Monday, June 20, 2005 - The Progress & Freedom Foundation Blog

DTV and Universal Service

Senator McCain's DTV bill and today's Tech Daily (subscription required) article on the House DTV bill by Messrs. Upton and Barton both underscore the core sticking point of accomplishing the transition: the size and extent of the subsidy for DTV tuners. The question is familiar to communications policy: the size and nature of the universal service subsidy.

Being already on blog-record that it is worth paying a ransom for return of that DTV spectrum, let me begin by saying that the right answer is not to subsidize anyone’s TV. With an 80+% penetration rate for pay-TV services like cable and satellite, it is perfectly clear that consumers are willing to pay quite a lot for their TV, even without a subsidy. That said, the politics appear to be congealing around some sort of subsidy. Thus, the goal should be to minimize the subsidy, so that taxpayers are not on the hook for paying for their neighbor’s TV.

We can draw some analogies and lessons from the telephone universal service debate to inform crafting the DTV subsidy. To begin with, the subsidy should be funded from general revenue, and not a special tax on DTV tuners or, alternatively, skimmed from the spectrum auction proceeds. A general revenue subsidy will make government bear the full opportunity cost of its subsidy decisions (of course, given recent spending discipline this might mean we enlarge the subsidy so as to make it more politically popular).

Next, the subsidy should be given only for a single-tuner to a targeted group of needy individuals. If the concern is the affordability of television to the poor, then a single connection is sufficient. Further, if a “needy” household has multiple televisions, that is probably an adequate proxy that they don't need multiply subsidized tuners. Finally, the subsidy program should end by a date-certain. This is a transition, therefore the subsidy should be transitional for only a few years. Much mischief comes from perpetual subsidy programs (take a look at the schools and libraries fund if you don’t believe me). An ongoing class of TV welfare recipients is something we can do without. [Plus, it leaves more money to subsidize more politically powerful groups like seniors and agriculture!]

As with all universal service subsidies, the motivations of the players on the political field will be mixed. The broadcasters now sitting on the spectrum will exploit the universal service issue to slow the transition, all the while holding out to sweeten their own rents from a give-back and auction of the spectrum. The equipment manufacturers are behind the transition -- it inhibits consumer electronic manufacturers from achieving scale and thus lowering costs so long at there is no date-certain for the spectrum take-back.

As always, the imperative is to get that spectrum back, the sooner the better. If we have to have a TV universal service system, then make the deal to make it happen. But then make sure it comes to a stop.

posted by Ray Gifford @ 8:37 PM | Capitol Hill , Digital TV , Spectrum , Universal Service