Telly monster

The Communications Act intends to open the market for non-EU investors, but just how welcome will they be?

The UK’s Communications Act 2003 passed into law on 17 July. More than four years of consultations, green papers, white papers and draft legislation has resulted in one of the most extensive pieces of legislative consultation ever conducted in the UK.

The Government’s aim was to create the most dynamic, competitive communications industry in the world, to ensure universal access to a choice of diverse services of the highest quality and to make sure that citizens and consumers are safeguarded.

The Government also wanted to create legislation that was ‘light touch’, that simplified the regulatory framework.

But those of us in the field might be forgiven for some scepticism as we wade through the 590 pages of the act, bracing ourselves for the torrent of subordinate legislation, rules, codes and guidelines that will inevitably follow, in which much of the meat of the law will be found.

Even Lord Currie, the chair of the Office of Communications (Ofcom), the new regulatory body created by the act, complained that Ofcom was so loaded with statutory responsibilities that is was like a Christmas tree on which legislators were hanging their favourite baubles.

The good news is that in Ofcom the act creates a new, unified regulator, which brings together the UK’s media, telecoms and radio communications regulators.

Like the Federal Communications Commission, this regulator has wide powers to regulate almost every aspect of the provision of communications services in the UK.

As Ofcom covers the waterfront of communications matters, it should be easier for businesses to get a single regulatory ruling without involving multiple regulators, as has been the case in the past.

Ofcom has also been given powers in the antitrust field and is able to take action against anticompetitive agreements and abuses of a dominant position in the communications sector.

Its role in media M&A is limited largely to an advisory one, although it can influence the outcome by affecting licence terms of the target company.

In the area of antitrust, Ofcom will have to work alongside the Office of Fair Trading (OFT) (the UK’s ‘first instance’ competition body), the Competition Commission (to which matters such as mergers are referred) and the Competition Appeal Tribunal (the appellate body for antitrust matters).

On the other hand, possibly the most controversial step of the act was the dropping of the UK’s longstanding restrictions on a non-EU person being able to control analogue broadcasters.

This was part of the Government’s drive to simplify UK media ownership rules.

The broadcasters affected by the ownership rule are ITV and Channel 5, two of the three national analogue terrestrial advertiser-funded channels, and all national and local AM and FM radio stations. (The UK never enacted foreign ownership controls on digital broadcasting platforms and channels.)

During the passage of the bill through Parliament, there were attempts to force the Government to drop its foreign ownership liberalisation. Opposition took various forms, including a concern that US media businesses that controlled UK cultural assets would “dumb down” UK television output.

In the end, the Government prevailed, but as part of the deal with its opponents, it was forced to include in the act a public interest test on media mergers, which will act as a hurdle in bids by US businesses for UK analogue broadcasters.

The Secretary of State for Trade and Industry can now block a US takeover of a UK broadcaster on the grounds that it would be contrary to the public interest by jeopardising UK media plurality, the quality of UK broadcasting or the ability of UK broadcasting to meet programme content standards.

In addition, if either ITV or Channel 5 were to be taken over by any person, Ofcom could include conditions in the target’s licence to safeguard the commissioning and broadcasting of original and independent productions, news and current affairs and, in the case of ITV, regional programmes.

These conditions may run counter to the bidder’s plans for the stations concerned.

It is in the media ownership field that the unified regulator theory seems to break down. There are at least four regulators involved in a media merger decision: the Secretary of State, the OFT, the Competition Commission and Ofcom itself.

This multiplicity of regulators will certainly make the operation of media mergers more complex, and this runs counter to the Government’s aim of simplifying many of the media ownership rules.

One obstacle to the pending merger of Carlton and Granada, the two largest ITV operators, will be removed in December when one particular ownership rule comes into effect. The two companies currently await the deliberations of the Competition Commission, which is examining the effect on advertising markets.

There is much opposition to the merger from the advertising industry, and a recent Competition Commission decision on the radio advertising market shows that the commission is adopting a very strict approach to mergers. It may be that the two companies will have to pass the public interest test alluded to earlier before they can merge.

In terms of regulating the BBC, the recent controversy surrounding the UK Government’s case for the war on Iraq and the tragic death of Government adviser Dr David Kelly has sharpened the focus on this area.

In the act, the Government gave Ofcom very limited powers to regulate the BBC and its output, which is something it may now be regretting.

The Government will be publishing a green paper on the regulation of the BBC by the end of this year, and it will be interesting to see if policy on the BBC has changed from that set out in the consultation papers in the run-up to the act.

Regulation of the BBC is a crucial issue for commercial broadcasters in the UK, and many have complained that the BBC has used its guaranteed funding from the licence fee to move into areas that should be left to commercial operators.

There are also other areas affected by the act. For example, it liberalises the ability of religious bodies to own broadcasting licences. Up to now this has been tightly controlled, but the act should make it easier for religious organisations to obtain licences. There is, however, the need to obtain Ofcom’s approval before being granted a licence.

Overall, Ofcom’s powers are chock full of responsibilities, including responsibilities to review the regulatory burdens on the communications industry, to publish and meet promptness standards and to have regard for regulatory principles such as proportionality, transparency and consistency.

Certain decisions can now be subject to a statutory appeals process that allows the appellate body – in this case the Competition Commission and its own appellate body the Competition Appeal Tribunal – to review the substance, and not just the form, of Ofcom’s decisions; this is a decided break from the past, where until recently the only real form of redress was judicial review.

But for those operating in the media industries, the right of appeal is limited to antitrust matters. So there will be no substantive appeal against decisions such as a refusal to award a licence or the fining of a television station for broadcasting the wrong kind of output.

So for the cynical among us, there is little about the act that simplifies life for media businesses and investors.

The Christmas tree referred to by Lord Currie is positively groaning with baubles, and it remains to be seen how much success Ofcom will have in facilitating business in what is still a highly regulated market.

Daniel Sandelson is head of the communications, media and technology group at Clifford Chance in London