Examination of Witnesses (Questions 419-439)
NTL, VIDEO NETWORKS
LTD
20 DECEMBER 2005
Chairman: Can I welcome Keith Monserrat
of NTL and Roger Lynch of Video Networks. I should say that in
the last couple of weeks both NTL and Homechoice have given demonstrations
to some members of the Committee of the facilities which their
services can provide to consumers, both of which were extremely
impressive. Thank you again for that.
Q419 Janet Anderson: What do you see
as the main justification for switching off analogue TV signals
and widening coverage of digital terrestrial television?
Mr Lynch: I think the main benefit
clearly is that there is a significantly inefficient use of spectrum
right now in supporting analogue and that spectrum could be put
to much better social good, it is as simple as that.
Q420 Janet Anderson: Would you like
to expand on that?
Mr Lynch: Would you like me to
go into what I think the uses of it to be?
Q421 Janet Anderson: Could you define
social good?
Mr Lynch: Right now you have got
a significant amount of spectrum that is being used in a very
inefficient way. If you think about what could be done with that
spectrum, there are many different services that could be used,
clearly things like high definition television, many more channels
and new mobile broadband services. The replacement of five existing
channels of analogue television is already easily accommodated
within the digital spectrum that is made available. It is trading
in five analogue signals for a whole host of other services. In
principle a lot of social good could come from that. Obviously
there is also a lot of pain that will come from the switchover
process too.
Q422 Janet Anderson: Mr Monserrat,
I noticed that you have a rather interesting package which enables
people on an estate to monitor CCTV cameras from their own living
room. Is that the kind of social good that you would include in
this?
Mr Monserrat: I would be delighted
to answer that question. Let me just step back and agree with
what Roger has said and say that perhaps digital switchover is
a good thing. Why is it a good thing? It is because it drives
this thing that the Government has been very keen on. As we talked
about with the World Trade Organisations, the broadband digital
environment supports digital inclusion. One of the benefits is
that by the deployment of digital technology you get the spectrum
dividend that has been talked about in the previous session and
Roger also alluded to. What I think you have also got to consider
is that switchover is much more than just digital television in
our context. The fixed telecom operators in the UK began to deploy
digital technology way back in the Eighties. We began to build
up platforms that used digital technology and to develop the environment
that is now set up for broadband, for IPTV and for high definition.
It has taken a long process to get to it. There are a number of
benefits. There is the switchover of digital broadcasting and
the telecom operator who already had broadband has moved forward
and therefore we believe that digital switchover means much more
if you want to achieve some of the policy objectives of the Government.
Turning to your question, of course broadband gives you much more
capability. It allows the market to crystallize the habits of
the consumer, the customer. What you alluded to is something that
both Roger and I have been working on, which is the Shoreditch
example where we have provided a range of different local services
to a community. When asked what the most important service was
they wanted they said it was security and CCTV in the particular
environment they lived in.
Q423 Janet Anderson: Can you give
us your views on the relative merits of the different digital
TV platforms and also tell us whether you think Digital UK is
doing a good job of informing the public of the various options
and what they mean?
Mr Lynch: One of the great things
about digital in this country is there is a lot of choice. Obviously
there is digital satellite, digital cable, digital subscriber
line, or DSL, services like our service and digital terrestrial.
If you think about the different services that they can all provide,
in the case of digital cable and DSL, these enable services not
just to broadcast television but also interactivity, video on-demand,
broadband and services like that. If you think about how people's
viewing habits are changing over time with things like PVRs, which
are a first step towards people taking control over what they
want to watch, it is just a first step. Video on-demand is really
the next step, which cable and DSL are in fact doing now. Services
like that enable viewers to take control over what they want to
watch, such as what we are doing with the BBC with what we call
Replay TV, which is where you can scroll back through the programme
guide on the television set, select a programme that was broadcast
in the last seven days and just watch it now. It is not a case
of going on the internet and downloading it to a hard drive, it
is on the television. When people have services like that they
use it because it is much more convenient and it gives much more
choice than just more and more channels. There are many platforms
that can provide digital television, but if you think ten years
from now how people are going to be viewing television and what
the platforms are that can support this new viewership, we need
to be careful we do not end up promoting the lowest common denominator,
which is digital terrestrial, which in its current form is only
a broadcast service. It was launched using MPEG-2 technology so
it is a relatively inefficient use of spectrum because it does
not use more advanced encoding standards such as MPEG-4. Platform
operators such as capable operators and ourselves have economic
incentives to use the most advanced technology, which is why we
have already migrated to MPEG-4 and I am sure cable operators
will do so over time.
