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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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