Digital Terrestrial Broadcasting: Innovation and Development or a ...

Digital Terrestrial Broadcasting:Innovation and Development ora Tragedy for Incumbents? (*)Reza TADAYONICenter for Tele-InformationTechnical University of Denmark■ IntroductionThis paper presents an analysis of the degree to which it is justifiable todeploy radio spectrum resources allocated to TV broadcasting for thepurpose of transmitting digital TV services. This problem, among others, isanalysed in the light of the level of deployment of two major broadcastinginfrastructures: cable and satellite.Radio spectrum resources are scarce and possess good propagation andreception characteristics which make them valuable for the provision ofvarious information/ communication services. Resource scarcity has beenone of the key parameters used to enforce both regulation and variousmodels for allocating terrestrial frequency resources centrally throughouthistory. Given the societal importance of broadcasting, it has managed toobtain a sizeable portion of these resources in various countries. However,over the last 20-30 years, a number of other infrastructures have beendeveloped to deliver broadcast services and digitalisation has increased theamount of available resources in both traditional and new broadcastinginfrastructures. Furthermore, new services such as mobile-enabledcommunication and information services are becoming more and moreimportant.This paper focuses on the complementarity and competitiveness of theterrestrial broadcasting infrastructure and other forms of delivery. Theanalysis builds on the interplay between technological, political andeconomic parameters and covers the development in a number of Europeancountries and the US. On account of the diversity of the European(*) This work is a result of my participation in two Danish research projects: Servicedevelopment, Internationalisation and Competences (SIC) project and Distributed Multi Media(DMM) project. Bolth projects are financed by the Danish research council.COMMUNICATIONS & STRATEGIES, no. 42, 2 nd quarter 2001, p. 89.

90 COMMUNICATIONS & STRATEGIESlandscape, it was important to focus on only a few countries, and I haveselected three in Scandinavia. Europe and the US were chosen because of1) the level of development of broadcasting 2) the different history ofbroadcasting in these two continents, and 3) the different models deployedto introduce digital broadcasting. One of the reasons for choosing the Nordiccountries is the powerful position public service broadcasters traditionallyenjoy in these regions.In Europe, national public service broadcasters have generally been thedominant players and in the US, commercial local broadcasters have ruledthe market for decades. In the move towards digital broadcasting theseincumbents (public service broadcasters in Europe and commercialbroadcasters in the US) have deployed similar policies to gain resources fordigital development, primarily to strengthen their position in the market andto resist newcomers entering it. This process limits the development of newservices in terrestrial digital broadcasting platforms, especially in the US,and is referred to as the "tragedy for incumbents" in the title of this paper.In order to obtain additional radio spectrum resources, Europe'sincumbent public service broadcasters have argued, among other things,that they need resources to increase their public service obligations in thedigital era, and that they need a strong market position to be able tocompete with commercial broadcasters and be able to maintain their socialresponsibilities. In the US, much of the discussion has been centred aroundthe necessity for better quality TV signals, from a technical point of view,including the provision of advanced TV services like HDTV services, and thefocus on the importance of localism in broadcasting.When Ronald Coase suggested using a market-based solution forallocating frequencies in his 1959 analysis of the FCC in The Journal of Law& Economics, one of the reasons he put forward was that the pricemechanism would allocate resources in the most efficient way and to themost 'valued users'. Consequently, in a market-based solution, some uses ofthe frequency would be replaced by alternative technologies and forms oftransmission like wired networks. His other point was that a central agencylike the FCC could not have all the information necessary for thisallocation/reallocation. While his analysis is in line with the teachings ofeconomic literature, in the current case of the digitalisation of broadcasting,the FCC has no problem evaluating resource wastage related to operatingand maintaining the terrestrial network to provide HDTV in the US, given thehigh level of penetration of cable and satellite networks.

R. TADAYONI 91On the other hand, in countries where different types of infrastructure arewell developed, digital terrestrial broadcasting can be viewed as a rival toalternative forms of delivery. This depends on the amount of resources thatare available for digital terrestrial broadcasting. Another issue is the specificcharacteristics of terrestrial broadcasting networks which enable universalaccessibility and portable and mobile reception of the service, and this canbe considered as a competitive advantage over other forms of distribution.This competitive/complementarity aspect is the main focus of the analysispresented in this paper.The following chapter presents various models for assigning andorganising resources in the terrestrial network. The following one containsdata on the development of different infrastructures in Nordic countries andthe US. This is followed by an analysis of the terrestrial broadcastinginfrastructure as a complementary or competitive type of infrastructure inrelation to other delivery networks.■ Assignment and Organisation of Resources in theTerrestrial NetworkDigital broadcasting has been standardised in such a way as to ensurethat frequency is allocated along the same lines as analogue broadcasting.Digital TV standards define how data is transmitted in a frequency bandwidthwhich corresponds to one analogue TV channel (1) and how it is structuredin a multiplex block.Typical bit-rates in different delivery networks are presented in table 1, onfollowing page.(1) For example in the 8 MHz TV channel in the UHF band in Europe.

92 COMMUNICATIONS & STRATEGIESTable 1: Typical net bit-ratesTerrestrial pr. 8 MHz (*)Cable pr. 8 MHzSatellite – typical (**)18-24Mb/s38 Mb/s39 Mb/s(*) This corresponds to the capacity for an analogue program transmission, but the result fordigital depends on the chosen error correction mode.(**) The frequency bandwidth of satellite can vary considerably and different error correctionmodes can be deployed. This is an example for 36 MHz bandwidth with 3/4 of the total capacityused for data transmission.Source: DAMBACHER, 1998.The amount of capacity needed to transmit a TV service depends on thesignal quality requirements and the characteristics of the transmissionmedium. Among other things, this capacity is determined by (2) :• The number of multiplex blocks defined within given frequencyresources – E.g., Single Frequency Network (SFN) technology can be usedto increase this number in terrestrial networks.• Data capacity of a multiplex block – Here modulation technology, theamount of overhead for error correction and statistical multiplexing areamong the important factors.• Data capacity requirements of one TV service – This is determined bythe required signal quality (TV standards) and audio-video 'compression'(coding) technologies, for example.MPEG2, the coding technology used for digital TV, is able to compressthe digital TV signal at different levels resulting in different picture qualities.Generally, four different quality categories are identified for digital TV:• Low Definition TV (LDTV): requires approximately 2 Mbit/s and iscomparable with VHS format (regular home video quality).• Standard Definition TV (SDTV): requires approximately 5-6 Mbit/s andis comparable with PAL TV-format (the quality of current analogue TV inmany countries).• Enhanced Definition TV (EDTV): requires approximately 8 Mbit/s andis comparable with the TV camera quality• • High Definition TV (HDTV): requires approximately 20 Mbit/s and iscomparable with high-resolution TV cameras.(2) For a more detailed discussion please see (TADAYONI & SKOUBY, 1999).

R. TADAYONI 93For the sake of comparison with analogue broadcasting, let us assumethat digital TV services will continue to be transmitted in PAL quality (SDTV),which a number of European countries have opted for. It then becomesobvious that in the same spectrum of one analogue TV channel, a minimumof four digital TV services can be transmitted in the terrestrial network andabout seven services in cable and satellite networks. Digital TV's ability toincrease the number of services available in analogue broadcasting four orseven-fold eliminates (or at least substantially reduces) the problem ofresource scarcity and opens up the possibility of new players entering themarket.Digital broadcasting resources can be increased further through moreefficient frequency planning such as the use of taboo channels and thedeployment of technologies like statistical multiplexing (TADAYONI &SKOUBY, 1999).When a TV station receives a licence to operate in the digital terrestrialnetwork, the ratio of the total capacity in a multiplex block must be specifiedin addition to the details concerning geographical coverage, hours ofoperation, type of services, etc. that are commonly stated in analoguebroadcasting. The optimal allocation of this ‘ratio’ will have an influence onthe different types of organisation described hereafter.In the following analysis it is assumed that (TADAYONI & SKOUBY, 1999):• On the basis of technical considerations, data capacity in a multiplexblock will be determined at the political level, i.e. technological parameterssuch as the type of modulation technology, the FEC overhead, the choicebetween 2K and 8K COFDM modulation, the guard interval, etc. will all bespecified at techno-political level.• On the basis of these political and technological considerations, theregulatory body will then decide on the number of multiplex blocks that are tobe made available in a market, and this will also include details of thenumber of MFN and SFN multiplex blocks and the multiplex blocks plannedfor portable and mobile reception.Once this has been performed, digital TV's total capacity and the differentmultiplex blocks' characteristics will be known parameters. In addition,multiplex operators are required to facilitate the sharing of capacity. Themultiplex function can be a purely technical function, but the task ofmanaging the multiplex block's capacity can also be performed by thisfunction. The multiplex operator can also maintain functions like ConditionalAccess (CA) and/or an EPG service.

