The Rise of Regional Standards Setting Bodies in
Digital Radio Technology[1]
Hernan Galperin
Titus Levi
Annenberg School of Communications
University of Southern California
Los Angeles, CA 90089-0281
Presented at the
Telecommunications Policy Research
Conference (TPRC)
September 28-30, 2002
Alexandria, VA
Abstract
On November 29, 2001 iBiquity Digital
received endorsements from both the International Telecommunications Union
(ITU) and the National Radio Systems Committee (NRSC) on its FM In-band,
On-Channel (IBOC) digital audio broadcasting system. This decision essentially moved American radio broadcasting into
the era of convergence. It also placed
the largest radio broadcasting market in the world on a firm footing to develop
a homegrown technology as its digital standard. This move is made all the more remarkable since a viable, proven,
and commercially available alternative could have been selected. Europe and several other markets around the
world have adopted a digital radio technology developed by the Eureka
consortium. Dubbed Eureka 147, this
system first emerged as a prototype in 1992 and by 1995 received endorsement
form the European Telecommunications Standards Institute (ETSI). Since then numerous broadcasters have implemented
the system allowing the European developers of digital audio broadcasting (DAB)
technology to achieve lock-in for most of Europe. The installed base has allowed these firms to begin the process
of achieving worldwide diffusion of the Eureka DAB system.
This paper examines
the economic and political incentives behind the development of domestic
standards for DAB in the U.S. and the European Union (EU). We argue that given the local character of
radio broadcasting, there are strong incentives for policymakers and domestic
technology firms to develop competing standards rather than to seek
harmonization, despite the foregone economies of scale in equipment
manufacturing and systems development.
Numerous studies have demonstrated that political benefits lead to the
strategic use of technical standards favoring local firms, particularly in
broadcasting. Regional standards
setting bodies such as ETSI and the NRSC provide the institutional setting for
such strategic maneuvering, partly due to the well-established process failures
of international standards setting bodies such as the ITU.
In the case of DAB,
the Eureka consortium - in which Community authorities play a coordinating role
- allowed European systems developers like Thomson to make investments with
some assurance that a commercial system would see widespread deployment and
adoption through Community legislation. In order to counter this early lead,
American policymakers decided to support the development of a domestic system,
arguing that the additional spectrum needed to implement the Eureka 147 system
in the US would be hard to come by since the suggested frequency bands had
military assignments in the US. This prompted the race to develop an American
system, which – as in the case of digital TV - eventually resulted in the
merger of competing systems into a single system under a new corporate
aegis. We find that while the
development of the IBOC system provides for a system of rewards that could be
seized by American firms and technology developers, the strategic use of
standards in digital audio broadcast raises issues of industrial policymaking
and possible welfare losses that regulators need to address.
I.
Introduction
Digital audio broadcasting (DAB),
like other communications technologies, has been buffeted by forces seeking
globally harmonized standards and those pushing for regional standards. An array of standard setting bodies drive
this process, including the International Telecommunications Union (ITU),
European Telecommunications Standards Institute (ETSI), the National Radio
Systems Committee (NTSC). In fulfilling
their standard setting functions, these organizations respond to various
technological, economic, and political forces at work in the process. Our research examines the impact of these
pressures. In particular we underscore
the role of political incentives in driving standard setting bodies to back
regional standards rather than seeking rather than globally harmonized
standards. We find that various
technical constraints inherent in broadcasting lend themselves to exploitation
by regional standards setting bodies seeking to fulfill various political
agendas. We conclude by critiquing
this process, noting its implications for further development of DAB
technology. In doing so, we point out
economic drawbacks and possible welfare losses encountered by following a
regionally fragmented system of standards.
We respond to these with some broad suggestions on how to reform the
process.
II.
The Role of Standards Setting Bodies in Communications Technologies
A.
ETSI and its European Partners
The number, type, and activities of
organizations involved in developing and setting standards has changed substantially
in the wake of regulatory liberalization and internationalization of
communications industries. Many
government agencies charged with overseeing the standard setting process in a
given country, such as the Federal Communications Commission (FCC), once
operated with little regard for interests beyond national borders. Even European radio regulators primarily
worked in a dyadic relationship with the large Public Service Broadcasters
(PSBs) with limited regard for interests beyond their borders.
Regulatory changes have disrupted
this regime, particularly in Europe.
