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Broadcasting Services Amendment (Digital Television and Datacasting) Bill 2000

CHAIR —Welcome.

Senator CALVERT —I actually have a transmitter adjacent to my property and ntl lease a road from me, so I do have a financial interest.

CHAIR —We will record Senator Calvert's pecuniary interest in ntl's activities. The committee has before it submission No, 27, which it has authorised to be published. Do you wish to make any alterations or additions to your submission?

Mr Morton —We have a further amendment which we would like to submit.

CHAIR —Thank you. Would you like to make an opening statement?

Mr Morton —I would like to thank you for inviting ntl to this inquiry and providing us with the opportunity to give support to our written submission and provide answers to questions you wish to raise. I will start by giving a brief introduction to ntl. ntl acquired the national transmission network in early 1999 from the federal government. The NTN is a unique infrastructure, given that it comprises over 560 transmission sites around Australia, many of which are in rural and remote Australia, with a primary task of transmitting ABC and SBS television and radio services to the Australian consumer. Internationally, ntl is a top 100 company on the Nasdaq exchange and has extensive operation in Europe, particularly the UK, where it is a complete communications company. ntl was a pioneer in the introduction of digital television and radio in the UK in terms of both technical development and commercialisation, and has established a global reputation in terms of its expertise within the industry.

Moving on to the bill, ntl believes the bill has a number of strengths, which ntl endorses. To touch briefly on two of these, firstly, the standard definition simulcast will be essential to the success of digital television and datacasting in Australia. However, ntl believes this provision needs to be strengthened to mandate the use of MPEG audio with the standard definition picture as the baseline standard. This is essential in order to maintain the low entry cost opportunity for early receivers and is an obvious requirement for future mobile and portable receivers. AC-3 should be permitted but only as an optional service enhancement as required by the broadcaster. Secondly, the inclusion of Internet access in the datacasting definition is also important to the provision of new access platforms for services, particularly in regional and rural Australia.

ntl has proposed a number of amendments to the bill in its submission. The thread running through many of these proposals is spectrum efficiency. Why? Because the physical availability of spectrum for new datacasting services is as important to the future of this industry as the definition of services for datacasting itself. There are three important factors. Firstly, given the scarcity of spectrum for new datacasting services, it is surely critical that all spectrum actually be utilised for new services—in other words, a `use it or lose it' condition for datacasting licences that ensures spectrum hoarding is not permitted. We understand precedence for this exists in the act—for example, the narrowcasting provisions—and in the bill itself—for example, the solus markets.

Secondly, an issue not raised in our submission but of vital importance is the extent of the ABA's power to clear spectrum, which is a prerequisite to making as many channels available as possible for new services. After the digital TV conference in Sydney on Monday this week, Professor Flint said that he did not believe the ABA had this power. This position is alarming to ntl, and we believe this should be immediately clarified in this bill. We have submitted additional information today to set out our views and our UK experience and involvement in the channel clearance and interference management process, which you have before you. We strongly believe the opportunity to maximise the availability of spectrum for new services will be lost unless the power to clear spectrum is vested in an appropriate body and methodologies are introduced to manage the associated remedial actions.

Thirdly, we do not agree with the bill's provision for potential six-megahertz channels for datacasting. Firstly, this would go against the entire foundation of channel planning in Australia—being based on seven-megahertz channels. Secondly, good channel planning should mean it is unnecessary. Thirdly, it will have a significant price impact on digital receivers, which would be very undesirable. Finally, there is also the strong possibility that such dual bandwidth receivers may never be developed, given the significant additional complexity and development costs. In relation to the datacasting definition, ntl's view is that the overriding objective must be a viable datacasting industry. Our definitional suggestion is one based on interactivity, which would also allow video on demand type services, but we have deliberately not focused on this subject in our submission, given the range of views the committee has available to it.

Not strictly connected with the bill are two other key issues that we think it is vital to draw to your attention. Firstly, digital channel planning by the ABA has proceeded a long way already but should not be finalised until it is clear that as many new datacasting channels as reasonably possible have been provided for. ntl's engineering staff believe three channels can be made available in Sydney, up to three in Newcastle and at least three in Brisbane, with minimal and manageable consequentials for viewers. Our experience in the UK has shown retuning of sets and repointing of antennas by consumers where required can be undertaken effectively and without disruption using a polluter-pays principle—that is, all costs are covered by the incoming datacasting licensee. We have consistently said that less than three datacasting channels in a major metropolitan market would be an unsatisfactory public policy outcome without first exhausting all spectrum management tools.

