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Author Jason Hapgood

Subject of Report: Financial implications regarding digital television implementation

2.1 That IDC approve the negotiated tender sum from BskyB of £1,934,000.00 (inclusive of £215,000.00 pre-installation works and contingency of £135,000.00) plus fees of £213,000.00 Total £2,147,000.00.

2.2 That IDC note and approve the financial arrangements to meet digital television.

Digital switchover describes the process of moving TV services delivered through the aerial from analogue signals to digital. Switchover itself will involve a phased process of switching off analogue terrestrial transmissions so that only digital transmissions are available. Switchover for the London Region is planned for 2011/12. Homes for Islington will need to ensure that a system to meet digital switchover is implemented prior to the switching off of analogue transmissions. If digital switchover works are not undertaken it is likely that residents will have difficulty receiving a television signal when the transmission is switched to digital. It is imperative that works are started without delay to ensure that HFI housing stock is ready to meet digital switchover.

All properties currently served by a communal aerial system are included in the provisional programme of works. It is likely, subject to survey, that blocks with less than 4 dwellings may not require switchover works as the existing system may be compatible to receive and distribute digital television signals.

3.1 Financial Resources

HFI have explored four options to meet digital switchover item 3.2. HFI do not have sufficient resources to meet the preferred and best value option for digital switchover. HFI have an existing budget of £523k to meet digital switchover and 6774 leaseholders included in the works will be liable to contribute to their portion of the works estimated at £505k. Additional funding of £1,119k will be required to achieve digital switchover.

LBI have advised Homes for Islington that no additional finances are currently available to meet digital switchover and that the costs for these works must come from HFI's current capital resources.

Apart from the initial provision of £523k there is no capital provision for the remaining £1,119k in HFI's capital programme. HFI's priority for 2007/8 to 2010/11 is to invest in work to meet the decent homes standard and priority stand alone programmes such as heating and security. An assessment of resources and work required to 2010/11 has identified that the objective of meeting the decent homes programme within the available resources will be extremely tight. Should HFI be required to meet the remaining £1,119k the cost would need to be met from reducing the `stand alone' programmes. These programmes have been approved by IDC for 2007/8 as follows:

Lifts - £1.500m

Tenant Compact - £1.500m

Community Safety - £1.500m

Communal Boilers - £0.982m

Ventilation maintenance £0.327m

Water Tanks - £0.250m

Electrical mains renewal - £0.766m

Individual heating - £0.240m

Energy Efficiency - £0.100m

Total - £7.165m

The costs of the digital television works are currently portioned at £505,000.00 for leaseholders and £1,642,000.00 for tenants. The leaseholder recharge will be added to the yearly service charge as a one off amount, approximately £75.00 per dwelling.

Subject to the necessary approvals an additional service charge of £0.50 per week, for a three-year period, could be added to rent to allow for delivery of these works. However, in order to commit the full cost of the contract now, as we have reached the point where a start on site is required to ensure delivery, it is recommended that the cost of the work be underwritten by the Capital programme. Should the service charge not be agreed /approved then the implications are that the capital programme resources will be reduced accordingly over the 4 year delivery period for digital works. This will mean that HFI will need to reduce the amounts available over that period for 'stand alone' budgets unless alternative funding is approved by LBI as it is not recommended that resources for 'decent homes' programmes are reduced.

3.2 Options to meet digital switchover

Options are for works only and do not include contingency or professional fees.

The works included in these costs are for installation of one communal satellite dish and digital aerial (one dish and aerial per building required) and associated cabling to all dwellings with the fitting of one outlet plate per dwelling. Works include a 12-month defect liability period. It is anticipated that a 4-year programme of works would be required to complete digital switchover to all housing stock. The costs given are on the assumption that all cabling will be fitted externally to the building. Additional costs will be incurred where cabling is required (due to planning regulations) to be fitted through risers. To facilitate this type of system pre-installation works to provide a power supply and earthing facility will be undertaken in every block. Pre-installation works have been costed at £215,000.00. A contingency of £135,000.00 has also been allocated to allow for any additional riser works if required.

Cost of works £1,584,000.00

HFI have been given indicative costs of £180 per unit for the provision and installation of a VNL set top box that is a requirement for delivery of this form of media. A cost of £4 per month will be presented to the resident (by homechoice) for a basic television service. Currently with this type of system each resident must have an active BT line.

Cost of works £5,183,000.00

HFI have been given costs of £200 per unit for the provision and installation of a Telewest set top box that is a requirement for delivery for Telewest services. Telewest already have cabling infrastructure fitted to most of HFI's housing stock via previous cabling permissions. Telewest would look to LBI/HFI to pay a £5 monthly charge per dwelling for the provision of a basic television service. Telewest would also expect LBI/HFI to act as surety for any damaged set top boxes.

Cost of works £5,759,600.00

Previous tenders for the upgrade of communal aerial installation has produced costs of £1401k to upgrade and convert analogue systems to a system capable of receiving digital signals. It should be noted that the tender was based on the assumption that existing aerial cabling would be used and that there would be no works to residents existing connection box. There may be instances where aged or degraded analogue cabling would not facilitate a suitable digital signal. A contingency minimum of 25% has been be factored into the tender price to allow for renewal of existing aged or degraded cabling. The works were tendered in 2005 and a 6% yearly inflation rate has been added to reflect a 2007 value

Cost of works £1,968,000.00

3.3 Preferred Option to meet digital switchover

The preferred option to meet digital switchover is option A. This option would continue to provide a means by which residents can receive free to air services and appears to be the most cost effective solution to ensuring that HFI housing stock is ready to meet the digital switchover. This option would also address the ongoing issues of residents fitting their own satellite dish to receive the most popular of the satellite services.

