Digital TV coupon program hampered from the start

— -- "Do you really think this will work?"

The question, posed by consumer advocate DeAnne Cuellar, was directed at Tony Wilhelm of the Commerce Department's National Telecommunications and Information Administration. It was February 2008, and Wilhelm, head of consumer education, had just explained the digital TV coupon program to a group of consumer advocates that included Cuellar.

The program, core to the government's plan to turn the USA into an all-digital TV market, offers $40 coupons — two per household — toward converter boxes that turn digital signals into analog. TVs that use antennas must have a converter; otherwise, they'll go dark once the switch happens. Cable and satellite TV customers aren't affected.

Cuellar, director of the Texas Media Empowerment Project in San Antonio, was concerned that the $1.34 billion program would run out of money before the nation's neediest — the poor, elderly and disabled — could apply. For many, she pointed out, free TV is their only connection to the outside world.

Wilhelm told her not to worry.

"He said most coupon programs have low redemption rates, so he didn't expect many people to use or even want financial assistance, Cuellar recalls.

She says Wilhelm cited grocery store coupons — for cereal, cleaning products and such — which have average redemption rates of 10% or less. "They were confident that everything would be fine."

Cuellar's recollection of the exchange is shared by two other people who attended the private briefing: Chris Murray, senior counsel for Consumers Union, and Gene Kimmelman, vice president of international policy for the same group. Wilhelm says he does not recall the meeting or the exchange.

As it turned out, everything was not fine. NTIA exhausted its budget just 10 months later, forcing Congress to scramble to keep the program afloat.

The coupon program "was supposed to help everyone who was losing a piece of equipment that was perfectly functional — their (analog) TV," says Kimmelman. "Instead, at every stage — from the drafting of the (DTV) bill to actual implementation — this program was set up to fail."

As envisioned by Congress, digital TV was supposed to give "free" TV, a fixture in U.S. living rooms for more than 50 years, a much-needed face lift. Instead, the program got so bogged down that lawmakers, in the midst of dealing with an epic financial crisis, had to run to the rescue.

Why did the program go off the rails so badly?

Interviews with more than a dozen current and former NTIA officials, consumer advocates, White House personnel and others suggest a combination of factors. Among them: bureaucratic bumbling, penny-pinching, NTIA's narrow interpretations of provisions in the DTV bill, and relentless warring about money between Republicans, who wanted to spend as little as possible on the DTV transition, and Democrats, who had concerns about funding from the start. Some sources would speak only on the condition of anonymity because they're not authorized to comment publicly and fear retribution from current and former employers.

Demand was seriously underestimated

"There were so many hurdles and detours (for consumers) that the chances of the program working successfully were very small right from the beginning," says Rep. Ed Markey, D-Mass., former chairman of the Subcommittee on Communications Technology and the Internet, which has congressional oversight of NTIA.

NTIA's assumptions about the popularity of the coupons proved woefully off target. As of March 18, more than 54.2 million coupons had been requested, and 25.7 million redeemed. Average redemption rate to date: 55.7%.