Appendices DTT

Organisations Contacted

Astra Marketing

BBC

BDB/Carlton/Granada

BIB

BREMA

BSkyB

Cable Communications Association

Channel 4

Digital 3/4 Ltd

Dixons

Holland Media Group

ITC

ITVA

NTL

Hitachi Home Electronics

S4C/SDN

TAS

Teleswitch

2.1. Current Situation

There is a large population of analogue VCRs in television households in the UK (79% of households have a VCR), among the highest penetration in the world, with a surprisingly high incidence of multiple ownership (11% of TV households have two or more VCRs) (see section 2.5 below for further TV and VCR data). Analogue VCRs generally contain their own tuner. This allows a VCR to record analogue transmissions without being attached to a TV receiver. If the VCR is attached to a TV receiver, then it can record transmissions regardless of what, if anything, the TV set is displaying.

VCRs do not have the facilities to tune into cable or satellite delivered programming, which is received by a set-top box. Thus such programmes can only be recorded if the STB is switched on and tuned to the channel, and a feed is available to the VCR either directly or via the TV receiver. If it is desired to record a programme delivered via a STB while watching a different programme via STB, then in effect the VCR must be attached to a second set of equipment. Sometimes discount terms are available for multiple STBs in a household.

2.2. DTT via STB and Analogue VCR

A household receiving DTT by purchasing a STB for an analogue TV receiver will be in much the same position as a cable or satellite household is currently. The analogue VCR will continue to record analogue terrestrial channels independently of the TV receiver, and play back in the same way. Programming delivered by DTT can only be recorded if the STB is switched on and tuned into the programme, and a feed is available either direct or via the TV receiver. Analogue circuitry in the TV receiver should permit the household to record a DTT programme while watching an analogue terrestrial programme. Thus a wide variety of possibilities appears easily achievable, comparable to what cable and satellite households already experience. Fully independent operation of an analogue VCR is only possible if a second digital tuner is made available in some way.

Once analogue terrestrial signals are switched off, the number of options for the STB household with an analogue VCR becomes reduced. An analogue VCR can only record the programme the STB is tuned to. So whilst time-shifting remains possible through recording while absent, simultaneous view and record of separate programmes becomes impossible, unless two digital tuners are available.

2.3. DTT via iDTV and Analogue VCR

In the early days, at least, iDTV manufacturers plan to make analogue circuitry available in iDTV receivers. This circuitry is provided in order that households can retain inter-workability with their analogue VCRs, and also receive analogue signals in the situation that not all digital signals are available. Moreover many early iDTVs may essentially be an analogue set and a STB built into the same cabinet. Thus the owner of an iDTV retains the same possibilities as the owner of an analogue set with a STB.

Analogue capabilities may eventually be phased out from iDTVs on sale in the UK. The likelihood is that this will only happen once the desire for inter-workability with analogue VCRs has fallen away through major penetration of digital VCRs.

2.4. Digital VCRs

There are two factors which need to be carefully distinguished in describing a VCR as "digital":

In order to achieve compatibility with DTT and retain independence of operation, what is essential is that the VCR have a digital tuner, even if the recording format is analogue. An analogue VCR can be given this capability if it has its own STB. The nature of the recording format offers the potential to improve recording quality and extend functionality.

Digital video disk (DVD) players able to play back pre-recorded digital programming to feed an analogue TV are already available. There are competing standards for a digital recording format, including at least two formats for a recordable digital video disk (DVD-R), and also potential digital developments of VHS tape cassettes. Digital tape technology is likely to have a significantly larger data capacity, with the possibility mooted of recording an entire multiplex rather than a single channel. But tape technology does not have the instant access offered by disk technology. It is not important for the success of DTT which, if any, of these recording formats succeeds, but it affects the architecture used and the functionality available to the user.

In order to provide the same functionality as current VCRs, there is a requirement for the VCR to have at least its own digital tuner, and possibly demultiplexer and decrypter, just as both analogue receiver and VCR each has its own tuner. Once DTT technology has matured, it is likely that digital tuning and demultiplexing can be incorporated into VCRs at modest cost. In principle there are three main choices for the architecture:

It remains to be seen whether early implementations of digital VCRs will allow independence of operation, but it appears likely that independence will eventually become standard. Early implementations may also make recordings that are encrypted where broadcast encrypted. There are some issues to address in ensuring that the recorded programme can be decrypted when played back with a time delay. Later, videos may incorporate their own CAS, such that programming which is flagged as recordable can be recorded in unencrypted form.

As long as TV receivers provide compatibility with analogue VCRs and analogue transmissions continue, analogue VCRs remain fully usable. Once analogue transmissions cease, an analogue VCR equipped with a digital tuner or STB offers full functionality, and analogue recording technology may remain dominant on that basis. This is comparable with the audio market, where recordable digital formats for audio reproduction have so far had little market success. This is probably because of a combination of increased cost, lack of compatibility with existing pre-recorded formats, and relative satisfaction with analogue reproduction quality given its cost advantage.

2.5. TV Data

Total number of households	24.1 million
TV households	23.1 million
TV penetration	97%
% of all households with VCR	79%
% of all households with Cable/SMATV	8%
% of all households with satellite dish	16%
TV sets per TV households	1.79

% of TV households with:
Colour TV	99%
Black and white TV only	1%
A TV of 20" or more	83%
A TV of 16" to 19"	14%
A TV of 15" or less	56%
Two or more TV sets	59%
One or more VCR	81%
Two or more VCRs	16%

NERA estimates that in 1995 households with 2 or more sets had on average 2.4 sets (based on the 1995 Advertising Association figure of 1.75 TV sets per TV household, and the above BARB figures). This implies that probably in excess of 30% of such households, i.e. 17% of all TV households, had three or more sets in 1995.

3.1. Introduction

The major difficulty in developing projections is the general lack of "hard" data upon which to base our estimates. DTT has not been implemented elsewhere, meaning there is no firm data on consumer reactions, on equipment costs or on the practical difficulties of implementing DTT (e.g. the difference between predicted and actual coverage likely to be achieved). In the light of these uncertainties we have adopted the common approach of using scenario-based modelling. The scenarios, which present likely lower and upper bounds to consumer take-up, are developed in Chapter 2 of the main report. In this appendix we provide further details of our approach to modeling the take-up of DTT and of the various assumptions which underlie our analysis.

3.2. Digital Equipment Availability and Price

Our assumptions about the availability and price of DTT reception equipment are based on discussions with manufacturers, retailers and multiplex operators.

The principle method of achieving DTT reception in the short run is likely to be the STB. This is in large part due to the lower cost of producing a STB relative to an iDTV leading to a significant differential between the price of a STB and an iDTV. This differential will be further accentuated by BDB’s proposal to subsidise the initial retail price of the STB, albeit conditional on the consumer committing to a minimum period of subscription to BDB’s pay services.

Industry estimates suggest that early digital cable and satellite STBs will retail at around �400, with DTT boxes costing perhaps an extra �50-�100. British Interactive Broadcasting (BIB), a joint venture between BSkyB, BT, Midland Bank and Matsushita plans to subsidise the price of a digital satellite STB to the �200 level with the only requirement being that the consumer connects the box to the telephone socket. BDB proposes to subsidise the price of DTT STBs also probably to the �200 level. The DTT subsidy will be in the form of a cash-back payment to consumers after purchase and will be conditional on a minimum period of subscription to BDB’s pay services. Side-cars providing interoperability between digital satellite and DTT are likely to retail at between �50-100.

There is less agreement amongst industry about the availability and price of iDTVs. Conditional access remains a major stumbling block. The conditional access module will be an integral part of the digital STB. There remains disagreement, however, about how to handle conditional access for iDTVs. Its inclusion within the set would increase manufacturing costs and would effectively tie the purchaser to a single conditional access provider. The alternative option is for there to be a common interface at the back of the television set into which one or more conditional access systems could be plugged. Viewers would then need to purchase an external conditional access module at a price likely to be around �40. Locating the module externally also raises piracy issues.