Secondly, ntl has growing concerns that the process for setting standards for new digital receivers is proving to be ineffective and is bogged down in industry self-interest, and that it will not reach the right outcomes in terms of an open platform—that is, one receiver for all services. We believe that it is critical that the minister have sufficient powers to direct an outcome on standards, if required, or indeed to proactively direct the outcome sought. Perhaps this could be added to the current bill if current powers are not available. I would be very happy to take questions.

Senator MARK BISHOP —Welcome, gentlemen. You said at the outset that ntl considers it necessary to impose a `use it or lose it' condition on the issue of datacasting licences. I understand your reason was that you were fearful of hoarding of spectrum by prospective datacasters who get the licences. Is that the reason you want to use it or lose it? Or are there other reasons?

Mr Morton —No, it is purely for that reason, that there may be some who have the money to actually buy a licence and then not use it.

Senator MARK BISHOP —That would be a significant outlay of funds, would it not?

Mr Morton —It certainly would. We also believe that in certain parts of the telecommunications industry there are certain frequencies that are not being used efficiently. They are carrying traffic purely for the sake of keeping the frequency open and not available to others.

Senator MARK BISHOP —Do you have any figures at all in your mind for what the datacasting licences might be worth?

Mr Morton —That is really going to hinge on what the datacasting definition allows it to be.

Senator MARK BISHOP —Yes, on what it enables them to transmit.

Mr Morton —That is fundamental.

Senator MARK BISHOP —I know there is no direct analogy between these and the telecommunications industry, but even if you remotely approach the figures that are being gained there for spectrum, for companies in this industry to then start to purchase a licence and hoard the spectrum means many millions of dollars not being used at all. Do you have experience of that overseas?

Mr Morton —No, not personally.

Senator MARK BISHOP —Does the company?

Mr Morton —Not that I am aware of in the broadcast industry. Normally the broadcaster is so keen to get on air, having paid his dollars or pounds.

Senator MARK BISHOP —So you cannot point us to any precedent?

Mr Morton —I cannot point you to any precedent, but certainly there is an awful lot of money in certain parts of the broadcast sector.

Senator MARK BISHOP —I understand that. Do you expect the present uncertainty of preconditions for conversion of datacasting licences to broadcasting licences in 2007 to deter datacasters from the expense of obtaining a datacasting licence?

Mr Morton —I would suggest the converse, that the key to having a full broadcast licence or migrating towards that position could actually make it attractive. Again, the level of that attractiveness will obviously depend upon the starting point in the first instance.

Senator MARK BISHOP —So the uncertainty as to what occurs in 2007 and what the datacasting licences will convert to, if anything, could be an incentive to hoard now?

Mr Morton —Yes.

Senator MARK BISHOP —Do you think the enhanced programming provisions in the bill are really de facto multichannelling?

Mr Morton —It is certainly very confusing on the basis that, where you are essentially allowing the same venue to outlets, there is always the possibility, certainly in a sports environment, of a significant overrun. Then I would have to say yes, that is moving into a multichannel environment.

Senator MARK BISHOP —Have you seen the submission of Cable and Wire Optus?

Mr Morton —I personally have not.

Senator MARK BISHOP —They put a fairly cogent argument there that the enhanced programming provisions are indeed very liberal and are another form of multichannelling. Is your company concerned about that?

Mr Morton —We are keen to see an equitable regime for all parties on the issue of trying to define what can and cannot be done. Certainly, to our mind, that falls on the wrong side of the clear definition of thou shalt not multichannel. It is really pushing the boundary quite some way. That is not to say that, as an organisation, we have a problem with a multichannel environment; we do not. The UK regime operates in that mode.

Senator MARK BISHOP —But if you are going to have multichannelling, have it open and up-front— through the front door?

Mr Morton —Absolutely—be up-front about it.

