Study on Economic Partnership Projects. in Developing Countries in FY2008. Study on Digitalization of Terrestrial TV

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1 Study on Economic Partnership Projects in Developing Countries in FY2008 Study on Digitalization of Terrestrial TV Broadcasting Systems in the Republic of the Philippines SUMMARY March 2009 Marubeni Corporation NHK Integrated Technology Inc. IS International Inc.

2 1. Background and Necessity of the Project Digitization of terrestrial TV broadcasting is now the National Policy of the Republic of the Philippines as decided by the National telecommunication Commission (NTC) by describing that, in the Philippines, digital TV broadcasting is to start in 2010 and analog TV broadcasting is to terminate on Dec. 31, It should also be noted that digitization of terrestrial TV broadcasting is a worldwide trend as recommended by the International Telecommunication Union (ITU). Digitization of terrestrial TV broadcasting, however, requires a large amount of investment for individual broadcasters. The PTNI/NBN, in the meantime, does not have any funding sources for the investment, since it does neither have cash in hand, nor have possibility of getting loan from commercial market, nor have a possibility of Government help; the Japanese Yen loan may be the only possibility by which the facilities of PTNI/NBN could be digitized. Note that PTNI/NBN is the only state owned and state controlled broadcaster in the Philippines, thus providing non-profit educational programs as well as public service, public affaires and informational programs to the public. If PTNI/NBN cannot be digitized, PTNI/NBN will not be able to continue its broadcasting services beyond Dec. 31, 2015, hence, Philippine nationals will lose their educational and other important program resources in the DTTB era. 2. Basic Policy for Deciding upon Project Scope The Project scope/contents have been decided upon the following basic policy: - Economical design: Economical, but reliable, design has been aimed at, taking into account the status of existing facilities. - Non-interruption of current analog broadcasting: The scheme was developed so that current analog TV broadcasting would not be interrupted during construction work for digital TV implementation. If interrupted, the interruption duration will be minimal. - Selection of transmitting stations to be digitized: PTNI/NBN s desires and requirements have fully been honored. - Maintaining the current analog TV service areas: The transmitting power has been decided so that the current analog TV service areas will be maintained. - Easy maintenance and operation: Equipment and its arrangement have been chosen in the outline design so that the maintenance and operation will be easy thus providing high level of reliability and availability.

3 3. Outline of Proposed Project 3-1. Project Cost and Proposed Project The Project comprises the following four (4) packages: - Digitization of transmitting facilities at fourteen (14) transmitting stations - Digitization of studio facilities for Quezon City Main Complex as well as for other four (4) locations. - Implementation of digital program transmission links from studios to transmitting stations by satellite - Human resource development (HRD) The following table shows amounts of the initial investment cost. Initial Investment in JPYx1000 Items Amount Transmitting system 4,500,000 Studio system 8,000,000 Transmission system 2,200,000 HRD 200,000 Consulting charges 660,000 Sub total 15,560,000 Project Management 1,244,800 Total 16,804, Results of Preliminary Financial and Economic Analyses FIRR With the project evaluation period being 30 years from 2011 to 2040, human resources cost to increase 2.4% yearly and additional investment of 20% of the initial investment cost to renew the facilities at the prescribed lifetime of 15 years, the FIRR will be 6.7% if the yearly revenue increase is 10% annum.

4 In addition, the NPV of the revenue (JPY 42.9 billion) is greater than the sum of the cost (in NPV) of expenditures (i.e., initial investment and the O&M) (JPY 32 billion), if the yearly discount rate of 4% is applied EIRR In the case of broadcasting operation by PTNI/NBN, where no charge is paid by viewers and where commercial advertisement revenue does not apply, it is difficult to estimate the economic benefit based on a market price and/or a consumer surplus. The economic value of PTNI/NBN s broadcasting operation was calculated based on the sum of the revenue from TV broadcasting services and the sum of the transmitting power of transmitting stations of leading broadcasting companies of the Philippines. The EIRR is calculated for the period of 30 years, which yields 19.1% of EIRR. Regarding the B/C, the NPV of benefit is JPY 66.7 billion and the NPV of cost is JPY 32 billion for the 30 years, with 4% of discount rate having been applied Environmental and Social Impacts The broadcasting sector is not listed in the table of Sensitive Sectors in either of the Guidelines for Confirmation of Environmental and Social Considerations (JBIC) or Guidelines for Environmental and Social Considerations (JICA). In addition, the Project does not have any such characteristics as shown in the list of Sensitive Characteristics in the documents above. Furthermore, the Project area does not belong to any of the areas listed in the Sensitive Areas in the documents above. Therefore, the Project, being in the broadcasting sector, is categorized as belonging to Category C. In fact, in the Study Team opinion also, the Project will not cause any adverse environmental and/or social impacts as far as regular procedures are undertaken during the implementation work. Nevertheless, for precaution purposes, it is recommended that, in implementing the Project, one (1) part-time personnel will be assigned to oversee the matters regarding environmental and/or social considerations. The following may be the areas that are worth paying attention: - Waste disposal: Equipment removed from NBN broadcasting system in consequence of the

