Discussion paper

Analogue switch-off (ASO) will provide an opportunity to rationalise the terrestrial UHF-TV spectrum band and release some of the frequencies currently used for analogue television to additional broadcasting or other uses (the ‘digital dividend’). The Ministry of Economic Development is seeking opinions from broadcasters, content providers and other interested parties as to how this might best be accomplished. Responses to the discussion paper, below, are invited by 5.00pm Monday 9 June 2008.

Additional material concerning the overall policy development in the 2003-2007 period, funding arrangements, and new policy development relating to ASO is published on the Ministry for Culture and Heritage's website.

Review of digital conversion policy for the UHF-TV band

Introduction

Digital television

1. Until relatively recently, all television broadcasting in New Zealand employed analogue terrestrial transmission networks, and all household television receivers were analogue-based.
2. Digital television was introduced through the SKY Television satellite service and Saturn (now TelstraClear) cable service in Wellington and Christchurch. Subscribers are provided with a decoder (set-top box) to convert the incoming encrypted digital signal for input to the household analogue receiver.
3. Freeview (a consortium of free to air broadcasters) commenced a satellite service in 2007 and has now (2008) implemented a digital terrestrial network to around 75% of the population.
4. Freeview’s television broadcasters (Television New Zealand, Mediaworks, Maori Television Service), along with SKY, NZ Racing Board and some other parties, continue to operate analogue terrestrial networks in the VHF and UHF frequency bands.
5. Digital technology allows the transmission of more information over a given bandwidth than can be achieved with analogue technology. With ‘standard definition television’ (SDTV), ten digital TV channels can replace one analogue TV channel: and with ‘high definition television’ (HDTV) at least two digital TV channels (with residual capacity for some further SDTV channels) can be substituted.

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The digital transition

6. A ‘digital transition’ from analogue TV to digital TV requires substantial investment by broadcasters (transmission infrastructure), content providers (studio facilities, particularly for HDTV production) and households (digital receivers and/or set-top boxes). Government intervention in the transition process is necessary to ensure that:

• fair and effective competition between broadcasters is sustained;
• public service broadcasting is supported;
• opportunities for new broadcasters and content providers are maintained;
• households are able to make informed decisions about services, content and receiving equipment;
• spectrum is used efficiently; and
• unused spectrum is returned for additional broadcasting or alternative uses (eg, broadband or cellular services).

Digital Conversion Policy

7. Government has adopted a range of policy measures to support the digital transition, including a decision in 2003 which allows television licence right-holders to convert their terrestrial spectrum licences from analogue to digital at any time, subject only to licences being in use and to re-valuation.
8. The Ministry is now seeking comment from stakeholders on ways in which this digital conversion policy might need to be modified to reflect the recent digital television developments in New Zealand.

Current New Zealand Policies

Cabinet decisions

9. The objectives of the transition from analogue to digital services, and Analogue Switch Off (ASO) have been agreed by Cabinet ¹ and are:

• to release spectrum for allocation to new broadcasting or other uses (for example, mobile applications or broadband wireless access);
• to facilitate re-planning of the UHF spectrum band for greater efficiency and to encourage new broadcasting entrants;
• to enable cost and energy savings to be realised by terminating the requirement for simulcast transmission in analogue and digital formats; and
• to enable consumers to determine their long term reception equipment needs, by minimising confusion about the implications of analogue switch-off.

10. To further these objectives, Cabinet, on 15 October 2007

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11. The arrangements for the 2010 renewal of the UHF analogue TV licences were developed in 2004 and offered to broadcasters in early 2005. They were based on the limited information available at that time concerning the likely future scenarios for digital TV and the use of the UHF band in New Zealand. The flexible licence conversion policy and the choice of a ten year renewal period (rather than the usual 20 year period) reflected this uncertainty.
12. The effect of the policies quoted in paragraph 10 is to create a group of TV licences (‘legacy analogue’ in the table below) that may or may not be converted to digital TV licences and that effectively expire in 2020 (ie, likely to be several years after the ASO date). These licences carry no conditions of use, modification or surrender. The majority are held by SKY Television (used for Pay TV, Prime and Maori Television), the Racing Board and some regional television stations.

13. Since making the 2010 renewal offers, future plans for the UHF TV band have become much clearer, including the development of the Freeview digital terrestrial platform and Government policies on such related matters as ASO. To support these plans, Cabinet noted in the same Minute that it had further agreed to:

14. The effect of this group of policies is to create a group of free-to-air digital licences (‘FTA digital transition’ in the table below) that will be renewed for twenty years after ASO, subject to conditions that include:

• the digital licences must be ‘in use’ at ASO;
• all analogue licences used for simulcasting (‘FTA analogue simulcast’ in the table below) must be surrendered at ASO; and
• licensees must accept any change of frequency and technical parameters required to consolidate use of the UHF-TV spectrum and make available any unused capacity to other program providers or uses.Top

