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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