Liberalization has prompted entry and market realignment. Entry has created a demand for more
organizations to enter the standards setting system, supplementing and
sometimes supplanting the role traditionally played by government
regulators. Many of these entrants have
carved new functions in the regulatory process by working among and between
state regulators, PSBs, and super-national bodies such as the EU. The critical player in the standard setting
process of DAB, the European Telecommunications Standards Institute (ETSI), is
one such organization. ETSI seeks to
coordinate with technology developers, state regulators, manufacturers,
potential users of the technology and EU offices, thus allowing the standards
process to move forward more quickly and predictably. It has undertaken this role in radio as well as wireless
telephony (Bekker, Verspagen and Smits, 2002).
As part of these functions, it coordinates actions with the European
Union (EU) to ensure standards adoption across member states. It has done so with speed and effectiveness,
allowing it to play a crucial role on developing standards, while relegating
the more globally focussed ITU to a marginal role in many cases, including DAB.
ETSI’s structural breadth and
facility in working with different types of European constituents in the
standards development process turns out to be crucial in the development of
DAB. Whereas the ITU works on a very
slow schedule in order to build consensus in standards (Besen and Farrell,
1991), ETSI focuses on developing standards for the large, mostly integrated
Western European market. This speeds up
the process, since relatively few players are involved and because the European
Community (EC) has various legislative tools at its disposal to assure
coordination and enforcement of industrial operations, including radio
standards. This institutional function
allows ETSI and the European agencies it works with to fulfill particular
regional economic aims. By establishing
standards for Europe, firms can not only serve a large, rich market, but
establish economic benefits – such as scale economies and network tie-ins
(Besen and Saloner, 1989; Farrell and Saloner, 1986b) – as well as organizational
advantages, that facilitate diffusion beyond Europe. By creating policies that enrich European firms (and their
employees), the EC creates a strong legitimizing narrative for its existence
and its usefulness. This clearly
provides the EC, as well as its partners, with strong incentives to support the
regional standard setting actions of ETSI.
Developing DAB within the context of
market liberalization has influenced the function of national regulators. As noted above, regulators in Europe
traditionally focus on working with the national PSB in setting standards and
other policies. One bit of favoritism
offered to the PSBs involves allocating generous portions of spectrum to them
in order to provide national radio networks.
In serving different locales on different frequencies, Public Service
Broadcasters consume a large percentage of spectrum in a given nation. This limits entry for commercial
competitors. DAB allows regulators to
encourage entry in two ways. First, in
licensing national multiplexes, regulators do not specify the number of
services offered within each multiplex.
For instance, the British Radio Authority encourages licensees to offer
greater variety in programming, provided that broadcasters meet minimum
fidelity standards. Second, DAB
technology allows national channels to use only one channel to reach the entire
country, rather than requiring one for each locality using analog
transmission. With national regulators
under pressure to meet EU directives
regarding liberalization, broadcasters, primarily the British Broadcasting
Corporate (BBC), pushed for a DAB design that would preserve spectrum while
allowing their listeners to use only one channel to receive national networks
anywhere in the Britain.[2]
The
integration of the European market has created restructuring of regulation in
other ways. By preserving spectrum as
noted above, cross-border interference is reduced. Rather than each national regulator pursuing the relatively
narrow self-interest of its nationalist aims, a more coordinated system has
evolved. Even though this is not a
direct result of the actions of ETSI, the more integrated system of
relationships and contracts that ETSI fosters and functions within promotes and
exploits such changes. This system
relies upon the participation of numerous organizations such as the European
Broadcasting Union (EBU) and the European Radiocommunications Office
(ERO). Both organizations serve as
conduits of information and advocacy between the EU, ETSI, and the PSBs. While they do not have standard setting in
their core directives, they do facilitate the adoption of broadcast technologies
and systems. In the case of DAB, they
worked to get PSBs to support the project and for national governments to
support adoption by PSBs by allocating the spectrum necessary to operate the
DAB technology endorsed by ETSI, called EUREKA 147[3] (ERO, 2002).
ETSI’s
role in this process has to do with its mission as well as the relationships in
which it is embedded. The CEPT created
ETSI in 1988 to focus on communications standard setting within the context of an
economically and politically integrated European market. CEPT also endowed ETSI with a remit to
include a wide variety of players in the standard setting process This group
reached beyond government regulators to include research labs, equipment developers,
manufacturers, and key technology users.
