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Broadcasting Services Amendment (Digital Television and Datacasting) Bill 2000

CHAIR —I welcome Mr Alex Encel from International Dynamics. The committee has before it submission No. 1, which it has authorised to be published. Do you wish to make any alterations or additions to your submission, Mr Encel?

Mr Encel —Only that all the figures quoted are approximate but not to the extent that they will lead to any different conclusions and that where I say `content' it means entertainment content.

CHAIR —Thank you. Would you like to make a brief opening statement before being questioned by senators?

Mr Encel —In attempting to put this debate in perspective, I am reminded of two expressions: having lost sight of our objectives, we redoubled our efforts and it was a triumph of hope over experience. I want to see the transition to digital TV succeed. To the best of my knowledge, I am the only person with hands-on experience of TV selling to consumers involved in this debate. I believe I can speak from the consumer perspective with some insight, and the evidence overwhelmingly shows the triplecast system will fail to meet reasonable objectives from the outset.

A clean analog switch-off near 2008 is not possible. HDTV will only survive in the next few years if on a life support system, which I believe will be turned off. Since 1998 I have been providing information along the same lines to a database of now 50 media people, all political parties and some official parties. Until recently, there was not much interest but in more recent times a lot of my material has been used. I have asked many times anyone who has a query or does not agree with it to please contact me. This has only happened once and the person could not supply backup figures to substantiate what he was talking about.

Since the government announced its original digital TV policy, nearly all the focus has been on media issues and technological wonders. In general, the public has been given information that is full of hyperbole, misleading and often untrue. Consumer acceptance has been assumed throughout, with the rather optimistic proviso that in case of problems we will solve them by varying the policy mix later on. It is an assumption that bears little relation to reality. The present government policy gives no clear definition of success or outcome sought in terms of consumer acceptance. Elsewhere in the world, governments are more prepared to be accountable. In the UK they have stated that 95 per cent of viewers are to be on digital TV at analog close-down. In any rational view, low consumer take-up in Australia and subsequent indefinite analog close-down would constitute failure, despite any niche market success for some DTV market players. Research and now real-life experience point to an inevitable conclusion that the triplecast system or a close variant must fail in its aim to fully utilise the spectrum without some form of coercion. I have searched worldwide for more than two years and can find no properly conducted research or actual life experience that allows a different conclusion. The social and economic consequences of such an outcome will be significant.

Australia has a good free TV system. The DVD digital system in Europe is basically one where the user pays on an ongoing basis and hardware costs are subsidised. The alternative is to have consumers foot the bill more directly for the necessary hardware changes up-front. Either way, what we do about the people who do not want or cannot afford digital TV has not been given due consideration. The gap between the technological haves and have-nots will widen. At the other end of the scale, the government has left the option open to effectively close down the HDTV requirement if it proves unsuccessful. I read this morning that the movement seems to be going against that in any case, and from a consumer point of view it must fail. If or when—I will say `if' on the basis of tact—we close down HDTV, what happens to those who invested? Is the assumption that the fact that they can afford the high price tag means they can afford the loss?

Although my commercial interests would best be served by continuation of the present policy and I recognise the political difficulties involved in change, my recommendations to avoid a must fail policy are as follows: delete mandated HDTV from the outset. HDTV will suffer failure at a consumer level. It is much more sensible for Australia to follow the world rather than make a heroic attempt to lead it from such a tiny domestic market in world terms. Let us examine the real costs of digital TV implementation which our policy should take into consideration. In my experience, the figures referred to so far as part of policy formulation have often been exaggerated by a factor of several times in whatever direction is convenient to the protagonist. Closer and more realistic scrutiny of such costs would help significantly in ensuring that the best decisions can be made. As it is impossible to achieve the originally stated commitments, let us not have a very disappointing start. Let us pause to consider the specifics and practicalities of what we are trying to achieve for consumers and adapt our policies to suit. In other words, make the proposals genuinely accountable to consumers, with the desired outcomes measurable and outlined, rather than have them based largely on hope, especially when all known evidence and experience points to a contrary result. Let us spend less time on how to cut up the cake and devote more time to finding a recipe that will find it edible for all consumers.

