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S U B M I S S I O N PRODUCTIVITY COMMISSION INQUIRY INTO BROADCASTING LEGISLATION ACCESS AND TECHNOLOGY ASPECTS PAPER, MAY 1999 Contents:
Executive summary There are many ways to deliver digital content into homes and businesses. Driven by the launch of pay TV, the last five years has seen services delivered over two newly constructed cable networks, microwave distribution systems and direct-to-home (DTH) satellite. Set-top boxes have appeared in close to 1 million Australian living rooms. In addition, DSL technology has enabled high bandwidth services to be delivered over widely-deployed copper wire networks. However, in reality, entrants face numerous hurdles - some regulatory, some technical, some economic (cost, and the incentives of incumbents to preserve the status quo). This paper gives a snapshot of the various existing broadband platforms, and outlines some of the hurdles entrants face in utilising them. In particular, the gateway to the home - the set-top box - may not be accessible for a range of reasons. Even if hurdles to bandwidth access were removed, providers of content and services must face the incumbent providers of services packages, to seek sufficiently prominent exposure for their services. In order to enable competition and diversity in new digital and broadband services, access at all levels must be addressed.
A Access to infrastructure platforms and set-top boxes - the barriers The technologies below represent the main broadband platforms available for widespread deployment today. However, utilising them involves overcoming significant hurdles, elaborated below. 1 Broadcasting band spectrum The terrestrial broadcasting spectrum comprises the following 7 MHz channels in the VHF and UHF bands: VHF
Band 2: 3 channels, now taken over for point-to-point communications Band 3: 8 channels (one of which is 6 MHz only) UHF
Band 5: 34 channels Within this range, the three commercial and two national TV broadcasters each have a 7 Mhz slot which is used for analog transmission of free-to-air (FTA) television as we know it today. In addition, a further 7 MHz slot of spectrum for digital transmission has been allocated to them under the digital conversion arrangements passed by the government last year. These grants were free of any incremental charge, except for possible datacasting spectrum fees, and they carry obligations to simulcast digital and analog signals from 2001 - 2008, and to broadcast in high definition to an as-yet undetermined degree. The FTA networks are also prohibited from using the spectrum for multi-channelling until after a review to be completed by end 2005. The barriers and limitations on utilising the broadcasting band include: Technical: The amount of spectrum in the broadcasting band is necessarily limited. While the above list of available slots may appear long, the limits of analog technology and the legacies of historic allocations mean that today’s spectrum plan is fraught with inefficiencies. For example:
In the digital environment, the broadcasting band will yield far more capacity due to digital compression. For example, the spectrum consumed in carrying one analog channel could carry several equivalent digital channels. In the medium term this benefit is limited by the need to duplicate analog and digital transmissions, until analog receivers are replaced by digital ones and the analog spectrum is returned for other uses. But, beyond merely yielding more capacity the transition to digital also provides a unique opportunity for correcting spectrum usage inefficiencies to overcome rather than perpetuate historical and anachronistic limitations. For example:
Ignoring these potential efficiency gains, FACTS’ allocation plan seeks an adjacent 7 Mhz channel alongside every existing analog channel, even though some of these translators only service a small area or population. For example in Cairns, adjacent towns such as Port Douglas have a translator. There are a total of 13 translators for each of six FTA stations (ABC, SBS, 7, 9, 10 and the community channel). Thus, in Cairns the entire UHF spectrum is planned for FTA services, with no spectrum left for other options. Allocations such as this, especially as we move into a digital environment, clearly ignore efficiency principles. To some extent, the "same coverage" rules give credibility to this process, although they do not justify it. No cost-benefit analysis has been put forward to support such a methodology; and it is difficult to see how a proper analysis would result in such a generous allocation to existing spectrum users. In any case, there are no sound technical reasons why the number of television licences must be limited to three commercial and two national. On any view, there is scope for at least one more 7 MHz slot, if not more. Regulatory: The Broadcasting Services Act prevents the allocation of any additional commercial television licences before the end of 2006 (except in licence areas where there is only one current licensee, where an additional licence may be issued to the existing licensee). Economic: The services supported by this spectrum are broadcast to approximately 6.5 million television households in Australia. It is the virtually ubiquitous penetration of analog television receivers which provides the incumbent FTAs with a key source of competitive advantage. This population of aerials and TV sets, established at consumer expense over 40 years of FTA television history, means that incumbent FTA operators can reach virtually every Australian household without installing and funding consumer devices. New competitors, such as pay TV operators, datacasters and interactive TV providers, face cost and distribution hurdles in placing reception equipment into customer premises (eg a set-top box and cable lead-in/satellite dish or microwave dish). Digital FTA television will also require some form of set-top box or digital receiver in the home. However, since the status quo (being ubiquitous analog TVs, only about 15% penetration of pay TV set-top boxes, and no datacasting receivers or digital TV receivers) favours the incumbent FTAs, they have little incentive to co-operate with other players to ensure that low-cost, multi-purpose devices are available to consumers. This is evident from their stance in the receiver standards debate. These incumbents clearly do not want to lower the costs for consumers to access the services of new entrants (eg datacasters) who may attract eyeballs and advertising dollars away from their FTA services.
