Case Study Converged Regulator: Ofcom [6.1.1]
The pressures created by convergence led the European Commission and the United Kingdom to put forward proposals in 2000 for significant reform of their regulatory arrangements in the communications sector1. In both cases, this has followed extensive consultations with industry and the community.
In the UK a converged regulator (Ofcom) was established with responsibility for both carriage and content of the whole communication sector. Ofcom regulates content standards by developing codes of practice based on statutory objectives and principles. Future reviews will be conducted of approaches to spectrum management and cross media ownership restrictions.
Ofcom itself sees the benefits of a converged regulator as follows:2
“Firstly because of the economies of scale: In a converged age many of the issues facing the communications issue transcend the old boundaries and therefore need a converged response. This is certainly true in competition law and economics, where Ofcom is a competition authority alongside the United Kingdom’s OFT [Office of Fair Trading]. Linked to that is an ability to deal with incumbency on a scale that - albeit smaller - is more evenly matched to the regulatory affairs departments of the main incumbents, in knowledge, experience and in talent and motivation.”
Secondly, spectrum where hitherto [in the united Kingdom], as in many OECD countries, management of the spectrum was divided up into baronies: a bit for communications; a bit for science or social use; a bit for defence and the public services and a bit for broadcasting. As a single converged regulator, Ofcom has the domestic role of managing all of the civilian spectrum; for setting the mechanisms for overall spectrum management; and internationally for negotiating on the allocation of all of the spectrum. We can, quite rightly, be directed by Government on big allocation matters. But such Directions require to be approved by both Houses of Parliament. They are thus a tool for infrequent use. Instead, what convergent regulation gives us is a good, cooperative relationship with Government and the ability to articulate a coherent and converged position across all uses of the spectrum internationally.
Thirdly, there is a simply serendipity of convergence. Ideas which work in one part of the forest can take root in another – especially when those ideas can be had on the same floor of the same building within one regulator which has the traditional functions of wireline, wireless, broadcasting and broadband mixed together in the same teams.”
Finally, it can be mentioned an additional reason: financing. The new organization has over 25 per cent fewer people than the previous regulators and also has lower operating costs. Ofcom’s budget for 2004/5 was, on a like-for-like basis, 5 per cent less than the combined budgets of its predecessors and during the year it reduced its costs by 5 per cent.3
Ofcom is a statutory corporation. Ofcom covers both content and infrastructure in the communications sector. At present, these are responsibilities of separate Government departments and thus of separate Commons Select Committees who oversee those departments. There is no structured House of Lords system of oversight of Ofcom. While Ofcom is independent of Government, the Secretaries of State will answer Questions in Parliament about Ofcom. Ofcom is accountable to Parliament through various Parliamentary Committees and the National Audit Office.
Ofcom is structured so that the main decision making body of Ofcom is its Board. This Board is a unitary Board with a mix of executive and part-time members. Ofcom has a number of committees and advisory bodies which either have been given delegated powers by the main Ofcom Board or offer advice to the main Ofcom Board.
Ofcom’s regulatory principles are defined as follows:
- Ofcom will regulate with a clearly articulated and publicly reviewed annual plan, with stated policy objectives.
- Ofcom will intervene where there is a specific statutory duty to work towards a public policy goal which markets alone cannot achieve.
- Ofcom will operate with a bias against intervention, but with a willingness to intervene firmly, promptly and effectively where required.
- Ofcom will strive to ensure its interventions will be evidence-based, proportionate, consistent, accountable and transparent in both deliberation and outcome.
- Ofcom will always seek the least intrusive regulatory mechanisms to achieve its policy objectives.
- Ofcom will research markets constantly and will aim to remain at the forefront of technological understanding.
- Ofcom will consult widely with all relevant stakeholders and assess the impact of regulatory action before imposing regulation upon a market.
Under the Communications Act 2003:
“3(1) It shall be the principal duty of Ofcom, in carrying out their functions;
(a) to further the interests of citizens in relation to communications matters; and
(b) to further the interests of consumers in relevant markets, where appropriate by promoting competition.”
Ofcom’s specific duties fall into six areas:
- Ensuring the optimal use of the electro-magnetic spectrum.
- Ensuring that a wide range of electronic communications services - including high speed data services - is available throughout the United Kingdom.
- Ensuring a wide range of TV and radio services of high quality and wide appeal.
- Maintaining plurality in the provision of broadcasting.
- Applying adequate protection for audiences against offensive or harmful material.
