[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]



 
     STAFF DISCUSSION DRAFT ON THE TRANSITION TO DIGITAL TELEVISION
=======================================================================



                                HEARING

                               before the

          SUBCOMMITTEE ON TELECOMMUNICATIONS AND THE INTERNET

                                 of the

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                               __________

                           SEPTEMBER 25, 2002

                               __________

                           Serial No. 107-141

                               __________

       Printed for the use of the Committee on Energy and Commerce









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                    COMMITTEE ON ENERGY AND COMMERCE

               W.J. ``BILLY'' TAUZIN, Louisiana, Chairman

MICHAEL BILIRAKIS, Florida           JOHN D. DINGELL, Michigan
JOE BARTON, Texas                    HENRY A. WAXMAN, California
FRED UPTON, Michigan                 EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida               RALPH M. HALL, Texas
PAUL E. GILLMOR, Ohio                RICK BOUCHER, Virginia
JAMES C. GREENWOOD, Pennsylvania     EDOLPHUS TOWNS, New York
CHRISTOPHER COX, California          FRANK PALLONE, Jr., New Jersey
NATHAN DEAL, Georgia                 SHERROD BROWN, Ohio
RICHARD BURR, North Carolina         BART GORDON, Tennessee
ED WHITFIELD, Kentucky               PETER DEUTSCH, Florida
GREG GANSKE, Iowa                    BOBBY L. RUSH, Illinois
CHARLIE NORWOOD, Georgia             ANNA G. ESHOO, California
BARBARA CUBIN, Wyoming               BART STUPAK, Michigan
JOHN SHIMKUS, Illinois               ELIOT L. ENGEL, New York
HEATHER WILSON, New Mexico           TOM SAWYER, Ohio
JOHN B. SHADEGG, Arizona             ALBERT R. WYNN, Maryland
CHARLES ``CHIP'' PICKERING,          GENE GREEN, Texas
Mississippi                          KAREN McCARTHY, Missouri
VITO FOSSELLA, New York              TED STRICKLAND, Ohio
ROY BLUNT, Missouri                  DIANA DeGETTE, Colorado
TOM DAVIS, Virginia                  THOMAS M. BARRETT, Wisconsin
ED BRYANT, Tennessee                 BILL LUTHER, Minnesota
ROBERT L. EHRLICH, Jr., Maryland     LOIS CAPPS, California
STEVE BUYER, Indiana                 MICHAEL F. DOYLE, Pennsylvania
GEORGE RADANOVICH, California        CHRISTOPHER JOHN, Louisiana
CHARLES F. BASS, New Hampshire       JANE HARMAN, California
JOSEPH R. PITTS, Pennsylvania
MARY BONO, California
GREG WALDEN, Oregon
LEE TERRY, Nebraska
ERNIE FLETCHER, Kentucky

                  David V. Marventano, Staff Director
                   James D. Barnette, General Counsel
      Reid P.F. Stuntz, Minority Staff Director and Chief Counsel

                                 ______

          Subcommittee on Telecommunications and the Internet

                     FRED UPTON, Michigan, Chairman

MICHAEL BILIRAKIS, Florida           EDWARD J. MARKEY, Massachusetts
JOE BARTON, Texas                    BART GORDON, Tennessee
CLIFF STEARNS, Florida               BOBBY L. RUSH, Illinois
  Vice Chairman                      ANNA G. ESHOO, California
PAUL E. GILLMOR, Ohio                ELIOT L. ENGEL, New York
CHRISTOPHER COX, California          GENE GREEN, Texas
NATHAN DEAL, Georgia                 KAREN McCARTHY, Missouri
BARBARA CUBIN, Wyoming               BILL LUTHER, Minnesota
JOHN SHIMKUS, Illinois               BART STUPAK, Michigan
HEATHER WILSON, New Mexico           DIANA DeGETTE, Colorado
CHARLES ``CHIP'' PICKERING,          JANE HARMAN, California
Mississippi                          RICK BOUCHER, Virginia
VITO FOSSELLA, New York              SHERROD BROWN, Ohio
ROY BLUNT, Missouri                  TOM SAWYER, Ohio
TOM DAVIS, Virginia                  JOHN D. DINGELL, Michigan,
CHARLES F. BASS, New Hampshire         (Ex Officio)
LEE TERRY, Nebraska
GREG WALDEN, Oregon
W.J. ``BILLY'' TAUZIN, Louisiana
  (Ex Officio)

                                  (ii)
















                            C O N T E N T S

                               __________
                                                                   Page

Testimony of:
    Bradshaw, Thera, President, Association of Public Safety 
      Communications Officials International.....................   110
    Corbi, Lana, President and CEO, Crown Media USA for the 
      Hallmark Channel, on behalf of National Cable and 
      Telecommunications Association.............................    82
    Fiorile, Michael, President and CEO, Dispatch Broadcast 
      Group, on behalf of NAB/MSTV...............................    36
    Gleason, James M., President, Cable Direct, on behalf of 
      American Cable Association.................................    86
    Kimmelman, Gene, Senior Director of Public Policy, Consumers 
      Union......................................................   114
    Lewis, Richard M., Chief Technology Officer, Zenith 
      Electronics Corporation....................................    68
    McCollough, Alan, Chairman, President and CEO, Circuit City 
      Stores, Inc., on behalf of Consumer Electronics Retailers 
      Coalition..................................................    97
    Willner, Michael S., Vice Chairman and CEO, Insight 
      Communications, on behalf of National Cable and 
      Telecommunications Association.............................    73
    Wright, Robert C., Chairman and CEO, NBC, Inc................    31
Additional material submitted for the record:
    Blanford, Lawrence J., Chairman and Chief Executive Officer, 
      Philips Consumer Electronics North America, prepared 
      statement of...............................................   175
    Home Recording Rights Coalition, prepared statement of.......   166
    Jackson, Mark, Senior Vice President, EchoStar Technologies 
      Corporation, prepared statement of.........................   163
    Religious Voices in Broadcasting, prepared statement of......   176
    Shapiro, Gary, President and CEO, Consumer Electronics 
      Association, prepared statement of.........................   156
    Shapiro, Gary J., Chairman, Home Recording Rights Coalition, 
      prepared statement of......................................   159
    Whiteside, Donald M., VP Legal and Government Affairs, Intel 
      Corporation, letter dated September 24, 2002...............   170

                                 (iii)

















     STAFF DISCUSSION DRAFT ON THE TRANSITION TO DIGITAL TELEVISION

                              ----------                              


                     WEDNESDAY, SEPTEMBER 25, 2002

              House of Representatives,    
              Committee on Energy and Commerce,    
                     Subcommittee on Telecommunications    
                                          and the Internet,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10 a.m., in 
room 2322, Rayburn House Office Building, Hon. Fred Upton 
(chairman) presiding.
    Members present: Representatives Upton, Cox, Deal, Shimkus, 
Wilson, Pickering, Fossella, Bass, Terry, Walden, Tauzin (ex 
officio), Markey, Eshoo, Engel, Green, McCarthy, Luther, 
Stupak, Harman, Boucher, Brown, Sawyer, and Dingell (ex 
officio).
    Staff present: Jessica Wallace, majority counsel; Linda 
Bloss-Baum, majority counsel; Will Nordwind, majority counsel; 
Jon Tripp, deputy communications director; Hollyn Kidd, 
legislative clerk; Andy Levin, minority counsel; Brendan 
Kelsay, minority professional staff; and Voncille Hines, 
minority staff assistant.
    Mr. Upton. I understand we are going to have votes on the 
House floor, three votes about 10:30 or so, so I want to get 
started. And I would say for those of you in the audience we 
did try to get the big house downstairs, and there are a number 
of things going on, including the Energy Conference. So I feel 
a little bit like a Chicago Bear fan having to travel from 
Soldier Field to Champagne, moving from downstairs to upstairs. 
So, hopefully, this will be somewhat temporary.
    But good morning. Today, we are taking a significant step 
in our efforts to get the digital television conversion on 
track. It is important to note that today is a legislative 
hearing on a staff discussion draft. Chairman Tauzin, Ranking 
Member Dingell, my friend, Mr. Markey, and I agreed that this 
is the best approach to inform the subcommittee's 
decisionmaking process as we seek to clear each of the tank 
traps that stand in the way of a successful digital invasion.
    D-Day, Digital Day, is December 31, 2006 or when we reach 
85 percent penetration. There has been much accomplished, but, 
obviously, there is still a lot of work remaining. There is 
perhaps no telecommunications issue which has consumed as much 
of our time than the digital transition. This is our third 
hearing on this issue in this Congress where I have 
participated with Chairman Tauzin in addition to six lengthy 
industry roundtables over the course of the last 10 months.
    In addition, Chairman Powell launched the DTV Task Force, 
which has held numerous industry hoedowns that he put forward a 
voluntary DTV transition plan. And the Commission recently 
issued a DTV tuner order, sometimes called the Markey DTV 
order, and there are numerous rulemakings that are pending. 
Obviously, industry lawyers and trade associations have 
attempted to hammer out agreements amongst themselves as well.
    We all had hoped that our roundtables, industry 
negotiations and the FCC action would have eliminated the need 
for Congress to have to step in any further, but while these 
negotiations and recent FCC actions have yielded some good 
results, many obstacles still remain. And given how this issue 
affects almost every American's living room, Congress cannot 
afford inaction and simply stand idly by while the sands of the 
hour glass run out. Consumers already are confused and that is 
unacceptable. It will only get worse if we do not quickly 
establish the rules of the road.
    Our efforts are all about making sure the digital 
transition happens in a timely and orderly fashion to ensure 
that the Consumers will, as seamlessly as possible, get the 
benefits of digital television. Of course, if we achieve this 
goal, not only will the consumer benefit but also public 
safety, which has an interest in utilizing the broadcasters' 
return spectrum for critically important communication. There 
are many industry stakeholders who all have a hand in 
responsibility in achieving that goal. Broadcasters, networks, 
cable providers, content providers, consumer electronics 
manufacturers and high-tech manufacturers, just to name a few.
    What we hope to accomplish today is to get input from the 
industry and our consumer advocate on the staff discussion 
draft. To be sure, there are some thorny issues addressed in 
the draft, but we believe addressing these issues head on will 
provoke the best discussion and in turn provide us with the 
best education and consensus as to how to put together a 
balanced, bipartisan piece of legislation which we can 
introduce and move through the subcommittee in the not too 
distant future.
    I want to thank all of our witnesses for being here today, 
and I ask you not to simply just tell--to not just simply tell 
us if you vigorously oppose something in the draft but rather 
if you vigorously oppose something. I hope you will just as 
vigorously help this subcommittee find creative, outside the 
box solutions that will spur the transition. Since all of our 
industries are stakeholders, it is clearly in everyone's 
interest that the transition succeed.
    Without a doubt, we are cognizant of the realities of the 
legislative calendar, but no one should read into this that our 
resolve to get these issues settled is anything less than iron 
clad, and we need to be prepared to move legislation. Moreover, 
no one should read into this that they should sit back and wait 
for Congress to act. We need all industries and the FCC to keep 
plugging away. Time is of the essence and we will continue 
riding you hard, not because we enjoy it but because that is in 
the best interest of the consumer.
    I want to commend my colleagues, Mr. Tauzin, Dingell and 
Markey for their work and their leadership on this draft. In 
addition, I want to thank all of the staff--Jessica, Linda, 
Hollin, Andy, Brendan--for their excellent skill and expertise 
in putting together the discussion draft and helping the 
subcommittee and its members tackle these very complex issues. 
And I yield to the ranking member of the subcommittee, my 
friend, Mr. Markey.
    Mr. Markey. Thank you, Mr. Chairman, very much, and thank 
you so much for calling this hearing. There are so many 
familiar faces out here. It is like old--isn't it great to all 
get back together again? I mean, you know, in a world where so 
many things change, isn't it great to know we still have this 
issue that keeps us all together.
    And it is 15 years and I think we might even have a 20th 
and 25th anniversary on this issue as well, which is really, I 
think, in a lot of ways in an era of uncertainty something that 
is reassuring that we will maintain these relationships and I 
thank each of you for coming here because without question we 
are talking about the future. We are talking about the next 
wave and how we cut this gordian knot, how soon we cut it all, 
to a certain extent, determine how quickly we can move to a 
next generation of, we will call it, NASDAQ revival.
    The digital television transition is woefully behind 
schedule, and quite simply will not conclude by the original 
target date of 2006. It is also apparent that the slowness of 
the transition is holding back two important telecommunications 
revolutions. First, the lack of meaningful progress in DTV 
transition impedes the growth of various industries in the 
interactive television marketplace, including high-tech 
manufacturers, software engineers and content producers. 
Second, the fact that broadcasters will not return to the 
government their current analog broadcasting frequencies any 
time soon means that a new generation of wireless technologies 
and services is also thwarted from reaching the marketplace. 
Both the interactive TV and wireless revolutions that are 
unnecessarily delayed by the glacial pace of the DTV transition 
could greatly contribute to economic growth, innovation and job 
creation.
    We must admit that at its core the DTV transition 
represents a government-driven policy, not a purely market-
driven phenomenon, and it is therefore imperative that 
government create the conditions and environment for policy 
success, especially given the current economic slump. It is 
important for the FCC and the subcommittee to follow through on 
the DTV policy we set in motion several years ago in ways that 
serve consumer interest.
    Government action to accelerate the DTV transition would 
send a strong signal to entrepreneurs and investment community 
that Federal policymakers are committed to creating an 
environment where the technology sector can once again drive 
growth and prosperity in the American economy. Failure to do 
this is unfair to consumers and to taxpayers but is also unfair 
to the various high-tech industries with a stake in the future 
of television and a new generation of wireless services that 
could operate using frequencies that the broadcasters 
ultimately give back.
    The FCC took an initial step in putting the transition back 
on track by action it took in August to require digital tuners 
in all television sets. This mandate which I originally offered 
as a proposal in the subcommittee back in 1997 will go a long 
way to making the transition successful, especially for those 
households in a given marketplace that do no subscribe to pay 
television systems. Consumers who purchase televisions in the 
future must have the ability to pick up off the air DTV signals 
or easily connect TV sets and receive digital broadcast 
channels over the cable or satellite system to which they 
subscribe.
    Although the Commission has mandated digital tuners, it 
failed to tackle the so-called cable tuners, which would also 
enhance the capability of consumers to obtain the digital 
broadcast stations carried over cable systems and thus spur on 
the transition. Moreover, the Commission has thus far not 
properly implemented the unbundling provisions of the 1996 
Telecommunications Act for set-top boxes, cable modems and 
other equipment. Both of these items merit renewed attention, 
in my view, in order to get the DTV transition back on track 
and to reinvigorate the telecommunications sector of the 
economy.
    And, finally, I want to mention the important role that 
public broadcasters will play in the digital television 
transition. Many of the public broadcasters around the country 
are further along in the transition than a significant number 
of commercial broadcasters. Such public stations have been 
clear in their determination to maximize the versatility that 
the digital use of the spectrum accords such stations in their 
service to the country. Because public broadcasting stations 
indisputably serve the public interests with a full range of 
educational content, news and community information and 
children's television, I believe that they must have a clear, 
non-negotiable right to carriage on cable and satellite systems 
for all of the content that they broadcast free to the public.
    In addition, because such stations are non-commercial and 
cannot air advertisements to support their costs, the public 
broadcasting community ought to have the financial assistance 
they need to convert from analog to digital in all of the 
communities that they serve.
    In many ways, Mr. Chairman, this subcommittee was 
instrumental in beginning the transition to high definition TV 
for the country and certainly in shifting the debate from 
analog HDTV to digital TV. This subcommittee, therefore, will 
have a special role in bringing the digital television policy 
of the country to a successful and timely conclusion. This 
hearing will provide members with an excellent opportunity to 
explore all of these issues. This is a very, very high powered 
panel that you've gathered here today. It would be difficult to 
imagine one that had a greater likelihood of clarifying these 
issues for our country. I congratulate you on the panel, and I 
yield back the balance of my time.
    Mr. Upton. Gentleman's time has expired. We recognize the 
chairman of the full committee, gentleman from Louisiana, Mr. 
Tauzin.
    Chairman Tauzin. Thank you, Chairman Upton, and accolades 
here too for the great work you've done in bringing us to this 
point and to all of you who helped work on the staff discussion 
draft that is before us today. I want to welcome you all. To my 
friend, Mr. Markey, I want to wish you a happy 10th anniversary 
in this transition, but I also want to tell you there will not 
be another one. We are not going to be sitting here 10 years 
from now talking about this. Either we will work it out 
collegially and collectively as we have tried to do through the 
roundtables or we will work it out legislatively and 
regulatorily, but it will be worked out. And American consumers 
will have a smooth transition to the digital age.
    That is a commitment this committee has made when we 
started this transition. And Mr. Markey knows we are going to 
finish it. And Mr. Upton is committed to that, and I am 
committee to that. So what we challenge you today with is what 
legislation might look like and it is full of tension. It is 
designed to create tension, designed to challenge you, designed 
to demonstrate what Congress just might do in a lot of these 
area if we can't get very quick, very soon agreement of all the 
parties.
    I want to make it clear this is just a discussion draft, of 
course; it is not legislation yet. And no one should look upon 
it as legislation. It is not a bill, it is a discussion draft. 
It is designed to do that, elicit discussion. And we don't 
enter this stage of the process lightly, I know you know that. 
We have asked the FCC earlier which was tasked with the job of 
shepherding the transition through on behalf of the consuming 
public and all the industry players. And, frankly, there are 
too many issues that remain unresolved. And consent and 
agreement have not gotten us past some of those hurdles. FCC is 
reengaged. I am very pleased with Chairman Powell and his 
commitment to reengage, and I urge him to move as quickly as he 
can because time is running out on us.
    When we look at the issues, the daunting task of settling 
these issues in the time remaining before the year 2006 when 
this transition is complete, the real focus should be on 
consumers. So let us talk about what consumers expect out of 
this and what this staff draft tries to do.
    First of all, consumers reasonably expect that in the 
future their TVs will receive broadcast signals just as they do 
today. And the FCC decided to ensure this with its DTV tuner in 
August and that the cost of incorporating a DVT tuner into 
television sets should fall quickly as all sets include these 
tuners, and the 5-year phase-in schedule does not require the 
smallest and the least expensive set to include tuners until 
2007, by which time the cost of this technology will 
undoubtedly be considerably lower in real dollars. The staff 
discussion draft affirms this approach by the FCC.
    Second, consumers reasonably expect that consumer 
electronics equipment, including the TV sets, will work with 
the cable system. And given that over 70 percent of consumers 
receive their broadcast signals via cable today, that makes a 
lot of sense. Reportability of consumer electronics equipment 
and nationwide inoperability with cable television systems and 
digital television receivers equivalent to today's cable-ready 
analog televisions is an essential element to ensuring consumer 
acceptance and sufficient penetration of DTV. And so the staff 
discussion draft requires this. You know, I buy my equipment in 
New Orleans and I moved to Washington, DC to come to work for 
the good folks of Louisiana. It ought to work here and visa 
versa anywhere in the country.
    Consumers reasonably expect to be able to purchase a 
reasonably priced basic cable-ready digital television set, and 
the staff discussion draft ensures that consumers are not 
forced to buy a Cadillac when all they might want is a Buick or 
something a little less expensive than a Cadillac. Consumers, 
in exchange for purchasing new digital equipment, expect to 
enjoy exciting new content. That is going to be the driver of 
this new transition. The staff discussion draft again affirms 
the FCC's authority in this critical area of transition. 
Content is key. We all know it. If consumers are going to buy 
this equipment, sign up to these new broadband systems that are 
going to move it around, they want something rich and exciting 
in programming. And the staff discussion draft puts some focus 
on the FCC's current proceeding, specifically requires it to 
implement a broadcast flag protection system for that content, 
so that in the digital age content providers are more willing 
to put good stuff in the systems.
    But the question is what are the limits of that protection? 
You see, because consumers also expect to be able to continue 
to enjoy the ability to home record in a digital age, and we 
affirm this in the staff discussion draft. And we need to 
determine what companies require in order to release and 
continue to release quality content and at the same time 
protect the rights of consumers to fair use of that product, in 
their homes and perhaps in their mobile systems even. What are 
the limits of what we can do here? What is workable? What is 
viable? That is a good debate.
    Consumers reasonably expect that when they purchase an HD 
set they will be able to view HD programming being offered by 
the network, and the staff discussion draft requires network 
affiliates to pass through this high definition signal without 
degradation or downresing to a lower resolution. They ought to 
get what is being provided for them in the same beautiful 
fashion it is being provided.
    And the transition to digital is going to be a difficult 
one for consumers, but the staff discussion draft eases the 
burden a bit by assuring the commercial availability of 
converter boxes by requiring cable operators to separate 
security and non-security features of the box, and it stops in 
its tracks the FCC's rule at the same that would prevent cable 
operators from offering integrated set-top boxes. Integrated 
boxes, we believe, may well be the most convenient and less 
expensive trip for consumers, and at least we ought to give 
them a choice.
    Consumers should be able to make an informed purchasing 
decision on their equipment and content. The staff discussion 
requires consumer notice provisions. I would like to personally 
thank Mr. Boucher, by the way, for his work in this area and 
for his extraordinary help as we move forward. Thank you, Rick. 
The staff discussion draft leaves open for now the issue of 
multicast must-carry. Now, for all of you, what we are talking 
about, basically, we just gave the broadcasters six megahertz 
of wonderful new spectrum to do digital broadcasting, and they 
are not going to need it all to do a beautiful high-definition 
signal, and they are not going to do HDTV all the time. 
Sometimes it will be multicasting, more than one channel of 
broadcasting. Will the cable company have to carry it all, part 
of it, some of it, what are the lines, what are the 
distinctions? You see, because a lot of us believe that when we 
finish this transition, when we tell consumers in America you 
either got to buy a digital television or you got to buy a box 
to convert the new digital signal back so your old analog set 
can read it, that you ought to get something new, something 
different instead of the old signal you used to get. If all you 
get is the same old television you got before, the consumers 
will be asking everyone one of us, ``Why did you make me buy 
that new box?'' So the question is, what new? What in this 
multicast equation are consumers going to get? What is the pro 
for the quit and the quo when we get all this done, if I can 
get that right? What is the quo, I guess, for the quit?
    Obviously, the devil is in the details, and some of the 
details contained in the staff discussion draft are intended to 
highlight. Some of the sections here are intended literally to 
create tension among this table and to get you to have a good 
fight in front of us, a good civil fight, we hope, but 
literally to make your case, make your points and help us 
understand the options we face so that if you can't work it 
out, we can hopefully work it out where consumers come out 
okay.
    So, again, thank you. The roundtables have been great. We 
did 10 months of them. I think we came a long way, and now we 
are at this point, and this is the day you tell us whether you 
really want us to make the cuts or you want to try to make them 
yourself. Thank you, Mr. Chairman.
    [The prepared statement of Hon. W.J. ``Billy'' Tauzin 
follows:]
   Prepared Statement of Hon. W.J. ``Billy'' Tauzin, Chairman, House 
                    Committee on Energy and Commerce
    Thank you, Chairman Upton for calling this important hearing on the 
Committee's staff discussion draft regarding the transition to digital 
television. I, like many of my colleagues have been involved in the 
transition since its earliest stages over a decade ago. Achieving a 
successful and timely transition to digital television is a top 
priority of mine. It is important for consumers and I think it is 
essential for the future viability of the broadcasting industry. So it 
is with great interest that we have this hearing to come together to 
discuss potential solutions to break the logjam that has been holding 
up the transition.
    This transition has been underway for over 10 years and we are not 
as far along as we need to be. The staff discussion draft is just 
that--a discussion draft--and I invite the witnesses to express their 
thoughts. I look forward to receiving more today from the witnesses and 
in the coming weeks. Most of the provisions have been put in there in 
an effort to create a comprehensive communications policy regarding the 
transition to digital, while other provisions have been included with 
the express intent to elicit spirited discussion, alternatives and 
ultimately viable solutions--where no clear viable answer is readily 
apparent.
    We do not begin this legislative process lightly. The FCC was 
tasked with shepherding the transition through. Unfortunately, many 
issues remain unresolved--creating uncertainty in the marketplace and 
for consumers. I am pleased that the FCC has put in place a DTV Task 
Force and am appreciative of its work. But time is running short--and I 
urge the FCC to give this transition its utmost attention.
    As I have said before, we always prefer marketplace solutions to 
government involvement. And industry players have much to be proud of--
they have met on their own --and with me in informal roundtables over 
the last 10 months--in an effort to see what more can be done. And 
progress has been made but these private, inter-industry negotiations 
seem to have come to their end point and time for the DTV transition is 
running out. Time is not on our side. Right now this transition is on a 
collision course with consumers and we must act now to turn things 
around. The promise of this transition for the broadcasting industry 
holds many benefits not only for it but also for consumers and it is 
time for us to ensure that communications policy enables consumers to 
realize these benefits. I have a real concern about consumers being 
forced to go out and spend money for a converter box--and will end up 
getting nothing new for the additional cost. This cannot be allowed to 
happen.
    So it is with an eye toward the consumer that we offer up this 
staff discussion draft.

 Consumers reasonably expect that in the future their TVs will 
        receive broadcast signals just as they do today. The FCC 
        decided to ensure this with its DTV Tuner Order in August. The 
        costs of incorporating DTV tuners into televisions set should 
        fall quickly as all sets include these tuners. The five year 
        phase-in schedule does not require the smallest and least 
        expensive sets to include tuners until 2007, by which time the 
        cost of this technology will undoubtedly be lower. The staff 
        discussion draft affirms this approach.
 Consumers reasonably expect that their consumer electronics 
        equipment, including TV sets will work with their cable system. 
        Given that over 70 percent of consumers receive their broadcast 
        signals via cable this makes sense. Portability of consumer 
        electronics equipment, and nationwide interoperability with 
        cable television systems and digital television receivers--
        equivalent to today's ``cable-read'' analog televisions--is an 
        essential element to ensuring consumer acceptance and 
        sufficient penetration of DTV. The staff discussion draft 
        requires this.
 Consumers reasonably expect to be able to purchase a 
        reasonably priced basic cable ready digital television set. The 
        staff discussion draft ensures that consumers are not forced to 
        buy a Cadillac when all they want is a Buick.
 Consumers, in exchange for purchasing new digital equipment, 
        expect to enjoy exciting new content. The staff discussion 
        draft affirms the FCC's authority in this critical area of the 
        transition. Content is key to a successful transition. The 
        staff discussion draft puts some focus on the FCC's current 
        proceeding--and specifically requires it to implement a 
        ``broadcast flag'' content protection solution. But what are 
        the limits of content protection?
 Consumers also expect to continue to enjoy the ability to home 
        record in the digital age--we affirm this in the staff 
        discussion draft. We need to determine what companies require 
        in order to release--and continue to release--quality content 
        over the air. We also need to determine what can we do to stop 
        the unauthorized distribution of content. What are the limits 
        of what we can do--what is a workable, viable solution?
 Consumers reasonably expect that when they purchase a HD set 
        they will be able to view HD programming being offered by the 
        network. The staff discussion draft requires network affiliates 
        to pass-through the HD signal without degradation--or 
        ``downresing'' it to a lower resolution.
 The transition to digital is going to be a difficult one for 
        consumers. The staff discussion draft eases the burden a bit by 
        assuring the commercial availability of converter boxes by 
        requiring cable operators to separate security and non-security 
        features of the boxes. But it stops in its tracks, the FCC's 
        rule that will prevent cable operators from offering integrated 
        set-top boxes. Integrated boxes may very well be more 
        convenient and less expensive for consumers--at the very least 
        there is another choice for consumers.
 Consumers should be able to make informed purchasing decisions 
        on equipment and content. The staff discussion draft contains 
        consumer notice provisions. I would like to personally thank 
        Mr. Boucher for his work in this area and I look forward to 
        working with him on this, as well as a number of other issues, 
        in the future.
 The staff discussion draft leaves open for now--the issue of 
        multicast must-carry. There are deep concerns among members of 
        Congress that, if consumers have to buy special boxes to 
        convert sets to digital and all they get is same old signal, 
        then what good is the transition? There's no extra value. I 
        look forward to hearing some creative answers to this important 
        question from the witnesses this morning.
    Obviously the devil is in the details and some of the details 
contained in the staff discussion draft are intended to highlight the 
difficulty of this transition. I want debate. I want proposals. I want 
solutions. Because make no mistake--this transition will not fail. It 
will occur--that is a certainty. And it will be a success. We are all 
in this together--and by working together we can ensure that consumers 
are the ultimate beneficiaries of the wonders of digital technology 
through this digital transition.
    Thank you.

    Mr. Upton. Thank you. We have 12 minutes in this vote that 
is remaining on the House floor. Mr. Dingell.
    Mr. Dingell. Thank you, Mr. Chairman.
    Mr. Upton. I understand, by the way, we have three votes, 
so we are going to all have to break and return when the votes 
are completed.
    Mr. Dingell. Well, I will proceed if you wish or I will 
wait and defer until at a later time.
    Mr. Upton. What would you prefer?
    Mr. Dingell. What is your wish, Mr. Chairman?
    Mr. Upton. Would you like to go now?
    Mr. Dingell. I will do it now if you wish.
    Mr. Upton. Okay. The gentleman is recognized.
    Mr. Dingell. Mr. Chairman, thank you. I commend you for 
holding this hearing, and I commend you and Mr. Tauzin for the 
wonderful cooperation that the three of us have shared with 
regard to the discussion draft now before the committee. It is 
a discussion draft. It is one in which there is going to be 
considerable controversy, and there will be a lot of comments. 
That is good, that is the reason that we introduced this into 
the area of public discussion. It is also the reason we have 
not introduced it as legislation, because we want to hear what 
is going to be said.
    Over the course of broadcast history, there have been a lot 
of technological breakthroughs, and I won't bother enumerating 
them here, but each of them has had significant benefit but 
also significant costs. The government has been involved in 
almost each and every one of these, sometimes beneficially, 
some less beneficially. In any event, we now are on the 
footsteps or rather on the footsteps of trying to move forward 
into new digital service for listeners, and we are going to 
have to determine how we are going to do that. The purpose of 
this draft is to see to it that we can get the comment.
    Now, if TVs are connected to cable, the consumer is going 
to wind up paying extra to buy or lease a digital converter box 
from their cable company or from the local electronic store. 
And if the TVs rely exclusively on over-the-air reception, as 
some 80 million sets do today, the consumer will be compelled 
to pay even more to convert the digital signal to one that is 
viewable. Either way consumers are going to wind up paying 
hundreds of dollars a piece just to stay even. That is to 
receive essentially the same television service they enjoy 
today or else their sets are very liable to go dark.
    The discussion draft is for the purpose, as far as I am 
concerned, of finding out not only what the industry needs and 
how the industry will respond but also how we are going to 
protect the consumers and see that they are not hurt by this 
set of circumstances. It is an attempt to speed up the 
transition so that the analog broadcast spectrum can be 
returned to the government and put to higher and better uses 
where the public benefits. That is an admirable goal and I 
agree it should be pursued with more than a little zeal. But it 
also should be balanced against the increased cost to the 
public to the digital conversion.
    To be sure, the ultimate success of digital transition 
depends on inter-industry cooperation on important issues, such 
as cable interoperability, digital TV tuners and the broadcast 
flag solution. The staff draft goes a long way toward 
assembling these puzzle pieces in a way that the industries 
have been unable to do on their own so far, or that the FCC and 
other government agencies have not significantly attempted to 
do. For that I commend again my colleagues, Mr. Tauzin and Mr. 
Upton, and their staffs who worked so cooperatively with mine 
on these key points.
    But all the same, I am not convinced that an expedited 
return of the spectrum should be the chief goal of this 
legislation. Congress initiated the policy of converting the 
Nation's broadcast system to digital, and I believe the 
Congress has a similar responsibility of ensuring that no 
consumer is disenfranchised as a result. I believe we should 
begin to focus on exactly what will happen to the American 
public when analog broadcasts cease to exist. How much will 
each family be expected to pay for the privilege of continuing 
to use their existing television sets? The answer to the 
question may be as startling to us as it is to the folks back 
home, especially when the folks get the answer because they may 
not be too pleased.
    Again, Mr. Chairman and Chairman Tauzin, I commend you for 
tackling the obstacles that have been included in the industry 
for several year. It is no small task. And I look forward to 
working with you to refine the technical issues contained in 
the draft as well as to address the additional consumer-related 
issues that I have raised this morning. I also look forward to 
the counsel and the advice of the panel before us and such 
other persons as may choose, and I hope there are many of them, 
to comment in what I hope will be a meaningful dialog on what 
it is we should do as a matter of public policy so that the 
government agencies may respond to the needs of the people, 
keeping careful in mind the urgent needs of quality service and 
the protection to consumers. Thank you, Mr. Chairman.
    [The prepared statement of Hon. John D. Dingell follows:]
    Prepared Statement of Hon. John D. Dingell, a Representative in 
                  Congress from the State of Michigan
    Thank you, Mr. Chairman, for holding this hearing on draft 
legislation to speed the transition to digital television. Over the 
course of broadcast history there have been many technological 
breakthroughs. In the 1950s, live telecasts gave way to recording on 
film and tape. In the 1960s, black and white gave way to color. In the 
1970s and '80s, broadcasts began to migrate from over-the-air to cable.
    But as challenging as these technological advances were, none 
compares to the daunting task that is now before us. We now know that 
the wholesale transformation from analog to digital broadcasting not 
only requires an unprecedented degree of cooperation among and between 
industry players--each with their own unique and often divergent set of 
motivations and interests--but it also requires that some specific 
action be taken by each and every American household in order to 
succeed.
    We've all heard the digital conversion compared to the migration 
from black and white to color TV. If only it were that easy. But this 
transition is qualitatively different, and I would note one difference 
in particular that is tremendously important. Unlike the advent of 
color television, stereo broadcasts, cable TV or FM radio, this 
technological revolution will affect every consumer's pocketbook, 
whether they want the new technology or not.
    In days gone by, if a consumer didn't want to pay to see programs 
in color, he or she simply held on to the old black and white set. 
Stereo broadcasts can still be heard in mono on TVs built with just one 
speaker. And if FM radio holds no appeal, a consumer can continue 
listening to stations on an AM receiver. But for the consumer who has 
no interest in receiving a crystal-clear digital television signal, or 
simply can't afford one, he or she very simply will be out of luck. 
There will be a cost, and the day to pay is right around the corner--
perhaps as soon as four years from now.
    The average American household has nearly three television sets. 
Even using a most optimistic, albeit unlikely, assumption that every 
household will purchase a digital television set in the next four 
years, that will still leave two television sets in each and every 
house without a viewable signal.
    What happens then? If the TVs are connected to cable, the consumer 
will end up paying extra to buy or lease a digital converter box from 
their cable company or local electronics store. And if the TVs rely 
exclusively on over-the-air reception, as some 80 million sets do 
today, the consumer will be forced to pay even more to convert the 
digital signal to one that is viewable. Either way, consumers will end 
up paying hundreds of dollars apiece just to stay even. That is, to 
receive essentially the same television service they enjoy today. Or 
else their sets will go dark.
    The draft legislation is an attempt to speed the transition so the 
analog broadcast spectrum can be returned to the government and put to 
higher and better uses for the public's benefit. That is an admirable 
goal, and I agree it should be pursued with some zeal. But it also 
should be balanced against the increased cost to the public of the 
digital conversion.
    To be sure, the ultimate success of the digital transition depends 
on inter-industry cooperation on important issues such as cable 
interoperability, digital TV tuners, and a broadcast flag solution. The 
staff draft goes a long way toward assembling these puzzle pieces in a 
way the industries have been unable to do on their own thus far. For 
that I highly commend Chairman Tauzin and Chairman Upton, and their 
staffs who worked so cooperatively with mine on these key points.
    But at the same time, I am not convinced that an expedited return 
of the spectrum should be the chief goal of this legislation. The 
Congress initiated the policy of converting the nation's broadcast 
system to digital, and I believe the Congress has the singular 
responsibility of ensuring that no consumer is disenfranchised as a 
result.
    I believe we should begin to focus on exactly what will happen to 
the American public when analog broadcasts cease to exist. How much 
will each family be expected to pay for the privilege of continuing to 
use their existing television sets? The answer to that question may be 
as startling to us as it is to the folks back home.
    Again, Mr. Chairman and Chairman Tauzin, I commend you for tackling 
the many obstacles that have eluded the industry for several years. It 
is certainly no small task, and I look forward to continuing to work 
with you to further refine the technical issues contained in the draft, 
as well as address the additional consumer-related issues I've raised 
this morning.

    Mr. Upton. Thank you, my friend from Michigan. At this 
point, we will adjourn temporarily for these three votes on the 
House floor. My guess is we will start as soon as we can after 
these three votes, which will be pretty close to 11 o'clock.
    [Brief recess.]
    Mr. Upton. Can I ask that the members keep their opening 
statements, if they can, to 3 minutes. I am told we are going 
to have another vote or two in an hour, and I know that we have 
got an energy conference I think that is meeting now, and we 
have a full committee markup as well. So I want to move things 
as quickly as we can, and I will go in the order that the 
members appeared at the beginning. Mr. Sawyer.
    Mr. Sawyer. Thank you very much, Mr. Chairman. I will try 
to keep my remarks brief. I am grateful to you today for 
holding this hearing on what is arguably the most important 
consumer technology issue facing the Nation. And although the 
issues before us are numerous and complex, I believe that this 
discussion draft that you and others have put together will be 
a helpful tool in guiding our conversation and ultimately the 
decisions that reached from it. I am hoping that today's 
hearing will bring us another step closer to reaching that kind 
of fair agreement that would ensure timely conversion to 
digital broadcasting. With that, I would yield back the balance 
of my time and ask for unanimous consent to put the rest of my 
statement in the record.
    Mr. Upton. The chairman is most grateful for that. With no 
objection, the statement will be made part of the record, and I 
would ask at this point that all members' opening statements, 
by unanimous consent, will be made part of the record.
    [The prepared statement of Hon. Tom Sawyer follows:]
  Prepared Statement of Hon. Tom Sawyer, a Representative in Congress 
                         from the State of Ohio
    Thank you Mr. Chairman for holding this hearing today on what is 
arguably the most important consumer technology issue facing the 
nation. Like many of you on this committee, I am excited about the 
revolutionary applications that will be possible once digital 
broadcasts take hold. However, many issues must still be resolved for 
the public to realize the benefits of this technology in a fair and 
timely manner.
    I commend Chairman Tauzin, Mr. Upton, Ranking member Dingell, and 
Mr. Markey for their strong leadership on this issue. The discussion 
draft put forth by Chairman Tauzin and Ranking Member Dingell is an 
important step. With the digital television broadcast deadlines quickly 
approaching, Congressional action is vital where industry agreements 
cannot be reached. I would urge all parties to continue negotiating in 
earnest. Private industry should not use the discussion draft as an 
excuse for not moving forward on their own.
    While the bill would help address many of the outstanding issues 
plaguing the transition to digital, I believe that any final 
legislation should demonstrate a stronger commitment to public 
television. During our July hearing on the Corporation for Public 
Broadcasting, witnesses raised several issues that were central to 
facilitating public broadcasting's digital transition. First and 
foremost is the financial obligation for digital conversion. It is 
estimated that the total cost for public television to become digitally 
ready is about $1.7 billion. Many stations, including WNEO/WEAO in my 
district, have done an admirable job of raising local funds to pay for 
the cost of transition. WNEO/WEAO has raised nearly 73 percent of the 
$4.8 million needed to convert its station for digital broadcasts. 
Given that the station runs on a $5 million annual operating budget, 
this is quite an accomplishment. With local stations doing their part, 
it is time for the federal government to provide the necessary funds to 
ensure that all public stations are ready to digitally broadcast in May 
of 2003. With this in mind, I think that the final digital transition 
bill should include language authorizing funding to assist public 
broadcasting stations convert to digital. As the Committee that 
overseas public broadcasting, we need to make our commitment and 
jurisdiction clear in this area.
    Congress also needs to ensure that all educational programming is 
available once digital conversion is complete. Like Chairman Powell, I 
have some reservations that the Commission's decision requiring cable 
operators to carry only one channel could reduce the availability of 
educational public broadcast offerings. I understand that public 
televison has reached two nationwide agreements with two different 
cable operators to ensure that all channels are carried if a public 
television station decides to multi-cast. I hope that this type of 
negotiation continues so that innovative programming is available to 
all consumers no matter who their cable provider is. However, if 
national agreements cannot be reached, legislation will be needed. As 
the Chairman continues to consider the section of the bill dealing with 
must carry requirements for digital multi-casting [the discussion draft 
contains no language on this topic yet], I would urge him to give 
special consideration to public broadcasters who have laid out a clear, 
innovative plan for the use of their spectrum. I am interested in 
hearing from the witnesses as to their thoughts on what best benefits 
consumers as the Committee considers commercial broadcasters carriage 
rights for digital multi-casting.
    Although the issues in front of us are numerous and complex, I 
believe that the discussion draft will be helpful tool in guiding our 
discussion. I am hopeful that today's hearing will bring us another 
step closer to reaching a fair agreement that would ensure a timely 
conversion to digital broadcasting.

    Mr. Upton. Mr. Boucher.
    Mr. Boucher. Well, thank you very much, Mr. Chairman. I 
want to commend Chairman Tauzin, Ranking Member Dingell, 
Chairman Upton, Mr. Markey and the members of the Digital 
Transition Task Force for putting forward a thoughtful and 
well-balanced proposal which will make a genuine difference in 
the struggle to achieve the transition to digital television 
broadcasting. Just the act of releasing the discussion draft of 
the bill has motivated a new positive tone among the 
stakeholders in their negotiations. Because of this work, we 
are much closer today to addressing the major barriers to the 
transition than we were one short year ago.
    I will comment on several highly useful provisions of the 
draft and then in these remarks make one suggestion for further 
improvements. First, the draft bill recognizes the important 
link between the need for uniform standards to assure that all 
digital TV receivers can operate compatibly among all cable 
systems and the mandate that TV sets have digital tuners by a 
date certain. The FCC's digital tuner mandate only addresses 
signals delivered over the air. That is the primary means by 
which about 15 percent of United States homes receive 
television signals. But the provisions in the bill ensuring 
that all digital TV sets are compatible with all cable systems 
cover the other 85 percent of homes, enabling TV set 
manufacturers to produce sets with digital tuners and other 
processing equipment capable of receiving digital signals, both 
from cable and over the air.
    With that assurance of a greatly expanded potential market, 
TV set manufacturers will be willing to manufacture digital-
capable sets in much greater numbers and to put them into the 
market much more rapidly. As manufacturing volume ramps up, the 
price per set will decline, placing them within the reach of 
millions more consumers. And so the provision for uniform cable 
compatibility standards is highly beneficial, and I applaud its 
inclusion within the bill.
    Second, the draft bill wisely instructs the FCC to ensure 
that the regulations implementing the cable compatibility 
requirements do not impose limitations on manufacturers other 
than those necessary to prevent harm to cable systems or to 
prevent theft of services. Gone are the restrictions and 
disabling limitations of the former PHILA license, which, among 
other things, prohibited the placement of hard drives in TV 
sets, enabled down resolution of the quality of programs and 
contemplated selectable output controls to govern which outputs 
would have access to particular content. The PHILA license 
broadly inhibited competition in the manufacture of devices and 
I broadly welcome its demise with the draft bill before us.
    Third, in the broadcast flag rulemaking provision, the 
draft bill properly instructs the FCC to take steps that will 
prevent the uploading of content marked with the broadcast flag 
to the Internet for distribution to the public. The words, ``to 
the public'' are important in that phrase. Their presence in 
the bill ensures that consumer fair use rights are respected 
and that people can make non-commercial personal use of flagged 
content and use the Internet to transmit it as long as the 
communication is to a limited audience and not to the general 
public. I thank the chairman for this thoughtful structure 
which acknowledges fair use principles. I also commend the 
provision that prevents that application of the broadcast flat 
to news and to public affairs programming.
    Finally, I want to suggest that we rethink the provision 
which requires that devices manufactured after July 1, 2005 do 
not have analog outputs. At present, there are upwards of 300 
million television sets, VCRs and computers in the market and 
in homes and businesses that only have analog monitor inputs. 
Only an analog signal can reach the monitor in these 300 
million devices. The provision prohibiting analog outputs on 
devices manufactured after 2005 threatens to strand these 300 
million appliances now in use. If the concern is plugging the 
so-called analog hole, the way to do that is with watermark 
technology now in development. Let us not bar the inclusion of 
analog outputs on new digital appliances.
    Chairman Tauzin and Mr. Dingell and the task force members 
and the staff have performed excellent work, and I want to 
commend them for a measure that takes the digital transition 
many strides forward. Thank you, Mr. Chairman.
    Mr. Upton. Thank you, Mr. Boucher. A member of the 
subcommittee, Mr. Walden, is recognized for an opening 
statement.
    Mr. Walden. Thank you very much, Mr. Chairman. I appreciate 
you scheduling such a non-controversial issue on the first day 
of my arrival as a member of the Telecommunications 
Subcommittee.
    I am looking forward to hearing the testimony of our 
panelists today and the wading into the weeds on this issue. 
Clearly, it is an issue that is of concern to consumers, as the 
chairman of the full committee spoke about. I am pleased to see 
us moving in a direction toward plug-and-play technology. I 
think we have to keep it simple and make it work for consumers. 
I am waiting to hear more about the issues of must carry and 
about how we make this transition work for everyone in the 
various industries but most of all for the consumers. And I 
take note that when our chairman talked about the consumers 
wanting to have the ability to see the signals that are out 
there, there may be those consumers too who want to see all the 
signals that are out there. And so I think that is an issue we 
have to figure out how to make sure that happens, especially as 
broadcasters go into the digital environment.
    So, Mr. Chairman, I welcome the testimony of the members, 
and I look forward to my service on this subcommittee under 
your leadership. Thank you.
    Mr. Upton. Thank you. Ms. Harman for an opening statement.
    Ms. Harman. Thank you, Mr. Chairman. Just 1 second. I ask 
your indulgence, a little disorganized today. Okay. Thank you, 
Mr. Chairman, not just for holding this hearing but for 
preparing a draft that gives us a lot to think about and pushes 
us to resolve the issues. I am interested to hear what our 
witnesses have to say about a lot of the tough ones, but I do 
want to confess that I come to this hearing with a mission, and 
that mission is to enact the material in this bill or a 
variation on the material that has to do with additional 
emergency spectrum which is absolutely critical after 9-11.
    As you know, Mr. Chairman, I have been very involved in 
homeland security issues, and like you, have been pained to 
learn how the lack of interoperable communications, both in New 
York and at the Pentagon, slowed down a lot of the relief 
efforts and in fact we now know caused many fire fighters in 
New York not to know that the buildings were falling down as 
they were going up. This is a catastrophe, it is something we 
have to fix, and we have an opportunity in this committee, 
through part of this legislation, to do that.
    Congress, when we passed the Balanced Budget Act of 1997, 
promised that there would be some freed up spectrum by the end 
of 2006. We need this spectrum. The issues are complicated, 
other folks are using some of this spectrum. We have to help 
them with the transition. I am for helping them, but I am for 
keeping our promise. And I just want to point out to our 
colleagues that Congressman Curt Weldon and I introduced 
legislation called the HERO Act, which is overwhelmingly and 
unanimously supported by every public safety group to keep our 
promise of freeing up this spectrum by January 1, 2007. A 
broader version of this idea is in your draft.
    I would be happy to see that happen, but the narrower 
version would be just great too. I support help for those who 
have to speed up and make that transition and let us use this 
spectrum for emergency uses. I also want to point out that it 
is good that you address a sunset for analog spectrum, but it 
is very important that as we consider that, we plug the analog 
hole. Otherwise, we will not be doing what we must do to 
protect content and thwart piracy.
    And so I just conclude by saying that it is great that we 
have a discussion draft, it is great that we are pushing for 
answers. I agree with the chairman of the full committee that 
we will find those answers. I doubt that perfection is an 
option, but I certainly think that progress is imperative, and 
particularly with respect to homeland security we cannot 
neglect the needs of our safety agencies any longer. Thank you, 
Mr. Chairman.
    Mr. Upton. Thank you. Mr. Bass.
    Mr. Bass. Thank you, Mr. Chairman. I appreciate your 
holding this hearing and building on the subcommittee's already 
impressive record of considering the Nation's transition into 
digital communication mediums. The draft legislation that we 
are talking about here today continues on the heels of a very 
active year for digital transition. Actions by the FCC industry 
and this subcommittee have, in the past few months, made it 
more clear and easy to see the path that we need to follow to 
realize all the benefits that we have been promised. Of course, 
it is all the more easy to see the costs in pain in the 
transition as well. Nevertheless, it seems that we might just 
solve some of these chicken and egg dilemmas after all.
    Now, the draft contains many fine provisions, and I commend 
subcommittee staff for their efforts. And I am also pleased 
that it contains many of the same items as Chairman Powell's 
plan for transition, not only to protect the committee's 
jurisdiction and authority. In that same spirit, I look forward 
to working with the chairman and other members to protect the 
authorizing jurisdiction of this committee with respect to 
public television transition. I and I suspect other members 
have expressed support for this authorization while also 
expressing the view that public television needs to keep 
careful watch on its encroaching commercialism. Public 
television ought to heed those views, but they should know that 
they will get their just rewards in return. We need also to 
consider the distinction between commercial and non-commercial 
stations when thinking about multicasting programming 
opportunities and perhaps even content protection proposals. I 
know these and other points are being left until we have had 
the opportunity to hear from these panelists and from all the 
subcommittee members on them, as they should be.
    I hope in return the panelists will hear from us the clear 
message that we are about to send, and that message is we hope 
that you all can figure out how this is going to work out 
before we ultimately end up having to make the decision for 
you. Know that we expect broadcast programming to be made in 
high-definition TV format. Know that we expect this programming 
to get to viewers in all methods they use to receive these 
signals, and know that we expect equipment to be as non-
proprietary and as legacy-compatible as possible.
    Mr. Chairman, again, thank you for your ongoing efforts. I 
look forward to the testimony and future action on this 
legislation. I yield back.
    Mr. Upton. Thank you. Mr. Stupak.
    Mr. Stupak. Thank you, Mr. Chairman. It looks like we have 
more witnesses than members here today, so I look forward to a 
good hearing.
    First, I would like to commend Chairman Tauzin and Ranking 
Member Dingell for their dedicated pursuit of a digital 
television future, prompted by both the benefits to consumers 
that digital television has to offer as well as the desire to 
turn over spectrum to other important uses. As co-chairman of 
the Law Enforcement Caucus, I share in the interests that the 
public safety community has in obtaining this spectrum. 
However, I also know that when it comes to the transition to 
digital television in my rural district in northern Michigan, 
the challenge is great.
    As our many hearings on this issue have made clear, there 
is much upon which we can disagree while consensus is rare. I 
am impressed by the discussion draft and its efforts to bridge 
the divides and to take the interests of all parties into 
account. There are a few views that I believe have merit, and I 
hope they will be considered.
    First, I have been impressed by the plans of the public 
broadcasters to program on a multicasting fashion and hope that 
their ambitious goals can be taken into account. We recently 
had a hearing where many members expressed support for public 
television and a recognition for the tremendous service that 
public broadcasting offers to our communities and to our 
children. When the provision on multicasting is addressed in 
the bill, I hope we can keep the aims of the public 
broadcasters in mind, as I see they are not represented here 
today.
    Second, I would like to support the cable industry's 
efforts to move into the future with interactive services. 
Cable, both NCTA and ACA members, have done much to serve my 
district, and as cable providers contemplate these advanced 
services, I hope that we can find ways to assist them on that 
front. I also share in some of the concerns of the broadcasters 
who want to ensure that their content is protected from piracy 
and unlawful copying and distribution. The broadcast flag seems 
to be very promising, and I believe that we also need to find 
ways to address the issue of the analog hole.
    Last, we must not impose too many conditions so as to 
overregulate this industry, make equipment prohibitively 
expensive and deter consumers. I look forward to the discussion 
today and hearing from our witnesses about the discussion draft 
and some of their ideas. Mr. Chairman, I yield back the balance 
of my time.
    Mr. Upton. Thank you. Mr. Terry.
    Mr. Terry. I am so anxious to hear from our folks, I would 
rather submit my statement.
    Mr. Upton. No problem, glad to have it.
    [The prepared statement of Hon. Lee Terry follows:]
  Prepared Statement of Hoin. Lee Terry, a Representative in Congress 
                       from the State of Nebraska
    Thank you Mr. Chairman, Mr. Chairman, I want to thank you for 
holding this very important hearing so that we may generate discussion 
on the current draft legislation. I know that you and your staff have 
spent countless hours discussing the Digital Television transition with 
the Consumer Electronics Industry, the Cable Industry and the 
Broadcasters, and I want to commend you on your hard work. This is not 
an easy issue to deal with and it is one that we have wrestled with for 
quite some time.
    Mr. Chairman, I am happy to see that this Discussion Draft 
addresses the issue of the broadcast flag. For the protection of 
digital content in this new age, it is very important that we do all we 
can to protect copyrighted works, and setting a sunset date for 
manufacturing analog output equipment is a crucial part of DTV and 
anti-piracy strategy.
    I am glad to see a set date for the return of the analog spectrum 
by the broadcasters. The return of this spectrum was the goal of the 
'97 Budget Act, and 2006 is right around the corner. It is true that 
having access to this spectrum would greatly improve our ability to 
perform some spectrum reorganization, which would help bring 3G to 
America, but more importantly benefit public safety officials with 
their ability to communicate over less crowded spectrum blocs. However 
I am concerned that the May 2006 date might be too soon.
    Even though Broadcasters are operating digital signals in 143 
markets which serve almost 90% of American consumers, most Americans do 
not have digital TV's that can receive a digital signal. Most consumers 
still have analog TV sets and despite the laudable actions of 
broadcasters to produce digital content, prematurely shutting off sets 
would disenfranchise our constituents. Larger televisions will not 
include digital tuners until 2004 with the smaller sets following in 
subsequent years. Mr. Chairman, I am uncomfortable telling my 
constituents who still rely on free-over-the-air analog signals that 
they have buy a $2000.00 TV, or purchase a $250.00 digital tuner if 
they want to watch TV.
    Basic economics says that as more of a product is produced, the 
price will decrease, so why are we forcing people to buy a high-priced 
TV or a high-priced digital tuner before companies stop producing 
analog equipment?
    I am delighted to see that this Draft Discussion codifies the 
recent FCC decision regarding the placement of digital tuners in TV 
sets. But if we are going to make a hard cut-off of 2006 for the return 
of the analog signal, I think it prudent that we step up the dates that 
digital turners are to be placed in TV sets. It is my understanding 
that the Cable industry and the Consumer electronics industry have been 
involved in negotiations on a wide range of technical and business 
issues, including how integrated digital television sets can be 
connected directly to cable systems without the need for a set-top box. 
I would encourage these industries to continue their discussions, with 
the understanding that reaching a solution sooner, rather than later is 
in the best interest of everyone, particularly the consumer.
    Mr. Chairman, I applaud all of your efforts in this long and 
tedious process. I would also like to commend the industries that are 
working to get the digital transition back on track through market-
place solutions and inter-industry agreements. I know we all have a 
long way to go, but I am encouraged to see some of the progress made 
already. Mr. Chairman, I look forward to a continued debate and 
discussion on this issue, as this is the only way we can bring the 
benefits of digital to our constituents.

