Select Committee on Culture, Media and Sport Minutes of Evidence


Memorandum submitted by BSkyB

EXECUTIVE SUMMARY

    —  Sky is a leading provider of digital television with nearly eight million subscribers. The benefits of digital services to those consumers who choose to receive them, including our customers, are clear.

    —  We are, however, uncomfortable with aspects of the Government's present plans for digital switchover, based as they are on compulsory switchover by 2012. It is clear from the Government's own figures that that could involve a substantial number of households being compelled to pay to switch, and many other partially-digital households having to upgrade or replace remaining analogue equipment where they see no intrinsic merit in so doing.

    —  Our own consumer research confirms that there is considerable confusion and negativity about the switchover process.

    —  Nor do the Government's proposals offer sufficient justification for switchover as envisaged. Access to digital transmissions is to be achieved by a costly and wasteful conversion of all 1,154 analogue transmitters to digital. Our own estimates suggest it would at best be cost-effective to convert between 200 and 500 transmitters, beyond which the cost per household of converting additional transmitters exceeds the costs of funding alternate means of receiving digital television.

    —  Switchover is to be paid for by consumers, both directly through the purchase and installation of digital equipment and an increased BBC licence fee, and through reduced ITV/five licence fees (which is in effect public revenue foregone). The main beneficiaries will be the commercial analogue terrestrial broadcasters (and in particular ITV) which enjoy a greater viewing share on the more capacity-constrained digital terrestrial television (DTT) platform, and appear likely to be gifted the released spectrum. The Committee should consider whether that is an appropriate balance of burden and benefit.

    —  Sky has concerns that the current promotion of digital by the BBC is not being carried out in a platform-neutral manner and is leading to distortions of competition. The BBC should be required to act with complete platform neutrality in the future.

    —  It is Sky's belief that the Government should focus on removing all the obstacles which currently discourage or prevent people from making the switch to digital via whatever platform.

    —  Among the changes which could speed up the natural adoption of digital would be to remove the need for people to seek planning permission for the installation of satellite systems where this applies, thus placing satellite dishes on the same footing as terrestrial aerials, which are no less or no more visually intrusive. Other changes to the planning process could be made to encourage developers to install platform-neutral integrated reception systems in new buildings or refurbishments.

    —  Schemes for subsiding the take-up of digital equipment by vulnerable groups should operate to give the maximum choice of digital platform, rather than being operated on the basis that DTT should be the only option and would invariably be the cheapest, which is debatable in view of the additional support that vulnerable groups will require.

1.  INTRODUCTION

  1.1  Sky welcomes the decision of the CMS Select Committee to conduct an inquiry into the Government's proposals to switch off analogue terrestrial television broadcasts over the period 2008-12. We are happy to respond to the Committee's request for written evidence and to assist further should the Committee so wish.

  1.2  Sky's expertise in digital television is substantial. Sky became entirely digital in 2001. Sky currently serves nearly eight million customer households as well as freesat customers, and our investment and innovation in digital technology has been instrumental in the UK's current lead in digital television. Nearly half of all digital-enabled householders are currently Sky customers.

  1.3  Sky has launched a freesat service, which provides 120 digital TV channels and 80 radio stations free-to-air via digital satellite, requiring no monthly subscription and able to reach approximately 98% of UK households. Sky's freesat service carries the five public service broadcaster (PSB) channels, including all of the BBC's digital services, as well as offering extensive opportunities for interactivity. Government and public interest services such as Directgov, the UK Government's portal, the Community Channel, and ethnic minority services are available on Freesat from Sky. Sky was also a founding member of the Freeview consortium, alongside the BBC and Crown Castle, and distributes three of its channels to homes equipped with DTT reception equipment.

  1.4  Our response covers the main questions set out by the Committee in its announcement of 19 July 2005 and makes a number of other points which the Committee might wish to consider.

2.  POLICY OBJECTIVES, ECONOMIC BENEFITS AND COST OF DIGITAL SWITCHOVER

  2.1  Digital switchover is established government policy, restated most recently by the Secretary of State for Culture Media and Sport in her speech to the Royal Television Society Convention on 15 September this year. An earlier version of the policy was first set out by the then Secretary of State, Chris Smith, to the same convention in September 1999.

  2.2  It is important to point out that Sky is a strong supporter of digital television. Digital services offer significant benefits to those consumers who wish to receive them, in terms of the increased number and range of services available, including a wide range of interactive and digital radio services, and improved technical and sound quality. That is not an issue. We are not convinced, however, that these and other claimed benefits are so great that everyone should be compelled to have them, at significant public and private cost, whether they want them or not.

