Ofcom has rejected proposals for the BBC to give part of its licence fee to other broadcasters, but left the way open for a possible merger between Channel 4 and Five.
The broadcast regulator made a series of recommendations about the future of Public Service Broadcasting (PSB) to Government and Parliament in its report, Putting Viewers First.
Ofcom's main recommendations include keeping the BBC, funded by the licence fee, at the heart of PSB in the UK, with a role in pioneering the development and take-up of digital content. Ofcom said: "We reject 'top slicing' the BBC's funding for programmes and services."
Ofcom's blueprint looks at profound structural changes in the commercial broadcasting sector, including the digital switchover and pressures on television advertising. It estimates this will leave a shortfall in funding of up to £235 million a year by 2012.
Ofcom said the key was not to prop up Channel 4 for its own sake but to ensure there was a viable institution apart from the BBC that would provide public service content that the market would not.
The two options the watchdog proposed for this were the extension of the partnership between Channel 4 and BBC Worldwide and a merger between Channel 4 and Five.
Structural changes to Channel 4 would need to be economically sustainable, competitive, provide a genuine alternative to the BBC and complement the market, Ofcom said. The alternative would be to give Channel 4 public funding directly, relieve it of its pubic service remit and make it a fully commercial network, or mothball it.
ITV should be an essentially commercial network, Ofcom said, but should retain a "modest but important public service commitment" to news and UK content. The channel's networking system was probably unsustainable, the report found, and as a result, regional news broadcasts were coming under threat.
The BBC has offered to share some news gathering resources with ITV, but Ofcom said the government needed to create an alternative plan to secure the long term future of local news in Scotland, Wales, Northern Ireland and the English regions. Ofcom suggested the establishment of independently funded bodies to provide regional news, at a cost of £30 to £50 million.
A number of news organisations have already expressed an interest in bidding for these contracts, Ofcom said.
