As indicated, policy transparency improves certainty for market players (including consumers), encourages co-ordinated action, and ultimately facilitates the switchover. Therefore will be important calls upon Member States to publish by end 2003 their intentions regarding a possible switchover. This could cover, in particular, the way they organise and monitor the process, stakeholders’ involvement, and policy instruments intended to promote switchover.
At ITU level, comparison of national experiences and regular monitoring would provide useful information on policy and market status. This would help identifying possible actions to develop internal market synergies.
3.6.2 Regulation allowing for business autonomy and co-operation
Developing digital broadcasting markets is a complex process requiring significant investment from many players to: roll-out networks, develop enabling technologies, sell terminals, offer compelling services, and encourage user uptake. Industry must have incentives to invest and autonomy to search for winning formulas. This requires a stable regulatory environment, including licensing terms for service operators with a duration that enables an appropriate return on investment, taking into account the additional costs caused by the transition and with the possibility of licence renewal so as to provide an adequate incentive. Licensing terms should also facilitate provision of sufficient network capacity to support a variety of services.
However, authorities should monitor market evolution, consult with industry, and be ready to review or flexibly interpret conditions relevant to switchover where justified, for example conditions concerning the calendar for roll-out and territorial coverage, technical choices on transmission and terminals, ownership thresholds, price caps, taxes, simulcast extent and timing, or obligations to provide certain programming. Authorities may have trade-offs to make between a faster switchover and other policy objectives, for instance regarding the degree of pluralism, and they need to consider the impact of policy choices on market competition. The challenge is to find the right balance between different policy objectives while respecting legal requirements, in order to maximise collective welfare. For instance, as argued below, co-ordination and cooperation between different industries is important for switchover. While various public policy objectives can be taken into consideration in this context, competent authorities must ensure maximum transparency regarding such objectives and the necessary means to achieve them. This should go beyond vague references to the goal of digital switchover and/or the Information Society.
Co-ordinated and synchronised action may be necessary to achieve critical mass. Co-operation between industry players at various levels of the value-chain must be therefore facilitated, especially in the initial market stages, which imply trial and error testing. This can be organised through joint investment and risk sharing schemes for technological research, launch of new equipment and services, and promotion. Authorities may contribute through financing or regulation, as is done in some Member States for both digital TV and radio.
Co-ordination is particularly relevant in horizontal markets, such as free-to-air broadcasting. Unlike pay broadcasting, no dominant party controls the value-chain and ‘free-riding’ behaviour can result in collective business failure. Sharing responsibility for commercial promotion and consumer after-sale service, notably in face of difficulties with signal reception or receiver equipment, is particularly important.
In the case of digital radio, apart from favourable regulatory frameworks in the Member States, it appears that synchronised implementation across the ITU Member States is important to increase market synergies.
3.6.3 Proportionate and technologically neutral regulation
In terms of political feasibility, switch-off in a given territory can only take place when nearly all households receive digital services. In order to promote the fast and efficient achievement of this objective, all transmission networks should be taken into account (primarily cable, satellite or terrestrial). This approach recognises that network competition contributes to the roll-out process. This implies a regulatory level playing field. In principle, each network should compete on its own strengths. Any public support for one particular option cannot be excluded but should be justified by well-defined general interests, and implemented in a proportionate way. Otherwise it would appear discriminatory and could jeopardise investments in other networks. In particular, each individual network should not necessarily enjoy the same position in the digital landscape as in the analogue landscape. The objective should be to achieve a fast and efficient switchover. Efficiency should include preserving the general interest missions of broadcasting, while limiting public expense.
Finally, any public financial support to digital broadcasting needs to be compatible with State aids rules and in line with national laws.
3.7 Problems related to the interoperability of systems
In Europe the scenario is as follows.
3.7.1 Digital reception
Ensuring that most users are equipped with digital receivers is the main challenge for switchoverand a pre-condition for switch-off. Finding a solution for all receivers in the home, not just the main receiver, just adds to the challenge. The two basic options are digital converters or set-top-boxes connected to analogue receivers, and integrated digital receivers. Moreover, additional reception facilities such as cabling, antennas, dishes, etc are often necessary.
There must be a large range of digital reception solutions to suit various user segments. This means choice of functionality, price and commercial formulas. Equipment cost is not a major barrier to the consumer of pay-TV services since some pay-TV operators subsidise it, having already deployed millions of set-top-boxes. However, pay-TV will not achieve the widespread penetration of digital TV only. Now the main challenge concerns the creation of ‘horizontal’ markets for unsubsidised receivers supporting free-to-air digital TV services, where consumers pay the full cost from day one. Co-existence of the two business models is important for wide-spread digital TV market penetration.