Reaching across an eclectic group of participants including state
regulators, ETSI hoped to improve the quality of standards, which would lower
the likelihood of creating undesirable standards. By involving manufacturers and users, coordination problems that
plague some technologies in the diffusion stage would likely be preempted. The group brought together as part of the
EUREKA Consortium for this project mirrors the structure of ETSI: members
represent key points of view in the research, design, development, and
deployment of the technology. This
evolution in the structure of standard setting agencies and their processes
sets ETSI apart from other standard setting such bodies such as the ITU, which
tends to group technical committees and working groups into homogeneous
clusters rather than eclectic mixtures.
Recent research suggests that
broader and larger coalitions prevent coordination problems. The dyadic relationship between EUREKA and
ETSI points out the best of these advantages, not the least of which is the
duo’s ability to operate outside of nation-state political maneuverings,
rigidities, and incentives.[4]
The different types of organizations crucial to the successful
development and deployment of DAB had a say in the process. Moreover, the tight focus on establishing a
European standard, and the likelihood that the EC would see clear vested
interests for supporting it, vastly improved DAB’s chances for success.
Broadening
the number of types of participants in the process comes at a price,
however. Large groups often display
coordination problems. Research shows
that only a single member of a technical coalition may well divide the
coalition and change its agenda, even if it does not undermine its effectiveness
(Bekkers, Verspagen, & Smiths, 2002).
On complex systems, many different pieces of intellectual property come
into play, and working out licensing fees and other booty from successful
rollout of a technology presents a daunting problem. Moreover, competition by different firms within a standard will
inevitably arise, most likely leading to market segmentation and price cuts
that erode expected margins and profitability.
These effects may undermine incentives to stay the course in the
standards development and cooperation process.
While other mechanisms exist to lessen this likelihood (Besen and
Farrell, 1994) empirical observation shows that the danger of falling into
standards battles remains (Galperin, 2002).
B. The Role of the NTSC and FCC in
the Standards Setting Process
In
the United States, a very different set of conditions exists. Oversight of standards in radio technology
continues to be concentrated in the hands of the FCC and National Radio Systems
Committee (NRSC) rather than being distributed across a series of
non-governmental agencies, newfangled standards setting bodies (like ETSI), and
regional governing bodies. For
instance, the NRSC does not coordinate between international or other national
authorities. It has little administrative
contact with the Canadian radio regulator, the Radio_television and
Telecommunications Commission (CRTC) or the Secretaría de Comunicaciones y
Transportes (SCT) in Mexico. The
limited contact that does take place generally filters through the Inter-American
Telecommunication Commission (CITEL) by way of the FCC.[5]
The weak connections between these organizations produce little impact either
regionally or internationally.
Aggravating the weak role of CITEL is its four-year meeting cycle, and
an emphasis on responding to and influencing ITU directives, that leaves it
with little influence in the international arena (CITEL, 2002). In particular,
these structural and administrative constraints place it at a disadvantage
vis-à-vis ETSI, leaving its members with little capacity to preempt or blunt
the effects of ETSI directives.
The separation between the work of
the NTSC and its North American counterparts rests on more than administrative
barriers. No broader integration effort
on the scale or depth of the EU exists in North America. NAFTA provides the rationale for some
economic coordination, but numerous
barriers impede thorough integration of communications systems. First, only one of the countries, the US,
has a strong vested interest in supporting technological developers in
radio. Canada has some interests while
Mexico has almost none. These varying
capacities translate into sharply different incentives in a technical and
standards development process, which in turn drives a wedge between the NTSC
and its North American counterparts.
Second, the mostly local nature of broadcasting reduces the need for and
benefits of harmonization. With the
exception of a few borders cities, the need to acknowledge the regulatory and
industrial practice of neighboring states is negligible. In the few cases that it does matter,
particularly along the Mexican border, enforcement of radio regulations and use
of spectrum has occasionally been fraught with tension. More than 100 complaints of cross-border
inference are filed each year. While
regulators resolve many, the number of complaints seems relatively stable,
indicating that little coordinating or preemptive capacity exist for regulators
(FCC, 2002). Finally, the US has
demonstrated the willingness to go it alone on setting communications standards
(Galperin, 2002; Lyytinen & Fomin, 2002).
