONSES TO CONSULTATIONS in which we engage with stakeholders and enable them to influence our ²¾½ÂĻðø¾½Â policy decisions. We have updated ST the guidance on our approach to consultation: http://www.ofcom.org. uk/consult/consult_method/ofcom_ Z consult_guide If a consultation is too short, some V of those with important views to share may not have enough time to prepare their responses. If it is too R long, the market involved may have R SùW XùSR SSùSW SXùTR TSùTW TXùUR USùUW UXùVR VSùVW VXùWR WSùWW WX changed dramatically. This could Á°½¶´Â¾µÁ´Â¿¾½Â´ÂÁ´²´¸Å´³ affect our ability to deal with an issue as quickly as the organisations involved would like. When we decide FIGURE 5: ANALYSIS OF THE TIME TAKEN TO PUBLISH how long a consultation should last, AN OFCOM POLICY DECISION FROM THE CLOSE OF THE we need to strike the right balance CONSULTATION PERIOD between these two considerations. There are generally three categories ½Ä¼±´Á¾µÂðô¼´½Ã of consultation: TW • Category 1: consultations which contain major policy initiatives and/ TR or are of interest to a wide range of stakeholders (especially those who SW may need a longer time to response); we will consult for ten weeks. SR • Category 2: consultations which, W while containing important policy proposals, will be of interest to a R limited number of stakeholders who RùSR SSùTR TSùUR UR will be aware of the issues; we will ¿´Á¸¾³¸½Æ´´ºÂ consult for six weeks. Ofcom Annual Report & Accounts 2007/8 Section C: Operating and Financial Review 33

Performance and evaluation

FIGURE 6: IMPACT ASSESSMENTS CARRIED OUT DURING 2007/8

OFCOM STATEMENTS PUBLISHED IN 2007/8 IN WHICH THE EARLIER CONSULTATION INCLUDED AN IMPACT ASSESSMENT: Licence Exemption Framework Review The Future of Radio Signing on television – Proposed changes Notice of Ofcom’s proposals to make licence charges regulations Notice of Ofcom’s proposal to make (Ultra-Wideband Equipment) (Exemption) Regulations UK Broadband application for licence variation Programme-making and special events: future spectrum access Spectrum Framework Review: The Public Sector Arrangements for porting phone numbers when customers switch supplier Participation TV: protecting viewers and consumers, and keeping advertising separate from editorial The award of available spectrum: 1452-1492MHz Regulation of VoIP Services: Access to the Emergency Services Notice of Ofcom’s proposal to make regulations in connection with the award of 10 GHz, 28 GHz, 32 GHz and 40 GHz Wireless Telegraphy Licence Charges (Amendment) Regulations 2007 Monitoring Compliance with Charge Controls Wireless Telegraphy Licence Exemption The future use of he 169MHz ex-ERMES Band Mobile Communications onboard Aircraft Notice of Ofcom’s proposal to make Wireless Telegraphy Regulations relating to Satellite Services licences Wireless Telegraphy Licence Exemption: Ofcom’s proposals to amend the Wireless Telegraphy (Automotive Short Range Radar)(Exemption)(No. 2) Regulations 2005 The Future of Radio: The next phase Wireless Telegraphy Licence Exemption: Proposal to amend the Wireless Telegraphy (Exemption) Regulations 2003 Notice of Ofcom’s proposal to make regulations in connection with the award of 1452-1492 MHz Service level guarantees: incentivising performance

OFCOM CONSULTATIONS PUBLISHED IN 2007/8 WHICH INCLUDED AN IMPACT ASSESSMENT AND WHERE NO STATEMENT HAS BEEN PUBLISHED YET: Consumer protection test for telephone number allocation Award of available spectrum: 2500-2690 MHz, 2010-2025 MHz Application of spectrum liberalisation and trading to the mobile sector Future broadband: policy approach to next generation access Proposed BSkyB digital terrestrial television services Proposals for co-regulation of equal opportunities Procedures for the Management of Satellite Filings: Charges and amendments to procedures Review of the wholesale broadband access markets 2006/07 The Future of Digital Terrestrial Television: Enabling new services for viewers Television Multiplex Licence Renewals Multiplex A & Multiplex 2 The Ofcom Metering and Billing Scheme Award of available spectrum: 2500-2690 MHz, 2010-2025 MHz Authorisation of terrestrial mobile networks complementary to 2 GHz mobile satellite systems Business Connectivity Market Review Telephone Numbering: Proposals to accommodate geographic number demand in the Ebbsfleet region Telephone directory information obligations and regulations Protecting consumers from mis-selling of mobile telecommunications services Review of television advertising and teleshopping regulation 34 www.ofcom.org.uk

Performance and evaluation

• Category 3: consultations which Timeliness of • the impacts that would flow fall within one or more of the decision- making from each option are analysed following categories, where the time We have also analysed the time carefully; and period for consultations is one month: that we take to publish a policy • the costs associated with the – detailed technical issues; statement following the close of chosen option are outweighed – where there is a need to complete a consultation period. by the benefits. the project in a specified timetable There are a number of factors Ofcom has a statutory duty because of market developments that affect the length of the period to publish a list of the impact or other factors which require the from the close of the consultation assessments carried out during the project to be concluded within a period until publication of the year. This list is set out in Figure 6. short period; subsequent statement, including: In July 2005, we published – the issue has already been the • the number and type of responses guidelines Best-practice policy-making: subject of a consultation; we get; Ofcom’s approach to impact assessment – a proposal will have a limited • whether our final decision is that emphasised Ofcom’s effect on a market; or dependent on external factors; and commitment to conducting – a proposal is only a limited • the need for us to prioritise the assessments as an integral part of the amendment to existing policy use of our resources. policy-making process and stated that or regulation. An analysis of our decision-making we expected to carry out IAs in the Figure 3 sets out an analysis of time is shown in Figure 5. Most great majority of our policy decisions. the length of our policy consultations of our statements are now published Figure 7 sets out an analysis of the by sector. within ten weeks of the consultation extent to which Ofcom’s consultation Ofcom also collects statistics on the period closing. This is a significant documents contained a clearly- number of responses to consultations. improvement on the performance labelled IA, i.e. an IA that was set This is shown in Figure 4. The that we reported last year and out in a specific section or annex chart illustrates the large number reflects a concerted effort to of the consultation document. of responses we have had over the improve our efficiency. The table shows that 75 per cent year, based on the 62 consultations of consultation documents contained where we subsequently published Impact Assessments a clearly-labelled impact assessment. a statement. A small number of Impact Assessments (IAs) are This analysis shows that we are consultations have attracted a very an important part of the policy- meeting the commitment that wide range of responses, while most making process. They ensure that we made in our guidelines, and of the issues we consulted on were in relation to our policy decisions: we will continue to ensure that narrower in scope and of interest to a • a wide range of options is impact assessments are carried smaller constituency of stakeholders. considered, including the option out and properly presented in of not regulating; all relevant cases. • these options are clearly presented;

FIGURE 7: ANALYSIS OF IMPACT ASSESSMENTS CARRIED OUT

Number of consultation documents Total IA explicit in published document

Telecoms 19 12 Broadcasting 12 8 Spectrum 22 20 Other 2 1 Total 55 41 ( = 75%) Ofcom Annual Report & Accounts 2007/8 Section C: Operating and Financial Review 35

Statistical data

Service delivery and • Investigations programme – KPIs; such as Ships’ Radio Licence enforcement • Central operations – KPIs. and Satellite Network Licence. As well as developing policy, In most areas Ofcom is operating The non-discretionary licence Ofcom provides services to on – or close to – the targets we types are divided into three larger stakeholders and undertakes believe are required in order to categories: A, B and C. enforcement activity. Ofcom meet stakeholder needs. • Category A are simple licences has a range of Key Performance which involve no frequency Indicators (KPIs) to measure how Numbering assignment, site clearance or we are delivering these services. Ofcom is responsible for international co-ordination. Together with financial performance, managing telephone numbers • Category B are more complex they provide a measure of our in the UK. As part of this, we licences which involve frequency internal efficiency and effectiveness. process applications for blocks assignment but do not involve The data in this section relates of telephone numbers from site clearance or international to the following areas: communication providers. co-ordination. • Numbering – KPIs for Ofcom is required to make a • Category C are the most complex applications for telephone numbers; determination on applications for licences involving frequency • Spectrum licensing – issuing telephone numbers within three assignment and site clearance licences (categories A, B and C); weeks of receipt of all relevant and/or international co-ordination. • Spectrum licensing – information. During the period Ofcom is required to report on licensing KPIs; under review, Ofcom achieved its spectrum management activity • Spectrum operations – 100 per cent allocation in all but in detail; the tables which follow field operations activity; one month, which was August set out the non-discretionary and • Spectrum operations – (99.5 per cent). discretionary WT Act licensing field operations KPIs; activity undertaken during the • Broadcasting – programme Spectrum licensing period under review. complaints (including KPIs); Ofcom issues around 30 different • Broadcasting – fairness kinds of non-discretionary Wireless and privacy (including KPIs); Telegraphy Act (WT Act) licence. • Broadcasting – Content These are generally referred to by the Sanctions Committee; name of the equipment they licence,

CATEGORY A

Licences that involve no frequency assignment, Licences issued Licences issued Total on issue as site clearance or international co-ordination April 07 - March 08 April 06 - March 07 at 31 March 08

PBR UK General 1,099 1,085 5,508 Fixed Wireless Access (5.8 GHz) formerly 5.8 GHz 77 77 224 Business Radio (Self-Select) formerly Self-Select (One-way Paging) 627 1,148 6,471 Business Radio (Suppliers) formerly PBR Suppliers 32 41 422 Police and Fire 1 0 122 Subtotal for Business Radio products 1,836 2,351 12,747 Radar Level Gauge 0 13 124 CB, Amateur & Maritime 27,443 201,575 154,300 Total for Category A 29,279 203,939 167,171 36 www.ofcom.org.uk

Statistical data

CATEGORY B

Licences that involve frequency assignment, Licences issued Licences issued Total on issue as but no site clearance or international co-ordination April 07 - March 08 April 06 - March 07 at 31 March 08

Automatic Identification System 31 20 75 Coastal Station Radio (International) 20 35 491 Coastal Station Radio (UK) 43 36 435 Coastal Station Radio (Marina) 18 17 406 Coastal Station Radio (Search & Rescue) 0 0 1 Coastal Station Radio (Training School) 37 78 198 Maritime Radio (Suppliers & Demonstration) 6 6 86 Maritime Navaids and Radar 7 9 116 Differential Global Positioning System 3 3 17 Subtotal for Deregulation & Contracting-Out products 165 204 1,825 Business Radio (Standard) formerly PMR Standard - (UK General) only 0 0 0 Business Radio (IR 2008 Data) formerly Interface Requirement 2008 4 7 20 Business Radio (Speech and Data) formerly On-site PBR (Speech and Data) 2,588 2,981 23,150 Business Radio (On-Site Local Communications Systems) formerly On-site PBR (Local Communications) 31 51 1,093 Business Radio (On-Site Hospital Paging & Emergency Systems) formerly On-site PBR (Hospital Paging and Emergency Speech) 4 9 445 Business Radio (On-Site One-Way Paging & Speech Systems) formerly On-site PBR (One-way Paging and Speech) 144 151 1,687 Business Radio (Wide-Area Speech & Data Systems) formerly Wide-Area PBR (Speech and Data) 1,277 1,464 9,712 Business Radio (Wide-Area One-Way Paging and Speech Systems) formerly Wide-Area PBR (One-way Paging and Speech) 23 11 305 Business Radio (Wide-Area Distress Alarm Systems) formerly Wide-Area PBR (Distress Alarms) 28 6 77 Business Radio (National and Regional) formerly National & Regional PBR 7 7 31 Business Radio (GSM-R Railway Use) 0 1 1 Business Radio (Common Base Station) formerly Common Base Station Operator 11 17 524 Business Radio (CBS - (Band I and Sub Band I of Band III)) formerly (Band I) and (Sub Band I of Band III) CBS 5 2 16 Business Radio (Public Mobile Data, Non-voice) formerly Public Mobile Data (Non-voice) 1 0 4 Business Radio (Public Access Mobile Radio) formerly Public Access Mobile Radio 0 0 4 Business Radio (Public Wide-Area Paging) formerly Public Mobile Operator (for public wide-area paging) 0 0 3 Public Safety Radio 0 0 4 Remote Meter Reading 0 0 2 Scanning Telemetry 0 0 28 Self co-ordinated links 70/80GHz 10 0 10 Spectrum Access for frequencies 412-414MHz 1 0 2 Spectrum Access 10-40GHz 10 0 10 1785MHz NI Award 1 0 1 Subtotal for Business Radio products 4,145 4,707 37,129 Total for Category B 4,310 4,911 38,954 Ofcom Annual Report & Accounts 2007/8 Section C: Operating and Financial Review 37

Statistical data

CATEGORY C

Licences that require frequency assignment Licences issued Licences issued Total on issue as and site clearance and/or international co-ordination April 07 - March 08 April 06 - March 07 at 31 March 08

Fixed Links 25 27 333 Satellite (Permanent Earth Station) 51 13 149 Satellite (Transportable Earth Station) 28 30 153 Satellite (Earth Station Network) formerly Very Small Aperture Terminal 11 5 46 Total for Category C 115 75 681

TEST AND DEVELOPMENT LICENCES

Licences issued Licences issued Total on issue as April 07 - March 08 April 06 - March 07 at 31 March 08

Non-Operational Development Licence 244 258 253 Non-Operational Temporary Licence 28 27 35 Total for Test & Development 272 285 288

MOBILE AND BROADBAND LICENCES

Licences issued through Licences issued Licences issued Total on issue as spectrum auction or awards April 07 - March 08 April 06 - March 07 at 31 March 08

2G Cellular Telephones 0 4 3G Cellular Telephones 0 5 2G Channel Islands and Isle of Man Cellular Telephones 7 10 3G Channel Islands and Isle of Man Cellular Telephones 6 9 Fixed Wireless Access & Broadband Fixed Wireless Access 28GHz, 3.6GHz and 3.4GHz 6 16 Fixed Wireless Access & Broadband Fixed Wireless Access Channel Islands and Isle of Man 28GHz, 3.6GHz and 3.4GHz 3 10 Licences issued through spectrum auction or awards Spectrum Access 412-414MHz 1 1 Spectrum Access Dect Guardband 1781-1785MHz 12 12 Spectrum Access 1785NI 1 1 Spectrum Access 10-40GHz 10 10 Total for Mobile and Broadband Wireless 11 35 78

The Civil Aviation Authority (CAA) issues aircraft licences and the Joint Frequency Management Group (JFMG) issues licences and authorisations for outside broadcasts and programme-making and special events.

NON-DISCRETIONARY SPECTRUM LICENCES

Partners’ activity Licences issued Licences issued Total on issue as April 07 - March 08 April 06 - March 07 at 31 March 08

JFMG issues licences for Programme-Making & Special Events 2,742 2,472 3,182 CAA issues licences for Aeronautical 15,922 10,064 14,306 Total 18,664 12,536 17,488

TOTAL NUMBER OF LICENCES – ALL CATEGORIES 52,651 221,781 224,660 38 www.ofcom.org.uk

Statistical data

Spectrum licensing KPIs Category B licences is 90 per where international clearance is Key performance indicators (KPIs) cent of valid licence applications involved, applications to be awarded are currently in place for each for new or varied services to or rejected within 60 days or an category of licence. These measure be awarded, or rejected with explanation of the delay to be given. the time taken by Ofcom to issue the explanation, within 21 days; the Overall customer service satisfaction licence and vary according to the remainder to be awarded or rejected levels are at 90 per cent, with 91 per licence type. For Category A licences within 42 days of receipt by Ofcom. cent satisfied with the speed of receipt the KPI is for 100 per cent of valid The Category C KPI is for 100 per of licences. (Source: Ofcom survey.) licence applications for new or varied cent of valid licence applications for services to be awarded or rejected new or varied services to be awarded (with explanation) within seven days or rejected (with explanation) within of receipt by Ofcom. The KPI for 42 days of receipt by Ofcom; except,

KEY PERFORMANCE INDICATORS

Key Performance Indicators KPI Target KPIs achieved KPIs achieved April 07 - March 08 April 06 - March 07

Category A Licence 100% in 7 days 93% 97% Category B Licence 90% in 21 days 99% 98% 100% in 42 days 100% 100% Category C Licence 90% in 42 days (100% excluding where international clearance is involved) 95% 96% 100% in 60 days (including where international clearance is involved) 98% 99%

TEST AND DEVELOPMENT KEY PERFORMANCE INDICATORS

Test & Development Key KPI Target KPIs achieved KPIs achieved Performance Indicators April 07 - March 08 April 06 - March 07

Category A Licence 100% in 7 days none issued 100% Category B Licence 90% in 42 days none issued none issued Category C Licence 100% in 60 days 100% 100%

PARTNERS’ PERFORMANCE

Partners’ Performance KPI Target KPIs achieved KPIs achieved April 07 - March 08 April 06 - March 07

JFMG 100% in 7 days 100% 100% CAA 100% in 7 days 96% 94% Ofcom Annual Report & Accounts 2007/8 Section C: Operating and Financial Review 39

Statistical data

Spectrum operations – field operations KPIs Ofcom’s Field Operations Team is permanently on call to take action against illegal transmissions, to resolve interference and to undertake compliance audits of radiocommunications installations in every part of the UK. Table 1 lists our main activities.

