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Section 2

Introduction

	Government plans for switchover
	Benefits of switchover
	UK precedents for switchover
	International progress of digital television
	Ofcom’s role
	Digital TV switchover in context
	Report structure

2.1 Ofcom has been asked by the Secretary of State for Culture, Media and Sport to report on progress towards digital switchover; to evaluate the prospects for market-led switchover; to set out our views on potential uses for released spectrum; to list the main challenges that could prevent full switchover by 2010; and to analyse the policy options which could be implemented to achieve switchover.

2.2 This report is not intended to cover every relevant issue in full. Some aspects of broadcasting regulation are summarised because the details will depend on the outcome of confidential negotiations between the Government, Ofcom and private companies. We have also not attempted to duplicate the Government's cost-benefit analysis of switchover ^(-2-). We accept the broad thrust of its analysis that switchover would provide a substantial net benefit for the UK so long as the necessary international clearance to use the released spectrum is secured. The joint DTI and DCMS cost-benefit analysis estimated that the benefits of switchover for the UK were in the region of £1.5bn (GBP) to £2bn (GBP).

2.3 Digital TV is just one aspect of the trend from analogue to digital communication. Digital radio, for example, has become a successful and popular product over the past two years, enabling a growth in the choice of radio stations and improved sound quality. At the request of the Secretary of State for Culture, Media and Sport, Ofcom will conduct a review of digital radio later this year.

Government plans for switchover

2.4 In September 1999, Chris Smith, the then Secretary of State for Culture, Media and Sport, set out the Government's intention to achieve digital switchover. The Secretary of State said that digital switchover could start as early as 2006 and be completed by 2010 although the precise date would depend "on how the broadcasters, manufacturers and consumers behave".

2.5 The Government further announced that switchover would not take place until the following conditions had been satisfied:

Everyone who could watch the main public service broadcasting channels in analogue form could receive them on digital systems. The condition applied to BBC 1 and 2, ITV 1, Channel 4/S4C and Five.
Switching to digital was an affordable option for the vast majority of people.

2.6 Currently, 98.5 per cent of UK households can receive analogue TV signals for the four main analogue broadcasters. The target indicator of affordability was defined by Mr Smith as "95 per cent of households ^(-3-) have access to digital equipment before switchover is completed". This had more than one potential meaning, but was generally taken to mean that 95 per cent of households would have adopted digital TV before the date of switchover.

2.7 The Government launched the Digital TV Action Plan two years after the announcement of the long-run objective of switchover. The plan has successfully carried out a large number of measures in preparation for switchover and has co-ordinated the activities of the various parties involved, including Government departments, regulators, broadcasters, retailers, manufacturers and consumer groups. The objective of the Action Plan was not to implement switchover; instead, its aim has always been to make the necessary preparations to allow the Government to make a decision on the exact timing at a later date.

Benefits of switchover

2.8 The UK would gain significantly from switchover; it has the potential to transform broadcasting and offer new services to millions of households:

