Terrestrial and Satellite DigitalRadio – Complementarity andCompetition

Basel, August 14th 2002621-5380

commissioned by WorldDAB

Dr. Josef TrappelCaroline Uhrmann

Prognos AG

Gustav GreveCEO

Basel

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Table of contents

1 Executive Summary 2

2 Introduction 4

2.1 Radio as a mass medium: traditional benefits 5

2.2 New business opportunities through digitalisation 6

2.3 Reasons for the slow development of digital radio 8

2.4 Key factors to success for digital radio 10

3 Current status: T-DAB 11

3.1 Canada 11

3.2 Germany 12

3.3 France 13

3.4 Italy 14

3.5 Portugal 15

3.6 Scandinavia 16

3.7 Spain 18

3.8 United Kingdom 19

3.9 Investments into T-DAB in Europe 20

4 Current status of Satellite Digital Radio 22

4.1 XM 23

4.2 Sirius 24

4.3 WorldSpace 25

4.4 European SDR projects 26

4.5 Consequences in the European context 28

5 T-DAB and SDR: Complementarity, Competition or Conflict? 29

6 Lines of conflict and Conclusions 32

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1. Executive Summary

Radio broadcasting was the first fully digital mass medium.DAB Eureka 147 (DAB) was adopted as the standard fordigital radio broadcasting more than 10 years ago, but thecommercial break-through is still pending. Market roll-out isimpeded mainly by the changing agendas of involved marketplayers resulting in a variety of standards world-wide, anuncertain radio industry and growing consumer frustration. Inthe meantime, new players have entered the market: inEurope, two SDR operators are poised to launch theirservice in 2005.

Spectrum scarcity demands critical assessment of bothtechnologies regarding their potential to deliver present andfuture benefits of radio as a medium and possibly other datatransmission uses. The present report examines the value ofthe radio proposition in analogue and digital, the status quoof T-DAB in those countries where it has been implemented,the characteristics and benefits of different SDR systemsand the question of complementarity, competition or conflictbetween these technologies. The main findings of eachchapter are summarised as follows.

Radio as a medium

• It is free-to-air and universally available

• It is portable, mobile, cost effective and diverse incontent.

• Digitalisation allows near-CD quality, more choice, newservices such as information, data, and multimediaapplications

• Digitalisation of radio is necessary for broadcasters toretain audiences in competition with other mass mediaand to achieve an increase in advertising revenue withimproved targeting

Current situation of T-DAB

• In all markets, the slow introduction of affordablereceivers constitutes the bottle-neck in the radiodigitalisation process

• The markets closest to a digital break-through are theUnited Kingdom, Canada, and Germany, the smallercountries are waiting for a signal from the larger ones

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• In most countries, public broadcasters have a strongercommitment to digital radio than private broadcasters

• Private broadcasters in general are hesitant because ofthe lack of convincing new business models

Current situation of Satellite Digital Radio systems

• XM and Sirius as two currently running proprietary SDRsystems are offering to the US audience subscription-based services featuring a mix of music channels,renowned international stations and news

• Growth in subscriber figures is developing as projectedby the business plan, but the history of these SDRservices is short (since 2001) and profitabilitynevertheless a distant goal

• European SDR operators will have the advantage ofexperience gained overseas, but they are also facingadditional cost due to European market fragmentation

Conclusion: Complementarity or Competition?

• SDR should not be considered as a replacementtransmission system either for today’s local, regional andnational analogue radio or for T-DAB: whereas T-DAB isan improvement on present radio and seems likely toprovide mobile and substantially free-to-air audio anddata services, SDR proposes a novel type of contentlikely to offer personalised music and data subscriptionservices.

• Nevertheless, conflict is to be expected due tocompetition for L-band spectrum, audiences, advertisingand sponsorship revenues, manufacturing industrypartnerships, etc.

• Given adequate spectrum, T-DAB will not be criticallyweakened by the planning of a SDR system due to belaunched, we understand, in 2005.

• The next few years will decide on the market success ofT-DAB in Europe, regardless of SDR planning,

• SDR should therefore not be given general priority overT-DAB at least not until its launch.

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2. Introduction

Radio broadcasting was the first fully digital mass medium.Back in the early 1980s, R&D offered a digitalised radiosignal; digital transmission over-the-air was developed andprototype receivers were available. However, digital radioarrived too early, it seems. By 2002, the first digital massmedium is still not fully operational, market roll-out isimpeded mainly by changing agendas of involved marketplayers resulting in a variety of standards world-wide, anuncertain radio industry and low awareness and disinterestamong consumers.

Nonetheless, digital radio has achieved important progressover the last three years. The variety of digital receivers hasgrown, some European areas are fully covered by digitalradio signals, terrestrial transmission is complemented bysatellite transmission and a growing number of radiobroadcasters take the initiative and promote actively theprocess of digitalisation. But still, digital radio has a long wayto go before it can legitimally be considered a mass medium.

As there are many ways to take digital radio another stepforward, World DAB has commissioned a report on theprospects of different digital radio propositions with regard totheir specific characteristics and the potential of thesecharacteristics to deliver the benefits of radio as a massmedium.

This report will therefore assess the extent to which EurekaDAB 147 (hereafter: DAB) on the one hand and SatelliteDigital Radio (SDR) on the other will be able to deliver theconventional and the digital benefits to fulfil the set criteria. Inorder to compare DAB and SDR, both technologies will beevaluated by describing the stage reached in content,hardware, infrastructure (transmission), marketing, receiversales etc. For DAB, key success stories from the followingcountries will be examined: Canada, Germany, France, Italy,Portugal, Scandinavia, Spain and the United Kingdom. Themodule on SDR will focus on individual companies and theirmarket penetration, namely XM and Sirius in the US,WorldSpace in Africa, Asia and Latin America (planned), andGlobal Radio and WorldSpace/Alcatel in Europe. Thedifferent focus is justified by the nature of the two systems.DAB is an open standard which can be adopted by allplayers who wish to participate, whereas SDR so far isconceptualized in proprietary systems with individualcompanies’ commitment.

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2.1. Radio as a mass medium: traditional benefits

In order to assess the key factors of success for DAB andSDR, it is necessary to outline the characteristics andstrengths of radio compared to other media. As a secondstep, the value of the digital radio proposition will beexamined. For digitalisation to be successful, radio will haveto add to its traditional strengths new features whichdigitalisation offers. The suitability of both DAB and SDRhinges critically on the ability of these transmission vectors todeliver the traditional benefits of radio and provide additionalvalue.

The traditional advantages can be summed up as follows:easy to use technology providing one-to-manycommunication, ubiquitous reception, affordable receivers,mobile and portable reception in addition to stationaryreception, variety of entertainment and information, andaccommodation of the needs of a variety of differentbroadcasters (public/private, local/national/international,commercial/not-for-profit).

Reliable and easy-to-use technology

Radio is free-to-air to consumers. It is the most user-friendlyelectronic medium available. Its plug-and-play convenienceis unrivalled by any computer-based technology. Moreover,many levels of technical sophistication can be added, evento analogue receivers. But analogue radio has reached itslimits. Reception, sound quality and the number of servicesavailable on analogue frequency bands are all limited.

In addition, radio enjoys a high reputation with regard to itsreliability. Different reception modes enable listeners to tuneinto programmes almost anywhere in the world: on the localand national level, FM services offer reasonably clearreception, whereas AM frequencies cover larger areas. Evenremote areas are served by short wave services, although ofmediocre sound quality.

