The switch to digital TV—an early bailout that went awry

COMMENTARY | June 12, 2009

If Congress gets to seriously consider bailing out the newspaper industry, the press and the public should keep in mind the costly mistakes in the government’s bailout of the local, over-the-air TV broadcast industry.

By J.H. Snider

In 1986, mobile telecommunications providers petitioned the FCC to reallocate the unused channels (also known as “public airwaves” or “spectrum”) allocated for broadcast TV. Broadcasters argued that their continued ability to provide free news and other programming to the American public in the face of emerging competition from pay cable and satellite TV industries depended on the government loaning them the spectrum on an interest-free basis so they could transition from standard to high definition TV. Twenty-three years later, on June 12, 2009, the broadcasters returned the last remnants of that unoccupied spectrum, marking the end of what has, since the mid-1990s, been called the “Digital TV Transition.”

Richard Wiley, the former FCC Chair who championed this “loan” to the TV broadcasters, recently claimed at a National Press Club event that the transition was a great success. Was it? 

Not only was the loan interest-free, but over the years broadcast lobbyists whittled down the amount the broadcasters would have to return to the government, resulting in a spectrum windfall to broadcasters worth billions of dollars.

Meanwhile, the industry the government was propping up with billions of dollars worth of public asset giveaways continued to decline in audience share.  Today, 89 percent of American households subscribe to a pay broadcast TV service such as cable or satellite for their primary TV set; of the remaining 11 percent, many rarely or never watch any type of broadcast TV, let alone terrestrial, over-the-air broadcast TV. 

The broadcasters claimed they needed the government bailout to preserve “free TV” – what others call “ad-supported” TV -- but they already charge for much of their programming delivered via cable, satellite, and the Internet and have won the right to charge for more than 90 percent of their terrestrial, over-the-air programming, too. 

The broadcasters initially promised the government that after they returned their loaned spectrum they wouldn’t be receiving a windfall (which would have violated the Communications Act). After all, they’d merely be substituting one high-definition for one standard-definition TV channel. But in dozens of incremental steps, they won rights from the government for ever-increasing spectrum flexibility, starting with the right to broadcast up to six standard-definition channels for every high-definition one, and winning, more recently, the right to provide dozens of very low resolution TV channels to mobile handsets—which (hush, hush) the current generation of digital TV sets, including tens of millions of government subsidized converter boxes, won’t be able to receive. These are rights that the government could have sold for billions of dollars. 

The return of the loaned spectrum was repeatedly delayed. It took from 1986 to 1996 for the government to figure out the terms on which the spectrum would be loaned to the broadcasters. The first tentative deadline to return it, 2006, was subsequently extended twice. Each delay enabled broadcasters to renegotiate more favorable terms for the return of their loaned spectrum.

By the late 1990s, it became obvious to everyone in the telecom policy community that the indefinitely loaned spectrum was misallocated for broadcast service and should be reallocated as soon as possible for mobile service. This gave the broadcast industry leverage to ask the government to both subsidize and force consumers to purchase TV sets with terrestrial, over-the-air digital tuners. The fact that broadcasters had already received a multi-billion dollar government windfall and could have used the proceeds to pay for their own customers to transition to digital TV was never seriously contemplated. 

Accordingly, the government made it illegal to sell TV sets without a terrestrial, over-the-air digital tuner, thus forcing consumers to purchase tens of millions of new digital TV sets with tuners they didn’t need and that, like their other consumer electronic equipment, were likely to soon become obsolete. The government also agreed to spend more than $2 billion to help preserve the broadcasters’ customer base, including subsidizing consumer purchases of terrestrial, over-the-air digital TV tuners (popularly known as “TV converter boxes”).

Advocates of the broadcaster bailout promised that the result would be a state-of-the-art digital TV standard that the rest of the world would want to purchase from us. But the much-touted U.S. digital TV standard, put together by a lobbyist-dominated committee in 1993, was panned by the rest of the world and subsequently adopted by only four other countries: Canada, Mexico, South Korea, and Honduras.   

The broadcast industry didn’t even lead the transition to high definition TV.   Far more people today watch high resolution TV via cable, satellite, the Internet, and video game players than through terrestrial, over-the-air TV.

To add insult to injury, six countries in Europe started the digital TV transition later and finished it earlier and at less per capita public expense than in the United States.

The biggest failing has been that the allocation of additional low frequency spectrum for broadcast TV came at the expense of mobile broadband service -- making such service slower, more expensive, and less widely available.  

Clearly, former FCC Chair Wiley is mistaken.  Rather than a success, the digital TV transition illustrates the classic story of a powerful special interest group seeking government handouts and protection from competition under faulty pretenses. More specifically, it illustrates the government’s ingrained tendency to favor the old media (in this case, terrestrial, over-the-air broadcast TV) at the expense of the new (mobile broadband).

The danger now is that Congress will repeat this fiasco if it seeks ways to bail out the struggling newspaper industry. In March, Senator Benjamin L. Cardin (D-MD), introduced legislation to give tax breaks to newspapers. On May 6, the U.S. Senate held a hearing on the Future of Journalism, with newspaper advocates arguing for Congress to protect newspapers from unfair competition from new media. Those familiar with the digital TV transition should cringe.   

Click here for a 2008 Nieman Watchdog essay by Snider, “Is the spectrum just too complex for reporters?”

the forfeit of safety effect
Posted by Carey R. Carlson
07/23/2009, 12:29 PM

The DTV change was one for the worse in my experience also. To use a popular BS word, it's less "robust." It's particularly faulty in bad weather, just when storm warnings are important to the public safety. An actuary could estimate the annual loss of life due to garbled transmissions of storm warnings, for the poor without cable. The poor can learn to rely on radio though, which has not yet been degraded.