Memorandum sumbitted by ntl
ntl welcomes this opportunity to submit to the
Select Committee on the Funding of the BBC.
This debate is particularly opportune and goes
to the heart of the digital revolution in asking the questions:
1. At what speed should Britain move to digital—to
ensure benefits to UK plc, consumers and the Treasury?
2. What will the impact be on commercial
players—platform providers, channels and retailers?
3. And at what cost to the licence fee payers,
especially the socially excluded?
Concern about achieving the optimum outcome
on these issues does not make ntl "anti-BBC". The BBC
continues to have a crucial place within the UK broadcasting environment.
In particular, BBC programmes, where those programmes would not
have been made (or commissioned) by any commercial broadcaster,
are of immense importance to UK culture and society. It is not
so obvious that BBC TV channels, other than the core BBC1
and BBC2 services, are so important. As the world moves more towards
on-demand programming, specific "vertical" channels
may not be the only, or the best, form of investment for the BBC.
We believe that the BBC should judge itself, and be judged, on
the reach of its programmes, not its channels. It follows that
all the BBC's digital channels—existing or proposed—should
be very carefully scrutinised to ensure they are the most
effective way to achieve additional reach for BBC programming.
EXECUTIVE SUMMARY
ntl believes that the BBC's case for increased
funding is not proven.
ntl agrees with the Committee's proposals as
a first step towards increased transparency and independent regulation
of BBC governance, financing and content.
ntl opposes the digital licence fee on the following
grounds:
— Regressive and flawed tax
— Exclusionary tax against Government
policy
— Impact on ntl and its customers
— Disincentive to analogue switch-off
— Undermines current support for the
licence fee
ntl supports the Committee's proposals for increasing
fair trading in the BBC and the partial privatisation of BBC Worldwide
and BBC Resources.
ntl argues for the exploration of alternative
methods of funding not addressed by Davies.
ntl believes that the review of the BBC Charter
must now be brought forward to address the issues raised by the
Committee.
NTL
ntl has played its full part in the deliberations
concerning the BBC's funding and role in the digital environment
from our unique position as the "Complete Communications
Company":
— ntl is the UK's leading cable TV
and telephony company;
— ntl currently has 1.2 million residential
customers;
— ntl is operator of the analogue and
digital transmission networks for ITV, Channel 4 and Channel 5;
— ntl has pioneered the introduction
of TV internet and cable modems in the UK;
— ntl is at the forefront of the development
of interactive services in the UK;
— ntl also has a one third share of
the SDN multiplex for digital terrestrial television;
— ntl is currenly actively involved
in developing new channels and new content, eg a joint venture
to provide British Eurosport.
ntl is currently investing £2 million in
capital expenditure alone every day to create Britain's digital
infrastructure.
THE BBC'S
CASE FOR
INCREASED FUNDING
IS NOT
PROVEN
ntl believes that the case has not been proven
for a substantial increase in BBC funding—particularly the
BBC's request for a 57 per cent increase over eight years or even
the £150-£200 million for which Davies has made a case.
We are concerned that we have not been privy
to the BBC's plans for how they might use this extra public money.
The Davies Committee apparently shares our concerns but still
supports services such as BBC Choice, BBC Knowledge etc without
a justification on "market failure" grounds. It would
be difficult to envisage in the current climate that "but
for" the BBC there would be no Black Music or Asian radio
network on digital radio. Similarly it would not be credible to
argue that "but for" BBC Online the information portal
needs of net users would not be met. But the BBC believes it needs
increased public money to provide these services in the public
interest. In effect, the Committee has accepted the BBC's case
on the basis of an investigation into the BBC's own vision on
the BBC's terms.
But the costs of increased BBC digital output
are not only borne by the licence fee payer and the BBC. There
are real costs to commercial channel providers, who face potentially
unfair competition, and also platform providers such as ntl. BBC
digital channels are in principle available to ntl for free, but
since we are not permitted to charge for them, our margin on such
services can (at best) be zero. It is hard to justify investment
in capacity on this basis.
