House of Commons - Culture, Media and Sport

Select Committee on Culture, Media and Sport Second Report

3 Rationale for replacing analogue with digital

29. Written evidence from the DCMS and DTI began with an overview of the case for digital switchover. The following benefits were identified: greater choice of TV services; widescreen pictures; more robust technical quality; and interactive features such as home shopping, banking, e-mail and internet access. While these advantages are undeniable, they are already available to anyone who wants them and therefore do not in themselves constitute reasons for denying choice to those who do not. The main justification therefore that has been advanced for switch-off is to extend the availability of digital terrestrial television to the whole population, including boosting the signal for better quality reception by those who are already receiving it. Further justification comes from the cost of simulcasting in analogue and digital and the economic value associated with more efficient use of radio spectrum.

30. The Government claims that switching terrestrial broadcasts over to digital will benefit the UK economy by between £1.1 billion and £2.2 billion, in net present value terms.[49] These figures, published in an updated cost-benefit analysis report in February 2005, merit close scrutiny. These have been called into question by a number of commentators,[50] and we examine this in more detail later.[51] One possibility is that the calculations may have granted inadequate weight to the social costs associated with switchover.

31. In 1999, the Government had confirmed an aspiration to complete digital switchover, a process by then underway, subject to two "key criteria": availability and affordability. On 17 September 1999 the then Secretary of State, Chris Smith, delivered a speech to the Royal Television Society which provided elaboration on these criteria. He stated that the main free-to-air channels reached virtually everyone in the UK, 99.4% being the conventional figure. In a Westminster Hall debate on 5 July 2005, the present Minister, James Purnell MP, said that, taking into account technical definitions of what it means to receive television, the Government now has a coverage guarantee of 98.5%.[52] However, this is not the same as saying that the same 98.5% will be covered by digital signals as presently receive analogue.

32. On affordability Chris Smith said: "What does 'affordable' mean in this context? It means prices which are within the reach of people on low and fixed incomes, particularly elderly people". One key measure of progress to set alongside the affordability test would be, he suggested, the degree of take-up of digital equipment in households. "But I want to make sure that 95% of consumers have access to digital equipment before switchover is completed." In oral evidence to the Committee's inquiry, Dr Jeremy Klein of Scientific Generics said: "the issue of affordability seems to have got lost, and we must not forget, I think, that for some people £25 is a lot of money. That sector of the population seems to have got lost in the deliberations so far."[53]

33. The Government's written evidence referred to work by the joint Government/Industry Digital TV Project between 2001 and 2004 that concluded the market alone would not produce digital switchover to a degree that would allow the analogue signals to be turned off. A carefully managed transition strategy would be needed. Dr Klein suggested that some 20% of the population would not convert at least one TV unless a managed mechanism was put in place.[54] Setting a switchover timetable was one way of prompting the market for digital equipment.

34. According to Dr Klein, the public would understand the inevitability of analogue switch-off, though they would want to see a "properly made public interest case".[55] Like other witnesses he saw the "coercion" involved as being a problem. Several written submissions and witnesses in oral evidence commented on the compulsion involved in the Government's present digital switchover policy. Evidence from the Voice of the Listener and Viewer noted the switch in emphasis from a policy led by consumer choice and the market to one determined more by industry and central policy.[56] David Elstein said that analogue switch-off should be a consequence of digital switchover, not a precondition of it.[57]

35. The Government and Digital UK should do far more to explain to the public why they have chosen to proceed with analogue switch-off now, what options are available to people and on whom the costs and benefits will fall. This is all the more important in view of the element of compulsion that has been introduced.

Benefits of digital television

CONTENT

36. The main benefits associated with the move to digital terrestrial television are more channels and the release of radio spectrum from switching off the analogue signals. Providing free-to-air multi-channel television has been seen as a key driver for digital switchover in many European countries such as the UK with a history of public service television delivered predominantly by terrestrial broadcasts. In oral evidence, Chris Goodall saw the limited number of extra channels as being the only significant benefit of switching terrestrial broadcasting over to digital. David Elstein saw "no consumer benefit at all" in extending DTT and, like Dr Andrew Wheen of Mentor, saw the satellite platform as providing a better means of extending the availability of digital television.[58]

37. In written evidence, Five pointed to the demonstrated appeal of Freeview - an offering which is free-to-air and with a channel portfolio measured in dozens rather than hundreds.[59] This echoed sentiments expressed by Dr Jeremy Klein in the first evidence session of the inquiry.[60] In their written evidence, the Voice of the Listener and Viewer cited the main benefit of digital television as being the increased choice of television channels - at a cost. VLV doubted whether this brings about increased programme choice, the reduction in ITV's regional programming being one concrete example, together with a more subjective assessment that minority tastes are being less well catered for.[61]

38. Channel 4's written evidence also commented on content, referring to the "inevitable decline in the public service contribution of Five and ITV".[62] It styled Five's contribution as relatively small-scale. Of the public service broadcasters, Five has fewest obligations imposed upon it. Specifically it is required under the umbrella of the Communications Act to carry news and current affairs programming and it has imposed on it quotas on independent, original and regional production.