    Mr. Upton. Ms. Eshoo.
    Ms. Eshoo. Thank you, Mr. Chairman and to Chairman Tauzin 
for holding this hearing and for submitting your staff draft 
legislation, which really gives all of us on both sides of the 
dais much food for thought. We have an excellent panel today, 
and I am looking forward to hearing from each one of you. But I 
want to single out one person because we have worked very 
closely with Thera Bradshaw, actually partnered with her to 
ensure the lifesaving E-911 technology is implemented in every 
cell phone. And I think that the Congress and the people of 
this country are really very grateful to you for that. It is a 
very important issue.
    I think that we need to keep just one premise in mind. I 
know that everyone here has their own agenda, it is important 
that you do, you represent it, but it is going to have to be 
compromised out. At the end of the day and at the beginning of 
the day, I think the litmus test or the yardstick by which we 
should measure this is what is best for the consumer? If in 
fact companies want to meld the word ``consumer'' and the name 
of your corporation together, but because their sets have gone 
dark, you won't have any credibility any more. Now, I know that 
is leapfrogging, I know that is shorthand, but that is really 
what this is all about.
    So I don't think that you want the Congress to start 
mandating technology standards either. So I welcome the fact 
that this draft is being put down on the table. What is says to 
all of you is, you have got to sit down and sharpen your 
pencils and come up with what needs to be come up with--what 
needs to be done. Because we, on both sides of the dais again, 
are going to have to have credibility with the consumer.
    There is a deadline. I don't know whether that is going to 
be moved around in the future. Most frankly, I don't think it 
should be, because I think it is a very good hammer. It is a 
healthy hammer to have in all of this. So we have work to do, 
we need to do it together. I think that you know what you are 
going to need to do. And together, I think that we need to work 
to produce something that is very important for the country. It 
is a difficult road? Yes. I can't believe that I have been 
here, this is my 10th year. I have come to a lot of hearings on 
this issue, and I don't want it to become old hat, I want it to 
really be integrated into something that we are proud to 
produce for the consumers of the country. So I really couldn't 
mean more of what I am saying. I have confidence in you. I hope 
that time will not be whittled away and the interests come back 
to the table and say, ``Gee, we are staring at a deadline and 
we simply can't do it.''
    If Congress becomes the ultimate referee in this, you may 
not like what the referee does. So I am being stern with a 
smile. And I am glad that you are all here, I look forward to 
what you are going to say. And, Mr. Chairman, thank you for the 
staff draft legislation, because I think that it is an 
important thing to do in terms of sending a signal, excuse the 
expression, to everyone that is here today. Thank you, and I 
look forward to hearing from you.
    [The prepared statement of Hon. Anna G. Eshoo follows:]
Prepared Statement of Hon. Anna G. Eshoo, a Representative in Congress 
                      from the State of California
    My thanks to Chairmen Tauzin and Upton for holding this hearing and 
for submitting their staff-draft legislation, which has given all of us 
on both of the dais much food for thought.
    Because we have a very good panel of witnesses, I'll keep my 
statement brief. I'd especially like to acknowledge Thera Bradshaw, 
with whom I've partnered to ensure lifesaving E-911 technology is 
implemented in every cell phone.
    Fundamentally, I think we need to keep one simple premise in mind 
when we consider the myriad issues facing the transition to digital TV:
    What's best for the consumer.
    The 108th Congress should pass authorizing language for the digital 
conversion we've mandated for our public broadcasting stations. This 
draft is silent on authorizing funding for public stations. I hope we 
can work in a bipartisan fashion to move something early next year 
authorizing these critical funds.
    Second, I look forward to hearing from our panel on the issues of 
the broadcast flag and also multicasting.
    I'm concerned that there are some who are advocating that they are 
entitled to the new channels that will emerge as a result of the 
transition to digital.
    The staff draft is silent on this issue--so the commentary today 
will continue to be very instructive to us.
    I think we would all acknowledge that it's been a difficult road 
toward progress in the digital transition. I hope all the parties 
following this hearing will promptly resume their private dialogue and 
work toward a solution.
    I'm sure I speak for many of my colleagues when I say we would 
prefer not to be referees.

    Mr. Upton. Thank you.
    Ms. Eshoo. Hearing your testimony.
    Mr. Upton. Mr. Shimkus.
    Mr. Shimkus. Thank you, Mr. Chairman. I will too be brief. 
I think September 11 showed us that we didn't have our first 
line responders able to talk to each other, so I echo the 
comments of my colleague, Bart Stupak and Jane Harman, in their 
concerns of that issue.
    The second thing is the public TV, I think there needs to 
be an authorization to help them move to the digital platform, 
and that will be part of my concern as we move forward. I agree 
with many of my colleagues on the analog hole, and date certain 
are very, very important, and I think they help us. They have 
to be realistic also, as we are finding out, with airport 
security. You have got to have something that you can get to.
    So I think those are my concerns as we flesh out this 
debate, and, obviously, there is a lot of concern from people 
present, and we look forward to working through this at the end 
of this Congress and in the next one. And I yield back my time.
    [The prepared statement of Hon. John Shimkus follows:]
 Prepared Statement of Hon. John Shimkus, a Representative in Congress 
                       from the State of Illinois
    Thank you Chairman Upton for holding this important hearing this 
morning on the Transition to Digital Television.
    I want to praise Chairman Tauzin and Chairman Upton and all the 
staff who worked on this draft legislation. The transition to DTV hosts 
a number of complex and difficult issues that are extremely difficult 
to address. I think this bill is an excellent baseline and I appreciate 
your strong leadership on this issue. This Committee's action is 
necessary to get the stalled transition moving again.
    Now, I would like to touch on a few issues that concern me.
    1) There is nothing in this bill that addresses the needs of Public 
Television.
    I understand this is a ``draft'' bill, meant to be a starting point 
and not an annual authorization, but I want to publicize my support for 
an authorization to help rural public television stations afford the 
conversion.
    2) In the interest of promoting new, innovative content to drive 
the conversion, we need to ensure that content is protected from 
piracy. The draft bill includes a provision to implement a broadcast 
flag in this draft and also recognizes the importance of filling the 
``analog hole.'' The provision to sunset analog outputs on devices by 
2005 would go a long way to stop analog piracy. However, to completely 
plug the analog hole, devices that convert analog signals to digital 
need to respond to a watermark. I know that the industry is working to 
reach an agreement on this technology. I believe that watermark 
technology needs to be required in this bill.
    3) Finally, I want to share my possible concern with the date 
certain language for the transition to digital. Although I agree with 
the chairman's view that there needs to be a deadline, or the 
transition will never happen, I am still concerned about the 2006 date 
in the bill. Realistically, is this enough time? I would like to hear 
from the witnesses here today on this issue.
    Thank you again Chairman Tauzin and Upton for your outstanding 
leadership and hard work in this issue. Although there are a number of 
issues yet to be addressed, this draft is an impressive start.

    Mr. Upton. Thank you. Mr. Brown.
    Mr. Brown. Thank you, Mr. Chairman. I will keep my comments 
brief. I would like to thank Michael Fiorile from the Columbus 
Dispatch Group in Columbus for testifying again before our 
committee for at least the second time.
    I want to raise two issues that clearly merit our 
consideration as we develop this legislation. The burden on 
consumers and the need to support, as Mr. Stupak said, public 
television's transition to digital. Consumers obviously stand 
to reap the many benefits of digital television. Unfortunately, 
many will not be able to afford the required equipment to 
access digital TV. The method of pushing the transition forward 
must not place an undo burden on those consumers. Legislation 
should not force consumers to quickly replace their functional 
televisions with expensive new equipment. And part of being 
responsible to the public is not prematurely taking away access 
to the over-the-air analog broadcasting. Through digital TV, 
our public broadcasters can provide a broad spectrum of 
invaluable learning tools, especially to our children, but it 
is important to ensure that the necessary resources are 
available so that public broadcasters can continue that 
tradition and continue that transition, both.
    Our public broadcasters face a federally mandated deadline 
of May 2003 to complete their conversion to digital. Despite 
this Federal mandate, 83 percent of funding for their digital 
conversion has been provide by State governments and local 
communities. Only 8 months remain before the deadline, only 78 
out 356 public television transmitters broadcast in digital. 
Authorization language to assist the public broadcasting 
digital transition is essential to ensure their continued 
exceptional service to our local communities.
    I look forward, Mr. Chairman, to hearing the testimony 
today and moving that transition forward.
    [The prepared statement of Hon. Sherrod Brown follows:]
Prepared Statement of Hon. Sherrod Brown, a Representative in Congress 
                         from the State of Ohio
    Thank you, Mr. Chairman, I'll keep my comments brief.
    I would also like to thank Michael Fiorile of the Dispatch 
Broadcast Group for testifying again before our committee.
    A successful transition to digital television is a priority for 
Congress and our nation.
    The transition must move forward and it must move forward on a 
timely basis.
    It will provide not only a significant step forward for technology, 
but releases analog spectrum, which will be put to very good use for 
public safety.
    I want to raise two issues that clearly merit our consideration as 
we develop this legislation: the burden on consumers and the need to 
support public television's transition to digital.
    Consumers stand to reap the many benefits of digital television.
    Unfortunately, many will not be able to afford the required 
equipment to access digital TV.
    The method of pushing the transition forward must not place an 
undue burden on consumers.
    Legislation must not force consumers to quickly replace their 
functional TVs with expensive new equipment.
    And part of being responsible to the public is to not prematurely 
take away their access to over-the-air analog broadcasting.
    Through digital TV, our public broadcasters can provide a broad 
spectrum of invaluable learning tools to our children.
    But it is important to ensure that the necessary resources are 
available so the public broadcasters can continue the transition.
    Our public broadcasters face a federally mandated deadline of May 
2003 to complete their conversion to digital.
    Despite this federal mandate, 83% of funding for their digital 
conversion has been provided by state governments and local 
communities.
    Only eight months remain before the deadline and only 78 out of 356 
public television transmitters broadcast in digital.
    Authorization language to assist the public broadcasting digital 
transition is essential to ensure their continued exceptional service 
to our local communities.
    I look forward to hearing the testimony today on moving the 
transition forward.

    Mr. Upton. Thank you, Mr. Brown. Mr. Cox.
    Mr. Cox. Thank you, Mr. Chairman. I look forward to hearing 
from this extraordinary panel of witnesses. There won't be too 
many questions I think that we cannot answer today if we direct 
them properly. I am looking forward to hearing from you, so I 
too will be brief.
    I would like to discuss just three issues in the draft 
legislation. First, the creation of a firm date for the return 
of analog TV spectrum; second, potential technical mandates for 
TV manufacturers and cable systems; and, third, the application 
of must-carry requirements to cable operators.
    The draft legislation contains the requirement that by 2006 
broadcasters must vacate the analog TV spectrum that they have 
traditionally used and instead use only the spectrum they were 
given under the 1996 Telecom Act to provide digital television. 
In order to allow the broadcasting industry to make this 
transition from traditional TV to digital TV with its promise 
of clearer pictures and enhanced services, we loaned each TV 
station a second channel. These loans were both cost-free and 
interest-free. Nationwide, the value of all these extra 
channels has been estimated between $70 and $100 billion. So 
there are obviously huge economic benefits to be gained by 
allowing these assets to be used more productively than simply 
for transmitting an identical station, identical television 
program in a different format.
    Consumers can expect a range of exciting new wireless 
services once these valuable slices of the airwaves are 
released into the marketplace. And consumers will also benefit 
from an expeditious transition to fully digital TV. This firm 
commitment to a date for returning the extra spectrum might 
conceivably render unnecessary other proposed legislation, such 
as requirements that TV makers include digital tuners in all 
their sets. I would welcome the thoughts on our panel on this. 
I would like to know whether, in your view, manufacturers would 
continue making televisions that receive only over-the-air 
analog signals if there are no more analog signals to receive. 
I would also like to hear from our panel on the likely impact 
on consumers if Congress chooses not to enact new laws 
requiring cable compatibility with new broadcast signals.
    Mr. Chairman, I am pleased that the legislation rejects the 
concept of dual must-carry regulations. Requiring cable 
operators to carry two identical channels, one in an analog 
format and the other in digital, would be unwise. I would hope 
that we can add language barring the expansion of must-carry 
requirements altogether. The 1992 Cable Act gave broadcasters 
broad mandatory carriage rights. It forced cable operators to 
devote up to one-third of their channel capacity to carry local 
broadcast stations. This has created severe burdens on cable 
systems' capacity and is now actually limiting consumer choice 
for programming.
    Looking forward, while some of us would prefer no must-
carry rules, I think we can find common ground with the notion 
that must-carry of a broadcast channel will be maintained, but 
the mandate will not be expanded. We must ensure that we don't 
trample on the First Amendment rights of cable operators or 
customers. And just as importantly, we must allow consumers to 
decide which channels and services come into their homes via 
the cable pipe. If some customers would prefer a limited number 
of channels and more bandwidth for an Internet connection or 
more independent cable channels and less Internet bandwidth or 
more channels from their local broadcasters, then they and 
their cable providers ought to be free to get and to give 
customers what they want.
    Some of our witnesses today will call on the Federal 
Government to extend the must-carry rules to so-called 
multicast digital signals, the new channels that broadcasters 
are able to offer with the digital spectrum. We need to concern 
ourselves with whether this can be accomplished without forcing 
consumers to accept programming that not only hasn't proven 
itself in the marketplace but in many cases does not even exist 
yet.
    I thank the chairman and the committee staff for your 
excellent work on these important issues.
    [The prepared statement of Hon. Christopher Cox follows:]
    Prepared Statement of Hon. Christopher Cox, a Representative in 
                 Congress from the State of California
    Thank you, Mr. Chairman, for holding this important hearing today 
on the transition to digital television. I'm looking forward to 
receiving the testimony of our excellent panel of witnesses, so I'll be 
brief. I'd like to discuss three issues in the draft legislation: the 
creation of a firm date for the return of analog TV spectrum, potential 
technical mandates for TV manufacturers and cable systems, and the 
application of must-carry requirements on cable operators.
    I would first like to commend you for including in the draft 
legislation the requirement that by 2006 broadcasters must vacate the 
analog TV spectrum they have traditionally used and occupy only those 
portions of the airwaves they were given under the 1996 Telecom Act to 
provide digital television. In order to allow the broadcasting industry 
to make this transition from traditional TV to digital television, with 
its promise of clearer pictures and enhanced services, we provided each 
TV station the interest-free loan of a second channel. Nationwide, the 
value of all these extra channels has been estimated in the range of 70 
to 100 billion dollars, so there are obviously huge economic benefits 
to be gained by allowing these assets to be used more productively than 
simply transmitting an identical television program in a different 
format. Consumers can expect a range of exciting new wireless services 
once these valuable slices of the airwaves are released into the 
marketplace. And consumers will also benefit from an expeditious 
transition to fully digital TV.
    In fact, this firm commitment to a date for returning the extra 
spectrum might conceivably render unnecessary other proposed 
legislation, such as requirements that TV makers include digital tuners 
in all their sets. I'd welcome the thoughts of our esteemed panel today 
on whether any television manufacturers will continue making 
televisions that receive only over-the-air analog signals if there are 
no more analog signals to receive. I would also like to hear from our 
esteemed panel on the likely impact on consumers if Congress chooses 
not to enact new laws requiring cable compatibility with the new 
broadcast signals.
    Mr. Chairman, while I'm pleased that the legislation rejects the 
concept of dual must-carry regulations, which would require cable 
operators to carry two identical channels, one in an analog format and 
the other in digital, I hope that we can also add language barring the 
expansion of ``must-carry'' requirements altogether.
    The 1992 Cable Act gave broadcasters broad mandatory carriage 
rights, forcing cable operators to devote up to \1/3\rd of their 
channel capacity to carry local broadcast stations, creating severe 
burdens on cable systems' capacity and limiting consumer choice for 
programming.
    Looking forward, while some of us would prefer no must-carry rules, 
I think we can find common ground with the notion that must-carry of a 
broadcast channel will be maintained but the mandate will not be 
expanded. We must ensure that we don't trample on the First Amendment 
rights of cable operators and just as important, we should allow 
consumers to decide which channels and services come in to their homes 
via the cable pipe. If some customers would prefer a limited number of 
channels and more bandwidth for an Internet connection, or more 
independent cable channels and less Internet bandwidth, or more 
channels from their local broadcasters, then cable operators ought to 
be free to give customers the services that they want.
    That's why I'm troubled that some of our witnesses today will call 
on the federal government to extend must-carry rules to so-called 
multicast digital signals, the new channels that broadcasters are able 
to offer with the digital spectrum. Cable operators and consumers could 
be forced to accept programming that not only has not proven itself in 
the marketplace, but in many cases does not even exist yet.
    I thank the Chairman and the committee staff for their excellent 
work on this important issue.

    Mr. Upton. Thank you. Mr. Green.
    Mr. Green. Thank you, Mr. Chairman, and I commend both our 
subcommittee Chair and our full committee Chair and our Ranking 
Member Dingell for their efforts in trying to bring the various 
parties involved in digital transition together for the benefit 
of all the consumers. I am not going to take a lot of time, 
because I want to hear out witnesses, like all our colleagues 
do, but I want to comment a little on the discussion draft, the 
focus of today's hearing.
    Overall, the legislation moves the issue forward to the 
requirements of digital tuners, cable set-top box, 
compatibility and broadcast flags, but I feel it needs 
improvements in transition dates from analog to digital and 
taking positive legislative steps toward defining what is a 
broadcaster's primary video feed. The aggressive timeline for 
this transition to occur under the draft would leave millions 
of analog television sets unable to function. Millions of low-
income consumers would suddenly have to face the choice of 
spending several hundred dollars for a new television or a 
couple hundred for a converter box to allow that old set to 
receive the signal.
    The only thing I really want to get across is that 2006 is 
almost entirely a number created for budgetary purposes. We are 
the Energy and Commerce Committee, and our job is to bring 
technology to the American consumer as fast as possible, and I 
want to stress ``as possible.'' I am not wedded to 2006 
anymore, because as with every transition there are bumps in 
the road and adjustments to be made, and I think this date 
needs to be adjusted.
    And, finally, Mr. Chairman, the draft legislation silent on 
defining what a broadcaster's primary feed video should be. The 
broadcasts have been given six megahertz of digital spectrum 
that can be sliced and diced into lots of little pieces when 
not used to provide HDTV. This is a fact that can't be ignored 
because of all the spectrum--all spectrum is too valuably 
wasted.
    So where does that leave us on the issue? My friends in the 
cable companies say there is no room on their digital systems 
to carry multiple programming screens from broadcasters; 
however, they have the ability to crush down the broadcasters' 
six megahertz signal to three megahertz on their systems and 
thus create more room. But what this new compelling programming 
is that the--but what is this new compelling programming that 
broadcasters want cable folks to carry through multicasting I 
am not sure. There is going to have to be some give on both 
sides, because I know it can be done and it is currently being 
done already.
    Finally, Mr. Chairman, our public television stations need 
funding to help in reaching any kind of accelerated transition 
dates. Hometowns like Houston have a large fund-raising base to 
pay for the transition, but those small cities need that help. 
Clifford, the big red dog, should be seen by every child in our 
country after their transition date becomes effective, not just 
in our urban areas. And I yield back my time.
    [The prepared statement of Hon. Gene Green follows:]
  Prepared Statement of Hon. Gene Green, a Representative in Congress 
                        from the State of Texas
    Thank you Mr. Chairman: I want to commend you and Ranking Member 
Dingell for your efforts in trying to bring the various parties 
involved in the digital transition together for the benefit of all 
consumers.
    I am not going to take a lot of time here this morning because I 
want to get to the witnesses and their testimony, but I do want to 
comment a little on the discussion draft that is the focus of today's 
hearing.
    Overall this legislation moves the issue forward through the 
requirements of digital tuners, cable set-top-box compatibility, and 
broadcast flags.
    Where I feel it needs improvements it transition dates from analog 
to digital and taking positive legislative steps towards defining what 
is a broadcasters ``primary video feed.''
    The aggressive time line for this transition to occur under the 
draft legislation will leave millions of analog television sets unable 
to function.
    Millions of low-income consumers will suddenly have to face the 
choice of spending several hundred dollars for a new television or a 
couple of hundred for a converter box to allow that old set to receive 
a signal.
    The only thing I really want to get across on this issue is that 
2006 is almost entirely a number created for budgetary purposes.
    We are the Energy and Commerce Committee and our job is help bring 
technology to the American consumer as fast as possible and I want to 
stress ``as possible.''
    I am not wedded to 2006 anymore because as with every transition 
there are bumps in the road and adjustments to be made and I think this 
date needs to be adjusted.
    Finally Mr. Chairman, this draft legislation is silent on defining 
what a broadcasters primary video feed should be.
    The broadcasts have been given 6 megahertz of digital spectrum that 
can be sliced and diced into lots of little pieces when not being used 
to provide HDTV.
    This is a fact that cannot be ignored because all spectrum is to 
valuable to be wasted.
    So where does that leave us on the issue?
    My friends at the cable companies say there is no room on their 
digital systems to carry multiple programming streams from the 
broadcasters.
    However, they have the ability to crush down the broadcasters 6 
megahertz signal to 3 megahertz on their systems and thus create more 
room.
    But what this new compelling programming is that the broadcasters 
want the cable folks to carry through multi-casting, I am not sure.
    There is going to have to be some give on both sides of this issue 
because I know it can be done and is being done already.
    Finally Mr. Chairman, our public television stations need funding 
help in reaching any kind of accelerated transition date.
    Cities like my hometown of Houston have a large fund raising base 
to pay for their transition, but it is those small market cities that 
need the help.
    Clifford the Big Red Dog should be seen by every child in this 
country after your transition date becomes effective.
    Thank you Mr. Chairman and I yield back the balance of my time.

    Mr. Upton. Thank you. Mr. Fossella.
    Mr. Fossella. Thank you, Mr. Chairman, and going almost 
last, I guess many of the issues have been touched upon, so I 
am not going to rehash, but let me just compliment the folks 
here for what I think is going to be a fruitful discussion, as 
well as the industry for trying to--make strides to come to a 
compromise on their own. And I encourage all those involved to 
continue to solve the problem, limiting the scope of 
legislation, if any, to remedy the DTV transitional problems.
    I remind ourselves that it was the 1996 act of the past 
mandating broadcasters operating on analog spectrum and 
channels 52 to 69 to convert to digital in order to open 
spectrum for public safety and commercial use. I hope that all 
industries involved in the digital transition, in this 
committee and surrounding government entities, will remember 
that solving public safety spectrum is a necessary outcome of 
this transition.
    In particular, I would like to hear folks talk about the 
issue of the analog hole and believe firmly that it is in the 
best interest of our country that negotiations of the industry, 
along with the necessary, if any, legislation, will ensure a 
quick and effective move to the digital world, addressing all 
the issues surrounding the digital transition, from 
multicasting to the analog hole, while reaching the goal of 
providing public safety with much needed spectrum. All of this 
rooted in the notion of free enterprise with only limited but 
essential regulation and legislation, if any. With that, I 
yield back.
    [The prepared statement of Hon. Vito Fossella follows:]
Prepared Statement of Hon. Vito Fossella, a Representative in Congress 
                       from the State of New York
    Mr. Chairman I want to thank you, Chairman Upton, Ranking Member 
Dingell as well as Congressman Markey for the hard work you have put 
into the roundtable discussions thus giving us the opportunity to be 
here today with a discussion draft to work from.
    As this process has moved along, I have noticed that the industry 
has made great strides at coming close to a compromise of their own, 
and I would encourage the industry to continue their own efforts to 
solve this problem thus limiting the scope of legislation Congress must 
use to remedy DTV transitional problems.
    When you stand back and look at the big picture, there is one issue 
that brought us to the negotiations before us today, public safety 
spectrum. It was when the 1996 Telecommunications Act was passed 
mandating broadcasters operating on analog spectrum in channels 52-69 
convert to digital in order to open up spectrum for public safety and 
commercial use. I hope that all industries involved in the digital 
transition, this committee and our surrounding government entities will 
remember that solving public safety's spectrum needs is the real 
underlying issue.
    This discussion draft does an excellent job to address nearly all 
of the issues surrounding the digital transition. However, I would 
mention that one issue still to be discussed is the analog hole. I look 
forward to hearing the panel address this issue today and hope that a 
compromise will be met to ensure that the transition goes through 
smoothly with the least amount of piracy possible.
    I believe it is in the best interest of our county, that the 
negotiations of the industry, along with any necessary legislation, 
will ensure a quick and effective move to the digital world addressing 
all of the issues surrounding the digital transition, from multicasting 
to the analog hole, while reaching the goal of providing public safety 
with much needed spectrum. I want to personally thank all of you for 
taking the time out of your schedules to testify today and I look 
forward to hearing your remarks on some of the concerns my colleagues 
and I have regarding the transition.

    Mr. Upton. Thank you. Mr. Engel.
    Mr. Engel. Well, thank you, Mr. Chairman. I must say that 
this draft legislation reminds me of the title of an old Clint 
Eastwood movie, ``The Good, the Bad and the Ugly.'' Each of 
these adjectives could be applied to different parts of the 
bill so let me attempt to take them in order.
    The strong effort of content protection, in my opinion, is 
the good in the bill. For many years, Congress, the 
administration and private industry have struggled to come up 
with ways to deal with pirating music and video through 
traditional means of copying tapes and CDs. The advent of the 
Internet eliminated the need for tapes and CDs and now it just 
thousands of bits of data on a computer hard drive and MP3 
player. Thus I am encouraged by the language in the draft bill 
that requires the FCC to create regulation that all digital 
devices, ``recognize the use of a broadcast flag in order to 
prevent the unauthorized redistribution of marked, digital, 
terrestrial broadcast television content to the public over the 
Internet.'' The importance for developing such solutions, in my 
opinion, cannot be understated.
    And for me it hit home when I realized what could happen to 
public television without such protections. As you know, I have 
tried to be a champion of public broadcasting the 14 years I 
have served in Congress. I have done so because time and time 
again public broadcasting has provided high quality educational 
material for me and my family to enjoy. However, public 
television doesn't produce all of its content. For example, 
National Geographic is owned by the news corp, Fox Networks. 
National Geographic's programming is stellar, yet without some 
solid protections in place, National Geographic may be forced 
to use only its cable outlets. That would be devastating for 
public television, and I believe it should not happen. I am 
also pleased that it requires that these new FCC regulations, 
quote, ``protect the full functionality to consumers of 
equipment manufactured before January 1, 2006,'' unquote. This 
means that a person will still be able to use their old, 
antiquated analog VCR to make a copy of their favorite TV show 
so they can see it later. As we move forward, we must balance 
the need to protect intellectual property rights with 
consumers' right.
    This leads me to what is bad about the bill. In this case, 
there is something missing. Considering the breadth of the 
bill, the lack of authorization for public TV to receive 
additional funding for the transition to digital is troubling. 
In the past few years, I and many of my colleagues to get 
funding put aside to help public TV transition. However, $25 
million was lost because of a lack of authorization for such 
funds. I think there is a great case for assisting public 
television, and without assistance a great national treasure 
may not survive the digital transition.
    Finally, there is the ugly. The ugly is what the reaction 
of our constituents will be if they wake up New Year's Day 
2007, turn on their TV and see only snow. An end to the analog 
television signals on December 31, 2006 could also be the end 
of many of our congressional careers.
    And I don't think anyone here on both sides of the aisle is 
interested in having that happen. Considering that there are 
about 650,000 people in each of our districts and in my 
district, for argument's sake, let us say there are 300,000 
TVs, probably a low estimate, I would be surprised if there 
were even 100 digital televisions with digital tuners in them. 
Assuming that leaves about 210,000, or 70 percent, which are 
hooked up to cable, it still leaves 90,000 televisions and 
people who not be able to get a TV signal. That is a lot of 
people who would be forced to spend a great deal of money. We 
must be very conscious of these people and cautious about what 
we ask of them.
    Now there will be set-top boxes that will be available to 
receive digital signals and then translate them into an analog 
signal, but I am told that these devices cost $500 today and 
will be around $100 in 2006 to 2007. That is a lot of money to 
a family of four that survives on $20,000 per year, and I have 
a lot of families like that in my district. The fact is that I 
would be a lot more comfortable with such a deadline had the 
FCC required digital tuners in televisions long ago. Just think 
had these regulations gone into effect at the beginning of this 
107th Congress, 50 to 60 million televisions would have been 
sold that would be capable of receiving a digital signal.
    Also, the lack of cable interoperability remains a problem 
for consumers as well. The fact is we like plugging our TVs 
into the electric outlet, plugging the cable wire into the TV 
and sitting back and watching a ball game. And I should say 
sarcastically that most Americans enjoy that. We folks in New 
York, in the Bronx, Westchester and Rockland still cannot get 
the Yankees on Cablevision.
    Thank you, Mr. Chairman. I look forward to hearing the 
testimony and the questions and answers of the panelists. And I 
yield back.
    [The prepared statement of Hon. Eliot Engel follows:]
 Prepared Statement of Hon. Eliot Engel, a Representative in Congress 
                       from the State of New York
    Mr. Chairman: This draft legislation reminds me of the title of an 
old Clint Eastwood movie--The Good, the Bad, and the Ugly.
    Each of these adjectives could be applied to different parts of the 
bill--so let me take them in order.
    The strong effort at content protection is the ``Good'' in this 
bill. For many years, Congress, the Administration, and private 
industry have struggled to come up with ways to deal with pirating 
music and video through traditional means of copying tapes and CDs. The 
advent of the internet eliminated the need for the tapes and CDs--now 
it is just thousands of bits of data on a computer hard drive and MP3 
player.
    Thus, I am very encouraged by the language in the draft bill that 
requires the FCC to create regulation that ``all digital devices . . . 
recognize the use of a broadcast flag in order to prevent the 
unauthorized redistribution of marked digital terrestrial broadcast 
television content to the public over the Internet.''
    The importance for developing such solutions cannot be understated. 
And, for me it hit home when I realized what could happen to public 
television without such protections. As you know, I have been a 
champion of public broadcasting for the 14 years I have served in 
Congress. I have done so because time and time again, public 
broadcasting has provided high quality, educational material for me and 
my family to enjoy.
    However, public television does not produce all of its content. For 
example, National Geographic is owned by the News Corp/Fox Networks. 
National Geographic's programming is stellar. Yet, without some solid 
protections in place, National Geographic may be forced to use only it 
cable outlets. This would be devastating for public television and we 
cannot let that happen.
    I am also pleased that it requires that these new FCC regulations 
``protect the full functionality t consumers of equipment manufactured 
before January 1, 2006.'' This means that a person will still be able 
to use their old antiquated analog VCR to make a copy of their favorite 
TV show so they can see it later. As we move forward, we must balance 
the needs to protect the intellectual property with consumer's rights.
    This leads me to what is ``Bad'' about the bill. In this case, 
there is something missing. Considering the breadth of the bill, the 
lack of authorization for public television to receive additional 
funding for the transition to digital is troubling. In the past few 
years, I and many of my colleagues have sought to get funding put aside 
to help public television transition. However, $25 million was lost 
because of a lack of authorization for such funds. I think case for 
assisting public television is clear. Without assistance, a great 
national treasure may not survive the digital transition.
    Finally, there is the ``Ugly.'' The ``Ugly'' is what the reaction 
of our constituents will be if they wake up New Year's day 2007, turn 
on their TV and only see snow. An end to the analog television signals 
on Dec. 31, 2006 could also be the end of many of our Congressional 
careers.
    Consider that there are about 650,000 people in each of our 
districts, and in my district, let's say for argument's sake that there 
are 300,000 TVs--and that is a low estimate. I would be surprised if 
there are even 100 digital televisions with digital tuners in them. 
Assuming that about 210,000 or 70% are hooked up to cable, that still 
leaves 90,000 televisions--and people who would be able to get a TV 
signal. That's a lot of people who would be forced to spend a great 
deal of money. We must be very conscious of these people and cautious 
about what we ask of them.
    Now, there will be ``set-top boxes'' that will be available to 
receive digital signals and then translate them into an analog signal. 
But, I am told that these devices cost $500 today, and will be around 
$100 in 2006-2007. That's a lot of money to a family of four that 
survives on less than $20,000 per year--and I have a lot of families 
like that in my district.
    The fact is that I would be a lot more comfortable with such a 
deadline had the FCC required digital tuners in TVs long ago. Just 
think, had these regulations gone into effect at the beginning of the 
107th Congress, 50 to 60 MILLION televisions would have been sold that 
would be capable of receiving a digital signal.
    Also, the lack of cable interoperability remains a problem for 
consumers as well. The fact is we like plugging our TVs into the 
electrical outlet, plugging the cable wire into the TV and sitting back 
and watching a ball game. Well, I should say most Americans enjoy 
that--we folks in the Bronx, Westchester, and Rockland still can't get 
the Yankees on Cablevision.
    Thank you, Mr. Chairman. I look forward to hearing the testimony 
and the Q&A of the panelists.

    Mr. Upton. For some reason I knew they weren't interested 
in the Mets.
    At least in August.
    Mr. Engel. Not this year, Mr. Chairman, but another year.
    Mr. Upton. I knew that was coming.
    [Additional statements submitted for the record follow:]
Prepared Statement of Hon. Cliff Stearns, a Representative in Congress 
                       from the State of Florida
    Mr. Chairman, thank you for holding this hearing on legislation 
advancing the transition to digital television.
    We all recognize the challenges that cable operators, broadcasters, 
content community, manufacturers and retailers face in making digital 
television a reality and main stay. As such, the light at the end of 
the tunnel is starting to grow bigger as the players in the different 
industries are working together in order to make DTV a reality.
    The staff draft before this committee is a considerable first step 
in the right direction. First and foremost, the draft requires all TV 
sets sold or manufactured after Jan. 1, 2006, to recognize a broadcast 
flag, thereby permitting digital TV stations to obtain high value 
content, all the while allowing consumers free, over-the-air 
programming without limiting the consumer's ability to make personal 
copies.
    The draft also prohibits the manufacturing of sets with analog 
outputs after July 1, 2005. This provision, along with future consensus 
watermark legislation, closes the analog hole and ensure the protection 
of intellectual property.
    Furthermore, the staff discussion requires cable operators to 
transmit signals compatible with ``plug-and-play'' sets without need 
for set-top converter by July 1, 2005. I also support codifying the 
timetable phasing in DTV tuners in all sets 13 inches and larger, 
thereby jump-starting the stalled transition.
    Mr. Chairman, I support requiring affiliates to pass through a 
network's entire digital signal without degradation. This allows 
consumers to be confident that when they make an investment in High-
Definition sets, their sets will be able to experience digital 
broadcasts as intended. However, I want to bring to the Committee's 
attention a little-noticed and often overlooked, but critical component 
of America's transition to digital television, that of the use of 
digital studio-to-transmitter microwave links, which have not received 
approval by the FCC.
    The absence of FCC approval for digital studio-to-transmitter 
microwave links is greatly complicating the move of many commercial and 
public television stations to digital, high-definition broadcasts. The 
FCC's delay in approving the use of these links will undermine one of 
the main components of the legislation we are considering today.
    While the draft requires all network affiliates to pass-through 
high-definition signals sent by the major networks, without the FCC's 
immediate approval of the use of digital microwave studio-to 
transmitter links, the pass-through of high-definition signals will be 
impossible.
    While the staff draft includes many positive elements to ensure the 
digital transition is not stalled, I would like to learn more on the 
provision requiring broadcasters to return their analog spectrum by 
Dec. 31, 2006, regardless of whether 85% of homes can receive a digital 
signal. My primary, and foremost concern is focused on the consumer. I 
would like to learn more from our witnesses on the ramifications of 
such a provision, particularly, if it risks turning consumers' sets 
obsolete.
    Additionally, Florida is the home of several broadcast companies 
focusing on programming for underserved and distinct constituencies 
including religious, Spanish-language and family-friendly genres. Many 
of these stations are smaller and independent and not part of the major 
network groups. Their service is invaluable in bringing local and 
varied viewpoints to my district, state and country. On a regular 
basis, these broadcasters remind me that must-carry requirements 
established in the 1992 Cable Act have been the backbone of their 
existence. We must now determine how must-carry applies to digital 
television.
    During a hearing held by this committee last year, I asked FCC 
Chairman Michael Powell how the current FCC ``primary'' or one channel 
rule affects small and independent broadcasters. To paraphrase his 
response, he indicated that a lack of multicast must-carry would have a 
negative and disproportionate impact on these stations. As cable 
operators and broadcasters take advantage of advanced technology to 
increase channel capacity in correlating increments, is it reasonable 
to relegate broadcast carriage on a cable system to only one channel 
instead of passing the entire 6 MHz through should a broadcaster choose 
to multicast? We must decide how to strike a balance between cable and 
broadcasters to continue the success of the 1992 Cable Act must-carry 
provisions in spurring diversity in the television medium. As we review 
how must-carry will apply to digital television, I ask my colleagues 
not to lose sight of the need for broadcast independence and localism.
    Mr. Chairman, I look forward to working with you, and this 
committee, to ensure consumers realize the full benefits of high-
definition television services in a timely manner. Thank you.
                                 ______
                                 
Prepared Statement of Hon. Chip Pickering, a Representative in Congress 
                     from the State of Mississippi
    Mr. Chairman, I thank you for holding this hearing today and for 
showing the foresight to begin to force some closure to this issue of 
digital transition. This is a very complex and technical issue that 
must be addressed in a concise and timely fashion. I would just start 
by reminding our witnesses in attendance--and to the rest of the 
industry--that you should not walk away from your ongoing efforts to 
resolve some of these issues on your own. I believe the Chairman and 
the rest of the Committee would welcome the industry reaching a broad 
consensus. But the fact is that many of us are concerned you are not 
making the needed progress to ensure a timely transition.
    With that said, let me address a few issues that I have noted in 
the staff draft.
    WJTV a CBS affiliate in Jackson, WMPN a PBS affiliate also in 
Jackson, and WDAM a NBC affiliate in Hattiesburg, have literally 
mortgaged their futures to bring my constituents the promise of digital 
television. Mr. Chairman I am concerned that with the elimination of 
the ``85% penetration standard'' my constituents may be adversely 
affected.
    If our constituents can no longer rely on free, over-the-air analog 
television services on January 1st 2007 where will they turn when the 
next weather emergency hits? We must propel the transition forward, but 
we cannot shut off analog TV stations just as consumers are beginning 
to buy digital sets. These local stations provide lifeline services 
that must be maintained in the digital era.
    Mr. Chairman I also note that the draft legislation does not fully 
implement a broadcast flag until January 1, 2006. Many of our 
broadcasters and networks are doing a good job of broadcasting in HD 
format today. In order to encourage their commitment to provide this 
``digital'' content, it seems as if we may need to implement the 
broadcast flag as soon as technically possible.
    Lastly, I would note that at some point in the near future, we need 
to address the authorization levels for Public Broadcasting to ensure 
that funds are there to ensure its transition to the digital age.
    I thank the Chairman and the staff for their hard work and look 
forward to working with the Committee on this issue
                                 ______
                                 
Prepared Statement of Hon. Tom Davis, a Representative in Congress from 
                         the State of Virginia
    Mr. Chairman, I would like to thank you for your continuing effort 
to facilitate the difficult transition to digital television in this 
country.
    I believe the discussion draft that you, Chairman Tauzin, and 
Ranking Members Markey and Dingell, have developed with your staffs 
will serve as a catalyst to finally resolve some of the tough issues 
that have bogged down the digital conversion for years. There are still 
difficult choices to make, but I think it is time to get on with the 
business of completing the transition. There are far too many important 
uses for the spectrum that would be made available to unnecessarily 
prolong this evolution.
    One specific matter I would like to mention is the authorization of 
funding for public television's conversion to digital broadcasting. I 
fully appreciate that the discussion draft before us might not have 
been the best place to include a review of the need for such 
authorization; however, it is an important topic that merits serious 
discussion in the near future.
    Once again, I thank you for calling this hearing and am eager to 
hear the testimony of the witnesses.

    Mr. Upton. I am delighted with the panel that we have 
assembled today, and I would just remind all of us that we are 
going to have to have some strict adherence to the clock, 
because not having proxy voting in the House we have a full 
committee markup at two, which is going to require all members 
to be downstairs. So your statements are all made part of the 
record. I would really like to keep your remarks at 5 minutes, 
if you could summarize those statements, and I will be quick 
with the gavel with members' questions which will follow.
    For those in the audience, let me just go through the 
witness list, the impressive witness list that we have this 
morning. Led off by Mr. Robert Wright, chairman and CEO of NBC; 
Mr. Richard Lewis, chief technology officer from Zenith; Mr. 
Michael Willner, vice Chair and CEO of Insight Communications, 
on behalf of the National Cable and Telecommunications 
Association; Ms. Lana Corbi, president and CEO of Crown Media 
USA for the Hallmark Channel, on behalf of the National Cable 
and Telecommunications Association; Mr. Jim Gleason, president 
of Cable Direct, on behalf of the American Cable Association; 
Mr. Alan McCollough, chairman and president and CEO of Circuit 
City, on behalf of Consumer Electronics Retailers Coalition; 
Ms. Thera Bradshaw, president of the Association of Public 
Safety Communications Official International from California; 
and Mr. Gene Kimmelman, senior director of Public Policy for 
the Consumers Union here in DC. And to introduce our last 
guest, I would yield to my friend, Mr. Sawyer.
    Mr. Sawyer. Thank you very much, Mr. Chairman. Although Mr. 
Brown jumped the gun a little bit, I am pleased to welcome 
Ohioan, Michael Fiorile, who will be testifying today on behalf 
of the National Association of Broadcasters. Mr. Fiorile is the 
CEO and president of the Dispatched Broadcast Group, which 
includes WBNS-TV and WBNS AM-FM radio in Columbus, as well as 
the Ohio News Network, Ohio's own 24-hour cable news channel. 
As an operator of both broadcast and cable television entities, 
Mr. Fiorile is in a position to provide an interesting 
perspective on this issue. With that, I yield back.
    Mr. Upton. Thank you. Ladies and gentlemen, you will each 
have 5 minutes. Mr. Wright, we will begin with you. Welcome.