Ubiquitous: mobile and portable reception

Like the press, radio listening is not confined to a specificreception mode: radio services can be received wherevertheir listeners go. Wherever one can read a newspaper (andoften where one can’t – when driving a car, for example),one can listen to radio. Small and lightweight radios can becarried by listeners and moving vehicles do not impedelistening. Travelling or commuting are preferred times forlistening to radio. Portability, mobility and the ability to listen

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while doing something else are the most important assets ofradio in its competition with other media.

Receiver affordability: radio as a cost effective medium

Radio is a cost efficient medium. Compared to any othermedium, producing and transmitting radio content does notrequire heavy industrial structures, nor does receptiondepend on expensive hardware. The mass dissemination ofradio receivers has driven prices down, making radioreceivers an affordable device for virtually all.

Variety of programming and content

Radio allows for a wide range of programming, from word-based information to classical music as well as lightentertainment. As radio serves almost the entire populationwith suitable programming, it has become the mostwidespread of all mass media.

Variety of different broadcasters

Because of its variety of formats, radio accomodates a largenumber of different broadcasters. Public and privateoperators, local, national and international broadcasters,commercial radio stations and not-for-profit third sectorstations all use basically the same technology and the samefrequency bands worldwide. Technology as such does notdiscriminate against particular types of broadcasters.

2.2. New business opportunities throughdigitalisation

Radio is considered a highly successful medium, reachingalmost the entire population in all European countries, inmany cases even more than television.

The share of radio from the total advertising market isinternationally rather limited, the exact figure varying fromcountry to country in Europe, however (between 1 and some15 percent). Radio performed well during the 1990s and inmost countries defended its advertising market share and insome countries significantly expanded its market share. Likeother media, radio has been hit hard by the 2001/2002world-wide economic downturn.

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As analogue radio broadcasters mostly operate in saturatedmarkets and the analogue spectrum is crowded, growth inadvertising revenue can be generated from more targetedadvertising and from new services rather than from higheraudience reach. Both these new sources of revenue dependcritically on digitalisation.

From the listener’s point of view, digitalisation needs tomaintain the specific advantages of radio and add attractivenew features. All players have to be convinced that the initialinvestment they have to make – be it for new receivers, be itfor infrastructure – will pay off. The promises of digital radiocan be summarized as follows:

• near-CD sound quality under all reception conditions(stationary, portable, mobile)

• more radio channels to choose from

• up-to-the-minute traffic information/telematics services

• music, information, data, and multimedia services viaPC/PCMCIA card onto PC/notebooks

• additional text information for news headlines andprogramme details where radio stations provide thesedetails (e.g. Videologic)

• an integrated MP3 player (in selected models, e.g.Blaupunkt)

• time-shifted radio listening (stored on a hard disc, e.g.Command Audio)

• lower transmission costs.

Further data-service and multimedia applications canpotentially be integrated with the help of special software(Multimedia Object Transfer Protocol and Java VirtualMachine). They are not central to the digital radio valueproposition; rather, they constitute add-ons for select targetgroups. The next stage of digital radio will merge print mediaand radio (integration of screens onto radio receivers), e.g.EPGs, intelligent transport services, share price ticker. Suchfuture promises include:

• integrated picture and moving images in the radio signal(multimedia device), e.g. games and videoclips

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• integrated reception of digital terrestrial, satellite andcable transmission (most likely not using the samestandard, however, as SDR systems are proprietary)

• full interactivity, transforming radio from a mass mediuminto a two-way communication device.

Digital radio as it is available today, however, offersupgrades to the core radio broadcasting business. Formultimedia applications, digital radio may be a cost effectiveway to distribute “one-to-many” content which does notrequire a fully-fledged back channel. However, given today’susage patterns of radio, the value of the digital propositiondoes not depend on these add-on features.

2.3. Reasons for the slow development of digitalradio

That the potential which digitalisation offers has so far notbeen realised is mainly due to uncertainty on all sides –consumers, broadcasters, manufacturers – whether theinvestment will pay off. The general problem is that for radiodigitalisation to happen, concerted marketing efforts by atleast three core industrial sectors are needed. These sectorsare hardware manufacturing (chips, chipsets, receivers),transmission networks, and the broadcasting industry. Fromthe consumers’ point of view, good coverage, attractivecontent with innovative applications, and reasonably pricedreceivers are key factors for adopting digital radio. Thissituation becomes a vicious circle as long as industry playerspostpone their investment until there is a clear business casefor doing so. In economic terms, the risk-return relation isperceived to be unfavourable by many players. The commoncomplaints are grouped according to the perspective of themarket players.

The broadcasting industry

• no implementation strategy and no viable businessmodel in particular for the private commercial sector tomake digital radio profitable within a reasonable businessplanning horizon (UK is the exception to the rule)

• shortage of terrestrial frequencies: not all current FMstations can be provided with a frequency once digitalradio has been implemented, if no additional spectrum isallocated

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• no migration incentives for the commercial sector: additionalcost during the simulcast period without additionallisteners/advertising revenues

• paying back the cost of infrastructure upgrades: financing ofthe entire digital radio terrestrial network, satellite transmissionand retransmitters does not promise immediate financial return

• financing simulcast and migration costs: mainly a problem forsmall and local stations, for some unsurmountable

The hardware manufacturing industry

• manufacturers tend to launch new product at high end prices.Medium and low price segments are not served during initialmarket roll-out

• manufacturers see national regulatory regimes as detrimentalbecause they prevent the emergence of a pan-Europeanmarket which is necessary for large production volumes andconsequently lower prices

The listeners

• insufficient awareness: digital radio is still virtually unknown tothe large majority of the listeners in Europe.

• receiver prices are perceived as much too high: those whoknow about digital radio are confronted with an unreasonablyhigh premium as compared to conventional radio receivers.That lower prices would stimulate demand was illustrated inthe UK late 2001, when a small number of subsidised digitalradio receivers priced at £99 was sold out within one hour.

• Not enough convincing benefits for listeners: reception qualityupgrade alone is no convincing digital radio proposition.Prognos considers at least a limited number of new andexclusive digital radio channels are essential for the roll-outstrategy for digital radio.

• distraction effects of other electronic products: digital radiocompetes for household budgets with a variety of other digitalentertainment and communication devices, e.g. mobilephones, digital TV, DVD, etc.

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2.4. Key factors to success for digital radio

For digital radio to happen, a critical mass of initial listenerswill have to be reached. With a view to monitoring theprogress made on digitalisation of radio, Prognos hasidentified three criteria which mark a threshold ofdigitalisation. Once these targets are reached, digitalisationbecomes an irreversible process. These criteria are:

• receiver availability: There needs to be a minimumvariety of digital radio receivers available both inspecialised hi-fi shops and mass distribution centers. Foreach main category of radio, hi-fi, portable and car radio,at least three different models need to be available tomatch the minimum requirement. Moreover, digital radioreception for PC notebooks (PCMCIA cards) shouldcomplement digital receivers.

• receiver price below €150: A premium of about 50percent against upper market analogue standard radiosets appears reasonable. Market studies have found thatconsumers are willing to pay a 30-50 percent premiumfor a digital car radio, and about 200 percent more for aportable radio set1. That consumers are willing to paysuch a 50 percent premium for digital radio seemsreasonable to assume, because it should not take toomuch marketing effort to convince consumers that newservices and better quality will not be available withoutany investment.

