Joint ITC, OFTEL and OFT advice to Government on Digital Television

1. Thank you for the opportunity to comment on the Consultation document. This initiative is welcome and timely. It is not too early to put in place the framework and market conditions to ensure a rapid and smooth switchover from analogue to digital television broadcasting. Our industry fully supports the Government’s objective of a switchover between 2006 and 2010 although we think it will probably be achieved later rather than earlier in the period.

3. BREMA represents companies manufacturing consumer electronics in the UK. Many of the digital television receivers, both Set-Top-Boxes and integrated digital television (idTV) receivers are being designed and manufactured in the UK.

4. The UK has attracted high inward investment as a manufacturing base for Europe. However, television receiver production in the UK reached a peak of 6.2 million in 1996 since when there has been a decline to 3.7 million sets in 1999. The decline in exports in that period has been 4.15 million to 2.95 million sets.

5. Given the economic pressures on UK-based manufacturers, unless the exchange rate, inter alia, becomes more competitive, there is a risk that more TV manufacturing will be relocated outside the UK. This will obviously reduce industry’s ability to maintain, let alone invest further, in Research and Development and manufacturing capacity in the UK. The adverse effect on inward investment could reduce industry’s ability to support with product the government’s objectives with regard to switchover.

6. It should also be noted that the inward investment in the UK has been justified as a manufacturing base for Europe. However, digital take off in Europe has lagged behind thus reducing this incentive for investment in digital technology. It is important for the UK’s digital broadcasting ambitions that other major markets in Europe also commit to digital technology.

7. Since the start of digital television in the UK in the autumn of 1998 the growth of digital television has proceeded rapidly so that by the end of 2000 it is estimated that nearly 30% of UK households will be receiving digital television.

8. This is a highly successful launch due primarily to the Pay-TV broadcasters who have invested heavily, including offering subscribers ‘free’ Set-Top-Boxes. The consequence has been a rapid take-up of digital Pay TV; but with comparatively little interest shown by Free-To-Air only viewers. The combination of a digital Set-Top-Box and an analogue Widescreen television receiver has been part of this engine for growth.

9. idTV receivers achieved sales of about 30,000 in 1999. Current estimates this year are in the region of 170,000, although monthly sales so far have been of the order of 6000. The introduction of ONdigital’s conditional access module, BSkyB’s promotion of idTV receivers, and the growing volume of digital 16:9 Widescreen programmes being broadcast, should help to raise sales growth of idTV receivers. A much wider range of idTV receivers (30 models) is now available.

10. However, a record number of 5.5 million analogue television receivers were sold in the UK in 1999, including 842,000 Widescreen television receivers. There is every prospect that this record will be at least equalled in 2000. While we should all welcome the change of format from 4:3 to 16:9 now taking place, the legacy problem of analogue television receivers continues to grow.

11. In the table following we show how the market is developing and how it might continue. However, a number of factors need to be considered and actions taken now, otherwise there is a risk of the Pay-TV market reaching saturation at 60% of UK TV households; and the remaining 40% of households, those who may want Free-To-Air only and be tempted to remain with analogue terrestrial television. It is important that the current momentum of digital television take-up is not lost. Hence, this consultation is vital in identifying measures to be taken now to sustain this momentum.

YEAR	IdTV	SET-TOP-BOX	ANALOGUE TV
1998	5 THOUSAND	340 THOUSAND	5 MILLION
1999	30 THOUSAND	2.9 MILLION	5.5 MILLION
2000	170 THOUSAND	3.6 MILLION	5.5 MILLION
2001	450 THOUSAND	2.8 MILLION	5.0 MILLION

Information and Incentives

12. The need for a Public Information Campaign to inform, dispel current confusion and raise awareness of the full range of services (including Free-To-Air) available with digital television has been acknowledged by Government. The setting of a timetable of 2006 to 2010 for switchover was an important first step. The Public Information Campaign needs to be under way by this autumn, led by a leaflet being sent to every UK home.

13. Industry collectively; and individual broadcasters, manufacturers and retailers will also need to contribute to increasing consumer awareness of and confidence in digital television.

14. The quality and nature of the Free-To-Air digital programmes must be perceived by consumers as better with more choice than the analogue services. The linkage of Widescreen 16:9 to digital television in the UK is very helpful but may not be enough in itself to persuade all Free-To-Air only households to move to digital.

15. The attraction of interactive services is another important element, particularly in homes without a PC. The Government’s action in support of their wish for an inclusive Information Society will be an important contribution to encouraging the take-up of digital television.

16. Affordability is a fundamental issue. There is concern that there will be a backlog of 5% to 10% of UK households who will retain analogue as long as possible for reasons of cost or principle. Such a group will likely be present whatever the rate of take-up of digital television. The received wisdom is that such a group would be given low cost digital decoders funded from the sale of the spare television spectrum. If this perception gains credence now with consumers, the backlog will be even bigger at the point of switchover.

17. A key aspect is the open-standard idTV receiver and its cost, both in absolute terms and also relative to other digital hardware products. As a mass market product the idTV receiver manufacturing cost is never likely to be less than that for the equivalent analogue television receiver. It is important to note that intellectual property right costs add a further estimated £33 to the retail price.

18. There are significant implications for the development of digital television of the EU Copyright Directive which is due to be adopted by the European Parliament later this year. These implications need to be addressed early in the context of the national legislation which will be required to implement the Directive.

19. The Government’s stated objective of switchover from analogue to digital television between 2006 and 2010 is fully supported. The successful achievement of this objective requires the confidence of the public and the active involvement of Government. Confidence building measures, adequate regulation and a range of incentives are also essentials.

Joint ITC, OFTEL and OFT advice to Government on Digital Television - Consultation