Voice of the Listener and Viewer (VLV) represents the citizen and consumer interest
in broadcasting and works for quality and diversity in British broadcasting.

VLV's response to the ITC consultation on the applications it received for Licences to operate Digital Multiplexes B, C and D, following the demise of ITV Digital.

Introduction

1. The comments below relate to all six applications, or more precisely all four applications as in two instances, two of the applications - namely Digital Terrestrial Alliance (DTA) and Freeview Plus, and Free to View Limited and Crown Castle - are linked to one another.

2. Under the current regulatory arrangements, all households have to pay a licence fee to receive television broadcasts. In February 2000, the Secretary of State announced that the licence fee would be increased by 1.5 per cent. above inflation from 1 April 2000 and then each year up to and including 2006/7. This would enable the BBC to fund its new digital services.  Thus, every UK household effectively has to pay for all the BBC’s radio and television digital services, regardless of whether or not  it can receive them.

3. Voice of the Listener & Viewer (VLV) therefore welcomes the fact that one of ITC’s the principal criteria, if not the principal criterion, is to evaluate the coverage proposed by the new applicants.

The Coverage Proposed

4. One of the key reasons for the failure of ITV Digital was its poor signal coverage. As Free-to-View Limited and Crown Castle (The Consortium) note in their applications, less than 40 per cent. of households are able to receive DTT without upgrading their aerials. (SDN says the figure is 38 per cent.)   VLV is therefore pleased to note that five of the six applicants - Free to View Limited, Crown Castle, DTA, Freeview Plus and SDN - all propose to adopt a mode change for their transmissions which will enable them to build a digital terrestrial platform that is technically reliable and more robust than that used previously.  It appears that by changing the transmission mode from 64 QAM to 16 QAM, broadcasters may be able to provide viewers with good picture quality signals for four simultaneous channels per multiplex rather than the six as originally planned.

5.  As Digital Television Broadcasting Limited is not proposing to adopt the new transmission standard, VLV anticipates that its coverage will be inferior to that of the other applicants. We therefore consider that the ITC should reject its application.

6. One disadvantage of the new transmission standard is that it reduces the number of channels that can be broadcast on a single multiplex. If the BBC adopts the same new standard for broadcasts on Multiplex 1, it will need to broadcast the remainder of its digital services on a second multiplex. This is an issue to which we shall return below.

The Proposed Launch Timetable

7. The launch timetable for DTT will necessarily be spread over a period of time., but only S4C gives a detailed forecast for its future coverage for the remainder of the network. 

8.  In order to evaluate the proposed launch timetable, VLV has therefore had to examine the technical and financial backing behind each of the applications. The BBC has a strong revenue stream from the television licence fees, which, as noted above, will increase by 1.5 per cent. above inflation until 2006/7.  In addition, Crown Castle UK Ltd., which already has in place the  transmission and distribution infrastructure that was created for ITV Digital, is a stable and financially viable business with an American parent. It therefore seems highly likely the ‘The Consortium’ of the BBC and Crown Castle will be able to raise sufficient financial backing to roll out transmissions across the UK almost immediately. Furthermore, it appears to have a stable revenue stream which would enable it to continue to finance the construction of additional transmitters during the next four years at least.

9. DTA, on the other hand, is backed by three advertising-funded television companies at a time when there has been a substantial fall in advertising revenues and there are currently few, if any, signs of an advertising upturn. Furthermore, having failed to conclude successful discussions with Crown Castle (which already has in place the transmission and distribution infrastructure created for ITV Digital) about the provision of transmission, distribution and multiplexing services, DTA has only been able to establish an agreement in principle with the transmission company ntl broadcast to construct a transmission network for Multiplexes B and C.  Even though ntl has apparently produced an innovative solution involving a rebuild of the network, this will necessarily delay the full launch of its DTT services and will mean that some of the new free-to-air services will have to be placed onto the Channel 3/Channel 4 multiplex, thus potentially causing confusion to DTT viewers. 