Some retailers have contracted with manufacturers to supply iDTV sets at the start of DTT. This will probably be achieved by simply putting the STB board inside a widescreen TV set and means the sets will contain proprietary conditional access software. We have taken the conservative view that iDTVs will not become generally available across a range of prices and screen sizes until the year 2000.

Dixons, the major high street electrical retailer, has suggested that integrated receivers are likely to retail initially at a �200 premium to analogue sets across all screen sizes. Other industry estimates are more cautious suggesting that the digital price premium could be much higher, perhaps of the order of �350, and that early digital sales will be restricted to larger screen and hence more expensive sets. We have taken the mid-point of these estimates and assumed that iDTVs will enter at a premium of around �275 compared to analogue sets.

The price premium of digital equipment is likely to decline rapidly as significant economies of scale in production are realised, especially in the manufacture of chips. We have assumed the price premium for an iDTV falls to about �100 after 5 years and then falls to a mature market price comparable to that of analogue sets by year 10. This is a conservative estimate as some sources believe that the price differential will be negligible after 5 years. We have further assumed that after 5 years the unsubsidised STB price will fall to about �200. Again, after 10 years, this could fall to a level comparable to that of analogue STBs.

3.3. Segmenting the Market

In order to segment potential digital consumers into two groups based on the value placed on multichannel TV reception, with a high value indicated by a willingness to pay for TV services, we have pursued two approaches: bottom-up, focusing on hardware penetration rates; and top-down analysing consumer expenditure patterns on pay TV and related services.

Pay TV penetration in the UK currently stands at around 22% of television households. One means of thinking about how this figure might move over time is to compare UK take-up of pay TV services with that achieved overseas.

The United States is generally regarded as the most developed television market in the world. It perhaps represents the most significant indicator for the future development of pay TV services in the UK. The headline figure for multichannel TV take-up in the United States currently stands at around 67% of television households; with a cable TV penetration rate of about 64% and the remainder comprising DTH subscribers. A simple comparison of these headline figures with the UK is, however, misleading as there are important differences between the two markets.

First, the 64% cable TV penetration figure refers to the basic cable service; this comprises retransmitted broadcast signals, advertiser-supported general and special interest programming, and public, educational and government channels. A traditional function of cable TV in the US is as a means of improving reception of local television broadcast signals and this is a major factor underlying the very high rate of basic cable take-up. With the coverage of the terrestrial television transmitter network in the UK at over 99% of the population, this so-called "antenna service" has not emerged as an important factor in UK cable and satellite take-up.

Perhaps a more appropriate comparison is to focus on the penetration of premium services (offered in the US on a per channel subscription basis). On this basis the UK and US rates appear much closer. AC Nielsen estimates that in 1995 27.1 million US cable homes (28.4% of total TVHH) subscribed to at least one premium service. Adding to this figure the 5.9 million DTH subscribers, and assuming that most or all of these subscribe to at least one premium or pay-per-view service, gives a premium services penetration rate of around 35% of total US TVHH.

The comparable take-up of premium services in the UK in 1996 is around 18.7% of TVHH. This would suggest that the analogue UK pay-TV market lies some way below its maximum potential. Moreover, digital will increase the range of premium services and allow the development of pay per view and near video on demand services. The take-up of premium services in the digital era could therefore be higher still.

A second difference lies in the availability of cable TV in the United States compared to the UK. The US market is characterised by almost universal availability of cable with over 96% of the 96.5 million US television households passed by a cable network. In contrast, the comparable figure for the UK is about 50%.

Simply extrapolating the current projected build rate for cable TV networks in the UK and assuming that the take-up of cable (as a proportion of homes passed) and of satellite remains at 1996 levels, implies a cable and satellite penetration rate of around 30% by 2007. Note that this figure is likely to include an element of double counting since satellite subscribers will include households in areas currently uncabled but which will be cabled in the future. Some of these subscribers might otherwise have opted for cable services. On the other hand, keeping take-up rates constant takes no account of any stimulus due to the additional range of digital services and due to the general increase in personal disposable incomes.

On the basis of the bottom-up analysis, we therefore conclude that a potential UK pay TV penetration rate of between 35-40% of TVHH (approaching or exceeding the current US level) is not an unrealistic expectation.

Pay TV subscriptions in the UK for 1996 reached �1 billion and represent the fastest growing source of television revenues (see Figure A3.1). Digital TV can be expected to capture a growing share of these revenues over time.

Moreover, digital TV offers greater functionality which may attract new revenue streams from adjoining markets: for example, video-on-demand (VOD) and near video-on-demand (NVOD) services might be seen as direct substitutes for video rental and possibly video sell-through. More generally, digital TV competes with other forms of audio-visual (AV) product for the consumer pound. Consumer AV expenditures totalled �2.6 bn in 1995, with the largest sectors comprising video sell through (�790m), pay TV (�740m), video rental (�460m) and cinema (�400m).

Projecting forward likely expenditures on pay TV services over time involves a number of stages:

In order to control for the many possible outcomes, we constructed a small number of scenarios which best describe likely market developments over the projection period, for each user segment.

On the basis of this analysis, we project that pay TV expenditures (including subscription and pay TV revenues but excluding new narrowband and Internet type interactive services) could be in excess of � 2.5 billion in 2005. If we assume (conservatively) that average pay TV expenditures per household remain constant in real-terms, then this implies a projected penetration level for pay TV services of around 40% by 2005.

3.4. The Colour Television Experience

The last major change in television transmission standards was the change from monochrome to colour, with the first colour broadcasts beginning in 1967. There was also a contemporaneous technology change as picture quality went from 405 to 625 lines. Colour services could only be received on new colour sets and on 625 line monochrome sets, although the latter were only capable of displaying colour services in monochrome. Old 405 line monochrome sets were not capable of receiving the colour broadcasts.

A number of early adopters chose to upgrade to the new colour television sets soon after its introduction. Moreover, as existing sets reached the end of their life cycle, consumers tended to choose the models capable of receiving colour. 405-line TV sets were gradually withdrawn from production, although 625 line monochrome sets continued to be produced.

The same programmes (BBC 1 and ITV) were simultaneously broadcast in 405 line monochrome and 625 line colour.

BBC 2 was launched in the 625 line standard in 1964. This service was the first to be colourised in 1967 with the extent of colour broadcasting gradually being increased across the programme schedules of all channels over the next few years.

405 line VHF transmissions were shut down some 20 years after the introduction of 625-line services. By that time, only a few thousand residual 405-line set households remained. The final closure plans were in part determined by the performance of VHF transmitters which did not always get replaced as they failed.

The transition of consumers from monochrome to colour sets took rather longer than the 405 to 625-line switch, and is considered further below.

It is difficult to assess the relative improvement to the consumer of the transition from monochrome to colour against that offered by a move from analogue to digital. Moreover, the retro-compatibility of colour broadcasts with 625-line monochrome sets provides a further difference to the comparison. Analysis of the colour television experience does, however, provide some useful insights into the issues and problems involved in replacing an existing generation of television receivers with a new generation of more expensive ones. In this sense, it raises issues of relevance to the planned transition from analogue to digital.

The advent of colour was accompanied by the introduction of a new colour television licence from January 1968. Figure A3.2, below, shows the diffusion of colour television in terms of the increasing number of colour television licences in force and shows the decline in the number of monochrome only households.

The chart clearly shows how the take-up of colour television followed the classic sigmoid (S-shaped) pattern familiar to many new product introductions. Initial take-up was slow, due in part to the price premium of colour sets over monochrome and in part because of the unfamiliarity of consumers with the new technology. The take-up rate accelerated markedly around 1971, as colour became the technology of choice when replacing the main television set.

What the chart also clearly shows is that the displacement of monochrome sets was a gradual rather than a sudden process. Even in 1987, some twenty years after the introduction of colour, 2.4 million monochrome licences (equivalent to 11% of total television households) remained in force.

Moreover, many of the colour TV licence households retained their existing monochrome set(s). The typical pattern was for the new colour television to become the main set situated in the living room, while the old monochrome set would be moved to the bedroom or kitchen. In the context of analogue closure, it is important to consider not only the number of households that have switched but also the number of analogue sets remaining in use.

