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DTT Policy in the UK –
Regulating Broadcasting and Telecommunications: Intermediate Course,
London School of Economics
Julian McGougan, Group Strategy, 6 September 2012
julian.mcgougan@arqiva.com

                                                                       IM2442.5
Disclaimer




    Opinions expressed are personal and
    may not be those of Arqiva.



2
The UK Public Service television landscape


     Unlike many countries, the UK benefits from a range of PSBs, whose public service
     obligations varied considerably.
     Also some PSBs are regionalised (for programming and/or advertising).
     This PSB landscape influenced the network topology (technical and spectrum
     planning) for the DTT multiplexes:
                  Television        Government         Government         Advertising and
                  Licence (no       grant (no          grant and          Sponsorship
                  advertising)      advertising)       Advertising
Publicly owned    BBC               TeleG (Scotland    S4C (Wales only)   Channel 4
                                    only)
Privately owned                                                           ITV
                                                                          Channel 5
                                                                          Teletext
     All analogue terrestrial services were PSBs.
     Channel 4 was created to give a boost to independent producers (Channel 4 is prohibited
     from having in-house production) and to broadcast programming catering for tastes not
     catered for by the existing broadcasters. Originally ITV sold Channel 4’s advertising.
     Channel 5 was created to provide greater choice to advertisers (and therefore to act as a
     constraint on ITV’s slot prices).
3    Prior to the launch of DTT about 80% of homes could receive all 5 services, but about 20% of
     homes couldn’t receive Channel 5.
The policy goals of licensing DTT multiplexes


    Each multiplex had to launch at 81 transmitter sites selected by the regulator,
    mostly on the grounds of population served, but a few sites were selected on
    political grounds.
    For interoperability (and to minimise consumer confusion) all DTT broadcasts
    had to use the same technology –
        the DVB-T transmission standard, the 64QAM 2k broadcast mode (at the
        suggestion of the BBC – this would prove disastrous) and MPEG-2
        coding.
    The platform should offer a diverse range of channels (a balance of Free-To-
    Air and pay-TV) deemed likely to be attractive to consumers.
    Legislation reserved “gifted capacity” for PSB services –
       to guarantee their presence
       to encourage the PSBs to invest in new, digital-only services.

    Strong pay-TV operator (ONdigital) was needed to market the DTT platform
    because pay was likely to be the only mass market means of obtaining DTT –
       The first unsubsidised Set Top Boxes (STBs) only became available in 2002
       The first integrated digital television (idTVs) were very expensive.
4
Awarding spectrum for DTT


    Spectrum wasn’t auctioned in the UK before 2000, so the spectrum for each DTT
    multiplex was awarded by comparative selection (“beauty contest”).
        Although regional franchises for the ITV commercial PSB were auctioned in 1991,
        programme commitments and financial viability were also criteria for award.

    In any event, there was considerable risk in launching a new platform when
    research showed that:
        Most consumers were content with the analogue PSBs
        Those consumers who wanted to pay extra for pay channels were already well served by
        Sky (almost 100% coverage) and cable (about 50% coverage).

    In addition:
        Multiplex licences would come with launch coverage obligations
        Universal coverage could never be achieved until analogue TV was switched off – and
        who knew how long that might take?
        The regulator would have a say in the service line-up.

    So even if auctions had been the default method of awarding spectrum in 1997-98,
    arguably beauty contests may have been adopted for these multiplexes anyway.
        The BBCs multiplex was awarded directly by the Government and is
        unlicensed.

5
The 6 DTT multiplexes at launch in 1998


    As with analogue, all spectrum was shared by DTT multiplexes – no multiplex had exclusive spectrum.
    The 2 PSB multiplexes (“1” and “2”) received spectrum preference to ensure that they had the highest coverage.
    The resulting differential coverage meant that ONdigital (the pay-TV operator) effectively only marketed the DTT
    platform line-up to consumers who could receive all 6 multiplexes.