• technical coverage of 65 percent of the population:Digital radio becomes useful only if a minimum of twothirds of the population have continuous access to digitalradio at home, away from home including in the car.

If these three requirements are met by any digital radio system, thecritical mass of listeners necessary to set market dynamics intomotion can be expected to be reached within a time period of threeto five years. By early 2002, none of the digital radio systems metall three criteria world wide. Two criteria are met by DAB in the UKas well as in Canada (receiver availability and technical coverage).SDR systems so far do not comply with the receiver varietyrequirement and the criterion of 65 percent in-door reception.

1 RSL/Ipsos research, 1997, obtained from World DAB website

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3. Current status: T-DAB

DAB Eureka 147 is the most developed digital radio technology forterrestrial transmission world-wide. Many European countries haveopted for DAB as the terrestrial digital radio standard and arecurrently introducing this technology.

The purpose of this section is to describe the current status of T-DAB in the main European markets and Canada. To achieve this,the stages in coverage, programme provision, and hardware willbe described. To assess the overall picture of digitalisation andpossible developments, the major players for digital radio, theirstrategy and their intentions will be outlined. At the end of thissection an estimate on the investments into T-DAB is provided.

3.1. Canada

T-DAB service and coverage: There are four centres of T-DABtransmission linked by corridors, namely Vancouver, Toronto,Windsor, and Montreal, with Hull/Ottawa being added in summer2002. This means that 10 million Canadians or 35 percent of thepopulation are able to receive a digital signal.

The major players are the 5 largest broadcasting companies,Chum Ltd., Corus, Rogers, Standard, and Astral, as well as thenational public broadcaster, CBC. All transmitting facilities areowned by the broadcasters. They see two main reasons to pushdigital radio: first, they believe that there is no alternative to digital.Secondly, the radio industry’s strategy is to secure market share inthe mobile audiences and to use digital radio to offer acombination of radio and telematics services. The DRRI (DigitalRadio Roll-out Inc.) is an industry organisation supported byIndustry Canada, a governmental body.

The smaller radio stations have not joined for financial reasons,but they are all licensed and can do so anytime they wish.

The receiver situation is comparatively good. In summer 2002, aCanadian manufacturer, Zoopad, intends to launch a handheldreceiver with a small screen for ca. €140. The receiver will bedistributed by the main consumer electronics chain, RadioShack,together with a line of DAB products such as boomboxes andwalkman-style devices. GM will begin to line-fit new cars with DABreceivers in the 2003 model range.

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The political side: Canada adopts a market-driven approach, notleast because its major public broadcaster CBC is not a majormarket force with an audience share of ca. 10 percent. There is ageneral consensus among market players to promote DAB; thereis no intention of using the competing US-standard Ibiquity.

3.2. Germany

T-DAB service and coverage: The regulatory framework hasbeen in place since 1999, the frequency allocation was finalised in2000. The coverage of 75 percent in 2002 will rise to 88 percent byend 2004 and 90 percent by end 2005, the lack of coverageconcentrates in the northern Bundesländer. In 2004, federalhighways will be fully covered. More than 150 stations are on air in2002, 60 percent of which simulcast, 40 percent exclusively digital;in any one major city, there are between 15-25 programmesavailable.

The major player for establishing the transmission network isDeutsche Telekom, partly because they only have to upgrade theirexisting transmission equipment, partly because they need tosecure their revenue basis. Content and additional features areoffered by both public and private broadcasters, with a rift alongregional lines. The public broadcasters receive €0.06 per monthand household in license fees for establishing digital services, butsome public broadcasters such as Hessischer Rundfunk prefer toavoid the inital cost and adopt a wait-and-see approach. ARDoutlined a strategy paper in 2002 which focuses on providingadditional content. As ARD is federally organised and has nocentral decision-making body, this resolution should be seen as animportant signal, but cannot be compared to the BBC‘scommitment.

The private radio stations are reluctant because they envisagenew competitors in the market and additional cost but no extrarevenue. In some parts of Germany (notably Bavaria), they areforced to digitalise on an „it‘s now or never“ basis. Also, they seetheir market position improved on digital, as currently the publicbroadcasters enjoy better frequencies. Once digital radio is inplace, public and private broadcasters will operate on an equalfooting. Besides, they hope that digital radio should lead to a newsegmentation of audiences and better targeting and therefore anincrease in market share for radio advertising.

The receiver situation: in 1998, the complaint was that thereexisted no defined marketing strategy for the roll-out. Since 2001,considerable progress has been made: a joint initiative “InitiativeMarketing Digital Radio (IMDR)” of network providers, receiver

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manufacturers and broadcasting industry started to raise publicawareness of digital radio. The initiative concentrates on PR,magazine and on-air advertising support and online marketing toovercome the vicious circle which has dominated digtial radio sofar.

Presently, the receiver market is mainly driven by the receivermanufacturers, notably Blaupunkt and Grundig, which are bothpart of the IMDR. The year 2002 has seen the market introductionof Blaupunkt’s „Woodstock“ receiver, which is promoted with aconsiderable budget. Receiver manufacturers are interested inDAB because in today’s sets, all components are digital except thesignal transmission. This is also what interests the car industry,parts of which, apparently, are delaying line-fitting their productsuntil digital radio is firmly established.

The political side: As the first European country, Germany hasannounced the analogue switch-off date in 2015. This statementby Prime Minister Gerhard Schröder can at least be viewed as asignal to the market. In some Länder, licences for newprogrammes are only granted for digital transmission.

3.3. France

T-DAB service and coverage: In January 1997, TDF(TéléDiffusion de France) set up the first DAB transmitters in Paris.TDF is currently broadcasting 13 DAB programmes on twomultiplexes in the French capital; a third multiplex with 5 channelsis operated by TowerCast. TDF and TowerCast transmitters coversome 10 million people in the Greater Paris area, about 17 percentof the French population.

DAB networks are also operational in Lyon, Marseille, Nantes andToulouse. TDF operates two multiplexes each in Marseille, Nantesand Toulouse, one carrying 6 channels of Radio France and theother 5 to 9 commercial channels. By 2002, some 15 millionpeople in France, or 25 percent of the population, have beencovered by regular DAB transmissions.

The regional fragmentation of DAB coverage is due to the fact thatin France, only the L-Band is available for DAB, which makes itmore difficult to develop a national network.

The major players for transmission networks are TDF, a 100percent subsidiary of France Telecom, and TowerCast, asubsidiary of Radio NRJ, and La Voix du Lyon, a network operatorfor community radio. Concerning content, the public broadcasterRadio France is the main promoter of digital radio. The main

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commercial stations, Europe 1 (owned by Lagardère, a mediacompany), RTL and Radio NRJ, are less active.

The general strategy is to offer new content in Paris first, wherethere is a potential ten million listeners, and export the successfulprogrammes ultimately to all major cities, not just the onescurrently covered.

The receiver situation : FNAC, a big French retail chain, isreported to sell Sony and Technics DAB tuners on their website.

