Examination of Witnesses (Questions 520-539)
DCMS, DTI
10 JANUARY 2006
Q520 Helen Southworth: Is the focus
on getting affordability into the general mainstream set-top boxes?
Because you are going to be looking at affordability for people,
within your evidence you have said that some people might not
afford more sophisticated products required by their specific
needs, you are looking at treating that completely separately,
rather than trying to get it into mainstream affordability?
Alun Michael: Is that not partly
referring to the question of the extent to which there is interoperability
between the receiver of the signal and therefore it is not just
a question of the issue of the service; rather than the question
of the specific needs of groups?
James Purnell: I think that is
right, but I think it is also about making sure that the basic
entry point, which is DTT, is suitable for those people. That
is what I am saying is our clear commitment. At that basic entry
level point the box will be easy to use for people over 75 and
people with disabilities; they will have audio description for
the blind; and we will look at how we can make it appropriate
for people with other particular needs. When we provide that vulnerable
package it will help those people with those particular issues
and, in particular, address those issues. How easy it is to use
the remote control, for example. How they can fit the technology.
The vulnerable package will not be just about sending people a
box and then telling them to get on with it. There will be a helpline,
and if they are not able to fit it and to learn how to use it
purely through the helpline they will get a home visit. That is
what we have been trialling in Bolton, and the initial figures
we have had, the new figures we have got, show that about one-fifth
of people have required a home visit so far, and that is people
all over 75. Four-fifths are able to fit the technology themselves
with the help of family and friends or the helpline, and about
one-fifth have required actual help where people go round and
fit the box, look at the aerial and show them how to use the remote
control. The vulnerable package will mean not only will those
needs of people be directly addressed but they will also get benefit
in terms of extra channels. I think an important point of this
policy is that people who are isolated, who are older, with disabilities,
who live by themselves, for them TV is a really important part
of their social life. If you go from having four or five channels
to having the range that DTT offers or the other platforms that
is a real benefit and in some cases is a life-changing benefit.
Q521 Paul Farrelly: The biggest by
far in the table which has been provided as part of your evidence
on the cost of switchover to the consumer is the aerial installation
cost if needed. We have been particularly concerned on the Committee
on the potential for aerial cowboys to exploit uncertainty. I
just wanted to ask you, what considerations have you given and
how robust do you want Digital UK to be in encouraging people,
firstly, to use only accredited aerial installers, that is quality
guidance; and, secondly, cowboys on the ball may forge the digital
tick in going around, so how robust should we be in giving price
guidance as well on what people can expect to pay and what they
should not pay?
Alun Michael: I think it is worth
saying as a background to that when you are referring to aerials
that at the moment in the areas where there is coverage for digital
terrestrial television some 30% of people have to upgrade their
aerial, which is obviously a cost; whereas after analogue switch-off
and the boost of the signal it will be something like 3%. That
is a very significant saving for the people who are involved directly.
I think you are right about the importance of people being able
to depend on the quality of the service that they receive. For
that reason we have got a working group on the supply chain issues.
Like the group that James just referred to, it is focusing very
specifically on the question of the quality of service to the
public. Secondly, we have got the digital installer training scheme
in order to make sure that there is a quality of the skills of
people to undertake the work. Clearly the timing of that relates
specifically to the timetable region by region. I think you are
right, that it is something which needs to be emphasised and very
clear. It is something we are engaging with, with the industries
concerned. I think the response we have had from industry is very
much that they want to be able to give the guarantees of quality.
It is an area we will continue to develop and we move towards
the start of the programme.
James Purnell: That is right.
The digital tick obviously will be applying to those people as
well as to equipment, and it will be one of the central roles
of Digital UK to market that to the public so they know to look
for the digital tick. I think the point you and the Committee
have made about the price points is one which we need to think
about. Obviously if you give us some recommendations we will look
at those seriously.
Q522 Mr Sanders: The cost benefit
analysis that was undertaken by the Government, how central was
it to the case for switchover?
