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5 September 2005
The BBC Trust seems to be a horse designed by three committees: Lord Terry Burns, Michael Grade and the Department for Culture, Media and Sport (DCMS). Is it a regulator, a board, an owner, or all three? The Government may have simply transferred the governors' conflicts to a new body and added a further conflict - one between the trust's duty to the public as guardian of the licence fee and its responsibility to the market. Unfortunately, little detail is provided about how this conflict could be resolved.
The Government says many of the BBC's commercial services should continue in their current form. So what if the BBC Trust decided to sell them? The trust's powers seem limited to deciding whether the services have performed to the standard of the targets set for them. Would the trust have the power to break up the BBC and sell off all of its commercial services? Should the trust have an obligation to review whether they should be sold? What if it receives a very attractive unsolicited offer? Would it have the same duty as the board of a company to consider it?
Competition law oversight
The commercial sector will be disappointed in the Green Paper's lack of clarity concerning the regulation of competition law and the BBC. The BBC's public service remit is still legally vague and without detail on the limits of the BBC's operations - it is therefore hard to tell whether the BBC is breaching competition law because of its exemption for its public service activities (see box).
The Government's proposals borrow somewhat from Ofcom's conclusion to its review of public service broadcasting in television. Lord Burns' report on governance gave the economic regulation of the BBC only a cursory review.
Ofcom proposed that it ahould carry out impact assessments of new services proposed by the BBC (interestingly, Ofcom did not say whether the BBC should withdraw from existing services in the future and whether impact assessments should be extended to this issue too - and neither does the Green Paper). Ofcom also said it should regulate competition issues across the sector, with the BBC subject to the same ex-ante rules as commercial broadcasters.
Ofcom will carry out impact assessments on new services. But the regulator's second request is still pending. This is important because the BBC often says it is subject to the same competition law regulation as its commercial rivals. This is untrue. It benefits from the services of general economic interest exemption across its public service activity, effectively disapplying elements of the Competition Act and parallel EU competition regulation. But the exact scope of that exemption, and the extent to which the BBC would rely on it, is unclear. This creates uncertainty for the commercial sector. It is essential for the exemption to operate effectively so that the boundaries of the BBC's public service remit are clearly laid down.
The Green Paper also ducks the issue of the BBC's fair trading commitments, which regulate the relationship between the BBC and its commercial arm, and leaves the door open to Ofcom regulating them. There is a respectable case for the BBC's fair trading rules to be authored and supervised by Ofcom, given that Ofcom already has ex-post oversight of the BBC (subject to exemptions). But licence terms for BBC services (and so, implicitly, the fair trading commitments within the BBC) are to be issued by the BBC Trust. Is the BBC Trust likely to have the expertise to regulate in this area? And what would be gained by adding another competition regulator?
There is already a real risk of conflict between the BBC Trust and Ofcom in competition law enforcement. Both seem to have powers, so which body can overrule the other? For example, the BBC Trust's duties to the public might lead it to rule that the BBC's proposals might distort the market but should go ahead. Ofcom might disagree. So who wins?
Here, an important issue remains the adherance to the requirements laid down in the European Commission's 2001 communication on the application of state aid rules to public service broadcasting. That requires that there is:
- An official definition of the public service mandate.
- An independent body supervising the fulfilment of the public service remit.
- A funding mechanism that is not disproportionate and which does not exceed the net costs of the public service mission.
- Transparency of accounts between the public service and commercial arms of the organisation.
Since we do not know the legal status of the trust, it must be questionable whether it is truly independent of the BBC. The Government was concerned about an "Ofbeeb" being subject to "regulatory capture". Surely the risk is no less great with the trust concept. And if the trust is not truly independent, what certainty is there that the licence fee it collects and disburses will be proportionate to the public service remit? The Green Paper skates over the issue of accounting transparency. Perhaps now is the time for full regulatory accounts supervised by an external competition body.
So the Government has for the time being ducked definitive proposals for the BBC's position under competition law. As chairman of Channel 4 Luke Johnson said in Broadcast on 15 April: "The great distorting factor in the British broadcasting scenes is the BBC." Unless competition issues are dealt with fully, that could continue to be the case.
The BBC Green Paper.
The Government published its green paper on the reform of the BBC in March. Among its proposals were:
The governance of the BBC is to be overhauled by the abolition of the board of governors and the creation of a new BBC Trust, being the BBC's "sovereign body" and having ultimate responsibility for the licence fee.
- The day-to-day management will be taken away from the governors and devolved to an executive board reporting to the trust.
- The approval of new services is to be given to the BBC Trust, which will issue service licences for each of the BBC's services and will make sure the BBC sticks to them.
- Ofcom will continue with existing competition oversight of the BBC and will publish market impact assessments on the commercial sector of its new services.
Daniel Sandelson is head of the media practice at Clifford Chance