While this may seem like a simplistic and off-hand observation, it has
important implications for standard setting behavior. Clearly, this maverick approach isolates thinking in the US from
taking full consideration of the benefits of coordination of harmonization. Equally important, this separation leads to
a type of social isolation of American standard setting bodies and
regulators. Institutions and
relationships necessary to carry out effective coordination do not exist, and
creating them would be costly. This
makes engaging in the process of coordination and communication necessary to
achieve cross-regional harmonization a far more expensive, and therefore, less
attractive option.[6]
While
most of the regional work involves the FCC directly, the Commission tends to
take a back seat to role played by the NRSC in the standard setting
processes. Two forces lead to this
outcome. First, the FCC has limited
resources and requires input from industry on gathering information on new
systems. The NRSC, and industry
coalitions that it aligns itself with like CEMA and EIA, conduct test on new
systems, providing much needed expert opinion on the quality of systems, their
relative benefits, and their compatibility with existing systems. Second, the industry has a long history of
exerting influence on the Commission.
The National Association of Broadcasters (NAB), the industry’s lead
lobbying organization and parent body of the NRSC, has proven itself as an
effective lobbyist for broadcasters. In
fact, some scholars claim that the FCC takes its lead from industry demands and
directives (McChesney, 1995; Hazlett, 1998b).[7]
When the Commission has taken action against broadcasters in the
standard setting process, it has shown itself more than willing to reverse its
decisions (Fink, 1981; Sosa, 1999). In
short, the industry sets the agenda in setting standards and the FCC generally
rubber stamps the decision.
The administrative and structural
barriers that separate policy making and policy makers from one another affect
the standard setting process for a variety of communications technologies. However, with radio, which relies on a
technology designed to serve localities, and which is comprised of companies
that do the same, these effects become magnified. Standards setting bodies such as ETSI and the NTSC, along with
the constellation of organizations that engage one another and government
regulators to facilitate standards development and implementation, face strong
incentives to serve their local constituencies and power bases. Unsurprisingly, regional standards prevail.
III.
Developing Digital Audio Broadcasting Standards
A.
The Development of EUREKA 147
The specifics of how regional standards developed in DAB, and the role
of standard setting bodies in producing this result requires a review of DAB
development. Two research groups, the
Institut für Rundfunktechnik (IRT) and the Centre Commun d'Études de
Télédiffusion et de Télécommunication (CCETT), began investigating the
possibility and design of a digital terrestrial system in the early 1980s
(EUREKA, 2001a). The EUREKA technical
consortium began development of the DAB system in 1986. This group brought together engineering,
technical, manufacturing, and broadcasting groups in an effort to build in
features of interest to various constituencies interested in the development of
a DAB system. This eclectic
organizational design helped to satisfy these various constituencies, leading
to the relatively early development of a standard.[8]
An
advocacy organization, the European DAB Forum, emerged soon thereafter.[9]
This group served as a liaison between EUREKA, national governments, the
EU, and standards setting bodies. Their
work really began in earnest after the EUREKA group had developed a prototype
DAB system in 1992. From there, all
players including the Forum, began working to assure adoption of key technical
elements. Most significantly, this
included filing key specification data with ETSI in order to begin the official
standard setting process. ETSI finally
advanced recommendations on a standard based on these technologies by 1995. The
recommendations appeared in a document called ETS 300-401 (ETSI, 1995). This document codified a number of crucial
features of the DAB system, particularly transmission and reception standards,
and the use of spectrum in a wide range from 30 MHz to 3000 MHz. To solidify its position, EUREKA has
established over 20 DAB standards in the years since. As part of its efforts to develop its standards globally, EUREKA
and WorldDAB have filed standards, and received endorsements, from CENELEC, the
IEC, and the ITU.
In
spite of its relatively weak role in developing standards, the ITU, largely
because of the breadth of its membership, still serves important
functions. Regulators in virtually all
countries will use the recommendations and standards set by the ITU, either as
a foil to work against in the technically more innovative countries, or as a
guide for technologies to adopt in less adept countries and markets. But make no mistake: ETSI drove the process
forward and set the agenda in developing the EUREKA 147 standards; the ITU largely
served to extend ETSI and EUREKA’s legitimacy beyond Europe. Filings with the ITU follow those provided
to ETSI, signalling the culmination of the European standard setting process,
and the broadening of efforts to establish EUREKA 147 as a global standard.
