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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 650-v House of COMMONS MINUTES OF EVIDENCE TAKEN BEFORE CULTURE, MEDIA AND SPORT COMMITTEE
Tuesday 20 December 2005 MR STEVEN HOLEBROOK, MR ALAN WATSON, MR STEVEN MARSHALL and MR JOHN WARD
MR KEITH MONSERRAT and MR ROGER LYNCH MR MIKE DARCEY, MS DAWN AIREY and MR MARTIN LE JEUNE Evidence heard in Public Questions 377 - 511
USE OF THE TRANSCRIPT
Oral Evidence Taken before the Culture, Media and Sport Committee on Tuesday 20 December 2005 Members present Mr John Whittingdale, in the Chair Janet Anderson Mr Nigel Evans Paul Farrelly Mr Mike Hall Adam Price Mr Adrian Sanders ________________ Memoranda submitted by Arqiva and National Grid Wireless
Examination of Witnesses
Witnesses: Mr Steven Holebrook, Managing Director, Mr Alan Watson, Consultant to Arqiva (also MD to Trinitystar), Arqiva, Mr Steven Marshall, Chief Executive, and Mr John Ward, Director of Network Operations & Engineering, National Grid Wireless, gave evidence. Q377 Chairman: Good morning everybody. This is the penultimate session of our inquiry into analogue switch-off and we have appearing before us today the facilitators of television broadcast via the various different platforms, so we will have the transmission companies for terrestrial broadcast, the satellite operators, the cable companies and the digital subscriber line technology companies. Can I first of all welcome Arqiva and National Grid Wireless and, in particular, Steve Holebrook and Alan Watson from Arqiva and Steve Marshall and John Ward from National Grid Wireless. Perhaps I could begin by asking you to give us a general overview of your perspective of switch-off as the transmission companies and, in particular, what switch-off will require you to do in order to make the conversion necessary? Mr Marshall: Good morning, Chairman. My name is Steven Marshall. I am the Chief Executive of National Grid Wireless. I am here with John Ward who is the Director of Network Operations. We are here in our capacity as providers of infrastructure to the industry. We support the switchover programme. We believe that it actually requires additional investment in a new technology rather than having to support an aging technology in terms of the analogue capability. We also recognise that it will offer greater choice to the end consumers and greater interactivity as well going forward. Our responsibility together with Arqiva is to provide the new digital network technology to the specification of the broadcasters to meet their requirements. Mr Holebrook: Thank you for the opportunity to address the Committee. As Steven said, the network itself is actually split into two halves. Both National Grid and ourselves operate a complementary half of the network, so to reach the full UK population you need both parts of our network to deliver the project. We have been working on the analogue switch-off project for approximately two to three years. We have been involved in the timetable planning, the transition planning and also the sequencing of which regions are going to be involved, so we have been very much involved with the broadcasters and the regulator to put forward a proposed timetable and the technical solution to enable this to happen. It will involve re-engineering the vast majority of sites. At the smaller relay sites that just means changing some of the transmitters and at the larger sites it involves high mast work, so we will have to operate at 1,000ft plus and change the antennas of those very large sites, and in a couple of circumstances we will need to redevelop masts and build new masts to replace existing ones which will not be able to cope with the additional load that is put on them by the new services. From our point of view it is very much an opportunity to enable what is the fastest growing platform, Freeview, with 600,000 additional users brought on in the last quarter, to roll out to the rest of the population - currently it is available to about 73% of the population - and through the process of analogue switch-off we are able to free more of the spectrum up that allows us to free the remaining 25% of the population. We are very much supporters of it and we have been involved in bringing the proposals forward at a technical level. Q378 Chairman: Thank you. You each own roughly 50% of the physical transmission sites, but National Grid Wireless also provides the broadcast service to the BBC and Arqiva for the commercial broadcasters. Does that mean that you each have your own equipment on each other's masts? Mr Holebrook: Yes. It is generally split into two elements. There is the site ownership and the provision of the common infrastructure which is shared by everybody, so that is the mast and the antenna that goes up on top of the mast. On the ground level we provide the transmission equipment, so the transmitters are provided and either party can provide that. That element is subject to competitive tendering and we are currently going through a tendering process with all of the broadcasters to see who provides that element of the service. Q379 Chairman: The 80 existing digital transmitters, are those split between the two of you again? Mr Holebrook: Yes, the ownership of the masts is split between us. National Grid has slightly more than ourselves, but the transmitters that are at the bottom are split in terms of National Grid take the responsibility for the BBC and they operate two multiplexes in their own right and we support SDN and Digital 3&4. Q380 Chairman: Which of you is going to have responsibility for the new masts which may have to be erected? Mr Holebrook: Any new masts that are erected will have to be erected at the same site as the existing mast. There may be a situation where one or two new masts may need to be erected to fill in for communities and that is an issue that will need to be resolved as we go forward. They are not going to be very large masts in those circumstances. Replacement masts are due because of the need to make the masts stronger and support the additional equipment which will be located at the same location as the existing infrastructure and therefore will be the responsibility of the existing site owner to provide. Mr Marshall: In addition to that we may have to offer reserve masts whilst we dismantle and decommission certain equipment. Q381 Mr Evans: And the old masts will then be moved as a responsibility of the owner of the site, will they not? Mr Holebrook: That is right. Q382 Mr Evans: As far as the timetable is concerned, is it realistic? Mr Ward: The timetable is certainly challenging but we do believe it is achievable in terms of building out the infrastructure. As Mr Holebrook said, we have been ramping up our resources over the last couple of years to deliver the network in terms of the technical resource but also engaging with suppliers and developing the network design. Within the next six months we will be finalising that network design with the broadcasters and completing our conversations and negotiations with Ofcom on the regulatory aspects of the roll-out. In June of next year we will be completing the negotiations for the network in the Regional Radio Conference for the European area. Q383 Mr Evans: You say it is challenging, but what is the worst thing that you foresee that could happen? Mr Ward: One of the particular challenges is the fact that the sequence has to be maintained so that the interference that inevitably occurs between transmitters as they are modified and frequencies are changed is minimised. So a lot of work has gone in to making sure that the sequence hopefully provides a totally seamless transition. Any delays or severe problems on one of the sites could disrupt that sequence and we cannot really progress until we have solved that problem. That is really one of the key risks that we face as the infrastructure providers. Q384 Mr Evans: Do you think in the Border region there will be fewer problems than in the ones after that when they start to cross over one another, particularly in the Granada region which has over eight million people? Do you think that that is where the problems may lie or do you think that even within the Border region there could be problems? Mr Ward: It is challenging throughout, but both in the Border region and the Granada region our colleagues in Arqiva are actually responsible for the majority of the work and so perhaps I could hand that question across to them. Mr Holebrook: It is a challenging project, it is of a significant scale, but we have been working on it for two or three years now and addressing those problems and those issues. The things that keep me awake at night are the things that I cannot control and primarily that is the weather because I cannot control the weather. When you are working at 1,000ft and you are trying to install a new antenna you are very dependant upon the weather. That type of work can only be done in the summer. As a consequence of that what we are planning into the timetable is two clear summers to enable us to do work at any particular site. We have a very hard end date that we know we have to work towards and we are putting a contingency at the front end. We are making sure that we can do the aerial work upfront so that if we do have a bad summer we always have the next summer to rely upon without it causing a problem to the programme. Q385 Mr Evans: Have either of you found any difficulties in finding the technicians that you need to be able to do this challenging task? Mr Holebrook: It is an international business. We will be working with international suppliers and calling upon their expertise. We have our own in-house high mast engineering rigours that we are capable of calling upon as well. We are confident that we will be able to get the proper expertise in place. We will be working with other parties to ensure that we can bring in additional expertise to complement our own. For the last year we have had 30 people in Arqiva working on it and I am sure that National Grid has had about the same volume, so it is not as though we are not applying the resource to it. This year alone it has been about 30 man years-worth of work that we have put towards it. Mr Watson: In order to give you an idea of the depth of the plan we have brought along a copy of the detailed plan for the Border region which we would be very pleased to leave with the Committee. Q386 Chairman: Can you do it all in advance or do you have to do some work at the moment of switch-off or in the transition period? Mr Watson: The majority we can do in advance. The plan is to do the antenna work two years in advance and that gives us a summer's buffer season for adjusting the case. During the six months prior to changeover the transmitter work on the ground will be done. That will be all in place. There will be the opportunity to test the complete system prior to the first changeover. So in essence what happens on the first night is a bit more complicated but not much more than unplugging one and plugging the other one in. Q387 Mr Evans: We will all pray for good summers for you! Mr Watson: Thank you. This is an exercise we have done many times before because over the years, quite seamlessly, the entire ITV network has been replaced using exactly the same strategy as we propose using now. Q388 Paul Farrelly: When we visited Berlin to look at the experience there we learned that they had adopted a 95% DTT coverage target against the UK's 98.5%. At a previous hearing we heard some strongly argued evidence that here 98.5% allows the whole process to be sold to consumers and for consumers to be informed, it makes it much easier. What we are trying to establish is the marginal costs associated with that. I just wondered whether you could share your views on how the costs rise per percentage of penetration and whether there is any point at which it becomes cheaper to fill in the extra few per cent satellite. Mr Marshall: Alan has done some calculations. Mr Watson: Perhaps I can comment on the cost and we can take it from there. The figure that we have both put out is that the cost for the transmission element of this across the industry is about £500 million. That is a figure that we have independently put together, largely agreed on and it has had a degree of external scrutiny, so it is a fairly credible number. If you divide that number now, 80% of that money goes on the first 200 sites and it is the remaining 20% or £100 million that takes you from the 200 sites to the 1154 sites. As you rightly say, the difference in coverage between the two is about 6% of the population. If you translate that to numbers of people then that is approximately four million people. Four million people and £100 million means it is approximately £25 a head to get you from the 200 sites to the 98.5% coverage. Q389 Paul Farrelly: Is there any point at which satellite becomes much more cost-effective on the basis of the figures that you have just cited? Is that a spurious argument for people to make? Mr Watson: As to whether it is cost-effective, I think that probably becomes questionable. It always exists as an option. It is important to go into what 98.5 means and what the remaining 1.5 means because it is easy to take 98.5 as a simplistic figure. What it actually means is that 98.5% of the population will be able to receive all three public service multiplexes at what will be regarded as an acceptable quality level. That is taking into account what we believe to be the case with incoming European interference, so to a large extent we are taking the worst case scenario. If you take the 1.5% that is left over, it is the negative of that and that 1.5% will divide into three groupings. There will be a grouping that can receive all three of the multiplexes but not at the quality level that we would deem acceptable and in most cases better aerials and some improved insulation will get them over that hurdle. Then you will have a group of people that will get one or two of the multiplexes and then a very small group will not get anything. In the main that will be the same group that do not get anything now. When you look at those last two groupings then satellite is obviously a very viable option for them and may be their only option. Mr Marshall: I think this is about offering additional platform choice as well. If you were to proceed with satellite coverage then that would limit platform choice to a large number of the population. It is clear that in terms of the public perceptions and requirements, satellite requires third party installation whereas digital terrestrial television does not; you walk into your local retailer, you require a set-top box, which are as low as £26 these days, and you take that home and plug it in yourself. It should be that much