The FCC's order threatens to reduce sharply the need for digital set-top boxes and the chips that make them work. For the most part, however, chip makers are confident that the digital TV market has more than enough growth potential to offset those losses.

Consumers buying a digital TV often get a box that just makes DVDs look crisper or only displays digital channels if used with a set-top box--not necessarily what we think of as a TV, a device that can receive over-the-air broadcasts, in this case digital ones. When FCC chairman Michael Powell unveiled the new rules, he said, "The tuner is what makes that box a television set." By July 1, 2005, all sets 36 inches and larger must have a digital tuner; by July 1, 2007, even 13-inch sets must include one.

About 2.4 million digital TVs will be sold in 2002, says Michelle Abraham, a senior analyst at In-Stat/MDR, a research firm. At an average price of $1,733, cited by the Consumer Electronics Association, an industry lobbying group, that's nearly $4.2 billion in sales. About 8 percent of those sets will have digital tuners, according to Ms. Abraham, and given the CEA's estimate of $200 for the cost of a digital tuner, that means the chip makers responsible for the tuners currently have a market of about $38.4 million. However, Ms. Abraham predicts that by 2006, when all broadcasters will be required to offer a digital signal, there will be 20 million digital TVs sold, of which 94 percent will have digital tuners. The price of both digital TV sets and tuner chip sets will drop; the question is whether TV set sales will increase enough to raise chip makers' revenue.

"This is a very significant piece of business for us," Broadcom's chief financial officer, William Ruehle, told investors in New York after Mr. Powell's announcement.

Broadcom already sells an integrated chip for cable and satellite set-top boxes; the chip receives the digital signal, demodulates it, and runs an MPEG decompression process to prepare the image for viewing. The company is developing an integrated digital TV tuner chip and has been talking with television manufacturers about possible contracts, which could open a new market for Broadcom, says Tim Lindenfelser, vice president and general manager of the company's broadband communications business unit.

The sale of tuner-equipped digital TV sets could cannibalize Broadcom's lucrative market in set-top boxes, Mr. Lindenfelser admits. In theory, Joe Consumer could plug his digital cable feed into the back of his tuner-equipped digital TV and be off and running, an option that for years has freed many analog TV owners from needing a set-top cable or satellite box.

The good news for companies like Broadcom, Mr. Lindenfelser says, is that "by a factor of ten, there are way more TV sets sold than set-top boxes," so the opportunities in the digital TV set market should more than offset any declines in set-top sales. This could be bad news for leading set-top box makers like Scientific-Atlanta and Motorola's General Instrument unit, although nothing would prevent Motorola from engineering its own chip sets for use in digital TVs.

Other manufacturers hope to capitalize on the FCC-mandated market. The chip manufacturer Silicon Wave specializes in a device smaller than a pinkie fingernail that first receives the over-the-air digital signal, what the company's vice president, David Hytha, calls "the tuner with a small t." This radio-frequency device receives the signal and sends it to the rest of the tuner for decompression. Silicon Wave's nearly single-chip product works well in combination with other vendors' equipment, according to Mr. Hytha. "Clearly, the digital television market is of great interest to us," he says.

But Mr. Lindenfelser maintains, perhaps not disinterestedly, that the only way to meet price points for small, 13-inch TV sets is with an integrated chip. Mr. Hytha counters that the set-top box market has seen a mix of offerings, including integrated chips and multiple chips, and he predicts the same variety will occur in the digital TV market.

Mr. Hytha estimates the total cost to TV set manufacturers for all digital tuner components to be $40 to $50, and that's before volume-based price drops kick in. That's considerably less than the $200 CEA estimate.

The CEA asserts that not only is the FCC severely increasing the cost of digital TV sets, but in a larger sense, the agency overstepped its regulatory authority in imposing the mandate. The group anticipates a suit against the FCC over the order. Mr. Hytha, however, disputes the CEA's claim that the FCC was out of bounds, noting that the agency was trying to maximize use of the spectrum given to broadcasters for their digital transmissions, a fundamental FCC mission.

Almost overlooked in the tuner controversy is the possibility that the FCC might order the new devices to include added technology that protects over-the-air digital content. With a digital TV and a digital personal video recorder, like TiVo, you could record a high-definition broadcast of The Lion King and play it back, say, at your kid's birthday party. But Hollywood fears you'll take the leonine classic and share it with 1,000 of your closest friends over a peer-to-peer network like StreamCast Networks' Morpheus. The FCC is considering a so-called broadcast flag, which is inserted into the digital signal and theoretically would prevent illicit sharing. It might also present a simple solution to one aspect of the Hollywood vs. high-tech copyright battle. Stay tuned.