 STATEMENTS OF ROBERT C. WRIGHT, CHAIRMAN AND CEO, NBC, INC.; 
 MICHAEL FIORILE, PRESIDENT AND CEO, DISPATCH BROADCAST GROUP, 
   ON BEHALF OF NAB/MSTV; RICHARD M. LEWIS, CHIEF TECHNOLOGY 
 OFFICER, ZENITH ELECTRONICS CORPORATION; MICHAEL S. WILLNER, 
  VICE CHAIRMAN AND CEO, INSIGHT COMMUNICATIONS, ON BEHALF OF 
NATIONAL CABLE AND TELECOMMUNICATIONS ASSOCIATION; LANA CORBI, 
PRESIDENT AND CEO, CROWN MEDIA USA FOR THE HALLMARK CHANNEL, ON 
 BEHALF OF NATIONAL CABLE AND TELECOMMUNICATIONS ASSOCIATION; 
    JAMES M. GLEASON, PRESIDENT, CABLE DIRECT, ON BEHALF OF 
    AMERICAN CABLE ASSOCIATION; ALAN MCCOLLOUGH, CHAIRMAN, 
  PRESIDENT AND CEO, CIRCUIT CITY STORES, INC., ON BEHALF OF 
   CONSUMER ELECTRONICS RETAILERS COALITION; THERA BRADSHAW, 
    PRESIDENT, ASSOCIATION OF PUBLIC SAFETY COMMUNICATIONS 
OFFICIALS INTERNATIONAL; AND GENE KIMMELMAN, SENIOR DIRECTOR OF 
                 PUBLIC POLICY, CONSUMERS UNION

    Mr. Wright. Thank you, subcommittee Chairman Upton and 
Congressman Markey, full committee Chairman Tauzin and 
Congressman Dingell and members of the subcommittee. Thank you 
for giving me the opportunity to present NBC's views on 
America's transition to digital television.
    As members of this committee, you are all too aware the DTV 
transition is not moving forward as rapidly as many of us would 
like. Despite the enormous investments and efforts on the part 
of affected industries, NBC alone has invested over $100 
million in facilities to make available DTV and high-definition 
programming, with probably another $200 million to go over 
time, especially in the production area. Substantial unresolved 
issues remain.
    These issues raise complexities which either from a legal, 
technical or business perspective are daunting. May I suggest 
with full appreciation of the enormous resources that have been 
and continue to be devoted by so many to this effort that we 
step back a few feet and view this transition in very basic 
terms.
    First, what is our goal? The Congress and especially this 
subcommittee has been clear for a long time, that we should 
strive to complete the digital television conversion as quickly 
as possible, targeting the end of 2006. The staff discussion 
draft released last week reaffirms that determination. That 
means DTV penetration must be accelerated and ubiquitous. How 
do we achieve this objective? The answer is ultimately lies 
with the consumer. All of us today have promised a great deal 
to consumers about the wonders of digital television and the 
revolution taking place. We must deliver now on those promises, 
and we must deliver content to consumers that is better than 
they currently experience, but we must do it in a way that is 
at least as easy, functional and affordable as it is today. We 
should not need to reinvent the wheel to achieve these 
consumer-friendly objectives.
    The analog television model has served our Nation extremely 
well. We have nearly 100 percent analog television penetration. 
Let us examine that model. Today, a consumer can walk into a 
retailer, such as Circuit City, and purchase a very affordable, 
decent-sized analog television set. There is never any question 
in the consumer's mind about certain things. For instance, that 
the television will receive all the over-the-air signals and 
that it will be portable anywhere in the United States. If that 
consumer desires cable, he or she will be able to plug their 
cable-ready television into the cable without a set-top box. 
Again, a functionality that television will have anywhere in 
the United States and with any cable system to which they may 
subscribe.
    They will also receive local broadcast signals unencrypted 
on a low-cost basic tier, and they will receive those signals 
without degradation. It is simple, it is easy, it is affordable 
and it is complete. Our analog television experience today, as 
low tech as it might be compared to the wonders of digital 
technology, provides an invaluable model for how to drive 
consumer acceptance and the use of this new form of television 
technology.
    If consumers are to embrace a relatively new form of 
television, it is essential that a very minimum we meet their 
expectations in terms of what they experience and receive from 
television today. But beyond that, we must ensure that all the 
benefits possible with DTV actually reach consumers in its 
intended richness and quality.
    Consumers must have access to the most desirable content 
available and have sufficient flexibility in the manner they 
utilize that content. High-end content will not become 
available unless content owners have confidence that the 
digital works they release, regardless of the distribution 
method, are protected from illegal piracy and instantaneous, 
unauthorized transmission over the Internet.
    NBC supports the broadcast flag as a technical solution to 
that goal and the need to require consumer electronics 
equipment to the flag. I would caution, however, that any DTV 
content protection system must respect consumers' traditional 
expectations to record and otherwise use digital broadcast 
content for non-commercial purposes within their digital 
networks.
    Consumers must have access to affordable DTV receivers that 
receive all over the air channels, including digital channels. 
We believe the Commission's decision requiring a DTV tuner in 
every set is a major step forward in that direction. And we 
applaud Chairman Powell and Congressman Markey for their 
leadership on that issue. Consumers must have the ability to 
connect their cable directly to DTV. The majority of cable 
subscribers today do not rely on a set-top box and do not want 
to be told that the conversation to digital eliminates that 
option and convenience.
    Consumers must have access to all of the free over-the-air 
services broadcasters provide in their original quality and 
robustness, whether they subscribe to cable or receive it over 
the air. This includes all multicasts and high-definition 
television. Cable operators and broadcast affiliates alike must 
do everything necessary to ensure their viewers are actually 
able to receive broadcast high definition and multicast 
services being made available. We must not disenfranchise whole 
segments of the population from receiving DTV's most innovative 
and desirable services.
    If Congress is serious about accelerating DTV penetration, 
I would submit that there are the must haves--there are must 
haves for reaching that goal. We must have a consumer-friendly, 
consumer-driven transition. We must have consumers eager to 
replace their analog television with the DTV model. They must 
have content. They must have simplicity, they must have 
affordability and above all they must have access to all of the 
benefits, including high-quality content that digital 
television makes possible. The promises we have made to 
consumers about this being a revolution in their television 
experience must be kept. And while I prefer not to get into the 
business of telling legislators how to legislate, I will say 
this: To the extent that Congress and the FCC determine the 
tradeoffs and compromises and these must haves are necessary, 
please understand that those decisions will directly impact the 
pace of consumer acceptance and the use of DTV.
    For the past 15 years, Energy and Commerce Committee, 
Telecommunications Subcommittee first under the leadership of 
Congressman Dingell and Markey and now under Chairman Tauzin 
and Upton, have provided constant and inspired leadership in 
developing advanced television services. Last week's release of 
the staff decision discussion of the draft of omnibus to DTV 
legislation continues that honorable tradition. It addresses in 
some fashion many of the points I have made. There is a place 
keeper for multicasting that will ultimately be filled in 
consistent with my testimony. NBC has a concern about the 2006 
hard deadline for cutoff of analog transmission that is 
proposed in the draft because of its potential to 
disenfranchise millions of consumers.
    Notwithstanding this reservation----
    Mr. Upton. Mr. Wright, I am sorry to gavel you down, but I 
just know that we are under a real tightened constraint, and I 
am----
    Mr. Wright. Okay. Sorry, Mr. Chairman.
    Mr. Upton. Despite the nice words, they got you a little 
extra time.
    [The prepared statement of Robert C. Wright follows:]
  Prepared Statement of Robert C. Wright, President and CEO, National 
                       Broadcasting Company, Inc.
               the dtv transition through consumers' eyes
    Subcommittee Chairman Upton and Congressman Markey, Full Committee 
Chairman Tauzin and Congressman Dingell, and Members of the 
Subcommittee, thank you for giving me the opportunity to present NBC's 
views on America's transition to digital television. I and other senior 
NBC executives have been privileged to appear before this Subcommittee 
several times over the past decade to discuss digital television 
service, and I welcome the chance to provide a fresh look at where 
things stand and what remains to be done to complete successfully the 
conversion to digital television.
    As the Members of this Subcommittee are all too aware, the DTV 
transition is not moving forward as rapidly as many of us would like. 
There are a number of unresolved issues, the complexity of which, 
either from a legal, technical or business perspective, is daunting. 
May I suggest with full appreciation for the enormous resources that 
have been and continue to be devoted by so many to this effort, that we 
take a step back and view this transition in very basic terms.
    First, what is our goal? The Congress and especially this 
Subcommittee has been clear that we should strive to complete the 
digital television conversion as quickly as possible, targeting the end 
of 2006. The staff discussion draft released last week reaffirms that 
determination. That means DTV penetration must be accelerated and 
ubiquitous. At NBC, that is our operating assumption.
    How do we achieve that objective? The answer ultimately lies with 
the consumer. All of us here today have promised a great deal to 
consumers about the wonders of the digital television revolution. We 
must deliver on our promises. We must justify the investments we are 
asking consumers to make to adopt digital television.
    What will it take for consumers to embrace digital televisions? 
First, the consumer must get better content than their analog 
television experience. Second, consumers should be able to gain access 
to digital television in the same manner, and with the same ease, that 
they have become accustomed to in the analog world, whether they 
receive their television over-the-air or over cable or satellite. 
Third, consumers should receive greater and certainly not less 
functionality in their consumer electronics products, including display 
and recording devices. Finally, the transition must be affordable.
    How do we fulfill these consumer-friendly objectives? I suggest 
that we do not need to and should not reinvent the wheel. The analog 
television model has served our nation extremely well. We have nearly 
100 percent analog television penetration. So let's take a look, from 
the consumer's perspective, at the analog television experience, what 
makes it as widely accepted as it is today, and then let's apply those 
lessons to DTV.
    Today, a consumer can walk into a retailer such as Circuit City and 
purchase a very affordable, decent-sized, analog television set. 
There's never any question in the consumer's mind about certain 
things--for instance, that the television will receive all over-the-air 
signals and that it will be portable anywhere in the U.S. If that 
consumer desires cable, he or she will be able to plug their cable 
ready television into the cable, without a set-top box--again, a 
functionality that television will have anywhere in the U.S., with any 
cable system to which they may subscribe. They also will receive local 
broadcast signals, unencrypted, on a low-cost basic tier, and they will 
receive those signals without degradation. It's simple. It's easy. It's 
affordable. It's complete. Our analog television experience today, as 
``low-tech'' as it might be compared to the wonders of digital 
technology, provides an invaluable model for how to drive consumer 
acceptance and use of this new form of television technology.
    Let's deal with some specifics of how we implement or, where 
necessary, adapt the analog model to the digital universe.
                          high quality content
    Exciting, high quality content will drive consumer acceptance of 
digital television. Certainly, high definition will play an important 
role because of the dazzling video and audio clarity it offers viewers. 
Digital technology, however, also creates the possibility of new 
programming forms, utilizing accompanying data, graphics, and different 
camera angles to educate and entertain the viewer and to make 
television a far more interactive and informative experience than it is 
today. Broadcasters need to explore and experiment with the full 
panoply of programming opportunities to develop the optimum mix for 
their viewers.
    NBC and the other major broadcast networks are ramping up our high 
definition programming. NBC has invested approximately $100 million in 
facilities and infrastructure to make available high definition 
programming. NBC, like CBS, broadcasts high definition in the 1080i 
format, providing the highest resolution possible. NBC plans to 
increase its high definition programming to 60 percent of its prime 
time and late night lineup, plus special events, movies and sports. CBS 
and ABC already are meeting or exceeding Chairman Powell's HDTV targets 
set forth in his April 2002 voluntary initiative. Fox promises other 
high-value content.
    Content owners simply will not continue to release high definition 
and other high quality programming unless they have confidence that the 
digital works they release, regardless of the distribution method, are 
protected from illegal piracy, and especially from instantaneous, 
unauthorized retransmission over the Internet. Although piracy of 
copyrighted works has been a problem in the analog world, it is far 
more acute with DTV where it is possible to make nearly unlimited 
copies of digital content without degradation. NBC supports the use of 
the broadcast flag as an acceptable means, technically, for protecting 
over-the-air digital content. But let's remember that the flag itself 
is just a data bit. To work as it is intended, there must be an 
enforcement mechanism for digital television receivers and other 
consumer electronics and computer equipment to recognize and respect 
the broadcast flag when it is present. Encryption and/or watermarking 
can and should also respect the traditional expectations of consumers 
to record and otherwise use digital broadcast content for noncommercial 
purposes within their digital networks.
High Definition and Other High Quality Digital Programming Must Be Made 
        Available to Viewers By Network Affiliates, Cable and Satellite
Broadcast Affiliate Responsibilities
    If the broadcast networks' commitments to provide HDTV and 
innovative multicast programming is to translate into a revolutionary 
viewing experience for consumers, the digital broadcast signal--in all 
its richness and variety--must reach consumers.
    NBC's owned and operated stations are leading the way. A majority 
of them are transmitting full power digital broadcast signals, and we 
expect that problems hindering the others, such as the siting 
difficulties in New York following the September 11, 2001 terrorist 
attacks on the World Trade Center, will be resolved within a year. 
Additionally, NBC is focused on integrating our newly acquired 
Telemundo stations into our digital plans.
    Within the broadcast world, however, tens of millions of viewers 
will not be able to enjoy high definition programming unless network 
affiliates pass through the HD signal. High definition is negated if a 
network affiliate only retransmits the network feed in standard 
definition. In that respect, I am very pleased that the Committee staff 
discussion draft requires affiliates to pass through our high 
definition feeds without degradation. Broadcasters must purchase the 
necessary equipment to do so. Similarly, affiliates must be 
broadcasting at sufficiently high power so that viewers who now receive 
a good over-the-air analog signal also can receive a digital signal. It 
is not enough that a small subset of viewers living close to a tower 
receive HDTV broadcasts. Suburban and rural consumers also must realize 
those benefits.
Cable and Satellite Carriage
    A rapidly decreasing number of American TV households are receiving 
broadcast programming over the air. Roughly 70 percent receive it over 
cable and perhaps another 10 to 15 percent receive it over satellite. 
For those viewers whose primary television set in the home is hooked up 
to cable or DBS, it is critical that they are able to view and use all 
of the programming and data services broadcasters provide as part of 
their DTV offerings.
    Although NBC's owned and operated stations, and the vast majority 
of its affiliates, obtain cable carriage through retransmission consent 
agreements, the FCC rules governing must carry are important in 
establishing fundamental parameters for these agreements. Again, the 
analog model for must carry codified in the 1992 Cable Act is an 
excellent starting point. It is essential that the concept of digital 
must carry encompass carriage of the entirety of the broadcast signal, 
including all video, audio and data. Virtually every conceivable 
business model for broadcaster utilization of digital technology 
envisions some multicasting--in addition, in most instances, to HDTV. 
Multicasting increases diversity in programming. It increases 
competition. It is good for consumers, who will benefit from increased 
amounts of educational and information programming. Similarly, 
broadcasters can use digital technology to offer data, providing such 
``value-added'' features as statistics, related articles or scholarly 
works transmitted with digital programming. Cable consumers should have 
guaranteed access to the full breadth of technological and information 
benefits that DTV offers. Thanks to advances in digital compression, a 
cable operator will be able to fulfill such a carriage obligation using 
approximately half the capacity on its digital cable system that it 
currently uses to provide carriage of an analog broadcast signal.
    Similarly, as in analog, it should be very clear that cable and DBS 
operators should not degrade the HDTV broadcast signal as they 
retransmit it to their subscribers. Again, the principle should be 
clear: the viewer should receive the high definition signal the 
broadcaster sends.
Consumers Must Have Access to The Receiving Equipment They Need to View 
        High Definition and Other High Quality Digital Programming.
    The final piece of the puzzle to assure consumer satisfaction is 
the widespread availability of digital television receivers at 
progressively more affordable price points. This equipment can range 
from simple digital to analog converters to be used with existing 
analog television sets, all the way to 65-inch fully featured, 
integrated DTV receivers.
    Just last month, the FCC took a very important step in this 
direction by requiring consumer electronics manufacturers to 
incorporate digital tuning capability in their television sets and VCRs 
on a phased-in schedule to be completed by July 1, 2007. We join 
Congressman Markey, who has urged the Congress and the FCC to adopt 
such a requirement for the past five years, in applauding the FCC's 
decision. This will expedite the DTV transition and is essential to 
those viewers receiving DTV broadcasts over the air.
    But what of the viewer receiving DTV broadcasts over cable? Today, 
approximately 50 percent of cable subscribers receive their programming 
without a set-top box by simply plugging ``cable-ready'' television 
sets in to the cable coming out of the wall. We must be able to 
replicate that ``plug and play'' compatibility for digital television. 
Again, the analog model applies. When a consumer seeking to purchase a 
digital television receiver walks into a retail store like Circuit City 
and asks the salesperson, ``does it work with cable?'', the salesperson 
must be able to give a one-word, unequivocal answer: ``Yes.''
Conclusion
    For the past 15 years, the Energy and Commerce Committee and the 
Telecommunications Subcommittee, first under the leadership of Chairmen 
Dingell and Markey and now under Chairmen Tauzin and Upton, have 
provided constant and inspired leadership in developing advanced 
television services. Last week's release of the staff discussion draft 
of omnibus DTV legislation continues that honorable tradition. It 
addresses in some fashion many of the points in my testimony. There is 
a placekeeper for multicasting that I hope ultimately will be filled in 
consistent with my testimony. NBC has concern about the 2006 ``hard'' 
deadline for cut-off of analog transmissions that is proposed in the 
draft, because of its potential to disenfranchise millions of 
consumers. Notwithstanding this reservation, the draft legislation 
makes clear that there must be increased and accelerated inter-industry 
cooperation to resolve all outstanding issues in the DTV transition or 
Congress and the FCC will resolve them for us. NBC hears the message, 
and is prepared to rededicate itself to accelerating the conversion to 
digital television.
    The way to get there is to look at the challenges through the eyes 
of consumers, building upon the analog model that has served our nation 
so well. Consumers must get something not just somewhat better than 
what they currently have, but rather something that lives up to what 
they've been promised: a revolutionary improvement--in terms of 
quality, flexibility and diversity--in their television experience. It 
is time to get the job done, but as importantly, we must get the job 
done right.
    I welcome any questions that you may have.

    Mr. Upton. Mr. Fiorile.

                  STATEMENT OF MICHAEL FIORILE

    Mr. Fiorile. Mr. Chairman and committee, my name is Michael 
Fiorile. I am president and CEO of the Dispatch Broadcast 
Group. I also serve as television Chair of the National 
Association of Broadcasters and the Executive Committee of the 
Association for Maximum Service Television.
    Let me begin by thanking the committee for taking what are 
critical first steps. The recently circulated staff draft makes 
significant strides with the DTV tuner, broadcast flag and 
cable compatibility provisions. For 5 years, broadcasters have 
advocated for legislation on DTV and the mere recognition that 
a bill is needed is an important step in itself. As FCC 
Chairman Powell observed last August from the beginning, the 
transition to digital has thus far been industrial policy. 
Broadcasters have invested billions of dollars to bring digital 
television to American consumers.
    Our stations in Indianapolis, Indiana and Columbus, Ohio, 
have met government-imposed rules regarding construction, power 
levels, running multiple transmitters at a cost of millions of 
dollars. All of use must assist consumers in this transition. 
Broadcasters want to expedite the transition. And the bottom 
line is if the government wants to reclaim the spectrum, it 
must take steps to further accelerate the over-the-air 
transition.
    Our position supports three fundamental congressional 
objectives approved the Supreme Court: preservation of a 
robust, free, over-the-air television system promoting a 
multiplicity of voices, especially for non-cable homes, and 
promoting competition.
    Broadcasters oppose any provision that would prematurely 
cut consumers off from analog signals. In 1997, when Congress 
established the 2006 deadlines, not as telecommunication policy 
but as budget policy, Chairman Tauzin and members of the 
committee wisely assured that 85 percent of consumers in any 
given market would be able to receive DTV signals before ending 
analog broadcasting that market. By eliminating that 85 percent 
consumer safeguard, this draft could disenfranchise millions of 
viewers and would do irreparable damage to free over-the-air 
broadcasting.
    As the CBO has recognized, cable carriage is central to the 
transition. Congress should mandate that cable companies carry 
both, broadcasters' analog and digital signals during the 
transition period. And the swifter the transition, the more 
quickly the government and will reclaim the spectrum. A 
traditional mandate would also protect analog viewers during 
the switch. Unfortunately, the staff draft not only fails to 
take this important step, but prohibits it from being taken in 
the future.
    Congress should also mandate that all free over-the-air DTV 
services be carried on cable. Digital television, as you know, 
allows broadcasters to serve their communities in a variety of 
new ways. Our position is simple: We are licensed to provide an 
over-the-air service to all Americans. All of the digital bits 
of information that we supply to our communities for free 
should be carried on cable without degradation. Cable should 
not be allowed to invade these bitstreams to anti-competitive 
purposes. These free bits must flow.
    While high-definition television remains central to 
industry plans, options exist also to provide community-
specific news, regionally focused weather alerts and 
multicasting of popular sporting events as well as other 
services. Any meaningful legislation must also recognize the 
value of these offerings. Doing so will provide the incentives 
needed for stations to develop innovative new TV services for 
both cable and over-the-air viewers, thereby advancing the 
goals of competition and the multiplicity of voices and 
promoting the free over-the-air broadcast system. We recognize 
the staff draft leaves this issue open, and we welcome the 
opportunity to work with the committee.
    Cable companies argue that their capacity would be unduly 
burdened by new carriage requirements, but make no mistake 
about it, cable company capacity arguments are in fact a 
classic red herring. Cable's own capacity figures given to the 
FCC show that by the end of next year 86 percent of cable 
subscribers will receive more than 300 channels. Transitional 
carriage requires less relative burden on cable capacity today 
than the 1992 Cable Act required. And transitional carriage 
would only apply during this transition.
    Mr. Chairman, the group with the most at stake in this 
transition, as you know, are consumers, and at the end of the 
day, as we have heard, only when a consumer can purchase a 
digital television set from a local retailer, take it home, 
plug it in and begin enjoying digital television through cable 
or over the air, only then will the end of this transition be 
in sight.
    [The prepared statement of Michael Fiorile follows:]
  Prepared Statement of Michael Fiorile, President and CEO, Dispatch 
                            Broadcast Group
                              introduction
    This written testimony presents the positions of the National 
Association of Broadcasters on the digital television (DTV) transition. 
The testimony explains the costs stations incur to convert to digital 
and outlines the current status of the DTV rollout in the United 
States.
    The testimony also describes existing impediments to the transition 
and enumerates the legislative remedies necessary to overcome these 
remaining hurdles in the context of the recently circulated staff 
discussion draft. While the draft would tackle several key obstacles to 
the transition, it also falls perilously short in a number of areas. 
Even more concerning, the draft would force cessation of analog 
broadcasts by 2006. In 1997, then Subcommittee Chairman Tauzin and the 
full Committee prudently recognized the need to protect consumers from 
a premature end to analog broadcasting. Congress therefore dictated 
that 85% of consumers in a market must be able to receive all local 
broadcasters' signals before analog broadcasting ends in that market. 
The draft legislation would do away with this pro-consumer measure--to 
the detriment of the viewing public.
    Lastly, this testimony explains the Digital TV Zone program, an 
initiative undertaken by the broadcast industry to expand consumer 
understanding of and enthusiasm for the DTV transition.
                        costs of the transition
    The transition to digital television is the biggest change in the 
television broadcast industry since television began. While such a 
watershed change will ultimately yield great benefits to the viewing 
public, the costs of undergoing such a transition are enormous for the 
television stations involved. The over-the-air television broadcast 
industry is literally mortgaging its future to bring digital television 
to the American consumer.
    Putting a new DTV signal on the air involves large capital 
investments in new towers or construction on previous towers, new 
transmission lines, antennae, digital transmitters and encoder, 
consultants, licensing, construction crews, and other capital 
expenditures. Together, these expenditures will amount to between $3 
and $10 million per station and are incurred without a guarantee of any 
additional revenue. Even after a station is on the air in digital, it 
must absorb the increased energy costs associated with simultaneously 
transmitting both a digital and analog signal. During the transition, 
when transmitting in both formats, stations often spend about $6,300 
per month in increased energy costs.1
---------------------------------------------------------------------------
    \1\ GAO Report, ``Many Broadcasters Will Not Meet May 2002 Digital 
Television Deadline,'' April 2002, page 16.
---------------------------------------------------------------------------
    These costs are felt most acutely by stations in smaller, more 
rural markets. Although the FCC's decision allowing small market 
stations to begin their digital broadcasts with lower wattage has 
alleviated some of the dual electrical costs described above, the other 
transition costs such as tower construction, new antennae and new 
transmission lines remain relatively constant between large and small 
markets. While stations in rural markets must make expenditures like 
these similar to their urban brethren, their revenue sources are also 
significantly smaller. As a result, the transition to digital is 
proportionally a much larger investment for small market stations. In 
fact, for many small market stations, the cost of going digital is 
often significantly more than the value of the analog station itself.
             status of the transition: reasons for optimism
    Despite the costs television broadcasters must endure to make the 
digital switch, there are reasons to be cautiously optimistic about the 
transition. First, while some stations are struggling to convert 
(particularly those in smaller markets), a vast majority of U.S. 
television households are now being served by a digital signal. 
Currently, 475 stations in 143 markets are broadcasting digital signals 
(See Appendix A). This coverage means that 90% of U.S. television 
households are in a market served by at least one digital signal. 
Moreover, 45% of all U.S. TV households are in markets where 
broadcasters are delivering four or more DTV signals.
    An explosion of digital television programming over the past year 
has further accelerated the transition. The upcoming television season 
will feature more than 2000 hours of on-air digital programming. (See 
Appendix B for a complete list of DTV primetime programming currently 
airing or planned for the Fall season). This represents a doubling in 
available digital network programming since September of last year.
    Compelling high-definition content has not been limited to 
primetime. CBS Television has announced an expanded partnership with 
Samsung Electronics America and Sears, Roebuck and Co. that will again 
allow consumers to enjoy a full season of college sports broadcast in 
HDTV. Following the success of the very first full season of college 
football games broadcast in HDTV in 2001, football broadcasts will 
expand from 12 to 15 games, and, for the first time, two regular season 
college basketball games will join the lineup.
    Samsung and Sears have also partnered to produce the ``HDTV Game 
Day'' promotion in which Sears' full-line stores across the U.S. will 
show a high level game each week during the regular season on a Samsung 
HDTV. The in-store broadcasts will be shown in a setting that allows 
consumers to compare an HD broadcast with that of analog television.
    In terms of available hours of digital programming, the DTV 
transition has far outpaced the most recent comparable transition when 
the industry moved from black and white to color. During the first year 
of color television in the 1950s, only 68 hours were offered to 
viewers. As the transition moves forward, we can only expect content 
providers will produce more and more programming in digital and in 
HDTV.
    Finally, the August 8th decision by the Federal Communications 
Commission to begin a phased-in mandate of digital tuners into new 
television sets will build upon this momentum. Of the 25 million 
analog-only television sets sold last year, less than one percent are 
capable of receiving digital signals. The Commission's decision 
recognizes that every analog-only set that is sold only serves to 
prolong the transition. The ruling will help correct this problem and 
will also spare consumers obsolescence problems when the transition to 
digital is completed. As Telecommunications Subcommittee Chairman Upton 
has observed, the transition is ultimately about the 
consumer.2 As we will outline in further detail below, the 
Commission's tuner decision is the most consumer friendly of all the 
available options.
---------------------------------------------------------------------------
    \2\ ``In the final analysis, this is about our constituents, our 
consumers.'' Chairman Fred Upton, speaking at Digital Television: A 
Private Sector Perspective on the Transition Hearing Before the 
Subcommittee on Telecommunications and the Internet, March 15, 2001.
---------------------------------------------------------------------------
  remaining impediments to the transition and recommended legislative 
                                remedies
Cable Carriage--the Next Piece of the Puzzle
    With cable acting as the gatekeeper to 70% of U.S. television 
households, clearly cable carriage of digital television signals is the 
next piece of the DTV puzzle that must fall into place to see the 
transition completed. As early as 1999, the Congressional Budget Office 
recognized that cable carriage of digital signals will be necessary for 
a timely and successful transition, when it stated, ``[t]he 
availability of digital programming on cable systems is a necessary 
though not sufficient, condition for a timely transition.'' 
3 Regardless of any pledges for future action, today only a 
handful of cable MSOs carry local stations' free, over-the-air digital 
signals.
---------------------------------------------------------------------------
    \3\ Completing the Transition to Digital Television, Congressional 
Budget Office Report, September 1999
---------------------------------------------------------------------------
    Future DTV policy must remedy several cable carriage issues. First, 
and foremost, in light of the FCC's rejection of so-called ``dual'' 
carriage (or more accurately ``transitional carriage''), Congress must 
act to ensure that both digital and analog signals receive carriage 
during the transition. We believe that transitional carriage of both 
signals is, in fact, required by the 1992 Cable Act and would pass any 
constitutional challenge. Due to the vast expansion of cable capacity, 
carriage of both analog and digital signals would occupy far less of an 
average cable system's capacity than carriage of analog signals alone 
took up in 1993. Secondly, as DTV makes it possible for broadcasters to 
offer consumers a variety of services, carriage obligations must be 
applied to all free, over-the-air services that broadcasters transmit. 
Lastly, it must be ensured that Program and System Information Protocol 
(PSIP) data is carried in the digital world so that consumers continue 
to receive channels, ratings, closed-captioning and other critical 
information. Cable systems cannot be permitted to disable consumer 
features that build upon PSIP information.
Transitional Cable Carriage
    To date, the FCC has yet to complete its proceeding on digital must 
carry. After several years of inactivity, the FCC issued a partial 
Report and Order in early 2001, refusing to require dual carriage of a 
station's analog and digital signals. With the Commission ruling 
against so-called ``dual-carriage'' it will take Congressional action 
to require carriage of both the DTV and analog signals through to 
consumers, both to protect analog viewers and broadcasters and to 
entice viewers to purchase DTV sets and speed the transition along. The 
absence of transitional carriage is slowing the pace of the transition 
and frustrating the return of analog spectrum. The decision to not only 
forego transitional carriage in the draft, but moreover, to also 
prohibit future transitional carriage mandates could slow consumer 
purchases of DTV receivers, further slow the transition, and reinstate 
cable's bottleneck power over their broadcast DTV competitors. Section 
6 of the draft should be rewritten to include a strong transitional 
carriage rule.
Adaptation of Carriage Provisions to the Digital World
    As digital television evolves, local broadcasters will be better 
able to serve their communities with a whole range of new free, over-
the-air services. While High Definition TV promises unparalleled 
viewing and remains central to most broadcasters' DTV plans, stations 
might also use their DTV capabilities in other ways such as time-
shifting popular programming to a second or third channel, offering 
community specific local news programming, and issuing regionally 
specific weather alerts. Any meaningful DTV policy must recognize the 
potential value of these new offerings to consumers and extend to them 
the carriage rights that will ensure they are accessible by consumers.
    The legislative history of the Communications Act shows that 
Congress intended to see carriage rights adapted for the digital era. 
The statutory must-carry provisions, while applicable to digital, were 
written during the analog era when digital television was largely 
viewed as the distant future. The provision itself recognizes this, 
directing that certain provisions of the carriage rules will need to be 
adapted for digital television.4 In 1996, when crafting the 
Telecommunications Act, Congress again showed its support for 
supplemental digital services in granting what was then referred to as 
``Broadcast Spectrum Flexibility.'' 5 NAB strongly urges 
Congress and the Committee to take this legislative history into 
account and to protect the future growth of these exciting new digital 
services. The most straightforward way to do this is by codifying 
previous Congressional intent in any future legislation and ensuring 
that all free services in broadcasters' 6 MHz signals are to be 
carried.
---------------------------------------------------------------------------
    \4\ 47 US Code Sec. 534(b)(4)(B)
    \5\ House Report 104-458, Telecommunications Act of 1996, Title II, 
Section 336
---------------------------------------------------------------------------
    The cable industry continues to argue for a narrow and rigid 
interpretation of the terms ``primary video'' and ``program related'' 
in order to permit cable systems to strip parts of local DTV signals. 
Such a restrictive paradigm would allow cable to exercise its monopoly-
like powers and thereby deprive consumers of new and free DTV services. 
The Commission already uses pay versus non-subscription to define 
ancillary and supplementary services.6 Congress should 
extend this reasonable, ``bright line'' test to determine carriage 
obligations.
---------------------------------------------------------------------------
    \6\ 5th Report and Order, MM Docket No. 87-268, April 3, 1997, 
para. 31
---------------------------------------------------------------------------
    The draft has yet to stake out a position on this critical issue. 
Including language to ensure carriage of all free, over-the-air DTV 
services would help achieve Congress' clear intention of preserving a 
robust free, over-the-air broadcasting system for both cable and non-
cable homes and would also expand the available DTV services for the 
benefit of all consumers.
Program and System Information Protocol (PSIP)
    Program and System Information Protocol (PSIP) data that is 
transmitted along with a station's DTV signal, tells DTV receivers 
important information about the station and what is being broadcast. In 
addition to providing consumer friendly channel numbering and 
navigation information, PSIP technology is the only standard that can 
provide consumer purchased receivers with program rating information. 
Additionally, digital closed captioning is dependent on PSIP to tell 
the receiver that captioning is present, how the data is to be 
formatted for display, and to inform the receiver when more than one 
caption service is present. There are no other standards or recommended 
practices that guide receiver selection among captioning services.
    Cable carriage of broadcast PSIP information is critical for 
receivers to be able to operate PSIP-based services. The staff 
discussion draft is silent on this matter. NAB strongly urges mandating 
carriage of PSIP data.
Cable's Capacity Arguments are Disingenuous
    On all of these issues, the cable industry has repeatedly asserted 
that it is restrained by capacity and, moreover, that burdening cable 
systems' capacities calls into question the constitutionality of 
certain carriage mandates. In recent years, as cable's capacity has 
exploded, arguments regarding capacity have been rendered moot. Cable's 
cry of limited capacity is a classic red herring argument.
    As the responses to the Commission's survey of MSOs in 2001 showed, 
86 percent of cable subscribers will be served by systems with 750 or 
more MHz capacity by the end of next year. NAB retained an independent 
consultant--Merrill Weiss Group (MWG)--to evaluate the data submitted 
to the FCC by the cable industry. MWG found that by the end of 2003, 
the average cable subscriber will have 725.2 MHz of bandwidth delivered 
(an increase from 622 MHz from year end 1999). This calculates into a 
capacity range of 261.8 to 295.7 program services 7 
delivered to the average subscriber by the end of 2003. MWG also 
concludes that, by year-end 2003, the relative burden of carrying both 
DTV and analog signals will be less than the initial must carry/
retransmission consent burden imposed in 1993.8
---------------------------------------------------------------------------
    \7\ The term ``program services'' can refer to ``channels.'' 
Generally, in an analog world, the number of ``program services'' 
equals the same number of ``channels'' offered by the cable operator. 
However, in a digital world, the number of program services that can be 
carried on a single 6 Mhz channel varies depending on the type of 
program service offered.
    \8\ The initial burden on cable for carriage of analog commercial 
stations in 1993 was 13.42%. This percent drops to 8.43 in 2003 `` and 
includes carriage of both analog and DTV channels. Further, by the end 
of the transition, the must carry/retransmission consent burden on 
cable will be miniscule at 2.63%
---------------------------------------------------------------------------
    This issue of program capacity was acknowledged as early as 
February 2000 by the General Counsel of AT&T Broadband at a FCC hearing 
when he professed that ``[cable] channel capacity is not only 
increasing exponentially, but is about to go even beyond that as it 
[cable] goes digital.'' 9 He went on to say that AT&T's 
belief ``is that we are going to be crying for content.'' 10
---------------------------------------------------------------------------
    \9\ AT&T/Media One Cable Services Bureau Hearing, February 4, 2000.
    \10\ Id.
---------------------------------------------------------------------------
    One thing is clear, the cable industry can no longer cry that 
capacity is a barrier to transitional carriage. Further, it's time for 
a strong must carry rule. There is minimal digital carriage today, and 
virtually no agreements for the future. Smaller stations that need 
voluntary carriage agreements are the ones in the most need of must 
carry's access to the cable audiences to build their DTV futures and 
preserve our system of free, over-the-air broadcasting.
    Today, a viewer in the Washington, DC market who utilizes over-the-
air reception can watch (among others) popular programs like Alias; 
Push, Nevada; NYPD Blue; The Drew Carey Show; the Practice; Becker; 
Everybody Loves Raymond; The Agency; Crossing Jordan; and Frasier all 
in high-definition. Over-the-air viewers can also receive special 
events like the U.S. Open (which accounted for more than 40 hours of 
continuous high-definition programming) and 15 college football games 
in high-definition. Clearly, in terms of programming, the DTV 
transition is on track. Unfortunately, a DTV viewer in this market who 
relies upon cable would receive absolutely none of this programming.
    Cable is the gatekeeper to approximately 70% of all television 
households. It is time for the cable industry to stop being the problem 
and become part of the solution to a successful DTV transition. Since 
we know that all cable operators will never carry many, much less all, 
DTV broadcasters, government intervention through mandated must carry 
is the only alternative to reach the necessary households to make the 
transition a success.
Interoperability and Digital Copy Protection Issues
    Despite the best efforts of Chairman Tauzin to resolve 
interoperability issues and closely related digital-copy protection 
issues through a series of industry roundtables, questions surrounding 
interoperability remain largely unanswered today. There are incomplete, 
voluntary specifications between consumer electronics and cable 
industries for DTV/cable interoperability.
    The draft moves decisively to see connectors on all DTV receivers, 
set-top boxes and other DTV products and ``cable-ready'' 
characteristics for direct connection DTV receivers.
    Moreover, the draft would address the closely related goal of 
protecting content originators' copyrights by directing the FCC to 
implement a broadcast-flag standard. We support efforts to implement 
the broadcast flag via legislation and FCC regulation. Full 
implementation of the broadcast flag will mean that free, over-the-air 
broadcasts will receive the same level of protection from unauthorized 
redistribution as cable content and will ensure that consumers continue 
to receive high quality programming via free, over-the-air broadcasts. 
We also support efforts to find a legislative solution to the analog 
hole, a problem created by the continued presence of analog outputs in 
digital devices. Broadcasters also believe that a comprehensive 
solution to the analog hole must be implemented or else the 
effectiveness of content protection mechanisms will be compromised.
    In decisively moving to untangle these issues, the draft recognizes 
that the transition will never gain the needed momentum until consumers 
can purchase DTV sets from their local retailers, bring them home, plug 
them into their cable jack, and begin enjoying digital television.
Codification of the FCC's Tuner Decision
    The FCC's August decision to begin a phased-in mandate of digital 
tuners represents the most important action on digital television since 
adoption of the DTV standard in 1996. Through this landmark decision, 
the Commission revived what had otherwise seemed a mired transition. 
Chairman Powell and the Commission recognized the Congressional 
imperative to stimulate the DTV marketplace and deserve enormous credit 
for taking pro-consumer steps to jump-start the stalled transition. 
While the Commission undoubtedly has the statutory authority for the 
ruling through the All Channel Receiver Act,11 it is 
important that Congress signal support for the ruling by codifying the 
Commission's decision into statute.
---------------------------------------------------------------------------
    \11\ All Channel Receiver Act of 1962, P.L. No 87-529 Stat 150 
(codified at 47 U.S.C 303(s)).
---------------------------------------------------------------------------
    In its ruling, the FCC prudently decided to phase the mandate in, 
beginning with larger, more expensive sets, and eventually applying the 
mandate to smaller sets. This process will make the mandate affordable 
to both consumers and manufacturers. The efficiencies of mass 
production will further reduce tuner costs. The economic consulting 
firm Arthur D. Little, Inc. found that the material cost for 
integration of a tuner would be reduced from $100 to $9 by 2006, due to 
the efficiencies of mass production, resulting in a retail price 
increase of only $16.12 Two of the largest TV receiver 
manufacturers in the U.S., Thomson and Zenith, have seen the wisdom of 
the FCC's decision and publicly declared their support for a phased-in 
universal integration of DTV tuners.13
---------------------------------------------------------------------------
    \12\ Assessment of the Impact of DTV on the Cost of Consumer 
Television Receivers, Arthur D. Littlie, Inc., Cambridge, 
Massachusetts, September 10, 2001, page 11.
    \13\ Exparte Filings to MM Docket # 00-39, August 1 and July 12, 
2002, respectively
---------------------------------------------------------------------------
    Without the FCC's tuner ruling, the transition to digital would be 
horribly slowed. In 2001, the Consumer Electronics Association 
estimated that only 12% of the 1.4 million DTV products sold included 
digital tuners.14 These 168,000 fully capable digital 
television sets would account for only about 0.6% of the 25 million 
television sets sold annually.
---------------------------------------------------------------------------
    \14\ Digital America 2001, the U.S. Consumer Electronics Industry 
Today
---------------------------------------------------------------------------
    The Commission's decision will also ensure greater choice for 
consumers. Broadcast digital signals do not have any ``snow'' or 
``ghosts,'' which will likely make over-the-air reception a more 
palatable option for many consumers. The choice to forego cable and 
enjoy DTV through over-the-air reception must be available to consumers 
in the digital future.
    NAB commends including codification of the Commission's tuner 
decision into statute as a provision in the draft bill. However, the 
prescience the draft exhibits in reaffirming the FCC's tuner decision 
seems wholly incompatible with the decision to eliminate the 85% 
threshold--to date the best measurement of consumer acceptance of DTV. 
Ultimately, the FCC's tuner decision recognizes the value of the over-
the-air broadcast system and will help to protect it in the digital 
age. One of the unique aspects of America's local broadcast system is 
that it is free to consumers. Anyone with a set and an antenna can 
receive the benefits of local news, weather, and other programming 
over-the-air. It seems contradictory that the draft would show such 
support for the over-the-air system (by codifying the tuner decision) 
and simultaneously demand an end to over-the-air analog broadcasting, 
irrespective of the acceptance level of DTV among consumers.
                      the digital television zone
    Recognizing that consumers are the key participants to the 
transition, in January of 2001, NAB launched the Digital Television 
Zone program. This multimillion dollar marketing and education 
initiative was designed to expand consumer understanding of and 
enthusiasm for digital television. In deference to past Congressional 
calls for inter-industry cooperation, the program also established a 
partnership between the Consumer Electronics Association and NAB. (A 
booklet explaining all elements of the Zone program is attached as 
Appendix C).
    The project initially targeted three pilot markets (or ``Digital TV 
Zones''). The first three Zones--Houston, Texas; Indianapolis, Indiana; 
and Portland, Oregon--are diverse regions where all local network-
affiliated stations have made the transition to digital. Additionally, 
these three markets exhibited strong retail commitment to selling DTV 
sets.
    Following the national campaign launch in Las Vegas, NAB and CEA 
announced the details of the Digital TV Zone program during media 
events in the three Digital TV Zone cities. Held at local landmarks in 
each Zone city, the events featured Mayor Bart Peterson in 
Indianapolis, Mayor Lee Brown in Houston and Mayor Vera Katz in 
Portland, each issuing a formal proclamation of support for the Digital 
TV Zone initiative and recognizing the value of DTV.
    To meet the campaign's objective of introducing consumers to the 
viewing experience of DTV, NAB and CEA, together with local 
manufacturers, installed Digital Landmarks in high profile, high 
traffic areas in each Zone city. Digital Landmarks featured state-of-
the-art HDTV sets, with accompanying signage recognizing the city as a 
Digital Zone.
    Houston Landmarks included the Houston Livestock Show and Rodeo; 
Space Center Houston; Compaq Center; and Houston Visitors Center. 
Indianapolis Landmarks included VisitIndy.Info-City Center; NCAA Hall 
of Champions; City County Building; Conseco Fieldhouse; and 
Indianapolis International Airport. Portland landmarks included Rose 
Garden Arena; Oregon history Center; and Portland City Hall.
    As the benefits of DTV are best understood when experienced, NAB 
and CEA sponsored a ``Digital TV Family'' search contest in each of the 
three Zone cities. Families applied for the opportunity by completing a 
questionnaire and submitting a short essay response on the program's 
website, www.digitaltvzone.com. HDTV sets were installed in the living 
rooms of the three wining families to use for one month. After that 
period, the families documented their experience and endorsed digital 
television. These testimonials were then shared with the media to 
further educate each community about DTV. Each Zone also benefited from 
``Watch Parties'' where local opinion leaders were invited to 
experience special HDTV programming events.
    In addition to these earned media efforts, NAB commissioned the 
development of a television advertisement titled ``Time Marches On.'' 
The thirty second ad highlights the major advantages of DTV and shows 
that the transition is occurring now. The ad takes an historical look 
back at the first broadcast of a TV signal, the innovation of color, 
and finally the major break through of digital television.
    ``Time Marches On'' was aired by the local TV stations in all three 
Zones reaching approximately 1,000 Group Rating Points per market. 
Several retailers in local Zones also purchased additional advertising 
time to further spread the campaign's message.
    Prior to initiating the Zone project, NAB commissioned the research 
firm StrategyOne to measure the impact of the campaign among our 
targeted audiences. StrategyOne conducted a two-tiered study: a pre-
campaign ``benchmark'' survey of 200 respondents aged 25 and older in 
two of the Zone markets (Indianapolis and Houston) and a post-campaign 
``monitor'' survey of 200 respondents in the same two markets and also 
in Portland. The survey demonstrates quantifiable success in improving 
consumers' familiarity with digital television. The survey reported 
double-digit increases in the perceived advantages of DTV.
Moving the Zone Program Forward
    This morning, NAB will launch our fourth, and perhaps most 
important local Zone in Washington, DC. Mayor Anthony Williams will 
attend the media event, pronouncing the city's support for DTV. 
Tomorrow, NAB will host a ``Watch Party'' at the newly opened Spy 
Museum where local opinion leaders have been invited to see the 
advantages of High-Definition television. All other elements of the 
Zone program, which have proven successful in the pilot markets, will 
also be implemented in Washington.
    Equally important, elements of the program are being used 
nationally. 25 stations nationwide (who were not in the original Zones) 
have requested copies of the ``Time Marches On'' advertisement for 
their own airing. Stations also regularly contact NAB staff for 
logistical advice on how to organize Watch Parties, press conferences, 
and other media events that will build even greater consumer enthusiasm 
for this exciting technology revolution.
                               conclusion
    While the transition to digital television faces obstacles, 
broadcasters remain deeply committed to seeing the promises of the 
transition fulfilled. The large percentage of TV households who are 
served by a digital signal coupled with the rapid expansion of 
available DTV programming and the FCC's recent tuner decision have 
collectively provided needed momentum for the transition. NAB is 
building upon this momentum through a multimillion dollar marketing and 
education campaign that is enhancing consumer understanding of and 
enthusiasm for DTV. To capitalize on this inertia, Congress should act 
to ensure cable carriage of DTV signals, promulgate universal 
interoperability standards and codify the Commission's tuner decision.
    NAB has consistently advocated for legislation that will move the 
transition forward. As such, we are encouraged by these very first 
nascent steps. We look forward to working closely with the Committee on 
creating pro-consumer legislation that propels the DTV transition 
forward and preserves the system of free, over-the-air broadcasting in 
the digital millennium.




[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


    Mr. Upton. Thank you. Thank you very much.
    Mr. Lewis.