easier from a user point of view. Q390 Chairman: The evidence we have received from Sky says, "Access to digital transmissions is to be achieved by a costly and wasteful conversion of all 1,154 analogue transmitters to digital. On our own estimates it would at best be cost-effective to convert between 200 and 500 transmitters ..." Would you agree with that? Mr Watson: In the main there is a factor that has been missed from a number of the calculations I have seen in public and that is the fact that if you do not convert many of those smaller sites the only option is to remove them, so there is an extra cost line there. It is not a case of do not convert to zero cost, it is do not convert with the obligation to take away a transmitting station and returning it to a greenfield site. Once you include that figure in there it alters the picture somewhat. My own belief is that the economics are certainly in favour of converting those sites out to the smallest. Q391 Chairman: Right the way through the entire network? Mr Watson: Yes. Q392 Chairman: So even the 1,154th transmitter site --- Mr Watson: When you get down to site number 1154 then all of a sudden we are talking about something that is smaller than a telephone box, with a mast about the size of a telephone pole and in a square of ground maybe 15 feet square. The actual cost of conversion of that is really quite small and continues to fall and will fall between now and when it is done. We are talking in terms of tens of thousands of pounds, certainly no more than that. Q393 Chairman: Have you actually tried to calculate whether there is a case at any point for providing alternative reception facilities such as satellite rather than rolling out DTT to the full extent? Mr Watson: I have done some calculations right down to that smallest station. Again if we take the smallest station, number 1154, the cost of conversion is between £10,000 and £15,000. It is difficult to know exactly how many people it served, but let me work on the basis that we put these sites in in the first place and our obligation was to serve population centres down to 200 people, that was in the 1980s so one can assume they have grown a bit. If we stick at 200 people, so it will be a £15,000 cost to the broadcaster to serve 200 people, I think that comes out at £75 a head or £150 a household. It is still a very comparable figure even at site 1154. Q394 Chairman: You also talked about the coverage of the three main PSB multiplexes. What proportion of people is not going to have access to the non-PSB multiplexes? Mr Marshall: The non-PSB multiplexes are expected to be built out to 80 sites at the same coverage that we have today. That should give them similar population coverage to what we have today, which is 73%. That might increase slightly with the higher power output, but it is going to be in that range. Mr Watson: In the spectrum plan there are sites available for the non-public service broadcasters to go out to 200 sites. It is entirely their choice as to how many - it will be between the 80 and the 200 - they go to. In fact, it is a total of 212 sites. If they exercised that choice and built out to that they could achieve just over 90% population coverage. Q395 Chairman: So it is an economic question for them to determine. Mr Watson: For them, yes. Q396 Chairman: In terms of the cost which you face, you have to pay the entire cost upfront. What is the mechanism by which you are going to recoup that from broadcasters? Mr Marshall: We will provide the network to the plant requirement specification of the broadcasters. We will price the cost of developing that network for the broadcasters. The site access element of that will be reviewed by Ofcom and will be determined by Ofcom and then the broadcasters will reimburse us for the provision of that service over the length of the contract, so over 20 years. Q397 Chairman: But the actual cost of the infrastructure is intended to be met by the BBC, is it not, at some future date? Mr Marshall: By all of the broadcasters collectively. Q398 Chairman: The BBC put in a specific bid as part of their licence fee settlement of £700 million for digital infrastructure. Do you recognise that figure? Mr Marshall: I do not recognise that figure. I assume that that reflects the cost that they believe will be levied to them for their share of the infrastructure. Mr Holebrook: The BBC with their two multiplexes take approximately a third of the infrastructure cost in terms of the build out. Q399 Chairman: But £700 million sounds an awful lot of money, therefore, on the basis of the kind of figures you have been quoting. Mr Holebrook: The BBC is looking at taking additional responsibilities in terms of providing the expenditure for Digital UK for the marketing and the cross-promotion and some of those things. I am not sure whether that is included in those numbers. Chairman: That is included separately. Q400 Adam Price: Returning briefly to the issue of coverage, you mentioned the three different categories within the 1.5%. How many people do you believe who currently receive an acceptable analogue signal will not receive acceptable digital terrestrial TV post the switchover? Mr Watson: I certainly do not have a figure to offer for that. I think one or two other people that have given evidence here have struggled to answer that one. I do not believe there are any accurate figures available. Q401 Adam Price: Are we talking hundreds? Mr Watson: My belief is it is a relatively small number, but I would not care to be any more specific than that. Q402 Adam Price: So you cannot give us an order of a figure? Mr Watson: Not really. Mr Ward: We have re-engineered and replaced quite a few antenna systems in the past and in those circumstances you do sometimes get small numbers of people affected because we simply cannot replicate perfectly the performance of the previous antenna, but that has always been a small number of people and often we have been able to overcome that problem by repositioning their antenna or improving their antenna systems and so forth. The network plan at the moment is very much predicated on replicating the coverage that is currently provided by the analogue services and we believe that is pretty achievable. As Alan says, in terms of how many would not get it, I would hope it will be a very small number and it will be affected more by the physics of trying to replicate what went before as opposed to any flaw in the plan. Q403 Adam Price: This relatively small number that you referred to, are they likely to be evenly spread? Mr Ward: Evenly spread in what sense? Q404 Adam Price: Geographically. Mr Ward: Within the service area of a transmitter? Q405 Adam Price: Over the UK. Are the digital losers going to be concentrated in particular regions? Mr Ward: I would not say that would be the case. Our experience has been that sometimes we have replaced antennas and everything has worked perfectly and on other occasions there have been some problems which we have had to overcome, but there has certainly been no geographic correlation between the problems. Mr Holebrook: I think what you find is just at the fringe areas of the coverage and pretty much in one road you might get one house that currently receives analogue and the next that does not, but that could reverse once the re-engineering happens. It is pretty much where the signal is relatively weak in the very outskirts of the coverage area where we have difficulties. Q406 Adam Price: I can see the letters coming in now! Mr Ward: The kind of problem that we have faced in the past has been where an antenna perhaps on paper works in a perfectly way but in reality, through manufacturing intolerances or some physics, you perhaps get a little side beam that should not actually be there, but then over the years people build houses or move into that area and begin to receive their TV off this spurious transmission. We then put up an antenna that works more like the theory. That is where problems have arisen in the past in terms of changeover. We try as much possible to make sure we prevent that and try and overcome that and to help people sort out their aerial systems and give them advice. Q407 Chairman: I assume anybody could get an adequate reception if they were prepared to build masts the size of Crystal Palace in their garden. Presumably you are talking about people receiving off a normal rooftop aerial. What proportion of households will be able to receive an adequate signal off a portable set-top aerial? Mr Ward: I am afraid I do not have any information on that. Mr Watson: I cannot give you a number. I believe Ofcom has a number to offer in some of their documents but I cannot quote it. Harking back to our 98.5% coverage, the assumption behind that is what is described as a standard domestic installation, which is assumed to be an aerial at ten metres high, not something special, not the tower in the back of the garden. Portable reception will be a subset of that but I do not know exactly what that subset is. Mr Ward: Chairman, we could investigate that point and come back to you with some written information. Chairman: That would be very helpful. Thank you. Q408 Paul Farrelly: I just wanted to explore the importance to the plan of the four week or one month simulcast period. Alan, I have read your e-mails to the Chairman which were very helpful. When we went to Berlin the regulators were very pleased with themselves that there had not been riots in the streets, they had had a six month roll-out period and everything was hunky-dory. The broadcasters in hindsight, although they cannot prove a negative, wish, because of the costs involved, they had had a rather shorter period. How important is the one month period in a UK context in terms of getting the job done? How ill-advised would it be for a bunch of politicians like us, looking at the numbers of complaints we might get, to say why not go for three months or six months like in Germany? Mr Watson: The one month is about right for what we need to do. The task we have got is to come to a site, prepare it ready for switchover and then on the night switch the BBC analogue transmitter off and replace it by the first high power multiplex. Then we have got to prepare for doing the remaining analogues. Our planning indicates a minimum of a fortnight to do that preparation, so we would start to get very twitchy if the month shrunk to a fortnight. If it starts to increase substantially then it takes us to a point where in order to get other sites that have been worked on in parallel we would have to withdraw our engineers from that site to start preparing another site and then bring them back again. So extending the month is problematic to us as well. From our point of view it sits about right. Q409 Paul Farrelly: How problematic would two months be? Mr Watson: It is something we would need to take away and look into. It would certainly put additional risk and additional cost in the project. Q410 Paul Farrelly: Has anybody else got any views? Mr Ward: The activity that will be most prevalent during that one month period, as I am sure the Confederation of Aerial Industries will have said to you, will be the adjustment of viewers' existing receiving antennas and so forth. Perhaps one way to mitigate the pressure that is going to occur there is to make sure, through Digital UK's communication programme, that we try and make the public as digital ready as possible and try and help them by making sure that their installations are capable, which in the vast majority of cases they will be because if they can receive the existing analogue signal their system should be capable of receiving the new high power digital signal, and making sure that within each of the regions people take the pressure out of that one month period. I think that would certainly be welcomed by the aerial installers. Q411 Mr Hall: You are quite certain about meeting the deadline for the analogue switch-off and the analogue switch-on. In some of the evidence from Arqiva we were alerted to a problem with the radio spectrum. A vast radio spectrum is going to be available when the switch-off takes place but nobody has decided what they are going to do with it yet. Is that a real problem or is this just something where we are thinking when the time comes the decisions will have been made already or do we need to start making decisions now? Mr Holebrook: We are the site landlord for the initial sites in the Border regions and the West Country so we have more of a time issue on our sites at the moment than National Grid does. We really wanted to take the opportunity to flag up that we do have to start the engineering work shortly. In fact, in the summer of this coming year we will be starting at Selkirk, we will start to put the antenna equipment in there and really we would like as early an indication as possible from the regulator of their proposed usage of the capacity going forwards so that we can make sure we build it into the antenna designs. That is something we are trying to do at the moment, we are trying to second-guess when it is likely to go into Selkirk and the other sites shortly after that, but it would certainly be helpful if we could get as firm an indication as possible so that we can factor it in. What we do not want to do is do the engineering work and then have to do re-engineering of the engineering work, that just would not be acceptable. Q412 Mr Hall: What is your view about what spectrum should be used for? Mr Holebrook: There is an array of different options that can be used. This is very good spectrum. Compared to other spectrum that is available it does give wide coverage areas, it tends to overcome some geographic problems and it does not shadow. It is a very attractive piece of spectrum that can be used for more DDT services, for HDTV, which currently is not available on the digital terrestrial platform and needs to be planned in, for mobile TV types of applications or for other types of applications. I have heard people talking about data downloads and datacast into PCs and things like that and there are plenty of opportunities there. I am pleased to note that Ofcom has now announced their consultation on the digital dividend which is starting to get the ball rolling and is very helpful. Q413 Mr Hall: What would have to be done in addition to making the spectrum available to have the availability of high definition content on the old sets and mobile TVs? Mr Holebrook: To do high definition television we probably need at least one additional multiplex to be licensed. At the moment you have got six multiplexes that are jam packed full of standard definition so it is very difficult, without people sacrificing their channels, to upgrade the network to put in the new equipment. It is pretty much essential that an