- Applying adequate protection for audiences against unfairness or the infringement of privacy mandate.
Ofcom is a converged regulator, taking on the 128 functions and duties of the existing five regulators – Oftel (telecoms), Radiocommunications Agency (spectrum), ITC (television), the Radio Authority (radio) and the Broadcasting Standards Commission (standards, fairness & privacy in relation to all broadcasters including the BBC). An additional 135 duties and functions as set out in the Communications Act 2003 which received royal assent in July 2003 were also added to the functions of Ofcom.
As stated by David Currie (Ofcom Chairperson) at the 4th ECTA Regulatory Conference in December 2003:4
“For Ofcom convergence means at least three different things:
First of all, as already noted, we have duties across broadcasting, telecommunications and spectrum, with some additional duties that deal with electronic media more broadly (e.g. media literacy).
Second, we are convergent in that we are able to balance the demands of economic regulation, competition, consumers and markets, with the demands of content and cultural regulation, public service and public interest, the citizen. One of our first big reviews is of public service television broadcasting and we are approaching it from both perspectives, allowing us to ask the converged question of how will PSB be financed in the medium to longer term as the digital multichannel world moves into more than half UK households.
Third, it means that we are not organised within silos dealing with television, radio, telecoms which is the way that the FCC is organised. Each part of Ofcom draws on staff from three or more of the existing five regulators. For example, Content & Standards with its sixty staff do the consumer protection task that was with Oftel, alongside the content regulation tasks of the ITC and Radio Authority and BSC.”
Ofcom covers both content and infrastructure in the communications sector. At present, these are responsibilities of separate Government departments and thus of separate Commons Select Committees who oversee those departments. There is no structured system for the House of Lords to provide oversight of Ofcom.
While Ofcom is independent of Government, the Secretaries of State will answer Questions in Parliament about Ofcom - another indirect means of ensuring accountability by Ofcom.
Ofcom is structured so that the main decision making body of Ofcom is its Board. This Board is a unitary Board with a mix of executive (including the Chief Executive) and part-time members (including the Chairperson); it has been deliberately established in this manner to replicate the boards of the companies that Ofcom regulates. Ofcom does not have a Director-General with sole decision making responsibility, or a Board consisting of entirely part-time members or a body of commissioners (which were the models in the existing regulators that Ofcom has replaced). Responsibility for specified matters may be delegated to individual Board Members, or committees of Ofcom (or their subcommittees), or to staff within a clearly understood framework of strategic control.
Ofcom has a number of committees and advisory bodies which either have been given delegated powers by the main Ofcom Board or offer advice to the main Ofcom Board (see below).
Ofcom is a statutory corporation. It is required to report annually to Parliament. In practice, Ofcom is under a specific duty to present its annual report to the Secretaries of State, who then lay it before Parliament. The Communications Bill provides that Ofcom is subject to inspection by the National Audit Office, and Ofcom is accountable to the Public Accounts Committee for propriety and value for money. The Bill also provides that the Secretary of State should lay Ofcom's Annual Report before Parliament.
Ofcom is responsible for providing Parliament (including its Select Committees) with such information as may be requested concerning its policy decisions and actions. Ofcom may be required to give evidence to Select Committees of Parliament and to the Parliamentary Audit Committee. Accounts are subject to audit by the National Audit Office. A copy of the statement of accounts must be sent to the Secretaries of State and the Comptroller and Auditor General.
Ofcom has three main areas of regulatory responsibility – Networks and
Services, Spectrum Management and Broadcasting activity. Broadcasting
activity is further split between TV and radio. This split is important in terms of how Ofcom raises its funding.
Ofcom is partly funded by administrative charges levied on designated providers of electronic communications networks and services and by broadcasting licence fees. In each financial year, Ofcom is required to balance its expenditure with its income.4
Ofcom is required to apportion costs between Regulatory Sectors, and to cover those costs on an annual basis. Practically, this means that Ofcom is required by the Act to raise income from each of the sectors it regulates in order to cover the costs to be incurred by Ofcom in regulating that sector, as well as enough additional revenue to cover Ofcom’s ‘common costs.
Ofcom raises its funds from a number of sources including: television broadcasting licence fees; radio broadcasting licence fees; administrative charges for electronic networks and services and associated facilities; and grant-in-aid from Central Government. The grant-in-aid covers the costs of regulating and managing the wireless spectrum. It also covers those statutory functions and duties that Ofcom must discharge under the Act but for which the Act provided no matching revenue stream (e.g., the statutory public interest test for media mergers, media literacy and ex post Competition Act investigations).
