DTT Policy in the UK –Regulating Broadcasting and Telecommunications: Intermediate Course,London School of EconomicsJulian McGougan, Group Strategy, 6 September firstname.lastname@example.org 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) AdvertisingPublicly 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 √ √ X6
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 7Transmission 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 DTTOriginating Service Key obligations How enforced As part of the current Communications BillRegulation 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 (currentlyTelegraphy (where Technical Licence Conditions cannot fine for Neither mux 1 (BBC) nor mux 2 (ITV/C4) face a requirement to offer bandwidth onAct 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 anticipated12 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 the15 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 largelyhaven’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 attention19
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 thaninteracting 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 they22 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.