                                                     Service type                   Specific Licence Obligations
     Mux   Licensee     Expiry date   Regionalised   Free-    Pay   Gifted capacity         Coverage        Fair,
                                      multiplex?     to-air                                 (81             Reasonable &
                                                     (FTA)                                  transmitters)   Non-
                                                                                                            Discriminatory
                                                                                                            (FRND)

     1     BBC          No expiry –        √           √            N/A                           √                X
                        UNLICENSED
     2     ITV/             2010           √           √            48% ITV                       √                X
           Channel 4                                                48% Channel 4
                                                                    4% Teletext

     A     S4C-led          2010           √           √       √    50% S4C (Wales only)          √                √
           consortium                                               50% Channel 5
                                                                    TeleG (Scotland only)


     B     ONdigital        2010           X                   √                                  √                X

     C     ONdigital        2010           X                   √                                  √                X

     D     ONdigital        2010           X                   √                                  √                X
6
The DTT multiplexes: 10 years of evolving
                                                        Launch of Freeview - October 2002                            The UK DTT platform today
                                                          Low power alongside analogue                            High power - analogue switched off

                                           40

                                                                Key:
                                                                           Free-To-Air services


                                                                           Pay-TV services



                                           30
              Multiplex payload (Mbit/s)




                                           20




                                           10




       Multiplex name                             1       2            A      B          C          D       1       2         3        4        5        6

   Modulation scheme                            16QAM   64QAM    64QAM     16QAM      16QAM       16QAM   64QAM   64QAM    256QAM   64QAM     64QAM    64QAM
        7
Transmission standard                           DVB-T   DVB-T     DVB-T    DVB-T      DVB-T       DVB-T   DVB-T   DVB-T    DVB-T2    DVB-T    DVB-T    DVB-T
Simplified layers of regulation for DTT


Originating            Service     Key obligations                          How enforced            As part of the current Communications Bill
Regulation             Layer                                                                        process, the Government is considering
                       Multiplex   Technical standards                      Licence                 whether the separate broadcast layer of
                                   Offer bandwidth on FRND terms                                    regulation is still required.
                                   Gifted capacity
                                   Service line-up (wide and diverse etc)
                                                                                                    While it is highly unlikely that service
                                                                                                    licences would be abolished, this process
    Broadcasting Act




                       Service     "Fit and Proper Person"                Licence
                                   Programme standards -                                            does provide an opportunity to ask: is a
                                           Child Protection/Watershed
                                                                                                    multiplex licence still needed?
                                                Harm and Offence
                                                Editorial integrity
                                          Fairness, Impartiality, Privacy                           For multiplex licensees, currently:
                                   Programming formats                                                  Ofcom prescribes the technology –
                                   Independent production quota
                                                                                                              Only DVB-T/MPEG-2 or DVB-T2/MPEG-
                                   "Listed Events"
                                                                                                              4 for DTT (and Ofcom has a veto over
                                   Out-of-London production quota (PSBs)
                                                                                                              FEC changes)
                                   Access Services (subtitling, signing)
                                                                                                        Ofcom has to be consulted on changes to
                                                                                                        service line-up.
Wireless   Spectrum Location                                                Licence (currently
Telegraphy (where    Technical Licence Conditions                           cannot fine for
                                                                                                        Neither mux 1 (BBC) nor mux 2 (ITV/C4)
                                                                                                        face a requirement to offer bandwidth on
Act        relevant) Antenna height and pattern                             breaches - revocation
                                                                                                        Fair, Reasonable & Non-Discriminatory
                                                                            the only penalty)
                                                                                                        Terms – so why do multiplexes 4, 5 & 6?
                                                                                                        No multiplex licences are proposed for any
                                                                                                        new DTT multiplexes.
                                                                                                        There’s no equivalent licence for satellite
                 8                                                                                      transponders.
Awarding spectrum in the UK

     Most spectrum which is now in private hands was awarded by administrative allocation (i.e. not by
     auction), for a specific use or technology, and the licence wasn’t tradable.
     In recent years Ofcom has been making spectrum licences tradable and technology-neutral, however:
           to minimise interference, there are restrictions on the characteristics of alternative technologies which
           could be deployed
           the secondary market for spectrum remains illiquid and most private demand for spectrum continues to be
           met by Ofcom.
     So far, virtually all broadcast service licences have been awarded by “beauty contest” (administrative
     allocation by comparative selection), as have all multiplex licences.
     However Ofcom is now considering, if there are to be additional DTT multiplexes, how their spectrum
     requirements should be awarded.
     Very few spectrum auctions have actually been completed in the UK so far:

                                             Minimum        UK-wide                            Auction proceeds
        Spectrum band       Auction Date   licence term    licences?     Number of licensees       (US $ m)        Current use

        2.1 GHz               April 2000        20                                5               35,345.9              3G

        28 GHz                Nov 2000          15                                6                 54.4               None

        1.8 GHz
        (DECT guard band)     April 2006        10                           12 (shared)            6.8           2G (in-building)

        412 MHz               Oct 2006          15                           1 (Arqiva)             2.8            Public safety

        1.8 GHz               May 2007          15                                1                 0.7                  ?

                                                           (plus some
        10 – 40 GHz           Feb 2008          15          regional)       10 (inc. Arqiva)         2.8              Backhaul