The political side: At the end of 2001, 9 DAB licences have beengranted, but at present there is no law in force. The provisional LoiFillion ran out and was not renewed by early 2002. Regularbroadcasting cannot commence until the regulatory framework hasbeen finalised, which will not be the case before September 2002due to general elections im summer 2002. It is expected that thenew regulation will no longer be provisional and DAB broadcastingthus more firmly established. Of the successful applicants for theParis area frequencies, some will simulcast, but there are alsoplans to develop new content in the areas of multimedia,dataservices and new music programmes.

3.4. Italy

T-DAB service and coverage: In north-western Italy (i.e. westarea of the Po Valley covering Milano and Torino, the area inbetween along the A4 motorway), there have been SFN trialsoperated by private broadcasters since 1998, with a coverage ofabout 30 percent of the population. There is no exclusive digitalcontent. The public broadcaster RAI operates digital radio trials inthe same areas and has a few additional coverage patches inother towns.In the South Tyrol province, there is coverage of about80 percent initiated by the local public broadcaster RAS(Rundfunkanstalt Suedtirol). Digital content in South Tyrol isprovided by the Bavarian public broadcaster BayerischerRundfunk, which simulcasts 3 of its existing programmes.

RAI is also a relevant player for both transmission network and ofcourse content. It operates one multiplex and offers itsprogrammes as simulcast. RAI has committed itself to activelypromoting digitalisation, but up to now has allegedly not abided bythis agreement with the Italian Government.

As for commercial radio stations, only the members of Club DABItalia (i.e. consortium of private nation-wide FM broadcasters) havepartly gone digital. The lack of interest from other stations is due touncertainties in Italy's regulatory framework, and the dramatic lack

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of spectrum for DAB with respect to the present radio broadcastinglandscape (5 nation-wide services from the public broadcaster, 15nation-wide services and up to 1’100 local services from theprivate sector).

The receiver situation: It is not possible to buy a digital receiverin Italian shops. Receiver manufactures and retailers do not wantto invest in marketing as long as DAB coverage is irrelevant.

The political side: The roll-out of DAB is slow in Italy becausepolicy priority is given to the migration to digital TV. The policyreluctance could lead to a situation where practically only the L-Band is left for digital radio.

The CEPT conference in Maastricht in June 2002 is a landmark forDAB in Italy: if more frequency spectrum is allotted to digital radio,this could trigger a more proactive stance from the Government. Inthis case, new legislation would be devised to address simulcast,as better quality is perceived to be the driving force. If no additionalspectrum is allocated for digital radio, there will not be much roomfor further developments and radio will remain analogue.

As far as spectrum is concerned, digitalisation depends on thegovernment's willingness to promote digital radio as well as thedigital migration of television. The conflict between television andradio is basically due to the different level of revenues that eachsector is able to raise. Additionally, cross media legislation doesnot allow relevant nation-wide television broadcasters to ownnation-wide radio stations; consequently, there are no mutualinterests between TV and radio. Fuelling the competition is also alaw which does not allow multiplex-sharing between public andprivate partners in order to avoid unfair competition betweenoperators with different missions (public/private, national/local). Inthis context, it needs to be noted that the public broadcaster is adirect competitor to the private sector in the advertisement marketboth in radio and TV.

The present law has set a time schedule for the Authority forCommunication in order to devise frequency plans and properregulatory frameworks for both T-DAB and DVB-T.

3.5. Portugal

T-DAB service and coverage: By 2002, 70 percent of Portuguesecitizens were able to receive 5 digital radio channels of thePortuguese public broadcaster in simulcast. This coverage will beextended to 95 percent in 2005.

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The major player for both transmission networks andprogramming is the public broadcaster RDP, RadiodifusãoPortuguesa. Both commercial stations and RDP had applied in1999 for the government tender to set up a multiplex. RDP wasfinally commissioned to set up a multiplex and to allot 3 of 6 slotsto commercial broadcasting, but as the private sector denouncedits interest in this set-up, RDP occupies all spaces in the multiplex.RDP has also investigated complementary activities to T-DAB. Incooperation with a Spanish broadcaster and Radio France,capacity on WorldSpace’s Afristar satellite is being leased toprovide travel and traffic information to drivers in France and theIberian peninsula.

The receiver situation is comparatively unfavourable; the onlyway to purchase a digital radio receiver is directly from factorysales. A sum of €500 is perceived to be the psychologicalpurchase barrier, and the idea is that classical music with itsdemands on reception quality drives demand. There is noexclusive digital content on offer.

3.6. Scandinavia

T-DAB service and coverage: In Sweden, the network is in placeto cover 85 percent of the population, but currently, only greaterStockholm, Gothenburg, Malmö and Luleå (35 percent of thepoulation) are being served. There was no regular service in early2002, only trials. The reason for the signal turn-off is theGovernment’s decision not to provide the public broadcaster SRwith additional money to finance the cost of simulcast. 6 channelsare available, 5 of which simulcast. The failure to provide newcontent is, historically, one reason why the roll-out did not happenand why the Swedish Government had to reconsider its 1995decision to promote the digitalisation of radio.

In Norway, the network currently covers about 50 percent of thepopulation with 30 DAB transmitters. Public broadcaster NRK hasbeen assigned 4/6 of the capacity. The remaining capacity hasbeen divided between the commercial FM station P4 Radio HeleNorge and Radio 2 Digital. Currently, NRK P2, P3, and P4 Radiosimulcast their existing analogue channels. Additionally, there arethree new services: NRK Alltid Nyheter (24 hour news), NRK AlltidKlassisk (24 hours classical music) and NRK Stortingskanalen(parliamentary network). Radio 2 Digital went on air with their newprogramme in October 2001. There is also a regional multiplex forOslo with three channels. The local radio broadcasters arehesitant, not least because the L-Band, which is the most suitablefor local broadcasting, has not yet been properly tested. Norkring,

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the network operator, plans to extend the coverage to 95 percentwithin a few years.

The strategy in Norway is different to the one adopted by mostEuropean countries. Coverage is not a priority, and simulcast ofnew content is seen as a possibility of getting audiences used tonew services and to make them switch faster once this content isonly available in digital. The public broadcaster NRK does notfocus on DAB but rather seeks to develop new content which istailored to any mobile platform. The general idea is that innovationwill come from the larger markets and NRK will be able to providecontent for whichever platform turns out to be what listeners want.

There is national coverage for about 40 percent of the Finnishpopulation, serving some 2 million listeners with 3 channels assimulcast and 4 exclusively digital channels. The regional multiplexbroadcasts 2 simulcast channels and 4 new services as well asregular news in text-format to 1.2 million people.

The major player for the transmission network in Sweden isTeracom, a state-owned telecoms company. The publicbroadcaster SR is the only one to offer digital programmes. In1997, the private stations did not find the Government’s conditionsinteresting enough mainly because of the short license period ofjust 2 years.

Norkring is the most important networks operator in Norway,which upgrades the FM transmission equipment it owns alreadyand rents out transmission capacities. There is a legal separationof content and infrastructure.

In Finland, the two players operating right now are the publicbroadcaster YLE and its distribution company Digita Oy (formerthe distribution division of YLE, now an independent companyowned partly by TDF of France).

The commercial broadcasters support digitalisation, but are notcurrently willing to take risks. Some commercial broadcasters saythat they would start DAB as soon as the Ministry assigns theconcession, but it is alleged that most want to play for time andhope that the ministry will not decide too soon on commercialdigital concessions2.

