House of Commons - Culture, Media and Sport

Select Committee on Culture, Media and Sport Fourth Report

COMMUNICATIONS

VI DIGITAL BROADCASTING

43. Public policy across the developed world is to shift from analogue to digital broadcasting of TV and radio services. The UK is no exception. Digital broadcasting is a much more efficient system of transmission in its use of the radio frequency spectrum and switch-over will free large amounts of spectrum which can be licensed for other uses (mainly telecommunications). Digital TV also brings with it the potential for far greater interactivity and access to the Internet. Progress towards digital switch-over therefore is very important to the efficient and lucrative deployment of spectrum as well as to the Government's vision of universal Internet access in the UK.

Spectrum

44. The radio frequency spectrum is a finite natural resource. On our recent visit to Stanford University we heard a fairly extreme attitude expressed towards its use. Whilst Professor Cave, leader of the Treasury review of Radio Spectrum Management, advocates increased market pricing to achieve increased efficiency of use,[49] some academics at Stanford advocated to us the simple principle of need. Where feasible, fixed equipment, i.e. television sets, should be using wires and not spectrum at all. This simple organising principle arises from looking 10 or 20 years further down the line in the expectation that the radio spectrum will come under increasing pressure from hitherto unforeseen demands in respect of mobile technology.

Objectives and conditions

45. The Government stated in 1998 its expectation that the achievement of the necessary conditions to implement analogue switch-off would be achieved between 2006 and 2010. This expectation remains. The necessary conditions are:

that everyone who can currently get the main PSB channels in analogue form has the ability to receive them on digital systems;

that switching to digital is an affordable option for the vast majority of people; and

that as a target indicator of affordability, 95 per cent of consumers have access to digital equipment.

However, although the Government has agreed to abide by these conditions none of them has so far been achieved.

46. The Government set out its initial plans with respect to digital broadcasting in its 2001 white paper Opportunity for all in a world of change. The elements of the strategy were to:

develop a comprehensive action plan;

conduct several small scale pilot schemes offering free conversion to digital television to defined communities;

promote public understanding of the benefits that digital television can offer; and

ensure clearer and more informative labelling of digital television services and equipment.

Progress

47. At present the UK is a world leader in the take up of digital television. Around 39 per cent, or 8 million people, have access to digital television on one of three platforms: satellite, cable or terrestrial services. However, it was suggested to us that digital television take up in the UK was tailing off as the recognised content drivers of specialist channels for sports and films neared their market capacity.

Challenges to digital take up

48. There are a number of challenges to be overcome in realising the Government's goal of digital switch-over and analogue switch-off.

49. The great success of digital television is largely down to BSkyB's digital satellite platform. It has two thirds of all subscribers to digital services being received in about 6 million homes and the churn rate has been half the rate experienced on average by ITV Digital. BSkyB has already switched off its analogue signal, in 2001. BSkyB contends that its satellite platform is the most open of all.[50] However, effective access to digital audiences by broadcasters depends on fair pricing of the conditional access. It also depends on the technical architecture of the set-top box which decodes the digital signal for display on an analogue television set.

50. In the case of BSkyB we heard allegations of anti-competitive behaviour restricting implementation of the company's legal obligation to provide fair, reasonable and non-discriminatory access to its platform.[51] Whilst the competition law regime may deal with these matters post hoc, as in the Office of Fair Trading's investigation of BSkyB's bundling of channels and rate-card discounts,[52] we believe that the final Communications Bill will need to make provision for clear ex ante rules ensuring genuinely open access to ensure genuinely open competition in the sector. In particular we believe that rules establishing must-carry status for the free-to-air public service broadcasters on satellite, as well as full, timely and open disclosure of the technical standards in all set-top boxes, will be important.

Equipment and services

51. There seems to be persistent confusion over equipment and services needed to gain access to digital television despite the Government's promotion of a new Digital Video Broadcasting logo (DVB) and its provision of a dedicated website aimed at explaining the issues. The traditional model of UK broadcasting is that the purchase of an analogue television set and payment of the licence fee provides access to five free-to-air channels (although account must be taken of Channel 5's uneven national availability).

