News Analysis: TV world closes ranks over the BBC's digital dilemma

News Analysis: ITV, BSkyB and cable firms have put aside rivalry to fight a prospective levy for the Corporation

THE QUESTION of whether to allow the BBC to charge a higher licence fee to viewers who take up digital television has succeeded in making allies for the first time of the ITV companies, BSkyB and the cable operators.

That their traditional rivalry has been set aside may be the most notable outcome of the report into the digital licence fee due to be published today, by Gavyn Davies, the millionaire Goldman Sachs economist.

Putting a digital levy on top of the pounds 101 annual licence fee amounts to a tax on innovation, the companies say. They claim, moreover, that it amounts to a powerful disincentive to digital uptake at a time when BSkyB, ONdigital and the cable operators are investing hundreds of millions of pounds in upgrading their systems and providing free set-top boxes to consumers.

Indeed, the Government itself is anxious for digital to replace analogue, perhaps as early as the latter half of the next decade. In addition, a rapid adoption of digital is essential, the Government believes, to position Britain at the forefront of a sunrise industry and free up valuable spectrum space that can be used for other commercial purposes.

In one respect, the coalition of Granada, United News & Media and Carlton with BSkyB and its bitter cable company rivals, NTL and Telewest, testifies to the success of the BBC, particularly in digital television and Internet services, achieved under the leadership of Sir John Birt, the corporation's outgoing director-general.

The BBC, after striking long-term joint ventures with Flextech for new UK channels and Liberty Media for distribution on US cable networks, is arguably better positioned for future revenue growth and a global niche than any other British broadcaster. Meanwhile, BBC OnLine is far and away Britain's leading Internet site, and may someday prove more valuable than the entire ITV system.

Though broadcasters would vigorously dispute those conclusions, there was an undeniable sense of urgency a fortnight ago when three dozen key executives drawn from cable, ITV, BSkyB and set-top box maker Pace summoned the national press for a closed door, off-the-record briefing to put the case against the digital licence fee.

Aside from repeating the age-old view that the BBC, with annual revenue of pounds 2.85bn, has enough funds, the executives asserted that the Davies panel has been too low profile and lacks a wide enough mandate. They broadly agreed that the BBC is getting too big, doesn't need further funding and is largely unaccountable to effective outside scrutiny.

"We need to go back and redefine how we want British broadcasting to be," said one executive. "That's the broader discussion we want to have." Another added: "The big debate is the definition of what the BBC is and how it should be funded."

Indeed, suspicions were rampant that the remit of the Davies panel was sufficiently narrow to virtually predetermine a recommendation in favour of a top-up charge for digital reception.

Bracing for just such an outcome appears well advanced.

"Business thought it did a good job in communicating to the Davies panel in calm and measured terms, but will be angered if Davies recommends any separate digital licence fee," says an executive with a top ITV company. "What we're now going to be doing is saying this could have a significant effect on our digital business and we are saying, `Government you must not do this'."

Should media reports prove correct, however, and some form of digital fee be proposed, it is not clear what fall-back position the commercial broadcasters will adopt.

The industry could, of course, wheel out its big guns, including Labour supporters Gerry Robinson, Granada's chairman, and Lord Hollick, the chief executive of United News & Media. But they would probably be reluctant of being seen to use their influence so overtly.

Another alternative could be to allow the ITV companies to grow bigger, squeezing the current four operators into perhaps two big players. In that eventuality, the survivors would be better equipped to make a long term financial success of ONdigital and its terrestrial platform alongside the bigger satellite and cable systems, while also continuing to provide tough programming competition to a wealthy BSkyB and a bigger BBC.

Mr Davies could, in theory, opt to provide further funding by allowing the BBC to sell advertising on its domestic channels just as it does already on BBC World and BBC America. For ITV, however, that would be the stuff of nightmares, and, in any case, such a proposal would severely dent the logic of the licence fee and the whole BBC ethos of public service broadcasting.

What seems most certain is that the coming months will see a real debate enjoined as Chris Smith, the Secretary of State for Culture, Media and Sport, consults the public and other interested parties about Davies' proposals. That would set the scene for a final political resolution of the digital top-up fee sometime in November.