Set-Top Subsidy Setback

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Washington— A federal agency has tentatively decided to exclude cable and all other pay TV subscribers from participating in the $1.5 billion program designed to extend the life of analog TV sets after TV stations terminate analog transmission in early 2009.

The National Telecommunications and Information Administration has authority to issue up to $1.5 billion in coupons to help millions of consumers purchase digital-to-analog converter boxes. But in the February 2006 law that created the fund, Congress did not establish explicit eligibility criteria.

Last week, the NTIA, a division of the U.S. Department of Commerce, said it would be appropriate to withhold subsidies from pay TV homes because Congress intended to target the money on broadcast-only households.

'NOT ELIGIBLE’

“Households that receive cable or satellite television service would not be eligible even if they have one or more analog-only television receivers not connected to such service,” NTIA said in a notice with proposed regulations.

National Cable & Telecommunications Association spokesman Brian Dietz said he wouldn’t comment on the NTIA proposal. But the National Association of Broadcasters spokesman Dennis Wharton said the trade group “expected that homes relying exclusively on broadcast television would be given priority by NTIA when it adopts DTV converter-box rules.”

Under the program, each eligible household may apply for two $40 coupons, which can be used to defray the retail cost of converter boxes. The law, however, bans combining two coupons to buy just one converter.

NTIA plans to issue coupons on a first come, first served basis, probably from Jan. 1, 2008, to March 31, 2009. The analog TV cutoff date is Feb. 17, 2009. But NTIA suggested that coupons won’t be issued until the technically proper converter boxes become available in the market.

“It is our understanding that a converter box as defined by the [law] is currently not commercially available,” NTIA said.

According to the U.S. Government Accountability Office (GAO), the U.S. has 21 million broadcast-only households. The NAB estimates that broadcast-only homes have 45 million analog TV sets that could go dark in an all-digital environment. Pay TV homes have another 28 million analog sets not connected to cable or satellite service.

With millions of analog TV sets potentially at risk and millions of TV-set owners potentially an angry pool of voters, the mechanics of the digital TV transition have always been politically sensitive.

“We would hope that no broadcast-only TV sets are forced to go dark during this transition. NAB will continue working with policymakers to ensure minimal consumer disruption as the February 2009 date approaches,” Wharton said.

ECONOMIC TEST

By focusing on broadcast-only homes, NTIA would have a budget roughly corresponding with potential total demand. If 21 million broadcast-only homes each applied for two $40 coupons, the subsidy program would cost about $1.7 billion.

But the NTIA is already thinking about narrowing the eligibility criteria by adding an “economic need” test which would deny coupons to any non-pay TV household with annual income above the federal poverty line, defined as $19,806 for a family of four.

J.H. Snider, a digital TV analyst at the New American Foundation in Washington, D.C., said the ban on pay TV home participation and possible income tests could prove meaningless because there is no penalty in the law for violating NTIA’s restrictions.

“This is tailor-made to invite waste, fraud and abuse. It’s all based on trust,” Snider said, adding that he wouldn’t be surprised at some point to see a secondary market for converter boxes emerge on eBay Inc.’s auction site.

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