15. Cabinet here agreed that all new analogue TV licences (‘new analogue’ in the table below) would be granted under conditions similar to those for digital transition licences: ie, subject to cancellation if unused at ASO, and to changes in frequency and technical parameters if converted to digital TV licences, with a 20-year right of renewal. The various licence groups then become:

16. Clearly the terms and conditions under which these different groups of licences are held are at variance. Cabinet therefore has:

17. This discussion paper addresses that directive.

Policy outcomes

18. The Ministry of Economic Development is responsible to the Government for efficient use of the radio spectrum, in order to underpin economic development, maintain effective competition and maximise its value to society. Concordant with that responsibility, the desired outcomes from the digital transition process are:
    1. that the Crown retains the ability to plan the efficient use of the present UHF-TV band, including allocation of unused spectrum for other uses;
    2. that all digital TV licences are used to capacity, so far as is practicable, particularly before ASO;
    3. that all analogue TV licences revert to the Crown at ASO;
    4. that there are opportunities for new services and broadcast content providers to enter the market;
    5. that there is a sufficient range of digital TV broadcasters to maintain competition in the TV broadcasting market.

Digital conversion policy issues

The digital dividend

19. A 2006 cost–benefit study by Spectrum Strategy Consultants estimated that there would be a net benefit of approximately $230 million in making the analogue-to-digital transition, provided that ASO occurs by 2015. The study confirmed the desirability of an early ASO date. The ASO process is, in fact, expected to be completed by 2015, possibly earlier.
20. A change of frequency and technical parameters for digital TV licences may be desirable at or after ASO to optimise frequency planning. This has been mandated in the Freeview licence contracts and in ‘new analogue’ contracts, but does not apply to other analogue TV licence-holders.
21. Government agreed in October 2007 that ASO would apply to all free-to-air services (including Prime and regional services), and has noted that the application of ASO to analogue right-holders who have no plans for transition to digital transmission will need to be discussed with the broadcasters affected.
22. If, the remaining subscriber-service analogue TV licences were allowed to continue beyond ASO, frequency re-planning may be compromised, delaying realisation of the digital dividend until the licences expired in 2020. Perhaps, therefore, there needs to be a mechanism for clearing those licences from the UHF-TV band at ASO.

Spectrum efficiency

23. ‘Legacy analogue’ TV licences are not the only impediment to TV band re-planning and realisation of the digital dividend. There is also the issue of how capacity on the new digital TV multiplexes is to be managed to promote efficient spectrum allocation.
24. Analogue licences in the UHF-TV bands were planned in the late 1980’s, when the coverage expectations of potential rightholders were unknown. The licences were based on the ITU-R interference protection parameters for analogue services. They were relatively high-powered, with co-channel licences needing to be separated by substantial guard bands.
25. Digital TV networks can operate at lower power levels than analogue networks, and require lower protection ratios under ITU-R standards. The overall effect is to reduce substantially the bandwidth required to implement a TV network (ie, a nationwide series of licences). In addition, and unlike analogue licences, digital licences allow the simultaneous output of multiple programmes within a single transmission (a ‘multiplex’).
26. Should a network owning (say) three analogue licences and transmitting on three TV channels convert the licences to digital TV, it would thereby acquire the capacity to transmit on three multiplexes, accommodating up to 30 SDTV channels. This would leave the network with an immediate ‘surplus’ of 27 channels, a patently inefficient use of spectrum.
27. The Government’s objectives for spectrum efficiency require the consolidation of transmission capacity into an optimal number of licences. If there were currently 30 channels on 30 analogue licences and a known intention on the part of broadcasters to roll-out another 30 channels after conversion from analogue to digital licences, the entire 60-channel output could be carried on six licences as SDTV, or (say) 20 licences as a mixture of SDTV and HDTV. In either case, there would be a substantial number of licences surplus to the industry’s requirements.
28. It is noted that forecasting the actual level of demand for such services prior to ASO is difficult, and is complicated by uncertainty over the extent to which high-definition (HDTV) services, requiring greater bandwidth, will be introduced. Overseas experience suggests that viewers are likely to place pressure on broadcasters for increasing amounts of HDTV programming, due to the greater quality of the viewing experience.
29. The ‘worst-case scenario’ in this context is direct conversion of licences from analogue TV to digital TV with no re-planning, consolidation or new content. The result, potentially, is a patchwork of digital multiplexes extending across the full frequency range of the UHF-TV band, each carrying one or two TV channels and with up to 80% of actual capacity idle.
30. The process of re-planning and consolidation consequently has to be managed if the Government’s objectives are to be realised. Some options for a regulator might include:

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• a condition on all digital TV licences² that requires acceptance of changes to frequencies and technical parameters where they are necessary to effective band re-planning;

• a condition on licence conversion requiring the licence-holder to exchange (say) two analogue TV licences for each replacement digital licence; or
• a requirement that holders of digital TV licences consolidate their transmissions on the minimum practicable number of licences and relinquish any unused licences that result;

31. The process for defining the preferred frequency band(s) to be reallocated to digital TV post-ASO, of re-planning digital licences to efficiently use the residual spectrum that will still be used for broadcasting purposes, and of determining the preferred allocation mechanism, has not yet been scoped or initiated, but will obviously be essential in the near future and well before ASO.
32. This work will necessarily need a consideration of available technologies, expected types of services sought in New Zealand, and overall Government policies. The work, whose timing and priority would have to be determined by Cabinet, will to some extent be iterative and will include at least one stakeholder consultation process. In due course, Cabinet will make decisions on the overall outcome. Views on related issues are being canvassed in the current Digital Broadcasting Review of Regulation (see the MED and Ministry for Culture and Heritage websites).

