Handouts and Takings: Congress and Digital Television

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Handouts and Takings: Congress and Digital Television

October 14, 2005 9 min read
James Gattuso
Senior Research Fellow in Regulatory Policy
James Gattuso handles regulatory and telecommunications issues for The Heritage Foundation.

Since the days of Ed Sullivan and Milton Berle, television has been broadcast using the same technology and largely over the same frequencies. That is about to change. Later this month, Congress will vote on setting a firm date, likely in 2009, when TV broadcasters will have to end their analog broadcasts and return the frequencies used for them. Afterward, all TV broadcasts will use digital television (DTV) technologies. This transition is critical-not so much for television viewers, few of whom watch television over the air anyway, but for consumers of innovative new wireless services that can put the old TV spectrum to better use.


While the final proposal has not yet been circulated, the Senate Commerce Committee may vote on the DTV transition next week, in order to allow some $10 billion in spectrum auction revenues to be included in budget reconciliation.[1] The House Commerce Committee will likely vote the following week. In addition to setting a transition date, lawmakers will also consider subsidies for over-the-air viewers who don't own DTV sets. Subsidies, however, are unnecessary and should be rejected. Additionally, broadcasters are urging lawmakers to force cable television providers to carry each of the multiple digital channels that the broadcasters may air. This too should be rejected, as it runs contrary to First Amendment principles and may constitute an unjustified taking of private property.


A Snail's Pace

Efforts to improve television signals began in earnest in the 1980s. Initially, the focus was on improving picture definition with high-definition (HD) technology. However, these early efforts were overtaken by the advent of digital technology. Digital broadcasting brings with it many new features. For instance, viewers watching a sports event could call up instant replays or change camera angles at the touch of a button, or they could obtain further information on a program, much like with recent DVDs. Digital compression also allows broadcasters to transmit several channels of programming over spectrum that previously could carry only one.


In 1997, the FCC, as directed by Congress, established a plan for the transition to DTV. Each existing broadcaster received a new six-megahertz block of spectrum to transmit DTV signals. They would have to return their old, "analog" spectrum after the transition-set to occur on December 31, 2006, provided that 85 percent of households had access to DTV by that time. The old frequencies would then be auctioned off, potentially raising billions of dollars, and put to other uses, such as wireless telephony.


The net effect of this plan was to grant existing broadcasters use of two huge blocks of spectrum, free of charge. This giveaway raised quite a few eyebrows because elsewhere the FCC was auctioning the use of valuable spectrum to the highest bidders.[2] Aside from the billions in lost government revenue, the plan left broadcasters with little incentive to return their old spectrum.


Since that time, the digital transition has proceeded at a snail's pace. With less than one-and-a-half years to go before the 2006 deadline, almost no one is watching over-the-air DTV broadcasts. While close to ten percent of households have digital television sets, the content mostly comes through cable, satellite, and DVDs. Only two percent of households own TV sets that can receive digital broadcasts.[3]


It should not be surprising that broadcast DTV is falling flat. Whatever the advantages of digital technology, fewer and fewer Americans are watching broadcast TV. Only some 15 percent of viewers receive terrestrial TV signals. And the viewers most likely to want digital service are the ones least likely to watch over-the-air TV. How may videophiles have rabbit ears on their TVs?


By itself, consumers' lukewarm reception of digital broadcasting should not concern policymakers. Government should have no role in determining technological winners and losers. Whether viewers are unimpressed with DTV or choose to receive it via cable rather than broadcast, policymakers should not try to impose their own preferences.


The transition to DTV nevertheless is critical, but for a different reason: the old TV frequencies are extremely valuable and can be used to provide innovative new wireless services, from expanded smart-phone services to wireless Internet connections. Until the transition is made, however, this valuable electromagnetic real estate will be virtually wasted.


The Budget Bill

The real cost of inaction, then, is not forgone government income, but the lost benefits to consumers and to the economy if this spectrum remains locked up. Procedurally, however, the issue is being driven in Congress by the budget. Both the Senate and House Commerce committees plan to recommend DTV legislation for inclusion in budget reconciliation. Each committee is expected to set a new deadline-likely January 1, 2009-for the end of analog broadcasts. This new date would not be conditioned, as is the current 2006 deadline, on the percentage of viewers with DTV access.


Establishing this "hard" deadline is critical. But there are a number of other important issues that lawmakers also need to addressed.[4] Among them:


  • Subsidies for analog-only viewers. Many have proposed that the federal government finance DTV converter boxes for consumers who do not have DTV access by the transition deadline. While the vast majority of Americans would not be affected by the transition (either because they already have DTV sets or they subscribe to cable or satellite TV), some will lose their signals on transition day. To ease the transition, some would have the federal government subsidize set-top converter boxes that enable old television sets to receive digital signals. The cost of such a program would depend on its details; estimates range from several hundred million to several billion dollars.

