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Broadcasting Services Amendment (Digital Television and Datacasting) Bill 2000

CHAIR —We have before us the broadcasting inquiry report, report No. 11, which you produced on 3 March 2000, and which, for the purposes of this inquiry, we will take as your submission. Would you like to make an opening statement?

Prof. Snape —Thank you for inviting us to appear before you today. I would like to make an opening statement. We see our role today as being to outline and explain the relevant parts of the Productivity Commission's report, rather than to address the bill as such. We shall focus on the parts of the report most relevant to the bill, but the report was much broader than the bill and some recommendations need to be considered in context of the report as a whole. In the report, we saw very substantial benefits for Australians coming from the conversion to digital television, but analog television is voracious in its appetite for spectrum.

To get anywhere near the full benefits from the new technologies, it is essential to ensure the rapid switch[hyphen]off of analog television to free up the spectrum. With the vision of the potential benefits, the commission asked how to drive the take-up of digital television. A certain switch-off date is a key element. Incidentally, the existing legislation in the act does not provide for a certain switch-off. The commission has recommended the same switch-off date for cities and the country, so as not to disadvantage rural and remote areas.

The commission has emphasised three drivers for conversion to digital: firstly, incentives for consumer uptake; secondly, opportunities for digital service suppliers; and, thirdly, incentives for spectrum to be used efficiently. Without these drivers, the commission saw that the conversion to digital could fail. The commission's position on these incentives and opportunities is as follows. First of all, on high definition, the commission's position is that high definition television is most unlikely to be a driver of uptake; new services and new players are much more likely to be so. If broadcasters see a demand for high definition, we have recommended they be allowed to do it, they should not be required to do it. We have concluded that requiring high definition would be a barrier to the uptake of digital television. In the case of regulation, the report argues that regulation should not make distinctions between services and platforms—distinctions that will be overtaken by technology. Technological convergence requires technological neutrality in regulation.

On datacasting, the report argues that datacasting should be defined as widely as possible, which is something that other people have been suggesting too. The proposal in our final report is that datacasting be defined as `all digital broadcasting'. It would take quite some time for digital broadcasters to give effective competition to existing analog broadcasters. There is a natural protection there through the time for take-up for the existing analog broadcasters. With multichannelling, the commission recommended that multichannelling and enhanced programming should be freely permitted by both commercial and national broadcasters—that is, ABC and SBS. Associated with this, we recommended that the anti-siphoning rules for sport should be modified significantly, so as to remove the disadvantage imposed by them on subscription television.

The commission recommended that spectrum licences should be separated from broadcast licences. Spectrum is scarce. That is the scarce resource. Its price should reflect the scarcity; there would be an incentive to use spectrum efficiently once it is priced. In short, the commission has recommended policies to develop an environment in which competition and consumer choice will drive the uptake of digital technology to the benefit of the Australian community as a whole. That concludes my opening remarks. We would be very happy to field questions on the report.

Senator HUTCHINS —In your report, you refer to the difference between the method used to give away spectrum in the bill and the auctioning off of spectrum, as has been the case with the mobile phone networks. In the budget, the G3 mobile phone spectrum was worth at least $1.62 billion. Are there or were there any compelling reasons to justify this different approach?

Prof. Snape —In the report, we have advocated that there be a price based mechanism for allocating spectrum. We mention in there a transition for problems for existing broadcasters, but we say that all new spectrum should be sold. As I said, the spectrum licence should be separated from the broadcasting licence and not necessarily held by the body that has the broadcasting licence. That would provide an incentive for it to be used efficiently. It would also be an incentive for those who have more spectrum than they need to dispose of it.

Senator HUTCHINS —In your report, you also seem to be saying about the government's determination to persist with HDTV that they seem to be prepared to squander that opportunity to preserve the existing free-to-air players. Am I right to interpret it that way?

Prof. Snape —I do not think we quite used those words in the report. We did not challenge in the report the allocation of spectrum to existing broadcasters. We have recommended in the report that all spectrum be priced, including the spectrum which is for the existing broadcasters.

Mr Simson —Senator, could I quote you a paragraph in the report that is directly relevant to your answer:

Broadcasting policy evolved in an analog era of distinct media that could be regulated separately ... More recent legislation on the introduction of digital television mandates specific television formats and services.

