United News set to drop challenge on digital TV

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United News & Media and the cable company NTL look set to drop their legal challenge against the Independent Television Commission (ITC) over the award of the three digital terrestrial television (DTT) licences to British Digital Broadcasting (BDB) after signing a deal to enter the digital terrestrial pay-TV age through the back door. The two companies have agreed to take a stake in S4C Digital Networks (SDN), the company bidding for the remaining DTT licence.

United's move means that the three biggest ITV players are now committed to digital terrestrial pay-TV, which will provide hundreds of extra channels to paying customers. Carlton Communications and Granada Group jointly own BDB.

United has agreed to take a 30 per cent share of SDN, a group bidding for multiplex A, which carries the Channel 5 and S4C - Welsh Channel 4 - digital services, and has half of its capacity spare for new programming. NTL will have a 19 per cent interest, while S4C, the Welsh Channel 4 broadcaster, which previously owned SDN, will take a 51 per cent share.

As revealed by The Independent last month, United had first shown an interest in multiplex A after Yorkshire Tyne-Tees Television pulled out of an agreement to take a 40 per cent stake in SDN. United is to pay pounds 1m for the equity stake in SDN, and is understood to be planning to spend pounds 20m to get the service up and running. However, City analysts said yesterday the investment required could rise to more than pounds 25m.

SDN's proposals were sent to the ITC on Thursday and are expected to be ratified on Monday. Neither United nor NTL was available for comment last night.

The news will come as a relief to the television watchdog, which had feared it might be hauled before the courts over its decision to hand the three licences to BDB.

However, while the expectation now is that neither United nor NTL will mount a legal challenge, it is understood that an appeal to the competition authorities about the award to BDB has not been ruled out. BSkyB was forced to drop its equity stake in BDB over worries about the satellite broadcaster's dominance in the pay-TV industry. But Rupert Murdoch's company succeeded in securing a long-term programming deal with BDB - a move which has worried Oftel, the telecommunications regulator, in particular.

United had only belatedly decided to get involved in commercial digital television, when it pledged to take a 30 per cent share of the NTL-backed Digital Television Network if it won its application for the three digital terrestrial licences. City analysts expressed relief last night that United - which is controlled by the Labour peer, Lord Hollick - had secured a stake in the digital pay-TV future.

Details of SDN's programming proposals are scant at present, but it is thought that Scottish Media Group - which itself had talks about acquiring a share of SDN - is interested in developing a Gaelic programming strand. United would also be well-placed to offer Welsh programmes in conjunction with S4C, as it only last month agreed to buy HTV, the Welsh ITV company, for pounds 372m. It is also likely that United will use features from its Rapture youth cable channel, in which it has a substantial stake.