GAO tells Congress set-top box subsidy could exceed $10 billion

Television broadcasters have spent billions on their conversion from analog to digital television, but they may not be alone when it comes to ponying up billions for the transition.

Last month, during a hearing by the House Subcommittee on Telecommunications and the Internet, the General Accounting Office told Congress a program to subsidize consumer set-top box purchases could cost the federal government more than $10 billion.

Some influential lawmakers have recently expressed their desire to bring the transition to an end by Dec. 31, 2006 by eliminating the 85 percent DTV audience provision of existing law. However, doing so literally would leave tens of millions of viewers who exclusively watch free over-the-air (OTA) television in the dark. To short circuit the political firestorm that most likely would result from such a move, Fred Upton (R-MI), who chairs the House Subcommittee on Telecommunications and the Internet, and others are considering subsidizing digital-to-analog converters for consumers.

At a Feb. 17 hearing, Mark Goldstein, GAO Director, Physical Infrastructure, revealed to the subcommittee findings of a survey it had commissioned to determine how many viewers might require a set-top box and the cost of subsidizing those devices. Among the findings he reported were:

19 percent, roughly 21 million U.S. households rely exclusively on free over-the-air television
57 percent, nearly 64 million households view via cable
19 percent, or about 22 million subscribe to a DBS service
48 percent of OTA households have incomes under $30,000
29 percent of cable and DBS households have incomes under $30,000
6 percent of OTA households have incomes exceeding $100,000
13 percent of cable and DBS households have incomes exceeding $100,000

The GAO looked at two different scenarios requiring a set-top box. In case No. 1, the GAO assumed that cable and DBS providers would continue carrying broadcast signals as they do today, eliminating the need for subscribers to get new equipment. Case No. 2 assumed that cable and DBS providers would be required to carry broadcasters’ digital signals in substantially the same format transmitted, requiring subscribers to have new equipment to receive HD digital signals.

A set-top box subsidy for case No. 1 would cost about $460 million to $2 billion, depending on the cost of the box and whether there’s a means test.
A set-top box subsidy for case No. 2 would cost between $1.8 billion to about $10.6 billion.

The GAO also projected the cost of a set top box subsidy based on a means test set at 200 percent and 300 percent of the poverty level and without a means test. At 200 percent of poverty level, the results are: