Select Committee on BBC Charter Review Minutes of Evidence


Examination of Witnesses (Questions 1980 - 1999)

WEDNESDAY 18 JANUARY 2006

Mr Michael Grade CBE and Mr Mark Thompson

  Q1980  Chairman: What does this do to your argument about top slicing? You are giving help to Channel 4; you are giving help, which is questionable, in social policy as well. Do you not think you are sliding into that?

  Mr Grade: It is a one-off cost. This is a unique event in the evolution of broadcasting in this country. It brings huge benefits for viewers and listeners and so on. The problem with top slicing the licence fee, which is another argument for another day, is that it would be an annual event and it would entirely confuse the public as to where their money was going, who was responsible for the spending of their money and it really cuts right against what the whole of the governance reform and the reform of the BBC is designed to achieve, which is a direct link between the trust and the licence fee payers.

  Chairman: I have to say that they might not be entirely unconfused by this targeted help situation for the over-75s.

  Q1981  Baroness Howe of Idlicote: I just want to clarify one small point. I understand that targeted help will be rather costly for the over-75s, not least in getting over to them how everything works, but having said that, are we also taking into account any extra costs of actually getting the digital wavelength, whatever you call it, to the areas which cannot receive it currently? Is that your cost?

  Mr Thompson: Yes. Within the licence fee bid are estimates for the cost of building out the digital terrestrial transmitter and repeater chain to a level of coverage at least as good as the current analogue television coverage in the United Kingdom.

  Q1982  Baroness Howe of Idlicote: That is not very good in some areas.

  Mr Grade: It is 98.5 per cent of the population.

  Mr Thompson: It is 98.5 per cent; at least as good as that. We should like to be better.

  Q1983  Baroness Howe of Idlicote: And what is going to happen to the remaining percentage? Will they have to be dealt with by going through Sky and that being paid for by Government or by whom?

  Mr Grade: It is hard to predict, but we are working on the possibility with other partners of a free satellite, the satellite equivalent of the Freeview box, which would be the answer to all those small pockets.

  Q1984  Baroness Howe of Idlicote: Free of charge?

  Mr Thompson: A low-cost single payment satellite solution for people who, largely for topological reasons to do with the physical geography of the United Kingdom, cannot get line of sight to a transmitter.

  Q1985  Baroness Howe of Idlicote: What does low cost mean under those circumstances? Would somebody on social security be exempted from paying the low-cost charge?

  Mr Grade: We are not anywhere close to struggling with that issue yet.

  Mr Thompson: It is worth saying that so far the only proposed help that the Secretary of State has announced in switchover relates to the groups that I have mentioned: households with serious disabilities and those over 75.

  Q1986  Chairman: So the over-75s are definitely in. Okay.

  Mr Thompson: Definitely in.

  Q1987  Baroness Bonham-Carter of Yarnbury: Presumably the DTT, which you are financing, would be accessible through Sky. So in a sense you are subsidising Sky?

  Mr Thompson: No. I am sorry this is so complex. The proposal emerging around targeted help is that a sum of money will be made available and households would have a choice about which digital platform they wanted the money to be spent on so we are platform neutral. I have to say that the very low cost of digital terrestrial television means DTT is moving very quickly through the population and may make all of these questions less difficult than they appear now. Freeview now costs below £30 and, by the way, quite apart from targeted help, is spreading at an extraordinary speed; a million Freeview boxes were sold just in December last year, about ten million boxes have been sold. People will have a choice. To be clear, there is a difference between offering people, as we all believe we have to, universal access to free-to-air public service, indeed other free-to-air channels and the whole issue of whether people want to elect to subscribe to pay services. This exercise is about making sure that every household can continue to receive television after analogue switchover. Sky and other pay operators will continue, of course, to market pay services to the public, as they have every right to do.

  Q1988  Baroness Bonham-Carter of Yarnbury: Freeview does help ITV and Five.

  Mr Thompson: There is a very small number of households using digital terrestrial television for pay services, the top-up TV venture with a few hundred thousand subscribers, but the overwhelming majority of people using Freeview are using it to watch free-to-air channels, the public service channels and also some other free-to-air channels.

  Q1989  Baroness Bonham-Carter of Yarnbury: There are already rumblings and grumblings about analogue switch-off. Are you worried that the BBC's very close association with it might possibly lead to a lack of popularity?

  Mr Grade: The industry organisation has been set up to manage the switchover. Digital UK will manage it and the issues of where the risk will settle are yet to be discussed.

  Q1990  Lord King of Bridgwater: Having had a constituency with a number of curiosities about reception, it seemed to take an awful long time to sort out. Am I right in thinking that when you switch over a lot of it will be suck-it-and-see and find out where actually the new problems arise? When you said you were going to move towards better coverage, how quick can this be for people who you find to your surprise cannot get the reception and then you start to do something about it?