The receiver situation is bleak throughout Scandinavia. Thereare no large manufacturers in Sweden and receivers are notavailable in retail stores. In Norway, they are very expensive (ca.€750) and in Finland, they are available in Helsinki in a few

2 Information obtained from Mr. Heikki Peltonen, YLE

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selected stores. In all Scandinavia it is expected that new receiverswill first have to find their market in the larger Continental Europe,and therefore, the take-off of the receiver market is not expectedbefore mid 2003.

The political side will be the decisive factor for continuing the roll-out, or abandoning the digitalisation of radio althogether. The roll-out of DAB in Sweden is at a standstill, as the government wasawaiting a report by independent expert H. Selin, presented in May2002. A parliamentary committee will decide on the future of DABin Sweden and develop a regulatory framework for the commercialbroadcasters and on subsidies for SR to develop new content. Theearliest time for new programmes to go on air is summer 2003.

In Norway, public broadcaster NRK is given extra money fordigitalisation via licensing fees, whereas in Finland, thegovernment supports digital radio mainly by granting concessionsfor digital licenses for free.

3.7. Spain

T-DAB service and coverage: Digital radio is operating in Spainsince mid 2000. By 2002, 15 stations with 18 channels werebroadcast from 3 national multiplexes. This constitutes a coverageof 50 percent which is projected to rise to 80 percent in 2004. Twofurther licenses for regional multiplexes were not allocated by early2002, the only regional concession granted covers greater Madrid.Moreover, the regulatory framework for implementing digital radioonly covers the national level, a frequency plan for the regionaland local level is still pending.

The major player for transmission networks is Retevision, atelecoms company. As to content, the big commercial stations aswell as the public broadcaster are involved in digital radio. Inaddition, all major newpapers hold licences for digital radio. Thisfact is perceived by some as a considerable obstacle to fastdigitalisation of radio, as these players do not have muchexperience with broadcasting as such.

The receiver situation: At a price of around €500, there is notmuch demand for digital radio receivers which only give thelistener better reception quality. Generally, the idea is that DAB isone platform among many (FM, DRM, SDR in cooperation withWorldSpace, Internet) and that in a few years’ time, there will bereceivers capable of picking up all these signals at the cost of anFM radio set today.

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3.8. United Kingdom

T-DAB service and coverage: The BBC has strongly promoteddigital broadcasting since 1995 and covers at present 60 percentof the population. This coverage is supposed to rise to 85 percentby end of 2003; the main commercial network, Digital One,projects the same coverage for their services. 200 channels arecurrently available on digital; the total is expected to grow to 300by the end of 2002.

The major players for the transmission networks as well as forcontent are the BBC and Digital One. Other multiplex operatorsserve the regional and local level. In 2001, the UK Governmentprovided the BBC with the financial resources necessary toestablish 5 new digital channels, 2 of which (a sports and a musicchannel) have been launched already and 3 more (black music,Asian network, and a speech-based channel) will go on air by end2002. Digital One offers, in addition to 10 radio channels, amultimedia channel featuring news, information and games. Thebroadcasters have thus taken the lead in the digitalisation underthe assumption that content drives demand for digital radio.

Digital One finds the combination of 3G mobile communication andDAB particularly promising, because some services might be moreefficiently provided by DAB than by 3G and the hook-up of the twosystems could thus provide synergies. A suitable business modelfor DAB/3G, however, remains yet to be developed. Digital Oneconsiders the synthesis of „mobile and portable“ as the mostpromising business proposition.

The receiver situation: In 2002, the availability of receivers islimited to specialist stores like car accessory and hi-fi shops. Thelack of low-cost receivers is perceived as a critical bottleneck in thedigitalisation of radio. For the 2nd half of 2002, Goodmans (a homeentertainment manufacturer) has announced the introduction of arange of £100-200 receivers. The current negotiations withretailers are interpreted as a signal that DAB receivers will soonalso be sold in department stores and retail chains. Somecommercial radio companies have formed a consortium called„Digital Radio Plus“. This does not subsidise set manufacture, butunderwrites production lines. Thus, £100 radios were expected tobe in UK shops from August 2002 onwards.

The political side: The UK Government mandated the BBC todevelop digital radio in Britain and created a licensing systemattractive to commercial operators. No analogue switch-off datehas been set as yet; a possible time-frame mentioned in 2000 byCulture Secretary Chris Smith was 2010-2015. The present lack ofhousehold penetration and the sheer number of analogue radio

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receivers makes the Government hesitant about committing to ananalogue switch-off date.

3.9. Investments into T-DAB in Europe

DAB Eureka 147 is a European technology and a non-proprietarystandard. It is based on and supported by a wide ranging industrialconsortium. Major receiver manufacturers are as much part ofDAB Eureka 147 as broadcasters, network operators and othermembers.

As the digital switch-over for radio requires the coordination ofsuch a large variety of industrial and political actors, no precisefigure can be delivered concerning the overall investment intodigital radio so far. However, the following estimate is based on –partly confidential – company information, as well as oninformation from governments and other institutions involved indigital radio. This information was collected in Spring 2002.

Some important players did not disclose any information on theirinvestment in digital radio so far. Prognos has estimated theirfinancial committments based on its own professional experience.The total given below is therefore composed of company andinstitutional information and of Prognos estimates.

Broadcasting industry

The most important financial commitment to digital radio has beencontributed by the broadcasting industry. As digitalisation concernstheir core business, any investment in digital radio can beconsidered an investment into their own business future.

The data collected for this survey include public and private radiobroadcasters in the EU member states. However, the level ofinvolvement in digital radio varies considerably. Whilebroadcasters in Germany and the UK have contributed the lion’sshare to all investments, smaller states have shown less financialcommitment to digital radio (e.g. Austria, Greece, Luxemburg).

The investment figures include development and running/transmission cost of public and private radio broadcasters in thefive larger member states. Information has been contributed fromall five states. Among the smaller EU member states, Sweden andFinland have invested considerably in digital radio, whilebroadcasters in other member states have limited theircommitment.

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Based on the figures disclosed by public and private broadcastersPrognos estimates the broadcasters’ overall investment in digitalradio at € 468 million by year end 2001.

Hardware manufacturing industry

Within the sector of the hardware industry, mainly receivermanufacturers, chip-set manufacturers and transmissionequipment manufacturers have invested into DAB. A total of 23companies were asked to contribute their investment figures to thissurvey, 17 disclosed their figures for the purpose of establishing atotal investment figure.

Based on the figures disclosed by the industry and on Prognosestimates the manufacturing industry’s overall investment in digitalradio at € 220 million by year end 2001.

The level of total investment in DAB Eureka 147 is estimated at€ 688 million by year end 2001. This compares to € 430 million bythe year 1998, when Prognos undertook the first European surveyon the investment in digital radio and shows that the financialcommittment to this technology continued at an annual rate ofsome € 86 million, despite the still pending market roll-out in mostcountries.

Cumulated investment in DAB Eureka 147 in Europe

€ million Prognos estimate1998

Prognos estimate2002

Investment Broadcasters (national level) 230 468

Investment Manufacturing Industry 200 220

Total 430 688

prognos

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4. Current status of Satellite Digital Radio

Satellite radio systems are well established in Europe. Analoguebroadcasting satellites carry a large variety of radio channels alongwith television signals. These channels are decoded by thetelevision satellite receiver and are used for stationary listeningonly. Digital satellite radio systems were introduced in the early1990s together with digital television and decoded by a set-top-box. Another business model based on digital satellite receptionwas launched as pay-radio. However, these attempts werecommercially not successful and shut down in the late 1990s. Oneof the most prominent economic failures was the Digital SatelliteRadio (DSR), launched in lightly compressed mode (thusbandwidth intensive) by the German Telecom via Kopernikus andTV-Sat and closed down in early 1999.

