NTIA COUPON PROGRAM MAY START SLOWLY

The National Telecommunications and Information Administration says you can count on it.

As promised, starting next Jan. 1, a spokesman for the Commerce Department agency says, consumers will be able to request coupons for $40 discounts on digital-to-analog converters—set top boxes that will enable them to continue using their old analog TV sets for over-the-air reception even after broadcasters switch to digital-only service on Feb. 17, 2009.

But here’s the catch:

NTIA will not start sending out the coupons until it knows that retailers have the boxes on their shelves—and when that will be is still not certain.

 â€œMy sense is it will not be on Jan. 1,” says Marc Pearl, executive director of the Consumer Electronics Retailers Association, a trade group that represents the likes of Circuit City, Best Buy, Radio Shack, Sears, Target and Wal-Mart—sellers of two-thirds of consumer electronics in the country.

Pearl’s best and most specific prediction as to when the boxes may be available in stores is “early 2008.”

And the actual time depends on the retailers being able to sort out some sticky issues with the NTIA on how the coupon program will work and where demand for the set top boxes is likely to be, he says.

In the end, “it is our hope that there will be broad participation” by retailers in the coupon program, but it would be for political reasons, not economic ones, he says.

Selling the government-subsidized boxes is “a major chore,” he says.

According to press reports, he says, the manufacturers are pricing the basic box at between $60 and $75. At those prices, “the margins are very, very thin for the manufacturer as well as the retailer.”

What’s more, the product has a short shelf life—probably 18 months, demand is indeterminate, and the government is subsidizing only 33 million boxes, he says. “It’s more pain than profit.”

Since its inception, TV broadcasting has been an analog service.

As part of the government’s decade-old plan to move television from analog to digital, TV stations several years ago began broadcasting on a second digital channel, while retailers began selling digital TV sets.

On Feb. 17, 2009—just 544 days from today—the long transition period of dual broadcasting ends. TV stations must cease their analog service and broadcast digital only.

The government is eager to recover the spectrum the broadcasters are now using for analog. It plans to allocate some of it for public safety uses and expects to sell the rest at auction for billions of dollars to commercial wireless companies.

The principal problem for the government is the estimated 20 million homes that don’t subscribe to cable or satellite and rely on over-the-air broadcasting.

The government is also concerned about another 11 million homes that subscribe to cable or satellite, but have one or more sets around the house that are not hooked up, that still get their signals off air.

Most of the TV sets in these 31 million over-the-air homes have old analog-only sets incapable of receiving the digital broadcasts.

To soften the blow of the transition in those homes and prevent hordes of angry TV viewers from descending on Washington when their screens go black next February, the  government came up with the coupon program and charged NTIA with administering it.

Under the program, the NTIA is to distribute coupons (no more than two per home) good for $40 discounts on the purchase of set top D-to-A converters. The converters, which will retail for around $60, will allow consumers to receive and watch digital broadcasts on their old analog sets.

NTIA took its first big step in the program just last week, announcing that it had awarded a $120 million coupon-program contract to IBM.

But for the program to work, NTIA needs the cooperation of every link in the broadcasting food chain—broadcasters, consumer electronics manufacturers and consumer electronics retailers.

Participation is voluntary, although all segments are under heavy political pressure to do all they can to make it work.

To take part, consumer electronics manufacturers and retailers must be certified by NTIA. The NTIA wants to make sure the boxes work properly and that waste and fraud don’t creep in.

Broadcasting says they will do their bit, launching a major public awareness campaign to inform consumers of the transition, what their options are and the availability of the coupons. NAB Joint Board Chairman Jack Sander outlined the campaign in an open letter to the FCC last week.

Consumers in over-the-air households do have options. Instead of buying a NTIA-certified converter with a coupon, they can buy a new TV set since all sets are now built with digital tuners. Or, they can join most of Americans in subscribing to cable or satellite.

Consumers can also buy DVD and DVR players with digital tuners built in, but they will not be able to use the NTIA coupon. The NTIA program is restricted to low-cost boxes. The only features allowed are remote control and electronic program guide.