94 COMMUNICATIONS & STRATEGIESTwo main approaches can be adopted to allocate resources in amultiplex block:• Static allocation. With this form of allocation, a fixed amount ofcapacity is assigned to different content providers. The multiplex functiononly multiplexes the input and generates the output stream.• Dynamic allocation. Here, whole or part of the capacity is allocateddynamically. Different approaches can be used to allocate resources todifferent content providers but the important thing is that the amount ofcapacity allocated may change over time.The degree to which static or dynamic allocation is employed depends onthe regulations applying to the assignment of content and multiplex blocks.Various approaches can be used to organise a multiplex block and assignavailable capacity, and they all have their own advantages and drawbacks.The multiplex block can be organised by the content provider, infrastructureprovider or by a totally independent provider. The resources in one multiplexblock can be assigned to one HDTV service or multiple lower-qualityservices. The following section outlines HDTV versus multi-serviceallocations, and then looks at the different forms of multiplex operation.HDTV versus multi-service allocationThe increased capacity available in digital broadcasting can be used totransmit:- a number of TV services of lower quality than HDTV such as SDTVquality , for example,- a combination of TV services with SDTV quality and new servicessuch as data, audio or video services, for example, or- one single HDTV program and its program-related data,in the same frequency bandwidth as an analogue TV channel. Hereafter, thefirst two cases are known as multi-service allocation, and the latter as HDTVallocation.When resources are used for transmitting HDTV-quality signals, thedigitalisation of broadcasting will not bring about any radical changes inmarket organisation. There will still be a one-to-one relationship between aTV service and the frequency bandwidth of a TV channel. The onlydifference is that the technical quality of the transmitted pictures in terms of,for example, picture resolution, audio quality and additional data, willincrease substantially compared to analogue broadcasting.

R. TADAYONI 95I am not underestimating the technological improvements brought aboutthrough this approach, merely underlining the fact that allocating resourcesin this way does not reduce the scarcity of resources, which was a primereason for establishing broadcasting regulations in the first place.Consequently, HDTV-allocation will not have a positive impact oncompetition between different delivery networks. The increased transmissioncapacity will not be used to enable new players to enter the market, and theincumbents will be better poised to obtain the resources, and will thus beable to continue dominating the market thanks to their market position andtheir historical ties with the regulatory bodies.Multi-service allocation will, on the other hand, open up the possibility ofnew players from the traditional broadcasting sector and/or from othersectors like IT entering the market. Multi-service allocation will have apositive impact on market development because huge transmissionresources will be available in the terrestrial networks for the very first time.Allocating resources in an optimal way will intensify competition in themarket between content providers, but also between infrastructure providerssince multi-service allocation will lead to the upgrading of terrestrial networksand thus make them a viable competitor to satellite and cable networks.Ways of organising the multiplex functionThe following section describes various possible organisation models.One or a combination of these models can be found in any given market.Single content provider-ledHere, licenses for content provision and multiplex operation are given tothe same player, i.e., a content provider obtains licenses to operate in onewhole multiplex block, and is also given the license for operating themultiplex function. In this approach, the whole multiplex block is assigned toone content provider. Regulation can be laid down with regard to the type,quality and number of the services available in the multiplex block, but theresources are organised by the content provider. This is similar to theassignment of resources in analogue broadcasting, since there is a one-toonerelationship between the allocation of frequencies and the assignment ofresources. As only a small number of multiplex blocks are available in thevarious markets, a handful of players from the analogue broadcastingsphere will continue to dominate. This approach will have a negative

96 COMMUNICATIONS & STRATEGIESinfluence on competition because the number of content providers in amarket does not increase in proportion to capacity.On the other hand, this approach does offer a few advantages. Forinstance, in Europe, high priority is given to public service broadcasting,among other things, for cultural and political reasons. When a multiplexblock is assigned to a public service provider, it will benefit from moreoptimal conditions to meet its public service responsibilities and will be betterequipped to differentiate its service provision and target different servicestowards different parts of society in a more optimal manner. For example,educational programs for children can be provided in parallel with othertypes of programs aimed at grown-ups and the older members of society. Ifregulation allows it, the public service broadcaster can also use the newcapabilities in digital broadcasting to develop innovative data services, aswell as traditional programs. As described earlier, delivering Internetservices for the general public in the terrestrial network is inefficient; here,the public service broadcaster provides a limited version of the residentialInternet as part of its public service responsibility. Other examples can begiven on the ways in which increased capacity can be employed to developpublic service responsibility, although the important issue here, is theincreased possibilities for conforming to the public service responsibilities.Another important advantage of assigning the whole multiplex block toone player is that resources can be utilised more efficiently. If the contentprovider uses statistical multiplexing, he is able to optimise the use ofcapacity when planning programmes by distributing those requiring high andlow capacity in such a way as to maximise statistical gains.Multi-content provider-ledSeveral content providers obtain licenses for operating in one multiplexblock, and the license for operating the multiplex function is shared by thesecontent providers. This is basically the same as the single content providerledtype of organisation, the difference being that the capacity of themultiplex block is assigned to more than one content provider. The contentproviders in the multiplex block also have the responsibility of organising themultiplex function. By co-ordinating their programming, this approach alsoenables content providers to obtain statistical gains which can be used todevelop new services.

R. TADAYONI 97Multiplex-ledSeparate licenses are given to the program and the multiplex providers.Here, the market is driven by competition between different multiplexoperators and different content providers at different levels. Competitionbetween multiplex operators will have a positive impact on marketdevelopment but extra regulatory efforts are needed to steer clear ofcomplicated access issues resulting from the choice between different CAsand APIs in different multiplexes, for example. This is a general approachand some of the multiplex blocks in this case can be organised in the singleand multi-content provider-led manner.Service-ledThe multiplexes are organised and maintained by the infrastructureprovider or a third party, and the content providers obtain licenses on thesemultiplexes. This provides a uniform multiplex structure, and the contentproviders in competition with each other drive market development. There isno competition between the multiplexes at the multiplex block level. In thismodel, Conditional Access, API and services like EPG can be organised inthe multiplex, creating a uniform end-user interface. The same player can ofcourse obtain licenses to operate a number of services corresponding to acomplete multiplex block, for example, as in the case of the single contentprovider-led form of organisation.Unlicensed multiplex-ledHere, only the multiplex operator must obtain a license and is then ableto sell capacity on the market. Content providers do not require a licenseand it is the multiplex operator’s responsibility to make them conform torelevant regulation. When we look at the regulatory framework in Europeand the US, this form of organisation appears to be inapplicable. And yet, itis actually the most market-oriented solution, and a realistic approach wouldbe to use it only partly and just in specific markets. By allocating some of thecapacity in this way, dynamics other than those of the pure licensed regimewould determine the development of services and innovation in the futuremarket.All of these forms of organisation and licensing have their advantagesand their drawbacks. A combination of different solutions can be used in one