Q424 Janet Anderson: What do you
think the level of awareness is about these possibilities? Is
Digital UK doing a good job or could they do more?
Mr Lynch: It is very early days
for them because they have really just started out. Our biggest
concern in general for this is the prevalence of awareness that
will be built around Freeview, in particular by the BBC. While
Freeview does provide a good digital service, it is a very basic
service. If you think about ten years from now what people are
going to want to watch and how they will want to watch TV, Freeview
will not be able to fulfil that. Yet we are concerned that there
is a big bias towards promoting Freeview, which is again the lowest
common denominator when it comes to digital broadcasting.
Mr Monserrat: Digital UK has started
and they have made a good effort. Both Roger and I have begun
to talk to various consumer organisations. I spoke at Jocelyn
Hay's Voice of the Listener to begin to try and paint the picture
of what this new world will look like, the services that will
come out and what it will mean for both citizens and consumers.
I think Digital UK has begun the evangelizing of this technology.
Where I would support Roger violently is that it should be about
the promotion of what these new services could be, not what a
platform can deliver and it should be about the breadth and the
width and the richness that can be delivered to consumers and
citizens through a variety of means. One of the examples I used
when I was talking at the consumer conference was to try and liken
it to the old days when you could tune in across the world to
get content on your shortwave radio. Now with broadband you can
do something slightly similar but on a different scale. You are
now going to be able to tune in using IPTV to a whole range of
different TV services across a much wider environment; it is the
globalization of TV if I could put it in plagiarized words.
Q425 Janet Anderson: Digital UK had
a reception here a couple of weeks ago and they suggested to me
that politicians did not understand how the digital revolution
could transform the democratic process. Do you think there are
any implications? Do you envisage a time when people might be
able to vote on-line? Do you think this is something that is possible?
Mr Monserrat: We would not have
the temerity to suggest you do not understand the democratic process!
I remember when they were setting up the Scottish Assembly and
I was heavily involved in trying to bring democracy to the people
there was a huge amount of work done with the Scottish Assembly
and the national Parliament to try and ensure that Hansard was
distributed to the Western Isles so that there was an ability
for people there to access the workings of the Parliament and
then express an opinion more quickly. That plan was never implemented,
but it did show how democracy could be brought closer to the people.
One of the key issues that came out of the studies at that time
was how single key issues, let us say for the sake of argument
climate change, affected people and they could respond and inform
their representatives of their beliefs. One of the suggestions
was you should put terminals in supermarkets because more people
go to supermarkets on a Sunday than to church.
Mr Lynch: I think a good example
Keith brought up was Shoreditch which is a project that we are
involved in. This is a community where PC penetration is only
8%, it is a very deprived area and yet they are going to get one
of the most advanced services anywhere in the world through the
television network. The types of things that it will enable—voting
is not yet on the list—are things like the community safety
channel which does allow you to look at the CCTV camera around
the estate and decide whether you feel safe to go outside and
to look at ASBO line-ups to see who in your community may be the
offenders that you should be concerned about, there is an education
channel allowing children and adults to take classes and to complete
online homework assignments through the television sets, a health
channel allowing you to book GP appointments, a consumer channel
allowing the consumers to group buy things like gas and electricity,
to get discounts and then an employment channel. These are all
on-demand services that you can interact with that enables the
people living in Shoreditch to access all these services without
a PC. You could think about, just by virtue of the types of services
I have just mentioned there, how that could extend to other areas
and other e-government initiatives that both bring the services
and capabilities of the Government into the consumers' lounge
but also reduces costs at the same time as providing the services.
Q426 Mr Evans: You mentioned the
Western Isles. Will they be able to get all the platforms?
Mr Monserrat: They will be able
to get DTT and they will get DSL, but with the cable franchises
we do not extend out to the Western Isles.
Q427 Mr Evans: I live in a small
village in the Ribble Valley, it is a lovely village, but that
has not got cable either. Is not part of the problem—I think
you have got three and a half million subscribers or thereabouts
and you have got 48,000 subscribers—that you are not generally
available to everybody and so some of the wonderful things you
are talking about are not going to be available to the vast chunks
of the population in the UK?
Mr Monserrat: If you take the
cable industry, NTL and Telewest, we cover 50% of the UK and that
is the urban community of the UK. One of the things going forward,
with the new regulatory change, the things that Roger has done,
is that you then begin to look at re-utilising the copper network
that exists in the UK, to look at unbundling and you use that
to extend your network and to drive the kind of services that
both of us have talked about to the wider community.
