Memorandum submitted by Ofcom (DIW 15)

Section 1

Introduction

Digital Inclusion in Wales

Wales has significant digital infrastructure and access issues, and people living in remote and rural areas in particular are at risk of digital isolation. For example, consumer and citizen expectations of the delivery of audio visual content via broadband may well exceed what is available technically. In some areas of Wales, consumers and citizens might also experience multiple deprivation of communications services, for example, a lack of mobile coverage, slow or unavailable broadband connections and a lack of digital television and digital radio coverage.

As a converged regulator, Ofcom publishes high quality data and evidence about the communications sector in Wales, through, for example, its annual communications market reports. We therefore welcome the Committee's timely investigation of digital inclusion in Wales. Ofcom's has a broad duty to further the interests of consumers and citizens, so we tak a close and continuing interest in the availability, take-up and effective use of digital services.

Our primary involvement to date has been in three key areas: telephony, television, and media literacy, each of which is significant in its own right. Our work in these areas will continue.   However, there have been significant developments in digital technologies and a revolution in the social and economic use of such technologies, notably broadband and mobile services. In this context, Ofcom believes it is right to review and expand its priorities, assess what should be done about them, and drive forward progress to address them. We therefore intend to publish an issues/discussion paper on access and inclusion and engage with stakeholders on this subject, later this year, as set out in our Annual Plan for 2009/10.

Finally, the Digital Britain interim report addresses many of the access and inclusion issues identified here in relation to Wales, in the wider UK context. The increasing importance of media literacy, reflected in important initiatives such as the recent formation of the UK Council of Child Internet Safety (UKCCIS), forms a key priority of the UK Government's Digital Britain Report and Ofcom is committed to working with the Government on this new initiative.

Section 2

Executive Summary

This document aims to address the following distinct but related policy issues:

i). the adequacy of Wales' technological infrastructure, focussing on the availability and take-up of digital television; digital radio; fixed line mobile voice networks and broadband;

ii). Ofcom's role in promoting digital inclusion in Wales;

iii). Online Protection: the risks and benefits posed by digital technology for citizens, (including children and young people).

1. Wales' Communications Infrastructure

Television

Wales' topography presents significant engineering challenges and in order to secure near universal coverage for television services, the country is served by a network of 214 main transmitters and relays.

10 sites currently transmit digital terrestrial television (DTT) alongside analogue television, providing coverage to 63% of households in Wales. Following digital switchover, which is due to start in August 2009 in west Wales, coverage of the three public service multiplexes transmitted via DTT service will reach 98% of households in Wales by the time the process is completed in spring 2010 (with coverage of the commercial multiplexes reaching around 73% of households). This will provide at least 17 digital television channels to viewers in Wales rather than the four (or sometimes five) provided by the existing analogue services.

Digital satellite, including the new BBC/ITV Freesat service, offers an alternative way to receive digital television and is available across the whole of Wales. However, Virgin Media's cable network, which also carries digital television services, is only available in parts of south east Wales, reaching around 23% of households in Wales (compared to the UK average of 45%).

Digital television take-up in Wales is already at 84%, although take-up has slowed over the past year. Paying television customers in Wales are the largest adopters of satellite services in the UK, possibly because Wales has the lowest levels of cable and DTT availability in the UK.

Ofcom research shows that, due to the popularity of digital television, particularly digital satellite, the proportion of households in Wales viewing services from England only is by now relatively small with around 39,000 households in Wales receiving only England channels. The largest number of these are located around Wrexham (almost 16,000), followed by Cardiff (around 10,000). However, if those who could view Wales and England channels but choose to watch mostly England channels are included, the number of households affected rises to around 74,000.

In addition to the digital satellite and cable platforms, DTT will also carry high definition services, with three channels becoming available in Wales by 2010. However, viewers will need a high definition ready television and a new set top box.

Digital switchover will release spectrum capacity, known as the digital dividend, which can be used for other purposes as digital television transmission is more efficient than analogue and uses up less capacity. This spectrum, in the UHF band, is the most commercially valuable and highest quality that is likely to be released in the UK in the next 10 or 20 years. After extensive consultation, Ofcom has decided that market mechanisms are the most effective way to manage this spectrum and Ofcom will be shortly starting a round of auctions which will release it to the market. The spectrum released through the digital dividend is suitable for a wide range of uses including, ultra-fast wireless broadband services, mobile television, more DTT services, local television, wireless microphones and low-power applications developed from wi-fi.

An auction of geographic interleaved spectrum for Cardiff will be held on 18 February and one potential outcome could be the creation of a digital local television service for the Cardiff area, reaching some 300,000 viewers

Radio

Currently in the UK, analogue and digital radio services exist side by side and although there are no firm proposals for digital switchover, the Digital Radio Working Group, (DRWG) in its final report[1] suggested that the UK could be ready to migrate to digital radio as early as 2017. This issue will be further explored by the forthcoming Digital Britain report.

Digital Radio is already broadcast on a variety of platforms in the UK, combined with digital television: DTT, Digital Satellite and Digital Cable. It is also possible to listen to digital radio on line either via a computer or through portable devices such as Internet Radios. However, the main portable platform for digital radio is Digital Audio Broadcasting (DAB), which is the platform generally regarded by the radio industry as the main replacement for analogue radio in the UK.

Ownership of DAB sets in the UK has already grown and cumulative sales of sets passed the 8.5 million mark by the beginning of 2009. In Wales, around 14% of listeners own a DAB radio compared to the UK average of 22%.

Although coverage of DAB radio services have significantly improved to around 74% of the population in Wales, the coverage of BBC Radio Wales and Radio Cymru is still currently limited to south and east Wales. For technical and licensing reasons, the BBC's services for Wales are carried on local commercial multiplexes and in order to extend their reach, Ofcom has, over the past two years, awarded local multiplex licenses covering most of the rest of Wales.

The development of a common European standard, will become available during 2009 that will support a range of technologies including FM, DAB, DAB+ and DMB Audio. This development will create a European-wide market which will help to sustain digital radio.

DRWG recommended in its final report published in December that the UK Government should make a clear statement on the future of digital radio and agree a set of criteria and timetable for migration to digital. It suggested in order to trigger radio digital migration, at least 50% of total radio listening would be to digital platforms, UK multiplex coverage will be comparable to that of FM coverage and that local multiplexes should cover at least 90% of the population. DRWG also recognised that the BBC's nation services, e.g. Radio Wales and Radio Cymru, would also have to match the current coverage levels on FM.

Community radio services, licensed by Ofcom through 5 year licences have started to develop with licences awarded to 9 stations across Wales. In addition, Rhondda Cynon Taff Council have been running a community based radio project, as a series of one-month Restricted Licence Services, licensed by Ofcom.

Fixed Line

Fixed telephone services are available to all of the UK population as a result of the universal service obligation (USO) which is provided by BT (and Kingston Communications in Kingston-upon-Hull).

Under the USO all UK households have access to a landline at a standard charge, although additional charges for connection apply where the cost of installation is in excess of £3,400. The USO does not, however, cover access to broadband services.

The USO mandates BT and Kingston to provide affordable telephone services for less advantaged members of the community in the form of special pricing schemes.

As a result of the USO, there are no significant issues relating to the availability of fixed voice telephony services in Wales.

Mobile

Geographic 2G mobile coverage in Wales is the second lowest among the UK nations at 97%, while it was highest in England (over 99%).The majority of postcode districts in the UK (98%) have 2G area coverage from one or more mobile networks. Wales has the second lowest level of geographic 2G coverage from all four providers at 46% of postcode districts. There are sizeable areas of mid-Wales where coverage from 2G services is only available from one or two mobile networks.

Wales has the second lowest 3G coverage where 68% of the population live in a postcode district that has at least 75% area coverage with from one or more 3G networks, compared to a UK average of 90%.

22% of people in Wales live in an area with 3G coverage from four or more networks, the second lowest among the UK nations.

In January 2008, Ofcom commissioned a survey of mobile telephony coverage on the A470 in Wales to provide an insight into the level of service availability on this main road which runs the full length of Wales. The results highlight that coverage in these less populated routes is significantly less than in population centres

Broadband

Broadband access over the existing copper telephone network is limited in practice to premises situated up to around 5km from an exchange.

Openreach, a division of the BT Group, is responsible for managing and maintaining BT's existing copper lines and infrastructure running from exchanges to premises (also known as the 'Local Loop') which are used by around 400 communications providers in addition to BT Retail to provide broadband services, either via wholesale capacity from BT or through direct infrastructure investment at individual exchanges.

Virgin media operates a separate hybrid fibre-coaxial network access network, which has uses fibre instead of copper, running from its core network to street cabinets. But, in Wales, access to this network is only available in the urban areas of south east Wales, Cardiff, Newport, Swansea and parts of the vale of Glamorgan

Despite the wide availability of broadband services, not-spot areas still exist, although the exact scale of the problem is difficult to quantify. BT estimates that 99.6% of premises are connected to its network and are able to obtain broadband speeds of up to 512 Kbits/s. But in practice access may not be possible because:

· The length of the copper line from the telephone exchange to the site is too long, there may be poor connections and its quality may be poor;

· Line sharing devices prevent broadband from working

· Aluminium cabling as well as copper may have been installed over the years which can have a significantly impair the broadband signal;

However, significant increases in broadband speeds can be achieved in premises and homes by improved domestic wiring.

Through its Regional Innovative Broadband Support (RIBS) contract with the Welsh Assembly Government (WAG), Openreach has been working on a programme of line concentrator and DACS removal in order to enable more lines to provide a broadband service. In December 2008, WAG announced an initiative with Openreach to broadband enable the lines serving the West Wales communities of Reynoldston, Saundersfoot, Llanpumsaint and Bronwydd Arms, Cilcennin in Ceredigion and Gwytherin in North Wales

In June 2008, BT announced an ambitious £1.5billion programme, over 4 years, to replace its copper network with fibre, at least to the street cabinet, connecting 10 million homes. This is described as next generation access and will enable the provision of super fast broadband with much higher speeds than currently available via DSL. BT has recently selected the Whitchurch area of Cardiff as one of the two first pilot sites for Super Fast Broadband roll-out

Broadband take-up is currently 45% of the population in Wales (compared with a UK average of 57%). Consumer responses suggest that the gap in broadband take-up between Wales and the rest of the UK will not close significantly during 2009. Only 15% of those without broadband in Wales said that they were likely to get it in the following year; 53% were unlikely to and 33% were unsure.

Ofcom research, published on 8 January this year, revealed that UK consumers receive an actual average broadband speed of 3.6Mbit/s. This compares with an average maximum possible speed[2] of 4.3Mbit/s across the UK. Among consumers on the most popular 'up to 8Mbit/s' package (which over 60% of UK broadband consumers subscribe to), one in five subscribers receives an average speed of less than 2Mbit/s and on average the actual speed consumers receive is 45% of the advertised headline speed

Overall, dissatisfaction with broadband is higher for rural users (14%) than urban users (8%). Within the nations and regions, consumers in the North East, Eastern and South West English regions are significantly more satisfied than users in East Midlands, Wales and Scotland

Since 5 December 2008, over 95 per cent of people choosing a broadband service have been covered by the Ofcom broadband speeds Code of Practice which requires ISPs to provide an accurate estimate of the maximum speed they can expect when signing up to a service

FibreSpeed - Open Access Networks for Wales - is a key initiative within the Welsh Assembly Government's Broadband Wales Strategy which aims to provide affordable broadband connectivity (with a minimum of 10Mbit/s symmetric broadband service) to business parks/locations in north Wales.

In 2004, BT announced that the roll-out of its £10bn UK 21st Century (21CN) next-generation network would start in South Wales. This investment is essentially in the core networks operated by BT that eventually feed local exchanges.

BT estimates that it has already laid more than 2,300 kilometres of fibre optic cable in South Wales as part of the upgrade process. 21CN is capable of delivering high-bandwidth services to the exchanges that can be accessed by households and businesses in Wales. Linked to the development of 21CN is the future provision of ADSL2+ technology will offer maximum download rates of up to 24Mbit/s over the existing copper infrastructure for premises located within 2 km of an exchange. However, the development of super-fast broadband and fibre to the cabinet may over take the development of ADSL2+ in some areas.

2. Promoting Digital Inclusion in Wales

Society is becoming increasingly reliant on digital communications technology which is becoming an integral part of everyday life. Knowledge of its use is increasingly a prerequisite to effective participation in society and in the economy. As the traditional models of content regulation become less effective in minimising potential harm and offence, parents, carers and individuals must take more responsibility for what they, and children, see and hear on television, radio and online.

This increasing importance of media literacy is reflected in important initiatives such as the recent formation of the UK Council of Child Internet Safety (UKCCIS). It is also likely to form a key priority of the UK Government's Digital Britain Report and Ofcom looks forward to working with the Government on this new initiative.

Ofcom is charged with the promotion of Media Literacy[3] and following an extensive consultation in the summer of 2004, Ofcom set out its definition as follows:-

'Media Literacy is the ability to access, understand and create communications in a variety of contexts.'

In November 2004, Ofcom published its Media Literacy Strategy which proposed the following activity:

· A wide ranging research programme to assess the extent of media literacy in the UK;

· The development of a common labelling system to support greater consistency in presenting information related to possible harm and offence and to protect young and vulnerable people from inappropriate material.

· Support for related and relevant work undertaken by other organisations across the UK.

Ofcom's statement of strategy and priorities for the promotion of media literacy can be found at

http://www.ofcom.org.uk/consult/condocs/strategymedialit/ml_statement/

No single organisation can be effective in reaching all sections of society - and different people will have different media literacy needs. Ofcom has demonstrated over the last four years (2004 - 2008) that a range of partnerships can be effective in addressing people's media literacy needs. Ofcom has therefore established effective partnerships throughout the UK with key stakeholders in government, education, the voluntary sector and the creative industries.

Wales Media Literacy Network

Ofcom established the Wales Media Literacy Network (WMLN) in March 2007 as a direct response to a consultation exercise conducted the previous year. The Network is funded by Ofcom and administered by NIACE Dysgu Cymru. It includes representatives from a range of organisations from across Wales - each with an interest in some form of media literacy or another. A Committee (chaired by Karen Roberts in the Ofcom Wales office) meets four times a year to set the agenda for network activity. Committee Members act as a central point of contact for their organisation/sector, facilitating two-way dialogue and sustaining the flow of information between that organisation/sector and the Network itself.

The WMLN also:-

· ensures that Network members are made aware of all relevant media literacy activity as soon as is practicably possible

· identifies media literacy issues in Wales, both collectively as a Committee and individually as Members, with particular reference to the areas where they have particular knowledge or expertise

· provides advice to the Network about general and specific issues concerning media literacy matters as they arise within Wales

· provides comment as required on matters brought to the Committee by other Network members

· responds appropriately to consultations on media literacy undertaken by other bodies

· actively promotes media literacy to the wider public in Wales

Since its creation, the WMLN has endeavoured to:

· Identify media literacy activity in Wales and help to plug the gaps where inactivity is prevalent

· share good practice and work in partnership on all matters relating to media literacy

· co-ordinate events to promote media literacy

· provide a 'match-making' service between learners, learning providers and media professionals

· collate and distribute information

· develop a Wales Media Literacy Strategy to establish a clear vision for promoting media literacy in Wales.

There are many organisations that have a key role to play in the promotion of media literacy skills, knowledge and understanding - amongst both adults and children. These include content producers, broadcasters, platform and network providers, learning providers, academics, Government, parents, the voluntary sector and others. Membership of the network is free and organisations and individuals with a particular interest in any aspect of media literacy are welcome to join.

Network events and activity

A number of high profile Network events have already been held in Wales to increase membership of the Network, and promote the work of Network members as they relate to media literacy. These include events at the National Eisteddfod in Mold in 2007 and in Cardiff in 2008 in conjunction with the Royal Television Society; a seminar held at the University of Glamorgan in October 2007; a seminar on e-democracy held at the National Assembly in January 2008 and a seminar on Digital Literacy in a Web 2.0 World, held at Aberystwyth University in June 2008.

Ofcom Research

As an evidence-based regulator, we use our portfolio of research to define priorities for action, both for Ofcom and for our stakeholders. Research helps us identify the skills gaps and issues, directs our activity and measures our progress towards achieving our goals. Ofcom has commissioned and published a wide range of Audits on media literacy activity which can be found on the website at:

http://www.ofcom.org.uk/advice/media_literacy/medlitpub/medlitpubrss/

Media Literacy Audit

Ofcom carried out an audit of media literacy across the UK and in March 2006 published its first report, which details the audit's findings across all UK adults.

Report on media literacy in the nations and regions - April 2006

This report focused on results across the nations and English regions and should be read in tandem with The Communications Market: Wales report, which examines availability, take-up and consumption of communications services across the UK.

Key findings for Wales were:

· Self-reported take-up of mobiles and the internet in Wales were lower than the UK average; self-reported access to digital radio services was at similar levels and take-up of digital TV was significantly higher.

· Picture quality was a key driver in digital television take-up. Levels of general concern about television services were low, in keeping with the UK average.

· Internet users in Wales were significantly happier to give out personal details online than the other nations.

· People in Wales were more likely to cite emergency use and text messaging as reasons to obtain mobile phone services compared to the UK average. People in Wales used fewer sources of news than the other nations. Overall, they were more likely to say they distrust newspapers than the UK average. They were more likely to trust BBC News 24, and appear more likely to trust the other UK-based 24-hour news channels.

The full Audit can be found at:

http://www.ofcom.org.uk/advice/media_literacy/medlitpub/medlitpubrss/nations_regions/

Our Adult Media Literacy Audit for 2008 showed the following findings for Wales.

· Take-up of digital television and mobile phones has increased significantly since 2005, although internet ownership in Wales (53%) was lower than in the UK as a whole (62%).

· Compared to the UK, adults in Wales were more likely to regularly listen to music on a hi-fi/CD/tape player, and less likely to regularly use the internet.

· People in Wales were also more likely than people in the UK in general to say they would miss their television the most.

· 61% of adults in Wales use another device at the same time as watching television compared with the UK (69%).

· 63% of adults in Wales use another media device while using the internet compared with the UK (74%).

· People expressed a similar level of concern about media content and devices in general, with the exception of what is on television; people in Wales were more likely than the UK average to have concerns about what is on television.

· Levels of trust in television and internet content were lower in Wales than in the UK in general;

Our Children's Media Literacy Audit for 2008 showed the following findings for Wales:

· As in the whole of the UK, households with children in Wales had high levels of ownership of key media, and had experienced a significant increase in children's use of the internet since 2005. Since 2005 children in Wales had also increased their use of a CD player, an MP3 player and a digital camera.

· Children in Wales were more likely than children in the whole of the UK to have a television and a portable DVD player in their bedroom. Children in Wales were more likely to have internet access in their bedroom than they were in 2005 (an increase from 7% to 13%).

· In each of the UK nations there has been an increase since 2005 in children saying they would miss the internet the most.

· Children in Wales watched fewer hours of television and listened to more hours of radio in a typical school week, and were less likely to use media other than a television to watch video content.

· Children in Wales tended to be confident using the internet and were more likely than children in the UK as a whole to say they can always find what they're looking for online.

· Parents in Wales were more likely to say their child's mobile phone use and radio listening were a concern.

· Children in Wales were more likely to agree with attitudes towards gaming relating to the consequences of violence in games, the value of settings on consoles preventing access to games with certain age ratings, and the wider use of skills learned playing games.

· Compared to the UK average, children in Wales were less likely to say they have lessons at school about the internet.

Other Ofcom Media Literacy Activites

We plan to undertake the following activity through our partnerships with key stakeholders across the UK:

Promotion of Content management systems (including filters and PINs) provide the potential to empower people to control the content they access on television, over the internet and on mobile services.

Promotion of Content information

Ofcom will encourage and support industry members such as the Broadband Stakeholder Group to raise people's awareness of these sources of information to manage their viewing experience and protect against harmful or offensive content.

Critical awareness

We will establish partnerships with those stakeholders, particularly in education and in broadcasting, who can promote greater critical awareness of media.

Learning

Jointly with the Department for Children, Schools and Families (DCSF) we have under taken an audit of government departments and relevant agencies to map the policy agenda and priorities for the promotion of media literacy in the education sector.

Safety and security

We will support the work of the UK Council for Child Internet Safety (UKCCIS). We will work closely with Get Safe Online to support its provision of information to people on how to protect their PCs and transact safely and securely online.

Mapping activity to promote media literacy

Ofcom is trialling a resource to provide a public, searchable, web-based database of organisations, projects and activities that promote media literacy in the UK.