98 COMMUNICATIONS & STRATEGIESparticular market to obtain the most efficient way of allocating resources andbenefit from the advantages of different models in specific cases.■ Empirical Data on the Development of KeyInfrastructuresThis chapter contains a data analysis of the resource issues in digitalbroadcasting. This data mainly consists of: the level of penetration ofdifferent infrastructures, the level of development of digital broadcasting ondifferent platforms, and the level of development of the digital terrestrial TVnetwork and the schedule for the further development. In addition, withregard to terrestrial broadcasting, data consists of political decisions,resource assignment, the chosen form of multiplex operator organisation,and the defined simulcasting period. The data used on the Nordic countrieswas collected in the context of the European digital TV study project (IDATE,2000). Secondary data is used for European countries and the US market.Regarding satellite and cable networks, the increased capacity in digitalbroadcasting will be used to expand the number of available services andopen up the sector to enable new players to use the resources. Satellite andcable networks are mainly operated by commercial players who use theincreased capacity to broaden their market by providing more differentiatedservices and also by opening up their infrastructures to new serviceproviders. However, there are other implications including:- regulation of services. Both as the continuation of the regulation ofcontent in traditional broadcasting, and also as the consequence ofthe convergence process,- regulations pertaining to market organisation, including ownership, and- problems related to access issues.However, the organisation of resources is more complicated withterrestrial networks and differs from that in the analogue world. Terrestrialresources are valuable for different reasons, and their scarcity, which is stillrelevant in the digital age albeit to a lesser degree, makes their optimalallocation even more vital. As described below, some of the key parameterstaken into account include, among others, resource organisation andassignment, selecting the technical signal quality used for digital TV, i.e.,HDTV standard or multi-service-allocation, deploying other broadcastinginfrastructures for both implementing a return path and also for deliveringbroadcasting services, and decisions related to the analogue switch-off date.

R. TADAYONI 99Nordic countriesSatelliteTable 2, table 3, and table 4 show the development of access to satellitenetworks in Denmark, Sweden and Finland. The ratio of satellite householdsand subscribers to the total number of households in these countries is alsogiven.A distinction is made between satellite households and subscribersbecause only a portion of satellite households consumes free-to-air TVservices, which require no subscription. According to Danish satellite serviceproviders (3) , piracy is another reason for this difference. Indeed, instead ofsubscribing to encrypted services, people use smart cards that can be foundon the piracy grey market (CTI, 1999).As shown in the tables below, the satellite Direct To Home (DTH) markethas been growing in all three countries. Digital satellite broadcasting beganin 1998 and, as can be seen, only a small portion of households hadsubscribed to digital services in 1998 and 1999. Satellite service providersCanal Digital and Viasat operate in all three countries. Canal Digital startedbroadcasting in digital in autumn 1998 and VIASAT's digital services werelaunched in summer / autumn 2000.The tables also show that the ratio of households using and subscribingto satellite services is different in all three countries. In Finland this ratio isabout 1/4 of that in Denmark and Sweden. There are two main reasons forthis difference:• Geography of the country. The further North you move towards theEquator, the more difficult it becomes to receive satellite transmissions - thewider the dish you need, the lower the elevation angle, which makes itharder to reach the transmissions.• Finnish satellite services. One of the main reasons for the success ofsatellite networks in Denmark and Sweden is that TV3/Denmark andTV3/Sweden were provided in the Danish and Swedish language and weretargeted towards Danes and Swedes, making them popular alternatives tothe national services. The Modern Times Group (MTG), the creator of TV3,did not provide the same service in Finland.(3) Canal Digital and Viasat.

100 COMMUNICATIONS & STRATEGIESTable 2 : Development of access to satellite networks in DenmarkDenmark 1994 1995 1996 1997 1998 1999Satellite households (millions) 0.240 0.270 0.390 0.430 0.470 0.530Satellite households10.4% 11.8% 17.0% 18.4% 19.9% 22.5%(% of TV households)Satellite subscribers (millions) 0.239 0.245 0.252 0.274 0.300 0.345Satellite subscribers10.4% 10.7% 11.0% 11.7% 12.7% 14.7%(% of TV households)Of which digital (millions) 0.000 0.000 0.000 0.000 0.004 0.030Of which digital(% of TV households)0.0% 0.0% 0.0% 0.0% 0.2% 1.3%Table 3: Development of access to satellite networks in SwedenSweden 1994 1995 1996 1997 1998 1999Satellite households (millions) 0.390 0.450 0.510 0.610 0.700 0.750Satellite households10.6% 12.1% 13.6% 16.1% 18.3% 18.8%(% of TV households)Satellite subscribers (millions) 0.280 0.390 0.400 0.430 0.500 0.560Satellite subscribers7.6% 10.5% 10.7% 11.3% 13.1% 14.0%(% of TV households)Of which digital (millions) 0.000 0.000 0.000 0.000 0.006 0.052Of which digital(% of TV households)0.0% 0.0% 0.0% 0.0% 0.2% 1.3%Table 4 : Development of access to satellite networks in FinlandFinland 1994 1995 1996 1997 1998 1999Satellite households (millions) 0.050 0.063 0.074 0.089 0.100 0.120Satellite households2.3% 2.9% 3.3% 4.0% 4.4% 5.3%(% of TV households)Satellite subscribers (millions) 0.040 0.050 0.059 0.071 0.080 0.098Satellite subscribers1.9% 2.3% 2.7% 3.2% 3.6% 4.3%(% of TV households)Of which digital (millions) 0.000 0.000 0.000 0.000 0.003 0.010Of which digital(% of TV households)0.0% 0.0% 0.0% 0.0% 0.1% 0.4%

102 COMMUNICATIONS & STRATEGIESCableTable 6, table 7, and table 8 show the development of access to cablenetworks in Denmark, Sweden and Finland. A distinction is made betweenthe number of homes passed and the number of subscribers, where homespassed refers to households that are potentially able to subscribe to cableservices, i.e., the cable connection is established at their premises, andsubscribers are households which subscribe to basic services. Digital homespassed are households that are able to obtain a digital subscription anddigital subscribers are households subscribing to a digital service. Thevarious subscriber types are not differentiated since the important issue hereis connectivity.Table 6 : Development of access to cable networks in DenmarkDenmark 1994 1995 1996 (*) 1997 1998 1999Homes passed (millions) 1.700 1.700 1.500 1.600 1.700 1.700of which digital (millions) 0.000 0.000 0.000 0.000 1.150 1.150Homes passed (% of TVhouseholds)of which digital (% of TVhouseholds)Analogue basic subscribers(millions)Digital package subscribers(millions)Analogue basic subscribers(% of TV households)Digital package subscribers(% of TV households)73.9% 74.6% 65.2% 68.3% 72.2% 70.3%0.0% 0.0% 0.0% 0.0% 48.8% 47.6%1.170 1.270 0.950 1.000 1.316 1.3350.000 0.000 0.000 0.000 0.048 0.06550.9% 55.7% 41.3% 42.7% 55.9% 56.8%0.0% 0.0% 0.0% 0.0% 2.0% 2,8%(*) The number of cable households is lower here because as from 1996, cable TV statistics nolonger include small SMATV networks

R. TADAYONI 103Table 7 : Development of access to cable networks in SwedenSweden 1993 1994 1995 1996 1997 1998 1999Homes passed (millions) 2.100 2.100 2.200 2.450 2.600 2.700Of which digital (millions) 0.000 0.000 0.000 0.690 1.100 1.300Homes passed (% of TV57.2% 56.6% 58.6% 67.0% 67.9% 67,6%households)Of which digital (% of TV0.0% 0.0% 0.0% 18.2% 28.7% 32,5%households)Analogue Basic Subscribers1.830 1.850 1.900 1.930 2.000 2.140(millions)Digital package subscribers0.000 0.000 0.000 0.000 0.025 0.060(millions)Analogue Basic Subscribers49.9% 50.7% 50.9% 52.2% 53.5% 53,5%(% of TV households)Digital package subscribers(% of TV households)0.0% 0.0% 0.0% 0.7% 1,5% 1,5%Table 8 : Development of access to cable networks in FinlandFinland 1994 1995 1996 1997 1998 1999Homes passed (millions) (*) 1.300 1.300 1.200 1.200 1.200 1.200of which digital (millions) 0.000 0.000 0.000 0.000 0.000 0.000Homes passed (% of TV60.5% 59.8% 54.1% 53.6% 53.2% 53.1%households)of which digital (% of TV0.0% 0.0% 0.0% 0.0% 0.0% 0.0%households)Analogue Basic subscribers0.892 0.924 0.976 1.025 1.07 1.11(millions)Digital package subscribers0.000 0.000 0.000 0.000 0.000 0.000(millions)Analogue Basic subscribers41.5% 42.5% 44.0% 45.8% 47.4% 49.1%(% of TV households)Digital package subscribers0.0% 0.0% 0.0% 0.0% 0.0% 0.0%(% of TV households)(*) The lower figures in 1996 result from the use of different statistical sources.