10. Similarly, the SDN application also depends on building a new platform with ntl.

11. VLV therefore considers that the launch timetables, if either the DTA and Freeview Plus or SDN became the DTT licensees, would be likely to be considerably behind that of  The Consortium. 

The Applicants’ Ability to Establish and Maintain the Service

12.  The application by The Consortium appears to be straightforward and simple. Both the BBC and Crown Castle are experienced operators who have worked together before.  Both parties specifically state in their applications that the costs and overheads of the services will be fully underwritten by the Consortium’s members for the period of the licence. The combination of a free-to-view package and the promise of innovative interactive services should prove attractive to many viewers who either confuse digital television with pay television, or positively refuse to subscribe to pay television services. As the BBC’s consumer research has apparently discovered, many analogue-only households reject pay-TV and a significant proportion of viewers actively prefer better free-to-view television. Moreover, the application by The Consortium of the BBC and Crown Castle is the only one that guarantees listeners and viewers access to all of the BBC’s digital radio and television services, for which they are currently having to pay, with their television licence fee. 

13. In addition, Crown Castle UK has already made arrangements  to broadcast Sky News, Sky Sports News, , Sky Travel, UK History and CNN/Boomerang/TCM, which will provide viewers with, among other things, a choice of two additional news channels. 

14. The ability of the DTA to establish and maintain its services seems more problematic.  Although Carlton, Granada and Channel 4 are all experienced broadcasters, their application raises a number of issues about their commercial judgments.  For instance, Carlton and Granada were both involved in the short-lived On-digital, ITV Digital venture..   Two of Channel Four’s services, Film Four and E4, are currently losing money.    In addition, the applicants hope (their word, see para. 30)  that the BBC will be behind their platform proposition. This ‘hope’ must be based on the fact that the ITC will reject the application by The Consortium of the BBC and Crown Castle, since the BBC has already made it clear that it does not want to participate in an application that contains a part pay-TV element. It also raises tricky policy issues about the degree to which a commercially-driven application should be dependent on the BBC to be commercially viable, which we shall discuss below. Furthermore, the DTA’s proposals as to which specific services it will carry, as outlined in paragraph 31 of its application, are extremely sketchy.

15. VLV is also concerned about the DTA’s proposal to establish a ‘mini-EPG’  called the ITV Navigator, which apparently will limit viewer choice to the four ITV channels. Worse, it will be written as an interactive MHEG application and operate as a home page for ITV interactive applications. VLV submits that the ITC should not approve this part of the proposal. Not only is MHEG-2 increasingly regarded as a low grade standard for set-top boxes, but the UK is also required under the terms of articles 5(1)  and 6 of the Access Directive of the European Parliament and European Council to extend to application program interfaces and electronic programme guides a detailed set of conditions which are spelt out in an annex to the Directive.  These conditions would not be met if the ITC were to accept the DTA’s current proposals. This could well lead many technologically-nervous viewers to reject the whole DTT package, once they discover they may be fobbed off with an inferior low-grade electronic programme guide which would limit them to the ITV channels.

16. The SDN application has the merit of being modest in scope, but it suffers from not being linked to any particular broadcast services.  It merely says that there will be a mixture of free-to-view and ‘pay-lite’ services. 

17. VLV is concerned, moreover, about reports in the financial press about the growing indebtedness of ntl, which is a potential partner with both DTA/Freeview Plus and SDN.  It would be disastrous if the second attempt to launch DTT were to fail because the transmission company had to go into administration or even file for bankruptcy.

18. In VLV’s view, therefore, the application by The Consortium of BBC and Crown Castle appears to be the one in which the applicants would be most likely to establish and maintain the service.

The Appeal of the Programme Services to a Variety of Tastes and Interests

19. In many ways, all the applicants offer a similar choice of services, but there is one major difference between that of The Consortium and those of the other applicants. This is that The Consortium envisages that all its channels will be  free-to-view channels, whereas those of the other applicants envisage a mixture of free-to-view and what are termed ‘pay lite’ channels. 

