By Adam D. Thierer

Sen. John McCain (R-Ariz.) has introduced an important new bill dealing with the digital television (DTV) transition that will have direct impact on the satellite industry. The vexing question is how to compel broadcasters to return the analog spectrum that they traditionally have used.

McCain’s bill, S.B. 2820, would introduce a controversial new federal policy of paying $1 billion in subsidies to help convert the existing TV sets used in certain U.S. households to be able to receive DTV signals. The move would be necessitated by a misguided giveaway of between $10 billion and $100 billion worth of free spectrum to the broadcast industry.

While not the optimal policy approach, the new McCain bill offers a quick way out of the DTV policy fiasco, and it will help free massive amounts of valuable spectrum for important wireless uses.

The troubling history of the DTV transition does not need to be rehashed here, but suffice it to say that America has foregone a great deal of wireless innovation due to the outrageous giveaway of so much beachfront spectrum to the broadcasters. In theory, broadcasters are supposed to return their old analog spectrum licenses by 2007. The return of the old licenses remains uncertain, however, because Congress created a loophole that lets broadcasters continue to transmit analog signals on their existing 6 megahertz until 2007 or until 35 percent of Americans have migrated to digital TV.

Reaching that 85-percent threshold would take many years. Meanwhile, countless wireless service providers are denied use of that spectrum for alternative applications. Americans, in turn, cannot use those wireless services for needed commercial and public-safety purposes. Policy makers need to realize that it is vital they find a way to free at least some of the valuable spectrum given to the broadcasters as quickly as possible. Getting it back will be tricky, because most broadcasters are making a good-faith effort to go digital and many consumers have purchased the TVs, the set-top boxes (STBs) and the antennas needed to receive DTV. Congress cannot just pull the rug out from underneath the transition.

The good news is that satellite and cable offer two reliable alternative DTV delivery paths for broadcasters and the public. Almost 90 percent of American homes already subscribe to cable or satellite systems, and these providers made a natural digital migration many years ago. Consequently, the DTV signals that traditional broadcasters want to get to the public can be delivered via those systems once retransmission deals are cut. Must-carry mandates should not be imposed for this carriage to occur. Cable and satellite operators want the valuable DTV programming that traditional broadcasters offer, so they will find a way to contract for carriage. Indeed, many satellite and cable TV operators already have done so.

There remains one nagging issue about what Congress should do about the small percentage of homes that do not have a cable or satellite subscription. Many of these people are elderly, and they continue to rely on over-the-air broadcast signals and rooftop antennas to receive TV signals. No doubt, broadcasters will strike fear in the hearts of lawmakers by warning that no TV viewer should be “left behind.”

Sen. McCain — a long-standing critic of the DTV spectrum giveaway — is eager to reclaim the analog spectrum for both commercial and public-safety uses but he understands the political problem that the “little old lady” issue creates. Few members of Congress will sign off on any spectrum takeback plan that causes even one little old lady to lose her TV signal. McCain’s bill tries to solve this problem by providing STB subsidies to the small percentage of households that continue to rely on analog over-the-air signals, allowing them to move over to cable and satellite systems immediately. The price tag for the STB subsidy is steep — $1 billion — but the money ultimately would come from the revenues generated from auctioning the returned spectrum, which will generate tens of billions of dollars in government revenues.

It is regrettable that it has come to this, but the McCain plan may be the only way out of an industrial policy fiasco that has cost America untold billions in terms of lost wireless innovation.

The only other realistic alternative is simply to allow the broadcasters keep both licenses and use them — and more importantly, sell them — for whatever purpose they wish. Such a policy would encourage the broadcasters to release much of their valuable spectrum eventually on the secondary market.

However, critics will find this additional giveaway to the broadcasters too much to stomach, especially considering the princely sums sale of that spectrum would net at auction.

Congress’ top priority should be liberalization of the broadcast spectrum band to open a vast new frontier of spectrum for wireless innovation. Because full-fledged property rights and secondary resale rights for broadcasters likely will be rejected as a solution, the McCain bill could break the political logjam and provide a viable way out of the DTV policy mess.

Adam D. Thierer is director of telecommunications studies at the Cato Institute in Washington, D.C He can be reached by e-mail at [email protected] and by phone at 202/789-5211.