                  STATEMENT OF RICHARD M. LEWIS

    Mr. Lewis. Mr. Chairman, my name is Richard Lewis, and I am 
the chief technology officer for Zenith Electronics. I 
appreciate the opportunity to appear before you and the 
committee today to discuss the issues related to digital 
television transition.
    From the development of our first proposal for the digital 
television transmission system in 1987 through our 
participation in the Grand Alliance, to ongoing efforts to 
introduce affordable digital products, Zenith has had a long 
involvement in this issue. Mr. Chairman, your interest in 
prodding, as well as that of Chairman Tauzin, Mr. Dingell and 
Mr. Markey, along with Chairman Powell, have been helping to 
accelerate the DTV transition, and we at Zenith agree with you 
and other policymakers about the importance to our Nation of a 
successful transition.
    In my brief remarks today, I would like to touch on four 
issues we believe are crucial to accelerating the transition. 
The development of compelling HDTV programming to drive the 
transition; the inclusion of DTV tuners in products to bring 
the timeliness to the transition; the need for a national cable 
interoperability standard to allow all of us to participate in 
the transition; digital rights management to protect the rights 
of consumers as well as content producers.
    Broadcasters have stepped up and are deploying digital 
transmitters. Sales of DTV products are exploding. In July, for 
example, The Consumer Electronics Association reports that 
industry sales revenues from digital televisions surpassed 
analog for the first time. More than 400 DTV products are now 
on the market and prices are falling at a rate of 2 percent 
each month. In Zenith's product alone, we offer entry level 
HDTV with a built-in digital tuner for under $1,500. Consumers 
like what they see and are purchasing more and more of these 
digital devices.
    But even with all this progress, there continues to be an 
insufficient amount of compelling digital programming for them 
to watch, despite the leadership of major networks like CBS and 
ABC. Zenith is proud to be a leading sponsor of a number of 
these programs, as well as posting listings for all high-
definition programs on our web site as part of our commitment 
to digital television. We urge all parties to accelerate the 
efforts to make this content available, both over the air and 
through cable carriage.
    Equally important to getting programming on the air is 
getting receivers into the hands of consumers. As you know, 
last month, the FCC adopted regulations to require off-air 
digital tuners in nearly televisions by 2007, beginning with 
the larger, more expensive TV sets. While some manufacturers 
oppose such mandates on a matter of principle, we at Zenith 
agree that the FCC's phased-in approach would be the best way 
to provide consumers with cost effective products while 
accelerating the transition. We arrived at this conclusion due 
to the phase-in approach and the realization that the cost 
premium for adding ATSC reception is already less than $200 and 
is decreasing rapidly. Others, such as ATI Technologies, a 
leading DTV chip manufacturer, estimate that due to increased 
volume and further chip integration, the cost of a DTV tuner 
will be under $75 by 2004.
    Reports of the doubling of costs of TV sets under the FCC 
plan are simply untrue, and in most cases, receiver costs will 
be offset by normal year-to-year price declines. In fact, 
Zenith believes that by the time digital reception capability 
ultimately is included in small screen TVs, the cost of 
producing a digital receiver should be comparable to the cost 
of producing an analog receiver.
    With this terrestrial DTV tuner issue resolved, the largest 
remaining obstacle to the DTV transition is the consumers' 
inability to purchase digital television that connects simply 
and directly to cable. Consumers expect cable compatibility and 
as manufacturers we believe that it is critical to the success 
of the transition that a national deployable cable standard be 
instituted as quickly as possible.
    The cable and consumer electronics industries have been 
meeting to try and resolve the cable compatibility issue, and 
we have made good progress. Honest disagreements still exist 
and hard work needs to be done on issues like program guides 
and selected controls. Still, government action, as addressed 
in the draft legislation, may be needed to resolve certain 
issues where the two parties have a different business 
objective. And in general, Zenith agrees and supports the cable 
compatibility provisions of the draft legislation.
    However, the requirements to include secure digital 
connections on all digital television we believe goes too far. 
As in the analog world, many small- to mid-size TV applications 
do not require connections to external devices. Market forces 
should decide which connectivity is available to consumers. 
Furthermore, adding the capability to make the connectors 
upgradeable to some future undefined successor digital 
interface technology, as required in the draft legislation, is 
a daunting if not impossible task.
    Turning to digital rights management, as you know, 
interested parties have been discussing the broadcast flag and 
we support it. The consumer electronics industry, and Zenith in 
particular, urge Congress and the FCC to continue to pressure 
everyone involved to take the actions needed to resolve the 
remaining issues and allow this DTV transition to be the 
success that all of us know it can be.
    [The prepared statement of Richard M. Lewis follows:]
   Prepared Statement of Richard M. Lewis, Chief Technology Officer, 
                     Zenith Electronics Corporation
    Mr. Chairman, my name is Richard M. Lewis, and I am Chief 
Technology Officer of Zenith Electronics Corporation. I appreciate the 
opportunity to appear before you and the Committee today to discuss 
digital television (DTV), an issue in which Zenith has a long and 
continuing interest.
                               background
    By way of background, Zenith is not a newcomer to DTV. We have been 
investing in this transition from the very early days, since before 
high-definition television (HDTV) was digital, starting in 1987 with 
Zenith becoming a founding member of the Advisory Committee on Advanced 
Television Services (ACATS) of the Federal Communications Commission 
(FCC). In 1988, Zenith proposed one of the original 23 HDTV systems. In 
1990, the FCC mandated that the HDTV standard would be based on the 
``simulcast'' approach proposed by Zenith, and one year later we at 
Zenith completed our development work on the first version of the 
vestigial sideband (VSB) digital transmission system. We were 
instrumental in the formation of the Digital HDTV Grand Alliance, whose 
goal was to merge proposed DTV systems into a single best-of-the-best 
standard. In 1994, the Grand Alliance and the ACATS chose Zenith's VSB 
technology as the broadcast and cable transmission standard. In 1996, 
the FCC adopted the digital broadcast standard based on the Grand 
Alliance system, which includes Zenith's VSB transmission technology. 
Since then, our company has worked aggressively to help launch HDTV, 
has introduced innovative DTV products (more than 80 percent of 
Zenith's current product line is digital), and has continued to invest 
in developing new enhancements for the digital transmission system, 
which are currently under consideration by the Advanced Television 
Systems Committee (ATSC). As you see, Zenith has a long involvement and 
expertise in this issue.
                     status of the transition today
    Mr. Chairman, you as well as the Chairmen of the full Committee 
(Mr. Tauzin) and of the FCC (Mr. Powell) have been actively engaged in 
digital television. Your interest and prodding have been helping to 
accelerate the DTV transition, and we at Zenith agree with you and 
other policymakers about the importance to our Nation of continuing our 
progress in this transition.
    Today 475 TV stations are broadcasting digitally. DTV signals are 
now transmitted in 143 markets and reach 90 percent of U.S. TV 
households. In addition, 45 percent of all U.S. TV households are in 
markets where four or more DTV signals are being transmitted. The level 
at which consumers are purchasing DTV products is astounding. The 
amount of DTV products sold in July of this year was 81 percent higher 
than during July 2001. Significantly, July also marked an important 
milestone as industry sales revenues from digital TV products surpassed 
those from analog for the first time.
    More than 400 DTV products are now on the market, and the Consumer 
Electronics Association (CEA) estimates that 2.1 million DTV products 
will be sold in 2002, increasing to more than 4 million next year. 
Prices for DTV products are falling at a rate of 2 percent each month. 
The average selling price for a DTV product in 1998 was $3,500; today, 
it is half that amount. In Zenith's product line alone, we offer entry-
level integrated HDTVs under $1,500, HDTV monitors for under $800 and 
digital set-top boxes for under $400. Despite the naysayers, clearly, 
consumers like what they see and are purchasing more and more of these 
devices.
    But they have been discouraged by a dearth of compelling digital 
programming, and the availability of digital content for viewers 
continues to be a critical issue. There is good news to report on that 
front, as well. In the fall season just beginning, CBS is continuing 
its leadership by offering all of its primetime comedies and dramas in 
HDTV, the fourth consecutive year it has broadcast the majority of its 
primetime schedule in HDTV, as well as many sports programs. For the 
second year, ABC will broadcast all of its series and theatrical movies 
in HDTV, including surround-sound. Zenith is proud to sponsor primetime 
HDTV broadcasts in conjunction with these networks as a key element of 
our advertising program to promote DTV. Cable and direct broadcast 
satellite program providers such as HDNet, HBO, Showtime, Discovery and 
others are initiating new digital programming, including HDTV, but 
these programs are not available to terrestrial broadcasters. The best 
impetus for the DTV transition is compelling applications, including 
high definition programming for our customers to view.
    All of these factors show that the DTV transition is well underway, 
and momentum is growing. However, work remains to be done before the 
Nation will realize the full fruit that can be borne from our digital 
future.
                            tuner standards
    As you know, last month the FCC adopted regulations to require off-
air DTV tuners on nearly all new TV sets by 2007. This is to occur on a 
five-year phased-in schedule, beginning with larger, more expensive TV 
sets. While some manufacturers oppose such mandates as a matter of 
principle, we at Zenith agree that the FCC concept makes sense, 
believing that a phased-in approach will be the best way to provide 
consumers with cost-effective products while accelerating the DTV 
transition. We arrived at this conclusion because we recognize that the 
cost premium for adding ATSC reception capability to sets is already 
less than $200 and will decrease rapidly.
    Economies of scale driven by the increased sales volume from the 
tuner mandate and integration and consolidation of functions into 
single chips will enable this cost premium to decline even more 
quickly. For example, ATI (a leading chip manufacturer) estimates that, 
due to increased volume and further chip integration, the cost of a DTV 
tuner will be under $75 by 2004.
    Some have spoken of doubling the cost of a television by 
introduction of a tuner mandate. This is simply not going to happen. 
Zenith believes that, by the time digital reception capability 
ultimately is included in small-screen TVs, the cost of producing a 
digital receiver should be essentially comparable to the cost of 
producing an analog receiver.
    Using the phased-in approach outlined in the FCC's tuner mandate, 
starting with large screen sets, the cost of implementation is offset 
by routine declines in industry pricing. By the time medium screen 
sizes are affected, the cost of implementation will have dropped due to 
increased volume, and once again in many cases competition-based price 
reductions will have offset the incremental digital costs. Consumers 
will end up with a feature that benefits the public interest in 
accelerating the DTV transition, with minimal financial impact on 
consumers.
    Some may view our decision to support this initiative as self-
serving based on our intellectual property position related to the ATSC 
standard, which I described earlier. Clearly, Zenith, other consumer 
manufacturers and many other parties will benefit from a rapid 
transition, but our motives are based on an honest evaluation of what 
will accelerate the transition and allow our Nation to achieve 
important public policy goals, including reclaiming analog spectrum as 
soon as possible.
    Suffice it to say, there has been some disagreement among 
manufacturers about the necessity for such a mandate. The FCC has now 
acted, and we at Zenith are moving forward with plans to comply with 
the FCC's directive. Section 9 of the proposed legislation affirms the 
FCC's authority to provide the mandate, and we are supportive of the 
schedule set out by the FCC for the reasons I have mentioned above.
                            remaining issues
    Despite the advances to which I have referred, the remaining issues 
are significant and pose storm clouds on the horizon of the DTV 
transition.
1. Cable Compatibility
    With the terrestrial DTV tuner issue resolved, the largest 
remaining obstacle to the DTV transition is the inability of consumers 
in this country to purchase DTVs and set-top boxes that connect simply 
and directly to a home digital cable jack, anywhere in the country. 
Cable compatibility--which today permits consumers simply to connect 
their cable directly to a TV without a separate set-top box--is 
something Americans have come to expect. Congress recognized the 
importance of cable compatibility when in 1992 it enacted section 624A 
of the Communications Act of 1934, requiring compatibility of cable and 
consumer electronics equipment.
    Today, approximately 70 percent of American households receive 
their primary TV signals by means of their cable system, with the 
majority receiving existing analog service over plug-and-play standard 
TVs without the need for a set-top box. As manufacturers, we believe 
that it is critical to the success of the DTV transition that a 
national deployable cable standard be instituted as quickly as 
possible.
    As you may know, representatives of the cable and manufacturing 
industries have been meeting to attempt to resolve the cable 
compatibility issue, in accordance with section 629 of the 
Communications Act of 1934. Good progress has been made in this regard, 
many issues have been resolved, and positive discussions continue. We 
have committed to update the FCC on the status of our efforts by mid-
October. Still, government action, as addressed in the draft 
legislation, will assure that technical standards are put in place and 
supported fully by all cable operators nationwide, and that acceptable 
business terms are applied for implementation of the standards in 
retail consumer navigation devices.
    Cable operators should be required to support consumers' equipment 
that complies with common national technical standards. These standards 
would enable consumers, using unidirectional (downstream-only) retail 
equipment and a cable operator-provided Point of Deployment (``POD'') 
security card, to receive and navigate premium cable programs that 
require specific authorization, and view a simple program guide with 
accurate data. The standards also should provide for nationwide 
portability of consumer equipment. This is essential to ensure that 
consumers' investment in their equipment is not lost when they move. 
The draft legislation addresses this issue.
    The standards also should provide increased protection for the 
cable network from harm and theft of service. Manufacturers recommend 
that the standards be based on consensus technical standards set by 
American National Standards Institute (ANSI) accredited consensus 
standard developers, under procedures that offer all interested sectors 
an equal opportunity to participate in their development. The draft 
bill requires that the ANSI standards be used. Any standards 
established should evolve to keep up with technological change, with a 
balanced industry council to advise on changes as necessary. The 
standards should be used by cable operators in the equipment they 
provide to consumers starting no later than the date when integrated 
security is phased out (currently scheduled by the FCC for 2005). The 
draft bill establishes this date as the appropriate timetable.
    The tuner standard mandated by the FCC presents an opportunity for 
rapidly integrating cable compatibility, since the circuitry required 
to add digital reception capability in a TV achieves more than 90 
percent of what is needed to add cable reception as well. Significant 
economies of scale could be achieved if the integration of both 
capabilities could be done simultaneously. The FCC has mandated a right 
of attachment for retail navigation devices, and standards should be 
adopted that include the right of manufacturers to incorporate POD 
security module technology into such devices, subject to reasonable 
licensing terms and manufacturers' self-certification of compliance 
with cable compatibility standards. Of course, nothing should preclude 
manufacturers (both consumer electronics manufacturers and proprietary 
suppliers of equipment to cable operators) from exceeding the standards 
voluntarily, with products such as future ``Open Cable'' ready sets.
    Zenith agrees with the DTV cable compatibility provisions in the 
draft legislation. However, the requirement to include ``secure digital 
connections'' on all digital televisions goes too far. As in the analog 
world, many small- to mid-sized TV applications do not require 
connections to external equipment. Market forces will assure that the 
required connectivity is available to consumers. Furthermore, making 
these connectors ``upgradeable to successor digital interface 
technologies'' is a daunting, if not impossible, task because the 
technical requirements for these future interfaces is unknown.
    We support the proposed standard that CEA submitted to the FCC 
because it accomplishes many of the goals that I have mentioned. The 
proposal will promote the DTV transition by enabling an open and 
innovative marketplace for DTV cable products. If all cable systems 
complied with this standard, purchases of DTV cable products would 
increase because consumers would have confidence that their purchase 
will work anywhere in the United States. This would move us forward 
toward widespread adoption of DTV.
2. Broadcast Flag
    In 1984, the Supreme Court affirmed the capability of consumers to 
make copies of TV broadcasts for their personal use (``fair use'' 
rights). Fair use is extremely important in the digital age. Consumers 
should continue to have the right to private, noncommercial home 
recording of content that originates as free terrestrial broadcasts, 
without any authorization being required or without any technical 
restrictions regarding that home recording. As you know, discussions 
have been ongoing among content providers, broadcasters, information 
technology companies, consumer representatives and consumer electronics 
manufacturers regarding the suitability of a ``broadcast flag'' 
approach to restrict the unauthorized redistribution of TV programming.
    In order for there to be a sufficient amount of HDTV programming to 
drive consumer interest and investment in DTV, we must ensure that 
content owners have confidence that the works they release, regardless 
of the distribution method, are protected from illegal piracy, and 
especially from instantaneous, unauthorized retransmission over the 
Internet. The DTV transition cannot be a step backward in terms of the 
protection of copyrighted works.
    Zenith has no intellectual property interest in any content 
protection technology. We do believe that the ``broadcast flag'' 
proposal as currently envisioned is a workable solution that balances 
the needs of copy protection rights against ``fair use'' rights if 
applied appropriately. As recently as last week, a large cable operator 
in an urban market had marked all digital content as ``Copy Never,'' 
preventing digital recording of any kind.1 It is this kind 
of misuse that causes us concern, and we urge that any legally mandated 
restrictions intended to protect intellectual property rights be 
narrowly tailored to preserve consumer home recording rights.
---------------------------------------------------------------------------
    \1\ Cablevision in New York City, San Jose Mercury News, September 
18, 2002.
---------------------------------------------------------------------------
    Further, we are concerned that certain parties are proposing a 
broadcast flag process that does not contain objective criteria to 
allow new technologies to be ``approved['' for the purpose of 
protecting content. Rather, the current proposal in this regard is 
completely subjective. This could thwart investment in technology 
development, because companies will be unsure if they can gain approval 
even if a technology is shown to be superior. Zenith notes that the 
draft bill requires that the technical criteria to be established must 
be objective, and applauds this support for a critical issue.
    The draft legislation preserves the functionality of digital 
equipment with analog and existing digital tuners, a provision with 
which Zenith agrees. It is also desirable, as the bill proposes, that 
changes due to technological advances should be accommodated. In 
addition, the draft bill by statute would preclude analog outputs in 
equipment after July 1, 2005; Zenith does not think it is necessary to 
set this prohibition in law. The reality is that analog outputs 
eventually will not be included in equipment because of the transition 
to a digital environment. It is not necessary, therefore, for Congress 
to intervene in the manufacturing process through this kind of 
prohibition.
3. Cable must-carry
    Because so many households in our country receive their television 
signals by means of their cable system, it is essential that cable 
companies carry digital signals if we are to make a successful 
transition to DTV. Cable carriage of digital signals is pro-
competitive, pro-consumer, and most importantly required by law. Title 
VI of the Communications Act of 1934 requires that cable operators 
carry the signals of local commercial television stations. Sections 614 
and 615 were adopted because Congress determined that, without 
mandatory carriage provisions, the economic viability of local 
broadcast television and the capability to generate valuable local 
programming would be endangered. Must carry enables consumers to view 
local news, public affairs, and other programming on their local 
broadcast stations. Congress intended that cable systems would be a 
conduit for DTV services, benefiting consumers and ensuring the 
strength of free over-the-air broadcasting.
    Cable operators argue that requiring this carriage will diminish 
their capability to offer a broader variety of cable services, but this 
argument is not valid in the face of rapidly expanding cable channel 
capacity. Cable operators must carry local broadcast signals, including 
multicasting applications, if programming choices are to expand, and in 
order for us to achieve a near-term transition to DTV, with the 
resulting return to the government of spectrum used for analog 
services.
                               conclusion
    The consumer electronics industry, and Zenith in particular, have 
been at the forefront of efforts to achieve a successful DTV 
transition. The success of our company is tied directly to the success 
of the digital transition and the strength of our conviction can be 
judged by our actions.
    We have made major investments in DTV R&D for 15 years, developing 
standards and technologies for HDTV broadcasting, and we continue to 
invest in enhancements to further extend the capabilities of DTV 
technology. Zenith is the sole sponsor of ABC's primetime HDTV lineup, 
and we have expanded our role with CBS as lead sponsor of the network's 
primetime HDTV programming. We are aggressively introducing a broad 
line of DTV products, including low-cost integrated HDTVs. We are 
helping consumers to find what's on the air in HDTV in their area 
through our web site. And we have been supporting the United States' 
effort to establish the U.S. DTV standard throughout the Americas.
    Together, industry and government have made significant progress, 
but more remains to be done. All parties need to step up and do their 
part to get the remaining issues resolved. A successful DTV transition 
is dependent on the adoption and implementation of a nationwide 
standard for sending DTV over cable. It is critically important that 
cable systems and DTV products be compatible. We must conclude the 
digital must carry debate, and copy protection issues must be settled. 
High-quality programming is absolutely required so that consumers 
receive value for their investment. I am confident that these issues 
can be addressed if we all work together, but we must act promptly.
    I commend you, Mr. Chairman, and the other Members of this 
Committee for your ongoing efforts to move the various industry sectors 
toward agreement on these matters. I will of course be glad to attempt 
to answer any questions you may have, and I thank you again for this 
opportunity to appear here today.

    Mr. Upton. Thank you very much.
    Mr. Willner, welcome.

                 STATEMENT OF MICHAEL S. WILLNER

    Mr. Willner. Thank you, Mr. Chairman, and I will change my 
first line from good morning to good afternoon. I am Michael 
Willner, vice chairman and CEO of Insight Communications, a 
company that serves nearly 1.5 million subscribers, cable 
subscribers. Mr. Chairman, I want to commend you and your 
colleagues for your leadership on this very complex and 
important issue. The committee's DTV roundtable discussions 
have played a key role in encouraging all of us, maybe I should 
say cajoling us into increased industry cooperation and 
negotiation.
    The draft bill released last week sends a clear message to 
all of the industries involved in the digital TV transition: 
Resolve outstanding issues through negotiation or you will 
resolve them for us. I want you to be assured that we in the 
cable industry heard your message loud and clear, and we 
believe that the best solution is to resolve these complex 
issues through business negotiations.
    Together we face of problem of how to get a Nation of 
consumers to migrate from a very good analog television system 
to an even better digital one. In this regard, I firmly believe 
that the creation of more high-definition programming is the 
key to driving consumer demand to digital television. Indeed, 
cable operators already are rolling out HDTV in dozens of our 
markets, and despite suggestions to the contrary, we are doing 
so today without any compatibility or technical issues.
    While cable operators invested nearly $70 billion of our 
own at-risk capital in digital plant upgrades, broadcasters 
were gifted $70 billion worth of new spectrum on the promise 
that they would develop HDTV programming. But who has really 
led in that arena? Well, the cable networks have--HBO, 
Showtime, Discovery, Madison Square Garden, among others. The 
cable industry made those investments because we operate in a 
very highly competitive environment, and we know we must 
provide customers with new and differentiated digital services. 
High-speed Internet access, cable telephony, video-on-demand 
and high-definition television are just the beginning of the 
digital cable revolution.
    Because broadcasters have largely failed to deliver on 
their HDTV promise, they are now coming back to Congress to ex-
appropriate scarce cable bandwidth worth billions of dollars 
more. Let me put this in perspective. Compared to our $70 
billion investment of our own at-risk capital, broadcasters 
have spent at the highest estimate that I can come up with no 
more than $5 billion on the digital conversion and now they 
want more from us. We are encouraged the draft legislation 
includes a prohibition on requiring dual carriage of 
broadcasters' analog and digital signals during this 
transition. It correctly recognizes that a double dose of must-
carry would deprive consumers of a diverse choice of 
programming and other exciting digital services. It would do 
nothing, nothing at all, to accelerate the DTV transition and 
probably would slow it down with mere duplicative programming.
    For many of the same reasons that dual must-carry is a bad 
idea, multiple must carrying is an even worse idea. Cable 
operators support carrying local broadcasters principal channel 
after the digital transition. They do an important job and we 
support it. That is not the issue. The rules of the game must 
encourage broadcasters to create new and attractive digital 
programming. This will never happen if they are gifted carriage 
and don't have to earn it by developing content that is 
attractive to our consumers. If they earn it, cable operators 
will want to carry it just as we at Insight, Time Warner and 
other cable operators have done with the public broadcasters 
who have presented us with a compelling business plan and we 
accepted it. Commercial broadcasters, on the other hand, seek 
to gain access with no such accountability.
    Mr. Chairman, on another subject, I know that the committee 
is also focused on facilitating the deployment of integrated 
digital TV sets. We share a common interest with the consumer 
electronics industry when it comes to integrated DTVs. 
Equipment manufacturers and retailers want to sell digital 
television sets, and we want to create a retail environment for 
them to do so. As an industry, we are actively engaged in 
negotiations with the CE industry to resolve a wide range of 
very, very complex issues so we can achieve one common 
objective. Since July there have been numerous day-long 
meetings involving senior executives of leading cable and 
consumer electronic companies. These discussions are continuing 
and hold real promise. We strongly believe inter-industry 
negotiations will achieve the results more effectively than 
government-imposed mandates, and the cable industry is 
committed to working to achieve those solutions so that 
Congress won't have to do so.
    The draft bill clearly signals the direction that your 
committee is prepared to head during the next Congress. Let us 
use these next several months to see what inter-industry 
discussions can produce, and if we are unsuccessful, then 
Congress should consider alternative actions to advance the 
digital TV transition. We share with you the common goal of 
bringing the full benefits of digital technology to all 
Americans as soon as possible.
    [The prepared statement of Michael S. Willner follows:]
    Prepared Statement of Michael Willner, Vice Chairman and Chief 
               Executive Officer, Insight Communications
    Mr. Chairman, members of the subcommittee, my name is Michael 
Willner. I am Vice Chairman and CEO of Insight Communications, a cable 
company with 1.4 million customers in Illinois, Indiana, Kentucky, 
Ohio, and Georgia. I also serve as Chairman of the National Cable & 
Telecommunications Association, the industry's leading trade 
association which represents cable companies serving more than 90 
percent of the nation's 68 million cable customers and more than 200 
cable program networks.
    I appreciate you giving me the opportunity to testify about the 
cable industry's efforts to advance the digital television transition. 
Since the NCTA Board of Directors, which is meeting today in New York, 
has not had the opportunity collectively to review the staff draft, I 
am testifying today in my corporate capacity.
    I want to commend you and your colleagues for your leadership on 
this very complex and important issue. The DTV roundtable discussions 
held by Chairman Tauzin over the past year have been instrumental in 
encouraging increased cooperation between the consumer electronics 
industry, broadcasters, the content community and the cable industry. 
The progress we have achieved thus far is largely due to your steadfast 
determination to get the transition to digital television on track.
    At the core of the digital TV transition are issues of consumer 
demand so it is my strong belief that marketplace solutions will bring 
about results more efficiently than government imposed mandates. But I 
appreciate your frustration that more progress has not been made. The 
staff discussion draft released last week sends a clear message to all 
of the industries involved in the digital TV transition: resolve 
outstanding issues through inter-industry negotiation or Congress will 
resolve them through legislation. The cable industry has heard your 
message loud and clear. We remain dedicated, and in fact are actively 
working to find solutions through private sector negotiations.
    Before I discuss what the cable industry has done, and continues to 
do, to advance the transition to digital TV, it is worth taking a 
moment to recall the origins of the transition and how we got to where 
we are today.
                               background
    In the late 1980s, high definition television (HDTV) was being 
advanced as the next great consumer electronics breakthrough. The 
Japanese had developed an analog HDTV system (``Muse'') that promised 
to offer consumers crystal-clear pictures and sound. This early version 
of HDTV required more than 6 MHz of spectrum. Support for high 
definition television spread for a variety of reasons. Television set 
manufacturers saw HDTV as a way to sell more equipment. And the U.S. 
broadcast industry saw it as a way to gain access to additional 
spectrum that otherwise might go to other uses, particularly public 
safety.
    In 1987, the broadcast industry petitioned the FCC to investigate 
the potential of high definition TV technology and urged the Commission 
to postpone its plans to reallocate broadcast spectrum until its study 
of HDTV was complete. The FCC agreed, and began to examine the many 
issues involved in making a transition to a new television standard.
    While working on the HDTV standard, American electronics experts 
discovered that television programming could be digitized to transmit 
high definition pictures. They also discovered that digital technology 
could be used to send multiple signals of ``standard definition'' 
(SDTV) programming in the same amount of spectrum. This digital 
standard--whether used to transmit HDTV or SDTV--used just 6 MHz of 
spectrum. But, it was not compatible with the existing television 
system, meaning broadcasters' new digital signals could not be viewed 
on existing analog television sets.
    The broadcast industry urged the government to give each TV station 
an additional 6 MHz of spectrum in order to make the transition to 
digital. They argued that if they didn't get the full 6 MHz, consumers 
would be deprived of one of the great benefits of digital technology--
high definition television. In letters, speeches and testimony before 
congressional committees, broadcasters espoused the virtues of HDTV. 
The message was clear: they would use the digital spectrum to offer 
high definition television. And in the end, every broadcast TV station 
was granted 6 MHz of additional spectrum without having to pay for it--
a scarce public resource owned by the American people worth $70 billion 
given away for free to the broadcast industry. Some critics labeled 
this spectrum giveaway as scandalous. But broadcasters responded with a 
promise: they would use the public's valuable airwaves to provide 
Americans with cutting edge new technology--high definition television.
    Today, we are only four years from the 2006 target set by Congress 
for the end of the transition and only two percent of consumer 
households have purchased digital television sets. Last year, Americans 
purchased more than 30 million new television sets but just over one 
million of those sets were digital.
    Why have Americans been so slow to adopt digital broadcasting? 
Largely because so few broadcasters are offering the compelling high 
definition content they promised in exchange for free digital spectrum. 
Not to mention that only 395 of the nation's 1,309 commercial broadcast 
stations are even broadcasting a digital signal, despite the FCC's 
deadline that all commercials stations were to be transmitting a 
digital signal by May 2002.
              cable's commitment to the digital transition
    While the broadcast industry has missed deadlines and failed to 
meet its promises, the cable industry has strongly embraced digital 
technology. In the six years since the passage of the 1996 
Telecommunications Act, the cable industry has invested more than $65 
billion--or over $1,010 per upgraded cable customer--to upgrade our 
plant to an interactive digital broadband platform. The cable industry 
has been a leader in the transition to digital television and has taken 
on this role without government mandates or subsidies. Cable companies 
have invested private risk capital to create a digital platform in 
order to offer consumers new competitive services--digital video, high-
speed Internet access, cable telephony, interactive television and high 
definition television. Cable has moved into the digital world with 
great speed, and we have done so willingly. By comparison, broadcasters 
have invested less than $2 billion in upgrading their facilities for 
digital television, a relatively small amount given the government's 
contribution of $70 billion of spectrum.
    The cable industry believes that compelling high definition 
programming is the key to the digital transition. Cable program 
networks are leading the way in creating high definition programming 
and cable operators are committed to delivering high definition 
programming to consumers all across the country. Time Warner Cable has 
been aggressively rolling out HD service and has launched HD tiers in 
more than 45 of its markets. Charter launched its high definition 
service in May 2002 in five markets: Alhambra/Pasadena and Glendale/
Burbank, CA; University Park/Highland Park, TX; Miami Beach, FL, and 
Birmingham, AL. Charter is also on schedule to launch HDTV service 
later this year in Kalamazoo, MI, and St. Louis, MO. Comcast began 
offering high definition broadcast and cable programming in November 
2001 in the Philadelphia market and will soon launch HDTV in the 
Washington, DC, metro area. Cox is offering high definition in Phoenix 
and Las Vegas, and announced last week that in November it will make 
high definition service available in Fairfax County, Virginia.
    Mr. Chairman, there has been a great deal of misinformation 
regarding cable-DTV compatibility which I will address in more detail 
later in my testimony. But I would like to take this opportunity to 
make one thing perfectly clear: cable operators are providing high 
definition programming to their customers with NO compatibility 
problems whatsoever. If you go to New York or Philadelphia or Houston 
or Tampa, Florida, cable customers are enjoying HDTV provided by their 
local cable systems.
    As mentioned, cable program networks are leading the digital 
transition by providing quality high definition programming. HBO alone 
currently offers more HD content than all of the broadcast networks 
combined. Showtime is a major producer of HD as well. In June, 
Discovery launched a 24-hour HDTV channel (Discovery HD Theater) 
providing all the popular categories of real world entertainment as 
offered by Discovery's networks in a theatrical format, with limited 
commercial interruptions. Market forces, particularly competition from 
the direct broadcast satellite industry, and competition between 
programming networks, are motivating cable operators and programmers to 
invest in HDTV, and over the coming months still more cable operators 
will begin offering HD programming.
    I am proud to say that the cable industry was the first to endorse 
the voluntary plan proposed by FCC Chairman Michael Powell designed to 
accelerate the digital television transition. Chairman Powell asked the 
four major broadcast networks, HBO and Showtime to provide high 
definition or compelling new digital programming during their prime 
time schedules, and he asked cable operators to carry that programming. 
In May, the industry's 10 largest cable operators endorsed Chairman 
Powell's challenge by making the following commitments for systems in 
the top 100 markets that have been upgraded to 750 MHz and serve at 
least 25,010 customers:

 By January 1, 2003, these cable operators will offer to carry 
        the signal of up to five digital commercial or public 
        television stations and/or cable networks that provide HDTV 
        programming during at least 50% of their prime time schedule or 
        a substantial portion of their broadcast week.
 As part of this digital complement, operators may offer to 
        carry other ``value added DTV programming'' that would create 
        an incentive for consumers to purchase DTV sets.
 We will also provide our customers with special HD set-top 
        boxes with appropriate digital connections.
    Despite the slow start of the broadcast industry's transition to 
digital television, there are reasons to be optimistic about the future 
of DTV. Developments in the marketplace and an increasing level of 
cooperation among all DTV stakeholders indicate that the transition to 
digital TV is beginning to take hold.
    As you know, industry-wide negotiations resulted in significant 
progress toward the development of a broadcast-flag to prevent the 
unauthorized Internet redistribution of high definition broadcast 
content. Resolution of this and other copy protection issues are 
critical to ensure the availability of high-value digital content.
    The cable industry earlier reached voluntary agreements with the 
consumer electronics industry to facilitate the manufacture and 
marketing of integrated digital television sets that connect directly 
to cable systems. And we are continuing to work with the consumer 
electronics industry on this important issue. Over the past several 
months senior executives of leading cable companies have been meeting 
regularly with their consumer electronics counterparts in an effort to 
resolve a very complex set of technical and business issues.
    The price for digital television sets is clearly in decline with 
the average cost for a high definition digital television having 
dropped by over 25 percent since they were first made available at 
retail in late 1998. As more high quality programming becomes 
available, consumer demand will continue to drive down the cost of 
digital televisions.
    Let me turn now to some of the issues which are raised by the staff 
draft and are also the subject of ongoing FCC proceedings.
  broadcasters dual and multiple must carry schemes should be rejected
    The most obvious way to expedite the DTV transition is for 
broadcasters to create compelling high definition programming. 
Unfortunately, rather than invest in high value digital content that 
will both attract viewers and give cable operators a market incentive 
to carry them, some broadcasters are asking Congress for yet another 
handout. They want Congress to expropriate billions of dollars of the 
cable industry's spectrum and force cable operators to carry both their 
analog and digital signals during the transition. And that's not all. 
Once the transition is complete, these broadcasters want the government 
to require cable operators to carry multiple standard definition 
versions of each broadcast station rather than a high definition 
version of the broadcaster's signal, the functional equivalent of what 
cable operators do today in the analog world.
    Mr. Chairman, neither of these highly regulatory proposals will 
advance the digital television transition and both should be rejected 
by Congress.
                            dual must carry
    Requiring cable operators to carry a standard definition digital 
copy of every broadcaster's analog signal would provide nothing new for 
cable customers while limiting the use of cable's limited spectrum for 
new services our customers value. Despite the substantial investment 
cable has made to upgrade its plant--cable systems have finite 
capacity. A typical upgraded 750 MHz cable system added only 200 MHz of 
digital capacity. Competing uses for this additional capacity include 
high definition programming, new digital video channels, video-on-
demand services, high-speed Internet access, cable telephony and future 
services like video conferencing and home networking. A dual must carry 
requirement would eliminate the ability of operators to effectively 
manage limited bandwidth in order to provide the right mix of digital 
services our customers want.
    Nor would a dual must carry requirement do anything to promote the 
sale of digital television equipment. Compelling high definition 
content--not two copies of every analog broadcast program--will give 
consumers an incentive to purchase an expensive new DTV set. Compelling 
content will drive DTV sales up and bring prices down to a range more 
consumers can afford. And if broadcasters offer compelling programming, 
cable operators will carry it without a government mandate, as 
evidenced by voluntary agreements cable operators have entered into to 
carry broadcasters' digital signals and the cable industry's voluntary 
commitments under the Powell Plan.
    Dual must carry would also reduce the amount and diversity of 
programming available to cable customers. There is no public policy 
reason why two signals of every broadcast station should get 
preferential carriage over each and every cable network. Under a dual 
carriage scheme, many operators would be forced to drop popular cable 
networks in order to make room for duplicative digital broadcast 
signals. Even where cable systems have capacity, a ``broadcaster 
first'' policy would deprive consumers of opportunities to enjoy 
numerous new cable networks that have to compete for carriage and are 
trying to gain a foothold in the market. These new services include C-
SPAN 3, BET Gospel, Lifetime Movie Network, Noggin, Discovery en 
Espanol, History Channel International and the Hallmark Channel.
    Rejecting dual must carry will not result in consumers losing 
access to the broadcast stations they enjoy today. During the 
transition to digital television, cable operators will continue to 
carry every local broadcaster as required under current must carry 
rules. No broadcaster's voice will be lost and no cable customer will 
ever lose access to his or her favorite local broadcast station.
    We are encouraged that the staff draft includes a prohibition on 
the dual carriage of a broadcaster's analog and digital signal during 
the transition, recognizing that a double dose of must carry is unfair 
to consumers, would unfairly harm cable operators and cable 
programmers, and would do nothing to accelerate the DTV transition.
                          multiple must carry
    Broadcasters also want the government to force cable operators to 
carry multiple streams of standard definition programming after the 
digital transition is complete. Like dual carriage, requiring cable 
operators to transmit additional channels per local broadcast station 
means that less cable capacity will be available for innovative 
advanced services consumers might prefer.
    Must carry was established to preserve the availability of 
broadcast stations for over the air viewers, not to underwrite, at the 
expense of cable operators and programmers, the availability of six 
times as many broadcast channels. Cable operators have already 
committed to carry broadcasters' primary digital channel in place of 
broadcasters' analog channel once the transition is complete. Requiring 
carriage of multiple digital channels would represent a significant 
expansion of broadcasters' must carry rights and cable operators' must 
carry obligations.
    As Hallmark Channel CEO Lana Corbi has testified, multiple must 
carry also unfairly discriminates against cable programmers. Nearly 300 
satellite programming networks and 60 regional networks compete with 
local broadcasters for cable carriage. Guaranteed carriage of six or 
more digital channels per broadcast station would exacerbate the 
preferential treatment of broadcasters vis-a-vis cable programmers in 
competing for limited digital spectrum--allowing each broadcaster to 
claim by right up to half a dozen channel slots that might otherwise be 
used to carry competitive satellite programming networks.
    Multiple must carry, as a concept, is constitutionally suspect. The 
Supreme Court has expressly held that cable operators and programmers 
engage in and transmit speech and therefore are entitled to protection 
under the First Amendment. Giving each broadcaster the right to 
guaranteed carriage of six or more digital channels instead of their 
single channel would multiply the burdens of must carry on the speech 
rights of cable operators and programmers without additionally 
advancing any government interest. Moreover, it would result in the 
permanent, physical occupation of a substantial portion of cable plant 
without just--indeed, without any--compensation, in violation of the 
Fifth Amendment.
    Despite their demand for multiple must carry, commercial 
broadcasters still have not presented a viable business plan for 
multicasting. In the many thousands of pages of testimony on this issue 
that broadcasters have filed with the FCC, you will scarcely find any 
mention of how broadcasters, in fact would use multicasting or how it 
would contribute to the economic well being of over-the-air television 
since broadcasters would be fractionalizing their own ad supported 
viewership. Rather, the likelihood is that broadcasters will be 
warehousing this spectrum with low-budget or duplicative broadcast 
programming. These are questions that neither Congress nor the FCC has 
examined. As a matter of both law and sound public policy, cable 
operators and consumers should not be required to forfeit valuable 
channel capacity and new services to help broadcasters launch new 
undefined businesses while blocking competitive satellite programming 
networks from gaining carriage.
             there are no cable-dtv compatibility problems
    The simple fact is there are no compatibility problems between 
digital TVs and cable systems. Today, cable operators are providing 
customers high definition programming using digital set-top boxes with 
no technical or compatibility problems. When the consumer electronics 
industry and broadcast industry complain about a lack of DTV 
``compatibility,'' what they are really referring to are the standards 
necessary for the manufacture and sale of integrated DTV sets that will 
work with cable systems without a set-top box.
    Let me be very clear: the cable television industry strongly 
supports the retail availability of cable set-top boxes and ``plug and 
play'' DTV sets. It is in the best interest of our business to ensure 
that consumers have the ability to walk into any consumer electronics 
store and purchase a digital television set that connects directly to 
any cable system. DirecTV and Echostar currently enjoy a huge marketing 
advantage over cable operators because DBS customers can move from town 
to town and use the same equipment. A portable set-top box or ``plug 
and play'' DTV set would allow cable operators to erase this advantage.
    However, while the availability of ``plug and play'' sets is an 
important part of our business, it is not a critical component of the 
digital transition. As evidence, one only needs to look at the 
incredible growth of the direct broadcast satellite industry. DBS 
subscribership has skyrocketed from 2 million in 1996 to over 19 
million today--and virtually every one of these DBS subscribers 
receives service through a proprietary digital set-top box. Ironically, 
the principal suppliers of digital set-top boxes to the satellite 
industry are the very same companies who claim that there is a ``cable 
compatibility'' problem when cable companies use digital set-top boxes 
to deliver high definition television. The explosive growth in the DBS 
market clearly illustrates that consumers are willing to use a set-top 
box in order to receive better quality and more choices. Our desire and 
commitment in promoting the availability of fully functional ``plug and 
play'' digital television sets has nothing to do with the digital 
transition and everything to do with our ability to remain competitive 
with DBS.
    As evidence, the cable industry, through its research and 
development consortium, CableLabs, has undertaken various measures to 
facilitate the retail availability of set-top boxes and integrated DTV 
sets in full compliance with FCC rules and the 1996 Telecommunications 
Act.
    CableLabs developed a technology that enables cable operators to 
provide customers with a separate security module, known as a point-of-
deployment or POD module. The POD is similar to the ``smart cards'' 
used by DBS systems that authorize the customer to receive service. 
Cable subscribers insert the POD into a set-top box or integrated DTV 
set (called host devices) purchased at retail. The Pod-Host Interface 
License Agreement (PHILA) provides manufacturers with the 
specifications necessary to make certain host devises work with 
operator supplied PODs. CableLabs met all of the FCC milestones for 
specifications and testing of this separate security technology and 
cable operators have committed to supporting set-top boxes and 
integrated DTV sets that are manufactured to these specifications.
    As further evidence of our support for the retail availability of 
integrated DTV sets, on February 22, 2010, the NCTA and CEA reached 
voluntary agreements that enable manufacturers to build digital 
television sets that can be connected directly to digital cable 
systems. These agreements touted by CEA, detail the technical 
specification that enable these integrated ``plug and play'' DTV sets 
to work with cable systems. These basic ``plug and play'' sets are 
unidirectional and will only be able to receive one-way digital 
programming, including high definition content and premium services 
(HBO, Showtime, etc.). For that reason, we believe that equipment 
manufacturers should include a DVI digital connector on all integrated 
DTV sets. A DVI connector is an uncompressed, high-bandwidth digital 
connector that is necessary for a digital television set to receive and 
fully display all of cable's advanced services, including high 
definition graphics. With a DVI connector, consumers who purchase a 
``plug and play'' digital television would have the choice and 
flexibility to later purchase or lease a set top box that would enable 
that set to receive all of the interactive services offered by cable or 
direct broadcast satellite providers. Otherwise these consumers would 
be forever stranded with a limited functionality set. Yet that is what 
the DTV manufacturers would like the government to require. The staff 
draft would require all integrated one-way digital television sets to 
include a digital connector, recognizing that consumers should not be 
saddled with sets that have built in obsolescence.
    While the February 2010 NCTA-CEA agreement is a good first step in 
the direction of ``plug and play'' DTV sets, we believe it is in the 
best interests of the consumer to rapidly move to a world where an 
integrated DTV set can receive all of the interactive digital services 
we provide today and will provide in the future. In that regard, in 
January 2002, significantly ahead of schedule, CableLabs published 
specifications for the OpenCable Applications Platform (OCAP). These 
``middleware'' specifications, voluntarily developed by the cable 
industry will enhance the ability of the consumer electronics industry 
to build and market integrated DTV sets (as well as digital set-top 
boxes and other navigation devices) with nationwide portability. Over 
90 companies--including Panasonic, Philips, Samsung, Sharp, Sony, and 
others--participated in the OpenCable developers' conference addressing 
OCAP issues.
    The OCAP software specification enables cable to create an 
interactive television delivery mechanism to provide enhanced services 
to cable customers that have purchased OCAP compliant integrated DTV 
sets and set-top boxes. OCAP-enabled devices will be able to receive 
services available on set-tops provided by the cable operator and can 
be upgraded through software downloads when new services become 
available.
    Embracing the release of OCAP specifications and the development of 
an open environment for the manufacture and retail sale of digital 
television consumer equipment, the nation's top cable MSOs have 
committed that their systems will support CableLabs-certified OCAP 
enabled devises once such equipment becomes commercially available.
    The development of specifications necessary for equipment 
manufactures to build and market an array of digital devices that will 
work with cable systems is an incredible achievement. However, our work 
is not complete. The consumer electronics industry has raised a number 
of important issues regarding our February 2010 agreement, PHILA and 
OCAP. As mentioned, there are ongoing negotiations between CE companies 
and cable companies in an effort to resolve many of these issues. 
Companies have had four full day negotiating sessions since July and 
have made significant progress on a number of issues. We intend to 
continue those discussions and are making every effort to come to a 
mutually satisfactory resolution of these highly complex technical and 
business issues.
                       phila and copy protection
    Finally, I would like to address the concerns that have been raised 
by the consumer electronics industry and some Members of this 
subcommittee regarding the copy protection tools contained in PHILA.
    Content owners have made it clear that they will not release high 
value product in a digital world without assurances that such content 
will not be subject to unconstrained copying. That is why this 
subcommittee has been working so diligently with the content community 
and the consumer electronics industry on the development of a broadcast 
flag to prevent the unauthorized redistribution of content over the 
Internet. And that is why PHILA contains tools that enable cable 
operators to provide the copy protection content owners demand. The DBS 
industry, in order to obtain the same high value content, has also 
included copy protection tools in its proprietary set-top-boxes. The 
cable industry has no incentive to restrict copying or limit the use of 
content provided to its cable customers. But we must be able to obtain 
high value content for our subscribers and we must be able to compete 
for that content on a level playing field with other delivery 
platforms.
                              down-resing
    One particular copy protection provision in PHILA, known as ``down-
resing,'' has met with strong opposition. I would like to explain why 
we included that tool in PHILA and how and why we are prepared to 
remove it.
    The ``down-resing'' provision was included in PHILA in order to 
ensure a level playing field between cable and DBS. PHILA requires a 
manufacturer to include in its products the capability of ``down-
resing'' high-definition programming provided over component analog 
outputs, which unlike digital interfaces, are not copy protected. 
``Down-resing'' allows high-definition programming to flow to DTVs with 
greater than standard definition resolution, but without inviting 
widespread copying. According to press reports, Echostar and DirecTV 
had already agreed to include within their set-top boxes the capability 
of ``down-resing'' high-definition television programming provided over 
component analog outputs. Content providers sent a clear signal that 
programming would not be made available to cable without this same 
capability. Therefore, while cable operators have no business reason to 
impede our customers' reception of high-definition or other programs, 
as long as content providers demand ``down-resing'' and our DBS 
competitors offer it, cable must be able to provide this copy 
protection option.
    The better long-term solution would be for CE manufacturers to 
include digital connectors on all digital television sets. Digital 
connectors may utilize standard copy protection tools in order to 
assure program owners that high-value programming will not be subject 
to unconstrained copying or retransmitted onto the Internet. 
Unfortunately, while cable operators are committed to including digital 
connectors on their HD set-top boxes, the CE industry refuses to make a 
parallel commitment as FCC Chairman Michael Powell urged as part of his 
voluntary DTV transition plan. The cable industry strongly believes 
that the manufacturers of consumer electronics equipment should include 
digital connectors on all of their DTV products--DVI connectors with 
high definition copy protection (HDCP) to display high-definition video 
and graphics, and 1394 connectors with 5C copy protection to connect 
recording devices. Instead, the CE industry is flooding the market with 
sets that are only equipped with component analog connectors that 
cannot provide adequate copy protection. This has left the content 
community with no choice but to insist on ``down-resing'' because it is 
currently the only means to protect high definition content over a 
component analog connector. As a result, PHILA includes a ``down-
resing'' provision in order to assure that cable operators can obtain 
high-value programming for their customers.
    In an effort to resolve this copy protection question, CableLabs 
has offered to remove the ``down-resing'' requirement from PHILA if: 
(1) the capability to ``down-res'' is removed from existing DBS set-top 
box license agreements; (2) all CEA members and other consumer 
electronics and computer manufacturers commit not to build devices for 
DBS or other types of distribution networks with the capability of 
``down-resing'' high-definition programming provided over component 
analog outputs; and (3) MPAA members and other program providers agree 
not to require the ``down-resing'' of any content delivered over any 
existing or future video distribution platform. Under such a regime, 
cable could compete on a level playing field with other distribution 
media for access to high value content that our customers desire.
                       selectable output controls
    The selectable output control specification in OCAP has also 
generated a great deal of controversy. But there is no practical reason 
it should be controversial. Cable operators are in the business of 
providing service to their customers, not ``disabling'' DTV devices. 
But the cable industry must be in position to offer the same copy 
protection tools its competitors can offer. Studios may be encouraged 
to develop new business models for the early release of high value 
content if appropriate copy protection is available. However, the 
content community could insist that this content pass only over a 
particular digital connector--possibly a new digital connector that has 
yet to be developed--that would prevent any possibility that the movie 
could be copied. If competing delivery platforms can offer studios this 
capability, cable operators should have the flexibility to offer the 
same service.
    The staff draft would prohibit the cable industry from including 
down-resing or selectable output controls in its licensing terms. It 
appears that such prohibition would apply only to the cable industry, 
leaving DBS operators and other providers of video service free to 
offer content owners these copy protection tools. Should Congress 
determine that down-resing or selectable output controls are 
inappropriate copy protection tools for content delivered to the home, 
then that prohibition should apply to all delivery platforms. The cable 
industry must maintain the ability to compete for high value content on 
a level playing field.
                               conclusion
    Mr. Chairman, Americans own 267 million analog television sets and 
purchased close to 30 million new analog sets last year. The challenge 
we face is how to get a nation of consumers to migrate from a very good 
analog TV environment to an even better digital environment. We believe 
that compelling high definition programming is the key to driving 
consumer demand for digital television.
    Cable has invested over $65 billion to upgrade our plant to an 
interactive digital platform capable of delivering high definition 
programming. Cable operators are rolling out high definition service 
across the country with no compatibility problems, and cable 
programmers are offering an ever-expanding menu of compelling high 
definition content.
    Broadcasters, on the other hand, have largely abandoned their 
promise to deploy HDTV. Instead, they are asking Congress to 
expropriate billions of dollars of the cable industry's spectrum by 
forcing operators to carry duplicative standard definition 
programming--something our customers don't want--while undermining our 
ability to utilize our new digital spectrum to offer advanced digital 
services such as high definition programming, video-on-demand, high 
speed Internet access and cable telephony--something our customers do 
want. We strongly urge Congress to reject the broadcasters dual and 
multiple must carry proposals.
    We believe that Congress and the FCC have been instrumental in much 
of the progress made thus far by encouraging cooperation between the 
consumer electronics industry, broadcasters, content community and the 
cable industry. As an active participant in Chairman Tauzin's 
roundtable discussions and the first industry to endorse the Powell 
plan, cable remains committed to working with Congress and the FCC as 
we move forward. All industry stakeholders will continue to work 
together because it is in our best business interest to do so. In the 
end, marketplace solutions will continue to achieve results more 
efficiently than government imposed mandates.

    Mr. Upton. Thank you.
    Ms. Corbi, we will hear from you, and then we will take a 
brief break because we have got a vote on the floor again.