39. Channel 4 supports the policy of digital switchover on the grounds that it offers greater consumer choice, more efficient allocation of scarce spectrum and the release of analogue spectrum that could be used both for commercial applications and in support of public policy objectives. However, the Channel's written evidence makes clear that the broadcaster is "extremely concerned" about the ways in which switchover could affect its long-term future and its ability to meet its public service remit. The concern comes from the loss of the "implicit subsidy" associated with a cost-free allocation of analogue spectrum. Channel 4 contrasts its position with that of the BBC with its secure licence-fee funding and with the concessions made by Ofcom to ITV and Five, both of which have seen reductions in their broadcasting licence payments. S4C benefits from a hybrid funding model, comprising grant-in-aid from the DCMS as well as advertising income; it sees digital switchover as providing opportunities for extended Welsh language programming as well as facilitating the conversion of second TV sets - an important issue in mixed language homes in Wales.[63]

40. In oral evidence (on 8 June 2004) to the previous Committee's inquiry on the BBC's Charter review, ITV's chief executive Charles Allen said: "I think it would be wrong for the BBC only to be the provider of public service broadcasting. I believe pretty passionately that ITV has a role to play, Channel 4 has a role to play and Channel 5 has a role to play and I think it would be wrong to see the BBC as the sole provider of public service broadcasting. Frankly, a multiplicity of supply of public service broadcasting has to be the model going forward." Speaking to this Committee's inquiry, ITV's Clive Jones said: "Our spectrum charges have fallen - they were many hundreds of millions of pounds - but they are still £80 million a year. We are still paying considerable sums. But our public service broadcasting commitments are costing us around £250 million a year - that is, national news, regional news, arts, religions, documentaries, current affairs. Let me make it absolutely clear, we wish to remain a public service broadcaster, but there is a dilemma going forward."[64] He went on to call for an urgent debate about the provision of public service broadcasting. There is no shortage of material available with which to inform any such debate: the Government's recent review of the BBC's Charter[65] and Ofcom's review of public service television[66] providing but two examples.

41. In addition to greater numbers of television channels, digital terrestrial has the capability to offer some interactive features, but is more limited in this respect than alternative platforms such as cable and satellite. The differing functionalities of the four platforms, particularly in the levels of interactivity they offer, tie in with questions that go beyond the immediate concerns of analogue switch-off: to the broader project of enabling an information society with services provided by computers or digital televisions. In his evidence, Roger Lynch of Video Networks Ltd described Freeview as a very basic service. He went on: "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".[67]

42. Jocelyn Hay on behalf of Voice of the Listener and Viewer also expressed concern that people would opt for the cheapest boxes offering limited functionality. She said: "Our fear in VLV about future boxes is that there is going to be a big divide between the cheapest boxes and the most sophisticated boxes. I think there is a huge danger there that a large swathe of people, particularly the most vulnerable, will either be given or acquire the cheapest boxes which will have very, very limited functionality".[68]

43. We share the concern that by emphasising the low cost of set-top boxes in an effort to persuade people that switch-off will be relatively inexpensive, the Government risks missing an opportunity to encourage the take-up of more sophisticated digital technology offering interactive services and additional facilities. The Government and Digital UK should make clear that the more advanced boxes and other digital platforms, including broadband, may offer significant additional benefits rather than simply focusing on the cheapest option.

44. In September 2005, the BBC and ITV announced a joint venture to launch a free-to-view "Freesat" service to rival BSkyB's existing service.[69] Written evidence from the BBC attempts to justify its proposed foray, with ITV, into a Freesat platform in terms of "the desirability of an easily and widely available digital satellite option, which was clearly free to air, not linked to any perceived pressure to subscribe, and marketed as such."[70] Furthermore, "Freesat from Sky requires a viewing card to decode ITV1, Channel 4 and Five (which are currently still encrypted) and BSkyB has no obligation to continue to make viewing cards available to non-subscribers." While BSkyB's business model is primarily based on subscription television, we were reassured by Mike Darcey's statement that "Freesat from Sky" would continue, with only occasional small payments for conditional access cards.[71]

45. Both Help the Aged and VLV support the decision of the BBC and ITV to launch a free-to-view satellite service. VLV in particular has campaigned for public service broadcasters to commit to a Freesat service, partly to provide access to those areas not currently covered by Freeview and to reduce the pressure for switching off the analogue terrestrial broadcasts.

