Out of control

Who regulates the regulators? The recent rows over illegal decisions at the Lottery Commission, and nightly news bulletin clashes between ITV and the BBC, are just the latest embarrassments for a government that seems to have lost influence ov

It has been a topsy-turvy fortnight for the secretary of culture, media and sport, Chris Smith. As gold medal-winning athletes obediently attributed their performances to National Lottery sports funding, the fund-raising institution itself lurched into chaos.

After basking in the glow of Britain’s best Olympic performance for 80 years, Smith saw his grip on two of the nation’s other favourite entertainments – playing the National Lottery and watching television – severely undermined. Those who were entrusted by Smith to regulate TV and the Lottery have scored a series of spectacular own-goals, and have endangered their own futures.

The BBC’s board of governors, headed by chairman Sir Christopher Bland, ignored Smith’s views on nightly television news bulletins and announced they would rubber-stamp the moving of BBC1’s Nine o’Clock News to 10pm. This puts it in direct competition with ITV’s 10pm news bulletin, which launches in January, following a hasty compromise struck between ITV and the incoming director of the Independent Television Commission, Patricia Hodgson.

Two days later, Dame Helena Shovelton, chairman of the Lottery Commission – which was set up by Smith – resigned after being condemned in the High Court for “unfairly” allowing the People’s Lottery more time to adjust its bid to run the National Lottery, while denying Camelot the same privilege.

Smith, who has long been identified as the minister most likely to be reshuffled from his post by Tony Blair, has proved to be highly resilient and has stoutly weathered the reshuffles. But the past two weeks may have put a new question mark over his future.

The two events have focused the spotlight on the role of government regulators in policing a wide range of markets. The regulators have come in for a severe bruising in recent months. The Financial Services Authority was mauled by the Consumers Association for failing to adequately protect people who were allegedly mis-sold endowment mortgages.

Lenient approach

Oftel is under constant pressure over what critics call its “light touch” in regulating British Telecom, which dominates 80 per cent of its market. Rivals have recently accused Oftel of failing to force BT to open its local exchanges so they can run their broadband services through them.

The Food Standards Agency has been criticised for its oppositional stance to organic foods and for failing to take a position on genetically modified organisms in food.

Regulators are accused of lacking sufficient confidence to take on the industries they are trying to regulate and of being unclear about what the government expects of them. Like the BBC governors and the ITC, regulators have forgotten one important component: the consumer. While marketers live or die by their ability to serve consumers, those who regulate their industries appear to be caught in a bun fight between the powerful forces that dominate these areas.

Most members of the public are probably immune to the regulators’ travails and unaware of their very existence. But they might wonder what’s going on next week, when the BBC launches its 10pm news. The BBC announced the change just 11 days after commercial rival ITV patched up a deal with the ITC to return the ITV nightly news to 10pm after an absence of two years.

If ever a case could be made for a single regulator overseeing TV content, the BBC and ITC’s actions will have strengthened it. Smith’s office is busy preparing the communications White Paper, to be published at the end of the year, and is likely to recommend one regulator to oversee television content, to be known as Ofcom.

The governors may be stripped of many of their powers and a new super-regulator, overseeing commercial and public service broadcasting as well as Internet and mobile phone content, is likely to be created. For incoming ITC director Patricia Hodgson, the struggle is on for the top job – and last week’s events may not have helped her quest. First portrayed as a masterly compromise, the return of ITV’s 10pm news is beginning to look like a disaster.

The ITC came under attack from other national broadcasters for its deal over the ITV news. Channel Four, Channel Five and GMTV were taken by surprise by the announcement that in return for ITV partially restoring the 10pm news slot, all the national commercial channels would be given an extra 2.5 minutes of advertising airtime in peak viewing hours. While C5 sales director Nick Milligan welcomed the extra minutage, C4 commercial director Andy Barnes wrote to the ITC to raise some concerns. He declined to comment to Marketing Week, but the ITC says: “C4 has raised a number of points with us about changes to advertising minutage. Our discussions are continuing.”

One observer says: “Barnes is angry that the ITC did not consult the other two terrestrial stations. They unilaterally had conversations without discussing it with Four and Five. He’s furious that Hodgson doesn’t seem to understand the commercial sector.”

Hodgson has little experience in the commercial sector, having spent much of her life working for the BBC. But an ITC spokeswoman dismisses concerns that this contributed to the ITV news decision. She says it was not Hodgson’s decision, but was taken by the ITC’s commissioners. They were not legally obliged to consult the other channels on the change in minutage. “It was not appropriate to do that. There was not an opportunity. This was part of a package,” says the spokeswoman.

Confusion for viewers

BBC director general Greg Dyke also attacked the compromise. “The recent ITC and ITV compromise of a news at 10pm, three or so nights a week, is confusing for viewers. All the evidence shows that viewers want to know when news is being played,” he said.

But an ITC spokeswoman says Dyke is jumping the gun, as he cannot predict whether viewers will be confused or not.

The jockeying for position ahead of the communications White Paper has begun in earnest. But the episode highlights how regulators are caught between the glaring headlights of powerful industry rivals.