The public service climate has dramatically
changed. Choice is no longer limited by spectrum. Limitations
in terms of hardware costs, subscriptions and regulation are far
more instrumental. The test of "either the BBC or the independents"
now needs to be modernised. We would argue that a "but for"
test is far more appropriate to today's digital age—ie "but
for" the BBC would this service be met in the market?
ntl is stongly sympathetic to the ITC's suggestion
for transparent and fair regulatory control of the BBC. We welcome
the Davies Committee's proposals on regular and independent scrutiny
of how the BBC spends public money. But we would have hoped that,
with these sentiments in mind, the Committee would have made an
independent assessment of the case for additional funding rather
than one based entirely on submissions made by the BBC[6].
THE DIGITAL
LICENCE FEE—MORE
MONEY FROM
A NEW
TAX
A regressive and flawed tax
The Davies Committee is absolutely right:
"The licence fee, correctly described, is
a tax and a poor tax at that"[7]
But the Committee fails to marry up its forthright
views on the difficulties with the licence fee in chapter 5 with
its enthusiasm for the DLF in chapter 2. One example of this inconsistency
is that the Institute of Fiscal Studies was commissioned by the
Committee to assess the regressive nature of the licence fee whilst
the DLF is advocated merely upon the basis of the BBC's own proposals.
Digital technology and analogue switch-over
is not solely about broadcasting. TV-Internet will be a mainstay
of household digital usage. The Government wishes to see early
switch-over and this will be linked to Internet and broadcasting
usage. The DLF is, therefore, incompatible with the Government's
public policy objectives, being both a brake on take-up of digital
television as shown by the NERA Report, and also hindering the
Government's wider ambitions to see the UK as a digital society.
An Exclusionary Tax against Government policy
The Committee assumes that those who have "gone
digital" are from richer sectors and acknowledges that:
"It is inevitable that a digital licence
supplement will be proportionately a larger disincentive to poor
people than to the better off"[8].
But no evidence is presented by the to support
the conjecture that the early adopters of digital technology are
from the richer sectors of society. This is certainly not ntl's
commercial prediction for digital roll out nor is it the Government's
ambition for the country.
ntl and the Government believe that digital
interactive TV is one of the most accessible ways for families
to access e-mail and the web. Information poverty is a symptom
of exclusion which can be bridged through enlightened policies.
The Committee looks at take up of digital technology in a top-down
determinist fashion. But by eliminating the need for a PC and
providing more user friendly formats untaxed digital TV could
prove to be an important weapon against information poverty.
Chris Smith has summed up the Government's policy
recently:
"This revolution is not just about the young
and trendy. It's about everyone—therefore all parts of our
society can and should benefit"[9].
Gordon Brown's recent announcement at the ntl-sponsored
UK Internet Summit that socially excluded families will be able
to rent computers at reduced rates points to the Government's
realisation of the citizenship benefits that the digital age will
bring. From the Co-op Bank offering cheaper banking with higher
saving rates for its online customers to Virgin Trains offer of
£1 off Internet booking scheme, companies are embracing the
potential of this new technology. TV provides a more accessible
means of accessing the digital environment and thus reduces the
danger that poorer consumers will end up having to pay more for
their banking, more for their travel etc if they are excluded
from the digital age. ntl predicts that in years to come if you
will be off line you will be out of pocket.
Impact on ntl and its customers
The Committee seems to have accepted the BBC's
case that the majority of multi-channel households sign up to
a £30+ per month premium-based package. Hence an additional
£1.99 is not a significant disincentive. But there are other
multi-channel operators than Sky who will be significantly hit
by the introduction of the DLF (as further shown by the NERA Report).
The DLF will be a disincentive to the majority
of customers who are largely happy with their current free-to-air
package and remain to be convinced of the benefits of multi-channel
television. These customers will be the drivers of analogue switch-over.
ntl enjoys the highest level of penetration
in the UK cable industry. It has been able to achieve this through
its pioneering use of "mini-basic" television packages.
A digital licence fee at the proposed rate of £1.99 per month
would represent a significant increase in the on-going costs for
subscribers who are currently paying less than £9 per month
for a package comprising TV and telephony. A digital licence fee
thus runs the risk of not only discouraging take-up of digital
by new subscribers but also could lead to existing customers "churning"
off the ntl system.
