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July 10, 2005

Spectrum and "The Last Granny"


On January 1, 2009, television as we know it, will go dark forever if proposals now before both houses of Congress are approved. The final Bill will most directly impact that 19% of the population who get their TV through direct broadcast without the mediation of Cable or Satellite delivery. It's estimated, however, that as many as double that number of households still tune in directly through sets located in areas away from wall attachments or reception boxes.

What's at stake here, however, is more than the last granny or what is commonly seen in the hi-tech world as the unshakable legacy customer who won't upgrade until forced to do so. Granny or gramps may not have very good eyesight or a long attention span and therefore couldn't give a hoot whether the picture on their sets has 480 lines or 20 million. The trouble is that granny and gramps aren't alone when it comes to not lusting after that crisp and bright picture. Long before good ol' TV gets its final pink slip from Congress, the supply of new non-digital capable sets will be cut off. A way back, Congress passed a law that directs manufacturers to outfit all sets under 32 inch sold after July 2007 with HDTV receivers. The law also set January 1, 2007 as the date in which all broadcasters have to transmit in HDTV as well as traditional NTSC. That law, after some muscular lobbying, however, left a gaping loophole for the local broadcasters. It is unenforceable unless 85% of the sets in a given viewing area are HDTV ready.

In a political elite that professes to worship at the altar of "market forces" you also have to wonder what is going on that has Congress, fresh from taking a shellacking on Social Security, battling the old folks over their TV sets. Clearly, there's a whole bunch more at stake here.

At the heart of it is valuable unreal estate that happens to belong to the public.  It turns out that back in the dark ages when TV was being invented, nobody gave two hoots for spectrum. It was nothing you could see, feel, smell, much less bottle. Spectrum was just there and the only people who wanted it were broadcasters, civil aviators and the military. And there was so much of it to go around there was no need for efficiency or to put much of a value on it. As a legacy, radio and TV broadcasters to this day don't pay a single penny to the government for the privilege of using the airwaves and when their licenses come up for renewal they are asked to give back even less today --in public service air-time--  than they once did for the privilege.

Traditional TV, it turns out, is a huge spectrum hog. Getting the TV stations onto a digital signal that can be highly compressed and thus take up less spectrum space will allow the broadcasters to pack much more programming onto a much tinier band. As a result, highly desired bandwidth --something that in the age of cell phones and Blackberries can be auctioned off for an estimated 20-30 billion dollars and undoubtedly foster a whole slew of new businesses and applications-- will be freed up.

Not surprisingly, the military and police also want their share of this surplus bandwidth. From our perspective, there's a pretty easy way to get around the legacy problem. Hand out to granny and gramps as many free converter boxes as they want. That would probably drive the price of a converter down to about $20, while siphoning less than $100 million for the multiple billions that the spectrum auctions will yield.

HDTV can be good for everybody.  So let's look at what's really interesting here. What is it about the market in this case that just isn't working? After all, the consumer gets a better picture and more services, the broadcasters get the opportunity to package more content into their signals, the set-makers get to sell more TV's, the cable companies get to package DSL and telephone into their services, the government gets money for nothing and the citizens get police and firemen able to communicate with each other.

But it turns out that on the ubiquitous smaller sets there isn't that great a difference in the picture. Sure, everybody looks at those HDTV-ready LCD and Plasma sets in the stores and likes the crisp and bright pictures they see. The problem is that as nice as the newer sets are, thus a no-brainer for anybody who can afford the $3,000 plus price-tags, once you get them home there's a major gap in what HD programming you get. Even the major broadcasters have not yet switched over all their new programming to HDTV, local stations are lagging even further behind in their efforts and in some communities the cable companies can't support digital broadcasts even if they originate in HDTV. To make matters worse, DVD's, the big home theatre motivator, do not meet HDTV specifications.

So what's the takeaway?  People like improvements in technology, and if the pain to gain ratio is reasonable, will move along with the crowd. So the problem with HDTV emigration is not that nobody notices the difference but that, most importantly, the move is still too costly. Finally, there's far too much confusion and far too little information. Take the set-making industry's refusal to bundle receivers into the sets they sell. Sure the typical gal who goes out and spends $3,000 and up is probably going to subscribe to Cable or Satellite or both, so she only needs a "monitor'.  That is, until the day her cable service goes down and she finds out she can't just switch over to her antenna.  Put an HDTV receiver into every set you sell, folks! The price will come down to nothing and you won't notice the difference. Michael Dell, it appears, has got this message.