46. The BBC/ITV Freesat platform would also provide competition and, potentially, lower prices. Satellite TV could also provide a service to those individuals who, on terrestrial switchover (from analogue to digital), would be faced with the prospect of having television services withdrawn.[72]Neither Channel 4 nor Five have joined the BBC/ITV Freesat proposition, inhibited by, respectively, contractual[73] and intellectual property rights[74] issues. The latter are tied in very closely with the creation of content[75] and, as such, will merit further examination by this Committee.

47. Satellite transmission does not suffer from the same capacity constraints as terrestrial broadcasting and is therefore more suited to future spectrum hungry applications like High Definition TV. If another free-to-air satellite service becomes available, this considerably diminishes the argument for a universal free-to-air digital terrestrial service and in the longer term, if it achieves wide take-up, may lead to a further debate as to whether there may not be better uses for the spectrum occupied by DTT. The outcome of such a debate will depend on the emergence of, and demand for, innovative applications in communications technologies on all platforms.

48. We support the proposed development by the BBC and ITV of a free-to-view satellite platform, which should carry all the public service channels, since it will extend choice and offer more services than is possible through digital terrestrial transmission.

SPECTRUM

49. When the analogue signal is switched off, 14 channels of radio spectrum are expected to become completely clear in the UK and available for new uses. Other channels will be available for use over more limited geographical areas (the so-called interleaved spectrum). In written evidence to the Committee, the transmission company Arqiva commented that a lack of definitive action on the re-use of spectrum may weaken the UK's negotiating position with its European neighbours: "Obviously relinquishing the UK's analogue spectrum for use in other countries is not in the UK's national interest."[76] Arqiva went on to recommend that "As other national spectrum administrators have done, Ofcom should consult as soon as possible on the potential innovative uses of the digital dividend (including mobile TV)." According to the transmission companies, industry needs greater certainty about possible uses of released spectrum so that these can be factored in to the digital switchover engineering works - beginning in the Border region in 2006.As Steve Holebrook, Managing Director of Arqiva told us: "What we do not want to do is do the engineering work and then have to do re-engineering of the engineering work". In order to avoid this, it will require decisions to be taken about the future use of released spectrum as soon as possible.[77]

50. Ofcom subsequently launched its digital dividend review on 17 November 2005;[78] this will examine the options arising from the release of spectrum afforded by the digital switchover programme. Ofcom notes that some of the options include: new mobile services, with high quality video and interactive media delivered to handheld devices; wireless broadband services, with high-speed data and voice services; wider coverage for advanced services in remote and rural areas; advanced business and broadcasting services, such as those used to support major sporting events; additional television channels including possible High Definition (HD) channels carried on Freeview. Under the review's proposed timetable the consultation will not be completed until the fourth quarter of 2006[79] - after the outcome of the Regional Radio Conference (RRC) to be hosted by the International Telecommunication Union in Geneva from 15 May to 16 June 2006. The RRC will deal with the planning of the digital terrestrial broadcasting service in "Region 1" (which includes Europe, Africa and large parts of Asia).[80] Ofcom's written evidence noted that maximising the benefits of switchover is indeed dependent on, among other things, securing the necessary international clearances. So far as the uses of the released spectrum are concerned, Ofcom expects to take a market-based approach to determine who uses the spectrum and for what technologies and services.

51. Switching off analogue terrestrial transmissions will allow the six existing DTT multiplexes to be transferred onto frequencies currently used for analogue and cleared internationally for higher power. According to a spectrum plan developed by Ofcom and the broadcasters, these six multiplexes should be accommodated in no more than 32 frequency channels, releasing at least 14 channels nationwide for reuse. The Government's written evidence notes that switchover will also provide an opportunity for new services such as local television. A footnote to the DCMS/DTI written submission commented: "Whilst the international agreements permit the primary use of the UHF spectrum for broadcasting only, this spectrum is capable of being used for a range of other uses including mobile communications and wireless broadband."[81] It may be noted at this point that the broadcasting of radio is less constrained by spectrum than television; analogue radio switch-off is unlikely in the near future.

52. Channel 4's evidence suggests a number of possible public policy objectives that the release of analogue spectrum could allow for. These include new public service channels, High Definition TV, interactive services and regional and local television.[82]

53. The Institute of Local Television has written to the Committee, putting the case for local public service television. This could exploit so-called "add/drop technology"[83] to make available TV channels local and unique to each main transmitter site. Effectively this would provide television at a local authority scale. Over time, IPTV[84] (television over the internet) might provide an alternative technology, though universal provision may be compromised, a point made in written evidence by City Broadcasting.[85] This television consultancy company is also concerned about the future of existing holders of short-term analogue licences for local TV services. A recent Ofcom report is designed to stimulate further debate on the options for the development of local television.[86] During oral evidence, the chief executive, Stephen Carter, acknowledged this as a "very live" issue that Ofcom would wish to consult on during 2006.[87]

54. We welcome the development of local television and the potential it offers to provide a valuable community service. We would hope that the opportunity offered by analogue switch-off will be seized to allow the establishment of local television services.