Figure A3.3 shows the colour television experience with respect to the number of monochrome and colour sets in use. Comparison with Figure A3.2 shows that the displacement of monochrome was even longer when measured by the number of sets in use. In 1987, 8.5 million monochrome sets remained in use, equivalent to a set penetration rate of 44% of television households.

4.1. Introduction

4.1.1. Structure

The purpose of this appendix, originally written as a working paper in the early stage of the study, is to explore the concept of what constitutes an acceptable level of universal service and how it might acceptably be provided. In Section 4.3, we first look at what universal service means currently in the UK. We move on to look at what a practical definition of universality might mean in future when analogue television has been switched off and digital terrestrial television becomes a means available to most of the population to obtain access to basic television services.

The possible coverage of the digital multiplexes while the current analogue service is running ("core areas") falls short of a reasonable concept of universal service. In Section 4.4, we look at the available means of delivering universal service outside the simulcast area ("fringe areas"), and examine any policy issues which may arise. Once analogue is switched off, frequencies become available for delivering digital terrestrial into the fringe areas. So one option is to orchestrate an overnight switch-over in fringe areas, or to use liberated frequencies for extending simulcasting into fringe areas after an analogue switch off in core areas. Other options include use of the public telecommunications network, cable, satellite and MVDS.

But first, as background, we examine some underlying economics of delivering universal service by DTT.

4.2. Underlying Economics of Universal Service by DTT

We consider how one would in principle most economically deliver a universal digital television service to the population in the absence of analogue broadcasting, ignoring transitional issues, but taking into account the value of the spectrum in alternative uses.

The most spectrum efficient method of delivering universal DTT is to make widespread use of national single frequency networks (SFN). This would in principle allow nationwide distribution of six multiplexes on just six channels. However, the use of national SFNs has been ruled out for the foreseeable future by the selection of 2000 carrier technology. Whilst the digital multiplexes may use the SFN approach for some local relays or for small regional services, in general different frequencies will be used in adjacent areas, similar to traditional engineering of an analogue television network.

Six digital multiplexes can be delivered economically by DTT to the core areas, say of the order of 90 to 95% of the population, using a relatively small amount of the available UHF radio spectrum and of the order of 100 transmitters. However to deliver all (or as many as possible) of the six multiplexes to fringe areas so as to achieve coverage comparable to the 99.4% coverage currently achieved for off-air analogue channels, requires an increase in transmitter sites by an order of magnitude, to around 1000. More importantly, it would probably use up much UHF spectrum, and fail to release much of value to other uses. In other words, large amounts of valuable spectrum would be taken up in serving only the fringe community. It is most unlikely to be an economic use of spectrum to attempt to deliver all six digital multiplexes via DTT to the fringe community, absent the use of wide area SFNs.

It is therefore appropriate to look at ways of delivering the basic qualifying services channels to the fringe community. If this were done by DTT, then the most spectrum efficient way to do this would be if the five qualifying services were combined into a single multiplex. Ideally one single frequency would be found so that a SFN delivering the qualifying services on a SFN could be constructed, but this is not possible for the reasons given above. The next most efficient way of doing this by DTT would be to deliver the basic channels via a single multiplex using traditional spectrum planning. In practice, it may take a minimum of two multiplexes to deliver the qualifying services, in which case other free services such as BBC 24 Hour News and ITV 2 might be included.

Currently the basic channels are planned to be distributed across three multiplexes. To deliver three digital multiplexes by DTT into the fringe community would again take up much spectrum, and this is almost certainly uneconomic in terms of releasing valuable spectrum. Where a community can currently receive a small number of multiplexes, it is possible that the multiplex providers will negotiate among themselves to put different channels onto those multiplexes, so that better coverage is obtained of the most important channels. Such rearrangements may allow the basic channels to be delivered to a surprisingly wide area by DTT. It is possible that in some fringe communities it might be economic to deliver one or two multiplexes by DTT, reconstructed to contain basic channels.

However it is far from clear that DTT is the most economic way to deliver universal television service into fringe areas, given the existence of alternative uses for the spectrum. The fringe areas require 90% of existing transmitter sites and take up large amounts of spectrum which might be valuable to other services, even to deliver a single multiplex. Although spectrum in these fringe communities is on average less valuable than elsewhere, the use of the spectrum in these areas causes interference back into other areas. Thus the spectrum occupancy required to deliver to the fringe community is very large. It is likely that other ways of delivering television into these areas might be more economic than DTT, if the value of spectrum in alternative uses is taken into account. There are several other methods by which the fringe areas could receive not only the basic services, but also large numbers of supplementary services. The alternative delivery methods might be more highly valued (on balance) by fringe area viewers than single multiplex DTT service. A single multiplex DTT service to fringe areas would cause local households expense for little benefit in comparison to existing service.

4.3. Universal Service Requirement

4.3.1. Existing universal service

The BBC’s responsibilities for providing off-air television services are set out in the Agreement between the Secretary of State for Culture, Media and Sport and the BBC where "the Corporation undertakes to provide … two television programme services available for general reception throughout the United Kingdom" (Clause 2.2). "[F]or general reception" is defined as "capable of being received at any place … without payment other than … a television licence" (Clause 1), which implies only that where it is received it shall be free of charge. "Throughout the United Kingdom" is not explicitly defined, but "If with a view to extending the coverage … the Secretary of State shall so require in writing, the Corporation shall establish and use such additional station or stations … as may be specified …" (Clause 7.1). Thus the extent of the BBC’s coverage is determined entirely by what Secretary of State requires of it specified in terms of transmitter stations.

Currently the ITC has a duty to use its powers "in the manner best calculated to ensure that a wide range of [television] services are available throughout the United Kingdom" (Broadcasting Act 1990, S2 (2)). It is responsible for licensing Channel 3, Channel 4, Channel 5, cable and satellite television services, but not the BBC.

The ITC has a responsibility to "secure the provision … of a nationwide system of broadcasting to be known as Channel 3" (S14 (1)). The term "nationwide" is not clarified. However for Channel 5 their responsibility is more limited: "to secure the provision of a television broadcasting service for any such minimum area of the United Kingdom as may be determined", the minimum area being defined such that "so far is reasonably practical, make[s] the most effective use of frequencies on which it is to be provided", (S28 (1) and (2)). S66(4) and (5) of the Broadcasting Act 1990 gives the Secretary of State a locus in determining the extent of coverage. The ITC has set out its minimum coverage requirements for licensed companies in their licences.

Channel 4 is provided by the Channel Four Television Corporation, a statutory body which has a responsibility that its channel be "provided for so much of England, Scotland and Northern Ireland as may from time to time be practical" (Broadcasting Act 1990, S24 (3)). Sianel Pedwar Cymru (S4C) is also a statutory body, and its responsibility is to provide a service "wholly or mainly in Wales" (S57 (1)).

The legal requirements to supply universal service for Channels 3 to 5 are subject to the interpretation of the relevant statutory bodies. The requirement is strongest for Channel 3, but the word "nationwide" appears to refer only to an extensive geographic coverage, rather than the absolute universal requirements imposed on certain utility services. Until the end of 1996, the government had policy of extending the transmitter system by 25 relays a year, but this has now stopped. Communities have no right to demand reception from these bodies, and may choose to expend their own resources to set up local relays ("self-help systems") where they have not persuaded the broadcasters to spend their own money in the general programme of transmitter construction. Individuals may also expend their own resources on equipment (e.g., a large antenna) to obtain reception outside the area in which the ITC or others would normally expect it to be available. Individuals or localities which find themselves without reception owing to local topography, vegetation or buildings have no redress either against the broadcasters or those who may have placed obstacles in their way (as recently confirmed in a House of Lords decision in favour of Canary Wharf).

The coverage of Channel 4 is subject to a practicality test, resulting in a level of coverage which has approached that of Channel 3 (outside Wales) as time has passed. S4C is subject to a requirement to provide coverage to so much of Wales as is for the time being reasonably practical.

Channel 5 is subject to a coverage test concerning both practicality and availability of frequencies, which in practice limits coverage quite markedly - universality is not intended. It could extend its coverage by use of local relays, but even though there is some local availability of suitable frequencies, it does not appear to under be any obligation to do so.

