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Broadcasting Services Amendment (Digital Television and Datacasting) Bill 2000

CHAIR —Welcome. The committee has before it submissions Nos 29, 26 and 19 from ASTRA, Foxtel and Fox Sports. Do you wish to make any alterations or additions to your submissions?

Ms Richards —Not to the submission, no.

CHAIR —I gather Cable and Wireless Optus are here as part of the group.

Mr Lattin —Yes, we are.

CHAIR —So this is a very big group with four different submitters. Again, we will take each of you in turn if you would like to make a brief opening statement.

Ms Koomen —Could I point out that Cable and Wireless Optus put in a separate submission from ASTRA, and it might be more convenient for the committee if we addressed that submission after this session.

CHAIR —That is what I thought was going to happen, but I am told you are appearing together. I do not mind doing it that way at all.

Ms Koomen —Cable and Wireless Optus, with our pay television interests, are a member of ASTRA, so we are here as part of that.

CHAIR —Okay. That happened yesterday with WIN TV. They also appeared separately. I thank you for letting me know. That means we will have the group first, and then we will have Cable and Wireless Optus by yourselves. Would whoever is going to lead off like to make an opening statement?

Ms Richards —Thank you for the opportunity to be here today to speak to our submission. ASTRA is represented by our chairman, Mr Mike Lattin—who is also CEO of Optus Television—with representatives from Austar, Foxtel, Cable and Wireless Optus and Fox Sports. As you know, we represent the pay TV platforms, the independent channels that provide programming for those platforms, narrowcast radio and television and associated communications companies.

Our concerns about the latest digital TV bill are brief but in the context of the original decisions of the digital TV framework set down by parliament in 1998—that is, the free-to-air terrestrial broadcasters were to be given seven megahertz each of digital spectrum to provide HDTV, a digital version of their analog channel. This would be a free and exclusive loan for the public spectrum with no need to compete for it in the open market, protection from other players, a guarantee for a continued oligopoly until at least 2007, financial assistance to help them convert along with the spectrum, an established infrastructure, a solid market base and first mover advantage on datacasting, plus the add-ons of additional revenue through enhanced programming—in essence, what we have always said: the control of the digital gateway. For pay TV, we had recognition of our status as a new player and of the investment that has already been made and that continues to be made in delivering a range of services in both the capital cities and the bush.

That recognition by parliament was actually a prohibition on the free-to-air broadcasters being allowed to multichannel for a limited period of at least four years, with a review by 2005. This is a fundamental plank of the digital TV policy, in light of the incredible competitive advantages given to the commercial networks. You need to remember that we too have to convert to digital—for our cable at least; our satellite is already digital. We are converting not because it is mandated but because that is the future. We will do this at our own expense and not through the public purse.

Despite all assurances to the contrary, we have an erosion of that decision about no multichannelling for free-to-air broadcasters with multichannelling for overlaps and with new definitions and new concepts of what is enhanced programming. December of last year, with the government's decisions on those series of reviews we had to have, saw the first little nibble at the no multichannelling decision with an exception for what was described as limited multichannelling for overlaps: you know, where the cricket overruns and you might miss another underarm bowl in the last over but the commercial broadcaster makes a commercial decision to go to the news instead. Despite our concern that this was the thin end of the wedge and would be manipulated by broadcasters, we were assured that this was about overlapping into the main scheduled news program, and only in exceptional circumstances. What we now have in the bill, and this is very much a last-minute change, is that that scheduled news bulletin now becomes any scheduled program. To us, that little nibble has now become a bite. Then, again with a very last-minute introduction of new concepts about enhanced programming, in particular category B, that bite has become a huge chunk into the policy decision to prohibit multichannelling.

As you would be aware, sport is a main driver for pay TV. With this latest chunk, the free-to-air broadcasters will now be able to enhance their live sports coverage, their primary program, with multiple primary programs of other matches at the same venue. While the rhetoric says that this is more free sport for the punter, the reality is that it will not be, especially in the bush, as their digital services will not be there until 2004. In the meantime, pay TV is seriously hampered to deliver the second cab off the rank sport it successfully delivers now. We are seeking deletion of category B enhanced programming, as per our submission.

The category A allowance for enhancements, while essentially capturing what most people thought were enhancements such as different camera angles, text and data on players et cetera, also adds unlimited video link to the primary program, not just for sport but for any type of program genre. We seek a limitation on category A to exclude separate video streams if indeed those separate video streams could stand alone as a channel. We have also made other suggestions on some amendments to the bill, and those are included in our submission.

The other fundamental plank of the digital TV decision was the provision of HDTV. That was what was promised would be delivered. That was why the free-to-air broadcasters needed seven megahertz-plus for conversion. Our chairman, Mr Mike Lattin, would really like to have a few brief words on that as part of our introductory statement.

Mr Lattin —HDTV, of course, was the hub of the digital policy that the government brought in in 1998. At the time, ASTRA gave some warnings that HDTV may not be all it is cracked up to be. We think the evidence we heard today and yesterday to this committee highlights the fact that things are heading for a road crash down the line. In the USA today HDTV is a bit of a joke. I think it is referred to commonly in the broadcasting industry as the Edsel of broadcasting. There are many quotes from leading American analysts who constantly say that it was a grab by the networks for spectrum, there was really no future for HDTV. The consumers of America, as has been evidenced here in previous witnesses' information, just have not taken it up. It is far too expensive and it is far too expensive to make. It is in fact a dud.