As a person dealing with TVs on a daily basis, let me assure you that, if the market decides, you will find a huge proportion continuing with analog. Yet making the transition to digital work far better is quite feasible if we act now. My forecasts since 1998 regarding digital TV have come true. I do not want to be right again; I simply want a system that works. To close, I would ask you to imagine being in the hands of doctors who say, `Although the patient does not need the operation immediately, nor understand it, and although all evidence worldwide shows the operation will not give the desired outcome, let's do it anyway. We're tired of talking about it and, besides, it would be embarrassing to tell him. Let's get onto something else, as we have a lot to do. Maybe we won't be around when he finds out.'

Senator MARK BISHOP —Welcome, Mr Encel. Your submission was fairly caustic on the reasons for the establishment of the HDTV system in Australia and the government's arguments to that. What are the common misconceptions that TV buyers have at the moment if they should choose to purchase HDTV?

Mr Encel —I could spend the whole time going through that. I will give you a few examples.

Senator MARK BISHOP —We have about 14 minutes.

Mr Encel —HDTVs will not be available in the normal sizes that they can purchase. There are no normal size TVs made world wide in the six-times resolution specification often quoted. There are no such TVs existing in the world nor, to my knowledge, are there any even proposed to go on the market. So that is one misconception. It has got a bit more confused lately. Originally, they thought the cost was going to be about $4,000. That is what was in the media; that was on quite a few TV shows. Some $4,000 to $4,500 for HDTV sets was often quoted. That is about a quarter or a fifth of the average comparative price of an HDTV set in America, and I have the figures with me.

Another misconception is that the prices would drop very rapidly, and there was talk on one show that they were going to cost $2,500. My own individual survey says that most people say they do not have any idea of what is going on. So when you say that there are misconceptions, I would say that they do not know what is going on. They thought it would have all these wonderful features, but they are not sure now. They think it is going to be free. They believe all these extras will come for nothing.

Senator MARK BISHOP —Is it true that a lot of the extras that are being discussed—datacasting, home shopping, interactivity and Internet access—will also be accessible through SDTV?

Mr Encel —They can be, according to the decisions that are made. Technically, you can do whatever you like in the formulation of the system. But one of the problems is assuming that people will go on digital TV for those reasons. This is a Sega Dreamcast. I have no connection with Sega. It now costs $499 and is expected to cost $299 by the middle of next year, because they make their profit selling games. You can connect to the Internet, do your typing and do everything on there that you would do with digital TV, apart from some of the other aspects of it. So the Internet side you can cover with this.

Senator MARK BISHOP —If I am a purchaser, what extra product do I receive if I go down the path of HDTV as opposed to SDTV? I am paying somewhere between $5,000 and $15,000 extra for the TV set.

Mr Encel —Sorry, there is no $5,000. You are not talking about $5,000. I have offered to provide 10 free TV sets for charity to anyone who could show me HDTV sets obtainable anywhere in the world for $5,000 where you can actually buy them.

Senator MARK BISHOP —So you argue strongly that the real price is going to be $15,000 or $20,000?

Mr Encel —The average pricing in America has been $US7,500 over the first year, and I have the figures here. That equates to, on the normal conversion basis, over $20,000. It is not just exchange rate; it is market size.

Senator MARK BISHOP —If the purchase price is circa $20,000 in Australia for a new HDTV set, what extra benefit do I get as a consumer from purchasing that over whatever is the market price for an SDTV?

Mr Encel —If you want a really big screen projection type unit, you will get a big, clear picture. For that, it would be useful. But that is a very small part of the market, and it is a smaller part of the market in Australia than it is in America. HDTV has not been a success in America at the consumer level.