                                                                                                                  None (mobile data
        1.5 GHz (L-Band)      May 2008          15                                1                 16.2          downlink likely)


 9      DDR (local TV)        Jan 2009          16                                2                 0.0                None
Spectrum auctions (1)


     Supported (finally) by the European Commission, market mechanisms
     (essentially auctions) are now the default method of spectrum release.
        Regulators are unlikely to know better than the market what the optimal use of
        spectrum might be
        An auction of technology-neutral and service-neutral spectrum licences enables
         spectrum to be clearly awarded to the uses with the highest value
        If a service fails, a licensee can sell the spectrum or launch something else.

     Ofcom’s current preferred auction model is the combinatorial clock auction
     (which Ofcom has endlessly perfected), which has distinct advantages to
     bidders when there are a range of different (i.e. not homogeneous
     packages) of spectrum on offer -
        The Supplementary Round enables bidders to submit bids for every
        combination of spectrum which they would be willing to be awarded.
        No Aggregation risk
        Minimises the likelihood that any spectrum is left unsold.

     Most successful bids are actually a result of the Supplementary Round.
10
Spectrum auctions (2)


     All auction proceeds must be passed by Ofcom to the Treasury.
         Maximising proceeds isn’t an auction objective for Ofcom beyond the role of maximum
         total bid price determining the allocation
         Current auctions adopt the Second Price Rule to avoid the “winner’s curse”.

     It is currently not easy to –
         Offer incentives to evict lower value uses from spectrum
         Set up procedures to mitigate anticipated interference.
         Pay for, or subsidise, replacement equipment.
     The Government is considering how to improve that.

     All registered bidders lodge funds with Ofcom prior to the start of the auction,
     designed to cover bids for the first few rounds.
     Ofcom will then require top-ups of funds on deposit as bidding escalates.
     Licences must be paid for in full (which may require a final payment after bidding
     stops from winning bidders) before they are granted.
         Licences don’t have to be granted immediately (for example, to allow time for a network
         to be built prior to commercial launch).
     Ofcom refunds to bidders any excess funds on deposit a few days after the end of
     an auction.
11
Determining market value of spectrum


     The value determined by bidders is affected by a range of factors:
         The timing of spectrum availability (not necessarily the same thing as the timing of the
         auction).
         How restrictive the Technical Licence Conditions are (to avoid interference into neighbouring
         spectrum users, licences cannot be strictly technology-neutral).
         The spectrum Band Plan.
         Spectrum packaging.
         Equipment availability, a function of –
              international standardisation
              release timing (ideally bidders want equipment available from multiple suppliers, with known
              costs and performance before they bid for spectrum).
         Financial terms (permitting payments to be spread will tend to increase proceeds, but carries
         a risk – as the U.S has discovered).
         Policy objectives e.g. -
              Coverage obligations
              Access obligations (FRND, roaming, MVNO etc)
              Favoured types of bidder (as the U.S has experimented with – not always successfully).
         Restrictions on spectrum trading or leasing.
         Minimum licence terms (and the prospect of licence extension).
     Plus, never under-estimate bidders’ willingness to exceed their determined maximum
     value if they see competitors bidding more.

     Reserve prices are usually set to discourage frivolous bidding (as is the requirement
     that bidders must be companies, not individuals), rather than to signal anticipated
12
     proceeds.
Awarding spectrum for DTT multiplexes


     The market value for multiplex licences at the launch of a DTT platform will be
     affected by:
         Minimum licence term (over which the necessary heavy investment in the transmission
         network will be amortised)
         Potential for new, competing multiplexes to be awarded.
         Perception of competitive threats to future income.
              Emerging consumer preference for HDTV (and then 4k), which DTT will tend to be less
              able to offer than other linear platforms.

     Competitive threats to linear broadcast platforms:
         IPTV
         2nd screen.

     DTT will be arguably be more vulnerable to these threats than other linear platforms
     which offer a greater range of services (and, in the case of cable, also offer a return
     path).

     In addition, DTT’s access to spectrum is threatened by –
         Mobile broadband
         White Space devices.
13
Linear television is far from dead


     In recent years, too many industry experts have forecast the imminent death of
     traditional linear television based on a combination of what new technology can do
     and how early adopters use those technologies.

     But early adopters are not indicative of the majority of consumers.
     Familiarity is a major determinant of usage.
     Brands also matter – and major broadcasters often have the kind of brand value
     which disruptive new entrants would kill to have.
         Every day in the UK there are 52 hours of first-run programmes on the PSB channels
         alone (source: Deloitte).