The new generation of digital satellite radio is based on a differentbusiness model, though mostly based on pay-schemes as well.The new generation of satellites allows for direct in-car receptionwith a small antenna to be installed on the roof of the car. Anothertype of satellite-born digital radio requires a palm-size parabolicantenna to be directed towards the satellite for reception. As longas there is a line-of-sight between the moving vehicle or thereceiver and the satellite, reception is of high quality and does notneed any terrestrial installations. If line-of-sight is not available (eg.tunnels, high buildings, trees etc.), reception depends on terrestrialrepeaters to substitute the missing signal.

Equally, in-door reception of a digital satellite-born radio signalrequires either an out-door reception equipement (antenna) or thepick-up of the signal from terrestrial repeaters. Latest generationdigital compression technologies currently allow for some 100reasonable quality radio channels to be carried by one digital radiosatellite.

In the United States, two companies are currently providing SDR,covering almost the entire north-American continent and servingprimarily the listeners in moving vehicles. The southernhemisphere is covered by another digital radio operator, currentlyconcentrating on Africa and Asia at large. In Europe, twocompanies are presently preparing the launch of a SDR system.The following section briefly describes the characteristics of thesedifferent SDR systems.

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4.1. XM

Technology: XM uses two geostationary satellites and about1’000 repeaters3 to transmit the signal across the US. XMreengineered a chipset from WorldSpace to include a memorybuffer which stores the signal for areas where the line of sight isblocked. Thus, according to XM, both mobile and indoor receptionis possible. The coding system is a proprietary algorithm similar toMPEG-2. There is no download capacity because the system isproprietary. General Motors, which has a 5.6 percent stake in XM,is installing XM radios into 23 models of its 2003 model range.Other OEM (original equipment manufacturers) partners are Saab,Suzuki, Isuzu, Audi, Nissan, and Volvo.

Content: About 160 of 475 employees at XM are involved in themaking of 60-70 music channels and 30-40 news, sports, comedy,and talk stations. XM also co-operates with broadcasters such asCNN, ESPN, Weather Channel, Fox News, CNBC, BBC,Bloomberg, CNET, and USA Today, among others. For 65 of 100channels, there is 6 minutes of advertising per hour.

Business plan: XM expects to break even with 3 millionsubscribers, with a present subscriber figure of over 100'000 (April2002)4. Between 20 and 50 percent of the revenue is expected tobe generated by advertising. Analysts are predicting 350'000subscribers till the end of 20025. Cahners InStat Group envisagesa potential for SDR of 5 percent of US households by end 2004and 10 percent by end 20056. Subscription is priced at US$ 10 permonth; the receiver at US$ 200-300 in addition to a traditional carradio.

Current issues: Whether or not XM can meet long-term targetswill depend on the stability of the present trend and on the successof GM’s roll-out of factory-installed XM radios. OEM partners arean important factor because the psychological threshold for buyinga XM satellite radio receiver is much lower if the price is added to a$30'000 new car.

Conflict with traditional over-the-air broadcasters is on the horizonwith XM’s patent to deliver local programming. XM insists that ithas no intention to offer local content, but the National Associationof Broadcasters is worried that XM plans on grabbing a piece ofthe lucrative morning show advertising revenue. From 2003, the

3 Information obtained from XM4 Satellite News, 04/ 20025 Satellite News, 04/20026 Satellite Broadband, 09/2001

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traditional broadcasters will begin the roll-out their own version ofdigital radio, Ibiquity, based on IBOC technology (in-band-on-channel), which they believe will eventually ensure terrestrialdigital radio across the United States.

4.2. Sirius

Technology: Sirius has opted for 3 HEO satellites and fordesigning its own chip, which resulted in a delay of the servicelaunch. Because of the high elevation, only 91 terrestrial repeatersin the major cities are needed. So far, only mobile reception ispossible; indoor reception is limited to the Internet, as no indoorreceivers are yet on the market. The coding system is like the oneused by XM. Exclusive partners in the car industry areDaimler/Chrysler, BMW, Mazda, Volvo, Jaguar, and Porsche.

Content: The programming concept does not differ much fromXM, with 60-70 music channels, and 30-40 news, sports, comedy,and talk stations. Advertising is limited to those stations which arerebroadcast, i.e. Sirius’ content partners like BBC, Bloomberg,CNN News, CNBC, S-SPAN, Fox News, WRN, Weather Channel,and ABC, among others.

Business plan: Break-even is expected at about 3 millionsubscribers, the same amount as XM. So far Sirius has investedUS$ 1.8 billion and launched its service in some regions. Thenational roll-out has been moved up to July 2002. Thebusinessplan projects 5 percent of all US cars to be fitted with aSirius radio in the first operative year, rising to 22 percent in thefifth year. The subscription is priced at US$ 13 per month; thereceiver at US$ 400 in addition to a traditional radio. The CarmelGroup expects Sirius to reach 150'000 subscribers by the end ofthe year 2002. Sirius‘ main value proposition is the commercial-free programming; no datacasting is planned.

Current issues: In April 2002, Sirius renegotiated its financialarrangements, giving it more flexibility for this year. Due to itsdelayed roll-out, Sirius is disadvantaged in comparison with XM,but analysts see a good chance for Sirius if it manages tomaterialize the roll-out schedule, particularly in respect to the carindustry. By July 2002, Sirius is supposed to be in service nation-wide.

In 1999, XM and Sirius decided to share aspects of theirtechnology so as to develop a receiver which can decode bothsignals, which would improve the value of either one’s proposition.

Sirius does not perceive digital traditional stations as competition,because they regard SDR as wholly novel service which has not

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got much in common with traditional radio and is thereforecomplementary.

4.3. WorldSpace

Technology: WorldSpace presently operates two orbitingsatellites, Afristar (footprint Africa and Southern/ Central Europe)and Asiastar (footprint Asia without Australia/New Zealand). Thelaunch of a third satellite to cover Latin America as well as parts ofCentral America is delayed. WorldSpace uses geostationarysatellites which make indoor and mobile reception difficult. Itemploys a proprietary coding system similar to MPEG-2 andoptimised for transmission and reception of talk programmes andmusic in minor quality. The standard transmission rate of 16 kbpscan be upgraded to 128 kbps (near-CD quality), but better qualityentails fewer programmes.

Content: WorldSpace’s 46 free-to-air channels (Afristar) includeregional broadcasters such as Broadcasting Network Thailand aswell as high-profile international ones such as CNN or BBC. Forsubscribers, personalised multimedia and data services areavailable. Datacasting is offered for companies which operate inareas where communications infrastructure is unreliable ornonexistent. WorldSpace also provides distance education via itssatellites.

Business model: WorldSpace generates revenue by leasingtransmission capacities and by selling subscriptions to itsmultimedia and datacasting services. In the future, advertising isexpected to become another source of revenue

7. However, any

advertising based business model requires a minimum of 500'000listeners. This ambitious target had to be revised recently, as only150'000 receivers have been sold since the launch in 1999. Forthis reason, the launch of the third satellite, Ameristar, waspostponed until later in the year 2002.