Cable channels are licensed by the ITC (formerly by the Cable Authority). Cable licences include minimum coverage requirements, in terms of houses passed, to be achieved over a certain time period. The minimum level of coverage varies from area to area, and always falls short of 100%.

Thus, in practice, the Secretary of State (on behalf of the BBC) and the ITC, have decided upon a transmission system which succeeds in providing four channels to very high proportions of the population using normal aerials and receivers. This proportion has steadily grown over time to near saturation point. The extent of the existing transmission system is in the gift of these parties, and they have responded over time to political pressure and falling equipment costs to extend it. Those who do not receive signals, and who are unable to persuade the relevant parties to extend their transmission systems, must make their own arrangements as best they can. Some are willing to invest in community self-help systems or private equipment; others receive only commercial satellite offerings or nothing at all.

4.3.2. Universal service with digital

The same approach is likely with digital television in the event analogue reception is phased out. It is government policy that the four qualifying channels should be receivable free-to-air approximately universally. In other words, whilst small communities or isolated buildings may not have reception, there are no significant settlements or extensive regions without reception. But reception at the margins will continue to be a matter of practicality rather than a right. Inevitably the shape of the margins will change, so that a few of those with difficult reception may experience improvements (or no longer require special equipment), and others may experience adverse changes, even if high levels of overall coverage are planned.

The main criterion for a successful conversion to digital television is ensuring that the policy on universality is respected. Adverse changes for isolated individuals or scattered hamlets are to be expected, as the interpretation of universality is not so strong as to cover all such situations. It would present difficulties if larger identifiable communities, such as significant settlements or extensive regions, lost coverage.

Another criterion which may be important is that those small communities who have expended substantial sums of money on "self-help" systems should in general continue to obtain reception. Whilst again there are likely to be individual difficult cases, a system which cut off reception for many of the self-help communities, or required them to make much larger investments than previously to maintain reception, would create a substantial interest group which would be hard to ignore.

Of these, the last two are matters which should raise relatively little attention. Indeed, opportunity may be taken to change the granularity of the Channel 3 regional definitions, as it is regarded by some advertisers as too coarse at present. However the ability to reshape Channel 3 regions to any significant degree is limited by the choice of main transmitter sites, which is unlikely to change materially. Such changes are unlikely to be a major obstacle.

A more interesting point in relation to Channel 3 is whether it would be acceptable for there to be a non-regional "joint channel 3", or a small number of pan-regional variants, which might be available from satellite, either as DTH or for local retransmission. Such channels might be provided to fill in some areas which cannot be reached economically by terrestrial technologies.

A change in the fourth channel reception may be viewed as a problem if significant areas of one language group start to receive the channel of the other language group in substitution for their current (correct language) channel. But in general, changes in fourth channel received are unlikely to be a major obstacle. Currently a very large area around the Welsh border has access to both C4 and S4C, and such a level of service may not continue. SDN has pointed out that the proportion of Wales which will be able to receive S4C from DTT from the initial 81 transmitters is of the order of 65%, and that the Welsh-speaking communities are concentrated in the area without coverage. A similar problem is likely to occur with the Scots Gaelic services required to be delivered in Scotland.

Although the government has stated that "universal service" applies only to the four main channels (the "qualifying services"), loss of reception of Channel 5 is a matter which is likely to be considered unacceptable if experienced on a widespread basis, or affecting identifiable contiguous communities rather than isolated individuals.

More difficult are the issues concerning loss of reception quality or abnormal costs. People on the margins of reception may currently watch poor quality analogue pictures, but may experience intervals of non-reception if this were transferred to digital. The nature of degraded quality of reception is entirely different with digital, and intervals of non-reception are likely to be considered a much greater nuisance than intervals of poor picture or sound quality. There is a question about what statistics of intervals in reception, if experienced by a sufficiently wide community to transmission, are considered so serious that in-fill should be provided. Current planning standards allow for interference 1% of the time.

The first three of these fall outside the definition of universal service applied, and do not create widespread contiguous communities of discontent. The issue of households having several televisions is more serious and requires careful thought, as it is now a common circumstance, and it is likely to be unwelcome if there is not an economical way of extending reception to all sets owned. Some households currently resort to the use of illegal retransmitter devices to transmit satellite or cable programmes to multiple sets within a house. There are potentially major problems of interference if these devices became more widespread in response to the desire to obtain economical reception on multiple sets. Consideration should be given to the possibility of whether there might be an economical wireless LAN solution, if mass-produced. Consideration could also be given to promoting the installation of suitable coaxial cable systems in new houses.

The final issue raises the question of the way in which "free-to-air" will be achieved for the public service channels. We understand the government believes free-to-air implies that the signal must be capable of being received without paying for the programme, although the viewer will have to pay for installation of the equipment including any necessary decoding device or digital to analogue converter (DAC). Under current plans viewers initially wishing to only receive "free-to-air" DTT services will either have to purchase an iDTV (at a �200-�350 premium to analogue sets) or a STB for an unsubsidised price of around �400. These prices will fall substantially over time (say after 5 years or more), however, at the start up of DTT they will impede the penetration of free to air DTT services.

Public service channels will be broadcast unencrypted from digital terrestrial transmitters. However public service channels may in practice be encrypted, for viewers receiving their basic service by technologies other than DTT:

If public service channels are encrypted for all or some viewers, access to programmes will require the possession of decoding devices which will almost certainly incorporate conditional access systems. Thus some financial relationship with a broadcaster is implied, to pay for the on-going costs of the conditional access system. There may need to be regulation or statutory setting of these charges to ensure that they do not include a subscription element or undue profit for the provider.

These issues also need to be considered in relation to satellite and cable services if these are used for in-fill, as currently these media are generally used for access to subscription services. It might be more difficult than for DTT to enforce the genuine availability of free-to-air public service channels through these alternative media. The need for it requires further examination as to how many people it would affect, the level of additional cost, etc.

4.4. Possible Technologies for Delivering Fringe Coverage

The conventional model for transfer to DTT is that there should be an extended period of simulcasting in both analogue and digital, with an announced switch-off date for analogue, thus allowing viewers to plan their own conversion to digital at minimal cost in the intervening period. In this section we explore the possible technologies and methods which might be employed where this conventional model does not apply. The main reason for the model not applying is that digital terrestrial transmissions do not reach the area concerned. However the possibilities of an overnight switch-over are also explored.

4.4.1. The potential role of BT

British Telecommunications plc (BT) may play a role in delivering economic roll-out of digital television services to remoter locations, because its existing fixed network reaches nearly all occupied points in the country.

BT is currently not permitted to deliver broadcast television by the use of its fixed telecommunications network. This is because by virtue of the Telecommunications Act 1984 (S 56), this would constitute a cable broadcasting system, which requires a cable broadcasting licence from the ITC. Schedule 3 to BT’s Licence makes clear that BT is not exempt from this licensing requirement by virtue of its licence to operate a telecommunications system. BT may obtain, and has obtained, cable licences, though these are for a system separate from its main fixed telecommunications network. Only one cable licence is granted for each area, so BT may not directly compete with existing cable licensees. These restrictions are due to be reviewed by 2002.

BT is, however, permitted to distribute "video on demand" (and recorded sound information services) through its system, as these do not constitute broadcasting. The difference is that broadcasting is defined as simultaneous point-to-multi-point communications, whereas video on demand is asynchronous.

It is possible to squeeze television pictures down existing copper pair telephone lines by using DSL (digital subscriber line technology). This makes use of a pair of modems at each end of the copper pair to create a digital line that makes greater use of the potential bandwidth available than traditional transmission methods. Currently, DSL technology only functions where the line runs a short distance from exchange to customer premises, and so are not appropriate for more remote households. Improvements are to be expected, but it remains to be seen whether this provides a viable technology for the typically remote places where coverage in-fill is most likely to be needed. The BBC estimates that taking account of these distance constraints gives only about one-two percentage points additional coverage to that given by the 81 main transmitter sites.

A further difficulty is that charges for use of the fixed telephony network are currently so high as to be prohibitive for broadcast television. This might change if it is found to be markedly cheaper to deliver broadcasts than switched telephony via the PSTN.