     The consumer desire for easy access to lots of “lean back” entertainment isn’t going
     away.
     So despite all of the competing devices and services clamouring for attention, in the
     UK television –
         Still has a weekly reach of about 95% of the population aged >4
         And still serves up 49 measured ads per viewer per day (source: Deloitte).

     And television remains the most trusted source of news.
14
The threat of IPTV


     IPTV is currently all about catch-up TV, not true VOD.
     Watching programmes commissioned for, and already broadcast by, linear
     TV.
     The convenience of Connected TV (that is, where consumers have actually
     connected them) offering IPTV on the same display, without the need for
     consumers to use a 2nd device, will drive take-up, but –
        Many displays capable of being connected aren’t connected.
        Manufacturers' desire to offer proprietary app stores, and minimise the role of
        broadcasters, acts as a drag on usage of those displays actually connected.

     The direction of travel may be clear, but for now IPTV is used principally as
     a modern replacement for VHS tapes.
     So arguably more of a threat to the PVR/DVR (in >50% of UK homes) than
     to DTT.
     Although “+1” channels will probably lose much of their purpose.

     In the UK, the PSBs drove the recent launch of YouView to ensure that the
15   demand for IPTV from DTT users stays within the DTT ecosystem.
But how much of a threat to broadcast is IPTV?

Despite consumer familiarity with PVRs, with plenty of time to then change their content selection priorities, they largely
haven’t:
       Linear remains the default, with storage – and then cloud – as the fallback when schedules disappoint.




  16
Obstacles which delay IPTV truly challenging broadcast


     How universally available is broadband?

     How fast, and reliable, in peak hours is broadband?

     How much investment has been made in multicast technology?

     How affordable is broadband?
        Unlike Free-To-Air DTT, IPTV is never truly free.

     Does the average broadband subscription have data caps so low that a
     household’s average viewing, if all IP, would result in financial penalties?

     Have rightsholders made available the most popular programmes on terms
     which make IPTV a substitute for broadcast?
        Not every rightsholder is ready to acquire a direct relationship with consumers.


17
The threat of 2nd screens


     At least for the most advertiser-friendly audiences, this is the future of TV
     consumption:




18
      Source (this slide & the next two): Viaccess-orca, 2012.
But the television display still attracts the most attention




19
2nd screen is both threat and opportunity


     The 3rd, 5th and 6th (possibly the 4th, too) activities below suggest that this is
     an audience waiting to be engaged by broadcasters…
         …or a “parasitic” 3rd party which gets there first.




20
2nd screening is more about talking about programmes than
interacting with them

     Frequency of communication in the UK via messaging, email, Facebook & Twitter about the TV
     programmes being watched:




21
2nd screen is both threat and opportunity


     Some broadcasters are getting spooked by 2nd screens
     But there have always been distractions for viewers, it’s just that when
     those distractions are connected they are measurable.
     So are 2nd screens going to become more engaging for viewers than
     magazines, books, newspapers, conversation and food have always been?

     2nd screens add the return path which DTT and satellite usually don’t
     have.
     2nd screens can effectively increase advertising beyond the constraints of
     regulated broadcast ad minutage.
     There is a range of programme-related information which broadcasters are
     in the best position to provide:
          Cast, locations, theme & incidental music (with click to iTunes to
          purchase?).
     If broadcasters don’t assist the communication about the programmes they
22
     transmit – someone else will.
The spectrum threat: how much will DTT be left with?


     The UHF spectrum principally used by DTT has good propagation
     characteristics, it –
        covers long distances
        bends around hills and buildings
        goes through walls (for good in-building coverage).

     Those characteristics also make this spectrum attractive for mobile
     broadband use, which was accorded “co-primary” status for this spectrum by
     the ITU at WRC-07 (for 800 MHz) and now WRC-12 (for 700 MHz).
        Despite the fact that the demand which mobile (i.e. cellular) operators are finding
        hard to meet is for urban/suburban capacity, not suburban/rural coverage.

     The challenge is to re-plan DTT to:
        make more efficient use of spectrum
        increase DTT capacity to enable the launch of more HD services
        clear more spectrum for future mobile demand.