55. During oral evidence on 15 November, the BBC's Caroline Thomson suggested that all the existing public service broadcasters should eventually end up broadcasting in High Definition TV on the DTT platform.[88] The BBC's written evidence stated that, for High Definition TV to be attractive, the portfolio would have to comprise at least the five main public service channels: BBC One, BBC Two, ITV 1, Channel 4, and Five.[89]

56. High Definition TV provides over four times the picture resolution of standard definition services but is "spectrum-hungry". Using the MPEG-2 data compression standard currently in use, only two HDTV services could typically be carried within a single multiplex, compared with up to ten standard definition channels.[90] It is noteworthy that while French free-to-view services use this standard, a more advanced compression system, MPEG-4, will be used for pay-TV services.[91] The latter standard makes more efficient use of spectrum and is thus better suited to HDTV, but will require new set-top boxes to be brought to market, and the replacement of old ones based on MPEG-2.

57. We also received evidence putting the case for mobile telephony and television as uses of the newly released spectrum. Arqiva's research, notably a consumer trial with O₂, suggests that mobile TV would prove to be very popular and could develop into an industry worth more than £2 billion in the UK. Written evidence from O₂ argued for the release of relevant spectrum in advance of the 2006 Regional Radio Conference, so that commercialisation of mobile TV could be facilitated.[92] Arqiva claims that the "lengthy decision process" associated with Ofcom's digital dividend review "will jeopardise" the UK's present lead in the relevant technologies.[93]

58. There are a wide range of different possible uses for released spectrum which also involve different engineering requirements. We recommend that in coming to a decision on the deployment of released spectrum, Ofcom takes full account of both social and economic benefits. We are concerned at suggestions that delay in reaching decisions may affect the economics of some potential applications and would therefore hope that this process can be carried out as expeditiously as possible to give certainty to all the industries affected and to give time to the transmission companies to carry out the necessary work as part of the switch-off programme.

59. Quite apart from more content and more efficient use of spectrum, other benefits would accrue from analogue switch-off. The broadcasters would avoid the expense of having to simulcast in digital and analogue.[94] Furthermore, David Elstein pointed out that commercial terrestrial broadcasters have an increased audience share (and hence advertising revenue) on the DTT platform due to its lower channel capacity compared to other platforms, and therefore benefit from any extension of its coverage.[95]

60. In written evidence, Channel 4 acknowledged that its viewing share is inevitably much higher in five-channel analogue homes (about 13% share) than it is in digital TV homes.[96] In digital terrestrial homes, Channel 4's audience share is about 10%, which compares favourably with the lower viewing figures (nearer 7%) in satellite/cable homes.

61. Digital switchover will provide Channel 4 with opportunities to develop a portfolio of digital channels and to extend its public service remit across a range of platforms. The broadcaster's evidence could be characterised as comprising a combination of enthusiasm for the opportunities switchover offers and a foreboding about the viability of analogue-based funding models in the digital age.

62. Five's perspective on digital switchover is informed by the opportunities it offers the broadcaster to achieve (near) universal coverage. To some degree this offsets the threat of fragmenting audiences which faces Five and other public service broadcasters. Today, 78% of homes can receive Five's analogue signal though, thanks to the ongoing digital switchover process, over 93% of the population (Five estimates) can receive the channel in their homes. However, as noted in its written evidence,[97] Five will not be available on the same number of actual television sets as the other main channels until switchover is complete: because a third of the population has yet to switch any TVs to digital, and because many digital households have secondary sets still to be converted. DTT provides a relatively easy way of converting secondary sets, though at some cost to portability.

63. Digital switchover will also benefit the supply side industry in a number of ways. First, it is providing a large, Europe-wide, market for digital equipment and installation services. Evidence from the Confederation of Aerial Industries Ltd referred to the considerable increase in the value of the UK TV aerial industry attendant on the launch of digital services.[98] Second, the mass take-up of digital equipment can act as a spur for research and development on new services and devices, helping to maintain the UK's technological position.

