Source: RTI estimates.

The equipment and installation benefits were applied once to each licensee in the benefit population. O&M benefits were first applied in the actual or estimated quarter of adoption and then in each quarter thereafter.

4.2 ECONOMIC BENEFITS ANALYSIS OF DAP

Whereas the scope of the AgileVision analysis was limited to PTV licensees, the scope for the analysis of DAP is all DTV stations—both commercial and noncommercial. The DAP analysis is concerned with the total number of current and future digital transmitters. The analysis is similar to the AgileVision analysis in that it quantifies onetime and ongoing benefits for adopters. However, the definition of adopters is broader.

DAP adopters are those DTV stations that installed a Thales digital transmitter by the end of the second quarter of 2000 and all digital transmitters installed thereafter. As discussed in the analysis framework section, it is reasonable to assume that, beginning in the third quarter of 2000, all new DTV stations were broadcasting with digital transmitters that contain some type of DAP.

This DAP analysis quantifies the economic benefit of DAP per digital transmitter in the benefit population. Several DTV stations discussed the cost savings DAP has yielded for their operations. This analysis combines their comments with those from a transmitter manufacturer and industry data to calculate economic benefits. It is also important to note that this analysis assumes that each station has or will have only one digital transmitter.

4.2.1 DAP Economic Benefit per Digital Television Station

During interviews, digital transmitter stakeholders, which include DTV stations and manufacturers, said that DAP has both an equipment and installation cost benefit as well as ongoing O&M benefits. This analysis estimates the total onetime benefit to be about $30,700, including equipment and installation costs, and the quarterly O&M benefit to be $3,700 (see Table 4-5). The details behind these calculations are shown below.

Equipment Cost Benefit

Filters are required to limit adjacent band interference in digital transmission. “Such filters are expensive, take up space, and drive up the cost of installation” (Jessell, 1996). DAP dramatically reduces, but may not eliminate, the need for output filters on digital transmitters. Digital filters 5 are used to mitigate out-of-band products; however, DAP preempts much of the need for filtering by inserting equal and opposite effects to counteract them. Transmitters with DAP may still require digital filtering technologies to prevent out-of-band effects. Stations and manufacturers interviewed indicate that, on average, the equipment cost benefit is $30,000 per transmitter.

Installation Cost Benefit

Transmitter installation and set-up, though still costly, has improved greatly over the years. Transmitters sit in facilities adjacent to TV towers and antennae, which are often located some distance from stations’ studios. Anecdotal evidence and a review of broadcasting literature indicate that many stations have either retrofitted or expanded existing transmitter facilities; indeed, many have constructed new buildings.

However, stations would have incurred such costs regardless of their technology choice. DAP’s benefit is in the time required to configure the transmitter’s settings. Although it takes time with either system to ensure precise and accurate configuration, DAP reduced the effort required by more than 10 hours. This analysis estimates the installation benefit to be $700 per digital transmitter.

DAP’s O&M benefit consists of the labor hours transmitter supervisors would otherwise invest in correcting transmitter settings when out-of-band effects occur. In the absence of DAP, the transmitter supervisor would travel to the transmitter facility and manually adjust the transmitter’s settings more frequently. This analysis estimates DAP’s O&M benefits to be $3,700 quarterly.

The O&M labor benefit is calculated by multiplying the hourly benefit for transmitter supervisors (11 man hours) by the mean BLS wage rate for the most similar position, broadcast technician ($15.61 per hour; BLS, 2002). The resulting direct labor expenses were multiplied by 2 to capture indirect labor expenses.

The conversion to DTV is by no means complete. As of January 30, 2003, 733 stations were broadcasting digital signals (NAB, 2003). However, there are 1,719 television stations in the United States (Federal Communications Commission [FCC], 2003a). Therefore, nearly 1,000 stations have yet to go on-air with a digital signal.

Secondary data sources were used to estimate the on-air time frames for DTV stations. Information on station digital conversion is available from 100000 Watts, an online information service that tracks developments in the broadcasting industry (100000watts.com, 2003). The service tracks FCC information and compiles the digital status of all television stations in the United States. In addition, Digital Tech Consulting compiled the on-air dates for existing DTV stations for the Consumer Electronics Association (CEA, 2003).

In some instances, specific on-air dates were not available from the referenced data sources for unconverted stations. For these stations, this analysis assumed that the rate of future conversion was similar to that of the past 2 years and mapped those stations to on-air dates accordingly. Table 4-6 presents the estimated conversion time frame for all stations.

Table 4-6 also presents the DAP benefit population of 1,604 DTV stations. The difference between the total number of stations and the benefit population are those stations that installed non-Thales transmitters prior to the beginning of the third quarter of 2000. After that date, as described in Section 3, all stations were going on air with digital transmitters with DAP technology. Thus, to more accurately estimate benefits, non-Thales transmitters before that date must be subtracted from the total population to derive the benefit population.

Using the per-transmitter savings and population figures from above, the total estimated economic benefit of DAP is $302 million through 2013 for the entire digital transmitter benefits population (Table 4-7). The same 10-year time horizon was applied for the DAP analysis as for the AgileVision analysis because respondents agreed that the equipment would be in operation for at least 10 years. The equipment and installation benefits were applied once to each licensee in the benefit population. O&M benefits were first applied in the actual or estimated quarter of adoption and then in each quarter thereafter.

