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Home > Research and Market Data > Television research > Reports and Research > Digital Switchover > Driving Digital Switchover > Section 7
Section 7
Policy recommendations
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The technical plans for switchover |
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The need for active co-ordination |
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Policy recommendations |
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Summary of obstacles and policy recommendations |
7.1 Ofcom believes that digital switchover is desirable, practical and achievable.
7.2 Already, over half of UK households have been convinced of the benefits of digital TV. The challenge will be to convince the remaining analogue households that digital TV is a genuine improvement in terms of choice and capability, rather than a Government-sponsored imposition of costly and unnecessary technology. The previous two sections showed that this was unlikely to occur spontaneously, so a more active policy approach is needed.
The technical plans for switchover
7.3 Over the past year there have been intensive and successful discussions between Government, the regulator and the industry regarding the technical details of switchover.
7.4 Switchover should be a region-by-region occurrence, limiting the scale of consumer disruption. It would be practical for switchover to be a rolling programme of regional switchovers, taking about four years to complete after two years of initial preparation. The regional element would allow the necessary technical preparations to be undertaken in each area without the costs and risks of a national switchover. If switchover were to occur between 2007 and the end of 2010, the decision to fire the starting gun would need to have been taken early in 2005.
7.5 The example of analogue switchover in Berlin suggests that it would be useful for some analogue TV channels to be switched off before others. One or more analogue channels would be switched off six months ahead of the others to enable the digital terrestrial signals to be boosted to full strength. Switching off one or two channels would allow areas currently without any DTT reception to begin receiving DTT signals. It would also demonstrate to consumers the imminence of switchover and the need to purchase digital converter boxes. The remaining analogue signals would then be turned off at the set date in each region and continuing information and assistance would be provided for some months after switchover is completed.
7.6 Although the broad outlines of the plan have been developed, more work needs to be done on determining the details. The switchover frequency plan has assumed that all 1,154 current analogue transmission sites will be converted to digital transmission. However, it has not yet been agreed that all of these sites will be converted or at what power levels the transmitters will work.
The need for active co-ordination
7.7 Digital switchover offers many widely dispersed benefits to UK households and the economy. Many consumers will benefit from being able to receive digital terrestrial signals for the first time, others will gain from being able to receive more digital services, broadcasters will benefit from eliminating dual transmission costs, manufacturers and retailers will be able to sell more digital receivers, operators of new services will be able to win access to released spectrum, and finally, the country's output will be boosted because a scarce resource - the radio spectrum - is used more productively.
7.8 The considerable transitional costs of switchover will be borne by a different range of people, primarily by some consumers who would not choose to purchase digital TV otherwise, and by the larger number of households who would not choose to convert secondary TV sets and video recorders.
7.9 If one party was able to capture most, or all, of the benefits of switchover, it could bear all the costs involved, e.g. by funding consumer equipment. For example, BSkyB was able to devote time, effort and expenditure to switching off its analogue services in the knowledge that it could capture the resulting benefits through the elimination of analogue transmission costs and through higher revenues from its enhanced digital pay TV service. In the future, if spectrum pricing and spectrum trading were introduced into the part of the spectrum used by broadcasters, there could be a sharper incentive for broadcasters to drive switchover.
7.10 However, the current wide dispersal of both costs and benefits complicates the implementation of digital switchover. A serious co-ordination problem exists. Since there are so many interested parties in digital switchover, each with different costs and benefits from switchover, it would be difficult to establish a co-ordination mechanism which enabled them to share the costs among themselves. The result is that although switchover provides significant benefits to the UK as a whole, it is difficult to achieve without some degree of external intervention to resolve the problems of co-ordination. Given the importance of television to the UK population, until the co-ordination problem is addressed, switching off the analogue signal would entail significant practical and political risks
Policy recommendations
Greater certainty over the timing of switchover
7.11 Though plans for the regional programme of switchover are well-advanced, decisions on the start and completion dates of switchover have yet to be taken.
7.12 By giving advance notice of the date for switchover, consumers would be able to make decisions about purchasing digital equipment without the uncertainty of not knowing when switchover was going to happen in their area. Advance notice is also necessary for other parties involved in implementing switchover: retailers would be able to make the necessary plans for marketing and providing consumer information; manufacturers would be able to invest in the production plant secure in the knowledge that substantial demand for digital converters was likely to exist; high-volume manufacturing would also contribute to falling retail equipment prices; and certainty would also help Ofcom in implementing the regulatory framework for channel 3 digital replacement licences, digital terrestrial licences, the review of public service broadcasting, and spectrum pricing and spectrum trading.