Costs of digital switchover

INDUSTRY

64. For DTT to "substantially replicate reliable analogue reception" (as the BBC puts it) a new high-power transmitter network must be built. This will come at a cost to the broadcasters, though this will be offset in a number of ways: some analogue transmitters might be nearing the end of their operational lives and would have had to be replaced anyway. In written evidence, Arqiva[99] and National Grid Wireless[100] estimated that the capital cost for re-engineering the existing TV network for DTT will be approximately £500 million. This work will involve 1,154 current analogue sites together with some new sites that may need constructing, especially on the south coast. Written evidence from TrinityStar Associates attributed 80% of this cost to the conversion of the first 200 stations.[101] Converting the remainder, many of which are small relays, would involve a marginal cost of no more than £75 per head - similar to the cost of installing satellite receiving equipment or, for that matter, of decommissioning a relay site and returning it to greenfield status. Similar points were made by the BBC during oral evidence.[102]

65. The lack of detailed publicly available information inevitably means that such estimates are open to dispute. BSkyB noted that the 80 transmitters already kitted out for digital could cover between 93% and 95% of households once their signals can be strengthened following analogue switch-off. BSkyB considers it wasteful that the Government's proposals see a conversion of all 1,154 analogue transmitter sites to digital and that it would at best be cost-effective to convert between 200 and 500, beyond which the cost per household of converting additional transmitters exceeds the costs of funding alternative means of receiving digital television.[103]

66. We note the assurances from the Government and the transmission companies that there is an economic case for converting every single transmitter site. However, in the absence of more detailed published analysis, this will remain open to dispute. We recommend that the Government provides more information on the cost of converting television transmitters to digital as a function of population coverage. Where this involves the use of commercially confidential data, the analysis should be subjected to independent audit.

67. We recognise that a decision has been made to opt for near universal (98.5%) DTT coverage partly on the grounds that it provides wider choice and simplifies the message of communicating switchover to the public. But it also removes choice for viewers of analogue television, including those who use analogue on second sets. Digital UK will accordingly have to communicate carefully the reality, and benefits, of digital switchover. The BBC is playing an important role in Digital UK, funding the majority of the management and operating costs and all the marketing and communications costs.[104]

68. The BBC has taken these costs into account in making a bid for an enhanced licence fee settlement for the period 2007-08 to 2013-14. The Corporation cites a figure of £700 million as being the additional cost for the seven years of the next Charter period "for building digital Britain".[105]This sum includes Freesat, digital radio, HDTV, new coding and multiplexing facilities for both satellite and DTT, new circuitry as well as the construction of the new digital transmission network referred to in the Arqiva cost estimate. The BBC has also indicated a willingness to fund the one-off capital costs of digital conversion for Channel 4, provided sufficient funds are made available in the next licence fee settlement.[106]We note in this context that the BBC has already been enjoying a licence fee that exceeds inflation by 1.5%.

69. The BBC's next licence fee settlement should take into account the Corporation's share of building the DTT network since this is by definition a broadcasting cost. However, we do not believe that this in itself justifies an above-inflation settlement. Whatever the outcome of the latest negotiations between the Government and the BBC on the next licence fee settlement, it is vital that the relevant figures are subjected to independent audit and the detailed conclusions of such an audit published.

70. Other broadcasters will have to contribute to the build-out of the digital terrestrial network. By dint of its new broadcasting (digital replacement) licence issued by Ofcom, ITV is obliged to extend its digital terrestrial network substantially to replicate the analogue coverage area and to do so to the Government's 2008-12 timetable. The final switch-off date can, however, be changed by the Secretary of State. Similar obligations apply to the other commercial public service broadcasters (Channel 4 and Five). In written evidence[107] to the Committee, David Elstein referred to "a range of costs that arise from a series of policy decisions associated with the pre-emptive launch of digital terrestrial television - DTT - and the pressure to deliver ASO [analogue switch-off] as a consequence. These include the unnecessary bribe to ITV to induce it to take part in the DTT adventure, with a cost to the Treasury in excess of £1 billion".[108] Clive Jones of ITV responded by pointing to the "ground-shifting nature" of the change that digital switchover would bring about.[109]

CONSUMERS

71. BSkyB's written evidence noted that digital switchover will be paid for by the public, both directly through the purchase and installation of digital equipment and an increased BBC licence fee, and through reduced ITV and Channel Five broadcasting licence fees; the latter amount to public revenue foregone.[110] Echoing David Elstein, BSkyB's written evidence stated: "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." If the latter occurs, possibly in connection with the launch of terrestrial High Definition TV, then exchequer receipts from spectrum sales will be lessened.

72. People with analogue televisions and videos will also have to pay to upgrade to digital. A wide variety of estimates exist for the cost to householders associated with switching over to digital equipment. Assigning household costs to digital switchover is problematical, partly because of difficulties in deciding which costs are compulsory and which would have been incurred anyway as part of a voluntary adoption of digital technologies.[111] At the low end are those estimates which consider only the cost of converting one television and, where necessary, upgrading the aerial. The cheapest set-top boxes cost less than £30,[112] though these tend to have fewer features.[113] According to government estimates, an "average household" with three televisions and a video cassette recorder could incur digital switchover costs ranging from £80 to £570.[114] The actual sum depends on the number of sets already converted and whether a new outside aerial is needed (at a cost of between £80 and £300). In some cases, costs may include new indoor aerials and rewiring.[115] Installing free-to-view satellite television on one set would come to £150.