Choice of digital platforms would be extended to all viewers. Only about three-quarters of households can receive all the digital terrestrial television channels. To avoid interference, analogue switch-off is a pre-requisite for boosting the digital terrestrial signal to near-universal levels.
Choice of free-to-view TV channels would be extended to all viewers. For the large number of households which do not wish to subscribe to pay TV, DTT is currently the only option for households wanting a free-to-view digital TV service which includes all the public service broadcasters: the BBC, ITV, Channel 4 and Five. Households would also receive many other TV channels, with the possibility of an even greater choice than at present.
New interactive services will become available. Increased efficiency of spectrum use would provide the capacity for innovation in broadcasting techniques.
Broadcasting would become a reasonably well functioning market for the first time. The barriers to entry associated with spectrum scarcity would be removed, and broadcasters would be freed to compete more effectively for viewers and for advertisers. Over time, the role for Government intervention might become more limited. Ofcom's forthcoming review of public service broadcasting will return to this issue in greater depth.
Switchover would represent a big improvement in spectrum efficiency. Turning off the analogue terrestrial signal would release the parts of the radio spectrum currently used for analogue broadcasting. In total, 112 MHz would become available across the whole country as well as a significant number of frequencies in the rest of the TV band, which are not being used to deliver the DTT service. This is a large amount of spectrum; by way of comparison, FM radio uses only around 20MHz of spectrum. The Cave Review ^(-4-) concluded that digital switchover represented the biggest potential efficiency gain in spectrum use for the next decade.
Switchover would provide the potential for innovation in spectrum use. The spectrum freed by digital switchover would be attractive to many providers of communications services. It could be used to provide additional broadcasting services such as extra digital terrestrial TV channels, more radio services and interactive services. Alternatively, the existing broadcasting transmitters could be used to send TV and some other forms of data to mobile devices. Provided the necessary international agreements were secured, the freed spectrum could ultimately supply the capacity for entirely new wireless communications services, such as mobile wireless broadband.
Early switchover would cement the UK's leading position in digital television. It would also provide an additional stimulus to growth in creative industries, particularly in interactive TV. This should bring wider benefits to the UK economy as the skills developed during switchover attract interest from other countries in the future.

UK precedents for switchover

2.9 Little on the scale of digital TV switchover has been attempted in the UK, but lessons can be learnt from Channel 5's (now known as Five) experience with retuning video recorders, BSkyB's switch from analogue to digital broadcasting and the telephone 'Big Number' changes. Box 2.1 provides the relevant lessons.

Box 2.1 Lessons from recent consumer changes in the communications sector
Channel 5 retuning Channel 5 commenced broadcasting in early 1997. Its broadcasting frequencies were expected to cause interference with many video recorders. It accepted an obligation to fix any interference problems free of charge. The retuning was ultimately successful, but it was not without problems: Channel 5 encountered severe skill-shortages in recruiting retuners capable of coping with up to 7,000 different video recorders. Some households tried to take advantage of the retuning exercise by trying to get many of their other reception problems fixed. A difficult trade-off existed between pro-active retuning and reacting to problems once the signal was switched on. The cost of retuning overran substantially with staff alone costing £50 million (GBP). BSkyB analogue to digital switchover Analogue switch-off has already happened on one platform in the UK: BSkyB turned off its analogue satellite service in September 2001. An intensive marketing campaign was launched to remind analogue subscribers of the forthcoming change and the digital equipment was offered free of charge. As in Berlin, on-screen warnings were given and some stations were switched off ahead of others which reinforced the idea that switchover was imminent. By the time all the analogue signals were finally switched off, around 98 per cent of BSkyB's subscribers had switched to digital. BSkyB's task was helped by the fact that it knew its remaining analogue customers precisely. The Big Number On 22 April 2000, 11.5 million phone numbers in the UK changed. The then regulator, Oftel, worked closely with the telecoms industry on their 'Big Number' campaign to publicise the changes to businesses and consumers. All parties had an interest in the success of the project. Each telecoms company also sent material to their customers to inform them of the changes. The changeover was implemented successfully with minimal disruption to consumers.

International progress of digital television

2.10 Five years since its launch, the UK leads the world in the take-up of digital television. However, digital television is also enjoying accelerated progress elsewhere and the UK must continue to learn lessons from abroad. Analogue TV signals were switched off successfully in and around Berlin in August 2003. Its lessons for the UK are considered in detail in Box 2.2.

2.11 DTT is the most rapidly growing platform across Europe, as EU member states move towards switchover over the next decade. Germany and the Netherlands are leading the way at present, taking advantage of over 90 per cent multichannel penetration. Other countries, such as Finland, have set target dates for the achievement of switchover but have not published detailed plans for implementing it. In Italy, meanwhile, a deadline of 2006 has been set and efforts to achieve this target have concentrated on extending DTT coverage throughout the country. The European Commission also has also published a communication ^(-5-) on the subject of digital switchover and is committed to monitoring market developments and member states' policies in the area.