Option A will provide the signal required to receive digital services though residents will need a set top box or integrated digital television to receive the additional channels and services. The government has announced a support scheme to make sure that no one is left behind in the switch to digital. The assistance will probably be in the form of a set top box and follow-up support for people aged 75 years and over and people with significant disabilities. The BBC through the licence fee will fund the scheme and is likely to be implemented in the first switchover regions (Border, West Country and HTV Wales) before being rolled out across the London region.

TSG are currently investigating the viability of delivering an interactive service to Islington residents. The delivery platform for an interactive service will require a cable infrastructure, to all dwellings, capable of providing a means by which residents can receive such services. Option A is capable of providing a platform for delivery of interactive services of this type.

3.4 Additional resources

There is currently £523k that has been carried over into the 2006/07 capital programme from 2005/06. The cost of the scheme is expected to be in the region of £2147k inclusive and subject to survey that all dwellings require the works to meet digital switchover. There are 6774 leaseholders within the provisional programme of works. The recharge to leaseholders will be in the region of £505k. HFI do not have resources within the decent homes capital deliver programme to meet the minimum required works for digital switchover. This indicates that there will be a shortfall of £1,119k.

The anticipated yearly cash flow and numbers of dwellings to be upgraded to a digital receiving aerial and communal satellite dish is:

2006/7/8 £739,000.00 - 10277 dwellings

2008/9 £556,000.00 - 7497 dwellings

2009/10 £544,000.00 - 7298 dwellings

2010/11 £308,000.00 - 3726 dwellings

The maximum for the digital switchover works is currently costed at £2,147,000.00 (£1,934,000.00 works, pre-installation and contingency plus 11% fees of £212,766.00)

3.5 Procurement

LBI (CAU) and Legal have confirmed that the BskyB price can be evidenced as offering best value and as such direct negotiations with BskyB can take place to provide this service. The value of the works is below the threshold that requires works to be placed out to OJEU advert.

3.6 Leaseholder Consultation

The installation of a combined aerial and satellite system would be termed as qualifying works. Qualifying works are repairs, maintenance or improvement works on a building or other premises. Statutory leaseholder consultation is required if the cost of qualifying works is more than £250 per leaseholder. As the costs of the works will be in the region of £75 per leaseholder no legislative consultation is needed and the costs of the works can be added to the service charge.

3.7 Future maintenance costs

HFI currently have a one-year comprehensive maintenance contract with Blick to maintain the existing analogue communal aerial system. A comprehensive maintenance contract will need to be tendered on completion of letting the contract for the digital television solution. The new tendered maintenance contract will include the existing analogue and new digital systems. It is not envisaged that re-tendering the existing maintenance contract to include both analogue and digital systems will require additional resources above those presently available.

Implications

4.1 Financial implications

4.1.1 Capital Implications

The Director of Resources reports that HFI have considered four options with Option A as the preferred option. The costs are summarised as follows:

Although there is very little difference between the unit costs of options A and D with both giving access to free to air services, Option A has the benefit that gives residents access to Sky without the need for individual satellite dishes whereas option D does not. Options B and C require the purchase of specialist set top boxes, which are expensive and require surety for any damage to the boxes.

With the increased pressures on delivering decent homes through higher inflation, increased unit numbers (via lower RTB) and s125 implications for leaseholders, HFI does not consider it possible to allocate more than the £0.523m currently included in the Capital Programme. Leaseholders will be able to be charged for the cost of this service and therefore with 6,774 leaseholders approximately £0.505m can be raised. This leaves £1.119m unfunded. LBI have stated that this will not be funded from HRA balances but are prepared to consider alternative funding arrangements. Therefore, for the time being, the £1.119m must be met from the HFI capital programme with a top-slice from the annual £7.165m stand alone programmes (including lifts, heating, safety and tenants compact). However HFI can submit a paper to LBI considering alternative funding sources such as a bid for LBI Regeneration Receipts or an increase to tenants weekly rent.

The profile of the required resources would be as follows:

4.1.1 Revenue Implications

Once this contract is let then the maintenance contract (currently with Blick on an annual basis for approximately £0.145m) will be re-tendered. It is anticipated at this time that the new contract should be contained within the existing budget.

4.2 Legal implications

Pursuant to the management agreement between Homes for Islington (“HFI”) and Islington Council, HFI is responsible for undertaking the management of the Council's housing properties pursuant to the Housing Act 1985 and has the power to subcontract the provision of works, services and supplies. Accordingly HFI may undertake a procurement exercise and enter into a contract for the provision of an integrated reception service for the provision of digital TV services. However, if the installation / maintenance costs are being funded through other than the approved housing capital programme and the value of the contract exceeds £1m per annum, HFI will require the consent of the Council to enter into the contract.

Under the housing management agreement, the digital television installation contract will need to be procured in accordance with HFI's s Procurement Strategy.

4.3 Equality implications

Option A provides access to a variety of foreign language channels as well as access to subtitled, signed and audio described programmes.

4.4 Sustainability implications

There are no specific sustainability implications to this report.

Background papers

IDC report Digital TV proposals 5^th April 2006

IDC report Digital TV proposals 7^th June 2006

Report Author: Jason Hapgood - Special Projects Project Manager

Telephone: 020 7527 4142

e-mail address: [email address]

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