NAB: DTV Cost Is $22B

How does $22 billion sound?

That’s the outsized number the National Association of Broadcasters says it would take to end the digital TV transition today.

The NAB arrived at its dollar amount based on the fact that off-air DTV converters now retail for about $300, and that there are 73 million U.S. television sets not connected to a pay TV service.

Twenty-two billion dollars — roughly the gross domestic product of Jordan — is an expense no one in Washington, D.C., would dare impose on voters to ensure that their analog TV sets didn’t go dark without forking over the bucks for a converter box.

“Clearly, something must be done to mitigate the consumer disruption that is certain to occur if consumer sets throughout the home become obsolete at the flip of a switch. It would seem that making converter boxes affordable is the key to this brewing problem,” the NAB told the Federal Communications Commission in comments filed August 18.

Advocates of a quick DTV transition claim box expenses could be brought way down and that broadcasters that cite eye-popping estimates do so in order to frighten instead of inform.

Motorola Inc. told the FCC it could make a box that would cost $67 by Dec. 31, 2006. Giving one Motorola box apiece to the 20.5 million broadcast-only homes would lower the transition cost to $1.4 billion, or 94% less than the NAB’s current estimate.

People involved in the DTV transition are starting to get serious about the costs involved, because the FCC is considering a plan to end the transition on Dec. 31, 2008.

The FCC is eager to reclaim 108 Megahertz of analog broadcast spectrum for reallocation through auction to wireless broadband companies. The agency also wants to give a clear swath to public safety agencies to prevent jamming at disaster locations, a problem highlighted by the national commission on the Sept. 11, 2001, terrorist attacks.

Right now, no one can pinpoint the end of the transition based on current law, owing to an ambiguity deliberately created by Congress.

The transition is to end on Dec. 31, 2006, or when 85% of TV households in a market have the equipment to view their local broadcasters’ digital signals, whichever is later.

Because relatively few DTV sets with off-air tuners have been sold, and because there is so little consumer interest in acquiring off-air converter boxes, the 85% test is considered a loophole that could extend the transition many years beyond 2006.

But the FCC, in a plan prepared by the Media Bureau, wants to allow cable companies to downconvert DTV signals to analog and count cable homes that view those signals toward the 85%.

Direct-broadcast satellite homes that receive local TV signals would also count toward the 85% threshold.

Although FCC planners believe the 85% test would be met in many markets by their target date of Dec. 31, 2008, they acknowledge that something has to be done about the 45 million analog TV sets in broadcast-only homes that are incompatible with DTV signals.

The FCC can’t fund the boxes. That’s an issue for Congress. But the FCC is trying to aid Congress by collecting industry data on what it would take to complete the transition with minimal consumer backlash.

The FCC picked up the pace after Berlin, Germany, completed the transition last August just 18 months after informing the public of the pending switch.

In its FCC comments, the NAB proposed the use of auction revenue to subsidize boxes. The NAB said it expected box prices to decline with mass-market saturation.

“A key to ending the transition, to not disenfranchising large numbers of consumers and to mitigating the disruption for consumers with analog sets, will be making digital-to-analog converters widely available at a reasonable price. Some government subsidization likely may be necessary here,” the NAB said.

The National Cable & Telecommunications Association did not file comments. But at a House hearing last month, Insight Communications Co. Inc. vice chairman and CEO Michael Willner voiced support for a firm transition date, predicting the arrival of $50 boxes that would ensure the viability of analog sets.

The NAB did not say how many boxes should be included in the subsidy program, a key component in the debate.

Thomas Hazlett, an economist at the Manhattan Institute who has written widely on the DTV transition, supports limiting the subsidy to one box for each requesting home that is eligible to receive welfare, as Berlin did.

“The reason for limiting the subsidy and limiting the program is because there are few things in Washington that are more permanent than a temporary subsidy,” Hazlett said.

Limiting the subsidy to people already on public assistance might not be politically doable.

Rep. Rick Boucher (D-Va.) has said that every analog TV set that needs a box should get one at no additional cost to the consumer. If a box costs between $100 and $150, Boucher’s plan to protect 45 million TV sets would cost between $4.5 billion and $7 billion. He noted that spectrum auctions are expected to take in $4 billion.

House Energy and Commerce Committee chairman Joe Barton (R-Texas) has set a less-ambitious target. He has indicated support for funding one box for each broadcast-only home. He estimated the cost at about $1 billion.