TABLE 1

Work Programme Activity/Incident Period 2007/8 Period 2006/7 Reporting Year Reporting Year

Interference investigation requests received 3,629 3,050 Baldock: Spectrum Activities (see Note 1 below) 3,416 2,749 Interference investigation cases closed 3,777 3,155 Spectrum assignments completed N/A (see Note 2 below) N/A (see Note 2 below) Enforcement operations against unlicensed and criminal activity 1,526 1,704 Radio system compliance inspections completed 253 712 Successful prosecutions for criminal spectrum activity 44 67 Unsuccessful prosecutions for criminal spectrum activity 1 0

Note 1: The work of the Baldock Monitoring Station is Note 2: The large majority of spectrum assignments are now recorded as ‘Baldock Spectrum Activities’, and this now undertaken by Ofcom’s Central Licensing Team and figure includes reports of interference, and spectrum not by Field Operations. This is therefore no longer a monitoring and measurement operations. reportable part of the Field Operations work programme. 40 www.ofcom.org.uk

Statistical data

TABLE 2

Case category (see Note 1) Case Stage (see Note 2) Quality of Service Quality of Service Target Achieved 2007/08 Target 2007/08 (see Note 3)

Safety of Life Services QST 1a Interaction 88.64% 100% within 2 hours QST 1b Customer liaison/Validation 97.73% 100% within 2 hours QST 1c Investigation 88.64% 100% within 20 hours QST 1d Closure (overall case duration) 54.55% 100% within 2 working days Critical Service (category 2) QST 2a Interaction 84.78% 100% within 12 hours QST 2b Customer liaison/Validation 97.83% 100% within 12 hours QST 2c Investigation 76.09% 100% within 24 hours QST 2d Closure (overall case duration) 43.48% 100% within 3 working days Critical Service (category 3) QST 3a Interaction 83.17% 90% within 1 working day QST 3b 83.17% 100% within 3 working days QST 3c Customer liaison/Validation 95.19% 90% within 1 working day QST 3d 97.12% 100% within 3 working days QST 3e Investigation 78.37% 90% within 3 working days QST 3f 85.10% 100% within 5 working days QST 3g Closure (overall case duration) 40.87% 80% within 5 working days QST 3h 63.94% 100% within 10 working days Business/Professional Radio Services QST 4a Interaction 82.93% 90% within 1 working day QST 4b 82.93% 100% within 1 working day QST 4c Customer liaison/Validation 95.68% 90% within 1 working day QST 4d 96.81% 100% within 3 working days QST 4e Investigation 59.29% 90% within 3 working days QST 4f 65.67% 100% within 5 working days QST 4g Closure (overall case duration) 22.70% 80% within 5 working days QST 4h 33.21% 100% within 10 working days Domestic Broadcast Reception QST 5a Interaction 74.18% 90% within 1 working day QST 5b 74.18% 100% within 1 working day QST 5c Customer liaison/Validation 95.04% 90% within 2 working days QST 5d 96.74% 100% within 5 working days QST 5e Investigation 79.93% 90% within 17 working days QST 5f 87.83% 100% within 30 working days QST 5g Closure (overall case duration) 52.32% 80% within 20 working days QST 5h 73.73% 100% within 40 working days Other Radio Comms QST 6a Interaction 80.39% 90% within 1 working day QST 6b 80.39% 100% within 1 working day QST 6c Customer liaison/Validation 96.14% 90% within 2 working days QST 6d 97.43% 100% within 5 working days QST 6e Investigation 85.53% 90% within 17 working days QST 6f 91.64% 100% within 30 working days QST 6g Closure (overall case duration) 58.84% 80% within 20 working days QST 6h 81.99% 100% within 40 working days Ofcom Annual Report & Accounts 2007/8 Section C: Operating and Financial Review 41

Statistical data

Note 1: Case Category descriptions: Note 2: There are two interim • Before we can close a case we • Safety of Life (Cat 1) – significant stages in the interference case must resolve it, either informally, interference to a radio service management process: by reaching agreement with the which could seriously jeopardise • Customer Liaison/Validation – owner of the system that is causing the safety of human life, and there during which Field Ops specialists interference, or formally, by bringing is no immediate alternative form assess and validate the report/ legal proceedings. In both cases, of communication. requirement, and liaise whether we can meet the target • Critical Service (Cat 2) – with customer to arrange is not entirely within our control. significant interference to a radio investigative visit(s). • We are now reviewing our KPIs service which could seriously • Investigation – during which with a view to ensuring so that they jeopardise efficient public/emergency Field Ops specialists make field visits focus on aspects of performance that services (though with no immediate to trace interference source and take are within our control and therefore risk to the safety of human life), and appropriate remedial action. provide a better measure there is no immediate alternative Note 3: In some cases we have not of performance. form of communication. met our targets for quality of service. • Critical Service (Cat 3) – as There are a number of reasons for Cat 2, but an effective alternative for this: communications network is • During 2007/8 we made significant currently available. changes to our targets and, as a result, • Business/Professional Radio they are more stretching than in Services – significant interference previous years. to a radio service which is used for • Our ability to diagnose the cause commercial or professional purposes, of interference, and so complete the but which is not considered to be investigation phase of a case, may a Critical Service. be hampered if the interference that • Other Radio Services – significant we are investigating is intermittent. interference to all other licensed This can affect our ability to meet radio services, including our investigation targets. broadcast reception. 42 www.ofcom.org.uk

Statistical data

BROADCASTING – PROGRAMME complaints about alleged unfairness and/or We did not achieve our target on COMPLAINTS unwarranted infringements of privacy. performance indicators for complex Of the 12,532 closed cases relating standards cases in this reporting period, Ofcom has a statutory duty to consider and to programme standards: due principally to the handling of an adjudicate on complaints from listeners • 135 cases were found to be partially in unprecedented number of sanctions and and viewers about television and radio breach/in breach either of the Broadcasting complex cases (in particular, relating to programmes transmitted by UK broadcast Code or of licence conditions (accounting the use of premium rate services (PRS) licensees, S4C and the BBC. for 45,228 complaints including those about in programmes). This was because: the A total of 12,726 cases were closed in the Celebrity Big Brother). Of these, 11 cases complexity of some of the investigations period under review1. A case represents an were subject to statutory sanctions2 meant a number of cases significantly investigation into a specific programme and (9 broadcasters). exceeded the 60-day target; and the can relate to one or more complaints about • 25 cases were resolved or workload involved in the sanctions cases that programme. partially resolved. resulted in a substantial proportion of Ofcom reached decisions on a total of • 12,372 cases were not in breach. available resources being diverted away 67,742 programme complaints, of which Number3 completed within target: from non-sanctions cases. 67,548 were complaints about programme • Straightforward cases – 96.6% closed standards (including issues relating to within 30 working days (target: 80%)4. political advertising and the amount and • Complex cases – 62.2% closed within distribution of advertising) and 194 were 60 working days (target: 80%).

BROADCASTING – Number of cases closed: 194 • 113 were not entertained or FAIRNESS AND PRIVACY Of the fairness and privacy cases closed 27 discontinued after entertainment. were considered by the Fairness Committee. Number completed within target: The Fairness Committee, chaired by Kath Of these: • Straightforward cases – 77.3% closed Worrall, is Ofcom’s most senior decision- • 14 were upheld within 80 working days (target: 80%); and making body with respect to fairness and (of which 13 were partly upheld); and • Complex cases – 67.5% closed within privacy cases. It is a committee of Ofcom • 13 were not upheld. 130 working days (target: 80%).4 (with delegated powers from the Ofcom Decisions in relation to the remaining Main Board) and consists of a minimum 167 closed fairness and privacy cases of three members, all of whom are drawn were reached by the Executive. from the Content Board. It considers cases Of these: referred to it by the Executive (for example, • 9 were upheld due to their complexity). It also reviews (of which 7 were partly upheld); decisions made by the Executive where • 38 were not upheld; either one or both of the parties have made • 7 were resolved (following appropriate a case for that decision to be reviewed. action taken by the broadcaster); and

1 This figure includes over 44,500 3 These figures reflect those cases 4 Ofcom did not achieve its targets on complaints relating to the Celebrity handled under Ofcom’s new performance performance indicators for fairness and Big Brother case. indicators (introduced from 1 April 2007). privacy cases in this reporting period. This Those cases which were closed during was due principally to the handling of an 2 These sanctions cases included the reporting period but which had been unprecedented number of sanctions cases Celebrity Big Brother and five cases received before 1 April 2007, and therefore which resulted in a substantial proportion relating to the use of premium rate handled under the former performance of available resources being diverted away services (PRS) in viewer competitions. indicators, are excluded, for purposes of from non-sanctions cases. See comments clarity. on Standards cases above. Ofcom Annual Report & Accounts 2007/8 Section C: Operating and Financial Review 43

Statistical data

BROADCASTING – CONTENT • GMTV Limited in respect of viewer • Life Show-Case Limited in respect of SANCTIONS COMMITTEE competitions on its National Channel 3 the service Life Show-Case – £125,000. service – £2,000,000 and a Direction to • Life TV Media Limited in respect of Cases which the Executive believe may transmit Ofcom’s statement of finding the service, Life TV – £100,000. warrant the consideration of a statutory on three consecutive days. • British Broadcasting Corporation sanction are referred to the Content • Channel 4 Television Corporation in in respect of Blue Peter on its services, Sanctions Committee, comprising five respect of You Say We Pay, Richard and Judy BBC1 and CBBC – £45,000 (for BBC1) Members drawn from the Ofcom Board on its service Channel 4 – £1,000,000 and and £5,000 (for CBBC). and the Content Board. The Content a Direction to transmit Ofcom’s statement • Islam Channel Limited in respect of Sanctions Committee is quorate with three of finding on three separate days. its service, Islam Channel – £30,000. Content Board Members. The Content • Channel 4 Television Corporation in • Connection Makers Limited in respect Sanctions Committee is chaired by either respect of Deal or No Deal on its service of Babeworld on its service, Babeworld / the Chairman of the Content Board or Channel 4 – £500,000 and a Direction to TV – £25,000. the Partner for Content and Standards. transmit Ofcom’s statement of finding • ARY Digital UK Limited in respect of During the period under review, the on three separate days. its service ARY Digital – £15,000 and a Content Sanctions Committee applied • Channel 5 Broadcasting Limited in respect Direction to transmit Ofcom’s statement sanctions in eleven cases. of Brainteaser on its service, Channel 5 of finding. The Content Sanctions Committee (“Five”) – £300,000 and a Direction to transmit • Channel 4 Television Corporation in decided to fine5 (in order of size of Ofcom’s statement on two separate occasions respect of Celebrity Big Brother 2007 on its financial penalty): on the same day. service Channel 4 (and S4C) – Direction to transmit Ofcom’s statement of finding on three separate days.

5 All monies received in fines are passed to the UK Exchequer. 44 www.ofcom.org.uk

Statistical data

Investigations programme – KPIs Ofcom has an investigations programme to deal with complaints about anti-competitive behaviour, breaches of certain ex ante conditions and disputes. The following table examines Ofcom’s activities in handling enquiries and full investigations during 2007/8, including performance against published targets (including statutory targets).

TABLE 3

CATEGORY AND TARGET ACHIEVEMENT LEVEL ACHIEVEMENT LEVEL (FOR ALL CLOSED CASES DURING (FOR CLOSED CASES OPENED THE REPORTING PERIOD DURING THE REPORTING PERIOD) IRRESPECTIVE OF WHEN OPENED)

Decision to reject or accept enquiry within 52% (of 23 closed, 11 exceeded target 52% (of 24 opened, 21 closed, 10 exceeded target 15 working days with agreement; 100% with agreement with agreement; 100% with agreement for complex for complex cases) cases)

Decision to reject or accept Competition 100% (two closed) Note: For one of 100% (of 3 opened, 2 closed, neither of which Act enquiry within eight weeks (new target the closed enquiries recorded as being exceeded target). Note: For one of the closed introduced in the summer of 2007) completed on time Ofcom set a ten- enquiries recorded as being completed on time week enquiry period at the outset due Ofcom set a ten-week enquiry period at the outset to Christmas and the New Year due to Christmas and the New Year. One enquiry opened during the reporting period remains ongoing and has exceeded target with agreement

Resolution of disputes (four months) 100% (eight cases closed, none 100% (of four opened, three closed) Note: one exceeded target) Note: exceptional dispute case opened during the reporting period circumstances applied in three of the remains open and has exceeded target - exceptional cases recorded as completed on time circumstances apply to this

Competition Act investigations 0% (one case closed which N/A (no cases opened). Note: two cases that (six months where ‘no grounds for exceeded target) were opened prior to the reporting period action’ decision made; 12 months remain open and have exceeded target for an infringement decision)

Part 8 of the Enterprise Act investigations N/A (no cases closed) N/A (no cases opened) (six months to obtain undertakings)

Investigations into breaches of ex ante N/A (no cases closed) N/A (no cases opened). Note: one case that was conditions and unfair terms in consumer opened prior to the reporting period remains open contracts (four months for a closure and has exceeded target statement or notification that a condition has been breached)

Own-initiative investigations (six months) 90% (10 cases closed, one met an 100% (of 11 cases opened, six closed). agreed extended target) Note: one Note: one case that was opened as an of the eight cases shown as being Enforcement Programme has been extended completed on time was an Enforcement for a further six-month period Programme that was extended for further six-month periods on three occasions

Total investigations 89% (19 cases closed, of which one 100% (of 15 cases opened, 9 closed, of which none met an agreed extended target exceeded target). One ongoing case opened during and one exceeded target) Note: the reporting period as an Enforcement Programme As recorded above exceptional had been extended for a further six-month period circumstances applied to three of the and Ofcom has cited exceptional circumstances for disputes recorded as being closed one ongoing dispute opened during the reporting on time and similarly one own- period. No other ongoing cases opened during the initiative investigation shown as being reporting period had exceeded their targets as at completed on time was an Enforcement 31 March 2008 Programme that was extended Ofcom Annual Report & Accounts 2007/8 Section C: Operating and Financial Review 45

Financial performance

Ofcom’s statutory framework Sections 38 and 347 of the Operating results Ofcom’s duties and powers are Communications Act 2003 also Ofcom’s actual operating derived principally from the require Ofcom to raise income from expenditure outturn on an adjusted Communications Act 2003, each of the sectors it regulates such cash basis, and used to calculate the which received Royal Assent that it covers the costs to be incurred tariffs charged to stakeholders each on 17 July 2003. by Ofcom in regulating that sector. year, was £130m in 2007/8 (2006/7: Ofcom is an independent Ofcom must also apportion its £129.4m), £0.2m lower than budget. statutory corporation accountable common operating costs – those Ofcom’s total operating to Parliament. Its specific duties, which do not relate directly to any expenditure in the income and which are derived principally from one sector – in a proportionate expenditure account in 2007/8 the Communications Act 2003, manner across each of those sectors. increased by £8.8m from fall into six areas: Ofcom raises its funds from the expenditure in 2006/7. Significant • ensuring the optimal use following sources: changes from previous year were of the electro-magnetic spectrum; • television broadcast licence fees; as follows: • ensuring that a wide range of • radio broadcast licence fees; • An increase in average employee electronic communications services – • administrative charges for numbers of 21; pay increases in line including high-speed data services – electronic networks and services with inflation; an increased provision are available throughout the UK; and the provision of broadcasting in restructuring costs; an accrual • ensuring a wide range of television and associated facilities; and for sabbaticals compensated by a and radio services of high quality • funding to cover Ofcom’s release of National Insurance accrual and wide appeal; operating costs for spectrum from previous year has led to a net • maintaining plurality in the management in the form of grant- increase of £5m in staff costs. provision of broadcasting; in-aid from the Department for • Operating costs increased • applying adequate protection Business, Enterprise and Regulatory by a net £3.7m after achieving for audiences against offensive Reform (BERR). savings of £2.6m in administrative or harmful material; and Grant-in-aid covers the costs of expenses through the progression • applying adequate protection regulating and managing the UK of a number of efficiency initiatives for audiences against unfairness radio spectrum. It also covers those and a £4m reduction in spectrum- or the infringement of privacy. statutory functions and duties, related research and development The Communications Act which Ofcom must discharge projects, mainly due to non-recurring 2003 requires us to act in a under the Communications Act expenditure including: way which is transparent, but for which the Act provided no – Development, data cleansing and accountable, proportionate, matching revenue stream. Examples training activities for our IS renewal consistent and targeted. include the statutory public interest programme, particularly relating test for media mergers and ex post to the implementation of new Financial framework Competition Act investigations licensing systems. Under Paragraph 8(1) of the in relation to networks and services. – Compensation payments Schedule to the Office of Ofcom also receives rental income made to license holders as part Communications Act 2002, from properties surplus to its of our planned programme for Ofcom is required to balance requirements and bank interest spectrum liberalisation. its expenditure with its income in respect of bank balances. – Increased facility costs arising from in each financial year. rent reviews and rates increases. – Increased legal provisions as explained further in Note 18. 46 www.ofcom.org.uk

Financial performance

A reconciliation is set out in HM Treasury the fourth consecutive real terms Note 2 of Section E which highlights Spending Caps reduction in Ofcom’s budget and the differences between the total Ofcom collects fees from Wireless 17.5% lower in real terms than operating expenditure as presented Telegraphy Act licensees. Ofcom Ofcom’s original full-year budget in the income and expenditure then passes the monies collected to set in 2004/5. account and Ofcom’s actual BERR, which remits a proportion Ofcom is confident that, operating outturn of £130m. back to Ofcom in the form of grant- following several years of major Note 2 to the financial statements in-aid to fund Ofcom’s spectrum efficiency improvements and also presents Ofcom’s actual management activities and remits initiatives, the organisation now operating outturn for 2007/8, the remaining amount to the UK operates with greater stable by sector. Exchequer. Ofcom’s Section 400 budgetary requirements. accounts, published on the Ofcom The £133.7m operating budget Surplus for the website, details the monies collected is reflective of anticipated RPI Financial Year and grant payments received. increases and the rescheduling Ofcom calculates its required During 2007/8 Ofcom of some projects from 2007/8. operating revenue based on its agreed, under Section 401 of the The budget is based on an statement of charging principles Communications Act, to examine adjusted cash basis, which includes taking into account the actual funds an alternative approach where capital expenditure and actual that it needs to collect to discharge Ofcom would collect the WT Act contributions to pension schemes, its cash liabilities during the year. fees, deduct the costs of its spectrum but excludes depreciation. This results in an accounting surplus management activities, and remit However, some stakeholders will only. Ofcom returns any surplus the remaining monies directly to experience an increase in their funds to stakeholders through a the UK Exchequer. After a detailed regulatory fees for 2008/9 compared reduction in the annual tariffs raised review, Ofcom has decided not to with the previous financial year in the following two financial years. implement Section 401 at this current due to a higher allocation of work The surplus for the year under time as the current legislation does planned for that sector. review, recorded in the income and not allow the anticipated process Sector regulatory fees will expenditure accounts, was £8.3m efficiency benefits for Ofcom and specifically change by: (2006/7: £22.1m). In addition to its stakeholders to be realised. • an average decrease of 6.3% the reduction explained above, the for the radio sector; further reduction in the surplus is 2007/8 Tariffs • an average decrease of 2.4% mainly due to: On 31 March 2008, Ofcom for the television sector; and • 2007/8 accelerated amortisation published the Tariff Tables for • an average increase of 4.1% of certain assets which no longer 2008/9, which were based on an for network and services operators. provide economic benefit to Ofcom estimated operating expenditure • 2006/7 benefited from an outturn for 2007/8 of £129.8m. People exceptional credit in respect of a A total of £0.4m – the difference At 31 March 2008, Ofcom had net adjustment from the surrender between the original budget 812 employees (2006/7: 800). of a lease. of £130.2m and the estimated The surplus is required to cover operating expenditure outturn – Pensions expenditure not reflected in the is already being passed back to Ofcom’s primary means of providing Income and Expenditure Account, stakeholders in 2008/9 as part pension benefits is through a defined including capital expenditure and of the current regulatory tariffs contribution pension allowance that contributions to the two defined or reimbursement of grant-in- is provided to all new employees benefit pension plans. aid claims. and to those colleagues from the On a like-for-like basis, Ofcom’s legacy regulators who have chosen budget for 2008/9 will be £133.7m, this option. This allowance may which is 1.5% lower in real terms be used to contribute to the Ofcom than its budget for 2007/8. This is defined contribution stakeholder Ofcom Annual Report & Accounts 2007/8 Section C: Operating and Financial Review 47