2 DTH satellite Geo-stationary satellites are the dominant type of satellite used for broadcasting. They are positioned at the precise distance from the earth such that they rotate at exactly the speed that the earth rotates on its axis, making them stationary relative to us. Broadcast signals can be "uplinked" onto transponders on these satellites, which reflect the signal down onto the earth’s surface. These signals can then be received by satellite dishes which are pointed exactly to that satellite. Optus’ B3 satellite is the "hot bird" in Australia today – meaning that most installed dishes are pointed to this satellite. Optus’ former monopoly satellite position (including as AUSSAT), aided by legislative requirements on satellite pay TV licensees to use Optus’ satellite, have resulted in over 200,000 pay TV dishes across Australia being pointed at B3. These are customers of Austar, a former Australis franchisee, and customers of Foxtel, which acquired digital satellite set-top boxes (including those in customer’s homes) from the Australis receiver. They are generally located in regional and remote areas. In Western Australia PanAmSat 2 carries some television signals into remote areas after Telstra won the Golden West contract, but Optus still carries other signals. Telstra may also offer its Big Pond satellite service over either PAS2 or the recently-launched PAS8. However, pay TV appears to be the main "dish driver" into residential homes In the wake of Australis’ collapse, Optus and Austar agreed a joint venture to offer wholesale satellite transponder capacity and related services, using B3. Austar was obviously the main customer. Since then, Foxtel has also signed. The effect of this is that (broadcasting spectrum aside) Optus’ B3 satellite is likely to remain the leading broadband distribution platform outside cabled areas.
Barriers and limitations to utilising DTH satellite distribution include: Technical: Limited transponder capacity is left on B3. Almost all, if not all, high-performance beams are spoken for. Most of the remaining capacity is on the "national beams" which require larger dishes to receive signals, resulting higher equipment and installation costs, and greater consumer reluctance. Optus may launch a C-series of satellites, but this is some time away. (Other transponder capacity is available, but see below for barriers to utilising it.) Regulatory: Regulation requires that satellite pay TV be delivered by means of a digital set-top box. These are capable of delivering hundreds of channels, but have been compared to Porches with only first gear, since until July 1997 only three satellite licences were on issue. Even since further licences became available, the digital satellite boxes ironically receive less channels than the analog cable boxes. This has created significant cost burdens, causing providers charge higher connection fees or to limit the rollout of satellite services in order to preserve cashflow. As a result of this regulatory distortion, there is a smaller population of dishes and a less extensive broadband platform than there might have been. Further, the ACCC’s broadcasting access service declaration (see below under HFC cable) does not cover wireless services, although this is currently under review by the ACCC. Economic: Since limited transponders are available on B3, and other providers (such as the newly-launched PAS8) offer better quality at possibly cheaper rates, new entrants might acquire capacity from other sources. However, this would require dishes to be pointed in a different direction to those which are aimed at B3. Effectively, a customer wishing to receive services from both satellites would require two dishes – something which they are reluctant to do. Or, if they churned from one service to another on a different satellite, their dish would need to be re-pointed. This is a significant barrier since most satellite customers are in outlying areas, making home visits expensive. A new entrant may also have to negotiate with an existing service provider to access in-place dishes and wiring at customer premises, if the equipment was owned by that service provider. Where the customer had no in-place equipment, the cost of installing it would need to be met (either by the customer, or by the service provider). Low earth orbit (LEO) and medium earth orbit (MEO) satellites are becoming operational and have been deployed for point-to-point services eg Iridium telephony. It is speculative as to whether they may in future become more important than geo-stationary satellites for broadcast services.
3 Hybrid fibre-coax (HFC) cable There are two main cable systems in Australia, both laid in a race for coverage between 1994 and 1997.
