APPENDIX 17
Memorandum submitted by Pace Micro Technology
plc
INTRODUCTION
1. Pace Micro Technology is a developer
and manufacturer of the set-top boxes and technology necessary
to receive digital television and interactive television services.
We are Europe's largest manufacturer, working with digital broadcasters
in Europe, North and South America, the Far East and Australasia.
In the UK we supply all of the five digital broadcasters—Sky
Digital, ONdigital, Cable & Wireless Communications, ntl and
Telewest. As a result we have a unique perspective on the digital
television market in the UK.
2. The commercial television sector and
Pace have united to oppose the introduction of the digital licence
fee as we believe it will have a detrimental effect on the development
of digital television and the digital industry in the UK. A detailed
summary and supporting evidence has been presented on behalf of
this Group[71]
in a separate submission. This submission raises the issue of
how a digital licence fee could impact the technology and manufacturing
companies that have been established in the UK. These organisations
have made major investments in establishing and developing their
UK-based businesses. They play an important role in the British
digital television industry and, through their efforts overseas,
are developing strong demand for UK developed and manufactured
products abroad.
DIGITAL TELEVISION,
CREATING BUSINESS
OPPORTUNITIES FOR
THE UK
3. The UK digital television market is highly
advanced—no other world market has the same combination
of digital satellite, terrestrial, cable and ADSL services. This
is driving rapid technological advancement, in particular for
the delivery of TV based interactive services such as e-commerce,
e-mail and Internet access. This dynamic market is of great interest
to broadcasters operating in overseas markets, in particular those
in the US, who want to use the expertise developed by companies
such as Pace to create their own digital networks.
4. The US market, for example, will account
for almost a third of the international market for digital television
this year and by the end of 2004 the total international market
will account for an annual total of almost 50 million set-top
boxes[72].
Cable television is key in the US market, with a 66 per cent household
penetration. In the UK, Pace developed and implemented the world's
first Docsis compliant digital cable set-top box. This set-top
box enables some of the most advanced applications in digital
television and is much sought after by the large US cable networks,
not just for its capabilities, but because it has been proved
in a full-scale consumer rollout. This provides a significant
business opportunity, particularly whilst our main competitors
in the US have still to launch a competing product, let alone
prove one in real-life operation.
5. Therefore, the importance of a vibrant
UK market should not be underestimated in creating business opportunities
in international markets. We believe that a digital licence fee
would slow down the UK market, and so limit Pace's ability to
compete in world markets, where we take on some of the largest
consumer electronics companies, including the likes of Panasonic,
Philips, Pioneer, Samsung and Sony.
6. This will have a knock-on effect on the
industry that has sprung up to service the digital market in the
UK—the Digital Television Group (DTG) alone now has over
90 members. This growth should be encouraged and not discouraged.
Just look at the PC and Internet markets in the USA which have
germinated a very successful industry of software and silicon
vendors.
7. As the UK market grows and our digital
technology develops an impressive track record, it enables us
to push the boundaries of digital technology. Pace is already
at the forefront of the next generation of digital devices. For
example, we are leading the development of hard disk storage in
set-top boxes which opens up new opportunities for consumers,
broadcasters and advertisers.
CREATING A
"CONNECTED" WORLD
8. Encouraging the development of digital
set-top box technology is also in line with the Government`s stated
aim of enabling every home in the country to have access to the
Internet and e-mail through the switch to digital television[73].
According to research on the growth patterns for Internet access
over the next four years in North America and Western Europe PC
Internet access will have grown by just under 60 per cent, with
over 67 million connections . At the same tine non-PC Internet
access is predicted to grow by over 500 per cent, suggesting that
the TV will play a central role in home Internet delivery[74].
9. This trend is supported by a report from
investment bank Merrill Lynch that suggested digital television
will deliver 70 per cent of what it terms `Internet virgins'[75].
In addition, the final research of the Web TV trial conducted
by Microsoft in conjunction with BT and Telewest in the UK, using
Pace technology, found that over 90 per cent of the trialists
cited Internet access and e-mail as the main benefit gained during
the interactive trial. Almost three-quarters found it a useful
way of accessing the Internet[76].
10. Pace's own research into consumer attitudes
towards digital television—The Pace Report 2000[77]—reflects
this trend. The Report questioned consumers on their knowledge
of digital television capabilities and 55 per cent of the UK adult
population are already aware of its potential for e-mail and Internet
access. This suggests that the STB as the gateway for home based
e-mail and Internet access is a valid vision. However, 33 per
cent of consumers stated that concerns over the cost of digital
television would hold back their move to digital television.
11. Digital technology will be a key element
of the global economy in the next century—it is estimated
that the world market for multimedia products, including television
and radio is currently $1,000 billion and is projected to grow
10 per cent per year over the next five to six years[78].
12. The UK, as the only country with satellite,
terrestrial and cable services, enables companies such as Pace
to develop expertise they can market internationally. To quote
Chris Smith in his speech to the 1999 Royal Television conference[79],
" . . .there's a revolution going on in TV technology: and
Britain is at the forefront of the change, I want to keep us there
and press home our global advantage." Therefore, we should
protect this young industry from any form of additional taxation
to ensure it continues to thrive from within the UK.
13. We are therefore strongly opposed to
the adoption of the Davies Report's proposal for a digital licence
fee supplement and would be delighted to offer further clarification
of our views if that would be helpful.
November 1999
71 BSkyB, Cable & Wireless, Carlton Television,
Granada Media Group, ITV, ntl, ONdigital, Telewest, United Broadcasting
and Entertainment. Back
72
Strategy Analytics, Digital TV Market Report, May 1999. Back
73
Chris Smith, 17 September 1999, Royal Television Society Conference. Back
74
Sources: Datamonitor (Interactive TV markets in Europe and the
US, 1998-2003, pub 1999): Ovum (Internet market forecasts: Indicators
for global Internet growth 1998-2005, pub 1998); Kagan (Taking
sides on Internet set-top boxes-online PC and sub-PC home penetration
projections, pub 1998); and Pace Micro Technology Analysis. Back
75
Merrill Lynch report: Broadband Interactive Services: The Next
Wave, 1999. Back
76
Web TV trial results released July 1999. Back
77
Research for the Pace Report 2000 was carried out by the Gallup
Organization between 17 and 24 September 1999 randomly via telephone.
A sample of 1,004 randomly selected adults aged 16+ were interviewed,
representative of the population of Great Britain.CONCLUSION Back
78
UK Broadcast Directory 1998-99, foreword by Barbara Roche MP. Back
79
17 September 1999. Back
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