Murdoch and the Beeb join forces for digital TV push

A consortium led by the BBC and BSkyB has been awarded the digital television licence left by the demise of ITV Digital.

The consortium, which includes transmission company Crown Castle, beat a rival offer from Channel Four and ITV to scoop the licence.

The new service will broadcast 24 free-to-air channels with funding coming from TV licences and advertising.

The line up will include all BBC digital channels, Sky News, Sky Sports, Sky Travel, UK History and a new channel from UKTV.

The service will also include interactive and digital radio stations. Viewers will be able to watch the channels through a digital television set or by buying a set-top box for about £100.

BBC director general Greg Dyke called the contract win a "fresh start for digital television in the UK".

Until a few months ago, the BBC was preparing a joint bid with Channel Four and ITV but pulled out of the consortium after failing to agree on how the licences would be divided.

The ITV and Channel Four bid would have included a pay-TV service called Freeview Plus, in addition to Channel Four's subscription services E4 and FilmFour.

In a statement today, ITV and Channel Four said: "We remain convinced that digital customers want the option of a pay-TV upgrade and that our proposed combination of extended free to air offering and a modestly priced 'lite' pay TV package represented the best chance of success for DTT [digital terrestrial television]."

However, analysts believe that ITV Digital failed partly because it rushed to impose a subscription service before demand for digital television had matured.

Nathan Budd, telecoms industry analyst with Frost & Sullivan, said: "People have become more used to paying subscriptions. I do think that will eventually come about with digital television, but what better way to educate people than to offer them free services now?"

Other bids came from United Business Media and NTL, and Digital Television Broadcasting and venture capitalists Apax Partners.

The collapse of ITV Digital earlier this year was seen as a major set back to government plans to switch to digital transmission by 2010.

The Independent Television Commission, which awarded the licence, said the BBC/BSkyB bid was "most likely to ensure the viability of digital terrestrial television".