Evaluating activity

We continue to support the work of the Media Literacy Task Force and will publish an evaluation toolkit for media literacy projects and activity.

Supporting citizens and consumers

We will provide information for those audiences who are not connected to the internet - and for other hard-to-reach audiences. This information will be made available through existing support networks such as Citizens Advice, UK online centres, libraries and museums.

3. Online Protection

Ofcom believes that it would not be appropriate or effective to attempt to translate existing regulatory structures onto the internet. The internet was created as an essentially open access network and the existing lack of regulation has contributed to its very success and the innovation it has engendered. In the future, it will therefore be important to maintain the benefits of this open approach as much as possible in order not to cause undue negative impact on consumers as well as businesses

Ofcom is a member of the Wales Internet Safety Partnership (WISP) Committee. WISP was established in 2007 to raise awareness of Internet safety, which aims to assess current trends in young people's use of the Internet and mobile phones, and the safety challenges these present. WISP is also developing innovative targeted programmes to ensure that young people and parents have an informed understanding of the Internet and mobile technologies, and the risks that these can present including issues relating to online social networking sites, messenger services, accessing inappropriate content online, and grooming.

The partnership is keen to stress the many positive benefits the Internet presents and aims to engage and inform the public so they have a better understanding of the online world and are able to handle their personal safety online. WISP held its second conference 'Young People, Mobile and Internet Technologies 2008 - Maximising Opportunities, Addressing Challenges in Swansea in October. The Welsh Assembly Government /WISP eNetwork was also launched at the conference, which will link and enable educators, youth professionals and others with an interest in the digital literacy of young people across Wales to share ideas, resources and good practice. Details of the conference can be accessed at http://www.wisekids.org.uk

As legitimate use of the internet has grown, so have the scale and impact of its fraudulent and criminal uses. The international nature of the internet has generated new opportunities for consumers but it has also put them within easier reach of those seeking to take advantage of them.

The internet has given rise to many new types of crime - for example, identity theft by phishing, malicious virus dissemination via SPAM, and online grooming of children. It has also made it easier for criminals to circumvent judicial systems by taking advantage of the impersonal nature of the internet to misrepresent or disguise their true identity

From our survey of different approaches to regulating some of the key consumer protection issues that the internet raises - such as privacy and security, and protection from illegal or inappropriate content, or from malicious software - we make four observations about the effectiveness of regulation relating to the internet and the services delivered over the internet:

· The attempts at consumer protection on the internet at both national and international level have met with varying degrees of success to date.

· Successful consumer protection on the internet has generally involved a much higher degree of co- and self-regulation than has been the case for other media.

· Effective consumer protection on the internet requires more significant levels of international cooperation than currently exist.

· The internet inevitably places a much greater responsibility on consumers to take action to protect themselves.

Section 3

Wales' Digital Landscape:

Television, Radio, Fixed Line, Mobile and Broadband

i.) Digital Television

Digital Terrestrial Television Service Availability

3.0 Historically, the hills and valleys of Wales presented significant engineering challenges to the goal of securing ubiquitous television reception within the country. This is illustrated by the fact that although Wales has around 5% of the UK's population it has about 20% of the UK's transmitters[4]. Television is broadcast from six main sites in Wales: Wenvoe, Carmel, Preseli, Blaenplwyf, Moel-y-Parc and Llanddona, which currently broadcast both analogue and digital services. But since the early days of black and white television, due to its topography, Wales has relied on a network of relay stations to bring reception to households based in valleys and mountainous areas, where direct reception from the main transmitter sites is not possible[5]. Figure 1 below illustrates how relay transmitters receive signals from a main transmitter and then re-broadcast them into an area where direct reception is not possible. Wales is currently served by 208 relay transmitters[6] and the total analogue coverage, provided by transmitters based in Wales is 96.7%. This figure rises to 97.4% if reception from neighbouring transmitters in England is also taken into account[7].

Fig 1 Relays and Main transmitters

Digital Terrestrial Television Coverage

3.1 Digital Terrestrial Television (DTT) services in Wales are currently broadcast from the six main sites, Wenvoe, Carmel, Preseli, Blaenplwyf, Moel-y-Parc and Llanddona, along with the Aberdare, Pontypool and Kilvey Hill relays. In addition, the Ferryside relay near Carmarthen was converted to DTT following a trial conducted by the DCMS after which the local community voted to retain the digital service. Unlike analogue television, which broadcasts a single service per 8 Mhz UHF channel, the same space (or 'bandwidth') can be used to broadcast a digital multiplex which can contain around eight digital television channels (the exact number depends upon the compression mode used by the multiplex operator). DTT transmission therefore makes more efficient use of spectrum capacity compared to analogue transmission and further technological developments such as DVB 2 and MPEG 4 in the near future will enable even greater capacity to be created for the same amount of spectrum, allowing high definition services to be transmitted.

3.2 When DTT was first rolled out to 81 transmitter sites across the UK in 1996/7, each transmitter broadcast six multiplexes (three public service and three commercial) alongside four (or five) analogue channels. Digital switchover will switch off the analogue services and convert the remaining relays across the UK (around 1073 transmitters) to carry the three DTT PSB multiplexes (but generally not the commercial multiplexes). This will mean that communities that receive DTT services from a relay will generally receive around 17 digital television channels (along with a number of digital radio services) after switchover, instead of the four or sometimes five analogue television channels received currently. However, households served by a main transmitter will receive around 40 digital television services.

3.3 Currently, core DTT coverage in Wales (where all 6 multiplexes can be received) is around 63% of households (compared to the UK average of 73%). However, it is anticipated that core coverage for the three public service DTT multiplexes will reach 98% of households after the digital switchover process is completed in Wales in spring 2010 (with coverage of the commercial multiplexes increasing to around 73% of households). Maps of the transmitter sites in Wales are available on the Ofcom web site at: http://www.ofcom.org.uk/tv/ifi/tech/transmaps/

3.4 Digital satellite services are available to around 98% of households across the UK[8]. Reception is possible in most parts of Wales except where there are local obstructions or where the nature of the location causes difficulties, for example, steep valley slopes. Reception of the service is not possible in places where a dish can not be pointed at the relevant part of the horizon to obtain signals from the Astra group of satellites (which carry the Sky Digital services). As well as the subscription based satellite service provided by Sky, viewers can also obtain a free satellite service from Sky. In addition, the Freesat service, launched by ITV and BBC in 2008, provides a free service with no need for an initial subscription (although viewers will have to buy a set-top box and install a satellite dish[9].)

3.5 The Virgin Media cable television network (formerly NTL) is only available in the urban areas of south east Wales, mainly in Cardiff, Newport, Swansea and parts of the Vale of Glamorgan (corresponding to the areas where cable broadband services are available) serving 23% of the population (compared to the UK average coverage of 45%). Virgin Cable is largely a digital service, but according to the Q3 2008 RSMB / BARB research there are around 20,000 homes in Wales still using analogue cable. (By Q3 2008, across the UK as a whole, only around 169,000 homes had analogue cable, which is less than 1%.) Virgin Cable also provides super fast broadband (with speeds up to 50 mbps) and telephone/voice services.

Fig 2 : Availability of Virgin Media Cable services

Self Help Television

3.6 There are also 25 registered licensed analogue Self-Help-Schemes operating in Wales, which provide fill-in coverage to an estimated 1032 homes[10]. It may be possible for some of these schemes to be converted to digital transmission and Ofcom has issued a guidance note to scheme operators.

Digital Television Take-up

3.7 In Wales, pay and free to view satellite combined account for around 50% of the total digital television platform take-up. Given the current limited availability of DTT and cable, the satellite platform is currently the only option for most viewers in Wales who switch to digital television.

3.8 In 2008 digital television (DTV) penetration stood at 84% in Wales. Historically, take-up in Wales has run ahead of the UK average, possibly explained by poor analogue television reception in parts of the country and the availability for the full Channel 4 service on digital television platforms (The full channel 4 service is not broadcast on analogue in Wales). But DTV growth in Wales has slowed recently with take-up rising only 2% between 2006 and 2008, compared to an average UK increase of 10% over the same period.

3.9 In comparison to other nations, Wales DTV penetration fell slightly behind England (86%) and Scotland (85%), but remained ahead of Northern Ireland (79%). Within Wales, the areas with the highest levels of take-up were Cardiff (95%), Newport (88%) and Swansea (88%), while take-up in other areas in the urban south region was below 80%. Overall, there was little difference in take-up between urban and rural areas.

3.10 Penetration figures for the Mid Wales and North Coastal regions should be treated with caution as the base sizes were relatively small, below 100 respondents.

Individuals' take-up of digital television at home, 2008

Proportion of individuals with a television (%)

Source: Ofcom

*Base size less than 100. Apply caution.

3.11 Over half of all homes in Wales (52%) paid for their television services in 2007 - 3% higher than the UK average (49%). Of these, 79% received satellite and 15% cable. Proportionally, this made paying television customers in Wales the largest adopter of satellite services in the UK - possibly because Wales has the lowest levels of cable and DTT availability in the UK.[11]

Television 'Overlap Viewing'

3.12 The 2007 Ofcom Communications Market Report for Wales included the findings of a research project, commissioned by Ofcom, into the extent to which viewers living in households Wales watch television in England, described in the report as 'overlap viewing'. The research showed that although the proportion of households in Wales viewing services from England only was relatively small it estimated that 39,000 households in Wales receive only England channels, with the largest number of these being located around Wrexham (almost 16,000), followed by Cardiff (around 10,000). If those who could view Wales and England channels but choose to watch mostly England channels are included, the number of households affected rises to around 74,000. The figures are consistent with BBC data, which suggest that the proportion of viewing of BBC One from England in Wales fell from 25% in 1998 to 10% in 2006. It is likely that increases in digital satellite and cable take-up in Wales will have had a major impact as these platforms already give prominence to Wales' Public Service Broadcasting (PSB) television channels. The full research is available at: http://www.ofcom.org.uk/about/nationaloffices/OfcomWales/walespublications/Info/wales/

The Digital Switchover Timetable

3.13 The body responsible for co-ordinating and promoting the switch over process is Digital UK[12]. Digital switchover involves converting 198 relays based in Wales which currently only broadcast the analogue terrestrial television channels to transmit DTT[13].

3.14 Currently the six main transmitters and four relays[14] in Wales broadcast three public service multiplexes and three commercial multiplexes (which together make up the full 'freeview' service). The commercial multiplex operators have no plans to extend their networks beyond the existing 10 sites in Wales from where they are currently broadcast but the coverage of these multiplexes will also increase at switchover because they will be able to transmit at higher powers than at present.

3.15 The switchover process occurs in two stages. Initially, overnight, the BBC 2 analogue service is switched off and that frequency is used to broadcast the BBC digital multiplex, which carries digital versions of BBC 1 Wales and BBC 2 Wales, along with other BBC services. Then around a month later the remaining three analogue channels are switched off overnight and replaced with the two additional PSB DTT multiplexes. Viewers will therefore need to scan for new channels on their DTT equipment twice during this period.

The DSO schedule for the Wales transmitter groups is as follows:

3.16 Detailed transmitter maps for Wales can be found at: http://www.ofcom.org.uk/tv/ifi/tech/transmaps/

High Definition Television (HDTV)

3.17 In November 2007, Ofcom published a consultation on proposals to re-configure the DTT capacity on the public service multiplexes to enable high definition television services to be carried within existing capacity. The opportunity exists to upgrade the DTT platform over the next few years by introducing new technologies that will greatly increase the capacity available. This upgrade will in turn enable the platform to offer a wider, richer and more varied set of services - including the potential for services in High Definition (HD). This goal was achieved, through discussions with the broadcasters, without requiring additional spectrum, while protecting viewers with existing equipment.

3.18 On 17 October, 2008, Ofcom announced its decision to reserve capacity for Channel 4 together with S4C, and Channel 3 licensees (ITV plc, Channel TV, stv and UTV) to broadcast new High Definition (HD) services on digital terrestrial television (DTT). The announcement followed a tender process and means that these public service broadcasters will join the BBC in launching three HD services on DTT, expected to start from late autumn 2009, with UK-wide coverage by the end of digital switchover (DSO) in 2012. To access the HD programmes and new services on DTT, viewers will need an HD Ready TV set and a new HD set-top box that is capable of receiving the new services.  Ofcom also believes that a fourth HD service could be launched on DTT as soon as 2010.

Channel 4/S4C HD

3.19 Channel 4 made a joint proposal with S4C which involves a simultaneous broadcast of the HD version of the Channel 4 service across the UK. In Wales, viewers will receive an HD version of the S4C Digidol service. Channel 4 and S4C have stated that their service will also include a strong film component (4HD expects to broadcast over 150 hours of films in HD during the first twelve months, with the majority shown in peak-time). Additional programming will include drama, comedy, science programmes, documentaries made in the UK in HD and programmes imported from the US such as Desperate Housewives.

3.20 Viewers of S4C HD will be able to watch Welsh-language children's programmes and European Cup Rugby games in HD. In addition, the joint Channel 4 / S4C proposal may, in future, offer an on demand service or sub-let during overnight hours. (Channel 4 already broadcasts a HD service on Sky).

ITV HD

3.21 ITV plc, Channel TV, stv and UTV have stated that they will simultaneously broadcast the current peak-time (18.00-23.00) ITV1 schedule in HD. The new ITV HD service will also include sport programmes, such as the FA Cup and the 2010 Football World Cup, in HD; newly-commissioned drama series such as Miss Marple in HD; and programmes about the UK's nations and regions in place of the early evening and late night regional news services. In addition, ITV proposes to offer on-demand services and sub-let services outside of peak-time hours to allow other broadcasters to offer HD or other services on DTT. ITV already broadcasts a HD service on the BBC and ITV free satellite service, Freesat.

BBC HD

3.22 The BBC Trust will decide on the service to be carried on one of the three slots currently available. A BBC HD service is currently available on BSkyB, Virgin Media and Freesat which includes programmes such as Torchwood and Strictly Come Dancing.

Availability of HD programmes and switchover

3.23 The services will become available across the UK on DTT as each region completes digital switchover. We expect that the first region in which the HD services will be made available will be the north west of England in 2009, followed by Wales in 2010. As part of their applications the broadcasters have included proposals to ensure that consumers are properly informed about the new services as digital switchover takes place region by region.

Upgrading DTT for HD services

3.24 An upgrade of the DTT platform to new and more efficient technologies will allow the broadcasters to free-up capacity in order to offer new HD services. The upgrade includes using two new broadcasting standards, known as MPEG-4 and DVB-T2 which are not available on current DTT devices. Many of the leading UK and international manufacturers are now developing receivers that include these new standards. Although compatible receivers are not yet available we are aware from discussions with manufacturers that they are now developing suitable equipment with the intention of launching products in time for digital switchover in the north west region in late 2009.

3.25 DTT programmes are broadcast on six distinct multiplexes (each using a group of radio frequencies). Ofcom will reorganise existing services onto five of the multiplexes, freeing the sixth multiplex to be upgraded to MPEG-4 and DVB-T2 for the new services. This multiplex is currently licenced to BBC Free to View Ltd (known as Multiplex B).

Digital Dividend Review

3.26 Following an extensive consultation during 2007, Ofcom announced in December 2007 that the radio spectrum that will be freed-up through digital switchover (112 Mhz) in the UHF band will be awarded for new uses for the benefit of citizens and consumers in the UK. Spectrum is a finite resource that is the essential ingredient for all wireless communications. Demand for spectrum is growing continually with changes in technology and consumer trends. Spectrum is used throughout the economy and society, from the emergency services and defence, to radio and television broadcasting, and mobile phones and wireless internet, and underpins 3% of the UK's GDP.

3.27 The digital dividend spectrum is in the sought-after UHF band currently used by the terrestrial television broadcasters. Transmissions in this band cover large geographical areas with relatively few transmitters, and penetrate buildings well. This makes the digital dividend the highest quality spectrum likely to be released in the UK in the next 10 or 20 years. The spectrum released through the digital dividend is suitable for a wide range of uses including:

· ultra-fast wireless broadband services;

· mobile television;

· more digital terrestrial television channels in either standard or high-definition;

· local television;

· wireless microphones; and

· low-power applications developed from wi-fi.

Spectrum Available for DDR award

Interleaved: 470 MHz to 550MHz and 630 MHz to 790 MHz,

Cleared: 550-630 MHz and 790-854 MHz

Maximising the benefits for citizens and consumers

3.28 Ofcom's objective is to ensure that the digital dividend is used to deliver the maximum benefit for citizens and consumers in the UK. Following consultation and an extensive programme of research, Ofcom concluded that the most effective way to maximise the value to society is to take a market-led approach, giving users the freedom to decide how spectrum is used and clear incentives to use it efficiently. This approach will create the maximum flexibility for different services. It will also allow the use of the spectrum to change over time, as demand develops, technology evolves and new services become available. This approach of awarding spectrum to those who will make the most of it and value it most will deliver significant benefits to society, including:

· innovative technologies and services that will be launched using the digital dividend;

· more competition in wireless services which could lead to greater choice and lower prices; and

· a significant contribution to the UK, as the overall benefit from the use of the digital dividend is estimated to be £5bn to £10bn of added benefit to the economy over 20 years.

3.29 To maximise these benefits, Ofcom plans to auction most of the digital dividend spectrum in 2009/10, offering licences that will allow users to decide which the technologies and services they wish to deploy and the spectrum awarded will also be tradable so that market mechanisms can determine that can be traded after award.

Specific spectrum uses

3.30 There are two distinct categories of spectrum in the digital dividend: Cleared Spectrum, the spectrum that by 2012 will be totally cleared of television transmissions, and Geographic Interleaved Spectrum, spare capacity available within the spectrum that will be used after DSO to carry the six existing DTT multiplexes. For each channel within this spectrum there are geographic areas where it will not be used for DTT. In those areas, the unused channels may be used for other services (for example UHF Channel 30 in the Cardiff area).

3.31 Ofcom has considered whether a market-led approach could prevent important spectrum users from getting access to this spectrum. One compelling case has been identified where spectrum should be reserved for a particular use, to avoid the risk of market failure in an auction. Spectrum will therefore be awarded by 'beauty contest' for the programme-making and special events sector (usually referred to as PMSE), who principally use the spectrum for wireless microphones.

3.32 The consultation also identified a number of potential uses of the digital dividend in which citizens, consumers and industry expressed a keen interest. Ofcom will therefore package the spectrum to make it suitable for these uses. This relates to the cleared spectrum (the frequencies that will be cleared of broadcasting as a result of digital switchover) and the interleaved spectrum (the 'white spaces' that exist geographically between television transmitters to prevent interference between them). These decisions create new opportunities for a wide range of uses:

· UK-wide digital terrestrial television services (in standard or high definition): Ofcom has already demonstrated that new High Definition and Standard Definition channels can be delivered on Freeview without the need for any digital dividend spectrum. This was the subject of proposals published by Ofcom on 21 November 2007. In addition, Ofcom will package the cleared spectrum in a way that makes it suitable for more digital terrestrial television, but it will not be reserved for this use.

· Cognitive radio: This is a new wireless technology that shares spectrum use with other services by detecting when frequencies are not being used. It is hoped that cognitive radio devices will be able to work together to create so-called 'mesh networks' that can support a range of wireless applications such as high-speed broadband access across urban and rural locations. Ofcom is proposing to allow cognitive radio to use the interleaved spectrum provided it can be shown this does not cause interference to other spectrum users.

· High speed mobile broadband and mobile television: Ofcom's market research has found keen interest in high speed mobile broadband. Cleared spectrum will be packaged in a way that makes it suitable but not reserved for these uses.

· Local television: Ofcom will auction packages of interleaved spectrum suitable but not reserved for local television in some 25 locations across the UK where there is evidence of demand to provide this type of service.

· PMSE spectrum users: Ofcom will award most of the available interleaved spectrum by 'beauty contest' to a band manager who will be required to manage spectrum for PMSE users. This process will be designed to ensure that the licensee's interests are aligned with those of PMSE users. The licensee will earn revenue by charging for access to the spectrum but will be required to meet reasonable demand from PMSE users on fair, reasonable and non-discriminatory terms. These measures will ensure that PMSE users can continue to access spectrum while moving towards a more market-based approach over time.

Auction of Geographic Interleaved Digital Dividend Spectrum for Cardiff

3.33 On 28 October 2008, Ofcom published a statement and notice of an auction process for the frequency band 542Mhz - 550Mhz (UHF Channel 30) for the Cardiff area. The auction for Cardiff will be held on 18 February and one potential outcome could be the creation of a digital local television service for the Cardiff area, reaching some 300,000 viewers.