                     STATEMENT OF LANA CORBI

    Ms. Corbi. Thank you and good morning. My name is Lana 
Corbi. I am president and CEO of Crown Media United States. A 
little more than a year ago, Crown Media launched the Hallmark 
Channel, a cable network featuring high-quality entertainment 
programming appropriate for the whole family. The purpose of my 
testimony this morning is to describe some of the successes 
Hallmark channel has enjoyed in its first year of operation, to 
outline our plans for growing the channel in the future and to 
express our deep concern that these plans will be seriously 
jeopardized if the government-mandated carriage preference 
already accorded the broadcast industry is expanded through 
heavy-handed, digital, must-carry regulation.
    Since commencing operations last year, Hallmark Channel has 
achieved carriage on DBS and cable systems serving nearly 48 
million subscribers. An independent research indicates that 
where Hallmark Channel is not yet offered, it is one of the 
channels most desired by viewers and cable operators. The 
reasons for our success is that in the very rich tradition of 
Hallmark, we are committed to satisfying the public's demand 
for compelling family friendly programming. Moreover, as much 
as any broadcaster, Hallmark Channel believes in serving the 
public interest. Last year, Hallmark Channel, together with the 
Jim Henson Company, authorized the FCC to use the Kermit the 
Frog image in the agency's literature promoting the v-chip. 
This year we are working with local cable operators and other 
businesses to sponsor community outreach initiatives centered 
on the issue of adoption and foster care, the subject of an 
original series currently presented on the channel.
    Looking ahead, Hallmark Channel continues to invest in a 
substantial number of original productions. We are also 
actively pursuing opportunities presented by the digital 
revolution. For example, we are currently demonstrating a 
Hallmark-branded interactive product and are discussing the 
presentation of high-definition programming for cable and 
satellite subscribers. We are proud of our accomplishments and 
optimistic about the future, but we are also very concerned 
that our ability to grow our business and launch new ventures 
will be compromised if broadcasters are given expanded must-
carry rights that relegate all non-broadcast programmers to 
second-class status.
    Notwithstanding our impressive growth, Hallmark Channel is 
still not available in over 42 million satellite and cable 
homes. A dual carriage requirement that would essentially 
double the number of channels dedicated to broadcast carriage 
would place many of these homes out of our reach for the 
foreseeable future, particularly in the larger markets that are 
critical to the success of a national program service. I 
commend Chairman Tauzin for indicating that dual must-carry 
will not be required under this proposal but believe some 
clarification is needed in the staff draft to accomplish this 
goal.
    Equally threatening to our future plans is the broadcast 
industry's demand for multicast digital carriage rights. While 
I understand the government's interest in protecting existing 
broadcast stations, to help them each launch a half a dozen new 
channels is inexplicable to me. Unlike broadcasters, we do no 
have over-the-air access to viewers nor do we have any 
mandatory carriage rights. We are not looking for government 
handouts. We are willing to make our case for carriage at the 
bargaining table based on the merits of what we are offering 
the public. We are prepared to compete for carriage not only 
against 300 other cable networks and a host of new services, 
such as high-speed Internet and cable telephony but also 
against nearly 1,700 broadcast stations. All we ask is that the 
government not place its thumb on the scale in a way that 
favors carriage of one set of speakers over another.
    We are all interested in the success of the digital 
transition. Digital is the wave of the future. But consumer 
demand is created and met more efficiently by the operation of 
market forces than by government dictates. In the end, if 
broadcasters are given yet another advantage over cable 
networks in a competitive to reach the viewing public, it will 
be the public that suffers. Consumer choice will be reduced as 
duplicative and time-shifted broadcast programming displaces 
diverse cable programming. Compelling digital programming 
ultimately will motivate customers to buy new digital 
television sets. And as a former broadcaster, I assure you that 
the broadcast industry will have a much greater incentive to 
produce diverse, high-quality programming if they have to 
compete with all other programmers for carriage. Thank you for 
inviting me to testify today.
    [The prepared statement of Lana Corbi follows:]
    Prepared Statement of Lana Corbi, President and Chief Executive 
                   Officer, Crown Media United States
    Thank you and good morning. My name is Lana Corbi and I am 
President and CEO of Crown Media United States. A little more than a 
year ago, Crown Media launched the Hallmark Channel, a new, 24-hour 
satellite-delivered programming network that carries forward the legacy 
of the acclaimed Hallmark Hall of Fame and Hallmark Entertainment 
productions by featuring high quality entertainment and information 
programming suitable for viewing by the entire family.
    The purpose of my testimony is to describe some of the successes 
the Hallmark Channel has enjoyed in its first year of operation, to 
outline some of our plans for growing the channel in the future, and to 
express our deep concern that our past successes and future plans will 
be seriously jeopardized if the government-mandated carriage preference 
already accorded the broadcast industry is expanded through heavy-
handed digital must carry regulation. I should note that while my 
testimony draws on the experience of the Hallmark Channel, it is my 
belief that the views I express today are shared by dozens of other 
cable program networks.
    First, let me tell you a little about Hallmark Channel's 
achievements over the past year. Since commencing operations in August 
2001, Hallmark Channel has obtained carriage on DBS and cable systems 
serving nearly 48 million subscribers, making it one of the industry's 
fastest growing services. And independent research indicates that where 
Hallmark Channel is not yet offered, it is one of the channels most 
desired by viewers and cable operators.
    The successful launch of the Hallmark Channel is attributable to 
our commitment to satisfying the public's demand for compelling, family 
friendly programming through a mixture of high quality archival 
programming and original productions featuring some of Hollywood's top 
performers. Some of the programming highlights of the past year include 
our 25th Anniversary encore presentation of Alex Haley's ``Roots''; the 
four-hour original miniseries ``Mark Twain's Roughing It'' starring 
James Garner and an all-star cast; and the original epic western movie 
``Johnson County War'' starring Tom Berenger, Burt Reynolds, and Luke 
Perry. In addition, in June, Hallmark Channel launched its first 
original series, the critically acclaimed and award-winning 
``Adoption.'' Our concentration on masterful storytelling and 
compelling entertainment has resonated with viewers. Hallmark Channel 
finished first among all cable networks in growth for primetime and 
total household viewership this past summer.
    Moreover, like many cable programmers, Hallmark Channel does not 
regard the presentation of top drawer programming as its sole mission. 
As much as any broadcaster, Hallmark Channel believes that there are a 
variety of ways that it can and should serve the public interest. For 
example, last year, Hallmark Channel, together with the Jim Henson 
Company, made a gift to the FCC of a license to use the Kermit the Frog 
image in the agency's literature promoting the V-Chip. And this year, 
we have been working with local cable operators and other businesses to 
sponsor community outreach initiatives centered on the issue of 
adoption, in conjunction with our new ``Adoption'' series. One such 
outreach initiative partnered Hallmark Channel with Cox Communications 
and other local merchants to sponsor an event benefiting Raintree 
House, a New Orleans foster care facility.
    Looking ahead, Hallmark Channel continues to invest millions of 
dollars in new productions, commissioning 24 new original movies for 
presentation over the next two years. Even more significantly, we are 
actively seeking to be a leader in the use of digital technology. For 
example, we currently are demonstrating a Hallmark-branded interactive 
suite of services that includes video-on-demand programming, an 
interactive ``arts and crafts'' service (called ``Crayola Kids'') for 
children and their parents, and digital video greeting cards. Hallmark 
Channel also is engaged in discussions regarding the presentation of 
high definition programming for cable and satellite customers.
    At Hallmark Channel, we are proud of our accomplishments and 
optimistic about our future. Our success has come despite the existing 
regime of must carry regulation that creates a governmental preference 
for broadcast signals over cable networks. But we are very concerned 
that our ability to continue to grow our service and to launch new 
ventures will be compromised if, as a result of additional government 
interference with the free market, broadcasters are given expanded must 
carry rights with respect to their digital signal, thereby exacerbating 
a regulatory scheme that effectively relegates all non-broadcast 
programmers to second-class status.
    One such form of government interference would be the adoption of a 
``dual must carry'' requirement mandating simultaneous carriage of 
broadcasters' analog and digital signals during the digital 
``transition'' period. Notwithstanding our impressive growth, Hallmark 
Channel still is not available in over 42 million cable and satellite 
homes. The reality is that as much as many cable operators would like 
to add Hallmark Channel to their line-ups, they are unable to do so 
because of channel capacity limitations. Simply put, even as systems 
upgrade to add capacity, the demands on that capacity, including 
demands for broadband and other advanced services, are growing even 
faster. A ``dual carriage'' requirement, that would essentially double 
the number of channels dedicated to broadcast signal carriage, would 
place carriage opportunities on many systems out of our reach for the 
foreseeable future, particularly in larger markets that are critical to 
the success of a national program service. Such a requirement could 
even threaten our existing level of carriage. I commend Chairman Tauzin 
for indicating that dual must carry will not be required under his 
proposal, but believe clarification is needed in the staff draft to 
accomplish that goal.
    Just as threatening to our future plans as dual must carry is the 
broadcast industry's demand for ``multicast'' digital carriage rights 
after the transition is completed. What broadcasters want is a 
guarantee that if they choose to transmit multiple channels of standard 
definition programming, cable operators will carry all of those 
channels without regard to consumer demand. In contrast, cable networks 
like Hallmark Channel have no guaranteed carriage of even a single 
channel of programming, much less multiple programming streams and, in 
fact, we incur a substantial financial cost in the form of launch fees 
and other marketing expenses associated with our carriage.
    Like other independent, satellite-delivered program networks, 
Hallmark Channel does not have over-the-air access to viewers nor do we 
have any mandatory carriage rights. But we are not looking for any 
government handouts. When it comes to convincing cable operators to 
carry our new services, we are willing to make our case at the 
bargaining table based on the merits of what we are offering and 
consumer demand. Broadcasters should be willing to do the same.
    We are prepared to compete for carriage not only against more than 
300 other national and regional cable networks and a host of new 
services such as high speed Internet and cable telephony, but also 
against nearly 1700 broadcast stations. All we ask is that the 
government not place its thumb on the scale in a way that favors 
carriage of additional broadcast programming above everything else.
    We're all interested in the success of the digital transition. 
Digital is the wave of the future. But consumer demand is created and 
met more efficiently by the operation of market forces than by 
government dictates. Thus, without any guarantee of carriage, it is 
cable programmers who have taken the lead in developing digital 
product. I previously mentioned Hallmark Channel's work in developing 
interactive and high definition programming. Other cable programmers 
are taking similar steps. For example, HBO, Showtime, Discovery and the 
Madison Square Garden Network are among the programmers already 
producing high definition programming. But the progress that we are 
making will be stymied if we are not allowed to compete for carriage on 
an equal footing with broadcasters.
    I will leave it to the lawyers to cite chapter and verse as to why 
multicast must carry regulations would be unconstitutional. I 
understand the policy rationale for the government's desire to protect 
existing broadcast stations. But to help them each launch a half dozen 
new channels is inexplicable to me. Protecting existing broadcast 
stations does not justify, in a world in which hundreds of cable 
program networks are investing heavily in original programming and are 
competing for access to viewers, expanding must carry into a vehicle to 
launch or guarantee the success of new business ventures for 
broadcasters over other content providers.
    The fact is that giving broadcasters multicast carriage rights will 
disadvantage cable networks (who once again will be put at the ``back 
of the line'' when it comes to seeking carriage of their new services) 
and interfere with the editorial independence of cable operators who 
are seeking to provide a diverse choice of programming to their 
customers. Such carriage of standard definition programming won't do 
anything to advance the digital transition, nor will it preserve or 
promote the availability of over the air programming from diverse 
sources.
    In the end, if broadcasters are given yet another advantage over 
cable networks in the competitive struggle to reach the viewing public, 
it will be the public that will suffer. Consumer choice will be reduced 
as duplicative or time-shifted broadcast programming displaces high 
quality, diverse, and original cable programming. It is compelling 
digital programming that ultimately will motivate consumers to buy new 
digital television sets. And as a former broadcaster, I can assure you 
that the broadcast industry will have a much greater incentive to 
produce compelling programming if they have to compete with all other 
programmers for carriage.
    I urge you to be wary of the potential unintended consequences of 
the broadcasters' demands. While the highly competitive programming 
marketplace already is skewed against cable networks by analog must 
carry, I believe Hallmark Channel can succeed if the best ideas and the 
best programming are allowed to flourish. But if we are not given a 
fair chance to compete due the adoption of dual or multiple must carry 
regulation, the potential offered by digital technology may never be 
fulfilled.
    Thank you again for inviting me to testify today.

    Mr. Upton. Thank you. Take a brief break and return in 15 
or 20 minutes.
    [Brief recess.]
    Mr. Bass [presiding]. The subcommittee will be in order. 
When we recessed for the vote, the committee had just heard 
from Ms. Corbi.
    The Chair will now recognize Mr. Gleason for an opening 
statement.

                  STATEMENT OF JAMES M. GLEASON

    Mr. Gleason. Thank you, Mr. Chairman. My name is Jim 
Gleason, and I am the president and chief operating officer of 
Cable Direct, an independent cable business currently serving 
40,010 customers and more than 250 rural communities in 9 
States, including Colorado, Illinois, Iowa, Mississippi, 
Missouri and Texas. I also serve as chairman of the American 
Cable Association.
    As a smaller market cable operators, we know the transition 
to digital broadcast television will not take place in the same 
way in all markets across the country. The distinction is 
critical because a forced transition without regard to the 
impact on smaller markets in rural areas threatens to 
disenfranchise thousands, if not millions, of television 
viewers today.
    As we see it, there are four challenges. First, important 
technical and market issues must be resolved to accomplish the 
transition to digital broadcast television. The key facts about 
the transition to digital broadcast carriage are these: Uniform 
standards among broadcasters, cable providers and consumer 
electronics manufacturers must be developed for the carriage of 
digital broadcast signals. Assuming such standards can be 
developed, television sets with digital receivers that can 
receive both cable and broadcast signals must be made available 
at an affordable cost to the everyday consumer. In addition, 
significant digital broadcast programming does not exist on the 
many digital channels that broadcasters want us to carry. 
Finally, the transition to digital broadcast television cannot 
be achieved until digital equipment is available at an 
affordable price.
    Second, the substantial cost of paying for a forced 
transition to digital in smaller markets will impede the 
development and deployment of other equally important 
communication services like high-speed Internet. These advanced 
services and their required system upgrades are costly. For 
example, my company is buying cable systems in rural Missouri 
and Tennessee where it will cost nearly $15 million simply to 
upgrade and launch digital cable and high-speed Internet that 
will close the Digital Divide. Imagine repeating those costs in 
thousands of very small rural communities in each of your 
states.
    Third, in order to minimize the economic impact on 
consumers, digital broadcast television must be built on the 
current backbone of cable systems that exist today. Carriage of 
DTV signals will require each small cable system to completely 
replace its antennas and signal processors. This will cost tens 
of thousands of dollars. Compared to large systems with many 
more customers, these costs are so burdensome that hundreds of 
very small systems will most likely be forced to turn off their 
customer service. Therefore, ACA and its members strongly 
support the prohibition of dual must-carry obligations, as 
contained in Section 6 of the chairman's DTV legislative 
proposal.
    In addition, ACA supports the chairman's desire to ensure 
compatibility between cable television systems and digital 
television receivers, as contained in his DTV proposal if 
achieved in a manner that is sensitive to the needs and 
concerns of smaller markets in rural areas.
    Fourth, the abusive conduct of a handful of media 
conglomerates is threatening the ability of cable systems, 
particularly in smaller markets, to support the DTV transition. 
While customers and local franchise authorities don't see it, 
their choices on what they watch are controlled by five 
programming cartels. For example, ESPN has raised its rates to 
our members by up to 20 percent each year for the past 5 years. 
Obviously, some of our customers want ESPN, but ABC/Disney will 
not let us just buy ESPN. Oftentimes, in order to get the local 
ABC affiliate, Disney will force us through a retransmission 
consent to take other channels we know our customers don't 
want. These programming cartels also embed into their contracts 
various non-disclosure terms. These provisions prohibit cable 
operators from telling any customer, even the local franchising 
authority or your committee, what terms or rates are for their 
programming. The irony here is that at a time when Congress 
wants our small cable businesses to provide our customers with 
more choice and greater value, media conglomerates are taking 
away choice and raising costs.
    Thus this committee should act in two specific areas. 
First, it should ensure that programming cartels cannot force 
consumers to take bundled services or to require that these 
services be carried on the lowest levels of service. Moreover, 
Congress should prohibit any retransmission consent provision 
from a cartel programmer or broadcaster that requires carriage 
of any new programming service outside a local broadcast 
network's market.
    Second, Congress should require programmers to annually 
notify local franchise authorities and the FCC the true 
programming rates they charge to cable businesses and 
consumers.
    In conclusion, if you want to make sure that the transition 
to digital broadcast television happens, then make sure it 
happens in the smaller markets and rural areas we serve and it 
will happen everywhere. Thank you.
    [The prepared statement of James M. Gleason follows:]
   Prepared Statement of James M. Gleason, Chairman, American Cable 
                              Association
                            i. introduction
    Thank you, Mr. Chairman.
    My name is Jim Gleason, and I am the president and chief executive 
officer of CableDirect, an independent cable business currently serving 
40,010 customers in more than 250 rural communities in nine states--
Alabama, Colorado, Illinois, Indiana, Iowa, Mississippi, Missouri, 
Oklahoma and Texas.
    I also serve as the chairman of the American Cable Association, 
which represents nearly 1,010 independent cable businesses serving 
almost 8 million customers primarily in smaller markets and rural areas 
across the United States. In fact, our American Cable Association 
members serve customers in every state and U.S. territory and also in 
nearly every congressional district represented by the members of this 
committee.
    Unlike big companies you hear about, ACA members are not affiliated 
with programming suppliers, television networks, big cable, broadcast, 
satellite and telephone companies, major ISPs or other media 
conglomerates. We focus on smaller market cable and communications 
services, often in markets that the bigger companies choose not to 
serve. Because we live and work in these rural communities, we know how 
important it is to have advanced telecommunications services available 
to these communities.
    Like other ACA members, my company, CableDirect, specializes in 
serving customers in smaller markets and more rural areas. Our company 
today is on the forefront of providing advanced telecommunications 
services to customers in these markets. In fact, ACA members are now 
providing digital cable service and high-speed cable modem Internet 
services to many of our communities, and this continues to grow.
    We also look forward to providing newer, advanced services to our 
customers in rural America too. Advanced services like digital 
broadcast television, which we're here to talk about today, and other 
services such as video-on-demand and cable telephony.
    As you know, most of today's headlines in the communications world 
are about the large companies--the EchoStar-DirecTV merger and the 
media giants created by the mergers of the 1990s. Being on this panel 
makes me feel like a David among many Goliaths, because the American 
Cable Association represents no Goliaths. We're here to speak for the 
millions of small-town customers and thousands of small-town businesses 
that are represented by nearly every member of this committee.
                ii. the transition to digital television
    We're here today to share our collective views on the transition to 
digital broadcast television. But what we're really talking about is 
how, together, we can improve the viewers'--our customers' and your 
constituents'--experience.
    As independent cable businesses in smaller markets, we want to be 
on the leading edge of this technology just like any other business. To 
that end:

 Many of our members are currently negotiating marketplace 
        solutions with smaller market broadcasters for carriage of HDTV 
        signals;
 ACA and its members continue to work with the National 
        Association of Broadcasters, the DTV Standards Committee of the 
        Society of Cable Television Engineers and other industry, 
        technical and vendor representatives to find efficient and 
        workable solutions for the DTV transition in smaller markets 
        and rural areas; and,
 ACA supports legislation that speeds the transition, so long 
        as that legislation accommodates the different circumstances 
        and cost structures in smaller markets.
    As smaller market cable systems, we know firsthand that the 
transition to digital broadcast television will not take place in the 
same way in markets all across the country. It will occur in a much 
different way in places like Shenandoah, Pa., Machias, Maine, or 
Belhaven, N.C., where smaller market customers and ACA members' small 
businesses are from, compared to how it will occur here in Washington, 
D.C., New York, or other major markets.
    This distinction is critical, and it is relevant to the issues this 
committee must consider as it develops national policy to implement 
digital broadcast television. A forced transition without regard to the 
impact on smaller markets and rural areas threatens to disenfranchise 
thousands, if not millions, of television viewers today.
    It's important to note here at the outset that my company and the 
members of the American Cable Association are rapidly deploying digital 
cable. It is a service our customers want, and it is a service we like. 
As of last December more than half of our nearly 1,010 members have 
launched digital service, and the remaining half had plans to do so 
within the next 12-to-18 months. By now, the launch to digital is 
almost universal.
    We like the technology, because it is an efficient use of 
bandwidth. It allows us to provide a better service to our customers, 
and it helps us to offer a more competitive service in our marketplace.
    Our hope is that the transition to digital broadcast television can 
be just as smooth and positive. My testimony here today is designed to 
highlight for you the challenges that remain and to show you how we 
believe these challenges can be overcome. We are committed to working 
with you and the other affected industries to ensure that the viewer 
experience is enhanced and improved in all areas--even smaller markets 
and rural areas--without the loss of a single viewer. In addition, we 
are committed to doing so in a way that is as seamless as possible and 
as economically efficient as well.
    Let's review then the challenges that must be overcome in smaller 
markets and rural areas to ensure a smooth transition to digital 
broadcast television.
    There are four challenges:
1. Important technical and market issues must be resolved to accomplish 
        the transition to digital broadcast television.
2. The substantial costs of paying for a forced transition to digital 
        in smaller markets will impede deployment of other equally 
        important communications services, like high-speed Internet.
3. In order to minimize the economic impact on consumers, digital 
        broadcast television must be built on the current backbone of 
        cable systems that exist today. As a result, the DTV transition 
        in smaller markets must address equipment costs and channel 
        capacity for smaller cable systems.
4. The abusive conduct of a handful of media conglomerates is 
        threatening the ability of cable systems, particularly in 
        smaller markets, to support the DTV transition. Congress must 
        act to address the worsening structural programming problems 
        that now affect digital and analog programming at large.
                            iii. key issues
1. Important technical and market issues must be resolved to accomplish 
        the transition to digital broadcast television.
    As we see the situation in the smaller markets we serve, the 
marketplace is unprepared to know what it wants. Why? Because it is the 
lack of resolution on the technical underpinnings of the digital 
television market that has denied consumers even a glimpse of what 
benefits lay ahead. Without any concept of how their experience might 
be better in a digital world, consumers lack any reason to engage in 
this matter. That indifference then deflates industries' interest in 
the subject, and the entire thing grinds to a halt.
    The key facts about the transition to digital broadcast carriage 
are these:
    Uniform standards among broadcasters, cable providers and consumer 
electronics manufacturers must be developed for the carriage of digital 
broadcast signals. Without such uniformity, there will be no easy 
transition, and consumers will be unaware of the opportunities that 
have passed them by.
    Assuming such standards can be developed, television sets with 
digital receivers capable of receiving cable and broadcast digital 
signals must be made available at an affordable cost to the everyday 
consumer. Right now, that is not the case.
    Today, the current DTV adoption rate is about at 2.5%. In order to 
reach the status of a mature and universal service, we will need to see 
that increase to about 85% penetration. To put this in perspective, 
consider that it took the market 22 years to achieve 85% penetration of 
color television sets and 15 years for 85% penetration of video 
cassette recorders. I doubt many of you are willing to wait that long.
    Finally, significant digital broadcast programming does not exist 
on the many digital channels that broadcasters want us to carry.
    In our smaller markets, the transition to digital broadcast 
carriage cannot be accomplished until there is a widespread demand for 
a product that customers want at an affordable price and with 
technology that is readily available. None of these conditions are 
present today.
    Furthermore, neither my company nor my fellow members in the 
American Cable Association can achieve the transition to digital 
broadcast television until digital head-end equipment, digital boxes 
and digital television sets are widely available at an affordable price 
and until the bandwidth concerns of cable systems are met.
2. The substantial costs of paying for a forced transition to digital 
        in smaller markets will impede deployment of other equally 
        important communications services, like high-speed Internet.
    Right now smaller, independent cable businesses all across the 
country are locked in a competitive race to improve our systems through 
the use and deployment of digital cable services and high-speed 
Internet. These services are a reality today. They are available now. 
They are helping us improve our systems and provide advanced higher 
quality telecommunications services to our customers today, and these 
services are the cornerstone to our economic survival.
    My company is using these services to close the so-called ``Digital 
Divide'' in smaller markets now. But these services and the required 
system upgrades are costly. For example, it costs hundreds of thousands 
of dollars to install a digital cable head-end that will enable our 
customers to receive digital services. I can tell you that this is a 
lot of money if you only have 500 or fewer customers on a cable system, 
as many of our ACA members do.
    In addition to the digital head-end, expensive digital set-tops 
must be purchased for each home, and significant technical work must be 
completed to take a 35-channel analog cable system to 70 or more 
digital channels.
    But not all customers take these digital cable services right off, 
and the return on investment for a digital head-end like this one is 
lengthy. As a result, you can see how difficult it is to economically 
spread that cost across a system that may only serve 500 customers as 
is typical of ACA's members.
    Similarly, there is a substantial per home cost to our ACA members 
to make available an advanced high-speed cable modem Internet service. 
It's expensive, and the return is a long one.
    However, these services are available now because we believe they 
are essential to our future and satisfy the demands of our customers. 
To be sure, they are not on the drawing board or potentially available 
sometime in the future. My company is doing right now what policymakers 
want and the marketplace demands --improving our service, enhancing 
competition in the marketplace, and closing the ``Digital Divide'' by 
providing advanced telecommunications services. Moreover, if we do not 
do this, our competitors in the satellite business and elsewhere will 
gladly take each of my customers.
    The fact remains that even at the best run systems the significant 
funds that it takes to launch digital cable or high-speed Internet 
could not be spread to also cover the costs of digital broadcast 
carriage. But we are being asked to support the transition to DTV, and 
we want to. However, unless equipment costs come down or there are 
other accommodations made in smaller markets, something will have to 
give. Internet? Digital cable? DTV? Who makes the choice? Broadcasters? 
Cable operators? Congress? The FCC? Consumers?
    The transition to digital broadcast television must be balanced to 
ensure that all consumers--particularly in those areas where our 
members are, across the so-called ``Digital Divide''--have available to 
them other advanced services, especially broadband Internet access.
    In smaller markets, Congress and the FCC must recognize that the 
DTV transition could result in the unintended consequence of impeding 
deployment of other advanced services. In our marketplaces, this truly 
would be an unacceptable consequence.
3. In order to minimize the economic impact on consumers, digital 
        broadcast television must be built on the current backbone of 
        cable systems that exist today. As a result, the DTV transition 
        in smaller markets must address equipment costs and channel 
        capacity for smaller cable systems.
    As I have discussed, without measures tailored for smaller markets, 
a forced transition to DTV would have significant negative consequences 
on our smaller cable businesses.
    Carriage of DTV signals will require each small system to 
completely replace its antennas and signal processors. At current 
equipment costs for a typical small cable system, this will cost tens 
of thousands of dollars. Systems serving less than 1,010 customers will 
have a far more difficult time supporting this investment than would a 
large cable company where the same equipment at the same cost might 
serve 100,010 customers or more.
    Similarly, cable set-top boxes will need to be replaced or 
retrofitted to allow customers to view DTV signals without a DTV-
compatible set. This will add substantial additional cost to the 
transition.
    We believe these costs will ultimately come down, but not before 
the DTV transition is required. Companies like Motorola, Scientific-
Atlanta and others have a strong incentive to develop lower cost 
solutions for cable-carriage of DTV signals. But small cable systems in 
smaller markets will be forced to make the transition before those 
equipment costs come down, threatening our ability to deploy other 
advanced services.
    There is no glut of channel capacity on cable systems, particularly 
our members' smaller market cable systems. On average, our ACA members' 
smaller market systems have substantially less channel capacity than 
their major-market counterparts. As a result, a forced DTV transition 
would cause the loss of important existing analog and digital 
programming and high-speed Internet services. It would create a 
significant chilling effect on the development and deployment of new 
advanced telecommunications services to these markets.
    These new services have been essential to attracting the capital 
necessary to upgrade our smaller market systems in response to 
marketplace demand.
    Forcing digital broadcast on smaller market cable systems would 
also force other existing important services off our systems in order 
to accommodate digital broadcast signals, which few of our customers 
could watch now anyway.
    We as smaller market cable systems have to pay for our additional 
bandwidth through costly system upgrades. We can only pay for these 
upgrades by carrying services our customers want and choose to pay for.
    In our smaller market cable systems, we are either spending capital 
now to update to digital cable and high-speed Internet or seeking the 
capital to do it, because of the demand for the product and the revenue 
that can be derived from it.
    But if the DTV transition is forced in smaller markets before our 
customers want it and choose to pay for it, it will cause smaller cable 
systems in smaller markets and rural areas to shut down. When this 
happens, our customers will be left a long distance away from 
broadcasters. These broadcasters may not be able to get good television 
signals at all to smaller market viewers leaving them, quite literally, 
in the dark.
    Great challenges exist to accomplish the transition to digital 
broadcast television in smaller markets and rural areas. But we pledge 
to work together to help remove the barriers to DTV, one of which has 
already been lifted.
    ACA and its members strongly support the prohibition of dual must-
carry obligations as contained in Section 6 of the Chairman's draft DTV 
legislative proposal.
    In addition, ACA supports the Chairman's efforts to ensure 
compatibility between cable television systems and digital television 
receivers as contained in Section 8 of the DTV proposal. Given the 
unique and challenging circumstances of smaller market cable systems, 
we look forward to working with the Committee to ensure that such 
compatibility and interoperability takes place in a reasonable manner 
that is sensitive to the needs and concerns of smaller markets and 
rural areas.
    Within the constraints of small company resources and system 
capacity, our ACA members are eager to support the DTV transition. 
Equipment cost remains a critical constraint. Because of limited 
channel capacity of many small systems, forced transition to digital 
broadcast television would impose substantial burdens and could result 
in the loss of other important services. For those reasons:

 Many of our members are currently negotiating marketplace 
        solutions with smaller market broadcasters for carriage of HDTV 
        signals;
 ACA and its members continue to work with the National 
        Association of Broadcasters, the DTV Standards Committee of the 
        Society of Cable Television Engineers and other industry, 
        technical and vendor representatives to find efficient and 
        workable solutions for the DTV transition in smaller markets 
        and rural areas; and,
 ACA supports legislation that speeds the transition, so long 
        as that legislation accommodates the different circumstances 
        and cost structures in smaller markets.
4. The abusive conduct of a handful of media conglomerates is 
        threatening the ability of cable systems, particularly in 
        smaller markets, to support the DTV transition. Congress must 
        act to address the worsening structural programming problems 
        that now affect digital and analog programming at large.
    From our standpoint, this hearing also provides an important and 
appropriate opportunity to highlight how little customer choice exists 
today in the multichannel video services market, especially in rural 
America. The fact is that the status of competition and customer choice 
today, especially in rural areas and small towns, is already 
significantly diminished because it is governed by an unlikely cast of 
players that does not live in rural America, nor does it focus on rural 
Americans' needs.
    This unlikely cast includes several major media conglomerates that 
are mandating the cost and content of most of the services we provide 
in smaller markets. For smaller markets cable systems, this is a 
fundamental problem that directly impacts our ability to support the 
DTV transition. These major media conglomerates, which we call 
programming cartels, have found through media consolidation the means 
to use market power to extract ever-increasing earnings from all 
Americans.
    Unless there is significant congressional and regulatory action to 
address these issues, the situation is not likely to improve. Consumer 
choice and competition, not to mention the transition to digital 
broadcast television, may be wiped out in the wake of the mighty merged 
communications giants.
    A vitally important question here: Who controls what your 
constituents see on their TV sets? Not a small cable business like mine 
or any one of our ACA members. While customers and local franchise 
authorities don't see it, their choices on what they watch are 
controlled by five programming cartels--Disney/ABC, CBS/Viacom, Fox/
News Corp., General Electric/NBC, and Time Warner/AOL.
    Over the past five years we have seen an explosive consolidation in 
the programming industry that has led to sharply increased prices, less 
freedom to offer popular content, and little customer awareness as to 
why they are forced to buy the channels they do.
    For example, ESPN has raised its rates to our members by up to 20% 
each year for the past five years. Obviously, some of our customers 
want ESPN. But ABC-Disney will not let us just buy ESPN. Oftentimes, in 
order to get the local ABC affiliate, Disney will force us through 
retransmission consent to take other channels we know our customers 
don't want relative to other programming options.
    This abuse of retransmission consent goes so far as to subject 
operators with multiple systems in multiple states to be forced into 
carriage of many such undesired programs on systems not even within the 
market involved. Adding to the absurdity of the situation, these 
conditions for carriage often outlive the terms of the retransmission 
consent agreements by many years, thus leaving cable systems with bad, 
artery-clogging programming long after the desired programming has 
disappeared. To be clear, this situation is being repeated by Fox/News 
Corp., GE-NBC and CBS-Viacom.
    And the reality is that once such a programming cartel forces a new 
cable program onto the television dial, it's virtually impossible to 
take it off, leaving the public with a service they never wanted or 
asked to receive.
    This might not be so bad if we could offer the cartels' programming 
on a tiered or a la carte basis to allow the consumer to choose to pay 
for these services or not. But all of the cartel programming companies 
force their tied and bundled programming onto the lowest, basic levels 
of service, making independent cable pay for every customer and pay 
punitive prices if we do not carry many of their services in a bundle, 
just like they dictate. The consumer also is forced to pay for services 
in this bundle they neither asked for nor wanted.
    Consolidation has turned retransmission consent into extortion. 
These same programming cartels go so far as to dictate channel 
locations and other terms. Even more appalling is that fact that these 
programming cartels also embed into their contracts various ``non-
disclosure'' terms. These provisions prohibit cable operators from 
telling any customer, even the local franchise authority or your 
Committee, what the terms or rates are for their programming. Thus, 
rate increases and unfair bundling practices are kept hidden from the 
public and even from Congress. That is not the definition of an open, 
functional and fully competitive marketplace, or one that is 
constructed to best serve customers.
    I am sure you all watched the retransmission consent showdown 
between Time Warner and Disney over this very issue. Imagine the odds 
that a small system like mine has when negotiating with the programming 
cartels.
    The four or five major programming cartels control the broadcast 
networks and at least 50 other of the most popular stations. More than 
90% of cable systems offer 30 to 90 channels, which, as you can see, 
are dominated by the programming cartels.
    In order to assist your review of this situation, I have attached 
several charts that depict the realities a small ACA member faces with 
regard to programming and channel capacity, and I hope you will take a 
moment to look them over at your convenience.
    The irony here is that at a time when Congress wants our small 
cable businesses to provide our customers with more choice and greater 
value, media conglomerates like Disney/ABC, Fox/News Corp. and others 
are taking away choice and raising costs.
    As a result of the hammerlock of control the programming cartels 
have on what consumers see on TV, it naturally affects what gets on TV, 
how much consumers pay for it, and when it gets on TV.
    This is especially true for rural communities and smaller markets 
served by the members of the American Cable Association.
    If the transition to digital broadcast television is to occur more 
smoothly, then more control must be put back into the hands of 
consumers who watch television and the businesses that serve them.
    The members of the American Cable Association and independent 
cable's buying group, the National Cable Television Cooperative, have 
for years sought meaningful dialogue with the programming cartels on 
the issues faced by independent cable and how the programming cartels 
are harming these businesses and smaller market consumers. To no avail.
    More than a decade of debate and discussion on these issues has led 
to no meaningful change in any of the behavior of the programming 
cartels or how they treat smaller market consumers and cable 
businesses.
    The hammerlock of control gained by ever-increasing and 
consolidating programming cartels threatens to undermine the very 
businesses our members have fought so hard to maintain in smaller 
markets and rural areas. As a result, with this situation as bad as it 
is and getting worse, we have no alternative but to seek action from 
Congress to break the hammerlock of the programming cartels.
    To break the hammerlock of control by the programming cartels and 
to give consumers and independent cable businesses more choice and 
control, and to increase resources available for the DTV transition, 
Congress should act in three specific areas: ensure the unbundling of 
services, require the disclosure of programming terms and conditions, 
and apply federal anti-trust laws to programming practices.
    Unbundling: Today the programming cartels tie and bundle their 
services in such a way that to get one service, you must take, and pay 
for, many. Or, to get your local broadcast network stations, you must 
take, and pay for, other programming services sold by the programming 
cartel.
    If the transition to digital broadcast television is going to 
occur, then consumers and the providers who serve them must have 
greater control to the larger pipe.
    This means Congress should act to ensure that the programming 
cartels cannot force consumers and cable businesses to take bundled 
services or to require that these services be carried on the lowest 
levels of service.
    If the programming cartels had exercised any self-discipline to 
stop this conduct, we wouldn't be here today asking Congress to act. 
But the abuse goes on.
    Congress should amend telecommunications laws to provide that no 
programming provider can require that its services be carried on either 
the basic or expanded basic level of service. Rather, to give consumers 
choice and to allow the market to determine what gets on TV, 
programmers should be required to sell their services as part of a 
separate programming service tier, or even a la carte.
    Moreover, Congress should prohibit any retransmission consent 
provision from a cartel programmer/broadcaster that requires carriage 
of any new programming service outside of a local broadcast network's 
market. This action will prevent frequent scenarios where consumers all 
over the country are required to take an unlikely new programming 
service in return for retransmission consent in one television market.
    Disclosure: What consumer, local franchising authority or 
congressional office knows what it costs to watch TV? The answer is not 
one. That's because the programming cartels have dominated the 
marketplace with their massive content streams of programming. The 
cartels have put consumers and cable businesses over a barrel by tying 
services and raising programming prices without any regard to the 
consumer or the local companies that serve them.
    Who gets the blame? Not the programming cartels. Conveniently 
enough for the programming cartels, each time they raise their 
programming rates they insulate themselves from criticism by requiring 
the cable business through strict confidentiality provisions to be 
silent about the rates or terms charged or required by the programmer.
    Programming prices continue to rise far in excess of the rate of 
inflation. One way to rein in this out-of-control programming cartel 
behavior is to require programmers to annually tell local franchise 
authorities and the Federal Communications Commission what they charge 
cable businesses and consumers to watch television.
    Consumers can go on the Internet to learn how much it will cost 
them to buy a new car, but they can't find out how much it costs to 
watch ESPN or how much a programming service has increased from one 
year to the next.
    To restore control to the marketplace, Congress should act to 
require programmers to annually notify local franchise authorities and 
the FCC the true programming rates they charge to cable businesses and 
consumers and to also notify these entities whenever they raise rates.
    Moreover, Congress should direct the FCC to compile every year a 
comprehensive Programming Price Index to show Congress and consumers 
how much they are truly being charged to watch television. Every three 
years the FCC should also compile and publish a Retransmission Consent 
Index to show consumers what it truly costs them to receive their local 
network television stations, which--ironically--were supposed to be 
free!
    Until there is transparency in the programming marketplace, 
consumers and their local providers of service will have little control 
over what is seen on TV, when it is seen on TV, or how much it will 
cost.
    Anti-Trust: The actions of the programming cartels to tie and 
bundle and to coerce the price of their services implicate core anti-
trust principals. Current federal anti-trust laws are designed to 
prohibit contracts and combinations in restraint of trade, and to 
prohibit price discrimination where it has an anti-competitive effect.
    If it were any other business, the tying, bundling and price fixing 
that goes on year after year in the programming business would have 
been squashed on anti-trust grounds by either Congress or the 
Department of Justice.
    Why then are the programming cartels allowed unfettered ability to 
perpetrate the same actions on consumers without consequence? There is 
no good reason.
    As a result, Congress should carefully and comprehensively 
scrutinize the conduct and behavior of the programming cartels to 
examine their conduct toward providers and consumers and to apply 
federal anti-trust to cartel behavior.
    Just because we can't touch a programming service on TV doesn't 
mean that it's not bought or sold like any other good or commodity 
consumers purchase. It is a ``good'' for anti-trust purposes that is 
tied and bundled just like oil was in the past.
                             iv. conclusion
    Each one of the foregoing issues directly affects the ability of 
independent cable companies and also consumers to have any control over 
what they see on television, how much it costs and when it gets on TV--
including digital broadcast television.
    The transition to digital broadcast television is more than just a 
series of technical issues. It also involves a series of marketplace 
reforms that must take place before consumers and their local 
providers--like my company and the members of the American Cable 
Association--can accomplish the transition to digital broadcast 
television.
    Without these marketplace reforms, it is not too strong to say that 
the future of advanced services in smaller markets and rural areas 
hangs in the balance.
    My company and the members of the American Cable Association are 
here today amidst the giants of the television, cable and 
telecommunications world. Why should anyone here listen to what we have 
to say?
    Because we are 1,010 small businesses serving 8 million consumers 
in smaller markets and rural areas in every state and in nearly all 
congressional districts--virtually all of the districts covered by this 
committee. Our companies and our consumers in these smaller markets and 
rural areas are where the rubber meets the road in solving these 
telecommunications issues. If you want to make sure that the transition 
to digital broadcast television happens, then make sure it happens in 
the smaller markets and rural areas we serve, and it will happen 
everywhere.
    We know what our customers want to watch on television and how much 
they'll pay for it. We are the vital link in the chain that will 
determine whether the digital broadcast television transition occurs in 
smaller markets and rural areas or whether it won't.
    The irony here is that the impact of these issues, if not addressed 
by Congress, will do exactly the opposite of what Congress wants us to 
do--provide advanced new services, competition and choice for consumers 
in the smaller and rural marketplaces.
    The American Cable Association and its members are committed to 
working with the Committee to solve these important issues.
    I would like to sincerely thank the Committee again for allowing me 
to speak before you today.


[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


    Mr. Bass. Thank you very much, Mr. Gleason.
    The Chair now recognizes Mr. McCollough.

                 STATEMENT OF W. ALAN McCOLLOUGH

    Mr. McCollough. Thank you, Mr. Chairman. On behalf of the 
Consumer Electronics Retail Coalition, I appreciate the 
invitation to appear today. Every member of CERC supports this 
committee's efforts to move the digital transition forward in a 
way that actually serves customers. Although as a retail group 
we have no vested interest in any particular technology, we 
clearly have an interest in promoting, displaying and 
demonstrating products and services that take advantage of the 
latest developments in technology. We operate in a highly 
competitive industry, and we understand our success is tied 
directly to our ability to give customers what they want. I 
believe the transition to digital television shares the same 
challenge.
    The transition can only succeed if we honestly give the 
customers what they want and not try to force them to take what 
others want them to have. CERC members speak daily to thousands 
of customers. I believe retailers have a pretty good idea about 
what customers want and what drives adoption in new 
technologies and services.
    Mr. Bass. Excuse me, sir, can you pull the microphone 
closer to you? Apparently----
    Mr. McCollough. Yes.
    Mr. Bass. Thank you. Please continue.
    Mr. McCollough. Just to repeat, I think retailers have a 
pretty good idea as to what customers want and what drives 
adoption of new technologies and services. Four things stick 
out: content, value, simplicity, flexibility. In terms of 
content, while much of this hearing is devoted to devices and 
technical specifications, we need to keep in mind that the 
customer is excited about access to high-quality content. We 
absolutely respect the right of content owners to protect that 
content and believe the draft proposal regarding the use of 
flags to be directionally correct, although it will require 
some further work, we believe, by the FCC. We also support the 
proposal that would require local affiliates to pass through 
content at the same resolution as distributed to them and 
believe this same requirement must be extended to cable 
operators as well.
    In terms of value, we began with the premise that it is 
simply un-American to pay too much. Customers also expect 
consumer electronics products to work predictability and 
reliably, and in the case of television sets, for a very long 
time. They understand that improved products will come to 
market, but they expect that their products will maintain the 
capabilities they had at the time they were purchased. If the 
product words today, it had better work the same way tomorrow. 
Understanding this, we believe it would be impractical to 
completely eliminate the use of analog outputs from products 
necessary to support existing display devices.
    In terms of simplicity, customers don't like anything 
requiring multiple operations if it can be done in one. They 
want a single remote control and where possible a single box. 
For many, the ultimate in simplicity only comes when a digital 
cable tuner is included in the TV set so as to require no box 
at all. We applaud the staff draft for establishing this as a 
clear priority. In light of the FCC's recent dual tuner order, 
we also think it makes great economic sense as well as being 
greatly appreciated by our customers.
    Flexibility, we clearly don't live in a one-size-fits-all 
world. The expectations of your 13-inch TV set in the kitchen 
are vastly different from the 55-inch set that may be in your 
den. Therefore, it should be up to the television manufacturers 
to understand their customers' needs, be able to choose a mix 
of features to offer in a DTV receiver. Again, we think the 
staff has the right idea in telling the FCC to assure that 
technical straightjackets are not imposed on product design by 
provisions and license agreement that serve the business needs 
of others.
    Whether the customer expects high-quality content, great 
value, simple operation, ultimate in flexibility, we know that 
those expectations are always best met by vigorous competition. 
We are concerned, therefore, about the proposal in the draft 
that would remove the obligation that cable operators be 
required to follow the same rules that they established for 
others. It would seem that any system that allows the home team 
to set the rules for the visitors and then not follow those 
rules themselves would be fundamentally flawed. Would you 
really expect true and fair competition to be the result of 
that, and do you really expect that the score at the end of the 
game would ever be in doubt?
    We appreciate that the staff has gone to great lengths in 
the proposed legislation to establish different but equal 
circumstances under which the various entrants may compete. 
This is a noble effort but ultimately an impossible effort. 
Impossible to cover every circumstance, every obstacle, every 
roadblock to legitimate competition that may come up along the 
way. The only sure way to ensure a level playing field is to 
have one set of rules for all participants.
    You may hear many arguments as to why cable operators 
shouldn't be required to rely exclusively on the same rules 
they developed for others, whether cost or technical complexity 
or feature limitations, all such arguments have to be viewed 
for precisely what they are: A decision to avoid competition. 
All you have to do is ask, if it is too expensive, too 
difficult, too limiting for the cable operator, why isn't the 
same true for other competitive entrants?
    If you do nothing else in the proposed legislation when 
providing guidance to the FCC, we would ask that you please 
decide in favor of competition and please insist that the folks 
who have the opportunity to make the rules also have to live by 
the rules.
    [The prepared statement of W. Alan McCollough follows:]
   Prepared Statement of Alan McCollough, Chairman, President & CEO, 
   Circuit City Stores, Inc. for the Consumer Electronics Retailers 
                               Coalition
    Chairman Upton and Members of the Subcommittee: On behalf of my 
colleagues in the Consumer Electronics Retailers Coalition (``CERC'''), 
I very much appreciate your invitation to appear today. Although as 
retailers, we have no vested interest in any particular technology, we 
clearly have an interest in promoting, displaying, and demonstrating 
products and services that take advantage of the latest developments in 
technology. We operate in a highly competitive industry. We understand 
that our success is tied directly to our ability to give our customers 
what they want, and that demonstrating the benefits that advances in 
technology convey to our customers is a critical component of our 
offer. I believe the transition to digital television shares the same 
challenge. The transition can only succeed if we honestly give the 
consumers what they want, and not try to force them to take what is in 
the interest of any particular group.
    CERC includes general and specialty retailers and retail trade 
associations. Our members include Best Buy, Circuit City, Good Guys, 
RadioShack, Sears, Tweeter, and Ultimate Electronics, plus the 
International Mass Retail Association, the North American Retail 
Dealers Association, and the National Retail Federation. Among us, we 
speak directly with many of your constituents every week.
    I believe we have a pretty good idea as to what consumers want and 
expect out of consumer electronics products in general, and television 
in particular:

 Content. Close to ninety percent of our customers are cable or 
        satellite subscribers, which means they pay to acquire movies, 
        sports, and special programming, as well as news and the prime 
        time lineup. While much of this hearing will be devoted to 
        devices and technical specifications, we need to keep in mind 
        that what the customer is excited about is access to high 
        quality content.
 Value. With every purchase, the consumer is making a judgment 
        about the value received. We begin with the premise that it is 
        simply un-American to pay too much. Customers also expect 
        consumer electronics products to work predictably and reliably, 
        and our customers expect to use televisions for a very long 
        time. They understand that improved products come to market, 
        but they expect that their products will maintain the 
        capabilities they had at the time they were purchased. If the 
        product works today, it had better work the same way tomorrow.
 Simplicity. Consumers don't like anything requiring multiple 
        operations if it can be done in one. They want a single remote 
        control and, where possible, a single box. When two mainstream 
        products, DVD players and VCRs, were combined in a single box 
        with a single remote control, the product became so popular 
        last Christmas, we could not keep them on the shelves--despite 
        the fact that you can't copy movies from the DVD drive to the 
        VCR, and the combination product was more expensive than the 
        two purchased separately. When confronted by complexity the 
        normal customer reaction is inaction.
 Flexibility. We do not live in a one-size-fits-all world. 
        Every room in the house may as well be a different household 
        with a different consumer. The expectations of the 13 inch TV 
        in the kitchen are vastly different from that of the 55 inch TV 
        in the den. A 27 inch TV serves a different purpose when, a few 
        years after purchase, it is moved from the den to the playroom, 
        where it becomes a secondary viewing location in the household.
    Today I am pleased to endorse this Committee's efforts to move the 
digital television transition forward, and, based on our frontline 
experience with consumers, to comment on your staff's draft of 
legislation that would do so. We are very glad and appreciative that 
this Subcommittee is holding today's hearing; that Chairman Tauzin and 
ranking Member Dingell of the full Committee have joined you, Mr. 
Chairman, in holding a series of roundtable meetings on the digital 
transition; and that the leadership of this Committee has asked us for 
our comments. We pledge our full cooperation.
                   what consumers are concerned about
    Among your reasons for trying to complete this transition must be 
the opportunity to put the existing analog broadcast spectrum to other 
uses as soon as possible. Most consumers are not aware of this 
objective. They support the transition because by now many have seen 
displays of HDTV. More than three million of them own HD-capable 
displays, but are still driving them with standard-definition DVD discs 
and analog broadcast or cable signals. Millions of others have seen the 
price of the new digital displays come down, but they remain distracted 
by the questions and concerns I mentioned at the outset:

 content--when and how will I get HDTV over cable?
 value--will the HD-ready product that I buy today hold its 
        value and, at a minimum, operate properly well into the future, 
        or will it be abandoned in the transition?
 simplicity--how do I hook everything up? How many boxes and 
        remote controls will be necessary; will they operate seamlessly 
        together?
 flexibility--can I acquire the right DTV product for my need, 
        as I am accustomed to doing, or will they all have features 
        that I don't need in some rooms, but lack the features I want 
        in other rooms?
    Unfortunately, as this Committee is well aware, we are a long way 
from satisfying these consumer concerns. We know this Committee wants 
to move forward. So do we. So do our customers.
    moving the cable dtv transition forward should be a top priority
    CERC applauds and endorses the emphasis in the staff legislative 
draft on achieving ``plug and play'' nationally portable cable 
compatibility, and accomplishing this as soon as possible. The staff 
clearly appreciates that it is only through legitimate and broad 
competition that we can give consumers the necessary incentive to move 
the digital transition forward. About seventy percent of our customers 
are cable subscribers. Yet today, no CERC member can provide them with 
the products that they want and need. Indeed, no CERC member is able to 
offer a consumer a product of any sort that works directly, nationally, 
and interoperably on digital cable television systems.
    Cable television remains the last bastion of the monopoly 
distribution of customer premises equipment. Telephones were 
deregulated in the 1970's, opening the door to, among other things, the 
Internet. Cable is the only high-capacity broadband wire that enters 
most peoples' homes. Yet, as to receipt of video programming, the 
proprietary, non-portable, non-interoperable, leased set-top box sits 
on the landscape as a monolith, blocking out every ray of 
competition.1
---------------------------------------------------------------------------
    \1\ About fifty percent of our cable subscriber customers choose 
not to lease a set-top box--some because they don't need the extra 
services; others because they engender confusion, complexity, and 
expense.
---------------------------------------------------------------------------
                the long struggle for cable competition
    In the late 1950s, cable industry pioneers saw that there was a 
potential business in supplying consumers with higher value 
programming, such as movies and non-broadcast channels. To be able to 
charge the consumer separately for this more expensive programming, 
they had to assure that they would be paid separately for providing it. 
Therefore they started scrambling some of their channels, and building 
so-called ``addressable descramblers'' into the converter boxes that 
they continue to rent to their subscribers.2 They insisted, 
for security purposes, on hard-wiring the descrambling circuitry into 
the box, to try to avoid theft of service. Thus, their monopoly on 
addressable set-top boxes--known later as ``conditional access'' 
devices, or ``navigation devices''--was an outgrowth of their own 
vulnerability, and the failure of anyone to devise a feasible security 
alternative.
---------------------------------------------------------------------------
    \2\ Originally, the purpose of converter boxes was to enhance the 
limited tuning ranges and features of some televisions.
---------------------------------------------------------------------------
    Times changed, but, over the next five decades, the cable monopoly 
did not. Television tuners were upgraded to tune all channels. The 
telephone monopoly was dismantled as to services and devices. The 
personal computer and the Internet were invented. Competitive markets 
were developed as to every other consumer device that acquires or 
receives information, communications, or entertainment. But because, in 
the cable set-top box, five percent of the product controls access, the 
other ninety-five percent has remained immune from competition. And two 
suppliers control about ninety-five percent of the market.
    Senator Leahy brought this situation to the attention of the 
Congress in 1991. The Cable Act of 1992 instructed the FCC to work on 
achieving competitive entry into the markets for both set-top boxes and 
their remote controls (which were then also monopolized by the cable 
industry). This was still the analog era, however, and inter-industry 
attempts at devising a security alternative for the set-top box did not 
succeed.
    In 1995, as the DTV transition approached, this Committee acted 
clearly and decisively in crafting legislation that was ultimately 
included in the Telecommunications Act of 1996. Then-Chairman Bliley 
and Rep. Markey drafted a provision that instructs the FCC in its 
regulations to assure the competitive availability of ``navigation 
devices'' from manufacturers and retail vendors that are not affiliated 
with any Multichannel Video Programming Distributor. Recognizing that 
this job would entail new technical standards, the law instructed the 
FCC to draw on the resources of recognized standards-setting 
organizations.
    Some in the cable industry told the FCC that they should be allowed 
to comply merely by locating second sources for the manufacture of 
existing converter boxes, and authorizing one additional channel for 
selling or leasing proprietary, system-specific boxes. Fortunately, the 
FCC realized that this approach would maintain, rather than deregulate, 
the monopoly on cable devices. Instead, the Commission decided that 
only new technical standards, separating the ``conditional access'' 
function from other cable navigation functions, would comply with 
Congress's intention to foster a competitive market. CableLabs, a cable 
industry consortium, offered to devise all necessary standards, and the 
FCC accepted the offer.3
---------------------------------------------------------------------------
    \3\ It is still, however, the official position of the National 
Cable and Telecommunications Association (``NCTA'') that retail 
distribution of proprietary, system-specific set-top converter boxes 
would fulfill any and all of their obligations under the existing FCC 
rules. See NCTA ex parte filing of June 4, 2002. All FCC filings 
referred to are in CS Docket No. 97-80 and all will be available on 
CERC's new web site, www.ceretailers.org.
---------------------------------------------------------------------------
    More than four years later, however, no CERC member or other 
retailer, and no manufacturer, can participate in a competitive 
consumer market for cable devices. Here is my formulation of a 
``competitive market'' as to cable devices:I22A market, open to all 
manufacturers and vendors, for ``plug and play'' devices that will 
operate on any cable system in the country in a way that is fully 
competitive with the devices distributed by the cable operators 
themselves.
    Judging from the letter from the Chairman and ranking Member of 
this committee to Chairman Powell,4 and the staff draft of 
legislation, I trust this definition is shared by the leadership of 
this Committee.
---------------------------------------------------------------------------
    \4\ Letter of July 19, 2002, from Chairman Tauzin and Rep. Dingell 
to Chairman Powell.
---------------------------------------------------------------------------
    This market can and should include HDTV receivers; multi-purpose 
consumer electronics products such as the combination DVD/VCR; personal 
computers; and, yes, set-top boxes offered by new competitors.
why the struggle for competition in cable devices has not yet succeeded
    The FCC published its regulations, in its CS Docket 97-80, in June 
of 1998. Since then, about twenty-five million digital cable devices 
have been acquired for distribution--all by cable service operators. 
According to cable operators themselves, these proprietary, system-
specific set-top boxes have rolled out at the rate of 135,010 per week. 
The competitive score thus far is monopoly 25 million; competition 
zero.
    What has gone wrong? According to NCTA filings with the FCC, it is 
all retailers' fault: satisfactory products are available, but every 
retailer in the United States passed on acquiring them, for greedy and 
nefarious reasons. This explanation--that in the world's most 
competitive market, not a single participant, large or small, CERC 
member or not, has embraced a product that consumers would find useful 
and want to buy--strains common sense and credulity. We have dealt with 
it fully and repeatedly in several FCC filings.5
---------------------------------------------------------------------------
    \5\ See, e.g., CERC ex parte filing of August 1, 2002, and previous 
CERC filings cited therein.
---------------------------------------------------------------------------
    The actual reason goes far deeper, to a key element that has been 
missing from the cable industry's interpretation of FCC regulations. 
CERC believes the core problem is:
        No cable operator has ever promised to, been required to, or 
        been given any incentive to, rely exclusively on the same 
        technical standards and license that they have undertaken to 
        devise for prospective competitive entrants.
    More history: After the FCC declared that technical standards must 
be written so as to enable true competition, the Commission focused on 
the three technical obstacles that CERC members and others had 
identified:

