Appendices DTT

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

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:

5.6. Universality - How Could it be Achieved?

Based on the initial roll-out plans for digital terrestrial television, approximately 90% of the UK population will receive some service (not all of these will receive all six multiplexes). This section looks at how expansion beyond this initial 90% could be achieved, both by the expansion of DTT and using other delivery mechanisms.

It has been estimated that there is sufficient spectrum available in the UK to allow up to around 120 transmitter sites to simulcast analogue and digital television. With this many sites, it is likely that around 93-94% of the UK population would receive a digital service (for the BBC/ITV multiplexes, SDN’s multiplex and potentially BDB’s multiplex B). Given the large number of small relay stations in the UK (upwards of 1000), even with twice the spectrum than is currently available, it is unlikely that the full six multiplexes could be transmitted to each and every viewer. Limitations on expansion beyond that currently possible come from several drivers:

Existing relay stations (whether physically in existence or those available commercially off-the-shelf) are capable of receiving and relaying DTT transmissions. Therefore, the cost of rolling out additional network infrastructure where programmes on the relays are the same as that available off-air is small and is certainly understood. Where additional insert points are required (for local news or commercials), the digital signal must be de-multiplexed and then re-multiplexed and re-modulated to incorporate the local opt-outs.

For services such as BDB and SDN where the level of localised programming is small, the cost of roll-out of additional infrastructure is therefore smaller than for services such as Channel 3 and 4 or the BBC who would require additional multiplexing and modulating equipment.

The main constraint, however, is that of spectrum availability. It is clear that without the closure of some analogue television transmitters, coverage of digital terrestrial can not extend much beyond 94% of the population.

Based on the coverage maps provided in the Invitation to Apply for Multiplex Service Licenses, it is evident that the majority of the coverage provided by DTT is in urban areas with coverage extending to some rural areas, mostly where terrain is even. The main holes in coverage are in hilly, rural areas such as central Wales, northern Scotland, the Scottish islands, the Borders, the Channel Islands, Derbyshire, Cumbria and the north Pennines. Additionally, coverage of some coastal areas including Dorset, Hampshire, Sussex and Kent on the south coast and Norfolk and North Yorkshire on the east coast are poor for multiplexes C and D.

Extending coverage beyond the existing planned 90% or the maximum potential 94% for digital services without closing analogue services would therefore have to rely on other delivery mechanisms. These could include cable, satellite or MVDS.

Existing cable franchises, in the main, cover urban areas. Indeed, the franchises let as of June 1996 and as shown on the ITC’s cable franchise area map, map almost one-to-one onto areas that are likely to receive a digital service. There are a few exceptions such as the south coast and Northern Ireland, but in general it is not expected that cable will be able to significantly supplement digital coverage.

Even if cable franchises were awarded in the areas most likely to be devoid of terrestrial digital coverage, the cost of rolling-out cable to remote rural communities, especially in hilly areas is likely to prove prohibitive.

Given the wide area coverage provided by satellite, providing digital services to the UK in this manner would, in theory, fill in coverage in most, if not all areas that would otherwise not have a digital service. However, there are limitations to reception (as highlighted in section 4.4) so that there may be a small number of households within the satellite’s footprint that will still be unable to receive a service (around 5%). This may be especially true in valleys running east-west where the view of the sky to the south is blocked and in areas with forest where the view could be blocked by trees.

Despite the potential difficulties, satellite transmission does provide a technical delivery mechanism that could usefully be used to augment digital terrestrial transmissions.

MVDS offers a possible replacement for existing low powered television relays, having similar technical characteristics. It could also provide a feasible solution to augmenting digital television coverage in small, closely situated communities, especially if the frequencies were made available for self-help schemes in addition to cable franchisees.

Whilst the transmission of programmes using MVDS is feasible, the distribution of programme material to the MVDS transmitter sites remains a problem. For example, if a hill top site were used to receive the digital multiplexes off-air, it is likely that this site would be too distant from the potential viewers for an MVDS site to provide coverage. A cabled feed is likely to prove too expensive. The most favourable solution therefore would be to feed remote MVDS transmitters via satellite. Such a satellite transmission would not need to be of sufficient power for direct-to-home (DTH) reception, and may already be being used for feeding terrestrial transmission sites.

MVDS could, potentially, provide a solution to augment digital television coverage to small, closely located communities should the necessary programme feeds be available.

The most suitable methods for expanding coverage of digital services beyond that provided by the initial 81 sites (and possible expansions to 120 sites) are:

In favour of this approach is that the set top boxes for both MVDS and satellite digital transmissions are identical and hence costs can be kept lower. Additionally, the conversion of satellite signals for transmission via MVDS would not be technically complex as the transmission format is also the same. To enable the use of MVDS for such coverage enhancement, however, the frequencies available for MVDS would need to be released for more general use, as they are currently only licensable by existing cable franchisees.

Although cable offers a third potential mechanism, much of the area covered by UK cable franchises corresponds to that where terrestrial digital coverage will be available.

5.7. Options for multiple set reception

Many of the distribution mechanisms described above require that each television receiver is connected to a set top box which performs the conditional access and any de-scrambling or decoding required. As such, each receiver would require its own subscription, increasing cost. Viewers may feel that so long as they have paid for their subscription they should be allowed to view the programmes on any of the televisions within their house hence a method to distribute the decoded pictures to a number of other sets would be required.

It should be noted that any solution that allows multiple set reception of a programme decoded by a set top box would only allow the channel being currently decoded by the set top box to be viewed. That is to say, one could not watch one programme on one set whilst watching a different programme on another.

In areas where the DTT signal is strong, and when DTT compliant receivers are the norm, multiple set reception of DTT is made simple by the use of set top antennas and each set could, in practice, show a different channel. However, multiple subscriptions would still be required.

