Wednesday, April 27, 2005 - The Progress & Freedom Foundation Blog

DTV: The Art of the Deal

Patrick's post on the DTV "transition," occassions some musings on the outline of a deal to get this spectrum into use. For consumers, for the competitive process, for the growth of broadband wireless technologies, it is absolutely indispensable that this spectrum be put into better use than (unwatched) digital television transmissions.

It is a classic public choice problem: a concentrated group of beneficiaries with low use-value but high transfer-value (the broadcasters) holding out against a diffuse group of would-be winners --consumers and companies that will flourish with more broadband pipes. In this fight, the addition of the High Tech DTV coalition is welcome.

The broadcasters hold a blocking position in getting this spectrum to its highest and best use. Because the broadcasters don't have a property right in the spectrum, they cannot sell the spectrum to a user who would value it more. Indeed, broadcaters would welcome property-izing this spectrum, but it would invite criticism as a "giveaway" and a "windfall to broadcasters." It would be a readymade NBC News "The Fleecing of America" piece. (See, I sometimes watch old media.)

And the critics would be right. It would be a windfall. But the value of this spectrum to consumers and the economy dwarves this windfall to broadcaters.

The alternative, suggested by this new coalition and Commerce Committee Chairman Barton, is to simply reclaim this spectrum by a date certain, and have the government reauction it, for the benefit of taxpayers. This has the advantage of being the right answer, better for consumers. The problem is that we've been trying this approach -- hard deadlines, automatic return thresholds for digital penetration -- and the date seems no sooner that it was a few years ago.

This calls for what in polite company would be called, ahem, a prudent legislative compromise. The value of that spectrum being in use is enormous, the self-satisfaction gained from waging a fight on pure principle to reclaim the spectrum is non-trivial, but probably less than the value of that spectrum.

Therefore, concede that the broadcasters will get a windfall by allowing them to sell the spectrum. But, because it is a windfall, don't allow them the full value. Grant the government a one-time royalty for the broadcaters' sale of the spectrum -- and make it as significant as possible. Further, expand the pool of beneficiaries from such a sale. Designate some of the royalty to public safety agencies for E911 and emergency services. Heck, why not even try to solve other lingering problems like video franchising. Take some of that money from spectrum auctions and give it to municipalities as part of a deal to get rid of franchising requirments. Make the coalition for reform bigger and buy-off the broadcasters. Just get that spectrum into use!

Principled? Not really. Pretty? By no means. But a deal is better than continued delay.

P.S. I owe Phil Weiser credit for spinning this out -- but since he has not gone public with this idea of a "deal," he is hereby relieved of any responsibility and can deny all of this.

posted by Ray Gifford @ 4:57 PM | Digital TV , Wireless