Q428 Mr Evans: Is that what you are
about now with this Replay TV? So any poor person who misses this
broadcast of this Committee meeting will then be able to go back—
Mr Lynch: I am sure it will be
very popular! Importantly, it is bundled in with the broadcast
package. This is not just a video on-demand service that sits
on its own. For instance, the replay that we do with the BBC channels
you access through the channel itself. So if you are watching
BBC One you can hit a menu button that will bring up a list of
programmes for the last seven days, you press okay and you just
watch it now.
Q429 Mr Evans: How many programmes
do you get a choice of to do that?
Mr Lynch: It is whatever the BBC
makes available to us. Right now they are making available about
50 hours a week and we expect that that will grow very, very significantly.
We are also doing it with ITV and we hope to be doing it with
Channel 4 soon and some other smaller channels. There are also
4,000 or 5,000 hours of other on-demand programmes that are available
on platforms like this, such as films, music videos, television
content that we licence in outside of the broadcasting from the
BBC and Hollywood studios and lots of other informational services.
On your point about where can these types of services be available,
it is the case that cable was built where there are population
centres because that was where it was economical to build cable.
In the case of services like ours it is a different economic model
in that the cost for us to build out our network is about one
one-hundredth of the cost of building cable, and it may be even
less than that, because we do not have to dig up the streets,
we can use the phone lines that are already there. The great thing
is that virtually everyone has a phone line in the UK. How can
we reach our services out there? As you move out of the population
and its areas the economics start to work against you. You have
to assume that you will get higher and higher penetration levels
because it costs the same amount of money to put our equipment
into the BT telephone exchange. As for a commercial model, the
way we are based right now, would we ever go into 24 million homes
in the UK? No, it is not likely because many of these exchanges
that you would have to go to are very, very small. From a technical
standpoint could it be done? Yes it could be done, but it would
have to be done on a different basis than us rolling out on the
assumption that we will get 10% or so of the consumers in an area
to take up our service because that would not justify it. It is
not really a technical issue so much as it is a commercial model
issue.
Q430 Mr Evans: Within the areas you
are currently operating in have you noticed within the last six
months more people subscribing to your services because they now
"fear" that the analogue service is going to be switched
off and they will need to go digital?
Mr Monserrat: I do not think we
have seen people fearing analogue because I do not think there
is that much of an awareness of analogue switchover just yet.
What I would like to do is draw you back to the point you were
making about who would watch what and when. We believe there is
going to be a lean back-type of viewing, which is where you are
looking for entertainment, and a lean forward-type of viewing,
which is when you are seeking information, say you are booking
an appointment with a GP or you are dealing with your Government.
That kind of new way of interacting I think is the way that is
going to shape the viewing that is to come and therefore it is
very, very important not to look at digital switchover as merely
a change of broadcasting, it is going to support a change in habit
and that is where the DSL platforms and others will play a pivotal
role in achieving some of the things that digital broadband is
supposed to deliver.
Q431 Mr Evans: I see Sky is already
advertising in Border TV papers that it is giving away 1,000 installations
and packages to people and they have clearly re-packaged everything
as far as the cost is concerned to try and attract as many customers
and make it as affordable as you can. Are both of you now looking
at doing that to ensure that people who do not currently subscribe
to you are not disadvantaged in some shape or form by hugely expensive
offerings when they are paying perhaps a licence fee at the moment?
Mr Lynch: I think both cable and
Homechoice are doing that already. In the case of cable, they
have got offers where, if you buy a phone line, you get digital
TV with it. Our focus is much more on selling a full bundle, including
broadband, but if you look at our entry-level package which we
sell for £17.99, which is the same price that BT sells broadband
only for, you get broadband, you get digital TV, access to all
the video on-demand and you get free phone calls, so I think we—
Q432 Mr Evans: And that is an established
price? It is not a special offer, is it, for six months?
Mr Lynch: That is the established
price. The promotional price is £14.99 and the contract price
is £17.99. Therefore, I think we and cable are already doing
that.
Mr Monserrat: I think the same,
that there are a lot of packages and there will be more to come
and there will be lots of commercial responses. I think the key
issue behind this is that this is an extraordinarily competitive
industry and competitive environment. On broadband, it is only
a year ago that you could get 1.12K for, say, £5.99 and very
quickly you are getting one-meg broadband and you are up to eight
megs and 10 megs. It is extraordinarily competitive.
Q433 Mr Evans: What is the top speed
you are offering at the moment?
Mr Monserrat: It is 10 megs.
Q434 Mr Evans: And how much does
that cost?
Mr Monserrat: I think the offer
at the moment is £10.
Q435 Mr Evans: Is that £10 a
month?
Mr Monserrat: I think so. Sorry,
it is not I think; I know. It will change, but what all that is
about is that the whole network capacity is going to be increased,
the distribution networks are being increased and with that will
come all of the other benefits which we have talked about, but
this will be the subject of a lot of commercial activity from
the satellite people, the DSL people and ourselves. There will
be lots of bundles coming through.
