A PUBLICLY funded competitor to the BBC is needed to maintain television standards in the digital age, the communications regulator Ofcom said yesterday.

The new broadcaster, which would have to be created by the Government, would produce only “public service” television — typically news, arts, regional and religious programming — and would have a budget of about £300 million a year. It could be funded by the taxpayer, or a general increase in the licence fee of about £12 a year.

Stephen Carter, the chief executive of Ofcom, said that the creation of a new broadcaster was a response to mounting pressures on ITV and Channel 4, which are losing audience to the hundreds of channels available on cable and satellite systems.

Traditionally ITV, Channel 4 and Five have been saddled with obligations to produce public service programmes, which cost £430 million a year. But as television audiences fragment, the commercial terrestrial broadcasters will, Ofcom believes, find it increasingly difficult to justify the extra investment.

“If we do nothing, there will be less public service broadcasting and our research shows that people don’t want that,” Mr Carter said. “We could ask the BBC to do more, but asking a very large provider to get bigger does not seem like a good solution.”

Ofcom’s idea is to create a new broadcaster, a not-for-profit organisation that would compete head-to-head with the BBC in producing high-value programming at a cost of up to £200,000 an hour. A budget of £300 million a year would make it much smaller than the BBC, which has a television budget of £2.4 billion.

The new broadcaster, described by Ofcom as a “public service publisher” could opt to create a new Channel Six or, more likely, would place programming on existing channels. It could also make content available over the internet and even on mobile phones. However, while Ofcom wants to create a rival to the BBC, the corporation otherwise emerged essentially unscathed from the review. Ofcom endorsed the existing licence-fee funding model and said that it had no plans to recommend a “top-slicing” of the £121 licence fee to fund the new broadcaster, the option most feared by BBC bosses.

Michael Grade, the BBC Chairman, said that he welcomed the proposed new competitor, arguing that greater choice would be in the interests of viewers. But he rejected Ofcom’s idea for a supplement to the licence fee as a means of funding it. “We don’t want to see the line between the BBC and the licence fee-payer blurred. Adding to the fee is going to confuse people,” Mr Grade said.

Elsewhere, scepticism was more pronounced. Greg Dyke, the former BBC Director-General, said: “It’s hard to make the case that a further £300 million of public money should be made available for public service broadcasting beyond the licence fee.” He also said that the new station could struggle to find its target audience. Mr Dyke said: “Launching new channels is expensive and you need to spend an awful lot of money marketing them.”

Technically Ofcom has only limited powers to regulate the BBC, which mostly oversees itself, although any of its conclusions will feed into the debate about the renewal of the corporation’s charter in 2006. However, Mr Carter did fire a warning shot in Mr Grade’s direction, calling on the BBC to reform its system of governance by ensuring “a very clear distinction between their governance and regulatory responsibilities”.

He added that one option for reform could see Ofcom given greater responsibility over the BBC. In response, Mr Grade said he did not think that Ofcom intervention was necessary, pointing out that he was already planning to reform the BBC’s governance, which has been severely criticised since the Hutton inquiry. “We are critical ourselves of the way we are governed. Stephen Carter and Ofcom have every right to contribute to that debate,” Mr Grade said.

Other broadcasters privately questioned whether the plan had a viable funding model, arguing that the Treasury was unlikely to support the provision of further public funds and that people would be unwilling to see a hike of just over 10 per cent in the licence fee.

Ofcom also said that the new broadcaster could be funded by a “turnover tax” on the existing channels, although any such plan would run into fierce opposition.

Mr Carter conceded that the idea was an “outline proposal”, which would require the approval of the Government, new legislation and several years to develop. But Ofcom hopes the new broadcaster will be in place by the end of 2012, when it is currently expected that the traditional analogue television signal will be turned off, forcing all households to adopt some form of multichannel digital services.

The management of the new broadcaster would be decided after a competitive bidding process. Ofcom said that it would want to encourage applications from new and existing broadcasters and even non-broadcasters, such as mobile phone companies. Only the BBC would be excluded. “We want bids from Channel 4, from BSkyB, from Orange, from anyone,” Mr Carter said.

Elsewhere, Ofcom ruled out a future privatisation of Channel 4, for which it is directly responsible, but said that the channel was free to pursue alliances and mergers with rivals, including a possible tie-up with Five, formerly Channel Five. Future public funding for Channel 4, which has no direct government subsidy, was also ruled out.

Ofcom will make a final decision at the end of the year. While its proposals for the BBC are only advisory, it has the final say on the regulation of ITV, Channel 4 and Five.

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