Senator MARK BISHOP —Looking at that hole in the wall up there, most TV sets at home would be that size or marginally smaller. If I purchase that screen size, what do I get if it is a HDTV that I do not get in SDTV?

Mr Encel —At this distance, I would say nothing. It depends on a person's sensitivity. The usual estimate is that HDTV should be watched at twice the height of the screen to get the full benefit. In that position it would be about one metre. In one of the publications of FACTS it said that you can comfortably watch the TV one metre from the screen, and I would agree. I actually brought a piece to show what would happen. I am trying to work out how you fit a few people—the average Australian family—in front of that TV. I have the FACTS media release with me.

Senator MARK BISHOP —Very close families?

Mr Encel —You would have to be very friendly! As your distance gets further, the difference becomes less. You could debate whether it is at two times or three times. TVs are not viewed on the basis of just picture quality. They are viewed on the basis of how to fit a family in, where to eat the pizzas—all those different factors. From a normal consumer point of view, it has not got anything to offer. For a dedicated HDTV person with a big screen—and we sell to them: we have people who buy that type of equipment, but it is a tiny market—

Senator MARK BISHOP —That is the obvious question. What percentage of the marketplace is that large screen?

Mr Encel —In America the uptake in the first year, according to GFK, was 5,000 approximately, and there are a few different ways of confirming those figures. That was out of 25 million. If you do the mathematics, that works out—

CHAIR —You said 25 million was the sales figure?

Mr Encel —No, 25 million TVs sold to consumers in America and 5,000—that is complete—HDTV sets. Those results have been published a few times and no-one has contradicted them. If we divide that up on an Australian basis, 170 TVs would be sold in Australia the first year if we buy at the same rate as Americans do.

Senator MARK BISHOP —Does that apply in public entertainment venues like the big clubs in New South Wales and elsewhere which have the big screens? Are they HDTV?

Mr Encel —They can't be.

Senator MARK BISHOP —They would be a market in the future, I presume.

Mr Encel —There is a market. But the point I am making is that it is a very small market and to base our system on a tiny market seems to be not an equitable solution.

Senator MARK BISHOP —Your submission doubted the government's capacity to ensure digital service is at least equivalent to analog in coverage and in quality in regional areas. Why do you make that assertion?

Mr Encel —Digital has different transmission characteristics to analog. There will be winners and there will be losers. Until the final system is worked out and developed in practice we will not know for sure. I think the analogy would be mobile phones. You remember when digital was going to be crystal clear and usable everywhere? We found out this was not the case. I am not blaming the technology; it was just unreal expectations. You will find in certain areas—and I can give you examples—it will be worse. We have digital TV from Europe in our offices in Melbourne and sometimes it gives very good results and sometimes it gives terrible results. I do not want to go into a whole pile of factors. Because the transmission characteristics are different there will be winners and there will be losers. I do not believe you can adequately cover regional Australia unless you have an enormous number, an impractical number, of antennas. If you start working out what happened with digital phones, it took a lot of technology before we started to cover.

Senator MARK BISHOP —Would you need a different antenna?

Mr Encel —On Digital in England has a service to put in new antennas. The answer is that if you have a really good modern antenna, no; if you are in a very good signal area, no. But a lot of people do not have a really good antenna and they have the wrong cable and characteristics in their antenna. About 35 per cent of Australians do not even have an antenna: they run on rabbit's ears or something of that kind. All those people are going to have to pay for something.

Senator MARK BISHOP —At this stage it is fair comment that there may be significant problems in terms of reception for a lot of Australians outside the major capital cities.

Mr Encel —Unless we decide we are going to throw a tremendous amount of money at it—with unlimited money you can solve everything technological in terms of what we are trying to do. But the point is that there is going to be a lot of resistance for us to provide the sort of money that is required. One of the things I have asked for, without success, is the detailed figures upon which a lot of the argument and decisions have been made. I have been unsuccessful. One of my contacts overseas, who is quite independent of Australia, says that the figures sound like they have been plucked out of the air. So where are these figures that are detailed and available for independent scrutiny? The costs were a few hundred million, then they were half a billion and now they are a billion. Where are they?

Senator MARK BISHOP —On one final issue, you made reference to the system in the United Kingdom and that when they get to 95 per cent they will turn over from analog to digital. In the United Kingdom, as I understand it, it is mandated, and it is delivered via the pay TV system through subscriptions to pay for the conversion. In Australia what sorts of figures would we need in terms of TV sets having been converted before we could turn off the analog system?

Mr Encel —That depends on what degree of coercion you are going to apply to the TV-owning public. I think I read this morning in the Age that one of the members of FACTS thought we would be lucky to get to 50 per cent—I am not sure if they are the exact words—so, at that time, you will have five million TVs. Most of those people will have TVs that will have had several years of use left, so what are you going to do? Switch off the system and ask those five million or six million TV owners to buy set-top boxes? I think that would be a difficult proposition. I think you could debate whether that 95 per cent should be 90 per cent, but it has to be nearly everyone, and even then you will have people—what do you do with the pensioners? What do you do with the people who have not got the money to spend on a set-top box?

Senator MARK BISHOP —Thank you, Mr Encel.

Senator BOURNE —I can see that we are running out of time so I will not ask all the questions that I have, Mr Encel, but if you would not mind answering some in writing that would be really good, but I have a few that I would like to ask as it is.

Mr Encel —Sure.

Senator BOURNE —On the technical side, if you have a home—as most of us do—with two televisions in it—there is one in the kitchen, one in the lounge and, maybe, there is one in the bedroom—do you need a set-top box for each of those if you are going to the set-top box option and not the HDTV or SDTV?

Mr Encel —If you wanted the same program you would need one box. But I think that would be very unlikely, because that is one of the reasons that people have multiple TVs. So, yes, you need an individual box for each TV.

Senator BOURNE —So that will increase the costs as well. You told us how HDTVs are selling overseas. How are SDTVs selling? I know that Europe has gone substantially—

Mr Encel —SDTV sales worldwide—well, in the UK and Europe—are minimal. It is set-top boxes. People take their ordinary TV and rent a set-top box by subscription. They do not own the box, not unlike a phone, and it is taken away when they finish their subscription. They have various programs. On digital, I have a catalogue here that has a number of them. So it is a pay TV system. What we know is that pay TV has certain limitations. Australia is not really that enthusiastic about pay TV. The original blue skies forecast has become very deflated. I have heard various estimates of 15 per cent to 18 per cent on pay TV, but it is not something that is going to become 70 per cent, 80 per cent and so on. So, on the initial figures, it is a pay TV market. So the question is: do we want Australia to develop as a pay TV system? If we do, that is a decision that governments can make. But I think we had better decide what we are trying to do, which comes back to my point of what are our objectives. I have yet to find anywhere, somewhere clearly stated that, `These are our objectives and this is what we want to achieve.' If we have not got that, we do not know where we are going.

Senator BOURNE —You mentioned that people probably will not rush out to buy digital televisions, but we all rushed out to buy mobile phones and the price of those did go down. We do like toys. Do you think that is the case? Do you think that will happen?

Mr Encel —Mobile phones sell over 300 million a year when I last heard about it. You measure mobile phones in millions. You measure set-top boxes of a particular type in thousands. So that is one side of it. So the costs do not drop. If you look at TV prices from seven years ago, you will see that they are different but not that much different from what they are now. They might have improved, but the prices are not that much different. You then take the next step. Mobile phones do something that is completely different from what you did before. You cannot do that with a normal phone. Your standard definition or high definition do the same thing and we were debating earlier whether that is considered better. But I deal with customers every day. Most people in Australia are happy with a set that is under $500—it might have rabbit's ears, it might have snow on one channel, they cannot be bothered putting up an antenna, they do not care if they get SBS or the ABC. That is the real world of TV buying. They are not dedicated people fussing about their signal quality and polishing the fronts of the sets. We are in the medium to upper class TV market. To persuade someone to spend $3,000 on a TV and to spend $150 on an antenna is sometimes a big effort.

