As part of its findings, the Trust agreed the following sanctions:
No further increases in investment levels for Bitesize, Learning Zone Broadband and the Learning Portal will be considered until the Trust has completed a competitive impact assessment on developments to Bitesize, Learning Zone Broadband and the Learning Portal since 2007; and
By January 2010, the Executive must report to the Trust on proposals for improving the level of engagement with the wider industry on new service developments.
The Trust has now considered both the Trust Unit's competitive impact assessment and the BBC Executive's industry engagement proposals and is today publishing its findings in these areas.
Competitive Impact Assessment
In recognition of the BBC's special position as a publicly funded organisation, the BBC's Royal Charter and Agreement with the Department of Culture, Media & Sport place specific obligations on the BBC Trust and BBC Executive Board in respect of Fair Trading.
The BBC's primary purpose is the promotion of its Public Purposes as set out in the Charter. It achieves this primarily through the provision of radio, television and online services that inform, educate and entertain. The BBC also conducts other activities that directly or indirectly promote its Public Purposes, including the provision of Commercial Activities.
The BBC recognises that its activities may have an impact on competition in the markets in which it operates. As a publicly funded organisation it has a special responsibility to ensure that whenever it engages in Trading Activities, whether public service or otherwise, it does so in a way that reflects its commitment to Fair Trading and does not compromise achievement of its Public Purposes.
The Trust is required to have regard to the competitive impact of the BBC's activities on the wider market. It seeks to do this through its Statement of Policy on Fair Trading, its Statement of Policy on Competitive Impact and its Competitive Impact Code.
The BBC Trust requires the BBC, whilst always ensuring the fulfilment of its Public Purposes and taking into account its other obligations in the Charter and the Agreement, to endeavour to minimise its negative competitive impacts on the wider market. This requirement is known as the Competitive Impact Principle (CIP).
The CIP does not necessarily require that the BBC should eradicate all potential negative impacts of its Public Service Activities. The BBC adopts a proportionate approach to the CIP assessment taking into account the size and scale of the activity concerned and the particular circumstances. The level of analysis and supporting evidence that is required will vary depending on the context.
The Trust's finding in the BESA fair trading complaint required the Trust to conduct its own retrospective competitive impact assessment on developments to Bitesize, Learning Zone Broadband and the Learning Portal since 2007.
The purpose of this was to inform the Trust's final decision as to whether the BBC Executive's failure to conduct its own competitive impact assessment on developments to Bitesize, Learning Zone Broadband and the Learning Portal since 2007 had any substantive effect.
The CIP assessment consists of three steps:
Assessment of Fulfilment of Public Purposes
Assessment of potential market impact
Endeavouring to minimise negative competitive impacts
The Trust commissioned consultants FTI to produce a report following this approach, where possible, while applying the competitive impact principle retrospectively, in contrast to its normal application.
FTI's report firstly gives an overview of the market in which the BBC operates and then secondly conducts a stand-alone, independent and retrospective competitive impact assessment in relation to developments to Bitesize, Learning Zone Broadband and the Learning Portal since 2007.
Informed by FTI's report, the main findings of the Trust are as follows:
Have Bitesize, Learning Zone Broadband and the Learning Portal delivered against the Public Purposes?
FTI assessed whether Bitesize, Learning Zone Broadband and the Learning Portal delivered against the public purposes. The Trust considers that the evidence clearly demonstrates that both the offerings as a whole, and the changes made since 2007, delivered against the Public Purposes. The offerings made use of licence fee funding to provide educational material and to improve these materials to ensure they continued to be relevant and current to users. The Trust believes that the improvements over the assessment period were in line with what users would expect given wider developments in web technology and the evolution of the curriculum. The BBC made these changes to ensure that the resources continued to be of use and relevant to those involved in education.
Did the offerings have a market impact?
The BBC to some extent increased the costs to others in the market of providing matching products. Developments made Bitesize in particular more relevant for use in schools to ensure it continued to deliver against the Public Purposes and was used by students (and therefore was incrementally more competitive with commercial products). This suggests that changes in the relevant activities did have some competitive impact; although this competitive impact cannot be considered as the only factor affecting development of the market.
What steps could the Executive have taken to minimise any negative market impact?
It is not clear that there is a great deal that the BBC Executive could have proportionately changed about the relevant activities in order to minimise the impacts outlined above without compromising delivery against the Public Purposes. One potential approach that could have reasonably been considered at the time, and which may have led to some reduction of negative competitive impact, would have been improved communication with the commercial sector. This could have gone some way to reducing their investment risk, created by the uncertainty of a lack of knowledge of planned provision of public service content, free at the point of use, in their markets. In relation to Learning Zone Broadband in particular, more consideration could have been given to developing a way of working with the commercial providers to enable some form of syndication of BBC content.
The Trust's findings are based on a retrospective competitive impact assessment, which has enabled us to consider evidence that would not have been available to the Executive had they carried out such an assessment before changes were made to the BBC's activities. Had the BBC Executive conducted such an assessment, the Trust believes it is unlikely that significant changes would have been made to the BBC's activities due to the degree to which this would have compromised the delivery of significant public value. The Trust has therefore concluded that, while the BBC does have an impact on the formal learning market, the Executive's failure to conduct its own competitive impact assessment on developments to Bitesize, Learning Zone Broadband and the Learning Portal since 2007 did not have a substantive effect.
