Media watchdog Ofcom has proposed the introduction of a new television channel to broadcast public service programmes in the UK.
The new network would cost about £300m a year to run and could air by 2012.
Ofcom set out its ideas in its second interim report on public service broadcasting, with a final review to be published at the end of the year.
It stressed the importance of a fully-funded public service-focused BBC, paid for through the licence fee.
Ofcom said it was proposing a new public services provider because if no action was taken, the BBC would be the only public service broadcaster to survive in the digital age.
'Broad public support'
Channel 4, ITV, BSkyB and Five could bid to run the new network but the BBC would be excluded.
It would operate as a "public service publisher" acting as a content producer and commissioning house rather than a conventional TV channel, Ofcom said.
It would offer a "deliberately limited quantity of high quality content" on a budget of £200,000 per hour, be based outside London and be designed to take into account new technology like video mobile phones and personal video recorders.
Ofcom chief executive Stephen Carter said that the new channel was "not a dumping ground but an "innovative solution".
Competition from the new "Channel 4-style" network would push the BBC to perform better, he said.
But he said the plans were not an attack on the BBC.
The BBC should continue to be paid for through the licence fee "as long as it retains broad public support" and contributes to society, the regulator added.
Ofcom proposed that advertising and direct government funding should be ruled out for the BBC but said the nature of the TV licence fee could change in the future.
Ofcom recommended that the licence fee be retained until 2016 but reviewed in 2011.
Ofcom also proposed that the changing nature of TV would mean that ITV1 should be allowed to phase out an hour-and-a-half of non-news regional programming a week in 2005, with some of those responsibilities passing to the BBC.
Ofcom suggested three "realistic" ways to fund the new public service channel, as well as public service broadcasting in general.
- "Enhanced" licence fee
Money from licence fee payers could be shared between the BBC and other organisations. This could be done by dividing the fee income, allocating the BBC's current government funding to others, or giving them money from the sale or transfer of BBC assets.
- Taxpayer funding
Direct funding from the government could provide a secure future for public service broadcasting. But it might also call into question organisations' independence and put the service at risk of government spending cuts.
- Turnover tax
A levy could be charged on the turnover of all licensed broadcasters in the UK. Disadvantages are that the cost might put off newcomers, eat into companies' budget for quality programming and be side-stepped by broadcasting from abroad.
Ofcom said opting for one of these three funding routes was needed "to maintain plurality of public service broadcasting in the digital age".
"The historical compact between broadcaster, audience, government and regulator will not survive the move to digital," warned Mr Carter.
Ultimately the government had to decide how to fund public service broadcasting in the future, the watchdog said.
Ofcom also suggested ways to help fund Channel 4 as a vital part of public service broadcasting in the digital age.
It should not be privatised, the watchdog said, but could be given extra funds taken from income earned by commercial divisions of the BBC.
Mr Carter refused to say which BBC assets should be transferred to Channel 4.
"It's not our job to cherry-pick which part of the BBC empire that
should be," he said, adding it could mean revenue from BBC Worldwide is given to Channel 4.
Ofcom also suggested the BBC could launch its own subscription channel to boost revenue for quality programming without having to raise the licence fee across the board.
Subscribers would pay a higher licence fee - in the same way as colour licences used to cost more than black-and-white ones - to see first-runs of popular shows before they were screened on a free-to-air BBC channel.
This would mean only those who watched the subscription channel would bear the cost, rather than all licence fee payers.
The BBC said it welcomed Ofcom's endorsement of "a strong, independent, fully funded and public service focused BBC as the cornerstone of public service broadcasting, and its support for a 10-year charter funded by the licence fee".