Race for digital radio is uphill from here
The starting shot is fired at auction in April

Originally published in Current, March 31, 1997

By Steve Behrens

Entrepreneurs who want to offer nationwide, multichannel digital satellite radio service this week will buy FCC licenses to do so.

The auction officially opens a strange competition that will propel radio in a lurching transition to digital transmission. On one team will be the two winning satellite broadcasters, and the other, the reluctant radio industry, including public radio.

How they fare eventually will determine who delivers what kinds of radio news and music to America.

On Tuesday, April 1, four competitors for the satellite licenses will step into booths in the FCC's auction center and begin bidding for two 12.5 MHz chunks of S-band spectrum, each big enough to carry 30 national program streams (or hundreds of highly directional local spotbeams). The offers, tapped out on computer keyboards, will begin at $8 million and may go on for hours. [Bids eventually soared above $80 million; the winners were Satellite CD Radio and AMRC.]

The potential advantages of having very scarce national satellite signals are obvious, but the winners will have to overcome formidable obstacles, including sky-high upfront costs and the acquisition of must-hear radio programming that can persuade people to buy all-new radio receivers.

Traditional earth-bound broadcasters, meanwhile, face equally daunting technical problems and general lack of enthusiasm for the transition.

"Until there's a mandated timetable, as in television, I don't see that progress happening in radio," says Don Lockett, NPR's technology v.p.

When the FCC began moving ahead with satellite licensing, "the broadcasters got off their butts," says David Margolese, chairman of CD Radio, the first satellite applicant. "There has not been a big incentive. The incentive will be us becoming real."

Margolese now predicts that terrestrial broadcasters will be digital within the three years it would take his company to get a satellite operating.

This timetable--optimistic by some standards--puts the United States several years behind other major countries. Canada and Europe are moving toward digital radio on L-band frequencies, for which receivers will reach retail stores by next winter.

Where public radio comes in

The digital switchover presents various challenges and openings for public radio, as it does to commercial radio.

When technologists develop a terrestrial form of DAB that works in this country, public radio is likely to face a new wave of capital costs for digital transmitters and related equipment. That's why NPR is working with CPB and public television to anticipate public radio's needs when the TV crowd seeks federal help with digital costs. Since radio's transition may take place later, the legislation would include "placeholder" language for radio, says Lockett.

If satellite radio works economically--not a sure thing--public radio may face strong new competition in its programming niches, as pubradio seers have long predicted. Strong local content may be the safest refuge under a hail of satellite signals.

Pubcasters also like the prospect of having a second CD-quality channel to expand their program output, perhaps upgrading music to a digital signal and keeping news on analog FM, says Skip Pizzi, editor of BE Radio magazine. Commercial broadcasters, in contrast, are more inclined to plan for simulcasting on both channels, he says.

Public radio could also become a program supplier to the satellite services. One applicant, Primosphere L.P., offered two channels to public radio four years ago. [Earlier article.] Cliff Burnstein, a partner in Primosphere who owns radio stations and manages some big musical acts (Metallica, Smashing Pumpkins and Bruce Hornsby), says the offer was premature, and nothing came of it. But, like other businessmen who try to talk with pubcasters, he was surprised there was no central authority he could deal with. "To say you want public radio on your satellite doesn't seem to get you anywhere," he told Current. But he'll still be interested in the idea if his firm buys a license this week.

"Certain companies" have approached NPR to talk about programming for satellite, says NPR technology Vice President Don Lockett, but the deals were "not particularly beneficial to NPR," he reports, and the network "would not do anything that would jeopardize our terrestrial distribution."

NPR asked the FCC to reserve some capacity on the radio satellites for noncommercial programming, or get the applicants to commit such capacity, but the FCC ruled March 3 that it wouldn't immediately impose any set-asides. "While we are not adopting additional public-interest programming obligations at this time, we reserve the right to do so," the commission warned. "Licensees are specifically on notice that the Commission may adopt public interest requirements at a later date." One option, the FCC said, would be a 4-7 percent setaside, as imposed by Congress on satellite TV broadcasters.

Hurdles for satellite radio

Along with its other challenges, satellite radio has had to contend with political opposition from the broadcasting industry.

The National Association of Broadcasters argued that satellite radio would starve local broadcasters on the ground and urged that the FCC prohibit it from selling advertising and delay it until terrestrial broadcasters were ready to go digital.

