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Earlier this month a discussion broke out in the industry in response to the publication of a report by David Graham from the Adam Smith Institute. Mr Graham’s report suggests universal broadband will lead to the abolishment of the BBC’s license fee and he argues that this will be a positive move as it will force the BBC to become more competitive.

Elsa Chen, General Manager

Elsa Chen, General Manager

Whilst I agree in theory that abolishing the license fee would force the BBC into providing a more competitive and therefore hopefully higher quality service, I struggle to believe that broadband will be the catalyst for this.

Firstly despite the promised, yet now delayed, 2Mbps USC the UK is still a long way off enjoying truly ‘universal’ broadband, especially at the speeds required to easily support IPTV services. Besides which even if UK residents had universal access to high speed broadband they would still (currently) be legally required to purchase a license if they intend to watch programmes as they are broadcast (e.g. streaming). Although, a license is not required for ‘on demand’ services (e.g. BBC iPlayer).

Secondly, uptake of IPTV services is still relatively small when compared to the much larger audience tuning in through more traditional methods. A PointTopic report published in June 2010 showed that IPTV services represent less than 10% of the global broadband total. However the same report also showed dramatic growth of 47% during 2009. Further growth has been forecasted with the MRG (Multimedia Research Group) estimating that IPTV services and subscribers will reach 102 million in 2014 which equates to a 25% Compound Annual Growth Rate (CAGR).

However growth in the UK has been much slower mainly due to the lack of availability. For example the ongoing delays in Project Canvas. For broadband to truly kill the BBC license fee we would need to see a dramatic increase in demand for IPTV services in the UK. Whilst the popularity of these services continues to grow, I think the required increase to make it a true ‘license fee slayer’ is still a long way off.

And thirdly, even if current broadband speeds could support the unlikely dramatic increase in demand for online TV services many ISPs would struggle to manage capacity across their networks and/or would soon increase the pricing for their broadband services to cover the costs. In his report Mr Graham incorrectly describes the delivery of IPTV services as having ‘virtually zero transport costs’. However as the Internet industry well knows, this is far from accurate. There is in fact a significant cost in terms of the bandwidth required to deliver this content across providers’ networks.

During the recent World Cup many leading ISPs were discussing the noticeable increase in demand for IPTV services, the corresponding increase in demand for bandwidth and the effect this had on their networks.  At a time when ‘unlimited’ broadband packages are already under the spotlight from the ASA and where bandwidth costs are set to continue to rise, a significant increase in bandwidth demand would undoubtedly lead to ISPs redeveloping their broadband packages to cover their costs. So even if end users did manage to benefit from savings on their TV license they would likely be paying out just as much if not more for increased bandwidth from their broadband supplier. As the old saying goes, “give with one hand and take with the other!”

Old enemies

This is not the first time the BBC and ISPs have crossed paths. Back in 2008 BT Retail controversially argued that the BBC and other content providers should pay towards the increasing cost of bandwidth caused by new bandwidth hungry services such as the BBC iPlayer.

Quite rightly the BBC found this suggestion preposterous and refused to contribute. Entanet’s opinion article ‘ISPs vs BBC iPlayer – Missing the point?’ (opinion.enta.net: ISPs vs iPlayer: Round 2) suggested that instead of requesting monetary support from content providers, BT Retail should be applying pressure on its wholesale connectivity supplier (BT Wholesale) to reduce its increasing bandwidth costs.

It’s also not the first time that the BBC license fee and the ongoing development of broadband have been linked. The Government has previously confirmed plans to fund the delivery of the 2Mbps USC partly using left over funds from the digital switchover pot.

Not all doom and gloom

Despite the obvious and significant dent on the BBC’s income if they were forced to scrap the license fee, the proposal does have its benefits. As already mentioned this significant loss of income would force the BBC to become much more competitive and innovative (by willis). The BBC already enjoys success with iPlayer and is involved with the development of Project Canvas demonstrating they can successfully adopt new technologies and be innovative when required.

So to conclude, whilst abolishing the BBC license fee may not be such a bad idea in principle especially if it improves the quality of entertainment, the increased availability of broadband and demand for IPTV are highly unlikely to be the catalysts. More likely would be pressure from the industry watchdog who would be more concerned with ensuring the market remains competitive. Broadband, in its current state at least, is far from a license fee slayer.

Have your say

Do you think the growing demand for IPTV and universal availability of broadband will result in the end of the TV license fee? Or do you agree that IPTV is still very much in its infancy and popularity would need to significantly increase? Let us know your thoughts by leaving us a comment below.

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