James Purnell: I think it is worth
saying that we do believe the cost benefit analysis is a robust
conservative piece of work. As Stephen Carter said if we did it
again now it would be likely to be even more positive. It assumes,
for example, the cost of a set-top box is going to be £50,
and that is already out-of-date. It also assumes a very conservative
use of the released spectrum. It would basically be used just
for television uses. The key thing about the cost benefit analysis
is that it was positive under all scenarios. It has been independently
audited. We are going to be publishing that today and we have
made it available to the Committee. We do not want to pretend
this is a more theological or scientific process than it is. The
purpose of the cost benefit analysis is to check your assumptions
and your thinking; to work through your assumptions, make sure
that they stand up to scrutiny and look at the evidence. I think
it is an important and useful piece of work which helped to estimate
the decision rather than which determined the decision.
Alun Michael: I think it is fair
to say that the memorandum that was submitted before the recess
was carried out by a team involving the Treasury, and in line
with the Treasury Green Book, but it has also been subject,
as James indicated, to independent academic examination and audit
that has been undertaken by Professor Andrew Chesher from University
College London. I suppose you can debate the values for the assumptions
in the central case but, again as James said, conservative assumptions
have been made, so in many ways it is a worse case scenario. In
terms of the advantages to the public of the switchover those
are very clear and major, so it does not just depend on the arithmetic
within the cost benefit analysis.
Q523 Mr Sanders: The amount of money
to access digital television for the box, £25-£30, is
widely quoted, but there does not seem to be any appreciation
of some of the other costs. For example, to use that box you are
going to need a Scart lead. A Scart lead can cost between £10-£15.
It might not sound a lot to you or me but that could actually
be a significant problem to somebody on a fixed income, even if
they have got a free or subsided box. The costs of having a new
aerial, if necessary, or testing the existing aerial, there are
the on-costs of having gone digital. An extra piece of electrical
equipment will increase their electricity costs. I do not think
from what I have seen that all of these costs necessarily have
been factored in. Have all of these costs been considered?
James Purnell: I think they have.
I think the cost benefit analysis certainly includes aerials;
it includes the electricity costs; it also includes an analysis
of consumer benefit based on survey work on consumers. We are
confident that it has looked at all the relevant costs. If we
did it again now it would be even more positive than it was then.
Some of the points which are made about the cost benefit analysis
are just worth correcting. For example one of your witnesses talked
about the fact we said it was worth £900 and sort of implied
it was per year to consumers to have these extra channels—actually
that is the net present value of the extra channels over 20 years.
Some of the wilder estimates of the costs of this you can only
get at by assuming that every digital TV that has been purchased
in the country has been as a result of the announcement which
we made earlier last year, and clearly that is incorrect. Anybody
who bought a digital TV before we made our announcement was not
caused by an announcement. It is accepted Green Book methodology
that any sunk costs like that are not taken into account. Going
forward, we have made a very conservative assumption which is
basically all second sets which are upgraded after our announcement
are included as a cost, even though probably quite a lot of those
would have been upgraded voluntarily.
Alun Michael: I think there is
another point here as well, because you referred to the cost that
will be there for some people in terms of upgrading the aerial.
The figure I gave earlier was that at the moment 30% have to upgrade
an aerial if they are in an area where they have got digital terrestrial
television converge; whereas after the signal boost, because the
switch-off means that you can have a stronger signal, that will
be down to 3%. What that effectively means is that in areas where
the service is available at the moment people can either choose
to wait for the date of switch-off or 27% of them are going to
have to pay for having the aerial upgraded. So there is a cost
in not switching off as well a cost to the consumer in the switch-off
of analogue. All of the factors obviously have to be taken into
account in reaching conclusions on what the policy should be.
Q524 Mr Sanders: In terms of how
this cost benefit analysis works in relation to the economy, are
the benefits not partly generated as a result of people being
compelled to buy equipment for their TVs; rather than any actual
real economic value? Is that not an artificial cost benefit?
