Pace set-top box won't upgrade to pay TV

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The beleaguered ITV Digital television company was dealt another blow, when it emerged yesterday that a new "free-to-air" set-top box will not be capable of being upgraded to receive the service.

Pace Micro Technology's new basic set-top box will be in the shops from this Saturday, priced at just £99.99. However, the company has been unable to agree terms with ITV Digital, so the device cannot be used to view the service.

Although ITV Digital was placed in administration this week, its owners, Carlton and Granada, hope it will survive and emerge with a lower cost base. However, a major plank of the future business model would be backing a basic set-top box, which consumers would have to buy. This box could be upgraded to receive ITV Digital. The digital terrestrial service could then stop giving away the boxes with subscriptions – an expensive strategy that was partly responsible for making its funding requirements unsustainable.

However, now the sole basic box on the market will have no connection to ITV Digital. It is not technically capable of an upgrade and so will only enable consumers to watch the 14 new free-to-air channels available on digital television, which are mostly provided by the BBC. The opportunity to give the box pay-TV upgrade capability has been lost, putting in doubt ITV Digital's post-administration business model.

Andrew Wallis, the marketing director at Pace, said: "We were not able to reach a commercial agreement with ITV Digital. Perhaps the events of the last few days explains why."

It is understood the upgrade option would have required some shared costs such as a call centre and a distribution channel for the smart-cards which would have allowed the box to receive the ITV Digital signal. Pace was forced to make last-minute technical modifications to the box because of the failure to reach an agreement with ITV Digital.

"We have now taken a simpler approach. Our research shows that there is a real demand out there for this box, from people who don't want to take out a monthly subscription," said Mr Wallis.

Industry sources said the BBC anyway preferred a box that could not be upgraded to take pay TV.