7.13 But an early announcement would also have risks. The most serious is the possibility of reinforcing negative consumer attitudes towards switchover before it becomes seen as a technological certainty.
7.14 It is a matter for Government to decide when it believes the benefits of certainty outweigh the potential negative reactions of the declining number of analogue households. But with the majority of households already having access to digital television, the foundations for an announcement of a timetable have already been laid.
7.15 In Ofcom's view, an announcement of a timetable would significantly extend digital penetration in the UK and would help allow full digital switchover to be achieved by the end of 2010 - if the Government, after consultation, decided that this was the appropriate date. This notification is, in itself, likely to have a significant impact on digital take-up. Recent consumer research conducted for the DTI (-22-) indicates that many current analogue households are prepared to purchase digital TV receivers provided they know that digital switchover is imminent. Up to 15 per cent of households who would otherwise not obtain digital TV would convert once they knew the timetable for switchover, although most of these say they would only acquire digital TV in the year immediately prior to the analogue terrestrial signal being switched off.
7.16 Chart 7.1 shows the sensitivity of Ofcom's forecasting model to an announcement of a firm date for switchover completion. The analogue switch-off curve shows digital penetration reaching 67 per cent prior to the beginning of regional switch-off in 2007 and 99 per cent after switch-off had been completed. Though consumer research showed that five per cent of households currently say they would prefer to forego TV rather than convert their sets to digital, we believe these attitudes would be bound to change as the switchover date came closer.
Chart 7.1 Switchover with date announced, and regional switchover starting in 2007
Source: Ofcom Projections
7.17 The date chosen for completing switchover in each region needs to be considered carefully. In deciding the date for completion the Government should remember that most of the existing analogue transmission equipment will near the end of its useful life in the next decade or so. If digital switchover does not occur, this equipment may need to be replaced, quite possibly at the same time as new digital transmitters are being installed. In order to avoid both sets of costs, Ofcom recommends that switchover is not delayed substantially so that it would fall beyond the reasonable lifespan of existing analogue transmission equipment.
Use the regulatory framework to help drive switchover
7.18 One of Ofcom's tasks in 2004-05 is to drive digital switchover, so ensuring a more efficient and effective use of the electro-magnetic spectrum. Ofcom therefore has a significant role to play in managing the regulatory framework to encourage digital TV adoption and removing some of the obstacles confronting switchover.
7.19 Although broadcasters should not necessarily manage the process of implementing switchover themselves, it is reasonable to expect them to make a fair contribution, particularly by extending digital terrestrial coverage and availability nationwide and by ensuring viewers are properly informed about switchover and its implications for them. Ofcom will consider policy measures which will provide broadcasters with clear incentives to support the goal of switchover.
7.20 Ofcom will seek commitments from broadcasters and may, for example, consider including appropriate and necessary additional obligations for nationwide digital TV rollout in the new digital public service broadcasting licences, due to be issued by the end of 2004. Where appropriate, Ofcom will seek to take account of investments made to fulfil this objective. A market review of the broadcasting transmission market is underway. Ofcom has powers to ensure effective competition in this market and we will seek to ensure that an agreement to extend DTT transmission networks does not result in broadcasters being charged excessive prices.
7.21 Ofcom will consider imposing spectrum pricing to sharpen incentives to promote switchover. Channel 3 licensees and Five already pay for their licences to broadcast, which include an implicit charge for spectrum. Ofcom will ensure that licensees do not pay twice for the same spectrum. If spectrum pricing is introduced, charges could apply for the first time to the BBC, Channel 4 and S4C from 2006.
7.22 The proposal to extend spectrum pricing to broadcasters was first proposed by the Review of Radio Spectrum Management, conducted by Professor Martin Cave (-23-). In its response (-24-) to the review the Government said that any proposals to extend pricing to broadcasters would take into account the following:
- the effect of the proposals on the actions that broadcasters can take to make progress towards early achievement of the conditions for digital switchover;
- the ability of broadcasters to meet their public service obligations; and,
- the need for the charging proposals to be based on incentives that work in practice and to have a material effect on the broadcasters in enhancing spectrum efficiency.