4.4.2. Cable distribution

Cable distribution provides an opportunity for delivering television services in urban and suburban areas which are missed by terrestrial off-air broadcast. It is an established technique, for example in Milton Keynes cable is the main distribution method for television signals. In other European countries, cable systems are more widespread, and tend to be a municipal service, even if a private sector company operates them under licence, giving the municipality the power to require universal access for basic channels without additional subscription.

In the UK, digital cable operators are required to carry the four qualifying channels plus C5 and S4C in Wales. Thus customers relying on digital cable will certainly receive the basic channels. We are informed that some (analogue) cable operators currently pay little attention to obtaining a high quality signal for these channels, and customers may often find they get better reception off-air. This should not be a problem in a digital environment.

The coverage of existing cable systems is determined at their owners’ discretion, subject to minimum coverage obligations laid down by the ITC which fall short of 100% in the franchise area. Cable operators are likely to find it in their interest to extend their systems if there is a much higher take-up rate arising from the absence of terrestrial signals, but are still likely to find parts of their franchise area that it is not economic to cable. The question therefore arises as to whether funding might be found to extend cable systems to provide near 100% coverage in areas where it might be determined that cable is the most economic mechanism to provide the service. Funding might come from:

The question of "free-to-air" also arises. Whilst cable companies might be able to receive public service digital channels for redistribution at no charge, they are likely to seek to bundle them with additional subscription offerings. Even if cable companies are willing to offer the television basic service unbundled, provided equipment has been paid for in some way, they are likely still to have on-going infrastructure costs to defray. This requires an on-going financial relationship and raises the question of what is a fair charge and at what point the broadcast ceases to be free.

4.4.3. Multi-point video distribution services

MVDS is a digital radio technology for local distribution of broadband signals over a local area. It is essentially a radio version of digital cable technology. In the UK, frequencies at 40 GHz have been reserved for the service. Given an estimated range of 1 to 5 km, it is a possible distribution technology in the UK for suburban and semi-suburban areas, and also localised villages centres within rural areas. If the upper end of the estimated practical distribution range is realistic, it may also be suitable in more scattered rural areas. MVDS may prove to be an important roll-out technology for extending cable-type services in areas currently not economic to cable.

Under the 1990 Broadcasting Act, access to MVDS frequencies is limited to holders of Local Delivery Operator (LDO) licences given by the ITC. For the moment, UK cable companies have not started using this technology, though it is under test and is believed to be economic in at least some circumstances. The policy issues relating to MVDS are similar to cable distribution, as rehearsed above.

4.4.4. Satellite distribution

Satellite is a potentially important medium for delivering public service digital programmes, particularly in the more remote rural areas. Indeed, some remote areas without analogue service have already expressed considerable interest in the possibility of receiving public service channels by this route, as currently they are restricted to commercial offerings and C5.

Digital satellite broadcasting would be received from a satellite in a different location from the current analogue Astra satellites. Viewers will need new equipment, and also a new site for the dish if the new alignment cannot be served from the existing site. The interest of BSkyB in transferring to digital broadcasting provides a synergy which may make the transfer of existing satellite subscribers as well as the development of an area where satellite becomes the main vehicle for reception.

According to Astra Marketing, about 95% of households are potentially able to receive satellite broadcasts. Groups of properties, normally blocks of flats, can be served with a shared dish by SMATV, at much the same cost per property as if they had individual dishes, and the figure of 95% includes the cases where this is practical. Thus the 5% of exceptions cover situations where terrain makes it impossible to find a mounting site with line of sight to the satellite either on the property itself, or where appropriate on a group of properties. The figure does not exclude cases where planning restrictions may be an impediment to mounting a dish, although according to Astra Marketing a solution satisfying planning restrictions is usually available. However planning restrictions on the satellite dishes are inconsistent between local authorities, with some applying apparently disproportionate restrictions, e.g., on new-build estates. Some consistency would therefore assist in extending coverage if satellite is intended to be a main delivery method in some areas.

In order for this to be practical and acceptable on a reasonably widespread basis, the five basic channels would have to be all available on digital satellites in the same orbital sector, so that they could all be picked up from a single dish. The BBC has reserved digital satellite space. Channel 5 is currently available on analogue satellite and is expected to be available on digital satellite. There is sufficient digital transponder capacity (on Astra) at present to accommodate ITV and Channel 4.

ITV and Channel 4 services will need to be encrypted and regionalised (for regional programming and advertising) if they are to be carried by DSAT. The regionalisation of services can be achieved by cross referencing the telephone number the DSAT STB is connected to the post code, which then allows the STB to select only the service intended for the household’s post code area. For example, this prevents London viewers from receiving a Midland’s service. This method relies on the use of a smart card. Thus the general free to air issues raised above arise. We understand that annual costs of �10 per household would be incurred to pay for the smart card. The alternative of soft encryption (currently used by Channel 5) in which a UK decoder board is installed in the STB is not thought likely to be feasible because it does not provide adequate copyright protection.

Finally, we note that it is not possible to oblige satellite operators, such as Astra to carry the qualifying services. Thus if there was not sufficient transponder capacity available satellite would not provide an adequate solution. It would appear that this is unlikely to be a problem in practice, as there is spare capacity on Astra 2a and 2b. Also it seems unlikely that in future the capacity owner would capriciously renege on its transponder leasing contract with one of the qualifying service providers.

4.4.5. Overnight conversion or delayed conversion

In many areas not currently included in the planned distribution areas for the multiplexes, digital terrestrial off-air reception could be provided on the existing frequencies used for analogue reception, provided that these were swapped more or less overnight. However, this burdens these communities with extra costs, as they will not benefit from the extensive simulcast period to plan their changeover. Rather, they must all have digital equipment ready for the switch-over on the day, and then make the switch-over at the required time. In addition, the switch-over may involve realigning or replacing aerials, and addressing a variety of local reception problems. Thus it may be difficult logistically and require resourcing for information and assistance. It may only be capable of contemplation for relatively small areas, and perhaps one at a time.

Another possibility is that the analogue switch-off in adjacent areas may release frequencies allowing simulcasting to begin in areas previously not able to be covered. This presents the opportunity for a delayed simulcast period, thus potentially allowing a more orderly and economical change-over, even if the simulcast period is not as long as it would be in the generality of areas, nor at the same time. This has the drawback of complications in communicating what is going to happen in different areas, with different simulcast periods, switch-off dates, etc.

In either case, the ultimate effect would be to achieve digital off-air reception over wide areas without resorting to the potentially rather more expensive technologies detailed above. Policy issues which require addressing are whether special funding assistance might be available, as viewers would incur greater costs than in areas with a simulcast period, and there would be a specific local cost associated with managing the change. The government would be also have to be prepared to tolerate the likely localised chaos surrounding the such changeovers, probably resulting in a material proportion of the community losing television for a few days until they obtained advice on how to complete the change. On balance, this is a potential solution to the universality problem for small communities.

4.5. Summary

We first examined the ex ante efficiency of delivering universal television service into "fringe" communities, the approximately 5-10% of the population who currently have analogue television, but who are the most expensive to serve by this method. Taking into account the likely large value of spectrum in alternative uses, and in the absence of the use of wide area single frequency networks, we drew the following conclusions:

We examined the practical meaning of "universal service" and discovered that in practice it is in the gift of the Secretary of State and statutory boards to specify the extent of coverage given by broadcasting organisations. In practice this has resulted in high levels of coverage for the four main channels, though no individual has any right to reception even if they are in an area apparently covered.

The delivery of universal service by DTT, and supplementary technologies as appropriate, cannot as a matter of practicality provide an absolute guarantee that everyone will, as a minimum, continue to receive at least what they currently receive. However to be politically acceptable people who receive less than what they currently receive, or who otherwise experience material losses, should be isolated individual properties and small scattered settlements, rather than contiguous communities or regions.

The basic service should additionally be free-to-air, implying that the signal must be capable of being received without paying for the programme. We understand that where DTT is received, it is likely the customers will at least have the option of buying equipment and receiving free channels without any on-going financial relationship with a broadcaster, apart from the BBC’s licence fee. However subsidised equipment is only likely to be available if there is an agreement to subscribe to additional services.