For audience numbers to rise quickly, the price per receiver wouldhave to be lowered. Today, the cheapest receivers are priced at€140. In co-operation with WorldSpace, an Indian manufacturer,BLP, plans to introduce receivers at less than US$ 100, but as ofMay 2002, this plan has not been realised. Eventually,WorldSpace is entitled to a small percentage as royalties on thesale of receivers. WorldSpace’s target is to break even within 3 to5 years.

7 Satellite News 01/2002

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Current issues: Once the third satellite, Ameristar, is launched,WorldSpace will have a potential audience of 5.2 billion listeners.Nonetheless, subscriber take-up is behind schedule.

4.4. European SDR projects

Two consortia are currently preparing for a market entry around2005. According to preliminary information, the two systems arenot compatible with each other and with DAB Eureka 147. Oneproject is known as Global Radio (working title), the other project isprepared by Alcatel and WorldSpace, the working title was notreleased by the time of writing (May 2002).

Global Radio, is based in Munsbach/Luxemburg, and run bysatellite professionals with the ambition to start operations by2005.

Technology: Three HEO satellites with elevation angles between70 and 85 degrees are intended to serve the whole of Europe withone beam (London/Stockholm to Sicily, 20-25 channels).Additionally, 7 or 8 regional beams will deliver 60-70 channelseach to individual language communities. This architecture issupposed to provide good outdoor reception; indoor reception isplanned but unclear up to date. According to Global Radio, anetwork of 250-300 repeaters might be necessary to cover Europe.The operation of a single frequency network might be possible butit is not clear how this would be implemented. Information on thesatellite system and the audio coding algorithm (possibilities areDVB, AAC+, or new Fraunhofer system) are not disclosed.Spectrum requirement ranges between 7 and 9 blocks. GlobalRadio envisages a download capacity of 2.1 Mbit/sec.

Content: Global Radio intends to provide a mix of 50 percentmusic, 30 percent talk, 20 percent data services, but theprogramme structure has not been finalised by early 2002. Thedifferent options include e.g. personalised services linking carmanufacturers with their customers, partnerships with the musicindustry (“one channel for each major”) and live broadcasts fromGlobal Radio’s own studios.

Business plan: The cost of US$ 1.2 billion (estimate byEconomist), is projected to be refinanced by 80 percentsubscription revenue (€10-25/month) and 20 percent dataservices. The main target group are, firstly, the 200 millionEuropean drivers (80 percent) and, secondly, as manyhouseholds. The business plan forecasts break-even after 3-4years and 14 million subscribers in 2010. Global Radio’s currentstrategy is to launch 3 satellites quickly to give a strong signal

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despite uncertainties as regards financing. Concerning listeners,the intention is to produce live radio in different languages toprovide additional content which listeners are willing to pay for.

Current issues: having signed a strategic partnership with a UKnetwork provider (NTL) and a US investment banking group (WitSound View) in 20008, Global Radio is presently in the secondround of financing.

Little information is released by the members of the consortium onthe WorldSpace/Alcatel project. Basically, the project is intendedto incorporate more than just two partners, in particular hardware,car and equipment manufacturers are invited to join as well asbroadcasters. The whole business concept refers by and large tothe XM-model, using a similar technology (two geostationarysatellites at an elevation angle of 30 to 40°, advanced codingalgorithm), which was originally developed by the consortiumpartner WorldSpace. For full coverage, the WorldSpace/Alcatelproject requires some 7 blocks of spectrum in L-band and intendsto use a French space spectrum license.

The business model is based on a monthly subscription, offeredprimarily to car drivers in Europe. One beam should cover thewhole of Europe from Scandinavia to Sicily, five other beams aredirected to language areas (one beam to cover France andWallonia; one beam to cover UK and Ireland; one beam to coverItaly and the Adriatic Sea; one beam to cover Germany, Austria,parts of Switzerland, Poland and of the Czech Republic; one beamto cover Spain and Portugal). The system will need a not yetknown number of terrestrial repeaters and gap fillers to ensurereception all over Europe.

The 40 to 60 radio channels will provide music, entertainment aswell as information in cooperation with large national andinternational radio broadcasters. These services arecomplemented by multimedia content (e.g. news web sites) andon-demand services (audio/video clips). At the beginning, theWorldSpace/Alcatel project is directed towards the large Europeanmarkets and will expand later on. The overall budget according tothe preliminary business plan amounts to some € 1.1 billion.

The whole concept is intended to complement terrestrial digitalradio rather than to substitute it. Nonetheless, the use of anadvanced coding algorithm by WorldSpace/Alcatel different from

8 EBU Technical Review, 01/2002

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DAB Eureka 147 would imply that a common receiver would needtwo chip-sets to work in bi-mode.

4.5. Consequences in the European context

The transfer of the US-american business model of SDR to theEuropean context raises a number of as yet unansweredquestions:

• The implementation of more than one SDR venture in Europerequires a change in the allocation of spectrum currentlyreserved for other purposes. Will/can this allocation be over-turned?

• SDR adds one or two proprietary systems to the existingstandards of DAB Eureka 147, as well as WorldSpace. Is thisin the interest of consumers?

• Because of the topography of Europe, more terrestrialrepeaters might be needed to guarantee a wide coverage ofthe SDR signal, requiring additional frequency spectrum. Issufficient spectrum for terrestrial re-transmission available?

• The market perspectives and business propositions of digitalradio in Europe so far are not convincing and did not movemass markets. DAB Eureka 147 has attempted to penetratemass markets since the early 1990s (different from country tocountry) and has not managed to develop a sizeable market.SDR has no market experience, given that the failure of theGerman satellite radio cannot be compared with today’stechnology, in particular regarding mobile reception. Does theslow DAB market take-up justify allocation of scarce spectrumfor another digital radio system with even less marketexperience?

• The very short market experience in the US (since September2001) suggests a rapid take-up but can hardly be transferred tothe European context (languages, cultures, travel andcommuting habits, public/private transport, radio programmingmarkets, level of competition etc.). Are there sizeable marketsfor pay-radio in Europe complementary to the existinganalogue and digital channel variety?

All digital radio systems compete for spectrum, audience/attentionas well as advertising and/or household budgets. While the latterare finally judged by consumer demand, the former dependslargely on political decisions to be taken by governments. Theissue therefore becomes a public concern.

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5. T-DAB and SDR: Complementarity, Competitionor Conflict?

At first sight, T-DAB and SDR use different technologies totransmit radio content to listeners. A closer look reveals that thereare lines of conflict regarding conditionalities of co-existence. Inthis section, Prognos evaluates the traditional benefits and the newopportunities of radio with T-DAB and SDR. There are, however,considerable uncertainties to be taken into consideration, mainlybecause the final business model and technical specificities of thetwo European SDR projects are as yet unknown.