Senator BOURNE —It is with me. I can understand that. Isn't it the case though that, if analog is turned off when it is supposed to be, everybody is going to be forced into this market, so they will have to buy something and, from your scenario, it is more likely to be a set-top box? Do you think that the market then—there are only 18 million of us and I do not know how many million households—will be so large that the prices will start tumbling?

Mr Encel —I am sure they will go down. I think it is more a political question, which I am not competent to answer. Can any government decide to switch off the TVs of more than half the population of Australians and tell them to go out and buy boxes that are worth more than their TVs? You can tell me that one.

Senator BOURNE —So, from what you are saying, you do not think HDTV has got much of a future.

Mr Encel —Let me tell you what I think the HDTV proposition will be from a dealer. Let's say there is a cheaper version which costs $10,000 for the sake of argument. The dealer would say, `Here is your $10,000 TV. The government has the right to turn it off in a few years time. It will not say, but it might do that. The Labor Party say that they will have an inquiry into switching it off. For the first couple of years you will not get anything much on it anyway. You will only get 20 hours a week maximum and we do not know what the programs are going to be.' What a proposition! That would be a hard TV to sell. May I ask a question? It has a simple answer.

Senator BOURNE —Of course.

Mr Encel —In the last several years, how many people present have bought new $3,000 to $8,000 TVs while their old one was okay because of picture quality differences, have put in a top quality antenna and a surround sound system, are on pay TV and have Internet access? Please put up your hands.

Senator BOURNE —I have Internet access.

Mr Encel —No—all those things. Not one person. This is what we are saying all Australians—not all Australians but a large number of Australians—are going to buy. Yet here are people on higher than average incomes and there is no-one. This is the extraordinary part to me. I have talked to a lot of people in the media and some in political circles and have asked them what they have and they all seem to have $500 to $800 TVs, except one out of about a several dozen. Yet, somehow, a lot of them expect that everyone else is going to be desperate to do it. That is the part I find so difficult to understand.

Senator CALVERT —What is the price of a Loewe set?

Mr Encel —They range in price from about $400 to $4,000. Basically, our market is more like $1,100 to $4,000.

Senator CALVERT —I think most of us have them in our offices in Parliament House.

CHAIR —We do.

Senator BOURNE —And very nice they are too.

Senator CALVERT —It is a very good television. Do Loewe make HDTVs?

Mr Encel —No-one makes HDTVs to Australian specifications. They are asking me to keep them in touch and I cannot comment on what they will do in the future because we still have not worked it out. They keep asking, `Haven't you decided yet?' I say, `No.' That is the first question. I do not think it really matters. The market is going to be so expensive that I do not think there can be a real market in Australia.

Senator CALVERT —I went to my local electrical outlet last week and asked: do you have any HDTVs in your catalogue? He said, `I have one here and it costs $30,000.' I do not know what make it was, but it was $30,000. It was an American set, I think.

Senator BOURNE —That would be right.

Mr Encel —He may have a set that is capable of receiving—

Senator CALVERT —He has not got it but he can get it. It is in his catalogue.

Mr Encel —But it is not to Australian specifications because there aren't any. We have not even got the software, as far as I know, worked out for HDTVs, so you cannot have a set made to Australian specifications.

Senator BOURNE —I have only one more question that you have not answered. I have ticked these off, but I am really nosy. It is there other stuff you have there that might be of interest? Or is it just the dream world you wanted to mention?

Mr Encel —Lots.

Senator BOURNE —Are there other goodies?