Senator MARK BISHOP —You heard the discussion between previous witnesses and me and, indeed, Senator Tchen about what would be the definition of datacasting if we were to draft it from the beginning. In your opening comments you submitted that the key or critical feature, in your view, would be interactivity. Is there anything else you would suggest?

Mr Morton —Certainly earlier submissions were based quite strongly on an interactive regime, as we felt that was one way of trying to start from a position of, rather than asking what is datacasting, looking at what is not broadcasting in the current environment. We felt that was quite a useful differentiator.

Senator MARK BISHOP —Is there anything else you would like to add to that?

Mr Morton —Not particularly at this stage. Certainly you are taking a lot of inputs from other parties who have a stronger sway and interest in that. I think the most important thing from our perspective is that the ultimate definition of datacasting actually allows a viable business for new services in the Australian market.

Senator MARK BISHOP —Is your company intending to go down the path of becoming a datacaster?

Mr Morton —It is something that we are considering. We have yet to make a formal commitment on that one.

Senator MARK BISHOP —But it is under active review?

Mr Morton —We are certainly looking at it.

Senator MARK BISHOP —At the moment you provide the transmission facilities for the ABC and the SBS. You purchased the old network. What other business interests does the company have in the broadcasting/communications market?

Mr Morton —As part of acquiring the assets of the NTN, we obviously wish to extract value from those assets. They are on prime hilltop sites in many parts of the country, particularly in rural and remote parts of Australia. Obviously, with expanding services and broadband microwave to outlying parts of Australia, there is clearly a business opportunity for us to promote the use of those sites, and also to avoid the proliferation of additional and perhaps unnecessary sites either on the same hilltops or on adjacent hilltops. We think there are quite a number of benefits to the community by not having unsightly towers poking on the horizon where they can be avoided. That is certainly a line that the UK planning authorities have been pushing quite strongly in recent years.

Senator MARK BISHOP —If there were a more liberal definition of datacasting put into the bill, would you see significant uptake of the datacasting industry?

Mr Morton —I think the answer has to be clearly yes. What the Australian marketplace requires, in our view, is something to attract the consumer to move into the new technology. If there is not something that is interesting and exciting and of value to the consumer, then one has to ask why would people convert, other than the fact that, at some time before analog switch-off, yes, they will have to buy a new box—but why go early?

Senator MARK BISHOP —A number of reviews are suggested in the legislation—audio and video streaming, and a range of other matters. Would you favour statutory reviews or reviews conducted in-house by the department?

Mr Morton —I guess we do not have a strongly polarised view on that one, but probably we would err on the side of the statutory review.

Senator MARK BISHOP —This industry is developing and changing so quickly, would you rather that series of reviews were done sooner than later, or waited for the industry to change and then had a look at where we are at?

Mr Morton —I think the industry potentially can be very dynamic. To actually set future milestones, we might find it is too late in the program. I think there needs to be a dynamic situation where there can be reviews at appropriate periods. Quite how that period is determined, I am not sure, but I would certainly say sooner rather than later.

Senator MARK BISHOP —Do you have an opinion on the timing of the review of the HDTV arrangements?

Mr Morton —Perhaps you could just remind me of the current timing and what is proposed.

Senator MARK BISHOP —The current timing is 1 January 2003. It is turned on from 1 January next year, reviewed two years later, and they have to provide 20 hours of HDTV transmission by 1 January 2003. In the meantime, you have the problem of the take-up of new sets in the home. So the argument is: how can you have a review if 99 per cent of homes have not purchased a digital television? Or do you have the review and take that into account?

Mr Morton —My personal view is that you should have the review when you have that opportunity. If when the time comes the review is a very short one and agrees that the next step is to have a further review one or two years beyond that, then that is fine and I think that is better than having too long a gap.

Senator BOURNE —Thank you for that supplementary submission—it is particularly interesting—on single frequency networks and clearing up the spectrum. I note you mention that a fault position should be a 1+0 mode for single frequency networks. We have heard 1+1 around. Can you tell us why that is?

