Oxford Media Convention. Speech by Ed Richards

It is always very difficult to do the final session in a conference of this kind because everybody has heard the news already.

It is even harder when the one thing that people really want to ask me about is something that I can’t tell them about.

If anyone has been hanging on to hear what recommendations we have made to the Secretary of State about the proposed News Corp/Sky merger – then I really would love to help, but I am afraid you are going to be very disappointed.

Given that there is a lot of Kremlinology in these areas – for those of you looking for hints or clues, the odd raised eyebrow, or even a nervous twitch, I thought I would just paraphrase Alan Greenspan who said roughly the following, “I should warn you, that if you think I have offered you any clarity on this subject at all, then you have simply misunderstood what I have had to say”.

I think my task this afternoon actually is to see if, for just 30 minutes, I can avoid that topic entirely without hesitation, deviation or repetition.

So here we go.

What I would like to do instead is talk about three simple things:
- I want to just take this opportunity to share a little about how Ofcom has been reshaping itself over the last few months.

- To talk a little about some of the key aspects of change that we see across the sector.

- To identify what we make of these changes and to explain a little bit about what we are doing to help meet the challenges that arise.

Let me just begin with Ofcom itself.

As for all public bodies, the last six months for our organisation have been pretty tough.

We all know that public finances needed to be sorted out – we had no special case to plead, so we accepted that we, like so many others, needed to play our part.

That means that our budget over the next four years will have to decline on a like for like basis by just over 28%.

Inevitably, this has involved some very tough decisions and some very tough action. However, I think budgetary constraint of this kind was going to be necessary whoever won the election, so we started preparing for that challenge some months before the general election.

Our proposals to address those budgetary challenges were launched within two days of the Government’s own spending review.

The process of consultation for both voluntary and compulsory redundancy is very nearly complete, and will be complete within a matter of days.

The entire process will be finished by the end of this month – with the only exception being those areas where we are consulting externally or where we await legislation.

We wanted to get this done fast, we wanted to get to the other side of it as quickly as we possibly could.

We want to move the organisation on and indeed, as a result of natural churn and new responsibilities, I would expect us to be recruiting again within the next few months.

It does mean, however, that there are changes to our work:

It means some significant change in areas like media literacy where we took the difficult decision that everything – everything – outside of a strong and continuing commitment to our research in this area would be stopped completely.

It means changes to our processes – broadcasting standards for example – where we will need the support of many of you in the audience to maintain a high quality approach but to do so with a leaner and more efficient process.

And it means changes to our governance and committee structure which will be very substantially streamlined and to aspects of old analogue regulatory duties, many of which really needed to go some time ago, but have been cast in legal aspic.

But we do not see this as a story of cutbacks and enforced change.

It was actually already time to refocus what we do, after a period of nearly seven years since our creation, so we have set out to make a virtue of the circumstances that we, like many others, faced.

As a result, what you will see in our plan for this year, out now in consultation, is a refreshed set of strategic priorities, which we have examined and interrogated internally, and which we now want to test with all of you and many others.

We set ourselves five clear aims, born from our duties and crafted in the light of an understanding of the market, technological and industry changes we see in front of us:

- To promote effective and sustainable competition
- To promote efficient use of public assets
- To help markets work for consumers
- To provide appropriate assurance to audiences
- To implement public policies defined by Parliament

But we also now want to move into new areas that we have also been asked to take on.
We have, or will shortly receive, a range of new roles, new responsibilities which we look forward to taking on:

- The transposition of the European Telecoms framework grants new powers in relation to numbering.
- It is the first year of the body of European regulators – a network of national regulators with a mission to deliver consistency and quality of regulation across the EU.
- Net neutrality, arising again from the new EU framework, where we must implement regulation in a hotly contested area
- Online copyright infringement, arising from the DEA.
- And of course an entirely new set of responsibilities for postal regulation at a time of great challenge and great uncertainty with the proposed privatisation of Royal Mail.

In the context of these new responsibilities and the hard budget choices that we have had to make, we have protected our core capabilities:

- Research and analysis of this sector
- Managing vital public assets like spectrum
- Economic regulation
- Content regulation
- Strategic understanding of communication networks and content

You will see some new faces around the place, and some new faces in more senior positions, taking on some significant areas of responsibility.

Don’t be surprised by this; it is a natural part of change and of how we want to refresh thinking and bring in new ideas. And from me, it is all power to their elbow.

Overall, I believe that Ofcom is in a good place:

- With a refreshed focus
- With new challenges
- With new responsibilities
- And a strong sense of optimism that we can continue to make a positive difference to the public interest.

So the story for us is one of change, and the story for the industry is one of change too.

Change is both behavioural and technological and is a constant in this sector.

- Whether it is the revolution that will be wrought by tablet computers over the next few years.
- Or the continuing revolution of social networking, where one site, Facebook, accounts for 45% of all the time we spend on the mobile internet.