These cables carry, respectively, the Foxtel and Optus Vision pay TV packages. In addition there are a small number of local cable networks in regional areas. Austar, a regional and remote pay TV operator, has a cable network in Darwin, estimated to pass about 35,000 homes with some 5,000-10,000 live customers. Some regional Victorian areas (Ballarat, Geelong) also have existing or planned cable plant, and ACTEW are conducting trials on a small-scale rollout in Canberra. Because of the higher penetration rates of services on Telstra’s cable, it has emerged as the most important cable distribution system in Australia. While Optus’ cable system relied on both pay TV and telephony services to drive penetration, both have fallen well short of expectations. Optus Vision is only the third biggest pay TV operator in Australia by subscriber numbers (after Foxtel and Austar); and its difficulties in delivering telephony via HFC are well-known. Foxtel in contrast has enjoyed steady subscriber growth. Barriers and limitations to utilising HFC cable distribution include: Regulatory: Access to broadband capacity for other service providers on these cables has not eventuated. Until July 1997, access was virtually impossible under regulation. Since then, the cable infrastructure has been exposed to the telecommunications access regime. The ACCC, under statutory obligation, declared a broadcasting access service on cable. However, there are two main difficulties with utilising this regime. First, there are doubts about the validity of the ACCC’s original declaration. The ACCC appears to have acknowledged these doubts and is presently undertaking an inquiry into whether further or replacement declarations should be issued. Second, the new access regime carved out rights (called "protected contractual rights") which pre-dated the announcement of the regime in September 1996. In other words, new grants of access cannot overturn any person’s pre-existing rights. As disclosed in Telstra’s prospectus, Foxtel enjoys rights of exclusivity on the Telstra cable for its home video entertainment services (however, Foxtel’s services do not include telephony or online services and Telstra independently offers Big Pond Cable, a high-speed internet service using cable modems). Foxtel also has protected contractual rights relating to unbundling: if Telstra provides a broadcasting access service to others, it must include "certain bundled functionality". (There are no protected contractual rights known to apply to Optus’ cable.) The set-top box is a critical device to which many parties might seek access. If, for example, the future digital cable set-top box was to include functions additional to pay TV (eg a modem, memory chip or a digital TV receiver) it could quite dramatically alter the economics of new services. While legislation contains specific access provisions about "conditional access customer equipment", the telecommunications access regime provisions hinge on an "active declared service" being supplied - hence suffers from the same declaration difficulties outlined above. Further, enforcement remains complicated by ownership arrangements. For example, the Foxtel’s set-top box is not owned by Telstra, which is the main carrier entity to which access obligations attach, although Telstra has some rights to offer other services through the box. Technical: The lack of cable access precedents for either cable system mean that an access seeker would inevitably be required to face technical issues being solved for the first time. Complex ownership arrangements also mean that a new entrant may have difficulty ensuring end-to-end service. Economic: A new cable lead-in (from the street to the wall-plate inside the customer’s living room) must be physically installed each time a customer in new premises subscribes, incurring an incremental cost (upwards of $400). This plant cannot be economically re-deployed if the customer moves or cancels their service. Where lead-ins are already installed, both Telstra and Optus have contractual rights of ownership ie the customer does not own it, a new service provider would need to negotiate for the use of it even though the cost is sunk. There are no access precedents for lead-ins: even Telstra and Optus do not share them when a pay TV customer churns from one network to the other, presumably because each has ambitions to deliver other services into the home via its own lead-in. Similar issues apply in relation to set-top boxes as apply in satellite (except that digital boxes are not mandated by regulation). At some point – estimated in two to three years – cable TV operators will begin to change out their population of analog boxes to digital boxes which are capable of receiving hundreds rather than tens of channels. Existing operators will have the opportunity to shift the cost of the box – which they have largely borne until now – onto the consumer if a sufficiently compelling value proposition can be offered. This might involve a multi-function box that can support – say – datacasting and internet services as well as FTA and pay TV. This interoperability is critical to the viability and uptake of digital services.
4 MDS Microwave distribution of broadband services is utilised by Austar in some areas of regional Australia. It was also used by Australis prior to its collapse, in capital cities. When Australis went into receivership, its former landlord Mike Boulos acquired the MDS licenses and infrastructure, and the set-top boxes in former Australis customers’ homes (estimated 60,000-100,000 MDS boxes). Boulos then announced plans to broadcast ethnic and adult programming, and in parallel sought ACCC intervention to gain access to the Telstra cable. (The ACCC’s access inquiry appears to be partly a response to this.) No services have yet been launched although in early May Boulos’ company was issued with seven pay TV licences by the ABA. Barriers and limitations to utilising MDS include: Technical: In the analog world, it is considered a second-rate technology, used mostly in "monopoly" areas or where cable was yet to be commissioned. It is a line-of-sight technology eg in Sydney, the customer had to be able to see Centrepoint Tower. Anecdotally, up to half of Sydney could not receive an adequate signal. The digital environment may breathe new life into MDS technology, however, as OFDM may deliver dramatically improved coverage and overcome many of the line-of-sight problems. MDS licenses are limited in availability due to limited spectrum. This also limits the number of channels which can be broadcast by this means, and MDS services generally offer less channels than cable and DTH offerings. Regulatory: The ACCC broadcasting access service declaration does not cover wireless services. Licences are issued only for limited periods LMDS (local MDS) spectrum has been auctioned, but it is unclear whether it will be utilised for broadcasting.