52. Digital TV broadcasting is delivered across three platforms: satellite; digital cable (of whom the two largest providers are NTL and Telewest); and digital terrestrial (which has been operated by ITV Digital). A key plank of policy, as far as the Government is concerned, is that it remains "platform neutral", because it considers that all three platforms will be required if the national policy objective of digital switch-over is to be achieved. Provisions in the 1996 Broadcasting Act require that free-to-air public service broadcast channels are carried by cable operators and that access across the satellite platform must be offered by the operator on fair and non-discriminatory terms as we have discussed above. However, although Government policy on platform neutrality makes sense, there are serious doubts as to whether it can be sustained without intervention. The volume of subscribers in the digital market, taking into account the estimated rate of take up, simply may not support three distinct platforms. This concern has been highlighted by the case of ITV Digital.

53. The reception of digital services—whose availability is now heavily cross-promoted during analogue broadcasting—requires an additional piece of equipment, a set-top box which decodes the digital signal for display on analogue receiving equipment (or, much less commonly, an integrated digital TV set (iDTV)). The most easily available, and actively marketed, set-top boxes have been those subsidised, or given away, by the platform operators as part of their commercial offering; hence the linkage between digital, and pay or subscription, TV. Without this subsidy the cost of buying and installing a set-top box has been in the region of £250-£350. This linkage is a barrier to further digital TV take up as we were told that ITC research has indicated that 40 per cent of the UK population do not want to pay for additional TV services.[53]

54. During the course of our inquiry we raised the issue of simply mandating the manufacture and sale of iDTVs alone from a certain date. In principle we are sympathetic to the concept of regulatory action fixing a date for digital switch-over as, for example, when the sale of leaded petrol was finally banned. However, this begs the question of whether the digital strategy should be date-led or conditions-led (with the National Consumer Council insistent upon the latter). It also raises the issue of how best to protect the consumer in the light of the potential for technical developments to render equipment obsolescent.

55. Quite apart from possible barriers to the adoption of the mandatory route within European legislation, we heard technical arguments during our recent visit to Silicon Valley in the US that suggested a different future for digital TV equipment. Mandating a particular technology, particularly integrated digital television sets, may run counter to the potential separation of display technology and reception equipment (which would allow for more economical upgrading, switching between standards or convergence whereby different types of information might be displayed on a variety of screens around the home or office).

56. Unlike what happened with the advent of colour television, there has been no incremental licence fee payment for digital receiving equipment (whether an iDTV or a set-top box) despite the increasing number of BBC channels only available in that format and the significant expenditure from licence fee income planned for their provision (some £350 million in 2002-03). This was a view of the previous Committee which prevailed with the Government in its consideration of the Gavyn Davies report into the funding of the BBC. Our predecessors argued that the national policy goal of digital switch-over would be inhibited by a "digital supplement" to the licence fee.[54] We drew attention above to a lack of progress towards the Government's conditions for analogue switch-off by the date set. We believe that consideration should now be given to the Government conducting analyses of the costs and benefits, and market impact, of providing free digital set-top boxes to enable analogue switch-off to be achieved.

57. In this inquiry we heard much in evidence about the development of a £99 set-top box that would provide: access to the free-to-air channels for the 55 per cent of the population covered by the terrestrial platform; and the potential to up-grade to subscription services if desired. However, as we discuss below, a part of the Government's policy on digital switch over is the potential to achieve interactivity and Internet access via digital television and it was argued, by Mr Tony Ball, Chief Executive of BSkyB, that this type of set-top box will not offer this potential. In any case there have been press reports about the lack of availability of, and long waiting times for, these set-top boxes. Retailers, who prefer to sign up customers for digital services, seem, at present, unlikely to stock them, nor is there any discernible sales drive from manufacturers.[55] While we would welcome the wide availability of such boxes—as it would mean that television viewers can view free-to-air digital channels without having to pay subscription fees for other services that they do not wish to take up—we are concerned, as we set out below, that the potential for the provision of digital television and Internet access to converge is not lost.

58. An additional problem with the terrestrial platform at least is the question of signal strength. This has had to be kept reasonably low to avoid interference with the analogue signal and this poses problems for the perceived quality of the digital experience. If and when take up of terrestrial DTV increases significantly this problem will have to be tackled; the National Consumer Council foresees an inequity in the situation whereby the users of analogue services are basically forced to go digital by the downgrading of the analogue signal.