Financial performance

pension plan. Over 80% of Ofcom, transferred to and held in the trust April 2008. The system will enable colleagues are employed on terms account can only be paid into one Ofcom to manage spectrum licensing with access to a stakeholder pension of the two Defined Benefit Pension and licence renewal more plan. Other colleagues from the Schemes and are not able to be used efficiently. Ofcom will leverage legacy regulators are provided with for any other purpose. this investment by migrating the membership of the defined benefit remainder of the spectrum licences pension schemes. Additional funds collected in the following year. For those colleagues who on behalf of HM Treasury The IS project, known internally joined Ofcom from the legacy In 2007/8, in accordance with as Unify, is wide-ranging and regulators and who elected to retain Section 400 of the Communications complex, bringing together a variety membership of a defined benefit Act, Ofcom invoiced and collected of information systems used by pension scheme, Ofcom operates £232.4m (2006/7: £229.1m) from the legacy regulators that Ofcom two such schemes, which are closed wireless communications and replaced. During 2007/8 it emerged to new entrants; Notes 1j and 25b broadcasting companies in spectrum that the spectrum solution was more provide further detail. revenues and licence receipts. Ofcom complex than originally understood. The latest actuarial valuations prepares a separate set of Financial As a result, the duration of the (as at 1 January 2007 for the Ofcom Statements for the purposes of S400 programme and the overall cost (former ITC) Pension Plan and of the Communications Act 2003. of implementation has exceeded 31 March 2007 for the Ofcom At 31 March 2008, requests for initial estimates. Defined Benefit Pension Plan) payment in respect of spectrum fees The renewal programme was highlighted a combined funding amounting to £52.5m (2006/7: subject to a thorough internal deficit of £17.7m. However, the £40.7m) remained unpaid. review during the financial year, financial statements show a surplus A significant proportion of these resulting in tasks being replanned, of £10m, primarily because the amounts are due by way of a revised financial forecast and the pension liabilities under the financial instalment payments. No significant implementation of a new governance statements are prepared on the basis debts may be written off without structure. Risks identified have that the liabilities are discounted in the written authorisation of HM been closely monitored at project line with the yields on high-quality Treasury. At the balance sheet date, management, Operations Board and bonds which (particularly under an amount of £1m was outstanding Board level and appropriate action current market conditions) differs for more than 12 months from was taken to address cost, time and significantly from the approach Inquam Telecom (Holdings) Limited. functionality risks and issues. used for determining Ofcom’s Inquam has an agreed payment plan contributions. to reduce the debt over time. Payments of suppliers Ofcom made (and continues to Ofcom’s target is to make all make) cash contributions to the Investments in fixed assets payments not in dispute within Ofcom Defined Benefit Plan and the Ofcom continues to deliver its 30 days or less of acceptance of the Ofcom (former ITC) Pension Plan Information Systems renewal relevant goods and services, or the on the basis of the actuarial programme; part of which has now receipt of a legitimate invoice if that valuation. Cash contributions, been deployed into the business. is later. For 2007/8, we achieved a rather than the amount charged As at the year-end, assets under performance of 97.2 per cent against to operating surplus (as calculated construction, which relate to systems this target (2006/7: 98.8 per cent). under FRS 17), are included in development amounted to £4.1m. operating expenditure outturn used BERR loan to calculate the tariffs charged to IS renewal programme During 2007/8, Ofcom completed stakeholders each year. During 2007/8 Ofcom’s IS the repayment of the loan originally During the year, contributions to renewal programme completed the received to establish the organisation; the two defined benefit pension plans development of a new system for this is further explained in Note 16. amounted to £6.9m; £1.8m of which spectrum licensing covering fixed was paid into a trust account. Funds links; this was implemented in 48 www.ofcom.org.uk

Section D

Foreword EXTERNAL AUDITORS Statement of The Comptroller and Auditor REPORT OF THE BOARD General, whose staff is the National Accounts and The Board presents its Report and Audit Office (NAO), is appointed as the audited financial statements Ofcom’s external auditor under the Corporate for the year ended 31 March 2008. Office of Communications Act 2002. The cost of the statutory audit for STATEMENT OF ACCOUNTS 2007/08 was £85,000. Governance This Statement of Accounts has In so far as the Accountable been prepared in accordance Officer is aware, there is no relevant with Schedule 1 of the Office of audit information of which Ofcom’s Communications Act 2002 and auditors are unaware, and the as directed by the Secretaries of Accountable Officer has taken State for Business, Enterprise and all the steps that he ought to have Regulatory Reform and for Culture, taken to make himself aware of any Media and Sport. The Accounts relevant audit information and to cover the period from 1 April 2007 establish that Ofcom’s auditors are to 31 March 2008. aware of that information.

PRINCIPAL ACTIVITIES THE BOARD Ofcom is a statutory corporation The Board has full responsibility without shareholders, established for deciding and operating Ofcom’s under the Office of Communications affairs. The details of the Board Act 2002. Members are set out on pages Ofcom is empowered, under 52 and 53. Details of Members’ the Communications Act 2003, to remuneration are set out on pages regulate and license television, radio, 65 to 70. the use of the radio spectrum and telecommunications in accordance MEMBERS’ INTERESTS with the duties imposed upon it Ofcom embraces full disclosure under the Act. of Members’ interests. The details of these can be found online at OPERATING AND FINANCIAL REVIEW www.ofcom.org.uk. The Chairman’s Message on pages 4 and 5, the Chief Executive’s Report POST BALANCE SHEET EVENTS on pages 6 to 9 and the Operating There were no reportable post and Financial Review on pages balance sheet events between the 28 to 47 form part of this Report balance sheet date and 6 June 2008, and provide information on the the date when the Accountable activities of Ofcom during the year. Officer despatched the accounts The financial statements of Ofcom to the Department for Business, are set out on pages 72 to 77. Enterprise and Regulatory Reform. The financial statements do not reflect events after this date. Ofcom Annual Report & Accounts 2007/8 Section D: Statement of Accounts 49 and Corporate Governance

Foreword

OFCOM MISSION AND VALUES • the Ofcom intranet, which is if they wish to raise a concern about Ofcom’s commitment to its mission available to all colleagues in all malpractice within the organisation. and values is shared by Board of Ofcom’s offices; Ofcom has updated its assessment Members and Ofcom colleagues. • presentations hosted by senior and reward processes to ensure The purpose of the shared mission managers during which new strategic colleagues agree clear objectives and values is to ensure each Board initiatives are explained to colleagues for both performance and their Member and colleague undertakes and updates are provided regarding ongoing development. The number Ofcom’s work by reference to a clear continuing projects; of development activities delivered set of core values. Colleagues across • regular inter-group meetings across the organisation during the the organisation were instrumental both to listen to colleagues and period exceeded 500. in developing the six values that to disseminate information; reflect Ofcom’s desire to work in an • regular messages from the BRITAIN’S TOP EMPLOYERS open, effective and people-driven Chief Executive; and Of 79 organisations identified way. In working in this way Ofcom • an annual all-colleague event to as ‘top employers’ in a UK strives to be dynamic, responsive review progress and the year ahead. survey, Ofcom made it into and commercially aware; Ofcom Additionally Ofcom has developed the top 30. This award demonstrates values incisive thinking, rigorous a relationship with the Partner Union and recognises the progress we evidence-based analysis and – a body made up of representatives have made as an organisation in engagement with stakeholders. from BECTU and Prospect. being able to attract and retain Ofcom’s values are: the best people. • Communicating openly EMPLOYMENT POLICIES, and honestly; PERFORMANCE DEVELOPMENT DIVERSITY AND CORPORATE • Listening with an open mind; AND PUBLIC SECTOR DUTIES SOCIAL RESPONSIBILITY • Making a difference; Ofcom is an equal opportunities A Head of Diversity and Corporate • Empowering and prioritising; employer and recruits colleagues Social Responsibility was appointed • Investing in and supporting our regardless of age, gender, in January 2008. This role formally colleagues; and cultural and ethnic background, brings together the Diversity and • Genuine collaboration. disability, religion or belief community based CSR agendas. and sexual orientation. Ofcom has introduced a Diversity COLLEAGUE INVOLVEMENT Ofcom is committed to building Action Plan which sets out how AND CONSULTATION an organisation where all colleagues Ofcom plans to promote diversity The quality, commitment are treated fairly, with dignity and across the organisation. Ofcom and effectiveness of Ofcom respect and has developed a range also undertook Diversity Champions, colleagues are crucial to its success. of policies which are consistent with Race for Opportunity, Opportunity Colleague involvement is actively the requirements of employment Now and Disability Standard encouraged as part of all Ofcom’s law, and in particular with benchmarking to measure its day-to-day processes. legislation aimed at eliminating performance on sexual orientation, Ofcom specifically informs and discrimination including the Race race, gender and disability equality consults its colleagues through: Relations (Amendment) Act 2001, in the workplace. Ofcom was the • the Ofcom Colleague Forum, an the Disability Discrimination Act third most improved organisation information and consultation forum 1995 and, in relation to activities in the Stonewall 2008 Workforce which is made up of representatives in Northern Ireland, section 75 Equality survey, moving up from of colleagues from across Ofcom and of the Northern Ireland Act 165th to 51st position. which meets regularly with senior 1998 and the 1995 Disability Ofcom has introduced a management at Joint Consultative Discrimination Order. Colleague Volunteer Scheme Group meetings (which includes two Ofcom has an internal whistle- to enable colleagues to volunteer members from the Partner Union); blowing policy setting out the in a range of activities in the procedure colleagues should follow local community; it has been 50 www.ofcom.org.uk

Foreword

very successful and has attracted of the greenhouse gas, carbon requirements of the Act, including considerable interest dioxide, were: the data protection principles. Ofcom from colleagues. • initiatives introduced to reduce also has a data protection training Through the Reading Partners printing and encourage recycling programme to ensure all colleagues Scheme, Ofcom works with of waste; understand their responsibilities to Charlotte Sharman Primary School • improvements in cycling facilities comply with the Act and information to help a group of ten children at Riverside House to encourage handling practices. with their reading. The Language greener commuting; Mentoring Scheme teams Ofcom • applying solar film to windows FREEDOM OF INFORMATION with Bacon City Technical College to reflect heat, reducing energy Under the Freedom of Information to help pre-GCSE pupils with to cool space; Act 2000, which established a their conversational French. • running an information general right of access to all types This scheme has been extended campaign to ensure colleagues of recorded information held to include German language switched off their PCs overnight; and by public authorities, Ofcom has mentoring support as well. • purchasing electricity continued via its publication scheme In response to the national on green tariffs. to make a wide range of information shortage of young people entering Alongside this Annual readily accessible on its website. engineering (particularly young Report, Ofcom is publishing, During the period under review, women), St Saviour’s & St Olave’s in a separate document, the Ofcom received 848 requests for School established a Girls’ Science results of the commissioned information and, in keeping with and Engineering Club, which carbon audit and Ofcom’s the Act’s purpose to foster a culture is being supported by a team environmental commitments. of openness, Ofcom provided all of Ofcom engineers. or part of the information requested STATEMENT ON HEALTH AND in 77 per cent of cases. ENVIRONMENTAL ISSUES SAFETY POLICY AND PRACTICE Ofcom seeks to adopt sustainable The Chief Operating Officer GOING CONCERN practices throughout its operational has responsibility for health and Based on normal business planning work. In the light of growing concern safety within Ofcom. The Head of and control procedures, the Board over environmental issues Ofcom Financial Accounting is Chair of has a reasonable expectation that decided to develop a comprehensive the Health and Safety Committee Ofcom has adequate resources to approach to ensure that its activities which meets quarterly and reports continue in operational existence were environment-friendly. As part to the Operations Board. During for the foreseeable future. For this of this approach Ofcom performed the reporting period no injuries reason, the Board continues to adopt an initial carbon audit of its were reported to the Health and the going concern basis for preparing operations in late 2007, identifying Safety Executive. Colleagues have the financial statements. a number of areas where it could completed bespoke e-Learning make a positive difference. For and line managers are increasingly David Currie example, power consumption of involved in health and safety, which Chairman data services. Ofcom has already is particularly important in Ofcom’s started work in the areas identified higher risk work. Ed Richards and during 2008/9 will undertake Chief Executive further analysis and develop a DATA PROTECTION 17 June 2008 programme of enhancements to Ofcom is a Data Controller under ensure that its operations adhere the Data Protection Act 1998 to best environmental practice. (‘the Act’) and is committed to Some of the steps already processing all personal data securely taken in 2007/8 to reduce emissions in a manner which meets the Ofcom Annual Report & Accounts 2007/8 Section D: Statement of Accounts 51 and Corporate Governance

Foreword

CHARITABLE DONATIONS During the financial year 2007/8, Ofcom raised £4,375 in charitable donations. Of this amount, £2,374 was raised via donated gifts for St. Mungo’s, an organisation for the homeless based locally in Southwark. The Annual Art Reception raised a further £2,001, which was donated to the children’s charity, Kids Company. Kids Company provides practical and emotional support for children and young people who experience significant psychosocial difficulties because their parent is unable to function as a caring adult. 52 www.ofcom.org.uk

The Ofcom Board

David Currie David Currie is the Non-Executive Chairman of Ofcom. He is also a Member of Ofcom’s Audit and Remuneration Committees and Chairman of the Nominations Committee. He was Professor of Economics at London Business School from 1988 to 2000 and Deputy Dean from 1992 to 1995 and again in 1999-2000. David Currie was Dean of Cass Business School at City University from January 2001 to April 2007. He is Chairman of Trillium Investment Partners, a Board member of the Dubai Financial Services Authority and of the London Philharmonic Orchestra, and an adviser to Unisys. He sits on the cross-benches in the House of Lords as Lord Currie of Marylebone.

Philip Graf CBE Philip Graf is the Non-Executive Deputy Chairman of Ofcom. He is also a Member of Ofcom’s Remuneration, Nominations and Audit Committees and Chair of Ofcom’s Content Board, Radio Licensing Committee and Content Sanctions Committee. Philip Graf joined the Liverpool Daily Post and Echo in 1983, which became Trinity International Holdings in 1985. He subsequently became Chief Executive in 1993 and was appointed Chief Executive of Trinity Mirror Group when the company merged with the Mirror Group in 1999 – a position he held until February 2003. He is a former Chair of the Press Standards Board of Finance and of the Broadband Stakeholder Group. He is currently a partner at Praesta Partners LLP and a Non-Executive Director of Archant Limited.

Ed Richards Ed Richards is the Chief Executive of Ofcom. He was previously Ofcom’s Chief Operating Officer. Prior to joining Ofcom, he was Senior Policy Advisor to the Prime Minister for media, telecoms, internet and e-govt. Before that he was Controller of Corporate Strategy at the BBC. He also worked in consulting at London Economics Ltd, as an advisor to Gordon Brown MP and began his career as a researcher with Diverse Production Ltd, where he worked on programmes for Channel 4. He currently serves as a Non-Executive Board Member of the Donmar Warehouse Theatre.

Millie Banerjee CBE Millie Banerjee is a Non-Executive Member of Ofcom. She is also Chair of Ofcom’s Remuneration Committee and a Member of Ofcom’s Content Board and Nominations Committee. Previously she spent 25 years with BT, culminating at Director level in BT Products and Services Division, followed by being Senior Vice President for ICO Global Communications. She has been a member of the Strategy Board of the Cabinet Office and has held several non-executive appointments including the Strategic Rail Authority, the Sector Skills Development Agency, Channel 4 TV and the Prisons Board. She has also been a Board Member of Focus, a member of the governing body of South Bank University and a Commissioner for Judicial Appointments, the Chair of Carnegie UK Trust and a Member of the Advisory Board of Tanaka Imperial College Business School. She is currently the Chair of Postwatch. Ofcom Annual Report & Accounts 2007/8 Section D: Statement of Accounts 53 and Corporate Governance

Sara Nathantext Stephanie Liston Ian Hargreaves retired from the Board resigned from the Board resigned from the Board on 31 December 2007. on 31 March 2008. on 31 May 2008.

Colette Bowe Colette Bowe is a Non-Executive Member of Ofcom and is a Member of Ofcom’s Audit Committee. She was appointed to the Board of Ofcom on 1 January 2008. Colette Bowe trained as an economist and has held a number of senior roles in the public and private sectors. She began her career at the Department of Trade and Industry and subsequently worked at the Independent Broadcasting Authority, the Securities and Investment Board, as Chief Executive of the Personal Investment Authority and as Executive Chairman of the European Asset Management Business at Robert Fleming. She chaired Ofcom’s Consumer Panel from its inception in 2003 to December 2007. She is currently a Board Member of Axa Framlington, Morgan Stanley Bank International, Electra Private Equity plc and London and Continental Railways. She is Chairman of Council at Queen Mary College, London.

Tim Gardam Tim Gardam is a Non-Executive Member of Ofcom and is a Member of Ofcom’s Nominations Committee. He was appointed to the Ofcom Board on 1 January 2008. He had a 25-year career in broadcasting starting at the BBC where he was editor of Panorama and Newsnight before becoming Head of Current Affairs and Weekly News. He was a part of the first senior management team at Five and was Director of Programmes at Channel 4. He was the author of the DCMS Review of BBC Digital Radio Services in 2004, a member of Lord Burns’ Advisory Panel on the BBC Charter Review and a Director of SMG plc from 2005-7. He has been the Principal of St Anne’s College, Oxford since 2004.

Mike McTighe Mike McTighe is a Non-Executive Member of Ofcom and is a Member of Ofcom’s Remuneration Committee. He was appointed to the Ofcom Board on 1 September 2007. Previously he was Chairman & CEO of Carrier1 International SA, and before that Executive Director & Chief Executive, Global Operations of Cable & Wireless plc. He is currently Chairman of Pace Micro Technology plc, Chairman of Volex Group plc, a director of London Metal Exchange Holdings Ltd, a non-executive director of Alliance & Leicester plc, and Chairman of a number of privately held technology companies.

