On 30 March 2017, Ofcom, the UK’s communications regulator, published its annual plan for financial year 2017/18. It also published its budget and work programme for the year. The changes identified by Ofcom in relation to its responsibilities, markets and technology and the legislative framework under which it operates provide a great snapshot of current industry trends and issues.
Taking these in turn:
Changes to Ofcom’s responsibilities: regulating the BBC
As discussed in an earlier post, under the new BBC Charter, from 3 April 2017 Ofcom will assume responsibility for investigating the full range of content standards complaints against the BBC (including accuracy and impartiality complaints), assessing the BBC’s performance against its mission and public purposes, and regulating the impact of the BBC’s activities on fair and effective competition. Ofcom’s annual plan sets out how it will undertake these tasks.
Changes to markets and technologies
To inform its activities, Ofcom undertakes material market research as well as collecting information directly from regulated companies. This gives Ofcom a unique perspective on the UK’s communications market. The changes highlighted by Ofcom in its annual plan are (the following bullet points are cut and pasted directly from section 2 of Ofcom’s plan):
- “Connectivity is increasingly central to UK consumers and businesses. The internet is playing an increasingly central role in the lives of people in the UK. In August 2016, 86% of UK adults had access to the internet at home, the average UK internet user reported spending 25 hours online each week, and 75% considered the internet “important” to their daily lives. People use the internet for a variety of activities, including person-to-person communication, social networking, news consumption and watching TV. The internet has also transformed the way in which audiences access news, and is gradually changing TV consumption. For example, in 2016 around six in ten UK adults used video on demand services such as BBC iPlayer, All4, Netflix or Amazon,4 with 6 million households subscribed to Netflix. Between 2015 and 2016, UK mobile data use grew by over 40%, while average monthly household/small businesses’ fixed data use grew by 36%. Connectivity is also increasingly important for UK businesses. For example, teleworking, online access to customer and public services, e-commerce and cloudbased office software are increasingly common. Further, machine to machine (M2M) communications – with applications ranging from ‘smart’ utility meters to connected cars– are increasingly common, with nearly 7 million connections in the UK
- Operators are investing in networks to improve speed and meet user needs. Responding to these demands, fixed network operators are investing to increase the speeds of existing networks, including through the use of fibre to the premises (FTTP), to provide higher speeds directly to homes and businesses. For example, BT has announced plans to deliver FTTP to two million premises by 2020, and G.FAST to a further 10 million. Virgin Media’s ‘Project Lightning’ will extend cable coverage to 60% of premises, planning to build 800k homes this year. As a result of investment, ‘superfast’ broadband speeds of at least 30Mbit/s are now available to 89% of UK premises. In its Autumn Statement, the Government has announced a £400m broadband investment fund to support further deployment of fibre networks. Mobile network operators are also upgrading their networks, rolling out 4G and using WiFi and small cells to improve mobile data coverage. Research into and preparation for future 5G networks continues, with the potential to provide speeds up to 40 times faster than current 4G networks. Mobile improvements, including 5G, are being designed to provide greater capacity and improved reliability, enabling innovative new services across different industry sectors. The deployments of the first international ‘5G’ standard are expected to begin by 2020, but with further evolution (for example to more small cells) after that.
- However, concerns remain about availability and connection quality. Despite increased network investment, an estimated 1.4 million, or 5% of, UK households are unable to receive a decent broadband speed of 10Mbit/s to allow effective access to the internet. This risks creating a ‘digital divide’ between those who can fully engage with new communications services and those who cannot. In addition, quality of service in telecoms has failed to meet people and businesses’ expectations. Fault rates and repair times cause considerable concern and dissatisfaction.
- Online media is changing the competitive landscape for established players. As consumers increasingly use internet-delivered, “over-the-top” (OTT) services for media, OTT providers have begun to invest in content production, including original UK content, thereby challenging established media providers. For example, Amazon has launched a competitor to the BBC’s Top Gear in December, while Netflix has invested in original drama The Crown, released in November. In March, YouTube announced its plans to launch a new 40 channel TV subscription service which will compete directly with US cable networks. Established broadcasters and pay-TV operators have also entered the video on demand (VOD) market, resulting in an increasingly complex and shifting competitive landscape. As the BBC has exploited new online opportunities for delivering its public purposes, the competitive impact of these activities has become a focus of concern for some stakeholders.
- M&A activity continues to reconfigure the communications industry In recent years, there has been a wave of mergers and acquisitions among European communications firms, driven by convergence of services and the continuing importance of scale. Examples include ‘quad-play’ mergers combining fixed and mobile operators (e.g. BT’s acquisition of EE); horizontal international mergers (e.g. the acquisition of Virgin Media by Liberty Global, and BSkyB’s merger with Sky Deutschland and Sky Italia) and vertical acquisitions by pay-TV operators investing in content firms (e.g. Liberty Global investing in All3Media, and indirectly in Eurosport). On 3 March 2017 21st Century Fox made a formal notification to the European Commission of its intention to acquire the shares in Sky it does not already own. On 16 March 2017, the Secretary of State issued a European intervention notice on the proposed acquisition. This requires Ofcom to consider two public interest grounds, media plurality and commitment to broadcasting standards, and to provide advice and a recommendation on any public interest issues raised by the merger relating to these grounds.”
Changes to legislation and policy
The legislative framework for the UK communications market is currently undergoing significant change. Ofcom highlight:
- Digital Economy Bill. The Bill contains a range of provisions designed to help Ofcom carry out its functions and deliver better communications services for citizens and consumers. These include confirming Ofcom’s powers to make rules related to switching and automatic compensation; to collect and publish information from communications providers; and to regulate the BBC. The Bill also includes changes to Ofcom’s powers to regulate electromagnetic spectrum.
- Brexit. Ofcom comment: “The impact of Brexit on the UK’s communications market remains to be determined, and will depend on arrangements yet to be negotiated between the UK and the EU”, so it would appear that Ofcom are not yet fully engaged with the Brexit process and the potential implications for communications regulation.
- EU Digital Single Market. Whilst the impact of changes to audio-visual and telecoms regulation at the European level will in large part turn on the approach taken to Brexit. Pending clarity on Brexit, Ofcom note that they will continue to contribute to the on-going review of the EU Electronic Communications Framework and the Audiovisual and Media Services (AVMS) Directive.