A major area of work in 1997 was the award of the digital terrestrial licences. The task of assessing an applicant's ability to establish and maintain the service is more challenging when a new, competing delivery system, such as digital terrestrial television, is being launched and the strength of shareholders and credibility of each applicant's business plan was scrutinised carefully. On this occasion the test was coupled with an assessment of each applicant's proposals to promote or assist the acquisition of equipment by viewers -- an important element in kick-starting the services. The Commission concluded in relation to the licences, for which there was competition, that British Digital Broadcasting's business plan, taken as a whole, was stronger than that of Digital Television Network.
When new local delivery licences are advertised, the Economic Regulation Division is responsible for setting the percentage(s) of revenue to be paid by the successful applicant. This is done on an area-by-area basis and involves estimating the value of the licence over its 15-year period. Five licences were advertised during the year.
Nine local delivery licences were awarded including those advertised in earlier years. In all cases the assessment of applicants' business plans turned on the availability of funding. It is important to note that the statutory test is a snapshot, ie, it is applied at one point in time. The emerging economics of the industry and fluctuations in the enthusiasm of the capital markets may result in modifications to the applicant's proposals once they are being implemented.
The award of the Channel 5 additional service licence was also a matter in which business plan analysis played a key part. The Commission concluded that both applicants who had applied could maintain the proposed service.
In 1997 the Commission received the first application for the renewal of a Cable Authority franchise as a local delivery licence. The division was conscious that the methodology, and procedures adopted, would set the framework within which other cable licences would be renewed in the years ahead. Consequently, a detailed and lengthy dialogue preceded the financial modelling which was necessary to set the financial terms payable to the Government on renewal. As with Channel 3 renewals, the terms themselves are not a matter for negotiation or discussion with the licensee.
The need to have the most appropriate methodology for the renewal of Channel 3 licences was uppermost in the Commission's mind in July 1997 when it launched a public consultation on this exercise. Following a period of extensive discussion, principally with the licensees, some modifications were made to the methodology. In a number of areas, the licensees' proposals were not accepted.
The ITC's involvement in competition matters expanded considerably in 1997. Extra staff were recruited to accommodate what is regarded as increasingly important to the fulfilment of the Commission's objectives.
Competition issues played an important role in both the award and grant of licences to BDB. The removal of BSkyB as a shareholder addressed some of the ITC's concerns, but Granada's involvement as a shareholder in BSkyB and BSkyB's role as a supplier of programmes to British Digital Broadcasting pointed to the need for further licence conditions to prevent the possibility of anti-competitive behaviour. In particular, conditions were imposed to facilitate competition in the premium content market, where BSkyB has currently a dominant position. Following extensive dialogue with DGIV (part of the European Commission) the ITC granted licences with a number of detailed competition conditions to BDB before Christmas.
On 30 July 1997 the ITC announced that it was to extend the competition investigation into channel bundling in the pay-TV market to cover further issues raised by respondents, incorporating also two matters arising from a complaint which had been made to DGIV.
The ITC received 40 substantive responses to the second round of consultation. These responses have all been given individual and careful consideration, and in many cases further information has been obtained from respondents in order to support the ITC's analyses. Particular emphasis has been placed on the need for quantitative information.
Substantial progress has been made and it is anticipated that the ITC will publish conclusions shortly.
The ITC issued a Direction to all cable and satellite licensees, which prohibits the provision of misleading information regarding competing services. The Direction followed allegations made by a number of industry players that employees of competing organisations had given misleading and denigratory information to subscribers about the terms of supply of their competitor's services. The Commission decided that the provision of misleading information, whether intentional or not, was capable of distorting the decisions of subscribers and consequently was prejudicial to fair and effective competition. Licensees are now required to have in place adequate training, monitoring and compliance procedures for all sales and subscriber management staff, and to maintain a register of complaints from competing service producers.
Following on from an earlier consultation exercise, the ITC published its Code of Conduct on Electronic Programme Guides (EPGs). In the digital age, the ability to access potentially many hundreds of competing television channels means that viewers are likely to make extensive use of EPGs. In essence, an EPG is a gateway to a variety of services, including programme listings.
The Code requires that EPG providers must ensure that terms of access to EPGs and agreements with broadcasters for provision of EPG services are fair, reasonable and non-discriminatory. The Code stresses the need for viewers to have easy access to free-to-air programme services, particularly those with public service obligations. The ITC has established a joint working group with the Office of Telecommunications (OFTEL) to ensure that there is consistent regulation in the areas for which OFTEL also has responsibility.
At the end of 1997, the ITC undertook a competition investigation into the cross promotion of BSkyB's Pay-Per-View (PPV) services. A number of cable operators were concerned that their plans to offer a competing PPV service would be disadvantaged by these cross promotions.
The ITC concluded that BSkyB could continue to cross promote its PPV services. However, the ITC identified two types of cross promotion to which it applied certain conditions, namely, generic and 'call-to-action' promotions. The ITC specified that promotions of a generic nature were permissible, provided that the information did not mislead subscribers about the supplier of the services. On the other hand, 'call-to-action' promotions could be anti-competitive and it was concluded that cable operators should be allowed to opt out of these if they had the necessary technical facilities to do so.
The division was also closely involved, with the OFT and OFTEL, in providing advice to DGIV on a number of matters, particularly its consideration of the British Interactive Broadcasting joint venture (comprised of BSkyB, British Telecommunications, Midland Bank and Matsushita) and a complaint by a cable operator that BSkyB's wholesale prices were discriminatory and resulted in a squeeze on profit margins. The Commission attaches considerable importance to effective co-operation in areas where there is a common interest. It intends to play an active role in ensuring that any overlap between the OFT, OFTEL and the ITC is managed efficiently and, in this context, has advocated that the joint group already established (with the Department for Culture Media and Sport and the Department for Trade and Industry) should have a more clearly defined role
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