TRANSCRIPT OF PRESS CONFERENCE
TUESDAY, MARCH 24
SUBJECT: DIGITAL BROADCASTING Alston: Today's a very good day for consumers in both regional areas and in the cities. The Government has decided today to open the door to a new era in broadcasting. It will allow people to have the wonderful experience of both cinema quality viewing and CD quality sound. It will enable the cinema and the concert hall to be transported to the home.
It will change the nature of television sets. It will allow people the choice of being passive observers and active participants. It will enhance the TV experience as well as offering a vast new array of services. It's a balanced package, it's a good outcome for all of the parties.
The principle features of it are that there will be spectrum made available to the free to air networks, including the national broadcasters, for a period of at least ten and a half years, but eight years from the start up of the legislation on the first of January 2001. That will enable a smooth transition path. It will enable consumers to set their own pace in terms of migrating to digital services and it will provide an opportunity for the technology to be put in place.
There will be, because we are wanting to ensure that the quality of both free to air and pay-TV remains high, we have imposed certain limitations. We have restricted the capacity of new entrants into the free to air market for a fixed period, but at the same time we have imposed a limitation on free to air from either multichannelling or providing pay televisions services.
There will be a level playing field for data, in other words there will be the capacity to provide digital datacasting services. That capacity will be available to the free to air networks to the extent that they don't require the full 7MHz for High Definition Television. If they are using it for datacasting services they will pay commercial rates. There is, in fact, a great quantity of surplus spectrum which will be available by way of auction to any new players who want to offer datacasting services and there will be competitive neutrality. So that the price they pay will be the same as that paid for by the free to air networks.
There will be captioning requirements for news and currents affairs programming for the free to air networks. The ABC and SBS will also be given a loan of the adjoining blocks of spectrum in order to enable them to provide digital television services. We'll have an inquiry to ascertain whether they ought to be allowed to engage in multichannelling, which would be restricted to non-commercial activities in accordance with their Charters. Otherwise the spectrum arrangements will apply to them as well, they'll be able to datacast. If that's a commercial service then they will pay for the privilege but they'll be able to onsell the capacity that they don't require for digital television. So I'll take questions.
Q: Will the free to airs have to pay for something like Teletext. You know they've already got. Will they.. (inaudible)?
Alston: We draw a distinction between multichannelling and enhanced services. The basic proposition is the free to air networks should not be allowed to multichannel because that would essentially be turning themselves from single channels into multiple channels and would impose a very significant threat to the pay-TV networks. But they would be allowed to enhance the services, and the benchmarks for determining what constitutes an enhancement - and that will be a judgment made by a review process - will be the existing analog service. So you'll look at what remains on analog for the period of simulcast, you'll then make a judgment about whether what is offering in conjunction with it constitutes an enhancement.
So if it were, for example, statistics, background information, in support of that service, then that would be regarded as enhancement. If it was simply a completely different football match then it would multichannelling and it wouldn't be allowed. Now, the precise boundaries is not something that can be drawn on the run. The purpose of the legislation will be to determine those principles which should apply and then have the matter looked at by the experts in the lead up to 2001. There'll be a further review period in the year 2005 to determine what happens after the expiration of the simulcast and exclusivity periods, and that will enable any decisions to be made - in other words, whether to allow the free to airs to engage in multichannelling and pay-TV, whether to allow new entrants into the free to air television market, whether to allow any new services that mightn't even been thought of at the present time.
Q: Will that (inaudible) cover cross media aspects (inaudible), for example, free to air networks getting datacasting. Doesn't that (inaudible) cross media rules?
Alston: No, there'll be virtually no limitations on the capacity to datacast. But the free to air networks will be limited to the spectrum that's made available in the adjoining guard bands. They won't be able to, at the same time, bid for the spectrum that's available to new entrants. Those new entrants won't have any limitations placed on them in terms of cross media regulations and we are not proposing, as you well know, to review the cross media or foreign ownership rules at this time.
Q: So the free to air channels could datacast classified advertising from a newspaper, and that wouldn't be a problem?
