The HDTV Transition: What Went Wrong?

May 1, 2002 • Commentary

What did you watch in high‐​definition (HDTV) television last night? If your answer is “nothing,” don’t fear, you’re not alone. Only a fraction of American households are receiving HDTV in their homes. And our federal government’s 15‐​year industrial policy to make sure the conversion to HDTV is complete by 2006 looks more like an impending train wreck with each passing month.

It wasn’t supposed to turn out this way. In fact, today was supposed to be a day of celebration because policy makers stipulated several years ago that by May 1, 2002, every commercial broadcaster in America was to be transmitting HDTV signals to the public. According to a recent USA Today survey of the nation’s commercial television stations, however, only 15 percent of them are broadcasting HDTV signals to the public. Worse, roughly 800 of the nation’s 1,400-plus stations recently petitioned the Federal Communications Commission (FCC) for waivers from this deadline.

What went wrong? A lot of things are to blame but ultimately it comes down to a federal industrial policy that substitutes bureaucratic mandates for the wisdom of markets and the desires of consumers.

In a nutshell, here’s how the plan was supposed to work. At the request of the powerful broadcast lobby, Congress granted every broadcaster in America an additional license to compliment their existing analog license. With this valuable new license, which they received for free, broadcasters were supposed to start making the transition to HDTV, while continuing to broadcast traditional analog signals via their old channel. By 2006 — or so the theory went — all Americans would have purchased the hardware necessary to receive HDTV. Then the old analog stations could “go dark” and be turned back into the federal government to be re‐​auctioned for other purposes.

To fully appreciate the magnitude of this public policy fiasco you need to know that the value of the new digital TV licenses that Congress forked over to the broadcasters was estimated between $10 billion to $100 billion. Moreover, this was high‐​quality, “beachfront” spectrum that could have been sold for many other important uses. So while cellular companies were spending billions to buy the spectrum for the digital cell phones we use today, the broadcasters were getting away with the high‐​tech equivalent of a Teapot Dome scandal by nabbing this mother lode of free spectrum.

How did broadcasters get so many members of Congress to sign off on this unprecedented taxpayer rip‐​off? Broadcasters argued that they have historically been given free spectrum in exchange for a promise to “serve the public interest” with high‐​quality programming as well as local news, weather and sports. To continue this tradition of free, over‐​the‐​air broadcasting, broadcasters claimed every local station needed to be “loaned” an additional channel to make the transition to digital TV. When they were done with the transition and had forced everyone to convert to their digital signals, they’d throw us back the bone of their analog spectrum and let the feds auction it off.

But that may not happen. For a rule change in 1997 allows broadcasters to hold onto their analog channel until 85 percent of Americans have made the DTV transition. Only then will they return it to the FCC for re‐​auction. Problem is, at the glacier‐​like pace at which this transition is proceeding, it may be 2010 or even 2020 before we see anything close to 85 percent of homes with HDTV‐​receiving capabilities since everyone will need to replace their home’s TV sets with new units or converter boxes. Not everyone is ready to plop down his hard‐​earned cash for a prettier picture, and some people don’t care about digital TV.

There are no easy escape routes from this industrial policy mess. Perhaps the best solution would be to cut our losses and allow the broadcasters to keep what they’ve got, and more importantly, to sell it as they wish. This option would be difficult for some to swallow because the broadcasters would be getting away with murder. But it would achieve the important goal of freeing the spectrum they’re hoarding by encouraging them to sell it through private auctions to those who value it more highly. And it would get the feds out of the business of micro‐​managing the television industry.

Congress should have auctioned off this spectrum back in the mid‐​1990s and let the chips fall where they may. HDTV would probably have emerged, but through other means (satellite or cable), and other wireless providers would have snatched up the spectrum at auction and put it to better use. As it stands now, we’re left with the mother of all industrial policies, and few pretty TV pictures to show for it.

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