One mechanism currently used by households to enable multiple set reception of programmes distributed by delivery mechanisms that require individual set top boxes (such as cable, satellite and MVDS) are ‘video senders’. These, currently unlicensable devices, take the decoded output of the set top box and act as a low powered transmitter, sending the programme to any television set tuned to the appropriate transmit channel.

The range of such transmitters is limited by the power of the transmitter and as those on sale are illegally imported or manufactured, little attention is paid to limiting the transmitter power. Indeed the increased range provided by excessive power is a major sales driver.

Not only are there insufficient channels to allow each household to have such a device, there is enormous potential for interference to be caused both to other unlicensed transmitters and, more importantly, to legitimate television transmitters. Were widespread use of video senders to become the norm for multiple set reception, the problem of interference would escalate and stricter control of their sale (it is not illegal to sell the devices, only to operate them) would be necessary.

Video senders do not represent a viable solution to multiple set reception in their current form and it is not anticipated that they will or should become legal.

Another solution to multiple set reception is to ensure that the decoded output from a set-top box can be distributed to other television sets in a house by means of coaxial cable. It is not yet common practice when wiring houses to include a number of coaxial outlets alongside mains electricity outlets. With the increased use of media that require wired connections in the home (such as telephones and computers) it may not be long before this becomes normal in new homes and in homes being re-wired. In older houses where re-wiring is not required it may, however, take a significant length of time for the extra wiring to be incorporated.

Developments currently taking place to allow high bandwidth data to be transferred over standard copper telephone lines (digital subscriber loop, DSL) could offer another wired solution that does not require a home to be rewired. A modified DSL solution could allow data to be transferred over existing electrical wiring (as some intercom systems currently do). The decoded data stream could be modulated onto a number of radio frequency carriers and this then injected into the household electricity wiring. Receivers connected to electricity outlets would de-modulate the signal and reproduce the data stream. Household intercoms based on a simplified version of this transfer mechanism have been available for many years.

Suitable digital encoders and decoders would be required to allow this solution to distribute video, however for digital television receivers with suitable (MPEG) interfaces, this may not be a major drawback.

Wireless solutions are more complex as there is an inevitable problem of finding sufficient spectrum to allow each household to distribute television pictures to all its sets. Wireless distribution could only become a possibility if methods to re-use the same spectrum in each house could be found. Such methods are beginning to be developed for applications such as wireless local area networks (wireless LANs) whereby computers are interconnected via radio.

Wireless LANs use complex modulation techniques such as direct sequence and frequency hopping spread spectrum to mitigate interference effects and allow the available spectrum to be re-used by a large number of users. Harris, an American semiconductors and equipment manufacturer, has conducted trials of the use of wireless LANs to distribute pictures from closed circuit television (CCTV) cameras and should there be sufficient commercial drive, their use for household video distribution could become a possibility. Wireless LANs are only suited to the distribution of digital data hence some form of digital encoder and decoder would, as with a DSL solution, be required.

Other than for such a time when the majority television receivers owned are DTT compatible, it is clear that there is no single, simple solution to multiple set reception. Most potential solutions require some form of digital encoding and decoding to distribute programmes from the set top box or television receiver to other televisions in the household and at the moment, such devices are expensive (over �1,000 for devices capable of reproducing PAL quality pictures).

Advances in digital technology that will come about through the introduction of digital television and from the telecommunications industry (such as cheaper MPEG coders and decoders and low cost DSL chip sets) are likely to lead to cost effective solutions.

Appendix 6. market environment

6.1. Introduction

This paper considers the market environment in which DTT will operate. It is structured in two parts. The first part describes the evolving market structure of the broadcasting industry and outlines the range activities involved in the provision of television services to the home. The second part considers the likely impact of the market strategies of the key players in the digital environment taking into account their stated intentions and their incentives for promoting the rapid roll-out of DTT.

6.2. Market Structure

A useful way of thinking about market structure in the broadcasting industry is to divide the range of activities involved in the provision of a television service to the home into four basic stages: content creation, service provision, delivery networks and consume premises equipment. The exact nature of each stage and the range and number of players involved changes as we move from the free-to-air to the pay-TV and digital environments.

In the simplest case of free-to-air terrestrial broadcasting the four stages of production and the players involved at each stage are as shown in Figure 1a. Content is provided by a range of providers including the production unit of a vertically integrated broadcaster and other organisations such as film studios and independent television producers. The broadcaster takes this content and packages it into a channel. The channels are then delivered to the home via the terrestrial transmission provider which may or may not be owned by the broadcaster. Television pictures are then watched in the home via reception over roof-top or set-top aerials.

Moving to the provision of multichannel pay-TV services over (analogue) cable and satellite networks introduces a further level of complexity to the four stages of production. This is illustrated in Figure 1b.

The initial three stages are largely the same as those for free-to-air services, the main difference comes with consumer premises equipment. Viewers must obtain a set-top box (STB) in order to receive and decode cable and satellite signals. The cable STB is generally a dedicated piece of equipment which can only be rented from the local cable operator. In contrast, satellite STBs are available on the open market and are available for rental and for purchase. The initial price of satellite reception equipment is often "subsidised" by BSkyB subject to the viewer committing to subscribe to its service package for a minimum 12 month period.

If pay-TV services are to be profitable, then it is essential that access to them is confined to those users who have paid for the service. Since cable is a switched network, access to services can be simply and directly controlled by the cable operator. In the case of satellite, access to services is controlled through the conditional access system (CAS). The CAS scrambles the satellite TV signal at transmission and decodes it at viewers’ premises via a piece of electronic hardware located in the STB. The relationship between the subscriber and the broadcaster is managed by the Subscriber Management System (SMS). Requests for access to particular services, customer billing and the maintaining of a record of who is authorised to receive services are all undertaken by the SMS.

