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POLITICAL CAPITAL
By ALAN MURRAY, CNBC's Washington bureau chief and co-anchor of Capital Report, which airs Tuesdays through Thursdays at 7 p.m.

Failed Policy on HDTV Illustrates Why Free Markets Can Be Trusted

Source: Wall Street Journal, June 4, 2002


The lobbyists and policy makers pushing for a national policy to promote broadband Internet services should take a lesson or two (or three) from the government's last dive into industrial policy: high-definition television.


To say the HDTV policy failed misses the point. The problem with HDTV is that it keeps failing, over and over again, and each new failure has rippling costs for the taxpayer and the economy. It failed on May 1 this year, when the vast majority of broadcasters didn't meet the government's deadline for broadcasting in high definition. It failed again on May 28, when the Federal Communications Commission announced it was delaying for the sixth time an auction of spectrum controlled by the broadcasters. And it will certainly fail in 2006 -- the deadline Congress set for getting HDTV into 85% of American households. FCC officials privately predict it may take another quarter century to meet that goal.

When broadcaster Lowell "Bud" Paxson of Paxson Communications Corp. was asked when the goal would be met, he replied with mock thoughtfulness: "That would be late never."


Unless you're itching to see the blemishes on Larry King's face, you may not care about this. But you should, because the HDTV battle isn't really about television at all. It is about something more valuable: the public airwaves. In the information economy, they've become the equivalent of California beachfront property.
And they are being badly misused in this fiasco, costing taxpayers tens of billions of dollars, and possibly stunting the future growth and development of more valuable wireless services.


The government's efforts in promoting high-definition television date back to the 1980s. But the big event was the Telecommunications Act of 1996, which gave the broadcasters free spectrum to use for digital, high-definition broadcasts. It was probably the single biggest example of corporate welfare in the nation's history -- a huge landgrab of spectrum that could have been auctioned at a price of $30 billion to $70 billion. A few members of Congress criticized the deal at the time -- notably then-Senate Majority Leader Bob Dole and Sen. John McCain. But most acquiesced, unwilling to argue with the folks who put them on television.


Defenders of the deal said the spectrum giveaway was just a loan, because once the new "digital" broadcasts were up and running, the broadcasters would be required to give back the old "analog" spectrum. Under the law, that spectrum was to be returned in 2006, or whenever 85% of American households could tune in to digital -- whichever came later. The 2006 target was unlikely from the outset. The telephone took 90 years to penetrate 85% of households. Color television took 22 years. The notion that HDTV could reach that kind of audience in less than a decade was a reach.


Congressional budget writers made a further mess of the matter four years ago by ordering the FCC to auction off some of the analog spectrum to new owners even before the broadcasters cleared out. Potential buyers -- mostly wireless companies -- cried foul, saying the spectrum had little value until the broadcasters left. So the FCC decided last September to let the wireless companies enter into negotiations with a group of broadcasters occupying the television band covering channels 60 to 69, led by Mr. Paxson, to pay them for vacating the spectrum early.


The upshot: Broadcasters who had gotten free spectrum from the government would now, in effect, be paid by wireless companies to give it up.


The wireless companies saw this as extortion. The government was going to auction off spectrum which, as Tom Wheeler of the Cellular Telecommunications and Internet Association put it, was nothing more than an opportunity to "enter into a second auction, with the broadcasters." For his part, Mr. Paxson said he was only doing what the FCC wanted him to do. The FCC, in turn, was merely trying to make the most out of conflicting mandates from Congress. The only real alternative was to have Congress force the broadcasters to give up the spectrum; fat chance of that.


Faced with this mess, FCC Chairman Michael Powell delayed the auction until January of next year. But there's little reason to think the confusion will be resolved by then. Meanwhile, Chairman Powell continues to push the broadcasters to make the transition to HDTV -- not because he believes it's important public policy to promote HDTV, but because it's the only way to free up valuable spectrum that's needed elsewhere.


Perhaps there was some vague public interest at the outset of this fiasco. But it was long ago trampled by powerful private interests. It's a casebook study of why markets do a better job of allocating scarce resources than the government.
 

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There ain't no free lunch. Congress wants auctions to increase their spending budget, and that money doesn't come from cellular operators, it comes from you and me, plus mark-up and carrying charges, in the form of higher rates. Some of the spectrum will be purchased only to keep would-be competitors away, which then increases our cost without any increase in service. Even if you don't use a cell phone, those costs work their way through the whole economy. While a delay in HDTV is not a good thing, the loss of auction revenue is over-blown
 

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Good article, but too bad a normally more accurate paper decided to once

again perpetrate the inaccurate statement that DTV = HDTV.


