Belo Plan Seeks DTV Tax Breaks

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Government custodians of the digital broadcasting transition know they can't shut off analog transmitters until DTV sets and converters are thoroughly penetrated in homes that do not subscribe to cable or direct-broadcast satellite.

But with House Energy and Commerce Committee chairman Billy Tauzin (R-La.) apparently determined to end the transition by Dec. 31, 2006, some industry players are floating ideas that at once yield to the 2006 deadline and focus on hastening consumer adoption of digital equipment.

The newest proposal comes from Belo Corp., an owner of 19 local television stations. It calls for tying the 2006 deadline to a series of cable-carriage requirements and business tax credits funded with revenue from auctions of analog TV spectrum.

Belo's plans would require cable operators to carry both analog and digital signals until analog transmission ends. It would also require carriage of high-definition television and multiple digital signals.

A red flag

Tax credits would flow to "any consumer electronics manufacturer which provides inexpensive analog-to-digital converters to American viewers," Belo said in an Oct. 24 Federal Communications Commission filing.

The tax credits could be bait for the Consumer Electronics Association, which has raised many concerns about another feature of the Belo plan: the so-called broadcast flag.

The CEA and computer companies fear that the broadcast flag — which is intended to combat the piracy of digital content — would be used to erode consumers' traditional home-recording rights.

Dallas-based Belo told the FCC the tax credits would represent a "safety net" to ensure the completion of the transition "without disenfranchising American viewers." The company did not provide cost estimates for the tax credits or for an unnamed "fiscal incentive" for the CE industry.

The cost of the tax credit would depend on the per-unit cost of converters and the number of converters the federal government would be willing to subsidize.

The price tag would likely run into the billions of dollars if estimates that 81 million analog TV sets are not connected to a pay TV service prove to be correct.

In its FCC filing, Belo did not explain why it supported tax credits for businesses instead of consumers. But an executive said the company proposed business tax credits because they appeared to be more efficient.

"The business side looked easier," said Regina Sullivan, Belo's vice president of government and public affairs. "The [Internal Revenue Service] guys might argue with me."

The intent of Belo's proposal was to assemble a package of policy recommendations that would address broadcast and consumer needs if the federal government were serious about the 2006 deadline, Sullivan said.

"We could take a hard date if you could get these other pieces of the puzzle to fall into place," she said.

Cool response

Officials at the Consumer Electronics Association and the National Cable & Telecommunications Association didn't sound supportive.

CEA vice president of technology and policy Michael Petricone said his organization has opposed DTV subsidies since the time the issue was raised during the Clinton Administration.

"The consumer-electronics industry has never asked for taxpayer subsidies and that is unlikely to change in the future," Petricone said.

The NCTA has been resisting government carriage mandates that add to cable's current must-carry burden.

"Dual must-carry already has been tentatively rejected by the [FCC]," said NCTA spokesman Marc Osgoode Smith. "Thus, it is difficult to see how this regime would survive the same constitutional scrutiny.

"We continue to maintain that broadcaster energies are better spent on marketplace, rather than regulatory, solutions to the digital transition. The trend is clear and market forces are driving the digital transition."

Under current law, a TV station is not required to surrender its analog license until 85 percent of the television households in its market have DTV reception equipment, including digital sets, cable set-tops or off-air converters.

Few are willing to predict when the 85 percent threshold will be met.

Both broadcasters and policymakers have acknowledged that the transition cannot end until they have ensured that millions of consumers won't suddenly find that their analog TV sets are useless without converter equipment.

At the same time, Capitol Hill lawmakers want to expedite the return of analog TV spectrum for future auction. Some broadcasters are reportedly convinced that a 2006 analog deadline would never become law, while other broadcasters are interested in seeing a deadline established because of the cost burden of supporting analog and digital operations from a single source of income.