2.12 There has also been some progress towards digital switchover in the US. The US Congress has set a target date of 2006 for the completion of the transition to digital TV, but analogue signals will not be switched off until 85 per cent of homes in an area have converted to digital. The Federal Communications Commission (FCC) adopted a plan in August 2002 which will require all new TV sets to be fitted with digital tuners by 2007.

2.13 The potential consumer benefits of UK digital switchover are evident from the experience of Berlin and trials in other countries. Less than a year after Berlin's analogue signal was switched off, a consortium of world-leading mobile players is laying the foundations for a new converged broadcast and mobile platform ^(-6-) to offer an exciting range of multimedia-rich interactive services which were not feasible before, either technologically or commercially. For example, the new platform could offer football spectators at a match the chance to view a replay of a recently scored goal delivered via their mobile device, at their leisure, without blocking the entire local mobile network capacity. In Finland, Nokia has played a leading role in trials of a similar new platform targeted at delivery of multimedia services to handsets. In Italy, the Government has extensive plans to deliver a rich array of interactive electronic services using both digital TV and a new broadcast-mobile platform that supports access on the move.

Box 2.2: The lessons from Berlin's digital switchover
The timescale Berlin-Brandenburg became the first region in the world to switch off its analogue signal in August 2003. Switchover was first announced in February 2002 and the public communication campaign started in October 2002. The consumer experience No televisions went blank because analogue services were gradually phased out between February and August 2003. The phasing allowed the digital signals to be introduced before the last analogue frequencies were switched off. Effective communication was of central importance: letters were sent to every household ahead of switchover and broadcasters showed on-screen reminders. The campaign worked in persuading consumers of the desirability of change, and most incurred the extra expenditure willingly. Limited subsidies were given to those on some state benefits. The total number of available TV channels was eventually expanded from eight to 30. Switchover was marketed as a way of receiving more channels at a lower price. The implicit comparison was with cable television, where a monthly charge of around €15 (EUR) gave access to only slightly more channels than the new digital terrestrial platform. The scale of the task About 150,000 households (six per cent of all households in Berlin) relied on analogue terrestrial television prior to switchover. Another 90,000 homes were dependent on terrestrial reception for secondary TV sets. Important policy decisions The regulator provided incentives for commercial broadcasters, which had little commercial interest in investing in switchover due to the relatively small number of households which depended on terrestrial TV. The state Government offered certain terrestrial households on means-tested social security benefits a voucher which could be exchanged for a specified model of digital converter. Costs The costs of running the switchover process were allocated as follows: Marketing (~€1m(EUR)) Box subsidies (~€0.5m (EUR)) Transmission cost subsidies (up to ~€ 0.7m (EUR) a year for 7 years) Lessons learned The importance of gradual switchover so screens did not go blank overnight. TV advertising was the most effective communication channel. By giving only a few months' notice before the start of switchover, the costs of the communication and support were kept to a minimum. It was, however, vital that the trade was well prepared with adequate stocks of the receivers. More support for the elderly might have reduced the number of follow-up calls. The relatively small fraction of households dependent on analogue terrestrial transmissions helped limit the scale of the switchover process.

Ofcom's role

2.14 Ofcom is committed to help drive digital switchover. Switchover would ensure a more technically and economically efficient use of the spectrum, facilitate investment in new digital services and would promote competition in broadcasting.

2.15 The legacy regulators which preceded Ofcom, in particular, the Independent Television Commission (ITC) and the Radiocommunications Agency, made significant contributions to the Government's Digital TV Action Plan, particularly in the sphere of spectrum planning. The advent of Ofcom allows this work to be better co-ordinated and more precisely targeted to the objective of driving digital switchover. Ofcom will support the overall planning for switchover through a mixture of research, analysis, and policy initiatives.