In reaching its view, the Trust has also determined the most appropriate way for the BBC to address distinctiveness in the context of a competitive impact assessment. In general, the Trust encourages the BBC to produce distinctive content for all its services. In its original finding, the Committee considered that BESA's allegation of a lack of distinctiveness in this instance was actually meant as a more specific allegation that BBC formal learning content was so similar in nature to that of the individual members' content as to imply a failure on the BBC's part under the Competitive Impact Principle. This interpretation was based on the BESA members' submissions to the Trust Unit, which were focussed on fair trading matters rather than editorial issues.
The Committee therefore considered that it was not appropriate to come to any separate determination on the allegation that the service was not distinctive. Instead, the Committee considered that this part of the complaint was more appropriately determined through the review of BESA's allegations in the context of the implementation of the CIP (as referred to above).
In the context of assessing competitive impact, the Trust's view is that the extent to which the BBC's services are distinct is only relevant in assessing the degree of interaction and substitutability between the BBC's formal learning activities and those of commercial providers. Distinctiveness, or a lack of it, does not automatically translate into market impact.
Guided by this, FTI considered to what extent the BBC could be providing for free a direct substitute to what the commercial sector can only provide as a paid for service, and the degree to which this could have had a negative impact on the market. On this specific issue, they found that the evidence available indicated that the presence of the BBC on the relevant market is having a negative competitive impact, but it is likely that this impact is combined with a number of other effects and is not substantially removing all competition from the relevant markets. They also found evidence that a commercial provider can expand in the current market.
Improving the level of engagement with the wider industry
In its consideration of BESA's original fair trading complaint, the Committee examined the allegation that the BBC Executive had failed to engage in meaningful or trustworthy communication with BESA or its members.
The Committee determined that communication between the BBC and BESA members was indeed a problem area and appeared to have been so for some time. This finding was supported by evidence from discussions the Trust Unit has had with other industry bodies and government departments with an interest in this area.
The Committee therefore considered that the BBC did not engage sufficiently with the wider industry concerning its new developments.
FTI's subsequent work has found that, although unlikely to have a substantive effect, the emphasis placed by the BESA complainants on the lack of warning about BBC developments and detrimental impacts of the uncertainty which the relevant activities create does suggest that these mitigating actions would have had some effect however in increasing the ability of commercial providers to invest and innovate.
The Trust therefore remains of the view that the Executive should seek to better engage with industry in this sector. We are keen to see BBC Formal Learning operate in a more open and transparent manner, sharing its future plans with industry.
In response to the Trust's original finding, the BBC Executive has now proposed a number of ways in which engagement with the wider formal learning industry might be enhanced.
Following discussion of these proposals, the Trust has now agreed that the Executive should adopt the following approach:
Objectives of engagement
Engagement with the industry should meet the following objectives:
give information which might be helpful in providing more certainty for companies in planning their own investment;
be more transparent about BBC Learning's activities, plans and spend in the market;
cultivate an atmosphere of openness after a period of suspicion and hostility;
find appropriate opportunities for partnership;
offer an open playing field to all – whether members of BESA, PACT or neither group.
Specific changes in approach
A number of specific changes were proposed by the BBC Executive which the Trust has endorsed:
As part of Controller Online's engagement with industry, BBC Learning will hold meetings with companies with a specific interest in learning content. These meetings will be held twice a year alongside (i.e. approximately at the same time as) Controller Online's general Open Days, and will be open to all interested businesses. The meetings will allow BBC Learning to discuss its performance over the previous period (e.g. sharing market research data) and its headline plans for the coming period. BBC Learning will publicise the meetings in advance on relevant parts of bbc.co.uk.
In addition, Learning will have a specialist presence at Knowledge commissioning meetings for independents (again, starting in 2010 after the completion of the strategic assessment). These take place three times a year and focus solely on content commissioning.
Management will include each year in the Statement of Programme Policy for BBC Online the key challenges and priorities for online formal learning, distinguishing between priorities for under-19s and other users. At the same time, BBC Learning will publish online more detail on what this means for the development of elements of the portfolio in the coming year, and any opportunities for partnership which might exist around these.
Before the beginning of each financial year, BBC Learning will publish online:
A breakdown of the headline Online Formal Learning Annex budget into (a) spend on under-19s elements and (b) adult and other formal learning spending plans;
A comparison between these two figures and projected outturn in the previous year;
An indication of the broad areas across which any planned increase, or significant reallocation, in the spend for under-19s formal learning will be targeted.
BBC Learning will also publish audited figures for spend outturn after the end of each financial year, possibly at the same time as the publication of the Annual Report and Accounts.
BBC Learning will make much more of their research data – both market and academic – publicly available. This will be planned in discussion with the BBC's Media, Communications & Audiences department, who are looking at creating a portal for sharing research and performance data more widely. The intention from Learning would to provide information which could form the basis of discussion at the twice-yearly industry meetings.
BBC Learning will seek opportunities for joint working with others in the industry, where appropriate (and beyond, of course, independent content commissioning which is a separate and continuing stream of activity). Learning will tie this in with BBC Online's broader approach to developing a new supply strategy. There may, however, be other Learning-specific areas of joint working. For example, there could be potential for collaboration over academic research into the effectiveness of interactive learning resources on children's motivation and educational achievement, an area where the BBC believes there are gaps in knowledge and where research could deliver public value.
We expect the objectives of engagement and the specific changes to be made as a result to be developed as discussions with industry progress and it becomes clearer how best the BBC can take forward its relationships with different parts of the industry.
The BBC has sought to address a very specific set of circumstances in formal learning with a tailored response. While the ongoing Strategic Review will limit what can take place over the next few months, in the long term we expect that these measures will address the issues raised around communication and engagement.
In light of both the Trust Unit's competitive impact assessment and the proposals agreed with the Executive around engagement with industry, we now consider our work around BESA's complaint to be complete.