Availability of cheap receivers is essential to minimise entry barriers for consumers. Most of them must be equipped before the switch-off can take place. Equipment costs should not be much higher than in analogue and services at least comparable, thus offering a cheap entry point to digital TV. This is the way the market seems to go now. Of course consumers should also have options to buy expensive equipment supporting sophisticated services. Service and equipment diversity also contributes to wide-spread digital TV market penetration.
3.7.2 Encouragement to deployment of digital receivers
Free movement of goods within the internal market requires that national authorities do not impose administrative constraints for commercialising digital broadcasting equipment and compulsory technical requirements.
Some ITU Member States envisage public subsidies for digital equipment through schemes aimed at the whole population or just specific groups. The risk with the first scheme is discouraging purchases, including purchases of more sophisticated equipment than the one subsidised. The risk with the second scheme is trading of devices between subsidised and unsubsidised population groups.
Several other forms of incentives have been considered by some Member States, for instance temporary and digressive reduction of the licence fee for homes with digital equipment to encourage fast digital migration, etc. Some Member States allow a reduced rate of VAT on pay-per-view and subscription broadcasting services. The financial implications and parties affected are different, so each option should be carefully analysed and implemented.
3.7.3 Consumer information on digital equipment and switchover
Consumer information is crucial to drive digital equipment sales in a market-led approach to switchover. Consumers should be empowered to plan their own migration rather than being forced and thus deprived by this process. They should be well-informed of the timing and consequences of switchover so as to take their own decisions on services and equipment from a wide range of choices. They must be aware of what various devices can offer, what are the prospects of analogue equipment obsolescence and the possibilities for upgrading. Information and labelling should also be available in accessible formats for consumers with disabilities.
Informing consumers is the responsibility of equipment manufacturers, retailers and service providers, who need to co-ordinate their action and send clear messages whilst respecting competition law. Labelling schemes for analogue and digital equipment, with explanatory notices and/ or logos, based on voluntary industry commitment, would be particularly useful. The goal would be to send consumers positive and negative signals about, respectively, digital-compliant and analogue-only receiver equipment. This information should mirror national switchover policies, including indicative national or regional switch-off dates. Especially as an analogue switch-off date approaches in a particular Member State, its consumers should be clearly warned about the risks of equipment obsolescence.
Policy intervention in this area has been proposed in some EU and third countries. However, Member States cannot impose de jure or de facto compulsory labelling schemes without prior notification. Notification enables a compatibility assessment of such measures with internal market rules to be undertaken. Where necessary, a certain degree of harmonisation could be envisaged so that the approach to labelling would be common whilst tailoring its implementation to local circumstances, such as national switch-off dates. Labelling specifications could be approved by consumer and standardisation bodies.
3.7.4 Integrated digital television receivers
The prohibition of selling analogue-only television receivers according to a staggered calendar has been completely implemented in the United States and debated in some EU Member States. All countries would have to implement the obligation more or less simultaneously to preserve homogeneity within the internal market. This would have greater impact in countries where digital penetration remains low and strain the principle of subsidiarity traditionally applied in broadcasting policy.
Although a potential drawback of compulsory integrated digital receivers would be the extra cost for consumers but the increase is likely to be minimal because of economies of scale.
3.7.5 Digital connectivity
Digital connectivity raises copyright security concerns, in particular that insufficiently protected digital content could be illegally copied or distributed. A number of options exist to interconnect digital TV equipment, fulfilling different requirements but it is still unclear which way the market will go in the long term as home networking strategies are implemented.
3.7.6 Interoperability of services
Regarding more sophisticated functionalities such as Application Programme Interfaces (API), interoperable and open solutions for interactive TV services must be encouraged. The Member States will decide whether it is necessary to mandate certain standards to improve interoperability and freedom of choice for users. Indeed, these two criteria will likely contribute to consumer uptake of digital broadcasting in a market-led switchover scenario, thus minimising the need for public intervention.
Access to digital broadcasting should include citizens with special needs, notably people with disabilities and older persons. However, while digital broadcasting offers greater possibilities than analogue in this area, these are not yet supported by digital equipment in some markets. Harmonised approaches can reduce costs through economies of scale, thus facilitating the marketing of relevant functionalities.
3.7.8 Removal of obstacles to the reception of digital broadcasting
Infrastructure competition stimulates market development, increasing consumer choice, quality of service and price competition. This may be constrained in some areas by legal, administrative or contractual restrictions on the deployment of infrastructure or reception facilities. Authorities will need to arbitrate between promoting digital broadcasting and the fundamental freedom to receive information and services, therefore facilitating network competition, and other policy objectives on town planning, environmental protection or other areas. With that proviso, national authorities should encourage network competition. By way of example, some Member States have already adopted measures in support of this objective, for instance by requiring the provision of multi-network reception facilities in new apartment blocks, facilitating their installation in existing blocks (for instance by reducing the required threshold of tenants’ votes), or by removing restrictive clauses in property or renting contracts. Co-ordination between national and local authorities is important since local authorities are often responsible for the practical implementation of this type of measure.