    The idea has immense political appeal. Lawmakers fear the wrath of angry viewers who are unable to tune into their favorite shows. Ultimately, however, providing subsidies is the wrong thing to do. There is no federal entitlement to analog television. To the contrary, viewers have been on notice of this change for nearly a decade, and there is no reason for those who are prepared for it to subsidize those who are not.

    If a subsidy program is nonetheless adopted, it should be strictly limited. It should be provided on a one-time basis to low-income viewers-and only to those who do not subscribe to cable or satellite TV.
  • Multicast "must-carry" rules. Another key issue facing lawmakers is whether to require cable television providers to carry every DTV signal transmitted by broadcasters. For years, federal "must-carry" rules have forced cable television firms to include local broadcast television channels on their systems.

    Now broadcasters want to require cable firms to carry multiple channels from each broadcaster. Because DTV allows broadcasters to sub-divide their frequencies, they can provide several channels within a standard frequency allotment. Many broadcasters are taking advantage of this new capability. For instance, NBC transmits a second channel of programming called "WeatherPlus" to its affiliates, and CBS just announced that it will launch a new channel to be called "CBS.2." This channel, according to one CBS executive, will provide programming "that either complements or counterprograms, frankly, the mother ship."[5]

    This additional programming may be valuable to viewers, but who decides whether it is more valuable than the many other channels seeking a spot on cable systems? There is simply no reason to give a channel a guaranteed slot, by government mandate, just because it is provided by a company that also holds a broadcast license.

    "Must carry" rules raise troubling constitutional issues as well. First, forcing cable firms to transmit specific channels designated by the government violates the principles of the First Amendment. A rule forcing newspapers to carry articles by specific individuals or corporations, for instance, would be quickly struck down as a violation of the right to free speech. The same principle should apply to television programming.[6]

    Second, the regulation may be a "taking" of property under the Fifth Amendment and thus forbidden unless compensation is paid. Space on a cable system's line-up is not a public resource; it was created by private owners and remains privately-owned today. Regulation that gives someone else the use of this resource is a taking, just as if it were land or a building.[7]

    In Kelo v. City of New London, the Supreme Court upheld the taking of land for the use of private firms. The decision met with widespread outrage among the public and among many in Congress who saw the decision as weakening property rights. It would be ironic if, in the same year, Congress itself triggered a similar taking. Further, if "must carry" is a taking, the compensation the government would have to pay could easily run into the billions, offsetting the revenues the government would receive from auctioning off the old broadcast spectrum.


After years of delay, Congress may soon vote to complete the transition to digital television. This is a good thing, but not for the reasons usually offered. Washington should be neutral on broadcasting technology, as with any other industry. The real issue here is the valuable spectrum that was given to broadcasters in the 1990s, on the understanding that their old frequencies be returned. Retrieving this spectrum and making it available for other uses should be policymakers' main goal. Congress should set a "hard" date by which old spectrum will be relinquished. This should be done with few or no consumer subsidies and without any new mandates.


James L. Gattuso is Research Fellow in Regulatory Policy in the Thomas A. Roe Institute for Economic Policy Studies at the Heritage Foundation.

[1] See "Beachfront Property Values Drop: Analog Spectrum Now Pegged at $10B," October 7, 2005, at http://www.tvtechnology.com/dailynews/one.php?id=3303.

[2] See Adam D. Thierer and John S. Barry, "How the Telecom Bill Gives Away $70 Billion In Family Tax Relief To The Broadcast Industry," The Heritage Foundation F.Y.I. No. 84, January 23, 1996.

[3] "Speeding the DTV Transition: Facts and Policy Options," New America Foundation Policy Brief, May 2005.

[4] These issues, however, need not be resolved at the same time. Only the establishment of a firm deadline must be addressed as part of the budget reconciliation process.)

[5] "CBS Plans Second Digital Channel," Mediaweek, Oct. 5, 2005.

[6] The Supreme Court in Turner Broadcasting System v. FCC (512 US 622) did uphold then-existing "must-carry" rules. That case, however, involved the carriage of only one channel, not the multiple channels at issue now. Moreover, the changes in the TV marketplace since 1994 could open even the original rules to reexamination.

[7] For an analysis of the First and Fifth Amendment problems with multicast must-carry rules, see Charles J. Cooper, Michael W. Kirk, and Brian S. Koukoutchos, "A Mandatory Multicast Carriage Requirement Would Violate Both The First and Fifth Amendments," September 6, 2005 (legal memorandum prepared for the National Cable and Telecommunications Association).


James Gattuso
James Gattuso

Senior Research Fellow in Regulatory Policy