Source: RTI estimates.

4.3 TIME SERIES OF PROJECT COSTS

Sections 4.1 and 4.2 presented the analysis of benefits to users of HDTV project-developed technologies. This section presents the costs and creates a time series of costs for 1995 to 2000. The HDTV project cost $58 million, of which ATP provided $28 million (see Table 4-8). The balance of funds, $30 million, was provided by the JV members. The costs included direct and indirect labor expenses as well as equipment, travel, and materials costs (NIST, 2003; NIST, 1999).

The quantified benefits are analyzed in real terms using 2002 dollars; therefore, the project costs were adjusted to 2002 dollars, as well. The Bureau of Labor Statistics online inflation calculator, based on average Consumer Price Index (CPI) data, was used to make this adjustment for inflation (BLS, 2003). In 2002 dollars, the project cost $64.8 million.

4.4 MEASURES OF PERFORMANCE

In this section, the time series of Net Benefits is shown and three measures of the economic performance of the HDTV project are calculated: the net present value (NPV), the benefit-cost ratio, and the social rate of return. This section also breaks out benefits realized to-date from the total benefits estimate. Included in these calculations are the private benefits (profits) accruing to AgileVision, as well as the public benefits and the JV’s private and public costs. It was discussed previously that, due to the competitive nature of the digital transmitter market, there are no significant private benefits attributed to Thales.

4.4.1 Time Series of Net Benefits and Measures of Economic Performance

Table 4-9 shows the time series of net benefits. The net benefits in each year are expressed as the sum of:

• DAP benefits,
• the AgileVision estimated range of benefits, and
• the private benefits of AgileVision, less
• ATP and JV-member expenditures.

^a To compute NPV, net benefits were discounted to 1995, using a 7 percent annual discount rate.

Source: RTI estimates.

The net benefits of the HDTV project are estimated to be between $350 and $526 million. As mentioned previously, net benefits are expressed as a range because AgileVision’s benefits were calculated for a range of market penetrations.

JV members incurred project-related research and development costs from 1995 through 2000. Some positive benefits were accrued prior to the project’s end because Thales released transmitters with DAP to the market after completing its research within the project’s original 3-year time frame.

4.4.2 Realized and Total Net Benefits

Many of the benefits of AgileVision and DAP have been realized, meaning that they have accrued or will accrue to known current and scheduled adopters. Realized benefits are the sum of benefits from current and scheduled AgileVision adoptions and benefits from DTV stations currently on air with DAP.

Ten PTV licensees have or are committed to AgileVision. AgileVision’s benefits considered “realized” are the sum of current and scheduled equipment and installation cost benefits, as well as past and future O&M benefits. Documented scheduled AgileVision installations are included in the realized benefits calculations because scheduled adopters have already made their purchase decisions. For example, if a licensee installed AgileVision in late 2001, they accrued equipment and installation cost benefits then, but also will accrue O&M benefits through 2013. This analysis assumes that the time series of O&M benefits for that station are realized even though they have yet to accrue in actuality.

Similarly, DAP’s realized benefits are the equipment, installation, and O&M benefits that have accrued or will accrue to DTV stations that have purchased digital transmitters and are currently on air with DAP.

Table 4-10 separates realized from prospective benefits. Realized benefits total $169 million in 2002 dollars. After deducting investment costs of $65 million, the realized net benefits are $104 million. Using 1995 as the base year, the NPV of realized net benefits is only $23 million because current AgileVision adoption is low and many DTV stations have yet to go on air. When taking into account potential benefits, the NPV is estimated to be between $126 million and $205 million.

4.4.3 Measures of Performance

Three separate measures of the JV’s performance are provided in Table 4-11. The estimated value of net benefits to the economy from the project exceeds the JV’s investment costs for both the lower and upper bounds of our estimate. The NPV of net benefits is estimated to be between $126 million and $205 million. The benefit-to-cost ratio is between 3.47 and 5.00. The social rate of return is between 24.9 percent and 31.7 percent.

Source: RTI estimates.

^a To compute NPV, net benefits were discounted to 1995 using a 7 percent annual discount rate.

Source: RTI estimates.

4.5 ECONOMIC ANALYSIS SUMMARY

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1. Many of the “stations” in PTV systems are really high-power transmitter operations with their own four-letter call sign that allow the system’s broadcasting center to distribute its signal over a larger geographic area or on multiple channels. However, this report adopts the Association of Public Television Station’s practice of calling these transmitter locations “stations.”

2. The most recent BLS OES wage rates are in 2001 dollars; they were, therefore, adjusted to 2002 dollars using national wage growth estimates provided by the BLS on its website.

3. As of February 7, 2003. Adoption information from AgileVision press releases as well as confirmed reports from PTV licensees.

4. Though this analysis presents results on an annual basis, the actual analysis calculated benefits on a quarterly basis to more accurately estimate total O&M benefits for both the AgileVision and DAP analyses.

5. The term “Digital Filters” used in this report is actually referring to the suite of analog filters required to condition the output of the analog amplifiers (either solid state or tube), which is the final stage of the “digital” transmitter. Digital television still transmits an analog signal, which is only modulated with digital information

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Date created: July 12, 2004
Last updated: July 13, 2004