Bolstered
by the reconfigured WorldDAB Forum, the EUREKA technology began diffusing to
countries outside of Europe. China and
Israel adopted the technology in 1996, with Canada and Hong Kong adopting in
1999. Turkey has adopted the standard
this year and a number of countries continue laying the ground work for
adoption by conducting hearings on spectrum allocation and field tests of the
technology.[10]
Perhaps
the most interesting case on the list is that of Canada. By the time Canada adopted the EUREKA
system, the US had clearly signalled that it would not adopt the European
technology, opting to develop an incompatible, homegrown system (described
below). Even though the Canadian
listeners experience some overlap in radio signals in cities near the border of
the two countries, regulators there chose to adopt the EUREKA system rather
than waiting for the American IBOC technology to develop. The Canadian rationale rests on a few
points: that Canada preferred to go with a tried and true solution that had
proven itself superior to the IBOC system; that Canada had the spectrum
available for digital broadcasting in line with the specifications given by the
EUREKA system and allocated by the World Administrative Radio Conference (WARC)[11]; and that Canada’s radio system
(and therefore, its spectrum allocation) more closely resembles the European
system, with a national PSB offering several channels of programming throughout
the country, supplemented by local PSB channels and commercial stations.
In
spite of its relatively early adoption of DAB, receiver sales continue to
remain sluggish in Canada. In looking
at earlier broadcasting innovations such as FM, FM stereo, color TV, and UHF, a
key driver of receiver purchase is availability of content (Besen, 1992). Certainly for residents of border cities,
the available content in digital is considerably less than what one would
expect to be available on digital if the Canadian technological choice had been
compatible with the American choice.[12]
Moreover, when the American IBOC system is implemented in cities like
Detroit, it will offer no benefit to Canadians who have DAB receivers. They will either have to buy a second
receiver, or make due with diminished digital radio offerings. Either because of the increased cost (of
buying two receivers) or reduced expected content, Canadian diffusion may
remain stalled until some kind of relief can be found.
B. Going Against the Grain: The
American IBOC Technology
Playing
against the backdrop of EUREKA’s efforts to build its DAB technology as a
global standard, American firms and standard setting bodies worked toward the
establishment of a different DAB system.
Called In-Band On-Channel (IBOC) technology, this system developed in
response to a number of constraints facing the American radio industry. First, that spectrum allotted by WARC had
already been assigned in the US. The
L-band (1452-1492 MHz) is used for flight test telemetry and Band III (around
221 MHz) is allotted for land mobile and amateur use (FCC, 1999).[13]
Second, making new spectrum available might allow for new players to
enter the market. This comes on the
heels of a very expensive consolidation push on the part of broadcasters, who
paid high prices for station licenses after assuming that the supply of
licenses would remain fixed. If DAB would
increase the number of stations, the value of
existing licenses would probably decline. Third, the EUREKA system, designed for national broadcasters, did
not fit well with the primarily local orientation of radio operation in the
US. Finally, IBOC would allow
broadcasters to use their same familiar frequency calls in branding, albeit on
different receivers. Based on these
points, the NAB came out early against the EUREKA system.
The
cabal of American broadcasters, technology firms, standards developers and
lobbyists also saw the possibility of blunting European designs to dominate the
American market while incubating an American technology that might reach
markets beyond the US. The large US
market would allow an American-led effort to achieve scale economies and
profits roughly commensurate with those of European-based firms. This would provide a foothold for staging a
standards battle for global dominance in DAB diffusion. History and tradition strengthened the
American’s hand: Latin American markets had a track record of adopting American
standards (e.g., NTSC). By moving
quickly enough, American standards developers and technologists could
reasonably hope to establish a regional market and a formidable stream of
profits from this market.