Next, the confusion: somebody has to get honest with people and tell them why this is going on. For example, "straight-shooter" Senator McCain, who recently introduced a Bill that sets the digital transition deadline --cutting off granny and gramps-- for December 31, 2008, cited homeland security concerns, according the WSJ. It's hard to expect Congress to level on their interests for the money and those of the lobbyists around them and this is an area where the MSM (mainstream media) have a big stake, too. But who's left to help us sort this out?  Maybe we should also be debating just what it means to lease or auction off this public resource and where the money will go from the receipts.  The public has to wake up, too, every once in a while.

When the market refuses to budge for all the reasons we mentioned above, there's always the big stick of lawmaking. Maybe Microsoft ought to take heed of this when they finally get around to rolling out their new operating system, Longhorn. Left to their own devices, it may take a long time to wean the public off of XP. And if there is too much pain, some folks, not granny and gramps, for sure just might take the opportunity to switch over to a nicely bundled Linux product. It's a long shot but MSFT might just get the horns. Bill, rev your lobbyists!

Posted by dymaxion at 12:57 PM

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July 23, 2004

A Heads Up from DC

If two bills making their way fast-forward through Congress are any indication --and, rhetorically speaking, it's not likely we would have brought them up if they weren't-- Mr. Lumpen Citizen is asleep at the wheel when it comes to what goes over here in Washington DC.

In one bill, Congress is putting up roadblocks to truly cheap telephone or voice over the Internet (VOIP) connections. In reality, it's only a matter of time before this technology becomes mainstream as more people get highspeed internet connections and the technologies that support them like DSL are made more efficient. Using the cover of new market development, the telephone and ISP industry are trying to cut out state taxman and keep more of the future profits for themselves.

In the other, spearheaded by Senator Orrin Hatch, and nicknamed the INDUCE ACT, there is a serious attempt to rebalance the flow of copyrighted content in favor of the copyright holders and to the detriment of new technology development.

Both of these bills seriously impact just about every American but chances are the people most affected have heard little about them and understand the tradeoffs even less. It is the old story of mainstream media inattention and a kind of understandable but no less tortuous apathy that allows our lawmakers and the lobbyists to play out their battles with almost no input from those most impacted by their actions.

Since both these bills can, with a little forcing, be boiled down to pretty simple stuff, we thought we'd take a shot at sifting through the tinted waters to get down to the tea leaves. The scoop on the VOIP bill goes like this: The real value of this technology for most users is not computer to computer telephony, where two or more parties are sitting at their terminals and ring each other up. It's about business and home consumers hooking their telephone systems into their network and being able to call others on their regular wired or mobile telephones. In order to do this --i.e., make the other party's everyday phone ring-- VOIP services have to be able to hook back into the plain old telephone system (POTS). That's where Congress enters the picture. The bill under discussion as originally introduced by Senator Sununu would have forbidden the states from taxing at this juncture. And since the states derive serious income from their ability to tax the POTS providers at the point of interconnection, it was their ox that was to be gored. Bottom line: Congress appears to have decided not to allow internet to POTS connections to bypass state tax departments. So don't expect major savings when VOIP, with its less than optimum service, gets introduced by players big (Verizon) and small (Skype) in the near future. The good news for desk potatoes at home or business: this doesn't affect computer to computer calls.

The INDUCE ACT is a little more complicated but still boils down to a few critical threads. What the entertainment industry through Hatch et al. are trying to outlaw are the future equivalent of VCR's, whatever that might be. In a now famous Supreme Court decision back in 1984, referred to as "Betamax", the Court (in a 5-4 vote) decided that any technology that people use for legal purposes would be legal -- even if the device could be used for illegal purposes, like content piracy. As a result of the ruling, the consumer electronics industry and Hollywood went on to develop a thriving market in home video and DVDs.

In INDUCE, the bill tries to retilt this decision by outlawing machines that "induce" someone to commit the illegal act of piracy, or any other illegal act for that matter. In this new world --"induce" even has an Orwellian ring to it-- TIVO and iPOD type devices become suspect (see some of the Cherry Picks in the right column) and the flow of information enters a world of new and future minefields.

The big losers are the public who could very well end up with players that only play officially sanctioned content of one type or another. You can imagine, in another age, the campuses or streets up in arms, but it will be the electronic device manufacturers and their lobbyists who will carry the fight with a little help from the information freedom folks, who have about as much real clout in Washington as a stalwart Nader supporter with the Democratic Party these days. Unfortunately, that's the way things work in our brave new world.

Of course, the INDUCE ACT, in particular, if passed, will serve to put the same kind of choke-hold on technology development in this country as the ban on stem cell lines has on biotech.

Posted by dymaxion at 05:40 PM

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