Guest post: Saving the digital transition

We're turning over this space today to a guest post from Gregory L. Rosston and Scott Wallsten. Rosston is the deputy director of the Stanford Institute for Economic Policy Research and the Public Policy program at Stanford University and served as the deputy chief economist of the Federal Communications Commission from 1994 to 1997. Wallsten is vice president for research and a senior fellow at the Technology Policy Institute.

The outgoing administration and the 110th Congress are leaving an impending mess for President Obama and his administration to manage. No, not that one. Not that one either.

Less than a month after the inauguration, millions of Americans who don't subscribe to cable or satellite services may see nothing but static on their screens. The reason is that on February 17, broadcasters must stop all analog television transmissions--the only kind that older televisions can receive over the air--and continue only digital transmissions.

Make no mistake: the digital transition is long overdue and will greatly benefit the American people. But this transition will not go nearly as smoothly as the political transition has gone unless some steps are taken immediately to soften the blow and subsequent uproar.

We already have evidence that the transition may not go well. One smart move was that broadcasters in Wilmington, N.C., agreed to turn off their analog signals in September. That test-run allowed the FCC to see what might happen. It was not pretty. Despite the relatively substantial resources devoted to preparing the city, when broadcasters turned off their analog signals, calls poured in to television stations, city offices, and even 911 call centers from frustrated and confused residents.

The good news is that the Wilmington transition ended with no major calamities and now the freed-up spectrum is available for other, more valuable uses. But the Wilmington area has fewer than 13,000 households that rely on over-the-air broadcast, whereas the entire U.S. has about 17 million such households. Another 19 million households subscribe to cable or satellite but have at least one TV that uses broadcast signals. In other words, the small brouhaha in Wilmington will be hugely magnified when the entire country makes the switch.

The primary mechanism to prepare citizens for the switch is a $1.5 billion coupon program intended to subsidize "converter boxes." These boxes connect to an antenna and to a TV set and convert the digital signal into a form the television can display. Households can, in principle, get two $40 coupons from the government to offset the price of two boxes. However, demand for coupons has been so intense that the program is out of money, prompting cries for more increased subsidies.

The real problem with the coupon program, however, is not that it is too small. The problem is that it is ineffective. In recent research, one of us found that the coupons increased the price of the boxes by almost the amount of the coupon. The coupon program therefore primarily subsidizes retailers, not consumers.

This result is not surprising. With a $40 coupon, you don't care whether the box costs $0 or $40, since you pay nothing either way. Retailers thus have little incentive to price a box at less than $40.

Still, the program's current lack of funds reflects some good news. First, it means that many people have gone out to purchase boxes and are likely to be ready for the switch. Second, the shortage has itself created news and may increase awareness, causing more people to make the necessary preparations (buy a converter box, buy a new television, subscribe to cable or satellite, or pick up a book). The bad news is that lack of coupons may cause some people not to acquire a converter box.

Congress will probably top up the coupon program for fear of being accused of not responding to this mini-crisis, but that won't be of much help to consumers, and no help to those who will need it the most, such as elderly people who may have no idea how to connect and configure a converter box (See "Digital TV transition (for the elderly)" on YouTube).

What can be done in the next few weeks, aside from expanding the coupon program? It's too late for a comprehensive new plan, but the FCC could still buy time to reduce 911 calls and to minimize the confusion from people suddenly seeing "snow" on their screens.

An increasingly popular proposal is to delay the transition by several months. That may avoid trouble in February, but will probably only put off the pain rather than eliminate it. The proposal, however, has the kernel of the right solution.

In particular, the FCC could require stations to continue their analog transmissions for two weeks in order to continuously broadcast a simple full-screen message that reads and also says aloud, "Your television needs a digital converter box. For more information, call 1-888-225-5322 (TTY: 1-888-835-5322) or visit: www.DTV.gov."

Congress, in fact, gave the FCC the ability to make this happen under the Analog Nightlight Act. So far, though, the FCC has authorized only a handful of stations to run this "nightlight" service because of interference concerns. The FCC could immediately expand the program by loosening restrictions on which stations can participate and by not requiring them to apply for eligibility.

This plan would not be free. Not all analog signals have to shut down to accommodate other uses, and those station owners could be subsidized a small amount to maintain the broadcast. A larger expense would involve compensating the wireless providers who paid $19 billion for this spectrum to wait for two weeks before beginning their transmissions. A two-week delay probably would not be a big burden on the providers as they have yet to deploy systems fully and have not sold any relevant devices to consumers.

Had the Commission and Congress better thought through the problems earlier, they could have mandated such broadcasts for at least one week prior to the analog shutdown. They could also have had monthly test markets like Wilmington, N.C. We would then have had at least 10 fully functioning digital markets and would have learned many more lessons about the transition.

By March 19, 2009, hopefully the only March Madness will be on the court and in the living rooms of households watching through televisions equipped for the digital age. The benefits to consumers from the switch are far too great to be derailed by the poor planning of the past two years and short-term political uproar. Use of the returned television spectrum and spaces between the digital channels promises to increase the quality and reliability of voice, data, and video service for wireless consumers. We cannot let poor planning delay the benefits of that true digital transition.