A gateway of some sort is a necessity for the provision of pay-TV services. Without one, it would be impossible to exclude viewers who had not paid for the service. If, however, there are only a few gateways then their owners may have a degree of monopoly power. There are strong grounds to expect that only one gateway per delivery medium will emerge. In the UK analogue pay-TV market, for example, there are effectively only two gateways one cable, one satellite. In the case of cable, there are significant scale economies which favour a single local cable provider. For satellite (and in the future for DTT) the root of the problem is that the CAS has elements of a bottleneck facility including:

Together these two features suggest that the first STB provider into the market will control an important gateway and thus may win a huge advantage over rival providers. These problems may be compounded if, as in the case of BSkyB, the controller of the gateway to the subscriber is also the main programme provider.

The transition to digital will have little impact on the basic structure of the cable and satellite industry other than increasing the number of channels and adding new types of content provider given digital’s data capabilities. Viewers will require new digital STBs in order to receive and decode the signals. A new (or repositioned) satellite dish will also be required since BSkyB plans to launch its digital services using Astra satellites 2a and 2b which are located in a different orbital slot to the existing analogue Astra satellites.

Digital technology will perhaps have its greatest impact on the nature of terrestrial broadcasting in the UK. The new structure is shown in Figure 1c. In order to receive DTT, viewers will require a digital STB or an integrated digital receiver (iDTV). DTT will also encompass the functions of CAS and SMS as currently found in the analogue pay-TV markets.

Each of the 8 MHz blocks of spectrum allocated to DTT is to be managed by a multiplex operator. The role of the multiplex operator is to co-ordinate the provision of content (from broadcasters and others) over the multiplex. The transmission function is contracted out to one of the two transmission providers NTL and Castle Transmissions.

BBC and ITV/Channel 4 have each been allocated a multiplex which they plan to operate themselves. Part of this multiplex capacity must be used to simulcast existing analogue services but they are free to develop new services (free-to-air or pay) in the remainder of the multiplex. The other four multiplexes were the subject of a competitive tender process administered by the ITC. While in theory there was nothing to prevent a third party from becoming a multiplex provider, in practice the main shareholders of the winning BDB bid for multiplexes B,C and D, Carlton and Granada are also its biggest programme providers. Multiplex A, which must carry the simulcast services of Channel 5 and (in Wales) S4C, attracted only a single bidder the S4C led SDN.

Again in theory there is nothing to prevent each multiplex provider from operating their own CAS and SMS systems, although in practice there are strong incentives for them to cooperate in using a single system. In the event, it appears likely that the incumbent broadcasters will, initially at least and subject to suitable safeguards over access, use the system selected by BDB.

The major players in DTT (multiplex operators, broadcasters and other service providers, retailers and equipment manufacturers) all have a roll to play in promoting the take-up of services. To a large extent all players share a common interest in the success of the medium, although the relative strength of their incentives will depend in part on the importance of DTT revenues relative to other revenue streams.

While for the most part the various players will be in competition with one and other for new digital equipment sales, subscription revenues and so on, there are a number of areas for which industry cooperation will be important. In many cases this may make economic sense allowing economies of scale and scope to be realised. In others it may be essential on technical grounds. The key areas for which cooperation between industry players will be important include:

Much of the basic work has already been completed, first within the European Digital Video Broadcasting Group (DVB) and more recently within the UK Digital TV Group. A number of key areas, however, remain to be resolved before STBs and digital receivers can be made commercially available. Outstanding issues include:

Higher manufacturing costs mean that early digital equipment will be produced at a premium to existing analogue equivalents. Analogue satellite STB’s currently retail on average at around �100, before any subsidy linked to subscription to pay services. It has been estimated that the retail price of the first digital STBs, without any subsidy, could be as high as �400-�450 implying a "digital premium" of between �300-�350. This premium will fall over time as increased production volumes allow economies of scale to be realised and as manufacturers become more familiar with the new technology. There remains, however, a real danger, that the high initial price of digital equipment could prove a significant barrier to consumer take-up.

One way of overcoming this problem is to subsidise the initial price of digital reception equipment in order to stimulate early sales. The major difficulty in co-ordinating subsidy arrangements is that of free-riding in that players not providing subsidy cannot easily be excluded from benefiting from the longer-term stimulation of the market. A common method for avoiding the problems of free-riding is to recoup the subsidy from payments to linked service for which the player is able to exercise a degree of market power. Thus, for example, a discount on a STB will need to be made conditional on the consumer subscribing to pay services for a minimum time period.

There are strong incentives for industry to cooperate in promoting public awareness of the availability and benefits of DTT. This will allow economies of scale and scope in marketing expenditures and avoid creating unnecessary confusion in the minds of consumers. There will, however, be competition in the marketing of consumer equipment across different brands and in pay services.

Much of the broadcasting industry will, however, face mixed incentives in the promotion of DTT alongside their existing analogue business. The new transmission medium will represent some cannibalisation of existing analogue revenues. In this regard the announcement of an analogue closure date would have a powerful impact in focusing marketing efforts behind DTT.

DTT transmissions may, in some instances, cause interference to existing analogue services. In such cases the multiplex operator is obliged (under its licence) to fund the necessary engineering work at the transmitter site and at the viewer’s home, if necessary, to restore the analogue service. Difficulties in assigning responsibility to a particular multiplex operator mean that it will be necessary for the operators to design a mechanism for sharing the responsibility (and costs) for resolving interference problems.

If universal service is to be maintained, then it will be necessary to devise a mechanism for extending coverage to the final 5-10% of the population not served under existing DTT roll-out plans. Doing so terrestrially will be difficult and expensive, not only in terms of the required investment in infrastructure but also in terms of the additional spectrum used. The use of alternative delivery media is another possibility but is subject to its own set of problems including:

Multiplex operators lie at the heart of plans for the development of DTT. BDB can be expected to assume the lead role since its business depends largely on the success of this transmission medium. The other multiplex operators have more mixed incentives since DTT will represent some cannibalisation of revenues from existing (highly profitable) analogue business.