Alun Michael: I think to refer
to it as compulsion is artificial. The situation at the moment
is that you have the developments into the late 60s of a percentage
of people choosing to have digital television for at least one
of their sets in a household. That is voluntary because people
are assuming, as indeed I have done and many people in this room
probably have, to have the increased number of channels and the
quality that follows that. The point is that "no change"
is not an option—there are costs involved in any decision,
costs for consumers. I have just indicated the one in terms of
the burden of upgrading aerials, because it is not possible to
upgrade the signal until there is analogue switch-off. That is
a cost; that is a burden. I think it is a question of making a
balanced assessment, and making sure that we move forward. I referred
at the beginning to the fact that we have a very well developed
market, of a variety of different means of which digital terrestrial
television is only one element. I think there is a graph (which
if the Committee has not had it may be illuminating for you to
have) showing the development of growth; which shows pay digital
and digital terrestrial as the two major growth areas and the
areas that now dominate as a result of choice; because this is
in advance of anything of this sort. What we are doing is sensibly
reflecting the technical developments and the choices that people
are making and saying: how do we give certainty to people for
the long-term future, while protecting the vulnerable in the way
James has referred to but creating certainty, which does two things?
It enables individuals, the consumer, to plan, but it also enables
industry to plan and, therefore, to be able to be more competitive
in providing the equipment and the services that people need.
James Purnell: The only other
thing I would just add to that briefly is that the cost of people
who are compelled are included as a cost. Where people are facing
costs imposed on them by the Government that is subtracted from
the benefits and not added to the benefits. For example, as I
mentioned, all those second sets are counted as a cost in the
cost benefit analysis.
Q525 Mr Sanders: Finally, on the
cost savings for broadcasters for not transmitting both analogue
and digital, have you considered any way that they could actually
be passed on to the consumer, perhaps in the form of a reduced
TV licence or in some other way?
James Purnell: This is something
we are looking at in the licence fee negotiations. I think we
work slightly the other way round which is, if there are any increases
or reductions in costs the BBC need to look at that in deciding
the future level of the licence fee. That is exactly what they
put in their proposals to us, and we are looking at that through
independent consultants and will make decisions in due course.
Alun Michael: The licence is a
matter for James, but I would put it another way round, which
is: if you were to insist on the continuation of analogue as well
as digital you would be putting a burden on broadcasters and industry—a
duplication in terms of the services which, at the end of the
day, the consumer would have to pay for. The choice would be whether
it was paid for directly or through taxation. At the end of the
day, the burden has to be paid for some way, so the continuation
of analogue really requires the answer to the question: who is
going to pay for that continuation when it is clearly not a productive
or sensible use of the finances that are necessary in order to
provide it? Also because it then limits the use of spectrum; it
limits the signal that can be used for digital and, therefore,
limits the population that is going to be able to benefit from
it; whereas the outcome of this will be that at least the 98.5%
of people who receive adequate service now will receive the digital
service.
Q526 Paul Farrelly: With respect
to costs, we have heard evidence on two counts particularly—there
have been the marginal costs of going to 95% which is actually
not significant, rather than 94 or 90 as they have got in Germany;
and, secondly, if you ran the costs on the basis of a satellite
model that would not necessarily come out more favourably. Clearly
over the period, since these analyses and audits have been done
of the cost benefits, Freesat has emerged more strongly. Have
your Departments done a side-by-side analysis of a Freesat model
and compared it with the digital terrestrial model that we are
now looking at?
James Purnell: Obviously we have
that already today with the Freesat from Sky; and the costs of
any Freesat offer from the BBC, ITV and the others would not be
much different from that. Satellite, whether free or pay, broadband,
cable, wireless, other technologies will provide a very important
part of this. For people who want to pay for those extra services
that will be a very important part of it for them. At the beginning
of this inquiry there was a perception that it would be cheaper
just to do the last 10% or 20% through satellite. I think the
evidence you had from Arqiva showed that was not the case. Typically
the cost for even the smallest relay station was around £150
and that compares to the cost of fitting each satellite of about
£150. It is the most economically efficient way of doing
it through DTT. It is also very important for the policy overall
which is, if we were saying, "We're switching off your signal
and in some places you're going to be able to get DTT but in other
places you're not", it will be a very, very difficult message
for Digital UK to communicate. I think it is important that we
go for 98.5% through DTT.