The FCC came close to adding new competition within satellite broadcasting. Its members were split 2-2 on the question of reopening the bidding. FCC Chairman Reed Hundt wanted to take new applicants, but changed his vote March 3 to let digital radio move ahead. So the licenses will go to two of these four applicants: Primosphere, CD Radio, American Mobile Radio Corp. and Digital Satellite Broadcasting Corp. Primosphere proposes an ad-supported service; the others would sell subscription radio.

Because of the line-of-sight path of S-band signals, the startups will have to choose between losing urban listeners or building repeater stations on the ground that will fill-in parts of cities where the satellite broadcast is blocked by trees, buildings or terrain.

With the auction over this week, the winners will need vast capital to go into business. "They say it's a license to spend money," says Margolese of CD Radio. Startup, including satellite construction and launch, will cost some $500 million, he and Burnstein agree, and any of the license contenders would have to convince financiers to put up the money.

Then they'll need a big assortment of attractive and probably exclusive programming. As Skip Pizzi has pointed out, FM radio and cable TV didn't take off until they had exclusive programming to draw audience.

Margolese agrees that consumers will expect exclusive programming. "If they're going to pay for something, they're obviously not getting it free right now," he says.

"Kind of like a fairy tale"

On the terrestrial broadcasting team, technology and economic interests have been major hang-ups for the digital transition.

Commercial broadcasters have focused a spotbeam of intense interest on the idea of "in-band, on-channel" (IBOC) technology that would let them air digital signals on the same frequencies and with the same antennas that they are using simultaneously for their analog signals.

IBOC is the obvious preference because "it maintains the status quo in a lot of different things," says Milford Smith, v.p. of engineering at Greater Media Inc., a multi-station owner based in East Brunswick, N.J. Staying in the FM band would mean that broadcasters won't have to ask the FCC for new spectrum, which probably would be subject to an auction and open to new competition. And it could maintain the relative value of broadcasters' investments in strong and weak signals.

But lab tests overseen by the National Radio Standards Committee showed discouraging results for the IBOC systems, which interfered with their host analog signals and with adjacent channels, and which suffered interference from analog signals.

"Impartial engineers concluded that all the systems were fatally flawed in terms of self-interference, cochannel and adjacent-channel interference," says a knowledgeable public radio engineer.

USA Digital Radio, the major IBOC proponent formed by Westinghouse, CBS and Gannett, has brought in technologists from Westinghouse's former defense arm, which already had invented new digital TV technology. AT&T also is working on an in-band system. USADR is developing digital systems for both the FM and AM bands.

"I think there's a lot of hope," says David Layer, a senior engineer with the National Association of Broadcasters. "I can't imagine a better effort than what they're undertaking right now." He expects USADR will have a viable system to test in 18 months.

USADR's research is "a maximum effort, and perhaps the final effort at trying to make this thing work," says Milford Smith, who was active in the earlier industry test assessments. USADR is "basically going back to the drawing board." The technologists not only have to vanquish the interference problems, but also minimize multipath echoes--"the scourge of FM radio"--while maintaining the coverage area that analog radio reaches, Smith says.

There's no precedent for the engineering task that USADR is attempting, according to Pizzi. "It's kind of like a fairy tale, technologically speaking, but seductive from a business point of view." He philosophizes: "It's never a good idea to have a business concept in place before the technology can allow it."

If IBOC can't be made to work, the alternatives for terrestrial broadcasters won't come easy:

Says Pizzi: "There is no Plan B in the United States."



Later story

CD Radio and AMRC buy first digital radio licenses

Originally published in Current, April 14, 1997

Entrepreneurs placed winning bids of more than $80 million apiece for the two S-band licenses for satellite digital audio broadcasting auctioned off by the FCC on April 2. Both earlier announced plans to offer multiple channels on a subscription basis.

Satellite CD Radio, the company that first petitioned the FCC to permit satellite radio broadcasting, in 1990, bought one of the licenses for $83.3 million; American Mobile Radio Corp., made off with the other for $89.9 million.



To Current's home page

Current Briefing on public TV and its digital transition.

Earlier news: Primosphere's offer of satellite capacity prompted 1993 discussions of how public radio could decide its response.

Later news: CD Radio and AMRC (now called XM) move toward launch of services, talk with public radio about providing program streams, 1999.

Later news: Proponents of terrestrial digital radio systems, primarily USA Digital Radio and Lucent, test their technologies, 1999.

Outside link: Web site of Canada's Task Force on the Introduction of Digital Radio, which favored the Eureka 147 system proposed for use in Europe as well. Site offers many links to international sources.



Web page created March 29, 1997
Updated April 14, 1997
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