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The Cost Benefit Analysis of Digital Switchover

10 February 05

Summary

Economists in the Department of Trade and Industry (DTI), the Department for Culture, Media and Sport (DCMS), and (up to December 2003) the Radiocommunications Agency (RA) have developed a model to evaluate the costs and benefits to the UK of completing digital switchover. The switching off of analogue terrestrial transmissions and subsequent use of the UHF spectrum is compared with continuing with both analogue and digital transmissions.

The model uses estimates provided by various industry stakeholders of costs of conversion of the network and of benefits to broadcasters from not having to maintain analogue networks. Estimates of the benefits from future use of spectrum and of costs to consumers who would not voluntarily convert before switchover derive from survey work commissioned by the DTI. The Office for Communications (OFCOM) has also contributed to estimates.

The central case shows quantifiable benefits in the region of £1.1 – £2.2 billion in NPV terms. Sensitivity analysis gives results that show the positive Net Present Value (NPV) reducing under some assumptions but remaining substantially positive under most likely combinations of assumptions. The model shows that the outcome in terms of NPV is most sensitive to estimates of the value of extended coverage of digital terrestrial services and released spectrum.

These results give a clear message that switching off, rather than maintaining dual transmission systems, is in the economic interest of the UK. The model does not show indisputably that there is one preferred year for completing switchover, though it indicates that sooner is better than later. The model shows the costs and benefits for particular groups, such as consumers or broadcasters.

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