Court Tunes in Digital Debate

The fate of an FCC plan to turn analog-only TV sets into museum pieces might come down to a cost/benefit analysis by federal judges. A three-judge panel of the federal appeals court in Washington last week seemed open—in theory at least—to the agency's claim that switching consumers to digital TV is of sufficient benefit to justify the added cost of making most new sets DTV-compatible. But the judges also questioned whether—in practice—the financial hit to average Americans is too high.

At issue is an FCC requirement that manufacturers begin outfitting their most popular TVs next summer with tuners to receive over-the air digital signals. The Consumer Electronics Association, on behalf of most set makers, sued the FCC, saying the mandate is a needless expense that hurts consumers more than it speeds the DTV transition.

"The commission made no effort to estimate the costs this new mandate will impose," CEA attorney Jonathan Nadler told the court during oral argument last week.

But Judge Douglas Ginsburg said consumer costs cannot be considered in a vacuum because plans to reclaim analog spectrum after the DTV transition is complete and auction it to new users is a countervailing reward to society that must be weighed. "That's a benefit too," he said.

The FCC ruled in 2002 that 50% of 36-inch sets capable of receiving analog signals also must include DTV receivers by July 1, 2004, and 100% a year later. All such sets 13 inches and larger must include DTV tuners by July 1, 2007.

The mandate was imposed to stem the proliferation of analog-only sets and to bring closer the day when 85% of TV households are equipped to receive digital channels from their local broadcasters—the trigger for reclaiming analog spectrum in a market.

The FCC's position is that consumers who don't care about getting over-the-air pictures always have the option of buying a digital monitor with no receiver.

Ginsburg also cast doubt on CEA arguments that the rule is invalid because it would force the majority of consumers who rely on cable or satellite for TV to pay up to $500 in the beginning for tuners they don't need, just to take care of the 15% who rely on over-the-air TV. But that already happens, countered Ginsburg, citing as an example federal safety regulators who have set standards for ladders so high that "only an idiot could fall off," thus boosting the costs for more careful individuals.

Still, the judges questioned whether the FCC adequately took into account the royalty payments due Zenith when the commission predicted tuner prices would drop substantially as production ramps up.

Judge Stephen Williams said the FCC's prediction of much lower costs over time "falls down" if opposing estimates by CEA are correct.

CEA President Gary Shapiro was encouraged by Williams' and other judges' persistent needling of FCC attorney Joel Marcus on the agency's cost estimates.

Set makers have complained that Zenith is charging exorbitant fees for rights to use its crucial DTV patents—so high that the industry will never meet the FCC's predicted $15-per-tuner goal. Zenith denies the charge.

CEA and its members are OK with a more recent FCC rule requiring cable-ready DTV sets to also be equipped with over-the-air digital tuners. The difference, Shapiro said, is that cable-ready sets contain most of the technology needed for over-the-air DTV tuners, allowing them to be added at little extra cost.

The FCC on Sept. 10 ordered cable-ready sets to be equipped with over-the-air tuners as part of "plug-and-play" standards for DTV sets that won't need set-top converters to work with cable. NAB President Eddie Fritts said the FCC deserved "enormous credit" for insisting that sets be outfitted with receivers that can receive whichever of broadcasters' digital signals are not carried by cable.