3.34 The consultation on the award of the cleared spectrum was published on 6 June and closed on 15 August 2008; the consultation on the award of geographic interleaved spectrum awards was published on 12 June and closed on 21 August and the consultation on the award of spectrum to a band manager with obligations toward PMSE was published on 31 July and closed on 16 October 2008. In the June consultation we proposed a phased approach to the award of the geographic interleaved spectrum: In the first phase we would award spectrum lots for areas where DSO is before spring 2010 and where there are existing local TV stations, operating under restricted television service licences (RTSLs), i.e. Carlisle, Cardiff and Manchester. These awards will take place in early 2009.

3.35 This would be followed by the combined award of spectrum lots at about 25 transmission sites that cover population areas likely to be large enough to support a broadcasting station, or where there are existing RTSLs and that may be suitable for aggregation. The indicative list in the June consultation included lots that could cover areas including Manchester and Cardiff. The final phase would involve individual awards of spectrum lots in other areas for which we receive convincing expressions of interest and/or there is an existing local television service (known as Restricted Television Service Licences, RSTLs) already operating a service.

ii.) Digital Radio

3.36 Currently in the UK, analogue and digital radio services exist side by side and although there are no firm proposals for digital switchover, the Digital Radio Working Group, (DRWG) in its final report[15] suggested that the UK could be ready to migrate to digital radio as early as 2017. Digital Radio is already broadcast on a variety of platforms in the UK, combined with digital television: DTT, Digital Satellite and Digital Cable. It is also possible to listen to digital radio on line either via a computer or through portable devices such as Internet Radios. However, the main portable platform for digital radio is Digital Audio Broadcasting (DAB), which is the platform generally regarded by the radio industry as the main replacement for analogue radio in the UK. However, in Europe DAB is likely to be replaced by newer technologies such as DAB+ and DMB Audio which offer superior sound quality, more robust reception characteristics and make more efficient use of spectrum capacity. But the development of these new standards will present major challenges to the UK because, for example, it will not be possible to upgrade the current generation of DAB sets to the DAB+ standard. This is an important consideration as ownership of DAB sets in the UK has already grown and cumulative sales of sets passed the 8.5 million mark by the beginning of 2009.

3.37 However, DRWG argued that in the future, through the development of a common European standard, sets will become available during 2009 that will feature both FM, DAB, DAB+ and DMB Audio. This development will create a European-wide market for digital radio. According to DRWG, Germany has plans to launch DAB+ in 2009, while France will launch DMB audio services at around the same time. Other countries around Europe are also considering launching either DMB Audio or DAB+ in the near future, while Australia will launch DAB+ services in early 2009.

3.38 Traditional radio policy in the UK, as set out in legislation and implemented by regulators, is for the BBC to be the focus of UK wide broadcasting and commercial radio to be the focus of local broadcasting. In addition, in England, from the early 70s, the BBC began to roll out local radio services. However, in Wales, (and also in Scotland and Northern Ireland) the BBC's approach was to develop nation based services and in Wales it established BBC Radio Wales and BBC Radio Cymru. More recently the Radio Authority (and now Ofcom) has licensed three UK-wide commercial radio services, Talksport, Absolute Radio and Classic FM. In addition, the recent award of an FM licence for mid and north Wales to Real Radio offers the potential to create for a new commercial radio service serving the whole of Wales[16].

DAB Radio in Wales

3.39 Unlike conventional AM and FM radio which provides one radio service per frequency, DAB is delivered via a multiplex which uses one frequency to provide a number of digital radio services. DAB radio is currently delivered across Wales via the UK BBC multiplex[17] and the Digital One multiplex, owned by Global and Arqiva (which serves around 74% of the population in Wales). The BBC multiplex carries all of the BBC's UK based radio services, Radio 1,2,3,4, 5 live, 6, 7, BBC Asian Network, 1Extra and 5 Live Sports Extra, while Digital One carries Classic FM, talkSPORT, Absolute Radio and Planet Rock. For technical reasons, as single frequency networks operating across the UK, it is not possible to vary the service line-up on these multiplexes to carry services specifically for Wales and consequently the BBC UK multiplex does not carry Radio Wales and Radio Cymru. A second UK wide DAB commercial multiplex licence was awarded to in July 2007 to the 4Digital Group, but plans for this service are currently uncertain following withdrawal of Channel 4 from the consortium. In total coverage of UK based DAB services in Wales is estimated at 74%[18].

3.40 In the UK, DAB services are also delivered via local commercial multiplexes which in addition to commercial digital radio services are also obliged to carry the BBC's local radio services[19]. Ofcom advertises these multiplexes according to agreed timetables driven in part by commercial demand from prospective applicants. In England, this arrangement has worked reasonably well (although the existing coverage areas for some local multiplexes does not always exactly fit BBC local radio coverage areas).

3.41 Extending the coverage of Radio Wales and Radio Cymru on DAB in Wales therefore depends upon the spread of local commercial DAB multiplexes. To date, in Wales, two DAB local commercial multiplexes are currently on-air, serving Cardiff/Newport and Swansea. The Cardiff and Newport multiplex is operated by Now Digital (owned by GCap Media) and broadcasts, Red Dragon FM, Gold (Cardiff and Newport) along with BBC Radio Wales and Radio Cymru. The Swansea multiplex is operated by UTV-EMAP Digital and it carries The Wave, Swansea Sound along with BBC Radio Cymru and Radio Wales). Together the licence areas of these multiplexes cover around 56% of the Welsh population[20].

3.42 DAB technology continues to be significantly more expensive than analogue and in business operating terms it favours economic models based on transmission to densely populated areas. However, in response to concerns expressed by The Welsh Assembly Government, the former BBC Broadcasting Council for Wales (and now the BBC Trust's Audience Council for Wales) and Ofcom's Advisory Committee for Wales, regarding the coverage of Radio Wales and Radio Cymru on DAB, Ofcom has, over the past two years, prioritised the advertising of local commercial multiplexes for other parts of Wales[21].

3.43 In February 2007, Ofcom advertised a DAB multiplex for north east Wales and west Cheshire, including Wrexham and Chester, and in September announced its award to MuxCo Northeast Wales and West Cheshire Limited. The key shareholders in this bid include Town and Country Radio, and UTV. The company is proposing seven local digital sound programme services including Wales Live, in addition to BBC Radio Wales and BBC Radio Cymru. Ofcom estimates that this licence could achieve coverage of an area with an adult population of around 647,000 (of which 231,000 of these are based in north east Wales). The multiplex was due to start broadcasting in late summer 2008 but due to the commercial uncertainty surrounding the recent development of the DAB platform, the group informed Ofcom that it had postponed its roll-out plans. Under the terms of its licence MuxCo has until September 2008 to bring the service to air.

3.44 Similarly in November 2007, Ofcom advertised a local DAB radio multiplex licence to cover Mid and West Wales. Originally this multiplex had been planned to cover Pembrokeshire and Carmarthenshire (reaching an adult population of up to 234,000), but it was extended to cover Ceredigion and Powys (potentially reaching up to 400,000 listeners) to enable provision of Radio Wales and Radio Cymru across as much of Wales as possible. By the closing date of 20 February 2008, Ofcom had received one application, from MuxCo Wales Ltd., which is 70% owned by Town and Country Broadcasting. The company proposes to provide Radio Pembrokeshire, Radio Carmarthenshire and Wales Live, in addition to BBC Radio Wales and BBC Cymru, on this multiplex, and initially aims to be on air by Q1 2010, with an estimated 'outdoor' coverage of 55.8% of the adult population of the licenced area (reaching around 220,000 listeners). MuxCo's technical plan adds that "we have not identified an efficient and viable commercial model to launch DAB within Ceredigion and Powys from launch". It goes on to state that "we would arrive at a decision [regarding expansion in this area] in conjunction with the BBC and Ofcom, and after discussion with the Welsh Assembly and other regional bodies, such as the Welsh Language Board, as to financial grants to support this development." However, MuxCo has identified a medium-power transmission site to cover Aberystwyth should it wish to expand coverage into this area in future.

3.45 On 24 August, Ofcom announced the award of a DAB multiplex licence for the rest of north Wales to the only applicant, MuxCo. The multiplex covers the area not already served by the north east Wales and west Cheshire multiplex, including the counties of Gwynedd, Anglesey, Conwy and most of Denbighshire (with estimated coverage of up to 311,146 adults within the licensed area). This multiplex will also have capacity reserved for BBC Radio Wales and BBC Radio Cymru. However, the timing of the service roll out is conditional on the Republic of Ireland releasing frequencies in VHF Band 3, currently used for analogue television, but which are used in the UK for DAB radio. The achievable coverage of the North Wales service may therefore be significantly constrained until June 2015 (at the latest) under the terms of international spectrum agreements.

3.46 Following Ofcom's licensing activity during 2007/8 most areas of Wales will eventually be served by a local commercial DAB multiplex but currently, coverage of Radio Wales and Radio Cymru on DAB is still limited to parts of south and east Wales.

3.47 South Wales is also served by the Severn Estuary DAB multiplex (which also broadcasts to the West of England). This multiplex, operated by MXR, whose service line-up includes the following programme services[22] Kiss 101, Heart, Real Radio, The Arrow, and LBC.

Digital Radio Working Group

3.48 The Digital Radio Working Group was formed by the by the Secretary of State for Culture, Media and Sport in November 2007. Its purpose was to bring together senior figures from the radio industry and related stakeholders under an independent Chair, to consider three questions:

What conditions would need to be achieved before digital platforms could become the predominant means of delivering radio?

What are the current barriers to the growth of digital radio?

What are the possible remedies to those barriers?

3.49 The DRWG final report published in December made the following recommendations:

· The UK Government should make a clear statement on the future of digital radio and agree a set of criteria and timetable for migration to digital;

· The future radio landscape should at least in the medium term be a mixed ecology with:

v DAB as the primary platform for UK wide, regional and large local stations;

v FM capacity for small local and community radio stations; and

v IP delivery to complement the above and provide opportunities for greater interactivity.

· Future receivers should be capable of receiving FM, DAB and the other main variants of the Eureka 147 family (which includes DAB+ and DAM Audio).

· A long term plan should be developed to move all services to digital.

· The UK government should conduct a cost benefit analysis of digital migration.

3.50 DRWG suggested three broad criteria that have to be met in order to trigger the digital migration process:

· That at least 50% of total radio listening is to digital platforms;

· That UK multiplex coverage will be comparable to FM coverage by time of digital migration;

· That local multiplexes will cover at least 90% of the population and, where practical, all major roads within their licensed areas by the time of digital migration.

3.51 DRWG carried out its work against a backdrop of a radio sector under pressure. In February 2008, as part of a change to its digital strategy, GCap announced the closure of UK DAB stations theJazz and PlanetRock, although the latter was subsequently sold and remains on air. A few weeks later GCap was sold to Global, making Global Radio the largest UK commercial radio company. In October, Channel 4 decided to abandon its plans to launch three new DAB services because of economic pressures.

3.52 In its final Report, DRWG recognised that, "the BBC has a duty to provide its services to the maximum number of licence fee payers; in effect it has a duty to provide for universality. At a national level we interpret this to mean it must, at the very least, ensure its existing UK-wide and Nations services (Radio Scotland, Radio Wales, Radio Cymru, Radio nan Gaidheal and Radio Ulster) match existing FM population and geographic coverage by the time of migration. As the BBC's new digital services are carried on the BBC's own multiplex, they too would benefit from universal coverage"[23].

3.53 DRWG noted that the current economic downturn has had a severe impact on the commercial radio industry, with advertising revenues falling around 15% during 2008. The group suggested that in this context the problem of dual transmission costs, remained significant and that switch off of analogue radio would benefit the industry. It is anticipated that the Digital Britain Report will build on DRWG's work and set out specific proposals for the future of the UK digital radio industry.

4 Digital Group

3.54 On 10 October 2008, Channel 4 informed Ofcom of its decision to withdraw from 4 Digital Group, the consortium which was awarded a licence for the second UK commercial DAB radio multiplex in 2007. Ofcom recognises that the economic environment is very challenging and that all organisations need to make decisions in light of the circumstances they face. Ofcom and the UK Government have supported DAB through the licensing of services and Ofcom continues to believe that DAB offers listeners real benefits.

3.55 Ofcom subsequently met the other members of 4 Digital Group to discuss how they propose to take matters forward. Ofcom has also held discussions with other multiplex operators and the BBC, to consider how best to secure a viable outcome which is in the interests of radio listeners and the industry.

Ownership of DAB digital radio sets in Wales

3.56 By Summer 2008, 14% of individuals in Wales owned a DAB digital radio set, which was lower than in England (22%) and Scotland (21%), but slightly higher than in Northern Ireland (13%). Ownership in Wales remained generally stable over 2008, against the UK average growth of 4%. Awareness of DAB digital radio in Wales was generally in line with the other nations, with around 73% of people having heard of the term 'DAB digital radio' compared to the UK average of 75%. Around 15% of respondents in Wales said that they were likely to acquire a DAB set over the next six months, the same as in Scotland and Northern Ireland but slightly lower than in England (18%).

Ownership of DAB digital radios

Proportion of respondents (%)

Source: Ofcom Base: All who listen to radio

The Commercial Radio Market

3.1 Competition for stations of all sizes has increased dramatically in recent years, not only from within the medium but from outside it as well. These pressures are as evident in Wales as elsewhere in the UK, although the commercial radio market has historically been less developed in Wales than in other parts of the UK. Consequently there has been some rapid expansion of commercial radio in Wales in recent years. For example, when Ofcom advertised the licence for a second regional FM service for south Wales, it was hotly contested, with applications received from eight radio groups. The licence was awarded in May 2007 to XFM, but following the financial difficulties faced by its owner GCap Media and a take-over of the group by Global, the service was sold to Town and Country Broadcasting who re-located the station out of Cardiff and re-branded the service as Nation Radio.

3.2 Local programming is expensive to deliver and the commercial realities of increasing competition mean that it is no longer as sustainable to the extent as it used to be. So there is significant pressure on commercial radio, which is primarily a local broadcasting system. However in Wales, it could be argued that there is still significant demand for local programming and several of the radio groups serving Wales continue to demonstrate a strong commitment to this as a core element of their business strategies. For example, Radio Pembrokeshire, (owned by Town and Country Broadcasting), is the most popular station in Wales reaching 56% of its target population, drawing 59,000 people per week,

3.3 However, the economic changes in the radio environment have had a more rapid and profound impact on the industry than was foreseen just a few years ago when the existing legislation was put in place. As a result, the familiar ways of regulating radio, designed for a largely local analogue radio system, which have served listeners and the industry well, may be ineffective and disproportionate in the digital era.

3.4 But the problems faced by commercial radio are not all due to the way the system is regulated. Some are structural, to do with changing business models and competing claims on advertising spend, and some are due to commercial stations not always having made the most of the business opportunities they had. There are two main pressures for change in the structure and regulation of the industry:

· The first is that increasing competitive pressures mean that existing programming commitments may no longer be sustainable. A healthy, sustainable commercial radio industry is necessary to deliver the public policy objectives which help Ofcom to meet its statutory duties. The current level of regulation of the sector is heavy compared to that applied to other media, and the cost to the commercial radio industry of this current level of regulation arguably is high, and may be disproportionate. This argues for a general reduction in the level of regulation of the analogue commercial local radio sector.

· The second is that an increasing proportion of listening is on digital platforms, which are expected to account for the vast majority of radio listening in ten years' time. As digital platforms are significantly less regulated than traditional analogue (AM and FM) local radio, this argues for an alignment of analogue and digital regulation.

3.5 Changes in regulation alone cannot secure the future of commercial radio - much of that is up to the industry itself - but they may help. Ofcom has reduced the regulatory burden on analogue radio and has attempted to align the analogue and digital regimes more closely, taking into account three aims, set out by Parliament:

· The desire for a diversity of programming on commercial radio, catering for different tastes and interests

· The desire for local programming to cater for local tastes and interests and fulfil the need of citizens for news about their local community to ensure informed debate

· The desire for plurality to ensure access for different voices and viewpoints on both local and national radio

3.6 However, in creating a long-term plan for the radio industry, it has to be recognised that the future is far from certain. There is a general trend towards digital listening replacing analogue, with increasing take-up of DAB but new technologies are emerging all the time, which could gain widespread public acceptance and uptake. Similarly other pressures on the industry are increasing, such as a reported move of advertising spend from traditional media to the internet. In response some major radio groups have expressed doubt about the long term viability of the DAB platform.

3.7 Ofcom has also introduced community radio which aims to provide a new tier of radio broadcasting. In addition Ofcom also issues restricted service licences (RSLs) for radio which provide short term, one month licences. These can be used to cover local events and act as a testing ground to gauge interest in establishing community radio services.

Service Availability

3.8 As set out above, listeners in Wales can access radio services through a variety of platforms and technologies as in other parts of the UK. The BBC provides two national services for Wales, Radio Wales in English and Radio Cymru in the Welsh language. In addition, there are 19 local and regional commercial radio stations serving Wales along with nine licensed community radio stations.

The BBC's Services for Wales: Radio Wales, Radio Cymru

3.9 The British Broadcasting Company obtained its licence to broadcast in 1923 and public service broadcasting in Wales began in the same year with the opening of a radio station in Cardiff. The BBC Welsh Region was given its own separate frequency for sound broadcasting in 1937 and it became known as BBC Wales in 1964. The BBC's radio service for Wales broadcast some Welsh language programming (as early as 1923) in addition to English language programmes. However in 1977, separate English and Welsh language radio stations were established - Radio Wales and Radio Cymru. At that time the majority of radio listening was on Medium Wave and so the BBC's AM frequencies were allocated to Radio Wales. Radio Cymru therefore began broadcasting exclusively using FM on VHF and at the time many listeners had to buy new radio sets to receive the service.

3.10 Today, BBC Radio Wales continues to be broadcast on the Medium Wave (882 Khz and 657 Khz AM), and this service can be received across most of the country. However, listener demand for Radio Wales to be broadcast on FM has gradually increased over the years, due to its superior sound quality. But as most of the available VHF frequencies in Wales had already been allocated to Radio Cymru, it was difficult to accommodate Radio Wales as well and its VHF coverage remains limited currently to around 62% of Wales' population. Radio Wales is also available on digital audio broadcasting (DAB) on the Cardiff/Newport and Swansea local commercial DAB multiplexes and on other digital platforms, Sky satellite across the UK, Virgin Media cable in Wales, DTT (Freeview) in Wales and on line via the BBC's web site.

3.11 The Welsh language service BBC Radio Cymru was launched in 1977, specifically as a VHF/FM service (on 96-105 Mhz) and currently broadcasts around 20 hours a day of Welsh language content. Radio Cymru's FM coverage is very good, reaching 94.8% of the population in Wales. As with Radio Wales the service is also available on DAB in Cardiff/Newport and Swansea and other digital platforms in Wales.

3.12 Radio Wales is currently the most popular Wales based radio station within Wales with a total reach of 465,000 people per week in 2006. When combined with Radio Cymru this figure reaches 584,000.

3.13 Wales is currently served by the following local and regional commercial radio stations:

Wales: Commercial Radio Stations[24]

Wales: Commercial Radio Ownership - Main Radio Groups

3.14 Global (formerly GCap Media Plc): This group is the UK's largest commercial radio broadcaster created following the merger of the GWR Group and Capital Radio. In Wales Global owns, Red Dragon Radio and Gold (Cardiff/Newport) in south Wales and Champion FM, Coast FM, Marcher Sound and Gold (Wrexham/Chester) in north Wales. The group also owns the Now Digital DAB multiplex, serving Cardiff/Newport. Across the UK the group owns 74 analogue licences and over 100 digital radio services and has an overall share of 13.1% of the UK's radio listening. Global announced in September 2008 that it would re-brand its north Wales stations to Heart along with other local stations owned by the group in England as part of a transformation into a UK network of 32 stations. The new Heart network of stations will retain their own breakfast and drive-time shows, but much of the rest of the content will be syndicated across the entire network as Global, the UK's biggest commercial radio group, attempts to take on the BBC.

3.15 Emap: The group owns Kiss FM a specialist dance music station serving south Wales and the west of England. Across the UK it operates 40 local and 8 UK-wide stations, representing around 10.1% of all radio listening in the UK.

3.16 Guardian Media Group (GMG): In Wales this group owns Real Radio, an FM station providing adult mainstream music and speech, serving south Wales and is the most listened to commercial station in Wales. The group also has a share in the MXR DAB multiplex which serves south Wales and the West of England. Across the UK the group owns Real Radio stations in Yorkshire and Central Scotland and it operates Smooth (music aimed at the over 50s) in London, East and West Midlands, North West England and Glasgow. The group has created three news-hubs in Manchester, London and Glasgow to provide a news service for its network of stations. On 9 December 2008, Ofcom awarded an FM licence for mid and west Wales to Real Radio which could achieve coverage of around 600,000 adults (aged 15+) although the exact coverage will be determined by the location of the transmission sites and other technical characteristics. Real Radio is required to begin broadcasting no later than two years from this award date.