This approach reflects a history of political, technical, industrial, economic and social compromises. This legacy of quid pro quos has created a policy framework that is inward looking, anti-competitive and restrictive.

Prof. Snape —Adding slightly to that, Senator, we could say that a theme throughout the report has been to try and provide a means to escape from a quid pro quo approach to broadcasting regulation. One of the very first things we were told at the beginning of this 12-month inquiry by many participants—and we have reflected this in it—was that the whole broadcasting regulation from its inception was built on quid pro quos and that that had produced a very intricate and complex set of regulations. It was very difficult to change any one regulation, because it was there because of other things being there. The emphasis in our report is—and it is a fundamental principle of the whole report—to attempt to escape from that quid pro quo of balancing this regulation with that regulation and this policy with that policy to one which is aimed at the benefit of all Australians using the new technology to escape from that straitjacket. That is a fundamental principle. You will find the words `quid pro quo' very frequently through the report, and that is what we were about there.

Senator HUTCHINS —In your report you make references to the impacts of this potential regime upon people in regional and rural Australia. Would you care to elaborate on how you see some of the impacts of that resulting from the bill?

Prof. Snape —Again, we are not able to speak to the bill.

Senator HUTCHINS —Your report then.

Prof. Snape —We can speak to the principles in the report and what we have examined in the report which may be relevant to that. First of all, there should be the same switch-off date for rural as for the rest of the country so that there would not be a digital divide in terms of the available facilities in the country, in the rural and remote areas, compared with the city areas. We see that there are more delivery facilities available, platforms available, within the capital cities. Therefore, it was very important to get digital television into the rural and remote areas as quickly as possible so that all the information available through the very much expanded concept of datacasting—all the interactive facilities and all the other possibilities—would be available in the rural and regional areas.

In relation to multichannelling, in the course of the inquiry the ABC showed us and other people what they were planning in rural and remote areas, targeting particular services in regional areas which would be the areas quite able to do with multichannelling. We saw that as a model not just for the ABC but for commercial broadcasters as well. So we saw that multichannelling would also bring advantages to the rural and remote areas.

Dr Gentle —One of the other issues that we thought was important for regional Australia was the cost of high definition television. Not only are our consumers in regional areas poorer on average than those in metropolitan areas and therefore less able to afford high definition reception equipment, but the economics of the broadcasters themselves make the higher costs of high definition production equipment harder for them to justify. The business case for HD is much less in regional Australia, not just remote but outside of the major capital cities, than it is in, say, Melbourne and Sydney. The report outlines the desirability of reducing the costs of digital conversion, particularly for regional Australia. The chapter on sports highlights the potential which datacasting could have for regional sporting broadcasts that would not be able to make the national services. This is building on the sort of thing the ABC talked about. You could have community based or regional based datacasting services which would be able to provide, on an asynchronous basis, your local football events and things of that nature. So where datacasting is defined generally as digital broadcasting without genres and so on, you would be able to have local community regional events, news and sport available on this localised basis at a relatively low cost.

Senator HUTCHINS —How would a media specific public interest test inserted in the Trade Practices Act be administered and how would it be desirable for it to be applied to all forms of the media, including datacasting on digital television?

Prof. Snape —In terms of its administration, we do have a section on that in it and we had a very interesting and good submission from the ACCC itself. It was exploring options and suggested that, in rough terms, it would be that any merger in the media defined broadly would not only have to pass the usual economic tests which are part and parcel of the existing Trade Practices Act, but according to criteria defined by parliament in the act it would then have to pass a public interest test as well which would be related, as we perceived it, to diversity of sources of information and comment. So it would go across the media. Generally, that is, in short, how we saw it operating.

As to how it would be for datacasting and others, again, we were trying to make it not platform specific. The current cross-media rules are very restricted. They do not relate to the Internet, for example. They would not relate to datacasting, depending on how it was to be defined. Our intention there was to say, `We've got the technological convergence going on, the extension of it. We've got some legislation in terms of cross-media rules, which is platform specific and is looking backwards rather than forwards. It is looking to the existing forms of media as they were existing and not taking any account of the emerging forms of media. So let's get a set of rules which will be applicable to the future rather than to the past.'