7.23 Ofcom will consider how to introduce spectrum pricing for broadcasting in accordance with the Government's response to the Cave review and will consult on any such proposals separately.
7.24 Ofcom also recognises that there is a trade-off between achieving the required universal coverage of the public service channels and the channel capacity of the digital multiplexes. This issue is discussed in the following subsection.
7.25 Some of the new and potential obligations could raise costs for commercial broadcasters. Ofcom will seek to recognise the investments made to further switchover where appropriate.
7.26 The Government should encourage the BBC to develop parallel proposals consistent with this approach. Ofcom recommends that as part of the BBC's Royal Charter review, the Government adds the following specific obligations to the BBC's current requirement to promote digital television:
- the BBC should roll-out digital transmission nationwide;
- it should continue to ensure that viewers can receive its TV channels on the free-to-air satellite platform;
- it should provide public information about digital television and switchover; and
- it should provide on-air marketing of digital TV on a platform-neutral basis.
Improve access to free-to-view digital TV
7.27 Only around three-quarters of households can currently receive a reliable digital terrestrial signal, so the initial emphasis should be on attempting to provide free-to-view digital options to households in non-DTT areas. This will primarily involve development of the free-to-view satellite platform.
7.28 Until switchover, free-to-view digital satellite could play an important role in increasing take-up among those who do not want pay TV. In non-DTT areas, it is the only option. But free-to-view access to all the public service broadcasters is currently not possible on digital satellite. Ofcom will consider whether regulatory intervention is needed to secure a viable free-to-view satellite proposition before switchover. The cost of any action would fall primarily on public service broadcasters.
7.29 The Government should also continue its efforts to remove the coverage barriers which hinder other digital platforms and slow progress towards switchover, for example, planning restrictions which prevent the erection of satellite dishes on certain buildings.
7.30 Once switchover is underway, the DTT signal can be boosted and many of the current free-to-view coverage problems will be eliminated. Ofcom intends to consider whether additional duties are required to oblige commercial terrestrial broadcasters to extend digital coverage nationwide, and recommends that the BBC is put under a clear obligation of this nature following the completion of the charter review process.
7.31 However, transmission power cannot be boosted at will, even after switchover, due to international agreements which protect against interference. Even operating at the maximum power limit, it currently appears possible that achieving universal coverage will require the use of a lower capacity transmission mode for the multiplexes carrying public service broadcasting channels.
7.32 A difficult trade off exists between coverage and the efficiency of spectrum use in the DTT signal. For any given level of transmission power, the higher is the coverage of the signal, the fewer channels can be carried on each multiplex. This reduces the attraction of digital terrestrial television for consumers and potentially its commercial viability for some broadcasters. If one technical standard for transmitting DTT pictures (16QAM (-25-) - rate 3/4) is chosen, a higher level of coverage is possible than the alternative technical standard (64QAM - rate 2/3). But the result of using the more robust technology is that fewer channels would be available to consumers: under 16QAM, roughly four TV channels can be squeezed into the same amount of spectrum as six TV channels using the 64QAM mode.
7.33 Depending on the broadcasters' choice of DTT transmission mode, further measures may need to be considered to ensure that all households can receive the public service broadcasts on the satellite platform, including using the must-provide provisions of the Communications Act. Ofcom has the potential power to oblige certain named broadcasters to provide the means to receive public service broadcasting services when households cannot otherwise receive them to an acceptable technical standard. It could mean that these named broadcasters might be obliged to supply the necessary satellite decryption card to households which lost analogue reception and were not able to receive an adequate DTT signal after switchover.
Provide information and advice for consumers
7.34 Switchover will simply not be possible unless consumers are persuaded of its benefits. Therefore, a mass national advertising campaign should explain to all households that switchover is coming and should attempt to build public support for the objective. This should be followed by specific information for each household to inform everyone of the switchover timetable in their region. A new consumer labelling scheme should also be introduced to warn consumers that unconverted analogue equipment will not function past a set date. This needs to be implemented with the support of manufacturers and retailers.
7.35 Consumers will require further reliable support and information to make the right purchasing choices in the run-up to switchover. A regional communications campaign in the immediate run-up to analogue switch-off will need to be developed with specially tailored advice for households who are not be able to receive digital terrestrial signals until switchover starts. After switchover is completed, continuing support will also need to be offered to consumers who remain hesitant or confused about the conversion to digital. The lesson from the Channel 5 video retuning is that providing support in people's homes must be planned carefully because it can prove difficult, expensive and time-consuming.