Ofcom operates within an overall financial cap agreed in 2003 with HM Treasury. The current cap, which applies from the 2004/5 financial year, runs for three years and is set at RPI plus 0 per cent.6
The initial costs incurred by Ofcom since its establishment under the Office of Communications Act 2002 have been met through loan funding of £52.3m from the Department for Trade and Industry. These loans, which were made in the period from 31 March 2003 to 2 January 2004, are repayable in the period from March 2004 to March 2008.7
The Act makes separate provision for the funding of Ofcom’s costs in respect of carrying out its regulatory functions for both the British Broadcasting Corporation (BBC) and S4C (the Welsh Fourth Channel). The fees payable by these organizations are not determined in accordance with the Statement of Charging Principles issued under section 347 of the Act, or determined in accordance with the same tariff to that of Television or Radio licensees. Instead both the BBC and S4C are to pay Ofcom sums covering the cost of carrying out its functions in relation to the BBC and S4C, or as may be agreed between each of them and Ofcom respectively from time to time, or in default of agreement as fixed by the Secretary of State.8
Ofcom’s governance structure is based upon a model which is familiar to the commercial sector but which marks a departure from the past.
Ofcom has a Board with a non-executive Chairperson and both executive and non-executive members. The Executive runs the organization and answers to the Board, while the work of both Board and Executive is informed by the contribution of a number of advisory bodies.
The Secretaries of State for the Department for Culture, Media and Sport and for the Department of Trade and Industry (“the Secretaries of State”) are responsible for appointing up to six Members to the Board (known as the “Members”) and for approving the appointment of the Chief Executive. The Secretaries of State may also remove Members from office under any of the circumstances listed in Paragraph 2(4) of the Ofcom Act 2002 (bankruptcy, conflict of interest, misbehaviour, or incapacity). Additional members of staff (known as “Staff Members”) may be appointed to the Board by the Members. There may be up to a total of nine Members and Staff Members (together known as the “Board Members”).
The Ofcom Board provides strategic direction for Ofcom. It is the main statutory instrument of regulation with a fundamental role in the effective implementation of the Communications Act 2003. The membership of the Board is published. In addition to Chairperson, there are eight members including the Chief Executive of Ofcom and two members from the Ofcom Executive. Ofcom Board members meet formally every month. Agendas and notes of meetings are published regularly on the Ofcom website.
The Board has a central governance function, with oversight over the fulfillment of Ofcom’s general duties and specific statutory responsibilities as well as its adherence to the ethos of a public service organization. The Board also has oversight of Ofcom’s overall funding and expenditure.
The Board acts on a collective basis. As the body charged with governing Ofcom’s strategic direction, the Board has agreed that its members will abide by the following principles:
- The Board will operate on the principles of collective responsibility, support and respect.
- Board members should have access to all the information necessary to ensure vigorous debate and effective decision-making.
- In all situations, all Board members will be deemed to have agreed with all decisions.
- External pressure will not alter Board processes except for potential timelines.
- Board members’ behaviour in response to decisions is required to be the same inside and outside Ofcom.
- Minority views will not be made public internally or externally.
- Nominated Board members (other than those who disagreed with a decision) may be required to explain and articulate specific decisions.
- If a Board member resigns he or she may state the basis for the disagreement, but may not publicly rehearse the arguments of other Board members.
The Chairperson, on advice from the Chief Executive, has particular responsibility for providing leadership on matters such as:
- Formulating Ofcom’s strategy for discharging its statutory duties;
- Representing the views of Ofcom;
- Ensuring that when reaching decisions Ofcom takes proper account where necessary of directions given by the Secretaries of State;
- Encouraging high standards of propriety;
- Promoting efficient and effective use of staff and other resources throughout the organization; and
- Providing an assessment of the performance of individual Members should they be considered for re-appointment to Ofcom or appointment to the Board of another public body.
The Chairperson also ensures that Ofcom meets regularly throughout the year and that the minutes of meetings accurately record decisions taken.
The responsibilities of Members of the Ofcom Board include:
- The discharge of their duties under the Ofcom Act 2002 and the Communications Act 2003 and any supplementary legislation or Orders thereto;
- Establishing the policy and resource framework for the operation of Ofcom and the overall strategic direction of the organization within that framework;
- Ensuring that the highest standards of corporate governance are observed at all times; and
- Ensuring that Ofcom operates within the limits of its statutory authority and that staff operate within the limits of delegated authority.