5 Copper wire Technology developments have dramatically improved the bandwidth which is possible on Telstra’s copper wire network. Once seen as only a vehicle for low-bandwidth voice traffic, copper wire now widely carries ISDN services (64 kbps). Most dramatically, digital subscriber line ("DSL") technology enables 2 Mbps or more - sufficient to carry video - to be delivered to a customer’s set-top box. In a draft ruling last December, the ACCC proposed declaring an unconditioned local loop services upon which DSL services could be built by service providers deploying their own equipment and thus managing the creation of their own bandwidth. Since then, Telstra has launched an "HDSL" (high-bitrate DSL) which is only available in defined areas of major cities - essentially a managed wholesale product for data delivered in CBDs. It is still being debated whether unconditioned (or unbundled) local loop services should be declared. DSL trials were conducted by Telstra in the mid-90s as a possible technology for delivering video into homes. However, DSL has not been deployed in scale to mass markets. Significant capital is required, revenues from new broadband services are uncertain, and DSL has not been deployed in sufficient volumes overseas to lower set-top box costs. However, as the baby Bells in the US meet the challenges of revamped cable companies (some with long-distance or technology company ownership) the Bells will be incented to pursue DSL options vigorously. This may make the technology more attractive for scale deployment here. Barriers and limitations include: Technical: DSL technology is most effective when utilised into homes within a few kilometres of the telephone exchange. A significant proportion of homes may fall outside this radius. It therefore may not be a ubiquitous technology, even if other hurdles could be overcome. Regulatory: The ACCC inquiry into declaration of an unconditioned local loop service is note complete, and hence no such service is yet available. Economic: Telstra and Optus have little incentive to duplicate (or to see duplicated) the broadband capacity already available to 2.5 million homes via their cables, since DSL is a broadband technology that may bypass their infrastructure. Further, until widespread deployment occurs in the US, equipment costs (eg set-top boxes) will not fall to levels which seriously challenge the economics of other broadband systems.
In summary, this table shows the access infrastructure/set-top box barriers discussed above:
B Access to service packages – barriers Aside from obtaining capacity and box access, a new entrant must also obtain exposure to the consumer. This is somewhat akin to getting shelf space in the supermarket. For example, a vertically integrated pay TV provider such as Foxtel (which itself owns equity in many of its upstream channel providers, and has shareholders with more extensive interests in the content it carries) demonstrates the degree to which related party content is displayed on its service package. Its most prominent sixteen channels are as follows:
Leaving aside the retransmitted FTA channels, all but one of the channels listed above are provided to Foxtel by a party in which Foxtel or News owns equity. New channel providers face great difficulty in obtaining a favourable position in the channel line-up, if they can obtain a contract at all - especially if the competitive forces on Foxtel diminish as Optus Vision grows relatively weaker. The Microsoft/PBL ninemsn partnership also demonstrates preference for PBL content (Ralph, Dolly, Getaway) and MS applications (hotmail, Carpoint). The new Windows 98 operating system has inbuilt shortcuts to hotmail; and the recently-released Internet Explorer 5 contains favourites and search defaults which point to ninemsn properties. This leveraging of market power from one level to another creates very real impediments for competing content providers - especially in an environment where the number of hits is not only an advertising revenue driver but is also seen as a critical indicator of future value and success. Fairfax’s experience in its AIM joint venture with the ABC demonstrates the difficulty of obtaining a position in service packages controlled by competitors with related party interests. Similar issues will arise acutely in the digital television environment as electronic program guides provide the launch-pad or home-page for interactive TV services, featuring the channels to watch, the shops to browse, the ISP to use, the web sites to see, the casinos to visit etc. As ownership increasingly traverses traditional media, internet companies, pay TV providers, channel providers, content providers (including entities not traditionally considered to be media such as sports teams and casinos), dominance or influence at one layer can be leveraged to favour related operations in another. This creates tangible access issues for players without market power across multiple layers.
9 May, 1999 |
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Fairfax > Corporate Affairs & Media Releases > Announcements > ACCESS AND TECHNOLOGY ASPECTS PAPER
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