WSJ makes their reporters email almost impossible to find, so I guess he

won't be hearing about it.
 

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I don't know why we're so eager to make the correction. So long as major media reporters believe that broadcasters are expected to deliver HDTV, the broadcasters will be pressured to do so. In the minds of a WSJ reporter, the DTV or HDTV argument is a difference without a distinction. They are writing about the true driving issue of the transition -- spectrum allocation. The government definitely wants the analog spectrum back for other uses, and to start making money from it. We miss the point when we keep correcting details. It proves that we're more knowledgeable -- more wonk-like -- than the average guy. And the last highly public person who tried to make wonkishness popular was Al Gore. We should really lighten up on the details when we contact reporters and focus on the big picture.


Alan
 

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I sent my message. I tried to mainly stress that he should separate the political issues of HDTV from its promise and its capabilities. Too often, an article like that, which is primarily a political rant, seems to imply that HDTV itself sucks.
 

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I thought it was a very good article (a rare find these days). I think the use of HDTV rather than DTV is more meaningful to the typical consumer and in this context I don't object to it at all.
 

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I just have to float this idea once in a while...


Mandate digital tuners, mandate cable carriage; unfunded mandates always seem like attractive revenue neutral solutions. This is a special interest issue if ever there was one. It's bad policy.


I have a revenue positive proposal which leverages against the inefficiencies of delaying the digital transition. Small investment now by the interested party (the Federal Government) with a big payoff later to the same interested party.


Subsidize the next 10,000,000 digital tuners sold by $200 to the manufacturer; cost $2 billion. Subsidize the following 10,000,000 digital tuners sold by $100 to the manufacturer; cost $1 billion.


For an up front $3 billion invested the schedule for the transition is dramatically advanced and the government can auction the spectrum much sooner, collecting years of additional spectrum revenue greatly exceeding the initial investment. The party making the investment is the same party that benefits. No other party stands to benefit so dramatically from an accelerated transition. Spectrum revenue has always been the government's interest in this. The proposal is revenue positive.


With 20,000,000 units manufactured and in use the efficiencies of volume manufacturing clearly take effect, the viewership is in place to justify HD production, cable carriage follows to meet demand, and so on. The inefficiency of running dual mode (primarily in terms of spectrum waste) is shortened by years. Everyone saves money.
 

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Sorry CB,


That money's already been earmarked to save the family agri-glomerate.


-phil
 

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What about the information I have seen that says radio waves can carry much more information than we now allocate to it? That new technology will make allocation obsolete! The cable companies continue to find ways to send more and more channels through their cable and the same thing will happen to OTA.
 

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Quote:
Originally posted by lubedude
Mr. Murray's email address from my online subscription....have at it..


[email protected]
Thank you, sent out a brief (and polite) email about the facts.
 

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Quote:
Originally posted by amarkow
I don't know why we're so eager to make the correction. So long as major media reporters believe that broadcasters are expected to deliver HDTV, the broadcasters will be pressured to do so.
Its a good question, here is my reasoning.


There is SO MUCH now printed about HDTV that is inaccurate. The prices

quoted for equipment is given for years back, or for premium equipment.

The number of network and other HDTV shows available is often completely

incorrect. The equipment and procedures are routinely mangled.


The press does not give a damm about your opinion. They are in the

opinion business, and they own the press. However, calling reporters

attention to the facts and being ready to cite references is one of the

few ways you and little average I can actually get these reporters to

listen to us.


Lastly, although we all wish the government mandate were for HDTV

and not DTV, having the press print this inaccurately does not help

our cause, but in fact just helps the rumor mill to churn.
 

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Quote:
Originally posted by Rich Peterson
I thought it was a very good article (a rare find these days). I think the use of HDTV rather than DTV is more meaningful to the typical consumer and in this context I don't object to it at all.
Even if the facts printed are incorrect ?????
 

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Quote:
Originally posted by Bill
What about the information I have seen that says radio waves can carry much more information than we now allocate to it? That new technology will make allocation obsolete! The cable companies continue to find ways to send more and more channels through their cable and the same thing will happen to OTA.
Ultrawideband and similar technologies avocate tearing down the existing

radio infastructure and starting over again.


The odds of that happening, of course, are zero.


What will occur instead is UWB in a specified frequency band. Its quite

doable and just does not generate quite as much publicty.
 

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There is a proven theory that the most efficient use of the spectrum is between users that have the same spectrum signature - since one transmission does not require anymore protection (power/distance/frequency) than any other. In some future utopian world....the spectrum would be divided by modulation/power/frequency characteristics. So, we would find that things such as UWB would be sharing domestic spectrum with DoD, TV broadcasting with MMDS..... Since the world is going digital, it would depend on the application instead of the incumbent. However
 
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