The panel, chaired by economist Gavyn Davies, recommended a digital supplement of �23.88 ($38.20) on top of the existing annual license fee, which currently stands at $162.

Both sides upset

This widely leaked proposal was greeted with disappointment both by the BBC, which was lobbying for a larger supplement, and by rival commercial webs, which are fiercely opposed to any extra charge for digital.

The Davies report, published yesterday, also recommended the partial privatization of BBC Worldwide, the pubcaster's commercial arm, and of BBC Resources, which includes its physical production facilities.

The BBC also criticized these proposals, which, Davies estimates, will raise $690 million.

In total, Davies says his plans will give the BBC an increase of $240 million-$320 million in its annual revenue until 2006, when the Royal Charter, which governs the pubcaster's funding, comes up for renewal.

The BBC, which currently receives over $3.5 billion a year from the license fee, was lobbying for an extra $1 billion a year to fund its digital ambitions.

Public debate

The Davies report will now be thrown open for public debate before the Dept. of Culture decides whether to accept its arguments.

The proposal that digital TV subscribers pay extra is sure to be the most controversial. The ITV web, Channel 4, BSkyB, ONdigital and leading cable companies all argue that the imposition of this additional fee will have a negative effect on the digital market.

Davies is proposing that the supplement be temporary and gradually reduced as digital TV expands, until it reaches zero in 2010.

The panel rejected the idea of introducing advertising, sponsorship or subscription on any of the BBC's public-service channels.

But it did insist that the BBC's finances be subjected to greater public scrutiny.

It suggested that "the bulk" of BBC Resources be sold off, and that private investment in BBC Worldwide's activities be increased to 49%.