The major unresolved areas which concern the provision of the front-end between services and the consumer. Two areas are of particular note, although in each case we would expect that agreement will be reached between multiplex operators given the advantages of a common solution. The two areas are:

BDB’s licence application contains a commitment to promote or assist the acquisition of digital reception equipment. BDB proposals include:

It is expected that further discounts on the retail price of STBs will be available subject to a minimum period of subscription to BDB services, although such details are not contained within the public part of their licence application. The issue of lock-in raises a number of competition issues and will be the subject of Oftel guidelines due to be published later this year. Some indication of Oftel’s likely approach can be gained from the mobile telephony market, where the practice of offering subsidised (and even free) handsets subject to minimum subscription periods is widespread. Following a review, Oftel imposed a 12 month maximum to such lock-in periods and acted to reduce the costs of terminating subscription contracts.

Given BDB’s commitment to subsidise STBs, the other multiplex operators would appear to have no obvious incentive to provide additional subsidises. Their licence applications contain no commitment for the subsidy of reception equipment and the operators have subsequently confirmed that they have no plans to do so. The only exception to this arise incidentally through the other multiplex operators’ use of BDB’s CAS for pay services. The price of access to the CAS will contain an element reflecting the recovery of the subsidy.

BDB has also been involved in discussions with other multiplex operators about coordinating general marketing and awareness campaigns. Digital 3 and 4 and the ITV companies, for example, plan to broadcast up to one minute a day of DTT promotions. The BBC is also likely to pursue similar cross-promotional activity.

The multiplex operators have agreed in principle to share the costs of resolving interference problems, although we understand that the operational details of the agreement have yet to be finalised.

The main problem is that none of the multiplex operators has a financial incentive to extend DTT coverage, although the BBC may feel required to do so under its general public service obligations. For the most part ensuring universal coverage will require some form of government action. There are essentially two alternatives:

6.4. Broadcasters/Service Providers

For broadcasters not connected to the multiplex operators, DTT will represent some cannibalisation of existing revenues as digital viewing displaces analogue. The new opportunities to sell programming created by digital may partially offset this revenue loss but in general they are likely to be less enthusiastic about DTT than the multiplex providers.

DTT’s multimedia capabilities may also present opportunities for a new range of information and entertainment content providers. The rapid growth of the Internet would appear to indicate that there is significant consumer demand for such services. Considerable uncertainty remains, whoever, as to whether the TV provides the best means for accessing such services and exactly how much consumers are willing to pay.

Additional services, other than an EPG, do not form part of BDB proposals for the initial roll-out of services. First generation STBs marketed by BDB will therefore not have full additional services functionality. BDB has, however, indicated its willingness to work with third parties in developing the next generation of STBs. It is also possible that a third party might independently seek to develop and market second generation STBs and integrated digital receivers.

It is possible that providers of additional services might participate in STB subsidies on the strength of future projected revenue streams. BIB plans to subsidise the cost of DSAT STBs so that these retail at �200 each. The consumer will only be required to plug the box into a telephone socket in order to receive the subsidy.

For retailers, DTT will represent some cannibalisation of their existing revenues as digital TV set and STB sales will displace analogue equipment sales. The introduction of digital could, however, shorten replacement cycles giving added stimulus to revenues in what is otherwise a mature segment of the consumer electronics industry. The transition to digital will also stimulate related markets for digital VCRs and camcorders. Digital equipment will be of higher value added than analogue sets (potentially allowing higher margins).

Other than perhaps providing guidance on the features likely to appeal to consumers, retailers have no direct role in determining the specification of consumer equipment.

It would appear unlikely that retailers will directly subsidise the initial price of digital receiving equipment since there is no obvious mechanism for excluding retailers who do not contribute to the subsidy from sharing in the longer-term benefits of growing the market.

Retailers have a clear incentive to help promote DTT and participate in coordinated marketing campaigns in order to raise public awareness of DTT and to stimulate sales.

BDB has held discussions with the major retailing groups to ensure that adequate stocks of equipment will be in stores and for sale attractive prices. Based on these discussions, BDB estimates that a total of 5,500 outlets will stock DTT receiving equipment within the transmission areas at the time of launch of the service.

Manufacturers face similar incentives to retailers in that DTT will represent some cannibalisation of their existing revenues as digital sales displace analogue ones. The transition to digital may, however, shorten replacement cycles and will stimulate new digital VCR and camcorder sales. Digital equipment will also be of higher value added than analogue potentially allowing higher margins. For these reasons, manufacturers appear to be generally supportive of the transition to DTT.

During the course of our industry interviews, manufacturers have indicated that they regard the announcement of an analogue closure date as an important factor in gaining industry commitment to promote digital rather than analogue set production. On the whole they would prefer an early announcement of a closure date even if this meant a slightly longer transition period.

Once again problems of free-riding make it unlikely that manufacturers will subsidise initial equipment costs in order to stimulate the market. Also as the retail price depends largely on consumer demand, there is no assurance that a manufacturers subsidy would not be assimilated by those further up the production chain. Our discussions with industry have, however, suggested that manufacturers will be willing to purse an aggressive pricing strategy basing prices on expected production volumes over a longer period (say 18 months). They may also contribute to the general marketing and awareness campaigns.

The key to reducing manufacturing costs will be the realisation of scale economies. In this regard, a number of issues are significant:

6.5. Summary

Co-ordination between multiplex operators will be essential to the successful start and roll-out of DTT services. Co-operation is being facilitated through the Dmux Group. The main outstanding issues to be resolved are:

The other key players at present are the manufacturers. They are supporting DTT to the extent that they are setting initial prices for DTT sets at a level implied by their forecasts of set sales after 18 months of sales. DTT sets are expected to enter the market at an early stage however they are expected to be at a significant price premium and so are only likely to be attractive to early technology adopters. Digital VCRs should be available within 2 years. Manufacturers (and mux operators) would like an early announcement of a shutdown date in order to feel confident in fully supporting digital rather than analogue services.