23
More DTT and more mobile, too?
     Stage 1: Pre-Digital Switch-Over (DSO)

                                             Television: 5 analogue services + 6 DTT multiplexes

     21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69

                                                 Radar         Radioastronomy                                                                                     PMSE


     Stage 2: Post-DSO - 2012

                                        DTT: 6 multiplexes

     21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69

                   600 MHz cleared for re-use                  PMSE



     Stage 3: Post-DSO clearing DTT from Channels 61 & 62 and auctioning 800 MHz - 2013/14

                      DTT: 6 national multiplexes + local TV + "white space devices"                                                             800 MHz LTE "4G"

     21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69

                   600 MHz cleared for re-use                  PMSE


     Potential Stage 4: 6 existing DTT multiplexes re-planned to make more efficient use of spectrum
     + 2 new multiplexes + clear more spectrum for mobile ("700 MHz") to be auctioned later

               DTT: 8 national multiplexes + local TV + "white space devices"                                                                    800 MHz LTE "4G"

     21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69

                                                               PMSE                          700 MHz cleared for mobile broadband

     Notes on the above:
     (i) Numbers in diagrams above are television Channel numbers (each 8 MHz)
24
     (ii) Number of national multiplexes shown in Stage 4 is indicative only of the additional capacity (with required regionality) which might be required to secure a solid, sustainable
          future for the DTT platform and to maintain vigorous inter-platform competition.

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Digital Terrestrial Television