additional one multiplex at least is licensed which gives that extra bit of breathing space to allow us to do all the necessary engineering works and to allow the high definition to be introduced. Q414 Mr Hall: So basically the regulator has got a couple of jobs to do if we are going to get this right. One is to be clearer about what the spectrum should be used for and to licence one more multiplex. That is all that is standing in the way of getting this thing right. Mr Holebrook: Because this spectrum is so attractive there are plenty of other people that are interested in it, ie the mobile operators and the data broadcasting people. Ofcom has got a duty to consult with all of those parties and the broadcasters are very interested in it. I think it will be really useful and I am glad to see they have announced this dividend review which gives the opportunity for all parties to make their case and for Ofcom to consider that. Q415 Chairman: But you need a conclusion to that relatively swiftly in order that when you start climbing the uphill masts you are going to be able to fit the right equipment. Mr Holebrook: Yes. That would help! Q416 Paul Farrelly: What would be the ideal date for that from your point of view? Mr Holebrook: We would be looking at no later than the end of next year. The sooner we can get it the better so that we can start planning the roll-out. Q417 Chairman: The other factor is the RRC. Can you say a word about possible interference particularly between Northern Ireland and the South or the south-west of France or coastal regions? Is that likely to be a serious problem? Mr Watson: The existing spectrum is working on a plan that was put in in Stockholm in 1960 which has lasted extremely well. As it happens, the UK has been the most efficient anywhere in the use of its spectrum which has been a factor in our success but also a limiting factor in rolling out digital so far. The RRC next year, the Regional Radio Conference, will set the foundation for the next 40 years' use of the spectrum and what is happening currently is that all the European countries are submitting their plans for the future. Not surprisingly, they are all intending to bring along digital and in every case that means greater use of the spectrum. Greater use of the spectrum implies greater interference problems. Yes, we can anticipate more incoming interference. As it happens, we will be causing more as well so it is fairly well balanced. That is one of the factors that alters the predicted coverage for the UK. We will experience more incoming interference on the south and east coast and as part of the planning, in order to work out what is acceptable, we will need to negotiate with the surrounding countries what we can accept and what they can accept and then work out ways on our side to mitigate it. The thing about RRC is that if all goes well it should largely be a rubberstamping exercise. It is not the case that everything is left to the last moment and then an attempt is made to reach an agreement. Q418 Chairman: So it is not like the EU budget! Mr Watson: I was choosing my words very, very carefully, but absolutely not, and it is even less like trade talks! Discussions have been going on for the last year now between the countries to try to work out how to mesh the individual country's plans and in general that is going quite well. There are a few things to be sorted out but it is well on its way. Chairman: Can I thank you very much for your time. Memoranda submitted by NTL and Video Networks Ltd Examination of Witnesses
Witnesses: Mr Keith Monserrat, Director of Policy & Communications, NTL, and Mr Roger Lynch, Chairman and Chief Executive, Video Networks Ltd, gave evidence. Chairman: Can I welcome Keith Monserrat of NTL and Roger Lynch of Video Networks. I should say that in the last couple of weeks both NTL and Homechoice have given demonstrations to some members of the Committee of the facilities which their services can provide to consumers, both of which were extremely impressive. Thank you again for that. Q419 Janet Anderson: What do you see as the main justification for switching off analogue TV signals and widening coverage of digital terrestrial television? Mr Lynch: I think the main benefit clearly is that there is a significantly inefficient use of spectrum right now in supporting analogue and that spectrum could be put to much better social good, it is as simple as that. Q420 Janet Anderson: Would you like to expand on that? Mr Lynch: Would you like me to go into what I think the uses of it to be? Q421 Janet Anderson: Could you define social good? Mr Lynch: Right now you have got a significant amount of spectrum that is being used in a very inefficient way. If you think about what could be done with that spectrum, there are many different services that could be used, clearly things like high definition television, many more channels and new mobile broadband services. The replacement of five existing channels of analogue television is already easily accommodated within the digital spectrum that is made available. It is trading in five analogue signals for a whole host of other services. In principle a lot of social good could come from that. Obviously there is also a lot of pain that will come from the switchover process too. Q422 Janet Anderson: Mr Monserrat, I noticed that you have a rather interesting package which enables people on an estate to monitor CCTV cameras from their own living room. Is that the kind of social good that you would include in this? Mr Monserrat: I would be delighted to answer that question. Let me just step back and agree with what Roger has said and say that perhaps digital switchover is a good thing. Why is it a good thing? It is because it drives this thing that the Government has been very keen on. As we talked about with the World Trade Organisations, the broadband digital environment supports digital inclusion. One of the benefits is that by the deployment of digital technology you get the spectrum dividend that has been talked about in the previous session and Roger also alluded to. What I think you have also got to consider is that switchover is much more than just digital television in our context. The fixed telecom operators in the UK began to deploy digital technology way back in the Eighties. We began to build up platforms that used digital technology and to develop the environment that is now set up for broadband, for IPTV and for high definition. It has taken a long process to get to it. There are a number of benefits. There is the switchover of digital broadcasting and the telecom operator who already had broadband has moved forward and therefore we believe that digital switchover means much more if you want to achieve some of the policy objectives of the Government. Turning to your question, of course broadband gives you much more capability. It allows the market to crystallize the habits of the consumer, the customer. What you alluded to is something that both Roger and I have been working on, which is the Shoreditch example where we have provided a range of different local services to a community. When asked what the most important service was they wanted they said it was security and CCTV in the particular environment they lived in. Q423 Janet Anderson: Can you give us your views on the relative merits of the different digital TV platforms and also tell us whether you think Digital UK is doing a good job of informing the public of the various options and what they mean? Mr Lynch: One of the great things about digital in this country is there is a lot of choice. Obviously there is digital satellite, digital cable, digital DSL services like our service and digital terrestrial. If you think about the different services that they can all provide, in the case of digital cable and digital DSL, these enable services not just to broadcast television but also interactivity, video on-demand, broadband and services like that. If you think about how people's viewing habits are changing over time with things like PVRs, which are a first step towards people taking control over what they want to watch, it is just a first step. Video on-demand is really the next step, which cable and DSL are in fact doing now. Services like that enable viewers to take control over what they want to watch, such as what we are doing with the BBC with what we call Replay TV, which is where you can scroll back through the programme guide on the television set, select a programme that was broadcast in the last seven days and just watch it now. It is not a case of going on the internet and downloading it to a hard drive, it is on the television. When people have services like that they use it because it is much more convenient and it gives much more choice than just more and more channels. There are many platforms that can provide digital television, but if you think ten years from now how people are going to be viewing television and what the platforms are that can support this new viewership, we need to be careful we do not end up promoting the lowest common denominator, which is digital terrestrial, which in its current form is only a broadcast service. It was launched using MPEG-2 technology so it is a relatively inefficient use of spectrum because it does not use more advanced encoding standards such as MPEG-4. Platform operators such as capable operators and ourselves have economic incentives to use the most advanced technology, which is why we have already migrated to MPEG-4 and I am sure cable operators will do so over time. Q424 Janet Anderson: What do you think the level of awareness is about these possibilities? Is Digital UK doing a good job or could they do more? Mr Lynch: It is very early days for them because they have really just started out. Our biggest concern in general for this is the prevalence of awareness that will be built around Freeview, in particular by the BBC. While Freeview does provide a good digital service, it is a very basic service. If you think about ten years from now what people are going to want to watch and how they will want to watch TV, Freeview will not be able to fill that. Yet we are concerned that there is a big bias towards promoting Freeview, which is again the lowest common denominator when it comes to digital broadcasting. Mr Monserrat: Digital UK has started and they have made a good effort. Both Roger and I have begun to talk to various consumer organisations. I spoke at Jocelyn Hay's Voice of the Listener to begin to try and paint the picture of what this new world will look like, the services that will come out and what it will mean for both citizens and consumers. I think Digital UK has begun the evangelizing of this technology. Where I would support Roger violently is that it should be about the promotion of what these new services could be, not what a platform can deliver and it should be about the breadth and the width and the richness that can be delivered to consumers and citizens through a variety of means. One of the examples I used when I was talking at the consumer conference was to try and liken it to the old days when you could tune in across the world to get content on your shortwave radio. Now with broadband you can do something slightly similar but on a different scale. You are now going to be able to tune in using IPTV to a whole range of different TV services across a much wider environment; it is the globalization of TV if I could put it in plagiarized words. Q425 Janet Anderson: Digital UK had a reception here a couple of weeks ago and they suggested to me that politicians did not understand how the digital revolution could transform the democratic process. Do you think there are any implications? Do you envisage a time when people might be able to vote on-line? Do you think this is something that is possible? Mr Monserrat: We would not have the temerity to suggest you do not understand the democratic process! I remember when they were setting up the Scottish Assembly and I was heavily involved in trying to bring democracy to the people there was a huge amount of work done with the Scottish Assembly and the national Parliament to try and ensure that Hansard was distributed to the Western Isles so that there was an ability for people there to access the workings of the Parliament and then express an opinion more quickly. That plan was never implemented, but it did show how democracy could be brought closer to the people. One of the key issues that came out of the studies at that time was how single key issues, let us say for the sake of argument climate change, affected people and they could respond and inform their representatives of their beliefs. One of the suggestions was you should put terminals in supermarkets because more people go to supermarkets on a Sunday than to church. Mr Lynch: I think a good example Keith brought up was Shoreditch which is a project that we are involved in. This is a community where PC penetration is only 8%, it is a very deprived area and yet they are going to get one of the most advanced services anywhere in the world through the television network. The types of things that will enable - voting is not yet on the list - are things like the community safety channel which does allow you to look at the CCTV camera around the estate and decide whether you feel safe to go outside and to look at ASBO line-ups to see who in your community may be the offenders that you should be concerned about, there is an education channel allowing children and adults to take classes and to complete online homework assignments through the television sets, a health channel allowing you to book GP appointments, a consumer channel allowing the consumers to group buy things like gas and electricity, to get discounts and then an employment channel. These are all on-demand services that you can interact with that enables the people living in Shoreditch to access all these services without a PC. You could think about, just by virtue of the types of services I have just mentioned there, how that could extend to other areas and other e-government initiatives that both bring the services and capabilities of the Government into the consumers' lounge but also reduces costs at the same time as providing the services. Q426 Mr Evans: You mentioned the Western Isles. Will they be able to get all the platforms? Mr Monserrat: They will be able to get DTT and they will get DSL, but with the cable franchises we do not extend out to the Western Isles. Q427 Mr Evans: I live in a small village in the Ribble Valley, it is a lovely village, but that has not got cable either. Is not part of the problem - I think you have got three and a half million subscribers or thereabouts and you have got 48,000 subscribers - that you are not generally available to everybody and so some of the wonderful things