The transition to digtal television

Economic Policy

Volumn , Issue 41, 2005, Pages 159-209

  Adda, Jérôme ^a   Ottaviani, Marco ^b  

^a UNIVERSITY COLLEGE LONDON   (United Kingdom)

^b LONDON BUSINESS SCHOOL   (United Kingdom)

Author keywords

[No Author keywords available]

Indexed keywords

DIGITIZATION; ECONOMIC POLICY; TECHNOLOGICAL CHANGE; TELECOMMUNICATION;

EID: 14244250550     PISSN: 02664658     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (70)

1. The US Federal Communications Commission began its first inquiry into what was then called 'advanced television' in 1987.
2. A few definitions are in order. A good is said to be non-rival if one person's consumption of the good does not reduce the ability of other consumers to consume it. A good is non-excludable if people cannot be excluded from consuming it. A pure public good is non-rival and non-excludable. Before the advent of encryption technology, over the air broadcasting was the perfect example of a pure public good. An excludable public good is non-rival. Since the cost of provision of an excludable public good is constant, the average cost decreases with the number of units sold. An excludable public good is equivalent to a natural monopoly.
3. Equivalently, the cost of delivery of any given signal does not depend on the number of (connected) viewers who actually tune in. Delivery through broadcasting is effective for the purpose of transmitting a large amount of information to many receivers. One-to-one communication (or 'narrowcasting') requires instead more bandwidth and so can allow the transmission of less content. Nevertheless, in the near future it will be possible to transmit video on demand through broadband and especially optical fibre cable to the home.
4. At each point in time, each viewer then selects the channel to which to tune in.
5. 'Terrestrial' refers to broadcasting by a land-based radio transmitter.
6. See also the action plan of the European Commission on information society entitled 'cEurope 2005' 2002): 'In order to speed up the transition to digital television, Member States should create transparency as far as the conditions for the envisaged switchover are concerned. Member States should publish by end 2003 their intentions regarding a possible switchover. These could include a road map, and an assessment of market conditions, and possibly a date for the closure of analogue terrestrial television broadcasting which would enable the recovery and refarming of frequencies. National switchover plans should also be an opportunity to demonstrate a platform-neutral approach to digital television, taking into account competing delivery mechanisms (primarily satellite, cable and terrestrial).'
7. See Armstrong M. (2002) and Rochet, J.-C. and J. Tirole (2003) on the analysis of competition in two-sided markets.
8. Note that the public good nature of content production is different from the public good nature of broadcast delivery discussed in the introduction. To appreciate the difference, notice that a film is rival in consumption if distributed through DVD, but nonrival if distributed through a broadcast network. But in both cases, the marginal cost of serving an additional viewer is very small.
9. See Waterman D. and A. A. Weiss (1997) and Crawford G. (2000) for analyses of the US experience in the regulation of vertically integrated cable companies. See Armstrong M. (1999) and Harbord D. and M. Ottaviani (2001) for overviews of content provision in the UK pay television market. See Crawford G. (2000) and Goolsbee and Petrin (2004) on competition across platforms in the US.
10. For example, in the UK in 2001 BSkyB offered a choice between three basic packages with increasing number of channels (value, popular and family) and offers two premium film channels (Moviemax and Sky Premiere) and two premium sport channels (Sky Sports 1 and 2).
11. Portability is believed to be the main advantage of the DVB-T standard adopted in Europe for terrestrial broadcasting over the American ATSC standard.
12. Although most households tend to have more than one television set on average, in our model we focus on the reception equipment necessary for the main television set. Many households currently view FTA analogue television from the secondary television, even though they have access to multichannel television services through their main set. Our model call be extended to consider the incentives for conversion of secondary television sets.
13. See Chapter 12 of Rohlfs, J.H. (2001) for a discussion of the involvement of the US government in co-ordinating television standardization processes. See Faulhaber G. and D. Farber (2004) for an account of how licences for television broadcasting came about in the US.
14. See the discussion in Cramton P., et al. (1998) on the possibility of designing mechanisms to allocate the spectrum while it is still occupied by analogue broadcasters.
15. For an extensive discussion of universal access in broadcasting see the UK Government's Communications White Paper 'A New Future for Communications', Chapter 3 'Ensuring Universal Access' (2000). The government is committed to ensure that people living in all parts of the UK, however remote, should have access to television. Serving residents in remote rural areas is expensive and not economically viable for commercial organizations. Universal access to television has so far been achieved through direct government intervention, rather than regulation of market operators. In the telecommunications industry, regulators have instead introduced schemes to give incentives to private providers for universal provision. We refer to Laffont, J.-J. and J. Tirole A. (2000) for a discussion of the principles of universal service policies and to Riordan (2002) for a recent review of universal service policies applied to fixed telephony. Sorana V. (2000) proposes the use of auction mechanisms to determine universal service subsidies. Similar incentive schemes could be used to ensure universal provision of television services through private providers.
16. This is often done by mobile phone operators and pay television networks. Essentially, well-defined property rights on the ownership of the network can alleviate the problem of network externalities.
17. More broadly, this raises the issue of privatization of the UHF spectrum, discussed above. See also Hazlett T. (2001) and Cramton, P., et al. (1998).
18. See Anderson, S. and S. Coate (2001) for a model of television competition in which increased availability of television channels can improve social welfare by reducing the cost of advertising. In a recent empirical paper, Djankov, S., et al. (2003) find that concentrated (as well as public) ownership of media tends to be associated with 'bad' social and political outcomes. See Besley T. and A. Prat (2001) for a study of the effect of media competition on government accountability.
19. For example, there is more spectrum available for simulcasting in the UK than in Italy, because the UK has only five analogue channels, while Italy's spectrum is clogged up by many more local channels.
20. See Levy J., et al. (2002) for an overview of the US market, Farrell J. and C. Shapiro (1992 on standard setting and adoption, Goolsbee A. and A. Petrin (2003) on the advent of satellite television, and Hazlett T. (2001) on the transition to digital television.
21. By adding information on the cost structure of platform operators, the model can be extended to allow for endogenous supply-side behaviour. This can he done by following the same methodology we have adopted to endogenize the cost of DTT STBs. See also our discussion of policy scenario 7 in Section 5. We also assume away network externalities. See Farrell J. and C. Shapiro (1992) and Auriol and Benaim (2000) on strategic adoption incentives with network externalities, absent in our model.
22. Over time, there is a marked increase in the number of available set-top boxes. As the market matures, two phenomena can be observed. First, many more products are sold at low prices. Second, more products with added features are introduced at the high end of the spectrum. Overall, the trend of the average price is robust to the introduction of new products.
23. This is implemented numerically by setting the expected switch-off date at a distant future period.
24. These confidence bands have been computed by Monte Carlo simulations, draws 100 times the parameters for the consumer preferences from the distribution estimated from our survey data.
25. Indeed, the UK pay satellite operator BSkyB has officially announced in June 2004 its intention of doing exactly so. According to the press, this move is a strategic response to the competitive pressure from Freeview.
26. The social value of the released spectrum is clearly different from its market value, due to the producer and consumer surplus created from the alternative use of the spectrum.
27. The learning curve model originated in engineering studies of aircraft production, but has also been applied to other industries, such as chemical processing, energy and semiconductors. See Chapter 2 of Besanko D., et al. (2000) for an accessible introduction to the learning curve and additional references.
28. More precisely, we are focusing on an equilibrium in which the share of DTT is constant, and so the DTT STBs do not vary in the post-switch phase.
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