ITV says "jump", OFCOM ask "how high?"

No - it's really the same thing. There's always going to be some process of allocation - the spectrum is a scarce resource which has multiple potential uses. If you auction the spectrum off without conditions imposed directing how it must be used, then it will be allocated to those purposes which generate the greatest value.

Though "greatest value" is a difficult thing to define? Is it greatest amount of cash returned to the exchequer? How do you measure non-monetary value - such as public service, universality of gain etc.?

If you're only able to see things in absolute economic terms, you don't. Public service and universality of gain appear to be incompatible with "winner take all" ethics.

A discussion Mr Q and I seem to be having a lot.

"Value" is reflected in the returns to investment on the asset (in this context, the spectrum). If we have two possible options for generating value out of the asset - X and Y - and X can achieve revenue of $100 and Y can achieve revenue for $150, then the provider of X would be willing to pay up to $100 to obtain the asset, and the provider of Y would win in an auction by paying at least $100.01. The revenue that X and Y can achieve reflects the society's preferences - the revenue here is dependent on what consumers are willing to pay for the good (that is, if they don't value it, they simply won't buy it).

Of course, when we're talking about the spectrum, we have multiple sets of frequencies in the spectrum which can all used in different ways. Hence our auction would involve multiple firms with multiple different purposes. But the point remains the same: those firms that can achieve the most value - which itself is reflective of consumers' preferences - from their intended uses of the spectrum will be the ones who win in an open auction.

To my mind, it is unlikely that in such a scenario the spectrum would end up being allocated to purely one purpose - the more suppliers who provide one type of service, the more likely it is that each will enjoy less total revenue. By contrast, the fewer suppliers of a service, the more likely it is that each of those suppliers will enjoy higher revenue. There is a process of equilibrating prices and quantity across all the different possible uses of that spectrum, in much the same way that markets are able to use a variety of different inputs for different purposes in different production processes.

With respect of equity arguments - "universality of gain" - that can be addressed through specific government subsidies in order to give preference to certain options. However it is unclear where the equity arguments apply when we're talking about, say, free-to-air TV (a service consumers don't directly pay for - advertisers do) or mobile telephony where, to the best of my knowledge, special favour isn't generally extended to poor people anyway.


You're misrepresenting my position. I've not said anything to support a "winner takes all" approach - that would imply the spectrum would only be used for one purpose, which I don't necessarily think would be the outcome in an open auction. I reasonably expect you would still see the spectrum used for providing an assortment of services - TV, mobile telephony and so on. To my mind it doesn't require a regulator or government to dictate how the spectrum should be divided to provide different services - I think the market is more than capable of achieving the same outcome.

As for issues of "public service" or equity: I've got no problems with genuine "public service broadcasting". I do have a problem with taxpayer-funded broadcasters actively competing against commercial networks. The BBC does a tremendous job in providing different public services. It's international reputation is certainly justified in this regard. But there's no denying it is also a fierce competitor to commercially funded networks. As I've argued before, when it competes against the likes of ITV or Five for the rights to import hit US programming or Australian soaps, it is not serving the public interest. It is only increasing costs to all British broadcasters to air content that would still find a home on British TV in the absence of the BBC. That is hardly "public service".

I don't think I'm misrepresenting your position at all - left to the open market (i.e. highest bidder), the spectrum would almost certainly be filled with large corporations with deep pockets seeking a return on their investment.



You're neither a British TV viewer nor licence fee payer, so I find it difficult to absorb your personal discomfort with the current model.

Other than Heroes I cannot think of another example of a primetime US import on the BBC. And even then, they got it at a knock down rate in return for producing and showing the satellite fan show based on Heroes.

They let Five outbid them on Neighbours, so you Aussie soap issue is also moot.

There are examples, of course, where the Beeb show or produce programmes which could sit on a commercial station (ultimately where many of them live on in reruns, bringing money back to the corporation), but that's because its remit is also to "entertain", not just "inform".

I'll say it again - if you want nothing but PSB programming we'd end up with PBS - and no one who lives here wants that, Mr Q.

As opposed to the current system which is dominated by 'mom and pop' small businesses. Oh wait...


Obviously I couldn't possibly know what I'm talking about because I don't live in the UK. Of course I'm sure Gavin that you've never thought to pass a comment on, for instance, US politics.


Not simply TV shows though Gavin - movies as well.


They let Five outbid them? If that were truly the case, the BBC would not have been bidding at all. I don't believe that was the case though. If they were bidding against Five, this would have pushed up the price that Five would have paid for the rights. This goes back to my point - when the BBC bids against commercial rivals for content it pushes up the costs for British broadcasters. Should taxpayers money be used to increase the costs of private sector firms? I wouldn't have thought that delivered good value for money.