Appendix 7. extending dtt coverage and spectrum recovery

This paper assesses options for shutting down analogue terrestrial transmission by extending DTT coverage and creating contiguous blocks of spectrum for DTT and other services in what is currently the UHF TV spectrum.

There is insufficient spectrum to roll-out the six digital multiplexes beyond approximately 120 transmitter sites. Indeed there are already some transmitter sites in the existing plan that do not have space for multiplexes C and D. The only way in which digital terrestrial television could be rolled-out beyond 120 sites would be to free up spectrum from existing analogue services to be re-used for expanding digital coverage. Even if digital coverage were to be expanded by other delivery mechanisms (such as satellite or MVDS), there is a desire to switch off analogue transmissions in order to free spectrum for other services.

This section looks at ways in which analogue transmissions could be switched-off to make additional spectrum available.

The approach taken to the initial roll-out of digital terrestrial television is to simulcast existing analogue programmes on the digital multiplexes. This allows viewers to transfer from analogue to digital at a time to suit them and certainly allows the purchase of a new television set to be driven by purchasing constraints instead of technical ones. Were each and every household to have a dual analogue-digital compatible television set, a ‘big bang’ change from analogue to digital transmission could be made overnight without a noticeable change to viewers.

There are therefore three approaches to the roll-out of digital terrestrial services:

Within these options, there are a number of possible variants. These are described in the following sections.

In order to facilitate the description of the various analogue switch-off approaches, it is worthwhile to develop a simple scenario. This scenario will allow better understanding of the approaches and will enable more simple and direct comparisons.

The scenario we shall use is this: A main transmitter site (e.g. Crystal Palace) is transmitting both the five analogue programmes and the six digital multiplexes. Within and around the coverage of the main station there are a number of relay stations. Each of these is already relaying four (or in some cases, five) of the analogue programmes. One (or more) relay is also re-transmitting the digital multiplexes. There is insufficient spectrum to allow any of the remaining relay stations to simulcast the analogue and digital programmes. Figure 6.1 below demonstrates the scenario.

In figure 6.1, the main station is transmitting all five analogue channels plus all six multiplexes. Relay station one is re-transmitting all the programmes from the main station. Relay station two is only re-transmitting the five analogue channels whilst the remaining relay stations (3 and 4) are only transmitting four of the five analogue channels.

In order to maintain a simulcast approach, the core services need to be available in an area in a digital form for a length of time prior to the closure of analogue services. In the scenario described above, relay stations 2, 3 and 4 would each need to have the five core services available to viewers digitally in addition to analogue services. Clearly there is insufficient spectrum to allow all six multiplexes to be transmitted at these sites in addition to the analogue services. Dependent upon the number of spare channels which could be found for use on those relay stations, the following three options are available:

With either of the above three options in operation, viewers in each of the areas served by the relay stations would then have both an analogue and a digital service available and would be able to purchase a new digital television set at any time.

It is worth noting that viewers will only be able to enjoy the simulcasts of analogue and digital programmes whilst both sets of transmission are available from the main station site. Following the closure of analogue transmissions from the main station site, either viewers would lose analogue service from all the associated relay stations or an alternative relay mechanisms as described below could be used.

Whilst considering simulcast approaches, it is worth investigating a further option which could speed the purchase of digital receivers. If the analogue service were allowed to deteriorate in an area where digital services were available, this would encourage viewers to purchase digital receivers. Such a deterioration could be deliberate (i.e. a reduction in analogue transmitter power), incidental (i.e. as a result of increased interference due to the commissioning of new digital transmitters) or accidental (due to decreasing maintenance regimes on analogue transmitters).

The idea of incidental interference caused by local digital transmissions is interesting as in this instance, the viewer is likely to be in a position to receive a digital service. Such ‘allowable’ interference could be brought about by a change in the planning criteria for television. Currently coverage is planned to allow interference to occur on no more than 1% of occasions, this could be relaxed to 5% and still remain within CEPT guidelines. If such a reduction in service quality were effected when digital penetration had reached over 50%, then the minority of viewers would be disenfranchised rather than the majority.

An approach whereby analogue transmitters (in particular relays) are converted to digital, effectively overnight, would require that each of the viewers affected has at least one digital compliant receiver. To ensure a continued service, it also requires that these receivers are also analogue compatible. It is understood that most existing analogue relay stations, can, with minor modifications, be made to relay digital transmissions. The exact proportion for which a minor modification is required as opposed to a more serious change is unknown, however it is older transmitters that would require a more major change, hence it is expected that the proportion will diminish gradually.

The approach itself is relatively simple. Each of the relay stations currently transmitting analogue programmes would be converted to carry digital programmes instead. The planning procedures drawn up in Chester in 1997 allow a channel carrying existing analogue programmes to convert to digital carriage with no further planning required, hence this could be done without the need for international co-ordination.

In the example shown in figure 6.1, viewers in the area served by relay station 2 would have five of the six multiplexes available to them, whereas those in areas served by relay stations 3 and 4 would only have four multiplexes available.

This approach could be the logical conclusion to any of the simulcast approaches described in the previous section. Once the period of simulcasting had come to an end, each of the analogue relays could be converted to digital. As a digital service would already be in existence (between one and three multiplexes depending on the approach), viewers served by the relay stations would then have access to a larger number of the six planned multiplexes.

Should it prove cost effective, or otherwise sensible, to continue the roll-out of digital services using other delivery mechanisms (such as satellite or MVDS), all that may be required is that existing analogue services on existing relay stations continue to provide the core services in an analogue format. This would entail no change in the service offered from relay stations 2, 3 and 4.

Obviously, there is still a need to clear some spectrum for other uses, hence it would be advisable to switch-off the analogue service from the main station (and, in the above scenario, relay station 1). Switching-off analogue services from the main station, however, would remove the analogue feed from the relay stations. What is required, therefore, is a set of digital decoders at each of the relay stations which reconstitute the digital signals in an analogue format for re-transmission. Such digital to analogue converters would contain exactly the same elements as a set top box, hence the cost should be relatively low. One possible problem with this approach is that Teletext service may be lost, however, it is understood that set top boxes with mechanisms to re-insert Teletext may become available.