The UK rejected it altogether. We find that the multiplex model was favoured and HDTV was rejected. We find that Europe has no plans whatsoever for HDTV. We heard yesterday through FACTS that Japan has put HDTV on hold. So what are we saying here? Are we saying that HDTV's last bastion in the world is going to be here in Australia? Yet at yesterday's committee hearing I heard people say, `No, there won't be production here in Australia, it is too expensive. No, there won't be manufacture, nobody is interested. If you are after a set, it could cost you $8,000. We are talking to China about that. But the research at the moment shows that there are only sets available in the marketplace for $30,000.' I hardly think that there is going to be any take-up at all at any of those figures.

In fact, the impression I got listening to FACTS yesterday was that nothing will happen with HDTV in the next two years. So, based on that, ASTRA feels: why wait two years; why wait until 2004 for the review; why not have the HDTV review right here and now? Let us bring it forward. Let us have it and let us clear the air once and for all on whether this is a dead duck or whether there is some validity in HDTV. I think there is an overwhelming amount of evidence worldwide now that HDTV is a non-goer.

Senator Bishop, I think you pointed out yesterday that five-sevenths of the spectrum would be available for HDTV. If a review were brought forward and HDTV was canned, did not go ahead, and people realised that it was not the way to go for the digital future, then five-sevenths of the spectrum, I presume, would return to the government for public auction. We took the liberty of doing some research on what that spectrum is worth. We got our business analysts throughout our various members of ASTRA and we rang around to a few organisations that we thought would be interested in the spectrum. Our conservative—and I underline `conservative'—figures for the five capital cities only put a value on that spectrum of in excess of $2 billion at current market rates. We are very happy to forward to the committee these figures and how these figures were achieved. We have seen spectrum being used by the government currently as a means of revenue raising. If the review is brought forward and HDTV does not happen—as we at ASTRA predict—that sounds to me like an awful lot of revenue that would return to the Australian taxpayers. That is our point on HDTV. I will throw to Debra now, if I may, to finish our argument. There are a few other points that we wish to bring up.

Ms Richards —Our other points relate to enhanced programming. That is why Fox Sports are here as well—to talk about the impact of enhanced programming in terms of sports rights. We are here to answer any questions that you may have on our submission.

CHAIR —Would Fox Sports like to make a statement?

Mr Marquard —I am the Vice President of Business and Legal Affairs at Fox Sports. As we addressed in our submission, we do have some concerns about the way in which the category B programming exemption has arisen and the possible impact that will have in relation to the acquisition of rights by pay TV sports compilers, such as Fox Sports. Right now events can be broadcast by pay TV operators and free-to-air operators, and these would be directly impacted on by the category B exemption. A good example of that is the Australian Open tennis tournament. This year Channel 7 broadcast a centre court match from the Australian Open and C7, which is another industry player that compiles sports as a sports programmer, broadcast matches from an outside court. If the category B program exemption were to go through, it would enable Channel 7 to broadcast on one channel the centre court match and to broadcast on the other channel the outside court match. Ostensibly, that sounds great from the punter's perspective, but there are some real problems with it because of the way in which we acquire rights in the subscription broadcast industry. We need to acquire rights overall in a manner which allows us to acquire those events but also events where the free-to-air operators have not shown any interest. As a result, we are able to broadcast and pick up rights to events such as cricket tours overseas, which have traditionally not been broadcast by the free-to-air operators. You can only do that and attract viewers if you can acquire the rights to those, for example, complementary tennis matches if they are not being acquired by the free-to-airs. There is a real risk that we would elect not to acquire those sorts of rights. The net result of that would be that they would not be shown on pay television at all. Especially in regional areas, that may have a real impact.

As we know, there is no obligation on the terrestrial broadcasters to start for a number of years, and even then you are going to have a delay until you get take-up of it. Bruce Meagher from Austar will take up on that point in a minute. You are going to get the situation where an event is already shown on pay television now but it may not be shown on pay television in the future. As a result of that, we think that viewers will actually miss out. We are seeking for category B to be removed from the bill for that reason and also for the reasons that Debra has already espoused—namely, that we had an agreed digital policy outcome and this is a direct attack on that.

Mr Meagher —I would like to briefly add to that. As you may be aware, we are a regional pay TV company. We operate outside the capital cities. We currently have 400,000 subscribers, many of whom take our service particularly because of the sports service, and the sports service is largely driven by what you might call second-tier programming, such as the outside court matches. Those people see those matches today. If this proposal were adopted, there is a very good chance that people, particularly in the regions, would actually see less sport, not more. I know that the politics of this is being argued as `free sport for the punters'. For a start, remember that when digital broadcasting starts not everybody will have access to set-top boxes from day one. There will be a period of take-up, even in the capital cities. There will be quite some time for that to be taken up.

In the regions that broadcasting does not have to start until 2004. So Fox Sports, for example, may not be broadcasting these programs for two reasons: firstly, because the free-to-air broadcaster requires both the free and pay TV rights and has an incentive not to pass on the pay TV rights, even to the outside court matches; secondly, Fox Sports may make a decision that it is not in their interests to acquire those rights because they are being shown in the capital city major markets by the free-to-airs on their multichannel enhancement platform. There is no digital broadcasting at all at this stage in the country areas, so our subscribers will lose access to that sports programming and they have nowhere else to go for it. You have to remember that the impact on the consumer, a great many of whom are currently willing to acquire subscription television in order to get these sorts of additional sporting outlets—and we see no reason why our subscription numbers should not continue to grow from 400,000 today to 800,000 or a million in five or six years—will be that they will actually lose sport rather than get more of it. So the public policy rationale about `free sport for the punters and more of it' simply does not hold up, at least until that time when there is widespread take-up of digital terrestrial television.