20. The proposal by DTA and SDN to mix free-to-view and pay-lite channels raises a number of potentially difficult problems for both viewers and the regulator. First, DTT viewers  would necessarily become involved in two different markets, that of free-to-view television and that of pay-television.  The Office of Fair Trading has already ruled that free-to-view and pay-television are two separate markets.  VLV considers that those viewers who do not wish to use Pay-TV services should not be required to receive free-to-view signals on a platform which is also persistently offering - and perhaps continually cross-promoting - pay-TV services.  VLV considers that it would be better to continue to ensure that the two markets are kept separate for a number of reasons.

21. First, the evidence is that, on balance, viewers who have not yet switched to digital television will only be attracted by high quality free-to-view television services. The Viewers’ Panel appointed by the Secretary of State for Culture Media and Sport noted in December 2001 that it agreed ‘with the findings of the Davies review that pay-TV services are likely to attract just over half of households to digital television, but that the rest of the population will only be attracted by high quality free-to-air digital services.’ Even so, the Panel continued, ‘research by the Consumers Association ‘found that many viewers are satisfied with just five analogue channels.’ (Digital Decisions: Viewer Choice and Digital Television (DCMS, December 2001), para. 3.2.2).

22. Moreover, according to the application by The Consortium, section A.7 of its application (which is unavailable to the public), consumer research by the BBC shows that ‘many analogue households reject pay-TV and a significant proportion of consumers actively prefer the concept of better free-to-view television ‘. (s. 4, para. 1) 

23. According to para. 27 of the DTA application, a wide survey of those who have not switched to satellite or cable, shows that ‘they would like a greater choice of viewing, but do not necessarily want to pay a monthly subscription to receive it.’ (VLV’s italics).  For this (and other) reasons, the DTA wants, like The Consortium, ‘to enhance and expand the free-to-air features’. But it then continues ‘while ideally also offering a limited low-cost pay proposition to those who want it.’ (para. 28, VLV’s italics)

24.  Without access to the details of DTA’s research findings, the status of the adverbs ‘necessarily’ and ‘ideally’ in its particular formulation in these two sentences is particularly difficult to evaluate. In VLV’s view, nobody would be likely to want to pay to watch a television channel unless it offered programmes that were markedly better than those available on free-to-view channels. Furthermore, a viewer would only be likely to want a ‘limited low-cost pay proposition’ if that channel too offered something significantly better than a free-to-view channel. 

25. All the evidence about pay-TV seems to point to the fact that while viewers are prepared to pay for top quality entertainment like Premiere League football matches, second-level entertainment, such as the Nationwide Football League and the Champions League, fails to attract sufficient viewers, as ITV Digital discovered to its cost. The same split in popularity has been observed between programmes featuring different sports when they have been shown on a sports channel. It is the big football matches that capture viewers, while many other sports languish with comparatively small audiences.

26. VLV therefore submits that on balance the evidence shows that a mix of free-to-view services and pay-lite services is less likely to appeal to a variety of viewers tastes and interests than one which consists solely of free-to-view services. For this reason, it considers that the application by the Consortium would be more likely to appeal to those viewers who have not already switched to digital television than those of either DTA and Freeview Plus, or that of SDN.

The Extent to which the Applicant will assist or promote the Acquisition of Equipment capable of receiving Digital Television

27. Potential DTT viewers will probably learn about the benefits of DTT through two main sources, namely in TV retail outlets and through cross-promotion on analogue channels. The SDN application places great emphasis on the importance of separating the role of the multiplex operator from that of the service provider. It will therefore probably have to rely on the individual service providers to promote their own services. Viewers will not want simply to buy into a multiplex platform. What viewers will want to buy into will be the services offered on that platform. There is, of course, the possibility that two of the shareholders in SDN, namely S4C and United Business Media, could cross-promote the platform through their own media outlets, but this is likely to be of limited value. Furthermore, there is no specific promise of cross-promotion in the SDN application.