Q436 Chairman: Roger, you, in your
evidence and indeed today, have been a little bit scathing about
Freeview. You have described it as based on legacy decoder technology,
yet a large part of the justification for switch-off which is
advanced by the Government is in order to extend Freeview coverage
to the whole population. Do you think that Freeview has a long-term
future or do you actually think that in time people's demand for
additional services will mean that they will no longer be content
with what Freeview has to offer?
Mr Lynch: I absolutely agree with
that. I think what we are seeing today, even here in London, are
services which are just available in London and when we look at
where our customers come from, the most astonishing fact is that
the sort of biggest outlier is the percentage of customers we
get from Freeview which is twice as high in our customer base
as it is in London in general which is very interesting because
these are all people who have made choices within the last year
to go with Freeview and they have yet made another choice to take
a new service on top of that. I think the concern I have about
Freeview is not whether it should be rolled out, but that by placing
so much emphasis on, and so much investment in, that, you end
up perpetuating what I call the `lowest common denominator' because
it is based on a legacy technology, it uses the MPEG-2 encoding.
Perhaps I could just spend one minute here and I will try not
to get too technical. We are just at the cusp now of changing
digital broadcasting encoding standards. MPEG-2 is the standard
that has been around for quite a long time and has made significant
improvements. That is why you can fit so many digital channels
into the space of what analogue used to take up, but it has reached
the end of its life and now we need to move to new encoding standards,
and the new standard is MPEG-4. The benefit of MPEG-4 is that
it will use half of the bandwidth of MPEG-2 which means twice
as many channels or being able to do high-definition broadcasting
with far less band width than you need with MPEG-2. The problem
is that every single Freeview box that is out there in the field
cannot do MPEG-4, so what that means is: how do you ever get to
the latest technology on DTT where you migrate to MPEG-4, free
up the spectrum and enable things like high definition? For a
service provider like us, we can do it because actually we already
have it. We are the first broadcaster anywhere in the world to
go with MPEG-4, so our entire subscriber base is MPEG-4. Cable
and satellite will have the economic incentive to do that, but
where people have bought millions and millions of legacy boxes
that cannot do it, we have sort of trapped ourselves in a position
where we cannot take advantage of that latest technology. Separate
from that, you have the inability of it to provide any on-demand
services which I think is really the way of the future about how
people will want to view television.
Q437 Chairman: So in time, when most
people are able to choose between satellite provision, cable provision
and DSL provision, do you think there may be the case of having
DTT switch-off?
Mr Lynch: I do not think there
will necessarily be a case for switching off DTT. If you look
now, satellite has been around for decades, cable has been around
for decades and yet still over half the people in the country
choose not to pay for television. There will always be a percentage
of the population who will not want to pay for television. I think
that percentage is going to continue to reduce and I would expect
pay-TV penetration in this country to reach maybe 75% over time,
but it will be on much lower-price packages than we are talking
about. It will not be on £40 packages because I think we
will have reached the limit of how many expensive packages like
that could be sold and you will have to start getting into more
value bundles for people to say, "Okay, now I'm willing to
make this switch from analogue to a packaged or a bundled service".
Q438 Chairman: So if DTT continues,
do you think there may have to come a point where there is a second
switch-off in order to transfer from MPEG-2 to MPEG-4?
Mr Lynch: I think there will be,
I do not know whether I would call it, a "switch-off",
but there will be a transition where, in an aggregate and an economic
sense, it will make sense to use the most advanced encoding technology.
If we look at France, for instance, they launched digital terrestrial
on MPEG-2 because it was just a bit early, but they passed a law
that said that any pay-services that are created must be launched
in MPEG-4. What that has ensured is that set-top box manufacturers
started building MPEG-4 DTT boxes, so at some point if they decide,
"Let's get rid of the MPEG-2", it will be a much smaller
problem than it will be here because there are no MPEG-4 boxes
in any homes in the UK right now.
Q439 Chairman: Can you have a combined
box? Can you have a box which will receive MPEG-2 and MPEG-4?
Mr Lynch: That is what ours do
today. Let me back up for one second. I do not think it would
have been possible three years ago to launch with MPEG-4. If you
think about it, we were the first operator to have been able to
have done it and we only did it six months ago, so it is not as
if a mistake was made and, "Gee, they should have launched
in MPEG-4"; it was just not possible. The fact is that, as
more and more boxes are shipped out there, it perpetuates the
problem of: how do you ultimately get more efficient use of the
spectrum with advanced encoding techniques?
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