U.S. may press for spectrum revenues as DTV deadline fades

3/5/01

WASHINGTON - With a 2006 deadline for completing the transition to digital TV all but certain to be missed, Congress is now looking for ways to make broadcasters either pay for broadcast spectrum or return it. During a Senate Commerce Committee hearing on the digital TV transition held Thursday (March 1), broadcasters conceded the
deadline would likely slip. The 2006 deadline "is going to be very hard to hit," said Jeff Sagansky, president and chief executive of TV station owner Paxson Communications Corp.

Industry observers agreed. "Nobody seriously thinks there's going to be a 2006 switch over" to all-digital broadcasting as mandated by Congress, said Tom Hazlett of the American Enterprise Institute, based here.

Broadcasters' failure to speed the transition to digital TV is angering lawmakers and resurrecting complaints of a "spectrum giveaway" to broadcasters. Sen. John McCain, R-Ariz., the Commerce Committee's chairman, has long sought to force broadcasters to pay for new digital channels while returning analog spectrum. Thus far, McCain has
failed.

Now, other lawmakers and the Bush administration are proposing that broadcasters pay for spectrum. One proposal is to make broadcaster "rent" analog spectrum if as expected they miss the 2006 switch-over deadline. In return for the free digital TV licenses, broadcasters agreed earlier to return their analog spectrum by 2006, or when 85 percent of U.S. households received digital broadcasts.

While sales of digital receivers have reached more than 600,000, industry analysts said the real obstacle to reaching the 85 percent penetration rate expected by Congress is a lack of digital set-top boxes needed to convert digital
signals for display on existing analog sets. Without more, affordable set-tops, "the 2006 deadline is basically not going to happen," said James Gattuso, vice president for policy and management at the Competitive Enterprise Institute.

Other experts told the Senate panel that the Federal Communications Commission must step in to speed up the digital TV transition. If the FCC fails to act, said Joseph Kraemer, director of an economic consulting firm, "the deadline will slip to 2015."

Along with the high price of digital receivers, another reason for the slow transition to digital TV is a lack of compelling applications. "Consumers don't see a 'killer app'," said Hazlett. "They don't even see a modestly threatening [application]."

Broadcasters defended their efforts to speed the transition and dismissed renewed charges of a spectrum giveaway. Broadcasters are in the midst of an $8 billion build-out program for digital broadcasting and will return analog spectrum when they are done, Paxson's Sagansky said. "We want to get this thing over with."

Whether Congress moves again this year to force broadcasters to pay for spectrum remains to be seen, observers said. But McCain and Bush administration budget officials appear ready to impose some type of spectrum fee on broadcasters as a way to speed the digital transition while moving broadcasters off analog channels that could be sold at government auctions for premium prices.

The first Bush budget released earlier this week contained a proposal for the FCC to "shift spectrum auction deadlines and promote clearing" of spectrum in order to generate revenues for the government. Budget officials did not elaborate on what they meant by "clearing" spectrum, but some observers interpret it as moving broadcasters off analog channels.

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