Fool's Eye View

[ August 30, 2000 ]

Hey, Who Turned the TV Off?

By Rob Davies (TMFEssex)

Carburton Street, London -- Do you trust the Government? Daft question really, but most of us go along with it. For example, when the Government auctioned off radio spectrum for £22.4b in March this year the buyers, and shareholders in the buyers, were happy that they had secured a commanding position in that space for the next 20 years, the life of the licence. After all, no one else would be able to compete with them if they didn't have that spectrum, so the winners would therefore have a licence to print money.

Ah, well, that's the theory. But there is a teeny teeny little fly in the ointment. The government might sell some more radio spectrum. "But there is no more to sell!" you cry. At the moment that is true, but this post from jeffreyarcher links to an article in the Sunday Times suggesting the Government is looking at a radical plan. This Fool actually pointed out the possibility of this some time ago in this post.

To explain what is going on we need to digress a little into the world of television. What's that got to do with mobile phones, you ask? Bear with me and you'll see. Most of the 60m televisions in the UK receive analogue TV signals at the moment. That means they can only pick up the 5 terrestrial channels. However, thanks to the campaign by BSkyB (LSE: BSY) and ONDigital to roll out digital TV, 20% of the country now has this upgraded service. Digital TV provides much better quality signals and a more channels. It also offers the potential of interactivity. So digital TV is a good thing all round and undoubtedly most people will gradually move over to it in time.

Digital TV uses a different part of the radio spectrum to analogue TV signals. So eventually the part of the spectrum used by analogue will become almost empty and it is accepted that at some point analogue TV will be switched off. After that everyone will have a digital TV. A bit like the change from the 405 line TVs to the higher quality 625 line TVs made decades ago. No one has actually put a date on when analogue TV is going to be switched off, but the best guess is about 2006, giving people lots of time to buy new TVs. Nonetheless, some refuseniks will undoubtedly refuse to make the change and will insist on hanging on to prehistoric TVs. That makes switching off analogue difficult because no government wants to be blamed for depriving grannies of the daily fix of East Enders.

So the plan being leaked is that the Government will provide the hard core of refuseniks with a free set top box (STB) to enable analogue TVs to accept digital signals. While that may cost a bit, say £25 each for 6m viewers (10% of the market) -- roughly £150m, that will be a drop in the ocean compared to the potential windfall the Government could receive.

You see, the radio spectrum occupied by analogue TV is twice as large as that recently auctioned for 3G use. So, it could be worth twice as much, say £50b. Think how many millennium domes you could build with that. More seriously, though, it would knock a big hole in the £334b national debt. And all Fools know how sensible it is to repay debt.

So everyone would be better off: grannies would get better TV, the government more money and STB makers like Pace Micro Technology (LSE: PIC) and Sony lots of new sales. But that date of 2006 is a long way away and, like most of us, governments want their windfalls early. Besides, 2006 is two elections away and who knows will be in power then. Bringing analogue switch-off forward to 2004 is therefore very appealing to Mr Brown.

However, there is one group that might not be very gruntled about this. Vodafone (LSE: VOD), BT (LSE: BT.A) and others have just shelled out big bucks buying 3G spectrum. Will they have to spend even more money buying more spectrum in four years' time, or will it encourage other companies to play in this game? That could have nasty implications for the 3G business model.

One thing is for sure. As the technologies of the mobile phone, TV and the Internet all converge it is becoming harder and harder to pick winners.

What Next?

More information on this complex subject can be found on the Digital Television Group web site at www.dtg.org.uk. Discussion on the implications for this move on the Telecoms sector can be found on the Telecoms discussion board, and the implications for TV companies on the media sector board.