  • 1. DTT Policy in the UK – Regulating Broadcasting and Telecommunications: Intermediate Course, London School of Economics Julian McGougan, Group Strategy, 6 September 2012 julian.mcgougan@arqiva.com IM2442.5
  • 2. Disclaimer Opinions expressed are personal and may not be those of Arqiva. 2
  • 3. The UK Public Service television landscape Unlike many countries, the UK benefits from a range of PSBs, whose public service obligations varied considerably. Also some PSBs are regionalised (for programming and/or advertising). This PSB landscape influenced the network topology (technical and spectrum planning) for the DTT multiplexes: Television Government Government Advertising and Licence (no grant (no grant and Sponsorship advertising) advertising) Advertising Publicly owned BBC TeleG (Scotland S4C (Wales only) Channel 4 only) Privately owned ITV Channel 5 Teletext All analogue terrestrial services were PSBs. Channel 4 was created to give a boost to independent producers (Channel 4 is prohibited from having in-house production) and to broadcast programming catering for tastes not catered for by the existing broadcasters. Originally ITV sold Channel 4’s advertising. Channel 5 was created to provide greater choice to advertisers (and therefore to act as a constraint on ITV’s slot prices). 3 Prior to the launch of DTT about 80% of homes could receive all 5 services, but about 20% of homes couldn’t receive Channel 5.
  • 4. The policy goals of licensing DTT multiplexes Each multiplex had to launch at 81 transmitter sites selected by the regulator, mostly on the grounds of population served, but a few sites were selected on political grounds. For interoperability (and to minimise consumer confusion) all DTT broadcasts had to use the same technology – the DVB-T transmission standard, the 64QAM 2k broadcast mode (at the suggestion of the BBC – this would prove disastrous) and MPEG-2 coding. The platform should offer a diverse range of channels (a balance of Free-To- Air and pay-TV) deemed likely to be attractive to consumers. Legislation reserved “gifted capacity” for PSB services – to guarantee their presence to encourage the PSBs to invest in new, digital-only services. Strong pay-TV operator (ONdigital) was needed to market the DTT platform because pay was likely to be the only mass market means of obtaining DTT – The first unsubsidised Set Top Boxes (STBs) only became available in 2002 The first integrated digital television (idTVs) were very expensive. 4
  • 5. Awarding spectrum for DTT Spectrum wasn’t auctioned in the UK before 2000, so the spectrum for each DTT multiplex was awarded by comparative selection (“beauty contest”). Although regional franchises for the ITV commercial PSB were auctioned in 1991, programme commitments and financial viability were also criteria for award. In any event, there was considerable risk in launching a new platform when research showed that: Most consumers were content with the analogue PSBs Those consumers who wanted to pay extra for pay channels were already well served by Sky (almost 100% coverage) and cable (about 50% coverage). In addition: Multiplex licences would come with launch coverage obligations Universal coverage could never be achieved until analogue TV was switched off – and who knew how long that might take? The regulator would have a say in the service line-up. So even if auctions had been the default method of awarding spectrum in 1997-98, arguably beauty contests may have been adopted for these multiplexes anyway. The BBCs multiplex was awarded directly by the Government and is unlicensed. 5
  • 6. The 6 DTT multiplexes at launch in 1998 As with analogue, all spectrum was shared by DTT multiplexes – no multiplex had exclusive spectrum. The 2 PSB multiplexes (“1” and “2”) received spectrum preference to ensure that they had the highest coverage. The resulting differential coverage meant that ONdigital (the pay-TV operator) effectively only marketed the DTT platform line-up to consumers who could receive all 6 multiplexes. Service type Specific Licence Obligations Mux Licensee Expiry date Regionalised Free- Pay Gifted capacity Coverage Fair, multiplex? to-air (81 Reasonable & (FTA) transmitters) Non- Discriminatory (FRND) 1 BBC No expiry – √ √ N/A √ X UNLICENSED 2 ITV/ 2010 √ √ 48% ITV √ X Channel 4 48% Channel 4 4% Teletext A S4C-led 2010 √ √ √ 50% S4C (Wales only) √ √ consortium 50% Channel 5 TeleG (Scotland only) B ONdigital 2010 X √ √ X C ONdigital 2010 X √ √ X D ONdigital 2010 X √ √ X 6
  • 7. The DTT multiplexes: 10 years of evolving Launch of Freeview - October 2002 The UK DTT platform today Low power alongside analogue High power - analogue switched off 40 Key: Free-To-Air services Pay-TV services 30 Multiplex payload (Mbit/s) 20 10 Multiplex name 1 2 A B C D 1 2 3 4 5 6 Modulation scheme 16QAM 64QAM 64QAM 16QAM 16QAM 16QAM 64QAM 64QAM 256QAM 64QAM 64QAM 64QAM 7 Transmission standard DVB-T DVB-T DVB-T DVB-T DVB-T DVB-T DVB-T DVB-T DVB-T2 DVB-T DVB-T DVB-T
  • 8. Simplified layers of regulation for DTT Originating Service Key obligations How enforced As part of the current Communications Bill Regulation Layer process, the Government is considering Multiplex Technical standards Licence whether the separate broadcast layer of Offer bandwidth on FRND terms regulation is still required. Gifted capacity Service line-up (wide and diverse etc) While it is highly unlikely that service licences would be abolished, this process Broadcasting Act Service "Fit and Proper Person" Licence Programme standards - does provide an opportunity to ask: is a Child Protection/Watershed multiplex licence still needed? Harm and Offence Editorial integrity Fairness, Impartiality, Privacy For multiplex licensees, currently: Programming formats Ofcom prescribes the technology – Independent production quota Only DVB-T/MPEG-2 or DVB-T2/MPEG- "Listed Events" 4 for DTT (and Ofcom has a veto over Out-of-London production quota (PSBs) FEC changes) Access Services (subtitling, signing) Ofcom has to be consulted on changes to service line-up. Wireless Spectrum Location Licence (currently Telegraphy (where Technical Licence Conditions cannot fine for Neither mux 1 (BBC) nor mux 2 (ITV/C4) face a requirement to offer bandwidth on Act relevant) Antenna height and pattern breaches - revocation Fair, Reasonable & Non-Discriminatory the only penalty) Terms – so why do multiplexes 4, 5 & 6? No multiplex licences are proposed for any new DTT multiplexes. There’s no equivalent licence for satellite 8 transponders.