CHAIR —Thank you, Mr Meagher. Does anyone else wish to speak?

Mr Furness —I would just endorse what my colleagues have been saying but would bring it back to the fundamental issue here. We had a digital policy being introduced two years ago that allowed for no new free-to-air licences in the commercial area until at least 2007 and a free loan of the spectrum for the conversion to digital. As part of that, there was a requirement for HDTV, and that is why they were given seven megahertz of spectrum, and there was no multichannelling. From Foxtel's point of view, we are deeply concerned at the creep in the multichannelling that is being allowed for the free-to-air networks, which is contained in the bill as it sits.

If you remove any one of those four planks in the digital policy, or break down any one of them, the whole policy falls over. We are being quite practical. Mike made the point that, if they are not going to use the spectrum to provide HDTV and HDTV does look like the Edsel of the global broadcasting industry, they should give that back. But, in the immediate term, we are very concerned about category B and the overlapped multichannelling being expanded. Six months ago it was meant to cover the situation where a live sporting event clashed with a news bulletin; now it covers any program rather than just news bulletins. So what we are seeing is this creep into multichannelling, way ahead of a timetable we were told we could expect to work within. We have continued to build our businesses on the basis of what we were told, even up to a month or two back. So I would just make those points, and that is essentially where Foxtel sits.

CHAIR —Obviously you all have a common interest and a common set of issues. Senator Bishop, would you like to lead off?

Senator MARK BISHOP —Thank you. There were some differences in the submission. You will have to bear with me as I try firstly to go through the common issues. I think it is common ground between you all that the new definition of program enhancement radically changes the understood, agreed framework for the implementation of digital TV. I suppose the question becomes, firstly, is this enhanced programming essentially de facto multichannelling?

Mr Lattin —Senator, we think it is. I think the disadvantages to us are very simple. We have had to build a business on what we consider is the most stringent anti-siphoning legislation in the world. We have been faced with the most protected free-to-air system in the world as far as sporting rights, in particular, are concerned. We have built those sporting businesses in pay television I think very successfully with the likes of Fox Sports and the C7 group, based on the second cab off the rank approach. We have really been using the second game. Here we are faced with a situation where, at the Australian Open Tennis, when the centre court match was being covered and pay TV was making a business out of covering other matches showing other Australian contestants in those games, free-to-air has now turned around and said, `No, hang on; we want those as well.' We do not see the word `enhancement' as being changed from its current definition in the Oxford English Dictionary. We think `enhancement' meant originally that, if they had the centre court game, you could go to another channel and see different camera angles for that game, you could see different commentary teams for that game. There were certain different events which could happen on other channels that were called `enhancement' for that particular match. The concept was never to show the other games which we have built our business on. We lose that business, and I think we are losing it because we did too damned well at it. I will be quite frank. I think the free-to-airs have said, `Hang on a second, they weren't meant to do that well with the second game. Let's take that off them as well.' So they are the facts of life. That is what our business is built on, and that is what the danger of this current definition of enhancement is to us.

Senator MARK BISHOP —Primarily you lose the ability to maintain businesses that are profitable and that you have built up over recent years because program enhancement becomes multichannelling. I understand that point. Are there other—

Mr Brooks —As to that point, you said `businesses that are profitable'. I am quite happy to put some numbers on the table. None of the platforms certainly are profitable. I know our friends in free-to-air think we are complaining—

Senator MARK BISHOP —Okay. I do not want—

Mr Lattin —All our figures are in brackets, I assure you.

Senator MARK BISHOP —I do not want to get into discussions about whether you are profitable or will be profitable, but sooner or later you have to make a quid. That is why you are in the business. But I take the point you made, Mr Lattin, that the rules have changed.

Mr Lattin —The rules have changed at half-time, Senator. Excuse me interrupting, but it is almost like we started off with an agreement, we got to half-time in the game and the other team has come in and said, `Look, we want to continue to play a second half but do you mind if we change the rules?' That is what has happened.

Senator MARK BISHOP —All right. I understand that.

CHAIR —Sounds like the America's Cup. The New York Yacht Club always changed the rules.

Mr Lattin —Not successfully all the time.

CHAIR —Not in the end.

Senator MARK BISHOP —How do ASTRA and the other companies respond to FACTS's assertion yesterday, and also in their submission, that the provisions in the bill relating to enhanced services are not different in substance to those announced by the government last year? Mr Branigan yesterday went out of his way to try to put that particular issue to bed.

Mr Lattin —If they are not different, then why change them at all?

Ms Richards —I think they are different in terms of what was conceived to be enhanced programming. Certainly in the examples that were given in the review papers, in both the issues paper that came out about that review and the discussion of options paper, and previous submissions that were put to the inquiry on the original 1998 legislation, FACTS themselves, and we also, talked about things that were enhancements in terms of different camera angles. If you were showing a cooking program, then you could go into text and data delivery which would give you the recipe and those sorts of things.