T-DAB and SDR against traditional benefits and new opportunities of digital radio

T-DAB SDR

easy to use technology **** ****

In car receiver affordability *** unclear

portable *** unclear

stationary reception outdoor ****

indoor ***

outdoor ****

indoor unclear

mobile and portable reception **** **

accommodation of broadcasters’ needs ** **

cost efficiency for broadcaster *** unknown

cost efficiency for listener *** ***** very well suited; *** well suited; ** fair; * little suited prognos

easy to use technology: Both technologies are based on highlysophisticated technologies, providing clear sound and reception.The proposed and used technologies allow equally well for easy touse receivers as well as high end receivers.

receiver affordability: The two technologies are presently onequal footing where the price of receivers is concerned: XM andSirius receivers are priced at US$250 and 400 respectively. Atpresent, T-DAB receivers such as Terratec’s “DR Box 1” are pricedat €400. Manufacturers will be able to realise economies of scalefor both technologies once the critical mass has been reached. Asboth concepts are based on a chip-set, economies of scale areconsidered equal. Both T-DAB and SDR target the whole ofEurope (T-DAB also extra-European countries) and are thuslooking at an equal number of consumers.

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However, SDR is currently split into two proprietary systems, whichwill force consumers to choose or – rather unlikely – purchase bothreceivers. Such market divide reduces the potential market, unlessthe competing operators decide to launch more expensive bi-modereceivers. Any additional competitor would reduce the effect ofeconomies of scale even further. In contrast, T-DAB works all overEurope on the same technology. Therefore, Prognos concludesthat any digital radio concept drives receiver prices initially up(much higher prices than for analogue receivers), but economiesof scale are to be expected sooner if a single pan-Europeanstandard is in place.

stationary reception : Around 80 percent of radio listening todayhappens in a stationary mode (varying from country to country).This important listening modality is an elementary characteristic ofradio as a medium. Any digital radio system to finally replaceanalogue AM/FM reception needs to care for in-door stationaryreception. Currently, only terrestrial transmission can provide in-door reception, thus technical problems might still appear underunfavourable reception conditions. T-DAB is better suited thanSDR, unless SDR runs a complex arrangement of terrestrialrepeaters.

mobile and portable reception: T-DAB has been developed withthe explicit aim of enabling mobile, portable and stationaryreception. SDR provides the signal primarily to mobile and portablereceivers. As the explicit target group of SDR are primarily drivers,both technologies, T-DAB and SDR, are considered feasible forthe respective purpose. However, SDR without terrestrialrepeaters cannot provide full in-car coverage, if the line-of-sight isblocked for whatever reason. T-DAB, thus, has a clear advantageover pure SDR systems.

accommodation of broadcasters’ needs: Although frequenciesfor local radio broadcasters will – at least partly and during“simulcast” – be even more scarce with T-DAB than they are atpresent, T-DAB planning provides for the accommodation of alarge number of broadcasters both commercial and public, at thelocal as well as the national level and complies by and large withthe current radio broadcasting model. The planning of EuropeanSDR at its current stage does not allow for the local level and theenvisaged service is unlike traditional radio formats. As aconsequence, SDR may offer a larger number of stations tolisteners, but lacks the diversity of national, regional, and localstations which T-DAB offers.

Global Radio aims at a mix of 50 percent music, 30 percent talkprogrammes, and 20 percent data services. Some self-madecontent might have regional/national radio format, but theprogramme concept as far as Prognos can see consists ofpersonalised data and music services offered as subscription. The

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envisaged data services are individual telematics applications,rather than generalist radio broadcast services (like CRM linksbetween customers and automobile companies).

Nonetheless, the limits of SDR at the local level may becounteracted by the trans-national and even pan-Europeanopportunities for transnational radio broadcasters. T-DAB is notdesigned to offer this pan-European feature.

It is sometimes argued that T-DAB is doomed because the privatebroadcasters do not support it, but Canada and the UK as twomore advanced markets prove the contrary: where there is asound regulatory framework and concerted action from all players,digitalisation of radio follows swiftly.

Prognos concludes that both systems – for different reasons,though – do not fully comply with the current demand of radiobroadcasters, but SDR offers new opportunities at a currentlyundeveloped transnational level.

cost efficiency for broadcasters: Both systems are likely to drivecost for radio broadcasters down on the long run. Simulcast in T-DAB, however, requires higher investments but lower transmissioncost thereafter might compensate. As the business model of SDRis not yet clear, the cost for broadcasters wishing to use thistransmission platform, cannot be calculated. However, the ratherhigh upfront investment required for the launch of the satellitetogether with the limited life span of these satellites (5 to 7 years)forces its operators to concentrate on services promising highrevenues. In contrast, T-DAB allows for a gradual approach asregards full coverage and broadcasters can decide their own pacetowards digitalisation.

cost efficiency for listeners: Consumers have to buy new digitalreceivers regardless of the technology used for transmission, butSDR reception cost additional subscription fees at 10-25 € permonth, which comes in addition to the licence fee to be paid forterrestrial services. In contrast, T-DAB is based on the establishedbroadcasting model with mainly free-to-air programming.

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6. Lines of conflict and Conclusions

Even if the different digital radio services complement one otherwell in some aspects (T-DAB for local/regional radio, SDR fornational/ international radio) a number of conflicts along thefollowing lines remain:

Competition is to be expected

- for spectrum availability- for audiences- for partners (e.g. in the automobile industry, receiver

manufacturers)- for implementing the final standard- for locations to set up repeaters- for endorsement (by broadcasters, advertising industry)

SDR can complement T-DAB in terms of the services offered.Whereas terrestrial digital radio will be an upgrade on the multitudeof today’s public and private, local and national programmes,satellite digital radio is likely to offer music and personalised datasubscription services. Whether or not such a subscription servicecan be profitable remains to be seen, but it is not exaggerated tocall any expectations optimistic that suggest break-even within lessthan six years. Global Radio’s preliminary business plan calculates200'000 subscribers in the first six months of service, and 14million after 5 years. These forecasts are apparently based onXM’s record, but the history of this satellite radio subscriptionservice is very short (since late 2001). As SDR will be a novel typeof packaging content, it is reasonable to expect a diffusion patterncharacteristic for media innovations. Assuming this model ofmarket penetration and given the experience with digital radio inEurope so far, it is unlikely that SDR in Europe will achieve break-even within 3 to 4 years.

It is important to keep in mind, however, that there is a time lag forthe implementation of SDR in Europe. Both known systems do notintend to start services before 2005 at the earliest. If T-DAB hasnot managed to capitalise on the political and industrial support itis presently given, the discussion on digitalisation of radio might bere-opened. If, on the other hand, a critical mass of listeners hasbeen reached by then, the advent of SDR could hardly reverse thistrend.

The main conflict concerns the question whether remainingspectrum in L-band should be allocated to any new SDRbroadcaster for proprietary use and whether such a broadcastershould in addition be provided with terrestrial frequencies for itsterrestrial repeater network. As a consequence, T-DAB would faceless opportunities for its market roll-out.

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With a view to the analysis of the business propositions of T-DABand SDR and its suitability to replace the current radiobroadcasting landscape, only T-DAB fulfills the requirements,although it does not provide for the development of any futuretrans-national, pan-European market.

SDR on the other hand can complement T-DAB with a differentservice proposition, which might not necessarily compete withtoday’s radio broadcasting landscape and add thereby to mediavariety in general.

Therefore, Prognos concludes that

• SDR should not be considered as a replacement transmissionsystem either for today’s local, regional and national analogueradio or for T-DAB, because of its different characteristics,

• given adequate spectrum, T-DAB will not be criticallyweakened by the planning of a SDR system due to belaunched, we understand, in 2005,

• the next few years will decide on the market success of T-DABin Europe, regardless of SDR planning,

• SDR should therefore not be given general priority over T-DABuntil its launch.

PrognosBasel, August 2002