Philip Rutnam Philip Rutnam joined Ofcom in May 2003 and was appointed to the Ofcom Board as an Executive Member on 1 April 2007. He has specific responsibilities for the development of Ofcom’s spectrum policy. A former senior Treasury official, his career includes working in corporate finance at Morgan Stanley in Hong Kong, a period as Private Secretary to the Financial Secretary at the Treasury and responsibility for the Treasury’s interest in business and enterprise. 54 www.ofcom.org.uk

Corporate Governance

As an independent owever, its principles provide Members including the Chairman, Ha useful benchmark for who is responsible for running the statutory corporation all bodies wishing to make a Board, and two Executive Members statement about their corporate including the Chief Executive. without shareholders, governance performance. The Board is responsible and established under Ofcom has complied with the main accountable for the discharge of principles of the Combined Code Ofcom’s statutory functions and the Office of during the period 1 April 2007 to provides strategic leadership and Communications 31 March 2008. To this end, Ofcom manages overall control of Ofcom’s will continue to adopt the principles activities. Members’ duties and Act 2002, Ofcom of the code where it is either capable responsibilities are set out in a of doing so, or it is appropriate to do Members’ Code of Conduct. is not subject to so, given its status as an independent A register of Members’ interests the Combined statutory corporation. is available on the Ofcom website. For the purposes of adopting the Code on Corporate Board Members’ principles of the Combined Code: Governance Remuneration • the Board considers all of the Details of Members’ remuneration Non-Executive Members to be published by the UK are set out on pages 65 to 70. independent of management and free of any business or Listing Authority. Board other relationship which could The Ofcom Board comprises materially interfere with the both Executive and Non-Executive exercise of their judgement; Members. The Chairman and • the Board believes that the Non-Executive Members of the Members have, between them, Ofcom Board are appointed jointly a wide range of experience which by the Secretaries of State for ensures an effective Board to Business, Enterprise and Regulatory lead and control Ofcom; Reform and for Culture, Media and • the Non-Executive Members Sport for a period of up to five years. comprise a majority of the Board. Ofcom’s Nominations Committee Millie Banerjee is regarded as has assisted both Departments by being the senior Non-Executive working with them in the selection Member for the purposes of the process for the appointment of Combined Code; new Non-Executive Members. • on appointment all Members Executive Members of the Board are given a full induction on their are appointed by the Chairman responsibilities and thereafter and all of the independent receive further guidance and Non-Executive Members. Members’ briefings as and when required; biographical details are set out on • the Board meets at regular pages 52 and 53. intervals during the year. Ofcom has adopted a unitary The Board reserves certain Board model. The Board currently matters to itself but otherwise consists of six Non-Executive delegates specific responsibilities Ofcom Annual Report & Accounts 2007/8 Section D: Statement of Accounts 55 and Corporate Governance

Board Committees

to senior managers and committees. In the exercise of he composition and main The role of executive management T functions of these principal is to implement Board policies. its powers under Committees are described below. The work of both the Board and Executive is informed by the Office of The Content Board the contributions of a number Communications Section 12(1) of the Communications of advisory bodies; Act requires Ofcom to establish a • the Board is supplied in a timely Act 2002, the Board Content Board. It has delegated and manner on a regular basis with delegates certain advisory responsibilities for a wide information in a form and of a range of broadcasting content issues quality appropriate to enable it of its responsibilities and media literacy. to discharge its functions; and to the Executives The Content Board meets monthly • all Members have access to the and held 11 meetings during the Secretary to the Corporation, within Ofcom year. The Members of the Content who is responsible to the Board Board are: for ensuring that correct rules and certain • Philip Graf (Chair) and procedures are followed. responsibilities to • Adam Singer (Deputy Chair) All Members have access to • Richard Ayre advice from independent Board Committees • Sue Balsom professionals at Ofcom’s expense. with clearly defined • Millie Banerjee The Board undertook an • Chris Banatvala evaluation of its performance authority and terms • Pam Giddy during March 2008 utilising the • Anthony Lilley services of external consultants, of reference. • Dr. Paul Moore Egon Zehnder. • Stewart Purvis (appointed 03/12/07) In general terms, the Chairman • Joyce Taylor manages the Board to ensure that: • Kath Worrall • Ofcom has appropriate objectives (Chair of Fairness Committee) and an effective strategy; Tim Suter resigned from the • the Chief Executive’s team is Content Board on 30 November able to implement the strategy; 2007. Chris Banatvala and • there are procedures in place Stewart Purvis are the only to inform the Board of performance Executive Members of the against objectives; and Content Board. • Ofcom is operating in accordance During the year the Content with the highest standards of Board played a major role in a corporate governance. number of key areas. Ofcom’s Annual Report is sent It contributed substantially to to the Department for Business, the development of the first phase Enterprise and Regulatory Reform of Ofcom’s Public Service Broadcast which lays copies of it before each review with a particular interest House of Parliament, to which in the Nations and Regions. It also Ofcom is accountable. contributed to Shaping the Future of

56 www.ofcom.org.uk

Board Committees

Radio and New News, Future News responsibilities are limited to internal and external auditors. documents. In each case Content management policy only. The Chairman of the Audit Board members contributed The members of ExCo are: Committee reports the outcome individually as well as collectively • Ed Richards (Chair) of Audit Committee meetings to the process. • Jill Ainscough to the Ofcom Board through the The Content Board’s other major (appointed 07/08/07) Chairman of Ofcom, David Currie, role was in the development of • Stuart McIntosh and meets with the Ofcom Board Ofcom’s media literacy strategy (appointed 28/01/08) at least once a year. and subsequently its contribution • Peter Phillips The main duties of the Audit to the Byron Review, where the • Stewart Purvis Committee are to: Board oversaw Ofcom’s input to (appointed 03/12/07) • review and direct the internal the review team. • Philip Rutnam audit function and the appointment The issues surrounding telephone Tim Suter resigned from Exco of the internal auditors; Premium Rate Services in on 3 May 2007. The following • review the nature and scope of television were a major focus for colleagues resigned from ExCo on the external audit and the findings Ofcom for a large part of the year. 18 December 2007: Janet Campbell, of the external auditors; Richard Ayre led an inquiry into Rona Chester, Graham Howell, • monitor and review, on behalf the issues connected to PRS and Peter Ingram and Dominic Morris. of the Board, the effectiveness the resulting policy proposals have Ian Hargreaves resigned from of the systems of internal control toughened licence requirements ExCo on 31 May 2008. and risk management; for television broadcasters to Other senior Ofcom colleagues • monitor and review, on behalf of protect consumers. are invited to attend meetings the Board, the integrity, quality and Kath Worrall, Chair of the of ExCo on an ad-hoc basis. reliability of the financial statements, Fairness Committee, led a project Annual Plan and Accounts; as a result of which guidelines The Audit Committee • continually review the scope and for the use of children in The Audit Committee comprises results of both internal and external television programmes were three Non-Executive Members audits; and significantly strengthened. of the Ofcom Board and an • approve the financial Members of the Content Board independent external Non-Executive authority framework. are also members of the Radio Chair. The members of the The internal audit function is Licensing Committee and took Audit Committee are: carried out independently from part in a very busy year for both • Peter Teague (Chair) Ofcom by KPMG. The Audit the Sanctions and Fairness and • David Currie Committee believes it is appropriate Privacy Committees. During the • Philip Graf for the internal auditors, in period under review, 27 cases • Colette Bowe addition, to provide Ofcom with were considered by the Fairness (appointed 06/02/08) specific advice on internal risks. Committee and the Content Stephanie Liston resigned from The provision of other services Sanctions Committee applied the Committee on 31 March 2008. by KPMG to Ofcom is decided sanctions in 11 cases. These included Peter Teague, the external on a case-by-case basis. The external several high profile cases including: independent Chair, is a qualified audit function is carried out by the Celebrity Big Brother; Undercover Mosque; chartered accountant and satisfies National Audit Office. Richard and Judy and GMTV. Full the requirement under the The Audit Committee met four details of the work of the committees Combined Code that one Member times during the year. The terms are given on pages 42 and 43. of the Committee has relevant of reference are available on the financial experience. The additional Ofcom website. The Executive Committee requirements of the Combined Peter Teague is paid £5,033 ExCo is the senior executive team Code are met to the extent that per annum for the provision responsible for overseeing the three Members of the Committee of his services as Chair of the management of Ofcom. Its core are independent Non-Executive Audit Committee. Peter Teague focus is on setting direction for Members of the Ofcom Board. received an additional £5,033 the organisation, financial and The Chief Executive and Finance for overseeing an independent administrative decision-taking Director are invited to attend monitoring of Ofcom’s IS and monitoring. Its policy-making Committee meetings, as are the Reorganisation Programme. Ofcom Annual Report & Accounts 2007/8 Section D: Statement of Accounts 57 and Corporate Governance

Board Committees

The Remuneration and Regulatory Reform and for the Content Sanctions Committee Committee Culture, Media and Sport and is invites additional members from The Remuneration Committee set out in detail in Note 2 to the the Ofcom Board. consists of four Non-Executive Remuneration Report. Should it be Both Committees have a Members of the Ofcom Board. necessary for Ofcom to consider any permanent Chair who, during The members of the Remuneration aspect of Non-Executive Member the period, was Kath Worrall Committee are: remuneration a Non-Executive for the Fairness Committee • Millie Banerjee (Chair) Member Remuneration Committee and Philip Graf for the Content • David Currie has been established consisting of the Sanctions Committee. • Philip Graf Chief Executive, the HR Director The Committees meet as and when • Mike McTighe and the Corporation Secretary which required and details of their activities (appointed 06/02/08) will meet and report directly to the can be found on pages 42 and 43. Sara Nathan resigned from the Secretaries of State as appropriate. Committee on 31 December 2007. Consequently, no Board Member is Radio Licensing Committee The Chief Executive and the involved in the setting of his or her The Radio Licensing Committee HR Director attend meetings own remuneration. has delegated authority from the at the invitation of the The Remuneration Report on Ofcom Board to discharge Ofcom’s Remuneration Committee. pages 65 to 71 sets out Ofcom’s functions in relation to radio The Committee advises Ofcom application of the relevant principles (sound) broadcasting licensing. on the remuneration and terms of the Combined Code. The Committee’s responsibilities and conditions of service for the include decisions on the award Chief Executive, other Executive The Nominations of new and readvertised radio Members of the Board and Committee licences, and on licence variations Members of the Executive The Nominations Committee and revocations Committee. The Committee also comprises four Non-Executive Philip Graf chairs this committee. advises Ofcom on the terms and Members of the Ofcom Board. Its membership consists of two conditions of the part-time members It was established in 2007 and permanent Non-Executive Members of the Content Board, the Consumer its members are: of the Content Board: Joyce Taylor Panel, the Advisory Committee • David Currie (Chairman) and Pam Giddy, and four Ofcom for Older and Disabled Persons • Philip Graf colleagues. It meets monthly and and the four Advisory Committees • Millie Banerjee details of its activities can be found for the Nations and Regions. • Tim Gardam on pages 23 and 24. The Committee oversees the (appointed 06/02/08) process for determining the terms The Committee works with the Community Radio and conditions of all other Ofcom Departments for Business, Enterprise Fund Panel colleagues. The Committee also and Regulatory Reform and for Section 359 of the Communications oversees and decides upon issues Culture Media and Sport on the Act 2003 makes it possible for a fund relating to the pension arrangements process for selecting Non-Executive for community radio operators to be established by Ofcom for all Members for the Ofcom Board set up, and for Ofcom to administer Ofcom colleagues. and makes recommendations to all it and “make such grants as they The Remuneration Committee the Non-Executive Members of the consider appropriate” to community meets as and when required. Ofcom Board on Executive Member radio licensees. The Panel meets as During the period the Committee appointments. The Committee meets required to examine applications met six times. The Chairman of the as and when required. and make awards from the Fund. Remuneration Committee reports It is independent of the Ofcom Radio the outcome of the Remuneration The Fairness Committee Licensing Committee (RLC) which Committee meetings to the Board. And Content Sanctions awards community radio licences. The remuneration of Non-Executive Committee The Panel has three non-executive Members of the Ofcom Board Both these committees are made members: Kevin Carey (Chair), is determined by the Secretaries up of members drawn from the Richard Hilton and Thomas Prag. of State for Business, Enterprise Content Board. On occasions, 58 www.ofcom.org.uk

Non-Board Committees

The Consumer Panel research to engage with other • Professor Simon Saunders Section 16 of the Communications stakeholders on digital switchover, (appointed 21/05/07) Act 2003 requires Ofcom to establish children and the internet and • Andrew Sleigh a Consumer Panel. an exploration of Britain’s • Professor Will Stewart Independent of Ofcom and technologically knowledgable • Professor Peter Swann operating at arm’s length from it, consumers. A key priority area of (appointed 21/05/07) the Panel exists to advise Ofcom on work was to publish a report of the • Dr Walter Tuttlebee consumer interests in the markets use within Ofcom of the Panel’s • Professor Tommaso Valleti it regulates. The Members of the Consumer Interest Toolkit, and to (appointed 21/05/07) Consumer Panel are: work with the European Commission Professor Martin Cave, • Anna Bradley (EC) to secure the adoption of a Stephen Lowe, Professor (Chairman, appointed 10/01/08) streamlined version of the Toolkit Mike Short, Stephen Temple CBE • Ruth Evans (Deputy Chairman) in EC policy-making. The other and Dr Gary Tonge all retired from • Fiona Ballantyne major priority for the Panel was the Committee in May 2007. • Roger Darlington next generation access, on which the Activities carried out by the • Simon Gibson OBE Panel has co-sponsored research with Committee during the year included: • Graham Mather the Broadband Stakeholder Group • spectrum auctions and • Kevin McLaughlin and the Department for Business, liberalisation; • Jeremy Mitchell Enterprise and Regulatory Reform • Ofcom’s Research and • Kate O’Rourke on the economic and social value Development programme; • Bob Twitchin of next generation broadband. • input into the Digital Dividend • Allan Williams The Consumer Panel published Review; Colette Bowe resigned from the its 2007/8 Annual Report on its • World Radio Conference; Committee on 31 December 2007. activities in June 2008. The Report • assisting Ofcom in formulating While Ofcom provides the and further details of the Panel’s its strategic planning with regard to Consumer Panel with operational work can be found online at spectrum; support, the Panel holds its own www.ofcomconsumerpanel.org.uk. • keeping watch on emerging budget and sets its own priorities technologies such as cognitive radio; on the basis of its statutory remit. The Ofcom Spectrum • considering the impact of the Ofcom and the Consumer Advisory Board Ofcom Annual Plan; and Panel have jointly agreed a The Ofcom Spectrum Advisory • advising Ofcom on the UHF Memorandum of Understanding. Board (OSAB) was established in Digital Dividend Spectrum. This memorandum establishes the 2004 to provide independent advice OSAB’s Annual Report, covering principles that both bodies agree to Ofcom on strategic spectrum its activities during its fourth year to adopt in their relations and management issues. OSAB meets five was published on 21 May 2008 and dealings with each other and to six times a year. The Members of can be found on the OSAB website at affirms the independence of OSAB are: www.osab.org.uk the Panel from Ofcom. • Sir David Brown (Chair) During 2007/8 the Consumer • Dr David Cleevely The Advisory Panel shaped a broad range of • Professor Leela Damodaran Committee for Older Ofcom’s policy work on issues • Professor Barry Evans and Disabled Persons that affected consumers or citizens • Debbie Gillatt Section 21(1) of the Communications in the communications markets. • Phillipa Marks Act 2003 requires Ofcom to establish The Panel also worked on wider • Dr Robert Pepper a Committee to advise Ofcom on communications issues, using (appointed 21/05/07) issues in the communications sector Ofcom Annual Report & Accounts 2007/8 Section D: Statement of Accounts 59 and Corporate Governance

that particularly impact on older and The Advisory Committees Northern Ireland disabled people. The Committee for the Nations and Regions • Professor R. Wallace Ewart OBE meets at least four times a year and Section 20 of the Communications (Chair) undertakes specific pieces of work Act 2003 requires Ofcom to • Paul Cavanagh in sub-groups. During the year the establish Advisory Committees (appointed 01/03/08) Members of the Committee were: for the different Nations in the • Jim Dougal • Mike Whitlam CBE (Chair) United Kingdom. The function (appointed 01/10/07) • Professor Janet Askham of each Committee is to provide • Isolde Goggin (Deputy Chair) advice to Ofcom about the interests (appointed 01/10/07) • Simon Cramp and opinions, in relation to • Lesley Holmes • Caroline Ellis communications matters, of people (appointed 01/03/08) • Jonathan Kaye living in the part of the UK for which • Maire Killoran • Dr Laura Muir the Committee has been established. (appointed 01/10/07) • Robert Peckford Committees were established for the • Libby Kinney • Suneel Shivdasani English Regions, Northern Ireland, (appointed 01/10/07) • David Sindall Scotland and Wales during the early • Billy McClean • Ross Trotter part of 2004. (appointed 01/10/07) • John Welsman The membership of each • Sally Montgomery • Nicholas Young Committee is as follows: (appointed 01/10/07) In its fourth year, the Committee • Dr Leslie Orr has continued to advise Ofcom English Regions • Ben Preston to ensure that older and disabled • Suzy Brain England (Chair) (appointed 01/03/08) people are equal players and • Gita Conn OBE JP full participants across current • Sue Farrington Sinead Boyle, Brian Collins, and emerging convergent • John Hooper CBE Carol Burrows, Michael McKernan, telecommunications and • Derek Inman Jane Morrice, Una Murphy and broadcasting technologies, new • Don Jayasuriya Professor Gerard Parr all retired media platforms and digital and • Azam Mamujee from the Committee in September traditional broadcast media. It has • Jessica Mann 2007. Dr David Elliott and provided specific advice to Ofcom • Anne Scorer Glyn Roberts retired from the on its consultations on Future • Alan Wright Committee in February 2008. Broadband, Participation TV, Libby Kinney has not attended proposals for the Co-Regulation of Scotland meetings since 10/12/07 while Equal Opportunities and Ofcom’s • Thomas Prag (Chair) she is on secondment to the BBC Annual Plan for 2008/9 and has • Laura Alexander Trust Unit in Northern Ireland. continued to advise Ofcom across (appointed 01/04/07) the range of its other responsibilities, • Andrew Anderson Wales including Ofcom’s Consumer Policy (appointed 01/04/07) • Professor Tony Davies (Chair) and Media Literacy programmes, • Andrew Jones • Julie Barton and Ofcom’s input to the review of (appointed 01/03/08) • Charlie Bass the EU Electronic Communications • Andrew Muir • Nick Bennett Framework Directives. ACOD will • Julie Ramage • Ian Clarke continue to monitor the effectiveness • Professor Philip Schlesinger • John Davies of Ofcom’s Disability Equality • Mike Shaw (appointed 01/03/08) • Mark Elliott Scheme and, particularly, to ensure • Glyn Mathias that age and disability considerations Susan Neal, Selma Rahman and • Gary Partridge are factored into all of Ofcom’s Martin Robertson all retired from regulatory and policy decisions. the Committee in February 2008. The fees for members of non-Board Committees are linked to the recommendations of the Senior Salaries Review Body for senior Civil Service pay. 60 www.ofcom.org.uk