The policy background

  2.3  Large-scale forced transfer to digital as a central part of switchover policy is a relatively recent development. Chris Smith's 1999 statement clearly positioned switchover as a process which would be driven by broadcasters and manufacturers, with the interests of consumers as paramount. He included the criteria that 95% of households should have access to digital equipment before the analogue signal could be withdrawn; and that 70% of households should have adopted digital television for their main television set before the timetable for switchover could be announced. These criteria no longer seem to influence government policy, which appears now to be driven by a more aggressive timetable. In addition, the Consumer Expert Group report published by DCMS in September 2004 concluded that "there should be a formal public consultation exercise about the policy, timetable and process for analogue switchover". This has not taken place.

  2.4  As a business, Sky has always been a strong advocate of consumer choice. We have been uncomfortable with a programme involving a forced migration to switchover imposed—with its associated costs—on a substantial percentage of people who have no wish and no need to move to digital. We have, therefore, challenged the Government's cost-benefit analysis which has been used to support compulsory switchover by 2012, and have urged government to maintain a market-driven approach in line with the original Chris Smith philosophy.

  2.5  The Government's case for compulsory switchover by 2012 has not been made. There is no pressing national interest which merits compulsion or demands that switchover must be accomplished by that date; the costs of switchover have been understated; and—because of the way in which switchover is to be accomplished—the main benefits will accrue to public service broadcasters, and in some cases their shareholders, rather than to consumers or the nation.

The implications of compulsion

  2.6  Estimates of the number of households that will be compelled to switch vary. Recent research commissioned by Ofcom from Scientific Generics suggests that 90% of homes will "voluntarily" convert to digital (based on first sets). This implies that 2.5 million homes will be forced to switch as a result of the Government's timetable, although in reality many people who acquire digital TV "voluntarily" prior to switchover will do so as a result of awareness that analogue signals will be turned off at a given date.

  2.7  In any event, this analysis significantly underestimates the number of households affected by switchover. There are over 80 million TV sets and video recorders in UK homes, all of which will need to be converted if they are to continue to function fully after switchover. According to the Ofcom research referred to above, only 50% of secondary sets and 15% of VCRs will be "voluntarily" converted. That leaves at least 40 million analogue devices that will have to be compulsorily converted (to continue working fully). Given the average number of analogue TVs and VCRs per home (3.5) it is probable that the vast majority of households will find one or more devices made redundant by switchover.

  2.8  One should note also that the rate of digital adoption seems, according to Ofcom's quarterly update figures, to be slowing. Only 17% of Freeview and integrated digital TVs sold in the second quarter of 2005 appear to have been adopted by homes that are completely new to digital television. The remaining households taking up new DTT equipment were already partially digitally-enabled and were therefore likely to be converting second and subsequent television sets. In other words, there is an increasing deepening of digital availability, not a rapid widening.

Consumer costs

  2.9  Consumer costs of switchover are estimated in the Government's 2005 regulatory impact assessment (MA) at between £80 and £340 per household, depending on how many devices are converted and whether a new aerial is required. These are not negligible sums, particularly when viewed from the perspective of people who do not see the expenditure as offering them a real benefit. Our own research indicates that, when the cost and the compulsory element of switchover are explained to consumers, many resent it—and understandably so.

Spectrum usage

  2.10  Digital switchover will free spectrum, currently allocated to analogue terrestrial transmission, for other uses. The Government's 2005 cost-benefit analysis assumed "conservatively" that the spectrum would be used for standard definition DTT services, which remains possible. It is also quite possible that the Government will gift the freed spectrum to the PSBs in order for them to launch high-definition TV channels (presumably rebroadcasts of their main channels). There will thus be limited or nil exchequer receipts from spectrum sales.

Overall costs and benefits

  2.11  Sky believes that the cost of any digital switchover process should be justified and proportionate. In addition, any public expenditure by means of direct or indirect subsidy to consumers or companies should not seek to favour any particular platform. Such an approach would be consistent with established regulatory and public policy principles, to which the Government's present plans do not adhere.

  2.12  The Government's plan is instead to achieve digital switchover by ensuring that as many households as possible should be able to receive digital terrestrial television (DTT). The decision by Ofcom to require holders of digital replacement licences (DRLs) to build out (convert) the full network of 1,154 analogue transmitters in order to optimise the DTT coverage at 98.5% of the population (the same percentage as currently receive the analogue signal) will result in a significant—although as yet unpublished—and unnecessary cost.

