UK Commercial Broadcasting
On The Right Wavelength?

There has never been any coherent economic or technical justification for the present system of regulating UK commercial broadcasting, Research Fellow Cento Veljanovski told a lunchtime meeting on 11 May. Its underlying assumptions were paternalistic, and its objectives were nowhere clearly defined. The regulatory authorities seemed to ignore the very high costs that their interventions imposed on public welfare. Veljanovski argued that the whole basis of commercial broadcasting regulation should be reconsidered: only those restrictions that can be specifically justified should be retained.

Cento Veljanovski is Lecturer in Law and Economics at University College, London, and a Research Fellow in CEPR's Applied Economic Theory and Econometrics programme. He was a consultant to the Peacock Committee on the future of the BBC and has written on the economics of regulation and broadcasting. His talk was based on Discussion Paper Nos. 175 and 176. The meeting at which Veljanovski spoke was one of a series in which CEPR Research Fellows discuss policy-relevant research. The opinions he expressed were his own, however, and not those of CEPR, which takes no institutional policy positions.

Veljanovski argued that the present regulatory system had not been designed with any clear view of the objectives of commercial broadcasting. Nor were the purposes of the regulatory structures anywhere specified. This was very damaging, Veljanovski argued: regulation was often hard to justify, yet imposed substantial welfare losses by restricting competition and consumer choice. For example, the very restricted access to the radio spectrum in the United Kingdom was often justified in terms of the scarcity of wavelengths available for transmission. Yet in New York the density of radio spectrum usage was 15 times that in the United Kingdom, indicating that the present regulatory constraints served no constructive purpose.

According to Veljanovski, many of the current proposals for the reform of broadcasting, including some of those contained in the Peacock Report, were the result of muddled thinking. If the regulatory system were changed, the economic structure of the broadcasting industry would change as well and this would alter its output, cost structure and profitability. Previous assessments of the effects of deregulation should therefore be disregarded, Veljanovski claimed, since they ignored its beneficial impact on the industry's costs. Proposals for piecemeal reforms took the existing and rather arbitrary structure of UK broadcasting as given, when in many cases it could no longer be justified. Even the assumptions underlying the concept of public service broadcasting were now seriously undermined, he argued. Much of the BBC's programming output was now judged in explicitly commercial terms, by audience ratings, whereas much of the material broadcast by independent TV and radio exhibited the features of public service broadcasting, such as news and the minority interest programmes on Channel 4. It was therefore necessary to reassess the purpose and principles of broadcasting regulation.

Many advocates of broadcasting reform have suggested that greater choice could be introduced by having viewers pay directly for the programmes they choose to watch - pay-TV. Veljanovski argued, however, that the dichotomy between public service broadcasting and a market for programmes did not represent the full range of choices available to policy-makers. Broadcasting will continue to be financed by advertising because television is an important medium for conveying advertising and advertising is an important source of finance for television. While the financing of broadcasting through advertising does not necessarily maximize consumer choice it does generate substantial consumer welfare, since programmes are supplied free of charge. This led Veljanovski to insist that, even if it were inexpensive to introduce, pay-TV would not become the dominant source of finance for broadcasting in the future.

Veljanovski proposed a package of fundamental reforms of commercial broadcasting regulation. They were designed to clarify the objectives of regulations, to retain only those that could be explicitly justified and to promote cost efficiency. He endorsed the proposal contained in the Peacock Report that the Independent Broadcasting Authority (IBA) should be replaced by a Public Service Broadcasting Authority. Responsibility for commercial land-based television, Direct Broadcast by Satellite (DBS) and independent radio should be transferred to the Cable Authority. If this were not done, the IBA should at least be made more accountable. The criteria used by the IBA to award franchises and impose restrictions on commercial broadcasters should be clearly stated, and those criteria that cannot be specifically justified should be removed. This would curb what Veljanovski called the IBA's 'excessively interventionist' tendencies. TV franchises should then be sold to the highest bidder, not awarded according to the present combination of economic and 'quality-control' considerations. They should also become 'rolling franchises', which could be bought and sold, subject to only a minimum number of explicitly stated constraints. The present interposition of the IBA between the franchise companies and their shareholders was undesirable: it removed the useful discipline exercised on management by the capital markets.

Greater attention to commercial considerations should also be fostered in the provision of television delivery systems, Veljanovski urged. As a first step, the transmission system should be privatized. The 'duopoly' policy, which prevents cable operators from providing telecom services in competition with BT and Mercury, should be abandoned. This would encourage the provision of telecom facilities when cable systems are first installed and highlight the potential of cable in the telecommunications field, thereby encouraging more investment in cable. On the other hand, increased BT involvement in broadcasting systems might actually reduce competition and should be prevented.
Veljanovski concluded with a warning about the proposed contract for DBS in the United Kingdom. He argued that much of the enthusiasm for DBS resulted from a fascination with the technology involved. His own research indicated that the estimates of the potential market on which the DBS contract was based were fanciful, and that the contract was not a viable commercial proposition.