The report, by Forrester Research, claims that DTT will only have an 11% share of European households by 2007. However, it admits this might be an optimistic forecast because, it says, that making money from DTT "looks impossible".
Forrester analyst Hellen Omwando said: "Governments and public broadcasters across the EU remain gung-ho about the public utility and commercial prospects of DTT. Compared with cable and satellite, the limitations of DTT have always been known but not acknowledged."
In the UK, the licence fee-funded BBC, in conjunction with BSkyB and Crown Castle, is set to launch Freeview, a free-to-air DTT service at the end of this month. Consumers will able to access the service through a digital receiver costing £99.
DTT is seen as key to helping the UK government achieve its analogue switch-off target of 2010, because cable and satellite do not reach the whole UK population.
Omwando said: "A forced analogue switch-off will create consumer uproar. Why should European consumers be forced to buy a €250 (£157) set-top box on a whim?"
The report also warns of the effects on commercial broadcasters that a state-funded offering could have.
"Europe's government's simply can not justify funding DTT and bringing unfair competition into a market where highly leveraged commercial operators, such as Canal Satellite, are struggling to survive."
The report also suggests that once set-top boxes fall in price, this will drive the take-up of digital TV naturally, rather than forcing it.
Omwando said: "Just as the average price of DVD players has dropped by 70% in the past five years, set-top boxes will fall in the next few years. This in itself will spur consumer adoption of digital TV."
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