Television phone-ins have been the subject of much controversy in the past year. The BBC suspended senior members of staff while it investigated incidents relating to Blue Peter and resignations have followed. The director of GMTV's phone-in competitions, Paul Corley, resigned in July when GMTV admitted that its quizzes were not being conducted fairly. Channel 4 announced that it would no longer make a profit from running premium-rate service (PRS) competitions. This has led to Ofcom and The Independent Committee For The Supervision Of Standards Of Telephone Information Services (ICSTIS – now known as Phone Pay Plus (PPP)) coming into the limelight and their powers of intervention and interplay being tested.

Ofcom is the independent regulator and competition authority for telecoms pursuant to the Communications Act 2003. It has two over-arching duties contained in section 31 of the Act: furthering the interests of citizens, in relation to communications matters, and furthering the interests of consumers in relevant markets by promoting competition.

All broadcasters in the UK must hold a licence from Ofcom and comply with the Broadcast Code also issued by Ofcom pursuant to section 319 of the Act. In addition to other sanctions such as revoking licences in extreme cases and requiring broadcasters to broadcast the results of Ofcom's findings, Ofcom may also impose a fine for breaches of the code of up to £250,000. Commercial broadcasters can be fined up to 5% of their qualifying revenue. This occurred recently when GMTV was fined £2m and, in the Blue Peter competition case, when the BBC was fined £50,000.

The GMTV fine, which is the highest in Ofcom's history, was handed out because many viewers who entered GMTV's PRS competitions had no chance of winning. For four years, finalists were chosen before lines closed, which meant that all viewers who called afterwards wasted up to £1.80 a call. This was a breach of section 2.11 of the Broadcasting Code which states: "Competitions should be conducted fairly, prizes should be described accurately and rules should be clear and appropriately made known."

During this period, GMTV's revenues amounted to more than £63m. GMTV has now introduced a new code for PRS competitions. It has overhauled its competition system and terminated its contract with telephone operator Opera.

Ofcom said the breaches constituted a substantial breakdown in the fundamental relationship of trust between a public service broadcaster and its viewers. Ofcom stated further that there was no audit of Opera's processes and procedures by GMTV's management, or its board, and there also appeared to have been no assessment of any risks associated with the conduct of these competitions at any point. Rather, the evidence was that GMTV had focused heavily on the contribution that the PRS competitions made to its revenues and profitability, while paying comparatively little attention to its compliance responsibilities. It stated that GMTV's disregard for the need to operate any reasonable compliance procedure was gross negligence and that the financial penalty would have been higher if GMTV had not taken extensive steps to remedy the consequences of the breaches.

Meanwhile, Blue Peter had faked the winner of a phone-in competition and then repeated the programme later on the channel CBBC. A caption advised viewers that phone lines had closed but further calls were still received. The BBC was fined £50,000. A fine on the BBC is serious, as it comes out of licence payers' money, so this case suggests that Ofcom considered the breach to be severe. Blue Peter was subsequently in the news again for misleading viewers with respect to a vote to name the show's cat and a producer has been dismissed for gross misconduct. Furthermore, BBC 6 Music's head of programmes, Ric Blaxill, has resigned after two instances of fictional competition winners on his station were revealed. Further breaches of the BBC's guidelines were reported on its website.

PPP regulates the content, promotion and overall operation of premium-rate telephone services through its Code of Practice also issued pursuant to the Act. Where the code has been breached, PPP has powers to fine companies (up to a maximum of £250,000), bar access to services and order refunds. PPP can also bar the individual person behind a company from running any premium rate services under any company name on any telephone network for a set period.

In the recent Eckoh case, ICSTIS chose not to bar the telephone service provider for six months, but did impose a fine of £150,000. It also required Eckoh to make refunds. Eckoh provided premium rate services for a phone-in competition on the Richard & Judy TV show and provided shortlists of potential winners before lines were closed so many callers had no chance to win. ICSTIS found that Eckoh was in breach of paragraph 5.4.1A of the code, which states that services and promotional material must not mislead or be likely to mislead in any way. Similarly in the Channel 4 quiz show, Deal or No Deal, ICSTIS fined telephone service provider iTouch £30,000 for breach of the Code.

Following the furore of these types of competition, Ofcom launched an inquiry into PRS. The Ofcom inquiry carried found that there had been a 'systemic failure' in the way TV channels have run PRS. The inquiry found that broadcasters were 'in denial' about their responsibilities to viewers and saw phone-ins as a way to generate revenue. In particular, that:

l compliance failures were systemic;

l there was an apparent lack of transparency through the supply chain between telecoms operators, producers and broadcasters – resulting in a lack of clarity about responsibilities;

l there was a lack of clarity between the regulators, Ofcom and ICSTIS;

l broadcasters had not appreciated that, by charging viewers for participation, this may lead to a direct contractual relationship, the implications of which broadcasters had not taken into account.

The inquiry concluded that broadcasters must be made directly accountable for their use of PRS and makes recommendations to the Ofcom Board, including:

l amending TV broadcasters' licences to include requirements for consumer protection in relation to PRS and independent auditing of PRS activity;

l issuing guidance on the Broadcasting Code and licence conditions to implement measures to minimise lost or wrongly-charged entries; ensure fairness in competitions and transparency in pricing.

Ofcom has now published its own proposals following the inquiry and is consulting on a range of options. The main points of the consultation are:

l Broadcasters should be directly responsible for 'participation TV' (PTV) compliance through the supply chain and Ofcom intends to facilitate this by varying broadcasters licences.

l There should be a system of audit, including independent oversight or verification. There are three options, either (i) regular verification with reporting on request; (ii) regular verification; or (iii) regular reporting and detailed audit.

l Ofcom has also suggested options for the way in which PTV should be classified and has regulated either as editorial or as advertising. The latter option would mean that the Advertising Standards Authority would have jurisdiction to consider complaints. This could depend on the result of the Austrian Federal Communications Board, which has referred two questions to the European Court of Justice on the interpretation of the meaning of 'teleshopping' and 'television advertising' under the Television Without Frontiers Directive.

l Ofcom will also review the co-regulatory relationship with ICSTIS and is reviewing its sanctions system.

Given the amount of publicity these cases have raised and the severity of the punishments, it seems unlikely that those involved in similar schemes will return to, or emulate, these habits, given that the high risk of fines, public disaffection, resignations and loss of jobs.

What is more significant is the launch of the Ofcom inquiry and consultation. The inquiries recorded that better ongoing systems need to be implemented to enable ongoing checking and accountability as the competitions evolve and continue. In addition, the introduction of the new gambling legislation under the Gambling Act 2005, which came into effect last month, means that many of the more simple competitions may change their format.

Clearly, resignations, public censure and fines are not the only solution. While implementation of a more visible system of checks and balances may give the public and the regulators comfort, it is likely that lessons have been learned and the way forward will be open and fair one. n

Beverley Flynn is a partner in the commercial team at Stevens & Bolton.