28. The other two applicants - those of The Consortium and of DTA and Freeview Plus - will undoubtedly cross-promote the new services on their analogue channels.  Here, The Consortium will have an advantage , as not only will the BBC be able to cross-promote its digital television channels on its analogue television channels, but it could also cross-promote its digital radio channels on its analogue radio channels. Furthermore, it could also raise the awareness of listeners and viewers that by switching to DTT, they would be able to enjoy all of the BBC’s digital radio and television channels for which they are already paying. Furthermore, the applications of the BBC and Crown Castle will offer viewers a simple proposition of increased channel choice in return for an additional outlay for a set-top box.

29. It is also important not to underestimate the scepticism with which many viewers regard digital television.  According to the report of the Viewers’ Panel appointed by the Secretary of State for Culture Media and Sport, 30 per cent of viewers without digital TV surveyed by the Consumers Association  said that they thought it too expensive, while another 21 per cent said that they did not need any extra channels. (Digital Decisions: Viewer Choice and Digital Television, para. 3.2.1) 

30. Moreover, the research conducted by MORI for the DCMS Viewers Panel, suggested that what non-digital viewers want is information about digital TV, not a set of simple marketing slogans.  MORI discovered that the sources they trust most are the BBC and technicians or engineers, above retail staff, the press, other broadcasters, or even the Government. Most viewers preferred to rely on the sources of information that were closest to home, such as talking about and watching digital television belonging to friends or family. (Digital Decisions, para. 3.3.1) This evidence clearly indicates that the  provision of a well-judged body of information by the BBC will be more likely to persuade the digital-sceptic viewer to switch to DTT than expensive promotional activities by commercial broadcasters. Indeed, the collapse of ITV Digital, which happened after the publication of Digital Decisions, is likely to have rendered the British public even more sceptical about the promises of the major ITV companies.

31. Furthermore, the simple benefits offered by the applications of the BBC and Crown Castle, which involve no elements of pay-TV, would be easier for the TV retailer to explain to customers. In most areas of the UK, the choice for the ordinary viewer would be clear and straightforward: DTT means free-to-view TV, satellite or cable means pay-TV.  The ‘free-to-view now, but pay-TV later’ message of the DTA and Freeview Plus, or of SDN, will be much more difficult to convey to the ordinary television licence payer.

31. VLV therefore considers that the applications by the Consortium of the BBC and Crown Castle UK would be more likely to promote the acquisition by the viewer and television licence payer of equipment capable of receiving digital television. 
 

The Applicant’s Ability to ensure fair and effective Competition

33. The Office of Fair Trading has already ruled that the free-to-view and pay-TV markets are separate markets for competition purposes. We shall therefore consider three separate aspects of the ability of the applicants to ensure fair and effective competition in viewer choice. These are: (a) competition in the pay-TV market; (b) competition in the free-to-view market; and (c) competition in the single European market.

(a) Competition in the Pay-TV Market

34. Since the demise of ITV Digital, viewers have only been able to receive pay-TV services  via either cable or satellite. In a number of areas outside the towns and major cities where no cable is available, viewers can only receive pay-TV via satellite. The rebirth of DTT therefore, could either offer many viewers increased platform choice in the delivery of pay-TV services as SDN proposes or, as DTA and Freeview Plus propose, a  choice of ‘pay-lite’ pay-TV services.  beyond those currently available via satellite and cable.  Viewers living in rural areas of the country, such as along the south coast of England, in the Highlands of Scotland, the valleys of  Wales, Northern Ireland or the Channel Islands, may not be able to receive DTT signals for several years until there has been full roll-out of DTT transmissions, possibly after analogue switch-off. 

35. None of the applicants directly addresses the issue of whether or not their proposed service would be able to offer viewers an increased choice of delivery platforms for the current pay-TV services, although the SDN application implicitly implies that it would offer its viewers the best and most popular services. This might well mean that certain viewers would have a real platform choice in the delivery of the most popular pay-TV services. For many viewers, this would improve competition as measured by the cost of delivering the service and/or the technical quality of the signal. 