A move from planning to implementation
7.36 For switchover to be achieved, a body properly focused on co-ordination and implementation will be required. The importance of effective management was amply demonstrated in other successful projects involving big changes for consumers, such as Berlin's digital switchover in 2003, London's congestion charge in February 2003, and the introduction of euro notes and coins across the eurozone in January 2002.
7.37 One option would be a Government-led confederation of all the main stakeholders. Essentially, this would be a further iteration of the existing Digital TV Action Plan. Such a body would have the advantage of being able to involve all the important parties, but at the risk of not having central direction to focus on the important implementation tasks ahead.
7.38 Another option would be to hand the responsibility for completing switchover to broadcasters, either collectively or to the BBC on its own. Broadcasters have an important advantage over other bodies in being able to reach viewers through their broadcasts.
7.39 But agreement between the broadcasters is a pre-requisite of a successful implementation programme and this may be impossible to achieve given that they have diverse and competing interests. If left to agree and implement a switchover programme, broadcasters are likely to find it difficult to find the necessary degree of consensus. It may also be difficult for a body led by broadcasters to maintain the necessary degree of neutrality between different digital platforms, especially given that the BBC is involved in the consortium which operates Freeview.
7.40 Ofcom considers therefore that the most preferable option is a body focused entirely on co-ordinating the various players, communicating the benefits and practicalities of switchover to consumers and bringing digital take-up to a level which allows switchover to be implemented.
7.41 This organisation, termed 'SwitchCo' for simplicity, should be sufficiently independent of broadcasters, Government and the regulator, although all would need to remain involved and must agree to its role and remit. Sufficient independence for SwitchCo is necessary to avoid any conflicts of interest and to ensure neutrality between the digital satellite, digital cable and digital terrestrial platforms.
7.42 Given its statutory responsibilities in a number of important areas - from spectrum management to broadcast licensing - Ofcom would need to play an important role. Other parties, including manufacturers, retailers and consumer groups, would also need to keep in regular contact with SwitchCo, and be part of its governance arrangements. But SwitchCo should, above all, assume the public role of implementation with all of its activities being directed towards a very clear and simple objective: to achieve switchover by a set date.
7.43 One possibility for the governance and funding of SwitchCo is that it could be constituted along the lines of the London's 2012 Olympic bid, where the three important stakeholders have two representatives each on the board. These representative members on the board remain in the minority, however. See Box 7.1 for more details of the delivery vehicle set up in August 2003 for London's Olympic bid.
7.44 SwitchCo's role should include:
- highlighting the benefits of switchover to consumers;
- communicating and marketing the timetable and the practicalities of switchover to consumers;
- providing support to consumers during the period of switchover;
- co-ordinating progress on the usability and ease of installation of digital equipment;
- ensuring clear labelling of consumer products in the run-up to switchover;
- liaising with Government, Ofcom, transmission companies and the broadcasters in their areas of responsibility;
- reporting on progress made by each of the relevant parties; and,
- working to maximise the range of digital options for consumers in the run-up to switchover on a platform-neutral basis.
7.45 The Government, in collaboration with broadcasters and Ofcom, should ensure SwitchCo is an adequately resourced body, which can gain the confidence of all parties. SwitchCo will require funding for running costs, marketing expenditure and consumer support around switchover. Funding could come from a number of potential sources including direct public expenditure, foregone future public receipts from broadcasting activities, an element of the TV licence fee, or private finance funded by foregone future spectrum revenues.
7.46 Government should consult on the precise funding options. Since the economy as a whole is the main beneficiary of switchover, the funding mechanism should not put a disproportionate burden on any interested party. The Government should also consider whether it is possible to include clear financial incentives to implement switchover in SwitchCo's funding formula.
Box 7.1: London's Olympic bid for 2012
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One example of a body which is bringing together diverse parties with different interests in a way which is aimed at achieving a specific target is London 2012, a company set up to prepare and submit London's Olympic bid. It was established following an agreement between the Government, the Mayor of London and the British Olympic Association (BOA). Rationale Constitution Funding |
Address affordability issues
7.47 The previous policy proposals would increase the rate and extent of digital adoption. But even if digital adoption rates are very high, the cost of conversion to digital may remain a significant barrier for some households and risks leaving a few households excluded from television after switchover.