With the relay stations relaying analogue versions of the digital multiplexes, the analogue transmission from the main station could be switched-off with no loss of service to viewers in the area served by any of the non-digital relay stations.

All of the above options would allow some analogue transmissions to be switched-off, although the exact amount of spectrum cleared varies. Each offers viewers a different service ranging from four or five multiplexes to continued analogue service. In the long term, all except the no further roll-out option offer viewers at least some digital services.

The following table summarises the various options available to enable analogue transmissions to be closed. It has been assumed that the maximum number of multiplexes available is six, however with the spectrum released, this may change and each option may need to be reviewed were new services to be instigated. Where reference is made to a dual mode receiver, this could alternatively represent an analogue receiver with a set top box.

The equipment required by viewer indicates that which is required in order for the viewer to receive a service both before and after the addition of digital services. In the limit, where analogue transmissions are turned off, each viewer will require either a dual-mode or a digital receiver (the exception is for the no further roll-our method where a standard analogue receiver would continue to operate).

Switch-off method	Service received by viewer of relay station	Equipment required by viewer	Relative cost to implement	Spectrum implications
Simulcast three multiplexes containing core services	Initially analogue channels plus at least three existing digital multiplexes. Later, up to six multiplexes	Analogue, digital or dual-mode receiver	Medium	Difficult to find spectrum to implement initially but releases significant spectrum.
Simulcast a single multiplex containing core services (generated at relay station)	Analogue channels plus a single multiplex containing core services. Later, up to six multiplexes	Analogue, digital or dual-mode receiver	High	Relatively easy to find spectrum to implement and releases significant spectrum.
Simulcast a single multiplex containing core services (generated at main station)	Analogue channels plus a single multiplex containing core services. Later up to six multiplexes	Analogue, digital or dual-mode receiver	Medium	Moderately easy to find spectrum to implement and releases significant spectrum.
Analogue to digital conversion	Analogue channels only until change-over then 4 or 5 digital multiplexes. Potentially up to six multiplexes later.	Dual-mode receiver only	Low	No additional spectrum required to implement but releases less spectrum.
No further digital roll-out	Continued reception of analogue services	Analogue (or dual-mode) receiver	Low	No additional spectrum required to implement but releases least spectrum.

At the end of the planned roll-out of digital television services, digital transmissions will be spread across the whole of bands IV and V, having been ‘shoe-horned’ between the existing analogue channels. The closure of the analogue transmissions will not immediately release any spectrum for use by other services, except for the expansion of existing DTT services.

This section explores the options for recovering a contiguous block of spectrum. It assumes that analogue transmissions have been closed and that some or all of the freed analogue frequencies have been re-used for digital transmissions. Note that it is not known whether, if each of the frequencies currently used for analogue transmissions were replaced by a digital transmission, and additional frequencies for the remaining two digital multiplexes were found on each transmitter site (such that all six multiplexes were available to the existing viewing population), there would be any spectrum remaining in which to clear a block for other use.

The spectrum currently used for terrestrial television transmission in the UK (470 – 854 MHz), is particularly well suited to providing coverage for mobile services. It is therefore expected that, should some spectrum at these frequencies become available, there would be great demand for it from a number of parties. These parties have not yet been identified, however the most likely uses for the spectrum include:

Each of these services has a different requirement in terms of the amount of spectrum that would be required and the form that the spectrum could take. As an example, an additional digital television multiplex would require an 8 MHz channel and could be interleaved with existing digital services whereas mobile telephony services are likely to require two blocks of anything between 2 and 20 MHz that are clear of other transmissions. In each instance, however, there are certain common characteristics:

The remainder of this section looks at the issues surrounding the recovering of such a block of spectrum and points to possible ways that such a block of spectrum could be released.

The implementation of the DVB-T specification to be used in the UK will require each multiplex to carry a Network Information Table (NIT). This table contains the frequencies for each of the multiplexes being transmitted from the site being received. Digital receivers will make use of the NIT to perform initial tuning.

Upon first being connected, a digital receiver will search for the strongest multiplex signal and will then use the NIT on that multiplex to identify the correct frequencies to which it should tune. Once tuned, if the receiver fails to receive a multiplex due to it having changed frequency since the receiver was last switched on, the receiver will look at the NIT on any multiplex that it can still receive to identify the new channel on which the missing multiplex is operating.

Effectively each digital receiver will be able to adapt to any channel changes which take place, subject only to it still being able to receive the new frequency (i.e. the new frequency should be within the same antenna groups). This capability will vastly simplify any digital frequency changes, and hence preparation for analogue closure, requiring no re-tuning to take place.

Depending on the re-organisation of the spectrum, it is possible that a significant number of television antennas will need to be replaced. For example, if Band V were cleared of television broadcasting, most of the viewers currently receiving their programmes from transmitters operating in Band V (approximately 50% of the country) would require new television antennas. In addition, broadcasters would incur additional once-off transmission costs, for example, some aerials may need to be replaced.

Before the frequencies currently used for UHF television transmission can be reassigned to other services, agreement will have to be reached internationally on the use of the spectrum. This agreement will have two stages, the second of which is not mandatory:

The use of spectrum is constrained by radio regulations set out by the International Telecommunications Union (ITU). These regulations allocate certain blocks of spectrum to certain services. In addition, footnotes allow the use of frequencies for other services, usually subject to geographic, interference or power limitations. These allocations are agreed internationally at World Radio Conferences held every 2 years. In order to make a change to an allocation, it must first be tabled as an agenda item for a future meeting when it is then discussed. Such a process can therefore take four years and possibly longer if the agenda item is not accepted. It is difficult for a national administration to make a unilateral change to the allocations as, in general and as a minimum, agreement must be obtained from neighbouring countries.