Now we have a situation where it is not actually programming that is closely or directly linked to the primary program; it is actually separate primary programming, what is allowed under category B, and that is the difference. That difference came about at only the very last minute.

Mr Meagher —You only have to think through some of the examples. The original thing was about camera angles, but if you have a primary broadcast, say, on the centre court, and another match going on on another court, the centre court match is only three sets and the other one goes to five sets, the secondary broadcast is continuing. The enhancement of the primary broadcast somehow has a life of its own that goes on. If for some reason it is related and directly linked—whatever the expression was—because it is all within the National Tennis Centre, which is really only a number of players trying to get towards a semifinal and a final, why is it different from a series of football matches that may be played at different grounds, where you have different teams trying to get to a semifinal or a final? Or if there were an overflow of the Australian Open and you had to play some matches somewhere else, all of a sudden, that would become multichannelling under this definition, even though it is in the same competition, just because it happens to be being played a couple of miles away. It just does not stand analysis.

Senator MARK BISHOP —That point is right. It is like a football carnival which might be coming from different ovals or cricket matches from different pitches. I suppose the answer to that is that it is not my job to defend the government's decision. The complaints you make simply reflect the arbitrary nature of the rules that have been decided.

Ms Richards —Certainly the original understanding was that enhancements would not be able to stand alone. They would not become an entity unto themselves, which they are now under category B.

Senator MARK BISHOP —If the government had maintained the position as announced last December, with a limited understanding of enhanced programming—different camera angles, text, whatever, as opposed to different matches—would your organisations be comfortable with that proposition?

Ms Richards —I do not whether `comfortable' is the word.

Senator MARK BISHOP —Or accepted?

Ms Richards —More comfortable, yes. We would certainly live with it. We are understanding there would be a prohibition on multichannelling and then there was the limited multichannelling for overlaps. We expressed our concern about that because we saw it as an erosion of our original decision, but I suppose it is fair to say that we could live with it.

Senator MARK BISHOP —Fox Sports wanted the deletion of category B. That is also the position of ASTRA. If the category B definition is deleted, does that satisfy your complaints?

Ms Richards —All of our complaints?

Senator MARK BISHOP —No, the complaints on this issue, not all of your complaints.

Ms Richards —We did have another issue in terms of category A.

Senator MARK BISHOP —If category B is deleted, does that avoid the potential problems that you have raised?

Ms Richards —On the enhanced programming becoming multichannelling, yes.

CHAIR —So if category B is deleted, then you are happy as far as enhancements go?

Ms Richards —No, because there is also category A, which we made an issue about in terms of the unlimited video that could be attached to the primary program. If for the same reason that then becomes a stand-alone channel, then that becomes multichannelling.

Senator MARK BISHOP —Say you are televising a drama show which has a particular character—say, the fellow in Ironside. Could you multichannel the old Perry Mason series?

Ms Richards —That is the proposition we put up—whether previous episodes of, for example, Seinfeld, or indeed Ironside, are closely and directly linked to the primary program and therefore could you show back episodes of those particular things. Also, going back to sport, if you are showing cricket, do you go to Shane Warne showing you how to bowl? That is an enhancement. Do you then go to a documentary on Shane Warne? Do you then go to a documentary on Donald Bradman and, indeed, the Bodyline series? I do not know. There seems to be no limitation in terms of unlimited video.

Senator MARK BISHOP —If you were a free-to-air operator, would you be of the view that you could go down those paths that you have opened up?

Ms Richards —We think you can under the current legislation.

Senator MARK BISHOP —Under the category A considerations?

Ms Richards —Yes.

Ms Koomen —We see these as going beyond enhancements. They are in fact separate programs, and that is the difficulty we have. We believe that, under category A, the secondary program should not be able to be a stand-alone, separate program, whether it be a documentary related to a player in a sporting match or whether it be another episode of Seinfeld. They are separate, stand-alone programs and they go beyond what were originally envisaged as enhancements.

Senator MARK BISHOP —You made the point in your opening comments, Ms Richards, that digital will not come into the bush for some years yet and there is already a market that has been developed by the pay TV operators to service those areas. If the bill remains in its current form, what do you think the consequences will be for Australians living in rural and regional Australia in terms of the programming they are able to access?

Ms Richards —It is going to be detrimental in terms of sports programming in particular. As my colleague Mr Bruce Meagher said in terms of his experience with Austar, Austar is delivering a range of services through subscription—not only in television but a range of services. Once you impact on the core service, which is delivery of pay TV—and, let us face it, sport is one of the key drivers of pay TV—and once you start to erode the core business, then that is detrimental to the other services that they provide.

Mr Meagher —My original point, though, was that services which are provided today in regional Australia will potentially cease to be provided. That is particularly those secondary sporting matches off centre court. As with everything, the programming decisions are driven out of the capital cities. If either the networks decide, with the advantage of the anti-siphoning rules, to starve pay TV of those rights or the pay TV sports channels decide, because they do not have the metro market available to them or that is being whittled away, not to broadcast those things, then necessarily the regions will suffer. They will actually lose existing programming.

Mr Marquard —We concur with that because we will make programming decisions on a national basis. We have one signal which goes out.

Senator MARK BISHOP —So you effectively have no choice?

Mr Marquard —If we are starved of it by the free-to-airs because they have acquired both the free and the pay rights, and they are not passing those on because they can use them for the service, we do not have a choice at all. If we make a separate programming decision because it has no programming appeal to viewers in capital cities, that is something that would obviously take the regional thing into account. But there is a real risk that viewers in regional areas who can see programming today may not see it in the future if this legislation goes through in its present form.