Alston: They'd be able to datacast services if it's determined that constitutes datacasting and not multichannelling, and to the extent that it is a commercial operation then they would pay for the privilege.
Q: So presumably they couldn't do it at the same time they were offering High Definition movies, they'd have to ..(inaudible)?
Alston: No, but what's likely to happen based on the US experience, which I think is the most apposite model, is that you will probably find that there will be High Definition offered at particular times, prime time, there'll be lower standards - standard definition - offered at other times. If you're offering less than HD then you've got the capacity to provide datacasting services. And because you can't predict the business case and you can't determine in advance to what extent HD will be a commercial success, then you have to provide the capacity to reach that ultimate point but at the same time provide that if they do use it for other purposes then they are treated commercially.
Q: How are you going to ensure that non-free to air broadcasters who want to support a datacasting service will get access to the .. decoder boxes? Will there be an access regime?
Alston: Well, there will be an access regime along the familiar lines that apply in the telecommunications area so that they will have reasonable access.
Q: Who will police that? The ACCC?
Alston: It's... I'm not sure if we've specified that, but certainly there would need to be an independent authority to determine that, whether it's the ABA, or the ACCC, the principle of access arrangements would certainly be in place.
Q: But given the free to airs would basically control the set top boxes in the first instance, given all the problems of open access, not just in Australia but around the world, doesn't this give the free to air networks a significant head start in terms of digital datacasting services?
Alston: No, we want to ensure that the start up date is the same for each, so we'd need to auction off the spectrum for new players for datacasting and it's up to them to roll out their own networks and enter into arrangements with the free to air networks if necessary to get access. We expect co-location wherever possible, and they'll then make their own commercial judgments about how they deliver the service from that point.
Q: Isn't that a contradiction in competition, either the principle of competition, that you will give special treatment to free to airs, that you will allow them to datacast, but you don't allow the non free to air operators access to digital television?
Alston: You are consciously limiting the number of free to air players, and in the same way you are putting protective arrangements in place to look after the pay-TV industry by banning the free to airs from pay-TV. Now, once you've done that, and you've ensured that you can have a high quality digital television environment, then you have plenty of other spectrum that's available for other datacast services, and whether it's datacast offered by the free to airs or whether it's offered by new entrants, then there should be equality of treatment.
Q: And they pay the same price?
Alston: Yes. you'll have to have shadow pricing arrangements to achieve that equality, because in the one instance the new players would have to bid for the spectrum, therefore they pay an upfront price, they'd therefore probably pay a lower annual fee, and that would then be offset against a higher annual fee imposed on the free to air networks. But the precise mechanism would be determined by the review.
Q: The ABC and the SBS, are they going to get the money needed for (inaudible)?
Alston: Well, funding is a separate issue and we're still in discussions, certainly with the ABC, about that. It's fair to say that they've approached it in two phases. They've looked at the initial pre-start up phase, where they need to convert camera and editing suites and post production facilities, and they've put a figure on that, but they haven't yet put a figure on the full cost of transmission. Now, Mansfield's recommendation was that we should look at a one off allocation in 1999, but we're not sticking to that, we're having discussions with the ABC to determine what level we think is reasonable. We're also looking at some other arrangements that they are making in terms of property rationalisation because they accept that they should be contributing and of course there'll also be the capacity for them to earn additional income from datacasting services.
So, where we're at the moment is they want to see the shape of this package before they put some final figures together. Once we've then had an opportunity to discuss funding we'll reach some decisions.
Q: But the general principle there is .. (inaudible)
Alston: Well, I think Mansfield made it fairly clear that he thought the ABC should do at least 50 per cent of non-news and current affairs on an outsourced basis. Now, I'm told that they're pretty close to that figure, and if that is right then that should mean there's a significant reduction in the need for in-house digitisation because it can be one, and the cost borne, by the independent production houses. Again, these are matters that are still under discussion with the ABC, and obviously when the figures are clearer we'll know the extent of their legitimate demands.
Q: Minister, Lachlan Murdoch met with the Prime Minister last Saturday week, for about 45 minutes, in a bid to try to convince the Government not to allocate free spectrum to the free to air networks. Isn't the Government buying a major political stoush with the non-free to air networks... in an election year? Are you concerned with the political fall out from this decision?