36. The applications by DTA and Freeview Plus, on the other hand, would only offer viewers increased choice in the delivery of what they term ‘pay-lite’ services, that is to say the cheap end of the pay-TV market.  Viewers who want competitive choice in the delivery of the more expensive - and therefore presumably higher quality - pay-TV services will be no better off. Depending on where they live, they will still have to receive these services either via satellite or cable. As far as we can ascertain, the only new pay-TV service that this applicant proposes to offer to induce pay-TV viewers away from satellite or cable is The Film Service, about which there is very little detailed information. On the other hand, the service would provide pay-TV viewers with no opportunity to access the most popular TV channels, such as the Sky sports channels.

37.  VLV has therefore concluded that the application by SDN would be the one most likely to ensure fair and effective competition in the pay-TV market. 

(b) Competition in the free-to-view market

38. A genuine analysis of competition in the free-to-air market is difficult because many of the players are either publicly-owned, or commercially-financed public service broadcasters. Furthermore, with the exception of the BBC which has separate funding arrangements, competition between commercially-financed free-to-view broadcasters is primarily for the revenues of advertisers and sponsors. Viewers benefit from this attenuated form of competition in two ways. First, all viewers get an increased choice of channels at any one moment in time, although this is not the best way to ensure an optimum choice in the range, diversity and quality of programmes on offer.  Second, some viewers who fall into a particular segment of the consumer market may benefit from channels specially devoted to their interests. 

39. All of the applicants will naturally increase the number of channels available to analogue viewers. That is a sine qua non of the application.  The applications by DTA and Freeview Plus and by SDN, will offer viewers fewer free-to-view channels than The Consortium of the BBC and Crown Castle, as the former propose to use some of their channels for pay-TV services. In addition, the latter is the only applicant that will offer TV licence payers the BBC’s digital radio channels, for which they have to pay through their licence fee.

40. VLV has therefore concluded that in this regard, the Consortium of the BBC is more likely to ensure fair and effective competition.

41. On the other hand, the DTA will offer viewers ITV Extra and the ITV News Channel, which would not be available via the Consortium.  The difficulty for VLV in assessing these proposals, is that as yet their quality is unproven. The ITV News Channel will be  a re-branded version of the ITN News Channel, which previously offered a service that many viewers appreciated, but since 31 May 2002 it has been a wholly-owned subsidiary of Carlton and Granada.  It is therefore difficult to know whether the service will continue in its traditional form. On the other hand, ITV Extra is a new service that seems to have been developed for advertisers, as it will only allow viewers to interact with advertisers. On the other hand, viewers would be able to rescreen popular programmes, such as Champions League matches and Pop Idol. Whether these opportunities will prove attractive to many viewers is, as yet, unclear. 

42. As noted above, the DTA application depends heavily on the assumption that it will be able to transmit the BBC’s digital services. VLV was concerned to note however, para. 57 of the DTA application which says ‘we are aware that  [the BBC] may also want a channel slot for BBC Parliament/Radio and would endeavour to make space for it.’  This would appear to imply that if the DTA application is successful, there would be no guarantee that DTT viewers would be able to watch BBC Parliament or listen to the BBC’s new digital radio services for which they are already having to pay through their television licence fee. 

43. VLV therefore submits that if the ITC approves the DTA application, it should require DTA to make space for both BBC Parliament and the BBC’s digital radio channels.

44. The SDN application, on the other hand, makes no mention of the BBC’s digital services. It appears implicitly to assume that all the BBC’s digital services would continue to be available on the BBC multiplex. This would not appear to be the case if the BBC changes its transmission standard, as discussed above. 

45. VLV therefore submits that if the ITC approves the SDN application it should require SDN to make space for any of the BBC’s digital radio or television services that will not be available on the BBC multiplex, should the BBC (and other multiplex operators) switch to a new transmission standard. 

(c) Competition in the Single European Market

46. The UK is part of the European Union which affects the competitive environment for broadcasting in two ways. First, all television services have to meet the minimum standards laid down in the EU’s ‘television without frontiers’ directive; and second, any state aid given to public service broadcasters must meet the criteria laid down by the European Commission.