(1) Digital transmission. The local cable systems were in danger of 
        adopting conflicting digital transmission formats, which could 
        have precluded national interoperability.
(2) Embedded conditional access systems. Cable operators insisted on 
        distributing the conditional access circuitry themselves. 
        Therefore, it was necessary to concentrate this circuitry on 
        cards or modules, that could be separately furnished by each 
        operator. A common, national security interface would be needed 
        to accept these locally provided modules.
(3) Headend support. Cable ``headends'' (which control signal 
        distribution and activate interoperable features) had been 
        configured to support only locally procured devices. A 
        competitive national market in interoperable devices would 
        require that equal means of support for competitive devices be 
        implemented in all cable headends.
    Obstacle (1) was solved in the standards world, as the MPEG family 
of standards emerged into common usage. Obstacles (2) and (3), however, 
still loom over the landscape. Progress has been made recently, but 
ultimate success is still not assured.
    In its Report & Order of June 24, 1998, the FCC set two dates by 
which hallmarks of support for competitive entrant products were 
supposed to be achieved by cable operators, or they could lose the 
right to distribute their own leased devices:

July 1, 2010, for cable operators to furnish security (``Point Of 
        Deployment,'' or ``POD'') modules for competitive entrant 
        devices, and to support the operation of the competitive 
        devices on their systems; and
January 1, 2005, for operators to rely themselves on the national 
        security interface in the products that they distribute. (The 
        FCC saw, presciently, that a technology not relied upon by its 
        developer may not be adequately supported by that developer.)
    Consumer electronics manufacturers and retailers, in 
reconsideration petitions, told the FCC that the 2005 date was too far 
in the future to compel meaningful reliance by cable operators or 
CableLabs. We urged that this date be moved up to 2001. In its 
Reconsideration Order of May 14, 1999, the FCC declined to do so, but 
observed that if competition had not bloomed by the year 2010, the 
Commission would hold a review, and might move the 2005 date up to 
2003.
    The 1998 Report & Order also failed to specify the level of support 
that must be afforded competitive devices, either in the device 
specifications themselves, or at the cable headend.6 The 
NCTA and CableLabs have taken the position that while consumers have a 
right to attach competitive devices to their systems, they do not have 
a right to expect reasonable, competitive, and interoperable 
performance of these devices. In fact, CableLabs has declared that 
national portability via the OCAP specification (or otherwise) is not a 
legal or regulatory requirement. This statement can still be found on 
the CableLabs ``OpenCable'' web page.7
---------------------------------------------------------------------------
    \6\ The Report & Order stressed the importance of nationally 
portable operation of devices if a truly competitive market, that 
embraced products such as HDTV receivers, was to be supported. But it 
also said that it was not, at that time, prescribing any specific 
requirements for achieving national portability.
    \7\ See www.opencable.com/ocap.html and NCTA ex parte filing of 
June 4, 2002.
---------------------------------------------------------------------------
    Given the lack of either mandated technical specifications or any 
requirement that cable operators rely themselves on whatever they 
develop for use by competitive entrants, what happened seems, in 
retrospect, all too predictable:

 Technical specifications to support even rudimentary cable 
        products, not nationally portable as to key features (and hence 
        not competitive with existing, operator-provided set-top 
        boxes), were developed far too late for competitive 
        manufacturers to develop any product whatsoever by July 1, 2010
 Technical specifications that would support nationally 
        competitive products have not neared completion until recently. 
        Still, however, there has not been a single pledge from a cable 
        operator to rely exclusively on these specifications in its own 
        products. Nor has there been any date certain promised as to 
        when entrant products would be supported, adequately or 
        otherwise, by any cable system headend.
 Attempts by entrant manufacturers to develop interim 
        specifications for DTV and HDTV receivers that work on cable--
        even in ways not fully competitive with existing set-top 
        boxes--have bogged down in disputes over product standards, 
        testing, certification, and licensing. In our view, most of 
        these disputes could have been avoided had cable operators 
        pledged, or been required to, rely on the same specifications 
        and license provisions that they provide to the entrant 
        manufacturers.
 The 1996 Telecommunications Act has been interpreted as 
        allowing a subsidy to the deployment of digital cable devices, 
        based on revenues from the rental of existing analog set-top 
        boxes. A subscriber that chooses a competitive device in 
        preference to a leased, proprietary one would lose the benefit 
        of this subsidy. Not a single MSO has offered to extend this 
        benefit to their own subscribers who choose competitive 
        devices.8
---------------------------------------------------------------------------
    \8\ In fact, NCTA has cited the fact that CERC has raised this 
issue, on behalf of NCTA's own members' cable subscribers, as ``proof'' 
the retailers are not interested in a competitive market unless they 
can capture this subsidy themselves! See, e.g., NCTA ex parte filing of 
June 4, 2002.
---------------------------------------------------------------------------
    In summary, six and one half years after Congress acted, there has 
yet to be a single POD-reliant product introduced into the marketplace, 
either by any CERC member or by any of the retailers that are not CERC 
members.
                   what cerc has proposed to the fcc
    In September, 2010, the FCC opened its ``Year 2010 Review'' as to 
what else the Commission needs to do. Even before the commencement of 
this review, CERC proposed to the Commission a direct and simple 
approach that would rely on marketplace incentives, rather than on 
intense regulation, to accomplish Congress's objectives. CERC proposed, 
and continues to advocate, a single, simple addition to the Commission 
rules:
        76.1204(a)(1) . . . Commencing on [July 1, 2003], any 
        multichannel video programming distributor subject to this 
        section, or affiliate thereof, shall place in service for sale, 
        lease, or use only such new navigation devices as rely, for 
        their operation, solely on whatever OpenCable specifications 
        and licensing terms, to implement services, features, 
        applications, and conditional access support, as are required 
        by the distributor with respect to the licensing, manufacture, 
        certification, attachment or use of navigation devices provided 
        by unaffiliated manufacturers or vendors pursuant to Section 
        76.1201.9
---------------------------------------------------------------------------
    \9\ CERC members first made this proposal in an ex parte letter of 
April 16, 2001, with a proposed compliance date of January 1, 2002. 
CERC now proposes a compliance date of July 1, 2003. CERC also proposes 
a regulation as to subsidy practices. CERC's full proposal is 
reproduced as an Appendix to this statement.
---------------------------------------------------------------------------
                   lessons from our efforts thus far
    While consumer electronics manufacturers and retailers have filed 
paper after paper with the FCC, we have seen approximately $10 billion 
in commerce evade the competition that Congress ordered in 1996. In 
this period I think we have all learned that support for competitive 
devices is as much a matter of economics, self-interest, and 
incentives, as it is one of regulation:

 If a developer of a technical specification does not 
        contemplate distributing reliant products himself, the quality, 
        reliability and efficiency of products made to that 
        specification will be assigned a lower priority by the 
        developer.
 If the standard or product in question is competitive with the 
        developer's own product, these attributes will be assigned a 
        still lower priority.
 A system operator will care primarily about supporting the 
        products he distributes himself, rather than those of 
        competitive entrants, unless given an incentive to the 
        contrary.
    These three factors explain a lot:

 Why, after ten years, not a single cable headend is equipped 
        to support the standards developed for competitive entrants.
 Why not a single cable operator has made an unconditional 
        pledge to support these standards.10
---------------------------------------------------------------------------
    \10\ In cases of both the ``POD'' module and the ``OCAP'' standard, 
statements by some cable MSOs have pledged support when reliant 
products are on the market. This proved a ``Catch-22'' as to PODs, 
because entrant development of POD-reliant products has not been 
adequately supported in the first place. Similarly, an HDTV 
manufacturer is not likely to offer consumers a $5,010 OCAP-reliant 
product if major cable headends are still years away from supporting 
OCAP--so the ``pledge'' would never have to be honored.
---------------------------------------------------------------------------
 Why detailed and prescriptive regulations--trying to force 
        cable operators to support technologies they don't intend to 
        rely on themselves--invite further frustration and controversy.
  crucial items that still must be addressed: the ``opencable access 
  platform'' (``ocap''), the ``pod-host interface license agreement'' 
                   (``phila''), pod reliance and cost
    Despite all these delays and problems, we are at the point where 
several key technologies have, in fact, become industry standards. The 
``OCAP'' technical specification--the best hope for products that are 
nationally portable yet fully competitive with devices designed for 
individual systems--may also finally be nearing completion. In our 
view, on behalf of our willing but anxious customers, there are three 
crucial issues yet to be resolved, on which we urge this Committee to 
focus its legislative and oversight attention:
    Headend Support. You can have the most sophisticated consumer 
devices, and the most sophisticated cable headends, but if they are not 
designed to interoperate, the consumer is the loser. At present, cable 
headends are designed to support 25 million proprietary, system-
specific set-top boxes, rather than competitive products. Some cable 
operators are recognizing that migrating to a common ``middleware'' 
platform, such as ``OCAP,'' may be in their own long-term interests, as 
well as that of their subscribers. But unless all cable headends make 
this migration by a date certain, this Committee's efforts to support 
products that are both competitive and nationally portable will 
continue to fail.
    In my view, it will be in manufacturers' interest to offer OCAP 
functionality when (1) OCAP will work reliably in consumer products 
when supported at the cable headend, and (2) OCAP is in fact supported 
by all cable headends. These objectives--technical reliability and 
operator support--will be accomplished only when the devices that cable 
operators distribute themselves must also rely exclusively on OCAP.
    The ``PHILA'' License. Competitive entrants have been frustrated in 
their attempts to procure a license for ``POD'' security modules 
without having to agree to a passel of provisions that would impose 
serious burdens on consumer use of display and recording products, and 
other provisions that seem at variance with FCC regulations. Chairman 
Tauzin and Rep. Dingell made a tremendous contribution by simply 
demanding that this draft license be taken out from under non-
disclosure agreements, and aired publicly. Recently, Rep. Boucher wrote 
to Chairman Powell, proposing that competitive entrants provide the FCC 
with a version of the PHILA license that does comply with FCC 
regulations, and does not harm or burden consumer use of present and 
future products. He also proposed that the FCC then oversee 
negotiations on an expedited basis. Two weeks ago, CEA filed such a 
draft license with the FCC.11 We are very hopeful that 
negotiations will succeed on this basis.
---------------------------------------------------------------------------
    \11\ See CEA ex parte filing of Sept. 11, 2002.
---------------------------------------------------------------------------
    ``POD'' Cost And Support. Although the cable industry has been 
specifically aware of the need for a national security interface since 
1998, in the last few months it has filed documents with the FCC 
claiming that each module and interface, together, would cost almost 
$100, and asking to be excused from compliance as to their own 
products. CERC responded that the cost complaint is a self-fulfilling 
prophecy, because the industry has resisted manufacture in any volume. 
We filed supporting documentation to show that, at cable industry 
deployment rates, after a few months the price would drop to under $15, 
and keep dropping.
    Again, the issue here is one of reliance. If cable operators never 
have to rely on PODs but their competitors do, where is the market 
incentive to make them operate better and cost less? If only 
competitive entrants use PODs, how long will it take to reach one 
million units of production? As in the case of OCAP, incentives work 
better than regulation. You can't reasonably order costs to go down 
when the volume isn't there to support the reduction. You can order 
``full support'' for poorly or inefficiently engineered products, but 
enforcing your order is, and has been, a nightmare.
        What you can, and should, do is tell the cable operators simply 
        that what's good enough for their competitors is good enough 
        for them.12
---------------------------------------------------------------------------
    \12\ FCC regulations do this, although the 2005 date is too far in 
the future. CERC respectfully and strongly disagrees with the staff 
draft provision that would remove this regulation.
---------------------------------------------------------------------------
    It seems ironic that the FCC has now (in the ``dual tuner'' order) 
ordered all TV manufacturers essentially to build a computer into their 
products, and expects volume production to bring costs down from the 
hundreds to the tens of dollars. Yet the benefits of volume production 
are ignored by the cable industry as to a far simpler device--one as to 
which it has already been demonstrated around the world that mass 
production can bring the price down to single digits in a year or 
two.13
---------------------------------------------------------------------------
    \13\ See CERC ex parte filing, August 15, 2002, Declaration of Jack 
W. Chaney. At the deployment rate of 135,010 per week, the volume 
milestone of one million units would be reached in less than 2 months. 
Reaching this volume level based on competitive entrant products alone 
would, unfortunately, take much, much longer.
---------------------------------------------------------------------------
         specific cerc comments on the staff draft of h.r. ----
    Much of the staff legislative draft on which you have invited 
comment today is music to our ears, but we think the words still need 
some work. We would be pleased to join with other interested parties to 
work with the staff on fine tuning. As I have concentrated on the 
``cable compatibility'' issue today, I will address that section first, 
though we do have comments on some of the other sections, as well.
              ``digital television cable compatibility.''
    The goals stated and implied in this provision provide a strong 
step forward. We applaud the Committee for recognizing that cable 
compatibility is a key--perhaps the key--to the digital transition. The 
Committee staff also recognizes that it involves support for multi-
purpose consumer electronics products, as well as for DTV and HDTV 
receivers.
    While consumer enjoyment of digital television is the ultimate goal 
of cable compatibility, achieving this goal for consumers involves 
compatibility of more than the DTV receiver itself. Just as telephone 
deregulation helped spawn many new products (modems) and services (the 
Internet) that are not telephones, true cable compatibility can 
enhance, even create, entire new generations of products that are not 
DTV receivers. The draft recognizes this, but not in enough places. 
Today I can only touch on the particulars of our concerns, and how we 
think they might be addressed.

 ``Nationwide interoperability and portability.'' This specific 
        requirement and expectation is long overdue. Emphasis on 
        receiving, recording, and display devices is very welcome.
 ``Uniform family of technical standards.'' With respect to 
        PHILA, we think it is a step forward to distinguish, as this 
        provision does, between specifications controlled by CableLabs, 
        and uniform standards, that are not. However, we are concerned 
        that in present form (d)(2) appears very prescriptive as to 
        technology that is less than leading edge; pertains primarily 
        to DTV receivers but not the other products cited in (d)(1); 
        and does not mention OCAP.
    We understand some of the reasons for focusing here on near-term 
solutions. Manufacturers do not wish to be subject to legal mandates as 
to which features to offer to consumers. But, as I discuss above, this 
cannot be the end of the story. For more advanced services (that are 
already offered in proprietary set-top boxes) to be supported as to 
competitive entrants, there must be some incentive for cable operators 
to support these products. Rather than try to achieve support for these 
advanced services by strict mandate, yet avoiding oppressing 
manufacturers, we recommend the CERC solution: a simple requirement 
that cable operators' products must also rely exclusively on the 
technologies that they develop for their competitors.
     POD Modules. Paragraph (2)(B) mandates, by July, 2005, 
standardization of POD modules that has in fact already been achieved, 
without requiring any improvements. Section 10 of the bill, which would 
eliminate cable operator deployment of the national security interface 
in their own devices, goes in the wrong direction, for the reasons I've 
pointed out above. It would remove incentives for (1) improvement of 
POD modules, and (2) dramatic decreases in cost, and improvement in 
efficiency, through immediate mass production and deployment.
    In theory, it should not matter to competitive entrants and 
retailers whether the cable operator set-top requires a POD module, 
because the cost of the module is a network cost that they must bear. 
But look at the economic incentives: already, it is a device to support 
competitors; how good should cable operators and their entrenched 
suppliers want to make it? The change wrought by Section 10 would also 
ensure that for years, this device would remain in low volumes, as 
competitive entrants battled their way into the market. Operators and 
CableLabs would have every incentive to keep efficiency, reliability 
and volumes low.
    In its Reconsideration Order, the FCC recognized that this kind of 
foot-dragging could occur, and said that if it did, it would consider 
moving up the reliance date, to 2003. That is what the Commission 
should do. Therefore, if we hope to avoid more years of endless debate 
over standards and move toward real and legitimate competition, and if 
we hope ever to see cable functionality integrated into television 
sets, Section 10 must be omitted.
     Equipment compliance with standards. Having mandated 
specific technical standards, the draft would first impose compliance 
obligations on manufacturers, then list exemptions. If adequate 
incentives or regulations exist as to cable support, a specific mandate 
on manufacturers should not be necessary.
    The ``exemptions'' from the mandate clearly are meant to be 
restrictions as to obligations that can be imposed on manufacturers via 
the PHILA license. As such, they are vitally pro-consumer, very well 
founded, and should help resolve outstanding PHILA issues:

 allowing manufacturer self-certification;
 robustness and compliance rules that do not impair 
        functionality of consumers' reception, recording, and display 
        equipment (ruling out, e.g., ``selectable output control'' and 
        ``downresolution'');
 limitation to provisions that address only theft of service 
        and physical harm to the network (rather than cable operator 
        business objectives or market advantage); and
 that OCAP implementation need not be mandatory with 
        manufacturers, as not all consumers will need this facility 
        built into their TV receivers.
    Some elements that we think should be included, or more clearly 
stated:

 While there is some reference to ``encoding rules,'' to 
        protect consumer expectations as to the viewing resolution and 
        ability to record received content, the requirement of such 
        rules in license or regulation should be more explicit, 
        adopting for digital television the provisions of Section 
        1201(k) of the Digital Millennium Copyright Act of 1998 
        (``DMCA'').
 Based on our experience with consumer expectations, 
        manufacturers need some assurance that their products will have 
        adequate access to electronic program guide information, 
        without forcing the consumer to pay twice for the receipt of 
        this information.
    Generally, this important ``exemption'' provision would be clearer 
if stated primarily in terms of what terms cable operators may not 
impose via license, rather than in terms of what the regulations may 
mandate. Imposition by license is the real issue at hand.
     Upgradeable to successor digital interfaces. While this 
requirement is a laudable goal, I see several potential problems in 
terms of the core consumer concerns I described at the outset:
    (1) value--manufacturers today cannot know what ``successor'' 
systems will be or entail, so they cannot within any reasonable cost 
ensure ``upgradeability'' to unknown, or even to some known, systems.
    (2) flexibility--this requirement, even if achievable, may not be 
necessary for some or many products meeting the staff's definition of 
``television display.'' 14
---------------------------------------------------------------------------
    \14\ This term, not defined in the staff draft, is, I believe, not 
found in statute or regulation. These refer to a ``television 
receiver,'' which has an off-air tuner. Television-capable displays 
would seem to include all computer monitors, and, nowadays, many PDAs, 
mobile telephones, and other products.
---------------------------------------------------------------------------
    (3) content--the only way I can imagine meeting this requirement 
would be through some plug-in involving digital-to-analog-to-digital 
(``D-A-D'') conversion. In addition to degrading the signal, it would 
likely be considered insecure by content providers. Any purely digital 
means for providing a secure ``handshake'' with an unknown system, even 
if feasible, would likely require extensive multi-industry technical 
standards discussions as to preserving signal security from one system 
to another, possibly delaying the entry of any new display products, or 
any new digital protection technologies, into the market.
              digital television broadcast flag rulemaking
    As I noted at the outset, a core consumer concern that drives the 
acquisition of new products is to receive compelling content for 
enjoyment at home. Therefore, CERC members endorse the goal of the 
``broadcast flag'' initiative, which is, I believe, correctly stated in 
the staff draft: to curb the unauthorized redistribution to the public 
of content over the Internet, in competition with the original 
authorized distributor.
    We also endorse the other core goal of the draft, which is to do 
this without depriving consumers of the functionality of any of the 
products already in their home, or on their home network. Accomplishing 
both of these core goals--as the private sector Broadcast Protection 
Discussion Group (``BPDG'') participants found in six months of 
discussion--is no easy task. Some of these complications are evident in 
the staff draft as well.
    One provision that we think simply does not work, and poses 
(depending on how it is interpreted or applied) unacceptable hardship 
for either consumers or content providers, is the provision in Section 
5(b)(3), that would ``terminate the manufacture of equipment [capable 
of demodulating DTV broadcasts] that has analog outputs by July 1, 
2005.'' Depending on how interpreted or enforced, it seems that this 
provision would either (1) largely destroy the utility of 300 million 
TVs and VCRs, plus millions of PCs and their displays, already in 
consumers' homes, or (2) create a huge market for D/A converters, 
necessary to fulfill the other laudable obligations of this Section--
that the utility of devices already in consumers' homes be preserved. 
Moreover, content providers would likely regard such cheap and prolific 
D/A converters as ``circumvention devices.'' At present I see no way of 
saving this provision from one or the other consequence. Our specific 
comments:
    (b) regulation requirements, criteria. We endorse the ideas of an 
expedited process, self-certification, and objective criteria. We 
endorse the goals of (B), that regulations not impose unnecessary or 
unreasonable product burdens, (C) that they protect full functionality 
of earlier consumer equipment, and (D), that they provide for 
technological and market neutrality.
    We understand, however, that in BPDG discussions, many felt that 
goal (b)(C) (protecting all possible functions of products already in 
the home) could not feasibly be satisfied while still meeting goal (a) 
(preventing the unauthorized redistribution to the public). In such 
case, I fall back on my description, at the outset, of core consumer 
requirements: that legitimate consumer expectations at the time of 
purchase of the product must be protected. Application of this 
principle means, in my opinion:
    As to display devices, not constraining the availability of, or 
downgrading the resolution of, signals in formats for which the display 
has inputs.15
---------------------------------------------------------------------------
    \15\ This implies not cutting off or degrading any inputs to these 
products, including the analog inputs--which for most existing 
products, is all they have.
---------------------------------------------------------------------------
    As to recording devices, not constraining reasonable and customary 
consumer expectations as to recording through the device's inputs.
    As to playback devices, not constraining the ability to play back 
programs according to consumer expectations as to formats existing at 
the time of purchase.
    For any ``broadcast flag'' implementation to be accepted rather 
than resisted by consumers, these must be considered immutable 
concerns.
     (b)(3), termination of analog outputs. If this provision 
means what it seems to mean, it would impose unacceptable hardship on 
consumers, at variance with principle 1., above. This provision seems 
to say--notwithstanding the obligation that functions of in-home 
devices be protected--that no device with a DTV tuner may output an 
analog signal of any sort--not on channel 3, not via composite, 
component, or ``S'' video--after July 1, 2005.
    This provision seems to say that the 300 million TVs and VCRs in 
consumers' homes--including the 3 million HD-ready displays recently 
purchased by DTV transition pioneers--could no longer acquire any 
broadcast signal off the air, or through a DTV broadcast converter, 
after January 1, 2006. Even in homes served by cable or satellite 
services, some televisions are not hooked up to such services, so upon 
return of spectrum would have no way, other than through a DTV 
broadcast converter, to acquire signals. Even those existing sets that 
are hooked up to cable and satellite service have no digital inputs, 
and most have no integrated DTV tuner, so must rely on some analog 
input from an external device. The same is true as to the hundreds of 
millions of PC monitors in use today, which would rely on tuner cards 
in PCs.
    Presumably--though this is not entirely clear--this provision 
applies only to outputs of products that themselves contain DTV 
broadcast demodulators, and not to outputs of products that receive 
flag-protected signals from DTV tuners by digital means. Therefore, 
relying on the requirements stated in (b)(2), requiring protection of 
the full functionality of devices already in the home, one can assume 
that digital protection technology systems, such as DTCP, HTCP, and 
others, would be required to provide analog outputs serving every 
analog input in the marketplace on January 1, 2006--component, 
composite, ``S,'' and ``RF'' video--at all resolutions for which 
devices in homes today have inputs. One must also assume that cable and 
satellite set-top boxes carrying flag-protected signals would also be 
obliged to offer all of these analog outputs. This interpretation is 
essential to avoid turning 300 million TVs and VCRs, and most existing 
PC monitors, into useless furniture. The problem with it, however, is:

 Consumers would, even so, be obliged either to subscribe to 
        cable or satellite, or to buy an add-on converter, in addition 
        to the add-on DTV tuner, to support an existing TV, VCR, or PC 
        monitor.16
---------------------------------------------------------------------------
    \16\ This existing product may still provide vital service to the 
home, but be worth less than the value of the two add-on converters.
---------------------------------------------------------------------------
 Content providers would likely regard the millions of D/A 
        converters that support all analog outputs in all resolutions 
        as potential ``circumvention devices,'' as to other protections 
        built into the secure digital transmission systems.
    Alternatively, subsection (3) could be read as outlawing any analog 
output, in any product capable of receiving, converting, or carrying a 
flag-protected signal. This would include cable boxes, satellite boxes, 
and add-on D/A converters. This interpretation would mean that the 
hundreds of millions of TVs, VCRs, and PC monitors in homes today would 
become entirely useless as to any broadcast, cable, or satellite 
programming--broadcast, pay cable, pay-per-view, video-on-demand, etc. 
We doubt that, given the regard otherwise shown for consumer products 
and expectations, this is a result intended by the Committee staff.
     (b)(5), safeguards. CERC endorses this provision. But see 
above.
                 digital television tuner requirements
    CERC has not taken a position on the FCC's order as to ``dual 
tuner'' requirements, per se. However, CERC agrees with and endorses 
the observations of several FCC Commissioners, the Media Bureau staff, 
and Members of Congress that the public interest is served by this 
requirement if nationally portable and interoperable cable tuners can 
be deployed in all affected products on at least the same deployment 
schedule. My own estimation is that this would require:

 immediate product planning by manufacturers, and,
 resolution of the outstanding compatibility, regulatory, and 
        license issues, that I have discussed, within an accelerated 
        time frame.
    CERC has stressed that incentives, efficiency, and consumer 
expectations are the key to breaking through the barriers to the 
digital transition. It is widely accepted that, whereas the dual tuner 
obligation serves primarily the 10-15% of households that do not have 
cable or satellite access, the components necessary to implement this 
obligation are largely the same ones that can support operation of 
these television receivers as nationally portable and interoperable DTV 
cable navigation devices. It would ill-serve consumers to miss this 
opportunity.
                pass-through of network digital signals
    We agree with the staff draft that consumers are entitled to 
receive, from local broadcasters, content that was originated as HDTV. 
We think, however, that the same obligation, for the same reasons, 
should apply to local cable operators, with respect to (1) all 
broadcasts, and (2) non-broadcast, nationally distributed cable 
channels or programs.
                      consumer notice requirement
    We agree in principle that (1) consumers should not be disappointed 
in their reasonable expectations as to products already in their homes, 
and (2) to the extent they are about to be disappointed in a purchase, 
they should be forewarned. We have concerns, however, about the 
labeling scheme laid out in the staff draft.
    First, quality control should mean doing it right the first time, 
not trying to fix it later. If the FCC does its job right in 
implementing regulations, it should not be necessary to have labels 
about what works with what. Second, requiring labels on both media and 
devices invites hopeless confusion. The consumer risks being trapped in 
a circle of warnings that, ultimately, makes no sense.
    Third, the labeling requirement on equipment seems a moving target. 
At the time of manufacture, one cannot hope to keep up with all 
developments in media deployment--particularly if discretion remains 
with local cable companies. Updating labels could become a weekly, 
local, and futile job for retailers.
    Finally, it may be counter-productive to require labels on, for 
example, movies, as to the devices they will play on and the ones they 
won't. There's only one Lion King. The media label that is meant to 
embarrass the producers, as to which home device is locked out of 
enjoying the The Lion King, would simply depress the market for the 
device on which The Lion King does not play. So, perversely, the 
labeling imposition on content providers could in fact empower them to 
drive certain consumer electronics and computer devices off the market.
    We think initial quality control, guiding the FCC to enact fair and 
balanced regulations, that respect the consumer and provide appropriate 
marketplace incentives for content providers, content distributors, and 
device manufacturers and vendors, is superior to any ad hoc labeling 
patch.
    On behalf of Best Buy, Circuit City, Good Guys, RadioShack, Sears, 
Tweeter, Ultimate Electronics, the International Mass Retail 
Association, the North American Retailer Dealers Association, and the 
National Retail Federation, I would like to thank the Subcommittee for 
inviting us here today, and congratulate the leadership of this 
Committee for everything it has done to move this transition forward on 
behalf of the consuming public. CERC pledges its full cooperation in 
your efforts.
                                Appendix
    Regulation Revisions First Proposed By CERC members, April 16, 2001
    additions in bold 
    deletions in [brackets]
    76.1204(a)(1). A multichannel video programming distributor that 
utilizes navigation devices to perform conditional access functions 
shall make available equipment that incorporates only the conditional 
access functions of such devices. Commencing on January 1, [2005] 2002, 
no multichannel video programming distributor subject to this section 
shall place in service new navigation devices for sale, lease, or use 
that perform both conditional access and other functions in a single 
integrated device. Commencing on January 1, 2002, any multichannel 
video programming distributor subject to this section, or affiliate 
thereof, shall place in service for sale, lease, or use only such new 
navigation devices as rely, for their operation, solely on whatever 
OpenCable specifications and licensing terms, to implement services, 
features, applications, and conditional access support, as are required 
by the distributor with respect to the licensing, manufacture, 
certification, attachment or use of navigation devices provided by 
unaffiliated manufacturers or vendors pursuant to Section 76.1201.
    76.1204 Availability of equipment performing conditional access or 
security functions.
    (g) Effective January 1, 2002 and until the regulations adopted 
under this subpart cease to apply as determined in accordance with 
Section 76.1208, cable system operators must:
    (1) provide annual written notification to their subscribers that 
subscribers may purchase or lease navigation devices from unaffiliated 
vendors that are capable of receiving the same services, content, 
programming, features and functions accessible through navigation 
devices provided by the subscriber's cable system operator, without the 
need for any additional equipment from the cable system operator and 
without degrading the ease of use of such navigation devices or the 
quality of such services, content, programming, features and functions;
    (2) provide oral notification and written confirmation, at the time 
when a subscriber orders cable television or related services, that the 
subscriber may (A) already own consumer electronics equipment that is 
capable of receiving the same services, content, programming, features 
and functions accessible through navigation devices provided by the 
subscriber's cable system operator, without the need for any additional 
equipment from the cable system operator and without degrading the ease 
of use of such navigation devices or the quality of such services, 
content, programming, features and functions; and (B) purchase or lease 
navigation devices from unaffiliated vendors that are capable of 
receiving the same services, content, programming, features and 
functions accessible through navigation devices provided by the 
subscriber's cable system operator, without the need for any additional 
equipment from the cable system operator and without degrading the ease 
of use of such navigation devices or the quality of such services, 
content, programming, features and functions; and,
    (3) The notification and confirmation required by subsections 
(g)(1) and (2) shall indicate clearly that the conditional access 
function equipment required to access certain services, content, 
programming, features and functions using a navigation device purchased 
or leased from an unaffiliated vendor is the same as the one required 
for navigation devices provided by the cable system operator, and that 
the price for such conditional access function equipment is identical 
regardless of the subscriber's choice.
    76.1206 Equipment sale or lease charge subsidy prohibition.
    (a)(1) Multichannel video programming distributors offering 
navigation devices subject to the provisions of Section 76.923 for sale 
or lease directly to subscribers [shall adhere to the standards 
reflected therein relating to rates for equipment and installation and 
shall separately state the charges to consumers for such services and 
equipment] shall not use any service revenues to subsidize the sale or 
lease prices or rates of these navigation devices until the regulations 
adopted under this subpart cease to apply as determined in accordance 
with Section 76.1208.
    (2) Effective January 1, 2002, a Multichannel video programming 
distributor offering navigation devices subject to the provisions of 
subsection 76.923 may elect to pool the costs of devices covered by 
subsection 76.1204(a)(1) with the costs of all other navigation devices 
provided by the MVPD if it:
    (A) maintains on its publicly accessible web site and files with 
the Commission and the applicable franchise authority a report 
disclosing:
    (i) the price or prices for each navigation device offered by such 
multichannel video programming distributor;
    (ii) the amount of any subsidy reflected in the price for each such 
navigation device, and
    (iii) the methodology by which such subsidy was calculated; and
    (B) provides to subscribers the same subsidy for navigation devices 
purchased or leased from unaffiliated vendors as that reflected in the 
price for navigation devices provided by such multi-channel video 
programming distributor.
    (3) The report described in subsection 76.1026(a)(2)(A) shall be 
amended within ten days of the offering of any new navigation device or 
any revision in the price or terms for any existing navigation device. 
The Commission may review and direct changes in the methodology 
described in subsection 76.1206(a)(2)(A)(iii).
    (b) The requirements in subsections (a)(2) and (3) shall remain in 
effect until the regulations adopted under this subpart cease to apply 
as determined in accordance with Section 76.1208.

    Mr. Bass. Thank you very much, Mr. McCollough.
    The Chair recognizes Ms. Bradshaw.

                   STATEMENT OF THERA BRADSHAW

    Ms. Bradshaw. Thank you. Mr. Chairman and members of the 
committee, thank you for the opportunity to appear before you 
today. We commend the efforts of Chairman Upton, Mr. Markey, 
Chairman Tauzin and Mr. Dingell for including public safety in 
this particular discussion.
    I am Thera Bradshaw, and I am president of APCO, the 
Association of Public Safety Communications Officials. I am 
also the assistant general manager for Policy and Public 
Services for the city of Los Angeles Information Technology 
Agency. I appear before you today on behalf of APCO as well as 
the coalition of the national organizations that have a direct 
stake in radio spectrum for police, for fire and for emergency 
medical, along with other public safety agencies.
    These organizations include the International Association 
of Fire Chiefs, International Association of Chiefs of Police, 
the National Sheriffs' Association, National League of Cities, 
the U.S. Congress of Mayors, NATOA, National Association of 
Counties and others.
    We call upon Congress to immediately set a final date for 
completion of the digital television transition. The decision 
this committee and Congress makes regarding DTV will impact 
public safety agencies and their ability to protect life, 
health and property. The current administration noted specific 
gaps that must be addressed in order to ensure a secure 
homeland. We submit that the lack of radio spectrum for public 
safety is one of those gaps. We strongly support legislation 
establishing completion of DTV transition in the near term or, 
at worse, December 31, 2006. Such legislation permits police 
officers, fire fighters and emergency medical personnel to 
communicate effectively with each other directly. We need 
spectrum to alleviate channel congestion, to implement new 
communications technology and also to facilitate 
interoperability.
    In 1996, on, incidentally, September 11, a joint FCC and 
NTIA Committee recommended additional spectrum to be made 
available for public safety use within 5 years. Unfortunately, 
exactly 5 years later, on September 11, 2001, the spectrum was 
still not available in most of the Nation. Unless Congress 
revises existing law, spectrum will not be available until far 
into the future. The Balanced Budget Act of 1997 allocated 
additional radio spectrum. The FCC did its part and reallocated 
to public safety the spectrum from television channels 63, 64, 
68 and 69. Today, in most metropolitan areas, the spectrum is 
still not available. Certain television stations continue to 
occupy those channels. Under current law, these television 
stations can remain on the air until December 31, 2006 or until 
85 percent of households can receive DTV signals, whichever is 
later.
    The map shows, that is displayed here and attached to your 
testimony, geographic areas currently blocked by the television 
stations. Those areas representing the highest level of 
conflict are in the most densely populated areas of the country 
with the most significant demand, I might add, on public safety 
resources. It is unlikely that the 85 percent benchmark will be 
met until long after 2006. Consequently, public safety 
personnel will be waiting indefinitely for additional radio 
spectrum required today, not at some future undefined date. 
State and local governments need a firm and early date to 
proceed in the planning that is necessary, the design, the 
funding and the construction of new radio systems and lives, 
frankly, depend on it.
    We applaud the commitment of Representative Jane Harman 
who, together with Representative Curt Weldon, have introduced 
H.R. 3397, the HERO Act. This bill addresses the spectrum issue 
and has the support of all of the organizations that I am 
representing here today. We also strongly support Section 3 
which eliminates the 85 percent requirement in the existing law 
and terminates broadcast operations on channels 60 through 69 
by December 31, 2006.
    Since September 11, the need for radio spectrum is more 
critical than ever. APCO is certified by the FCC to coordinate 
public safety frequencies. We have far more requests for 
channels than we can possibly accommodate. In many cases, the 
only option is to rely on crowded or shared channels and to 
risk interference to life-saving operations. Those of us who 
work actually in public safety know all too well the ongoing 
issue of interoperability. In my written testimony, I referred 
to communications difficulties that were experienced in 1995, 
Oklahoma City bombing. Multiple responders from agencies 
surrounding and communities couldn't talk to each other and 
lacked the ability to coordinate effective communications. 
Frankly, that very situation exists today as a fire burns out 
of control in over 18,010 acres in Angelos National Forest 
outside the city of Laverne, California. It threatens over 
several hundred homes with 40 homes that have actually burned. 
Multiple agencies are on the scene with 2,010 fire fighters 
from southern California now, and their radio systems are on 
different frequencies and they can't talk to each other. The 
lack of spectrum forces the agencies to operate in different 
bands, and we are experiencing that in southern California as 
they are in the Nation.
    Mr. Bass. If you would please conclude.
    Ms. Bradshaw. I understand. Thank you very much. I 
appreciate the opportunity for public safety to be before you. 
Again, life, health and property are at stake and at risk. 
Thank you.
    [The prepared statement of Thera Bradshaw follows:]
Prepared Statement of Thera Bradshaw, President, Association of Public-
             Safety Communications Officials-International
    Thank you, Mr. Chairman. My name is Thera Bradshaw. I currently 
serve as President of the Association of Public-Safety Communications 
Officials-International, Inc. (``APCO''), and I am also Assistant 
General Manager, Policy and Public Services, for the City of Los 
Angeles Information Technology Agency. I appear before you today on 
behalf of APCO and other national organizations that have a direct 
stake in the provision of adequate radio spectrum for police, fire, 
emergency medical and other public safety agencies. These organizations 
include the International Association of Fire Chiefs, International 
Association of Chiefs of Police, National League of Cities, National 
Association of Counties, National Association of Telecommunications 
Officers and Advisors, Major Cities Police Chiefs Association, National 
Sheriffs' Association, and Major County Sheriffs' Association (``Public 
Safety Organizations''). I note that the City of Los Angeles is a 
member of several of these organizations.
    Mr. Chairman, most of the witnesses appearing before you today will 
discuss issues related to the deployment of digital television 
throughout the country. Those are important matters. However, I am here 
today to discuss a closely related issue which has a far greater impact 
on the safety of life, health, and property for every citizen of this 
great nation.
    In particular, I want to state the Public Safety Organizations' 
strong support for legislation that would establish December 31, 2006, 
as the firm date for completion of the digital television transition, 
at least as it related to television channels 60-69. That would allow 
nationwide public safety use of radio spectrum already allocated for 
its use, but blocked in most metropolitan areas by ongoing television 
station operations.
    In the year since last September 11, there has been much attention 
here in Washington on improving homeland security and public safety 
operations across the country, primarily from a Federal Government 
perspective. However, it is important to remember the first line of 
defense against domestic terrorism, and the first response to terrorist 
attacks and other emergencies, is by state and local public safety 
agencies, not the Federal Government. State and local governments, 
therefore, must have the necessary tools, including communications 
capabilities, to protect the safety of life, health and property. That 
is why the legislation being discussed today is of such critical 
importance to public safety.
    This legislation would have a direct impact on the ability of 
police officers and sheriff's deputies to call for assistance on their 
portable radios without waiting for an open channel; the ability of a 
firefighters from different departments to communicate with each other 
at the scene of an emergency; and the ability of local governments to 
implement state-of-the art communications tools necessary to support 
police, fire, emergency medical and other public safety personnel.
    Effective, efficient, and interoperable radio communications 
capability is essential for both day-to-day operations that protect the 
safety of life, health and property, and for major emergencies such as 
winter storms, hurricanes, forest fires, the earthquakes and wildfires 
that we in Los Angeles must face on a regular basis, riots, train and 
plane accidents, major building fires, and--especially since last 
year--the increasing threat of terrorist attacks.
    Public safety agencies have long had a critical need for additional 
radio spectrum to accommodate their increasingly complex communications 
requirements. Spectrum is needed to alleviate dangerous congestion on 
many existing public safety radio systems, to provide capacity for new 
``interoperable'' radio communications networks, and to permit 
implementation of new communications tools such as wideband mobile data 
capability.
    Six years ago, on September 11, 1996, the joint FCC/NTIA Public 
Safety Wireless Advisory Committee documented public safety spectrum 
requirements and recommended that approximately 24 MHz of spectrum be 
made available for public safety use within five years. Unfortunately, 
exactly five years later, on September 11, 2001, that 24 MHz of new 
spectrum was not available for public safety use in most of the nation. 
Furthermore, unless Congress revises existing law, that spectrum will 
not be available until far into the future.
    The Balanced Budget Act (``BBA'') of 1997 did, in fact, require the 
FCC to allocate an additional 24 MHz of radio spectrum for public 
safety services. The 1997 BBA provided that the spectrum would be in 
the 746-806 MHz band, now occupied by television channels 60-69. The 
FCC then did its part and reallocated to public safety the spectrum 
from TV channels 63, 64, 68, and 69 (764-776/794-806 MHz).
    The 1997 BBA allows these television stations to remain on-the-air 
until December 31, 2006, OR until 85% of households in the relevant 
market have the ability to receive DTV signals, whichever is later. 
Unfortunately, for the reasons that you are discussing here today, it 
is highly unlikely that the 85% benchmark will be met until long after 
2006, and probably not until well into the next decade. As a result, 
police, fire, emergency medical and other public safety personnel must 
wait indefinitely for the additional radio spectrum and communications 
capabilities that they need today, not at some future, undefined date.
    Attached to my testimony is a map which depicts the geographic 
areas in which existing TV stations are blocking the reallocated public 
safety spectrum. As you can see, it includes most of the densely 
populated Northeast from Boston to New York to Washington, large 
portions of the Great Lakes Region, the Southeast including the 
Atlanta, Orlando, and Miami metropolitan areas, Dallas, San Francisco 
and most of Northern California, as well as my home City of Los Angeles 
and surrounding areas of Southern California.
    I want to emphasize that merely speeding up the deployment of 
digital television to meet the 85% requirement is not enough. Public 
safety needs a firm and early date for television stations to vacate 
the channels allocated for public safety use, as well as the adjacent 
channels. Without a firm date, state and local governments cannot 
proceed with the planing, design, funding, and construction of new 
radio systems. Under current law, local governments are uncertain when, 
or even if, the spectrum will ever become available.
    Therefore, we urge that Congress establish December 31, 2006, as a 
firm and final date for television stations to vacate the channels 
blocking public safety use of this new radio spectrum. Representative 
Jane Harman of this Subcommittee, and Representative Curt Weldon, who 
has been leader in helping our nation's first responders, have offered 
a bill, H.R. 3397, the Homeland Emergency Response Operations (HERO) 
Act, which is aimed at addressing this issue, and which has the support 
of all of the organizations on whose behalf I appear today.
    The Public Safety Organizations also strongly support Section 3 of 
the draft DTV legislation recently distributed by your committee staff 
to the extent that it would eliminate the 85% ``loophole'' in the 
existing law and terminate broadcast operations on channels 60-69 by 
December 31, 2006.
    Since September 11, 2001, the need for new radio spectrum has 
become even more critical, as reflected in the attached letter from the 
Los Angeles Police Department. More and more state and local 
governments realize that their current public safety communications 
systems are often overcrowded and lack sufficient ``interoperability'' 
with other agencies and jurisdictions. For example, in the New York 
City area, APCO which is certified by the FCC to coordinate public 
safety frequencies, has far more public safety agency requests for 
channels than it can possibly meet from existing spectrum allocations. 
Similar problems occur throughout the country. In many cases, the only 
option is to rely upon crowded ``shared'' channels and risk 
interference to life-saving operations.
    The radio spectrum that television stations are currently blocking 
would also play a critical role in addressing a long-standing problem 
facing public safety communications. All too often, ``first 
responders'' from different agencies arriving at an emergency cannot 
communicate with each other. This occurs on both a day-to-day basis, 
and at major emergencies that draw responders from widely scattered 
agencies. For example, in the immediate aftermath of the Oklahoma City 
bombing in 1995, personnel attempting to coordinate life-saving 
activities had to rely on hand signals and ``runners'' because their 
radios were incompatible.
    While this lack of ``interoperability'' has many causes, it is 
often the result of public safety agencies being forced by spectrum 
scarcity to operate in different, incompatible, radio frequency bands. 
At any one time, the police officers, firefighters, emergency medical 
personnel and others at an emergency scene may be operating on VHF, 
UHF, or 800 MHz radio systems, none of which can work together in the 
field.
    The solutions to interoperability are complex, but the most 
effective long-term solution is for public safety agencies in the same 
geographic area to operate in the same portion of the radio spectrum. 
In some cases, wide-area, multi-agency, and multi-jurisdictional radio 
systems covering a large city, county, region, or state can provide 
interoperability among participating agencies (and more efficient use 
of scare resources). However, most heavily populated areas lack 
sufficient spectrum to develop new wide-area radio systems. Where such 
systems already exist, additional spectrum capacity is needed for new 
users and operations.
    The spectrum from television channels 60-69 that has already been 
allocated for public safety will greatly improve interoperability. The 
band is immediately adjacent to, and will be interoperable with, the 
800 MHz band where many relatively new wide area public safety systems 
already exist. The FCC has also designated certain channels within the 
newly allocated 700 MHz band for nationwide interoperability, and 
adopted a technical standard for those channels. Once again, however, 
this nationwide interoperability will only exist once the current 
television stations vacate channels 60-69 and new public safety systems 
can be implemented.
    While interoperability is primarily a state and local government 
agency issue, interoperability with federal agencies is increasingly 
important, especially with regard to new homeland security issues. The 
creation of a new Department of Homeland Security, which will bring 
over 170,010 federal employees and 20 agencies under one roof, 
heightens the need for improved and better coordinated communications 
between all levels of government. The events of September 11, 2001, 
have also placed new demands on all public safety communications. State 
and local governments must add additional personnel and tasks both to 
prevent and, potentially, to respond to terrorist attacks. For these 
reasons, we believe Congress should also consider expanding the 
existing public safety allocations beyond the current 24 MHz mandated 
in the 1997 BBA. In any event, none of that public safety use will be 
possible on a nationwide basis until existing broadcasters vacate the 
spectrum.
    Mr. Chairman, on behalf of the nation's Public Safety 
Organizations, I thank you for the opportunity to appear here today, 
and I urge you and your colleagues to act quickly to establish a firm 
and final date for additional radio spectrum to be made available for 
public safety communications throughout the country.