you are talking about are not going to be available to the vast chunks of the population in the UK? Mr Monserrat: If you take the cable industry, NTL and Telewest, we cover 50% of the UK and that is the urban community of the UK. One of the things going forward, with the new regulatory change, the things that Roger has done, is that you then begin to look at re-utilising the copper network that exists in the UK, to look at unbundling and you use that to extend your network and to drive the kind of services that both of us have talked about to the wider community. Q428 Mr Evans: Is that what you are about now with this Replay TV? So any poor person who misses this broadcast of this Committee meeting will then be able to go back --- Mr Lynch: I am sure it will be very popular! Importantly, it is bundled in with the broadcast package. This is not just a video on-demand service that sits on its own. For instance, the replay that we do with the BBC channels you access through the channel itself. So if you are watching BBC One you can hit a menu button that will bring up a list of programmes for the last seven days, you press okay and you just watch it now. Q429 Mr Evans: How many programmes do you get a choice of to do that? Mr Lynch: It is whatever the BBC makes available to us. Right now they are making available about 50 hours a week and we expect that that will grow very, very significantly. We are also doing it with ITV and we hope to be doing it with Channel 4 soon and some other smaller channels. There are also 4,000 or 5,000 hours of other on-demand programmes that are available on platforms like this, such as films, music videos, television content that we licence in outside of the broadcasting from the BBC and Hollywood studios and lots of other informational services. On your point about where can these types of services be available, it is the case that cable was built where there are population centres because that was where it was economical to build cable. In the case of services like ours it is a different economic model in that the cost for us to build out our network is about one one-hundredth of the cost of building cable, it may be even less than that because we do not have to dig up the streets, we can use the phone lines that are already there. The great thing is that virtually everyone has a phone line in the UK. How can we reach our services out there? As you move out of the population and its areas the economics start to work against you. You have to assume that you will get higher and higher penetration levels because it costs the same amount of money to put our equipment into the BT telephone exchange. As for a commercial model, the way we are based right now, would we ever go into 24 million homes in the UK? No, it is not likely because many of these exchanges that you would have to go to are very, very small. From a technical standpoint could it be done? Yes it could be done, but it would have to be done on a different basis than us rolling out on the assumption that we will get 10% or so of the consumers in an area to take up our service because that would not justify it. It is not really a technical issue so much as it is a commercial model issue. Q430 Mr Evans: Within the areas you are currently operating in have you noticed within the last six months more people subscribing to your services because they now "fear" that the analogue service is going to be switched off and they will need to go digital? Mr Monserrat: I do not think we have seen people fearing analogue because I do not think there is that much of an awareness of analogue switchover just yet. What I would like to do is draw you back to the point you were making about who would watch what and when. We believe there is going to be a lean back-type of viewing, which is where you are looking for entertainment, and a lean forward-type of viewing, which is when you are seeking information, say you are booking an appointment with a GP or you are dealing with your Government. That kind of new way of interacting I think is the way that is going to shape the viewing that is to come and therefore it is very, very important not to look at digital switchover as merely a change of broadcasting, it is going to support a change in habit and that is where the DSL platforms and others will play a pivotal role in achieving some of the things that digital broadband is supposed to deliver. Q431 Mr Evans: I see Sky is already advertising in Border TV papers that it is giving away 1,000 installations and packages to people and they have clearly re-packaged everything as far as the cost is concerned to try and attract as many customers and make it as affordable as you can. Are both of you now looking at doing that to ensure that people who do not currently subscribe to you are not disadvantaged in some shape or form by hugely expensive offerings when they are paying perhaps a licence fee at the moment? Mr Lynch: I think both cable and Homechoice are doing that already. In the case of cable, they have got offers where, if you buy a phone line, you get digital TV with it. Our focus is much more on selling a full bundle, including broadband, but if you look at our entry-level package which we sell for £17.99, which is the same price that BT sells broadband only for, you get broadband, you get digital TV, access to all the video on-demand and you get free phone calls, so I think we ---- Q432 Mr Evans: And that is an established price? It is not a special offer, is it, for six months? Mr Lynch: That is the established price. The promotional price is £14.99 and the contract price is £17.99. Therefore, I think we and cable are already doing that. Mr Monserrat: I think the same, that there are a lot of packages and there will be more to come and there will be lots of commercial responses. I think the key issue behind this is that this is an extraordinarily competitive industry and competitive environment. On broadband, it is only a year ago that you could get 1.12K for, say, £5.99 and very quickly you are getting one-meg broadband and you are up to eight megs and ten megs. It is extraordinarily competitive. Q433 Mr Evans: What is the top speed you are offering at the moment? Mr Monserrat: It is ten megs. Q434 Mr Evans: And how much does that cost? Mr Monserrat: I think the offer at the moment is £10. Q435 Mr Evans: Is that £10 a month? Mr Monserrat: I think so. Sorry, it is not I think; I know. It will change, but what all that is about is that the whole network capacity is going to be increased, the distribution networks are being increased and with that will come all of the other benefits which we have talked about, but this will be the subject of a lot of commercial activity from the satellite people, the DSL people and ourselves. There will be lots of bundles coming through. Q436 Chairman: Roger, you, in your evidence and indeed today, have been a little bit scathing about Freeview. You have described it as based on legacy decoder technology, yet a large part of the justification for switch-off which is advanced by the Government is in order to extend Freeview coverage to the whole population. Do you think that Freeview has a long-term future or do you actually think that in time people's demand for additional services will mean that they will no longer be content with what Freeview has to offer? Mr Lynch: I absolutely agree with that. I think what we are seeing today, even here in London, are services which are just available in London and when we look at where our customers come from, the most astonishing fact is that the sort of biggest outlier is the percentage of customers we get from Freeview, so it is about twice as high as the percentage in our customer base. Our customers used to have Freeview as it is in London in general which is very interesting because these are all people who have made choices within the last year to go with Freeview and they have yet made another choice to take a new service on top of that. I think the concern I have about Freeview is not whether it should be rolled out, but that by placing so much emphasis on, and so much investment in, that, you end up perpetuating what I call the 'lowest common denominator' because it is based on a legacy technology, it uses the MPEG-2 encoding. Perhaps I could just spend one minute here and I will try not to get too technical. We are just at the cusp now of changing digital broadcasting encoding standards. MPEG-2 is the standard that has been around for quite a long time and has made significant improvements. That is why you can fit so many digital channels into the space of what analogue used to take up, but it has reached the end of its life and now we need to move to new encoding standards, and the new standard is MPEG-4. The benefit of MPEG-4 is that it will use half of the band width of MPEG-2 which means twice as many channels or being able to do high-definition broadcasting with far less band width than you need with MPEG-2. The problem is that every single Freeview box that is out there in the field cannot do MPEG-4, so what that means is: how do you ever get to the latest technology on DTT where you migrate to MPEG-4, free up the spectrum and enable things like high definition? For a service provider like us, we can do it because actually we already have it. We are the first broadcaster anywhere in the world to go with MPEG-4, so our entire subscriber base is MPEG-4. Cable and satellite will have the economic incentive to do that, but where people have bought millions and millions of legacy boxes that cannot do it, we have sort of trapped ourselves in a position where we cannot take advantage of that latest technology. Separate from that, you have the inability of it to provide any on-demand services which I think is really the way of the future about how people will want to view television. Q437 Chairman: So in time. when most people are able to choose between satellite provision, cable provision and DSL provision, do you think there may be the case of having DTT switch-off? Mr Lynch: I do not think there will necessarily be a case for switching off DTT. If you look now, satellite has been around for decades, cable has been around for decades and yet still over half the people in the country choose not to pay for television. There will always be a percentage of the population who will not want to pay for television. I think that percentage is going to continue to reduce and I would expect pay-TV penetration in this country to reach maybe 75% over time, but it will be on much lower-price packages than we are talking about. It will not be on £40 packages because I think we will have reached the limit of how many expensive packages like that could be sold and you will have to start getting into more value bundles for people to say, "Okay, now I'm willing to make this switch from analogue to a packaged or a bundled service". Q438 Chairman: So if DTT continues, do you think there may have to come a point where there is a second switch-off in order to transfer from MPEG-2 to MPEG-4? Mr Lynch: I think there will be, I do not know whether I would call it, a "switch-off", but there will be a transition where, in an aggregate and an economic sense, it will make sense to use the most advanced encoding technology. If we look at France, for instance, they launched digital terrestrial on MPEG-2 because it was just a bit early, but they passed a law that said that any pay-services that are created must be launched in MPEG-4. What that has ensured is that set-top box manufacturers started building MPEG-4 DTT boxes, so at some point if they decide, "Let's get rid of the MPEG-2", it will be a much smaller problem than it will be here because there are no MPEG-4 boxes in any homes in the UK right now. Q439 Chairman: Can you have a combined box? Can you have a box which will receive MPEG-2 and MPEG-4? Mr Lynch: That is what ours do today. Let me back up for one second. I do not think it would have been possible three years ago to launch with MPEG-4. If you think about it, we were the first operator to have been able to have done it and we only did it six months ago, so it is not as if a mistake was made and, "Gee, they should have launched in MPEG-4"; it was just not possible. The fact is that, as more and more boxes are shipped out there, it perpetuates the problem of: how do you ultimately get more efficient use of the spectrum with advanced encoding techniques? Q440 Chairman: But if HDTV were made available through Freeview, your view would be that it should be done in MPEG-4? Mr Lynch: Yes. HDTV, in our plans for HDTV, in 2006 will be using about six megabits to deliver it and that is about what DDT uses today for standard definition, maybe four to five, so the efficiency gains from it are very, very dramatic, whereas HD in MPEG-2 will probably use somewhere between 12 to 15 megabits. Q441 Chairman: So there is a very strong likelihood that all of the people who will be required to go out and buy set-top boxes in order to get DTT may in a few years' time have to go out and buy new set-top boxes in order to get MPEG-4 transmissions? Mr Lynch: I think that, if HD services are to be launched on digital terrestrial, there will have to be new set-top boxes anyway because the current set-top boxes also do not have HD connectors on them, so they could not do HD in any event. I would expect that those HD services would be launched in MPEG-4. What will be missed out on is the ability to get efficient use of spectrum across all the channels because you will not be able to turn off the MPEG-2 signals because this will be six, eight, ten, however many, million Freeview boxes that can only decode MPEG-2. Q442 Chairman: That may be the case certainly for a time, but there might come a moment when it will make sense to switch off MPEG-2. Mr Lynch: Yes, without doubt. Q443 Mr Sanders: We have heard quite a lot in all the evidence sessions we have had about the fantastic increase in choice, services, support for vulnerable groups, communities, et cetera, but can I come back to a problem that has been raised with me by a deaf viewer who receives NTL and, working to choose to go to Sky, would get subtitles, but when Sky programmes are shown through NTL, there are no subtitles. Now, given all the fantastic things we have heard about multi-channels and all the wonderful things that can be done, why is something as simple as that a problem today? Is it NTL or is it Sky? What is the problem? Mr Monserrat: It is something that we are working on with Sky because they provide us with the feed and to put in the necessary subtitling requires a degree of technical inter-working between the two companies. We have made audio-visual descriptions and we have set the promise of a date by which we will be able to do that. Q444 Mr Sanders: What date is that? Mr Monserrat: It is towards next year. Q445 Mr Sanders: That is only a couple of weeks away. Mr Monserrat: Absolutely correct, but I was envisaging that it would perhaps be towards the middle of next year. It is a technical issue because in the way the cable world developed, we did not have one platform because of the nature of the cable franchises, but we had a number of platforms. The emphasis has been to integrate those platforms together and then be able to try and meet the requirements of the hard-of-hearing or the blind, so it is something that is on the cards and we will deliver it in some areas, but we do not deliver it ubiquitously. Q446 Mr Sanders: Going back to this MPEG-4 business, the cable companies provide a box to the customer. Mr Monserrat: Yes. Q447 Mr Sanders: So will they be upgrading boxes to ensure that the consumer is able to benefit from the latest technology, whatever that happens to be? Mr Monserrat: Yes, we have begun to roll out our on-demand services, we have trialled HDTV already and our boxes will be able to deliver those kinds of services to our consumers. Q448 Mr Sanders: Will that be with Telewest or will there be any distinction? Mr Monserrat: I cannot speak for Telewest because we are still two separate companies, but I should imagine that they will have similar plans to ours. Q449 Mr Sanders: But possibly not for much longer two separate companies? Mr Monserrat: Your guess is as good as mine. Q450 Mr Sanders: Can you put a monetary value on the main costs and benefits of actually switching off analogue and switching to digital? Mr Monserrat: As NTL? Q451 Mr Sanders: Yes. Mr Monserrat: we have done very little work on the monetary costs of switch-off and the monetary benefits of switch-off. When Arqiva was part of NTL, as NTL Broadcast, we were intimately involved in the costings then, but, since they departed and as a stand-alone company now, we cannot comment on the benefits, the monetary benefits, as we have done very little about it. Q452 Mr Sanders: What about the costs then of expanding or upgrading your own networks? Mr Monserrat: We currently spend, the cable industry spends, about £600 million a year to maintain our networks and to upgrade them, and we will continue doing that, so we will expect to maintain the service that we currently deliver and increase its functionality and its capacity. Q453 Mr Sanders: Does this mean that there will not ever be any more expansion perhaps of the cable network because what is the point if you can receive multi-channel television after switchover through normal transmission? The great advantage of cable was that they were in early on and it was either that or satellite and now the market has gone. Am I right in thinking you are not going to see an expansion of the cable network? Mr Monserrat: I do not think we will ever go back to the full-scale building that we saw way back when there was the digging up the roads, but we cover 50% of the UK, we cover all urban centres. The expansion of the network in our context is not just to deliver digital television, it is to expand the network and reach the broadband network reach that I have highlighted. Currently, the cable networks drive fibre out closer to the customer than anyone else, within 500 metres of every home in our franchise areas, so the cable industry has given the UK a state-of-the-art access network; "fibre to the kerb" is the best way to describe it. Q454 Mr Sanders: So it is still rolling out? Mr Monserrat: No, it is done already. Q455 Mr Sanders: Are you still digging up pavements? Mr Monserrat: No, it is done already. Q456 Mr Sanders: What about new housing developments? Mr Monserrat: That is something that, as we go along, yes, you do roll that out within the franchise area, but I think what you are trying to get at is whether there is a major network build programme outside the franchise area and the answer to that is no. Q457 Chairman: Can I ask you specifically about multiple-dwelling units which raise particular problems obviously. I think in your evidence you suggested that the cost of installing facility to receive DTT is considerable within some multiple-dwelling units and it actually might be more sensible to make provision for some kind of cable or DSL provision. Mr Lynch: When we have spoken to government about concerns about switchover and reach, the concerns have been much more focused on MDUs than we initially had thought. We thought it would be how do you get coverage from 75% to 100% or 98%, or whatever the number is, but there are bigger issues even about: where is coverage, is there wiring so that you can get the signal in to the home? What we found is that there are quite a large number of MDUs in London which, because of timing restrictions and the lack of wiring, cannot have satellite dishes, they do not have integrator reception systems installed to enable them to get Freeview and they may or may not be cabled. Therefore, when you think about how you switch over that MDU, you have to make a capital investment, somebody has to make a capital investment, to rewire the building for them to be able to get it. We would argue that the building is already wired with the telephone network and every flat in the building already has a phone line, therefore, it can receive a service like ours. There is an example of how DSL can contribute to switchover, and actually it would reduce the costs of switchover relatively significantly. I think another example, as we have talked about, is for places like Jersey where there is a concern about interference of the digital signals with France's. There is no cable there and it is a perfect market where Jersey Telecom could roll out digital TV to all of the residents on Jersey using services like ours. Q458 Chairman: Keith, do you want to say anything about MDUs? Mr Monserrat: Merely to say that we have looked at it and we have done enough costing work to approach the problem with care. It needs a survey on a building-by-building basis because it is very, very difficult to come up with a capital cost for cable not to be able to use it, depending on the distance away from the main core network, but it is a challenge and we have done enough work to recognise that we need to do a heck of a lot more. Q459 Mr Hall: The video networks, you have been quite critical of the Government's approach to analogue switch-off and digital switch-on, but, in your evidence, your written submission, you said that we ought to be concentrating exclusively on digital switch-on, but if we are going to do that, we should stick more tightly to having broadband accessible in all households. Is that just the commercial view or would that give you a commercial advantage if that was the case? Mr Lynch: To start with the premise of your question, we have concerns about digital switchover and we are very supportive of digital switchover and freeing up the analogue spectrum. We believe it is the right thing to do, but our issue is: how do you go about doing it so that you do not create more legacy issues in the future and how do you go about doing it so that you create wide deployment of the latest services? Certainly we have a commercial interest in doing that, but we also have models that we are rolling out, like in Shoreditch and there are others we will be announcing, where these are not commercial activities, but they are pilots that we are doing to demonstrate how this can be done. We are in fact funding part of these ourselves rather than making any profits out of them and we are actually helping to fund some of these activities. I would say that, if I am critical, it is really to make sure that we all have our eyes open about what type of services we think consumers will want and that we are being platform-neutral at the moment to make sure that the consumers have a choice of platforms that can enable those types of services. Q460 Mr Hall: So that is why it is important to have every household with broadband because that again is part of your business? Mr Lynch: If you think about digital switchover, digital divide and broadband Britain, I think they are all the same thing. It really is about bringing in the latest services and making sure that consumers across the UK have access to the latest services and if you pick one platform and heavily promote that platform which does not provide all of the services, you end up with a large percentage of the population which does not have access to latest services. Therefore, from our standpoint, I think we would like to see the debate being broadened to look at all the different types of digital services and not just, "How do I switch off these analogue signals?", but "How do I also bring interactivity, on-demand services and broadband?", whether the broadband is delivered through the television set or through the PC, but services that are enabled by broadband into the homes. Q461 Mr Hall: Also in part of your evidence and you have referred to it this morning is the Shoreditch project which is low-cost access to the services that you provide. Mr Lynch: Yes. Q462 Mr Hall: How important is that? Do you see that being as far as you can go or do you see that there is a possibility that you might be providing a free service as well which matches the other free-to-view services? Mr Lynch: I think where there is an opportunity to provide a free service is that people have to have a phone line to get our service, so today people pay BT £10.50 a month for the phone line and that price is about to go up on 1 January to £11. There are models where it makes sense for us to provide a phone line because the equipment that we are putting in the exchange can do that and then, as part of your phone line, you actually get a digital TV package that actually gives you access to all of these on-demand services. Is there a charge for the digital TV in that case? No, I would say there is not. It is a replacement of the £11 or £!0.50 that you are paying to BT instead to another service provider, who, for the same price, is giving you much more and much greater value which is I think the purpose of competition. Q463 Mr Hall: Did you run that idea past BT? Mr Lynch: Yes. Q464 Mr Hall: What was their response? Mr Lynch: BT is looking at a similar thing by providing Freeview boxes. The interesting thing is that they have decided not to use their own network to deliver digital television. Q465 Mr Hall: When we were in Berlin, one of the things that I was quite interested in is what they have actually done to what they describe as "economically weak families" where they have made available, I think through their social security system, payments to enable everybody to have access. Have you come across that? Mr Lynch: I have not in Berlin, but we have had discussions with councils and even property managers about bundling in, as part of the service that they provide, digital TV and broadband into every unit that they represent or manage. Q466 Mr Hall: Basically the one concern we have is that there will not be universal access and, where there is access, you might have a digital underclass and that would be one way of overcoming this particular problem. The point in your evidence is that the more we can look at, the wider the coverage will be. Mr Lynch: Yes, but the digital underclass could come from people who only can receive digital broadcast channels and cannot have access to on-demand services and interactivity that other platforms can help bring. Q467 Mr Hall: Because that is your pitch, is it not, that you actually do far more than just provide access to television, but you have gone interactive? Mr Lynch: Yes. Q468 Adam Price: Another dimension, I suppose, to this potential digital divide is age-related. For instance, in the Bolton trial, the aspect looking at switchover, the over-75s and cable, it was the least popular option or a very unpopular option. Help the Aged, in their evidence, have raised the question of whether the elderly could be excluded particularly from the sort of higher-end, interactive services that cable and other platforms can offer. What are you doing to make your services more accessible to the elderly? Mr Monserrat: With the elderly, there is always the fear of technology and the more technology you get, the more complex it is, trying to wire all of this up together. In the US, for example, there is a growing business where you have people, I do not know what they are called, "Nerds United" or something like that, where you actually can buy the services and they come into the house and set this up for you. I think the problem is something that the industry recognises in spades and the issue behind it is, therefore, to make sure that the application that you buy from a cable supplier or from anyone is almost self-installing. A great deal of development is going on to make the installation an easy process, almost where you get something, you plug it in and it self-installs, and that is the development of the user interface, the application interface. It is a problem we are aware of, it is the recognition that people over 75 perhaps have some difficulty with installing new technology, and it is incumbent on the industry to try and make that a lot easier. Q469 Adam Price: Do you think that there are potential impediments, apart from installation, cost, for example? We have free TV licences for the elderly, so perhaps different tariffs may be possible as an option for the industry for the elderly? Mr Monserrat: In one of our packages now, you are getting a base pack, a special pack for about £5.99, so the cost is coming down and it speaks to the point that Roger made earlier, that, as you go forward, there will be a lot of change and there will be a lot of rebundling of the packages. We are probably reaching the limit of how many people will want to buy something at £40 or £50-odd for the total package and also it is going to come down as you begin to recast the service bundles and you will find that there will be affordable packages for all sectors of the community. That is on the TV side. Q470 Mr Evans: Does the BBC actually receive any money from you for the programming that you put out on NTL? Mr Monserrat: Sorry, the public sector? Q471 Mr Evans: Yes. Mr Monserrat: No, we are under no obligation to carry that. Q472 Janet Anderson: I wonder if I could go back to the question of a digital underclass. In the Bolton trial which Digital UK are doing at the moment which is next door to my constituency, it is interesting that cable has been unpopular and only two recipients of a £100 grant chose cable, the vast majority preferring Freeview. Could I just take you back to a number of comments you have made. In being concerned about the digital underclass, are we in fact talking about people who are going to miss out on interactivity and all the potential, the possibilities