Alun Michael: I think you are
right to concentrate on the cost and the challenge of the final
percentage, whichever percentage you are looking at. In trying
to deal with the 1.5%, which is what we are looking at at the
moment, Ofcom has commissioned some research on this at the present
time. I think it is one of those issues where it is quite difficult
to keep up with the changes that are developing. I point to the
example that we had in broadband where in a previous role I was
very involved in this with colleagues at DTI on the question of
broadband delivery in rural areas. What we found was, once there
was a certainty about what was going to happen in terms of main
provision, all of a sudden you are small providers, you had technical
innovation, you had a variety of organisations coming up with
new ideas; BT itself changing its approach. Therefore, the greater
certainty we can give about the 98.5% the more likely it is that
there will be a market response that would help towards meeting
the provision in relation to the 1.5%, which of course then is
going much further than the current availability of analogue.
It is also the case of course that some of this depends on the
nature of the international agreement which is the subject of
debate during the summer months this year, although a lot of preparatory
work has already been done. Therefore, it is going to be possible
to be a lot more certain about how easy it is to deal with the
edges—things like strength of signal and so on—within
the course of the next few months.
Q527 Chairman: Can I just come back
to the cost benefit analysis. The costs are very clear—they
are concrete expenditure on boxes, aerials and masts; but the
benefits, a large part of them, you calculate as being imputed
consumer benefit from compulsory migration. That seems to me to
be the value to households of getting extra channels which they
could get now but have chosen so far not to get?
James Purnell: Yes, the net effect
of those two things. So there is the cost for people who will
be moving who do not have to move. As I have said to Adrian Sanders,
we have been very conservative in that assumption. We are assuming
that everybody from now on who upgrades a second or third set
is being forced to do so in a compulsory way. So that cost is
estimated. Then we look at the benefit to people having those
channels. I think the point you are getting at there is that the
cost benefit analysis does impute some benefit to people who got
those channels after they got them, even if they had been forced
to make that transition. I can see why that would appear slightly
odd, but it is surely right. If someone is forced to make the
change, you look at the cost to them of doing so—so buying
the set and whatever—but then there is a benefit to them
in terms of watching the channels. As our pilot in Ferryside
showed, people were extremely enthusiastic after getting digital,
even many people who had said they did not want to have the set
in the first place. It is just the accepted way of doing it in
terms of Green Book methodology and I think it is quite clearly
the appropriate way of doing it.
Q528 Chairman: To put a monetary
value on the fact that somebody who previously had never expressed
a desire to have extra channels but now can get BBC Three, BBC
Four and ITV 2, 3 and 4 and say, "That is worth so many pounds",
is that not an entirely notional, artificial construct?
James Purnell: No, you look at
the cost of them doing so and you put that in the model and you
look at any benefit from them looking at the channels.
Q529 Chairman: How can you say that
benefit is worth so many pounds to them?
James Purnell: You do consumer
research, which is exactly what we did and we are publishing that
today; and then you get independent people, professors, to look
at the assumptions you have made, and we are publishing that today
and they have said that methodology is entirely appropriate. Even
if we took that out, which would be wrong to do, but even if we
did it is pretty clear that the cost benefit analysis would still
be very significantly positive.
Alun Michael: I think it is also
worth pointing out, you suggested that the benefits are vaguer
and the costs are settled. Actually that is not the case, because
the reducing price of equipment, including the set-top box, changes
over time. The other thing that changes over time is that as the
audience increases the service that is provided goes up, and the
certainty we are providing to broadcasters is likely to influence
the way in which they undertake their work and, therefore, the
value of what the consumer gets on both sides of the equation.
They are estimates based on a methodology that is quite clear.
It is not the same as a pound in your pocket, but it is a very
carefully worked out attempt to quantify the costs and the benefits.
I agree with James, I think it is absolutely clear that the benefits
greatly outweigh the costs.
James Purnell: Like any assumptions
done by economists, sometimes they can look odd to the rest of
us; but it is quite clear that people who do not want to switch
at the moment are not saying they value the service at nothing;
they are saying they value it less than the cost of the service.