Mr Encel —These are the two spark plugs. One is $6 and one is $20. They are made by the same company. You would have to be pretty good to tell them apart. All I can see is a slight difference in electrode. I estimate the difference is probably 50c, but the price difference is $14. This is this argument about chip sets, that cheaper chip sets will come out. The manufacturing world does not work like that. Here are three tapes. One is $4, the super VHS is $20 and this one is $8. I think you will find them very hard to tell apart. They are just plastic things with some tape in between. So I think the cost difference would be measured in cents. I cannot prove that, but somehow the price difference at the end to the consumer is not like that. All this talk about what happens ultimately and that all of these prices will drop is an assumption which I do not think will happen. Let us say that there is no objective evidence that you can just add on the price of a chip set and sort of work out what the difference is going to be.

Senator TCHEN —Mr Encel, does this small cost difference but great price difference apply to television sets as well?

Mr Encel —It is not just TVs, it is in other manufacturing. Look at a car with mag wheels. I do not know what they cost to make, but I do not think they cost to make what the cost is if you want to buy them to put on the car.

Senator TCHEN —So it applies to the Loewe sets as well?

Mr Encel —I do not know their internal costings. You could be partially right. It is a very competitive market. It is based on competition rather than on other factors.

Senator TCHEN —I read your submission with great interest and I particularly enjoyed the attachments—your media releases.

Mr Encel —Thank you.

Senator TCHEN —You have given me enough information here to analyse it, but to enable me to analyse it I would really like to know what direction you are coming from. Everyone else has expressed an opinion from a particular viewpoint. Are you opposed to the introduction of digital television in Australia?

Mr Encel —No.

Senator TCHEN —But you are opposed to the introduction of HDTV as opposed to SDTV?

Mr Encel —I am opposed to the triplecast package and the unreal expectation that consumers have. If people's expectations are too unreal they can be turned off a technology altogether. Good technologies sometimes die, not for technological reasons but because people have been given unreal expectations.

Senator TCHEN —In your ideal world, how should we introduce digital TV in Australia?

Mr Encel —In an ideal world, first we work out what our objectives are. As I said earlier, I cannot find anywhere clearly what we are trying to achieve. Then I would get someone like Strategy Analytics. I have never met them, but they have done a lot of successful work on digital TV overseas. They predicted the flop in American HDTV. Get someone independent. I do not believe anyone in Australia has not got an axe to grind in one form or another. I will except myself because it would be an advantage to me if the triplecast program went on. What I am advocating is against my interests.

Senator TCHEN —So what you are suggesting is that we should do nothing yet?

Mr Encel —We should investigate. The Japanese are not doing anything yet: I think 2003 is the time quoted as when they will be starting to look at it. I have asked many times: what have we gained by being early? If, as some people suggest, everything will drop in price and chip sets will be reflected in the cost of the items, that is terrific. Let us wait and see. We have a very good PAL system, so let us introduce things properly. We are earlier than a lot of places. What are we gaining in terms of our triplecast program? The normal consumer will get the same programs basically digitalised rather than analog, but they are not getting a lot more.

Senator TCHEN —So you are speaking on behalf of the consumer?

Mr Encel —Yes.

Senator TCHEN —Do you understand that, under this proposed legislation, with this triplecast approach it costs the consumer nothing? A consumer does not have to buy a new television set to continue to receive free to air broadcast.

Mr Encel —That is true, up till close-off time. But what happens then?

Senator TCHEN —That is eight years, at least eight years. There will be simultaneous broadcasting for at least eight years.

Mr Encel —Yes.

Senator TCHEN —The last quantum jump in television quality was the transfer from black and white to colour.

Mr Encel —Yes.

Senator TCHEN —In your experience, how many years did it take for colour television to be accepted?

Mr Encel —I was not selling TVs at that time, but I do not think the analogy means anything.

Senator TCHEN —That was a switch over from one type of service to another.

