17. In simple terms, broadcasting is the transmission of audio or audiovisual information by radio waves or other means of communication (eg cable) for reception by the public using suitable receiving equipment, eg television or radio sets. To date, broadcasting has been a one-way process, from broadcaster to viewer (ie "one to many" transmission). In contrast, telecommunications services are two-way, usually established on a "one to one" basis, and have historically developed with largely separate infrastructure.

18. Transmission networks for broadcasting services in New Zealand are of three basic types, each requiring viewers to have suitable receiving equipment: terrestrial transmission (requiring a suitable antenna or dish), satellite transmission (requiring a satellite dish), and cable services (requiring a physical cable link to the receiving equipment). Terrestrial and satellite transmission both utilise radio spectrum. Most broadcasting networks will use combinations of these three approaches. The different network transmission, distribution and reception methods are represented diagrammatically at Appendix 2.

    The New Zealand television broadcasting market now comprises:

Broadcasters	Platform	Platform Owner	Coverage
TVNZ, CanWest (TV3, TV4, Prime, Sky UHF* and regional providers	Terrestrial (requires spectrum and transmission towers)	Broadcasters own the spectrum. BCL owns the transmission towers and provides transmission services (however increasing number of other high site providers such as Sky Tower)	Ranging from small geographic areas to 99% of New Zealand
Sky*	Satellite (requires spectrum and satellite transponders)	Broadcasters own the spectrum. International entities own the satellites (broadcasters only lease satellite space)	100%
Saturn*	Cable	Saturn	Wellington, with coverage planned to expand beyond 60% in 5 years

*Subscription television services

Part 2: Trends

Digital Technology and Convergence

19. The key feature of digital technology is that, subject to capacity (i.e. bandwidth) constraints, any form of information content (eg video, graphics, sound, text or voice) can be made available via any transmission platform (eg cable, satellite, wireless networks) to a range of traditional and new consumer reception devices (eg mobile phone, television, PC).

20. Digital technology generally improves quality and, just as significantly, enables more information to be carried than is possible using analogue technology. As analogue terrestrial television technology is supplemented by digital transmission, there will be a four-fold increase in available capacity.

21. Accordingly, the traditional domains of telecommunications, broadcasting, and information technology are "converging" as industry players seize opportunities to participate in existing and new markets for content-based services. Eventually all information is likely to be carried in digital, rather than analogue, format.

22. For consumers this offers the potential for a substantial expansion in the range and quality of services available through the "television" set. For example, TVNZ's digital proposal included accessing the Internet and email and also providing interactive television. Developments are occurring at a rapid pace, such as new set-top boxes containing large capacity disk drives, which in essence are a digital video cassette recorder device enabling viewers to skip all advertisements, and eventually being able to download programmes of their choice (i.e. an online video rental store).

Future Developments

23. Together, the development of digital technology and the process of convergence are likely to have significant effects in the following respects:

    Bandwidth and Service Offerings: Transmission networks are likely to be distinguished by their bandwidth and whether they are one-way or two-way transmission, rather than the type of information they may carry. As discussed, viewers with access to high-bandwidth networks to their home will be able to have a wider range of services delivered via "television" sets. The bundling of these services will blur the distinctions between televisions and computers. Commentators speak of the development of a product known as a "screen" which will provide access not only to television, but also to a range of other digitally delivered services.

    Audience Size and Configuration: Increased channel numbers and multiple service offerings will, in turn, impact on audience size and configuration. Market "fragmentation" is a term commonly used. Pay, or pay per view programming, will become more common on commercial television. At the same time there will be a greater capacity to carry programming targeted at minority and other community interest groups. Notwithstanding those trends, it seems likely that free to air television - whether commercial and entertaining and informing mass audiences so as to sell time to advertising "customers" or supported by public funding - will continue, albeit probably with smaller overall market shares.

    Network and Industry Structures: Previously discrete networks carrying non-competing services will now offer competing services and platforms. They offer the potential to improve services and "reach" to remote areas. Urban areas, however, will continue to be provided with a greater choice and quality of services. In response, a range of firms - previously operating in distinct markets - are amalgamating. Most significantly these include Internet service providers (eg America on Line) and content providers (eg Time Warner). New Zealand's small broadcasting and telecommunications market is similarly building international alliances to secure the expertise, capital and content held offshore. For example, the Telstra/Saturn cable venture and Telecom/INL/SKY "links".

Part 3: Implications for New Zealand

24. This paper now investigates how these trends may affect government objectives relating to networks as identified in Part 1.

Promoting Efficient Use of Resources and Encouraging Innovation

25. A key resource issue to be addressed in the transition to digital broadcasting services is the allocation of spectrum suitable for digital television. The aim of the spectrum management framework encompassed in the Radiocommunications Act is to ensure that spectrum is allocated to uses which society values most. The Act does not, however, specify how spectrum is to be allocated. The Government retains flexibility to select the allocation method best suited to the spectrum concerned.

26. Auctioning spectrum rights is the preferred approach for spectrum for commercial use. A framework for consideration of non-commercial allocation of spectrum is the subject of a separate report back to Cabinet [refer CAB(00)M6/38].

27. Spectrum suitable for digital television is expected to be ready for allocation following the 2GHz auction. A later paper on Digital Transmission will seek Government agreement to a mechanism for allocating this spectrum and include comment on:
    • Decisions by the previous government to guarantee an allocation of spectrum to existing broadcasters for simulcast transmission (ie to broadcast in both digital and analogue).

    • Issues relating to the transition from analogue to digital technology, including comment on international approaches to spectrum management. The Australian Government requires analogue broadcasting to be maintained until 2008 to ensure availability of services to viewers. In the United Kingdom, no decision has yet been made on a fixed date for analogue switch off.

    • Competition issues, including consideration as to whether any specific competition safeguards are required to supplement the Commerce Act. (For example, specific auction rules will be applied in the forthcoming auction of spectrum in the 2 GHz band. The use of pro-competitive auction rules has, however, not generally been required and may not be needed in the future due to the changes to the Commerce Act recently agreed to by the Government).

28. The preparation of that paper will involve consultation with the industry. It is not proposed that that paper be submitted to Cabinet before the report of the Telecommunications Inquiry is available. On that basis, Cabinet is likely to be in a position to consider those issues in the fourth quarter of this year or early in 2001.

Ensuring Equitable Consumer Access to Services

29. The changes in broadcasting services are marked, and in many senses driven, by improving consumer access, and quality of that access, to a whole range of digitally delivered products and services. This tends to suggest that consumer access will become less, not more, of a problem as time passes. For example, the Internet makes vast amounts of entertainment and information available to consumers via telephone lines.

30. As for consumer reception equipment (such as digital television sets or set-top boxes), experience strongly indicates that costs will decline with technology developments and competitive pressure.

31. Nevertheless, questions have been raised regarding consumer access to broadcasting services in a digital environment such as:
    • Whether and to what extent various services (such as free-to-air broadcasts) will be available to people in remote areas? The combination of technological change and increasing competition will help to ensure that services are available in remote areas, with satellite broadcasting particularly well suited to this purpose. However, where equity issues arise, the Government may need to intervene, as it does now through NZ On Air, and subsidise the transmission of services to remote communities.

    • Whether and to what extent access of content providers to transmission networks needs to be considered? Some countries require network owners (mainly cable operators) to carry free to air broadcasts on their network to assist consumer access to content - often referred to as "must carry rules". These rules are being revisited in light of convergence, expected increase in competition, and the increased capacity resulting from digital technology. In New Zealand, free to air broadcasters have indicated concerns regarding the Copyright Act's provisions permitting cable network operators, such as Saturn, to transmit their broadcasts for a negotiated charge.

32. These issues will be investigated in the Digital Transmission paper. Many of these issues also need to be assessed in light of the Government's competition policy and objectives to encourage and support technical standards, which are discussed next.