Sunday, 10 February 2008



considered the market impact of this scenario. Their view was that this scenario
would exert significant negative impact on current and prospective participants
across the TV market, including potential new entrants.
Fathom also reported their findings on impact on competition and Digital Britain (these
findings applied to both the above scenarios).
•They agreed with the Governance Unit that the proposition would increase
competition, with consequent benefits for consumers (e.g. lower prices, increased
promotion of free satellite services). However, their view was that because the
proposition would be publicly supported, the usual presumption that the benefits of
competition for consumers outweigh the market impact on producers would not
•Finally, Fathom noted the Governance Unit’s comments about the possible
contribution of “Freesat” to switchover, and the benefits associated with “Digital
Britain”. They took the view that the proposition would not contribute significantly
to digital take-up or deliver benefits associated with “Digital Britain”.
(iii) The Trust commissioned independent reportWe commissioned an independent review of both the Governance Unit and Fathom reports
from Zoltan Biro, Director, Frontier Economics. A copy of his review was published as part
of our consultation. The key conclusions are set out here.
•On the basis of the information contained in the Governance Unit report and theFathom reports, Frontier Economics concluded that the market impact of the launch
of "Freesat" should be expected to generate static welfare improvements (i.e. in
terms of allocative and productive efficiency)as a result of an increase in competition
in digital TV services.
•In Dr Biro's view, the issue requiring further consideration by the Trust when
considering the overall welfare implications of the launch of "Freesat" (i.e. in terms of
static and dynamic efficiency combined) is whether the anticipated scale of impact on
the revenues of Sky, NTL and potential newentrants would be expected to have a
detrimental impact on their incentives to invest in product and process innovations.
We therefore asked the Trust Unit to further refine the estimate of the potential impact on
Sky (as the main market participant likely to suffer a loss to revenues) in terms of whether
the anticipated impact on revenues could have adetrimental impact on its incentive to investin product and process innovations. This is discussed further below.
(iv) Consultation responses
We included a series of questions on competitive impact in our consultation with the aim of
eliciting views on whether we had identified the relevant markets likely to be affected, what

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