Statement of Responsibilities

THE BOARD’S RESPONSIBILITIES The Board is responsible for records are maintained and must Under the terms of the Office ensuring that proper records are sign the accounts. of Communications Act 2002, maintained which disclose with As a Member of the Board, the the Board is required to prepare reasonable accuracy at any time Chief Executive has to ensure that a Statement of Accounts for each the financial position of Ofcom and his accountability responsibilities financial year. This conforms with enable it to ensure that the do not conflict with those as a the Accounts Direction issued by Statement of Accounts complies Board Member. The Chief Executive the Secretaries of State for Business, with the Companies Act 1985. may also be called upon by the Enterprise and Regulatory Reform In addition, the Board is responsible Committee of Public Accounts and and for Culture, Media and Sport. for safeguarding Ofcom’s assets other Parliamentary committees The Board is also responsible for and hence for taking reasonable to give evidence on the discharge sending a copy of the Statement steps for the prevention and detection of his duties. of Accounts to the Comptroller of fraud and other irregularities. and Auditor General. This Statement of Accounts is CHIEF EXECUTIVE’S RESPONSIBILITIES prepared, in so far as applicable, The Chief Executive is appointed in accordance with the Companies by the Board who delegate Act 1985 and the United Kingdom to him responsibility for the accounting standards. The Statement day-to-day management of Ofcom. of Accounts is prepared on an The Secretaries of State for Business, accruals basis and must give a true Enterprise and Regulatory Reform and fair view of the state of affairs and for Culture, Media and Sport of Ofcom as at the end of the have designated the Chief Executive financial year and of its income as Ofcom’s Accountable Officer. and expenditure, recognised gains He is not formally appointed as the and losses and cash flows for the Accounting Officer in Government financial year. terms, however the appointment The Board confirms that carries with it duties of responsibility in preparing this Statement in respect of regularity, propriety, of Accounts it has observed the value for money and good financial relevant accounting and disclosure management and the safeguarding requirements, applied suitable of public funds. accounting policies on a consistent The Chief Executive has specific basis, made judgements and responsibilities for ensuring estimates on a reasonable basis, compliance with the terms of the followed applicable accounting Financial Memorandum issued by standards and prepared the the Secretaries of State. He must statement of accounts on a also ensure proper accounting going-concern basis. Ofcom Annual Report & Accounts 2007/8 Section D: Statement of Accounts 61 and Corporate Governance

Statement on Internal Control

SCOPE OF RESPONSIBILITY • manage those risks efficiently, achieve beneficial changes for As Accountable Officer, I have effectively and economically; and citizens and consumers. This responsibility for maintaining a • integrate risk management acceptance of a higher level of sound system of internal control into Ofcom’s wider set of risk does not, of course, override that supports the achievement of management processes. the need for a full evaluation of Ofcom’s policies, aims and objectives, The system of internal control such risk before such activities while safeguarding the public based on the above objectives has are undertaken, nor override the funds and Ofcom’s assets for which been in place in Ofcom for the year need to take appropriate actions I am personally responsible, in ended 31 March 2008 and up to to manage risk effectively within accordance with the responsibilities the date of approval of the Annual the tolerances adopted. assigned to me in Managing Public Report and Accounts and accords Ofcom has therefore developed Money and in the Ofcom Financial with Treasury guidance. appropriate processes for the Memorandum issued to me by the systematic identification, evaluation Secretaries of State for Business, CAPACITY TO HANDLE RISK and control of risk and has further Enterprise and Regulatory Reform Ofcom has developed an effective enhanced these in 2007/8. and for Culture, Media and Sport. risk management strategy around I am required to advise the four key principles: THE RISK AND Board if any action would infringe • clear ownership of roles and CONTROL FRAMEWORK upon the requirements of propriety responsibilities; Executive Committee role or regularity or upon my wider • establishment of corporate systems Under Ofcom’s risk management responsibilities for value for money. to identify, report and evaluate arrangements the Executive risks and their potential impact; Committee has a key role in THE PURPOSE OF THE SYSTEM • ensuring colleagues have the managing Ofcom’s risk profile OF INTERNAL CONTROL appropriate skills to identify and and considering the main risks The system of internal control assess the potential for risks to arise which might prevent achievement is designed to manage risk to in the delivery of Ofcom’s remit; and of its policies, aims and objectives. a reasonable level rather than • the creation of a culture which The Committee met weekly for to eliminate all risk of failure supports well-managed risk-taking most of 2007/8 and is the most senior to achieve policies, aims and where to do so is likely to lead internal management committee of objectives. It can therefore only to sustainable improvements in Ofcom. To reflect Ofcom’s maturing provide reasonable and not absolute service delivery. management arrangements, the assurance of effectiveness. Ofcom’s Ofcom recognises, however, Committee moved to monthly system of internal control is based that organisational risk tolerance meetings from February 2008 on an ongoing process designed to: will vary dependent on the onwards with a newly reconstituted • identify and prioritise risks to circumstances. Ofcom remains Operations Board, meeting every the achievement of Ofcom’s policies, highly risk averse in certain areas two weeks, taking on more of the aims and objectives; of its core operational activities decision-making processes. • evaluate the likelihood of those but will tolerate, or even encourage, All members of the Executive risks being realised and their impact greater risk-taking in other, more Committee are committed to should they be realised; policy-focused areas in order to undertake regular reviews of the 62 www.ofcom.org.uk

Statement On Internal Control

major areas of risk for which they of the risk identification and the Government’s Risk Management are responsible and to work with assessment process and works Assessment Framework; their teams to ensure that all Ofcom with the Executive Committee • an annual review and discussion colleagues are able to identify and and the project teams on risk of internal controls by the Board highlight risks attached to their identification and management. with the Chairman of the Audit areas of activity and to take Ofcom’s profile of prioritised Committee; and appropriate action to manage risks is reviewed annually following • the carrying out of impact such identified risks. the business planning cycle. assessments (as required by the This identification process is Communications Act 2003) intended to establish the priority Risk management reporting designed to identify, inter alia, policy and operational risks which and reviews the risks attached to proposed could affect Ofcom’s ability to deliver Actions identified, implemented and policies to be introduced by Ofcom. its Annual Plan objectives. Actions embedded into Ofcom include: Ofcom has taken action during to address priority risks are reviewed • a weekly report by the 2007/8 to tighten security over its by the Executive Committee on Communications Director and handling of personal and sensitive a monthly basis and, periodically, Director of the Chief Executive’s information. Further steps to ensure the list of priority risks is reviewed Office of current concerns in continued security of information to assess its continuing relevance terms of stakeholder relations; will be taken during 2008/9. with risks added or removed • a monthly Management as appropriate. Information report circulated INTEGRATED APPROACH In addition, individual risk to all members of the Executive TO RISK MANAGEMENT registers have been maintained, Committee which incorporates: Risk management processes, set in an appropriate form, for – the register of priority risks out in a risk management policy each functional area within the updated by the Executive document incorporating risk organisation. Members of the Committee risk owners. assessment criteria, are integrated Executive Committee are responsible Each month this is reviewed into the project management system for managing the risks in their by the Executive Committee for policy projects. Other aspects areas. They must do so in a manner to help monitor risks at of the integrated approach are set in keeping with Ofcom’s overall a corporate level; and out below: tolerance of risk. – exception-based reporting • colleagues’ capacity to handle As part of the annual planning of other high and medium risk is reinforced by face-to-face process carried out in relation to level risk status projects across risk management briefings for 2008/9, all projects have been the organisation, litigation management teams in policy groups assigned a risk ranking to help risks, financial and other and by the continuing focus of prioritise Ofcom’s forthcoming work. operational risks. management review boards on what All project managers are required • a review at each meeting of could prevent delivery of planned to identify risks attached to their the Audit Committee of Ofcom’s outputs or achievement of policy projects and to put in place measures litigation risks and security risks. or operational outcomes; to manage such identified risks, The Committee annually reviews • during 2007/8 the role of steering and a section within decision Ofcom’s financial statements and groups was expanded including papers is designed to make key committee members regularly receive responsibility, where appropriate, risks and their management visible Ofcom’s monthly management for considering the risk approach to decision makers. information pack; relevant for projects within its remit The Directorate of Planning • an annual risk review to analyse and to review risk management and Development is responsible the adequacy of the risk identification actions at a more detailed level; for the overall co-ordination and monitoring process, based on Ofcom Annual Report & Accounts 2007/8 Section D: Statement of Accounts 63 and Corporate Governance

Statement On Internal Control

• application of Treasury The process that has been applied management, governance and management policy and in maintaining and reviewing the control processes for the year. procedures aligned with effectiveness of the system of internal The Audit Committee receives the risk management policy; control is as follows: regular reports from internal audit. • appropriate controls on the These reports identified a number delegated authorities from the The Board of opportunities for improving Board to colleagues both to agree The Board has overall responsibility controls and procedures, which policy decisions and to commit for monitoring the effectiveness of management has responded to expenditure; Ofcom’s system of internal controls to positively, and concluded • an internal audit plan agreed and receives regular reports from in the year under review that, annually between the Audit the Audit Committee. based on the work undertaken, Committee and the internal auditors Ofcom has a satisfactory system with regular reviews by the internal The Audit Committee of risk management, governance auditors of the appropriateness The Audit Committee plays an and control. of Ofcom’s system of internal controls important role in managing risk together with recommendations within Ofcom. It is constituted in Annual risk review for improvement; line with Treasury guidance, with A number of recommendations • the maintenance of a ‘whistle- Non-Executive Members of the arising from the risk review carried blowing’ or ‘protected disclosure’ Ofcom Board on the Committee out in the first half of 2007/8 were policy to enable Ofcom colleagues and an independent Non-Executive addressed during the year, enhancing to communicate concerns to in the Chair with direct access to Ofcom’s risk profile and processes. an independent member of the the Chairman of Ofcom. The Audit These enhancements included: Executive Committee; Committee reviews the effectiveness • a new role for steering groups: • the operation of a security policy of the risk management process. remit to include, as appropriate, dealing with all aspects of security It met four times during the year. agreeing risk approach with including personal, document and I am not a member of the project teams; IS; and Committee but attend most of • integrate risk refresh as part • a Health and Safety Policy its meetings, as do our internal of 2008/9 strategy planning in including required practices for auditors and our external auditors, September 2007 Board awayday; risk assessment and management. the National Audit Office. • improving our prediction The Committee’s terms of and response to emerging risks, REVIEW OF EFFECTIVENESS reference incorporate a right of through better understanding of As Accountable Officer, I have access to the Chair for both the stakeholders particularly regarding responsibility for reviewing the internal and external auditors. new business models; effectiveness of the system of • a more robust internal review internal control. My review of the Internal Audit and challenge of significant linked effectiveness of the system of internal The internal audit function was policy-implementation-operational control is informed by the executive outsourced to KPMG in November activities; and managers within Ofcom who have 2003 and re-tendered and won by • more scenario planning to consider responsibility for the development KPMG in 2006. It carries out its possible risks to policy outcomes and and maintenance of the internal work in accordance with the Internal potential responses. control framework, the work of Audit plan that is approved by the the internal auditors and comments Audit Committee and which is OTHER ASSURANCE MECHANISMS made by the external auditors designed to allow internal audit to A number of financial control in their management letter and make a statement on the adequacy processes have been maintained. other reports. and effectiveness of Ofcom’s risk The Finance department produces 64 www.ofcom.org.uk

Statement On Internal Control

monthly management accounts Executive Committee members which are reviewed by budget provide to the Accountable holders, the Executive Committee Officer a signed annual assurance and Board on a monthly basis statement in relation to their to identify departures from the operation of internal controls original budget. for the major areas of risk Ofcom re-forecasts its expenditure they are responsible for. and outputs (primarily planned I have been advised on the consultation documents and policy implications of the result of my statements) on a quarterly basis to review of the effectiveness of the take into account changes in the system of internal control by the work required to meet its strategic Board and the Audit Committee objectives and ensure that it operates and a plan to address weaknesses within the financial targets of the and ensure continuous improvement Annual Plan. The Annual Plan is of the system is in place. It is my prepared following consultation belief that there are satisfactory with stakeholders and a rigorous processes in place for identifying, internal approach involving project evaluating and managing the managers, the Executive Committee significant risks faced by Ofcom. and final approval by the Board. Capital expenditure projects are Ed Richards approved on an individual basis Chief Executive through presentation of a business 17 June 2008 justification, risk assessment and discounted cash flow forecast to the Operations Board, and, where they exceed certain expenditure thresholds, the Executive Committee and the Board. During 2007/8 Ofcom’s IS renewal programme completed the development of a new system for spectrum licensing covering fixed links; this was implemented in April 2008. The renewal programme was subject to an internal review in the year resulting in replanning of tasks and a new governance structure. Risks identified have been closely monitored at project management, Operations Board and Board level and appropriate action taken to address cost, time and functionality risks and issues. Ofcom Annual Report & Accounts 2007/8 Section D: Statement of Accounts 65 and Corporate Governance

Remuneration Report

In preparing the CONSTITUTION OF THE COMPONENTS OF REMUNERATION REMUNERATION COMMITTEE The main components of Remuneration The constitution of the the Executive Members’ Report and Remuneration Committee remuneration are: is set out on page 57. establishing SALARY AND FLEXIBLE BENEFITS ADVISERS The basic salary for each Executive its policy the The Remuneration Committee Member and senior manager is Board has given takes advice and/or obtains services determined by taking into account from the following external entities: each colleague’s responsibilities, consideration to, • Towers Perrin, on executive performance and experience together and adopts the remuneration; and with market trends. In addition, • Allen & Overy LLP, on a flexible benefits allowance is provisions of, the employment contracts and made available to each Executive associated legal issues. Member and senior manager. Combined Code, Towers Perrin also provides advice where appropriate and services to Ofcom in respect BENEFITS IN KIND of pensions, pension trustee and Each Executive Member and senior and applicable. administration support and other manager receives certain standard Ofcom is not organisational issues. benefits which are detailed later in The Committee also takes this section. required to comply advice from Ofcom’s HR Director. The Chief Executive is normally ANNUAL BONUS with the Directors’ invited by the Remuneration Each Executive Member and senior Remuneration Committee to attend meetings manager participates in a bonus of the Committee. No individual scheme which is calculated as Report Regulations is present for any discussion a percentage of salary based on 2002 but has about his or her own remuneration. the individual’s performance up to a maximum of 25 per cent of prepared this report GENERAL POLICY salary depending upon the individual In setting Ofcom’s remuneration concerned. No element of bonus to be compliant so policy the Remuneration Committee is pensionable. far as is practicable believes that Ofcom should, Bonuses included in the schedules within the constraints of a public reflect the amount payable for and appropriate. corporation, provide rewards the performance review period which will attract and retain the 1 April 2007 to 31 March 2008. high-calibre management necessary to enable Ofcom to fulfil its PENSION ARRANGEMENTS statutory remit and responsibilities. Executive management The overall policy approach is Each Executive Member and not expected to change in the senior manager (with the exception coming year. of Dominic Morris and Chris 66 www.ofcom.org.uk

Remuneration Report

Banatvala as set out below) is employed by the ITC. This provides GUIDANCE TO THE provided with an allowance, salary-related pension benefits on a REMUNERATION SCHEDULES determined as a percentage of defined benefit basis, with an accrual These schedules refer to base salary, which the individual rate of 1/60th of final salary per year remuneration during the financial can take as extra salary or invest of service, subject to the Ofcom Plan year. The schedule reflects in a pension scheme of their choice. Earnings Cap where appropriate. remuneration for that part of the Dominic Morris is eligible to year during which individuals were participate in the Ofcom Defined Non-Executive Members either providing services to, or Benefit Pension Plan on comparable As set out below in the Notes to the Executive Members of the Board, terms as applied when previously Remuneration table David Currie Content Board or the Executive employed by the ITC. This provides was paid fees by Ofcom from Committee. Where individuals are salary-related pension benefits on a 9 April 2007; between 1 April and members of more than one Board/ defined benefit basis, with an accrual 9 April as part of his then applicable Committee (as set out on pages rate of 1/60th of final salary per year arrangements a small amount of 54 to 57) they appear only once of service, subject to the Ofcom Plan direct pension costs for David Currie in the remuneration schedules. Earnings Cap where appropriate. were met by Ofcom. No other The numbered points against Dominic Morris receives additional Non-Executive Member received a the names of individuals refer benefits through the Plan in pension benefit from Ofcom during to the numbered points set on recognition of his earnings in the year under review. pages 68 and 69. excess of the cap. Details of remuneration for the Chris Banatvala is eligible to Board, the Content Board and the participate in the Ofcom Defined Executive Committee, which have Benefit Pension Plan on comparable been audited by the National Audit terms as applied when previously Office, are set out on page 67. Ofcom Annual Report & Accounts 2007/8 Section D: Statement of Accounts 67 and Corporate Governance

Remuneration Report

OFCOM BOARD REMUNERATION 2007/8

Pension Flexible Total entitlement/ benefits Benefits Name Role remuneration allowance allowance in kind Bonus Salary £ £ £ £ £ £ Millie Banerjee Non-Executive Member (2,3,13) 58,446 672 - 57,774 Collette Bowe Non-Executive Member (2,5,13) 10,320 - 10,320 David Currie Chairman (1,2,13) 206,134 616 728 - 204,790 Tim Gardam Non-Executive Member (2,4,13) 10,320 - 10,320 Philip Graf Deputy Chairman (2, 13) 103,874 672 - 103,202 Ian Hargreaves Executive Member (7,16-19) 247,896 27,000 12,000 1,896 27,000 180,000 Stephanie Liston Non-Executive Member (2, 8,13) 41,953 672 - 41,281 Mike McTighe Non-Executive Member (2,4,13) 24,417 336 - 24,081 Sara Nathan Non-Executive Member (2,6,13) 31,465 504 - 30,961 Ed Richards Chief Executive (16-19) 417,581 56,400 19,953 2,828 56,400 282,000 Philip Rutnam Executive Member (16-19) 260,753 27,150 15,000 1,403 36,200 181,000 Total 1,413,159 111,166 46,953 9,711 119,600 1,125,729

OFCOM CONTENT BOARD REMUNERATION 2007/8

Pension Flexible Total entitlement/ benefits Benefits Name Role remuneration allowance allowance in kind Bonus Salary £ £ £ £ £ £ Richard Ayre Content Board Member (9,12,13) 26,248 300 - 25,948 Chris Banatvala Director of Standards (16-19,21) 174,968 24,052 16,250 1,352 23,000 110,314 Sue Balsom Content Board Member (9,13) 21,690 672 - 21,018 Pam Giddy Content Board Member (9,13) 21,690 672 - 21,018 Anthony Lilley Content Board Member (9,13) 21,690 672 - 21,018 Dr Paul Moore Content Board Member (9-13) 21,690 672 - 21,018 Stewart Purvis Partner, Content & Standards (16-19) 60,271 7,280 4,000 458 - 48,533 Adam Singer Deputy Chairman (9-13) 28,696 672 - 28,024 Tim Suter Partner, Content & Standards (10,16-19) 149,671 17,600 14,290 448 - 117,333 Joyce Taylor Content Board Member (9-13) 21,634 616 - 21,018 Kath Worrall Content Board Member (9-13) 28,396 372 - 28,024 Total 576,644 48,932 34,540 6,906 23,000 463,266