Where the basic universal service is only available by other technologies, most likely satellite or MVDS, a continuing on-going financial relationship with a broadcaster seems inevitable, as the broadcaster will either necessarily use a conditional access system for copyright reasons, or have on-going maintenance costs to defray (or both). The question of whether this community will in practice have "free-to-air" requires thought, as it may imply that commercial broadcasters must have their supply conditions regulated in respect of the delivery of basic channels where DTT is not available.

Finally, we examined a number of alternative technologies for delivery of basic universal service into fringe areas:

Finally, we raised the possibility of overnight transfers from analogue to DTT, or reduced/delayed simulcast periods. Although presenting some logistical difficulties, these could be an entirely practical method of maintaining universal service in some fringe communities.

5.1. Introduction

5.1.1. General

This Appendix considers the technical delivery mechanisms available for the distribution of digital television programmes.

5.1.2. Structure of document

Section 2 explores the technical issues associated with the delivery of digital television programmes via terrestrial mechanisms. Sections 3, 4 and 5 examine alternative delivery mechanisms cable, satellite and MVDS respectively. Section 6 looks at technical approaches to meeting the universal coverage requirement. Section 7 explores ways in which to provide reception to a number of television sets in the same household.

5.2. Digital Terrestrial

5.2.1. Introduction

This section describes terrestrial delivery of digital television and examines the limitations on reception and the options for multiple set reception.

5.2.2. Description of delivery mechanism

DTT will be delivered via a network of land based transmitters. These tend to consist of two types of sites:

Main station sites are used to cover large geographical areas (typically 50 – 100 mile radius). Relay stations are used as in-fills to augment coverage in areas not served by main stations (either as a result of a black-spot in coverage or as an extension to areas outside the range of the main station). Normally a main station would have a direct programme feed from the programme source whilst relay stations rebroadcast the transmissions from the main station on a different frequency.

Reception of terrestrial transmissions usually takes place via a roof-mounted antenna. Occasionally, a non roof-mounted antenna may be used (e.g. loft or wall mounted). In strong signal areas, the use of set-top antennas is not uncommon. Other than for set-top antennas, it is unusual for a non-directional antenna to be used because directional antennas:

Other equipment such as a video recorder, satellite receiver or home games console may also be connected between the antenna and the television.

5.2.3. Type of population best served

At large distances (100 miles or more) other factors such as the atmosphere or ionosphere can cause effects but these are both sporadic and infrequent and in the main can be ignored.

Interference is a key factor as this can be caused by a number of possible sources. For existing analogue services, there are a number of channels (known as the ‘taboo’ channels) which, if a transmission is present, will cause degradation to the picture. Additionally, a transmission on the same channel as the wanted signal (co-channel) will cause interference. Planning of the television channels has traditionally attempted to avoid both co-channel and taboo channel transmissions in the same geographic area to reduce these problems, however occasional problems do occur.

In the digital arena, many of the problems associated with analogue television have been combated through the use of optimised modulation schemes. These modulation schemes allow the problems associated with reflections from buildings and other multipath effects to be minimised. In addition, more interference can be tolerated to digital transmissions and less received signal is required to produce a picture (given the same circumstances at the receiver).

Whilst the improvements associated with the move to digital transmission are many, the problems associated with rough terrain preventing reception remain. Terrestrial transmission therefore provides effective delivery to areas that are:

As such, terrestrial transmission is best suited to providing a service in conurbations, large cities and in flat rural areas. Hilly and mountainous areas require a larger number of relay stations although the number is less for digital transmission than is the case for analogue.

5.2.4. Limitations on reception

Apart from the physical limitations expressed in section 2.3, there are few other limitations on reception of terrestrial television transmissions. Other geographical features such as metal structures or tall tower blocks can cause reflections or black-spots in reception, however there does not necessarily need to be a direct line-of-sight between the transmitter and receiver. With digital transmissions, a certain amount of reflection can be tolerated and this will eliminate the need for some existing relay stations whose current purpose is to serve areas where the alternative transmission source is plagued by such reflections.

One factor affecting digital terrestrial that does not affect current analogue reception in the same way is that of signal degradation. The picture obtained on existing analogue services as the signal degrades deteriorates gracefully such that with a poor signal, a poor picture is received. Such a degradation in signal can come about over a matter of years (as an installation deteriorates), hours (in a bad storm) or minutes (when sporadic interference occurs).

Some viewers are willing to accept a poor picture. With digital transmission, however, either a picture will or will not be received. Such degradation in the signal will therefore leave viewers without a picture and it is possible that some viewers who currently receive a poor (but to them acceptable) signal will not be able to receive any digital transmissions at all.

It is worth noting that the sudden degradation in picture is a factor of all digital transmission media including cable, satellite and MVDS. For these latter services, however, it is unlikely that anyone would put up with a poor quality of reception, such as they might otherwise tolerate for terrestrial signals, as they are generally paying for the service.

The boundary at which ‘acceptable’ analogue pictures become ‘no picture at all’ for digital transmissions has not yet been accurately defined. Work by the BBC and NTL based on the existing test transmissions from Crystal Palace is attempting to determine where the threshold lies. Current (ITC) expectations are that where the proposed digital services are to be transmitted at the equivalent power level (digital transmissions typically require 50 times less transmitter power than analogue), those currently receiving an ‘acceptable’ picture will receive a digital picture with little difficulty.

In practice this should mean that viewer living in the area nominally served by Crystal Palace will continue to receive a service whereas those who live outside the coverage area and who currently receive a variable service will not. These latter viewers should be tuned to local relay stations but may be tuned to the transmissions from Crystal Palace in addition to their local relay station, in order to receive a choice of ITV programmes (e.g. Carlton and Meridian). Alternatively, they may not have realigned their antenna when the local relay station was commissioned.

5.2.5. Multiple set reception

Multiple set reception of terrestrial signals can be accommodated in a number of different ways. These include:

For all the above methods, however, each receiver will have to be DTT compatible, or have a DTT set top box attached, in order to receive the DTT transmissions.

A single set-top box will not allow reception on multiple sets in the same manner. In order to realise multiple set reception with a single set top box, the decoded output from the set top box needs to be distributed to each television receiver. Currently, the only viable mechanism to achieve this is using cable, although other methods may become possible in the future (see section 7).

5.2.6. Costs for completing national roll-out

Completing national roll-out of DTT services such that the qualifying services could be received by the same number of viewers that currently receive an analogue service could be tackled in a number of ways (as described in Section 4 of the main report). The two extremes of these approaches will be taken here to give a range of likely cost. Both approaches rely on modifications to relay stations only, as, following the roll-out of DTT to the 81 stations already planned, there are no main stations that remain without a DTT service.

The simplest, and cheapest approach would be to convert the existing analogue relays to carry digital multiplexes. This would allow either 4 or 5 of the six multiplexes to be received by each viewer, and would therefore be more than adequate for viewers to receive the qualifying services which are contained in just three of the multiplexes. It has been assumed that 25% of sites would not be able to be converted due to the age of the equipment and that new equipment would be required at these sites.

The most expensive approach would be to add three additional sets of relay equipment to each station to relay the three multiplexes containing the qualifying services in addition to the analogue services. This would ensure that each viewer received the qualifying services in both analogue and digital format. It should be noted that there may not be sufficient spectrum for three additional multiplexes to be added to each relay station even if single frequency network (SFN) approaches are taken.

It is assumed that, of the stations unaffected following roll-out to 81 stations, 1,000 will require digital services to be added. This would not include every relay station in the UK, as those stations whose sole purpose is to provide a picture in areas where ordinary reception is marred by reflections (ghosting) will not necessarily be needed in a digital arena.

The following calculations do not take account of any subsidy that may be given to viewers to purchase set top boxes or integrated digital televisions. It is assumed that such costs are borne by the viewer. It has also been assumed that each relay station will be able to receive a digital service off-air and that no further distribution infrastructure is required. The costs include (as appropriate) new equipment, conversion of equipment, antennas and other infrastructure upgrades and labour but excludes ongoing costs such as power and maintenance.