73. A report by Scientific Generics for Ofcom found that the actual cost to individual households of non-voluntary digital conversion will range from £26 to £153.[116] Other estimates take into account converting or replacing all the TVs and video recorders in an average household. For example, the Doors section of the Sunday Times estimated the average cost per household to be £955.[117] This figure recognises the range of equipment, in terms of sophistication and price, and so includes an elective element. It also includes the cost of new cabling and the increased electricity consumption of set-top boxes left on standby. Nationwide, Dr Klein suggested that the additional electricity usage of set-top boxes would be largely offset by savings associated with shutting down analogue transmissions.[118]

74. While acknowledging the costs incurred by switchover would vary considerably, Jocelyn Hay of the Voice of the Listener and Viewer suggested an average figure of £600 per household. This figure includes new aerials, re-recording video libraries, and other related costs.[119] She objected to licence fee payers having to foot the bill for assisting vulnerable groups in addition to their own costs.[120] People who live in multiple dwelling units such as flats, about a fifth of the population, could face additional problems, particularly those who signed tenancy agreements before changes made by the Communications Act 2003.[121] Others will still need to get agreement with neighbours over how best to achieve switchover.[122]

Cost-benefit analysis

75. In September 2003, the Government decided that it was appropriate to proceed with switchover because, to cite its written evidence, "the benefits far outweigh the costs".[123] The submission went on to state that the updated cost-benefit analysis report[124] published in February 2005 showed "quantifiable benefits" to the UK economy of £1.1-£2.2 billion in net present value terms.[125] This variation reflects the dependency of the costs and benefits on the assumed completion date for switchover. For 2012 switchover, the net benefit compared with the alternative of ongoing dual analogue and digital transmission comes to £1.7 billion - a figure which comes from subtracting the total costs (£4.551 billion) from the total benefits (£6.244 billion). The outcome of the cost-benefit analysis is subject to a wide margin of error,[126] and is most sensitive to estimates of the value of extended coverage of digital terrestrial services and of the released spectrum. Significantly, these benefits are intrinsically difficult to pin down, in stark contrast to the costs associated with the purchase and energy consumption[127] of consumer reception equipment as well as broadcaster investment in digital infrastructure.

76. Chris Goodall questioned the Government's cost-benefit analysis on at least two counts: first he judged the value (per household) attached to DTT's extra channels to be overstated;[128] second, and more generally, the justification for the figures published by the DTI/DCMS was unclear and was not being made publicly available. In oral evidence, the Minister for Creative Industries and Tourism, James Purnell MP, rebutted the first of these points: "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."[129] The Minister also indicated that the cost-benefit analysis had a supporting rather than determining role in fashioning the Government's case.[130]

77. A government memorandum to the Committee of December 2005 provided more information on the cost-benefit analysis.[131] One example of costs is the capital and running costs of new DTT sites. On this the Government stated: "The information on costs that underpins the CBA model remains commercially sensitive, and cannot be released".[132] One of the benefits is the "imputed consumer benefit of compulsory migration" - the value for households who only take up digital because of switchover.[133]While the Ministers defended this analysis,[134] citing published consumer research,[135] it remains our view that the benefit side of the cost-benefit analysis is very subjective, and that the narrow economic case for switchover is inconclusive.

78. The cost-benefit analysis was subjected to an independent academic examination and audit by Professor Andrew Chesher and Joseph Swierzbinski of University College London.[136] They went into some detail on the mechanics and structure of what is a fairly straightforward spreadsheet exercise. Their audit report appears to be significantly compromised by restricted access to the assumptions underlying much of the input data. On four occasions the report notes: "We are unable to comment on the provenance of these estimates". The four occasions come under the headings of: cost savings from decommissioning analogue transmitters; cost of additional transmission sites for digital terrestrial signals; marketing and communication costs; and planning and operations costs. Despite these important limitations, the audit report provides some support for the Government's economic analysis.

79. The economic evidence in favour of digital terrestrial switchover is limited, but we recognise that the cost-benefit analysis has been used to inform rather than guide the decision that has been taken to proceed.

Vulnerable groups

80. The Government is going to require the BBC to establish assistance schemes to ensure "the most vulnerable" do not lose access to television services post switchover. Free or subsidised provision will be available to households where someone is aged 75 or over, or where someone has a severe disability.[137] Additional support will be offered to those who are registered blind. The Ofcom Consumer Panel believes that, by restricting free installation, equipment and instructions only to older people on pension credit, the Government is moving away from the principle of free TV reception for everyone over 75 regardless of income.[138] David Sinclair of Help the Aged thought it "absurd" to means test a set-top box;[139] he was particularly concerned about the 250,000 older people who were failing to claim this benefit.