3.17 UTV Radio: The company is a subsidiary of UTV Plc which owns the ITV Channel 3 licence for Northern Ireland and a range of radio services across the UK. In Wales it owns Swansea Sound, The Wave and Valleys radio, and also has a share in the Swansea DAB multiplex. Following acquisition of the Wireless Group in 2005, UTV also owns the UK-wide AM station talkSPORT. The group is part of 4Digital Group which was awarded the second UK-wide DAB licence but following Channel 4's withdrawal from this group the future plans for this service are unclear. During 2008, the group unsuccessfully applied for co-location of its Valleys Radio base in Ebbw Vale with a new site designated for Swansea Sound and The Wave in Neath.

3.18 Town and Country Broadcasting: Wales only indigenous radio group has become one of the largest commercial radio operators in Wales. It owns Radio Pembrokeshire (named as commercial radio station of the year for the second year running in June 2006), Scarlet FM, Radio Carmarthenshire, Swansea Bay Radio, Bridge FM and Nation Radio (covering south Wales) giving continuous FM coverage from the Pembrokeshire coast to Cardiff and an overall potential audience of almost 1 million listeners. The group acquired XFM South Wales from GCap/Global in May 2008 and subsequently re-branded the service as Nation Radio.

3.19 Laser Broadcasting: The group is the largest shareholder of Sunshine Radio which broadcasts on FM to Herefordshire and Monmouthshire, (including Abergavenny and Monmouth) along with AM stations under the Sunshine brand in the west midlands.

3.20 Of Wales' smallest commercial stations, Radio Ceredigion, based in Aberystwyth, is owned by the Tindle Newspaper Group (which is separate from the Tindle Radio Group) while the largest shareholding in Radio Maldwyn, based in Newtown and serving Powys in mid Wales, is held by Murfin Media Ltd.

Community Radio

3.21 Community radio licences are issued for small-scale, not-for-profit radio stations operated for the good of members of the public, or of particular communities, and in order to deliver social gain. The DCMS Community Radio Order 2004 sets out a wide range of requirements which broadcasters must comply with in order to be awarded and subsequently retain a community radio licence. In Wales there are currently nine licensed services, with five services currently on air.

Community Radio Stations: Wales

Community radio characteristics of service

3.22 Community radio is intended to be clearly distinct from commercial broadcasting and the BBC. In order to ensure this, the UK government has imposed some specific 'characteristics of service' requirements which such stations must adhere to. The detailed nature of these commitments derive from the statutory requirements for community radio, as set out in Article 3 of the Community Radio Order 2004, which state that all such services must:

a) Be provided primarily for the good of members of the public or of particular communities and in order to deliver social gain, rather than primarily for commercial reasons or for the financial or other material gain of the individuals involved in providing the service.

b) Be intended primarily to serve one or more communities (whether or not it also serves other members of the public). (A community is defined as either people who live or work or undergo education or training in a particular area or locality, or people who have one or more interests or characteristics in common).

c) Not be provided in order to make a financial profit, and uses any profit produced as a result of the provision of the service wholly and exclusively to secure or improve the future provision of the service or for the delivery of social gain to embers of the public or target community.

d) Offer members of the target community opportunities to participate in the operation and management of the service.

e) Be accountable to the target community.

Selection criteria

3.23 In addition to the above, the statutory criteria to which Ofcom must have regard when deciding whether or not to award a licence are more numerous for community radio than for commercial radio. In awarding community radio licences, Ofcom must take account of the seven selection criteria, under section 105 (1) of the Broadcasting Act 1990 (as modified). These selection criteria are as follows:

a) The ability of each of the applicants for the licence to maintain, through the period for which the licence would be in force, the service which he proposes to provide;

b) The extent to which any proposed service would cater for the tastes and interests of persons comprising the relevant community, and, where it is proposed to cater for any particular tastes and interests of such persons, the extent to which the service would cater for those tastes and interests;

c) The extent to which any proposed service would broaden the range of programmes available by way of local services to persons living in the area or locality in which it would be provided, and, in particular, the extent to which the service would be of a nature or have a content distinct from that of any other local service for which would overlap the licence for the proposed service;

d) The extent to which there is evidence that amongst persons living in that area or locality, there is a demand for, or support for, the provision of the proposed service. e) The extent to which the provision of any such proposed service would result in the delivery of social gain [see paragraphs 6.83 - 6.84 below] to the public or relevant community;

f) The provision that each of the applicants proposes to make in order to render himself accountable to the relevant community in respect of the provision of the proposed service;

g) The provision that each of the applicants proposes to make to allow for access by members of the relevant community to the facilities to be used for the provision of the service and for their training in the use of those facilities.

3.24 Not only are the output requirements of community radio services defined in great detail by the legislation, the same applies to operational inputs, in particular those of ownership and funding. In respect of both the characteristics of service and the selection criteria, "social gain" is further defined in the Community Radio Order as being the achievement, in respect of individuals or groups of individuals in the community that the service is intended to serve, or in respect of other members of the public, of the following objectives:

a) the provision of sound broadcasting services to individuals who are otherwise underserved by such services,

b) the facilitation of discussion and the expression of opinion,

c) the provision (whether by means of programmes included in the service or otherwise) of education or training to individuals not employed by the person providing the service, and

d) the better understanding of the particular community and the strengthening of links within it.

3.25 In addition, the Order recognises that community stations may also deliver a wide range of additional (non-mandatory) types of social gain, including the following:

a) the delivery of services provided by local authorities and other services of a social nature and the increasing, and wider dissemination, of knowledge about those services and about local amenities;

b) the promotion of economic development and of social enterprises;

c) the promotion of employment;

d) the provision of opportunities for the gaining of work experience;

e) the promotion of social inclusion;

f) the promotion of cultural and linguistic diversity;

g) the promotion of civic participation and volunteering.

Financial requirements

3.26 Community radio licensees must operate within strict financial constraints, requiring that they be funded from a variety of sources, with no one source of funding comprising more than 50% of the cost of providing the service within each financial year. Licensees must also operate on a non profit-distributing basis, ploughing any excess revenues back into the operation of the service.

3.27 The majority of community radio services are allowed to generate up to 50% of their funding from on-air commercial sources (spot-advertising and sponsorship opportunities taken together). But a small number of community radio services are banned from obtaining any income from such sources in order to protect the interests of nearby small-scale commercial stations[31] which serve more than 50,000 but fewer than 150,000 adults (aged 15 +) within their MCA (Measured Coverage Area)[32]. For example, this restriction would apply in the case of two groups that have currently applied to set up community stations serving Rhyl, because the commercial station, Coast FM, which is based nearby serves a total population of 139,000 adults.

3.28 A further restriction, also implemented to protect very small-scale commercial stations, is that Ofcom is prohibited from licensing any community radio services which would have a coverage area that would overlap by 50% or more (in terms of population) with the MCA (Measured Coverage Area) of an existing commercial radio station containing 50,000 adults (aged 15+) or fewer.

Ownership requirements

3.29 Community radio services must comply with the various ownership rules set out in the Broadcasting Act 1990 (as amended). These regulations relate to involvement by local authorities, political parties, the BBC, advertising agencies, religious bodies, and those convicted of unlicensed broadcasting (Part II of Schedule 2 of the Broadcasting Act 1990). In some cases the regulations prohibit any involvement, while in others they simply limit the scale of any such involvement. These regulations apply to almost all broadcast services, not just community radio services. In addition however, community radio services must also adhere to a number of additional ownership requirements, the most fundamental of which is that any single organisation may only own a maximum of one community radio licence. As well as commercial radio operators, the BBC, Channel 4 and S4C are all prevented from holding such a licence, but no such restriction applies to other broadcasters including satellite radio stations and the operators of restricted service licences.

Key Commitments and report back

3.30 Once a community radio station is operational it must comply with the terms of its 'Key Commitments' as set out within its Broadcasting Act licence. This is the equivalent of the Format included in every analogue commercial radio licence, but is far more detailed, including, as well as the nature of the programme service to be provided, details of the licensee's commitments in respect of the delivery of social gain, training, access and accountability. The licensee must also report back to Ofcom each year on its financial and operational activities to ensure that these too comply with legislative requirements. When compared to the criteria against which commercial radio stations are assessed, community services face a considerable additional burden in terms of compliance. Against such a background it should however be remembered that, as community radio stations are required to operate on a non-profit-distributing basis, they may be able to access some additional sources of funding which are not typically available to commercial stations.

3.31 A further issue for community stations is that they are awarded relatively short-term licences (five years instead of twelve for their commercial counterparts) with no renewal or re-advertisement process provided for within the current legislation.

Demand for community radio licences

3.32 Demand for community radio licences is considerable. The first community radio licensing round was opened in early September 2004, with applications being invited from across the UK (apart from specific areas where the terms of the Community Radio Order 2004 prevents such services being licensed). After the closing deadline, in November 2004, Ofcom had received a total of 194 valid applications. After assessment against the statutory criteria, this resulted in 107 licences being awarded by the time the first licensing round was completed in May 2006. In the light of such strong demand, Ofcom began preparations to conduct a second round of licensing, this time on a region-by-region basis (so as to avoid long delays between the date at which applicants submit their applications and that at which the decision to award a licence is made), inviting expressions of interest from across the UK in March 2006. A total of 184 such expressions were received by the closing date in April 2006. Since that time, full applications have been invited from three of the seven regional groupings defined following an analysis of the expressions of interest received

Restricted Service Licences (RSLs)

3.33 Other types of radio licence may also be appropriate for community groups, for example restricted service licences (RSLs). Short term, one month, RSLs are issued for temporary non-commercial local radio stations with usually with a very localised coverage area such as an education campus, sports event or music or religious festival site. These licences are also used for temporary trials of community stations, sometimes to gauge interest before applying for a five year community licence. Long term RSLs are also available for a five year term. This type of licence is generally used to provide longer term services for special interest groups such as hospital patients or army personel within barracks.

3.34 During 2007/8 Rhondda Cynnon Taf (RCT) Council set up the RCT Community Radio Project, with the objective of using community radio as a vehicle to support community development and regeneration through Information Communications Technology (ICT) training[33]. The project was implemented within three Communities First areas in Rhondda Cynon Taff, in South Wales. Funded by Communities@One, the project created the opportunity to introduce local residents to ICT, often for the first time, and to support Digital Inclusion objectives within RCT. The three communities taking part in the project were Treherbert, Penrhys, and Penywaun each located within a separate valley in Rhondda Cynon Taff. The aim was to recruit volunteers from the immediate vicinity to staff each radio station. 3.4 Support was provided to the project by the local Community Anchor Organisations within each community. These organisations supplied the physical space to set up the radio studio and office, and key workers to help support the project.

3.35 The communities of Treherbert, Penrhys and Penywaun were each given the opportunity to operate their own radio station for two separate 28-day sessions. Technically although these were regarded by the Council to be 'Community Radio' they were in fact licensed by Ofcom as 28-day RSLs. The stations were on air 24 hours a day, 7 days a week with live broadcasts from 10 am to 10 pm via transmitters located in each community, enabling the individual stations to broadcast to residents within their own local area. Each station was also able to broadcast via broadband, creating the potential to reach residents located in the other two communities and, of course, to reach an audience located anywhere in the world.

3.36 According to the Evaluation report published by RCT, the RCT Community Radio Project has successfully met its objectives in terms of project outputs:

· 84 volunteers were recruited to the project across the three communities and received ICT training on a one-to-one basis

· As a result of the ICT training, three separate community radio stations were set up and run by volunteers living within three different Communities First areas in RCT

· Six 28-day broadcasts were delivered during the project period, with each

· community responsible for running a radio station for two of the six sessions

· Each of those communities now has a fully functioning up-to-date radio station which can be used for future broadcasts, training and recording.

· 87% of the volunteers surveyed agreed that they planned to use the skills they had learned on this project in the future.

Ofcom's Future of Radio Review

3.37 On 22 November 2007 Ofcom published its statement on future regulation of the commercial and community radio sectors. Ofcom's approach simplified regulation for the commercial radio sector, whilst safeguarding the interests of listeners.

Commercial Radio: Local Content

3.38 Ofcom decided to protect a minimum amount of local radio programming as it was not convinced by the argument that the market alone would provide this content without regulatory intervention. New research conducted by Ofcom found that listeners perceive radio to be the default medium for delivering key local information such as local traffic and travel, weather and news. Furthermore, listeners took the view that the quality of information would suffer if it was not made and delivered locally. Ofcom is therefore proposing that:

· All FM local radio stations should provide at least ten hours of locally-made programming each weekday (including breakfast) and at least four hours on Saturdays and Sundays.

· All AM local radio stations should provide at least four hours of locally-made programming during weekdays and weekend daytimes. At least ten hours of programmes during weekday daytimes should be produced within the nation where the station is based (i.e. if the minimum four hours is locally-made, a further six hours should be produced from elsewhere in that nation).

3.39 At the same time, Ofcom recognises the importance of increased flexibility for industry, and is therefore proposing that:

· smaller stations may be able to share a large proportion of this programming (outside breakfast) with other nearby stations;

· outside of locally-made programming requirements, stations may choose to broadcast network programming for a maximum of three hours a day during weekdays at day time and more at weekends.

3.40 Ofcom's revised proposals on local programming were subject to a further Consultation, which closed on 21 December 2007. Ofcom subsequently updated the localness guidelines.

Simplifying Radio Content Regulation

3.41 Formats set out the type of programming that should be broadcast and form part of each station's licence. Following the Future of Radio Review, Ofcom simplified format regulation of analogue radio licences, to bring it in line with DAB format regulation. The revision removed the detailed requirements from analogue radio formats while maintaining the diversity of radio services for listeners.

Simplifying Ownership Rules

3.42 Ofcom has recommended that the UK Government considers a simplification of current ownership rules applying to radio, to allow for further consolidation within the industry, while protecting plurality within local commercial radio.

Radio's Digital Transition

3.43 In parallel with the creation of DRWG in November 2007 (within which Ofcom played a major role) Ofcom also began the work of re-awarding commercial radio licences, which were due to expire, under existing statutory legislation, for a five-year period or with an expiry date of 31 December 2015 (whichever constitutes a longer period). The aim of this process was to establish broadly similar end dates for the licences in anticipation of any re-organisation and conversion to digital that may be required by the UK government in future.

Community Radio

3.44 Ofcom has also recommended that the UK government should:

· Simplify the statutory criteria for community radio licences to allow Ofcom greater flexibility in considering licence applications; and

· Allow community radio licences to be eligible for a five-year licence extension.

· In addition, community radio stations will be allowed to recognise volunteer time as part of their income.

New Radio Technologies: Digital Radio Mondiale

3.45 One new broadcasting technology which is capable of using medium wave spectrum is DRM (Digital Radio Mondiale). It offers much improved sound quality over AM on medium wave, long wave or short wave spectrum and many international broadcasters are already taking up the technology. The technical characteristics of DRM coverage are similar to AM. It would be relatively easy to convert an AM transmitter to DRM. Coverage areas can be anything from a few kilometres radius to half a continent, depending on transmission power and frequency. Medium wave is generally considered to be a cost-effective way to offer terrestrial radio coverage to rural and remote areas - therefore DRM could be a complement to DAB, rather than an alternative.

3.46 One advantage of DRM over AM is that DRM can use single frequency networks (SFNs), which means that rather than using two high-power frequencies plus a number of filler frequencies to cover the whole UK, DRM signals on the same frequency at adjacent transmitters do not interfere with each other - in fact, they reinforce one another - so DRM could cover the whole UK with a single frequency. However, like AM, DRM on medium wave offers less good coverage in cities, particularly within steel-framed buildings. A single medium wave frequency can offer a single good sound-quality DRM service plus data, or two lower sound-quality services.

3.47 Other countries are either experimenting with or implementing DRM services. For example, RTE in Ireland is converting some of its main AM transmitters to broadcast DRM, and the Dutch regulator has recently given all Dutch AM stations the choice of converting to DRM under their existing licence if they so wish. China and Australia are among other countries planning or already broadcasting DRM services. In the UK, the BBC conducted a year-long DRM trial, closing the AM transmitters of BBC Radio Devon in Plymouth and using them to broadcast DRM services instead. However, the results were disappointing and the BBC has no plans to launch domestic services using this technology in the UK. However, the BBC World Service plans to make use of DRM for some of its broadcasts.

3.48 Ofcom notes that the spectrum currently used for UK-wide AM radio services could instead be used to provide a greater number of DRM UK-wide stations plus a range of local or regional DRM services, assuming the spectrum is used for radio broadcasting.

3.49 DRM could also provide a potential digital migration path for those stations which have no other obvious transition route to digital, such as small-scale commercial radio stations and community radio stations (subject to there being public policy justification for reserving spectrum for such services), and, again subject to public policy considerations, may also provide a means to provide digital radio services to remote areas where the technical characteristics of DAB mean that it may never be viable.

3.50 Other than AM radio and DRM, we are not currently aware of any other uses for medium wave spectrum. However, the advocacy for widespread use of power-line communications could be regarded as mutually exclusive with use for radio communications in certain frequencies, because of the unintended but significant radiation of radio waves from power line transmission (PLT) systems. To that extent, it is an alternative use of the frequencies.

3.51 DRM on medium wave (and long wave) generally occupies 9kHz of spectrum per channel, because this is the way that medium wave and long wave spectrum has been allocated in Europe by international agreement. It could operate as wider channels, which would give it more of the characteristics of a multiplex - i.e. a number of services could comfortably be accommodated within a single DRM channel. As it is, a 9 kHz DRM block is on the cusp of being a single service and a multiplex. It could offer one high quality audio service, with some data services attached, or it could offer two lower quality sound services, say for speech.

3.52 The problem in licensing terms is that current UK legislation is not designed to be able to deal easily with this hybrid (it is only recently that this technology has emerged). A single audio service (with no data) is licensed under the terms of the Broadcasting Act 1990, while a multiplex is licensed under the terms of the Broadcasting Act 1996. The award processes use different criteria and different licence conditions result. It would not be practicable to license a DRM service offering a single programme stream under the current legislation, although DRM could be licensed as a service offering two programme streams as a multiplex. This would severely restrict the licensee's (and Ofcom's) flexibility. The current legislation also does not allow for single-stream terrestrial radio services (UK-wide or local) to be licensed in circumstances where the spectrum to be used by those services has been acquired independently, or where the services are not to be regulated for public purposes. In other words, the current statutory framework does not allow for a terrestrial national or local radio service to be provided unless the licence to provide such a service (and the spectrum required to deliver the service) is advertised for this purpose and awarded by Ofcom. This means that, under current legislation, analogue radio broadcasting services can be provided only using spectrum that has been specifically reserved (and planned) for the purpose by Ofcom.

3.53 By contrast, radio programme services provided on satellite platforms are currently able to be licensed (as radio licensable content services) without being specifically regulated for public purposes such as diversity or localness. Ofcom considers that a similar ability should apply to all platforms capable of providing radio services. Thus, Ofcom suggests that Government may wish to consider breaking the current link between broadcasting policy (as manifested in the licensing regime and subsequent regulatory intervention) and spectrum allocation, such that analogue radio services can be provided by those who acquire spectrum through means other than applying for a broadcasting licence advertised by Ofcom. There may still be public policy reasons (e.g. relating to the technology to be used, the coverage to be achieved, or the nature of the programme service to be provided) for continuing to allocate some spectrum in the way that it is currently allocated, but Ofcom suggests that the current statutory framework does not provide sufficient flexibility to allow for spectrum to be allocated for radio services in a less interventionist manner, where there are no public policy justifications for reserving spectrum for this purpose.

Local Radio News Provision in Wales

3.54 Around eight commercially based news providers currently serve the commercial radio industry in the UK including Independent Radio News (IRN) and Sky News radio. However, these agencies are mainly based in London and are generally not resourced to provide specifically Wales based news content. There is currently no Wales based commercial radio news agency and as most major areas of domestic government have been devolved to the National Assembly, many radio stations in Wales are looking at what provision can be made for pan-Wales news provision in the future. Currently the only option is to adapt or edit news material provided from the London based agencies.

3.55 In Wales a lower number of people cited radio as their source of local news. Only 4% of respondents in Wales claim to use radio for local news, compared to the UK average of 11%. People in Scotland (10%) and Northern Ireland (9%) were also more likely than those in Wales to use radio for local news.