  2.13  At present there are some 80 DTT transmission sites which could cover 93-95% of UK households once the analogue system is switched off. The proposal to convert all of the remaining 1,074 analogue sites to digital transmission will extend DTT coverage to only a few hundred thousand homes. Most of these homes can already receive digital services by some means (such as digital satellite, already available to 98% of households) and a modest degree of more targeted effort could ensure that at least one technical option was available to all, supplied by competing providers.

  2.14  Using such data as has been published, Sky has examined the Regulatory Impact Assessment undertaken by Ofcom when deciding to pursue the conversion of all existing analogue transmitters to DTT. According to our estimates, it would at best be cost-effective to convert between 200 and 500 transmitters (with the actual cut-off point being nearer to 200), after which point the cost per household of converting additional transmitters would exceed the cost of funding alternate means of receiving digital television. We would be happy to share our analysis with the Committee if it is thought helpful.

  2.15  In support of the full roll-out of DTT, Ofcom has argued that there are potential impediments to consumers being able to receive digital television via non-DTT methods, such as restrictions on the installation of a satellite dish. These derive from planning law and policy which we believe can and should be removed between now and any switchover contemplated by the Government (see section 4 below).

  2.16  Ofcom has also placed considerable emphasis on the argument that full DTT rollout gives consumers a choice of platforms and makes digital TV more affordable for consumers, especially low-income households, than alternative digital platforms (an assumption which may be in any case unwarranted: see 5.3 below). What has not been adequately explained is why DTT is being singled out as the recipient of public investment in this way, given that the vast majority of consumers will have a choice of platform post-switchover, even without the conversion of all 1,154 transmitters, and that the most vulnerable households can be protected in ways which do not favour one specific platform. It is difficult to escape the conclusion that the real beneficiaries of DTT rollout are the commercial public service broadcasters, rather than consumers.

Public funding concerns

  2.17  The investment necessary for the build-out will come principally from an increased BBC television licence fee and from adjusted licence fees paid by ITV. Both of these burdens fall directly or ultimately on UK citizens.

  2.18  The main beneficiaries of the Government's approach are the analogue commercial terrestrial broadcasters and their shareholders. The DTT platform offers less choice to viewers because of the smaller number of channels that it can carry and the lack of an upgrade path for subscription services. That results in analogue commercial terrestrial channels enjoying a greater audience share in DTT homes than in digital satellite or digital cable homes, and hence protects their advertising revenues (thus distorting competition in the television advertising market). The preference of ITV for DTT via Freeview has been confirmed by ITV's chief executive on a number of occasions. That does not seem to us to be a proper or appropriate use of the licence fee or of public money; nor is it a sound basis for compelling householders to pay for digital whether they wish to or not.

  2.19  Sky believes, therefore, that it is a legitimate question whether the additional costs of extending DTT coverage are a proportionate employment of what is either public money spent or public revenue foregone. We have informally asked Ofcom to explain the opaque process by which the much reduced Channel 3 licence fees were determined. Our request has been rejected, although we believe that there is a legitimate public interest involved in establishing the exact costs of extending DTT coverage, and we are considering whether to pursue the matter. Only by gaining further information will it be possible to determine whether Ofcom has acted in accordance with European Commission state aid rules, which allow market-distorting state subsidy in only limited circumstances.

  2.20  At this stage it is too early to state how much money will be granted to the BBC in the licence fee settlement for these purposes, although the BBC has requested an additional 0.5% above RPI for switchover costs which it estimates at a cumulative £500 million over the seven years of the licence fee settlement. That figure excludes the cost of targeted assistance which, according to the BBC, might more than double the total required.

3.  THE RELATIVE ROLES OF DIFFERENT PLATFORMS

  3.1  Sky believes that consumers should be able to make a decision if migrating to digital that ensures that they do so with informed knowledge on the basis of fair competition between the platforms that are available to them. That principle applies whether compulsion—with which we disagree—is part of the process or not.

  3.2  The principle requires complete neutrality by public bodies and others engaged in promoting digital television, both in on-air and off-air marketing. We welcome the fact that Digital UK (formerly Switch Co) is committed to platform neutral communications.

  3.3  Sky has, however, concerns about the promotion of digital services on the BBC, which has focused heavily on Freeview, with much less emphasis on the availability of BBC services via satellite (either Sky Digital or freesat from Sky), or other platforms. The BBC has also tended to refer to Freeview by its brand name, while leaving other platforms as anonymous technologies (eg digital satellite, cable). As the Government's 2005 Green Paper on the BBC Charter points out, unclear promotional activity has fostered confusion and concern among sections of the population who assume that if unable to receive DTT they will not be able to receive the BBC's channels on a free-to-view basis.

  3.4  Such confusion could be dealt with if the BBC were required to give equal promotional weight to all digital platforms, making the point that the BBC's digital channels are in each case free-to-air (except on cable).