2.16 Ofcom's work is either directly or indirectly relevant to switchover in at least ten areas:

Issuing of broadcasting licences. Ofcom may consider using the digital replacement broadcasting licences it issues in 2004 to secure broadcaster commitments to the process of switchover.
Review of broadcasters' financial terms. Ofcom has consulted on its future reviews of the financial terms of Channel 3 (ITV1) licences.
Spectrum pricing and spectrum trading. Ofcom is committed to using market mechanisms, where appropriate, to ensure the efficient use of spectrum. These mechanisms could also be used to facilitate switchover.
Ofcom's review of public service broadcasting. The review will consider how to maintain and strengthen public service broadcasting in the UK. It will examine the role and delivery of public service broadcasting in an all-digital world.
Ofcom's Consumer Panel and National Advisory Committees have an important role to play. The Consumer Panel will be looking at the lessons that can be learnt from previous regulatory decisions to ensure that the consumer dimension of switchover is given due prominence in Ofcom's work. The National Advisory Committees will monitor progress towards digital switchover as it affects the nations and regions of the UK.
Assessing the usability of digital TV equipment and enhancing the public's media literacy. Ofcom has a role in researching and reporting on the ease of use of digital TV equipment on sale and switchover will form an important part of our work in media literacy.
Negotiating, planning and evaluating the use of any released spectrum. Ofcom has a duty to allocate spectrum to the most efficient new uses. One of the most important tasks for Ofcom in the years ahead will be to ensure that any spectrum freed up as a result of switchover continues to be available to the UK for as wide a range of services as possible. Ofcom will represent the UK at the Regional Radiocommunication Conferences in 2004 and 2006 and will seek to ensure that the newly cleared spectrum benefits the UK. Ofcom will also seek to create opportunities for technical innovation in the provision of digital TV and similar services.
Domestic spectrum planning. In the absence of market mechanisms, Ofcom has responsibility for planning and organising the use of the spectrum. For DTT, this will involve coordinating the plan for the regional roll-out of digital transmission.
Monitoring and analysis of the broadcasting market and digital TV adoption. Ofcom will research evolving market trends and will continue to undertake consumer research and will report regularly on the take-up of digital TV among households. We will also continue research into attitudes to digital TV and the barriers to digital TV adoption.
Monitor competition in the broadcasting market. Ofcom has powers to ensure fair and effective competition in the broadcasting market, either through licence conditions, or through concurrent powers under the Competition Act.

Digital TV switchover in context

2.17 Switchover represents a major gain in technical spectrum efficiency, providing between four and six TV channels for each existing analogue TV channel.

2.18 But in the very distant future, it is possible that superior broadcasting technologies, or a consumer-led move away from traditional broadcasting towards video-on-demand, could displace DTT in consumer affections. That could create pressure to use the spectrum for other purposes.

2.19 Ofcom does not envisage the end of DTT broadcasting. We do, however, recognise that as technology develops, more economically efficient use could theoretically be made of the spectrum allocated to DTT. We will, therefore, continue to monitor the optimal delivery mechanisms for broadcasting services and the other potential uses of the TV spectrum, and ensure that all users of spectrum face incentives to do so efficiently.

Report structure

2.20 The remainder of this report is structured as follows.

Section 3 documents the growth of digital television over the past five years, with particular focus on progress made in 2003.
Section 4 considers the regional aspects of switchover.
Section 5 presents Ofcom's projections for the adoption of digital TV until 2012 by platform and for both primary and secondary sets.
Section 6 evaluates the remaining barriers to digital adoption under current commercial conditions.
Section 7 analyses possible policy options to increase the speed of digital adoption, enable effective implementation of switchover and reduce the transitional costs and risks.

Footnotes

2:- http://www.digitaltelevision.gov.uk/pdf_documents/publications/costs_benefits.pdf

3:- This comprises the number of UK households who are able to receive all four analogue services with at least marginal reception. Source: a coverage assessment carried out by the Spectrum Planning Group (part of the Digital TV Action Plan).

4:- Review of radio spectrum management, March 2002. Department of Trade and Industry and HM Treasury

5:- Communication from the Commission on the transition from analogue to digital broadcasting; COM(2003) 541 final

6:- See http://www.bmco-berlin.com for further details

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