The award yesterday of three digital terrestrial television licences to British Digital Broadcasting was last night facing the threat of twin legal and regulatory challenges.
United News & Media, part of the losing Digital Television Network consortium, said it was consulting lawyers over the Independent Television Commission's decision to award the licences to BDB, which is backed by Carlton Communications and Granada Group. BSkyB was forced to drop out of BDB at the insistence of the ITC.
However, United could shy away from legal action if it adopts an alternative plan to join the consortium bidding for another of the licences on offer - multiplex A, which will carry the Channel 5 and S4C digital services.
Separately, Oftel, the telecommunications watchdog, set itself on a collision course with the ITC after it said Sky's withdrawal from BDB was not enough to satisfy competition worries, as the satellite operator had arranged to supply programming.
Don Cruickshank, director general of Oftel, said: "The participation of BSkyB either as a consortium member or as a long-term supplier of certain pay-TV services, in particular sports programming, raised substantial competition concerns in the pay-TV network and conditional access markets."
United, headed by Lord Hollick, may become involved with digital television through the back door by joining forces with S4C Digital Networks (SDN), the company bidding for multiplex A.
A well-placed senior television source said it was likely that Yorkshire- Tyne Tees Television, which is awaiting a takeover bid from Granada, would pull out of an agreement to take a 40 per cent stake in SDN.
Sources said United would be looking carefully at taking Yorkshire's place and funding SDN's bid, especially as Lord Hollick's media group had a 29 per cent stake in Channel 5. The ITC said yesterday it was still considering the application from SDN for this service.
As it announced the long-awaited licence awards, the ITC praised the quality of programming offered by the rival bidder, Digital Television Network, a consortium backed by the cable company NTL, but said it had had doubts about its financing arrangements.
Peter Rogers, chief executive of the ITC, said: "We did like and prefer the DTN programmes, but we had some worries about their pulling power in terms of revenue and penetration."
The ITC confirmed publicly yesterday that it had taken the "preliminary views" of the European Commission and the Office of Fair Trading, and said it had asked BSkyB to drop its shareholding in BDB but maintain its programming commitments.
Barclay Knapp, NTL's chief executive, said the ITC's decision was disappointing, and raised "continuing and serious concerns in relation to competition and other matters".
Michael Green, chairman of BDB, said it was "a great day for British television", and added that Britain was "at the head of the worldwide digital television revolution".
From mid-1998, BDB subscribers will get 12 channels at a basic but as yet undisclosed rate. They will, however, have to pay extra to get three premium channels. The ITC said a current investigation into so-called "bundling" of channels could force BDB to let consumers pick and choose individual channels without having to pay extra. BSkyB is thought to have negotiated a seven-year programming deal with BDB as a condition of withdrawing its equity stake in the consortium. The satellite operator confirmed yesterday that it would receive pounds 75m in compensation for pulling out of the consortium.
Henderson Crosthwaite said it estimated BDB would lure 3.3 million subscribers by the end of the 12-year licence period. BDB would attract 300,000 subscribers by the end of next year, and a further 600,000 by the end of 1999, according to Henderson.
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