A BANDWIDTH BONANZA

By Romesh Ratnesar

Even by the standards of beltway largesse, the arrangement was breathtakingly generous. In April the Federal Communications Commission, at the behest of Congress, handed out prized space on public airwaves to the nation's television broadcasters, space that would have fetched the public as much as $70 billion at auction. The broadcasters got better than a good deal on the new frequencies (effectively, a second channel for each of the nation's 1,500 TV stations). They got them for free. "The largest single grant of public property to a single industry in this generation," grumbles FCC chairman Reed Hundt, who favored an auction of the spectrum space.

The idea behind the giveaway was that the new channels would be used to provide high-definition television (HDTV), which features razor-sharp pictures and CD-quality sound, as well as a host of other digital services. Broadcasters argued that without getting the channels for free, they could never afford to develop HDTV. And, they emphasized, it was only a loan: by 2006, the rollout of digital TV would be complete, and they would give back their old analog channel space. Fair enough, perhaps, if seeing Dan Rather's pores clearly is worth $70 billion to the nation.

But it turns out that the promise of HDTV may have been just a ruse. Each month, in surreptitious ways, the handout to the broadcasters becomes more egregious, which is unsurprising, given their lobbying clout with Congress--$7 million worth in the past two years. A clause buried in this summer's balanced-budget act, pushed by House Speaker Newt Gingrich and Senator Trent Lott, allows stations to keep both their old and new channel space beyond 2006 as long as 15% of households in their markets are still using analog sets. And ABC president Preston Padden has disclosed that his network will probably forgo broadcasting HDTV altogether and instead cram a combination of several standard-definition channels and even some pay-TV programs into the digital pipe. Infuriated public watchdogs see this as sleight of hand. "They get all this spectrum for free, and nobody else had a chance to bid on it," says Solveig Bernstein, a telecommunications expert with the Cato Institute. "It's ridiculous."

ABC's backtrack on HDTV came as little surprise to many industry watchers. "The great myth here is that this was all about HDTV," says Hundt. "HDTV has been a fraud by the broadcasters all these years." Indeed, broadcasters claim that in the frequency consumed by a single HDTV transmission, they can "multicast" several channels of lower-grade digital pictures, which, to the average couch potato, are indistinguishable from the real thing. "The technology is getting so good that we can contemplate multiple channels without any difference in picture quality that the consumer is going to see," Padden told TIME. The other networks are also hinting that their channels won't be devoted solely to pure HDTV. Says Charles Jablonski, a senior executive at NBC: "We have yet to see a compelling reason to forfeit our flexibility."

That makes good business sense: few industry insiders believe that HDTV will catch on very quickly. "We don't see it adding any money to our bottom line," Jablonski says. In time, the multicast approach should produce a windfall for broadcasters, allowing networks to offer subscribers-only and home-shopping channels in addition to their regular free programs. Channel surfers will find themselves--for $150, the price of a converter box--awash in viewing options, not to mention cleaner, brighter reruns of Seinfeld and Party of Five. And, says Padden, "by this time next year, technology will allow us to do things we can't think of today."

It all sounds fine. But wasn't the giveaway of the free channels contingent on the broadcasters' delivering HDTV? That turns out to be another myth. The Telecommunications Act of 1996 gives the broadcasters carte blanche to offer any programs or services they please so long as they continue to provide one free channel with picture quality as high as today's analog signal. "We're not reneging on our agreement," Padden claims. "We're exceeding it."

Perhaps. Even so, the memory of Congress and the FCC handing broadcasters the entire digital spectrum, on the house, remains a stinging one. So what's an unsuspecting public to do now that it has been deprived of billions of dollars in airwave-auction revenue? The White House says it is studying ways to mandate that broadcasters carry public-interest programming, like free airtime for political candidates. That would, of course, turn the whole mess into a giveaway not only to broadcasters but to pontificating politicians as well. Surely there must be a more sensible way for the government to dispose of a resource worth $70 billion.

--With reporting by Bruce van Voorst/Washington

With reporting by Bruce van Voorst/Washington