OFCOM EXECUTIVE COMMITTEE REMUNERATION 2007/8

Pension Flexible Total entitlement/ benefits Benefits Name Role remuneration allowance allowance in kind Bonus Salary £ £ £ £ £ £ Jill Ainscough Chief Operating Officer (15-19) 161,230 16,738 9,846 919 22,137 111,590 Janet Campbell HR Director (14,16-19) 124,199 10,170 10,714 1,517 17,048 84,750 Rona Chester Finance Director (14,16-19) 126,695 14,957 10,714 1,310 0 99,714 Graham Howell Secretary to the Corporation (14,16-19) 145,241 15,954 10,714 1,517 10,699 106,357 Peter Ingram Chief Technology Officer (14,16-19) 166,546 23,175 17,857 1,479 8,160 115,875 Stuart McIntosh Partner, Competition (15-19) 50,127 6,144 2,731 290 0 40,962 Dominic Morris Director of the CEO’s Office (14,16-20) 153,089 19,520 13,092 1,310 10,892 108,275 Peter Phillips Partner, Strategy and Market Developments (14,16-19) 266,006 27,090 20,000 2,196 36,120 180,600 Total 1,193,133 133,748 95,668 10,538 105,056 848,123 68 www.ofcom.org.uk

Millie Banerjee’s basic fee Ian Hargreaves is employed Notes was increased with effect by Ofcom on a part-time basis. 3 from 1 April 2007 to £52,774 7 His remuneration shown for to the per annum to reflect her additional the period under review represents membership of the Content Board. what was actually paid to him, and remuneration not a full-time equivalent salary. Mike McTighe was appointed Ian Hargreaves resigned from tables as a Non-Executive Member the Board on 31 May 2008. 4 of the Ofcom Board on 1 September 2007. Tim Gardam Stephanie Liston resigned In April 2007 the Chairman was appointed as a Non-Executive from the Ofcom Board retired from City University. Member of the Ofcom Board on 8 on 31 March 2008. 1As of 9 April 2007 the 1 January 2008. Chairman began to receive fees from The fees for the Non-Executive Ofcom on the same basis as the other Colette Bowe was appointed Members of the Content Board Non-Executive Members (see Note as a Non Executive Member 9 are fixed by the Ofcom Board. 2 below). In addition, Ofcom met 5 of the Ofcom Board on The fees shown represent a full year David Currie’s pension costs for 1 January 2008. Prior to this or, where appropriate, part of the the period 1 April to 9 April 2007. appointment, Colette Bowe was year if the Content Board Member Chairman of the Consumer Panel. joined or retired from the Content The fees for all the The remuneration shown within the Board during the year. As with the Non-Executive Members of table represents the part of the year fees for the Ofcom Board, fees for 2 the Ofcom Board are fixed in during which Colette Bowe was a the Content Board Members are agreement with DBERR and DCMS Member of the Ofcom Board only. linked to the recommendations of for the duration of their appointment. the Senior Salaries Review Body The fees shown represent a full year Sara Nathan retired from the for senior civil service pay and as or, where appropriate, part of the Ofcom Board on 31 December a consequence of such linkage fees year if the relevant Non-Executive 6 2007. The remuneration were increased by 0.66 per cent from Member joined or retired from shown represents the part of the 1 April 2007. The basic fee of the the Ofcom Board during the period year during which Sara Nathan Content Board Members (with the under review. The fees for the was a Member of the Ofcom exception of Adam Singer and Kath Non-Executive Members are linked Board. Sara Nathan has restrictive Worrall, who receive enhanced fees to the recommendations of the covenants in her agreement with for their additional roles as Deputy Senior Salaries Review Body for Ofcom which prevent her from Chairman and Chair of the Fairness senior civil service pay and as a accepting certain paid employment Committee) was £21,018 per annum consequence of such linkage fees or providing certain services to from 1 April 2007. were increased by 0.66 per cent from third parties for a six month period 1 April 2007. The basic fee of the following her retirement from Non-Executives of the Ofcom Board Ofcom. Ofcom therefore continued (with the exception of the Chairman, to pay Sara Nathan her fees until the Deputy Chairman and Millie 31 March 2008 as consideration Banerjee) was £41,281 per annum for the enforcement of such restrictive from 1 April 2007. An additional covenants. Sara Nathan received fee of £5,000 per annum is paid remuneration (covering fees and to Non-Executive Board Members benefits in kind) of £10,488 for who chair a Board Committee. this three-month period. Ofcom Annual Report & Accounts 2007/8 Section D: Statement of Accounts 69 and Corporate Governance

Notes to the remuneration tables

Tim Suter resigned are a digital package for domestic Base salary for all senior as an Executive and business use and, for the executives is reviewed 10 Member of the Content Non-Executive Members of the 17 annually on 1 July. Board on 30 November 2007. Ofcom Board only, the provision The remuneration shown represents of IT equipment for home working. Each Ofcom Executive the part of the year during which Not all Non-Executive Members of Member of the Ofcom Tim Suter was a Member of the the Ofcom Board or Content Board 18 Board or senior manager Content Board. In addition to the Members took up the entitlement is able to benefit from life assurance, remuneration shown Tim Suter during the period under review. group income protection, a digital received remuneration (covering package for domestic and business salary, pension allowance and The membership of the use and the ability to undertake an flexible benefits) of £35,983 for Executive Committee of annual health check. The value of a two-month period, representing 14 Ofcom was changed on group income protection and annual remuneration due to him during 18 December 2007. As a result, Janet health checks have not been disclosed his period of notice. Campbell, Rona Chester, Graham in the remuneration schedules Howell, Peter Ingram and Dominic because they are not treated by Stewart Purvis was Morris all resigned from the HM Revenue & Customs as a appointed as Partner, Committee on 18 December 2007. taxable emolument. 11 Content and Standards The remuneration table shows all and an Executive Member of the those colleagues who were members All Ofcom colleagues Content Board on 3 December during the year. For those who participate in a bonus 2007. Stewart Purvis is employed were appointed to, or who resigned 19 scheme, payment by Ofcom on a part-time basis. from, the Executive Committee of which is based on individual His remuneration shown for the during the period under review performance. All payments period under review represents their remuneration is shown for are approved by the Ofcom what was actually paid to him, and the duration of their membership Remuneration Committee and not a full-time equivalent salary. of the Executive Committee only. are calculated as a percentage of base salary ranging from 0-25 During the period under Jill Ainscough was per cent. For the financial year review, Richard Ayre appointed as Chief 2007/8 bonuses are to be paid in 12 undertook an enquiry 15 Operating Officer on July 2008 and have been accrued for Ofcom into aspects of audience 7 August 2007; Stuart McIntosh in the table above. Those with a nil participation television; this work was appointed as Competition amount were not eligible for a bonus. was in addition to his duties as a Partner on 28 January 2008. Content Board Member and he Dominic Morris received an additional payment Annual remuneration is a member of the in excess of his Content Board fees for the Ofcom executives 20 Ofcom Defined Benefit of £4,930 for the provision of his 16 (Executive Members Pension Plan. A separate disclosure services to the enquiry. of the Ofcom Board, Executive in relation to this plan has been Members of the Content Board made in the table below. The Non-Executive and senior managers on the Members of the Ofcom Executive Committee) includes Chris Banatvala is a 13 Board and the Content base salary together with a cash member of the Ofcom Board Members (with the exception allowance for flexible benefits and 21 Defined Benefit Pension of Richard Ayre as noted in Note 12) a percentage of basic salary paid Plan. A separate disclosure in receive no additional remuneration as a pension allowance (with the relation to this plan has been from Ofcom beyond their fees other exception of Dominic Morris and made in the table below. than the entitlement to the provision Chris Banatvala). of certain standard benefits, which 70 www.ofcom.org.uk

Notes to the remuneration tables

EXECUTIVE DISCLOSURE FOR The Non-Executive Members are appointment (a period of exclusion DEFINED BENEFIT PENSIONS all on fixed-term appointments for or ‘gardening leave’) and six months The disclosures for defined benefit a set time commitment to Ofcom after termination (a protective pensions for Dominic Morris and of up to two days per week (with covenant). These restrictions Chris Banatvala are shown in the the exception of David Currie, reflect those which also apply to the table below. Philip Graf and Millie Banerjee Executive Members of the Ofcom The accrued pensions and transfer who currently commit up to four, Board and are designed to protect values for Dominic Morris and three and two and a half days the independence of Ofcom and Chris Banatvala reflect the per week respectively). the professional integrity of each additional pension arising from Non-Executive Member. a transfer-in of their benefits DISCLOSURES FOR DEFINED from their previous employer. BENEFIT PENSIONS Outside directorships The transfer value of accrued Compensation from No Executive Member of the Ofcom pension represents the estimated early termination Board may accept a non-executive cost to the pension scheme of The arrangements for early appointment without the prior providing the pension benefit termination of a service contract approval of the Board to ensure accrued to date (calculated in for an Executive Member of the that these do not give rise to accordance with Actuarial Guidance Ofcom Board or senior manager conflicts of interest. Note GN11). The value is affected are decided by the Remuneration All appointments accepted by by a number of factors, which Committee and will be made in the Non-Executive Members of include age of individual, pensionable accordance with the service contract the Ofcom Board must be notified salary and investment market of the relevant Executive Director to the Board to ensure that no conditions at the date of calculation. or senior manager. Each service conflict of interest arises; if such contract provides for a payment in conflict is deemed to arise then SERVICE AGREEMENTS lieu of notice on early termination the Non-Executive Member will No Executive Member of the Ofcom at Ofcom’s discretion. be required to resign from the Board or other Ofcom colleague Non-Executive Members have position in question. has a service agreement containing no entitlement to compensation a notice period exceeding one year. in the event of early termination. On behalf of Ofcom, The Remuneration Committee has All Non-Executive Members Millie Banerjee considered the notice period and have restrictions against working Chairman of the termination arrangements in the for a business regulated by Ofcom Remuneration Committee light of the Combined Code and for up to six months prior to 17 June 2008 believes them to be appropriate. the termination or expiry of the Ofcom Annual Report & Accounts 2007/8 Section D: Statement of Accounts 71 and Corporate Governance

Notes to the remuneration tables

Increase in Increase in Transfer value of Transfer value of transfer value Accrued pension accrued pension accrued pension at accrued pension at less member’s Name at 31 March 2008 over year 31 March 2008 31 March 2007 contributions £ £ £ £ £ Dominic Morris CBE (20) 23,800 2,900 352,000 298,000 43,000 Chris Banatvala (21) 10,900 1,500 85,000 70,000 10,000 72 www.ofcom.org.uk

Section E

I certify that I have audited the with International Standards Accounts for financial statements of the Office on Auditing (UK and Ireland). of Communications for the year I report to you my opinion as the period ended 31 March 2008 under the to whether the financial statements Office of Communications Act 2002. give a true and fair view and 1 April 2007 These comprise the Income and whether the financial statements Expenditure Account, the Statement and part of the Remuneration of Total Recognised Gains and Report to be audited have been to 31 March Losses, the Balance Sheet, the properly prepared in accordance Cash Flow Statement and the related with the Office of Communications 2008. notes. These financial statements Act 2002 and the Secretaries have been prepared under the of State for Business, Enterprise Certificate accounting policies set out within and Regulatory Reform and for them. I have also audited the Culture, Media and Sport directions information in the Remuneration made thereunder. I report to you and Report Report that is described in that whether, in my opinion, certain report as having being audited. information which comprises the of the Financial Performance, Foreword, Respective Responsibilities The Ofcom Board, Corporate Comptroller of the Board, the Chief Governance and Board Committees Executive and Auditor sections, included in the Annual and Auditor The Board, and Chief Executive, Report, is consistent with the as Accountable Officer, are financial statements. I also report responsible for preparing the whether in all material respects General to Annual Report, which includes the expenditure and income the Remuneration Report, and the have been applied to the purposes the Houses financial statements in accordance intended by Parliament and the with the Office of Communications financial transactions conform of Parliament Act 2002 and the Secretaries of to the authorities which govern them. State for Business Enterprise and In addition, I report to you if the Regulatory Reform and for Culture, Office of Communications has not Media and Sport directions made kept proper accounting records, if I thereunder and for ensuring the have not received all the information regularity of financial transactions. and explanations I require for my These responsibilities are set out audit, or if the information specified in the Statement of Responsibilities. by relevant authorities regarding My responsibility is to audit remuneration and other transactions the financial statements and the is not disclosed. part of the Remuneration Report I review whether the Statement to be audited in accordance on Internal Control reflects the with the relevant legal and Office of Communications regularity requirements and compliance with HM Treasury’s guidance, and I report if it does not. Ofcom Annual Report & Accounts 2007/8 Section E: Accounts 73

I am not required to consider with sufficient evidence to give Opinion on regularity whether this statement covers reasonable assurance that the In my opinion, in all material all risks and controls, or form financial statements and the part respects the expenditure and income an opinion on the effectiveness of the Remuneration Report to have been applied to the purposes of the Office of Communications be audited are free from material intended by Parliament and the corporate governance procedures misstatement, whether caused financial transactions conform to or its risk and control procedures. by fraud or error, and that in all the authorities which govern them. I read the other information material respects the expenditure contained in the Annual Report and income have been applied to Report and consider whether it is consistent the purposes intended by Parliament I have no observations to make with the audited financial statements. and the financial transactions on these financial statements. This other information comprises conform to the authorities which the unaudited part of the govern them. In forming my opinion, TJ Burr Remuneration Report and the I also evaluated the overall adequacy Comptroller and Auditor remaining sections of the Annual of the presentation of information General Report. I consider the implications in the financial statements and the June 2008 for my report if I become aware part of the Remuneration Report of any apparent misstatements to be audited. National Audit Office or material inconsistencies 151 Buckingham Palace Road with the financial statements. Opinions Victoria My responsibilities do not extend In my opinion: London to any other information. • the financial statements give a SW1W 9SS true and fair view, in accordance Basis of Audit Opinions with the Office of Communications I conducted my audit in accordance Act 2002 and directions made with International Standards on thereunder by the Secretaries of Auditing (UK and Ireland) issued State for Business Enterprise and by the Auditing Practices Board. Regulatory Reform and for Culture, My audit includes examination, Media and Sport, of the state of the on a test basis, of evidence relevant Office of Communications affairs to the amounts, disclosures and as at 31 March 2008 and of its regularity of financial transactions surplus for the year then ended; included in the financial statements • the financial statements and the and the part of the Remuneration part of the Remuneration Report Report to be audited. It also includes to be audited have been properly an assessment of the significant prepared in accordance with the estimates and judgements Office of Communications Act 2002 made by the Board and Chief and directions made thereunder by Executive in the preparation of the Secretaries of State for Business, the financial statements, and of Enterprise and Regulatory Reform whether the accounting policies and for Culture, Media and Sport; are most appropriate to the and Office of Communications • information, which comprises the circumstances, consistently applied Financial Performance, Foreword, and adequately disclosed. The Ofcom Board, Corporate I planned and performed my audit Governance and Board Committees so as to obtain all the information sections, included within the Annual and explanations which I considered Report, is consistent with the necessary in order to provide me financial statements. 74 www.ofcom.org.uk

Income and Expenditure Account for the year ended 31 March 2008

Notes Year ended Year ended 31 March 2008 31 March 2007 £’000 £’000

Income 2,3 142,396 143,608 Operating expenditure Staff costs 4 (60,781) (55,748) Other operating costs 6 (73,161) (69,427) Operating surplus 8,454 18,433 Exceptional credit 7 126 2,878 Asset impairment 9b (1,520) - Interest receivable 1,663 1,697 Interest payable 8 (176) (411) Other finance costs 18,25 (237) (491) Notional cost of capital credit 21 1,378 1,073 Surplus on ordinary activities 9,688 23,179 Reversal of notional cost of capital credit 21 (1,378) (1,073) Surplus for financial year 8,310 22,106

The accounting policies and notes on pages 78 to 96 form part of these financial statements. Ofcom Annual Report & Accounts 2007/8 Section E: Accounts 75

Statement of Total Recognised Gains and Losses for the year ended 31 March 2008

Notes Year ended Year ended 31 March 2008 31 March 2007 £’000 £’000

Surplus for year 8,310 22,106 Ofcom Defined Benefit Pension Plans Actual return less expected return on plan assets 25b 4,660 (380) Experience (losses)/gains on pension scheme liabilities 25b,c (1,855) 2,907 Changes in assumptions underlying the present value of pension scheme liabilities 25b,c 24,018 (2,128) Increase in unrecoverable surplus 25b (26,600) (5,900) Total recognised gains for year 8,533 16,605

The accounting policies and notes on pages 78 to 96 form part of these financial statements. 76 www.ofcom.org.uk

Balance Sheet as at 31 March 2008

Notes As at As at 31 March 2008 31 March 2007 £’000 £’000

Fixed assets Intangible assets 9a 11,196 8,294 Tangible assets 9b 17,802 20,965 28,998 29,259 Current assets Debtors 10 9,932 7,537 Cash at bank and in hand 11 52,346 46,690 62,278 54,227 Creditors – amounts falling due within one year 13 (56,516) (54,901) Net current assets/(liabilities) 5,762 (674) Total assets less current liabilities 34,760 28,585 Creditors – amounts falling due after more than one year 14 (299) (70) Provisions for liabilities and charges 18 (3,852) (2,736) Net assets excluding pension asset and liability 30,609 25,779 Pension asset 12 9,840 6,170 Pension liability 12 (876) (909) Net assets including pension asset and liability 19 39,573 31,040 Reserves Income and expenditure account 19 39,573 31,040 39,573 31,040

The accounting policies and notes on pages 78 to 96 form part of these financial statements. These financial statements were approved by the Board on 3 June 2008.