  • 9. Awarding spectrum in the UK Most spectrum which is now in private hands was awarded by administrative allocation (i.e. not by auction), for a specific use or technology, and the licence wasn’t tradable. In recent years Ofcom has been making spectrum licences tradable and technology-neutral, however: to minimise interference, there are restrictions on the characteristics of alternative technologies which could be deployed the secondary market for spectrum remains illiquid and most private demand for spectrum continues to be met by Ofcom. So far, virtually all broadcast service licences have been awarded by “beauty contest” (administrative allocation by comparative selection), as have all multiplex licences. However Ofcom is now considering, if there are to be additional DTT multiplexes, how their spectrum requirements should be awarded. Very few spectrum auctions have actually been completed in the UK so far: Minimum UK-wide Auction proceeds Spectrum band Auction Date licence term licences? Number of licensees (US $ m) Current use 2.1 GHz April 2000 20  5 35,345.9 3G 28 GHz Nov 2000 15  6 54.4 None 1.8 GHz (DECT guard band) April 2006 10  12 (shared) 6.8 2G (in-building) 412 MHz Oct 2006 15  1 (Arqiva) 2.8 Public safety 1.8 GHz May 2007 15  1 0.7 ?  (plus some 10 – 40 GHz Feb 2008 15 regional) 10 (inc. Arqiva) 2.8 Backhaul None (mobile data 1.5 GHz (L-Band) May 2008 15  1 16.2 downlink likely) 9 DDR (local TV) Jan 2009 16  2 0.0 None
  • 10. Spectrum auctions (1) Supported (finally) by the European Commission, market mechanisms (essentially auctions) are now the default method of spectrum release. Regulators are unlikely to know better than the market what the optimal use of spectrum might be An auction of technology-neutral and service-neutral spectrum licences enables spectrum to be clearly awarded to the uses with the highest value If a service fails, a licensee can sell the spectrum or launch something else. Ofcom’s current preferred auction model is the combinatorial clock auction (which Ofcom has endlessly perfected), which has distinct advantages to bidders when there are a range of different (i.e. not homogeneous packages) of spectrum on offer - The Supplementary Round enables bidders to submit bids for every combination of spectrum which they would be willing to be awarded. No Aggregation risk Minimises the likelihood that any spectrum is left unsold. Most successful bids are actually a result of the Supplementary Round. 10
  • 11. Spectrum auctions (2) All auction proceeds must be passed by Ofcom to the Treasury. Maximising proceeds isn’t an auction objective for Ofcom beyond the role of maximum total bid price determining the allocation Current auctions adopt the Second Price Rule to avoid the “winner’s curse”. It is currently not easy to – Offer incentives to evict lower value uses from spectrum Set up procedures to mitigate anticipated interference. Pay for, or subsidise, replacement equipment. The Government is considering how to improve that. All registered bidders lodge funds with Ofcom prior to the start of the auction, designed to cover bids for the first few rounds. Ofcom will then require top-ups of funds on deposit as bidding escalates. Licences must be paid for in full (which may require a final payment after bidding stops from winning bidders) before they are granted. Licences don’t have to be granted immediately (for example, to allow time for a network to be built prior to commercial launch). Ofcom refunds to bidders any excess funds on deposit a few days after the end of an auction. 11
  • 12. Determining market value of spectrum The value determined by bidders is affected by a range of factors: The timing of spectrum availability (not necessarily the same thing as the timing of the auction). How restrictive the Technical Licence Conditions are (to avoid interference into neighbouring spectrum users, licences cannot be strictly technology-neutral). The spectrum Band Plan. Spectrum packaging. Equipment availability, a function of – international standardisation release timing (ideally bidders want equipment available from multiple suppliers, with known costs and performance before they bid for spectrum). Financial terms (permitting payments to be spread will tend to increase proceeds, but carries a risk – as the U.S has discovered). Policy objectives e.g. - Coverage obligations Access obligations (FRND, roaming, MVNO etc) Favoured types of bidder (as the U.S has experimented with – not always successfully). Restrictions on spectrum trading or leasing. Minimum licence terms (and the prospect of licence extension). Plus, never under-estimate bidders’ willingness to exceed their determined maximum value if they see competitors bidding more. Reserve prices are usually set to discourage frivolous bidding (as is the requirement that bidders must be companies, not individuals), rather than to signal anticipated 12 proceeds.
  • 13. Awarding spectrum for DTT multiplexes The market value for multiplex licences at the launch of a DTT platform will be affected by: Minimum licence term (over which the necessary heavy investment in the transmission network will be amortised) Potential for new, competing multiplexes to be awarded. Perception of competitive threats to future income. Emerging consumer preference for HDTV (and then 4k), which DTT will tend to be less able to offer than other linear platforms. Competitive threats to linear broadcast platforms: IPTV 2nd screen. DTT will be arguably be more vulnerable to these threats than other linear platforms which offer a greater range of services (and, in the case of cable, also offer a return path). In addition, DTT’s access to spectrum is threatened by – Mobile broadband White Space devices. 13
