Clear signal of need for change to TV licence fees

22 Feb 2010

The decision raises the most basic question that can be asked about government dispensation of any kind: what was this money for?

Was the $250 million a subsidy, a tax break, or a quid pro quo? Was it a grant for local content, assistance for digital conversion, a political pay-off, or bailout money for an industry which Senator Conroy now says is in terminal decline? Whatever the answer, the result seems to prove the contention that the more you ask for, the less you need to explain.

In fact, the confusion is not the senator's fault. He's not the first communications minister to give the networks generous rebates without much in the way of public discussion, and he won't be the last. The Coalition made precisely the same move a decade ago when the switch to digital began.

The problem here is policy, not politics. Because this tax generates return for the government from a highly protected industry, the system has a certain rough, pragmatic utility. But it also creates problems, such as those encountered by Senator Conroy.

Broadcasters use the spectrum to transmit their signals. The spectrum is a public resource, but broadcasters do not pay for it directly in the way others do. Mobile phone providers, for example, buy bits of spectrum at auctions run by the government. But broadcasters have been allocated spectrum without charge by the government's broadcasting regulator, according to its judgment of the viability of the broadcasting service and its need for spectrum.

The logic of this system can be found in an era of broadcasting when reception equipment was cruder, when alternative delivery platforms did not exist, and when there were few alternative commercial uses of the spectrum. But things have changed. Already, better reception equipment minimises the need for buffer channels; with digital transmission, much more efficient spectrum allocations are possible.

The result today, however, is that very substantial amounts of spectrum are used by a small number of television services. Instead of paying for spectrum, broadcasters pay the government an annual fee to be a broadcaster based on advertising revenue.

This arrangement has survived because it has some advantages. First, TV advertising has been a good business, so the fee generates a substantial amount of public revenue, and governments need to get money from somewhere.

Second, because the fee is based on revenue, it transfers some of the broadcasters' risk to the government, so that in years when advertising activity is lower, the fees payable are also reduced. This makes some sense in an industry which seems particularly susceptible to ups and downs of economic cycles. It also makes the government's decision to rebate the fees even stranger. An industry that was genuinely in terminal decline would be paying less every year without special dispensations.

The main problem with the fee is that it bears no relationship to the value of the spectrum being used. This means that it's not linked to any specific purpose: it floats between cultural, economic and communications policy objectives without being attached to anything. The problem is that a certain level of convenient ambiguity can easily become politically toxic. For instance, it isn't clear why this tax, and therefore the rebate, should apply to free-to-air TV, but not to pay-TV. Another example: because the fee is not linked to spectrum use, broadcasters have no incentive to make more efficient use of the spectrum by driving the digital conversion faster.

Right now, another policy debate is going on. The government is considering what to do with the channels that will no longer be needed for broadcasting when analog shuts down in a few years. Most likely, these will be sold for mobile communications -- 3G and it successors -- and the telecommunications companies that buy this spectrum will probably pay for it directly, through auctions or other means.

The messy business of the rebate suggests another issue that should be tackled at the same time. The current licence fees have not served communications or the public interest well. There are better, and less politically risky, ways of charging businesses for the use of public resources. Auctions have become the vogue for spectrum licensing, but there are alternatives, such as the resource rents taxes levied in the mining sector. A modernised and more coherent regime would contribute a great deal to the government's aspirations for a vibrant, digital economy in Australia.

This article was originally published in The Australian.

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