ITN was grateful for the opportunity to give oral evidence to the Select Committee on 6 July and to air ITN's concerns about the potential market impact of the BBC's plans to expand its online licence fee funded activities. The proposed market impact test by Ofcom—if it is to be applied both to new services and to significant amendments to existing ones—would certainly help address some of our concerns.

However, the BBC's commercial services operated by BBC Worldwide also have a market impact that needs to be addressed through structural reforms. Having read the uncorrected transcript of evidence given on 6 July by Mr Anthony Salz, the Chairman of the BBC's Fair Trading Committee, and Mr Nicholas Eldred, General Counsel, I would take issue, on the basis of ITN's experience, with some of the points they made.

  They argued that the BBC is not judge and jury because "it is always open and possible for an outside agency such as the OFT or Ofcom or indeed the European Commission to come in and investigate the BBC or for a complainant to go direct to those agencies for redress or relief".

  The implication that external regulators can intervene on any grounds in BBC Fair Trading issues is rather misleading. Although compliance with the core principles set out in the Fair Trading Guidelines, on which the fair trading commitments rest, would generally ensure the BBC's compliance with EC and UK competition law, the fact remains that the BBC's Fair Trading Commitment and Guidelines are specifically designed to address issues arising from the relationship between BBC Worldwide and the BBC's licence fee funded arm (such as ensuring BBC Worldwide acquires licence fee funded content at a fair market price). These are important areas where complaints are likely to arise. Yet it is clear from the preface to the Fair Trading Guidelines[8] that the BBC's fair trading policy goes beyond the competition remits of the OFT and Ofcom, and these authorities are therefore not able to intervene in the Governors' decisions on such matters.

  This demonstrates that, contrary to the impression the BBC gives that the competition authorities can intervene on any grounds, there are regulatory "gaps" where neither the OFT nor Ofcom have a remit to intervene. In these areas, the BBC is entirely self-regulating, and there is a complete lack of external recourse or enforcement in these areas. Moreover, the Governors do not have enforcement powers for ensuring fair trading, the only sanction for breach of this, or any other, provision of the Charter being its revocation. This inadequacy of the current system is likely to be replicated in the new one, where it is proposed that the Trust, rather than an external competition authority, will continue to have responsibility for the Fair Trading Commitment.

  The BBC also said in its evidence that the fair trading rules are externally audited, that the BBC has an excellent record in terms of compliance with competition law, and that no regulatory authority has found against it in the last 10 years. This is not surprising, given the limitations on their powers to intervene, combined with the lack of transparency with which cases are dealt with by the Governors.

  The issue can be well illustrated by one particular case. In May 2000, ITN submitted a complaint to the Governors about the free distribution of BBC World in the US. This was accompanied by conclusive documentary evidence from the Report and Accounts of a US broadcaster, proving that the service was being distributed free of charge, in clear breach of the Fair Trading Commitment. Responding to ITN's formal complaint, Baroness Young (then Chairman of the BBC's Fair Trading Committee) said in her letter that BBC Worldwide had done nothing wrong. She said that they were not at liberty publicly to substantiate this conclusion because the distribution of BBC World was "commercially sensitive" and therefore confidential. However, there was no acknowledgement or response in the letter to the incontestable documentary evidence that ITN had submitted as part of the complaint. ITN could not take this any further as there was no external body to which we could appeal.

  Despite putting together detailed evidence about this and a number of other breaches of the Fair Trading Commitment by BBC Worldwide services that had a direct market impact on ITN's own commercial services, our concerns have never been properly or transparently addressed by the Governors. We therefore believe that the current policy framework is inadequate because it fails to empower any independent regulatory authority to scrutinise breaches of the Commitment and—as a direct result—there have been times when BBC Worldwide has crowded out commercial competitors from the UK and overseas markets.

  We do not believe, therefore, that the Green Paper's solution for the future—to transfer responsibility for enforcing the Fair Trading Commitment to the Trust, possibly with some nominal scrutiny of the terms of the Commitment by Ofcom—is satisfactory. Although the Trust is intended to be more independent from BBC management than the Governors are at present, the system of managing complaints will still lack any kind of external competition scrutiny or external route of appeal for complainants against a Trust decision. Moreover, there appears to be no detailed proposal to ensure that the Trust's enforcement of the Fair Trading Commitment and Guidelines is transparent.

  It is crucial that both these points are addressed. ITN would therefore like to see some external scrutiny, whether by Ofcom or another competition body, over the BBC Trust's handling of competition complaints. At the very least, there needs to be an external mechanism for appeals against Trust decisions or adjudications. This could be carried out by a competition regulator such as Ofcom, or even by some kind of ombudsman or independent reviewer with competition expertise.

  As the BBC's activities span publicly-funded content and commercial activities—both having a significant market impact—ITN considers that Ofcom's proposed approach has much to commend it. Ofcom suggests that all the BBC's activities need to be subject to independent overview from a competition authority with sufficient powers to be able to act quickly, and on an ex ante basis if needed, and that the BBC Agreement should contain a general obligation that the BBC should have due regard to its effect on competition. Ofcom also proposes that there should be a competition-focused BBC Fair Trading Commitment, which applies both to licence fee-funded content as well as commercial services, and which is subject to independent approval and oversight.

  Under this proposal, the Trust would retain responsibility for the Fair Trading Commitment in terms of investigating breaches of the Commitment, and the Fair Trading Guidelines would be used for internal compliance. However, Ofcom would have ultimate responsibility for adjudicating on formal complaints and taking appropriate action. Ofcom would also need appropriate powers to obtain relevant information from the BBC in pursuing a complaint under the Fair Trading rules.

  I hope this clarifies ITN's position as regards the operation of the Fair Trading Commitment.

4 August 2005