BBC Jam Suspension – another obstacle for free for education resources?

In March 2007 BBC's online education service BBC Jam was suspended due to fears that the site is forcing other education providers out of the market. The move came after allegations were made by competing education providers that the site was damaging their commercial interests not permitted under European Commission rules regarding companies which receive funding from the public.

This immediately raised my concerns and interest as this dispute may impact on similar initiatives in other countries and we need to identify whether our national competition law and/or our international treaty obligations raise similar issues that we need to face.

BIG WARNING AND APOLOGIES - this article is likely to be too legalistic for some and naively simplistic to others.

Background
One needs a little background to understand how this has happened
The BBC Jam digital curriculum service is a 'free interactive online learning service for 5 to 16 year olds of all abilities, reflecting the school curricula. Its content is sourced from in-house BBC resources (e.g. from the BBC media archives), new original in-house content and from content commissioned from the private sector. BBC Jam is funded from BBC licence fees (i.e. UK TV licences).

Prior to BBC Jam going live, it underwent a rigorous approval process by the BBC Governors, the UK Department for Culture, Media and Sport and the European Commission. The UK Secretary of State approved the service subject to eighteen conditions and the European Commission cleared the service for launch in October 2003.
These conditions included:
• Capping the amount of BBC television licence fees used for the service to £150m. Any amounts in excess of the cap would have to be referred to the European Commission for further notification;
• Half of the BBC Jam's total content budget (£45m) to be commissioned from independent private sector production companies;
• The service should be distinctive from and complementary to services provided by the ‘commercial sector;
• The BBC and its subsidiaries to be restricted in any secondary commercial exploitation of the materials;
• The BCC would provide third parties unlimited access for companion guides at specified rates and rates of return;
• The BBC would not be permitted to produce resources covering more than 50% of those learning outcomes amenable to being taught by ICT
• The BBC would have to publish its plan as to the subjects to be covered; and
• A maximum of 22% of the BBC's funding for the Digital Curriculum would be spent on 'Core' curriculum subjects ;
The basis of the complaint made to the EC was that BBC Jam 'had not complied with its conditions of consent'.
European Union State Rules
The European Union (EU) has very prescriptive State Aid Rules which broadly aim to maintain a level playing field of competition between Member States in the Common Market. Under these rules, new State aid must be notified to and approved by the European Commission (EC) before it can be put into effect.
The BBC sought EC approval of the BBC Jam scheme under the State Aid Rules on the basis that funding for BBC Jam would come from licence fees and the service would compete with active commercial providers.
The EC held that the State Aid Rules, in particular Article 87(1) of the Treaty, applied to the BBC Jam scheme. However, it also held that an exception under Article 86(2) of the EC Treaty applied.
Article 87(1) of the EC Treaty prohibits the granting of aid by a Member State through State resources where that aid distorts or threatens competition by favouring certain 'undertakings' insofar as it affects trade between Member States.
The EC said that the provision by the BBC of BBC Jam was a prohibited granting of State aid, because:
(a) the BBC Jam service is of a kind also provided by private actors for profit, so it is an economic activity and, as a result, the BBC is an 'undertaking' in respect of BBC Jam; and
(b) the scheme constituted aid, because:
• the licence fees used for its funding are a mandatory measure imposed by the State and, as a result, it is granted by the State or through state resources ;
• it provides an economic advantage, as the 'BBC would enjoy direct, unencumbered access to financing from the State and would benefit from a measure that is not available to other undertakings';
• it is capable of distorting competition by selectively favouring the BBC in a market where there are incumbent commercial players; and
• it will affect trade between Member States.
Article 86(2) of the EC Treaty contains an exception to Article 87(1) in relation to the operation of a 'service of general economic interest', where the operation of Article 87(1) would otherwise 'obstruct the performance, in law or in fact, of the particular tasks assigned to them. The development of trade must be affected to such an extent as would be contrary to the interests of the Community'.
Interestingly, the EC held that BBC Jam qualified for the exception under Article 86(2) of the EC Treaty, because:
(a) it is a service of general economic interest and is clearly defined as such by the Member State;
(b) it was officially entrusted in the BBC by the UK Secretary of State ;
(c) the application of Article 87(1) would prevent the performance of the entrusted service, as the BBC is prevented from charging homes and schools for the delivery of the service; and
(d) there are various mitigating factors which reduce the effect on competition and trade of the scheme and, given quality education is an objective of the EU, 'the Commission does not consider that the State financing of the services in question would affect the development of trade within the Community to an extent contrary to the common interest'.
The complaint was made to the European Union causing the BBC Jam service to be suspended until the complaint has been determined.

What Lessons can we learn?
Although the BBC Jam problem may be specific to the context of the European Union and its laws, we need to be aware that most countries have competition or anti trust laws and those laws that may have similar effects.
I must emphasise that competition or anti trust law is not even remotely one of my areas of expertise but I will try to summarise my very limited understanding of Australia’s competition laws and principles.
Firstly, Australia’s principle of competitive neutrality is
• the elimination of resource allocation distortions arising out of the public ownership of entities engaged in significant business activities; and
• it requires that government business activities should not enjoy any net competitive advantage simply as a result of their public sector ownership
(Commonwealth Competitive Neutrality Policy Statement (June 1996), p7)
The aim is to create a level playing field between private and public sector businesses. This differs from EU State Aid Rules rationale of maintaining a level playing field of competition between Member States in the Common Market. Australia’s competitive neutrality is not intended to improve competition between States.
The Australian Government requires relevant businesses to:
• charge prices that reflect full cost;
• pay, or include an allowance for, government taxes and charges, including GST, payroll tax, stamp duties and local government rates;
• pay commercial interest rates on borrowings
• generate commercially acceptable profits; and
• comply with the regulations that apply to private businesses.
To be classified as a 'business activity' for the purposes of competitive neutrality:
• there must be user-charging for goods or services…;
• there must be an actual or potential competitor…; and
• managers of the activity have a degree of independence in relation to the production or supply of the good or service and the price at which it is provided.

In Australia there are a number publicly funded organisations providing free for education resources to Australian school children and to the Australian public. Although I am no competition law expert, I don’t think Australia has such broad restrictions preventing publicly funded organisations from providing similar free for education resources to school children.
As all of these services are free they are unlikely to constitute a business activity. Plus even Australia’s Commonwealth Competitive Neutrality Policy Statement (June 1996), states that “Many government programs continue to be provided by means of direct budget funding – these activities will not be subject to competitive neutrality arrangements as there is no user charging or competitive service provision.”

But I could be wrong !

The current situation with BBC Jam provides a good warning that competition law and/ or international treaty obligations may impede international development and acceptance of creative commons licences and sharing of publicly funded resources. Time to recruit some competition/anti trust law and international law experts !!!

tags: Australia education summit07

extracted from: