Written evidence submitted by BT

DCMS Select Committee

Houses of Parliament

BT’s response to the DCMS select committee inquiry into the future of PSB in a digital age

18 June 2020

Introduction

BT Group welcomes the chance to contribute to the DCMS Committee inquiry into the future of public service broadcasting (PSB). We are in a unique position to comment on the issues raised by the Committee.

Across our three brands – BT, EE and Plusnet – we have a presence in around half of all UK households. As a broadcaster, a TV platform and YouView partner, and a provider of broadband and mobile phone services, we are able to consider how customers access content across a range of different platforms and devices.

We are a distributor of TV, both as part of the Digital Terrestrial Television (DTT) infrastructure, using multicast[1] technology to deliver high quality, reliable content via Internet Protocal (IP) to our own TV customers and as a major carrier of video on demand (VoD) viewing. Very fast growth in VoD viewing is a key driver of network capacity demand and we work hard to meet our customer and partner expectations in this area.

As a telecommunications provider, we are keenly aware of the growing importance of the internet for the distribution of TV and video content. The internet offers incredible potential benefits and has given consumers more choice on how and when they view content, facilitated by innovative technologies, platforms and devices. BT urge policymakers to give careful consideration to how video content distribution can be made ‘future proof’. We believe that PSBs can benefit from this evolving distribution technology while also renewing their role to serving consumers, viewers and citizens.

In this submission we will set out how this can be achieved, making the following key points:

1. The PSBs have delivered great outcomes for the UK but their current delivery model is becoming inefficient: they face structural and cyclical pressures as the video content market goes through a lengthy period of change and audiences fragment across devices and platforms.
2. The challenge of digital exclusion has been revealed by the pandemic, with significant cohorts of the UK population not online and unable to access key online services.
3. Net neutrality is now having adverse consumer benefits, driving up prices and reducing access network investment versus core network due to inefficient distribution practices.
4. Transitioning of the current PSB model to an all IP-delivered universal basic TV service is the best way to address the three challenges outlined above.
5. The Government and Ofcom should now plan and create a legislative and regulatory framework for managed migration, ending the PSB’s obligation to broadcast on DTT in due course, enabling a renewed and sustainable PSB model.

BT is confident the UK’s IP networks will be ready and capable to support such a transition. We are prepared and willing to be a partner to UK PSBs and wider UK broadcast services to help them make the shift to IP delivery and emerge stronger, delivering a new set of benefits to society.

Author: Helen Burrows

Content and services policy director

1.    The need for change

Structural and cyclical pressures

The PSB model is under structural and cyclical pressures – viewers are shifting online; audiences are fragmenting across platforms and revenues for PSBs are declining[2]. While PSB and their portfolio channels account for 70% of minutes viewed on a TV, they account for 50% of minutes viewing on all screen devices[3]. According to Ofcom research, 44% of UK adults aged 35-44 surveyed could foresee their households no longer watching broadcast TV (DTT) in the next 5 years. Of the same cohort, almost 50% agreed that online video services are the main way they currently watch TV and film[4]. PSB advertising revenues are down 14% and public funding is down 15% in the period 2014-2018[5].

Public service broadcasting has been founded on three benefits that interact with each other:

(i)       subsidised distribution (spectrum reserved for PSB use at run-cost not market cost) via analogue and later digital terrestrial (DTT) broadcast,

(ii)     prominence of PSB main channels on the live schedule, and

(iii)   income, either via the licence fee or generated through advertising revenue based on the high audience shares delivered by the first two.

As audiences have fragmented first to commercial TV offers via satellite and cable, and more recently to online viewing, the value of all three to the PSBs has declined:

As audience numbers for live TV fall, the cost benefit of having reserved spectrum for broadcasting diminishes as the cost of alternative delivery methods falls; likewise, prominence on the live schedule TV guide becomes less valuable as audiences shift to watching on demand.  TV advertising revenues are in structural decline in part as a result of this, and in part due to parallel competition from online advertising, now made worse by the cyclical impact of an economic downturn following the pandemic. Meanwhile total public funding for the PSB has declined from £2.9bn per year to £2.5bn per year in the last five years[6]. 

At some point in the future a tipping point will be reached.  The fixed costs (in the £100s of millions per year) of DTT distribution will become unaffordable for the PSBs in the face of declining audience numbers watching this way and falling advertising revenues. If the PSBs are to survive, urgent action by the Government is needed.

Should (can) the Government intervene, to develop a renewed and sustainable model for the PSBs? Is it possible?

In BT’s view: yes, the Government can, and should, intervene to renew the PSB model and we set out how in the section 2 on renewal. Before this, we discuss why we believe it should do so.

Impact

The Committee asked: what value do PSBs bring to the UK in terms of economic, cultural, and societal impact?

BT’s view is that the UK PSBs have long been the economic and creative cornerstone of a highly successful UK TV industry, and the wider UK creative industries. The net effects of their broader obligations, to reach and serve all UK viewers, and to uphold editorial standards and fulfil other obligations specific to each organisation, drives up standards across the industry. This combines with a diverse range of business models between the different PSBs, and the PSBs and the commercial sector to sustain competition for audiences based on high quality content offers. The current Terms of Trade framework which obliges PSBs to commission from independent producers but not take control of the IP created, has enabled small producers to enter the market, increasing the pool of talent available to all commissioners and driving export growth[7]. These mechanisms deliver value for all UK viewers (including BTTV customers), while also supporting wider public policy goals such as supporting national debate and a well-informed citizenship.

The crisis of the pandemic has served to demonstrate how significant the contribution the PSBs make to the UK is, with 27.1million viewers watching the Prime Minister’s lockdown address[8] on 23 May 2020 on BBC alone – that’s three million more than watched the opening ceremony of the 2012 Olympics. New innovations, such as the BBC creating BBC Bitesize Daily in a very short time frame to support home schooling, signpost the future role they can play in addressing the economic and social challenges the coronavirus crisis has exposed.

However good their content offers, international content players such as Netflix, Amazon or Disney will not deliver such public services, free at the point of use for all UK citizens: they are commercial entities and it is not in their business models, nor should it be.

We see an even more significant economic and societal contribution the PSBs can make in the future, at the heart of a renewed PSB compact: to play a lead role in solving digital exclusion and enabling the delivery of vital services digitally.

The digitally excluded

With superfast availability now at c. 95% of UK premises[9], the issue of take up is now coming to the fore.  There is a significant portion of the UK population that is not online: 8.4% of UK adults[10], 4.5m people[11] have never been online[12], and 91% of these are over the age of 55[13].

While this has been a topic of public policy interest for some time, it has now been made urgent by the accelerated shift to digital access during the pandemic: the NHS estimates that of the 1.4 million people it identified as most vulnerable to Covid-19 and who each received letters from the NHS asking them to isolate at home, half – 700,000 – are not online. A smaller group, but no less important, are the approximately 160,000 low income families with children under the age of 18 at home that do not go online at home[14], and so have struggled to access online teaching and lessons for their children during lockdown.

Meanwhile, basic public services, such as NHS appointments and school lessons rapidly moved online during lockdown. And for those needing to isolate the internet was the best route to buying food and staying in touch with friends and family. Yet during this period significant numbers of UK citizens have not accessed these vital services.

A need for traffic identification and prioritisation

For those that do not have fixed broadband but do have a mobile phone, Government has asked mobile operators to enable access to services by identifying and removing the cost of mobile network data for the individual needing healthcare or education.

However, currently, this is either very difficult or impossible for network operators to do. The trend for service operators to develop closed – encrypted – services means that it is not technically possible to distinguish a stream carrying a school lesson, or a medical consultation, from others travelling across our networks. And even where it might be possible, the current regulatory environment, grounded in the EU Net Neutrality Regulation, prohibits prioritisation of some sources of traffic over others.

All players have a responsibility to all network users

Networks have remained resilient and reliable throughout the exceptionally high demand of the lockdown period, supporting significant increases in demand and changes to daily traffic patterns. BT’s ongoing investment in its network has meant that capacity headroom has remained available throughout the crisis.

Before this crisis large content providers did not have any requirement or obligation to behave efficiently or responsibly towards other network users when it came to distributing their services online. During lockdown network resilience has been supported, especially for the lower cost operators, by some of the larger streaming and gaming firms engaging with the ad hoc process developed by the Government and Ofcom to dynamically reduce some streaming bit rates and for gaming releases to be scheduled for times of day with lower network usage, to ensure reliable connectivity for all UK internet users. However, as the pandemic appears to ease these ad hoc agreements are staring to unwind, and there are no clear means of ensuring they continue or develop.

The pandemic therefore has revealed and accelerated three interrelated issues:

(i)       a sudden and urgent need to bring online those cohorts that have not been so far;

(ii)     whether specific content (NHS traffic and education which we might term ‘public sector’) can be prioritised, or treated differently;

(iii)   The need for at least some back-stop obligations or incentives on large content providers to support efficient network use and behave responsibly towards all internet users, especially where their content drives network traffic peaks.

Managed migration of PSB to all IP delivery

In BT’s view the transitioning of the current PSB model to an IP-delivered universal basic TV service is the best way to address the three challenges outlined above.

As most of the cohorts not connected to the internet are older people who, predominantly, watch live broadcast content[15] from PSBs, the PSBs are well positioned to both support and guide that cohort to take up a basic IP connection.  Furthermore, by transitioning the PSB delivery to IP delivery, this cohort are naturally motivated to make the transition to retain access to the PSB content;  research by ComRes found that more than a third of non-internet users surveyed (37%) stated they would connect to the internet if TV was distributed via the internet.[16]

Using this approach, PSB universality would be maintained, and much of the problem of digitally excluded cohorts would be solved.  We suggest that a cross industry managed migration programme, modelled on the analogue to digital switchover (DSO) programme, could ensure all households get online using a modern TV that can receive online IP distribution with favourite PSB TV programming as the lead service. Once connected, vital public services such as primary healthcare can be delivered via the device they are already comfortable with: their TV.

The Government and Ofcom should now work together to develop an updated legislative and regulatory framework for managed migration of the PSBs to all IP delivery.

2.    The path to renewal

Benefits and obligations updated in legislation and regulation

The committee asked: Are the current regulations and obligations placed on PSBs, in return for benefits such as prominence and public funding, proportionate? What (if any) regulation should be introduced for SVoDs and other streaming services?

Distribution

In BT’s view there needs to be a clear, long-term plan from Government, to facilitate a transition to an IP-delivered universal basic TV service.

This plan would renew the principle that PSB obligations come with privileges and set out updated distribution requirements (on all IP connectivity providers) and the path to exiting DTT by updating the relevant legislation. PSBs would be required to offer their content to a universal TV service made available to all ISPs.

This would be supported by Ofcom establishing minimum technical standards and wholesaling requirements on all network connectivity providers to ensure consumers have a choice of network provider. Once achieved, this model would also allow the delivery of other digital public services.

It is an open question what should happen to current DTT spectrum thereafter: it could be returned for mobile spectrum use, or it could continue to be prioritised for content distribution using mobile technologies such as 5G which could reach all digital devices, from phones to televisions, rather than old broadcast protocols.

Prominence

To support the universality and commercial viability of the PSBs, existing PSB privileges for linear live channel prominence should be updated to delivery agnostic prominence requirements for PSB content on all commercial platforms and services.

Net neutrality

Pre-crisis norms based on the EU net neutrality regulation did not include protection from large content distributors behaviours for network providers or, ultimately, individual households. The current circumstance leads to large traffic spikes driven by, say, a large gaming update[17] which is only accessed by a proportion of users but can create short term service issues and drives the long term costs of basic internet connectivity for all users.

The wider UK regulatory framework ensures innovation and competition but could be improved by employing some obligations or incentives on content providers and distributors of streaming video, large gaming or software updates, and intermediaries such as content delivery networks (CDNs) to support responsible and efficient behaviour.

Lastly, net neutrality should be updated[18] to enable digital delivery of what the Government defines as universal public services: at a minimum this is likely to include UK PSB content, healthcare, education, and other government services such as HMRC and DWP engagement, to all UK households.

An invigorated and sustainable PSB model

An IP based universal TV service would address the structural issues of rising costs and falling audiences and revenues in the current PSB model: all IP distribution will be lower cost to the PSBs than DTT distribution (the fixed costs of which become less and less sustainable as the numbers watching on this platform fall) so an exit from DTT distribution once transition is complete will reduce PSB costs.

Removing the need to broadcast over the air content means that production methods can be optimised for IP delivery; this will accelerate innovation and be good for the UK creative industries.  It will allow greater regionalisation of content, and smarter regionalisation such as allowing regional graphics and presentation to be added to the same national video feeds such as for weather.  And it will support richer viewer experiences. Some of these are already showcased by BT Sport which is delivered via IP multicast to TV sets and via IP to viewers using our app. We have developed innovative viewing functionality for live sport, with significant moments like goals on the video progress bar to enable viewers to easily replay key events.