What, if anything, is your main source of news about what is going on in your area? (Local and regional news):

Base: All who listen to radio

Source: Ofcom Communications Market Report, Wales. 22 May 2008

iv) Fixed Line Telecommunications

Availability

3.1 Fixed telephony services over the public switched telephone network (PSTN) are available to all of the UK population as a result of the universal service obligation (USO) which is provided by British Telecom (BT) and Kingston Communications in Kingston-upon-Hull. Under the USO all UK households have access to a landline at a standard charge, although additional charges for connection apply where the cost of installation is in excess of £3,400. The USO mandates BT and Kingston to provide affordable telephone services for less advantaged members of the community in the form of special pricing schemes.

3.2 As a result of the USO, there are no significant issues relating to the availability of fixed voice telephony services in Wales or anywhere else in the UK, although a small number of single dwellings in remote locations may have difficulty in connecting to the network.

Narrowband internet

3.3 The availability of narrowband internet services (defined as an internet connection achieved by means of dial-up over a twisted copper pair or coaxial cable at speeds of less than 128kbit/s) is the same as that of fixed-line voice services, as the only equipment required to access narrowband services (apart from a standard fixed-line) is a suitably equipped personal computer.

3.4 Over recent years the use of narrowband internet services has declined rapidly as the availability of broadband internet services has increased and as prices for these faster services has fallen. According to the Office for National Statistics^[34], at the end of 2007 less than 10% of UK internet connections were narrowband, compared to 56% three years earlier.

iv) Mobile Telecommunications

Mobile availability

3.5 In order to evaluate the availability of mobile telephony services across the UK Ofcom examined the number of mobile networks with second generation (2G) and third generation (3G) coverage in each postcode district. For an operator to be counted as having coverage its network footprint has to cover at least 75% of the postcode district, and by using this data conjunction with population figures we are able to calculate the proportion of people living in such postcode districts. The 75% threshold is different to those used in the 2007 report (when we used 95% for 2G services and 50% for 3G) for the following reasons:

· to allow direct a comparison of 2G and 3G coverage levels;

· to reflect that the availability of 3G services is now widespread; and

· analysis of the data at a 95% area threshold revealed that small changes in the way in which the 2008 coverage figures had been compiled by the mobile network operators led to marked differences in the output figures.

3.6 It is important to note that just because a postcode district does not have 75% mobile coverage it does not necessarily follow that mobile services are not available there. 2G services we identified postcode districts where a) at least one and b) all four of the 2G networks had area coverage over the 75% threshold. It is important to note that the figures for Q1 2008 are not directly comparable with those published in the 2007 report as a result of the changes to the area coverage threshold outlined above.

3.7 The data shows that across the UK almost all of the population (over 99%) lived in a postcode district where there was at least 75% 2G area coverage from one or more of the mobile networks in Q1 2008 (Figure 3.58). The data shows that in Wales the proportion living in an area with 2G coverage from at least one operator was, at 98%, slightly lower than those in the other nations. There was greater variation in the proportion of people living in a postcode district with at least 75% coverage from all four 2G mobile networks. Across the whole of the UK 90% of people lived in such an area, while in Wales more than two-thirds (69%) did. This was identical to levels in Scotland and Northern Ireland but lower than in England (93%).

2G mobile phone population coverage

Source: GSM Association / Europa Technologies; Q1 2008
Note: Figures show the percentage of population within postcode districts where at least one or four operators had at least 75% 2G area coverage; data not directly comparable to that published in the 2007 report.

3.8 In addition to population coverage we also calculated geographic 2G coverage (using the same 75% area coverage threshold) in order to understand where there were gaps in coverage. Figure 3.59 below shows that, although 2G mobile geographic coverage was high across most of the UK in Q1 2008, it was not as high as population coverage. This is a result of the networks concentrating network build in areas of higher population density.

3.9 The majority of postcode districts in the UK (98%) had 2G area coverage from one or more mobile networks (Figure 3.59). Geographic 2G coverage in Wales was the second lowest among the UK nations at 97%, while it was highest in England (over 99%). The lower geographic coverage in Scotland (92%) reflects the fact that large areas of the sparsely populated Highlands and Islands are without coverage.

3.10 The proportion of postcode districts with 75% area coverage from all four 2G networks varied across the UK nations and English regions. In all of the nations except England (89%) less than two-thirds of postcode districts had 2G coverage at a 75% area threshold from all four 2G networks. Wales had the second lowest level of geographic 2G coverage from all four providers at 46% of postcode districts.

2G mobile phone geographic coverage

Source: GSM Association / Europa Technologies; Q1 2008 Note: Figures show the percentage postcode districts where at least one or four operators had at least 75% 2G area coverage; data not directly comparable to that published in the 2007 report.

3.11 The maps below show that although most of the UK was covered by 2G services there were still sizeable areas where coverage was less than 75% or where 2G services were only available from one or two mobile networks. These regions included the Scottish Highlands and Islands, areas of mid-Wales and the west of Northern Ireland, many of which have poor coverage as a result of topographies that limit the range of cellular masts. The areas affected by lower levels of network 2G coverage in Wales include mid-Wales and parts of the border with England.

Map of 2G mobile phone geographic coverage by number of operators

Source: Ofcom / GSM Association / Europa Technologies; Q1 2008
Note: Maps show the number of 2G operators with at least 75% area coverage; not directly comparable to those published in the 2007 report.

3G availability concentrated around urban areas

3.12 The 75% postcode district network footprint threshold was also used when analysing 3G mobile availability. In the 2007 report a 50% area threshold was used for 3G services to reflect ongoing network rollout ahead of the end 2007 deadline for achieving 80% population coverage as stipulated in the five 3G licences. This means that that the data in this year's report are not comparable to those published last year.

3.13 Similarly, it should be noted that the methodology used to derive the coverage data in this report is different to that which was used to ascertain whether the 3G networks had met the coverage obligations outlined in their 3G licences earlier this year. The data in this report are based on postcode district coverage estimates provided to the GSM Association by the mobile networks, while the methodology used to establish whether the 3G licence coverage obligations had been met can be found at: http://www.ofcom.org.uk/consult/condocs/3g_rollout/3GRolloutobligation/

3.14 In the case of 3G services there are five network operators (rather than four as there are for 2G) and we identified postcode districts where a) at least one and b) at least four of the 3G networks had area coverage above the 75% threshold.

3.15 Across the UK, 3G coverage figures were lower than those for 2G services, the only exception being in London where the proportion of postcode areas with 2G and 3G coverage from at least one network at the 75% threshold was the same (over 99%) and the proportion with 3G coverage from four or more networks at the same threshold was higher than for 2G.

3.16 The data show that 90% of the UK population lived in a postcode district with at least 75% area coverage from one or more 3G networks, and the proportion among the UK nations varied from 44% in Northern Ireland to 95% in England (Figure 3.61). Wales had the second lowest 3G coverage at 68% of the population.

3.17 Across the UK, 60% of people lived in postcode districts with 75% 3G area coverage from at least four mobile networks. The proportion living in these areas was highest in England (65%) and lowest in Northern Ireland (13%). In Wales 22% of people lived in an area with 3G coverage from four or more networks, again the second lowest among the nations.

3G mobile phone population coverage

Source: GSM Association / Europa Technologies; Q1 2008
Note: Figures show the percentage of population within postcode districts where at least one or four or five operators had at least 75% 3G area coverage; data not directly comparable to that published in the 2007 report.

3.18 Analysis of geographic 3G coverage showed that in Q1 2008 over three-quarters (77%) of UK postcode districts had 75% 3G area coverage from one or more of the mobile networks (Figure 3.62). Among the UK nations the geographic 3G coverage was highest in England at 89%, while it was lowest in Wales at 39%.

3.19 Across the UK, just under half of postcode districts (47%) had 75% 3G area coverage from at least four of the UK 3G networks. The proportion in England (57%) was, again, much greater than in the other nations, where it was highest in Scotland (22%) and lowest in Wales (12%).

3G mobile phone geographic coverage

Source: GSM Association / Europa Technologies; Q1 2008
Note: Figures show the percentage postcode districts where at least one or four or five operators had at least 75% 2G area coverage; data not directly comparable to that published in the 2007 report.

3.20 Figure 3.63 shows where the mobile operators have implemented their 3G networks. Across the UK 3G network rollout has been concentrated in urban areas to enable the networks to meet the population coverage obligations outlined in the 3G spectrum licences. The result of this is that there are still large areas with a low population density where 3G services are not available. 3G coverage in Wales is concentrated around Cardiff, Swansea, Newport and the Cheshire border area.

Map of 3G mobile phone geographic coverage by number of operators

Source: Ofcom / GSM Association / Europa Technologies; Q1 2008
Note: Map shows the number of 3G operators with at least 75% area coverage; not directly comparable to that published in the 2007 report.

A470 case study

3.21 Following discussions with the Ofcom Wales Advisory Committee, we commissioned a drive-by survey of the A470 as a case study of mobile availability during 2008. The A470 is one of Wales' main trunk routes, connecting North and South Wales, but is not currently surveyed by the mobile phone providers. The results show that there are some locations on the route where mobile reception is significantly less than in population centres. The research data will be used in the cost benefit analysis work relating to telecommunications service provision to be carried out as part of Ofcom's Access and Inclusion project.

A470 Mobile coverage survey

3.22 In January 2008, Ofcom commissioned a survey of mobile telephony coverage on the A470 in Wales to provide an insight into the level of service availability on this main road which runs the full length of Wales, from Llandudno in the North to Cardiff in the South. Using an automated test rig, calls were made from mobile handsets mounted in a car which was driven the entire length of the route. Call attempts were made every 2 minutes and successful calls lasted 90 seconds; where there was no coverage calls were re-attempted every 10 seconds[35]. Handsets from each of the four mobile network operators were used for the GSM (2G) test and all five operators for 3G.

3.23 Of the calls made with GSM handsets, 32% of call attempts failed because there was insufficient signal quality. Where there was a good signal, 89% of calls made were completed successfully, with the majority of failures due to calls dropping after being established successfully. Sections of the road north and south of Dolgellau, including the Coed Y Benin forest park, and over the Brecon Beacons proved particularly problematic for some operators.

3.24 With calls made with dual mode 3G/GSM handsets, 39% of call attempts failed because there was insufficient GSM or 3G signal quality. Where calls could be made, only 17% were made using the 3G network, with the majority of phones falling back to the more widely available GSM networks. Once a call was established, 81% of calls completed successfully

3.25 Whilst the methodology used was not suitable for drawing direct comparison between different mobile operators, the results provide a good overview of service availability on this route and highlight that coverage in these less populated routes is significantly less than in population centres.

v.) Broadband Availability

Introduction

3.26 Internet delivered via broadband is rapidly establishing itself as an essential utility for modern life in Wales. However, access at sufficient data speeds of at least 2 Mbit/s, for example for higher bandwidth applications such as streaming near standard definition television, is limited in practice to premises situated up to around 5km from an exchange[36]. The two main technologies used to supply broadband services in the UK are digital subscriber line (DSL) supplied over a standard copper twisted pair connected to a local telephone exchange and cable modem technology over Virgin Media's hybrid fibre-coaxial network.

3.27 Ofcom's Strategic Review of Telecommunications in the UK in 2004 resulted in the creation by BT of Openreach, a division of the BT Group, with responsibility for managing and maintaining the telecommunications access network - BT's existing copper lines and infrastructure running from exchanges to premises (also known as the 'Local Loop') which are used by around 400 communications providers. in addition BT Retail, either by buying capacity from BT wholesale or through the provision of their own services through infrastructure investment at individual exchanges, for example through a process known as local loop unbundling.

3.28 Virgin media operates a separate access network, which has uses fibre instead of copper, running from its core network to street cabinets. From the cabinets, coaxial cable runs to cabled premises and the service currently offers far higher speeds that DSL service via copper wire. But, in Wales, access to this network is only available in the urban areas of south east Wales, Cardiff, Newport, Swansea and parts of the vale of Glamorgan.

3.29 Internet delivered programming is currently provided by the BBC, via its I-Player and Channel 4 (via 4OD) and through the use of Windows Media Player/proprietary software from S4C and ITV Local Wales on their web sites. In addition, BT has launched BT Vision, a video on demand service, delivered via broadband and Inuk Networks, based near Newport, provide the broadband based 'Freewire' Internet television service to a number of university campuses across the UK.

3.30 DSL broadband can now be provided from all exchanges in Wales, providing broadband services to users based up to 5km from the exchange. (Generally the service level reduces in speed the further a customer is from an exchange). According to Ofcom research, commissioned in 2006, 16% of premises in Wales are situated further than 5 km from an exchange (compared to the UK average of 13%), while 19% of premises in Wales are within 2km of an exchange (allowing users to take advantage in the future of significantly higher broadband speeds) compared with a UK average of 17%.

3.31 Despite the wide availability of broadband services, not-spot areas still exist, where provision is not possible although the exact scale of the problem is difficult to quantify. Almost all households in Wales are now connected to an ADSL enabled exchange and BT estimates that 99.6% of premises connected to its network are able to obtain broadband speeds of up to 512 Kbits/s. But in practice there still remain premises where it is not possible to get a broadband service for a number of reasons including:

· The length of the copper line from the telephone exchange to the site is too long;

· There is a line sharing device (also known as DACS - Digital Access Carrier System) or Line Concentrator on the line. Broadband will not work over these line sharing devices;

· Existence of aluminium cabling in the line - Over the years there may have been several repairs undertaken on the line, and the repairs might have been carried out using a length of aluminium cable. The existence of aluminium cable does not totally prevent the delivery of a broadband service but it can have a significant impact on the quality of the broadband signal;

· Poor quality copper cabling - The copper cabling may have badly corroded over time, so broadband would have difficulty in travelling over the cable; and

· Poor connections in the line - The connections between cables or repairs are also a place where some of the broadband signal can be lost.

3.32 However, it also worth noting that significant increases in broadband speeds can be achieved in premises and homes by improved domestic wiring. The I-Plate, a simple self install filter developed by BT, which is fitted to the master telephone socket, can in some circumstances, improve the broadband service and increase speeds by filtering out electrical interference picked up by telephone lines[37]. The device can be purchased on-line at the BT shop: www.shop.bt.com

3.33 Through its Regional Innovative Broadband Support (RIBS) contract with the Welsh Assembly Government, Openreach has been working on a programme of line concentrator and DACS removal in order to enable more lines to provide a broadband service. Since January 2008, Openreach claims that the number of line concentrators and DACS units deployed in the network has been reduced by 50% and it has plans to reduce the number of line concentrators to under 5 % by June 2009.

3.34 Replacing BT's copper network with fibre, at least to the street cabinet is described as next generation access, and will enable the provision of super fast broadband with much higher speeds than currently available via DSL. On 15 June 2008, BT announced its intention to spend £1.5bn building a super-fast broadband network across the UK over the next four years. The plan would connect 10 million homes, around 40% of the UK, to a new fibre based network, replacing the copper wires that link most homes today.

3.35 BT has recently announced that the Whitchurch area of Cardiff has been selected as one of the two first pilot sites for Super Fast Broadband roll-out.

DSL broadband availability

3.36 Almost all UK households (over 99.9%) were connected to a DSL-enabled BT local exchange at the end of December 2007, although not all of these will be able to obtain broadband services. DSL availability is higher than that of cable modem services in all areas of the UK, therefore the availability of DSL can be used as a model for overall UK broadband availability.

Cable modem broadband availability

3.37 Data from Virgin Media show that at the end of 2007 almost half of all UK households (49%) were passed by its broadband-enabled cable network; although a small proportion of these will not be able to receive cable broadband services (Figure 3.52). The proportion of households passed by Virgin Media's broadband-enabled cable network was lowest in Wales, at 24% of households, and highest in England, at 52%.

Proportion of households passed by Virgin Media broadband

Source: Ofcom/Virgin Media, December 2007 data

Note: The basis on which figures have been calculated is different to that used in the 2007 report

3.38 When rolling out their networks the original cable franchisees concentrated network build in areas with high population density, in order to maximise the potential return on their investment. The viability of Virgin Media cable broadband services is therefore concentrated in large urban conurbations and in Wales it is only available in south east Wales.

Local loop unbundling broadband availability

3.39 Local loop unbundling (LLU) involves an alternative operator leasing the twisted copper pair between the BT or Kingston Communications local exchange and a customer's premises, and placing its own equipment in the exchange. This allows the LLU operator to connect the end-user to its own network and to provide voice and DSL services without investing in an expensive access network over the 'last mile'. Unbundling an exchange allows operators to offer services without being tied to BT or Kingston's wholesale products, enabling greater differentiation in services and tariffs. It can also give operators economies of scale which are not available to them when purchasing wholesale products on a per-unit basis.

3.40 Consumers living in an unbundled exchange area are likely to have access to a wider range of suppliers and retail propositions than those living in an area which has not been unbundled, and in the last quarter of 2007 LLU services were responsible for over 85% of the growth in the total number of non-corporate UK broadband connections. At the end of 2007 80% of UK households were connected to an unbundled local exchange, up from 67% at the end of 2006. The proportion of households connected to an unbundled exchange was highest in England among the nations at 84%, and lowest in Northern Ireland at 51%. In Wales, almost two-thirds (64%) of households were connected to an unbundled local exchange at the end of 2007, the third highest among the nations.

Proportion of households connected to an unbundled exchange

Source: Ofcom/BT, December 2007 data

3.41 The high fixed costs associated with unbundling a local exchange (installing the equipment in the local exchange, the equipment itself and providing connectivity to the LLU provider's network) and the low rental cost per line (currently £1.30 a month for DSL services and £6.67 per month for DSL and voice services) mean that in order for an exchange to generate per-unit cost savings over the use of BT's wholesale products it must have a certain number of unbundled customers.

3.42 LLU operators have therefore tended to unbundle exchanges serving a large number of delivery points, and typically these are found in urban areas. As a result, 90% of households in urban areas across the UK are connected to an unbundled local exchange, compared to just 40% in rural areas. This was also the case in Wales where households in urban areas (77% availability) were almost twice as likely as those in rural areas (41% availability) to be able to receive LLU-based services.

Proportion of households in urban and rural areas connected to an unbundled exchange

Source: Ofcom/BT, December 2007 data. Note: The urban/rural split for Northern Ireland is based on the location of the local exchange rather than the area which it covers (as is used for the other nations). As such, the rural figure is likely to be understated and data are not directly comparable to those for the other nations

3.43 Figure x shows the UK distribution of areas able to receive LLU-based voice and broadband services. In Wales these are concentrated in the south of the country (Cardiff, Swansea and Newport) and the north-east (Wrexham).

Areas served by unbundled exchanges

Source: Ofcom/BT, Q4 2007 data

Broadband Growth

3.44 Broadband take-up growth in Wales has slowed since 2006, with an increase of 3 percentage points. This contrasts with significant growth in broadband in the UK in general, with take-up increases of 10 percentage points or more observed in England, Scotland and Northern Ireland.

Broadband take-up trend

Source: Ofcom Communications Market Report 2008

3.45 Consumer responses suggest that the gap in broadband take-up between Wales and the rest of the UK will not close significantly during 2009. Only 15% of those without broadband in Wales said that they were likely to get it in the following year; 53% were unlikely to and 33% were unsure. Within Wales, interest in getting broadband was lower in urban than in rural areas. Take-up of broadband was highest in the main population centres with little difference between Cardiff (58%), Swansea (56%) and Newport (62%). In Mid-Wales take-up was comparable (at 65%), but it is lowest in smaller urban areas in the south (34%) and Wrexham and other urban areas in the north (44%).

Intention to get broadband in next year

Source: Ofcom

* Sample size less than 100. Apply caution and treat as indicative only.

3.46 The most common online activities among broadband owners in Wales were sending and receiving email (86%), general surfing/browsing (73%), purchasing goods/ services (70%) and finding/downloading information for personal use (54%). Around half said that they used the internet for banking, and for watching TV/video clips (49%). Overall, there was little difference in use of online applications between consumers in Wales and the UK average.

Use of online applications among Wales broadband users

Source: Ofcom

Base: Adults aged 15+ with a broadband connection at home

Broadband Speeds and Consumer Expectations

3.47 Ofcom research, published on 8 January this year, revealed that UK consumers receive an actual average broadband speed of 3.6Mbit/s. This compares with an average maximum possible speed[38] of 4.3Mbit/s across the UK. The finding comes from one of the most sophisticated and thorough research programmes undertaken into the real broadband speeds experienced by UK consumers. Over a 30 day period approximately 7,000 tests were run through monitoring units connected to around 1,500 homes' broadband routers, resulting in over 10 million separate tests of a range of suppliers' services. The research was conducted in association with broadband performance specialists SamKnows and market research company GfK Ltd.