Alston: No, as I said I think it's been a balanced package. Can I say to you, I don't know what was discussed in that meeting, I was certainly aware of it, and I've had discussions with all of the players about a whole range of concerns. But the important thing to remember is that when the spectrum was initially allocated, back in the 50s, it was allocated free of charge. Both the US and the UK are providing spectrum on a loaned basis for a fixed period, again without any upfront charge. When the cable companies, or the pay television operators were given their licences they weren't charged upfront fees.
Now, as you know, the free to air networks - and there are four of those and I'm sure you know who they are - they were all keen to ensure they didn't have to pay upfront fees either. so I think it's a model that commends itself to us, particularly I might say because it recognises the fact that there will be very significant conversion costs, the free to air networks put those costs in the region of $500 million plus, at the same time it's likely to result in a fragmentation of the advertising revenue. They're also looking at, particularly the younger demographics, spending more time on the Net and less time watching television. Against that background it seemed to us that all you would be doing is putting at risk the prospect of them making the necessary high quality investment to ensure a high quality outcome.
Q: Minister, two high profile political operatives - Andrew Robb and Graeme Morris - did they both have talks with you about this issue, albeit on different sides of the fence?
Alston: They certainly did, Michelle, and they weren't Robinson Crusoe. I think I had multiple discussions with them, as I have had with virtually every other player in the country.
Q: That argument that the free to airs have to upgrade. Shouldn't someone like News Ltd or Fairfax also have to create new infrastructure to broadcast on digital TV as well, so why shouldn't they get free access to the airwaves?
Alston: Well, I think the starting point is this. In a perfect world you would simply switch off analog tomorrow and you'd turn on digital the day after and you'd use the same spectrum, you wouldn't need to allocate additional spectrum. So, they're being given that spectrum for a period of time because they have no choice, they have to go digital, it's going to be a digital world, but it's no additional financial benefit to them, in many ways it's going to be an additional financial cost because they'll have to continue to provide both an analog service and a digital service. Now, in those circumstances, where they are unlikely to generate any additional revenue from free to air television, and if they do it will be picked up in higher licence fees - they currently pay $190 million a year compared with the US where they don't pay any licence fees - and of course if they use it for any other purposes they'll be paying full commercial rates, it seems to us they're not getting any windfall gain from that loan of the spectrum. They're simply using it because they require it to achieve a seamless transition path. But it will then be surrendered to the Commonwealth, which will have the capacity to rationalise the spectrum and auction it off for whatever purposes it sees fit.
Q: How confident are you that (consumers) will be able to buy a digital TV that's not going to cost them $10,000 in 2001?
Alston: Well, to the extent that the prices are prohibitive, obviously they'll be high consumer resistance. But, I don't...
Q: What speed do you think households will convert to digital?
Alston: At what pace? I don't think it's really a matter for us to make judgments about that. What I suppose I would say is that Australia's got a pretty impressive record as being an early adopter of new technologies and we certainly went for black and white and colour in large numbers so you would probably expect it to happen here as well. It is certainly a very attractive consumer product, from what I've seen of it. But again, ultimately it's not up to us to second guess the market. It will depend, I'm sure, critically on whether people think that it is a brand new experience that transforms the viewing environment and also whether it's affordable, and it's likely to become increasingly affordable over time as the volume increases and the price of sets falls.
It's about to start in the US later this year, as it becomes more the norm around the world then you will expect that the cost of sets would fall equivalently.
Q: Senator Alston, with say 2001, with the High Definition TV, would you expect a couple of hours a day of....
Alston: Yes, we'll be actually expecting them to commence in digital by 1/1/2001 and then we'll establish a progressive schedule to ensure that they do actually have a minimum level of High Definition Television. Now, you ask me at this point of time what that's likely to be, the American experience suggests that it's highly likely to be news and current affairs and prime time. But it's also I suppose just as likely to be movies in 35 mm which are very easily convertible to a digital format. So, I think as more and more product is filmed in digital you'll find that it becomes more financially attractive for the networks to offer more higher definition, but at the end of the day the business case will be determined by the consumer demand.