  Mr Grade: I hope it is going to be fairly predictable in the sense that if you can get the analogue signal now from a transmitter or a booster station or a feeder station, that will pretty well guarantee that you will be able to receive the digital signal. I do not think that is a real problem.

  Mr Thompson: We have very, very good predictive computer modelling now of signals.

  Q1991  Lord King of Bridgwater: You are putting yourself on the record and I am very pleased to hear it.

  Mr Thompson: That is the first thing. The second is that we are still sending people out in Land Rovers to test the signal on the ground to make sure. There are sometimes signal problems which relate to a chimney pot or a tree or something which literally relates to a single house. There are some parts of the country where houses, particularly in hill country, have unique attributes because of the topography around an individual house or new building developments. By the way, generally when we cannot solve a signal problem quickly, it is because there is some, as it were, in principle problem. However, I believe that we shall deliver a very, very high level, to the level we said, 98.5 per cent or higher, everywhere where we do the switchover at the time of switchover. It is worth spending a moment perhaps on one of the reasons why we cannot do it before switchover. In many areas where analogue reception is difficult because of topography, in addition to the main transmitters, we also need a number of repeater stations which irradiate from the main transmitter, the Rhondda Valley would be a good example. The sweeps of these repeaters overlap with each other and you have to use a lot of different frequencies to stop the repeaters interfering with each other. In areas like the Rhondda Valley we are using much more frequency to deliver our 98.5 per cent than we are in London or elsewhere. What we shall do, as we plan switchover, is get the entire alternative DTT system ready to go and there will be a day when we pull one lever and pull another one and you flip to a system of a DTT master transmitter and DTT repeaters.

  Lord King of Bridgwater: I live in hope.

  Q1992  Lord Holme of Cheltenham: If you look at the whole switchover project, if you think of it as a switchover, it has costs, which you have been discussing, and the issue of who should bear them. Equally, it has now become apparent that there are revenue benefits in terms of spectrum becoming available. We have been told by the Government that the value to the economy as a whole might be between £1.1 and £2.2 billion, but as well as that general economic benefit to the country there is also the question of what the sale of spectrum itself will represent as a revenue stream for someone. At the moment, Ofcom sell it on behalf of the Government. If you look at the project as a whole, one cannot help wondering why the revenue, that is the spectrum, is not offset against the costs so that you look at the project as a whole. I just wonder whether the BBC have themselves got any estimates of the likely value of the spectrum sold.

  Mr Grade: Are you referring to the sell-off of the analogue?

  Q1993  Lord Holme of Cheltenham: Yes.

  Mr Grade: No, we have no fix on that at all.

  Mr Thompson: I have to say that the spectrum is a great public resource, it does not belong to us in the end and you can see why it is not part of our bid. What I want to say as a public service broadcaster though is that it is our position that we do not have enough spectrum. We are unable to show BBC Parliament full screen currently on Freeview. We believe that going forward important developments are happening in television in particular, radio as well but television in particular. I mentioned high definition television. There should be a public debate on the best use of the spectrum as it becomes available. It would be very worrying for the long-term future of public service broadcasting if free-to-air public service broadcasting were unable to keep up with developments in broadcasting. Although the band width used by high definition will reduce, it will be very considerable and, in my view, we shall begin high definition transmission on satellite and cable this year. As a trial, we hope to show the World Cup in Germany in high definition. We shall also do some test transmissions from at least one digital terrestrial transmitter in high definition. If we are to safeguard the future of free-to-air public service broadcasting on all platforms, there needs to be a debate about exactly what the use of the spectrum is. In other words, should it be sold off or should the value of the spectrum be gifted, not just to the BBC but to the public service broadcasters, so we can maintain and indeed improve the quality of our services?

  Q1994  Lord Holme of Cheltenham: That is very interesting and, if I may say so, quite a persuasive point. In a way, what it underlines is that the analogue spectrum will have value, however that is utilised.

  Mr Thompson: Yes; definitely.

  Q1995  Lord Holme of Cheltenham: I just wonder whether there is any view within the BBC, rather than going back to the licence payer to pay for this or the taxpayer in general, about whether there would not be a symmetry about using potential revenues from the spectrum sale to offset the costs of digitalisation.

  Mr Grade: It is a matter of public policy and a matter for the Government, not a matter for the BBC. The difficulty, not insurmountable, is that it is much easier to predict the costs of digital switchover than it is to predict how the market will value vacated analogue spectrum. Very difficult.