Mr Morton —Spectrum is very valuable and I think we should take every opportunity to make the most efficient use of that spectrum. The paper before you cites some examples from UK experience. Take the case study at the very end. Channel 5's entry costs to market, to clear spectrum as a result of interference to video cassette recorders and satellite set-top boxes, in Australian dollar terms, equated to $350 million, which is a large price to pay. Nonetheless, spectrum was made available. There were quite a few engineering issues involved with that, but Channel 5 is now a very successful television station which caters for the 18 to 35 market in the UK. It arrived on the scene when there was a very well-established four national network analog service, and not long behind it we saw multichannel pay television. I accept that the UK market is very different from Australia in terms of its demographics and geographic spread, but it was a clear example that there is still a strong business case for doing the right thing. I think we need to be bold. As I say, it is a very valuable asset. Channel 5 also pays an annual licence fee to the government. I forget the exact figure. I think it is in the range of [pound ]10 million to [pound ]15 million per annum.

Senator BOURNE —You have done tests in Sydney, have you not, to find out whether it is technically feasible to have the 1+0 mode? I guess Sydney would be the most difficult because it is so hilly and has so many of these things.

Mr Morton —We are part way through a number of tests. The issue in all areas is where you have outlying translators where you can run that translator on the same channel as the parent station so that the parent and child are on the same frequency, which is the most efficient, although it does create a number of engineering complexities—they are certainly not insurmountable. There will also be the need in some areas for some domestic antenna repointing but, again, looking at the experience in the UK, if it is properly managed and there is good communication, then the changes can be implemented without problem.

Senator BOURNE —So 1+0 is technically possible throughout Australia.

Mr Morton —Where you cannot use it is where you have different programming. So where you have a regional network, obviously at the boundary, if you have an adjacent area trying to use the same frequency, then you get interference, but if you carry the same program material, then in theory, yes, you can have a totally national—

Senator BOURNE —Retuning has taken place in Australia already, hasn't it, in Victoria?

Mr Morton —Quite a lot of work has been done in Victoria to rearrange the spectrum to allow a VHF only plan for Melbourne.

Senator BOURNE —And that was not a total disaster at the time?

Mr Morton —I am not sure how far it has progressed, but there is no reason at all why it should be a problem if it is well managed and if the alternative stations are installed and ready to go ahead of the digital services coming on.

Senator BOURNE —Yes, thanks. I take your point about the ABA. If they are not supposed to be cleaning up the spectrum, I am not sure who is.

Mr Morton —There is something of a dichotomy there, because Professor Flint's view was that he did not believe he had the mandate. Yet, when you look at the digital channel plans for Perth and for Melbourne, clearly some spectrum clearance has been required. We are keen to see: (a) that mandate clarified, hopefully through the bill; and (b) a consistent approach to channel planning throughout Australia so that we gain the maximum spectrum benefit.

Senator BOURNE —I am sure he will be a very interesting witness later this evening. Thank you very much.

Senator TCHEN —I would like to join Senator Bourne in thanking you for providing the supplementary submission and particularly for your comments on the future possibilities for community television channels. Having a personal interest in community television, I find it reassuring to know that there are opportunities for those types of services to continue. The future is much more optimistic than was presented to us earlier by the representative from the Community Broadcasting Association of Australia.

I have one question about the distinction between datacasting and broadcasting. Interactivity is the one technical difference between the two, isn't it? Therefore, the distinction between datacasting and broadcasting that is in this proposed legislation is basically an artificial one rather than a technical one. The decision to datacast is a commercial decision about whether or not to enter a market and to provide a service, isn't it?

Mr Morton —Absolutely.

Senator TCHEN —So, to regulate this type of market, we basically have to take into account the commercial and maybe social impacts of the legislation rather than just the technical impacts. Would you agree?

Mr Morton —Yes. I appreciate where you are coming from. Could I make a supplementary comment on that. Certainly one of the key differentiators and one of the added dimensions in the UK market is the fairly recent introduction in the UK of interactive services on all the platforms. On cable it is quite straightforward because you have a wide bandwidth return channel, and you can do some fairly exciting things with that. Both terrestrial television and satellite delivered television in the UK have moved into interactive mode fairly recently and, from the feedback, that is having a major audience impact.

CHAIR —Thank you, Mr Morton. Both your original submission and your supplementary submission have a lot of interesting points in them and will give the committee much to think about. Thank you for your appearance today.

Mr Morton —Mr Chairman and senators, thank you.

Proceedings suspended from 12.58 p.m. to 2.04 p.m.