Digital television groups may have to merge

The two groups bidding to run digital terrestrial television could be forced to merge if the Independent Television Commission decides to split the licences between them.

Dividing the three licences would remove incentives to subsidise the technology needed to receive digital terrestrial television signals, making a merger the "natural solution", according to new research from Dresdner Kleinwort Benson.

British Digital Broadcasting and Digital Television Network, the two consortia pitching for the digital terrestrial licences, have promised to subsidise set-top boxes, which enable viewers to receive digital signals, only if they are awarded all three multiplexes. But if the multiplexes, each of which is capable of carrying between four and six channels, are split between the bidders, neither has committed to reducing the price of the boxes substantially, therefore potentially jeopardising consumer take-up of the service.

Caroline Slater, one of the authors of the Kleinwort report, said the ITC would certainly consider sharing the licences between BDB and DTN, but added this approach would be fraught with difficulties. She said: "How do you go about getting the hardware into homes and working out who subsidises what? Trying to get the two parties to agree a plan would be problematical." A merger would be the only way of ironing out these problems, she suggested.

Neither BDB nor DTN would comment on Kleinwort's views, but both parties made plain in their applications their views that splitting the licences could wreck the launch of digital terrestrial.

BDB, which is backed by Carlton Communications, Granada and BSkyB, argued in its application that awarding all three licences to one organisation would safeguard investment in marketing, programming and customer service.

Meanwhile, DTN, supported by the cable company NTL and United News & Media, stated: "In the absence of a clear leader in digital terrestrial, no single party is likely to be able to drive the process of adoption forward in the same way."

BDB has made it hard for the ITC to split the licences by failing to apply for any combination of two multiplexes. If the licences were to be shared, DTN would get two and BDB one, according to industry observers. A decision from the ITC is expected next week.

Unsubsidised boxes would retail at around pounds 350. However, in forming British Interactive Broadcasting last month in conjunction with BT, Matsushita Electric and Midland Bank, BSkyB has pledged to offer boxes costing pounds 200 for the launch of digital satellite television next spring.