Table A5.1 below summarises the estimated cost for completing national roll-out for each of these options:

Scenario	Cost
Upgrading relay stations	�71.4 million
Installing new relay infrastructure	�87.5 million

5.2.7. Distribution of Programme Feeds to Relay Stations via Satellite

It is possible to distribute the (digital or analogue) programme feed to relay stations via satellite. This offers benefits in removing the need for off-air reception and therefore for relay stations that are at the end of ‘daisy chains’ (i.e. those which take programme feeds from other relay stations and not main stations) allows transmissions from intermediate relay stations to be switched off. These intermediate relay stations could only be switched off if other means to serve the viewers located within their coverage areas were used.

Where possible, daisy chaining of transmitter sites is avoided as the picture quality is reduced (albeit marginally) each time the signal is relayed. It is also possible that some of the intermediate relay stations also feed other daisy chained relay stations and hence could not be turned off unless feeds to these sites were also replaced with satellite. These factors reduce the number of intermediate relay stations that could be turned off and hence reduce the benefit offered by feeding remote relay stations via satellite.

The cost associated with converting an analogue relay station to carry analogue programmes via satellite is relatively small and could be done relatively simply. The cost of conversion to digital is, however, much greater. As it is the roll-out of DTT that we are considering these costs are important. The costs are made up of the following elements:

There is, however, no need to maintain the existing off-air receivers or their associated antennas however this is offset to a large extent by the need to maintain the satellite receivers and dish. It has been estimated that the cost of these modifications, per multiplex, is of order �15,000. For a four multiplex site, this totals �60,000 which would significantly increase the cost of converting the site to digital operation.

The above also assumes that the multiplex received via satellite does not require any form of localisation (i.e. inserts) and that it is in a form ready for re-modulation as a DTT multiplex (this is not the case for most existing satellite multiplexes). This would entail each multiplex containing a different ITV region to be transmitted as a separate multiplex or require a re-multiplexer at each transmitter site, again adding to the costs. These costs do not also include the cost of the satellite capacity (as it is assumed that the qualifying services will already be on satellite).

It is worth noting that as all of the stations we are considering currently receive pictures off-air, there would be no savings to be made in reducing the amount of distribution required, unless the main stations were also fed via satellite. In this, latter case, the savings in distribution costs would mostly offset the satellite transponder charges.

The cost of upgrading relay stations for satellite feeds is significant (if all 1,000 remaining relay stations were fed in this way, the national cost of conversion to digital would increase by �45 to �60 million). If other delivery mechanisms could be found for viewers living in those areas currently served by intermediate relays, then it is possible that additional spectrum (i.e. over and above that which could be made available by converting all relay stations to digital) could be cleared using this mechanism, however the amount of any such spectrum would be small.

Another method of providing a programme feed for each of the relay stations is by using fixed (microwave) links. This would offer the possibility of switching off intermediate relay stations in a daisy chain and again recouping the (small amount of) spectrum that these occupy.

Microwave links require a strict line-of-sight between nodes and (dependent on frequency) have a range of around 15 kilometres. Many relay stations are sited on high ground, hence the requirement for line-of-sight would usually, but not always, be met. However, the distances between stations is often greater than 15 km. As such, additional, intermediate, microwave link sites would need to be established. The cost of these sites (unless already in existence) would be of a similar order to a new relay station (certainly the civil works, mast, power, access elements would be of a similar magnitude). A more detailed assessment would be required to determine the number of additional link sites required and the amount of spectrum that would be freed. In general, however, the use of fixed links is likely to be less cost effective than traditional off-air feeds and as with using satellite to the last 10% of sites, does not actually allow significant amounts of spectrum to be reassigned. It is also worth noting that the number of links required and the bandwidth of these links is large and the use of such links could prove an uneconomical use of available microwave spectrum.

5.3. Cable

This section describes delivery of digital television via cable and examines the limitations on reception and the options for multiple set reception. It also outlines the methods available for returning data from the viewer to the cable head-end, a prerequisite to interactive services.

To deliver television programmes to viewers by cable, firstly all the required channels need to be assembled at a central site. Known as the cable head-end, these sites typically consist of a number of satellite receivers and, for terrestrial programmes, banks of antennas to receive programmes off-air.

Any scrambled channel is de-scrambled at the cable head-end and is then re-scrambled using the conditional access system used by the cable operator. This gives the cable operator control of access instead of the broadcaster.

Each channel to be transmitted on the cable network is modulated onto a frequency between 110 and 550 MHz (in much the same way as for terrestrial television). The combined channels along with FM radio signals between 88 and 108 MHz are then distributed via optic fibres to a number of street-side cabinets. One fibre typically supplies programmes to 500 homes. At the cabinet, the signal is retrieved from the fibre and distributed to each subscriber by means of coaxial cable.

Digital services will, at least initially, occupy frequencies in the system above 550 MHz. 97% of the installed cable networks have capacity for digital services between 550 and 750 MHz (25 channels), with 50% having additional channels between 750 and 860 MHz available (13 channels).

Two return paths are available via the cable. A simple telephone connection using standard copper pairs is fed to each house with the coaxial cable, this supports standard telephony services. A return path is also included on the coaxial cable which allows high bandwidth connections (up to 30 mb/s should be possible) back to the head-end. In each instance, the head-end also acts as a telephone exchange. 93% of networks have the high bandwidth return path installed with 77% operational.

Each viewer uses a set-top box which tunes to the required channel and then performs the necessary de-scrambling. The output from the set top box is modulated onto a standard television channel for reception by a standard television. The set top box must be connected directly to the cable, however, more than one box can be connected to the cable feeding an individual household.

In theory, any home can be connected via a cable to a head-end. The laying of fibre and cable is, however, costly and it is therefore uneconomic for cable companies to extend the roll-out of their networks beyond major population centres. Although each cable operator is obliged to meet targets for houses passed of around 90% of the franchise area, it is the more densely populated urban areas which tend to have a cable service available.

Due to the need for a direct connection between the receiver (set top box) and the cable, all connections must be physically wired. It is therefore difficult to modify the installation or add to it. Moving a television receiver to another room or putting in another television set requires the cable company’s’ engineers to visit and re-wire the installation. In most cases, the addition of a second set top box in an individual household does not incur the full subscription charges.

In rural areas, especially where distances between properties are large, the cost of installation of the cable infrastructure is large and in most cases, these areas are not cabled.

Each set requires a connection to the cable network and its own set top box, however beyond these physical limitations there are no other obstacles that preclude multiple set reception. The alternative mechanisms described for distributing the decoded output from the set top box to a number of televisions as described in section 7 provide further mechanisms for multiple set reception of cable.

The Cable Communications Association (CCA) claim that the cost of a digital cable set top box is �300. For viewers with an existing cable service, the cost of a digital upgrade would therefore be just �300. As the cable box is currently owned by the cable company and rented to subscribers, this cost would initially be borne by the cable company and recouped from subscribers over the longer-term via higher on-going costs. The CCA indicated that, in the future, it may be possible for viewers to purchase their own set top boxes but that for the moment, these would remain the property of the cable operators.

In areas that are not currently cabled, it would also be necessary to roll-out new infrastructure. The Cable Communications Association estimates that the average cost of laying cable per home passed is around �400. This figure comprises around �50 for the final drop, �245 for laying the fibre and �105 for the cable head-end and share of overheads.

In addition to the above, each cable head-end, of which there are approximately 150 nation-wide would require additional digital multiplexing equipment. For each multiplex, this is likely to cost around �50,000 (assuming that the source material on each multiplex was not being changed – i.e. that existing multiplexes from satellite or DTT were just being converted for use on cable). For a 25 multiplex system, this additional cost is therefore approximately �1.25 million.

5.4. Satellite

This section describes delivery of digital television via satellite and examines the limitations on reception and the options for multiple set reception.