The
effort to develop an American digital audio broadcast system dates back to 1987
with the introduction of Harris’ Digital Amplitude Modulation system. However, more concerted efforts to develop
an American DAB system did not develop until the announcement of Project Acorn
in 1989 and the establishment of USA Digital Radio (USADR) in 1991 (Harris,
2002). Each of these moves comes after
parallel developments in Europe regarding the EUREKA system. This game of catch-up would continue to the
present. Field tests begin in 1994, a
full two years behind the establishment of a prototype system in Europe. By the time the BBC has started to expand
test projects into its broadcast service, USADR was still trying to placate the
Electronics Industry Association (EIA), which conducted field tests on the IBOC
system that exposed serious technical shortcomings. By 1997, new developers entered the fray: AT&T, Amati,
Digital Radio Express, and eventually Lucent Digital Radio. In order to move the development of a system
forward, firms cooperated in developing some system components. By the end of the decade two systems, one
sponsored by USADR and another by Lucent, included many shared components and
technologies, but continued with separate and competing submissions to the NRSC
and FCC. Neither appeared a clear-cut
leader in the race, and both had encountered difficulties in field tests.[14]
In
an effort to speed development of a working system by pooling resources, and to
resolve the continuing standards battle, USADR and Lucent merged in July 2000,
forming a new company called iBiquity (iBiquity, 2000). Even though this created a monopoly, it solved
various coordination problems and regulators offered no resistance to the
deal. iBiquity soon showed steady
improvements in decreasing the interference cited in NRSC in earlier field
tests, culminating in an NRSC report entitled Evaluation of the iBiquity
Digital Corporation IBOC System. This report still cited interference problems, but audio quality
had improved sufficiently for the system to gain the endorsement of the NRSC
and ITU on November 29, 2001 (iBiquity, 2001).[15]
Throughout
this process, the NRSC played the role of motivator, in concert with systems
developers; and judge, in its contacts with the FCC. In fact, the Commission seems to have played a relatively passive
role, allotting minimal resources to the process beyond precessing of requests
for rule making and public comment.
Assessment of system quality remained in the hands of the NRSC. The NRSC provided targets for developers to
meet, eventually granting endorsement in 2001.
It
also seems clear that given the ITU’s approval of the FM IBOC system on the
same day that it gained NRSC approval indicates that the NRSC had contact with
the ITU during the process. Given the
NRSC agenda to work with developers on an American standard, and the relatively
parochial composition of its membership, this comes as a surprise (Galperin
& Levi, 2001). However, it fits
within the strategic framework of trying to preempt further diffusion of EUREKA,
particular in states with a track record of following American standards, or at
least, not adopting European standards.
IV. The Dual in the AM Band :
Digital Radio Mondiale and iBiquity
The
development of digital audio broadcasting technology in the AM band has
proceeded along a different line.[16]
Digital Radio Mondiale (DRM), the European group, did not start its
development until 1996 and did not hold an official meeting until 1997,
choosing the site of the NAB Show in Las Vegas, Nevada. The timing and location clearly indicated a
cognizance of American efforts. These
efforts, both in the FM and AM bands, would make it clear to DRM that no
possibility of outright preemption and establishment of a European “beachhead”
on DAB AM would be forthcoming. DRM
also developed out of a more broadly focussed group than EUREKA: five of its 43
founding members were American.
Moreover,
spectrum allocation issues made for key differences in DRM’s policies and
strategies. DRM has always focussed on
a wide set of spectrum types, including long wave (LW), medium wave (MW), and
short wave (SW). This falls into line
with European consumer taste, radio manufacturing traditions, and broadcaster
preferences. With Americans having
limited interest in SW particularly, DRM could serve an entire segment of the
market without nary a whit of resistance from American systems developers. By the same token, iBiquity, with no real
American market for shortwave, offered no blunting action to the development of
the DRM system. Essentially, DRM and
IBOC could coexist side-by-side.
DRM
also took a very different path in working with standards setting bodies. Rather than beginning with the more
Eurocentric ETSI, DRM submitted its first brief to the ITU in 2000, receiving
the ITU’s recommendation for approval in April of 2001, and subsequent
recommendation as the AM standard for the ITU’s member states. Filings to ETSI followed suit some five
months later (ETSI, 2001). The
International Electrochemical Committee has also given its endorsement of the
DRM system (DRM, 2002).
iBiquity
began work on digital AM before DRM even launched. This effort paid off, with the AM system gaining ITU approval in
April of 2001, roughly simultaneous with the DRM system (iBiquity, 2001a). In some sense, by taking the early lead in
the standards development process, iBiquity forced the Europeans to play the
catch-up game that it had suffered through in countering the EUREKA group’s efforts. However, it showed no intention of serving
all three lower frequency bands, leaving a clear opening for the DRM proposal.
Both
systems remain between endorsement and implementation. When and how they diffuse remains a matter
of conjecture. One hopeful sign is that
the two systems developers have had some preliminary talks aimed at harmonizing
the two systems. However, there are
several reasons why optimism may be reserved.
First, the geographical containment of the two markets shows that the two
technologies would have two large, possible very profitable, markets to
serve. Global competition may actually
reduce expected profits for one side or the other, thus leading one player to
steer clear of any such agreement.
