Public and Social value of DTT & PMSE services

Greg Bensberg, Digital 3&4Sept 2014

Brief history of UHF band & DTT in UKDate Activity

1996 Broadcasting Act 1996: Allows DTT Mux licencing and allocation

1998 Digital terrestrial, satellite and cable services launched in the UK

2003 Communications Act 2003: Establishes Ofcom and enables switchover

2005 UK Government announces switchover timetable

2006 Ofcom publishes Digital Dividend Review

2006 RRC06: ITU Treaty planning digital broadcast use of UHF and VHF bands

2007 WRC07 agrees co-primary use of 800 MHz band

2009 DTT adopts DVB-T2 and MPEG 4 and lunches HD services

2012 Digital switchover completed & WRC 12 agrees co-primary use of 700 MHz

2013 800 MHz band fully released and 4G auction completed

Where does value sit?• Ofcom Digital Dividend Review

(DDR) published in 2006 set out the attached structure for defining total value for services

• This considers two types of value:– Private, including both producer

and consumer value– External, mainly focussing on

social and citizen value

Private Value• Two types of private value to be considered• Producer Surplus: the amount that producers gain for selling a

product or service above what they would be prepared to sell them– So assuming that the producer does not want to lose money on a product the

floor price should correspond to the producers costs including cost of capital and minimum margin

• Consumer Surplus: the benefit that consumers gain from consuming goods and services above what they would have been willing to pay for them– Willingness to pay is often determined by surveys which ask how much

consumers would be wiling to pay for a product (eg BBC services)

External (Social) Value• As noted this is the value that society gains from services or products

– It can be positive such as greater social cohesion from public access to balanced news or rural broadband

– Or negative such as pollution caused by the consumption of products (exhaust from vehicles)

• Social value can cover a wide range of elements such as: access and inclusion, quality of life, belonging to a community, educated citizens, cultural understanding, informed democracy & social bads

• These are harder to quantify and most approaches use different types of market research looking at preferences and trade-offs for wider benefits to society for certain options

Broadcasting - Social Benefits• Public broadcasting and its use of DTT is subject to a wide range of

public policy interventions which are generally linked to maximising social value

• These include:– the BBC Charter and licence fee, – the licensing of commercial public broadcasters such as ITV, Channel 4 and Five

with positive programme obligations– The inclusion of specific requirements in multiplex licences requiring high level

of coverage and service reliability– The government's decision to allocate spectrum to these services including non

PSB services

DCMS Report (2012)• The DCMS commissioned an Analysis Mason report in 2012 on the impact of

radio spectrum on the UK economy• This concluded for the broadcast sector “Of this value, 84% is enjoyed by consumers,

much of it from DTT services for which the willingness to pay is significantly higher than the licence fee. On the flip side, most of the producer benefit comes from DTH subscription services – the gain from DTT is low due to the not-for-profit nature of the BBC.”

Category Mobile Comm’s Broadcast

Economic value £30.2 bn £7.7 bn

Producer Surplus £5.9 bn £1.5 bn

Consumer Surplus £24.2 bn £6.2 bn

Digital UK incremental value report• Digital UK commissioned Communications Chambers to prepare a

report on the incremental value of the use of UHF spectrum for DTT and mobile broadband services

• This looked how each service would value the incremental addition or loss of further UHF bands

• A key conclusion that the study reached was that the majority of the value of spectrum to mobile operators was in the main voice service. Therefore any incremental addition of more capacity for wireless broadband services added proportionately less value whereas the DTT network would lose substantial scale and value for any additional loss of UHF spectrum

Key summary of CC report• The report calculated the

economic surplus for each sector

• The table included illustrates this on a per MHz basis

What elements represent social value

• The key elements of the DTT platform which may represent social value are likely to be those which a fully commercial operator would not provide, these will include:– Universal coverage of the three PSB multiplexes– Provision of high quality news at prime time– Requirement for news to be impartial (applies equally to Sky News as well as

the PSBs coverage)– Investment in UK originated content (drama, children, distinctive appeal to

minorities)– Children's programming– Regional news– Local programming

Ofcom UHF Strategy (2012)• Ofcom prepared a detailed research report on consumer attitudes to DTT

and mobile broadband• An interesting finding was that consumers preferred more access to

further DTT services over improved mobile internet services

PSB Review• Ofcom is currently carrying a PSB review which will look at the trade

off between intervention to secure public value (implying market failure) and the costs of regulatory intervention (which can include regulatory failure)

• No figures are available yet but a summary from the previous PSB review is included in the following slide

• This identifies the areas of content production that have required intervention to maintain their provision

• It also considers whether more than one source of provider is desirable or necessary

PMSE• The PMSE community make extensive use of the UHF under a

secondary allocation• The industry comprises three sectors:

– Broadcast and film production – Live events such as theatres, concerts (including festivals) and sports– Community groups including churches, community events (fetes & meetings)

• It is very difficult to assign a value to the producer and consumer surplus for each of these categories as the value of the main business relies on a wide range of inputs to its value

• However, it is reasonable to conclude that access to suitabale spectrum does enable a wide range of social benefits including access to cultural events and community cohesion

Conclusions• Total value can be captured as a combination of private and external

(social) value• It is possible to quantify the private value of services and products using

standard tools but much much harder to achieve the same for external (social) value

• One approach is to identify social value that is not being realised (often through a market failure) and then decide whether the cost of intervention to achieve the desired outcome outweigh the opportunity costs

• This approach has resulted in specific requirements in broadcast licences which require the broadcasters to operate beyond their commercial interests