David Currie Ed Richards Chairman Chief Executive Ofcom Annual Report & Accounts 2007/8 Section E: Accounts 77

Cash Flow Statement for the year ended 31 March 2008

Notes Year ended Year ended 31 March 2008 31 March 2007 £’000 £’000

Net cash inflow from operating activities 20 16,482 6,258 Returns on investment and servicing of finance Interest received 1,619 1,642 Interest paid 8 (176) (411) Net cash inflow for returns on investment and servicing of finance 1,443 1,231 Capital expenditure and financial investment Payments to acquire fixed assets (7,099) (9,470) Proceeds from the disposal of fixed assets 16 75 Net cash outflow from capital expenditure and financial investment (7,083) (9,395) Net cash inflow/(outflow) before financing 10,842 (1,906) Financing Loans repaid 15 (5,186) (5,186) Net cash outflow from financing (5,186) (5,186) Increase/(Decrease) in cash in the year 5,656 (7,092) Reconciliation of net cash flow to movements in net funds Increase/(Decrease) in cash in the year 5,656 (7,092) Decrease in debt in the year 15 5,186 5,186 Opening net funds 41,504 43,410 Closing net funds 52,346 41,504

The accounting policies and notes on pages 78 to 96 form part of these financial statements. 78 www.ofcom.org.uk

Notes to the Accounts for the year ended 31 March 2008

1. Accounting policies as deferred income on the balance are remitted to BERR for payment sheet. Cash costs in excess of income to the Consolidated Fund. A) BASIS OF ACCOUNTING received are classified as a debtor at No entries are made in these These financial statements have the balance sheet date. Financial Statements in respect been prepared on a going concern of Section 400-related transactions basis in accordance with the accounts Broadcasting licence fees except where payments and fees direction, which forms part of the Income from Broadcasting licence have been collected and are in Financial Memorandum(FM), from fees represents the amount invoiced Ofcom’s main bank account at the the Secretaries of State for Business, to licensees and is accounted for on balance sheet date. These are shown Enterprise and Regulatory Reform an accruals basis. Income in excess as due to the Consolidated Fund (BERR) and for Culture, Media of Broadcasting’s cash costs and within Creditors due within one year. and Sport (DCMS) issued on share of loan repayments is classified Ofcom prepares a separate set 16 January 2008. as deferred income on the balance of financial statements to 31 March These financial statements have sheet. Cash costs in excess of income each year for the purposes of Section been prepared under the historical received are classified as a debtor 400 of the Communications Act cost convention, modified by the at the balance sheet date. 2003. These financial statements revaluation of certain fixed assets are laid before Parliament. and comply with the requirements Application fees of the Companies Act 1985, One-off Broadcasting and Networks D) LEASES except where these are overridden and services application fees are Rentals payable and receivable under by the Office of Communications non-refundable and accordingly operating leases are reported in the Act 2002, and with applicable are recorded as income on receipt Income and Expenditure account. accounting standards. of the stakeholder application. For properties with initial rent-free periods, the total rentals payable in B) INCOME RECOGNITION Other income the period until the first rent review Grant-in-aid Other income is accounted for on are charged to the Income and This income comprises grant-in-aid an accruals basis and is matched Expenditure account on a straight- from BERR to meet the costs of with the expenditure towards line basis over that period. spectrum management, spectrum which it contributes. awards, spectrum clearance, ex post E) ONEROUS PROPERTY LEASES competition, public interest and from C) RECEIPTS COLLECTED BY OFCOM Where properties become surplus DCMS in respect of media literacy. WITHIN THE SCOPE OF SECTION 400 to requirements, professional Grant-in-aid received from BERR OF THE COMMUNICATIONS ACT 2003 advice is taken on marketing these and DCMS is allocated and matched Broadcasting Act Additional properties and provision is made to costs in the year to which it relates. Payments, penalties and fines for the estimated future liabilities levied by Ofcom are remitted on these leases at current prices, Networks and services to the Consolidated Fund in and discounted using the Treasury administrative fees accordance with Section 400 of discount rate of 2.2 per cent. Future Income which comprises the Communications Act 2003. rental income is only included in administrative fees invoiced by Additionally, licence fees levied this calculation to the extent that Ofcom is accounted for on an by Ofcom, arising from the issue it is reasonably certain. accruals basis. Income in excess of or renewal of licences under the Networks and services’ cash costs and Wireless Telegraphy (WT) Acts share of loan repayments is classified Ofcom Annual Report & Accounts 2007/8 Section E: Accounts 79

Notes to the Accounts for the year ended 31 March 2008

F) EARLY RETIREMENT AND Intangible assets Fixtures & Fittings – Leasehold Improvements: FUTURE PENSIONS COSTS In accordance with FRS 10, The Radiocommunications expenditure on computer Period of the lease Agency and Oftel operated an software is capitalised to the extent Fixtures & Fittings – Furniture: Early Retirement Scheme which that it is probable the asset will 7 years gave retirement benefits to certain generate future economic benefits. Office and Field Equipment: qualifying employees. These benefits The expenditure capitalised includes 4-7 years conform to the rules of the Principal the cost of software applications, Computer Hardware: Civil Service Pension Scheme cost of development and related 3-5 years (PCSPS). The liability of the Agency licences fees. Motor Vehicles: and Oftel to bear the costs of these Amortisation on capitalised benefits transferred to Ofcom on development costs is charged to 5 years 29 December 2003. The liability the income statement on a straight- remains until the normal retirement line basis, from the month following I) RESEARCH AND DEVELOPMENT age of the employees retired under that in which an asset is brought Research and development the Early Retirement Scheme. into service, over the estimated expenditure is written off as Provision is made for these additional useful life of the asset. The estimated incurred to the Income and costs, based on the discounted value useful life is three to five years. Expenditure account. of the annual amounts payable at the balance sheet. The actual Tangible assets J) EMPLOYEE BENEFITS amounts payable increase annually Assets under construction comprise Ofcom participates in two defined in accordance with PCSPS rules. costs incurred in developing benefit pension schemes which relate computer systems which will replace to staff that transferred to Ofcom G) SETTLEMENT OF CLAIMS some of the current applications. from legacy organisations. These Provision is made for estimated Expenditure capitalised under this schemes are closed to new members. third-party legal costs and damages heading will be depreciated upon The Ofcom Defined Benefit in respect of challenges to regulatory the asset being brought into use. Pension Plan provides benefits that decisions of Ofcom and legacy Assets are depreciated once are broadly equivalent to the PCSPS. organisations where it is judged the asset is brought into use. Ofcom jointly participates with the probable that these will be payable. Depreciation is provided on a Advertising Standards Authority straight-line basis, from the month in the scheme. The second scheme H) FIXED ASSETS following that in which an asset is the Ofcom (Former ITC) Staff Fixed assets are valued at cost is brought into service, over the Pension Plan, where Ofcom is one or estimated replacement cost. estimated useful economic life of four participating employers. For all non-property assets of of the asset, as follows: The assets of this scheme are held a short economic useful life or in a separately administered trust. low value, treasury direction FRS 17 (Accounting for Pension allows Ofcom to use depreciated Scheme Liabilities) is followed historical cost as a proxy for and the net assets of the schemes current valuation. All Ofcom are included in the balance sheet. assets fall in this category. The aggregate of the movement Fixed assets over £2,500 in the net assets of the two plans are capitalised. is shown in the Statement of Total Recognised Gains and Losses. 80 www.ofcom.org.uk

Notes to the Accounts for the year ended 31 March 2008

Ofcom also has liabilities in L) FINANCIAL INSTRUMENTS result of onerous lease provisions respect of pension payments to three AND CREDIT RISK on properties inherited from former chairmen of the Independent Ofcom had initial loan funding predecessor bodies that were excess Television Commission, two former of £52.3m from BERR to fund its to requirements on the formation chairmen of the Radio Authority establishment and running costs of Ofcom. A deferred tax asset has and two former Director Generals of prior to the vesting of powers to not been recognised because there The Office of Telecommunications. set licence and administrative fees is insufficient evidence that it These are unfunded schemes and under the Communications Act would be recoverable, due to the are accounted for under FRS 17 2003. During the financial year, uncertainty of future taxable income. with a provision included in Ofcom’s Ofcom made the final repayments balance sheet for the actuarial on the loan. The interest rates N) CAPITAL CHARGE valuation of the liabilities. for the loans made by BERR Under the terms of Ofcom’s New staff may join a stakeholder were fixed for the period of Financial Memorandum issued pension scheme, which is a defined the loan with repayments by BERR, a credit, reflecting contribution scheme. Pension due at six-monthly intervals. the return on Ofcom’s capital contributions payable to defined Interest has been recognised (in accordance with standard contribution schemes are expensed over the period of the loan and government accounting practice), as incurred. calculated in accordance with is made to the surplus before Colleagues who have completed the loan terms. taxation. The charge is calculated five years of continuous service are Ofcom has limited powers to in accordance with HM Treasury entitled to a paid sabbatical of five borrow money to fund short- guidance at 3.5 per cent on the weeks. The liability as at year-end, term fluctuations in cash flow. carrying amount of all relevant measured in accordance with the Surplus funds generated by assets less relevant liabilities. principles of FRS 12 and UITF Ofcom’s operations are held This charge is reversed to determine 25, is included as part of accruals. as bank balances. the retained surplus on ordinary This is based on management’s best activities after taxation. estimates using current salary data M) TAX and churn rates and is included as HM Revenue and Customs has O) SEGMENTAL ANALYSIS part of accruals. As from 1st January ruled that Ofcom’s regulatory For transparency and to meet 2008, this benefit was withdrawn functions do not constitute a with the requirements of the for new joiners. trading business. Consequently, Communications Act 2003 to Ofcom is unable to recover VAT provide information on costs K) FOREIGN EXCHANGE on expenditure, which it incurs and fees, Note 2 to these financial Transactions designated in foreign as part of its regulatory activities. statements presents the Income currencies are translated into sterling Corporation tax is assessable and Expenditure account for the at the rate of exchange prevailing on interest received, and in respect year under review by sector. As a at the transaction date. Monetary of rent arising after property public corporation, Ofcom is not assets and liabilities designated in expenditure on surplus property. required to present information in foreign currencies are translated at At the balance sheet date, Ofcom accordance with SSAP 25. the rates prevailing at the balance had unutilised tax losses available sheet date with the resulting profit for offset against future income or loss recognised in the Income and that may be subject to Corporation Expenditure account for the year. tax. These losses have arisen as a Ofcom Annual Report & Accounts 2007/8 Section E: Accounts 81

Notes to the Accounts for the year ended 31 March 2008

2. Sectoral analysis The analysis below refers to income by sector for the year ended 31 March 2008, together with attributable costs.

Spectrum Spectrum Spectrum Networks Other 31 March 31 March management Clearance awards & services Broadcasting income 2008 Total 2007 Total £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000

Revenue Licence and administration fees - - - 26,229 28,552 - 54,781 56,091 Application fees - - - 40 640 - 680 1,570 Grant-in-aid 73,101 3,000 3,012 - - 2,453 81,566 82,640 Other income - - - - - 2,047 2,047 2,000 Accrued/(Deferred) income (42) - (395) 1,229 1,253 (138) 1,907 791 Total Revenue 73,059 3,000 2,617 27,498 30,445 4,362 140,981 143,092 Rental and other Income 796 - - 271 301 47 1,415 516 Operating income 73,855 3,000 2,617 27,769 30,746 4,409 142,396 143,608 Interest receivable 934 - - 319 354 56 1,663 1,697 Total income 74,789 3,000 2,617 28,088 31,100 4,465 144,059 145,305 Loan repayments - - - (2,476) (2,710) - (5,186) (5,186) Interest payable - - - (84) (92) - (176) (411) Net Operating Income 74,789 3,000 2,617 25,528 28,298 4,465 138,697 139,708 Onerous property and accrued rental income (48) - - (16) (18) (4) (86) 814 Cash Income 74,741 3,000 2,617 25,512 28,280 4,461 138,611 140,522 Total costs (74,741) (3,000) (2,617) (25,512) (28,280) (4,461) (138,611) (140,522) Surplus on cash cost basis ------

Spectrum COMPARATIVE COSTS BY SECTOR Efficiency** Year ending 31 March 2008 (74,741) (3,000) (2,617) (25,512) (28,280) (4,461) - (138,611) Year ending 31 March 2007 (73,544) - (1,710) (23,515) (30,450) (4,939) (6,364) (140,522)

** Separate grant-in-aid funding for the spectrum efficiency scheme, provided to cover the costs of Ofcom spectrum research and development projects, ceased at the end of 2007. For 2008 onwards these costs fall within expenditure funded through spectrum management grant-in-aid. Additionally for 2008 onwards Ofcom is in receipt of (or receives) grant-in-aid funding for spectrum clearance, to promote long-term spectrum planning and efficient spectrum usage. Other income comprises: • grant-in-aid funded competition enquiries; • grant-in-aid funded media literacy work; • commercial activities including spectrum interference work; and • rental income from sub-letting vacant property space.

In accordance with Ofcom’s accounting policies, as set out in Note 1(b) to these accounts, grant-in-aid is accounted for in the period in which it is received. 82 www.ofcom.org.uk

Notes to the Accounts for the year ended 31 March 2008

2. Sectoral analysis (continued) The table on the previous page is prepared on an adjusted cash basis, which includes capital expenditure and actual contributions to pension schemes, but excludes depreciation. Ofcom’s licence and administrative fees are based on an estimate of cash costs in accordance with its Statement of Charging Principles. Where in the current year there is an excess of income over expenditure, the surplus will be rebated to the relevant stakeholders, in accordance with Ofcom’s Statement of Charging Principles. Where in the current year there is an excess of expenditure over income, the deficit will be collected from the relevant stakeholders, in accordance with Ofcom’s Statement of Charging Principles.

RECONCILIATION FROM OPERATING EXPENDITURE TO ACTUAL OPERATING OUT-TURN Notes 2008 2007 £’000 £’000

Operating expenditure - income and expenditure account 133,942 125,175 Adjustments in respect of pension asset and liability 3,620 1,640 Vacant property costs 18 63 7,645 Capital expenditure less depreciation 1,272 2,133 Actual rent payments less expenditure 1,399 2,795 Other adjustments (1,669) 1,209 Proceeds from fixed assets (16) (75) Cash operating expenditure 138,611 140,522 Spectrum efficiency costs - (6,364) Spectrum clearance (3,000) - Spectrum awards (2,617) (1,710) Non-Operating Income (2,992) (3,028) Actual Operating Costs Out-turn 130,002 129,420

3. Income 2008 2007 £’000 £’000

Grant-in-aid – BERR – Spectrum management 73,059 71,862 Grant-in-aid – BERR – Spectrum efficiency scheme - 6,364 Grant-in-aid – BERR – Spectrum clearance scheme 3,000 - Grant-in-aid – BERR – Programme of spectrum awards 2,617 1,710 Grant-in-aid – BERR – Competition law enforcement 1,414 2,204 Grant-in-aid – DCMS – Media literacy 673 445 Grant-in-aid – BERR – Public interest test 246 125 Total government grant-in-aid 81,009 82,710 Networks & services administrative and application fees 27,498 25,650 Broadcasting Act licence and application fees 30,445 32,679 Rental income 1,352 461 Other income 2,092 2,108 Income 142,396 143,608 Ofcom Annual Report & Accounts 2007/8 Section E: Accounts 83

Notes to the Accounts for the year ended 31 March 2008

4. Staff costs 2008 2007 £’000 £’000

Staff costs, including fees paid to Board Members, were: Salaries & benefits 47,270 43,668 National Insurance costs 5,044 5,034 Pension costs 6,330 5,863 Restructuring costs 2,137 1,183 Total Staff Costs 60,781 55,748 The restructuring cost includes a provision for 32 (2007: 16) employees. More detailed information in respect of the remuneration and pension entitlements of the Directors and senior executives is shown in the remuneration report on pages 65 to 71. 5. Employee numbers 2008 2007

The average number of employees was 810 789 As at 31 March 2008, Ofcom had 812 employees (2007: 800). Non-Executive Members of the Ofcom Board, Content Board, Advisory Committees and employees seconded to Ofcom are excluded from employee numbers. 6. Other operating costs 2008 2007 £’000 £’000

Auditors’ remuneration – statutory audit fees 85 85 Professional fees 15,816 11,243 Outsourced services 10,249 10,770 Audience and consumer research 5,154 4,969 Technological research and spectrum efficiency projects 2,795 6,849 Seconded staff 93 491 Temporary staff and recruitment 5,190 4,628 Travel and subsistence 1,711 1,741 Information and technology costs 2,877 2,338 Administration and office expenses 9,017 11,619 Spectrum clearance scheme 3,000 - Premises costs 10,825 7,608 Profit on disposal of fixed assets (1) (16) Amortisation 2,462 1,356 Depreciation 3,888 5,746 Total Other Operating Costs 73,161 69,427 The costs, above, include: Operating leases – land and buildings 7,971 3,648 Operating leases – other 115 106 Total other operating costs include spectrum efficiency costs nil (2007: £6.4m) and £2.6m (2007: £1.7m) of expenditure for the programme of spectrum awards. Prior year outsourced services and information and technology costs have been adjusted to ensure comparability with current year figures. 84 www.ofcom.org.uk

Notes to the Accounts for the year ended 31 March 2008

7. Exceptional credit 2008 2007 £’000 £’000

Future costs of vacant properties 126 2,878

The vacant property credit is in respect of two (2007: five) leasehold properties which are surplus to Ofcom’s requirements. The credit in 2007 relates to the net adjustment to future liabilities arising primarily from the surrender of a lease during the year.

8. Interest payable 2008 2007 £’000 £’000

On BERR loan 176 411

9. Fixed assets (A) INTANGIBLE Computer software Total £’000 £’000

COST At 1 April 2007 11,406 11,406 Additions during year 4,088 4,088 Disposals (5) (5) Transfers 1,267 1,267 Cost at 31 March 2008 16,756 16,756 AMORTISATION At 1 April 2007 3,112 3,112 Charge for the year 2,462 2,462 Disposals (4) (4) Transfers (10) (10) Accumulated amortisation at 31 March 2008 5,560 5,560 NBV 31 March 2008 11,196 11,196 NBV 31 March 2007 8,294 8,294 Ofcom Annual Report & Accounts 2007/8 Section E: Accounts 85

Notes to the Accounts for the year ended 31 March 2008

9. Fixed assets (continued) (B) TANGIBLE Leasehold Fixtures Office & field Computer Motor Assets under improvements & fittings equipment hardware vehicles construction Total £’000 £’000 £’000 £’000 £’000 £’000 £’000

COST At 1 April 2007 1,259 15,530 13,043 3,969 1,307 3,789 38,897 Additions during year 40 525 421 957 - 1,593 3,536 Impairment loss (2,782) (2,782) Disposals - (5) (122) (25) - - (152) Transfers 10,271 (10,271) 10 - - (1,277) (1,267) Cost at 31 March 2008 11,570 2,997 13,352 4,901 1,307 4,105 38,232 DEPRECIATION At 1 April 2007 309 6,712 7,696 2,241 974 17,932 Charge for the year 628 387 1,820 854 199 3,888 Impairment loss (1,262) (1,262) Disposals - (2) (111) (25) - (138) Transfers 4,664 (4,664) 10 - - 10 Accumulated depreciation at 31 March 2008 5,601 1,171 9,415 3,070 1,173 20,430

NBV 31 March 2008 5,969 1,826 3,937 1,831 134 4,105 17,802 NBV 31 March 2007 950 8,818 5,347 1,728 333 3,789 20,965 Assets under construction relate to the development of a new licensing system. Ofcom does not own any freehold property, therefore the heading has been amended to Leasehold Improvements. Assets worth £10.2m have been transferred to Leasehold improvements to correctly reflect the nature of the assets. Assets relating to refurbishments of property no longer occupied by Ofcom have been written off.