Second, the large investments in two incompatible systems suggests that
keeping markets separate will allow each system to extract rents and recoup its
investments. Third, given the potential
gains to be had by technology developers within each region by selling through
to markets with which they have longstanding relationships, both players seem
more likely to fall back to a status quo position. Finally, and perhaps most ominously for the broader standards
setting process, the ITU’s endorsement of two competing, incompatible systems
legitimizes both systems and their backers’ desire for domination of the global
market.
V. Concluding Observations and
Policy Suggestions
Institutional
structures and political incentives can drive the standard setting process,
trumping the benefits of harmonization.
In the case of DAB, Europeans used the interlocking relationships
between the EUREKA technological consortium developing digital audio broadcast
technology, the standard setting body ETSI, and the EU to rapidly develop a
standard for Europe. In addition to
these groups, each with a vested interest in the others, a variety of other
organizations moved the standards process forward: the ERO, the EBU, CENELEC,
and the European DAB Forum/WorldDAB Forum provided a dense web of contacts,
negotiating bodies, and communications networks through which to facilitate the
setting of the EUREKA standard, as well as its diffusion.
Although
institutions matter, the benefits to satisfying political constituents,
particularly well-heeled, industrial interests, cannot be denied. The European membership of EUREKA allowed
for more rapid development of a standard to fit European needs, but EUREKA and
ETSI’s role in setting a standard which could turn into a windfall for
developers was not lost on either body, or ministers involved in gaining
approval from the EU for the adoption and implementation of communications
standards.
Of
critical import in the diffusion process is the way in which the system
dovetailed smoothly into the operations of PSB operations, preserving their
role as leaders in broadcasting, while complicating their role by requiring the
development of programming and services for DAB. Participation in the standard setting process, particularly by
the BBC, helped to assure this outcome.
Moreover, the spectrum preserving characteristics of digital
transmission – simulcasting channels nationwide, and compressing some channels,
like the all talk Radio 4, allows room or new services. This allowed PSBs and national regulators to
meet some of the demands of deregulation and European integration. Finally, as part of the government, PSBs
enjoyed a privileged position in gaining access to new spectrum necessary to
implement the EUREKA 147 system.
Given
the strong political and economic incentives policy makers have for setting
regional standards, establishing mechanisms for harmonization may well prove
difficult in the case of DAB. While
this has not seemed to impair the standard setting process or the industrial
adoption of the EUREKA standard, consumer adoption continues to be tepid at
best. DAB receivers have only recently
fallen below the magic number of 100£ in the UK; given the multiple analog
receivers that many households contain, it may need to fall quite a bit lower
to justify a complete switch to DAB.
While the European market is certainly large enough to generate scale
economies that should produce substantially lower prices than those currently
available, they might remain sufficiently sticky to stall the wholesale
replacement of a given household’s analog receivers. Also, currently available receivers do not include the capacity
to pick up proposed digital AM; this will retard adoption by throwing consumers
into a wait-and-see mode. The
critically important car receiver continues to be an exotic, high-end
item. However, aggressive bundling with
high-end vehicles might jump start in-car adoption, particularly in Europe
where the high-end car radio market does not have to compete with a digital
audio radio satellite (DARS) service.
In
the US, DAB’s future remains more speculative.
Like the EUREKA DAB consortium, iBiquity enjoys participation from key
broadcasters. Executives from eight of
the nine largest radio broadcast companies have seats on the iBiquity Board of
Directors. This virtually assures
continued support from the NAB, and its standards development arm, the
NRSC. Even so, debt-laden broadcasters
may show reluctance in taking on expenses involved in converting to a new
technology without a proven business model.
Those holding numerous FM licences may be particularly reticent given
that IBOC AM offers a sufficient improvement in fidelity to encourage many
broadcasters to offer more music programming on AM, thus pitting new
competitors against extant music programmers radio stations on the FM dial.
Further
complicating matters in the US is the standards disagreement between DARS
systems and proposed DAB systems. While
decoding technologies have been moving closer, particularly after the merger
that created iBiquity closed, DARS systems currently available do not offer the
capacity to receive proposed DAB signals.
While this has negligible effects on adoption of DARS in the near-term,
it may create consumer confusion when DAB reaches the point of a national
consumer product launch. Even though
much of the work in setting standards for DAB has been done, it might not have
been executed in a way compatible with offering service in a consumer-friendly
fashion. Without achieving this,
standards setting bodies may have to spend precious time making adjustments to
currently developed and endorsed systems, or manufacturers will have to make
adjustments, perhaps through the offering of radios that can switch between
incompatible systems. While this would
ease the compatibility problem, it would require expensive receivers, at least
at the beginning of the roll-out process.