5 Project implementation may be recycled to the maximum extent possible - Antenna tower construction work: The following points need special attention to be paid: (1) Explanation to the Public At an appropriate time before the construction work of the Project, explanation to the public as well as to stake holders needs to be provided to prevent unnecessary troubles. (2) Education and instructions Manager and other personnel to be engaged in construction work in the Project will have to receive sufficient education and instructions before the work with respect to environmental and social considerations. (3) Accident prevention Measures should be taken to prevent accidents in high altitude work. (4) Water drainage and sewage Measures should be taken to achieve proper water drainage and sewage. Note that conventional measures would provide successful outcome in the work. (5) Noise Measures should be taken to reduce noise during construction work. Note that conventional measures would provide successful outcome in the work. 4. Project Implementation Schedule The tentative schedule shows the following: (1) E/N & L/A: From latter part of 2009 to the beginning of 2010 (2) Selection of Consultants: By middle of 2010 (3) Basic Design, Tender Document Preparation and P/Q: From middle of 2010 to beginning of 2011 (duration: 8months) (4) Tender Floating and Selection of Contractor: During 2 nd and 3 rd Q of 2011 (duration: 6 months) (5) Detailed Design by Contractor: During 4 th Q of 2011 and 1 st Q of 2012 (duration: 6 months) (6) Manufacturing by Contractor: From late 2011 to middle of 2012 (duration: 9 months) (7) Construction Work by Contractor: From 2 nd Q of 2012 to middle of 2013 (duration: 13 months) (8) Commissioning: August or September of 2013

6 Thus, - Total Period of Project Preparation and Implementation: 47 months - Total Period of project Implementation: 39 months - Total Period of Contractor s Work: 24 months It is recommended, considering a certain period of the migration from analogue to digital for the preparation of Filipino people, that the Project preparation be as early as possible. 5. Feasibility on Application and Implementation of Yen Loan Within the knowledge of the Study Team, no other institutions are contemplating to finance PTNI/NBN s digitization Project. From the positive and enthusiastic attitude of PTNI/NBN executives and management toward the Project, the Study Team strongly feels the Project to be realized. To realize this Project, it is best that the Philippine Government decides the Philippine digital TV standard to be ISDB-T (i.e., Japanese Standard), since Japanese manufacturers could have the competitiveness for the supplying of the related equipment because they are able to manufacture important portions of digital broadcasting facilities. It is most important that PTNI/NBN convinces the relevant Philippine Department (NEDA) that this Project should be given the first/second priority among other projects from various sectors. Thus, when Yen loan becomes applicable to the Philippines, this Project will be adopted. 6. Technological Advantages of Japanese Companies (1) Studio Facilities More than a half of the cost of this Project is for studio facilities. Regarding key elements of studio facilities, Japanese manufacturers hold far more than two thirds (2/3) of the world market to be modest. Japanese manufacturers are the only manufacturers in the world of VTRs, which are essential in program recording in studios. Foreign manufacturers are no more manufacturing studio-use VTRs. Japanese manufacturers holds about 85% share of the world market for cameras. For switchers,

7 about 70% of the world market share is kept by Japanese manufacturers. For editing equipment and O/B vans, the share of Japanese manufacturers is about 50% in the world market. When it comes to HDTV equipment, the market share of Japanese manufacturers is estimated to be far more than the above mentioned. (2) Transmitters Japanese electronic/radio equipment is known to have high reliability and quality in general. This fact applies to digital terrestrial TV broadcasting transmitters also. For solid-state digital terrestrial TV broadcasting transmitters, due to their high reliability and quality, about 1,500 sets have been exported to foreign broadcasters (i.e., Europe, Asia, Oceania, Africa, Latin America, Middle East, etc.) to date and its market share is estimated about 15~30% in the world. While there are a number of radio equipment manufacturers in the world, as far as digital terrestrial TV broadcasting transmitters are concerned, Japanese manufacturers hold a solid market position in the world. 7. Schedule toward Project Approval and Potential Risks (1) Selection of Philippine digital TV Standard Selection of Philippine digital TV Standard needs to be done before any other actions to be taken, since, without country s digital TV Standard, the future of Philippine digital TV broadcasting cannot be regarded as fixed. While the Philippine Government decision on this matter was scheduled to be by December 2008, but as of this writing, no decision has been heard. In addition, it is strongly desirable that the outcome of the selection will be the Japanese Standard (ISDB-T) from among three (3) standards competing each other (i.e., DVB-T: European Standard and US Standard: ATSC in addition to Japanese Standard). With ISDB-T as the Philippine digital TV Standard assumed, Japanese manufacturers will be one of the competitive suppliers of TV transmitters in the world. (2) Weighting of Project within the Philippine Government It is extremely important that the Philippine Government will appreciate this Project as one of the most important projects in the Philippines and weigh and rank this Project at a priority position

8 among many other proposed projects from various sectors. It is hoped that, with such a ranking, the Philippine Government will submit Yen loan application to the Japanese Government as soon as possible. (3) Approval of Yen Loan Application by the Japanese Government It is hoped that Japanese Government will approve the Yen Loan for this Project as soon as the current loan sanction for the Philippines is removed. 8. Map: Project Site Locations See next page.

9 Map of Project Sites Baguio Philippines Luzon Project Site Metro Manila (Quezon) Mindro Naga Legaspi Panay Iloilo Cebu Tacloban Leyte Palawan Negros Dumaguete Pagadian Cebu Cagayan de Oro Zamboanga Kidapawan Davao Mindanao General Santos

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