That pace of change of course remains far faster and more intense than other parts of the economy, but everyone knows that already.

I would not be surprised if every single contributor here today has emphasised the importance and speed of change.

But that is, of course, the easy part; the hard part, as Bill Clinton once said, is how to make change your friend. How to make it work for you rather than consume and destroy you.

At Ofcom, our starting point has always been to ensure we research, we analyse and we understand these changes as best we can.

I would like to talk about four particular areas, and how they affect the contribution that I hope we will make in the coming few years.

Firstly, online data. Online data now means not only almost infinite source of audio but almost limitless video. Data is becoming video.

What we are seeing is the blooming of ‘over the top’ video on the internet, in parallel with more managed network centric services

The time people spend online is continuing its inexorable rise with of course the most rapid growth amongst 16 to 24 year olds. This group is doing more data intensive things online with huge rises in the level of online catch up TV year on year.

The result is that, by 2014, the various forms of video on the internet are likely to exceed 90% of global consumer traffic.

Secondly, mobile phones have become the data devices and the mobile data volcano is in the process of erupting all around us.

The mobile internet is very, very popular with people in the UK. 29% of people say they use their mobile to access the internet at home, that is second only, on a global basis, to the Japanese.

This will be massively fuelled by the smartphone boom, with the UK recording the highest growth in the world in smartphone take-up in the past year – some 78% rise in subscriber numbers.

So, mobile devices are becoming the device with which to access the internet. And based on the higher propensity of younger people to use this technology, this trend will continue and continue.

The third trend seems to me that this is not only creating problems for mobile network capacity. It also requires us to not just think about mobile networks and how they compete with fixed networks, but also how they complement each other.

So to feed the insatiable demand for mobile access and mobile data, mobile networks now need fixed networks because of its capacity and its economics.

So we see the rise and rise of Wi-Fi routers at home.

We see that most smartphones are all set up to default to a Wi-Fi connection.

And with so many connected devices in the home, with developments such as IPTV coming along, this ecology can only work if fixed capacity expands massively as well.

The fourth area, if I may use an unattractive image for which I apologise in advance, seems to me to be that TV is becoming the cockroach of the internet apocalypse. What I mean by that is that whatever the internet revolution throws at it, TV survives and survives and survives. Its resilience is conspicuous at a time of turbulent change.

For all the advances made by an increasingly pervasive and media-rich internet, the content and the service that still leads the way is old-fashioned linear television.

Television viewing over the past five years is up, not down – although admittedly driven up in large part by demographic change rather than underlying habits.

But even among 16-24 year olds, the fall in viewing hours has not been as dramatic as you might have expected.

The public still consistently rates television as the communications device they would most miss if it was taken away.

In 2005 – 22% of 16-24 year olds said they would miss TV the most, and almost incredibly that has actually increased to 36% in the last year.

Now, you have to try and square this with everything else that is going on.

Apart from the obvious relative attractiveness and quality of the content which must be at the heart of it, one other explanation is concurrent media use or media stacking.

We see in our evidence that some 20% of time spent with media each day is spent using two or more forms of media simultaneously, that number rising dramatically to 30% amongst younger age groups.

So, television remains stunningly resilient so far, and shows little sign of falling away as a platform capable of delivering quite extraordinary reach and impact.

And, while we wrestle with the future and with the demands of mobility, the demands of IP data and network capacity, we still need to think of this world in terms of some quite traditional media.

What do we make of these important changes and trends? And how does our role fit in with it?

Well I think you can take each of them individually, but particularly when taken in combination, they present very fundamental challenges to industry, to creative businesses, to Government and of course to ourselves.

Let us take the rise of audio and now video online. As data becomes ever more video rich, as consumers benefit, businesses face many intriguing problems in working out how they can make returns as they adapt their existing approaches to the new models of distribution and delivery. I think those arguments are all quite well rehearsed. But for us, I think I would highlight a couple of near term goals and one longer term one as well.

The first near term goal is the problem of copyright on line which remains one of the most vexed questions before all of us.

As I mentioned earlier, that is a new responsibility for me, and it would be a braver man than I who would predict exactly where this will end up – I don’t think anyone really knows how the current proposals will fare, if and when they are implemented. But we are on course to play our role during this year, with a code, with an enforcement project, and then assessment during the second half of 2011 and 2012.

Second, again, of course, net neutrality will be at the heart of this question as video providers require greater and greater certainty over the quality of service for both standard definition and of course high definition. And in this area, again, we will publish our proposals in the next few months.

The third, and longer term, objective for us must be to help redefine what content regulation looks like in the IP video world.

I know the Secretary of State touched upon this earlier today – and I am absolutely with him in intention – you will see this commitment in our annual plan priorities which we published earlier this year.