104 COMMUNICATIONS & STRATEGIESAs shown in the tables above, the number of cable subscribers hasclearly grown. In Finland, the number of homes passed has remainedpractically unchanged and the ratio to total households has been declining.The cable homes passed and total households ratio in this country is alsolower than in the two other markets. This is due to Finland's geography,since only half of the population lives in urban areas where it is economicallyfeasible to set up cable TV networks.Sweden and Denmark both have cable digital TV, which is provided bythe countries' major players, Telia (Com Hem) and Tele Danmark Cable TVrespectively. The level of development of digital homes passed is very highin these two countries because Tele Danmark Cable TV and Com Hem havefully digitalized their networks. However, the number of digital subscribers isinsignificant. Although this figure is rising, it is doing so at a very slow rate onaccount of the high cost and the low added value of these services, amongother things.Tele Danmark Cable TV has offered its premium pay-TV subscribers freedigital set-top-boxes and terminated analogue transmission of theseservices. Finland has no digital cable TV service. The country's marketplayers attribute this primarily to the lack of added value and the hightransformation costs, as well as to the fact that Finnish cable TV networkproviders are focusing on upgrading their networks to create two-waytransmission and thus be able to deliver Internet services.The capacity available in analogue cable TV in the three Nordic countriesis sufficient to provide the most popular services and other additionalservices. This makes it difficult to market digital TV on the grounds that itoffers expanded transmission capacity. However, the increased capacity indigital cable TV has been used to boost the number of premium pay-TVchannels and programs targeted towards minorities, both being narrowsegments of the total market. Yet even in these narrow segments, cable iscompeting intensively with satellite networks, i.e., cable households can usesatellite as an additional infrastructure to access narrow and special types ofprogramming.Compared with other infrastructures, Cable TV has the advantage ofoffering an easy and efficient integrated return path. The driving force ofcable TV in the future will be a combination of traditional and new interactiveservices. Up until now, the rate of development of this type of service hasbeen slow, but new services are now becoming available in Denmark andSweden.

R. TADAYONI 105Table 9 provides an overview of cable households in the 15 EUcountries. The disparity between the various countries is very high sincefewer than 10% of Italian and Greek households have cable TV and over85% in Germany, Belgium, Netherlands and Luxembourg.Table 9 : Cable households in EuropeCable households in Europe(in % of TV households), 1999More than 85%Between 45% and 70%Between 20% and 40%Less than 10%CountryGermany, Belgium, Netherlands, and LuxembourgSweden, Denmark, Finland, UK, Ireland, Portugal,and AustriaFrance and SpainItaly and GreeceSource : IDATE, 2000Satellite and cableOne of th e majo r prob lems r elated to re source issue s is h ow and wheth er wecan justify ass igning terre strial frequ ency r esourc es to digita l broa dcasting, inthe light of th e oppo rtunity cost of no t assigning them to othe r valu able u ses.The question th en is if this prob lem ca n be s olved by using information abo utthe level of pe netration of other deliv ery ne tworks .Loo king a t the three Nordic countries, the to tal ra tio ob tained by ad dingsatellite and c able h ouseho lds in Denma rk, Sw eden a nd Fin land in 1999 wasabo ut 92.8%, 86 .4%, a nd 58.4%. Th e real ratio of ca ble an d sate llitehou sehold s is a ctually less , howe ver, b ecause a por tion o f the cable househ oldsals o use satellite ne tworks to re ceive specia l prog rammin g. Ano ther p roblem istha t a po rtion of the cable and s atellite hou sehold s - 21 .3% in Denma rk, 17 .3 %in Sweden and 5 % in Finland -does not s ubscribe to any se rvices and r eceive sits progr ams fr om the terre strial netwo rk. Th e latter pro blem c an be solved byred ucing the pr ice of basic packa ges so that all of the c able a nd satellitehou sehold s subs cribe to the basic service.At this p oint in our discus sion, on the basis of th e maximum figures, we ar eable to c onclud e that the q uestio n of u sing terrestrial frequen cy res ources fordig ital TV is h eavily depen dent o n the level of dev elopme nt of otherinfrastru ctures . In Finland and in othe r coun tries where the de velopment ofcab le and satellite n etwork s is low (se e abov e), te rrestr ial TV has a n impo rtantrole to p lay to enable all househ olds to have acces s to d igital TV se rvices .

106 COMMUNICATIONS & STRATEGIESHow ever, in Den mark a nd Swe den (a nd als o, the Nethe rlands , Luxe mbourgand Germa ny, fo r example), the an swer to the question of whethe r or n otter restrial res ources should be a ssigne d to b roadca sting is not sostr aightforward . More over, a numb er of househ olds o nly re ceive their progra msfro m terr estria l netw orks in thes e coun tries. There are two sid es to this p roblem,as will b e disc ussed later in this chap ter:• If terres trial TV is consid ered p urely as a c omplimentary infra structure tomaintain 100% c overag e, the n the socio- economic cos ts of implementingter restrial networks versus promo ting 1 00% us e of s atellite and cable netwo rksmus t be a nalyse d and calculated.• If the te rrestr ial de livery netwo rk is looked on as a competito r to o therfor ms of infras tructu re, with its compa rative advan tages of ena bling portab ility,mob ility, and e ase of use, then e ven wh en oth er infrastru ctures are h ighlydev eloped , this compe tition may r eveal the ex tent to whic h terr estria l TV h as arole to p lay.Development of terrestrial delivery networksThe only platform where national regulation still defines the regulatoryframework is that of terrestrial broadcasting (4) . National governments areable to use their ability to promote certain types of services and impede thedevelopment of others. They can choose to put emphasis on traditionalbroadcasting services, new and innovative advanced TV services or dataservices.National governments are able to use this important tool to influence theirdomestic broadcasting markets and give national players the ability tocompete with the powerful and ever-increasing number of internationalplayers. As terrestrial networks are now competing with satellite and cableand, in the future with other infrastructures as well, national governmentshave an even greater responsibility to create the most optimal conditionspossible for terrestrial networks by using the best forms of allocation andorganisation for terrestrial broadcasting.The following section presents the development of terrestrial networks inthe 3 Nordic countries and to a lesser degree in a few other Europeancountries.(4) According to European regulations, satellite networks must conform to the regulations of thecountry of origin. When the up-link is located in another country, the national government willnot be able to regulate the services available in the satellite networks, and consequently in thecable networks as well.