Senator MARK BISHOP —Optus, in their submission, expressed some concerns about the restrictiveness of the definition of datacasting in the bill. I presume Optus plans to seek a datacasting licence?

Ms Koomen —Optus has not made a decision as to whether or not it will be seeking a datacasting licence. It is monitoring the development of the regime and looking at whether or not it is going to be viable. We have definitely not made a decision at this time.

Senator MARK BISHOP —If you choose to seek a datacasting licence, what nature of transmissions does Optus foresee datacasting which are forbidden by the bill in its present form? Are you so limited in what you can transmit that it does not really become a worthwhile proposition if the bill remains in its current form?

Ms Koomen —We believe at this time that that is likely to be the case. There are many opportunities which datacasting could present to the communication environment. We feel that because the datacasting rules are presently so convoluted and complex, and because they seek to stop anything that is really of any widespread appeal being offered as a datacasting service, it is not likely to be a viable proposition. The opportunity that comes from that as a datacaster is that if there are interactive services, there are back channelling facilities that would support those services. There are many growth areas that could emerge from this new service. Yet what we are seeing is a stack of rules being developed, the main purpose of which, it seems to us, is preventing the widespread appeal of those services so that they will not compete with free-to-air services. That would be a tragic outcome.

Senator MARK BISHOP —Hence your suggestion. The only suggestion that you can really seriously pursue is to delete the genre classification system?

Ms Koomen —Yes. The current definition of datacasting in the 1998 act talks about services which, in so many words, are not broadcasting services. We think that is a very sensible approach. Broadcasting services can be defined as point to multipoint realtime services. Datacasting services would therefore, under that definition, be allowed to be a broad range of new generation services, cache services, point-to-point services—there are many I have cited in our submission—next generation broadcasting services such as video on demand, e-commerce services, two-way interactive services, et cetera. Those services could all be classified as datacasting services, in our view, without impinging on what we all know and understand as broadcasting point-to-multipoint realtime services.

Senator MARK BISHOP —Some of those services are not capable of being technically delivered yet, are they? For instance, you cannot get video on demand.

Ms Koomen —At this moment in time, you cannot get that service; but we are talking about developing a new communications environment where these services will be possible in the very near future, as we understand it. We think it seems insane to try to stifle what datacasting can be before these services have even been developed.

Senator MARK BISHOP —Is video on demand available anywhere in the world?

CHAIR —It is available in the UK through ntl, and in Hong Kong.

Ms Koomen —Hong Kong has video on demand services.

Mr Lattin —I think it is fair to say that the trade shows this year in the United States were basically all about video on demand. It is on its way.

Mr Meagher —Or versions of it. One of the interim solutions—and maybe a long-term solution—is that you would have set-top boxes with very large amounts of memory from which you would effectively download, store and then play when you want to. That technology is not very far away at all, and it exists in many places.

Senator MARK BISHOP —What is ASTRA's opinion on the timing of the review of the HDTV arrangements?

Mr Lattin —That is the point I raised: we would like them brought forward immediately. We think: why wait around until 2004? We are all going to sit here and twiddle our thumbs. Frankly, in our opinion, it is not going to work. We think it is a dead dog; we think it should be faced up to here and now so that we can get on with the digital development in this country and use the spectrum properly.

Senator MARK BISHOP —Is that the view of all the organisations?

Ms Richards —Yes. Can I just add to that in terms of bringing it forward. There has to be an outcome. If the decision is that HDTV is not a goer, then the outcome must be that that spectrum goes back to public auction. That is part of the review. There needs to be a reconsideration of that, because that was the original decision and one of the main planks of the decision in the first place.

Senator MARK BISHOP —Would you favour a departmental review or an open statutory review?

Ms Richards —An open statutory review.

Senator MARK BISHOP —So an open statutory review and sooner rather than later?

Ms Richards —Yes.

Senator MARK BISHOP —Does that apply to all of the reviews that are in the bill? There are three or four others: an audiovisual, audiovideo streaming review, and a couple of others.

Ms Richards —I am assuming it does. They are all nodding, so yes.

Mr Furness —Presumably, if you are going to review whether HDTV should be mandated, then, as that is a fundamental part of the whole digital policy, everything else must come to bear, I would think.

Senator MARK BISHOP —They are all related but there are four separate reviews.

Mr Meagher —It may be that, if you conduct that first review then, depending on the outcome—for example, if it were determined that HDTV was viable—the existing time frame which was predicated on HDTV may well be applicable. If it is determined that HDTV is not viable, then you would certainly have to look at the question of what those other reviews were and what their function was in the existing environment and revisit them.

Senator MARK BISHOP —The organisations are going to have to apply for datacasting licences. At the end of 2007 those licences expire. Do you have any understanding of what the licences will become the day after? Would they be de facto broadcasting licences or nullities?

Ms Richards —My understanding is that concern was expressed by the commercial networks—that they not become de facto broadcasters straightaway—and there was going to be a review about that. But I could be wrong on any of that.

Senator MARK BISHOP —There is going to be a review, but until the review is conducted you have an expired datacasting licence and datacasting is essentially broadcasting. Have you given any thought to what the status of those expired datacasting licences would be as we approach 2007?