  Q1996  Lord Maxton: My concern with all this is that by using DTT as your method of ensuring you are going to get the digital switchover, firstly, particularly if you are going to provide high definition television on that and interactive services much better than you can do at the present time, you are actually going to use a large amount of spectrum; of digital spectrum I accept but it is digital spectrum. Surely what we should be looking at is how we can do the switchover using means which do not use any spectrum such as cable or telephony. BT are moving into the television market this year. They are going to provide television services. I do not know what their penetration is in terms of landlines, but it must be not that far short of your 98.5 per cent; it is not that, but I think over 90 per cent have landlines.

  Mr Thompson: It is not as high as that yet for the delivery of broadband.

  Q1997  Lord Maxton: I accept that. We are talking in 2006 now and we are talking about switchover in 2012. Go back six years and see how technology has changed; move forward and undoubtedly telephony will provide that in 2012.

  Mr Thompson: The broad point to make first of all is that we are not solely relying on Freeview to achieve switchover. There is already an installed base of eight million households with Sky digital television. There are some millions of households with cable. It is possible that we shall see some households who, quite quickly, do their entire viewing via ADSL or some other fibre optic or other landline technology. All of this is possible. We do think, however, that the public should have a choice of platforms. We think that the extraordinary rate of sales of Freeview suggests that the particular proposition of being able to buy a very simple low cost receiver with a single payment without the complexity of a subscription or a bundling of your television viewing with your choice of telephone is something which manifestly many, many millions of households are opting for. Almost everyone else, in particular, understandably, the telephone and cable operators, have models which are based on subscription. Their basic model is subscription. I am not suggesting that they will not, in some cases, offer free-to-air television perhaps as a free add-on to subscription. In some ways what Freeview offers the public is a rather reassuring continuation of what they expect from broadcasting, which is that you purchase a receiver, it then works and is free at the point of delivery forever. You do not get phoned from a call centre; nobody tries to tell you that in order to get this you have to take this subscription out. It is very, very straightforward and, as a matter of fact, in the last couple of years the enormous movement of people into Freeview suggests that this is one of the most powerful platforms in their view of how they want to convert to digital. You may say that the public are wrong, but, as I say, there are many, many millions of them out there now making the choice.

  Q1998  Lord Maxton: Why then, are we not developing a Freeview box which can be expanded to be used by other digital broadcasters?

  Mr Thompson: It is worth saying that the BBC does not make Freeview boxes. Freeview is a standard for a decoder of the DTT signal. We are already beginning to see boxes which use DTT and which can be used for pay television, top-up television. We are seeing Freeview boxes which have personal video recorders, hard disks built into them. I am sure that you will see, both with Freeview and we hope free sat, boxes which combine that with broadband and so forth. It is not for me to say that you are going to see an extraordinary plethora of diverse boxes for getting content from PC to television, to record, to playback, to have a return path and so on. I should say the more choice the better. The only point I am making is, given what is actually happening in terms of the public take-up of digital and terrestrial at the moment, it is manifestly a solution which is working for many millions of households.

  Q1999  Baroness Bonham-Carter of Yarnbury: Last time we were talking together you said that in the digital age there was no shortage of spectrum, which does not seem to be the view of lots of other people and indeed there is a feeling, you mentioned high definition television, that the BBC is potentially a bit greedy about it. As you know, Ofcom have stated that they are going to consider charging companies who use the spectrum from 2006 and that that would give broadcasters an incentive to use as little as possible. What do you think the effect of charging for spectrum would be on BBC and indeed public service broadcasting and do you think it would increase efficient use of spectrum?

  Mr Grade: May I respond to my comment about unlimited spectrum? That was in the context of looking at the digital world against the analogue world. In the analogue world, pre satellite, pre digital, spectrum was a very, very scarce commodity. It took British broadcasting 50 years to get to five channels, because of our proximity to the continent, frequency agreements and so on. It was a very scarce commodity. Comparatively speaking, the digital world is a world of plenty. Now we see what the demand is for the spectrum, obviously there is more demand than there is potentially supply outside of the satellite option, but you can always add on satellite capacity, so there is in a sense unlimited capacity. It is the terrestrial, the use of the analogue, the use of DTT now, which is finite. It has added considerably to viewers' choice and listeners' choice but it is finite. In respect of spectrum charging, it is reasonable to make a distinction between the private sector for-profit organisations and the BBC. There seems to be a lack of logic. The justification for charging the private sector for-profit organisation for the use of the spectrum seems to me intellectually perfectly justifiable in the sense that this is a national resource, the airways belong to the nation, shareholders are making hopefully a decent return on their exploitation of that publicly owned utility. They should therefore pay something back to the nation; give the nation back a return on its own resources. It seems to be inconsistent to apply the same logic to the BBC, because the BBC is there to provide a public service for which the public pays and to take money back through spectrum charging seems to me to be fundamentally illogical. That is not to say that some mechanism needs to be arrived at which ensures that the BBC is an efficient user of spectrum, but to penalise the licence fee payers for the use of spectrum seems to me to be unacceptable.


 
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