Currently, the ITU regulations cite the following (UK) services as having allocations within the bands currently used for UHF television broadcasting:

Frequencies

Primary users

Secondary users

470 – 790 MHz

(Channels 21 – 60)

Broadcasting

Broadcasting – Satellite
(620 – 790 MHz only)

Aeronautical Radionavigation
(Ch. 36, 590 – 598 MHz only )

Land Mobile
(services ancillary to broadcasting)

Radio Astronomy
(Ch. 38, 608 – 614 MHz only)

790 – 862 MHz

(Channels 61 – 69)

Broadcasting

Fixed

Mobile

The only activities other than broadcasting, known to be taking place in the spectrum allocated for UHF television broadcasting in the UK are:

Given the current ITU allocation of frequencies, and the potential future users of the recovered analogue spectrum, it would seem most appropriate to aim to clear spectrum between 790 and 862 MHz as this has the largest scope for new services (both mobile and fixed services have allocations). This, however, corresponds to those frequencies for which Group C/D television antennas are used and clearing this alone would involve significant reworking of domestic installations (see below 4.7).

To avoid any such reworking of installations, any spectrum cleared for use by other services would need to continue to allow transmissions in each of the frequency bands corresponding to the antenna groups. A fuller discussion of this can be found below.

The European Conference of Post and Telecommunications Authorities (CEPT) released the report Results of the Detailed Spectrum Investigation Phase II 29.7 - 960 MHz ("DSI-2") in March 1995. This suggests that in Europe, administrations should aim to provide digital services in channels 61 to 69 leaving channels 21 to 60 for analogue. This division may be possible in some of continental Europe where channels 61 to 69 are not currently used for broadcasting (but are, for example, are occupied by the military), however it is untenable in the UK and certain other European countries where analogue transmission already take place in channels 61 to 69. DSI-2 further recommends that the use of 470 - 510 MHz (channels 21-24) should be reviewed in 2015-2020 with a view to introducing new services. For the UK to take a different approach would be likely to entail the released spectrum suffering from severe continental interference (much as for the existing Band III PAMR network).

Each television (and radio) transmitter has the potential to cause interference not just to other transmitters in the same country but to other transmitters in neighbouring countries. In order to try and minimise such interference, each country co-ordinates all its transmitter site frequencies with its neighbours. In order to try and kick-start this process and to give a baseline from which each country could develop its plan, a meeting of interested European administrations was held in Stockholm in 1961. The ‘Stockholm plan’ sets out the television channel assignments for most major transmitter sites and the larger relay stations in Europe. Any changes or additions to this plan must be agreed between the country requesting the change and its neighbours (for the UK these include Ireland, Spain, France, Belgium, the Netherlands, Germany, Denmark Norway, Sweden and occasionally Luxembourg). Once agreed, the changes are incorporated into the plan which is then reissued each year.

The planning parameters used to agree the Stockholm plan relate only to analogue television and hence are of little use in planning digital roll-out. However, a meeting in Chester earlier this year succeeded in agreeing planning parameters for digital television. These parameters allow for the planning of digital services in light of interference to and from both analogue and other digital transmitters. Of particular importance is the agreement that, subject to certain power restrictions (none of which are significant), an existing analogue assignment can be converted into a digital assignment without the need to reco-ordinate the assignment.

The need for a co-ordinated baseline plan for digital television roll-out is recognised by the CEPT and a preparatory meeting is due to be held in 1999 to do the ground work ready for the development of a new digital plan. The meeting to agree this plan is likely to be held at some date between 2002 and 2004. Before this plan is developed, each of the UK’s proposed digital transmission frequencies will have to be individually co-ordinated with each neighbour, a time consuming process with no guarantee that the plan will be agreed.

The UK (via the RA, with support from the RA and the ITC) is currently seeking clearance for each of its proposed digital transmission frequencies and sites, starting with the main sites. It is expected that the first 10 clearances will be received by the end of 1997. If this does not prove possible, the introduction of digital television in the UK is likely to be delayed.

It should be noted that in order to change the transmission plan following the initial roll-out of digital television (i.e. to transfer digital services to analogue frequencies, to introduce new digital transmitters or to change any of the existing digital or analogue frequencies) clearance will have to be obtained from the UK’s neighbours. In terms of the re-organisation of the UHF broadcast bands to free a contiguous block of spectrum, the requirement to obtain such clearances will be the major determinant in the speed at which changes can be made.

It is likely, that at some time in the future, other European administrations will wish to clear some of their UHF broadcasting spectrum for other uses (DSI-2 suggested 470 - 510 MHz). At the moment, however, few other countries are exploring this potential. Some of the proposed uses for the freed spectrum, such as mobile telephony and mobile television would provide greatest benefit if the spectrum in which they operated could be common across Europe. It would therefore be prudent of the UK to obtain European agreement on the amount and the particular frequencies of any spectrum that it intends to release for new services.

Whilst in principle, the UK could go it alone (within the constraints placed upon it by the ITU), it would be better for a harmonised European approach to be taken. Such a harmonisation would be undertaken through CEPT and would be additional to any activities involved with re-planning the television broadcast bands to accommodate digital television. However, links into a future harmonised plan should be made in the new television plan.

Main station antennas, as used by the majority of homes receiving analogue television are normally chosen by the installer to match the group of the transmission to be received. Occasionally, where an antenna has been installed by the viewer themselves, an antenna unsuited to the frequencies that it is receiving is employed. This situation may also prevail where the addition of a local relay station has caused an antenna originally designed for another group of frequencies to be used on a new group but where the signal is strong enough to accommodate the reduced performance of the antenna. The latter situations are not the norm.

Set-top antennas such as those on portable sets or as occasionally used in strong signal areas are generally of a wide bandwidth nature, similar to Group W antennas.