Mr Encel —Yes, but I think we have to look at the patterns over the last several years, which give you a very different picture. If the public were so interested in quality, instead of the average TV price in Australia being $750—and most TVs are probably worth $500 or less—people would be buying sets worth $2,000 from us or someone else. They do not think it is worth their while.

Senator TCHEN —I am sure that they will buy from you, if you drop your price to $500 or $600.

Mr Encel —And we would go out of business, yes, that is true. But they are not interested. We find difficulty often in persuading someone to go from $1,199 to $1,399, though they may have a BMW in our car park, they may be a doctor or a lawyer or another professional person. So a lot of people do not consider TV quality relevant to their needs.

Senator TCHEN —But the point I want you to think about is that, under this proposed legislation, no-one will be required to buy or even encouraged to buy the more expensive television set.

Mr Encel —Sorry, I do not agree with that.

Senator TCHEN —Because, under the triplecast proposal, they will continue to be able to use their television set for quite a long period.

Mr Encel —Sorry, I do not agree with that. When you say they are not encouraged, if you are told at the end of the period you are going to be switched off, I think that would be called some sort of encouragement to make a decision. But the other part of it is: let's accept that they can do this until 2008. At that point of time, let's say that there will still be five million TV sets—depending on how you would estimate it; I would estimate it as being higher—that are still analog. You then switch off. Those people are being coerced into buying set top boxes or renting set top boxes, or doing something. So at some point of time, we have to face that transition: how do we force people—and `force' is the operative word—to go to digital TV?

Senator TCHEN —To change from analog reception to standard definition digital transmission, you would still require set top boxes, would you not?

Mr Encel —Yes.

Senator TCHEN —So whatever happens, once digital broadcasting is introduced, set top boxes will be required to make analog television useable and for it to continue to function.

Mr Encel —Yes.

Senator TCHEN —So it does not really matter, does it? It is a question of how much the set top box will cost. Notionally, those five million analog televisions can continue to work indefinitely because, under this proposed legislation, even if analog broadcasting is switched off, SDTV will continue to be broadcast.

Mr Encel —If you decide at that point to force a large proportion of Australians to buy boxes that may be worth a lot more than their TVs, yes, you can continue. So I think it is a debating point because—

Senator TCHEN —Yes, I understand. But you made the point before that the cost of the television set has not come down, even though other types of solid state electronics have come down. Are not the costs of the television set controlled or affected by the quality of the vacuum tube?

Mr Encel —That is just one of many factors. There are a lot of factors. It is the complexity of the cabinet, the dies, the tool costs, the sophistication of the electronics. There are many factors. You cannot just isolate—well, you can—one of them.

Senator TCHEN —So the converter box is not affected by the same sort of consideration, is it? That price could well come down very quickly, the same way that other electronics have come down?

Mr Encel —If you had a huge volume of people wanting them, yes. That is the problem. If you have a huge number of people, it can come down. But the point remains that, whether you consider it comes down from effectively $1,000 now to $500, when measured in current terms, or $400, you still have people who do not want to spend $50 to $100 on an outdoor antenna. So, whether that price comes down substantially, there will still be a number of people—and we can debate how many because we do not know—who just do not want to do it.

Senator TCHEN —Yes, but that situation will occur whenever we switch over to digital. It does not matter when—

Mr Encel —Not necessarily.

Senator TCHEN —Because your analog receiver will not receive digital signals.

Mr Encel —That is not necessarily so. You could have another situation—which I would say would be politically somewhat difficult—whereby you could decide that you were going to sell a section of the spectrum and provide free set top boxes of a very simple kind. If you made a few million of them, I am sure you would be able to provide them for a very cheap price to people. For the people who want a more sophisticated one, you could give them $100 credit, or something like that. As I said, it is not a political solution, but in that way you could definitely transfer very quickly because there would not be any cost impost on people with TVs.

CHAIR —Is that what has happened in the UK, effectively?