R. TADAYONI 107• DenmarkTerrestrial digital broadcasting does not exist in Denmark. The majorreason for this is that few resources are available for digital broadcasting inthis country. However, the Danish telecom agency is currently exploringways to find new resources for digital TV based on re-planning andharmonisation with its neighbouring countries. It is working on making fourcountrywide multiplexes available in Denmark.In addition, preparatory studies are being conducted with regard tointroducing digital terrestrial TV in Denmark and a trial is underway usingfrequencies from the only countrywide set of frequencies that is reserved fordigital broadcasting in order to gain some kind of technological andorganisational experience. Table 10 shows which services are available inthe trial. It also indicates the name of the multiplex operator and thepercentage of the population covered.Table 10 : Digital terrestrial TV in Denmark (trial)Multiplex Operator Free to air Subscription Coverage1 DR & TV2 DR1, DR2, TV2TV2 regional:TV-LorryTV-ØstAs shown in the table, the pilot project is run by the public servicechannels DR and TV2. Once the trial period is over (end 2000) anddepending on the frequency resources available, among other things, apolitical decision will be taken as to whether or not DTTV is to be developedfurther in Denmark. The multiplex function can be considered as a multicontentprovider-led form of organisation.• SwedenDigital terrestrial TV is available in Sweden and as seen in Table 11,licenses for the four multiplexes have been assigned. An organisation calledSenda has been set up to act as the multiplex operator for all multiplexes inSweden.50%

108 COMMUNICATIONS & STRATEGIESTable 11 : Digital terrestrial TV in SwedenMultiplex Operator Free to air Subscription Coverageby 20011 Senda SVT 1, SVT 2, SVT 2478%SVTRegional:SVTSYDSVT VÄSTSVT ÖSTNYTT24SVT MITTSVT MÄLAR-KANALEN2 Senda TV 4NollEttan Television 78%TV 4 Regional:TV 4 StockholmTV 4 GöteborgTV 4 Norre-TVSkånekanalen3 Senda K-world Canal+78%Kanal 54 Senda TV3, TV 8, TV 1000, ZTVVIASAT Sport78%Terrestrial TV currently covers about 50% of Swedish viewers, and thisfigure is expected to rise to 78% in 2001. The first multiplex consists ofpublic service channels provided by Sveriges Television.The second multiplex is used by TV4, which provides a mixture of news,entertainment and documentaries. e-TV is an interactive channel whereviewers can purchase CDs, watch music videos and get up-to-date weatherforecasts, for example. Nollettan is a regional channel that covers news,sport and entertainment for the region of Östergötland. Skånekanalen fulfilsa similar function for the Skåne region, while it also uses the opportunities ofdigital TV to create an interactive relationship between citizens and localauthorities.The third multiplex is used by Canal+, Kanal 5 and K-world. Canal+specialises in block buster movies and direct coverage of major national andinternational sport events such as the English Premier League, NHL andNBA. Kanal 5 focuses on Swedish and international TV drama series andfilms. K-world (Knowledge World) covers documentaries, films and musicand distributes products related to learning and knowledge.TV3 in multiplex 4 provides family entertainment, sport anddocumentaries. TV8 specialises in financial information and documentaries

R. TADAYONI 109as well as financial news from the global financial markets. TV1000 showsfilms, and major sport events and concerts. ZTV concentrates on the youthand covers a range of music, talk shows, entertainment and culture. ViasatSport is a sport channel that shows international football, golf and horseracing, as well as other major events.Historically, the Swedish government has been a major player in theSwedish mass communication market. The structure that has been createdwith Senda (multiplex operator) and Teracom (infrastructure operator)seems to suggest that it has no intention of changing this, and a digitalterrestrial TV network with publicly controlled network providers enables it tocontinue to do just that. As described earlier, the use of one centralisedmultiplex operator for all multiplexes (the service-led model), has differentadvantages and drawbacks.For the end customer, the centrally planned structure results in atransparent and homogenous market with convertible technology, whichgives potential access to all available services offered through terrestrialdigital TV. They thereby avoid having to make choices that could result intechnological lock-ins, as with users of digital satellite services. Since themarket is still very dynamic and future developments are uncertain, this canbe said to be of significant value. However, because of the slow decisionmakingprocess involving different layers of government evaluation, themarket is not allowed to respond and expand as quickly as when commercialactors operate.Regarding content provision, as seen in the table, the government hasused its ability to give the public service and the national broadcasterprivileged status in the Swedish terrestrial TV market. Another importantthing, is that the government has opened up the market to commercialplayers and more than half of the available resources are assigned to thesemarket participants. Even in the case of TV3, which was not willing toconform to national advertising regulations, there was enough flexibility tocome to an agreement, meaning that TV3 became available in the terrestrialnetwork. This case shows that flexibility is even possible in a centralisedregional model.The downstream part of the DTTV market, i.e. the distributor (Senda) andthe infrastructure provider with direct contact to the end customer (Teracom),has had its profit-maximising motives delimited by societal aims. This limitsthe organisational development of these organisations, especially in terms of

R. TADAYONI 111With regard to multiplex organisation, Finland has chosen the sameservice-led model as Sweden. Here Digita, a subsidiary of the public servicebroadcaster YLE, has been given the responsibility of operating allmultiplexes in the network. The same considerations pointed out in theSwedish case apply to Finland as regards the model's advantages anddrawbacks.The US caseSatelliteTable 13 shows the development of access to satellite services. Themain players in the market are also indicated in the table.Table 13 : Development of access to satellite networks in the US1994 1995 1996 1997 mid-1998 1998 mid-1999C-band 2.20 2.30 2.20 2.10 2.03 1.92 1.78DIRECTV & USSB 0.35 1.30 2.30 3.30 3.75 4.46 7.46PRIMESTAR (*) 0.25 0.75 1.20 1.75 2.12 2.30 -EchoStar - - 0.35 1.00 1.38 1.94 2.62Total Satellite 2.80 4.35 6.05 8.15 9.28 10.62 11.86% of TV households 2.9% 4.5% 6.3% 8.3% 9.5% 11% 12%(*) PRIMESTAR was acquired by DIRECTV at the beginning of 1999.Source: Broadcasting & cable, July 19, and the satellite providers' Websites.As seen in the table, there are over 11 million Direct To Home (DTH) TVhouseholds(12 % of TV households) in the US. Out of these, 90% subscribeto one or more satellite services.The main players in the American satellite market are DIRECTV andEchoStar. The other participants, United States Satellite Broadcasting(USSB) (5) and PRIMESTAR (6) , were acquired by Hughes Electronics andare now part of DIRECTV.(5) USSB was acquired on Dec. 14, 1998 by DIRECTV.(6) PRIMESTAR was acquired on Jan. 22, 1999 by DIRECTV. The number of PRIMESTARsubscribers in 1995, 1996 and 1997 was not available and has been estimated.

112 COMMUNICATIONS & STRATEGIESDIRECTV is a subsidiary of Hughes Electronic Corporation, a unit ofGeneral Motors Corporation. It launched its services in the summer of 1994and has increased its number of subscribers by 1 million a year since 1995.Year-end 1998, the company had a total of 4.46 million subscribers.DIRECTV’s programming used to be distributed by 3 satellites (DBS-1, DBS-2 and DBS-3) built by Hughes Electronics. Its acquisition of USSB, thepremium multi-channel movie service, increased the number of services inDIRECTV from 185 to 210 services, including the premium multi-channelmovie services like HBO (7) and Showtime. PRIMESTAR had 2.3 millionDTH subscribers at the time of acquisition and this takeover had a significantimpact on DIRECTV. Upon completion of these transactions, DIRECTVboasts:- more than 7 million US subscribers;- more than 370 entertainment channels delivered through five highpowerDBS spacecraft: DBS-1, -2 and -3, a high-power Temposatellite and DIRECTV 1-R (planned for launch in mid-1999);- the broadest distribution network in the DBS industry, combiningmore than 26,000 points of retail sale with PRIMESTAR’s rural andsmall urban-based distribution network; and- high-power DBS frequencies at each of the three orbital slots thatprovide full coverage of the continental United States: 101 degreesWest Longitude (WL), 110 degrees WL and 119 degrees WL.In July 1999, DIRECTV announced the transmission of a 24-hour HDTVservice. The service, which was the first continuous HDTV broadcast to bemade available, features Hollywood films and original movies from HBO.The announcement was made at the 1999 Satellite Broadcasting andCommunication Association National Convention and the service waslaunched on August 1, 1999.EchoStar Satellite Corporation is part of EchoStar CommunicationCorporation. In 1987, EchoStar Communications Corporation filed for aDirect Broadcast Satellite (DBS) license with the FCC. EchoStar SatelliteCorporation was established to build, launch and operate DBS satellites. In1992, the Company was granted a DBS orbital slot at 119 degrees WestLongitude, and three years later, the DISH (Digital Sky Highway) Networkbrand name was created. EchoStar deploys 4 satellites (EchoStar I -(7) Home Box Office is Time Warner Entertainment Company's premium televisionprogramming division, L.P., providing two 24-hour premium television services, HBO andCinemax. Together, both networks reach nearly 35 million subscribers in the United States via avariety of distribution modes including direct broadcast satellite (DBS). Home Box Office’sinternational ventures bring HBO-branded services to more than 40 countries around the globe.

