Public service broadcasting is one of those issues which, the moment it is raised, almost inevitably becomes a focus for shroud-waving critics or flagwaving fans of the BBC. Any sensible debate must put prejudices aside. Instead, the discussion should start with a simple question: what kind of broadcast media best serve the public? The answer is those that are free, competitive, innovative, responsible and diverse.

Ofcom, the media regulator, issued a report yesterday that set out to answer a different question: what should be done with £150 million a year in licence fee money that is currently being used to fund the digital switchover but will be available when that process is complete in 2012? It has, broadly, three answers. One is to give it back to the BBC. The second is to give it back to the public. And the third is to parcel it out to the old terrestrial broadcasters that have public service remits.

Ed Richards, the Ofcom chief executive, seems to be leaning towards the third. Ofcom is signalling that ITV1, Channel 4 and Five face a financial squeeze that will make it increasingly difficult for them to produce “public” programming such as children's TV, documentaries and regional news. Without some kind of intervention, it cautions, the BBC could become a monopoly for such programming. The financial picture is certainly bleak. Over the past five years, as viewers have migrated to digital channels and the internet, audiences for the main channels have fallen by 17 per cent. Revenues are down. Once digital switchover is complete, the implicit subsidy that those channels receive from free spectrum will also disappear. Ofcom believes that entertainment, drama and sport will remain profitable, but points to a drop in children's programming to argue that without changes in the funding of public service broadcasting, the range of output will narrow.

There is a danger, however, of overstating the problem. Parents are not short of children's channels to turn to in the digital world. ITV's proud history of regional news surely makes it unlikely to disappear altogether.

The bigger issue, though, is whether Ofcom wants to expand the culture of public subsidy in the media. Making more broadcasters more reliant on public funding will hardly help to make the media industry more free, competitive, innovative, responsible and diverse. Another industry of mind - book publishing - has flourished in Britain driven by human ingenuity and market forces. As the lines between broadcasters, website operators and mobile content providers blurs, it is also unclear why the incumbents of the terrestrial television age should be entitled to public funds and not start-up content companies that are producing video and audio online. Ofcom could not reasonably be expected to allocate funds programme by programme, so they would just become lump-sum annual payments to a handful of existing broadcasters. And it is not clear that, just as they wean themselves off state support in the form of free spectrum, it is in the interests of ITV1, Channel 4 and Five to become dependent on a new form of public funding.

Ofcom is right to initiate this debate. But sharing the licence fee makes little sense. Further distortions of the media market would be unmanageable, inequitable and entirely unnecessary.