What you are trying to do in the cost benefit analysis is work
out how much they do value it at. Is it £10 a year, £20
a year, or whatever. Then you put that in as a benefit and then
the cost of them being forced to switch is put in as a cost.
Q530 Chairman: There are plenty of
people who have said to us, and I have no doubt have said to you,
that actually they put zero value on getting extra channels. Indeed
they have expressed to us that they positively do not want extra
channels. Yet your analysis essentially is saying, "You may
think that but actually once you get it you will find it's going
to be very valuable"?
James Purnell: No, we are not
saying that everybody who values these services at nothing values
them at something. We are saying that within those people who
are refusing to switch, some of them value it at absolutely nothing;
some people would value it at something, so they will watch the
channels after they get them even though they have had to also
shell out for a set-top box; and that is exactly the right way
of doing it. That is clearly the right economic way.
Alun Michael: If I could illustrate
it from a personal perspective—I think I would have been
amongst those who did not see the value of having extra access
until having a digital box and then being able to access BBC Three
and see the excellent analysis of that excellent Dr Who
series produced in Cardiff, which gave a tremendous opportunity
and one I took advantage of. If you ask me after the event: do
I place value on having installed the digital box; the answer
is, "Yes, I do now". I think the analysis is meant to
reflect that sort of excitement, which I commend to members of
the Committee.
Q531 Mr Evans: Are you watching any
other channel now, Alun?
Alun Michael: No, that is the
only one I have managed to make time for!
Q532 Paul Farrelly: Put in plain
language so I can understand it, it is like me going back to school
and saying, "I will not eat my greens", but of
course when forced to eat my greens there is a benefit that accrues
to me from doing it.
Alun Michael: You might even start
to enjoy your greens!
Q533 Mr Sanders: There is another
way of looking at this. If BBC Radio 3 was taken away from you,
would you then be prepared to pay for it?
Alun Michael: I think that is
a very good question. Probably the answer is, yes. That is purely
a personal response as a consumer.
Q534 Mr Sanders: You can also afford
to pay for it.
Alun Michael: Many of us, if you
go over the years when BBC 2 started, when ITV started, might
not in advance have placed a value on it, but will have placed
a value on it subsequently.
Q535 Mr Sanders: You did not pay
for those, did you? You did not have to shell out anything.
Alun Michael: No, indeed, but
you put value on things even if you do not have to pay for them,
surely? The question in the cost benefit analysis is: how do you
reflect that value in some way? As James has said, because it
is trying to analyse the economic benefits, the costs and the
benefits, it has to have a methodology in order to do that in
respect of things you are not paying for. Yes, there is a sense
in which it is artificial but it is surely commonsense to try
to do that.
James Purnell: We will publish
the research which this is based on today. In very simple terms,
you look at the benefit which people have from asking how much
they value their services. For some people it will be nothing;
for other people it will be less than the cost of the service;
all of those people, the non-voluntary switchers; then you look
at the costs and you deduct one from the other. Just to serve
these purposes, even if we took out the people who are being compelled
to switch, if we did the analysis again today I am sure that it
would stand up.
Q536 Alan Keen: I can remember how
much the ability of people to watch the parliamentary channel,
including recording this on a Sunday night, made to the total
valuation of it! I have not quite been able to bring myself to
watch it yet!
Alun Michael: I think that would
come in the same category as Dr Who—they do not know
what they are missing until they start watching!