There are no easy answers to this question. Impartiality in broadcasting I think as everybody knows is arguably the most acute case in point.

But, perhaps unlike one or two others, I am not sure we should simply roll over and announce the inevitable end of a valued and valuable feature of our public realm.

For mobile data and the mobile broadband that is ever more necessary to support it, the fundamental and singular challenge is capacity.

The challenge to the operators is to deliver the investment in new networks which can serve that demand, but also offer a sufficient return, and for them to do that in the face of the inevitability that if they do not build these new networks, then someone else will.

In the face of this almost insatiable demand, it seems that the critical task for Ofcom is to release the spectrum to the market, to businesses and to investors who will actually deliver the benefits of the new networks to consumers.

The Government’s spectrum direction has paved the way for new LTE high bandwidth networks.
We have moved rapidly to liberalise the 900 Mhz and 1800 Mhz spectrum.

We want to now move briskly towards preparing to release the 800 Mhz and 2.6 Ghz spectrum, the raw material of mobile broadband of the future.

We will consult on our assessment of competition and set out our proposals for the combined auction by the end of February this year.

We aim to produce a statement on the competition and on the auction regulations in autumn.

Final auction regulations will be in place before the end of 2011.

Bidders’ applications will be invited and processed in the first quarter of next year.

We hope to know the results in the second quarter of 2012.

The spectrum should be available around the end of 2012 or early 2013, and then networks will begin to be deployed.

And if we have a fourth challenge which is high capacity fixed networks alongside the new broadband mobile networks, we need to ensure absolutely the right conditions for investment and there has been some success so far in this area.

We know that Virgin has already built out their super fast service to 50% of the country, and we know BT is well underway with its commitment to deliver 66% coverage, including very encouraging reactions to the registration schemes.

If you take those two deployments and compare us with comparable economies in the rest of Europe, if those deployments are delivered, our position will be one which is pretty encouraging.

In Ofcom, our role is to facilitate that investment in next generation access and, alongside it, to sustain competition.

We have important regulatory framework interventions to do that. Virtual Unbundled Local Access and so-called PIA, or access to ducts and poles, and that is the backdrop against which I hope that the investment will be supported, and the investment will be rolled out during the course of the next few years.

I do not think that you can overstate how important that is in changing the underlying capacity and infrastructure of this country over the next few years.

In that context, we must also not forget the Government’s £830 million investment, through the licence fee, where we will be keeping a very close eye to ensure that proposals emanating from that expenditure and the procurement associated with it do not distort competition and do not inadvertently create islands of monopoly, offering short term benefits but with long term costs.

And what of television? As I have said, television is incredibly successful and now is proving remarkably resilient.

But of course you cannot be sure that the future will rely upon the past – I certainly wouldn’t be and I when I hear David Abrahams and Adam Crozier and others keep talking about the structural challenge and the need to make change and the need to avoid the temptation of complacency as the cycle returns and favours spot advertising again – I very much agree with them.

Free to air commercial television needs to work ever harder to adapt to become a cross-platform proposition and one less reliant upon the traditional delivery and sales relationships and assumptions of the past.
And here again, Ofcom has an important contribution to make.

As I have said for some years now, we would like to see a significant revision to the framework of regulation in this area – to move from the analogue age that was still with us in the last communications act to the digital age that will be the everyday reality for the next legislation.

We can do some of this with the passage of the Public Bodies Bill. We can clean up and tidy up in some areas, and we will if we can.

There is also our work on the advertising market around advertising minutage and so on which is already underway.

But I think it also places a premium on our work on licence renewal for Channel 3 and Channel 5 where we will do an important piece of work this year and conclude it by making recommendations to the Secretary of State.

Let me finally and briefly summarise. We have been through a very substantial period of change. We have faced many challenges which are common to many public sector organisations. I think we have a clear set of objectives and some major tasks to meet those objectives.

To promote effective and sustainable competition – our principal focus will be making that regulatory framework for next generation access successful for investors, for competitors and ultimately for consumers.
To promote the efficient use of public assets – we will strive to release over 100 MHz of highly valuable spectrum, with a target of an auction in the first half of next year, with networks deployed in 2013.

To help markets work for consumers – we will continue to publish reliable and transparent broadband speeds data, and try to make it easier and more convenient for consumers to exercise choice.

To provide appropriate assurance to audiences – we will update our standards processes, we will refresh those processes, and we will continue to make the best objective and impartial decisions around the Broadcasting Code and we will engage vigorously in the question of how content regulation will need to adapt in the longer term.

In implementing or addressing public policies defined by Parliament, in addition to the work we carried out in the final days and hours of 2010 on the public interest and plurality, I anticipate that we will also have considerable work to do in relation to local TV and in making recommendations on the future licensing of Channel 3 and Channel 5, to name but two areas of enormous interest.

It is a very busy agenda and we look forward to working with you all on it during 2011.

Thank you very much.