But then, as you point out Gavin, it's not my tax dollars that are being wasted, so what would I know?

No, I was referring to a regulator allocating portions of the spectrum based on more than financial return, as opposed to your "let the market sort it out" view.



I am saying that if you experienced the BBC as we do, instead of purely running numbers, then your view may be different.



Name one movie which has been aired on the Beeb that hasn't been on DVD for 24 months. Christmas time is the only time you'll see one or two "big" movies on the BBC.



They offered their bid, and weren't prepared to be held to ransom, and so Five won it. They could have bid more but didn't.



That's right, its not. Its my tax pound and I think the mix of PSB and commercial free entertainment and drama is good.

Clearly you know many things. I just don't hold those views - all I am saying is that my perspective is closer to the source than yours.

Hmm - not sure you understand the UK broadcasting environment that clearly, nor the process of renewing shows.

The BBC had a long-running deal with Fremantle/Grundy, who made Neighbours, working closely together on storylines etc. for many years. As part of this, the BBC had first refusal on continuing to show Neighbours, and thus an exclusive period of re-negotiation at the end of each contract period.

The BBC began re-negotiating with Fremantle and it became clear that Fremantle wanted a significantly increased payment for the show.

Negotiations continued, initially just between the BBC and Fremantle, within the exclusive window.

Once the exclusive period of negotiation expired, Fremantle were able to start negotiations with other broadcasters, who they thought were prepared to pay more for the show. I believe Fremantle were talking to both Five and ITV, and when it became clear that the price was going to remain more than the BBC were prepared to pay, the BBC pulled out of negotiations.

Five paid more than the BBC were prepared to, they got the series.

It wasn't a straight bidding process initially - it seldom is.

That is a narrow view of value though - based purely on financial gain, not including social, cultural, educational and other returns that certain uses of spectrum can deliver.

I'm not saying that broadcasting is unique - universal mid-speed broadband provision could also have huge benefits in bridging the digital divide - but that defining "value" in purely monetary terms is not a universal opinion.

Some countries have adopted this model - but by no means all. Many still have the concept of "Public Service" being of value to society and the population as a whole.

There is widely - though I agree not universally - held view that the market doesn't always provide the best solutions in all situations.



Free to air services aren't universally advertiser funded in many countries. In fact in most countries FTA services are often funded by a mix of advertising, licence-fee, direct taxation and government subsidy, with various mixes being used in various countries on various channels.

The US is relatively unusual in having a very weak PSB offering and a strongly commercial FTA operation. Other countries have different broadcast models, and don't regard the US commercial model as a particularly good "value" service for the public.

I'm sorry Gavin - and I say this respectfully - that's rubbish. If I was agreeing with your point of view, I strongly suspect you wouldn't be saying that. If anything, you'd be suggesting that I'm an objective and independent party, and that my views carry more weight than a direct beneficiary. Because there is a divergence of opinion though, the implication of your statement is that I clearly don't know what I'm talking about. And frankly, I don't appreciate that.


First of all, just because it's happening at Christmas makes no difference in my mind. The issue is that it's happening at all. I don't believe it's a justified use of taxpayers money. Again I ask the question, why should taxpayers foot the bill for something they're going to be able to see anyway? What benefit comes from that?

Secondly, DVDs still essentially compete in the same broader market as the BBC does - entertainment, in this context. When the BBC airs blockbuster movies, it means that some people - admittedly we're only talking at the margin here - might be less inclined to buy or hire the DVD of it. It's somewhat more indirect, but we are still talking about substitutes for at least some consumers.


I appreciate the clarification noggin. I wasn't aware of the details behind the process in this case. I would still suggest that the incumbency benefit enjoyed by the BBC would have given Fremantle scope to pursue a higher price for the rights. However that is hard to validate - obviously we can't compare what actually happened to a hypothetical situation where the BBC wasn't involved at all. Certainly though I would expect that the fewer potential buyers there are for a product, the likelier it is for the eventual price to be lower. Market power can accrue to buyers to the same degree that it can sellers - we just don't tend to think about it as much.


And I'm happy to accept that there can be 'public service' benefits arising from the use of the spectrum. I'm happy for the government to provide services that the market wouldn't. Yet that's somewhat different from having the government directly regulate how the spectrum is divided.


I absolutely accept that the market isn't perfect. It is certainly subject to failures. Again I make the point that broadcasting is one area which is subject to such market failure - commercial operators won't provide all possible services, because some simply aren't profitable. Hence you have government providing some types of programming that wouldn't otherwise air. That's a "public service" provision.