81. In July 2004, the Secretary of State for Culture, Media and Sport had asked the Ofcom Consumer Panel to consider what measures might be necessary to protect the interests of "the most vulnerable" consumers during digital switchover. The Panel, which is independent of Ofcom, came to the key conclusion that "most vulnerable" in this context is most usefully defined in terms of social isolation; the latter can come about through a variety of factors such as age, disability and low English literacy. The Consumer Panel's evidence made clear its "strong disappointment" that the Government has tied its assistance package to the benefits system, effectively ignoring the analysis based on social isolation.[140] Help the Aged thought it vital that research be carried out to identify the vulnerable.[141] Leen Petre, RNIB, thought there was a danger that the definition of vulnerability would be informed by cost considerations.[142] The Government's evidence acknowledged the work of the Ofcom Consumer Panel, and it noted the potentially important role of charities, social workers, the local community and neighbours.[143]

82. The scope of the Government's targeted assistance programme is too restricted and fails to acknowledge those who, by dint of income or social exclusion, are in genuine need. With analogue switch-off beginning in only two years, this matter requires urgent consideration.

83. The problem of identifying vulnerable consumers and delivering a package of assistance needs to be clearly owned. Giving oral evidence, Colette Bowe of the independent Ofcom Consumer Panel said: "I think a very pointed question would be who owns this issue of identifying vulnerable consumers and working out what they really want and then delivering it. At the moment there seems to be a plethora of diffuse responsibility."[144]

84. Ofcom's written evidence noted that consumer issues are primarily the responsibility of Government and Digital UK.[145] The present digital switchover programme structure indicates that responsibility for targeted assistance rests with the Department for Culture, Media and Sport.[146] Digital UK are, however, involved in ongoing work to identify those who fall outside the targeted assistance scheme but who may need additional help with switchover.[147] One concern of Help the Aged is that the voluntary sector should be adequately financed to play its key role in providing practical help with switchover.[148]

85. Responsibility for the administration of the targeted assistance scheme for vulnerable groups must be clearly assigned. The scheme should take into account the need to provide adequate funding for the voluntary sector, which will play a vital role in providing practical assistance to vulnerable groups.

86. The Government and the BBC have been running a pilot project in Bolton to find out how much assistance elderly people need to convert their TV sets to digital.[149] This builds on work of an earlier technical trial in Llansteffan and Ferryside, which showed that many elderly people required significant levels of support.[150] In Bolton, Freeview was delivered at no cost to participants though, as an alternative, subsidised cable or satellite options could be taken. Few chose either of the latter two platforms, despite their greater functionality.[151] In oral evidence for Help the Aged, David Sinclair expressed concerns that older people could find themselves excluded from the services that increasingly will be made available via broadband or interactive television.[152] We recommend that the targeted assistance scheme should include the provision of advice about the capabilities of competing digital TV platforms and the varying opportunities and facilities they offer to vulnerable groups.

87. DTT trials like those at Llansteffan and Ferryside and, more recently Bolton, are essential for identifying practical challenges that switchover sets. Issues include the provision of technical assistance and the need to recruit and train volunteers, such as the WRVS, Community Service Volunteers[153] and students (as in Berlin).

88. We recommend that further trials are conducted with the aim of identifying groups who are potentially left vulnerable by analogue switch-off. The trials should include people with disabilities, low income groups, the socially excluded, and involve the voluntary sector.

89. BSkyB is concerned that the Government's support package for vulnerable people appears to focus on the cheapest digital option - invariably DTT.[154] A memorandum from the Department for Culture, Media and Sport acknowledged that "targeted assistance is based on the lowest cost option".[155] With regard to targeted assistance, the Minister for Creative Industries and Tourism noted the technology neutral nature of the Government's policy, adding: "In those areas where DTT is not the cheapest option then we will make the cheapest option there available to them (probably satellite)…"[156]The extent to which the emerging package of targeted assistance can be deemed to be platform-neutral and thus compatible with European competition law will have to be monitored and checked with care.

90. Switching over to digital television will pose more than a financial challenge to some vulnerable groups. A Help the Aged survey showed that 57% of the elderly respondents saw digital television as a threat and not as an opportunity;[157] more generally, Colette Bowe referred to estimates suggesting that around 10% of households might be either reluctant or unable to go digital. She highlighted widespread unfamiliarity with digital technologies together with a range of practical problems associated with finding, purchasing and using suitable equipment.[158] There was a consensus among witnesses that the voluntary sector had a key role in ensuring digital switchover worked.[159] But the sector would need financial support:[160] according to the Ofcom Consumer Panel, mobilising and training volunteers to help vulnerable people acquire and install equipment would cost about £100 per household.[161] This is in addition to the cost of the equipment itself.

