The transition to DTT in Italy - economic and market aspects -

1. The transition to DTT in Italy - economic and market aspects - Lisa Di Feliciantonio AGCOM, Italian Authority for Communications Warsaw, 25 February 2004

2. Summary DTT in Italy: state of the market • Why should terrestrial TV go digital: threats and opportunities of the transition • Costs & benefits • Public policies and regulatory actions to support the take off

3. State of the market Some country peculiarities • Regulatory model gives leadership to terrestrial channels • Incumbent terrestrial broadcasters pushed to develop DTT not as market choice but as a legal strategy • Mediaset & RAI both need to develop DTT in order to avoid antitrust and anticoncentration measures • Very strong duopoly in the terrestrial market • Terrestrial broadcasters are interested in keeping the broadcasting environment as it is

4. State of the market DTT start up in Italy: line-up Transition to DTT led by terrestrial incumbent broadcasters: Two additional multiplex due to be launched shortly: 1 by terrestrial broadcaster La7 (Telecom Italia) 1 by a new terrestrial operator – consortium led by TF1 and media entrepreneur Tarek ben Ammar

5. State of the market DTT start up in Italy: key features • Free-to-air • Poor in terms of new content (no children’s programming, no entertainment, etc.) • No coordination between platforms • Ambiguous attuitude towards DTT by terrestrial operators • Very little information /awareness campaign • Limited investment for coverage and content • coverage limited to approx. 50% of population • only RAI has developed two new channels • Only RAI has so far planned interactive features

6. DTT coverage 50% population coverage of mediaset DTT network: only main cities are served

7. Summary • DTT in Italy: a brief history and state of the market Why should terrestrial TV go digital: threats and opportunities of the transition • Costs & benefits • Public policies and regulatory actions to support the take off

8. Threats A more open and competitive market Audience fragmentation A new paradigm for television and communication business Opportunities new revenue sources better competition with satellite/cable/convergence operators For PSB: repositioning of public service Why should terrestrial broadcasters go digital DTT: threat or opportunity? Very ambiguous attitude towards DTT

9. Why should terrestrial broadcaster go digital The “Murdoch effect” in the UK Audience share in the UK 1998-2003

10. Why should terrestrial broadcaster go digital The “Murdoch effect” in the UK Advertising market shares 1998-2003

11. Why should terrestrial broadcaster go digital Digital pay-tv and broadband in Italy • 2.300.000 subscribers to Sky Italia (and growing fast) • Digital cable (FTTH) rolling out in major urban areas offering triple play • 1.620.000 DSL broadband lines potentially able to receive broadcasting and VOD services Terrestrial TV is at a crossroad

12. Why should terrestrial broadcaster go digital DTT: a new mission for PSB • Supporting the development of DTT and interactive features could give back to the PSB a new leadership and a role: • Bridging the digital divide • Providing new digital free-to-air content in a pay-tv dominated broadcasting environment • Providing access to its networks and capacity to independent broadcasters and new operators.

13. Summary • DTT in Italy: state of the market • Why should terrestrial TV go digital: threats and opportunities of the transition Cost & benefits • Public policies and regulatory actions to support the take off

14. Three different kinds of costs involved in the development of DTT for the operators & the community: Cost to build the network RAI : 20M € to build the network Mediaset 70M € (acquisition of the frequencies + network development) Cost for new content and additional enhanced/interactive features RAI has budgeted 3,7M € for new content in 2004 Cost to subsidize the receiver 150M € for subsidies (150€ per family for 1M receivers) Important role to be played by electronicindustry: provide a extensive range of receivers at different prices Cost & benefits Costs and financing

15. Broadcasters segmentation – increased, more targeted advertising T-commerce and interactive service revenues increased “customer loyalty” Community Rationalization of frequency spectrum and capacity left to other use Increased choice and pluralism A step forward the e-society Cost & benefits Potential revenues & benefits

16. Summary • DTT in Italy: state of the market • Why should terrestrial TV go digital: threats and opportunities of the transition • Cost & benefits Public policies and regulatory actions to support the take off

17. Public policies to support DTT take-off DTT penetration scenarios DTT penetration Timely switch off date 100% Introduction of public policies 80% 50% DTT development left to market forces time

18. Public policies to support DTT take-off Financial and regulatory measures policies to support network operator • Reduction of the fee paid by the broadcaster for the frequencies • Financial support to PSB for the creation of the network policies to support content providers • Financial support to PSB • Asymmetryc regulation: • financial aid to new editors if they committ to DTT for a medium term period (5 years) • Tax reduction policies to support the penetration of digital receivers • Labeling of equipment • Financial incentives to families

19. Public policies to support DTT take-off The right regulatory model Has to take into consideration the country specificities but so far some lesson can be drawn by other experiences • Allocation by channel or by multiplex • Free to air or basic pay • Let the existing incumbent operator in other platforms play a role or not • Give the leadership role to existing terrestrial channels (if they have also market startegy and real resaon to support DTT) • Establish or not the switch off date