R. TADAYONI 113EchoStar IV) that give, according to EchoStar, the DISH Network capacityfor over 250 channels of digital video, audio and data services to bedelivered to homes throughout continental United States.The only services that remain analogue are the C-band satellites thatreached their culmination in 1995 with 2.3 million subscribers. C-bandsubscribers change to direct satellite services as they become available indifferent markets and the share of C-band subscribers in the global satellitemarket is still falling.One of the important developments in satellite networks in recent yearshas been the market's expansion from rural areas to urban and sub-urbanareas, where satellites can compete with cable networks (8) . In addition,these networks try to obtain agreements with local TV stations to have theirservices included in their line-ups, and this can be considered as one of themajor contributing factors to intense competition with the cable networks.CableTable 14 shows the development of cable TV in the US.As seen in the table, in mid-1999, there were about 66 cable TVsubscribers in USA. The top 25 operators in the American cable TV marketnow control 60.8 million subscribers, or about 90% of all US cablesubscribers, up from 85% in 1998. Due to relaxation of cable ownership,there has been considerable incentive for big operators to expand theirmarket shares driving the prices of the cable systems to about $5,000 persubscriber in August 1999.(8) See among others: HIGGINS,1999.

114 COMMUNICATIONS & STRATEGIESTable 14 : Development of cable TV in the US1994 1995 1996 1997 1998 mid-1999Homes passed (millions) 91.6 91.8 91.8 91.8 91.8 95.6of which digital (millions) - - - - - 29.66Homes passed (% of TV96% 95% 95% 94% 94% 97%households)of which digital (% of TV30%households)Total Subscribers (millions) 60.5 61.8 63.4 64.1 65.1 64.71Digital package subscribers(millions)Analogue Subscribers(% of TV households)- - - - - 2.7964% 64% 65% 65% 66% 66%Digital subscribers(% of TV households)3%Source: NCTA home page. And HAZLETT & SPITZER,1999 and Statistical abstract of the USACable TV in USA consists of several small and large SMATV systems.There are around 11,000 cable TV systems in USA. Cable systemownership is nonetheless concentrated, as illustrated in table 15.Table 15 : Major cable operators in the USIn millions, Homes Total Digital ready Digital Internet InternetMay 1999Subscribers householdsreadypassedSubscriberssubscribershouseholdsAT&T 25.00 16.20 10.40 1.30 7.5 0.21BroadbandTime 21.00 12.90 9.37 0 6.00 0.15WarnerComcast 7.57 5.35 1.80 0.13 1.93 0.07Cox 7.45 5.14 5.50 0.60 2.50 0.20Adelphia 7.63 4.95 NA 0.47 NA 0.02Total top 5 68.65 44.54 27.07 2.5 17.93 0.65Top 6 - 10 16.16 10.40 1.60 0.06 1.76 0.03Top 11 - 15 4.92 3.18 0.74 0.12 0.42 0.07Top 16 -20 2.55 1.70 NA 0.10 0.36 NATop 21 - 25 2.35 0.97 0.25 0.01 0.15 0.03Totaltop 2594.63 60.79 29.66 2.79 20.62 0.78Source: Broadcasting & cable, May 1999.

R. TADAYONI 115As seen in the table, upgrading cable systems is a step in both directions,enabling both digital transmission and the provision of Internet services.Satellite and cable networksOn the basis of this data, we can quite clearly assume that the US marketis entirely (100%) covered by satellite and cable networks. In mid-1999, halfof the country's satellite subscribers were in the urban and sub-urban areasand the other half in the rural areas. We can therefore reasonably concludethat the 3% of households that are not cable households are among satellitehouseholds.One of the important issues here is that in the C-band satellite era, thesatellite market was totally complementary to the cable market. Satelliteprovided services in areas where it was economically unfeasible to establishcable networks. The situation has changed in recent years however, sincesatellite networks are now competing with cable networks in urban and suburbanareas.Another major issue is the relevance of terrestrial networks whencable/satellite networks are so well developed. Here it is important to notethat about 20% of the households do not subscribe to satellite and cableservices and receive their programs from the terrestrial networks. However,there are other problems such as the terrestrial network's function as adistribution network for cable head-ends, and these are analysed in moredetail in this subchapter.Assignment and organisation of resources in the terrestrial networkDTTV has been introduced in the USA. The FCC’s deadline for the tenlargest markets has been met and, at least 41 stations in the top 10 marketswere on the air with digital channels as of mid-July 1999, up from 28 somefive months earlier. According to the National Association of Broadcasters(NAB), 100 stations ware broadcasting digital TV at the end of 1999. Certainobstacles such as tower space problems, reception problems, interferencewith VHF cable channels and interfacing with other equipment like hospitalequipment have slowed its development.The history of DTTV in the US is different from that in Europe and needsto be described in more detail. The dominant understanding of ‘advancedtelevision services’ in the USA is that the provision of HDTV and digital TV in

116 COMMUNICATIONS & STRATEGIESthe US market is equivalent to HDTV. HDTV transmission requires the wholebandwidth of an analogue NTSC signal. Powerful broadcasters began tomarket HDTV at the end of 1980s in order to replace NTSC in the USA (9)and they tried to hold on to the extra TV channels allotted for televisionservices in every city (10) . This resulted in FCC’s provision of spectrum freeof-chargeto virtually all of the current television broadcasters to provide forparallel transmission of ‘advanced television services’ in the 1996Telecommunication Act. The idea is that broadcasters will give back theiranalogue resources to the FCC once simulcasting has ended in 2006.The broadcasting industry argued that it wanted to replace NTSC with ahigher-quality standard. It did not want to change its business strategy oracquire more resources for new services and new forms of revenue. Thisenabled incumbent broadcasters to maintain their dominant position in theterrestrial broadcasting market and hindered their competitors' entrance.Later, when the licenses had been granted, the broadcasters changed someof their arguments and in growing recognition of the all-cost-no-new-revenuecharacter of the new technology, claimed that if they were required tobroadcast HDTV in their newly assigned frequencies, it would be the end oflocal broadcasting (11) . At this point in time, they were arguing for thenecessity to use resources for multi-service provision in order to gain newrevenues and thus be able to switch over to digital transmission.From a legal point of view, US broadcasters are allowed to use theresources for multi-service provision. This is pronounced in the "broadcastspectrum flexibility amendment" in the Telecommunication Act of 1996 :"If the commission (FCC) determines to issue additional licenses for advancedtelevision services, the commission shall adopt regulations that allow the holders ofsuch licenses to offer such ancillary or supplementary services on designatedfrequencies as may be consistent with public interest, convenience, and necessity".This has incited resistance from other market players that are interestedin the spectrum, especially, those from the "land mobile" and computer(9) This was a lobbying strategy against Land Mobile. By the end of the 1980s, players from"Land Mobile" industries applied for these resources to use them for mobile communicationsystems. Broadcasters, led by the National Association of Broadcasters (NAB), came up withthe argument that these resources were needed to introduce HDTV.(10) For example, in Washington, networks and independent stations broadcast on channels 4,5, 7, and 9 on the VHF and 20, 26, 32 and 50 on UHF. The rest of the designated broadcast TVchannels, 2 through 69, were vacant and the situation was similar in every city.(11) Exactly the same argument was used in the lobbying for “holding on” the frequencies in late1980s, where they argued that “if the broadcasters did not gain resources for HDTV, it would bethe end of local broadcasting” illustrating the broadcasters hidden agenda.