that will present, and do you think the Government needs to be more ambitious and perhaps, through Digital UK, explain to people the potential, and that people are very unaware of this at the moment, so they think solely in terms of digital TV and not in terms of all the other services you have mentioned? Mr Lynch: If you had it presented to you by the BBC or through advertising or whatever, a digital world, and in effect what Digital UK is trying to do is to raise awareness, but also to sell them on digital, what the benefits are of digital. If you are trying to sell it to people who so far have decided that five channels is enough, "I don't need more than five channels", and you say, "It's great. You can have 30 channels, and you can get these shopping channels", from many people, the response may be, "Five is fine. I get everything I want to watch on five. I have already decided not to many times and I have gotten all the fliers from Sky or from cable" or from us or whoever, "and I have chosen to stay with the five channels, so that is not compelling to me so that I have to go and do it, but, yes, I am starting to understand that at some point you are going to shut that off and I will have to do something, so I'll do it out of desperation at the last minute, but really it is not a compelling proposition to me". That is one side. If you tried something else which is, "All the programmes that you like on these five channels are available any time you want to watch them through your television set, so it is the same five channels, but any programme you want, you can just sit down and watch it right now", that is a different proposition. "Wow! All the content I like and I don't have to think about getting home from work on time or staying up late to watch this programme. It's just always there, always available", that would appeal, I think, to a lot of people who would otherwise say, "Five channels is enough". Therefore, we think about how we sell digital switchover into the population and about looking at the broad range of services because you will have to have different horses for different courses. Some people will like more channels, some people will like broadband, some people will like just the simple idea of getting access to the content they already watch, but in a much more convenient way. The problem with what I believe is happening right now is that it really is down to the lowest common denominator; it is, "Pay £30, get a box and you'll get more channels". Mr Monserrat: I agree with the proposition which is that it is much more about digital literacy, about broadband interactivity and the aspirations on broadband, but I agree entirely with you. Chairman: I do not think there are any more questions, so thank you very much. Memorandum submitted by BSkyB Examination of Witnesses
Witnesses: Mr Mike Darcey, Group Director of Strategy, Ms Dawn Airey, Managing Director, Sky Networks, and Mr Martin Le Jeune, Head of Public Affairs, BSkyB, gave evidence. Q473 Chairman: Can I welcome BSkyB, Mike Darcey, the Group Director of Strategy, Dawn Airey, Managing Director at Sky Networks, and Martin Le Jeune, Head of Public Affairs. You seem to have come with visual props. Mr Darcey: We have and we will explain. Q474 Chairman: If I can begin, I was going to ask you for your view of the Government's proposals for analogue switch-off, but you have already submitted evidence to us which, I think it would be fair to say, is pretty critical of the Government's proposals. Perhaps you would like just to set out why you think analogue switch-off is ---- Mr Darcey: I have got a brief opening statement which will summarise things we have said and perhaps pick up a few of the themes that we have heard coming through from some of the other people who have appeared here. Q475 Chairman: That would be helpful, yes. Mr Darcey: We have three key messages today. The first is that we think that the economic case for compulsory switchover, which has always been pretty shaky, is now looking very poor indeed. The second is that the primacy of DTT within this compulsion involves pushing a 20th Century technology in a 21st Century market. The third is that satellite delivery of digital services, which has already contributed a great deal to the level of penetration in the UK, could do a great deal more if it were not so discriminated against. Expanding on the first point, Sky is an advocate of consumer sovereignty and we are not comfortable with the element of compulsion that is involved in a switchover policy. We are as keen as anyone to advocate the benefits of digital, but think that people in the end should be free to decline the service if they so choose. We accept the general point that compulsion can be warranted in some circumstances and that would typically be the case were there some material national goal at stake, but that does not seem to be the case here. The cost-benefit analysis which underpins this policy has always been pretty seriously flawed and now is quite out of date. If it were done properly today, we believe that the answer would be pretty negative. If the analysis also examined the distribution of costs and benefits as well as their quantum, we think it would discover a fairly serious mismatch between who wins and who pays. The only real winners from the accelerated compulsory policy are the analogue terrestrial channels themselves and their shareholders, where relevant. They prefer the DTT environment because it is an environment in which they face less competition for viewing than they do on cable or satellite. They have not been shy to admit this and there is no surprise that they are leading the charge and they have been assuring this Committee that all is well. The surprising thing we find, given the political and reputational risks at stake here, is that they have managed to co-opt the Government into this idea and they have even got the consumers to pay for it. Turning to our second point, it will not surprise the Committee to hear that Sky thinks digital is a pretty good thing which can bring considerable benefits. As we announced yesterday, there are now eight million homes, one in three, in the UK that enjoy a wide range of channels and interactive services, all accessed by an intuitive, easy-to-use, on-screen guide. More recently, digital has also come to stand for the benefit of time-shifting and one-touch recording through PBRs like SkyPlus and, going forward, digital, we think, will be increasingly thought to encompass the delivery of on-demand services, broadband connectivity more generally and, starting next year, high-definition television. Most of these benefits are, however, associated with the more advanced, high-band-width platforms, such as satellite, cable and broadband. Very little of this is now, or can be, offered by DTT which is not simply up to the job, not really a fully-fledged digital technology at all, and DTT is perhaps better characterised as an analogue platform with go-faster stripes, and not very convincing go-faster stripes at that. On our third point, we are keen to ensure that the compulsory policy is pursued in a platform-neutral manner with equal emphasis placed on all platforms in the promotions being put out by Digital UK and by the BBC. We are pretty keen to see an end to the silly discrimination that persists between aerials and satellite dishes which, as our props today illustrate, we consider is without foundation. To recap, we think compulsory switchover is not a good idea, DTT is not good enough a technology to be forcing people to buy it, and satellite can play an even greater role in promoting take-up if it is given a fairer chance. Q476 Chairman: Thank you. You do say that digital is clearly a superior technology and offers additional services. Presumably, therefore, you would agree that at some point it will be sensible to switch off the analogue signal because it is occupying some quite valuable spectrum in order to provide services to a diminishing number of people? Mr Darcey: I think that is right and that in a sense was the way the policy was originally conceived by Chris Smith, that you could see momentum towards take-up and that ultimately a point would be reached, I think Chris Smith said 95% take-up, and when you got to that point it would be sensible to switch off the signal. That, I think, is a position that we are broadly comfortable with. You can argue whether it is 95 or it is 93 or it is 98, but that sort of general idea seemed to be quite sensible, but things have changed since then and we now have this element of compulsion. The concern grew that the market was not going to do this quickly enough, so we needed to introduce a fixed timetable to put pressure on people and to force people to switch earlier than they otherwise would have done and to force people to switch who would not have chosen to have done so at all, and I think that is the point at which we sort of part company with the idea. Q477 Chairman: The Government would say that, in order to obtain the 95% coverage, it does require that the population should all have available to them the full range of choice which includes DTT and that you can only get to that by switching off the analogue signal. Mr Darcey: Well, I think actually the story has changed. I think, as originally conceived, and this is before a Freesat offering from Sky emerged and before the BBC and friends started talking about a further Freesat offering, the story appeared to be that switching off the analogue signal was crucial because currently only 25% of the population could receive a free-to-air digital TV solution, that which we call "Freeview", and that there were no other choices. Therefore, there was this sense in which quite a lot of value was placed against providing that 25% of the population with the opportunity to have a free-to-air digital package, and that is something that you could argue about in terms of how much value is attributed to that, and in the cost-benefit analysis a very large number was attributed to that, and we could talk about that. However, what has happened since then is of course that there is one Freesat offering that is out there now and there may well be another one soon, in which case you are no longer talking about the value of providing a free-to-air digital proposition to people who otherwise would not have got one, but the story has had to change to being that there is enormous value when providing choice, and choice is good, but I think it is a stretch to place the amount of value on that which is being placed on that. Q478 Chairman: You are also fairly scathing about DTT and the technology of the services it can provide. You said it could not provide HDTV, but other witnesses have told us that HDTV is possible on Freeview, although it will of course occupy more of the spectrum and potentially take up much of that which is being released by switching off the analogue signal. Mr Darcey: That is our understanding. Technically it can do HD, but HD is a very band-width-hungry proposition and DTT is a very band-width-starved technology, so it would seem to us to be a particularly good match-up, but yes, in principle, it does appear you can take all the spectrum that is released, turn it over to HD, as some of the witnesses to this Committee are urging, but really I suspect all you will have achieved is HD rebroadcasts of the main five channels and that will have hoovered up all of the great dividend that was going to come from this, so there will not be a great deal in the way of new services. When this happens in 2012 or 2013, none of the Freeview boxes that will have been shipped to that date, and however many tens of millions will have gone out the door in order to get to that point, will be able to receive those HD services because all the boxes which will have been shipped will have been MPEG-2 and HD will be broadcast in MPEG-4. In principle, there is the benefit there, but it looks pretty modest. It is six years away and in six years' time there will be precisely zero customers and everyone who then wants that will have to buy a new box and then what they will be getting is a pretty limited proposition, and I think, if they want a real HD platform, they will have gone to cable, gone to satellite or gone somewhere else. Q479 Chairman: I suggested to the previous witness that there might come a point where the appetite of consumers for interactive services and high-definition services reached the point where they were dissatisfied with DTT and they might, therefore, migrate on to broadband or cable or satellite and, therefore, we might reach the point where there was a case for having a DTT switch-off. Do you think that might be possible? Mr Darcey: I had not really thought of that. Well, I guess it is possible if everybody became dissatisfied. I suspect that DTT in the long run will continue to play a role, but I think that the excitement about it today is a bit short-termist and that when you roll forward and you think about the speed at which broadband is being adopted and the services that people are going to start to think of as the normal set of services you should have, then I think in the very long term you will see Freeview as being the platform for the elderly and the economically inactive. Mr Le Jeune: Which, picking up on something you discussed with your previous witnesses, means that there are also public policy questions from the point of view of the people who are providing services, eg, government, local government and other public sector organisations, in terms of the opportunity for interactivity, so it is both a customer perspective and a government perspective. Q480 Adam Price: In your detailed evidence, you refer to some of the work you have done in terms of an alternative cost-benefit analysis and you have expressed some scepticism about some of the figures that the Government produced. Could you say a little bit more about that, specifically this estimate you have made that it would be most cost-effective to convert between 200 and 500 transmitters and probably nearer to the 200 mark? Would you like to say a little bit more about that? Mr Darcey: I think the general point has been widely made, that there are 80 transmitters converting now and that, as you start to convert more transmitters, you start to hit diminishing returns and you are starting to incur costs for very little benefit. We have made a number of efforts to try and understand this and to try and do the maths. We are not particularly well placed to do so and we have done the best we can, but we are not privy to the detailed costs that the transmission operators themselves have, and I believe they are still updating those themselves and that sort of thing. Therefore, our view generally was that, as far as we could tell from where we were