IP delivery will lead to better picture quality for more people; there are no plans to deliver 4k (ultra-high definition) or HDR (high dynamic range) images from the digital terrestrial network, neither is the broadcast network suitable for the delivery of virtual and augmented reality experiences that are synchronised with a picture on your TV.  All these can be delivered using all-IP delivery. Further, we expect innovations such as the ability to interact with, respond and contribute to programming more directly than is currently possible will be enabled.

Innovations such as highly targeted advertising will become easier and will help advertising funded PSBs to reverse the decline in the advertising revenue; it will give all PSBs greater understanding of their audiences, of who is watching what, and will help them to adapt their content to better meet their PSB obligations. All-IP distribution will also support new funding models for PSBs, perhaps based on a more direct connection between viewing and payment for the BBC, or hybrid models e.g. a commercial PSB offering an advertising funded and free service and a no adverts subscription service.

Representation

The committee asked: How would representation be protected if changes were made to the PSB model? How would the nations and regions be affected by changes to the PSB model? Is the ‘quota’ system the most efficient way to maintain and improve representation in broadcasting?

We think that quotas or another approach to regional representation are more likely to be supported if there is a new sustainable model for the PSBs overall. An IP based universal basic TV service would have the advantage of more easily being able to present programming most relevant to a national or regional audience first, both on the schedule and on demand, but also by enabling individual viewers to set their preferences; for example to continue to stay in touch with a region they no longer live in by following programming from that region even when they live elsewhere.  IP delivery will allow schedules to be customised on a much more granular basis, to better meet the needs of diverse viewer groups.

3.    Is this achievable?

Accessibility

The committee asked: How would changes to the PSB model affect the accessibility of services? How would a wholly internet-based service compare to the current PSB model?

We envision a universal IP TV service available to all households with an IP connection, which would distribute PSB content that is designed to be universal and free-to-view separately from a broadband subscription.

Access to superfast broadband (more than 30Mbps) in the UK is already amongst the highest in the world at more than 95%[19].  These speeds will be sufficient to deliver a basic universal IP-based TV service (we propose a definition of supporting a minimum of two simultaneous HD streams). Although the current network is good, fibre is important as a guarantee of resilience so the Government is right to aim for near universal rollout. The Government’s policy is for future-proofed, gigabit capable connectivity to be available universally by 2025 and, via Openreach, BT has committed to reaching 20m premises with full fibre by the mid to late 2020s[20].  Fixed wireless access, using connectivity over the 4G and 5G mobile networks, will also likely play a greater role in connecting premises and supplementing fixed line speeds.  Therefore, subject to the Government and Ofcom quickly establishing the right environment for commercial investment, (which will be supported by a plan for PSB migration), deployment and public subsidy[21], we believe a transition to universal all-IP by the end of the decade is a credible and achievable ambition.

Looking ahead and conclusion

The committee asked: What should a PSB look like in a digital age? What services should they provide, and to whom? In what way, and to whom, should they be accountable? Is the term ‘public service broadcasting’ still relevant, and if not, what is a suitable alternative?

BT believes public service broadcasting is – and will remain - highly relevant and offers quality, reliability and accessibility to public debate that commercial broadcasters and OTT players cannot always meet, as the latter are predominantly commercially driven organisations. PSB media plays an important role in holding institutions to account and fostering public trust in civic society, as well as representing the diversity of the UK. The current system of accountability works well and should be maintained.

As we have outlined here, BT believes the most significant change required for the digital age is to upgrade the PSBs to fully digital IP distribution. And that the current or a similar mix of organisations sufficiently funded to create a similarly broad range of public service content is the best way to bring all citizens into the digital age.

Without intervention to provide appropriate support to cohorts that need it, digital participation is unlikely to reach universality (98.5%+) as not everyone has the inclination or the skills to navigate the online world. But, as we have set out, there are very strong public policy drivers to draw these cohorts online in a way that is sufficient and manageable for them.

Combining this imperative with the creation of a sustainable new model for PSBs, based on IP distribution within a governing regulatory framework, is not only the best way to deliver both goals, but also enables several further synergies:

(i)       for customers, with better quality connections at lower costs,

(ii)     for viewers, receiving both universal and personalised viewing options,

(iii)   and for citizens, who will be able to access the public and digital services they need.

Concentrating on an all-IP distribution format will also accelerate innovation in new forms of TV based media, strengthen the UK creative industry sector and will enable the UK to once again lead the world in TV innovation. BT is confident the UK’s IP networks will be ready and capable to support such a transition. We are ready and willing to be a partner to UK PSBs and wider UK broadcast services to help them make the shift to IP delivery and emerge stronger, delivering a new set of benefits to society.