    Mr. Upton. Thank you very much, Ms. Bradshaw.
    Mr. Kimmelman.

                   STATEMENT OF GENE KIMMELMAN

    Mr. Kimmelman. Let us see if the mike will reach here.
    Mr. Upton. It better. Otherwise we will really be in 
trouble.
    Mr. Kimmelman. I will scream. I have been called a screamer 
before. Mr. Chairman, on behalf of Consumers Union, the print 
and online publisher of Consumer Reports Magazine, I appreciate 
the opportunity to testify on the transition to digital 
television. I want to follow the model that Chairman Tauzin 
laid before the committee that he expects legislation coming 
out of this committee to live by, which is a consumers' 
expectation test. I think that is an appropriate model where 
consumers get the TV signals they want. They can really see 
them, they can connect their television to their cable system, 
they get exciting new content, and they continue to be able to 
record at home their favorite TV shows, movies as they have in 
the past. You have a very difficult task here in accomplishing 
that with a transition to digital television, but, 
unfortunately, I think the path you are headed on may be the 
wrong one at this time.
    As with many pieces of legislation, you have conflicting 
goals and conflicting interests, and you attempt to balance 
them. And the pattern here is an extremely dangerous one. It is 
a pattern we have seen many times in the last decade. It is one 
of saying, ``Oh, my gosh. Let us split the baby,'' and 
technology that is just over the horizon will save the day. 
Technology will get us there. Costs will come down. They will 
come down so dramatically, so quickly that they will be 
negligible, and consumer inconvenience, we will deal with that 
later.
    Just think about what is at stake here. We are talking 
about a Nation moving toward 300 million television sets, 40 
million DVD players, probably double that many VCRs, that many 
computers out there. But we are saying in 5 years we are going 
to have all new hardware, digital, across these industries, and 
we are going to thread the needle and interlace that with 
software that protects only piracy, only prevents piracy, only 
prevents theft, even though that software with that hardware 
can prevent every bit of consumer copying that goes on today. 
But it won't. We are going to guarantee that in legislation.
    We are going to dictate this through manufacturing and 
software standards, and we are going to make sure that all of 
that old equipment, the 300 millions sets, the 30 million that 
are bought every year, each year until the 5 years when this 
clicks in, the new DVD players, the new VCRs, they are going to 
all work, they are going to all interconnect, even though the 
legislation eliminates the possibility of producing equipment 
with analog outlets so it is hard to quite understand how any 
of this work, but it will work, according to this legislative 
approach.
    And what happens if it doesn't? Well, the consumer is 
probably paying a lot more. The consumer is probably getting a 
lot of hassles in connecting home recording equipment, in just 
making the televisions they bought work. And what they do? Who 
do they complain to? Is it possible it won't work? Well, let us 
look at the history of legislating this way. In the last 
decade, we have said technology was there to produce 
competition to the cable television industry. We could 
deregulate. Well, today rates are up 45 percent from what they 
were in 1996 when you started down that path. Satellite is 
there offering more but not lower prices.
    And we did the same for the telecommunications industry. We 
said technology is here, costs are coming down, people will 
build networks. They haven't. No one's built hardly anything, 
and where prices are lower it is all because of regulating a 
monopoly network. We have made these mistakes before and the 
consumers are paying in those areas. We want to make sure they 
don't have to pay again in this area.
    So, Mr. Chairman, I suggest that in continuing work on this 
legislation you really think about going back to the drawing 
board, and before you craft a new version of this get the 
hardware and the software industry to show us the equipment and 
show us how we can copy just our favorite TV shows, our movies. 
Show us how our computers won't be disabled to do a little 
video streaming for personal use. Show us the equipment that 
will connect all of the old things that we have bought with all 
the new things that will be mandated in 2007 or whatever. Tell 
us the price. Just show it to us. Once you have that on the 
table, then this all makes sense. Then there is a real 
broadcast flag, then there is a real set of software that fits 
with hardware that prevents theft and allows recording. Until 
that date, this is all conjecture until someone produces the 
real hardware and the real software and shows us the price.
    So we urge you to go back to the drawing board and flip the 
burdens here. Rather than placing all the burden on the 
consumer for costs, for hassle, for a blank screen or sitting 
in front of a set and saying, ``I thought I could copy this 
because Chairman Tauzin said I could,'' figuring out who to sue 
in court and what agency to go to, flip that around and let us 
make the companies that stand to benefit, the industries that 
will benefit from high-definition television, from programming, 
from production, from distribution bear those burdens of making 
it work. Then I think it will be time to legislate. Thank you, 
Mr. Chairman.
    [The prepared statement of Gene Kimmelman follows:]
Prepared Statement of Gene Kimmelman, Senior Director of Public Policy 
                     and Advocacy, Consumers Union
    Consumers Union 1 is extremely grateful to Chairman 
Tauzin and members of the Committee for their leadership on digital 
television issues. As the Chairman's Draft suggests, we also agree that 
the transition to digital has been a failure. From a consumer's 
perspective, the current incentives to make the jump to digital 
television are small. Digital televisions are extremely expensive, and 
only a small portion of all broadcast programming is available 
digitally.
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    \1\ Consumers Union is a nonprofit membership organization 
chartered in 1936 under the laws of the State of New York to provide 
consumers with information, education and counsel about goods, 
services, health, and personal finance; and to initiate and cooperate 
with individual and group efforts to maintain and enhance the quality 
of life for consumers. Consumers Union's income is solely derived from 
the sale of Consumer Reports, its other publications and from 
noncommercial contributions, grants and fees. In addition to reports on 
Consumers Union's own product testing, Consumer Reports (with 
approximately 4.5 million paid circulation) regularly carries articles 
on health, product safety, marketplace economics and legislative, 
judicial and regulatory actions which affect consumer welfare. 
Consumers Union's publications carry no advertising and receive no 
commercial support.
---------------------------------------------------------------------------
    Consumers will not thank Congress for digital television if it also 
means they have Congress to thank for higher prices and inconvenience 
when they buy new TVs and new computers, or integrate their home 
entertainment systems. Neither will they thank Congress for rolling out 
digital content if they cannot do the kinds of routine personal copying 
under the ``broadcast flag'' scheme that they have grown to expect in 
the analog television era.
    We certainly agree with the Chairman and the committee that it is 
unacceptable to have two incredibly valuable blocks of spectrum--for 
which the broadcast industry paid nothing--remain underutilized. It is 
high time to make more spectrum available to promote competition to 
cable television, local telephone monopolies, and to promote new 
services.
    Digital television is a positive technology that can benefit 
consumers and it should be rolled out in accordance with competitive 
market principles. Freeing up the analog spectrum would allow that 
spectrum to be auctioned for innovative uses that would serve 
consumers, and some of the revenue from auctions could also be used to 
meet local programming needs. Where Consumers Union respectfully 
disagrees with the staff discussion Draft is over the manner in which 
we should accomplish such a transition.
    The Draft legislation mandates the transition to digital by 2007, 
and ends all analog transmissions at that time. Such a requirement 
would place the digital changeover squarely on the backs of consumers. 
Consumers would have to own digital televisions by then or they would 
be forced to buy new ones, or they would have to purchase converter 
boxes for existing analog TVs. Otherwise they would be out of luck. Old 
TV sets--regardless of how many features they have or how much they 
cost--would simply not receive TV signals.
    Requiring consumers to purchase additional TV sets or additional 
digital tuner hardware may have the benefit of allowing economies of 
scale to bring down the price of these electronics in the long run, but 
it is undeniable that this mandate will impose significant new costs on 
consumers in the short run.
    It has been argued by some that the transition will not be overly 
costly for consumers to convert to digital because the transition could 
be made by purchasing an inexpensive converter box. But the plain 
language of the Draft provides the ``termination of the manufacture of 
equipment that has analog outputs by July 1, 2005.'' This seems to 
eliminate the very possibility of a converter box because by definition 
such a converter would have to have an analog output.2 In 
addition, this termination of analog outputs seems to have the effect 
not only of forcing consumers to buy new television sets, but also 
could force them to buy new home entertainment systems.3
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    \2\ This raises enormous jurisdictional concerns, given that 
personal computer equipment commonly has analog outputs, such as 
speakers which provide better multimedia quality. This Draft would 
apparently assert FCC jurisdiction over all personal computers, surely 
a result not intended by the drafters.
    \3\ Consider a consumer who spends several thousand dollars on a 
home entertainment system that integrates her television with a high 
quality sound system, which requires an analog input from the TV set. 
By banning analog outputs, the draft will force her to replace her 
sound system after the digital transition.
---------------------------------------------------------------------------
    The Draft would ignore existing legal requirements that 85 percent 
of the country own digital televisions BEFORE analog transmissions are 
ended. Why does it makes sense to turn this concept on its head and 
require consumer to buy fancy equipment designed for High Definition 
television if High Definition isn't worth it to them? How much will 
consumers be forced to spend to make this transition possible? Is it 
fair to place the burden of this transition on consumers when it is 
broadcasters who received an enormous public benefit when Congress gave 
them this spectrum, and broadcasters will reap financial benefits 
should the transition finally occur? Why not have the broadcasters and 
others who will benefit from the shift to digital share the expense of 
the digital conversion?
    The Draft also attempts to deal with the serious problem of 
Internet piracy, which some argue has slowed the transition to digital 
television. The Draft language gives broadcasters content protection in 
both their signal and the hardware that receives that signal in order 
to prevent piracy. Unfortunately, such a ``broadcast flag'' may prevent 
quite a few of today's practical uses, such as taping programming and 
watching it on another device, in another place, or at another time.
    Consumers Union cannot support any legislation involving a 
broadcast flag that dictates equipment manufacturing specifications and 
software compliance standards unless it can be demonstrated that before 
Congress imposes such standards:

1. Consumers will be able to use current television and recording 
        equipment, without excessive complication or cost, to continue 
        to make personal copies and record broadcast programming as the 
        equipment was designed to;
2. Congress can demonstrate that the price of television sets will not 
        increase appreciably as a result of such mandates;
3. The open architecture of innovation for consumer electronics and 
        computers will not be harmed; and
4. The imposition of a broadcast flag will not be overbroad, sweeping 
        into its reach, for example, general purpose personal 
        computers, and other devices that should remain open and 
        unburdened by such copyright controls.
    The Draft would have Congress regulate the manufacturing process of 
consumer electronics, micromanaging this industry to meet the supposed 
goals of getting broadcasters to use digital spectrum and return analog 
for other uses. The professed aim is to protect copyright, but we fear 
that the Draft may go too far in restricting day to day enjoyment of 
broadcast programming that involves neither copyright infringement nor 
piracy of any sort.
    As the Committee contemplates burdening consumers with additional 
costs and complexity in their uses of electronic products, policymakers 
should ask themselves what the consumer benefit is to this course of 
action. Again, it was the government, driven by an industry seeking 
free spectrum, that promoted the digital transition. At no point was 
there a consumer outcry for High-Definition or digital television.
    Until recently, public policy for telecommunications involved 
handing out public benefits or assets, such as the airwaves or local 
cable and telephone monopoly franchises, in return for commitments to 
meet public needs. Broadcasters were to meet local civic and 
educational needs, and telephone companies were to ensure universally 
affordable telephone service. This straightforward quid pro quo left 
companies that were dependent on public assets obligated to meet public 
needs that market forces failed to satisfy.
    Now, in the era of deregulation, public benefits or assets have 
increasingly been handed out in return for nothing more than corporate 
promises--promises to deliver High Definition television, promises of 
cross-industry competition, and promises to expand availability of open 
platforms providing broadband services. Unfortunately, this new 
approach has resulted in many broken promises, inadequate industry 
accountability, anti-competitive behavior and consumer and investor 
abuse. Clearly, we need to restore accountability by reinforcing the 
principle that the distribution of public assets or subsidies requires 
significant public benefit in return.
    Unfortunately, this Draft goes in the opposite direction. Congress 
let the broadcast industry dig a deep public policy and marketplace 
ditch by giving away an enormous amount of valuable spectrum for free, 
while imposing no meaningful penalties for failing to deliver digital 
television to the public.
    Let's not dig a deeper ditch. The Draft--while attempting to 
deliver on the promise of digital TV--places the burden not on 
broadcasters who received this valuable subsidy, but instead on 
consumers.
    Please consider several possible scenarios if this draft becomes 
law.
    First, suppose a few years from now your daughter's game-winning 
soccer goal was broadcast on a local television station (which is 
neither news nor ``public information programming,'' both of which 
would be exempt from flag protection in the staff Draft). If you record 
it on a television in your living room, will you be able to view it on 
the upstairs television? Can you show it to your colleagues in your 
office?
    Second, if you recorded a copy of your mother's favorite show on 
your home VCR (or one of the devices that will eventually replace 
VCRs), would you be able to take that copy and watch it with her at her 
house? Is there technology that would allow you to do this that is not 
invasive of privacy?
    Third, let us suppose that you are adept with computers; you buy an 
off-the-shelf computer and download the GNU project's open source 
digital television demodulator. This makes your computer a ``digital 
device capable of demodulating an incoming modulated digital 
terrestrial broadcast signal.'' According to the Draft, it would 
require your computer to recognize the flag. Does the Committee really 
intend for that device to contain copyright policing hardware and 
software? Could the GNU project's tuner and other open source 
initiatives possibly meet the technical standards for the broadcast 
flag?
    At several points in the Draft, staff were careful to try and 
ensure that the implementation of the flag does not result in 
diminished functionality of consumers' electronic equipment; we are 
extremely appreciative of the staff's effort to protect consumers in 
this manner. However, the mere implementation of the broadcast flag 
makes this an unsolvable--or at least unsolved--paradox.4 If 
the flag exists to protect digital television content, how can it allow 
for customary and legitimate consumer uses, such as the time-shifting 
and space-shifting described above, while denying pirates the ability 
to distribute their content over the Internet, without invasions of 
users' privacy?
---------------------------------------------------------------------------
    \4\ Please see the attached appendix for more detail. To date, most 
of these questions have not been answered to our satisfaction from 
companies supporting the broadcast flag or those that will be asked to 
implement the flag scheme.
---------------------------------------------------------------------------
    In summary, Consumers Union wishes to work with the committee in 
stimulating a rapid transition to digital television broadcast, but we 
believe that the onus of the digital transition properly rests on the 
broadcast industry, not on consumers. Instead of simply shutting off 
analog broadcast by a date certain, policymakers should consider 
charging broadcasters who fail to relinquish their analog spectrum by 
2007 an annual spectrum fee in order to promote their transition to 
digital. And perhaps the cost of the digital tuner mandate should be 
borne by the broadcasters, through revenues received by charging 
broadcasters an annual spectrum fee for their use of digital spectrum.
    Furthermore, in our opinion, industry has not yet made a compelling 
case that the sweeping broadcast flag mandate would expedite digital 
television rollout. We fear that the flag will not hit where it aims, 
stopping potential redistribution of digital television content on the 
Internet, nor is it clear that such technology can be deployed without 
disrupting consumers' and other public entities (especially libraries) 
ability to use digital content in a flexible manner. We believe that 
further analysis of the consumer impacts of such legislative mandates 
should be completed before Congress puts consumers at risk of paying 
higher prices and faces greater inconveniences in using electronic 
equipment.
    We have attached more detailed questions and comments regarding the 
broadcast flag (submitted to Committee earlier this year in conjunction 
with Public Knowledge and the Center for Democracy and Technology) as 
Appendix A. We hope to continue working with the Committee to craft 
legislation that will resolve these important issues for both consumers 
and affected industries.
                               Appendix A
Date: July 10, 2002
To: House Commerce Committee Staff
From: Center for Democracy and Technology, Consumers Union, and Public 
        Knowledge
Re: Consumer Policy Questions and Issues Regarding the BPDG Proposal 
        for Protecting DTV Content
    We have been asked by Committee staff to provide a preliminary 
analysis from a consumer perspective of the Broadcast Protection 
Discussion Group's (BPDG) Final Report on the protection of digital 
television. We also have been asked to suggest questions that the 
Committee should consider with regard to the broadcast-flag standard 
and related legislation and/or regulation.
                              introduction
    We support the goal of promoting DTV 5 and recognize 
that the resolution of certain copyright issues could be important to 
achieving that goal. Further, we are committed to the protection of 
copyright, and we support creators' and publishers' prerogative to 
protect their copyright interests through technical means. Consumers 
have valid interests in this issue as well--in rewarding artists to 
ensure the availability of a rich variety of content, and also in the 
cost and convenience of new DTV technology and its impact on other 
media, like the Internet.
---------------------------------------------------------------------------
    \5\ ``DTV'' can be a confusing term, since ``digital television'' 
can mean anything from current digital delivery systems (e.g., 
satellite and cable digital transmission) to high-definition television 
schemes (``HDTV'') to implementation of digital-transmission 
technologies as a way of using broadcasting spectrum more efficiently, 
resulting in higher-quality broadcasts. We take ``DTV'' as used in the 
context of the broadcast-flag discussion to refer primarily to HDTV and 
secondarily to any digital ``high-quality'' television content.
---------------------------------------------------------------------------
    From a consumer perspective, key issues posed by the broadcast-flag 
proposal include--

 How will the proposed solution affect consumers? Will they 
        have to buy substantial new equipment? Will they be able to 
        exercise the fair use rights they have reasonably come to 
        expect?
 Are there downstream impacts on other computing technologies? 
        For example, will the BPDG's restrictions have a negative 
        impact on innovation and the growth of the Internet? Will it 
        set a precedent for broader government standard setting?
 Will it be effective? Will the proposal sufficiently diminish 
        the copyright infringement at issue, or will additional steps 
        be needed? Can it be implemented fast enough to promote greater 
        DTV adoption?
 What are the costs for consumers? How much will implementing 
        the BPDG proposal add to the economic and convenience costs of 
        DTV and of other consumer technologies?
 Do the likely benefits of the proposal outweigh the likely 
        costs?
    In general, we believe that serious questions remain as to whether 
the broadcast flag proposal will be sufficiently effective. Congress 
should seek assurance that it will not have adverse consequences on 
consumers, including their ability to use their existing products, 
their ability to exercise legal and reasonably expected fair uses of 
content, and their access to future innovative technologies that might 
allow them to manipulate content in creative ways that are legal under 
copyright law.
    Broader dialog is in order. The Committee should seek more 
information and use its standing to promote a fuller exploration of the 
consumer implications of implementing a broadcast flag, and to ensure 
protections for consumers in any legislative or regulatory endorsement 
of a solution like the broadcast flag. We believe that all sides in the 
debate would benefit from developing much clearer answers to these 
questions. We are eager to work with you, your staff, and the affected 
stakeholders to ensure greater involvement of the consumer perspective 
in these important deliberations.
                      i. consumer impact analysis
    The BPDG Final Report represents the deliberations of a group that 
was expressly limited in its mission, which was to ``evaluat[e] 
technical solutions for preventing unauthorized redistribution'' 
6 of digital TV content (emphasis added). By intention, the 
Report did not seek to present a comprehensive means of controlling 
copying and transmittal of DTV content. By and large, we think that is 
a good thing--Congress should be highly skeptical about comprehensive 
solutions, and prefer incremental approaches undertaken by the private 
sector.
---------------------------------------------------------------------------
    \6\ See Final Report of the Co-Chairs of the Broadcast Protection 
Discussion Subgroup to the Copy Protection Technical Working Group 
(hereafter ``the Report'') at Sec. 0.1.
---------------------------------------------------------------------------
    Over time, however, as other technical and policy issues are dealt 
with, a broader consideration of consumer concerns will be needed, and 
this process must include consumer organizations as well as industry. 
Such a broader assessment of consumer impact would:

 Address the question of impact on legitimate consumer uses and 
        compatibility of the proposal with home entertainment and 
        computer equipement that consumers have already bought and will 
        want to buy.
 Consider the impact on innovation and on computing 
        technologies, and particularly whether a precedent is being set 
        for government involvement in setting standards.
 Estimate the cost to consumers and other users of the new 
        devices that may incorporate this standard.
 Fairly appraise the effectiveness of such a standard.
 Identify alternatives that may serve copyright and consumer 
        interests.
    As we recommend below, the Committee is now in a position to 
encourage broader dialog with consumer groups and other stakeholders 
about these impacts.
         ii. compatibility, consumer inconvenience and fair use
    The Report does not fully address the potential inconvenience and 
disappointment that implementation could visit upon consumers. In 
fairness, it would have been difficult for the Report as conceived to 
discuss fair use in detail. A copyright protection system should not 
deprive consumers of the ordinary, commonly accepted uses of their 
current products. People should not be expected to be required to go 
out and buy new products in order to conduct the legal activities they 
are currently able to conduct. And such a system should not limit 
innovation, especially innovation in rapidly evolving technologies such 
as the Internet.

 For example, if the proposal were implemented, could the 
        Chairman record a show over the weekend at home and ask a 
        staffer to watch it on Monday at work? Could the Chairman's 
        staff record a DTV news show on which the Chairman appeared and 
        send it electronically to the Chairman's district office, so he 
        could watch it there? Could the staffer burn a news program 
        onto a CD and give it to the Chairman to watch on his laptop 
        computer in an airport?
 Today, a consumer can record a DTV show with her DTV-equipped 
        computer on a recordable DVD, then watch it at night in her 
        bedroom on a popular DVD player purchased years ago. She could 
        also bring it to the home of a friend or family member and 
        watch the show there. Will these instances of ``fair use'' be 
        curtailed under the BPDG proposal?
 Is legacy equipment protected? That is, will consumers be able 
        to get full use of their old TVs and VCRs? Will enforcement of 
        the Requirements Document limit consumers' use of equipment 
        they already own?
 To what extent will compliance with the Report conflict with 
        reasonable consumer expectations about fair use, such as the 
        ability to time-shift, play a recording on multiple devices, 
        play a recording on device either inside the home or outside 
        the home, etc?
    In terms of future equipment, although a variety of different 
Authorized Technologies for output and recording would be permitted 
under the Requirements Document, it is not clear how they would 
interoperate. Issues that need clarification include:

 How will devices with different Authorized Technologies 
        interoperate, e.g., a DTCP-equipped DTV set-top receiver and an 
        OCPS recorder? (See proposed Authorized Technologies.) 
        7
---------------------------------------------------------------------------
    \7\ Under the Requirements document, the only permitted digital 
outputs and recording technologies are those that the ``enforcement 
body'' (possibly the FCC) places on Table A. DTPC and OCPS are two 
mutually incompatible protection technologies proposed for inclusion on 
Table A. If both technologies are ultimately included in Table A, this 
raises the prospect of interoperability problems. These problems would 
only multiply as additional incompatible technologies were approved for 
Table A.
---------------------------------------------------------------------------
 Will there be converters between different Authorized 
        Technologies and, if so, what will they cost?
    Congress ought to have a clear understanding of whether existing 
devices owned by consumers will work under the proposal, whether 
reasonable expected fair uses will be allowed, and whether technologies 
will interoperate. Overall, how much work needs to be done to 
understand how consumers will be educated as to these new requirements 
when, throughout the history of commercial television, interoperability 
and integration of television systems has been relatively seamless? 
8
---------------------------------------------------------------------------
    \8\ We note that the FCC, one of the possible enforcement bodies 
for the proposed broadcast-flag scheme, historically has been concerned 
with promoting ease of use and ease of integration for television 
viewers purchasing new equipment or maintaining legacy equipment.
---------------------------------------------------------------------------
                   iii. impacts on other technologies
    In order to fully protect DTV content across a range of future 
platforms, the BPDG plan necessarily impacts a broad variety of devices 
that might someday receive and distribute DTV broadcasts. Importantly, 
these include general-purpose computers and the Internet.
    For example, a PC today could receive DTV signals and store them on 
its hard drive for playing, manipulation, and redistribution. Under the 
BPDG plan, computers would have to guarantee that such files were 
treated differently from the other files a user creates.

 What impact will implementation of the Report have on general-
        purpose computers? Will compliance require substantial changes 
        to computing architecture, or diminish future innovation in 
        technologies not contemplated in the BPDG model?
 What impact would compliance have on open source systems?
 Will the report set a precedent for government mandates of 
        security standards with broad applicability, and with 
        ramifications for future Internet development? The Internet's 
        growth and development took place with relatively few 
        government constraints--especially technical constraints. The 
        result of that policy choice has been unexpected growth in 
        applications of the Internet, including the World Wide Web, and 
        rapid adoption of Internet technologies and applications by the 
        public.
    The Committee ought to have a clear understanding of whether 
substantial changes are contemplated in computing architecture, and 
whether the BPDG proposal would be viewed as setting a precedent for 
government involvement in setting computing standards.
                           iv. effectiveness
    Any Congressional action on the BPDG report would appear to have 
two primary goals: protection of DTV content from certain illegal 
copying and redistribution, and accelerating the rollout of DTV by 
providing such protections.
    To what extent will the BPDG proposal diminish the copyright 
infringement in question? Implementation will no doubt deter many users 
of compliant equipment from massive redistribution of DTV content. But 
questions remain about the extent to which illegal copying will be 
curtailed.
    Analog Hole: Section 2.5 of the Report states that it does not 
address the so-called ``analog hole''--the copying of DTV content after 
it is sent to an analog component. If the BPDG proposal is adopted, 
illegal copying could continue through the analog hole.

 In terms of quality, is there really a significant difference 
        in quality between DTV content captured from digital receivers 
        and DTV content captured from analog receivers and redigitized? 
        (Generally speaking, the quality degradation of single digital-
        to-analog-to-digital conversion is unlikely to be to 
        significant, and the degradation in quality of content 
        currently traded on the Internet typically occurs not in the 
        copying, but in the compression necessary for most Internet 
        transmissions, whether captured from analog or from digital 
        sources.)
    The Report and the Requirements Document also do not mention peer-
to-peer networking, one of the key problems listed in the studios' 
April and June reports to Congress.9
---------------------------------------------------------------------------
    \9\ ``Content Protection Status Report,'' filed by the Motion 
Picture Association of America with the Senate Judiciary Committee, 
April 25, 2002. The same point was made in the MPAA's subsequent 
``Content Protection Status Report II,'' submitted in June.
---------------------------------------------------------------------------
    What precedent does the broadcast flag set for the peer-to-peer 
problem? Will the content providers be pushing to close all the holes 
and address all these issues before releasing DTV content?
    Legacy products will also diminish the effectiveness of the 
proposal:

 DTV receivers sold today do not have restricted outputs, and 
        will not unless some protection system is implemented in coming 
        years. Millions of unprotected legacy receivers--all allowing 
        digital redistribution--will be in the public's hands before 
        this system can be implemented.
 Within a few years it will be possible to do software-based 
        demodulation of the DTV signal on a PC, potentially allowing 
        millions to access DTV signals on computers without the 
        broadcast flag requirements.
    Together, these factors would appear to leave substantial 
possibilities for copying of protected DTV content, including allowing 
bad actors to obtain content and then redistribute it globally or over 
P2P networks. Congress should have a clear understanding of whether 
efforts to address these issues will be sought--either by negating the 
use of legacy products already owned by consumers, or by somehow 
retroactively addressing issues of the ``analog'' hole.
    Security: A related question is the security of the proposal. A 
proposal is less desirable if it can be easily defeated, especially if 
it can be defeated in ways that allow large scale violations while the 
average consumer is still inconvenienced.
    Even on systems for which the Report is implemented, computer 
security experts commonly believe that most copy protection systems can 
and will be broken, and that 'marking'-based systems such as the 
broadcast flag are comparatively weak, in general. Footnote 3 in the 
Report states that ``a more effectual technical and enforcement 
solution would be to encrypt DTV content at the source (i.e., the 
transmitter).'' We are not suggesting that encryption would be more 
desirable, but footnote 3 reminds us that a system that fails to 
protect content adequately at the source is fundamentally vulnerable. 
Moreover, current DTV receivers do not have protected outputs today and 
will not in the future--unless some additional protection system is 
retrofitted for those legacy devices some years from now. By then, it 
is possible that millions of unprotected DTV receivers will be in the 
public's hands.10 Accordingly, the Committee should consider 
the following:

    \10\ It is hoped that ATSC will improve the 8VSB signal and that 
many more broadcasters will be transmitting full power DTV signals in 
the next few years, spurring sales of DTV receivers.
---------------------------------------------------------------------------
 How will this system prevent unauthorized redistribution of 
        content when: potentially millions of unprotected DTV receivers 
        will be in the public's hands before this system can be 
        implemented 11 and, within a few years it will be 
        possible to do software-based demodulation of the unprotected 
        DTV signal in PCs? 12
---------------------------------------------------------------------------
    \11\ It seems possible that, subsequent to an announcement that 
future DTV receivers will have built-in limitations in compliance with 
this proposal, consumers may rush out to purchase the remaining stock 
of non-compliant DTV devices.
    \12\ At least one programmer has created an ATSC-compliant software 
demodulator that ran on a dual processor PC using two Athelon 1900-
Megahertz CPUs. Today's Pentium high-end CPU runs at 2.53 GHz. Assuming 
the continued applicability of Moore's Law, we should see a 5 GHz CPU 
in consumer PCs within 18 months--sufficient to accomplish ``soft'' 
demodulation of an ATSC signal.
---------------------------------------------------------------------------
 How else can the flag be defeated or evaded?
    Impact on DTV Rollout: The Committee should explore in greater 
depth the premise behind the broadcast flag proposal--that DTV adoption 
will increase as high-value programming is put on DTV, and that this 
will happen once content is protected from unauthorized redistribution 
through systems such as that proposed by the BPDG.13 The 
Committee should pursue the following question related to this premise:
---------------------------------------------------------------------------
    \13\ It is important to note that most experts cite numerous 
reasons for the slow rollout and adoption of DTV. At a recent Cato 
Institute Conference, Richard E. Wiley, former Chair of the FCC's 
Advisory Committee on DTV, listed seven ``hurdles'' other than the lack 
of copy protection, including: 1) the debate over ``progressive'' 
versus ``interlaced'' scanning; 2) the problems with VSB modulation 
standard and the effort to replace it with the COFDM standard; 3) the 
lack of DTV monitors that also include DTV receivers; 4) the lack 
leadership of the broadcast networks in providing HDTV programming, 
including programming for which there are minimal copy protection 
concerns (e.g., sporting events); 5) the inability of cable set-top 
boxes to pass through HDTV programming and the lack of cable ready 
digital television receivers; 6) the FCC's decision not to require 
cable systems to carry both analog and digital broadcast stations 
during the transition period, along with the related decision to 
require cable systems only to carry a digital broadcaster's ``primary 
video'' program stream; and 7) the lack of consumer awareness about the 
transition and its ramifications. Remarks of Richard E. Wiley, ``A 
Progress Report on the DTV Transition,'' Cato Institute, May 1, 2002, 
found at http://www.cato.org/events/020501pf.html.
---------------------------------------------------------------------------
    Can it be shown that the BPDG scheme will deter enough illegal 
copying to expedite the deployment of DTV, given that a significant 
amount of illegal copying will occur even if the proposal is 
implemented?

 Allowing for an FCC administrative process required by law and 
        sufficient time for implementation, it seems unlikely that the 
        first ``compliant'' and secure devices would be distributed 
        before mid-2006.14 Will adoption of the Report 
        result in additional DTV content being released in time to aid 
        in a transition by 2006?
---------------------------------------------------------------------------
    \14\ This assumes legislation sometime in 2002, 18 months to two 
years for a notice of proposed rulemaking and complex rulemaking 
proceeding (assuming no legal challenge in the Federal Court of 
Appeals), and two years to design, build and deploy products following 
promulgation of the rule. ``Such products may also have to be designed 
to include a technological measure, such as watermark-recognition 
technology, aimed at blocking 'the analog hole'--see the Motion Picture 
Association of America's ``Content Status Report II,'' Sec. 1.2, June 
26, 2002.
---------------------------------------------------------------------------
    The key question seems to be this:

 Does the Committee feel it has adequate assurances that 
        adoption of the Report proposal via law and regulations will 
        result in the timely release of DTV content that will impact 
        the rollout of DTV, even if the analog hole and peer-to-peer 
        issues have not been resolved?
    The answers to these questions could help the Committee evaluate 
the extent to which the BPDG proposal would be effective in moving this 
nation to transition from analog over-the-air television to digital 
television. The consumer benefits from this transition (not just in 
better pictures, but also from the release of spectrum for important 
public-safety, technological, and economic benefits) could be 
significant. If, however, the BPDG proposal will not result in a 
significantly accelerated DTV transition, this casts the proposal in a 
different light.
              iv. what is the monetary cost to consumers?
    The Committee should evaluate the impact of the BPDG proposal in 
terms of the additional expense it may entail for the 107 million 
American TV households, both in terms of the cost of DTV products and 
in terms of the costs of other digital products. Those costs may be 
felt by consumers both directly (in terms of the need to buy new 
products) and indirectly (in terms of various ways increased product-
development costs may be passed along to consumers). These costs may 
well delay rather than expedite the transition to DTV. For these 
reasons, the Committee should ask the commercial stakeholders to 
provide cost estimates for implementing the solution evaluated in the 
Report. These questions here are for the consumer-electronics companies 
(CE) and information-technology companies (IT).

 Section X-3 of the Requirements Document details a number of 
        requirements for protecting Unscreened DTV data. Section X-4 
        provides similar requirements for protecting Marked 
        Content.15 The Committee should seek:
---------------------------------------------------------------------------
    \15\ We understand the term ``Marked Content'' to refer generically 
to content that has been marked with the broadcast flag, or with any 
other technological mark designed to function similarly. See, e.g., the 
Report Sections 4.6 and 4.7.
---------------------------------------------------------------------------
     a block diagram for implementing the Section X-3 and X-4 
            requirements for protection in a typical DTV device (e.g., 
            a set top DTV receiver, receiver in a DTV set, or DTV 
            receiver card in a PC).
     an estimate of the cost to engineer such protection in a 
            typical product family.
     the total estimated engineering cost for such protection 
            for all company's current and planned DTV products.
     An estimate of the cost that will be passed on to 
            consumers in order to comply with Sections X-3 and X-
            4.16
---------------------------------------------------------------------------
    \16\ We understand that Section X-3 is not complete, but these 
questions can be answered on the basis of company 's best estimate 
based on how it believes Section X-3 will be finalized.
---------------------------------------------------------------------------
 In addition, we understand that technologies proposed as 
        Authorized Technologies are governed by license agreements and 
        require the payment of licensing fees both by implementers and 
        Studios. (See Report Section 6.6.1 and Tabs F-1, H-1, and H-2.) 
        The Committee should seek answers to the following questions 
        regarding licensing fees and related costs:
    What are the estimated annual costs of license fees for DTV product 
lines assuming adoption of the BPDG-evaluated technology and Authorized 
Technologies?

 What other costs associated with adopting and utilizing 
        Authorized Technologies are not included in the questions 
        above?
                     v. what are the alternatives?
    The Report is silent with respect to alternatives.17 
Value-added, competitively priced video distribution systems may well 
stem the need to deploy a complex broadcast protection system. With an 
eye to preserving trade-secret and other confidential information, we 
suggest that the Committee ask MPAA to confidentially survey its 
members and answer the following questions as completely as possible 
without revealing individual company plans:

    \17\ There are, we believe, already alternative protected digital 
delivery systems that could efficiently deliver high-quality digital 
video content to consumers through channels other than digital 
broadcasting, reserving the broadcast channel for ``ordinary'' digital-
television content.. In addition, scheduled secure content-delivery 
systems such as Microsoft's ``Palladium'' initiative may reach 
consumers before the ``compliant'' products called for in this proposal 
do so. Without either endorsing Palladium or assuming its 
effectiveness, we note that, as described in recent reports, the 
Palladium initiative has the potential to deliver the kind of 
protection of content sought by the Content companies, but without 
requiring potentially expensive and slow-to-implement government-
imposed technology mandates. Our team of technical experts is divided 
on the question of whether Palladium will deliver all the protection it 
promises, but unanimous in believing it more likely to be effective 
than the broadcast-flag schemes under consideration here.
---------------------------------------------------------------------------
 Are Studios planning to roll out digital distribution systems 
        on the Internet and elsewhere, apart from their DTV plans?
 Will these systems include content slated to be protected 
        under the system contemplated by the Requirements Document?
 If few digital distribution launches are planned, why not?
                             vi. conclusion
    More dialog must be had with stakeholders, including consumer 
representatives, to determine the costs and inconvenience of the 
proposed broadcast flag system, and to determine whether it can be 
structured in such a way that responds to consumer interest in 
flexibility and backwards compatibility. Such a dialog will contribute 
to another crucial goal: evaluating the Report within a broader 
context. Some of these larger questions include: what is the precedent 
for the computer and the Internet; how could a broadcast flag evolve in 
ways that more deeply constrain consumer control; how does the 
broadcast flag fit with other DRM ideas, and what are the reasonable 
alternatives for protecting copyright interests, both in terms of 
business models and in terms of technology?
    In summary, then, we seek to raise the following three sets of 
issues regarding the BPDG proposal:

 What impact will it have on consumers' ability to use their 
        existing and future electronic equipment in ways consistent 
        with copyright protection, including time shifting and moving 
        legally acquired content from one device to another as they go 
        about their daily lives? To what extent will it affect the 
        development and deployment of new consumer and information 
        technologies?
 There needs to be a realistic assessment of the cost-benefits: 
        (a) how effective will the measure be at solving an identified 
        and documented problem compared with (b) the costs in terms of 
        product costs, limits on legitimate consumer activity, and 
        convenience?
 Finally, from a consumer perspective, what assurance is there 
        that the proposal, if implemented, would lead to the 
        substantial release of digital content and the greater 
        availability and affordability of DTV?
    We hope that the Committee will ask the above questions and 
carefully consider whether enough is yet known about the possible 
impacts on consumers of implementing the proposal described in the 
Report. We do not stand in opposition to the principle of content 
protection for digital television, and we embrace the general principle 
of the need to protect copyright in the digital age. But we also 
believe that Congress, in its factfinding and legislative role, must 
vet and consider the impact on consumers of any content-protection 
system imposed by regulation. We stand ready to help address these 
questions.