4.  THE FEASIBILITY OF THE GOVERNMENT'S TIME-TABLE

  4.1  The Government's time-table for achieving switchover is ambitious, raising a number of technical and policy questions, some of which are for Government to determine: for example the feasibility of completing DTT build-out in order to allow switchover to proceed. It is therefore surprising that little attention has been given to removing some of the obstacles which currently hinder people from moving to digital, and which could and should be done regardless of the plans for compulsion. We have identified a number of legal and regulatory barriers which should be removed.

  4.2  In its switchover report to the Secretary of State of 5 April 2004, Ofcom recommended that "the Government should continue to try and remove the barriers which prevent progress towards switchover, for example, planning restrictions which prevent placing satellite dishes on certain buildings".

  4.3  Sky agrees. The current requirement to apply for planning permission (where an installation would fall outside the scope of the permitted development rights) undoubtedly discourages people from taking satellite television and runs directly counter to public policy on promoting switchover and platform choice. We believe that these restrictions should be removed. In this context Sky is disappointed that the Government has not yet announced proposed revisions to permitted development rights for satellite dishes, despite the consultation on the subject for England having closed in July 2003.

  4.4  The Town and Country Planning Act 1990 (and the equivalent legislation for Scotland, Wales, and Northern Ireland) provides that all "development" requires planning permission. The prevailing interpretation of the term development is that it includes the installation of satellite dishes, although not terrestrial TV aerials, which are treated as de minimis even though their visual impact can be much more obtrusive in practice. The difference in treatment appears to be due simply to the relative length of time that TV aerials have been part of the visual environment compared to satellite dishes.

  4.5  Under the Town and Country Planning (General Permitted Development) Order 1995, as amended (GPDO), satellite dishes benefit from a general planning permission, known as permitted development rights. Where an installation does not fall within the scope of permitted development rights (and these are comparatively restricted), an application for planning permission is required. The time commitment and cost (£120) involved in submitting a planning application for this purpose acts as a clear disincentive to householders wishing to install a satellite dish.

  4.6  Sky's view is that the Government's stated policy on platform neutrality means that the only consistent policy response to the consultations on planning and satellite dishes is specifically to exclude satellite dishes from the definition of development for the purposes of the Town and Country Planning Act 1990.

  4.7  Sky also believes that that the planning process should be used to encourage people to switch to digital services. We have argued that the grant of planning permission to developers for new and refurbished buildings should be made conditional on the installation of integrated reception systems (IRSs) in multiple occupancy residential developments or site-wide systems for digital communications in other developments. This is an entirely platform-neutral approach conferring no advantage on digital satellite, but does provide greater consumer choice between platforms.

  4.8  It is regrettable that the Office of the Deputy Prime Minister (ODPM) recently failed to take the opportunity to amend the building regulations to require properties to be ducted, cabled and wired for digital television, following a process of consultation. Sky understands that ODPM with the DTI plans to work with the industry to develop non-statutory guidance in this area. Sky will be pleased to participate in this work but asks the Committee to urge ODPM start the process without further delay. Delay simply adds to the stock of housing which is not digital-ready.

5.  THE PROTECTION OF VULNERABLE GROUPS

  5.1  Sky is involved in the current pilot scheme in Bolton designed to test how help for vulnerable groups (in this case the elderly) can best be provided. We will be studying the results carefully.

  5.2  Schemes for equipment subsidy and other assistance must be technology and platform neutral to allow vulnerable consumers to make the best choice suitable for their needs within the overall programme of assistance. At present, government thinking seems to be based on the assumption that vulnerable groups should be offered only the cheapest digital option, and that that would invariably be DTT.

  5.3  We question that assumption. If choice is central to government digital policy, and is used to justify the costs of upgrading all 1,154 terrestrial transmitters, then it is important enough to offer options other than the cheapest to the vulnerable. In any case, if an individual household requires an aerial upgrade, a home visit for installation, or subsequent support to have DTT, then the true costs might well exceed other options, including digital satellite. The greater availability of interactive services, including government and public information services via the satellite and cable platforms, should be another factor to consider, given the needs of vulnerable groups.

  5.4  Within the vulnerable groups mentioned, disabled people have been identified as being at greater risk of disadvantage as a result of switchover. Sky's research into the needs of its disabled customers has resulted in substantial changes to our customer services, access to information and the introduction of disability awareness training for installation engineers. We know from experience that some disabled people need extra help in understanding and setting up digital services in their home and that disabled customers are more likely to contact customer services for help and advice once the service has been installed. More detail on the accessibility services we provide are set out in the Appendix to this paper.


 
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