The U.S. Digital TV Transition: Time to Toss the Negroponte Switch

Abstract

Year-end 2006 is scheduled as the date when 1,500 TV stations cease analog broadcasts, continuing in digital format only. Yet, according to a safeguard provision, analog stations will remain in any TV market where fewer than 85 percent of households are equipped to receive digital transmissions over-the-air. Of 33 million TV sets sold in the U.S. in 2000, just 37,000 (0.1 percent) possessed digital reception functionality. This lack of customer interest, combined with the 85% trigger, assures substantial delays.

Ironically, a parallel transition to digital TV proceeds spontaneously. About 35% of U.S. TV households subscribe to digital cable or digital satellite service; this level is projected to double by 2006. Subscription TV viewers use set-top converters to translate analog or digital signals for either analog or digital TV sets; the technology transition is inexpensive and seamless to customers.

More broadly, the success of subscription TV service is reducing the TV Band to irrelevance. At year-end 2001, 87% of U.S. households will receive their television by wire or satellite link, a proportion expected to grow to 91% in 2004. At that point, fewer than ten million U.S. households will rely on over?the?air TV. If something less than $3 billion is invested to move remaining over-the-air TV viewers to a "limited basic" cable or satellite TV service, substantial social gains result.

First, consumers avoid expenditures for new digital TV receivers, saving 50--150 billion dollars. Second, the 402 MHz of prime radio spectrum now allocated to over-the-air TV broadcasting could provide alternative uses (such as mobile telephony or high- speed Internet access) worth 50--470 billion dollars. Public interest considerations also strongly recommend a migration of broadcast TV to subscription services. As the opportunity costs of a spectrum allocation originally conceived in 1939 have grown enormous, gains from allowing market reallocation are commensurate.