sitting with the information available at the time, it seemed that you started to hit diminishing returns beyond about 200 transmitters and it went down pretty quickly thereafter and it seemed unlikely that it was going to be rational to keep going beyond 500. The details as to where you think a sensible cut-off point would lie, I think, would require more detailed costs than we have available to us, but after a point it seems that you get to the position where, given the number of people who could have a Freesat offering either from Sky or perhaps from the BBC and the few people who may not be able to take that, you probably reach the point where it would be cheaper to string a piece of fibre to an individual home than it would to convert a transmitter. Q481 Adam Price: You have said in your evidence as well that broadly the principal beneficiaries will be the commercial terrestrial broadcasters and you raised a specific issue in relation to licence fees for channel three, the point you are making being that part of the cost may be public revenue and that it has been foregone. Could you say something a bit more about the issue in relation to your question about channel three's licence fees? Mr Darcey: I think the issue here is that it is tended to be portrayed that ITV is rolling out these transmitters and is picking up the costs and it probably has not been quite accurately portrayed. In the first instance, ITV will be paying the costs, but the fact that they will be paying the costs has been taken into account in the review of their licence conditions going forward, so they will be paying a lower licence fee than they otherwise would have done, reflecting this, so in effect it is the Treasury that is paying the cost in the sense of licence fee revenue foregone. We think that ITV, like the other terrestrials, are beneficiaries of this, but it does appear that under that particular heading it is the Treasury that is picking up the tab. Q482 Adam Price: And you are considering taking action under the State Aid Rules? Are you familiar with the recent decision in relation to Berlin-Brandenburg? Mr Darcey: We have looked at this a lot and we have been following how the State Aid cases around Europe have been proceeding. I am not a lawyer, so I cannot really pass comment on exactly how that is panning out. I think the biggest challenge we find, in trying to work out whether there is a serious case there, is the lack of information that is available in the public domain. We simply have sort of a broad statement from Ofcom that all this is being appropriately taken into account and all you really get at the end of it is, "And this is the licence fee that ITV will pay". We have asked politely if more information could be made available and they have not been forthcoming yet. Q483 Adam Price: So you think it might be useful if the Committee pressed them? Mr Darcey: I think that would be very valuable, yes. You might have more success than we do. Q484 Chairman: On your point about diminishing returns, we did raise with National Grid Wireless and Arqiva whether or not there was a point at which it was no longer economically sensible to go on converting transmitters and they told us earlier this morning that they believed that the economic case could be made right down to the 1,154th transmitter. In particular, they suggested that in your calculations, you were ignoring the cost to them of not converting, in other words, having to dismantle and return to green field a transmitter which was not going to be used for digital transmission. How would you respond to that? Mr Darcey: I think I would first observe that I think they have a very strong motivation to claim that every transmitter down to the 1,154th should be converted, so it should not be surprising that that is their view. If they have further information that can cast light on this and help in a more independent analysis of it, then I would be very happy to see it and, if they can persuade me that it is true, then I am happy to be persuaded. As I say, they have access to far more information than we have. Q485 Chairman: In fairness, one would have to say that you have a strong motivation in not converting every single transmitter. Mr Darcey: Well, I am not sure that is true actually because my understanding is that even if we stopped at the 80 transmitters today, turned off analogue in 2012 and then increased the power, as will be possible, the DTT will then be available to somewhere around 94% of the country up from the current 70-odd, so we are talking about converting 1,074 transmitters to get from 94% to 98.5. Now, 4.5% of the country, it is not a lot of skin off Sky's nose that DTT becomes available in 4.5% of the country, but it does seem like an extraordinary amount of money is being spent to do that when other technologies are available to provide services in those parts of the country. We do not mind in the end really, it is not our money, and there is not a lot in it for us, but it does seem pretty odd, so we have made those observations and, if somebody can show us that it does add up, then fine. Q486 Mr Hall: In your opening statement, I think you were quite antagonistic towards the Government's policy on the compulsion element with digital switch-on and you suggested an open-ended timescale for this to take place. Am I right in understanding that, that you do not want to see an end-date placed on the switchover? Mr Darcey: Well, it does not seem particularly necessary to have an end-date. The original policy, as I say, was one in which targets were set and, when those targets were reached or as they started to come into view, then a date would be set. In fact I think the original construction was that, when we hit 70%, we would then set a target-date as to when we thought we would hit 95, and somewhere in the middle we got a bit bored of that and when we hit about 45/50, we started getting all excited and setting a target-date. I really do not see an enormous amount of need to set a target-date which has the effect that it will switch people off, some people entirely and some people will just have some elements of equipment in their home made redundant. I just do not see a great deal of value in doing that when you could let it run, you could have the industry focused on marketing the benefits of digital, of tackling barriers to take-up of technology that can cheaply be tackled, and I think that would be a better way to proceed. Q487 Mr Hall: But we would never get there, would we? It would be a never-ending saga, would it not? Mr Darcey: No, I do not think it would. I do not think we would ever get to 100%, but, as I said in my opening statement, I think we accept the principle of compulsion at some stage and obviously you would not wait for ever for one last household in the country to convert, but there is a point at which you would say, "Right, well, we're bringing an end to this analogue show", but we just do not particularly think that point has been reached. Q488 Mr Hall: But, the longer it went on, the better it is for Sky because more people would be very curious to take a dish rather than to wait for the switch-on. Mr Darcey: I am not sure that is a big factor. Q489 Mr Hall: How important is Freeview in terms of the total broadcasting landscape? What is your view on that? Ms Airey: We are part of Freeview and we are very consciously part of it because we want to get as wide a distribution as possible, particularly for Sky News, but there are two other channels on the platform as well. We do have within the mix of Sky the Freesat offering which clearly has 200-odd channels, a combination of television and radio, that are available free-to-view should you choose to invest in a dish and a box, so it is a platform which we are part of and it is a form of distribution that we partake in. I do not think there is very much more to add. Q490 Mr Hall: But to get the Sky free-to-view, you have got to have a dish, you have to have a box and you have to have decoding equipment? Ms Airey: That is correct, yes. You have to pay £150, yes. Q491 Mr Hall: So it is not actually free to view, is it? Ms Airey: Well, it is free to view once you have made the investment. Mr Darcey: You have to buy the DTT box. Q492 Mr Hall: Yes, once you have subscribed to Sky, it is free to view. Mr Darcey: No, there is no ongoing payment. There is a Freesat offering from Sky in which you pay for the equipment and its professional installation up-front and thereafter there is nothing further to pay and you are then equipped to receive free-to-air channels which number, including video and audio channels, around 200, so it is a similar proposition to Freeview, but it is actually a broader channel proposition. Q493 Mr Hall: So once you have bought the equipment, you can have access to, did you say, 200 channels? Ms Airey: Yes. Mr Darcey: Yes, including radio channels. Q494 Mr Hall: What is the future for your particular free-to-view channel when ITV and BBC launch theirs? Do you see it continuing, Freesat? Mr Darcey: Yes, I think so. I think the BBC/ITV proposition is an intriguing one. I think it probably holds out the best prospect we have of the BBC ever referring to Freesat as an option on its on-screen promotions, so we would welcome that and we probably regard it as the best prospect we have of any concerted effort to address some of the discrimination in the planning laws as between a satellite and a dish. That is because I think people will be much more receptive to addressing those inequities if it is the BBC asking the question than if it is Sky asking the question, so I think we would welcome that and I think it would be a useful development for all of us. Q495 Mr Hall: But you can get one of those in your loft and you have to have the other one on the side of your house. Is that right? Mr Darcey: You can get one of those in your loft, but you are in effect free to put it anywhere. Perhaps Martin can go into this. Mr Le Jeune: Yes, the basic discrimination that exists, which the Government did have the opportunity to remedy in a lengthy consultation exercise, but pulled out, was that from the point of view of these two items you see before you, that four-foot-something, maybe five-foot aerial on a pole of some 12 to 18 feet requires no planning permission, whereas generally speaking, though not universally and it does vary across the country, that small unobtrusive dish is defined as 'development' and that makes people think about whether they need planning permission and perhaps they do and then it costs them £120. It is not just us that is saying this because Ofcom too have said in the past that one of the good things about promoting digital switchover would be to remove unnecessary barriers to people actually getting digital services and this rather antiquated planning distinction, which is purely a matter of history, if removed, could make a big difference to people, so it was a missed opportunity. Mr Hall: I take the point. Q496 Chairman: I want just to come back to that, but, before I do, we were talking about Freesat, and one of the justifications used by ITV and BBC for their proposed Freesat service is that, whilst Sky does offer a Freesat service, there is no guarantee it will remain free and there may come a point where you do decide to start charging for the cards. How would you respond? Mr Darcey: I will probably have to go back to the beginning because this will get a little bit complex. Some broadcasters on the satellite platform have, at their option, procured a conditional access service, even though their services are free to air, and that is typically either to restrict the territoriality of the signal so that it does not spill over into Europe or to give effect to a degree of regionality, so a particular regional version of a channel will appear at the right place. It is the card that does that. The card is included in the Freesat price of £150. Now, periodically it is necessary to swap out the population of cards on the satellite platform and that is done either to upgrade the functionality of the card or to maintain security or a series of other reasons. For new Freesat customers, so for people who have paid the £150, Sky have undertaken that, if there is a swap-out within five years of their paying the £150, we will replace that card at the time at no charge. Other free-to-air viewers who for some reason of history already have a dish and a box, they are able to buy a card for £20 at any time now and Sky have said that we will replace that at any time that there is a swap-out if that happens within three years of buying the card. Thereafter, we have said that we will continue to make cards available at around the £20 price point and I am really not sure what else to say when people say that we will stop doing that. We have no intention of doing that, it seems a terrible idea, but if they want to bandy that around as a justification for launching their Freesat, then there is not a great deal I can do about it. We have said we are committed to providing this card and it will be around £20 and there is not much more I can do. Q497 Chairman: Therefore if that is the case, how do you view the proposal to launch a competing Freesat service? Mr Darcey: As I said, they have been talking about it for a long time and it has not happened yet so we are wondering if they are finding it slightly harder than they thought, but I am sure something will appear soon. Generally it is something that we welcome. We are not particularly concerned about competition. We think that our proposition is pretty good. It has a good on-screen guide and we think it is valuable that it is upgradeable to pay services if a customer subsequently should want to do that. It comes with professional installation and customer support and we think that all stands it in good stead should a competitor emerge. As we say, there are two positive aspects for us if a BBC-backed proposition does emerge. One is that I think we will finally see the BBC talking about satellite options on its on-screen promotion, which it has been reluctant to do so far, and the other is it is our best prospect of seeing a relaxation of the planning laws. Q498 Chairman: Coming to that very point, the ODPM released revised planning regulations on 27 October and we are told that these amended permitted development regulations are designed to subject all antennas, whether satellite dishes or any other types, to the same rules. I take it that you do not think they have achieved that? Mr Le Jeune: My understanding of the term "antennas" (or is it "antennae", I am never quite sure) is that this does not apply to the standard television aerial of tradition which will continue to be treated as either not a piece of development or to be de minimis from the point of view of the