The DTV Transition's New Math

[Commentary] What are the costs associated to ending analog television in 2009 instead of 2007? There are three big numbers to watch. The first is the amount of the set-top box subsidy. The second is the value of the frequencies to the government. The third is the consumer benefit. Let's do the spectrum math. 1) On the set-top box: "The longer you wait, the more expensive the box becomes, because demand goes down," said an official with Zoran, which makes circuitry for set-top boxes. "From a subsidy point of view, [waiting 'til '09] may be a wash." 2) Will spectrum be worth more in '09? Spectrum experts say the Congressional Budget office is being too cautious when estimating the revenues that could be generated by analog TV spectrum auctions. 3) Consumer benefit: Even if that auction did yield less, delaying the DTV transition until 2009 does not make economic sense. "The notion that the government would delay an auction purely to increase revenues to the federal government is perverse," said Dorothy Robyn of the Brattle Group. "The government should be acting to get the spectrum into the marketplace as soon as possible, and not as a monopolist seeking to maximize revenue," added Gregory Rosston of the Stanford Institute for Economic Policy Research. That's because of the massive consumer benefits that flow from increased cellular and broadband competition. With only about 160 megahertz of spectrum devoted to commercial services, the United States is far behind other industrialized countries. If another 60 megahertz were auctioned, consumers would save $24 billion every year because they would use wireless devices more and pay lower prices for using them, according to George Mason University economist Tom Hazlett. Bottom line: Keeping the hard date at 2009 would yield the government at least $10 billion, minus up to $3 billion for converter boxes. There would be no consumer benefit until 2009. That's a $7 billion total. Imagine that a hard date of 2008 yielded $8 billion and the subsidy remained constant. The $24 billion annual consumer surplus puts this package at approximately $29 billion. Even if a hard date of 2007 yielded an implausibly low $5 billion in auction revenue, with a similar subsidy, two years' worth of spectrum usage by consumers means this approach would net a $50 billion benefit.