The question though is whether the government achieves better outcomes than the market would be capable of. Many of the very problems that people think to identify in free markets are also applicable to government as well. Yet these are often ignored. I tend to think that many in the community view government in an idealised setting, mistaking what they think government should do for what it actually does.

I don't advocate free market capitalism because I like super-rich investors in the world's financial capitals lining their pockets off the blood, sweat and tears of the working classes. I certainly respect the fact that some people see outcomes that they consider undesirable. My concern is simply with the ability of the government to actually make things better. As former US President Reagan once remarked, the 9 most feared words in the English language are "I'm from the government and I'm here to help".

The majority of politicians and bureaucrats do not act out of some altruistic sense of responsibility to pursue the 'greater good'. Policymakers are human beings just like the rest of us, and are subject to the very same sorts of incentives that we are. Their primary incentive is to maximise their power. The typical politician wants to win elections - that's how they keep their job - and will spend money in whatever way they need to in order to secure the required number of supporters. Bureaucrats in general want to maximise their budgets to boost their profiles and reputational prestige. The more work they create for themselves, the more secure their job is.

This all might sound deeply cynical, and I readily admit is not applicable in all cases. Nor do I mean it to be an insult to those working as politicians or bureaucrats - indeed, those incentives can present their benefits. However it is the presence of those incentives which means that we shouldn't immediately trust that policymakers will actually correct problems that we might identify in the market. Indeed, government has a tremendous ability to create more problems than it actually solves.

To bring this right back to the point I was originally trying to make, the current practice is for government to direct that certain portions of the spectrum are used for specific purposes. They are allocating that particular 'input' (to the extent that it is used in the production of different services) according to their own subjective assessment of how it should be distributed. Why do we assume that would be optimal? Why should we think that government is better placed to distribute spectrum for different purposes - television, radio, mobile telephony, etc. - than the market would be if it were auctioned off without condition?

Markets are very efficient at allocating all manner of resources to different purposes. It's one of the earliest insights we share with our first year economics students. To quote from a 1983 text by Alchian and Allen:

"Food is grown, harvested, sorted, processed, packed, transported, assembled in appropriately small bundles, and offered to consumers every day by individuals pursuing personal interests. No authority is responsible for seeing that these functions are performed and that the right amount of food is produced. Yet food is available everyday. On the other hand, especially appointed authorities are responsible for seeing that such things as water, education, and electricity are made available. Is it not paradoxical that in the very areas where we consciously plan and control social output, we often find shortages and failure of service? References to classroom and water shortages are rife; but who has heard of a shortage of restaurants, churches, furniture, beer, shoes, or paper?"

The point here is that central co-ordination is not all it's cracked up to be. While I accept the market won't provide all goods and services, I happen to believe it is capable of providing more than what many in the broader community would think about. When I discuss things in an economic framework - and occasionally go overboard while doing so - I do it to challenge the preconceived notions that many people hold about how the world works. I don't presume to know everything or hold all the answers. But when I see a problem, I think it's worthwhile to draw attention to it - even if others disagree.

It sounds to me like Mr. Q thinks the only non-commercial (i.e. non-profitable) television services we ought to have are 'state run' services - of which the BBC is NOT one; I mean in the same guise as "Russian State Television" and "Iraqi State Television".

A country where the government run the only non-commercial broadcaster, and not only that, don't regulate it, is one in which I would feel very uncomfortable in living.

Mind you, the UK isn't doing particularly well in that regard anyway. But making the BBC become a charity-like presence who can only hope to (and be allowed to) produce the kind of material that no majority audience would possibly want to watch (because in Mr. Q's model, anything that pulls a majority audience must, by definition, be being provided by the free market and the BBC/'state broadcaster' should be kept out), then the BBC wouldn't be able to justify itself at all. Because every analysis would indicate that 'nobody is watching'.

There is a difference between state-funded and state-run, and it is indeed worrying when you think about how such forcefully-put and academically-worded arguments manage to miss that fundamental point - which to some audiences (say, working as a consultant to media executives or a Commons Select Committee) could have the dangerously subliminal effect of 'adding weight' to the argument that social and corporate responsibility have no place in the modern media marketplace.

Yep - many assume "State Run" is the same as "State Funded". One of the key ways that differentiates the BBC from such state-controlled operations, is that whilst the state sets the funding model for the broadcaster, in a form similar to a tax (though not the same - as it is not collected by the state), the Royal Charter and the licence-fee settlement is not an annual mechanism, but is once every 5 or 10 years, and the inertia that this brings, combined with a charter that enshrines editorial independence from funding, and restricts any attempt at government control.

Many other PSBs have similar arrangements, though some aren't fully funded by the licence-fee, as some have populations to small to fund via this model.