Ms Koomen —From Optus's point of view, we have a concern at the degree of uncertainty that that brings to the environment and also the lack of parity between the way the datacasters are treated and the way the free-to-air broadcasters, who have expectations of renewal, are treated.

Senator MARK BISHOP —You might give some thought to that issue and give us a response in writing.

Ms Richards —Yes, very urgently, in light of the reporting timetable.

Senator BOURNE —Ms Richards, you said that pay TV would be changing over to digital. Do you intend to use SDTV and MPEG as the standard or do you not know?

Ms Richards —Certainly SDTV is the world standard and with that is MPEG audio.

Senator BOURNE —So you would put them both together. In your submissions you are saying that FACTS are saying they would use AC-3. You think MPEG is a more universal standard?

Ms Richards —Yes. That is what is used now by our services. If you wanted anything further on that, Don Brooks is an engineer—

Senator BOURNE —We are interested in whether AC-3 or MPEG ought to be the basic standard. Mr Brooks, do you have something to say on that?

Mr Brooks —The audio standard used by the pay TV operators on the satellite now is MPEG-1 layer 2 audio and MPEG vision, of course. We have in the order of half a million set-top boxes, maybe 600,000 set-top boxes, which use that standard. That has been a standard chosen by the pay TV industry and for very good reason. The reason is that, because we fund the set-top box, we obviously watch our pennies very closely in terms of the costs of that box and MPEG sound is by far the cheapest way of doing it.

Senator BOURNE —Does AC-3 sound better if you get it in full surround sound and, if it does, could somebody buy another bit to add on to enhance the MPEG-3 to bring it up to something spectacular?

Mr Brooks —I see it as horses for courses. AC-3 in surround sound is a great way of delivering very high quality sound into a cinema-like experience into the home. Most TV sets are mono sound. I think I heard something the other day which said that 70 per cent of sets sold are mono sound sets and the rest are stereo. That is the bulk of what consumers are purchasing. It would make sense to me to use a sound standard which would deliver to the majority of the people. AC-3 can be added on top as an auxiliary sound service for broadcasts which are of high quality.

Senator BOURNE —So it is not difficult to put the two together if you want to pay extra money and have the extra that you can get from AC-3.

Mr Brooks —Sure. A broadcaster may decide to do that. The pay TV industry may decide to do that down the track when it has seen that there is a market to deliver to.

Senator BOURNE —But technically it is possible.

Mr Brooks —Yes.

Ms Koomen —As we understood the announcements of the government last December, the introduction of the standard definition broadcast requirement was to enable consumers to buy the cheaper version of the set-top box which may include imported versions of that box. If MPEG-1 layer 2 is not broadcast by the free-to-air broadcasters, then those cheaper imported set-top boxes cannot be used. So the benefit of that would be completely lost.

Senator BOURNE —Ms Richards, it appears from the minister's press releases that he has decided against multichannelling for the ABC and SBS in the bill to protect pay TV. Have you been contacting the minister, asking him to stop ABC and SBS multichannelling?

Ms Richards —No, not in terms of ringing him up and saying, `Please, Senator Alston, don't let them multichannel.' Our concerns about anyone multichannelling are well documented and, in relation to the review into whether the ABC or SBS could multichannel and what they could do, we maintained our view that any multichannelling is in competition with us whether it be by the commercial or by national broadcasters. Certainly we maintain that view. As FACTS said yesterday, the national broadcasters are competitors and as such they are ours. So we have not changed from the view that we put through all that public process. But if the committee is of the view that ABC and SBS should be treated differently in some way, then we would seek that whatever the national broadcasters could multichannel should be limited and in no way should it be seen as a precedent for the commercial networks to also multichannel, and that is the reason we have put forward. It would be the thin end of the wedge. They are in competition in terms of what they want to provide.

Senator BOURNE —You will recall—and I think I recall it correctly—that when the original bill, now act, went through the idea was that there should only be an inquiry into whether national broadcasters ought to be able to multichannel, certainly not the commercial free-to-airs. So I do not think that has changed. Would it make more sense to you if perhaps the anti-siphoning restrictions could be lifted to allow non-exclusive licences? Would that be one way of overcoming the problem with the new definition of enhanced for free-to-airs?

Ms Richards —As you know, Senator Bourne, we have long been raising as an issue for us as an industry sector the anti-competitive nature of the anti-siphoning list and the way it is developed—the fact that it is so long and all those sorts of things—and the fact that they have exclusive access to those rights, both pay TV and free-to-air rights. Certainly we would endorse what the Productivity Commission said yesterday, and indeed in their report, about the fact that that list should be substantially overhauled and should at least provide the opportunity to access non-exclusive rights so that therefore you could actually buy pay TV rights separate from free-to-air rights.

Mr Marquard —In essence, that is exactly against the framework of the anti-siphoning list. If it were to be modified so that we were able to buy pay TV rights without breaching the anti-siphoning list, that would certainly make a difference. It is against that overall framework that we say the ban on multichannelling was set as one of the agreed policy outcomes, and the Productivity Commission certainly recognised the increased difficulties we would have if there were any form of multichannelling, given the anti-siphoning list in its current form.

Ms Richards —Certainly, when you overlay the enhancements that are now being offered within the bill—which are about sport, essentially, because they are the examples that are given—with the anti-siphoning list, it becomes very difficult.