R. TADAYONI 117industry. They claim that it is an unfair advantage to give broadcasters useof spectrum worth $70 billion for free and to allow them to provide servicesthat the computer and land mobile industry can also provide. The FCC triesto make the broadcasters keep their promise to use the resources for HDTVand, so far, none of the broadcasters have offered multi-service digital TV.Some of them have devised strategies to offer mixed programming,however, for instance by providing a few sports events and prime timeshows in HDTV and at other times of the day offering multi-service.The single content provider multiplex organisation model is used,meaning that the same entity is given licenses for both content and themultiplex. The multiplex operator does not have the same role as in themulti-service case because with HDTV all the bandwidth is used by oneservice and no sharing is possible.SimulcastingDigital broadcasting is not backward compatible with analoguebroadcasting. This is why it is necessary to broadcast both digital andanalogue programs in parallel over a certain period. The natural timeframefor this parallel simulcasting is given by the renewal cycle for electronicequipment. This amounts to 10-15 years after analogue equipment has beenremoved from the market, provided that the infrastructures for digital TVhave developed by then. Other methods like subsidising digital set-topboxescan be used to shorten this period.Socio-economic considerations regarding the protection of the end-users'investment in analogue equipment versus the financial burden of maintainingthe analogue broadcasting network can give policymakers an indication ofthe date at which analogue broadcasting systems should be switched off.Pressure from neighbouring countries is another parameter that impactsthe date at which analogue transmission should be ended. Those countriesthat install digital broadcasting networks faster will require their neighbouringcountries to stop analogue transmission, giving them greater possibilities toutilise their frequency resources.After the simulcast period lasting a maximum of 10-15 years, all thefrequencies that are used by the current analogue services will be released,and if the governments assign these resources to digital broadcasting, thenumber of players in terrestrial broadcasting will increase substantially.

R. TADAYONI 119Table 16 : MMDS households in the USIn million 1994 1995 1996 1997 1998 mid-1999MMDS households - 0.8 1.2 1.0 1.0 0.9Source: http:// ntca.cyberserve.com, summer 1999.As illustrated, about one million households have subscribed to MMDSsystems in the US over the last five years. There is no sign of thesenetworks being expanded.■ Complementari ty and Compe titive ness o f Infrastruc turesThe Danish caseAs described above, in markets displaying a high level of satellite andcable network development, terrestrial infrastructures can be looked on asbeing either complementary or competitive. Terrestrial networks have thecomparative advantage of offering mobility, portability and ease of reception.However, if they are to compete with other infrastructures, a minimumamount of transmission capacity is necessary.In this subchapter will we be analysing the Danish case. Denmark'sresources correspond to one countrywide multiplex block and its capacity isreserved for the public service broadcasters, DR and TV2. In the followinganalysis, it is assumed that a single multiplex block is not sufficient to maketerrestrial networks a viable competitor to cable and satellite. Consequently,if the terrestrial network is deployed, it is considered as being complimentaryto cable and satellite. The question we now need to ask ourselves is: whatare the socio-economic costs of deploying terrestrial networks comparedwith those for further developing satellite/cable networks?The following analysis gives the cost of covering all households inDenmark with satellite and cable compared with that of deploying acountrywide terrestrial network for carrying four services in one multiplexblock.

120 COMMUNICATIONS & STRATEGIESMain assumptions used in the following analysis:• Each of public service broadcasters has the ability to distribute two TVservices, one of which must regionalized in eight different regions, i.e., ineight different regions it must be possible to add regional programs to thecountrywide service.• Every household in Denmark must be able to access broadcastingservices.• The calculations are based on one connection per household.Additional houses (summer house, campsite, or similar accommodation),where access to TV may be necessary, are not considered.• A high ratio of households has two or more TV sets and VCRs whichthey use in parallel. In digital TV, each piece of equipment must have adedicated set-top-box, and in the case of satellite, they must also have eithera dedicated satellite dish or a switching structure that enables access to thesame dish. For the sake of simplicity, these additional set-top-boxes andconnections are not taken into consideration in the following analysis.• The losses that can occur due to the lack of portable and mobilereception are not considered.• If the country is only covered by satellite and cable, all of thehouseholds will receive their signals from either of these two networks andtherefore there is not much incentive to maintain UHF/VHF antennas. Thiswill result in losses for local TV. These losses are not taken intoconsideration in the following analysis.• The value of not using resources for terrestrial networks and usingthem for other services is not calculated and is set to zero in the followinganalysis.Some basic data:- Number of households (12) : 2.41 mill.- Number of cable TV households (homes passed): 1.7 mill.- Number of cable TV households (subscribers): 1.4 mill.- Number of satellite households: 0.53 mill.- Number of satellite subscribers : 0.35 mill.(12) The calculations are made with regard to the total number of households and not the TVhouseholds, since it must be possible for the entire population to access these services.

R. TADAYONI 121• The cost of covering the whole country by cable and satellite networksIn the following analysis, cost is divided in two parts: the costs on thesupply side and the costs on the demand side. On the supply side, some ofthe services are already transmitted in the satellite network: DR1 is alreadybeing transmitted in DVB-S standard, TV2-ZULU and DR2 are beingtransmitted in D2-MAC and DVB-S standard, and access to them can beobtained free-of-charge through Canal Digital, for example. The followingcalculation does not take into account the current situation, however, and thecost of the supply side is worked out using the assumption that the servicesdo not already exist on the satellite network.On the supply side:The cost of transmission of one DVB-S (8 Mbit) = 5.783 mill. DKr. peryear (13 ) .Satellite transmission of TV2 will require eight DVB-S (14) transmissions.Three other services (DR1, DR2, and TV2’s other service) require 3DVB-S transmissionsThe total cost on the supply side will thus be 11 X 5.783 mill. = 63.613mill. DKr. per year.In addition to this, there are other costs related to the up-link and theamortising of equipment (15) and possibly a few costs connected to thetransmission of the regional signals to a head station.On the demand side:The calculations in the following analysis do not take into considerationthe possible subsidisation of receiver equipment when someone subscribesto a service. Neither is the price of digital set-top-boxes considered, since allhouseholds accessing digital TV have to acquire a digital set-top-boxregardless of the type of infrastructure used.The following prices are used in the calculations:- Price of a satellite dish = 1000 DKr.- Average cost of installation = 1000 DKr.(13) Source: Danmarks Radio (DR).(14) Eight transmissions are required to maintain the regional structure of TV2.(15) The cost of an up-link for digital DR1, digital DR2 analogue DR2 is 3.3 mill. DKr.per year.Equipment rental, etc. incurs DR an additional cost of 2.918 DKr. per year.

122 COMMUNICATIONS & STRATEGIESThree cases of migration can be considered:• Case 1: All cable TV households subscribe to a basic packagecontaining the four public service programs that are intended to betransmitted in the terrestrial network. This can be done if the rate foraccessing the basic package is low (zero here). It implies that 2.23 mill.households will receive their services from cable and satellite networks (1.7mill. cable, and 0.53 mill. satellite) (16) and:2.41 - 2.23 = 180,000 households must acquire a satellite dish.Satellite dish (1,000) + installation (1,000) = 2,000 DKr (17) .Total costs for the end-user = 360 mill. DKr.• Case 2: The subscription rate of the basic package in the cablenetworks is high and the cable households that do not subscribe to the basicpackage are referred to satellite reception.On the basis of this assumption 2.41 – (1.4 + 0.53) = 480,000households must acquire a satellite dish.Satellite dish (1,000) + installation (1,000) = 2,000 DKr.Total costs for the end-user = 960 mill. DKr.• Case 3: The development of cable TV networks has increased to theextent that the entire country will be covered by cable TV. The cost of thisexpansion is so high that the case becomes irrelevant alongside the othercases.Total cost:Taking the average of case 1 and case 2, the cost at the end-user's sitecan be estimated at 660 mill. DKr., which corresponds to about 100 mill.DKr. per year (18) . The total cost of transmitting the four services usingsatellite and cable networks can thus be estimated at 100 + 63 = 163 mill.DKr. per year.(16) There will be additional costs for some of the satellite households, which will have toacquire new dishes if their present ones are directed towards satellites other than those used todeliver general Danish programs.(17) Prices are from the Danish radio/TV retailer FONA in Farum.(18) The conversion to the annual cost is performed using a 10% 10-year loan. This is alsoused in the following calculations.