In addition to the Board, there are a number of Executive Committees which assist the Board in the management of Ofcom. These are: the Executive Committee, the Policy Executive, the Operations Board and the Senior Management Group.
The Executive Committee is the senior executive team responsible for overseeing the management of Ofcom. Its core focus is on setting direction for the organization, financial and administrative decision-taking (or review prior to Ofcom Board/subcommittee consideration), and monitoring; its policy-making responsibilities are limited to management policy only (e.g., HR policies). The Executive Committee is also responsible for ensuring top level read-across between the different groups within Ofcom, including areas of overlap between the Operations and Policy areas.
The Executive Committee receives regular management information, including updates from each business area, it reviews Ofcom Board agendas, and considers issues of external presentation (such as public statements, policy or case handling, media and stakeholder events) and internal communication.
The Policy Executive is responsible for the development of Ofcom’s overall policy agenda. The Policy Executive guides the direction of policy and provides a forum for policy discussion, oversight and validation. The Policy Executive also provides effective peer review of policies and papers prior to their submission to the Board, Content Board or other Ofcom Advisory Committees for advice and/or approval (Operational policy matters are considered by the Operations Board and reported to the Executive Committee.)
The Board delegates to the Policy Executive authority to take certain decisions itself.
The Operations Board manages the operations areas within Ofcom (i.e., Licensing, Field Operations, the Ofcom Contact Centre and Information Strategy) under delegation from the Executive Committee. Its role is to support, guide, and challenge the operational performance and transformation of the Operations/ Information Strategy (IS) groups within Ofcom. The Operations Board reports directly to the Executive Committee.
The duties of the Operations Board include:
- operational performance monitoring and improvement;
- overseeing major change programs in Operations/IS to transform the delivery of Operational/IS services and improve productivity;
- authorization of discretionary investment in the development of Operations/IS and overseeing the Ofcom’s capital expenditure budget (for IS equipment, field equipment, vehicles and property);and
- approving appointments to the Operations/IS senior management teams (at Principal level and above).
The Senior Management Group comprises senior staff of Ofcom (including Executive Committee members) who are expected to take a leadership role within Ofcom, helping to implement key initiatives and to act as ambassadors for Ofcom externally. The Senior Management Group meets monthly to share information across the organization and to provide input on current issues. The Senior Management Group is not a decision-making forum.
Apart from these Committees mentioned above, there are a number of other Committees whish assist the Ofcom Board, being:
- The Radio Licensing Committee
The Radio Licensing Committee has delegated authority from the Ofcom Board to discharge Ofcom’s functions in relation to radio (sound) broadcasting licensing.
A subcommittee of the main Board, the Content Sanctions Committee discharges Ofcom’s functions in relation to content or content-based cases in broadcasting which are recommended to it by the Ofcom Executive for the consideration of statutory sanctions.
A subcommittee of the main Board, the Fairness Committee discharges Ofcom’s functions in relation to fairness and privacy complaints in broadcasting.
A subcommittee of the main Board, the Election Committee considers disputes about the allocation, scheduling or duration of Party Election Broadcasts on radio and television and, where appropriate, the application of impartiality rules.
Under its independent Chair, monitors and reviews on behalf of the Board the effectiveness of Ofcom’s systems of internal control and the integrity of Ofcom’s accounts and reports, as well as overseeing Ofcom’s internal and external audits.
A subcommittee of the main Board, the Remuneration Committee advises Ofcom on the remuneration and terms and conditions of Members of the Executive Committee and oversees the process for determining the terms and conditions of other Ofcom colleagues.
A subcommittee of the main Board, the Committee reviews the fees and remuneration of the Non-Executive Members of the Ofcom Board and makes recommendations on such remuneration to the Department of Trade and Industry and the Department of Culture, Media and Sport.
3 Foreword to Ofcom Annual Plan 2005/2006 at http://www.ofcom.org.uk/consult/condocs/annual_plan2005/annual_plan200506/?a=87101.
4 Currie, D., The Principles and Objectives of a Converged Communications Regulator, 4th ECTA Regulatory Conference, 10 December 2003 at http://www.ofcom.org.uk/media/speeches/2003/12/currie_20031210.
5 Paragraph 8(1) of the Schedule to the Office of Communications Act 2002.
6 Statement on Charging Principles at http://www.ofcom.org.uk/consult/condocs/socp/statement/charging_principles.pdf.