Ms Koomen —Notwithstanding any change to the anti-siphoning regime, we are still faced with an anticompetitive structure here where the free-to-airs at some point in time will be able to use spectrum that it seems they have not had to pay for to provide competitive services with pay TV services, who have spent squillions of dollars investing in the delivery system infrastructure to deliver what seem to be similar services in terms of sport. That is essentially an anticompetitive structure to be working within.

Senator BOURNE —Particularly, Mr Lattin pointed out, with HD and whether it exists or not. Thank you.

Senator TCHEN —The main purpose of this bill is to require free-to-air broadcasters to start simultaneous broadcasting of digital signals and, to enable them to do that, the government will basically give a free loan of sufficient spectrum to the free-to-air stations to enable them to carry out triple simulcast for a period of time. Before this inquiry commenced, one of your associates, News Limited, heavily criticised the government for providing the free loan of spectrum to the free-to-air stations. News Limited decided not to participate in this hearing. I very carefully looked through your submissions, both the collective ones and the individual ones, and you have made no reference to that aspect. Can I take that to mean you have no concern about that?

Mr Meagher —For a start, News Limited is not a member of ASTRA. We have always been concerned about the loan of spectrum to the broadcasters and we believe that so much of what we are talking about today—the mess and the problems about definitions and everything—flows from that initial policy decision to grant that spectrum. However, we recognise that we are where we are and that the parliament made a decision a couple of years ago. We do not suggest that the parliament is going to change that. However, we do ask that you bear in mind that the basis of that decision was the provision of HDTV. If HDTV is not going to prove successful or commercially viable or in the consumers' interest, then you do have to revisit the question of the spectrum loan.

We have never said that the free-to-air broadcasters should not be able to be given some spectrum in order to broadcast standard definition signals. But if they are not going to broadcast HDTV, then the excess spectrum should be returned and put back into the pot for a public auction. Then a process can take place where anyone, including the networks, can bid for that spectrum. At that point you lose all these problems because, once you have actually bid at an auction and there has been a fair, open and competitive bidding process, we cannot then cavil with what you do with it. Once everyone is entitled to bid openly, then we cannot say that you should not be able to multichannel or that this is what datacast should look like or anything like that. As I say, we accept the decision that was made but only on the basis that HDTV is actually going to be the outcome. If it is not, then you have to revisit the fundamentals.

Senator TCHEN —The government has proposed in this legislation a review in four years time. From what you have said, you are in agreement with the government's position.

Mr Meagher —We certainly agree with the review. Firstly, we believe you can conduct that review sooner rather than later. Secondly, we emphasise that it should be a given in that review that, if the review determines that HDTV is not viable, we should not then find all sorts of other reasons why the broadcasters should be allowed to use the spectrum. The spectrum should be returned for an auction process.

Senator TCHEN —Are you aware that the proposed legislation actually provides for return of the spectrum?

Ms Richards —At the end of the simulcast period?

Senator TCHEN —Yes, that is right. That is what you are talking about, isn't it?

Mr Meagher —I am not talking about at the end of the simulcast period. I am saying that if HDTV is not adopted as the standard—

Senator TCHEN —In that case there will be no further simulcast.

Mr Meagher —There would be of SDTV.

Senator TCHEN —Yes.

Ms Richards —We are saying that the leftover spectrum that you would need for HDTV which you are not actually going to use should then be returned. There is no question of them keeping the two that they need to convert to digital and provide that simulcast service.

Senator TCHEN —I think you will find that, if you read the legislation carefully, all your concerns should be covered already because that is what the government is proposing. I appreciate that News Limited is not a member of ASTRA. But News Limited owns Fox, doesn't it?

Mr Furness —Can I talk on behalf of Foxtel, of which News is one of the shareholders?

Senator TCHEN —I am not accusing anybody; I am just clarifying.

Mr Furness —No, I just need to address that point. We have shareholders, which you are probably aware of. Telstra owns half, PBL owns a quarter and they happen to own the Nine Network as well, and News Limited owns a quarter. Foxtel's position on this is Foxtel's position.

Senator TCHEN —I am not holding you to Foxtel's position. It is just that Mr Murdoch has made public statements in other places which differ from the position that News Limited has taken here.

Ms Richards —With respect, Senator, that was in a different situation in a different market. That was in the cable TV situation, where pay TV operators had 70 per cent of the market. It is not the same as the situation here, where we have 18 per cent of the market.

Senator TCHEN —Yes, but you are coming up to that, aren't you?

Ms Richards —We would love to be coming up to that, Senator! Can I correct the Hansard record in that News Limited is an associate member of ASTRA, in the same way that Cable & Wireless Optus, Telstra, AAPT and PanAmSat are.

Senator TCHEN —On the question of carrying out the review now, the problem is whether anyone knows enough about how the market will develop. This legislation allows for a trial period, which, you might say, will cost the pay television people nothing, or relatively little, compared with the investment that the free-to-air stations have to make. Then we would carry out a review to see how the market accepts digital television. That would be a much more intelligent approach than trying to carry out a review to pre-empt developments that could occur. If I remember correctly, had an inquiry into pay television and whether it should be introduced into Australia been carried out when the idea was first mooted, there might have been a negative result.

Ms Richards —There were numerous inquiries into whether pay TV should be introduced over a number of years, and the outcome was negative, as you would know.

Senator TCHEN —The initial review was not favourable, was it?

Ms Richards —We were refused entry for a very long time.