A television antenna installation typically costs between �50 and �100 and in most areas, an installation can be expected to last 10 to 15 years. Thus the rate at which antennas are naturally exchanged is slower than for televisions themselves.

In 70% or more of instances, the frequencies selected for the transmission of DTT in a certain area fall within the group used by existing analogue services in that area, hence there will be little need for viewers to change their antenna to receive the new services. The introduction of DTT, for the majority of homes, is therefore unlikely to change the rate at which antennas are replaced.

In some instances, however, the DTT transmissions fall outside the set of frequencies for which viewers could be expected to have antennas. In these instances, a new antenna covering the DTT frequencies assigned in that area will need to be installed. In addition to the difference in coverage of DTT to existing analogue transmissions, it is essential that suppliers are able to inform consumers whether they will need a new television antenna, what group it should be and at which transmitter it should be aligned.

The ITC and others support the idea of a national post-code database that would be given to each supplier of DTT televisions. These would allow the supplier to enter the post-code of the consumer and identify the correct antenna and transmitter site. More importantly, it would identify whether or not the consumer is likely to receive a DTT signal at all and therefore reduce the disappointment that would otherwise arise.

Thought should be given to the information contained in the post-code database with regards to any re-organisation of spectrum that may be required to free a contiguous block of spectrum. If, for example, it was intended to clear Band V of transmissions, but the existing service in that area was in Band V, the sale of a wideband (Group W) antenna to the consumer would alleviate the need for the purchase of another new antenna at a later date.

It is clear that in order to clear a nationally available, contiguous block of spectrum, viewers are likely to have to replace their antennas more frequently than is currently expected. It is not sensible, though, to aim to free a block of spectrum that corresponds directly to the whole of one of the traditional television antenna groups. Doing so would force a most viewers who currently receive a service within that group of channels to require a new antenna. A more sensible move would be to clear a block of spectrum within one or more of the existing groups (e.g. channels 21-26 or 63-68) or straddling two groups (e.g. channels 47 to 53).

In summary, the following issues need to be addressed if a contiguous block of spectrum is to be released for other services:

These costs could be reduced through early replanning and notification to TV dealers and antenna installers of the proposed changes.

Appendix 8. US Digital TV rules

8.1. Introduction

On 3 April 1997 the Federal Communications Commission (FCC) adopted a framework of rules for the introduction of digital television (DTV) in the US. Under these rules every high powered television station is to be allocated a second 6 MHz channel of spectrum for the provision of digital services. The award of the additional channel is conditional upon the return of one channel at the end of a transition period at which time analogue transmissions would cease. The FCC initially set a target date of 2006 for the return of spectrum. In August 1997, however, Congress passed new measures as part of budget legislation which modified the FCC rules. As discussed further below, the net impact of these measures is likely to push back the final analogue closure date.

The following sections provide a brief review of key elements of the US digital TV plans with respect to:

8.2. Spectrum Use

In return for the award of an additional 6 MHz channel, television stations are required to offer at least one free-to-air digital programme service. This service must be of a signal quality at least comparable to the existing NTSC service.

There is no requirement for broadcasters to simulcast analogue content in digital form in the early years. There is, however, what has been termed a reverse simulcast rule which comes in to play towards the end of the transition period. At this time content that is provided on the core free-to-air digital service must also be made available in analogue form. The intention is to avoid creating incentives for viewers to retain analogue only sets.

Broadcasters are free to use the remainder of the channel capacity to provide whatever digital services they see fit. Possible uses of this capacity include the provision of subscription television, data transmissions and interactive services. A fee is payable to the FCC for provision of all additional services with the exception of free-to-air programming. The FCC has yet to determine the precise basis of the fee, although it is required to approximate the amount that would otherwise have been raised if the spectrum were auctioned.

8.3. Roll-out of Requirements

The FCC rules also specify requirements for the roll-out of DTV. Affiliates of the top four networks in the top 10 markets must begin digital broadcasts by November 1 1999. The top 10 markets account for 30% of television households. All other commercial television stations have to begin digital broadcasts within 5 years. Non-commercial stations including PBS stations must begin digital broadcasts by April 2003.

The original plans set a target date of 2006 for the end of NTSC transmissions and the return of analogue spectrum. The FCC will review this date in periodic reviews to be conducted every two years in the light of the progress of DTV. At each review, it is able to amend its rules if necessary. Most of the recovered spectrum will be auctioned. The budget agreement, announced in early May, noted that Congress expected to raise $5.4 billion in an "analogue" spectrum auction in 2002 for the spectrum to be returned in 2006.

In August 1997, Congress passed budget legislation which modified the FCC’s DTV rules. Under these measures, the FCC is required to extend the handover date for analogue spectrum if:

Of these criteria it is the third which is most likely to adversely impact upon the early return of spectrum. There are two separate issues. The first concerns the 85% penetration target for digital receivers and set-top boxes which, given current replacement, would appear unlikely to be met in most markets. The second raises the issue of "must carry" provisions for the retransmission of free-to-air services over cable networks. At the moment these provisions apply only to analogue services. The 1992 Cable Act obliges the FCC to develop similar rules for DTV although it has yet to do so. The extension of these provisions to encompass DTV could have adverse economic implications for operators since existing networks are already pushing against capacity constraints. Even though many operators are looking to expand capacity by upgrading to digital systems, it is unlikely that they would voluntarily be willing to carry DTV signals without payment of a transmission fee.

8.5 Conclusions

The initial rules for the introduction of DTV in the US saw the FCC setting an ambitious 2006 target date for the closure of analogue transmissions. Congress has subsequently revisited the issue and set out new criteria which have to be satisfied before the FCC can begin to recover spectrum. The most important of these criteria requires that at least 85% of television households have a digital receiver or set-top box and can receive DTV services over cable networks. The net impact of this is likely to delay analogue closure well beyond 2006.

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%

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

APPENDICES

Table of Contents

2.1. Current Situation