It is conventional wisdom in the television industry that the endgame for ITV Digital has begun. Insiders give the troubled venture weeks, not months. Some say closure is days away. Let us assume, then, that these predictions are correct. Granada and Carlton decide to close the service. What happens next?

First, the spectrum licensed to ITV for its pay-TV service becomes available for re-assignment. Assuming that there are other bidders - and in television, there always are - neither Carlton nor Granada will have a particularly credible claim to be given a second chance.

They thus risk excluding themselves from the digital television world, other than as a supplier of content to other people's platforms. Meanwhile, as multi-channel television encroaches further into ITV's audience share, the two companies will continue to try to knock together a merger, though it is possible one or both will be picked off first by a European predator.

Some are content with this scenario. For the City, it puts two problematic companies into play. Even the advertisers, who have most consistently opposed the idea of an all-England ITV company, won't kick up too much fuss. They are becoming more worried about ITV's emaciated programme budgets than they are about a reduction in the number of competing advertising outlets. They would probably settle for a Chinese wall between two sales houses within a combined Granada-Carlton of the kind suggested in the most recently aborted merger proposals between the two companies.

The government, certainly, is happy to see Granada and Carlton combine. Indeed, there is no serious political opposition to the final consolidation of ITV, or probably even to Bertelsmann-Granadaton or RTL-Carlada. The combined company could then slice out a further £50m a year of costs, on top of the savings at ITV Digital, and wait for the advertising cycle to turn.

There is, however, a catch and it concerns the future of that ITV digital spectrum. Should it be used for a free-to-air offering, or one which combines free and pay services? A growing number of influential voices is arguing for the former. The suggestion is that the BBC and ITV should carve up the digital terrestrial spectrum for their own output, along with that of Channel 4 and Channel 5, leaving plenty of bandwidth for interactive frills, but shunting digital pay-TV off the platform.

Proponents say this would allow ITV to hang on to spectrum which it might develop in other ways in better times. For the BBC, shutting out pay-TV offers a tempting opportunity to close the door on an unpleasant prospect - if politicians eventually want to abolish the TV component of the licence fee and force the BBC to compete for subscriptions in the open market, they will need a universal digital platform that can accommodate pay-TV.

The most obvious problem with the free-to-air-only approach is that it obliterates any chance of achieving analogue switch-off this decade.

Since the market value of the analogue spectrum in 2011 is unknown, this may not trouble Treasury planners, but it would represent a mortal blow to the government's vision of digital television as a spine for universal access to the basics of the information revolution: e-mail and limited interactive services.

If free digital terrestrial services struggled to attract large audiences, as they surely would, the entire platform might start to look like a neglected housing estate. Then, those who live outside urban, cable-feasible areas would have only one route to multi-channel TV: BSkyB. It is easy to forget that this is why a Conservative government bought the digital terrestrial option in the first place.

There are also other difficulties. One is the fact, clearly recorded year after year in television industry research, that viewers with many channels are more satisfied than four- or five-channel analogue huggers. Multi-channel television is popular, so long as the terms are right and especially so if regulators can find a way of ensuring that digital terrestrial subscribers are able to buy the half dozen channels they most desire. Surely, there is political opportunity here.

Then there is the core question of where the money is likely to come from to fund more television capable of attracting audiences. As we see in the current market, it would be unwise to assume that advertising will do the job. The licence fee, generously boosted, is currently carrying most of the weight of innovation and growth, but that is a passing moment. Which leaves subscription.

In short, if the digital terrestrial platform is to work, it needs to offer both pay and free television and so to benefit from the triple stream of advertising, licence fee and subscription funds.

From this point of view, the original digital coalition plan for combined free and pay services still stands up and has been supported by recent, unpublished research for the BBC. This shows that, when asked, potential purchasers of a set-top digital decoder, the famous £100 box, say they're significantly more likely to buy if it offers a pain-free option to upgrade to pay channels, as well as the free services.

The cost of inserting a pay option into the basic box, by the way, is less than a fiver.

The BBC, contrary to some reports, recognises the force of this argument, though it has rejected ITV's demand that it should block plans to sell a digital decoder that only offers free channels, on the grounds that to do so would open it to legal challenge from cable and satellite operators.

The answer is to launch the service only when a range of boxes is available, backed by a coherent joint marketing plan.

So, for all of ITV Digital's woes, commercial digital terrestrial is probably still struggling with its opening gambit rather than the endgame. If ITV Digital can dramatically cut its football and other supplier costs, maybe it can stay in the game. If not, ITV had better be ready to play its part in the sequel.

hargreavesian@hotmail.com

Ian Hargreaves is director, Centre for Journalism Studies, Cardiff University