Senator TCHEN —That is because the initial review was negative. Whereas subsequently, as the market developed, knowledge was gained and the situation changed. I am suggesting that your recommendation that a review be carried out now rather than later when we have more information seems to be a less intelligent way of approaching it.

Mr Lattin —We had a lot of information when the review timetable was initially put in place in 1998. Two years later, with the enormous speed of technology nowadays, we know a hell of a lot more. We think there is ample evidence worldwide of the inefficiencies of HDTV, particularly in the consumer marketplace, and that it is not happening in the UK or in Europe. It is not working in America and there seems to be no enthusiasm for it, and it has been delayed in Japan. A lot of evidence has come to the table over the last 24 months. What we are really saying is that a car crash is going to happen. The question is: when do you want to put the brakes on? Do you want to put them on now, or do you want to go through the next two years before you do it? We have reduced the period of testing HDTV down to 12 months, but we heard yesterday at the hearings that product is not going to be made here and very little product is going to be available from overseas because people are finding it too expensive to make. Nobody is going to manufacture a set and nobody is going to be able to afford a set. So I am sitting here scratching my head and thinking, `Why waste time? Let's get to the point now.' With the digital future needing so much quick decision making, it is important from our industry's point of view, from ASTRA's point of view, that we get on with the show, because we think we are heading down the wrong course. Three years in the technology world we are in today, in the new digital era, is a long period of time—wasting that is not something which will be easy to overcome.

Ms Koomen —Also, it is an inefficient use of spectrum. If we wait some time before that review occurs, there is just going to be more uncertainty in the industry. In the meantime, seven megahertz of spectrum has been allocated to the free-to-airs. They are not even required to use all of that for HDTV. It will just sit there, not being used at all, or it will be used for alternative purposes such as the now broadened category of enhanced programming and overlap multichannelling, which are services that the free-to-airs will be able to deliver without having paid for that spectrum. It is grossly inefficient. We think it would be much better now, after what we have heard and after all that we have researched, to bring forward that review and to decide now whether or not HDTV is really going to be a goer—we think it is not. We agree with and support the idea that free-to-air broadcasters need to convert to digital. That is fine. But we strongly suspect that, in reality, they will be converting to standard definition format, in which case they only require another two megahertz of spectrum to deliver that. That would leave five megahertz of spectrum that can be returned to the government for public auction. We think that that would be a much fairer, more equitable and more competitive model to work from.

Mr Lattin —We can conservatively tell you it is worth at least $2 billion. The sooner that comes into the public purse the better, I would have thought.

Senator TCHEN —I hear what you say, Mr Lattin and Ms Koomen. What puzzles me a bit is that on the one hand you say technology is advancing so quickly that we do not know what will happen in a few years time, and at the same time you are saying to us, `Let's make a decision now.' If technology is changing so quickly, shouldn't we actually hasten slowly and make a decision later rather than earlier? The second thing is that if we make the spectrum available now before the technology actually reaches maturity then aren't we locking ourselves as a community into a particular pattern which will become inflexible for future technology changes?

Mr Meagher —It goes back to the point that if, rather than mandating one thing or the other and then determining rules to block people out, what you do is say, `We will auction it in an open process,' and someone acquires that spectrum and decides that they can make a go of HDTV, then let them do it. Or if they want to have a cross between HDTV and various SD, swapping back and forth at different points in the day, let them do it. What we have done here is lock ourselves into some technology choices prematurely. We do not say HDTV will never exist in Australia. We are simply saying that you should not base the entire digital policy on the assumption that HDTV will be the primary broadcast mode. Once you step back from that, you say, `If Channel 9 or 7 or 10 want to acquire some spectrum for HDTV broadcasting, let them do so.' We do not object to that. Or if anybody else does, let them do so. We do not object to that.

Mr Lattin —I do concede that with technology changing quickly we could wait longer and something may happen. We are telling you from the business we work in day and day out that the signals are looking really bad for HDTV. I think the research should be done now, because the signals from the world are really bad, and from what I heard yesterday there is nothing happening here either.

Senator TCHEN —But under this proposal we are not actually locked into HDTV. We are carrying through a triplecast regime for eight years until we see how the land lies.

Senator MARK BISHOP —I want to go back to the discussion we were having on siphoning. Mr Lattin, in your Optus submission at page 10, paragraph 1.78, you say:

The regime not only prohibits Pay TV operators from acquiring the free to air rights, but any rights to the events other than from a free to air. This effectively sets up the FTAs as sports rights brokers with a statutory monopoly over the events. The recent anti-hoarding amendments to the Broadcasting Services Act 1992 do not address these concerns.

Are these new concerns you have, apart from your traditional anti-siphoning position?

Mr Lattin —No, they have been our consistent concerns.

Senator MARK BISHOP —So there is nothing new in the bill that changes the status quo?

Mr Lattin —No, there is not. We would like to reinforce those concerns.

Senator MARK BISHOP —I understand your traditional concerns.

CHAIR —Thank you for appearing. Cable & Wireless Optus will remain at the table.

Ms Koomen —We have covered the issues that we had originally wanted to deal with separately. They are in particular datacasting, which was not in the ASTRA submission but we have suggested that in our submission. As we have had questions on the topic, unless there are any other questions, we can also leave and vacate that timeslot.

CHAIR —As there are no separate questions for Cable & Wireless Optus, thank you all very much for appearing, and thank you for your evidence.

[3.10 p.m.]