Digital television and the terrestrial platform

59. In relying on the market to do the lion's share of the work in encouraging people to switch from analogue to digital TV services, the Government has left itself vulnerable to the prospect of one or other platform running into difficulties. This has now occurred with ITV Digital, the operator of the terrestrial platform, currently up for sale after going into administration. This saga was continuing as this Report was being prepared. The company, and subsequently the administrators, attempted to renegotiate its contract with the Football League, the terms of which ITV Digital found to be economically unsustainable.

60. This situation has dealt a body blow to progress towards digital switch-over. In the light of the recent offer for sale of ITV Digital by its administrators it is the responsibility of Government to act to ensure the availability of the free-to-air channels on a digital terrestrial platform. This is the result of the importance Government attaches to healthy competition between the three existing digital platforms to achieve progress towards digital switch-over in the time-scale envisaged. We look to the Government to accept this responsibility and to take speedily whatever action is necessary. We believe that there are significant lessons to be learned from this episode and we will return to it.

A particular case: local and community broadcasting

61. Local and community broadcasting in the UK is an uncertain business. The available analogue licences are short-term, four years instead of the 10 year regional licenses, and they are interruptible if the ITC finds a better use for the spectrum. In addition they have yet no place going forward into the digital era. On this basis the Local Broadcasters Group (LBG), a commercial undertaking with six restricted service licences for local TV broadcasting around the country, and the Community Media Association, asserted that sufficient investment was extremely hard to attract to the sector and a secure environment for further development could not be provided. Indeed during the course of this inquiry the LBG went into administration.[56]

62. The Community Media Association stated that local and community television had a significant contribution to make to the local communications environment, providing access to local information, encouraging citizens' participation, providing a platform for diverse cultures and viewpoints and offering a counterbalance to the increasing concentration of television ownership and the reduction in regional programming commitments.[57] We believe that local and community TV and radio has the potential to contribute to the social, economic and political development of local areas. Our predecessors referred to the opportunity to exploit the potential offered by local television based on a more imaginative approach to public service broadcasting.[58] We reiterate that view.

63. We are concerned that the continuing delay in the publication of the main Communications Bill has taken the announcement of new policy in this area beyond the 12-month licences initially granted to the "Access Radio" pilots. This period was originally determined on the basis that the Communications Bill be published, if not in force, before the expiry of these welcome initiatives. In its reply to this report the Government must set out its conclusions on the outturn of these pilot schemes for a tier of not-for-profit community radio services (and provide detail on what has happened to them in the interim between initial licence and new legislation).

64. We recommend that the Government assess the Community Media Association's scheme for two tiers of licence for local broadcasting (not-for-profit and commercial) and set out its conclusions in its reply to this report. This must be accompanied by a statement of its policy on the provision of secure and commercially viable licences for the development of digital broadcasting of local and community services and their place, if any, within the ecology of public service broadcasting across the UK.

49 Op. cit., Review of Radio Spectrum Management by Professor Martin Cave, Department of Trade and Industry and HM Treasury, March 2002 Back

50 Ev 48 Back

51 Ev 29 Back

52 "The OFT's proposed decision is that certain conduct of BSkyB infringes Chapter II of the Competition Act 1998, in particular: BSkyB's margin between the wholesale price it charges distributors and the retail price paid by its own subscribers may not be wide enough to allow a normal profit to be made by a third party distributor of its premium channels, even if it is as efficient as BSkyB in distributing; the discounts BSkyB gives distributors when they take packages of premium channels may be set at a level that prevents rival premium channel providers from entering the market; the discounts that BSkyB offers to distributors on one version of its ratecard for its premium sports and film channels (i.e., the 'Payto Basic' version) may prevent rival premium channel providers from entering the market and may distort distributors' marketing decisions. BSkyB now has the opportunity, for the first time, to make written and oral representations on the OFT's proposed decision which will be taken into account before any final decision is made. The OFT does not anticipate being in a position to make a final decision before Summer 2002." OFT, PN 51/01, 17 December 2001. And see Ev 51-52, (evidence submitted from BSkyB). Back

53 Q 548 Back

54 Third Report, 1999-2000, The Funding of the BBC, HC 25, paragraph 83 Back

55 Mail on Sunday, 28 April 2002. Back

56 Ev 106 Back

57 Ev 100 Back

58 HC 161, 2000-01, paragraph 106 Back