10. Debtors 2008 2007 £’000 £’000

Trade debtors 1,354 1,360 Other debtors 270 140 Prepayments 3,322 2,538 Staff loans and advances 270 269 Accrued income 4,716 2,888 Value added tax recoverable - 342 9,932 7,537 Included within accrued income above is £0.7m (2007: £0.7 m) of debtors recoverable after more than one year. Staff loans include 207 (2007:212) season ticket loans. 86 www.ofcom.org.uk

Notes to the Accounts for the year ended 31 March 2008

11. Cash at bank and in hand 2008 2007 £’000 £’000

Cash at bank and in hand 52,247 46,599 Office of HM Paymaster General 99 91 52,346 46,690 All activities and cash balances relating to Licence Fees and Penalties is separated from the Ofcom accounts and are disclosed in the S.400 accounts. As at 31 March 2008 Ofcom held nil (2007: £1.5m) cash disclosed as cash at bank above, which was due to the Consolidated Fund.

12. Pension asset and liability 2008 2007 £’000 £’000

Defined benefit pension plans’ surplus 9,840 6,170 Unfunded pensions liability (876) (909) Further detail in respect of Ofcom pension schemes can be found at Note 25 to these accounts.

13. Creditors – amounts falling due within one year 2008 2007 £’000 £’000

Amounts due to Consolidated Fund - 1,456 Trade creditors 7,654 4,852 Other tax and social security 1,613 - Other creditors 508 485 Value added tax payable 1,083 - BERR grant-in-aid 28,084 25,802 DCMS grant-in-aid - 114 Loan funding from BERR - 5,186 Accruals 16,674 15,240 Deferred income 900 1,766 56,516 54,901 Amounts due to Consolidated Fund comprise nil (2007: £1.5m) of WT Act licence fees received in the Ofcom bank account. (Refer to Note 11.) Other creditors includes £0.1m (2007: £0.4m) of Community Radio Grant funding received from the Department for Culture, Media and Support (DCMS). All grants monies received were paid to the successful applicants in April 2008. Ofcom Annual Report & Accounts 2007/8 Section E: Accounts 87

Notes to the Accounts for the year ended 31 March 2008

14. Creditors – amounts falling due after more than one year 2008 2007 £’000 £’000

Rent free creditor - 21 Deferred income 299 49 299 70 15. Analysis of BERR loan movement 2008 2007 £’000 £’000

At 1 April 2007 5,186 10,372 Repaid in year (5,186) (5,186) At 31 March 2008 - 5,186

16. Schedule of loans Loan First Last Repaid in outstanding at repayment repayment Original loan previous years Repaid in 2008 31 March 2008 Interest rate £’000 £’000 £’000 £’000

15-Dec-03 Sep-04 Mar-08 11,920 8,940 2,980 - 4.6% 2-Jan-04 Sep-04 Mar-08 8,825 6,619 2,206 - 4.5% 20,745 15,559 5,186 - The weighted average interest rate at 31 March 2008 is 4.5 per cent (2007: 4.5 per cent). In accordance with an agreement dated 14 October 2003, the BERR provided fixed-rate loan funding in the periods prior to Ofcom generating income. Interest rates were set with reference to the prevailing HM Treasury interest rate at the dates of drawdown.

17. Maturity of the BERR loan 2008 2007 £’000 £’000

Less than one year - 5,186 - 5,186 There is no difference between the book value and the fair value of the loan at the balance sheet date. 88 www.ofcom.org.uk

Notes to the Accounts for the year ended 31 March 2008

18. Provisions for liabilities and charges Early Vacant Legal Retirement property Restructuring Provision Total £’000 £’000 £’000 £’000 £’000

At 1 April 2007 1,335 438 858 105 2,736 Discount unwound in year 29 10 39 Utilised in year (377) (63) (858) (1,298) Provision (released)/increased (134) (126) 1,685 950 2,375 At 31 March 2008 853 259 1,685 1,055 3,852 Provisions are calculated in accordance with the requirements of FRS 12. Provisions are discounted by 2.2 per cent (2007: 2.2 per cent) per annum. The provision for early retirement £0.9m (2007: £1.3m) is for early retirement costs of former employees of Oftel, the Radiocommunications Agency and Ofcom and is payable primarily in the periods to 2014. The provision for vacant property includes two (2007:three) properties previously occupied by legacy organisations which are surplus to requirements. Professional advice has been taken in marketing vacant property and future income streams are recognised as and when sub-letting of properties is reasonably certain. The provision is the net present value (NPV) of the expected cash outflows calculated to the first lease break, net of the discounted value of future income streams secured from committed and reasonably certain future sub-letting agreements. A provision of £1.7m (2007: £0.9m) for future redundancy costs expected to be paid in the following financial year.

Legal provisions reflect an assessment of costs relating to challenges to regulatory decisions which are expected to crystallise within one to two years.

19. Reserves 2008 2007 £’000 £’000

At 1 April 2007 31,040 14,435 Actuarial gains/(losses) on defined benefit pension plans 223 (5,501) Surplus for financial year 8,310 22,106 At 31 March 2008 39,573 31,040

2008 2007 £’000 £’000

Income & expenditure reserve excluding pension asset and liability 35,572 27,262 Pension reserve 4,001 3,778 At 31 March 2008 39,573 31,040 Ofcom Annual Report & Accounts 2007/8 Section E: Accounts 89

Notes to the Accounts for the year ended 31 March 2008

20. Reconciliation of operating surplus to net cash inflow from operating activities 2008 2007 £’000 £’000

Operating surplus 8,454 18,433 Amortisation 2,462 1,356 Depreciation 3,888 5,746 Profit on disposal of fixed assets (1) (16) (Increase)/Decrease in debtors (2,351) 5,476 Increase/(Decrease) in creditors 6,505 (15,340) Increase /(Decrease) in provisions 1,203 (7,699) Increase in pension assets and liabilities (3,678) (1,698) Net cash inflow from operating activities 16,482 6,258

21. Cost of Capital For the BERR loan, the cost of capital is the interest payable in the year. Interest receivable is the financial return on cash balances. For all other net assets (except Consolidated Fund creditors, which are excluded in accordance with standard Government accounting practice), the cost of capital is calculated at 3.5 per cent (2007: 3.5 per cent) per annum in accordance with HM Treasury guidance. 22. Commitments under operating leases Land & buildings Other Total £’000 £’000 £’000

Annual commitments under operating leases expiring: within one year 4 - 4 between two and five years 126 115 241 after five years 6,331 - 6,331 Total 6,461 115 6,576 The above commitments exclude additional rent payments which may arise from a lease that is currently under review in line with the terms of the lease. 90 www.ofcom.org.uk

Notes to the Accounts for the year ended 31 March 2008

23. Subsidiaries of State for Scotland and Scottish This rate will be reviewed following Broadcast Training and Skills Ministers to be laid before the the next actuarial valuation. Ofcom Regulator Limited was incorporated Scottish Parliament. also operates a defined contribution on 6 July 2005. The principal section to the plan and made activity of the company is to regulate 25. Pensions contributions of £0.1m in 2008 training in the broadcast industry. A) STAKEHOLDER PENSION PLAN (2007: £0.1m); and The company is limited by guarantee Ofcom’s primary means of providing • the Ofcom (Former ITC) and Ofcom is its sole member. pension benefits to its colleagues is by Pension Plan, which Ofcom jointly During the year the company had contributing to a stakeholder pension participates in with three other a turnover of £0.3m (2007: £0.3m), plan, which is a defined contribution organisations, S4C, S4C Masnachol an operating loss after taxation of pension plan. Employer contributions and the Advertising Standards £0.2m (2007: £0.0m profit) and of £3.1m were made in the year Authority. A full actuarial valuation reserves of £0.0m (2007: £0.2m). ended 31 March 2008 (2007: £3.1m). for this plan was carried out as Due to the size and extent of the at 1 January 2007. The employer subsidiary’s operations during the B) CLOSED PENSION PLANS contribution made to the Ofcom current financial year, the company’s Ofcom operates two closed defined (former ITC) Pension Plan in 2008 operating results have not been benefit pension plans: was £3.3m (2007: £1.2m). This consolidated in this report. The actuaries are required to do includes a payment in advance of a full actuarial valuation of the £3m (2007: £1m). 24. Gaelic Media Service plans not more than three years The projected unit rate was used In accordance with Section 210 of after the last actuarial valuation. to derive the service cost for these the Communications Act 2003 and The actuaries project the year end plans. Under this method the current Section 183 of the Broadcasting Act value of the liabilities using the full service cost will increase (when 1990, the Scottish Ministers paid actuarial valuations as a base. measured as a percentage of salary £12.1m (2007: £11.8m) to Ofcom. • The Ofcom Defined Benefit costs) as the members of the plan This sum has not been reflected in Pension Plan was established on approach retirement. these accounts but has been paid by 29 December 2003. A full actuarial Ofcom to the Gaelic Broadcasting valuation was carried out as at Fund under the management of the 31 March 2007 by a qualified Seirbheis nam Meadhanan Gàidhlig independent actuary. The employer (the Gaelic Media Service). The contribution made to the Ofcom Gaelic Media Service prepares Defined Benefit Pension Plan for separate reports and accounts to the year ending 31 March 2008 was 31 March each year. These are £1.8m (2007: £3.4m). This included sent by Ofcom to the Secretary a nil (2007: £1.0m) paid in advance. Ofcom Annual Report & Accounts 2007/8 Section E: Accounts 91

Notes to the Accounts for the year ended 31 March 2008

25. Pensions (continued) ASSUMPTIONS The major assumptions used by the independent actuary for accounting purposes only are: 2008 2007 % %

Discount rate 6.5 5.4 Rate of increase in salaries 4.9 4.8 Rate of increase in payment of pre-97 excess over GMP pensions 3.4 3.3 Rate of increase in payment of post-97 excess over GMP pensions 3.3 3.3 Inflation assumption 3.4 3.3 These assumptions have led to Ofcom recording an accounting pension asset in accordance with FRS 17. However, the actuarial valuations have shown that the Ofcom Pension Plan is in deficit, and Ofcom makes contributions in accordance with the actuary’s recommendations to fund the deficit.

BALANCE SHEET The assets in the plans and the expected rate of return were: Long-term rate Long-term rate of return of return expected at Value at expected at Value at 31 March 2008 31 March 2008 31 March 2008 31 March 2007 % £’000 % £’000

Corporate bonds 4.4 8,160 5.4 7,200 Index-linked bonds 4.2 160,020 4.4 160,500 Equities 7.4 39,840 7.9 34,700 Cash 5.3 5,680 5.3 100 Total market value of assets 213,700 202,500 Present value of plan liability (171,360) (190,430) Surplus in the plans 42,340 12,070 Unrecoverable surplus (32,500) (5,900) Net Pension asset 9,840 6,170 FRS 17 requires that, where a plan is in surplus, the surplus on the balance sheet can only be recognised if it is available to the employer as a refund of contributions or a “contribution holiday”. The number of active members in the plan decreased, therefore the actuaries have calculated an unrecoverable surplus of £32.5m (2007: £5.9m). This has been charged to the Statement of recognised gains and losses. 92 www.ofcom.org.uk

Notes to the Accounts for the year ended 31 March 2008

25. Pensions (continued) ANALYSIS OF THE AMOUNT CHARGED TO OPERATING SURPLUS

2008 2007 £’000 £’000

Current service cost 3,290 2,920 Total operating charge 3,290 2,920

ANALYSIS OF THE AMOUNT CHARGED TO OTHER FINANCE INCOME

2008 2007 £’000 £’000

Expected return on pension plans’ assets 10,020 9,120 Interest on pension liabilities (10,170) (9,290) Net return (150) (170)

ANALYSIS OF THE AMOUNT RECOGNISED IN THE STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES (STRGL) 2008 2007 £’000 £’000

Actual return less expected return on plans’ assets 4,660 (380) Experience gains/(losses) arising on the plans’ liabilities (1,800) 2,920 Changes in assumptions underlying the present value of pension scheme liabilities 23,940 (2,140) Increase in unrecoverable surplus (26,600) (5,900) Actuarial gain/(loss) recognised in STRGL 200 (5,500)

Included in the unrecoverable surplus is an amount of £0.4m (2007: nil) of past service cost and curtailment. Ofcom Annual Report & Accounts 2007/8 Section E: Accounts 93

Notes to the Accounts for the year ended 31 March 2008

25. Pensions (continued) MOVEMENT IN SURPLUS DURING THE YEAR 2008 2007 £’000 £’000

Surplus in plans at 1 April 6,170 10,200 Total current service cost (3,290) (2,920) Employer’s contributions (including those unpaid at measurement date) 6,910 4,560 Other finance cost (150) (170) Actuarial gain/(loss) 200 (5,500) Surplus in plans at 31 March 9,840 6,170

Employer’s contributions include £1.8m which has been placed in a trust account. Funds transferred to and held in the trust account can only be paid into one of the two Defined Benefit Pension Schemes and are not able to be used for any other purpose.

HISTORY OF EXPERIENCE GAINS AND LOSSES 2008 2007 2006 2005

Difference between the expected and actual return on scheme assets: Amount (£’000) 4,660 (380) 13,660 3,390 Percentage of schemes assets 2.0% (0.0%) 6.9% 2.0% Experience (losses)/gains on schemes liabilities: Amount (£’000) (1,800) 2,850 (4,740) 6,430 Percentage of the present value of the schemes liabilities (1.0%) 1.0% (2.5%) 4.1% Total amount recognised in statement of total recognised (losses)/gains: Amount (£’000) 200 (5,500) (9,580) 9,820 Percentage of the present value of the schemes liabilities (0.0%) (3.0%) (5.1%) 6.2% 94 www.ofcom.org.uk

Notes to the Accounts for the year ended 31 March 2008

25. Pensions (continued) C) UNFUNDED PENSION LIABILITIES The pension provision is in respect of the unfunded pension liabilities which fall to Ofcom for former Chairmen of the Independent Television Commission and the Radio Authority and former Director Generals of Telecommunications. The pension provision is unfunded, with the benefits being paid as they fall due and guaranteed by Ofcom. There is no fund, and therefore no surplus or deficit. Actuarial advice has been sought to ensure that the provision is set at a realistic level. An actuarial valuation was carried out by Towers Perrin as at 31 March 2008. The same bases and assumptions as noted above in respect of the defined benefit schemes.

ANALYSIS OF THE AMOUNT DEBITED TO OTHER FINANCE COSTS 2008 2007 £’000 £’000

Interest on pension liabilities (48) (45) Net return (48) (45)

ANALYSIS OF THE AMOUNT RECOGNISED IN THE STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES (STRGL) 2008 2007 £’000 £’000

Experience losses arising on the plans’ liabilities (55) (13) Changes in assumptions underlying the present value of pension scheme liabilities 78 12 Actuarial gain/(loss) recognised in STRGL 23 (1)

MOVEMENT IN DEFICIT DURING THE YEAR 2008 2007 £’000 £’000

Deficit in plans at 1 April 909 921 Total current service cost - - Employer’s contributions (including those unpaid at measurement date) (58) (58) Employee contributions - - Other finance costs 48 45 Actuarial gain/(loss) (23) 1 Deficit in plans at 31 March 876 909 Ofcom Annual Report & Accounts 2007/8 Section E: Accounts 95

Notes to the Accounts for the year ended 31 March 2008

26. Related parties • Spectrum management Ofcom is financed, it is not exposed Ofcom does not consider that – £25m (2007: £23.8m); to the degree of financial risk faced its regulatory and licensing role • Spectrum Efficiency Scheme by business entities. creates the relationship of a related – nil (2007: £0.2m); Moreover, financial instruments party between itself and licence • Spectrum Clearance – £0.7m; play a limited role in creating holders as defined by Financial • Programme of spectrum awards or changing risk compared with Reporting Standard 8, ‘’Related – £1.5m (2007: £0.9m); listed companies to which FRS 13 Party Transactions’’. • Competition law enforcement mainly applies. Ofcom has very Members of the Board submit – £0.5m (2007: £0.8m); limited powers to borrow or invest an annual declaration confirming • Community Radio surplus funds, all debts carry fixed that they have no interests prejudicial – £0.01m (2007:£0.4m); interest rates and financial assets to their function as a Member of • Media Literacy and liabilities that are generated Ofcom. There were no purchases – nil (2007:£0.1m) and by day-to-day operational activities or sales transactions between • Public interest test do not change the risks facing Ofcom and its Members. – £0.3m (2007:£0.1m). Ofcom in undertaking its activities. The Secretaries of State for the Ofcom made payments of £0.1m There is no material difference Department for Business, Enterprise (2007: £0.1m) to HM Treasury in at the balance sheet date between and Regulatory Reform (BERR) and respect of the full employment costs the fair value and the carrying value the Department for Culture, Media of colleagues seconded by BERR of financial assets and liabilities. and Sport (DCMS) are regarded to Ofcom in the year. At year-end As permitted by FRS 13, debtors as the controlling related parties a creditor of nil (2007: £0.2m) was and creditors which mature or of Ofcom under the terms of the owing to HM Treasury. become payable within 12 months Office of Communications Act 2002. of the balance sheet date have Details of the loan funding from 27. Financial instruments been omitted from this assessment. the BERR are provided at Notes 15 Ofcom has no significant exposure to 17 of these financial statements. to liquidity, interest rate or currency 28. Capital commitments Details of all grant-in-aid income risks. FRS 13, Derivatives and Other At 31 March 2008 there were capital from BERR and DCMS are provided Financial Instruments, requires commitments of £1.1m (2007: at Note 3 and Note 13 respectively disclosure of the role which financial £0.7m), primarily related to the of these financial statements. instruments have had during the IS renewal programme. At 31 March 2008, the following year in creating or changing the creditors were held in respect of risks an entity faces in undertaking grant-in-aid provided by BERR: its activities. Because of the nature of its activities and the way in which 96 www.ofcom.org.uk

Notes to the Accounts for the year ended 31 March 2008

29. Receipts transferred 30. Contingent liabilities 31. Whole of to the Consolidated Fund From time to time, Ofcom will government accounts In accordance with Section be subject to legal challenge and At 31 March 2008, Ofcom owed 400 of the Communications Act judicial review of decisions made £29.2m (2007: £33m) and nil 2003, Ofcom remitted £57.3m in the normal course of its business was owed to Ofcom by central (2007: £59.5m) of Broadcasting as regulator of the communications government bodies. There are Act Additional Payments and sector. Legal judgements could no balances with local authorities, fines to the Consolidated Fund give rise to liabilities for legal costs. NHS Trusts or public corporations and Treasuries. Provision has been made in these and trading funds. £173.6m (2007: £170.4m) of financial statements (see Note 18) S.400 shows £4.5m owing WT Act licence fees was remitted for costs which are quantifiable. to central government bodies. to BERR for transfer to the However, in some cases costs cannot Consolidated Fund. Details on be quantified, because the outcome amounts due to the Consolidated of proceedings is unknown, and there Fund at 31 March 2008 are is therefore considerable uncertainty disclosed at Note 13 to these as to the nature and extent of any financial statements. subsequent liability.

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