91. On the practicalities of making payments for services, such as aerial installations, the Confederation of Aerial Industries suggests that the support package for vulnerable groups could operate by means of a mechanism similar to heating allowance, rather than a voucher system or, worse, a "clumsy system of reclaiming expenses".[162]

92. The total cost of the targeted assistance scheme is uncertain,[163] and it has not been factored into the BBC's proposal for a licence fee settlement well in excess of inflation.[164] Interestingly, targeted assistance is not included in the Government's cost-benefit analysis: it is treated as a transfer cost because the cost to the licence payer will, it is argued, be offset by the benefit gained by those in receipt of assistance.

93. It is planned to fund the scheme through the TV licence fee, the appropriateness of which will depend in part on the extent to which this is considered a broadcasting or a social cost. In its Second Report of 2005-06, the House of Lords Select Committee on BBC Charter Review argued against the Secretary of State's assertion that the targeted assistance scheme is a broadcasting cost: "We can see no reason why help for the over 75s, and other vulnerable viewers, with the costs of switchover should be borne by the BBC when the Government already accepts that it is responsible for bearing the costs of the licence fee for over 75s."[165]

94. Caroline Thomson told us that the BBC was "content" to go along with the Government's request to fund targeted assistance from the licence. However, her contentment was on the basis of four criteria: "that the licence fee is not being used as a substitute for social security payments, which clearly would be totally inappropriate, that any scheme meets all the state aid requirements and is platform neutral, that it does not in the end, partly because of the flat rate nature of the licence fee, put an unreasonable burden on the licence fee payers that would put the long-term future of the licence fee at risk, and that it is not at the expense of our core services."[166]

95. Written evidence from the National Consumer Council stated: "There is also a question of how the targeted assistance programme is being funded. Using funds raised from the television licence fee has the advantage of retaining a link between the funds and how they are used. It is also relatively cost-effective to collect. But it is not in line with the core purpose of the licence fee, which is to support programming, and NCC believes it would be false economy to direct money away from that. Using the licence fee is also likely to magnify the worst aspects of unfairness inherent in a flat-rate fee, where the burden is heavier on low-income households. As Government anticipates switching will deliver some financial benefit to the Treasury some of that money should be diverted to offset the burden for consumers." We agree. While transmitter upgrading is clearly a broadcasting cost the provision of television and other receiving equipment is a social cost in recognition of the need to provide compensation to vulnerable groups. We believe that the use of Exchequer funds to meet this cost is more progressive and justified given the value of the spectrum released. It also places accountability properly on a Minister's desk. We recommend that the Government should reconsider this option.

96. More specific issues arise from the importance of securing the availability of suitable equipment for receiving subtitled services and audio description on different platforms. There will be specific help for blind people; in particular, the Government is proposing that they should be able to benefit from the additional narration provided by audio description facilities. Currently there is only one DTT set-top box which offers these, and at £99, it is relatively expensive.[167] The RNIB has also called for cable systems to provide audio description.[168]

97. Ofcom (along with the DTI, DCMS and some broadcasters[169]) has carried out extensive research into the usability of digital TV equipment, estimating that one in 20 adults could encounter considerable difficulty. Ofcom's written evidence went on: "It is proposed that Digital UK should keep in mind the needs of users with the range of physical impairments, including hearing and sight loss, and should work to encourage availability of easy to use receivers with subtitles and audio-description." Leen Petre, RNIB, doubted whether the market alone would provide "intuitive, usable and accessible equipment."[170] In written evidence, the Government commented that through what it termed "the procurement process" it will be possible "to ensure" that equipment meeting relevant specifications is produced.[171] The Government should do more to ensure the timely availability of digital receiving equipment and remote controls which are affordable and easy to use by people with cognitive, visual, hearing or physical impairments.

98. An increase in the proportion of television programmes that are audio described would also act as an incentive for the blind and partially sighted to switch over to digital.[172]According to the Government, there are around 375,000 registered blind and partially sighted people in the UK. The RNIB estimates that a further 750,000 people could register but have not done so.[173] Other charities such as Hearing Concern have made similar points in relation to the provision of subtitles for the deaf and hard of hearing. The Government and Ofcom should take steps to ensure that access to a wide range of subtitled and audio described programmes is available on all digital television platforms.

49 Net present value expresses future costs and benefits as a single monetary value by taking into account real interest rates. Back

50 Ev 1 Back

51 see paragraphs 75 to 79 Back

52 HC Deb 5 July 2005 c 58WH Back

53 Q 1 Back

54 Q 8 Back

55 Q 1 Back

56 Ev 32 Back

57 Q 1 Back

58 QQ 1-2 Back

59 Ev 113 Back

60 Q 2 Back