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LETTER FROM FRED HILMER TO CHAIRMAN OF THE PRODUCTIVITY COMMISSION, RICHARD SNAPE November 10, 1999 Dear Professor Snape, On behalf of John Fairfax Holdings, I wish to commend you and Mr Simson for the interim report issued by the Productivity Commission on October 22, 1999. The interim report is a serious and valuable contribution to the debate on the shape of Australian media policy. The recommendations on datacasting – particularly the need for a broad definition of datacasting, the advantages of standard definition transmission, and optimal spectrum management – validate the chorus of consensus on the key issues. If embraced by the Government, they would facilitate access by all Australians to the digital television age. The recommendations on repealing the ownership rules, provided there is more open access to broadband capacity, are generally responsive to our concerns about the required sequencing and timing of deregulation. This letter addresses two issues, in the hope of contributing constructively to your work as the report is finalised next year. Bringing Digital Television To All Australian Households As the Commission’s hearings and deliberations proceeded, we noted with interest the idea that a mechanism might be established to expedite conversion to digital television, and thereby secure earlier release of the spectrum presently used for analogue transmission. The Commission discusses these issues in Section 6.6 of the report. The advantages of an early handback of the analogue spectrum are clear and compelling:
What had not yet been determined is whether the tangible economic gains from an early handback of the analogue spectrum clearly outweighs the costs of quickly converting every Australian television set to digital. To assess whether these questions should be pursued further, we commissioned A. T. Kearney to produce a report on preliminary estimates of the costs and benefits of an early release of the analogue spectrum. The cost was relatively easy to determine. Providing a standard definition digital set top box to every existing television household in Australia – including two boxes where a second set exists – would cost about $3.7 billion. The good news, however, is that the economic value of the early release of spectrum now used for analogue television transmission, was estimated by A. T. Kearney to be as much as $4.3 billion. This estimate [see Section 6 of the A. T. Kearney attachment] assumes value from incremental advertising revenue, and incremental subscription/value added services and transactional revenue. In addition, there are a number of significant social benefits from an early release of analogue spectrum that were not quantified but add to the strength of the economic case. A.T. Kearney believe that the projections on the potential value from early spectrum release are conservative. In addition, the actual structuring and implementation of such a program can take into account certain social variables that might be desirable. For example, in order to provide a full figure of what the conversion costs would be, A. T. Kearney generated cost figures, which included all first and second sets, including those in upper-income households. Please note we did not add to the cost base of this program the costs already undertaken by television broadcasters to convert to digital. They will be incurred regardless of any action on early spectrum release. This study therefore concludes that there would be an economic and social gain for the nation to move all Australian televisions to digital immediately, bringing forward the benefits of digital television by several years. This analysis therefore poses an important policy question, i.e., what set of standards and policies (such as the scope and pacing of spectrum auctions for the spectrum that is released) are required for this benefit to be realised? This analysis is predicated on a suitable technological standard for digital broadcasting being adopted. The wholesale conversion of the country is feasible and cost-effective if standard definition digital television is the operative transmission standard. The cost-benefit analysis cannot be sustained if the much-more expensive high definition digital television standard is adopted. We are pleased to share this analysis with the Productivity Commission, and through you, with all interested parties. We hope this contributes to the debate on these issues. Opening Up Access To Digital Broadband Platforms The Commission’s interim report, in its discussion of the bifurcation of broadcasting licenses into a transmission license and a content license (Chapter 4), addresses a key concern in our submission from last May: the application of competition policy principles to digital access. We would welcome a more extended examination in your final report of steps that might be taken to advance this objective with respect to telephone network capacity, the cables utilised by Foxtel and Optus, and satellite capacity. The access regime for cable, for example, is being tested by the Seven Network with respect to Foxtel. The Commission’s overall assessment on what might be done to provide greater access to digital broadband capacity would be welcome. If it would be helpful to the Commission, Fairfax and A.T. Kearney are available to be present at your public hearings in Sydney on December 6, 1999. We appreciate this opportunity to present these findings to you. Yours sincerely, Frederick G. Hilmer |
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