Outlook: Leave digital to us, says Auntie, but can we really trust her?

Brazil in crisis

Consortium bids are notoriously prone to failure. The more members a consortium has, the more difficult it becomes to achieve unity of purpose. So it is perhaps no surprise to learn that the consortium of public service broadcasters – the BBC, ITV, and Channel 4 – planning to bid for the digital terrestrial TV licences left behind by the collapse of ITV Digital has come apart at the seams. With the deadline for bids set at 5pm today, the BBC has abandoned the rest and instead thrown in its lot with BSkyB. What's going on here?

Sky's part in the bid is only the relatively minor one of providing the proposition with three free-to-air channels – Sky News, Sky Sports News and Sky Travel. There would be no pay-TV element to it. None the less, the Independent Television Commission is bound to view the whole thing with extreme suspicion. Sky's only interest in participating is that of ensuring digital terrestrial (DTTV) never again becomes a rival in the pay-TV space. With DTTV out of the picture, subscription TV would be left as a monopoly entirely of Sky and the enfeebled cable industry.

The BBC, by contrast, would like its motives to be seen as essentially altruistic. It would never be allowed to own the licences outright, therefore it had to get some sort of a partner on board. All the other public service broadcasters want to see the platform retain some kind of a pay-TV element which in the fullness of time they could expand into. The BBC doesn't think this in the least bit viable, citing the failure of ITV Digital as evidence that the platform cannot be made to work as a pay-TV proposition. Greg Dyke, the BBC's director-general, argues that technically the platform is just not up to it. There's simply not enough bandwidth to allow broadcast of all the free-to-air stuff it is meant to carry, plus pay-TV channels in sufficient numbers to make people subscribe.

He could be right. With every day that passes, ever more of the available pool of pay-TV subscribers sign up to either Sky or cable. If there wasn't a big enough market to make ITV Digital viable when it was still up and running, there is an even smaller one now. Instead, Mr Dyke wants the bandwidth entirely for himself. If analogue is to be switched off, he contends, then the BBC needs this spectrum to broadcast to the third or more of the nation that will always remain resistant to subscription TV.

There is a subtext here, for these people already in effect subscribe to TV, as we all do, through the obligatory £112-a-year licence fee. The Government has announced that the licence fee is safe in its hands, but Mr Dyke knows it won't for ever be thus if he begins to lose his audience. So far the BBC has been pretty successful in defending its position against the onslaught of new technologies.

Mr Dyke is determined to keep it that way. From Gerald Kaufman to Ian Duncan Smith, there is growing political support, albeit still in the minority, for going the whole hog and making Auntie subscription based. So Mr Dyke's bid in conjunction with Sky for the digital terrestrial platform is as much about protecting the licence fee as it is about using the digital capacity to best effect. The BBC/Sky bid looks like and is an unholy alliance of TV monopolists.

Both Mr Dyke and his chairman, Gavyn Davies, have plenty of friends in the New Labour Government. Meanwhile, Sky's arm-twisting power through the lever of the Murdoch press is legendary. Even so, it is not clear they are going to succeed. The Government wants the licences to retain a pay-TV element, so that there is some kind of a distribution alternative to Sky and cable. It would plainly be desirable to achieve this, even if Mr Dyke is right about the technical constraints of digital terrestrial. With Sky the only effective distributor of pay-TV, it would be in a position to limit or manipulate choice in its own self interest. No amount of regulation could adequately address the problem.

It may well be, then, that the BBC's decision to go it alone with Sky was a tactical error. ITV and Channel 4 are still forging ahead with a free-to-air proposition that would include a limited pay-TV element being cobbled together by the former BSkyB executive David Chance. If the ITC cannot be convinced of the necessity of giving over all the available digital space to free-to-air, then the ITV proposal wins by default. It's a fascinating debate, and there is still everything to play for.

Brazil in crisis

As if things were not already worrying enough in the world economy, another emerging markets crisis is threatened as a result of forthcoming presidential elections in Brazil. Unlike Argentina, which has been heading for the rocks for years, this one was unscripted. Brazil is meant to be the pin-up boy of Latin American economies. It survived the last emerging markets crisis of 1998 without defaulting on its debt and for some years has been following the sort of vigorous programme of neo-liberal reform that financial markets love. The budget deficit has been slashed and inflation brought under control. So what's there to worry about?

A change of president and policy, say the markets, which have sent interest rates in Brazil soaring in recent months amid growing concern about the government's ability to service its mountain of debt. The problem is one Luiz Iny'cio Lula Da Silva, a union boss whose left wing Workers Party (PT) has been storming ahead in the polls. Just the name of his party alone is enough to send markets into a blind panic. Although Mr Lula Da Silva has in recent years taken to wearing a suit and schmoozing with international bankers, nobody really knows what he stands for. The fear is that in power he will put all the progress of recent years in fiscal and monetary policy into sharp reverse.

As is their habit, the markets don't intend to hang around and find out. Who knows what damage Mr Lula Da Silva is capable of, but it surely cannot be surely cannot be anything against the wrecking ball of financial markets when they decide to go on the rampage. Already spreads have widened alarmingly, the currency is devaluing by the day, and the maturity on debt is shortening as the Government desperately attempts to refinance the stuff in the markets. The possibility of default looms once more.

Mr Lula Da Silva could improve matters enormously by spelling out precisely what his economic policies are, but he won't and that makes the markets more nervous still. If Brazil defaults, it will be worse than Argentina and the contagion caused in other emerging markets would probably mean that we could kiss goodbye to any meaningful recovery in the world economy this year.

It doesn't have to be that way. Brazil is a more robust economy than Argentina and a more flexible one. Only 45 per cent of public debt is dollar denominated or linked to the dollar, making Brazil less exposed to the crippling effects of devaluation than Argentina. In Argentina, the debt was largely foreign owned, greatly exacerbating the international effect of default. In Brazil, the great bulk is held domestically. So there are good reasons for believing Brazil may be able to weather the storm.

Whether the markets are prepared to heed them is another question. International policy makers have worried and talked themselves sick trying to decide what to do about these perennial emerging market crises, but solutions are as hard to find as ever. If a country is determined to commit economic suicide by voting in a president that refuses to play by today's accepted economic rules and conventions, then there is little Western governments can do, however much collateral damage it does elsewhere.

jeremy.warner@independent.co.uk