My article in today’s Fin was on digital TV policy (but was peripherally influenced by discussions here about the AWB monopoly and Kerry Packer). Over the fold. Comments appreciated, as always
From the early days of the Rum Corps to the infrastructure monopolies of the 21st century, the easiest route to business success in Australia (with the exception of property speculation) has been the acquisition and exploitation of government-created monopoly rights. The range of such monopoly rights has been vast, from taxi licenses to the AWB monopoly on wheat exports.
The late Kerry Packer was well aware of this fact. Packer was an astute and capable businessman with interests ranging from magazine publishing to ski resorts. The core of his wealth, however, was derived from government-created rights, first to operate one of three commercial networks and later in the gaming industry. Among the many monopoly rights created by Australian governments, media and gaming have been the classic â€˜licenses to print moneyâ€™.
Because of his wealth and his commanding personality, Kerry Packer possessed great political power. Governments of both parties sought, whenever possible, to appease Packer, and his fellow-magnate Rupert Murdoch while trying, through rules such as the cross-media ownership laws, to prevent them amassing even more concentrated power. The result was the tangle of ad hoc restrictions and historical exceptions with which we have to deal to day.
Nowhere was the Packer influence more evident than in the policy regarding digital television, formulated in 1998. The expansion in channel capacity feasible with digital TV opened up a wide range of possibilities, in particular that of a profusion of competing channels. That was, of course, anathema. The possibility that appealed to Packer, and was embraced by the Howard government, was that of a bigger, brighter version of the status quo.
The embarrassment of riches provided by digital spectrum was dealt with by a policy innovation unique to Australia. Broadcasters were required to use the extra spectrum to transmit high-definition TV, which could be viewed only by households willing to spend thousands of dollars on receiving equipment.
All the evidence available at the time, reinforced by subsequent experience, suggested that consumers didnâ€™t want HDTV, at least at the prices likely to apply in the foreseeable future. If market forces were allowed to work HDTV would be at best a niche market.
But reliance on market forces has never been a strong point of communications policy in Australia. At the time the decision was made, the government had just closed down the analog mobile telephone network, ignoring the protests of rural Australia. So the decision was made that analog TV would be turned off at the end of 2008, a comfortable decade away.
The whole idea, like much of the discussion surrounding the overhyped notion of â€˜convergenceâ€™ was based on the 1960s idea of a family gathered round the loungeroom TV set, which they would be eager to upgrade to the latest and greatest. In fact, the median household today has two TV sets and at least one VCR, and possibly other devices like computer TV tuners and DVD recorders. Only about 10 per cent of these are digital, and even now analog devices are outselling digital.
If the analog shutdown goes ahead, all of these devices will either have to be scrapped or equipped with individual set-top converters, at an estimated cost of $100 a box, just to continue working as before.
Faced with this market outcome, the government has had no alternative but to drop the 2008 shutdown date. This decision makes nonsense of the rest of the policy, and should provide the basis for a comprehensive re-assessment.
The Australian Consumers Association has set out many of the main points that need to be addressed in its submissions to a range of government inquiries. The requirement for HDTV should be scrapped, one or more additional free-to-air networks should be allowed to enter the market, and the set-aside of spectrum for datacasting, under highly restrictive conditions should be abandoned. Most importantly, the provision of free spectrum to the existing monopolists should be ended, and TV spectrum auctioned under procedures similar to those used for other forms of telecommunications.
Changes of this kind have been resisted on the grounds that TV networks have already invested hundreds of millions of dollars in digital conversion, and should not be faced with a change in the rules. But if this principle were adopted, no policy would ever be changed. In any case, households face costs of between one and two billion dollars, more than the amount the networks have invested in digital conversion so far, just to maintain their existing service.