HDTV and Digital TV Limp to the Starting Line: A Critical Analysis of Spectrum Policy and Industry Failures

The only problem is, it's all a pile of hooey.

As the FCC ponders its final actions on the allocation of spectrum for digital broadcasters, a world turned upside down treats us to the political theater of free-market advocate Rep. Newt Gingrich (R-Ga.) pushing for government-mandated digital TV standards and budget-busting spectrum handouts while closet socialist Rep. Barney Frank (D-Mass.) rallies around the cause of open markets and fiscal responsibility. And as the National Association of Broadcasters (NAB) issues dark warnings that failure to fork over free digital spectrum could mean the end of free TV, reluctant station owners worry about getting suckered into investing in a new technology that might deliver them to financial ruin.

Lighting the Fire As I pointed out two years ago when spectrum auctions were first getting under way ("Cyberurban Redevelopment," October 1, 1994, page 39), the vast tracts of UHF bandwidth held hostage by the broadcast industry were bound to attract the eye of revenue-conscious legislators. Politicians' born- again ardor for marketplace spectrum management solutions is exceeded only by their desire to keep the pork pipeline flowing without having to raise taxes. This put Congress on a collision course with the moguls that run ABC, NBC and CBS, determined to defend their ancestral rights even as the foundations of their broadcasting empires are being eaten away by cable and satellite TV.

The 400 MHz of precious real estate given in trust to the broadcasting industry in 1934 has been successfully attacked only once, when emerging cellular and Specialized Mobile Radio (SMR) interests pried loose 14 unused UHF channels in 1974. After a further decade of regulatory wrangling, this spectrum became the foundation for a multibillion dollar industry serving more than 40 million consumers. During this time, the remaining 56 channels of UHF spectrum- more than 300 MHz-remained thinly populated, as the broadcasters' share of television viewers continued its long and irrevocable decline.

The obvious solution to this dilemma would be to allow broadcasters to sell their excess spectrum and use the money to diversify into new businesses. Unfortunately, they don't own the spectrum so they can't sell it; it's public property that is merely zoned for exclusive broadcast use. So how do these precious frequencies ever get put into service?

Coming to a Slow Boil Pressure began building in the early 1980s when Japan Inc.'s run at developing high-definition television (HDTV) scared the pants off U.S. consumer electronics executives. It was, and still is, believed that a wide-screen, high-resolution home theater will be the natural successor to the color television technology developed by RCA in the 1950s and blessed as the National Television Systems Committee (NTSC) standard.

The problem is that though better technology has been available for years, no one can figure out how to get it into the market. The U.S. broadcasting industry has always stood on three pillars: government standards, free spectrum and advertiser-supported programming. Shielded by rigid regulations from the merciless pace of innovation, the NTSC standard became a stupendous inertial force. For all of its shortcomings, the greatest merit of NTSC (which some wags claim stands for Never Twice the Same Color) was that it provided backward compatibility with black-and-white sets. This allowed a seamless introduction of color programming in the late '50s and early '60s. Unfortunately, no such technical solution exists for HDTV. A separate, second channel is required, catering to an initially nonexistent audience.

Although buying an HDTV set is a classic consumer decision, broadcasters must bear the cost of upgrading studio and transmission facilities. Unlike cable and satellite providers, who can charge premium prices for high-end services, the "free" TV industry has no way to recoup these costs from consumers. Somehow, advertisers have to be convinced to pay the freight. But advertisers pay by the eyeball-the more eyeballs, the more money-and asking them to pay extra to advertise on a second channel that has no viewers seems a dubious proposition.

Egged on by government industrial planners, Japanese manufacturers launched an analog HDTV standard into their home market about a decade ago. This initiative has been a $2 billion exercise in futility. Fewer than 100,000 sets have been sold to date, even to the gadget-crazy Japanese. As a result, HDTV died on the vine. Only regulatory gridlock prevented U.S. companies from racing the Japanese off the same cliff.

Is It Soup Yet? The seeds having been planted for a U.S. initiative, in 1987 the FCC formed an Advisory Committee on Advanced Television Service (ACATS), chartered with recommending a U.S. broadcast standard. Soliciting more than 23 technical proposals, ACATS planned a bakeoff to select the best technology. Part of its mission was to accommodate the needs of the cable TV, satellite and personal computer industries-groups that never needed the "helping hand" of government standards before-hoping that maybe one of them would figure out how to bootstrap the business. To pave the way, the FCC proposed that broadcasters be "loaned" a second channel to accommodate new digital services, eventually returning their analog channels after the public retired the last of their NTSC sets. Right.

After several years of technical testing and intense lobbying, ACATS narrowed the field to four finalists, but in 1993 decided that it couldn't pick a winner. It then threw the problem back into industry's lap-a typical regulatory response when there is neither sufficient consensus nor a powerful enough constituent to jam a solution down everyone's throats.

This is probably where things would have ended, with the broadcasters heaving a sigh of relief and the cable, satellite and computer folks heading off to pursue their separate agendas, had not the first whiffs of auction fever started spreading on Capitol Hill. If the broadcasters couldn't produce a credible plan for advanced digital television, it looked as if their warehoused spectrum might disappear forever under the auctioneer's gavel.

Enter the Grand Alliance Taking advantage of this pressure, the bakeoff finalists announced the formation of a grand alliance consisting of a division of AT&T (now Lucent Technologies), Zenith, General Instrument, MIT, and a coalition of Thomson, Philips and the David Sarnoff Research Center (the original inventors of color television and orphaned child of the former RCA). The Grand Alliance promised, and in fact delivered, a standard that contained something for everyone-a Chinese menu of alternatives that broadcasters could leverage to defer upgrade investments for as long as possible. This will support a perpetual flow of demonstrations and feasibility studies, keeping alive the notion that the precious UHF spectrum should be held safe from auctions.

The Grand Alliance standard is on its way to being blessed by the Advanced Television Systems Committee (ATSC), presumably becoming enshrined in regulatory stone for the next 50 years. Based on the idea that if you put enough processing power and memory into a TV it can do anything, ATSC supports 18 different combinations of pixel arrays, frame rates and both interleaved and progressive scanning. Transmission is based on a 19.3-Mbps, packetized scheme that completely separates transport from presentation. In this way, local broadcasters can flexibly relay HDTV network feeds during prime time while filling the airwaves with up to six standard-definition programs during the rest of the day. It's really quite a brilliant compromise-an inversion of the NTSC scheme to introduce color. In this case, consumers would have to buy an all-singing, all-dancing TV set while broadcasters could slowly and painfully upgrade their facilities to catch up with them.

The only problem is, ATSC does nothing to create a viable business model for broadcasters. The $8 million to $10 million that every station would have to invest to upgrade to digital would be purely defensive-an act of desperation to stem the loss of even more viewers to subscription cable or satellite. This investment might not generate one dollar of additional revenue. This means most station owners would have to be dragged kicking and screaming to populate the spectral real estate that the NAB is demanding be handed over for free.

The biggest tragedy would be to acquiesce to a spectrum giveaway and then mandate that broadcasters actually use it, rather than allow them to sell it and abscond with the money. The latter result is far preferable to seeing this spectrum locked up for another 15 years as broadcasters cry crocodile tears that the market is just not ready for the wonderful world of digital television.

Bill Frezza is the president of Wireless Computing Associates. He can be reached via e-mail at [email protected].