June 08, 2002

Meanwhle, We Have Our Own Telecom Mess: HDTV

A good column by Alan Murray in the Wall Street Journal on what went wrong in the current High Definition Television mess here in the United States. But it leaves me somewhat unsatisfied: Alan doesn't tell me how we should have done it right--save to say that we should have relied on markets. But how, exactly?


WSJ.com - Article

POLITICAL CAPITAL

By ALAN MURRAY
A Lesson About Deregulation: Failed Policy on HDTV IllustratesWhy Free Markets Can Be Trusted

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.

Write to Alan Murray at alan.murray@wsj.com
Updated June 4, 2002

Posted by DeLong at June 8, 2002 02:06 PM

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