David Elstein, Senior Advisor at Arthur D. Little & Chairman of Xios Transcast Corporation Speech given at IPPR seminar: “OFCOM: what are we worried about?” (11 October 2001) OFCOM is going to happen – despite a tremor of uncertainty at Cambridge. So is there anything to worry about? The normal concerns expressed are in relation to three issues: 1. How will so many different regulatory bodies be successfully merged, without losing key sectoral distinctions (such as the needs of the radio industry)? 2. How will OFCOM manage the sometimes conflicting tensions between regulating economic behaviour and regulating content? 3. And where will the BBC fit in all this? I actually believe that the real issues are rather different, and I will come to them in a moment, but let me first just touch on those first three problems. In point of fact, the bodies due to be merged have already embarked on the process of working more closely together. This has led to some very clear views being expressed about who should, or should not, lead OFCOM, and even the suggestion that the co-operative process has been so successful that there was no longer a need for full merger. I would take that with a pinch of salt. Governments rarely go so far down the track only to reverse – and even in a week that has seen U-turns on student fees, Railtrack and Picketts Lock, I am confident that OFCOM will loom large in the bill about to be published. The presumed tension between economic and content regulation is also fairly nominal, reflecting more the fact that some of the bodies due to merge have never been required to combine them. On the other hand, the ITC and the Radio Authority have to balance both considerations, and although nobody would argue that they have been conspicuously successful in doing so, this is not uncharted territory. As for the BBC, even Gavyn Davies and Greg Dyke must be beginning to wonder whether maintaining a direct formal relationship with the Secretary of State on such matters as new digital services is still such a good idea. The prolonged DCMS decision-making process, the lack of clarity within it and the final outcome must have been pretty demoralising. Tessa Jowell at Brighton was hinting that OFCOM ought to be involved in that process in future. Logic and common sense suggest that it ought to take over fully – still leaving the BBC Governors to run the BBC, in the way that the Channel 4 board runs Channel 4, but with broad strategy being cleared with OFCOM, especially where behaviour can have an impact on the rest of the broadcasting sector. One might go further: if there is to be a full review of the BBC in advance of Charter renewal, it will have to take place by 2004. Would it not make sense to grasp the nettle firmly, and ask OFCOM to undertake that task? And let us on this occasion not have any excuses about lack of time preventing the inquiry examining rigorously the case for public service broadcasting – the least forgivable blemish in the Davies Report. With the White Paper having promised proper economic regulation of Channel 4 – a glaring gap in the current situation – there is even more logic in the BBC coming under the same umbrella. We have just had the peculiar sight of the proposed BBC3 being turned down by DCMS, on the grounds that there was already adequate provision for the 16-34 target audience. Yet one of the main such providers cited is E4, funded by public money in the shape of Channel 4’s surplus income, and subject to no consultation or approval process. So we vote the BBC £200 million a year extra income to provide digital services, but then turn down their central proposal because another public broadcaster has sneaked in ahead of them. This kind of muddle is sadly typical of broadcasting policy, and for me, the biggest dangers in the OFCOM process come from woolly and wishful thinking in Whitehall and Westminster, not from any inherent difficulty in regulating broadcasting and telecommunications together. For a start, we will still have two ministries, not one, covering the territory that one regulatory body is supervising. Indeed, if we look at the Cave Report on spectrum pricing, we find it was commissioned by the Treasury and the DTI, with the DCMS not involved at all. We will still have to deal with the instinct to meddle. Arguably, nearly all the key decisions in relation to broadcasting made by ministers and regulators in recent years have been wrong. The D-MAC fiasco was followed by the BSB fiasco: ostrich-like governments believing that they could tell the market and consumers what to do. The bulk of the 1991 franchise round decisions were misguided – most obviously, accepting GMTV in place of TVAM, when its bid was quickly proved to be too high. I am willing to bet that Channel 5’s licence payment will be dramatically reduced at the first opportunity – probably to the level correctly bid by the runner-up in 1995. The whole News At Ten saga is too embarrassing to recount in detail. Don Cruickshank has frankly admitted that he was wrong, when he was running OFTEL, to have opposed the inclusion of BSkyB in the original BDB consortium for digital terrestrial television. He sees the resultant licensee approved by the ITC as now fatally flawed technically and commercially, owned by a pair of weakened shareholders who could be bought twice over by their ejected third partner, which has meanwhile gone on to capture five times as many digital customers. DTT is itself almost entirely the result of intervention by ministers, civil servants, regulators and public service broadcasters. So much of our broadcast environment is artificially constructed that to single out DTT may seem invidious. But the degree of public and self-deception involved has been quite remarkable. If the government were ever to admit that it had no idea when, or even whether, switching off the analogue terrestrial system would actually take place, ITVDigital’s owners might finally throw in the towel. It is hard to see what other reason than keeping it in play justifies clinging to a timetable for switch-off that no-one takes seriously. What would be even harder to justify – reported as fact in this week’s New Statesman – would be the DCMS seeking EU permission to ban the sale of analogue TV sets. This is certainly something ITVDigital has been asking for, in the fond belief that forcing people to buy unnecessarily expensive – but digital – TV sets might save their bacon. More likely is that infuriated consumers would turn on ITVDigital and the government, and savage them to death. And if an analogue ban makes no sense legally or politically, the obverse – subsidising digital TVs to the same price level as analogue – makes no commercial sense. All these ideas – along with talk of digital refuseniks and the need to close the so- called (and meaningless) digital divide - are simply evidence of ministers and regulators having lost touch with reality. Denis Healey used to quote an old army saying: when in a hole, stop digging. Finding a way out of the digital trap in which the government has placed itself should be one of the main tasks allocated to OFCOM. Close attention to consumer interests – rather than those of broadcasters, platform owners, retailers or manufacturers – should be the guiding principle: it will serve OFCOM well. Finally, let me deal with organizational principles for OFCOM. Sadly, the pass has already been sold in terms of structure. There will be part- time as well as full-time members, and a part-time chairman as well as a full-time chief executive. Never say that the cult of the amateur is dead in England. Or indeed, Britain as, no doubt, Wales and Scotland at least will demand to be represented on the board. So hopes that this will be a truly professional organization have already been partly dashed. Supplicants to OFCOM who get no joy from the chief executive will quickly be on the phone to the chairman. However, the situation is not irrecoverable. A chairman with exceptionally strong grounding in the audio-visual and telecoms industries, with good political contacts and sense, and with great self-discipline might yet obscure this design fault. However, OFCOM as a whole needs quickly to establish a pattern of behaviour whereby it acts transparently, predictably and accountably. What this means is publishing agendas and minutes of its board meetings; creating expectations that it then fulfils with all the organizations with which it deals; acting in a judicious and timely fashion, eschewing the temptation to rush out a regulatory report on a programme that has somehow offended ministers; keeping the public interest close to hand, and not allowing any organization answerable to it to conduct spurious public consultations – any consultation should be OFCOM’s responsibility. It should keep government at arm’s length as well as those it regulates. For instance, it should not be OFCOM’s job either to foster or to frustrate digital switchover: simply to assess the consumer market-place at regular intervals and report accordingly, offering advice if required on the possible impact of different possible courses of action. Equally, if spectrum fees are to be levied, it should be OFCOM’s job to assess them and collect them. The extent to which they are offset by programme obligations can again be assessed by OFCOM, but the actual decision as to the level of offset will almost certainly need to be taken by ministers.