Q: How did you arrive at the period of ten and a half years, or eight years from 2001, as the appropriate period.
Alston: Well, you've got to make an arbitrary judgment to some extent, but in the US they certainly fixed on a period of ten years in the first instance and then they allowed for a further period to accommodate concerns that maybe everyone wouldn't be in the digital environment by then and they said you had to achieve 85 per cent household penetration - whichever was the later.
So what we've done it to avoid the trap of being too prescriptive of simply mandating a particular year, it's indicative but effectively it's a minimum. If we judge that there's a need for it to be extended to some extent, then we would have the capacity to do that. But we don't want to leave it simply open ended because otherwise no-one's got any incentive to convert and there's no pressure then on the players to upgrade.
Q: Do you have the ability to reduce it, if the 85 per cent household penetration...
Alston: Well, we don't think that's desirable or likely. I think what consumers want is a period of certainty, and therefore I think the important thing is to ensure that they don't feel under any pressure to acquire a digital set before they're ready to do that. As the 10 year figure approaches they'll obviously have to be a bit more concentrated on it. The average life of a set tends to be about that. But certainly in the US, I think people tend to buy a new set every three to four years because they're buying multiple sets. So, it may not be an either or transaction. It may simply mean you still retain the analog but give it to the kids.
Q: But if the take up rate is as fast as it has been on other... VCRs and other.. and ..(inaudible) is there still five years to run?
Alston: Again, I was told in the US that the highest take up of any technology was video, I think, and even that was only about 87 per cent within a ten year period. So, it's unlikely that you will get to that situation, but it may well be the case. I mean, if ultimately everyone's got a digital set within five year hen I suppose there may be a different view taken. But we think it's more important to give the consumer the certainty that they won't have to purchase prematurely if they don't want to.
Q: Will there be any new TV licences, either analog or digital, within the next ten years. Will there be the ability for a company to start up?
Alston: No, but we've said the eight year period from 2001 will expire at the end of that calendar year and we will have an inquiry a few years ahead of that, in other words 2005, to determine whether there ought to be any new free to air licences granted, and to determine what happens to the spectrum, as well as whether the free to airs should be allowed to multichannel or get into pay-TV services.
Q: But no new stations?
Alston: No, because during that period they are faced with the higher costs. It wouldn't make sense...
Q: But someone else might want to come in and use the old analog signal or create another digital TV station?
Alston: It's always been the view in this country that we have the world's best quality free to air television. There are local content rules in place, transmission quota's 55 per cent at the moment. That imposes significant burdens, the trade off of that has been that we limit the number of players in free to air. Now, it may well be that after 2008 that we take a different view, but during that period when they are incurring additional costs for what you wouldn't expect to be any additional revenue from free to air television, it doesn't make sense in our judgment to prematurely raise the prospect. But you'll have the capacity to make judgments about that a few years out.
Q: Have you sought meetings with the backbench committee before (inaudible)?
Alston: Well, we've had at least three, I think, discussions on this area. I think we've covered a lot of ground, there's been I think quite a deal of support for the approach we've taken. Obviously, when you're contemplating something that's as potentially transforming as digital television there are a number of issues to be explored, and that's one of the reasons why it made sense to me to not try and be judge and jury on every issue but rather have a couple of reviews to make sure that we keep up with the pace, and I think that's been something my colleagues also agreed on, that Labor made the mistake of being technology specific, of mandating phase out periods and the like, and we didn't want to make the same mistakes.
Q: Has this package been endorsed by the backbench committee?
Alston: Yes, it has.
Q: Completely as is, it won't change?
Alston: No. That's it.
Q: Richard, will the regionals get some concessions or ...
Alston: We take the view that there are special factors applying, because it will cost them something like $30 million each and they have to obviously put up a lot more transmitters and translators than do the metropolitans. We're therefore prepared to look at the cost, perhaps having regard with what happened with aggregation, when they got some licence rebates and breaks on sales tax, if the case stacks up for that we would have a sympathetic look at it.
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