Mr Encel —No, what has happened in the UK—and I have a catalog, `Ondigital' here—is that you pay up to about 38 a month, which is more than $100. There are various plans and you get all this content. They do not mention picture quality. They have hardly anything on email or datacasting—I think it is about a couple of lines—none of it is on picture quality, all the wonderful programs you will get. It is entertainment content, and that is what we are not giving them on the triplecast system. We are not giving huge amounts of entertainment content. Anyway, it is a pay TV system, so it is not free.

CHAIR —They provided a free set top box, but you buy the service?

Mr Encel —It depends on how you judge `free'. You do not pay for the box; you pay for the subscription. It comes to the same thing.

CHAIR —Thank you for providing that information.

Senator HUTCHINS —Briefly, Mr Encel, what is the difference between the quality of picture with HDTV, SDTV and analog? Is there any difference between them?

Mr Encel —I will have to take a couple of minutes to explain. It is not something you can say in one line. Firstly, when you read the articles on FACTS web site it has about six times picture resolution. There are different standards of HDTV—there is not one standard—so I am assuming that, because everything has been based on the cinema quality standard, which is five or six times resolution, on a really big screen unquestionably you will notice a difference. On this sized screen, the answer is that for normal viewing distances most people would not notice.

Senator HUTCHINS —So they will be screens that size?

Mr Encel —No, they will not. No-one is making a HDTV in this size, which I call the full specification. No-one does it.

Senator HUTCHINS —What size do they make them in?

Mr Encel —You can find it on the web site, but I can give you a copy. You will find they are generally 32 inch, 61 inch, 32 inch, 64 inch, 61 inch, 34 inch, 38 inch, 61 inch, 55 inch and 65 inch. The smallest is 30 inch, and it does not exist yet. It has been talked about for the last several months but still does not exit. So you are talking about big screens, which Australians do not buy. You have to assume that we are going to change all our habits—our TV buying habits, our pay TV habits, our size habits, our family viewing habits—everything is going to change. This may be so, but I think that is a pretty dangerous assumption.

Senator HUTCHINS —So you would need that huge screen to get the quality of the picture?

Mr Encel —If you were a bachelor watching very close, like I was demonstrating before—I am not sure about the radiation effects; I have not checked into that—then it probably would be a great thing, but I do not think there are sufficient bachelors who want to spend that sort of money to sit in solitary viewing close to a TV screen, if the sets ever exit.

Senator HUTCHINS —I am a bachelor now, so I can tell you that I would not do that. In parts of Sydney, where I come from, there are difficulties receiving SBS. I cannot get SBS where I live, which is in the outer western suburbs. Is there still going to be the same sort of difficulty with reception with HDTV?

Mr Encel —Again, it is a money question how you do it. We have digital TV in Melbourne we get from Europe. What we find is that sometimes one program is better and sometimes the other is better. This stuff about digital with a sharp cut-off point is simply not true. It is certainly sharper than analog. What you get sometimes is a pixellated effect. You know those things where accused people have blocks around their faces: it is a smaller version of that. Sometimes you get a split screen. It is not common; I am not trying to say these are normal characteristics. Digital has different problems. It is the same as you have got with your digital phone. The digital is sometimes crystal clear but in certain places my phone sounds like I am inside a barrel, and I am sure this is true of other people's phones. In Sydney also there may be winners and losers. I do not know. Sydney is a big, highly populated place. Maybe digital will be better for some people. My advice to people is to wait until digital comes into your area, see what is on offer, see what it costs, say what it is worth to you and see if you are interested. It is the same assumption that people are desperately interested in picture quality, which we talked about once. It just isn't so. That is the problem. If anyone wants to see digital TV in Melbourne, they would be very welcome. I will not give a sales talk and try and sell them a TV.

CHAIR —We will have to close at that point. Thank you very much for appearing, Mr Encel. That was most interesting evidence.

Mr Encel —Senator Eggleston, thank you. I could have talked all day.

[11.22 a.m.]