R. TADAYONI 123• The cost of covering the whole country by terrestrial networksThe following analysis gives the cost of establishing a digital terrestrialnetwork to carry these four services with one of them having TV2’s regionalstructure.On the supply side:According to TV2/ Denmark, the cost of deploying this network is about100 mill. DKr (around 16 mill. per year). Added to this, is the cost of about 32mill. per year for network operation and maintenance. The total cost ofestablishing, operating and maintaining this network will thus be 48 mill. DKrper year.On the demand side:On the demand side, it is estimated that half of the purely terrestrialhouseholds (2.41 – (1.4 + .35) = 660,000 households) will have to pay anadditional 1,000 DKr., resulting in a total cost of 330 mill. on the demandside (54 mill. per year).Total cost of using the terrestrial network:The total cost of the terrestrial network will thus be 102 mill. DKr. peryear.These calculations show that the cost of establishing a terrestrial networkto serve the portion of Danish households that do not subscribe to cable andsatellite services is lower than promoting the development of cable andsatellite networks to cover all households. However, these calculations arebased on several assumptions. In actual fact, there are lots of advantages inusing terrestrial networks but also drawbacks. The major drawback in thescenario discussed here, is the low number of services available in thenetwork. It would be difficult to imagine TV households switching to digital ifmore services are not made available. The advantages are related toterrestrial broadcasting in general, which enables simple reception,portability and cost-efficient local and regional broadcasting.

124 COMMUNICATIONS & STRATEGIESThe US caseAs seen from the data presented in this chapter, the level of thedevelopment of satellite and cable networks in the US is very close toreaching total coverage. In addition, as far as the digitalisation of thesenetworks is concerned, the level of development is very high, since satelliteis mainly provided in digital form (apart from the C-band segment of themarket), and 30% of the cable networks are digital.It would not be unreasonable to assume that if drastic rate regulationsconcerning the basic package in cable TV networks were implemented (forexample, if it were possible to obtain the basic package free-of-charge, as inthe case of terrestrial networks), then all of the cable households would usethe basic package, and terrestrial networks would thus become superfluous.The problem is more complicated than that, however.The local structure of US broadcasting means that a number of localstations (about 1,500) are operating in the market. Terrestrial networks haveplayed an important role in the US broadcasting market as a consequence ofthis structure, and have been used as distribution networks for cable headends.However, this situation has changed in recent years, and satellitenetworks are now being used as a transmission medium for local TV moreand more frequently.At first glance, it seems difficult to explain why more than 1,500 local TVservices are transmitted over satellite networks. However, two majorparameters have influenced this development, one of them beingdigitalisation, which has reduced the cost of using services in satellitenetworks, and the other that of the development of the DTH satellite marketand the importance of satellite service providers having local services in theirline-ups. If they do not, satellite households have to access local servicesthrough terrestrial networks, which means maintaining two receptionantennas.When all local services become available in satellite networks, it is onlypossible to justify setting up local TV stations to transmit terrestrial digital TVin the US market if the following conditions are met:• HDTV allocation: The digital terrestrial TV services are offered in HDTVquality. It is not economically feasible to transmit all local services in HDTVquality through satellite networks, which means that terrestrial networks arenecessary.

R. TADAYONI 125• Multi-service allocation: If terrestrial networks develop to the point thatthey are verging on multi-service allocation, then terrestrial TV networks inthe local markets can be considered as a multi-channel infrastructure andcompete with cable and satellite networks.So far, it seems that the first situation has been accepted, and this hasmeant that incumbent broadcasters in the US have managed to retain theirstrong market position.■ ConclusionOne of the important outcomes of the digitalisation of broadcasting hasbeen its impact on resource issues, i.e., the increase in transmissionresources for broadcasting due to more efficient use of available resources.Before the digital broadcasting era, available resources were primarilyincreased by creating new infrastructures like cable/satellite networks anddeveloping technology enabling untapped resources in these networks to beexploited. This was achieved by increasing the amount of transmissioncapacity available in terrestrial networks through the use of UHFfrequencies, for example, and in the case of cable and satellite networks,through the deployment of enlarged frequency resources. This expansion ofavailable resources can be seen in all infrastructures; however, theimplications for terrestrial networks are the greatest, since the frequencyresources in these networks are scarce, even now in the digital age, and arevaluable for all kinds of uses. Satellite and cable networks are operated bycommercial players who deploy the increased capacity on digital platforms toexpand their businesses.To analyse the resource issues in terrestrial networks, it is necessary toanalyse to what degree the implementation of digital terrestrial networks canbe justified in a specific market, in the light of the development in otherinfrastructures. As seen in this chapter, however, this is a multi-facetedproblem and multi-service resource allocation, in particular, can upgradeterrestrial networks to turn them into a rival infrastructure with comparativeadvantages over other delivery networks like simple reception, including thepossibility of portable and mobile reception.

126 COMMUNICATIONS & STRATEGIESWhen considering terrestrial networks solely as a complement to othertypes of delivery networks, the level of development of other infrastructuresbecomes more important. For instance, as we have seen, the geographicallocation of a country like Finland results in the terrestrial networks playing amajor role to establish full coverage to the population. Even in Denmark,which is a small country with a relatively high level of cable and satelliteinfrastructure development, it is economically more feasible to maintain fullcoverage by establishing terrestrial networks rather than further developingcable and satellite reception. As demonstrated in the US case, anotherimportant parameter is the structure of the broadcasting market. Here thecost of transmitting over 1,500 local TV broadcasts in HDTV quality, whichonly has a local interest, through satellite networks does not appear to be ajustifiable substitute for the local transmission of terrestrial signals.The way digital TV is standardised makes it necessary to have amultiplex operator function where organisation in terrestrial networks is avital parameter. Allocation of resources can either be static or dynamic, andthe major forms of organisation of the multiplex function are: contentprovider (broadcaster)-led, multiplex-led, and service-led. The broadcasterledmodel is used in the US, and service-led or multiplex-led forms havebeen adopted in various European countries. Different types of organisationwill have different types of impact on the market: In the content provider-ledmodel, the market will be organised in exactly the same way as it was foranalogue broadcasting, in the multiplex-led form, competition can be seen attwo levels (service and multiplex levels), and the service-led model providesa uniform interface to end-users.Another major parameter is the allocation of resources for a single HDTVservice or for several services (multi-service allocation). Europe has adoptedthe multi-service form of allocation and the US, HDTV-type allocation. Inmulti-service allocation, the expanded capacity can be used to increase thenumber of services in the market. For example, in Sweden, the capacityavailable in terrestrial networks has been used to provide 16 TV serviceswhich cover the most popular services, and there has also been room fornew interactive services like eTV and a premium pay-TV service like Canal+and TV1000. Using HDTV, the technical quality of the received signals willbe higher, but as resources are still scarce it will be difficult for new playersto enter the market.

R. TADAYONI 127The timing of analogue and digital simulcasting is also an importantparameter, as this will release immense resources for broadcasting or otheruses, and remove the burden related to operating and maintaining analoguesystems. This timing will depend on the penetration of digital TV, but if webase our calculations on the natural renewal cycle of electronic equipment,10-15 years seems to be suggested in different markets.Finally, the emergence of new infrastructures for providing broadcastingservices and the possibility of others in the future can also be considered asimportant parameters because they increase the amount of resourcesavailable as well. This type of development is still in its infancy, however.

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