Analogue switch-over changes the debate
At the RTS lecture in Cambridge Chris Smith
announced the conditions for analogue switch-over placing the
Government's support squarely behind a successful digital revolution.
As one of Britain's leading developers of digital
interactive technologies we know that they will bring great consumer
benefits. We are heartened by the Government's view, shared by
the Committee, of the importance of a timetable and targets for
analogue switch-over:
". . . this [digital licence fee] should
be seen in the context of a plan to announce a firm date for analogue
switch-over;"[10]
We now have that plan. ntl believes that the
Government's championing of early switch-over on grounds of economic,
industrial and education policy crucially shifts the context for
analysing a digital licence fee (DLF). Consumers will now drive
analogue switch-over.
Undermine current support for the Licence Fee;
breaking a "British tradition"
The principle of the licence fee is ably put
in the Committee's Report:
"The fact that everyone pays the same amount
for the same service from the BBC has probably been an important
element in maintaining political acceptability . . ."[11]
Hence from the Duke to the dustman a licence
fee payer can choose to access Radio 1 or 3 (if they have a radio);
choose to go to BBC Philharmonic Concerts (if they buy a ticket);
watch Walking with Dinosaurs in nicam stereo widescreen format
(if they buy the appropriate TV) and access the Eastenders website
(if they have a PC, software and internet connection). So why
is digital television so different that access to the platform
should be taxed to pay for its content? At its crudest this is
akin to charging licence fee payers in Manchester more because
they have the BBC Philharmonic in their city whether they choose
to go to the orchestra's concerts or not.
The Committee alludes to the "British tradition"
of amending the licence fee to meet new technologies. But the
analogy with radio and black and white TV is tendentious. Radio
and black and white TV are still available—people still
have a choice. Analogue choice will be removed from the consumer—with
huge financial benefits to the Treasury upon sale of the bandwidth.
Licence fee payers already pay 10 per cent towards
digital services—this does not seem to have provoked widespread
resentment. It is the prospect of funding the BBC's plans in which
the digital tail will be wagging the analogue dog which would
fuel resentment.
Although we are unaware of the specifics of
the BBC's digital programming plans it would be naive to presume
that there would be no "knock-on" benefits of increased
programming to analogue viewers. This is not to say that BBC will
be a driver of digital take-up per se but successful programmes
could be transferred across to analogue programming—the
"test bed" potential of digital channels for BBC1 and
2 should not be underestimated.
ntl belives that the digital licence fee is
conceptually and practically different from any previous application
of the licence fee. Acceptance of the digital licence fee would
undermine the current delicate political acceptance of the licence
fee. It would, in effect, be a new and distinct form of taxation.
Collection of a new tax
If the proposal for an extra tax in the form
of the digital licence fee is agreed ntl believes implementation
on 1 April 2000 is a tight timescale to work to. Chris Smith has
announced that a decision will be forthcoming in the New Year
which allows for less than three months implementation by platform
and subscription management. This is an unfeasible timescale.
Commercial organisations may not have systems for tracking all
digital subscribers in the form required by the proposal. We would
hope that the Committee will recommend that further representations
on this matter will be accepted once the Secretary of State had
made his decision in principle.
ALTERNATIVES TO
AN EXTRA
TAX
ntl supports the partial privatisation of BBC
Resources and Worldwide. Whilst acknowledging that the BBC has
made sustained efficient savings over previous years we do not
believe that the "BBC's diet" [sic] has reached anorexic
proportions. From our experience of the broadcasting world we
would expect the BBC to be planning an ongoing programme of efficiency
savings to match the changing programme making environment.
We are concerned that the Davies Committee so
swiftly moved on to the two licence fee options. The Digital Age
will change the way programmes are made, how they are seen and
who sees them. Although the Committee accepts this proposition
it then makes a case based on the BBC remaining substantially
unchanged in the way viewers see its channels or pay for its programming.
ntl believes that the BBC should be positively encouraged to think
more radically about how to deliver its core public service remit
as efficiently as possible in the digital future. The digital
licence fee would certainly be radical; but if the BBC has been
prepared to contemplate that, it should equally be brave enough
to explore other options which may up to now have been placed
in the "too difficult" pile.