New entrants

33. The Government wishes to ensure that there are opportunities for new broadcasting services and broadcast content providers to enter the market. This can be achieved:

• by creating new digital TV licences specifically for new entrants;
• by creating ‘public’ shared licences (multiplexes) open to use by new entrants under defined conditions; or
• by mandating policies that enable new entrants to utilise unused capacity on existing licences.

34. Creating a new digital TV licence for a new entrant does not necessarily enhance spectrum efficiency, in that a new broadcaster or content provider is unlikely to require the full ten-channel SDTV capacity of a licence. If the content to be broadcast is in HDTV format, the justification for an exclusive licence may be greater.
35. Creating a new shared licence affords an intending broadcaster or content provider access to the market without the necessity to acquire, own or manage a spectrum licence. Should more new entrants join the market, it is a simple matter to create the licences for further multiplexes.
36. The most efficient policy, in terms of spectrum use and infrastructure investment, is to utilise spare capacity on existing multiplexes. This may be difficult to promote, as private interests are unlikely to welcome new entrants to the highly competitive digital TV market. Incentives for established broadcasters to enter into such capacity-leasing arrangements are not particularly strong, and the power resides with the incumbents. Ensuring that a licence is allocated for its true market value may give incentives for a licence holder to lease capacity, but it is difficult to envisage that a pure market approach would always resolve the issues.
37. Nonetheless, various types of carriage conditions are common in overseas jurisdictions where private TV networks may, as a condition of their licensing, be required to broadcast public service and regional television channels, or vice versa. Such measures enhance the ‘viewing package’ available to the public.
38. Another option, providing a right of access by new entrants to unused transmission facilities, is often practicable only when the network operator is not a broadcaster, but instead functions as a common carrier.
39. These types of access can only be guaranteed through imposing pertinent conditions on new digital TV licences. Given that the majority of such licences in New Zealand have been granted without these conditions, legislative authority might be needed to enforce them, although case-by-case negotiation is preferred.

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Certainty of investment

40. The digital TV market is competitive, volatile and subject to rapid changes in technology and fashion. In such a high-risk environment, broadcasters tend to be cautious about investing in new infrastructure and services unless there is some certainty of tenure. In New Zealand this is, inter alia, determined by access to spectrum rights, both through ownership and assurance of renewal.
41. ‘Legacy analogue’ licences have guaranteed ownership to 2010 and the right of renewal to 2020, with no requirement for digital conversion, surrender at ASO or frequency and technical parameter changes. ‘FTA digital transition’ licences have guaranteed ownership until ASO and a right of renewal (at a commercial value) for twenty years thereafter, subject to being in-use, and any necessary frequency and technical parameter changes. ‘New analogue’ licences are valid until ASO, renewable thereafter only if converted to digital TV use in the interim, and subject to the same conditions as FTA digital transition licences.
42. There are obvious differences in the level of certainty attached to each group of licences. It would be of obvious benefit to the market for a ‘level playing field’ to be created.

Submissions

Submissions should be provided to the Ministry as soon as practicable, but in any case before 5.00pm, Monday 9 June 2008. This will enable the Ministry to analyse the views provided, undertake any specific discussions deemed necessary, and report to Ministers by 30 June 2008.

The Ministry requests that submissions are provided electronically to radiospectrum@med.govt.nz in either word or PDF format. Any questions about this paper or the process should also be directed to this e-mail address.

The Ministry’s preferred format is:

Respondent’s name

Organisation (or, for example, ‘private individual’)

Nature of organisation’s interest (eg, ‘TV content producer’)

Email address or other address for written communications

Response to Issue 1a

Response to Issue 1b

….etc

Any other matters that you believe the Ministry should consider in reviewing the present digital conversion policies.

The Ministry intends to publish all submissions on the Ministry web site, and notes that submissions are subject to the Official Information Act 1982. If a respondent considers that there are grounds for the Ministry to withhold key information in a submission, this information should be clearly marked and the relevant reason stated so that the Ministry can determine whether withholding may be justified under the Act.

¹Cabinet paper– Digital television: process and policy for the transition to analogue switch-off, MCH 2007

²A condition requiring frequency changes is already incorporated in the licences granted for the initial terrestrial digital services (Freeview).