Concepts
The digital broadcasting signal is non-rival, there is no distortion in its quality from many simultaneous viewers, but is excludable by the decoder requirement. Government or the nominated regulator has maintained control over the radio spectrum either in the allocation process or in the content and has allowed the licensed broadcasters to exploit their rights for profit maximization. The right to use bandwidth, i.e. the license, is tradable and has a
secondary market for trading after the official allocation or auction. Thus, the signal cannot qualify as a public good.
This study focuses on the projected outcomes of the regulator’s chosen switch over process. The outcome comprises the broadcasters’ reaction to the transition from analogue to digital standard.
The success in the spectrum auction can be presumed to have moved Thailand more than half way through the digital-switching-over process. The success of an auction is the function of legal and economic theory as well as auction principles. Coase (1959) supported the idea that auction is an efficient way to allocate the rights on using the radio spectrum not the government determining the allocation. The right to use radio spectrum must be defined as a property right to be declared as a tradable right. The secondary market for the right would also be legally allowed without any administrative cost or fines. Nevertheless, most regulators have intervened before and after issuing broadcasting licenses because of quality, pluralism and democratic values, which are non-economic goals. Adda and Ottaviani (2005) called the main implication of these non-economic goals as the policy of universality.
Since this study covers the transition process from analogue to digital, the model begins with the criteria used by the regulator in switching off the analogue standard. The regulator considers the digital coverage ratio as an indicator of success of digital switch-over. In many countries, the regulator delayed the switching off until consumers’ adoption of digital television sets has reached a critical threshold. This allows the full benefit from the digital to be enjoyed after the analogue signal is switched off. However, some countries set and an exact date for the switch off. Adda and Ottaviani (2005) simulated the consumer transition from analogue to digital television based on either committed or conditional switch off. The simulation parameters were derived from a survey in the U.K. They found that most households would adopt the digital before the committed date. On the other hand, households would wait until the broadcasting in analogue is over. Thus the full benefit from switching over is dependent on the regulator’s switch-off policy.
Broadcast operators would have three strategy options: First, if the regulator allows for a 10-year transition period, the potential broadcasting operators might withhold their entry in the auction for licenses if they expected that only a small number of viewers would adopt digital TV. Since only the broadcasting operators with high fixed costs enter the auction, some of them might not be able to retain their businesses before the license end-date. In
such case the license would be traded to another and likely more capable broadcaster. However, the secondary market would not exist in the model constructed under this study. Second, should the regulator decide to hold the auction and then suddenly switched off the analogue TV and completely shifted to digital TV nationwide, all the potential bidders would engage in a highly competitive auction. The viewers adopt the new technology right away under this circumstance. This expectation is shared, with some certainty, among broad- casting operators. Third, there is a chance that the regulator might just decide to extend the licenses, or offer a take-it-or-leave-it option to the previous license holders (as in the case of the digital TV switch over in New Zealand), or hold a beauty contest to find the qualified broadcasting operators (as in Sweden). In any of these cases, the auction would not be held and the potential broadcasting operators would go ahead with the digital standard to gain their own market share.
The outcome under a specific circumstance may be different from any of the above according to auction mechanism. However, the merits of an auction cannot be assessed without evaluating the NBTC’s intellectual property policy, which is beyond the scope of this study. Whether a broadcaster places a bid that is higher or lower than the others’ under the same auction procedure depends on its expected future net income and the price that it is willing to pay for a license. A firm’s maximum willingness to pay has a strong positive correlation with the actual bid via a complex process of decision making rather than with the auction mechanism (Cave, 1989). The economic theory predicts that expected auction revenue remains reasonably equivalent across a range of competitive auction processes (Klemperer, 2004).
Methodology
The model is constructed from the net present value concept. It contains two financial flows, revenue and cost. The future flows of revenue and cost are based on numerous assumptions. The market demand-supply framework constructed under simultaneous equation model, as applied by Xing, Hanhui and Chong (2009) to estimate the social value of the digital cable TV in China, is an alternative model. Unfortunately, that model requires several historical data, which are not available for this study. The internal rate of return
(IRR) concept, which is close to the NPV concept, is not suitable to this study because of its multiple answers with non-conventional cash flows. The model constructed around the concept of net present value is an appropriate model for operating with various forecasted variables.