Mr Simson —The report reflected at one point on the application of the cross-media ownership rules in terms of converging ownership structures and made the point that you could have a telecommunications company merge with a major existing media company—a print publisher, for example—whereas under the existing cross-media ownership rules a traditional media network could not, under most circumstances, do that. Our concern here was that you needed modern regulation that reflected the fact that the mere definition of what is a media company is changing dramatically and very rapidly.

With regard to your specific question on datacasting, we addressed it not from the perspective of trying to bundle specific services into what should be the special public interest test, whether it is conducted by the ACCC or anyone else: we were more concerned with the fact that you have got new media businesses emerging, such as telcos, that could be interested—to answer your question specifically—in datacasting. That is the way we came at it.

Senator HUTCHINS —Why is the commission of the opinion that Australian content quotas as they currently apply to analog broadcasts will not be adaptable to the forthcoming digital and convergent broadcasting environment?

Prof. Snape —Our attitude there was to say, `What is the objective?' There are cultural and social objectives for audio visual. We asked, `What is the best way of going about that objective?' To answer your question specifically, some people put to us in the course of our inquiry that one way would simply be to extend quotas of one form or another according to new platforms.

The existing quotas in the legislation purport to be related to the degree of influence. We found that no-one could give us, in the course of the inquiry, any satisfactory concept or definition of what was meant by the degree of influence. We asked the question during the inquiry, for example: was the Times editorial more influential than the front page of the Sun? No-one could answer that, so we backed away from that sort of degree of influence and said, `Let's attack the social and cultural objectives head-on.' We saw that trying to extend it platform by platform and chasing your tail as new platforms emerged, saying, `Is this new form of broadcasting or transmission influential? What quotas should they have?' and, when another one came, saying, `What sort of quotas should they have?' was not the way to go.

Again, it was being bound by the past and trying to apply the past framework to the future. We said, `Leave most of the existing quotas in place for the time being because taking them off would be disruptive at a time of change; but have an open, public inquiry into the desirable means of pursuing the cultural and social objectives that would target the sources of the social and cultural production rather than the platforms on which they are disseminated.' That was the thrust of it. Rather than chasing your tail, never really catching up and never being sure that you are getting the right sort of quota on each of them—which it seemed to me, with the convergence technology, was going to be impossible to do—we said that you should examine the real objective and target your policy to that real objective.

Mr Simson —We have seriously questioned the efficacy of the quota regime in the long term because of convergence. With these new distribution platforms, and because of a variety of economic and global pressures that are being exerted on the local television production industry, including the content developers which we go into in some detail in this report, it is going to be very difficult to have quotas as an effective mechanism in the long term to deliver the cultural and social objectives as they have been defined up to this point. As Professor Snape just indicated, there may well need to be other forms of government intervention to provide the sorts of outcomes that the community and the parliament want in terms of local content and the pursuit of national, cultural and social objectives. We do not believe that quotas, over the long term, will work.

Senator BOURNE —It seems to me that the Productivity Commission writing this report and seeking submissions has driven public discussion of this whole area over the last year. That is a fabulous thing because, substantially, we would not have had it if you had not done that. I know when the submissions were made public, everybody eagerly awaited them and went through them with fine-tooth combs. I am sure everybody else in this room has, not just us. As far as the 2009 cut-off goes, there is the argument we were given earlier today that it would provide certainty and the changeover would have to happen but that it would also create a seller's market, so the price may be very high. If you have not already bought a set-top box or a digital television by then, you will have to do it and there may well be a price to be paid by the consumer because of that. Do you have a comment on that?

Prof. Snape —Yes, and thank you very much for the compliment, incidentally. We attempted in our recommendations to drive the take-up as much as possible. We see in Britain how some drivers have been given through the way that the subscriptions have been bundled. The market has essentially provided those drivers. We have tried to set up a framework where there would be as many drivers as possible. There are two essential problems. One is that until that analog is switched off you do not free up the spectrum. As we have pointed out in here and as others have pointed out, at the moment all 50-odd channels that are available are required for five television signals under the analog thing. With digital broadcasting, depending upon the technology, from what we were told in the inquiry it would seem that there can be 50-odd channels each with perhaps four separate signals. In other words, we are basically saying five against 200 potential. That does not mean they will all be television stations or television signals. There will be a variety of services coming over this. That is the dimension of the problem, but you do not get that until you switch the analog off. That is why we said there must be a definite date for the switch-off.