Satellite transmissions are sent from a ground based uplink site (such as Goonhilly) to the appropriate satellite. From there they are radiated to the earth at microwave frequencies (around 12 GHz). The radiation pattern from a satellite is usually tailored to reach those viewers that the satellite was designed to cover. Early satellites limited their coverage area in order to conserve and make the most effective use of the limited, on-board transmitter power. More modern, more efficient satellites now cover much wider areas. Areas which would have previously proven difficult to reach due to their geographic isolation relative to other major population centres (such as the Highlands and Islands) now routinely form part of the coverage area of new European satellites.

A satellite reception system comprises four elements: a dish, a low noise block (LNB), a down-lead and a receiver. The dish focuses the received signal onto the LNB. This focussing effect narrows the beamwidth over which the dish will receive signals and also provides a significant amount of receive gain (10,000 times or more). For a 60 centimetre dish (typical of those used for Astra), the beamwidth of the dish is approximately 3 degrees and must therefore be aligned to the satellite with better than 1 degree accuracy if the maximum signal is to be received. Larger dishes offer greater gain but require even greater accuracy of alignment.

The LNB (low noise block) converts the microwave signals received from the satellite to lower frequencies which are capable of being transferred by coaxial cable (microwave signals are not). The down-lead connects the LNB to the receiver. Unlike for terrestrial reception, additional losses incurred in the down-lead can be tolerated by a satellite system more easily hence long cable runs are tenable. The receiver then tunes to the appropriate channel and performs the conditional access de-scrambling or decoding that is required. The decoded signal is then usually modulated onto a traditional television channel and enters a television in the same manner as a terrestrial signal. Using SCART connections, it is also possible to transfer the decoded video from the decoder directly to the television in a baseband (i.e. non-radio based) format. This bypasses the radio frequency stages in the television and, hence, potentially improves the picture quality.

Satellite coverage is available over very wide areas compared with other delivery mechanisms. At the edge of the coverage area larger dishes are required, however in the UK, at the extremes of coverage. For digital satellite reception a maximum dish size of 60 cm will be required. Minimum dish sizes in main coverage areas are likely to be of order 40 centimetres in diameter.

In theory, satellite signals are capable of being received at any household, however the dish must have a clear line-of-sight to the satellite which in the UK implies that a there must be a clear view to the south. Views can be blocked by other buildings, vegetation or any kind of structure. Satellite is therefore best suited to serving viewers in rural areas or those areas with relatively low population density such that a clear line-of-sight can be obtained. It can also provide reception in more densely populated areas but with an increasing chance (on an individual basis) that a viewer will not be able to receive a signal.

The key to satellite reception is that there must be a clear line-of-sight between the dish and the satellite. As the satellites sit in orbits directly above the equator, all are to the south when viewed from the UK. Depending upon the exact location of the satellite and of the receiver, the angle between the satellite and the horizon can be between 0 and about 40 degrees (the further north the receiver and the further from the Greenwich meridian the satellite is, the lower the elevation angle).

There are therefore a number of potential situations in which a viewer would not be able to receive programmes from a satellite:

Astra Marketing and BSkyB’s dish installers estimate that a maximum of 5 per cent of households would not be able to receive a satellite signal because of the lack of direct line of sight. Where planning restrictions limit reception SMATV systems must be installed.

In addition to physical limitations, satellite reception is also affected by meteorological factors such as rain, snow and fog. These reduce the received signal significantly but satellite operators usually specify receive systems to allow some margin in such conditions. In severe conditions however, all viewers lose picture. There are also certain times which occur annually where the sun is directly behind the position where the satellite is seen. The sun is a strong emitter of radio signals and when this occurs, receivers are swamped by solar noise. These occurrences, known as sun outages, are predictable and of relatively short duration (a maximum of about 10 minutes).

Reception of satellite programmes to more than one television can be accomplished in one of two ways:

The first of these methods allows each television to receive any of the programmes being received from the satellite. It does, however, require that each receiver have an appropriate subscription and hence is costly. The second solution only allows the additional television sets to view the same programme that is being received and decoded by the satellite receiver.

Completing the roll-out of digital television using satellite as the delivery mechanism would entail approximately 10% of households to be fitted with satellite equipment (it is assumed that following analogue closure, the coverage of the existing 81 DTT sites would reach 90% of households). The costs outlined below relate only to providing the qualifying services via satellite, these being:

Due to the coverage of satellites, it is unlikely that capacity could be saved by targeting regional programmes only at those regions which they are intended, hence capacity for 21 digital channels will be required.

The annual cost for uplinking and transponder capacity for the 21 channels is therefore approximately �10.4 million. It has been assumed that two full transponders are used and that the remaining channel can be transmitted as part of a third transponder multiplex. If there were insufficient other services to complete the third multiplex such that the whole third multiplex must be paid for, the annual cost would become �14.9 million.

The cost of the consumer equipment (dish, STB and installation) is not included in this sum, but at �400 per installation for 2.3m households would come to a total of �920 million.

5.5. Multi-Point Video Distribution System

The ITC have been allocated spectrum between 40.5 and 42.5 GHz by the RA to allow existing cable franchisees to extend their coverage by radio. As yet, no operators have chosen to augment their coverage by this mechanism but two, Eurobell and the Convergence Group are conducting trials in west Kent and Haywards Heath respectively.

This section describes delivery of digital television using MVDS and examines the limitations on reception and the options for multiple set reception.

MVDS allows television pictures to be distributed to a number of homes in a small locality using microwave frequencies. Each home must be within a strict line-of-sight to the transmission site which is usually atop a large tower located centrally to the community that it is serving. An MVDS operator will require a head-end system similar to that used by cable operators to collect and assemble programmes for transmission. These must then be distributed to the transmission sites which then transmit the pictures to viewers using microwave frequencies. Each site transmits all the channels that can be received with conditional access being performed at the receive end.

The frequencies used for MVDS are subject to considerable attenuation by the atmosphere hence the range of a transmission site is limited to a few kilometres (5-10 km at best). Rain, snow and other meteorological factors can severely affect reception hence the range is usually limited further (to say 3-5 km) to ensure a continued service in the event of such weather.

The receiver installation is similar to that for satellite, indeed much of the actual hardware is common between the two. A small dish, usually mounted at roof level, faces the transmission site. There must be a strict line-of-site between the receiver and the transmission site as at the frequencies used, any obstacle will block the transmission path. The dish downconverts the microwave signals to frequencies that can then be transferred to the receiver using standard coaxial cable.

A set top box, which is exactly the same as a digital satellite set top box, receives the MVDS signals and performs any conditional access and de-scrambling required before re-coding the signal in a format suitable for reception on a traditional television receiver.

Due to the need for strict line-of-site paths and the limitations in range, MVDS is best suited to urban and suburban areas. MVDS is also well suited to providing a service to a number of viewers in close proximity such as small (geographical) villages. In each case, however, there must be a transmission site available that provides a line of site path to each viewer and this must be close to the intended service area. Tall office buildings, water towers or churches would make good MVDS transmission sites. It is unlikely that a mountain or hill top transmission site, such as currently used for self-help systems could be used due to their physical distance from the communities they serve.

Beyond the need for a short, line of sight path, the main limitation of MVDS lies with the transmission rather than reception. Each transmission site must have a feed of all the programmes to be transmitted. In most cases this will require a high bandwidth feed to accommodate the number of programmes and as there is unlikely to be sufficient radio spectrum available for such a feed, a cable or fibre to the site would be required. The laying of such a feed to rural sites may preclude the use of MVDS for remote communities.

As the set top box used to receive MVDS signals is identical to that used for satellite, the methods capable of being used to distribute the signal to multiple sets are the same. Namely, the output from the dish can be fed to a number of receivers or the decoded output from the set top box can be fed (via cables) to another television receiver.

Each MVDS transmitter site has 32 frequencies, capable of carrying a multiplex of 10 channels. At any given site it would be necessary to carry the 5 services (BBC1, BBC2, ITV, Channel 4 and Channel 5) meaning that one multiplex could carry the qualifying services. In dense urban areas MVDS transmitter sites can reach up to 5,000 households. In rural areas, due to the restriction in range, it is more likely that the maximum number of households covered would be 1,000. Assuming the lower end of these estimates, the MVDS cost per subscriber passed is as follows:

A Study to Estimate the Economic Impact of Government Policies Towards Digital Television

APPENDICES

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