From the committee's helpful illustrations we
could add that in the first example revenues could be significantly
increased by offering the programme after "first release"
via video on demand for those who have missed this "must
see TV". Then instead of selling the programme to the American
joint venture a successful programme could be sold to an American
network for significantly increased revenues. With respect to
films the model (so successfully followed by Mrs Brown) could
be invoked[12].
The "timeslot" will be one of the most
valuable assets for programmers in the digital age, BBC programming—through
an imaginative combination of video on demand and public service
broadcasting—could help to meet the viewer's needs for flexible
programming and the Corporation's need for further funds. Joint
ventures with independent companies could be entered into based
on repackaging and reformatting of programmes. Although advertising
during BBC programmes may seem against the public interest there
is a strong case for advertising before and after BBC programmes
shown on digital channels.
There are a myriad of ways in which digital solutions
could help to resolve the BBC's need for further funding. But
the Committee have not considered them in detail stating that
they are matters for Charter Review.
THE NEED
FOR EARLY
RENEGOTIATION OF
THE CHARTER
ntl shares the frustration of many of the contributors
to the Davies inquiry that the Committee was charged with an incomplete
review: hamstrung from the start with a remit written by the BBC.
This remit has put the financial cart before
the content horse. No discussion of increasing public funding
to the degree proposed by the BBC should take place without assessing
levels of market failure in digital provision, governance issues
and content issues. Despite the best efforts of the Committee
to strain to their original mandate matters seen as the subject
of the Charter have to be addressed. Hence the Committee uncovers
more questions than it is charged with answering. The BBC, in
its desire for increased funding and coverage has opened the public
service box. The BBC believes that without extra funding this
box will become a coffin. But if the BBC is allowed to spill out
of the box into non-public service areas viewers will suffer as
competition is stifled.
Technology is in "mid jump", as is
the concept of public service broadcasting. It seems odd to agree
to fund the BBC's involvement in digital services prior to deciding
what should be the role for public service broadcasting in the
digital age. There would then be the issue of how much funding
the BBC needs to fulfil that role and only then how that should
be funded. The BBC was awarded one of the six digital multiplexes
specifically to ensure a presence in the digital age. However,
the BBC is already spilling over its multiplex without extra digital
funding. It is vital that a thorough debate on the digital revolution
is had which is not confined to a tussle over a perceived "land
grab" by the BBC.
Currently it is the Secretary of State subject
to judicial process who decides whether the BBC's plans are "in
the public interest". This is clearly inappropriate. As the
Davies Committee states:
"For Charter renewal, there is a strong
case that the BBC, because of its privileged position, should
have a tougher remit than other broadcasters."[13]
But the Committee gives no reasons for avoiding
discussion of these Charter issues now. The consumer needs to
pay for the BBC's plans without a thorough review of them because
of an arbitrary timetable. This surely is not the flexibility
and pragmatism that the Government has stated we need for the
digital age. Is technology to freeze "mid jump" whilst
we wait for the Charter Review?
The BBC has reopened the debate on the funding
of its digital plans. The Committee has accepted the need to amend
the Charter to allow independent auditing of the BBC's accounts.
ntl believes that the whole Charter needs to be speedily reviewed.
The BBC is an important and unique national institution, with
a huge amount to offer consumers and the nation as a whole. The
wrong choices at this critical stage in the BBC's development
could fatally damage the Corporation instead of strengthening
it for the adventures ahead. The Government should reject the
digital licence fee now, and take the opportunity to extend this
debate to a discussion of the Charter to conclude and coincide
with the 2002 licence fee settlement so that consumer and companies
alike are able to have a confident and clear relationship with
the BBC.
November 1999
6 Page 142. Back
7
Page 73. Back
8
Page 80. Back
9
Chris Smith speaking to the RTS at Cambridge, September 1999. Back
10
Page 33. Back
11
Page 112. Back
12
Page 92. Back
13
Page 140. Back
| 