I mentioned in my introductory remarks that the current act—I am not talking about the bill, I am talking about the current act—does not give a definite date. It says eight years `or longer' and it gives the provision in there for it to be extended. It is not a definite switch-off date. It is eight years from when digital started. It is not a definite date and so it could be extended longer. On one side, we have this imperative or, if you like, desirability of getting this great expansion of opportunity. On the other, we have the problem that, as long as there are some people who have not got a set-top box, who have not been induced by the various things that we are suggesting to acquire it, then there is going to be a political problem, a significant problem of switching it off, particularly as they are likely to be old and in lower socioeconomic groups et cetera. We recognise that in the report.

On the other hand, by then the technology that we have been told so much about might be such that the conversion is very cheap. It may be so. It may be in some areas that some government policy is required to do the last bit of clean-up. We have also suggested in the report mechanisms to get in some spectrum cleaners, some incentives in fact to clean it out and to provide the means to do so to people who otherwise would not be getting a set-top box or converting. So we have tried to give many market driven possibilities through here but we recognise that there may be a residual problem, and it will be a significant political problem, at the time that may require government action.

Mr Simson —We reflected in our report—and we certainly received many submissions to the effect—that there could be a significant number of Australians who are not, for want of a better term, digitally enabled with a set-top box or one of the two receivers by the target date, which is only a target date, in the act as it currently stands. We were therefore very clear in saying in our report that, unless you can get the three drivers working in the area of services—that is datacasting, multichanneling and so on—in terms of spectrum—going to your earlier question—and in making this process as affordable as you possibly can—which goes to the issue of what we had to say about not mandating high definition—the conversion plan is `at serious risk of failure'. We did not choose these words lightly.

We focused very much on the policies that needed to be put in place now—not in 2003 or 2005 following some reviews or 2008 but policies that need to be put in place now—in order for Australians to be able to benefit from that great lock-up that is going to be in place of analog spectrum. Until that spectrum is unlocked, many of the great benefits of the digital spectrum will not be available to Australians.

Senator BOURNE —It leapt out at me when I read your recommendations in the first place, recommendations 8.5 to 8.7, about indigenous broadcasters being carried. That struck me as very innovative and interesting. Can you tell me why you came to that conclusion, that that should be mandated?

Prof. Snape —Our reasoning is in the report to a large extent, but let me say that we had a very good submission from indigenous groups, a very good presentation, and they were very persuasive on the value and the potential of broadcasting for the indigenous communities, particularly in the outback. There was also mention within the cities. I think it is implicit in our report that we saw the outback as particularly important in this area. At the moment they are largely covered by the community broadcasting. Both the other community broadcasters as well as the indigenous broadcasters acknowledged that their interests were quite different, and it seemed to us in the report that the case there was for them to be treated differently by being giving a different class of licence. We then went on to say, in terms of broadcasting service, that the government should in fact give serious consideration to whether there should be a separate indigenous broadcasting service. Our recommendation on that, as with other recommendations, was very carefully written, and you can see the approach that we took there.

Senator BOURNE —Yes. Would you see it as being appropriate that spectrum should be made available immediately, or in 2009 when you say that the cut-off should be made? Where do you think the spectrum should come from for that?

Dr Gentle —We were speaking first of all about radio. That was the highest priority that was put to us, because the costs for television, in terms of production, transmission and so on, are so much greater. We had envisaged indigenous radio licences as being the start-off for such a service.

Senator BOURNE —So you would see it as not needing too much spectrum now.

Dr Gentle —Not television spectrum, no. Given the costs of television production, we did envisage in the report that with digital, when you have got multichannelling, you have got a capacity to be running, say, four standard definition programs in a multiplex. One of the possibilities we outlined here was that one of those could be made available for community purposes, not just in the few cities that currently have a community television station. With the lower production costs of some digital datacasting type services, it may be possible to actually have community datacasting or a standard definition digital television service available to any community that wants it. So we recommended that this be provided as a community service obligation. That spot could be used for indigenous programming as well as for other sorts of community based programming. And, of course, in remote areas it would be available for BRACS type services.

CHAIR —We thank the Productivity Commission for appearing before us today and giving very interesting evidence.

[6.02 p.m.]