3.48 3.6Mbit/s is sufficient for many internet applications, including audio and standard definition video. However, the speeds achieved are significantly below advertised headline speeds. Among consumers on the most popular 'up to 8Mbit/s' package (which over 60% of UK broadband consumers subscribe to), one in five subscribers receives an average speed of less than 2Mbit/s and on average the actual speed consumers receive is 45% of the advertised headline speed.

3.49 Ofcom took measures to address this concern last month by requiring all Internet Service Providers (ISPs) signing up to the Broadband Speeds Code of Practice to provide an accurate estimate of the maximum speed they can expect when signing up to a service.

Speeds vary by distance from exchange and time of day

3.50 The research shows how DSL (Digital Subscriber Line) broadband speeds depend in part on distance from the local BT exchange. Largely because of distance, consumers living in urban areas received speeds which were on average 15% faster than those in rural areas. Consumers in London received the fastest average speeds, with those in the north east of England, Wales and Scotland receiving on average the slowest speeds.

3.51 DSL and cable broadband speeds vary by time of day due to differing traffic levels on ISPs' networks. Across the UK, speeds were slowest between 5pm and 6pm on Sundays, when use of the internet is at its highest.

Consumer satisfaction with broadband services

3.52 The research also found that most consumers surveyed are reasonably happy with their broadband service, with 9% expressing dissatisfaction overall. However, speed was the most commonly cited cause of dissatisfaction.

3.53 Although 93% of consumers were satisfied with their experience of web browsing, satisfaction rates were lower among users of applications which typically benefit from faster speeds or more consistent performance. For example, only two thirds (67%) of those who use their broadband connection to watch or download TV programmes were satisfied with the experience.

3.54 The research also revealed that, while 91% of consumers said that speed was an important consideration when signing up with their current broadband provider, 28% of them were unaware of the headline speed package they purchased. Overall, dissatisfaction with broadband is higher for rural users (14%) than urban users (8%). Within the nations and regions, consumers in the North East, Eastern and South West English regions are significantly more satisfied than users in East Midlands, Wales and Scotland.

Broadband speeds Code of Practice and consumer guide

3.55 Ofcom has taken a number of steps to ensure that consumers get better information about broadband speeds. Since 5 December 2008, over 95 per cent of people choosing a broadband service have been covered by the Ofcom broadband speeds Code of Practice which requires ISPs to provide an accurate estimate of the maximum speed they can expect when signing up to a service.

3.56 Under the code, in addition to providing an accurate estimate of the maximum speeds consumers will be able to receive, ISPs must also explain to customers the factors which determine the actual broadband speeds they can receive and give guidance on how to improve speeds.

3.57 In December 2008, Ofcom published a guide for consumers on the steps they can take if they are unhappy with their broadband speeds which can be found at:

http://www.ofcom.org.uk/advice/guides/bbspeeds.pdf

The full broadband speeds research document can be found at:

http://www.ofcom.org.uk/research/telecoms/reports/bbspeed_jan09/

Welsh Assembly Government Initiatives

3.58 Significant progress was made during 2006 towards ensuring DSL broadband is available to all Welsh homes, thanks to the EU-approved Regional Innovative Broadband Support Scheme (RIBS). Following the Welsh Assembly Government's announcement in March 2006 that BT had been awarded the contract to upgrade a final tranche of 35 exchanges in Wales, 33 of these exchanges were broadband-enabled by October, extending broadband access to a further 9,259 premises. All exchanges upgraded under the RIBS scheme will deliver ADSL Max services, offering bandwidths up to 8 Mbit/s with the result that 433 exchanges in Wales are now capable of supporting ADSL Max. The enabled exchanges will also be able to support future upgrade programmes, for example to ADSL2+, when these are rolled out.

3.59 Following implementation, by the Welsh Assembly Government, of its EU-approved Regional Innovative Broadband Support Scheme (RIBS) contract, which was awarded to BT, the 35 remaining exchanges in Wales have been upgraded to offer DSL broadband including ADSL Max, with the capability of supporting ADSL2+ roll-out in the future. The first part of the RIBS contract was completed when the last two exchanges, Rhos and Llawhaden, were upgraded in summer 2007, allowing an additional 7,500 premises to be served by broadband-enabled exchanges.

3.60 However, there are still a number of 'not-spot' areas in Wales which (due to localised technical issues such as the presence of line concentrators or aluminium rather than copper cable) are not able to receive ADSL services, or can access broadband services only at very low bandwidths.

3.61 In November 2007, the Deputy First Minister asked officials to consult the wider telecommunications industry to seek affordable and economically viable solutions to enable households in the 'not spot' areas to access broadband. A wide cross-section of broadband providers and equipment manufacturers were consulted and following this assessment of the market, the Deputy First Minister announced, in April 2008, that the Welsh Assembly Government would undertake a Wales-wide procurement to seek a telecommunications provider or consortium to enable access in broadband not-spots across Wales. In addition, the Welsh Assembly Government continues to work with BT to explore options for addressing a number of significant not-spot areas (which were not therefore included in the above procurement) and details of these areas will be published at a later date. 

3.62 On 18 December, 2008 The Deputy First Minister and Minister for the Economy and Transport Ieuan Wyn Jones has announced that six not-spot areas in Wales are to be tackled as part of the RIBS contract with BT with BT's access network division, Openreach, funding half of the project. Preparatory has already started to broadband enable the lines serving the West Wales communities of Reynoldston, Saundersfoot, Llanpumsaint and Bronwydd Arms, Cilcennin in Ceredigion and Gwytherin in North Wales. Completion of the work will allow more than 1000 residents and businesses to enjoy access to broadband services for the first time.

FibreSpeed

3.63 FibreSpeed - Open Access Networks for Wales - is a key initiative within the Welsh Assembly Government's Broadband Wales Strategy which aims to provide affordable broadband connectivity (with a minimum of 10Mbit/s symmetric broadband service) to business parks/locations in Wales. The network will be 'open access', comprising local access networks along with a backbone network interconnecting these locations to other telecoms networks and points of presence distributed across the network. A range of wholesale products and services will be made available to service providers on an open and equal basis.

3.64 The project, launched on 27 November, 2008, will initially deliver connectivity to business parks in north Wales: Parc Cybi on Anglesey, Parc Menai (including CAST Technium),  Parc Bryn Cegin and Victoria Dock, Caernarfon, in Gwynedd,  Llandudno Junction and Parc Caer Seion in Conwy, St.Asaph Business Park (including OPTIC Technium) in Denbighshire, St. David's Park, Deeside Industrial Park, Hawarden Business Park and Warren Hall, in Flintshire, Wrexham Industrial Estate and Wrexham Technology Park. Discussions continue with private sector developers about the possibility of connecting other sites in the near future.

3.65 Subsequent phases are being developed to cover other parts of Wales, with an estimated 50 strategic sites in total throughout Wales. However, in the future, FibreSpeed has the potential to support other public sector broadband initiatives. This investment is the first phase of a long term Assembly Government programme to transform high bandwidth availability and pricing across Wales and is the first Government - supported network of its kind to be delivered anywhere in the UK.

3.66 Part of the financing for the Assembly Government project will come from European Structural Funds managed by the Assembly Government's Wales European Funding Office. The Assembly Government estimates that the presence of the new North Wales network alone will add up to £29 million a year to the Welsh economy by boosting the productivity of existing companies and attracting inward investment by new companies seeking to take advantage of the network.

3.67 The provision of a FibreSpeed network funded by the Assembly Government will also help to bring prices of high bandwidth Internet services within a wide area of North Wales down to a par with those charged in London and the South East of England. Following a competitive, Europe-wide procurement process, the contract to design, build, operate and maintain the FibreSpeed network for a 15-year period has been awarded to Geo, which is part of the Hutchison Whampoa Group and has a strong record in delivering fibre optic networks for major customers. The company currently delivers networks for three of the UK's mobile phone operators and carries approximately 35 per cent of Britain's broadband Internet traffic.

3.68 While FibreSpeed's initial focus is on serving key strategic business parks the project is also expected to benefit many businesses outside those areas as well as communities and the public sector across the whole of north Wales. FibreSpeed will also have a positive impact on the wider telecommunications market by making available an alternative infrastructure that could be used by other network operators and other electronic communications operators as they extend their own network footprints in Wales, where previously it had been uneconomic to do so.

WiFi Hotspots

3.69 WiFi 'hotspots' provide convenient mobile broadband access for both business and personal use. However, in Wales hotspots often duplicate broadband coverage in urban areas that are already well served, for example via DSL. Because WiFi hotspots are rare in rural areas, they are not generally considered as a practical way of extending broadband coverage. In December 2006 there were 539 WiFi hotspots operated by BT Openzone and its partner providers in Wales, out of a total of 9,833 in the UK. BT Openzone and partner networks provide 95% of all UK hotspots. The number of WiFi hotspots in Wales decreased marginally between July and December 2006. This decrease may signify saturation in the high density conurbations and it is possible that under-utilised hotspots have been closed down.

Mobile broadband

3.70 Several 3G providers, including 3, T-Mobile and Vodafone have introduced mobile broadband services for use with laptop computers and other portable devices, offering speeds over their 3G networks of up to 2.8 Mbit/s, with contract prices starting from £10 per month. In Wales, the full benefit of these services is limited to areas, primarily on the north and South Wales coastal areas, where 3G reception is currently possible. In other areas of Wales, where 2G mobile coverage is available, speeds are limited to 'up to 48 Kbit/s'.

21CN

3.71 In 2004, BT announced that the roll-out of its £10bn UK 21st Century (21CN) next-generation network would start in South Wales. This investment is essentially in the core networks operated by BT that eventually feed local exchanges. As such it does not directly impact on the future upgrading of lines from the exchanges to premises and end users (known as the access network or 'last mile'). Currently significant problems still remain in some isolated communities in Wales, for example where, historically, limited line connections (via line concentrators) have been installed to compensate for infrastructure limitations.

3.72 On 28 November 2006, BT customers in the village of Wick in South Wales became the first in the UK to be migrated to the 21CN network, in what will be a five-year, 20 million line, UK-wide migration programme. BT originally stated that it would aim to migrate 350,000 domestic lines in South Wales to the new core IP-based network by the end of summer 2007, but following software problems at Wick, relating to the migration of legacy telephone systems from the old PSTN network, the roll out schedule has been delayed. In all, 1.23 million customer lines will eventually be migrated in Wales (4.8% of the total lines in the UK), involving a capital investment of £460m.

3.73 BT estimates that it has already laid more than 2,300 kilometres of fibre optic cable in South Wales as part of the upgrade process. 21CN is capable of delivering high-bandwidth services to the exchanges that can be accessed by households and businesses in Wales. Linked to the development of 21CN is the future provision of ADSL2+ technology will offer maximum download rates of up to 24Mbit/s over the existing copper infrastructure for premises located within 2 km of an exchange. However, the development of super-fast broadband and fibre to the cabinet may over take the development of ADSL2+ in some areas. BT launched a Cardiff based trial of ADSL2+ towards the end of 2006. Working with BBC Wales, BT demonstrated the transmission of high-definition television pictures over the new network using, as an example, the Wales-produced BBC Drama, Torchwood.

Next Generation Access or Super-Fast Broadband

3.74 "Next generation broadband is defined as broadband access services that are capable of delivering sustained bandwidths significantly in excess of those currently widely available using existing local access infrastructures and technologies"[39]. Enabling next generation broadband is a priority for Wales. Broadband has already resulted in significant private, social and economic benefits for the UK as a whole, including inclusion for rural communities. Innovation in service provision is also likely to drive demand for additional bandwidth capacity.

3.75 At present, unprecedented changes can be seen in the telecoms industry right across the globe. The current networks and technologies, on which most telecoms operators rely, have used the same fundamental elements for decades. These fundamentals are now changing with a move to completely next generation networks. The results of these changes and the impact they have on consumers will be with us for many years. In the UK, a number of new entrants are entering the Next Generation Access (NGA) market including H2O (targeting specific towns and cities using fibre via the duct network). Various incumbents such as Virgin Media are upgrading their existing networks. Openreach is beginning to offer wholesale customers fibre products for new build projects and next generation ADSL wholesale access products.

3.76 Investments are likely to use a mixture of technologies in different locations and each has its own advantages and draw backs. Schemes such as digital region in South Yorkshire are aimed at remote areas or those with less appealing commercial cases for investment. Although the private sector has provided broadband to over 90% of UK households it is uncertain as to whether the same will apply to next generation networks.

3.77 However there is a major dilemma between the need for significant investment to improve Wales' competitive position and the need for a clear commercial return. These networks may generate substantial private value for consumers and businesses and where this is true, consumers and businesses may be willing to pay for these investments. Such willingness to pay can negate any need for public intervention, favouring private sector investments instead.

3.78 Where this is not the case, there may be a role for public intervention. This is already true in some areas for current generation broadband, where the public sector has intervened to pay for delivery of broadband service. The first case for intervention in next generation access may be in exactly those areas where broadband is already unavailable or the public sector had to intervene to deliver it.

3.79 We are increasingly seeing the attraction of public sector investments proceeding in some areas at the same time as the private sector invests where it sees the most commercial potential. This twin-track approach offers the prospect of next generation broadband being rolled out in a more even way across the UK, without public investments leading to a distortion of market decisions.

3.80 As a result, Ofcom will work with and help guide the public sector to understand how and where it can most usefully invest in next generation access. It will be best if these schemes are co-ordinated to reduce unnecessary differences that could limit their overall effectiveness. We will be engaging with the Assembly Government and the private sector to explore how public schemes can help improve broadband connectivity in the most remote or under-served areas.

3.81 Next generation access remains an uncertain world for a range of reasons. Many network operators, service providers and content providers continue to see substantial uncertainty on the commercial case for investment, resulting in incremental investments. As already discussed, there is significant uncertainty within the public sector as to the role it should play - and when - in next generation access. Finally, there remain some areas for decision on the most appropriate way to regulate next generation access deployment.

3.82 The existence of any regulatory uncertainty is clearly one of the core concerns for us. In order to support planned investments, we need to address this head on. This is important to companies that have market power, as well as those that rely upon access to the network assets of those with market power. Ofcom's aim has been to provide clear and consistent signals on the regulatory approaches to next generation access over the past three years, adding more detail and clarity as new issues emerge. To achieve this, we outlined our principles for regulating next generation access in September 2007. Following our consultation, we believe these principles remain correct.

3.83 Part of a regulators role is to limit any potential abuse of market power by a communications provider that would result in significant consumer detriment and to deliver choice for consumers. We believe that, similar to today's access network, elements of next generation access are highly likely to constitute enduring economic bottlenecks. As a result, regulation may be necessary to address potential positions of market power held by owners of the access infrastructure. In determining any approach to regulation, we must bear in mind the dual aims of regulation - to constrain abusive behaviours and to deliver consumer choice. These outcomes are best served by promoting competition.

3.84 At the same time as developing our approaches to promote competition and consumer choice, we must consider what else regulation should do to promote investment. Going forward we must:

· provide flexibility in trialling and piloting - to help development and testing of new technologies, commercial relationships, business models and customer propositions;

· support experimentation by any organisation with new ideas or thoughts on how to deploy or run these services, including new entrants, the public sector and community broadband projects; and

· provide clarity, consistency and greater detail on regulatory approaches. This has come across as one of the key requirements from the private sector to promote investment. In response to this, we will clearly outline how Ofcom will react in a consistent way to a range of market conditions and situations that could emerge.

3.85 To effectively support next generation access developments, a wide range of regulatory issues must be considered. This includes: application of the USO in next generation access; consumer information; the Openreach Financial Framework; Business Connectivity Market Review; spectrum release; the Undertakings; and new products supported by BT's 21CN.

3.86 These regulatory issues affect a wide range of communications providers. To ensure we take into account all points of view relevant to next generation access, we held the first of a range of industry round-table meetings on 2 September 2007. This was a productive session that has fed directly into this consultation. We look forward to continuing an active engagement with all our stakeholders on these issues over the coming months. All stakeholders should feel able and willing to enter into such discussions openly and proactively so we can reach the best outcomes for the UK.

3.87 Where-ever there is significant market power (SMP), there is a need to promote competition through a range of regulatory remedies, including wholesale products. These may include a mixture of both passive and active products. A mixed approach of multiple regulatory remedies is the most appropriate at this time, both because of geographic variations in the prospects for competition and because of the complementary nature of different remedies.

Developments and Ofcom policy

3.88 Ofcom's approach to these changes sets out to balance the need to remove any unnecessary barriers to investment in the new networks with the need to ensure they deliver positive outcomes, where appropriate by ensuring the continued presence of strong competition. When considering next generation networks, they are often logically divided into two separate components, because these have very different implications for operators, regulators and consumers. The first is the backbone or core networks, often simply known as next generation networks (NGNs) for example, BT's new 21CN network. There is considerable industry debate already underway on how NGNs will affect telecoms markets in the UK. The second component, next generation access networks (NGA), are formed from the section of the operator's network which links end customers into the operators' backbone networks.

3.89 The current generation of consumer broadband services were launched in earnest in the UK around the turn of the millennium by BT and the cable operators. These had a slow start, with the services having limited geographic coverage and with the absence of sufficiently strong competition between providers. The regulatory approach to broadband has had an important role in shaping how the market developed. This approach is based on principles which Ofcom established in our Strategic Review of Telecommunications. The most relevant aspects for the broadband market have been:

· contestability: making the opportunity for entering the market accessible to a wide range of companies;

· innovation: allowing the maximum scope for innovation by the promotion of competition at the deepest level at which it will be effective and sustainable; and

· equivalence: the requirement for operators with market power to make the inputs used by their downstream businesses available to their competitors on the same basis.

3.90 Partly as a result of this approach, since its slow start, the market has developed rapidly in terms of competition, coverage and customer take up. By August 2008, over 58% of households in the UK have broadband, up from 41% two years ago, and over 99% can access at least one access network. In Wales, broadband take-up has increased to 45% by May 2008[40].

3.91 The development of the broadband market is far from complete. In particular, the desire for operators to offer ever faster speeds, and for customers to purchase them, shows no sign of slowing. New high speed services, such as high definition video will place increasing demands on current networks. We are already seeing some upgrades to current cable networks, and they continue to offer the opportunity to deliver very high bandwidths to end customers[41]. At the same time, there is also no doubt that upgrades to copper based broadband networks will continue. However, there is likely to be a point beyond which the today's access networks will no longer be able to address increasing speed and coverage requirements. Next generation access networks are designed to overcome these limitations and, as with current broadband networks, their deployment will accelerate the development of exciting new services that can take advantage of them.

3.92 Ofcom believes that the deployment of next generation access networks has the potential to be very positive for consumers. We are keen to see investment take place at the right time and in an efficient manner. This will involve removing any unnecessary regulatory barriers which might delay this investment. One important factor to achieve this is sharing our policy framework and clearly setting out the practical options for the regulation of these new networks where ex ante regulation may be appropriate at the earliest opportunity possible.

3.93 Next generation access networks may take many forms. They may be based on upgrades to BT's existing copper access network or Virgin Media's cable network, or a completely new deployment of wired or wireless infrastructure, each of which has different advantages and disadvantages. BT has direct copper connections between the exchange and almost every customer premise in the UK. In contrast Virgin's network covers around half of all households, and offers a shared access network using very high capacity fibre and coaxial copper cables. However, cable deployment in Wales is well below the UK average[42]. Wireless networks have obvious advantages for delivering mobile services but new technologies may also have a role in delivering very high speed access over large areas in the future. The organisations that deploy next generation access networks may also vary, and could include: communications providers; utilities; building developers; community broadband projects; other new entrants; and, in some instances, the public sector[43].

3.94 In the UK, we are seeing the first signs of next generation access deployment, for example the Digital Region project in South Yorkshire and a new housing development in Ebbsfleet Valley, part of the Thames Gateway project in Kent. In some countries, next generation access networks are already being deployed more widely. This has required operators to make risky investments, often relying on the predicted success of the new, untried, products that the networks will support. In each case however, there are commercial, geographical or political factors which are not features of the UK context that have led operators to deploy new access networks. These include:

· current generation broadband services which appear less able to meet most customer's needs at the moment compared to the UK;

· greater scope to generate additional revenues from services such as pay TV, whereas the market is already relatively mature in the UK; and

· relatively lower deployment costs of next generation access than in the UK, in part due to more densely populated urban areas.