  • 14. Linear television is far from dead In recent years, too many industry experts have forecast the imminent death of traditional linear television based on a combination of what new technology can do and how early adopters use those technologies. But early adopters are not indicative of the majority of consumers. Familiarity is a major determinant of usage. Brands also matter – and major broadcasters often have the kind of brand value which disruptive new entrants would kill to have. Every day in the UK there are 52 hours of first-run programmes on the PSB channels alone (source: Deloitte). The consumer desire for easy access to lots of “lean back” entertainment isn’t going away. So despite all of the competing devices and services clamouring for attention, in the UK television – Still has a weekly reach of about 95% of the population aged >4 And still serves up 49 measured ads per viewer per day (source: Deloitte). And television remains the most trusted source of news. 14
  • 15. The threat of IPTV IPTV is currently all about catch-up TV, not true VOD. Watching programmes commissioned for, and already broadcast by, linear TV. The convenience of Connected TV (that is, where consumers have actually connected them) offering IPTV on the same display, without the need for consumers to use a 2nd device, will drive take-up, but – Many displays capable of being connected aren’t connected. Manufacturers' desire to offer proprietary app stores, and minimise the role of broadcasters, acts as a drag on usage of those displays actually connected. The direction of travel may be clear, but for now IPTV is used principally as a modern replacement for VHS tapes. So arguably more of a threat to the PVR/DVR (in >50% of UK homes) than to DTT. Although “+1” channels will probably lose much of their purpose. In the UK, the PSBs drove the recent launch of YouView to ensure that the 15 demand for IPTV from DTT users stays within the DTT ecosystem.
  • 16. But how much of a threat to broadcast is IPTV? Despite consumer familiarity with PVRs, with plenty of time to then change their content selection priorities, they largely haven’t: Linear remains the default, with storage – and then cloud – as the fallback when schedules disappoint. 16
  • 17. Obstacles which delay IPTV truly challenging broadcast How universally available is broadband? How fast, and reliable, in peak hours is broadband? How much investment has been made in multicast technology? How affordable is broadband? Unlike Free-To-Air DTT, IPTV is never truly free. Does the average broadband subscription have data caps so low that a household’s average viewing, if all IP, would result in financial penalties? Have rightsholders made available the most popular programmes on terms which make IPTV a substitute for broadcast? Not every rightsholder is ready to acquire a direct relationship with consumers. 17
  • 18. The threat of 2nd screens At least for the most advertiser-friendly audiences, this is the future of TV consumption: 18 Source (this slide & the next two): Viaccess-orca, 2012.
  • 19. But the television display still attracts the most attention 19
  • 20. 2nd screen is both threat and opportunity The 3rd, 5th and 6th (possibly the 4th, too) activities below suggest that this is an audience waiting to be engaged by broadcasters… …or a “parasitic” 3rd party which gets there first. 20
  • 21. 2nd screening is more about talking about programmes than interacting with them Frequency of communication in the UK via messaging, email, Facebook & Twitter about the TV programmes being watched: 21
  • 22. 2nd screen is both threat and opportunity Some broadcasters are getting spooked by 2nd screens But there have always been distractions for viewers, it’s just that when those distractions are connected they are measurable. So are 2nd screens going to become more engaging for viewers than magazines, books, newspapers, conversation and food have always been? 2nd screens add the return path which DTT and satellite usually don’t have. 2nd screens can effectively increase advertising beyond the constraints of regulated broadcast ad minutage. There is a range of programme-related information which broadcasters are in the best position to provide: Cast, locations, theme & incidental music (with click to iTunes to purchase?). If broadcasters don’t assist the communication about the programmes they 22 transmit – someone else will.
  • 23. The spectrum threat: how much will DTT be left with? The UHF spectrum principally used by DTT has good propagation characteristics, it – covers long distances bends around hills and buildings goes through walls (for good in-building coverage). Those characteristics also make this spectrum attractive for mobile broadband use, which was accorded “co-primary” status for this spectrum by the ITU at WRC-07 (for 800 MHz) and now WRC-12 (for 700 MHz). Despite the fact that the demand which mobile (i.e. cellular) operators are finding hard to meet is for urban/suburban capacity, not suburban/rural coverage. The challenge is to re-plan DTT to: make more efficient use of spectrum increase DTT capacity to enable the launch of more HD services clear more spectrum for future mobile demand. 23
  • 24. More DTT and more mobile, too? Stage 1: Pre-Digital Switch-Over (DSO) Television: 5 analogue services + 6 DTT multiplexes 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 Radar Radioastronomy PMSE Stage 2: Post-DSO - 2012 DTT: 6 multiplexes 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 600 MHz cleared for re-use PMSE Stage 3: Post-DSO clearing DTT from Channels 61 & 62 and auctioning 800 MHz - 2013/14 DTT: 6 national multiplexes + local TV + "white space devices" 800 MHz LTE "4G" 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 600 MHz cleared for re-use PMSE Potential Stage 4: 6 existing DTT multiplexes re-planned to make more efficient use of spectrum + 2 new multiplexes + clear more spectrum for mobile ("700 MHz") to be auctioned later DTT: 8 national multiplexes + local TV + "white space devices" 800 MHz LTE "4G" 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 PMSE 700 MHz cleared for mobile broadband Notes on the above: (i) Numbers in diagrams above are television Channel numbers (each 8 MHz) 24 (ii) Number of national multiplexes shown in Stage 4 is indicative only of the additional capacity (with required regionality) which might be required to secure a solid, sustainable future for the DTT platform and to maintain vigorous inter-platform competition.