planning laws, so we do not see much progress being made there. If I can add one other point, essentially we had urged the ODPM to scrap planning regulations as they applied to dishes and other antennas. That was a long way ahead of how deregulatory their appetite was and so we still have the position by which even if there is a general relaxation by way of a general permitted development order, local authorities can still override that and therefore we have made no progress at all. We are making a couple of visual points here. I think from the point of view of the written record it may be worth saying we do have an aerial and a dish for the Committee to see and also from the point of view of the written record we have a photograph here which, if I may, I will pass round the Committee. Is that permissible? Mr Darcey: We have got copies for everyone. Mr Le Jeune: This photograph demonstrates to our satisfaction, and we hope to yours, that when you are looking at a roofscape of aerials they are not always gorgeous. Ms Airey: This is taken in North London, which is particularly pertinent when you think how large Crystal Palace's transmitter is, where you have got these rather revolting aerials on extremely long poles. They are saying they are de minimis; hardly. So you have got big aerials that deliver a small service and you have got a lovely small satellite dish that delivers a big service. What we ask for is consistency, please. Q499 Chairman: The small satellite dish is almost obscured in this photograph. Ms Airey: I have to say that this is not a photograph that we have taken but it is rather dark. Q500 Chairman: So therefore, in your view platform neutrality is not achieved simply because of the obstacles being put in the way by government for people who put up satellite dishes? Mr Le Jeune: That is exactly our position and we find that in terms of joined-up government and the general national drive towards digital that this would have been a pretty quick win, as it would have been to amend building regulations to encourage the potential provision of digital services in multiple dwelling units, which is a rather ugly term that describes blocks of flats, et cetera, which we also cover in our submission, and it strikes us as being a bit of an own goal really. Q501 Chairman: But given that the Government has just come forward with its regulations, you presumably made that case and failed to persuade them? Mr Le Jeune: We did and I think what we would now encourage is that if progress can be made on a voluntary basis with perhaps Digital UK and others pushing that forward with developers and builders, then that is the next best thing, although it is a long way from the ideal. That could be done as quickly as possible. It took nearly three years for that consultation on planning to be completed, which given the demanding timetable for digital switchover is odd. Ms Airey: Platform neutrality is one thing that we would really urge this Committee to look very hard at, which I know you have been doing as various interested parties give their evidence. The BBC have most powerful promotional tool behind them. It is pretty galling when they are promoting Freeview - Freeview is the descriptor - as a brand descriptor of a group of channels and then they refer to Sky or satellite services as "digital satellite" and cable as "digital cable" when most consumers would know it as this is NTL or this is Telewest or this is Sky. They do not use those brand names but they do have a brand name for their own service, for Freeview. That is hardly neutral. As Martin said, Digital UK have learnt the word neutral and understand the meaning of the word neutral, but it seems to be brushed from the lexicon, to be frank, of the BBC. It does give the Freeview platform a huge advantage and they should be neutral and if they are trying to reach - and they should be trying to reach - digital in as many homes as possible, they should be platform neutral in their messages, and we just do not see that. Q502 Chairman: Your view is that the use of the term "digital satellite" rather than "Sky" is a significant disincentive? Ms Airey: No, it is not a disincentive. We are asking for consistency. If they are referring to us as digital satellite they should refer to Freeview as digital terrestrial. Mr Darcey: If they want to use the Freeview brand then the consistent treatment would be to refer to NTL and Telewest and Sky and to use the words that people actually understand. This is something that really hit home for us when the compulsory policy was announced and we started speaking to our own base of connected customers. We were rather alarmed to find that many customers do not really think of themselves as having satellite, that is not the way they describe it. If you ask them "Do you have satellite?" They say, "No, we have Sky." Okay, that is the language people use. Digital satellite is a form of words that is used in the industry but it is not particularly meaningful to the man in the street and we have found that a significant proportion of our base are not aware that they are digital today, which again I think is probably being prompted in part by the BBC promotion and its confusing use of words. Q503 Chairman: But would it not be the case that if you achieved your aim of getting the BBC to say in every trailer for BBC Three or BBC Four or digital audio broadcasting or whatever "this service is also available on Sky", that is advertising worth millions to you? Mr Darcey: Much as it is worth the same to Freeview today and has been for the last three years. It is true it is very worthwhile and we are not asking for special treatment. In fact, we are asking for a reversal of the special treatment, a levelling of the special treatment that has been in place for the last three years in which they market Freeview as a brand which is to the benefit of them and the other terrestrial broadcasters and refuse to name any of NTL, Telewest or Sky. It is not platform neutral and in fact it is distinctly unhelpful because it is confusing. If their interests really lay in promoting digital take-up and getting the country towards switchover then they would have no problem with that. I think you are absolutely right, it is an enormous step for the BBC to use the S-word - by that I mean "Sky" not "satellite" on air, and they are clearly very reluctant to do so. While they refuse to do so let us not pretend that this is a platform neutral policy because it is not. Q504 Chairman: That is your view of the BBC. How do you see Digital UK and the Government in terms of platform neutrality in this process? Mr Darcey: We have a very good relationship with Digital UK. Is he still there? I have considerable confidence in Ford and his team. I think they have got the whole platform neutrality idea. They are very keen about the role satellite can play, particularly the role Freesat can play. Ford never tires of explaining to me how low DDT reach is in the Borders area, for example, and what a big a role he thinks satellite is going to play. I think that is fine. I think he is doing a good job there. The problem is he is not the only player on the stage. There are some other very major players on the stage and I think they have been entirely clear in speaking to you that they are not platform neutral. They have been quite clear. They have said they much prefer a customer to go the Freeview route because it is a more constrained platform, they as terrestrial broadcasters face less competition on that platform, and so they suffer less dilution of their viewing. So they quite clearly are not platform neutral and they are going to have a big influence on the way this plays out, on the way the money spent, and the messages. It is very hard for Ford and his team, as platform neutral as they are, to compensate for the structural non-neutrality of some of the other important players. Q505 Chairman: I notice in talking about neutrality we have talked about cable, NTL, Telewest, satellite, Sky but we also had as a previous witness just before you Homechoice and they would argue that their service provides considerably more than the consumer is able to obtain from a satellite service and therefore they should also be given the opportunity to make their facility known to viewers through trailers on the BBC and so on. Mr Darcey: And perhaps they should. In the end I think that would be for the BBC. If they could ever get over the hump of being neutral they would then have to consider the next question of just who should qualify. I think there is a question in there of whether you should talk about services for which you must pay a monthly subscription. The first step for the BBC would be to talk about Freeview and Freesat options so places where you could get the BBC's services without a subscription. I think that is step one. My understanding is (and maybe I am not up-to-date) that neither cable nor Homechoice have an option where there is no monthly payment, or maybe they are thinking of that. Then there is the next step of whether you are also willing on the BBC to talk about the other ways in which you would get these services as part of another service that you were acquiring and then you would be into Sky as a subscription provider and NTL and Telewest and Homechoice, and perhaps others. Chairman: Adam? Q506 Adam Price: In terms of the vulnerable groups that we talked about earlier, and I think you referred to the elderly and the economically inactive in particular, in terms of the Bolton trial what do you think are the lessons so far in terms of accessibility for these groups who are potentially excluded from these services? Mr Le Jeune: It is a trial and it is continuing so I am a little bit wary of drawing immediate lessons until we have had the chance to reflect on that. I think the things that we are bearing in mind, if you like, our kind of tick sheet or record sheet for the way the process is going, is that we are very aware that there is some pressure for those vulnerable groups to be given the cheapest option, and whilst that has a surface logic, our concern would be that those who are vulnerable are not necessarily those who should be given the cheapest option. In particular, if you are, for example, housebound then you may indeed have a greater need for the interactivity that can be delivered by other platforms. This is not a satellite provision necessarily. Other providers, particularly cable, would say the same, I suspect. You might be more in need of those services, so that is one thing we have to bear very strongly in mind. The other thing we do and I would submit do very well is that we cater extensively for subscribers with various disabilities at the moment. We know how time-consuming and intensive that has to be and one of the things which I think will be taken forward as communications around switchover develop will be just what degree of support is required where again just giving somebody a free box and saying, "Alright chum, you take it from here," may not in fact be the most cost-effective option for them nor indeed the most useful option in terms of the services that they require. So I think "watch this space" is probably a direct answer to this question but we are concerned about those aspects. Q507 Adam Price: But in terms of your offering to the visually impaired and hearing impaired you think that your offering might potentially provide more benefit so it could be an attractive option in terms of those groups? Mr Le Jeune: I think perhaps there is a slightly more general point here as well about those who are disabled in some way because it is those groups who are, for one reason or another, exactly the kind of people who need constant contact with government, local authority or charitable services where that interactivity comes into play. We, like other broadcasters, provide broadcast services for the visually and hearing impaired because there is a system regulated by Ofcom to make sure we do that. What we do beyond that is make sure we offer specific helplines, telephone lines - it is covered in our submission - and so forth for disabled customers because if they are going to engage with a company like ours we have to give them special routes to do so and not just treat them as we would any other customer because they need more help and they often need more time on the telephone and advisers who know what they are talking about and engineers who are trained to working with the disabled and so on and so forth. All of this will have to be replicated for a much broader population during the course of switchover, and we are happy to contribute our experience and expertise to that but we are holding up a warning card at the moment. Q508 Adam Price: What about some form of public subsidy in order to help you to provide your services at a cheaper rate possibly to the over 75s? I think that there was some special help there available for the economically disadvantaged. Is that something that you would consider or are discussing? Mr Le Jeune: The decision about whether to offer public subsidy of that kind of course is not for us. There has to be a decision made in terms of what is a good balance of public expenditure and what really helps people to achieve services, but if the Government decides on the basis of what we have argued and others have argued that there are advantages in a more interactive service provided by another platform with a satellite, in our case, or cable, then we would look very seriously at working with that scheme because obviously it would be in our interests and subscribers' interests to do so, or future subscribers. Q509 Adam Price: Would it be possible for you to segment in one way an offer of a different tariff to people over 75? Would that be technically or commercially possible? Mr Darcey: I think it is pretty tricky. The £150 price is basically what it costs. We have pushed that to where it is. What we would encourage the Government to think about in the BBC in designing the schemes for the vulnerable is in considering what is the appropriate way to get a vulnerable household ready for switchover, they should think beyond what is the cheapest bit of kit they can put in that home and they should think what is the most appropriate piece of kit to put in that home. If that is a £50 Freeview box from Dixons that is fine but if the best proposition is a £150 Freesat offering from Sky or from the BBC then that should be a candidate. It should not be discounted because on face value it is not the smallest number of pounds on day one. Adam Price: Thank you. Q510 Chairman: I do not think we have any more questions. Can I thank you very much for giving up your time and can I wish all our witnesses, and indeed all of our loyal audience, a happy Christmas. Mr Le Jeune: Same to you, Chairman. |