Differences between new build and existing telecoms infrastructure

3.95 Existing telecoms infrastructure is almost exclusively based on copper lines from the exchange to cabinets and on to the home: there is a direct and in general dedicated connection between each home and the exchange as illustrated below. At the exchange, the traffic on these copper lines is aggregated onto shared backhaul and routed around the network. The copper lines to the home also carry electrical power, enabling traditional telephones to operate without the need for a separate power supply.

Typical current infrastructure

3.96 Where operators wish to use as much as possible of the existing infrastructure while delivering substantially higher bandwidth services, this can be achieved through the deployment of fibre to the cabinet ('FTTC'), while retaining the copper 'sub-loop', as illustrated below. We are also seeing FTTC deployments in the US as well as Germany and Holland.

Fibre-to-the-cabinet (FTTC)

3.97 In a FTTC next generation access deployment, active electronics are installed within the street cabinet, which is connected to the exchange with a fibre link. The existing copper sub-loop from the cabinet to the subscriber premises is retained. This shorter portion of copper loop, compared to exchange-based DSL broadband, allows higher bandwidths to end customers. Depending on deployment choices, speeds of up to 100Mbit/s can be achieved. However, as with other copper based DSL deployments, actual performance will vary according to the length and quality of the copper loop being used.

3.98 Current generation cable networks use a similar architecture to this for the delivery of broadband and TV services. However, rather than using individual pairs of twisted copper wire and DSL to connect to each house, they use a shared co-axial arrangement.

3.99 In new build deployments there is no pre-existing copper, so fibre may be deployed all the way to the home. These deployments may be based on different technologies and architectures: these are described in overview in the next section. What they have in common is the use of fibre optic cable to carry the voice and/or data traffic between the home and the exchange or another point of aggregation.

3.100 The most significant differences between fibre optic cable and copper are summarised in the following table:

Different technologies and architectures used in FTTH deployments

3.101 Fibre-to-the-Home ('FTTH') deployments involve the complete replacement of copper loops with fibre all the way to the customer's premises as shown in outlined below.

Fibre-to-the-home (FTTH)

3.102 There are a number of technologies to deliver FTTH, but the most basic distinction is between point-to-point technologies and shared infrastructure technologies. The most prevalent shared infrastructure technology is a passive optical network (PON):

· In a PON a single fibre from the exchange serves multiple customers, by having its capacity divided or 'split' (typically to 32 customers in current systems), into two separate fibres for the final drop. Sharing the capacity equally (which can be up to 2.5Gbit/s for a 'Gigabit PON' (GPON) system), each customer will receive around 80Mbit/s; however, much higher peak speeds can be achieved.

· In point-to-point ('PtP') fibre each consumer has a dedicated fibre connection from the exchange to their premises. This architecture allows virtually limitless access speeds to be offered.

3.103 Across Europe and the world both shared and PtP deployments are underway, although in general most incumbents are choosing to deploy variants of PON networks, such as GPON, while new entrants may be more likely to deploy PtP fibre. The choice between infrastructure based on PtP or PON has significant consequences for the number of fibres that need to be laid: PON requires significantly few fibres than to an equivalent PtP fibre roll-out. In its recent consultation on Ebbsfleet, BT Group outlined its view that PON architecture is a more cost effective technology for new build deployments, mainly because of the significant savings in fibre and associated space and power in the exchange. Its intention is therefore to deploy PON-based FTTH networks to new build developments. Elsewhere, some investors continue to consider the options provided by PtP fibre.

3.104 Technology selection raises implications for regulation, both in terms of the promotion of competition and for existing regulation: for example, it is more difficult to unbundle a PON architecture than a PtP architecture. Investors in new build require clarity on regulatory requirements to assess whether their technology choice enables them to meet their obligations. As we outlined in our consultation on Future Broadband, we do not believe it is Ofcom's role to recommend any one technology architecture over another. However, we do feel it is important that the selection of technology should be an issue for broad industry discussion and debate in advance of deployment, and we welcome Openreach's intention to consult on its choice of technology choice and the implications.

3.105 There are a number of examples of successfully deployed next generation networks across Europe, some on an individual basis and others on an institutional basis. One of the key drivers of next generation access is likely to come from public institutions such as research and education networks.

Section 4

Promoting Digital Inclusion in Wales

Media Literacy - background information

Ofcom was charged with the promotion of Media Literacy as set out in Section 11 of the Communications Act 2003. When Ofcom assumed its responsibilities in 2003, there was no agreed definition of 'media literacy'. Following an extensive consultation in the summer of 2004, Ofcom set out its definition as follows:-

'Media Literacy is the ability to access, understand and create communications in a variety of contexts.'

In November 2004 Ofcom published its Media Literacy Strategy which proposed the following activity:

· A wide ranging research programme to assess the extent of media literacy in the UK;

· The development of a common labelling system to support greater consistency in presenting information related to possible harm and offence and to protect young and vulnerable people from inappropriate material.

· Support for related and relevant work undertaken by other organisations across the UK.

Ofcom's statement of strategy and priorities for the promotion of media literacy can be found at

http://www.ofcom.org.uk/consult/condocs/strategymedialit/ml_statement/

So why promote media literacy?

Society is becoming increasingly reliant on digital communications technology. The world around us is changing rapidly; the various media and communications technologies are becoming an integral part of everyday life. Knowledge of their use is increasingly a prerequisite to effective participation in society and in the economy.

When the traditional models of content regulation become less effective in minimising potential harm and offence, parents, carers and individuals must take more responsibility for what they, and children, see and hear on television, radio and online.

This increasing importance of media literacy, not just for individuals but for society as a whole, is reflected in important initiatives such as the recent formation of the UK Council of Child Internet Safety (UKCCIS). In addition, one of the priorities of the Government's Digital Britain Report is to take a fundamental look at media literacy in the UK and Ofcom looks forward to working with the Government on this new initiative. Our future media literacy programme will be informed by its conclusions.

Ofcom's work to promote media literacy is intended:

· to give people the opportunity and motivation to develop competence and confidence to participate in digital society; and

· to inform and empower people to manage their own media activity (both consumption and creation).

Ofcom's approach has been to provide leadership and to influence stakeholders - including policy makers, education, industry and the voluntary sector - to promote media literacy for all members of society.

Developments in Europe also affect Ofcom's delivery of media literacy[44]. In some cases this is because Directives become enshrined in UK legislation. In others, EC Communications and Recommendations set a wider European context, within which the UK is an active player.

Access, Understand and Create

Ofcom has defined media literacy as: 'the ability to access, understand and create communications in a variety of contexts'. Our focus is on electronic media, although there are obvious parallels with traditional literacy skills. Media literacy is the ability to 'read' and 'write' audiovisual information rather than text. At its simplest level media literacy is the ability to use a range of media and be able to understand the information received.

At a more advanced level it moves from recognising and understanding information to critical thinking skills such as questioning, analysing and evaluating that information. This aspect of media literacy is sometimes referred to as 'critical viewing' or 'critical analysis' - skills that need to be further applied to the ways we access information as technologies evolve and media converge.

Table 1 below outlines some of the key competences which define media literacy.

Table 1. Key Media Literacy competences

The story so far

Ofcom has put media literacy clearly on the agenda of all stakeholders by providing leadership and stimulating debate at conferences and events throughout the UK, in Europe and beyond. We also add value to existing media literacy activity, catalyse new work, and promote and direct people to advice and guidance on new communications technologies. Ofcom has established effective partnerships throughout the UK with key stakeholders in government, education, the voluntary sector and the industries.

We prioritise those areas where we consider we have a statutory responsibility, followed by areas where we should partner, and then areas where we can facilitate activity (such as providing evidence from research) without formal partnership funding.

No single organisation can be effective in reaching all sections of society - and different people will have different media literacy needs. Ofcom has demonstrated over the last four years (2004 - 2008) that a range of partnerships can be effective in addressing people's media literacy needs. Much of this work has been behind the scenes, with partners and stakeholders. We will continue to invest in the development of effective partnerships.

Going forward

We plan to undertake the following activity through our partnerships with key stakeholders:

Content management

Content management systems (including filters and PINs) provide the potential to empower people to control the content they access on television, over the internet and on mobile services. An area of particular concern is the ability of these systems to provide adequate protection to vulnerable members of society, such as children.

Ofcom, in partnership with the Home Office and industry, has developed a British Standards Institution (BSI) standard for internet content control software (Internet safety - Access control systems for the protection of children online (PAS 74:2008[45])). The award of the first Kitemark, expected in 2009, will provide an opportunity for the industry, in association with Ofcom and the Home Office, to launch a campaign to raise awareness of the availability of these tools, as well as those already deployed on other platforms, such as PINs on television broadcasts and age verification and filtering on mobile phones.

Content information

It is important that viewers and listeners can access adequate information about content, so that they can choose whether it is appropriate for them, or those in their care, to watch or listen to. The Broadband Stakeholder Group and the UK's top broadcasters and content providers, with the support of Ofcom, have developed a set of common principles[46] for providing viewers with information about content which may contain potentially harmful or offensive material.

Ofcom will encourage and support industry members to raise people's awareness of these sources of information to manage their viewing experience.

Critical awareness

Our research suggests that young people in particular tend to take at face value the information they access, particularly online, without necessarily considering the truthfulness, balance or motivation of the author. We establish partnerships with those stakeholders, particularly in education and in broadcasting, who can promote greater critical awareness of media.

Learning

Jointly with the Department for Children, Schools and Families (DCSF) we have underatken an audit of government departments and relevant agencies to map the policy agenda and priorities for the promotion of media literacy in the education sector.

Safety and security

We will support the work of the UK Council for Child Internet Safety (UKCCIS). We will work closely with Get Safe Online to support its provision of information to people on how to protect their PCs and transact safely and securely online.

Mapping activity to promote media literacy

Ofcom is trialling a resource which will inform stakeholders about the activity occurring across the UK to promote media literacy. The result will be a public, searchable, web-based database of organisations, projects and activities that promote media literacy in the UK.

Evaluating activity

We continue to support the work of the Media Literacy Task Force and will publish an evaluation toolkit for media literacy projects and activity. We will also offer support to the Task Force in its work to promote media literacy.

Working across the UK

We will continue to support the efforts of national organisations promoting media literacy issues which align with Ofcom's priorities. These partners will include organisations such as the National Institute of Adult Continuing Education (NIACE), and its partner agencies in the nations.

Ofcom will support the work of media literacy networks in the UK, as a vehicle for stakeholders in the devolved nations to work together and share best practice. The networks are also able to target activity to address nation-specific issues. We will continue to support and encourage the networks as an effective way of promoting media literacy.

Supporting citizens and consumers

We will provide information for those audiences who are not connected to the internet - and for other hard-to-reach audiences. This information will be made available through existing support networks such as Citizens Advice, UK online centres, libraries and museums.

We will develop a citizen- and consumer-focused section of the Ofcom website. This will be a user-friendly and accessible route for people who are connected to the internet to seek advice on issues related to media literacy and consumer protection. These web pages will also be a signpost to partner websites, offering quality information for citizens and consumers.

The Department of Culture, Media and Sport (DCMS) provides ongoing funding towards the development and promotion of media literacy by Ofcom. Ofcom's annual media literacy work programme is agreed with DCMS ministers.

As well as the work funded by DCMS, Ofcom undertakes and fully funds a range of work that promotes media literacy. This includes activity in relation to Code development and implementation, consumer research including ease of use and uptake of technology, complaints and enquiries to the Ofcom Advisory Team, development and promotion of information and advice relating to digital technologies and liaison and lobbying of industry and political opinion formers in the UK and Europe.

Government programmes

Digital Britain

Media literacy has an increasingly important role to play in the UK's social, cultural and economic development and Ofcom welcomes the Government's announcement that media literacy will form one of the key strands of the Digital Britain report.

The work to promote media literacy that Ofcom has undertaken to date reflects its current duties and levels of resources. We look forward to working closely with the Government to develop a broader view of the factors that affect media literacy, the contribution that improvements in media literacy may bring, and the ways in which the UK's media literacy can be developed.

We are pleased that media literacy initiatives arising from the Digital Britain report may form part of a wider, more co-ordinated approach to empowering citizens and consumers to ensure that they are fully equipped to take advantage of the opportunities that convergence brings.

We believe that increased focus from Government will help to create a more sustained and far-reaching programme of support for citizens and consumers across the UK - ranging from IT skills to the confidence to understand and manage the opportunities and dangers associated with online content and services.

Ofcom's future media literacy programme will be informed by this wider approach.

UK Council for Child Internet Safety (UKCCIS)

In September 2007, the Government commissioned Dr Tanya Byron to lead a review of the risks children faced from exposure to harmful or inappropriate material on the internet or in video games. Dr Byron recommended the creation of a UK Council for Child Internet Safety (UKCCIS) as a forum in which government departments, stakeholders and industry come together and jointly contribute to the development and delivery of the Child Internet Safety Strategy. Ofcom will be a key partner and support UKCCIS. Welsh representatives on the Executive Committee and Council are as follows:-

Promoting Media Literacy in Wales

Ofcom established the Wales Media Literacy Network (WMLN) in March 2007 as a direct response to a consultation exercise conducted the previous year.

Representatives from a range of organisations from across Wales - each with an interest in some form of media literacy or another - attended a meeting in the autumn of 2006 - and the general consensus of opinion was the evident need for an umbrella organisation to ensure a better public understanding of the benefits of media literacy in Wales. And so the WMLN came about - primarily to provide a central point of coordination for media literacy activity in Wales and to allow stakeholders the opportunity to share information.

The Network is funded by Ofcom and administered by NIACE Dysgu Cymru. A

Committee (chaired by Karen Roberts in the Ofcom Wales office) meets four times a year to set the agenda for network activity. Committee Members act as a central point of contact for their organisation/sector, facilitating two-way dialogue and sustaining the flow of information between that organisation/sector and the Network itself.

It also:-

· ensures that Network members are made aware of all relevant media literacy activity as soon as is practicably possible

· identifies media literacy issues in Wales, both collectively as a Committee and individually as Members, with particular reference to the areas where they have particular knowledge or expertise

· provides advice to the Network about general and specific issues concerning media literacy matters as they arise within Wales

· provides comment as required on matters brought to the Committee by other Network members

· responds appropriately to consultations on media literacy undertaken by other bodies

· actively promotes media literacy to the wider public in Wales

Since its creation, the network has endeavoured to:

· Identify media literacy activity in Wales and help to plug the gaps where inactivity is prevalent

· share good practice and work in partnership on all matters relating to media literacy

· co-ordinate events to promote media literacy

· provide a 'match-making' service between learners, learning providers and media professionals

· collate and distribute information

· develop a Wales Media Literacy Strategy to establish a clear vision for promoting media literacy in Wales.

There are many organisations that have a key role to play in the promotion of media literacy skills, knowledge and understanding - amongst both adults and children. These include content producers, broadcasters, platform and network providers, learning providers, academics, Government, parents, the voluntary sector and others. Membership of the network is free and organisations and individuals with a particular interest in any aspect of media literacy are welcome to join. This can be done by e-mailing Karen at karen.roberts@ofcom.org.uk

Network events and activity

A number of high profile Network events have already been held in Wales to

· increase membership of the Network, and;

· to promote the work of Network members as they relate to media literacy.

National Eisteddfod, Mold (August 2007)

The WMLN in partnership with S4C and the Royal Television Society Wales Centre, (RTS) held an evening event showcasing media literacy activity from across Wales.

The event was an opportunity for members of the network to explain a little about their work in media literacy through video and digital storytelling. Presentations were given by:

· Ofcom

· NIACE Dysgu Cymru- Media Literacy in Adult Learners' Week

· BBC Wales, digital stories

· Canllaw Online- digilabs

· ITV Wales

All contributions to this event were made through the medium of Welsh.

University of Glamorgan - Atrium Building (October 2007)

Following the success of the National Eisteddfod event, it was felt that it would be beneficial to hold a similar event in South Wales. This coincided with the opening of the University of Glamorgan's ATRiuM building in Cardiff http://cci.glam.ac.uk/ which agreed to host the event - and was again supported by the Royal Television Society. In addition to the above, presentations were also given by:

· Merthyr Media Projects

· Wise Kids

E- Democracy - Pierhead Building, National Assembly for Wales

(14th January 2008)

The Network felt it was particularly important to engage with policy makers in the media literacy agenda. A major conference was held in the Pierhead Building, Cardiff Bay, on Monday January 14. The conference encouraged debate about the development of an e-democracy strategy in the Welsh context and was an opportunity for stakeholders to voice their opinions and concerns for processes going forward. Speakers included e-democracy experts Anne Mackintosh and Andy Williamson; AMs Leighton Andrews, John Griffiths, Peter Black, Alun Cairns, Alun Davies and Bethan Jenkins; as well as representatives from Ofcom, NIACE Dysgu Cymru, the Welsh broadcast media, Communities@One and the Wales Council for Voluntary Organisations.

Pupils from Greenhill and Thomas Picton Schools in Pembrokeshire also attended the conference to record the day's proceeding for their own internet radio station and they also produced a digital story which was subsequently published online. As a result, a video of the event was posted on the National Assembly for Wales' website.

Digital Literacy in a Web 2.0 World, Aberystwyth University (4th June 2008)

The Network, in partnership with the Department of Theatre, Film & Television Studies at Aberystwyth University hosted a workshop on digital literacy for adults with an interest in education on June 4th 2008 in room A14, Hugh Owen Building, Penglais Campus, Aberystwyth.

Developments in Internet, mobile technologies and services mean that these days there are unprecedented opportunities for people to interact, socialise and access knowledge online. The Internet and digital devices offer affordable access to media and innovative, online tools and virtual spaces to support content creation; education; collaboration; accessing specialised knowledge; research and more. This event explored the development of these technologies, and looked at the digital literacy skills that are needed to help us get the most from them, whilst ensuring our personal safety.

National Eisteddfod, Cardiff (August 2008)

Following the success of the previous year's event, a similar presentation (hosted by S4C and the RTS) took place on Wednesday 4^th August 2008.

Forthcoming events

A follow-up event on event E-Democracy and the progress made over the past year is planned for early Spring 2009.

More information on the WMLN can be found on the website www.walesmedialiteracy.org.uk

Ofcom Research

Building the evidence

Our research is designed to help Ofcom and our stakeholders identify skills gaps and media literacy priorities. Having recently published the second Media Literacy Audit, we considered it appropriate to undertake a review of our research programme - its focus, methodologies and accessibility. This review is under way and the findings will shape our future work.

As an evidence-based regulator, we use our portfolio of research to define priorities for action, both for Ofcom and for our stakeholders. Research helps us identify the skills gaps and issues, directs our activity and measures our progress towards achieving our goals.

Ofcom has commissioned and published a wide range of Audits on media literacy activity which can be found on the website at http://www.ofcom.org.uk/advice/media_literacy/medlitpub/medlitpubrss/

Media Literacy Audit

Ofcom carried out an audit of media literacy across the UK and in March 2006 published its first report, which details the audit's findings across all UK adults.

Report on media literacy in the nations and regions - April 2006

This report focused on results across the nations and English regions. Its purpose was to provide stakeholders with a range of information about levels of media literacy across the UK. (It should be read in tandem with The Communications Market: Wales report, which examines availability, take-up and consumption of communications services across the UK.)

Our audit provides detailed examination of the media habits and opinions of people living in the different nations of the UK, supplemented with indicative findings for the English regions. It found a variety of responses across the nations and regions in relation to different aspects of media literacy - but that said, there are a variety of possible demographic explanations for many of these differences. This audit wasn't designed to assign exact causal explanations of the particular responses of each nation, but rather to set out what these responses are as a comparative benchmark.

The audit as a whole looked at how UK adults and children access, understand and create communications, with Ofcom's particular focus being on electronic communications. In this context, our media literacy definition of access was much wider than availability or take-up of the platforms. Rather, it focused upon interest, awareness, usage and competence relating to each platform. 'Understanding' related to how content (such as television and radio programmes, internet websites, or mobile video and text services) is created, funded and regulated. Issues of availability and take-up are covered comprehensively in The Communications Market: Nations and Regions.

Some of the elements of this audit - such as attitudes towards the provision of news, or knowledge of content regulation - apply to traditional analogue television and radio as well as their newer digital counterparts. But for the most part, this audit focused on the four main digital media platforms - not only digital television and digital radio, but also the internet and mobile phones - as these are the ones where there is most divergence between different groups within the UK in terms of understanding, take-up and usage.

Our key findings for Wales were:

· Self-reported take-up of mobiles and the internet in Wales was lower than the UK average; self-reported access to digital radio services was at similar levels and take-up of digital TV was significantly higher. Volume of use of all four platforms was broadly the same as the UK average, however people in Wales appeared to be less interested in the digital features of digital radio, the internet and mobile.