Q537 Alan Keen: As we have gone through
the inquiry we tend to form opinions, obviously—I hope we
do anyway. I am sure you will not mind if I make a couple of observations
and then stick a question on the end. One of the most interesting
series of inquiries that we did on this Committee before the turn
of the century was the Dome. There were two lessons we learnt
from that. The first one, which is just for your benefit and is
not very important, is that there was a minister then who identified
himself much too closely with the possible benefits; he fell into
temptation and that gave the press the chance to really target
him. So that is one good lesson. The main lesson to learn from
that was that the big mistake (apart from not doing it at all)
was that there should have been two chief executives instead of
one. The first one did a great job delivering the structure and
the services, but she was also in charge of the content which
was a mistake—not that maybe she could not have done it
but her main aim was to deliver because there were lots of problems
over transport, so she was focused on that delivery. There should
have been a chief executive also from the beginning who concentrated
on the content of the Dome. In a way this is what is worrying
me slightly. I was very impressed by the people we have listened
to who have got various responsibilities, but I have a concern
that somebody should be identified who is really looking at how
to convince people to switch over before we get there. It is a
great product, and the market itself is doing its best to sell
products; but I still have not seen evidence of how we are trying
to get to people who do not know the benefits of it; somebody
who is marketing the product as a representative of Digital UK
or whatever. I have asked these questions and had answers. It
has been mentioned already today so we must have some concern
about that. Are we doing absolutely everything to convince people
to switch over early, which would reduce any cost at the end and
reduce the number of sets that do not work when the switchover
happens? Have you thought about that? Are you satisfied there
is somebody focussing on that particularly?
Alun Michael: Can I say, I think
the biggest difference between digital switchover—and perhaps
almost that term is misleading; what we are talking about is analogue
switch-off—with the Dome you had a target for it to be ready,
for the doors to open and for what was available to be there for
the public. This is a quite different project. This is about drawing
a line under a period of duplication and the end of a period of
transition done region by region, because that is the way to get
it tidy and to give certainty for both the consumers and the market,
and certainty to the broadcasters as well as to who is going to
be able to have access to their channels. It is also about making
sure that the UK remains a leading country in terms of media and
ICT more generally. I would stress a point that I made earlier
on that, in order for switchover or analogue switch-off to take
place in a region everything has to be in place, not just on the
day when that takes place but well in advance, so that there is
a period in which people know that it is on the first of whatever
the month is that that is going to take place; and post that date,
if they have prepared for it, they will be able to get the service
that is promised in the new arrangement; and the certainty that
they need to plan by that date. Obviously everything built in,
in terms of support for the vulnerable as well as information
for the public generally, is extremely important. I just underline
one thing, which is that we ought to be trying to get across the
degree of certainty in the information, particularly as we approach
the relevant date region by region. James referred earlier to
the fact that there is a freephone number for dealing with information
needed by the vulnerable groups—which incidentally is 0800
519 2021—but there is also a general helpline number, which
is a local rate number for anyone wherever you are in the country—which
is 0845 6505050. Yes, it is very important indeed that we make
sure people know what is happening; but, unlike the project that
you made the comparison to, this is about the ending of a duality
rather than about something new.
Q538 Alan Keen: Maybe I have not
clarified what I meant to get over properly. People are concentrating
on the switch-off and that is where the big danger comes for everybody,
all of us?
Alun Michael: No, I am sorry,
we are not concentrating on the switch-off. We are concentrating
on preparing the ground so that there is not a great flurry of
worry at a point when there is switchover. That has to be well
before the date of the switch-off.
Q539 Alan Keen: Yes, I understand
that. The point I am making is that the danger point is when the
switch-off comes. There is a switch-on and a switch-off in a limited
period of time. The point I am making is, there would be much
less danger if there were 100,000 people who had not switched
over to digital rather than if there were half a million people
who had not switched over to digital when that switch-off comes.
In addition to the market itself and the selling of sets and the
people who make money from selling the sets, is there anyone who
is actually concentrating on telling people what a great product
it is and to switch over now and do not wait for Sky or the BBC
to convince you, it is a good product. I would like to see one
person with that responsibility, to reduce the number of people
left at the switch-off.
James Purnell: I think that is
a very good point. I think your point about the Dome precedent
does actually show the idea of having one person trying to do
everything actually is not necessarily the right way forward.
Marketing is a key responsibility of Digital UK. The first work
stream is on communications and the identified person for that
is Beth Thoren. There is going to be a very ambitious marketing
programme. I think Ford Ennals said it was not less than £100
million for this project. A key part of that will be doing exactly
what Alan said, which is laying the ground so people know that
they need to switch over and exactly how to do so. I think your
point is absolutely right.
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