Money for Nothing

The FCC is forcing you to buy digital TV tuners that may not even work.

In August, the Federal Communications Commission mandated that television manufacturers, beginning in 2004, include digital tuners in new TV sets. By 2007, every TV set larger than 13 inches must include the device, which today costs upward of $500 and is used to receive digital TV signals over the air. As consumers replace about 250 million sets in U.S. households, they’ll shell out more than $12 billion for the technology even if the cost falls by 90 percent.

Most consumers are asking, is it worth it? But perhaps the better question is, do the tuners even work? Last month, a New York Times review of digital TV technology noted offhandedly that a digital TV receiver placed in a skyscraper succeeded in pulling in just three of New York’s nine digital stations. The Times’ informal results echo more scientific findings. Testing under a range ofconditions in 1999, Sinclair Broadcasting found that TV sets in just 11 of 31 locations in Philadelphia could successfully tune in using the over-the-air DTV standard selected by the FCC. Sinclair—joined by several other broadcasters—has repeatedly asked the commission for the option to use the European DTV standard. Stations and viewers could choose which system they liked best.

Instead, the FCC has rejected these pleas and rendered it illegal for customers to opt out. In just over four years, traditional analog TV broadcasts are scheduled to go dark with new digital feeds taking their place. But currently less than 1 percent of U.S. homes have TV sets with over-the-air DTV receivers. That’s not a huge problem for viewers, because 90 percent of them feed their TV desires via cable or satellite, not their antennas. But it’s a huge problem for the FCC’s digital transition. By congressional statute, at least 85 percent of the homes in a market must be able to receive digital signals over the air, or the old analog stations will continue broadcasting past 2006. 

A preferred solution would be for everyone to simply pretend they can watch digital TV via their antenna. Using the pretend method, viewers will have a difficult time receiving digital TV over the air. But the same will be true using the FCC’s digital tuners, and the remedy to poor reception—cable or satellite TV—has already been adopted by all but a tiny sliver of TV households. Moreover, digital video can be viewed via cable or satellite without expensive tuners. For almost all TV viewers, buying an off-air tuner constitutes a reinstallation of tonsils. 

As irrelevant as the tuners will be, their added cost is real. The electronics industry believes the mandate amounts to a TV tax of about $200 per set. FCC Chairman Michael Powell responds that this estimate is ridiculously high, citing alternative forecasts of just $16 to $75. But given the tuners’ effectiveness, this is just a quibble over how much to pay for junk.

Powell goes on to argue that the mandate will save the broadcasting industry just as the All-Channel Receiver Act of 1962 rescued the failing video technology of its day, UHF-TV. This legislation, mandating that TV sets sold after Jan. 1, 1964, be equipped with an 82-channel tuner, “made UHF broadcasting a viable business,” a trade journal dutifully reported following the FCC’s digital tuner mandate. Powell boasts that TV “set prices actually declined following passage of the legislation.” 

Alas, both claims are bureaucratic legend. The FCC did long ago report that TV sets dropped in price following the UHF-tuner mandate. But the conclusion “was based on a misunderstanding of the way the price index for television was constructed,” economist Douglas Webbink wrote in a persuasive study. Webbink—who has worked at the FCC since 1987 and is today chief economist of its International Bureau—found that consumers paid between $85 million and $110 million each year for their UHF tuners. Despite that subsidy, UHF stations did not become more profitable. Only when federal regulators relaxed rules permitting cable systems to expand did UHF stations, which benefit from improved reception over cable, achieve widespread commercial viability.

Cable saved UHF-TV, while a TV-tuner mandate that cost consumers millions got the credit. Now the FCC positions to take a bow for forcing billions more in consumer costs for unused, and possibly unusable, digital tuners. “In the end,” Powell says, “we have to make a judgment about what is in the consumers’ best interest.”