Meanwhile, the process of choosing the next operator of the National Lottery was thrown into confusion last week by one of New Labour’s ablest and usually best-informed ministers, Robin Cook. He erroneously told a Question Time audience that: “The government… would be very happy if it is a not-for-profit lottery… I… suspect the great majority of people would be pleased to see some of the very large profits of Camelot not going into the pockets of the operators.”

This intervention echoed a curious statement by Janet Anderson, quoted in Marketing Week (April 13), in which she told a Parliamentary debate that: “The government has been, and is still, committed to a not-for-profit operator.” The statement was later withdrawn in a written reply.

Do these gaffes indicate that the ministers are secretly discussing the appointment of Branson’s People’s Lottery as a foregone conclusion, and that they have accidentally revealed their hand?

The selection process is now in deep trouble. As the Lottery Commission looks again at the two bids and attempts to decide which will run the next licence, it will be fearful that any decision will be subject to judicial review. With acting chairman Harriet Spicer hastily stepping in to replace Shovelton, Camelot’s licence may have to be extended beyond next October as the mess is sorted out.

Smith created the NLC following the demise of Oflot, the original regulator. Oflot’s director general, Peter Davis, was discredited after it emerged that he knew that Guy Snowden, chairman of Camelot consortium member Gtech, had tried to bribe Branson into pulling out of the bid for the first licence. The NLC’s appointment of five commissioners was supposed to ensure that no single individual had to bear the responsibility of regulating a highly litigious industry.

Could the process be improved? A Camelot spokesman believes so. He says: “In theory, the concept of five commissioners was a good one, but it worked out less well in practice. What we would like is a process where these things are reviewed. It clearly has not worked, so change it – it can’t stand still. It should be kept under review.”

Meanwhile, the Food Standards Agency (FSA) has come in for criticism, even though it only opened its doors in April with a remit to allay public fears following the BSE crisis and outbreaks of e-coli. Chaired by Sir John Krebs, the agency regulates the food industry, tackling controversial areas such as labelling laws and GM foods. Krebs came under fire for claiming that organic food was a waste of money and for failing to take a stance on GM. The FSA was also criticised for appearing to shift the burden of dealing with false labelling claims on to enforcement bodies, after Nestlé was taken to court by Shropshire trading standards officers and fined for claiming its cereal reduces the risk of coronary heart disease (MW June 1).

Stand up for consumer rights

So how should other marketers approach the regulators? Dr Susan Baker of the Cranfield School of Management says: “The message I am getting is that the regulators are not being assertive enough. They are not putting the rights of consumers before the rights of providers. One has got to look at their internal ways of working.”

For marketers, the message is clear, says Baker: “Know thy regulator. Be aware of who sits on the body and what their views are, and understand the impact it has on your marketing strategy. It’s a very important influence.”

The government has already taken steps to slim down the sprawling regulatory framework. It has combined gas and electricity regulators into one energy super-regulator, set up the FSA and revealed plans to create communications super-regulators. But the jury is still out on whether these bigger entities will serve consumers – and market players – any more efficiently.

It seems unconceivable that the confusion over the 10 o’clock news will influence the direction of the communications White Paper. But the National Lottery Commission has shown that creating effective, credible regulators is easier said than done.

Regulators under Fire

Food Standards Agency (FSA): Opened its doors in April this year with a remit to allay public fears following the BSE crisis and outbreaks of e-coli. Headed by chairman Sir John Krebs, the agency regulates the food industry, tackling controversial areas such as labelling laws and GM foods. Krebs came under fire for claiming organic food is a waste of money and failing to take a stance on GM. The FSA was also criticised for appearing to shift the burden of dealing with false labelling claims on to enforcement bodies, after Nestlé was taken to court by Shropshire Trading Standards officers and fined for claiming its cereal reduces the risk of coronary heart disease.

Financial Services Agency: An independent body, set up as a key plank of New Labour’s economic policy to regulate the UK sector. The FSA board is appointed by the Chancellor and is headed by executive chairman Sir Howard Davies.

National Lottery Commission: Faces widespread calls to be disbanded after being criticised in the High Court for showing unfair and illegal favour to the People’s Lottery’s bid to run the National Lottery. Chairman Dame Helena Shovelton resigned and the body’s future is in doubt.

ITC: Chief executive Patricia Hodgson portrayed the compromise deal with ITV over the 10pm news as a brilliant deal for all concerned. But it now appears it was hastily stitched together to save both sides from facing a judicial review (one of which led to the downfall of the Lottery Commission chairman). It has been attacked by other terrestrial national TV stations over the deal. Hodgson is fighting for her future in a proposed new regulator called Ofcom.

BBC Board of Governors: Headed by chairman Sir Christopher Bland, the board is likely to lose most of its powers under the Communications Act. It disregarded culture secretary Chris Smith’s views on moving BBC1’s Nine o’Clock News to 10pm.

Oftel: Headed by director general Dave Edmunds. Under constant fire for failing to attack BT’s market dominance. Rivals have complained that it has been slow to force BT to allow them to run their broadband services from local exchanges.

Ofgem: The Office of Gas and Electricity Markets was formed in 1999 following the merger of gas regulator Ofgas and electricity regulator Offer. Headed by director general Callum McCarthy, it has helped to introduce competition to these markets and to bring prices down. It is seen as a prototype for other ‘super’ regulators because its remit runs over different areas.

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