47. The ‘television without frontiers’ directive requires that where practicable member states should require television services to transmit a majority proportion of European programmes in certain specified programme genres. For over a decade, despite making a substantial profit, a number of television channels licensed by the ITC have informed the UK government that it has not been practicable to meet that requirement. Other channels, on the other hand, have managed to do so. 

48. VLV considers that the growth in the number of English language free-to-view channels now offers the ITC the opportunity to establish a clear competitive environment in which all channels carried by the successful applicant for the DTT multiplex licences find it practicable to transmit a majority proportion of European programmes in the specified genres. This would avoid a two-tier competitive environment in which some channels fully meet the minimum standard laid down in the ‘television without frontiers’ directive, while others do not. 

49. Many of the applicants  for the DTT licences are either public service broadcasters or will depend heavily on public services broadcasts to enhance their offer.  The BBC receives state aid via its free access to spectrum and funding for its activities via the television licence fee. Channel Four also receives free access to spectrum and, because it is publicly-owned, relief from paying dividends to shareholders. S4C, which is a shareholder in SDN, receive state aid for its broadcasting activities. It is therefore important for the ITC to consider carefully the impact of the EU’s rules on state aid for public service broadcasting when considering the competitive environment for digital broadcasting generally.

50. While EU member states have generally been given a substantial degree of subsidiarity in the manner in which they define public service broadcasting within their polity, nevertheless they have to conform to a number of general guidelines laid down by the European Commission. In this regard, VLV is especially concerned by two clauses in the Communication from the Commission on the application of State aid rules to public service broadcasting.

51. Para. 57 notes that ‘it is necessary that the State aid does not exceed the net costs of the public service mission. For this reason, the net benefit that non-public service activities derive from the public service activity will be taken into account in assessing the proportionality of the aid.’ The Communication continues in para. 59, that when carrying out its proportionality test, the European Commission will consider ‘whether or not any distortion of competition arising from the aid can be justified in terms of the need to provide the public service as defined by the Member State and provide for its funding.’ (Official Journal C 320, 15 November 2001, 5-11.)

52. It  appears to VLV that the key issue at stake here is whether pay-TV services constitute part of the UK’s public service mission. In their application, the Consortium of the BBC and Crown Castle UK clearly reject pay-TV as part of their application.  Moreover, as noted above, the OFT has already ruled that free-to-view and pay-TV are different markets.

53. The DTA and Freeview plus applications, on the other hand, clearly envisage a mix of free-to-view and pay-TV channels, as does SDN.  The DTA application, moreover,  makes clear that it is only separate from that submitted by the BBC and Crown Castle because the other two companies refused to agree to the DTA’s insistence that the application should include pay-TV channels.  Furthermore, four of the channels putatively offered by the DTA are BBC channels and depend on the BBC agreeing (or being required by the Government to agree) that these four channels could be broadcast by DTA should it be the successful applicant.  In addition, Freeview Plus, a wholly commercial operation which would only offer viewers ‘pay-lite’ channels, would implicitly benefit from being carried by the DTA channels. Indeed, its application specifically depends on the success of the DTA 
bid.

54. VLV is therefore concerned that if the ITC were to award the franchises to DTA and Freeview Plus, there is a danger that it could unwittingly infringe the EU’s rules on the allocation of state aid to public service broadcasting. VLV therefore considers that there would be less likelihood of infringing the EU’s rules on state aid if the ITC were to award the franchise to the Consortium of the BBC and Crown Castle UK.

Conclusion

55. The ITC will clearly have to balance a number of complex issues in reaching a judgment on the applications. VLV considers that, on balance, most viewers who have not yet switched to digital would prefer the application by the BBC and Crown Castle UK to succeed.. 

Voice of the Listener & Viewer (VLV) represents the citizen and consumer interests in broadcasting. VLV is an independent, non-profit-making association, free from political, commercial and sectarian affiliations and funded by its members.    VLV is concerned with the issues, structures, funding, regulation and institutions which underpin the British broadcasting system, in particular with the principles of public service in broadcasting.  VLV does not handle complaints.

Telephone: 01474 352835. 
Fax: 01474 351112. 
E-mail: vlv@btinternet.com 

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