· People in Wales were more likely to say they got digital TV for the quality of the picture than the UK average. Levels of interactivity with television were lower than average. Knowledge of TV regulation and controls was average.

· People in Wales were less aware of radio funding and regulation than the UK average. Levels of general concern were low, in keeping with the UK average.

· Internet users in Wales were significantly happier to give out personal details online than the other nations. While confidence in using the internet for various prompted tasks was higher than for the other nations, there was lower awareness of how search engines and the BBC website are funded.

· Mobile phone owners in Wales were more likely to say they got a mobile phone for emergencies and for texting than the UK average. They made similar use of their mobiles as the UK average, but were less likely to know about age-verification. General concerns about mobile phones were lower than the UK average.

· People in Wales used fewer sources of news than the other nations. Overall, they were more likely to say they distrust newspapers than the UK average. They were more likely to trust BBC News 24, and appear more likely to trust the other UK-based 24-hour news channels.

The full Audit can be found at:

http://www.ofcom.org.uk/advice/media_literacy/medlitpub/medlitpubrss/nations_regions/

Our Adult Media Literacy Audit for 2008 showed the following findings for Wales.

· Take-up of digital television and mobile phones has increased significantly since 2005, although internet ownership in Wales (53%) was lower than in the UK as a whole (62%).

· Compared to the UK, adults in Wales were more likely to regularly listen to music on a hi-fi/CD/tape player, and less likely to regularly use the internet.

· People in Wales were also more likely than people in the UK in general to say they would miss their television the most.

· 61% of adults in Wales use another device at the same time as watching television compared with the UK (69%).

· 63% of adults in Wales use another media device while using the internet compared with the UK (74%).

· People expressed a similar level of concern about media content and devices in general, with the exception of what is on television; people in Wales were more likely than the UK average to have concerns about what is on television.

· Levels of trust in television and internet content were lower in Wales than in the UK in general; nearly half (49%) said they did not trust what they see and hear on television, compared with 41% in the UK. They were more likely to agree that it does not matter how websites are funded (62%) than the UK average (52%).

Our Children's Media Literacy Audit for 2008 showed the following findings for Wales

· As in the whole of the UK, households with children in Wales had high levels of ownership of key media, and had experienced a significant increase in children's use of the internet since 2005. Since 2005 children in Wales had also increased their use of a CD player, an MP3 player and a digital camera.

· Children in Wales were more likely than children in the whole of the UK to have a television and a portable DVD player in their bedroom. Children in Wales were more likely to have internet access in their bedroom than they were in 2005 (an increase from 7% to 13%).

· In each of the UK nations there has been an increase since 2005 in children saying they would miss the internet the most. Children in Wales were less likely to say they would miss a games console the most, compared to 2005.

· Children in Wales watched fewer hours of television and listened to more hours of radio in a typical school week, and were less likely to use media other than a television to watch video content. They were also less likely to use other media at the same time as watching television or using the internet.

· Children in Wales tended to be confident using the internet and were more likely than children in the UK as a whole to say they can always find what they're looking for online.

· Parents in Wales were more likely to say their child's mobile phone use and radio listening were a concern.

· Children in Wales were more likely to agree with attitudes towards gaming relating to the consequences of violence in games, the value of settings on consoles preventing access to games with certain age ratings, and the wider use of skills learned playing games.

· In each of the UK nations, an increased number of children said that they have lessons about the internet, compared to 2005. However, compared to the UK average, children in Wales were less likely to say they have lessons at school about the internet.

Section 5

Online Protection

5.1 As the communications regulator, Ofcom has a number of responsibilities in relation to the internet. We oversee the wholesale and retail markets for internet connectivity. We have a role in encouraging audiences to connect to the internet and in helping them learn how to manage the risks to which they are exposed when online, which arises from our duty to promote media literacy. We therefore have a clear interest in the protection of consumers from harm when they use the internet. Given our responsibility for the UK communications industries, the development of the institutional structures appropriate for the internet will profoundly affect Ofcom.

Wales Internet Safety Partnership

5.2 Ofcom is also a member of the Wales Internet Safety Partnership (WISP) Committee. WISP was established in 2007 to raise awareness of Internet safety and has a number of important aims, including:-

· Assessing current trends in young people's use of the Internet and mobile phones, and the safety challenges these present.

· Developing innovative targeted programmes to ensure that young people and parents have an informed understanding of the Internet and mobile technologies, and the risks that these can present. This includes risks associated in using online social networking sites, messenger services, accessing inappropriate content online, and grooming.

5.3 The partnership is keen to stress the many positive benefits the Internet presents and aims to engage and inform the public so they have a better understanding of the online world and are able to handle their personal safety online. WISP held its second conference 'Young People, Mobile and Internet Technologies 2008 - Maximising Opportunities, Addressing Challenges in Swansea in October. The Welsh Assembly Government /WISP eNetwork was also launched at the conference, which will link and enable educators, youth professionals and others with an interest in the digital literacy of young people across Wales to share ideas, resources and good practice. Details of the conference can be accessed at http://www.wisekids.org.uk

Internet Regulation and Online Protection

5.4 Ofcom believes that it would not be appropriate or effective to attempt to translate existing regulatory structures onto the internet. The internet was created as an essentially open access network. The existing lack of regulation has contributed to its very success and the innovation it has engendered. In the future, it will therefore be important to maintain the benefits of this open approach as much as possible in order not to cause undue negative impact on consumers as well as businesses.

5.5 The internet has become an increasingly important part of our daily life. Electronic communication is an indispensable feature of almost every workplace, and has come to dominate not only our professional interactions but personal ones too. We are increasingly turning to the internet for news and information, as well as for many other services. 82% of online consumers use the internet for sending and receiving email, while as many as 65% now use it to purchase goods and services, and 47% use it for online banking services.

5.6 As legitimate use of the internet has grown, so have the scale and impact of its fraudulent and criminal uses. The international nature of the internet has generated new opportunities for consumers but it has also put them within easier reach of those seeking to take advantage of them. The internet has given rise to many new types of crime - for example, identity theft by phishing, malicious virus dissemination via SPAM, and online grooming of children. It has also made it easier for criminals to circumvent judicial systems by taking advantage of the impersonal nature of the internet to misrepresent or disguise their true identity.

5.7 The internet therefore raises important consumer protection issues for governments and policy makers to consider. In order to inform the current debate on how best to tackle them, we believe it would be helpful, for policy makers and the public alike, to present a survey of the key consumer protection issues related to the internet, and the approaches taken to tackling those issues in the UK and internationally.

5.8 In response both to the growing role the internet plays in delivering services to consumers and the risks it exposes them to, there has been an immense amount of activity at national and international levels in developing legislative and regulatory frameworks to deal with internet-specific issues. While some of these efforts have involved attempts to achieve international cooperation and harmonisation of laws, many have also been tailored to suit the particular circumstances, and cultural and political norms of local markets.

5.9 From our brief survey of different approaches to regulating some of the key consumer protection issues that the internet raises - such as privacy and security, and protection from illegal or inappropriate content, or from malicious software - we make four observations about the effectiveness of regulation relating to the internet and the services delivered over the internet:

· The attempts at consumer protection on the internet at both national and international level have met with varying degrees of success to date

· Successful consumer protection on the internet has generally involved a much higher degree of co- and self-regulation than has been the case for other media

· Effective consumer protection on the internet requires more significant levels of international cooperation than currently exist

· The internet inevitably places a much greater responsibility on consumers to take action to protect themselves

The attempts at consumer protection on the internet at both national and international level have met with varying degrees of success to date

5.10 The internet is a decentralised "network of networks" containing a number of parallel supply chains involving the physical infrastructure, application and service providers as well as governance structures.

5.11 Regulatory action can be taken at many different levels of the internet value chain. For example, content can be monitored and removed at the level of servers hosting the content; access to certain websites can be prevented at the level of search engines for all users; while controlled access for some users, such as children, can be maintained at the level of internet access at home.

5.12 In cases where effective action can be taken by national ISPs, or consumers have the information as well as relevant skills and tools like software application, actions to increase levels of consumer protection can be quite effective. In other cases, successful action has been more difficult to achieve because it requires cooperation between many different levels of the internet value chain.

5.13 For example, UK consumers now have a generally high level of SPAM awareness and most ISPs offer simple and effective filtering tools which allow users to easily identify and block unsolicited email communications. The problem of SPAM has not disappeared - it is still estimated to account for around 85% of all email traffic and has significant costs for businesses3 - but there are now more tools available to consumers to reduce the amount of SPAM they receive.

5.14 Despite an increasing number of national and international laws and agreements, internet-related issues remain a serious and growing concern. For example:

· Information Commissioner's Office

· Anti-Phishing Working Group Phishing Activity Trends Report, November 2005

· Get Safe Online

· BT. See:

· http://www.btplc.com/societyandenvironment/news/showarticle.cfm?articleid=2ab29f02-bd0c-4e0a-952f-60fef2500246

· NCH, GamCare, Citizen Card Report 2004

· Internet Watch Foundation

5.15 The Information Commissioner's Office, the regulator charged with oversight of data protection regulation in the UK, received over 19,000 data protection complaints from the general public in 20044

5.16 Phishing incidents are becoming increasingly common. Globally, the Anti Phishing Working Group reported 16,882 unique attacks in November 2005, up from 8,975 unique attacks launched in November 20045. The UK government's Get Safe Online report estimated the total cost of phishing in the UK reaching £12m6

5.17 BT reported in December 2005 that its "cleanfeed" technology blocks an average of 45,000 attempted hits onto illegal child pornography sites each day.

5.18 20% of adverts on a child-orientated games site were promoting gambling services, which would be illegal for their underage viewers to use8.

Successful consumer protection on the internet has generally involved a much higher degree of co- and self-regulation than has been the case for other media

5.19 The attempts to translate traditional direct regulatory structures onto the internet have for the main part been ineffective at achieving their desired goals. Where action has been effective, both nationally and internationally, it has often involved co- or self-regulatory measures developed with participation from the industry.

5.20 The Internet Watch Foundation (IWF) in the UK is one such example of self-regulation. The IWF operates a hotline for reporting illegal content on the internet. Once content is ascertained by the IWF to be illegal, it issues take-down notices to hosting service providers, when these are based in the UK. Additionally, it supplies ISPs with details of websites containing internationally hosted illegal content, and of online user groups dedicated to disseminating illegal and offensive material. Most UK ISPs have already voluntarily agreed to block those sites and user groups. The IWF has been a successful self-regulatory strategy - in 2005, only 0.4% of potentially illegal child abuse images reported to the IWF were hosted in the UK9. However, the international problem remains.

5.21 At international level, industry-led measures have played a significant part in increasing consumer confidence in e-commerce and hence making the internet a more secure place for commercial transactions. For example, data encryption through the https protocol has been widely adopted by online banking and commercial sites, although there remains a need for on-going investments to ensure adequate levels of security. Furthermore, significant efforts have been invested by the industry in marketing its benefits to consumers - today, for example, the padlock symbol is displayed on many browser windows. Though further efforts are needed to ensure that the padlock symbol guarantees adequate levels of consumer protection, its use by e-traders can serve to give consumers the peace of mind necessary to decide to engage in e-commerce.

5.22 Another example of an international self-regulatory initiative is the Internet Content Rating Association (ICRA). ICRA encourages content providers to self-classify their content using its rating system, which in turn enables end-users to use filtering software to block access to any websites which they deem undesirable based on the rating information. Over 100,000 internet content providers have already self-labelled using ICRA's rating system, including Microsoft, AOL, T-Online and Hustler. However, the vast majority of internet content is still not labelled.

Effective consumer protection on the internet requires more significant levels of international cooperation than currently exist

5.23 The internet has fostered unprecedented levels of exchange of information, services and trade across countries. This has been made possible by the international nature of the internet both in terms of its infrastructure, and in terms of content and reach. However, the internet's international nature also means that regulatory action at certain levels of the value chain can only be taken at international level. While measures taken at the content access level, for example software applications, are most effectively achieved via ISPs, and therefore at national level, any action at the level of say hosting, would require international cooperation.

5.24 Additionally, lack of international cooperation on laws and measures to tackle criminal activity on the internet can render national laws ineffective, however stringent, because criminals can simply move their operation to countries where minimal protections exist.

5.25 International cooperation on internet-related issues has been growing. For example, the 2001 Council of Europe Convention on Cybercrime was the first international treaty to address cybercrime specifically. Signatories to the Convention are required to enact national laws criminalising four categories of computer related crime: fraud and forgery, child pornography, copyright infringements, and security breaches such as hacking, illegal data interception, and system interferences that compromise network integrity and availability.

5.26 To date, however, much international cooperation has lacked the enforcement means to make it effective. Most efforts involve greater knowledge sharing and information on best practice but there have been very few instances of any action taken against perpetrators. Part of the reason for the lack of success in acting against perpetrators is the difficulty in achieving agreement on the appropriate action to be taken. Variations between cultural and political norms, as well as different stages of market development and levels of resources available to enforcement agencies, have often meant that international agreement is only possible at the level of the lowest common factor.

The internet inevitably places a much greater responsibility on consumers to take action to protect themselves

5.27 The international nature of the internet means that there are inherent limits on the regulatory action taken at a national level. In contrast to the closed access platforms, the open access nature of the internet means that internet service providers act primarily as conduits for information and do not exercise editorial control over the content that flows over their networks. As a result, consumers will inevitably have to take a much greater responsibility to take action to protect themselves both from unwanted content and services, and from the various types of cybercrime.

5.28 Several information and media literacy initiatives have been developed to date to educate consumers about the dangers of the internet and help them understand the consumer protection tools that are available to them. In the UK, websites such as Get Safe Online, a public-private partnership initiative - see www.getsafeonline.org - and www.consumerdirect.gov.uk (run by the OFT) provide information and advice on internet safety and consumer rights.

5.29 Additionally the development of quality seals aims to help consumers recognise which vendors have committed to following a code of conduct in relation to commercial transactions on the internet. For example, quality seal systems are in place in the UK (TrustUK), France (L@belsite), Germany (Trustedshops) and Japan (Japan DMA), while the Global Trustmark Alliance promotes the use of quality seals at an international level.

5.30 In the future, we believe that consumers will have to assume greater responsibility for protecting themselves online if they are continue to enjoy the benefits of plurality and diversity of content and services the internet brings. To be able to do that, the consumers will need to have access to trustworthy information and advice, and affordable, easy-to-use technological tools. Therefore, it will be crucial to foster the further development of end-user education and empowerment while addressing the needs of vulnerable groups.

5.31 The internet is a global 'network of networks'. Individual computer networks, each potentially containing thousands of different computers, are interconnected, allowing each computer to communicate with all the others. To enable each computer to communicate with all the others ones, network operators have adopted a universal addressing system and a set of standardised communications protocols. The addressing system uses Internet Protocol (IP) addresses and domain names (explained in more detail below). The communication protocols, or rule sets, make the different networks interoperable, ensuring they can communicate with one another. With unique addresses and shared protocols, any Computer A on Network X is able to transmit data to any Computer B on Network Y.

January 2009

[1] http://www.culture.gov.uk/images/publications/DRWG_Final_Report.pdf

[2] Maximum possible speed is the highest speed that a line is capable of (defined in this research by the highest speed ever achieved in the 30 days of data collection). Headline speed is the download speed at which an internet service is advertised.

[3] Section 11 of the Communications Act 2003

[4] These relays will be converted to carry digital terrestrial television through the digital switchover process, due to start in Wales in Q3 2009 with completion in Q1 2010.

[5] Originally, 405 line television, which was monochrome only, was broadcast on the VHF bands, and these signals travelled further than the current Colour UHF system, so fewer relays were required.

[6] Including relays serving Wales based in England.

[7] In some areas of the mid Wales borders, it is only technically possible to provide television signals from relays dependent on the Ridge Hill transmitter, based in England.

[8] There is no figure specifically for Wales but coverage is comparable to the UK

[9] Viewers that previously subscribed to Sky Digital and free to air sky viewers could use their existing dish in most cases.

[10] Ofcom consultation document, Self Help Television Relays and Digital Switchover, 7 December 2006.

[11] The remaining percentages are those homes that have Freeview with free channels plus paid-for top-up channels.

[12] See http://www.digitaluk.co.uk/

[13] Digital Switchover Transmitter Details, Wales, Ofcom, 24.10.07. The relays dependent on Ridge Hill will be converted in 2011. Digital television is also already available via digital satellite (SKY) and digital cable (Virgin Media).

[14] The Ferryside relay carries the 3 PSB multiplexes and one commercial multiplex.

[15] http://www.culture.gov.uk/images/publications/DRWG_Final_Report.pdf

[16] Note that the two licence areas, south Wales and Mid & North Wales will continue to have separate licence obligations even if Real Radio decided to share programming to form a Wales wide network.

[17] The BBC does not have a public figure for the coverage of its UK DAB multiplex in Wales

[18] Ofcom Communications Market Report, Wales, 2008.

[19] Under Section 49, 1996 Broadcasting Act, the BBC can secure carriage for its nations and local services on the local commercial DAB multiplexes operating in the UK

[20] (Adults 15+) Not everyone living within these areas will be able to receive a service. Actual coverage depends on local topography and transmitter roll-out and varies by multiplex between around 70% and 95% of the licensed area.

[21] Policy Implications arising from the Communications Market, Ofcom, 12 October 2006

[22] This multiplex does not carry Radio Wales and Radio Cymru.

[23] Digital Radio Working Group, final report, 2008, section 5.10, page 19.

[24] All stations are FM except Radio Maldwyn, Valleys Radio and Swansea Sound which are AM stations. Swansea Sound is also carried on DAB radio.

[25] Adults (15+) Source: RAJAR. Not all stations in Wales are included in the RAJAR survey.

[26] Kiss FM's licence area covers south Wales and the West of England.

[27] Due to be re-named as Heart, (along with Champion and Coast) during 2009

[28] The Radio Carmarthenshire licence includes Scarlet FM which serves Llanelli

[29] Laser is currently in receivership and Sunshine radio is likely to be acquired by another radio group

[30] GTFM was one of the original access pilot stations licensed by the Radio Authority.

[31] Of the 107 community services awarded licences in the first round of licensing, five had restrictions placed in their licences to prevent the generation of income through on-air commercial activities.

[32] The Measured Coverage Area of a radio station is defined by the technical characteristics of its transmission. It is the area within which the signal available for reception is of above a specified signal strength.

[33] RCT Radio Project, An Evaluation of Outcomes, Helen Thornton, Three Day Week, December 2008.

[34] http://www.statistics.gov.uk/pdfdir/int0208.pdf

[35] Note that up to 12 failed call attempts could occur in the 2 minutes that it took to make a successful call.

[36] Broadband speed is measured in Megabits per second (Mbit/s) - an industry-standard measure of data transfer over the internet.

[37] Communicate, BT Public Affairs Quarterly Newsletter, Issue 14, January 2009. Customers need to have a BT NTE 5 master socket (see picture) and extension wiring in their home to fit an I-Plate - easily identified by the horizontal split in the face plate and BT logo.

[38] Maximum possible speed is the highest speed that a line is capable of (defined in this research by the highest speed ever achieved in the 30 days of data collection). Headline speed is the download speed at which an internet service is advertised.

[39] Pipe Dreams? Prospects of next generation broadband deployment in the UK - Broadband Stakeholder Group

[40] Ofcom, Communications Market Report, Nations and Regions, Wales, 22 May 2008.

[41] Size:XL from Virgin's high-end Broadband deal, provides fast net access connection speeds of up to 20Mbps. After the £30 installation fee, Size:XL costs just £26 a month or £125 a month for Virgin's complete package which bundles Virgin Media broadband, Cable TV, phone and mobile., Size:XL Broadband has no restrictions on downloading making it an attractive service for heavy net users and large families.

[42] Virgin Media cable's network covers 24% of households in Wales, compared with the UK average of 49%. (p72, Communications Market Report: Wales, May 2008.)

[43] The Department of Trade and Industry (DTI) and Ofcom have published advice for public bodies who may be considering the use of public funds to support the provision of higher speed broadband networks in particular areas of the UK

see: http://www.ofcom.org.uk/media/mofaq/telecoms/pbs/

[44] Further information on the Audio Visual Media Services Directive

http://ec.europa.eu/avpolicy/reg/avms/index_en.htm

on the Consultation on Media Literacy

http://ec.europa.eu/avpolicy/media_literacy/index_en.htm

and the Recommendation on Protection of Minors (2006) http://europa.eu/scadplus/leg/en/lvb/l24030a.htm

[45] http://www.bsigroup.com/en/Shop/Publication-Detail/?pid=000000000030130591

[46] http://www.audiovisualcontent.org/