Higher prices would almost assuredly discourage consumer adoption of
such systems.
While
achieving harmonization may not be strictly necessary, its absence may produce
retardation of the diffusion process of both varieties of digital audio
broadcasting. As mentioned above, some
scale effects will be lost, and high prices will almost certainly slow consumer
adoption. Ironically, this will hurt
the very manufacturers that regional standards setting bodies like ETSI and the
NRSC seek to support. More worrisome,
though, is the prospect that this type of failure may be indicative of broader
problems afflicting the standard setting process. Political and economic incentives may drive similar outcomes in
other communications systems, producing consumer confusion, slower diffusion,
and frustrated industrialists.
Avoiding
repeated encounters with such negative outcomes will require some changes in
institutions, bargaining systems, and contracts available to players in the
standards development and setting process.
Some system of side-payments may become necessary to offset the
political benefits tied to setting regional standards. Furthermore, mechanisms for achieving
broader standards, for instance through greater funnelling of proposals through
a revitalized and streamlined ITU process, may counter the work of groups like
ETSI which have repeated beaten the ITU to the punch. This may serve to prevent second movers from undermining
harmonization – in the case of DAB, the NRSC and American interests trying to
blunt the efforts of European systems developers and standards setters – by
reducing the number of markets that might adopt their technology. Finally, industrialists, and particularly
manufacturers, need to remain keenly aware that their interests will be best
served through satisfying consumer demand.
Over management of systems, and trivializing the power of consumers, leads to missed opportunities, a lesson that
Japanese corporate interests and regulators learned in their attempts to manage
two key communications technologies: high definition television and 1G
telephone systems. While market
discipline will eventually push companies toward the path of consumer
satisfaction, a more reliable means of injecting consumer information needs to
come into play much earlier in the standards setting process to avoid critical
mistakes, diffusion retardation, welfare losses, and squandering of resources.
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[1] The authors wish to offer special
thanks to participants at the 2001 Radiodyssey Conference in Brighton, England
and the RIPE@2002 (Re-Visionary Interpretations of the Public Enterprise)
Conference at the University of Tampere and Yleisradio. All gaffs are our responsibility.
[2] The EUREKA group focused on DAB
development included only one broadcaster at its inception: the BBC.
[3] The DAB project taken up by the
EUREKA consortium turned out to be its 147th project.
[4] Axelrod, et. al. (1995) and Hawkins
(1999) provide further illumination on the advantages of coalitions and
consortiums in achieving coordination.
[5] CITEL is an acronym based on the
Spanish name of the organization, La Comisión Interamericana de
Telecomunicaciones.
[6] One should note that radio
regulation makes up a relatively small part of the bailiwick of communications
regulators. As a result, few resources
are devoted to radio regulation, and even less to international enforcement and
coordination. However, even in the much
larger directive of overseeing wireline regulation, coordination across the
Mexican/American border has had limited impact, even in the post-NAFTA era.
[7] These opinions express the “captured
regulator” theory. See Stigler (1971)
for the seminal paper on this concept.
[8] Lyytinen and Fomin (2002) provide an
excellent treatment of the tension between types of organizations involved in
developing technical systems.
[9] The organization is now called the WorldDAB
Forum. The change in name reflects the
change in emphasis from lobbying for European adoption and diffusion to
encouraging the same beyond Europe.
[10] This list is comprised of Australia,
Brunei, India, Malaysia, South Korea, and Taiwan.
[11] WARC has since shortened its name to
the World Radio Conference (WRC).
[12] The problem may extend to more than
just the aforementioned border cities since roughly 80% of the Canadian
populace lives within 75 miles of the United States.
[13] The reader should note that IBOC
technology does require that each FM station have access to more of its
sideband, thus granting new spectrum, but not in an entirely new location.
[14] For standard FM allocation, each
station is given 400 kHz; the IBOC system would use sidebands in the allotment
to provide the digital signal. Tests
conducted by the NRSC and Consumer Electronics Manufacturers’ Association
(CEMA) indicated problems with the main analog station interfering with the
digital signal, and the digital signal degrading the quality of analog service.
[15] The reader should note that the FCC
continues to take comment on the system.
[16] AM bands include any allocation below
30 MHz.