7.48 The penetration of digital TV currently rises with household income. Evidence from the Office for National Statistics (-26-) shows that less than a quarter of the lowest income households have access to multichannel TV compared with around 60 per cent of the highest income households. Chart 7.2 shows the penetration of multichannel TV across the income distribution, ranging from the ten per cent of households with the lowest gross incomes (the bottom gross income decile) to the ten per cent of households with the highest gross incomes (the top gross income decile).
Chart 7.2: The penetration of multichannel TV across the income distribution in 2002-03
Source: ONS
7.49 One of the original Government criteria for achieving switchover was to ensure digital TV was affordable. Although some households express cost as a barrier for not converting to digital, this may be due to a misapprehension of the actual cost, which is relatively small for the vast majority of households.
7.50 If switchover occurred this year, the transitional burden would fall disproportionately on the 30 per cent of households with the lowest incomes: relative to higher income households, they have a lower rate of digital TV penetration; and the cost of a digital set-top box would represent a considerably larger proportion of their annual expenditure. If a set-top box cost £50 (GBP), Chart 7.3 shows the proportion of each gross income decile's annual expenditure that would need to be spent on a converter box. It shows that the burden of converting households' primary TV sets to digital would represent only 0.5 per cent of annual expenditure for the bottom decile and less than 0.05 per cent of annual expenditure for the top decile.
Chart 7.3: The distribution of the transitional costs of switchover in 2002-03
Source: Ofcom calculations based on ONS data
7.51 These typical transitional costs would be affordable for the vast majority of households and need not be a great barrier to switchover: the cost of a basic converter box in 2004 is already less than half the cost of the annual TV licence fee; the relative burden is likely to fall over time as the price of converters drops; and digital penetration is likely to rise significantly before switchover. Some households, however, will face a higher burden if, for example, they need to install a new aerial or a satellite dish after switchover to receive an adequate digital picture.
7.52 However, by the time of switchover, a residual affordability problem is all that is likely to remain for the initial conversion of households' primary sets to digital TV. A wider number of households will need to convert secondary sets and video recorders. Any financial support would reduce consumer resistance to switchover although decisions on financial support need not be taken immediately, since the design of any appropriate financial support would depend on the nature of the transitional costs at the time of switchover. The experience of Berlin suggests that the costs of any financial support need not be high.
7.53 To avoid the danger that households might wait until the last minute in the hope of receiving financial support, any scheme should be available to all qualifying households rather than just the remaining analogue households. The Government should therefore consider the costs and benefits of offering limited financial assistance to particular groups, similar to the free licence fee scheme for over 75s.
Seeking permission to use cleared spectrum to the greatest benefit
7.54 The UK's strategy for the TV spectrum should be to seek full protection of the UK's digital television switchover plan. It should also seek to protect future UK use of the released spectrum and any additional interleaved spectrum which is viable after switchover.
7.55 If a relaxation in the definition of uses for the TV spectrum can be agreed at the 2007 and 2010 World Radiocommunications Conferences, it is possible that released spectrum could be used for a wider variety of services than are currently envisaged. This would result in greater efficiency of spectrum use and higher rates of economic activity. However, there is considerable uncertainty in whether any changes will be agreed within this timetable.
7.56 After a firm timetable for switchover is set, Ofcom may decide to delay the licensing of this spectrum until international agreement can be obtained to more flexible use of the spectrum. The trade-off is that any delay would potentially maximise the benefits to the UK, but early licensing of the spectrum for broadcast services would guarantee economic use of the released spectrum as quickly as possible.
Summary of obstacles and policy recommendations
7.57 Table 7.1 summarises the obstacles to switchover, the
proposed policy solutions to each obstacle and a list of indicators to analyse
progress.
Obstacle |
Policy recommendation |
Indicators |
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Consumer take-up |
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Broadcaster incentives and obligations |
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Free-to-view digital TV |
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Timing issues |
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Implementation of switchover |
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International agreements |
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Footnotes
22:- Attitudes to Digital Switchover, March 2004
23:- Review of radio spectrum management, March 2002. Department of Trade and Industry and HM Treasury
24:- Government response to the independent review of radio spectrum management, October 2002
25:- Quadrature Amplitude Modulation
26:- Expenditure and food survey,
2002-03
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