    Mr. Upton. Thank you all very much for your testimony, 
particularly in advance, as a number of us were able to read it 
last night and work on some questions as well.
    Mr. Willner, as we debate continually the issue of 
multicast must-carry, I am sometimes reminded of the riddle, 
which weighs more, a pound of feathers or a pound of bowling 
balls, and before you get nervous and try to figure out which 
one is different, of course they weigh the same. And putting 
aside----
    Mr. Willner. I got it.
    Mr. Upton. I know you would have had that answer.
    But putting aside those constitutional questions, if a 
cable company is in fact willing to carry six megahertz of the 
broadcaster spectrum, if it is a high-definition video stream, 
then why shouldn't it follow that the cable company shouldn't 
have to carry six megahertz of multicast spectrum, because 
isn't six megahertz really six megahertz?
    Mr. Willner. Well, I don't think that must-carry was ever 
intended to be a frequency management tool. It was really a 
rule that was put into place to protect the interests of local 
broadcasters, which, frankly, I support and I think the entire 
industry supports. I think local broadcasters do a terrific job 
in providing news, information and entertainment to local 
communities throughout America. We live in an entirely 
different world today, and these networks that we are building, 
despite the study that I have read portions of that 86 percent 
of the country's cable systems are 750 megahertz, well, let me 
tell you about a 750-megahertz system in Louisville, Kentucky 
that we own that has about 2 or 3 channels left, because we are 
doing all the things that Congress intended for us to do when 
we built that system and started delivering analog cable, 
interactive digital cable, video-on-demand, high-speed access 
to the Internet and local telephone service--one of the markets 
in the United States that now has competition in the local 
telephony business. These all take tremendous amounts of 
bandwidth.
    And as we convert into the digital world, we have to 
remember the intent of must-carry was to protect local 
broadcasters. I agree with that intention, and the industry 
supports continuing to protect the local broadcasters' primary 
signal. What they want to do with the additional streams is to 
create new businesses, and I don't think that our cable 
networks should be disadvantaged against broadcasters because 
they get a government-granted right to be carried on cable 
systems without accountability on content to our consumers.
    Mr. Upton. Mr. Fiorile, would you like to respond to that?
    Mr. Fiorile. Yes, thank you. What the ability of high 
definition will mean to consumers, for instance, by means of 
example, is this past March, through our CBS television 
network, we were able to provide during the playoffs 
multicasting of regional games on our high-definition signal. 
Of course, it culminated with the Final Four which was then 
broadcast in high definition, but because those multicast 
signals were not available on cable carriage, our cable 
customers were denied the ability to pick and choose which 
games they wanted to see. And, frankly, they are not new 
businesses. We didn't make any money on those carriages. That 
was provided more than anything else as a service to viewers. 
That is the interest in multicasting. We provide in our market 
of Indianapolis a 24-hour weather channel on one of the high-
definition multicast positions. That, too, is not available to 
a good part of the market.
    Mr. Upton. Let me just ask you about--you know, I----
    Mr. Willner. Mr. Chairman, can I just say one thing?
    Mr. Upton. Go ahead.
    Mr. Willner. That very example that was used by Mr. 
Fiorile, last year, not this past year, but last year , the 
cable operators in the Indianapolis market, which we are one of 
them, carried those signals. And this year when we went to them 
and asked if we could carry them again, we were denied the 
carriage.
    Mr. Fiorile. We don't own the CBS affiliate in 
Indianapolis, so I can't comment. It was not on in----
    Mr. Upton. But you wish you did, right?
    Mr. Wright, any of your stations, do they have any business 
plans to do multicasting at all?
    Mr. Wright. I think our focus, Mr. Chairman, at the present 
time is on HDTV. And as one of those few people that can 
remember the discussions of how this all came about, apropos to 
your last question, there were many people from all points of 
view that thought that in that six megahertz, that six 
megahertz is six megahertz discussion, that digital offered an 
opportunity for multicasting which in some respects would be 
more attractive to consumers than high definition. And the 
thought was that all uses should be considered under the theory 
that these are essentially free offerings and that the consumer 
with a digital set would then, if one service or one channel 
chose to have weather and have local sports or high school 
sports and things of that nature in addition to their regular 
format, then that might prove to be quite popular. Whereas 
another might decide, in another time period perhaps, that it 
could all be done in high definition, and that might be more 
attractive.
    I think we still feel that--we would feel that same way, 
but at this stage most of our emphasis is on getting ready for 
the high definition because it requires the most cost and it 
has the most change of equipment and is clearly the most 
difficult one to wrestle with. But I can make a case for all of 
those. They all have features that in certain of our stations 
they might opt, for instance, in the daytime to go local 
channels, which really cover things that we don't have the room 
to cover today.
    Mr. Upton. I know my time is expired and what is good for 
the goose is good for the gander, so I will yield next for 
questioning to Mr. Stupak from the great State of Michigan.
    Mr. Stupak. Thanks, Mr. Chairman, and thanks to everyone on 
our panel. We have been back and forth, a lot going on today, 
but I appreciate your patience as we look at this very 
important issue. Mr. Lewis, if I may, consumers--and it was 
brought up in my opening and also in some of the other opening 
statements--consumers have made a substantial investment when 
they purchased the new integrated DTVs. The initial generation 
of those televisions will not have that two-way capacity. As I 
understand it, it is for this reason that the discussion draft 
contains a provision for manufacturers to include digital 
connectors. Having a digital connector on these DTVs would 
allow consumers to take advantage of interactive television 
services, such as those that cable may carry--but that won't 
happen until the next generation of two-way televisions is 
developed.
    Are consumer electronic manufacturers willing to put in 
digital connectors on all integrated DTVs for consumer use?
    Mr. Lewis. Well, I think what we are saying, and we don't 
speak necessarily for the industry, but from Zenith's 
perspective what we are saying is that we don't feel it 
necessarily makes sense to put them on all integrated DTVs. 
Just as today, in a kitchen or in a bathroom application you 
wouldn't attach to a set-top box to that. You might want to 
watch just over-the-air television, catch the news while you 
are cooking dinner, those types of things.
    Mr. Stupak. But wouldn't you want to give the consumer more 
options? I mean what you would buy today then is outdated in, 
what, two, 3 years?
    Mr. Lewis. Well, certainly, over the air we would expect to 
go on for the next 50 years, as analog has. What we are saying 
is there will be range of options. So a 13-inch set, a high-end 
set may have those digital connectors, and we would include 
them. A low-end one where it is all price and all they want to 
do is receive an over-the-air signal or a digital cable signal, 
then in that case it may not require a connector.
    Mr. Stupak. But even the one that may be in the kitchen or 
wherever it may be, some of the options available then would be 
denied. I just think it would better that you include it right 
now no matter what the size of the set is. Let the consumer 
make that decision.
    Mr. Lewis. Well, I guess we would agree with you, let the 
consumer make the decision. If we put out two into the 
marketplace and one has the connector and one doesn't and they 
start to buy all the ones with the connector and they don't buy 
it without, then quickly that model would be dropped.
    Mr. Stupak. Yes, but even in my district, I mean we don't 
have a lot of digital up there, but they are always saying, ``I 
am going to skip this generation and wait for the next one so I 
have all the connectors.'' Why buy one when it is going to be 
obsolete in a year or 2? We would rather wait that year or 2, 
and I think it is delaying the deployment of digital. I guess 
that is where I am coming from.
    Mr. Lewis. I understand. Well, certainly, anything that you 
would buy today is a higher end set and probably would have 
those connectors.
    Mr. Stupak. Okay. Mr. Gleason, as I mentioned in my 
opening, I appreciate the efforts of the ACA to serve smaller, 
more rural markets, such as those in my district. And you noted 
that you support legislation to speed the transition so long as 
the legislation accommodates the different circumstances and 
cost structures in smaller markets. So my question would be 
what changes would you make in the discussion draft in order to 
provide such accommodations?
    Mr. Gleason. Well, I really think that we come from the 
perspective that the cost structures in our kinds of cable 
systems, those being cable systems largely less than 2,010 or 
1,010----
    Mr. Upton. I know this is a TV-ready room, so we have got 
to use the mikes, even though we can hear you.
    Mr. Gleason. Through the high-tech nature of all this.
    Mr. Upton. The people in Michigan may not hear you.
    Mr. Gleason. Most of our member companies are serving cable 
systems that serve far fewer than 1,010 customers on a head-in. 
And our concern, obviously, is that the DTV implementation on a 
cable system with 100,010 customers is relatively the same as 
on a smaller system. And I don't know that I have the answer 
today. I think that we are working within our group, our member 
companies don't have teams of engineers, but we are working 
with our board to have people work with the Society of Cable 
Television Engineers, we have worked with the NAB Standards 
Committee to come up with solutions that make sense for small 
systems as well.
    But I guess our point is that we want to caution everyone 
to be cognizant that one size doesn't fit all here and the DTV 
implementation has got to be affordable in rural areas. And if 
we speed it too quickly, what will happen is we won't be able 
to afford or we won't be able to go get the money from our 
local banker to launch those new products or services because 
we can't make a case of a payback.
    Mr. Stupak. Thanks. Mr. Wright, I also mentioned in my 
opening about the analog hole, if you will, and I understand 
that dealing with the analog hole is very important to the 
broadcasters. Could you comment on the draft bill's provision 
on this issue or any other proposals that you or the 
broadcasters would support in this area with the analog?
    Mr. Wright. Are you referring to the termination of the 
analog service? I think that can be done if it is really--but 
we all have to really work very hard to do that, and I am not 
so sure that the price there may be so great for everybody, 
Congress included, because it is going to require legislation, 
it is going to require a lot of things that may be very 
difficult to do. I don't think realistically we can afford to 
end up in a situation where we have thousands if not millions 
of people who are going to be disenfranchised on a given date 
and then told that they have to buy a television set at a 
particular cost, no matter what it is, just because of some 
legislation. They are just never going to get that. So the only 
way that I think you can do that is you have to have a really 
parallel track going on for quite some time where there is 
pressure on everybody. There is pressure on the cable 
broadcaster to put out programming that maybe nobody is 
watching or nobody can. There is pressure on the cable operator 
to make sure that programming gets on the cable system. There 
is pressure on the satellite operator to get that programming 
on. There is pressure on the consumer electronics companies to 
get the devices in the homes that are compatible early enough. 
There is pressure to be able to buy a tuner in a television and 
not just from a cable company from the top so that people can 
go either way. All that has to be done very early now, and it 
isn't probably going to happen naturally. Although I would say 
that the development of this is happening pretty quickly given 
historical standards of VCRs and things like that, digital 
television is not out of pace with other historical 
electronics. But if we are going to try to make a deadline of 
2006, we have got to go about it all differently, and that is 
going to be, I think, a big strain on everybody, but that could 
be done.
    Mr. Stupak. So would you go--the chairman is gaveling me, I 
will catch you later.
    Mr. Upton. I am told the opening statements downstairs are 
going to be at least an hour, so we really have until 3 
o'clock, not 2 o'clock, so we will maybe get to a second round. 
Mr. Fossella.
    Mr. Fossella. Thank you. Ms. Bradshaw, with respect to the 
public safety community, can you confirm for us if in fact 
there is a need for additional spectrum for public safety? And 
if so, is the 24 megahertz that will be provided from the 
transition enough or is the actual need potentially even 
greater?
    Ms. Bradshaw. I can confirm the need for additional 
spectrum, especially with the events that are under the 
auspices of life, safety and health in communities. We are a 
consumer product as well on the public safety side, and we have 
people that are depending upon us. This spectrum that we are 
talking about here would greatly contribute to the necessary 
needs of public safety today. Would it be enough? It depends on 
the continued demand that public safety has and spectrum being 
a very viable commodity and a very important resource. So I can 
answer part of the question, not all of the question.
    Mr. Fossella. And what are the real-life implications if 
that is not deemed to be sufficient or more is needed?
    Ms. Bradshaw. The real-life implications aren't just on 
activities like September 11. The real-life implications are 
like what is happening in southern California today with a fire 
in Angelos National Forest where we have several hundred homes 
that have been threatened and 2,010 fire fighters on the scene 
that do no have the ability to effectively communicate. Those 
are the real-world today activities that are far beyond the 
September 11 or the terrorist attacks that this Nation faces as 
well.
    Mr. Fossella. Well, I am going to ask you two final 
questions, and you can answer them both as you see fit. In 
terms of interference issues between public safety and other 
services, the 800 megahertz band and the congestion, would the 
cleared spectrum of the 700-megahertz ban help to open the door 
for the generation of public safety communication services. And 
as a result, would that allow for those systems to be developed 
interoperable from day one and to limit interference?
    Ms. Bradshaw. The answer is yes. It is important. Some of 
the designs of the system date back many years, and these are 
mission critical systems that are dependent upon the ability to 
be redundant, to be utilized when absolutely necessary, to be 
reliable, to be secure, and the answer is, yes, we are looking 
for the ability, for Public Safety to be able to talk to each 
other, and some of these things make those solutions possible.
    Mr. Fossella. And, again, in layman's terms, how do you 
characterize or how would you characterize what it means 
potentially to the human life or public safety if this were to 
proceed as we would like as opposed to what is in place today?
    Ms. Bradshaw. What it means to human life is on both sides. 
It is on the people who are depending on emergency response and 
it is dependent also on those emergency responders for police, 
fire and medical.
    Mr. Fossella. Thank you, Mr. Chairman.
    Mr. Upton. Mr. Boucher.
    Mr. Boucher. Well, thank you very much, Mr. Chairman. I 
want to express my appreciation to this panel of witnesses for 
being here today and providing very helpful testimony to us on 
this set of challenging issues on which I think we are making 
substantial progress with the draft put forward by Chairman 
Tauzin and others.
    Mr. McCollough, I would like to ask you a couple of 
questions about several provisions in the staff draft. I am 
somewhat troubled by the provision that says that after July 1, 
2005 new digital devices could not have analog outputs. What do 
you think the practical effect of that provision would be on 
consumers who own devices today?
    Mr. McCollough. I think it is difficult to talk about 
analog outputs as one thing. There are a number of analog 
outputs. I believe the issue of greater concern of the content 
owners is high quality analog outputs, typically here referred 
to as component analog outputs, as opposed to the standard RCA 
that has been in use for years driving from a VCR to the 
television set. Looking at the draft, we couldn't tell whether 
they are referring to just component or the entire analog 
group. It is clearly problematic if you were to turn off all 
analog outputs and have those sets. You wouldn't be able to get 
a DVD player, VCR and so forth or even a tuner to drive your 
existing displays of which a lot of folks have many.
    So I think for starters we would have to understand the 
real definition. Is this just component, which will matter less 
to the 13-inch TV we were talking about in the kitchen or some 
of the others that were small sizes, or is this all analog 
outputs?
    Mr. Boucher. The language is pretty straightforward. It 
says no analog outputs may appear in new devices manufactured 
after this July 1, 2005 date. It doesn't say component analog 
outputs, it says all analog outputs. So let me ask the 
following question really in two levels. Let us assume the 
language means what it says and it really is all analog 
outputs. Would that have the effect of essentially stranding 
the 300 million or so television sets, VCRs, and computers 
today, given the fact that the only means of getting a signal 
that is viewable from those devices to the monitor is through 
an analog connection? Would they, in effect, be stranded?
    Mr. McCollough. Ultimately, yes, sir, that would in fact be 
the case.
    Mr. Boucher. Let us assume that the definition is 
interpreted as only applying to component analog outputs. Is 
any equipment stranded in that version? And if so, what is it?
    Mr. McCollough. The equipment in that case that would be 
made less functional would be some of the digital-ready sets 
that are being sold today, the earlier versions of digital-
ready sets that the best connector on the back was a component 
video connector.
    Mr. Boucher. Do you have any estimate of how many sets that 
meet that description are in the market today?
    Mr. McCollough. I would be guessing, but I would suggest 2 
or 3 million probably at this point.
    Mr. Boucher. So either way, no matter how it is 
interpreted, we wind up stranding a lot of existing equipment.
    Mr. McCollough. Yes. If it----
    Mr. Boucher. This provision needs some more work, doesn't 
it?
    Mr. McCollough. Correct. No, absolutely it does. As we 
tried to point that out, that I don't think really turning off 
analog outputs is a real option.
    Mr. Boucher. Okay. Another question that I have for you 
relates to electronic program guides. Do you believe it is 
important that device manufacturers and retailers be able to 
make and sell appliances that have the same access to the 
electronic schedule of programs that is available to people who 
opt to buy a cable set-top box?
    Mr. McCollough. Sure. Access to an electronic program guide 
is critical. We talked a lot about simplicity. We have to make 
things easy for the customer, because in the absence of 
simplicity inaction is what happens. And then when you are 
dealing, particularly today, you are not talking about 3 or 4 
channels, you are talking about hundreds of channels, and it is 
absolutely critical that the customer have access to an easy 
way to tune to the channel of their choice. The only way to do 
that is through a great electronic program guide.
    Mr. Boucher. Now, there is no provision in the legislation 
that addresses this need. I take it that you and those on 
behalf of whom you are testifying would urge that a provision 
assuring that manufacturers and retailers have the opportunity 
to market these electronic program guides be included in 
subsequent revisions.
    Mr. McCollough. That is correct, and that is also why we 
tried to stress the need to have one set of rules. To the 
extent that you have the incumbent operator deciding on the 
rules for new entrants and not following those rules 
themselves, invariably you are going to have things like EPG 
come up along the way. We will just never be able to think of 
all the things that we are going to need today. It just doesn't 
happen. You will continue to evolve. And so it is critical that 
we have EPG, but it is critical that we have one set of rules. 
If everybody is playing by the same set of rules, the chances 
for this kind of thing in the future is much diminished.
    Mr. Boucher. All right. Mr. Kimmelman, I see you nodding 
your head. Would you care to put a period on this conversation?
    Mr. Kimmelman. I totally agree with Mr. McCollough, and I 
would also say that in addition to looking at the number of 
sets that are out there today, even if you fix this analog 
language, you need to think about the ones that are out there 
next year and the following year and the following year before 
a mandate kicks in and consumers are continuing to buy better 
equipment which is not compliant yet with the ultimate 
standards in the legislation.
    Mr. Boucher. Thank you very much. Thank you, Mr. Chairman.
    Mr. Upton. Thank you. Mr. Walden.
    Mr. Walden. Thank you very much, Mr. Chairman. I would like 
to continue to pursue this issue, because aren't what we are 
really telling consumers is if this deadline were put in effect 
and the year it is cutoff, if I had a storehouse of videotapes, 
would I be able to actually go get a new videotape player that 
produces analog outputs and connect in through my analog stereo 
system, through my analog speakers?
    Mr. McCollough. We are assuming that if the legislation is 
passed and interpreted literally, that as of that date you 
wouldn't, and the devices you owned prior to that date would 
continue to operate but that you wouldn't be able to acquire 
new devices to take advantage of old content.
    Mr. Walden. And so how long does the average video cassette 
player operate?
    Mr. McCollough. I am not sure I know the useful life. 
Obviously, it depends on use, but they seem to hang around, 
like a lot of consumer electronics, for quite some time.
    Mr. Walden. And flash 12 o'clock.
    Mr. McCollough. They don't go away, they just get passed 
from room to room to room and then eventually to your kids.
    Mr. Walden. Well, and I think that raises the other issue, 
if we are going to have set-top boxes to make these work in the 
future, we are looking at enormous costs for individuals, maybe 
$75 somebody said. But still if you have got a set in 4 or 5 
rooms, then that is the only way you will be able to get the 
signals then, right? Is there a plan to do one box you could 
wire all the other sets?
    Mr. McCollough. There is no plan I am aware of at this time 
to do that.
    Mr. Lewis. I think your question is a good one. The home 
networking issue is one that is intertwined with the copy 
protection issues. When you have one box and you try and have 
that one box as a central piece to distribute signals 
throughout the home, then a lot of these issues of how do we 
protect that distribution of content, how do we keep it within 
the home and we don't know that it is going outside of that. 
And so it is a complicated issue from that standpoint. I think, 
in summary, if the analog outputs are disabled in 2005, no one 
will be able to have new devices that will service those units. 
Anything that they have laying around the home would still 
work, but it would be a problem for consumers going forward 
with this installed base or legacy issues.
    Mr. Walden. Be a problem for our landfills too if we have 
got to junk every TV that is out there, wouldn't it?
    Ms. Corbi, I was intrigued by--you have a wonderful 
network, by the way. The Hallmark network is very 
professionally done. But as I listened to your testimony about 
the importance of the program and all and your comments about 
must carriage for broadcast signals, they really aren't apples 
and apples, are they, what you do and what over-the-air 
broadcasters do, are they, programs, requirements?
    Ms. Corbi. Programs are programs.
    Mr. Walden. But you don't have a community interest 
standard requirement to serve the community you are in, 
correct?
    Ms. Corbi. We don't have the community interest 
requirement; however, as a programmer who is looking to be 
successful has to serve the needs of the communities that we 
serve. And, therefore, we have taken it upon ourselves to 
provide 24 hours a day of family friendly programming to reach 
out----
    Mr. Walden. Oh, I understand that. The programming is good. 
As I say, I am a fan, but there is a difference, isn't there, 
between over-the-air broadcasters and their requirement under 
Federal law to provide for emergency communication, for 
example, in the case of emergency. You don't have that 
requirement, do you?
    Ms. Corbi. No, we don't have that requirement. And, 
actually, what I was saying in my statement is that 
broadcasters will continue to have the same must-carry rights 
that they have today. We are not arguing that. What we are 
saying is that those rights should not be expanded, because we 
have invested a significant amount of money, hundreds of 
millions of dollars, to provide what we believe is an 
alternative to viewers that is quality diverse programming. We 
don't have must-carry rights, we don't have----
    Mr. Walden. Understand.
    Ms. Corbi. [continuing] any other mandated right to 
carriage, nor do we have over-the-air opportunities for viewers 
to find our product. And so the----
    Mr. Walden. You could if you invested over-the-air 
broadcast facilities, though.
    Ms. Corbi. If we purchased an over-the-air broadcast 
station which that is a different business than the one that we 
are in.
    Mr. Walden. Right.
    Ms. Corbi. But we as a programming service our goal is to 
provide rich, quality programming to the consumer. So our goal 
is to then get that product to the consumer, and it is 
virtually impossible, because we are almost exclusively 
advertise supported, to launch a national service without 
reaching the major markets. And there is such pressure in the 
major markets from multiple must-carry requirements, there are 
25 in Los Angeles, something like 23 in New York, and so that 
amount of space is already taken, plus the other requirements 
that the cable operators have. And so if there is a further 
impediment, if there is multicast must-carry, if there is dual 
must-carry, we are impeded from distributing our network and 
providing what has been very desirable to the public.
    Mr. Walden. Can I ask just one more to Mr. Willner? The 
bandwidth capacity, the six megs, how much of that is consumed 
if broadcasters are broadcasting HDTV?
    Mr. Willner. Well, there are different standards of how we 
can retransmit that. It could be three megahertz, it could two 
megahertz, but right now it is probably three.
    Mr. Walden. About three.
    Mr. Willner. Yes. But if I could also expand on your last 
question, just very briefly, cable operators have emergency 
override systems that go through all----
    Mr. Walden. I am aware.
    Mr. Willner. [continuing] the channels. So, you know, there 
is no issue as to whether or not people will get emergency 
messages.
    The other issue, though, that you bring up is whether or 
not all of the digital signals that are being delivered by 
broadcasters are being delivered in order to provide the public 
service that broadcasters are charged to do. And just as from 
95 percent of the broadcast days, for entertainment purposes 
and selling advertising, the multiple streams don't 
necessarily----
    Mr. Walden. I understand that.
    Mr. Willner. [continuing] have to fulfill any obligation to 
the public either.
    Mr. Walden. I understand that. I was just trying to draw a 
distinction between pure programmers, who do a great job, and 
that they are not the same as broadcasters in terms of the 
requirements to serve their communities and their licensing 
obligations. There is a difference, and I think that is part of 
what underlies the issue of the transition and of must-carry. 
The issue of multiple must-carry is different, I understand 
that as well. But I don't want people to leave here thinking 
that the Hallmark network is the same as NBC or their affiliate 
and their local requirement within the community. Thank you, 
Mr. Chairman.
    Mr. Upton. Ms. Eshoo.
    Ms. Eshoo. Thank you, Mr. Chairman, and thank you to all of 
our witnesses. It is a great panel--what time did we start, 10 
this morning? Ten. Well, it is now 1:30. I have two questions 
that I am dying to ask, and that is why I have continued to 
come back so that I can ask them.
    Harkening back to my opening statement about the yardstick 
I think that we end up measuring all of this by is what is good 
for the consumer. I would like to start with the consumer 
representative. I know you all represent them, but he is the 
one that has the gold paper crown on, Mr. Kimmelman. What do 
you think the cost will be to the consumer for transition? I 
mean give us a dollar figure. I don't know if you have looked 
at it that closely or done an analysis, but I am really curious 
at what you believe the cost will be to the consumer.
    Mr. Kimmelman. Well, TV sets are not cheap, high-quality TV 
sets, at least, are not cheap. We are talking hundreds of 
dollars for each piece of equipment a consumer has invested in 
and thought they were getting a lot of television over, that 
may not work, or it may only work if you spend a few hundred 
dollars on some new interconnection device, some new set-top 
box, something that will connect to all the new digital 
equipment that marries up to this broadcast flag. You can't 
forget that it is hardware interconnected with software 
standards ostensibly to protect piracy.
    Ms. Eshoo. I understand what they are going to be called on 
to invest in, what needs to be built into it, but what is the 
dollar figure, I mean just roughly for the average American 
that has a TV set?
    Mr. Kimmelman. Consumers, on average, in their household 
have two to three television sets. Most everybody has a VCR, 
half of all households now have DVD players, half of all 
households have computers. We are talking about a 
transformation here that is thousands of dollars per household. 
Now, I don't want to exaggerate that. These are things that are 
valuable to people, these are things that they purchase 
periodically. But as pointed out before, they don't really 
throw them out, they go from one room to another room and they 
are utilized----
    Ms. Eshoo. We all have a really old small one someplace.
    Right?
    Mr. Kimmelman. People want to hold--a survey shows people 
want to hold onto television sets 10 years. Now, they will buy 
a new one in the interim. Thirty million were sold last year or 
more. So there is a lot that people will spend anyway, but 
there is a danger of substantial incremental cost increase that 
has many, many zeros and commas by it and I think it is just 
incumbent on the industry to----
    Ms. Eshoo. I have another question I want to ask, so I 
appreciate that. My next question is to Mr. Wright. I was going 
to ask if there was anyone that wanted to add anything to that, 
but I don't think I have the time. So given my investment of 
time today with you, I would like to ask Mr. Wright about your 
perspective on the issue of multicasting. I want to see if I 
have this right, all right. I think I do. My take on it, I 
don't think it is yours but I would like you to maybe more 
fully explain, put some meat on the bones about why you think 
we should guarantee you six to 10 digital cable channels in 
return for the one that cable companies are now currently 
mandated to carry.
    I have to tell you that it seems a little preposterous to 
me. It seems out of whack because we gave you something. I mean 
it wasn't yours, you didn't buy it, you didn't pay for it. It 
was established by public policy, now moving into the place 
where we are trying to move to. I don't understand that 
position. Where does that come from? What is the rationale for 
it? I guess I am throwing you either a softball or hardball, 
but it seems preposterous to me, so you need to explain, at 
least to me, why you think this is good public policy, why you 
would have NBC 1, NBC 2, NBC 3, NBC 4, NBC 5, NBC 6. Why is 
that?
    Mr. Wright. It wasn't a gift. The analog spectrum 
disappears, so you had to have a place to put it, the 
programming. The programming occupied six megahertz. That is 
what an analog channel occupies, six megahertz, one channel, 
today.
    Ms. Eshoo. I understand that part of it, but tell me how 
you would ally that where you are right now, which I think I 
heard in your testimony.
    Mr. Wright. The public policy issue was----
    Ms. Eshoo. I don't want to talk about the past, I want to 
talk about now.
    Mr. Wright. Well, but you have to understand that, though. 
The channel--the space is the same amount of space. We are 
talking six megahertz is six megahertz, as the chairman said. 
In a digital world, you can transmit more programs in six 
megahertz. The thought was since these are free to the public 
that you could put more channels of very specialized, probably 
very niche programming, local community programming in in 
addition to the larger channel, and you are occupying exactly 
the same spacing. That was the theory. It is to fill it with 
something that would be considered by the public to be exciting 
enough to want to go out and to buy a new television set, which 
is considerably more than the old analog set they have today. 
That is how it got into the discussion.
    Ms. Eshoo. And do you think that the next logical step is 
the right to what the----
    Mr. Wright. It is exactly the same frequency that is 
occupied today, it is no larger than that. It just happens to 
be under the technology available you could produce more 
programming and display it in that same frequency.
    Ms. Eshoo. Well, I have to say that I have a problem with 
that. It just doesn't transfer so tightly as you--I understand 
your position and why. I think if I were you, I might be 
proposing it too. But I think in terms of overall policy for 
the country and the interpretation of how one segments or 
queues up or follows into or flows into the next, there is a 
disconnect to me, and I don't----
    Mr. Wright. Well, the theory----
    Ms. Eshoo. [continuing] think it is fair, I really don't.
    Mr. Wright. The theory would be that the revenues would 
probably be greatly smaller with the niche kinds of programming 
that would occupy that, and therefore the total benefit, 
economic, would probably be the same, but the service level 
would be much higher.
    Ms. Eshoo. Does someone from the panel want to jump in? 
Yes, just quickly, though, because I think my time is almost 
up, or is it?
    Mr. Upton. It is past.
    Mr. Gleason. From the smaller cable operator's perspective 
again, the only thing I would add is our perspective is that 
the broadcasters are already getting multicast carriage through 
the retransmission consent negotiations, that for us to carry 
an NBC affiliate in Cape Gerardo, Paducah, Kentucky----
    Ms. Eshoo. Can I--let me just jump in. Mr. Chairman, can I 
have 30 seconds just to throw this back? Why would I be 
interested in--I mean what is the merit of having six new CBS 
or NBC or ABC--I know it really sounds like I am picking on 
you, but what I am trying to do is to force you to come out 
with a broader, better answer to this, because what you have 
given so far I think really falls short.
    Mr. Wright. If I may, one of the things that we are trying 
to do right now is increase the penetration of digital 
television sets. One of the ways to get people to go out and 
buy HD television sets is to produce interesting programming 
and more programming and niche programming. The only way that 
this transition is going to come to fruition is if we are able 
to increase the number of digital sets that are in homes. One 
of the ways to do that is to provide all these services that 
are not now available. What broadcasters are asking for is once 
we are producing these programs is that they not get stopped at 
the bottleneck.
    Ms. Eshoo. Yes. But I think you are superimposing what you 
think you want that that is really the appetite for the 
consumer, and I think they are two different things.
    Anyway, I think my time is up, and I appreciate your 
frankness and I know you don't appreciate mine.
    But you know what, after almost 3 hours, this is what it 
is. Thank you very much, all of you. Thank you. Thank you, Mr. 
Chairman.
    Mr. Upton. Mr. Bass.
    Mr. Bass. Thank you very much, Mr. Chairman. Mr. Kimmelman, 
Ms. Bradshaw makes the case, at least for public safety, that 
there is a need to get the analog spectrum back for public use, 
and there are other reasons besides public safety why it was 
determined this needed to happen. And as you know, the only way 
it is going to happen is to get broadcasters out of it. So I 
guess the question is, isn't there ultimately a consumer need 
for this that would mitigate against your concerns in your 
testimony about cost?
    Mr. Kimmelman. Well, I am all for making sure there is more 
spectrum for public safety. This is a congressional mistake----
    Mr. Bass. For other reasons as well, we just have one 
example.
    Mr. Kimmelman. Yes, I understand. And we are all for more 
competition to cable and others, as I mentioned before, we are 
not getting nearly enough, and new services. This is a 
congressional mistake of giving away all this spectrum for free 
to broadcasters hoping that they would do what they said they 
promised to do, high-definition television. Now we are hearing 
that maybe they need to multiplex and do a lot of other things 
in order to make it really more popular for consumers. They 
didn't deliver, and I think we dug a ditch, and the danger here 
is digging it deeper. That is the problem, how do you get out 
of the ditch.
    I think they should be put under financial penalties for 
whatever timetables you want to establish in law for either 
converting or giving back. They can give us back the digital 
spectrum, they don't have to give us back the analog spectrum. 
It is the public spectrum that can be used for many purposes, 
as you point out. It is just a matter of putting them under the 
mandate and making it happen.
    Mr. Bass. But they are required to turn it back isn't it by 
2006?
    Mr. Kimmelman. Only if 85 percent of consumers have bought 
the digital equipment, which we would love to have seen happen, 
but it is not happening. So something else has to happen.
    Mr. Bass. Mr. Willner, agreeing that dual carriage is not 
necessarily a great idea--sorry, Mr. Wright--Chairman Powell's 
voluntary plan calls upon cable operators to carry the signals 
of at least five networks offering high definition or other 
value-added DTV services. I am concerned because this 
commitment could potentially be met without carrying any 
broadcaster's DTV signal. This seems completely out of sync 
with the goal of rapid DTV penetration, particularly given the 
amount of high-definition programming that is being offered or 
promised by the commercial broadcast networks and public 
broadcasters. Are you aware of any cable operator providing all 
of the broadcast DTV signals in the market, and can you give us 
any idea as to whether or not how many operators are carrying 
at least one broadcaster's DTV signal?
    Mr. Willner. I don't have the numbers in my head and wasn't 
prepared for the question specifically as to how many numbers, 
but I will tell you that the cable industry was the first 
industry to sign onto the Powell plan with the intention of 
carrying both broadcast and cable high-definition television 
signals in the spirit of the plan.
    What we are missing from broadcasters across the board is 
what we got from the public broadcasters, and that is a plan. 
Come to us with a plan, show us what you want to do with the 
digital signals, and if they are consistent with the consumers 
in our markets, we are going to carry them, because our 
consumers will demand it, because we have competition and we 
need to have the most robust cable service available to compete 
against satellite, which currently has close to 20 million 
subscribers, and that is out of nowhere 5 years ago.
    Mr. Bass. That is all I have, Mr. Chairman.
    Mr. Upton. Ms. McCarthy.
    Ms. McCarthy. Thank you, Mr. Chairman, and thanks to the 
panel today for your patience. I am beginning to wonder about 
this mandate at all. I was just talking to Ms. Eshoo before she 
left. We are both wondering why we are trying to force digital 
on the consumer if it isn't something that they want by a date 
certain. But I really want to pursue this whole must-carry and 
multi issue that Anna raised, because in my community of Kansas 
City, KCPT, the public television station there, really wants 
to do more multicasting. They do Sesame Street in English and 
Spanish now, but at the same time they might be able to do a 
program for adults on healthy living. And so I worry.
    I wonder if the gentlemen from the cable companies and 
industry would comment on this. If we have this must-carry and 
you are carrying NBC or ABC or whatever six times, what happens 
to our public TV stations who are performing a very important 
educational offering in our communities, and how will they be 
able to multicast their educational programs? And, Ms. Corbi, I 
very much appreciate your dilemma as a programmer for the 
Hallmark station, which is also, I believe, very educational, 
very family oriented, and you are welcome to weigh in on this 
as well. But I am really struggling with this because----
    Mr. Willner. Well, you mentioned Kansas City. I believe 
that is Time Warner?
    Ms. McCarthy. Yes.
    Mr. Willner. Time Warner has a national deal with all the 
public broadcast stations, as we do at Insight, to carry the 
multicast signals of the public broadcasting stations. Why? 
Because they came to us, showed us their plan and it made a lot 
of sense to us so we are carrying it.
    Ms. McCarthy. It is working.
    Mr. Willner. That is right.
    Ms. McCarthy. But what will happen is this bill goes 
through as it is drafted?
    Mr. Willner. Well, I don't think it would have any impact 
on--negative impact on that agreement.
    Ms. McCarthy. So they would still have all those channels 
and abilities to multicast.
    Mr. Willner. Sure. We have an agreement with public 
broadcasting and we would adhere to it.
    Ms. McCarthy. Well, that is very reassuring to me, because 
from what I was hearing with Ms. Eshoo's line of questioning 
after you start having to carry all of the NBC and ABC and all 
of that what is left?
    Mr. Willner. Look, the 750-megahertz cable plant has a 
limited amount of capacity. We have a plan over the long period 
of time to recapture what is taking up most of that 750 plant, 
which is the analog signals that we still carry, up to 550 
megahertz, which leaves only 200 megahertz for all these 
digital services, which includes telephony and high-speed data 
and all those other businesses that were being encouraged to go 
into by the 1996 act. Eventually, we hope to recapture most of 
that 550 megahertz of analog. Once we get a lot of digital 
boxes out there and a lot of digital customers out there, we 
will be able to recapture some of those analog signals and 
convert them to digital, which is much more efficient. In the 
meantime, we have channel capacity problems already in 750 
megahertz systems that are delivering the full bundle of voice, 
video and data, and even those that are not delivering voice 
have capacity problems.
    Ms. McCarthy. Well, does anybody on this panel have a sense 
of what due date there should be so that you don't have a whole 
lot of angry people in America?
    Mr. Kimmelman. Ms. McCarthy, I would just suggest that it 
is not the precisely the question of the date, it is the 
question of the structure of the mandate and who bears the 
financial risk, who bears the inconveniences, who bears the 
burden of making that transition work? I think you need to look 
very carefully at this draft and how much of a burden it places 
on consumers as opposed to the industry. It clearly has 
products it wants to get out and it thinks it can make money 
off of it. I think that is the problem.
    On the point of multicasting here, I believe what you heard 
was there is an agreement with the cable company. That is not a 
legal mandate. There is an agreement to carry; it is not 
mandatory. There is nothing about whether NBC gets six channels 
that would prevent public television from getting six channels, 
as a matter of fact, you could mandate it for both, but the 
question here is should it be mandated at all in conjunction 
with must-carry? From our perspective, I think it would be 
appropriate for the committee to go back and look at the 
purposes of must-carry who needs to meet local concerns, local 
community interest and link up, whether it is one channel or 
multicasting or dual carriage, those local needs, with the 
legal mandate to carry.
    Ms. McCarthy. I thank you. Thank you, Mr. Chairman.
    Mr. Upton. Thank you. Mr. Shimkus.
    Mr. Shimkus. This has been a very informative hearing, and 
I thought maybe my questions would be resolved, but I think I 
just keep having more questions, and it is probably to the 
chagrin of many of you who have been into my office explaining 
this all, and it is still a tough thing. How many homes, on 
percentage, and let me ask Mr. Kimmelman and maybe other people 
can answer, how many homes have TVs in them? Is it virtually 
100 percent?
    Mr. Kimmelman. Virtually, yes.
    Mr. Shimkus. Out of those, how many are connected via 
cable, direct satellite or broadband, percentage-wise?
    Mr. Kimmelman. I think cable has about 70 percent of 
consumer households, satellite has upwards of 15 percent. A lot 
are connected to--a lot have the capability of doing broadband; 
only a small percentage actually choose the service.
    Mr. Shimkus. In those homes that have direct satellite, is 
there some overlap that are also cable?
    Mr. Willner. Yes, yes.
    Mr. Shimkus. So you can't just say 85 percent then are----
    Mr. Willner. But it is a small amount.
    Mr. Shimkus. So for my local--for the broadcasters, what is 
the percentage of people that are receiving free over-the-air 
broadcasts today?
    Mr. Willner. It is probably about 15 percent exclusively, 
but it is probably another, I don't know, 60 or 60 more percent 
of people that use over-the-air televisions in their home, in 
other rooms or bedrooms or places. So it is hard to tell. I am 
going to guess another 60 on top of the 15.
    Mr. Shimkus. Let me ask this question, and as all members 
were here for a while and then we have to go and then we come 
back, so it may have been asked, it may not have been asked. Is 
anyone on the panel questioning the free over-the-air broadcast 
system that this country has established over the years? Has 
anyone called that into question of whether that should be good 
public policy? Okay. By the silence, I am assuming that 
everyone agrees that free over-the-air broadcasts is still 
something that we, as a society, think is good public policy. 
Okay.
    Now, if we make that assumption, what is the cost of 
providing free over-the-air broadcasts going digital versus 
what you do, Ms. Corbi in studio and then, in essence, getting 
your show to viewers through other mediums? Is there a 
significant financial challenge? Spectrum is--we always hear 
people quote that it is free, given by the government, and I 
have actually used that in other debates. But it does capital 
investment, otherwise spectrum is worth nothing. So there is a 
cost to people who are going to--the capital expense. So my 
question is the capita expense of free over-the-air broadcast 
going digital is expensive. How does that compare to, again, 
what has gone on elsewhere?
    Ms. Corbi. Well, I can answer that as a programmer. There 
are two costs, and our costs are not exclusively in the 
production of content. Our costs are also to gain carriage. And 
so we have significant fees and launch fees that a local cable 
programmer like us or a national cable programmer would pay 
just to gain carriage. And so that amount of money would 
probably, and you can ask other members of the panel, exceed 
the cost of building out a facility yourself to distribute 
programming. And so we have significant launch fees, we have 
significant programs costs. However, if you are talking about 
must-carry and particularly multiple must-carry , if an 
operator moves our channel from analog to digital, we don't 
have a discussion about whether or not we maintain the same six 
megahertz that it took to carry our channel digital. It took an 
analog to carry to digital. And so while we have plans for a 
number of extensions of our brand that we think are high 
quality, that provide programming for children, that provide 
educational programming, and, ultimately, we would like to get 
to market, we are still lined up with every content provider to 
get those other products and services to the market.
    Mr. Wright. Maybe I could just offer a comment. In a 
digital world of transmission, everything has to be replaced, 
every single piece of transmission gear. In production, 
everything has to be replaced. So you are talking about----
    Mr. Shimkus. Well, we know that because when we go on our 
TV shows that they have had to replace the fake wood background 
with real wood and real books, and that has happened from the 
big Gee Whiz studios here in DC to the little mom and pops in 
Quincy, Illinois, and that has been a cost. I am sorry.
    Mr. Wright. It is very expensive if you are on the 
production and the distribution end and the transmission end, 
which is what we do. And everybody has to deal with that. That 
is why you have to be careful. You are shoving this into a too 
narrow a time period here. It is complete replacement cost. In 
our particular case, it is approximately $400 million to go 
from production, transmission, distribution, to all of our 
activities. So yo certainly wouldn't want to do that overnight.
    Mr. Shimkus. Right. And my time has expired and I have had 
enough. Thank you, Mr. Chairman.
    Mr. Upton. Mr. Green.
    Mr. Green. Thank you, Mr. Chairman. Mr. Kimmelman, 
sometimes I wonder if our hearings are for us to ask questions 
or for you all to hear the opening statements, but the staff 
discussion draft requires broadcasters give back their analog 
spectrum by January 1, 2007, and I said in my opening 
statements, nd some of other members, a hard return date seems 
to be the will at least of this draft knowing that a lot of 
analog equipment will go dark on that date. Do you think it is 
the best interest of consumers to move the hard date back to 
give them more time to buy digital equipment at a lower price? 
Again, I am concerned that 4 years from now we won't have that 
price available to most of my constituents.
    Mr. Kimmelman. Mr. Green, I am concerned that we have a 
chicken and egg problem today, and we may have one 4 years from 
now. That is why I think it is appropriate for the committee to 
look at a new model for trying to get analog spectrum back and 
moved to the digital age. I am not sure that date matters as 
much as all of the component parts that have to work together 
and who bears the risks and the cost. I think that is the 
entire thing. I mean the industry wants--here is an interesting 
question: We constantly hear about synergies in these 
industries, from Hollywood to networks, and we see mergers 
occur, to take advantage of that. I am not seeing any mergers 
here of the set manufacturers an the networks and the people 
who are going to make the boxes that are going to make all the 
old equipment work with all the new equipment. If there were 
economies of scale, if there were efficiencies there, maybe 
somebody would be doing this in the marketplace. All I am 
hearing is government should do it and consumers should pay. 
That strikes me as problematic.
    Mr. Lewis. May I make a comment?
    Mr. Green. Sure.
    Mr. Lewis. I guess I would take a little bit of exception 
to that in the sense that we are coming out with lower cost 
boxes. Our box this year is--it is ATSC, our digital television 
reception is a stand-alone box. It has analog outputs. It is 
$399 retail price. I know that still is expensive to some of 
your constituents----
    Mr. Green. $399 per television?
    Mr. Lewis. Per television, and I know that is still 
expensive for some constituents, but we firmly believe, as we 
testified, that that is going to continue to drop and that as 
we move into the transition, when we get down to smaller and 
smaller screen sizes, those screen sizes will be comparable in 
price to the analog. In addition to that, I think that we, 
Zenith, is not in favor of turning off the analog outputs. We 
think that over time that can happen as we phaseout over a 
longer period, but in terms of the draft legislation, that was 
one of the issues that we did have with it.
    Mr. Green. Okay. Anybody else on that question?
    Mr. Wright. That would not include high definition, that 
$399.
    Mr. Lewis. Actually, it would. It would output high def or 
standard definition.
    Mr. Green. Okay. That was my next question, though, and I 
guess the cable companies--I know my own cable in Houston has a 
monthly charge that is fairly reasonable for folks, and I know 
most of constituents, thank goodness, don't have five TV sets 
that they want to hook up. But what would be the cost, is $399 
fairly standard from----
    Mr. Lewis. Well, I think in the consumer--you are saying 
for a cable box?
    Mr. Green. Yes.
    Mr. Lewis. I will let the cable guys answer.
    Mr. Green. Somebody just purchased it. Because I assume you 
are paying $399 or----
    Mr. Willner. No. We actually buy them in great quantities 
and are paying considerably less than $400 for a digital box.
    Mr. Green. And then you are leasing them to your customers.
    Mr. Willner. It is included in our digital package, right.
    Mr. Green. Okay. What are some--on the option, and I have 
to admit my wife does this kind of stuff in our house--is there 
an option to buy?
    Mr. Willner. Yes. The digital box is optional. The first 
level of digital service for our company is $7.95. It includes 
a box and a lot of the interactive services.
    Mr. Green. So what if your customers just wanted to buy 
that instead of pay the rent for it?
    Mr. Willner. Well, right now they are not available on 
stores because we don't have a standard inoperability 
agreement, which we are working on. Right now, we include it in 
the base level of digital.
    Mr. Green. Okay. I guess maybe what it would be--does 
anybody have any idea how much these boxes are for? We have 
heard $399.
    Mr. Willner. Well, I would like to tell you, but I am not 
sure I am allowed to. It is considerably less than $400, it is 
less than $300.
    Mr. Green. So if somebody went to Best Buy or Circuit City 
or any of our high-volume----
    Mr. Willner. Yes, I think--look, one of the problems is 
that the cost to consumers has been kept down by taking your 
equipment through the cable operator because there is an 11.25 
percent rate of return limitation in the 1992 act. So it almost 
becomes why bother selling it in the retail world when they 
have a higher expectation than 11 percent profit margin.
    Mr. Green. And, frankly, after what has happened with the 
stock market, 11 percent is not too bad.
    Mr. Willner. well, I agree with that too, I can assure you.
    Mr. Green. Thank you, Mr. Chairman.
    Mr. Upton. Mr. Cox.
    Mr. Cox. Thank you, Mr. Chairman. Does anybody on the panel 
know of any TV maker that would continue to offer television 
sets with analog tuners for sale in the U.S. market even if 
there are no more analog broadcast signals?
    Mr. Lewis. No.
    Mr. Cox. Anybody think otherwise? That is a useful fact to 
elicit at this hearing. It addresses directly the question of 
whether we should legislate on the topic.
    Mr. Lewis. Sir, if I could just add to that.
    Mr. Cox. Sure.
    Mr. Lewis. Why wouldn't we want to? Well, a, there is no 
signal to receive but there are costs associated with that we 
haven't really spoken about in this transition is that people 
are paying that premium, quote, unquote, ``premium,'' for an 
analog receiver today which we no is obsolete. I mean that is 
the hidden costs for them too. There are analog royalties, 
there is--I mean for everything in the digital world, there is 
a comparable price and thank goodness it is lower today for 
analog, but that is a cost that is being wasted, if you will, 
after the transition. So a quick transition is better 
transition, in our opinion.
    Mr. Cox. Let me ask a question just on behalf of myself as 
if, not the prototypical consumer, than a consumer. What if I 
want to use most of the capacity on my cable, running into my 
home or my business for Internet access, for telephone service 
and video phone call capability, should that be my choice? Does 
anybody disagree that I ought to have that choice?
    Mr. Kimmelman. We think it should absolutely be your 
choice, and it is music to our ears that you want to make that 
the choice. Right now, most consumers can't pick what channels 
they get, let alone the allocation of bandwidth between video 
and broadband services.
    Mr. Cox. Does anybody want to deny me that choice?
    Mr. Willner. Not you.
    Mr. Cox. My constituents perhaps? All right. Well, if that 
represents the view of the panel, we will move on.
    Mr. Wright, or actually anybody who wishes to answer from 
what I would hope would be the broadcasters' perspective, you 
make very difficult decisions every day regarding the 
syndicated program content on your stations. The marketplace 
for syndicated programming is very competitive. If a supplier 
of a syndicated program came to you and said, ``I want you to 
carry my program,'' and demanded time on your schedule but 
didn't give you any reason that you should carry it, told you 
nothing about the program, would you do it?
    Mr. Wright. It depends on who that person was.
    Mr. Cox. Well, it is not I. It is not the Federal 
Government. It is----
    Mr. Wright. A normal course, no. If we have a business 
relationship with that company and there were other things 
involved, perhaps.
    Mr. Cox. And I think that would be a fair decision on your 
part. You ought to have that choice in a competitive market. 
Isn't that what in this context some are asking us to do vis-a-
vis cable operators? We wouldn't want to force this on 
broadcasters; why would we treat cable operators differently? 
Ms. Corbi?
    Ms. Corbi. I would like to weigh in on that. Similar to 
your scenario where if you were local cable operator and wanted 
to carry new Internet services and the majority of your 
capacity for those kinds of services, you should be able to 
serve your community. It is not expanded must-carry that drives 
this digital transition. It is choice for the consumer and for 
every operator to decide what choices are appropriate for that 
local consumer? What we have seen is since in the last 10 years 
where there were 87 national networks 10 years ago and there 
are almost 300 now, people are stepping up like ours, and 
providing that kind of choice. And so if I sit down with Mr. 
Willner or if I sat down with you operating a system in another 
market, I need to plead my case based on--ultimately the 
consumer is hurt in the end if you are dictating what they are 
going to ultimately see. If the consumer has choice, if the 
cable operator chooses what is proper for their local 
community, then the consumer is ultimately served. And so our 
position has been just let the marketplace decide. We will all 
go to the table, we will all compete based on the merits of 
that syndicated program and the programming we provide or 
telephone service.
    Mr. Cox. I think Mr. Gleason wishes to add something?
    Mr. Gleason. Yes. If I can just add, I couldn't agree more, 
but we are put in a position today by the five major 
programming owners, of which Hallmark is not one of them, to 
carry many other channels just because we want to carry the 
primary channel. And, specifically, in retransmission in many 
cases to the issue of multicasting, we are already multicasting 
a number of channels right now through retransmission consent, 
because in order to get retransmission consent for one channel 
in one market, we had to launch their cable product in a whole 
other market. So I am not so sure that there isn't multicasting 
happening already that is forced upon us.
    Mr. Cox. Mr. Chairman, I don't know whether I have time 
left, and if I don't I would ask leave--or unanimous consent to 
ask an additional question.
    Mr. Upton. Without objection.
    Mr. Cox. I still don't know whether I have time or not.
    Mr. Upton. You don't have--your time is expired, and when 
your question is over, we are going to break and vote twice and 
come back for Mr. Markey to ask questions.
    Mr. Cox. I thank you. This question I would like to address 
to any on the panel that feels so moved to jump in. At the base 
of most of these tough choices, as Mr. Shimkus was outlining, 
is the 20th century notion of free over-the-air broadcast 
television in return for free spectrum. He asked whether 
anybody objected to that model and nobody objected. I would 
like to at least call it into question, because it was based on 
a different world in which the fundamental problem was scarcity 
and the fundamental need for government was rationing in light 
of that scarcity.
    With the Internet, we have got the opportunity to 
distribute to billions of people for free, essentially, I mean 
the channel of distribution is free. The Internet is an 
extraordinary opportunity. And yet a whole lot of the content 
community and the broadcast community and the status quo 
community is all organized to prevent the Internet from being 
the channel of distribution. That is really what is underlying 
all of this. Nobody has an Internet distribution model.
    Mr. Wright. None of us want to become the music industry.
    Mr. Cox. Well, I just observe that the music industry, when 
radio threatened them and they had no compulsory license from 
the Federal Government, profited mightily from the free 
distribution of music over the air. They sold more music, and 
the music industry grew very rapidly. And, today, while 
everybody is fighting the Internet, they are losing money. The 
Internet may be our enemy in many respects because it permits 
the reproduction so easily, by anyone, of content. It 
democratizes the ability to reproduce and distribute. On the 
other hand, it also offers many, many opportunities.
    So I want to put the question out there and let you know 
that not everybody thinks that that 20th century model ought to 
apply in the 21st. I wish that we had more focus on how we can 
use the Internet as our friend, that we really can have free 
programming. But nobody seems interested in free programming. 
We are not talking about a business model in which we give it 
away for free, we are talking about a business model in which 
the people putting it out want to continue to own it. They 
don't want to give it away for free. The model is the movie 
theater model, and the broadcasters want to be the 
projectionists, and they want us to sit in our seats till it is 
over, then go home and have nothing there. We don't get to keep 
it. We can't tape, we can't give it to a friend, we can't watch 
it at some other time or play it. From a consumer standpoint, 
these would be thrilling things, and businesses that find a way 
to satisfy consumers in the long run make a lot of money.
    So I just hope people will come back to Congress some day 
with a model addressed to how to use the Internet instead of 
fight it. That is not really a question, but if anybody wants 
to jump in and say they disagree strongly or agree, I would be 
interested in hearing your reaction.
    Mr. Kimmelman. I know the chairman wants--I just want to 
say, Mr. Cox, very quickly, that I think it is a very 
interesting model. It is not that free over-the-air television 
is the be all and end all. We have a problem here of market 
power in broadcasters' hands, market power in cable industry's 
hands. Nobody wants to open up a platform. The Internet is the 
open platform, and I would just suggest if Congress is going to 
think of something that is fairly regulatory in terms of 
intervention with time deadlines and manufacturing and software 
processes, you ought to consider an alternative of requiring an 
open platform and providing piracy and theft protection and 
seeing if we can get open distribution systems, but it would 
take some intervention.
    Mr. Cox. Thank you, Mr. Chairman.
    Mr. Upton. We will go to vote. We will come back about 
2:30. We have got two votes.
    [Brief recess.]
    Mr. Upton. Getting ready to resume. If someone might shut 
that outer door, it would be terrific.
    Chairman Tauzin. Lock it.
    Mr. Upton. No. Yes. And we will resume with questions from 
Mr. Markey for 5 minutes.
    Mr. Markey. Thank you, Mr. Chairman, very much. And I would 
like to direct my questions toward the Boston College and Holy 
Cross graduates at the table. And the rest of you need not 
worry, Mr. Wright and Mr. Fiorile. And they represent kind of 
this relationship that does exist in the Jesuit community. We 
are rivals and yet we are all part of one family, and that is 
kind of the affiliate/broadcasters, it is a rival/family 
relationship. And for the purposes of this hearing, they are 
requesting, I think, jointly, the identical goal which is that 
all of the video, audio and data from the digital television 
revolution be carried on a must-carry basis and that the public 
interest would be advanced from that goal.
    In the analog era, we had a similar policy, we still have 
that policy, believing that that one free over-the-air 
broadcasting station limited, meaning, one service that is that 
it provided, was important to the community because we wanted 
to ensure that it maintained its viability because of its local 
personality, its local component. And there are some people, as 
we have heard, on the committee who question whether or not 
there should be an NBC 2, 3, 4, 5 and 6, which I think is a 
legitimate question. And on the one hand, both of you are 
basically quantifying what you want from the Congress, the 
parameters of how you see must-carry actually working in this 
new era, and you can be quite specific about what you want.
    If I felt that NBC 2 was children, NBC 3 was going to be 
local news, NBC 4 was going to be Spanish language programming, 
NBC 5 was going to serve schools, as long as NBC 6 was going to 
be an all-sports channel I would be okay with it. I would 
consider it as a package saying, well, I can see the local news 
benefit, how children would benefit. So my question to you is 
in return for a quantified must-carry of all voice video and 
data, would you be willing to give us your concept of what the 
quantified content carriage would be in any of these areas or 
other things that would help us to create an equation that 
would justify a must-carry for all of those various stations?
    Mr. Wright. well, let me speak a little bit from the 
network standpoint, and, Mike, you can speak from the station 
standpoint. Because what we obviously only own the stations we 
own and the rest are affiliates. And the concept is that you 
would have a certain amount of the program, probably most 
likely the evening program, in high definition. And that other 
dayparts would have other programs that would be produced with 
the help of the network in some cases and solely at the local 
level in other ceases. And the network might provide templates 
for some of these or programming that would help with some of 
those local programs, but they would basically be a localized. 
Most of our affiliates wanted to use a good portion of that 
capacity to localized programs, a localized news, weather 
issues, something probably with sports that it would be purely 
local, it wouldn't be the NCAA, it would be something that 
would not necessarily get covered. We might provide them at the 
network with certain access to programs that are not major 
programs but sports programs that might have interest, and they 
would select from those and add them into it.
    In the case of national politics, we might provide them 
with the material that we have on a national level and the 
would concentrate mostly on the local level on a channel that 
might do that. Now, the actual arrangements haven't been worked 
out in terms of what do I get, what do they get, and it is 
probably still, at least prior to this hearing, it was too 
early to really get people to agree what it is that they want 
to do. And some local affiliates have said, ``No, we want to do 
it all. You just continue to do your service and we will take 
care of the rest.'' So it is a little bit in flux. I would give 
you our general managers would be more along the lines that I 
said. In some of the big markets we have it is almost--you 
know, it is an endless amount of local things that you can do.
    Now, nobody would expect to make the kind of revenue from 
these kinds of activities that you would off the primary, but 
you would expect to have some viewing and you would certainly 
expect to have a connection, a greater connection in your 
community, and you would get some economic benefit from that. 
Now, we have not negotiated the terms of all those things, and 
before I turn it over to Mike I would say one thing, though, 
that in the 5 years or so since there was an agreement on the 
format of--I mean on the transmission, you do have a situation 
where 90 percent of the households in this country today have 
access to at least one channel of over-the -air distributed 
digital television, which includes some high-definition 
program. And in approximately half the country, there are four 
or more channels operating today which are digital and include 
high-definition programming. And in many of those there are 
additional local channels, which he is going to talk about 
which is so-called multicasting one in that hybrid model which 
I am not even referring to.
    So I would say that even though some may say that is not 
enough, but in 5 years plus, that is a pretty substantial 
position. And it grows now at a very rapid rate, and yet there 
is very little viewership. And in most cases, in most all 
cases, that program is not directly accessible on cable of 
satellite today.
    Mr. Markey. Let me let you follow-up then, Mr. Fiorile. You 
know, Ms. Corbi is sitting over here. She is saying I have a 
great channel, they want to take up all this space. The public 
interest component is very important because as the versatility 
of the digital spectrum makes additional channels possible, in 
turn, there has to be commensurate increase in the public 
interest commitment. So could you down those issues one 
channel, perhaps, two, more local news, another one to 
children, a second language. Can you give us a quantified list 
of the things that the public would get in return for putting 
pressure on stations that are cable owned, that the public 
could say, on balance, well that is good for my local 
community.
    Mr. Fiorile. I can give you two examples, which you 
actually refer to. One is we are right now in Columbus 
experimenting with closed-captioning, and we have the 
opportunity to do eight languages. In addition to English and 
closed-captioning, we have the availability of Spanish and two 
different Asian languages. And we are closed-captioning in 
Spanish. Those captions are not being carried by the cable 
system because they are embedded portion of the signal, which 
is not being carried.
    Though similar translations would be embedded ion the data 
streams of the high-definition signal, which cable operators, 
as we have heard, are going to make choices to determine 
whether or not those were important. And under that scenario, 
it is possible they wouldn't be carried.
    Mr. Markey. But if we tied it together, that is if we 
decided to give you this must-carry, would you, in turn, 
specifically say that you would increase the amount of local 
news, the amount of local children's--would you be willing to 
engage in that kind of specificity in the same way that you 
want specificity in terms of what you are going to get? Would 
deliver the specificity in terms of what you would be willing 
to deliver, so that then there would be a public interest that 
would be achieved.
    Mr. Fiorile. In so much as what we do is in the public 
interest, this would give us the opportunity in news 
programming to create regional newscasts.
    Mr. Markey. And you would commit to that.
    Mr. Fiorile. We would pursue it and put it on and see, 
assuming it got carried, how much interest there was in it. We 
wouldn't commit to it long-term if nobody was interested in 
watching it. The key is the choices, what we want to do is give 
the consumers the choice, not have the cable company stop that 
choice from being made at home.
    Mr. Markey. If I may just ask one more question, it would 
be this, and I would like to go to Mr. Willner on that, a 
separate subject, quite quickly. In the 1996 act, I was able to 
build in a provision which called for modems and set-top boxes 
to be purchased at Mr. McCollough's stores, at Circuit Citys 
and other stores, and that they didn't have to purchase from 
the cable company so that they could basically in this DTV era 
purchase whatever set-top box or modem they wanted, and then 
they could enjoy the technology. Do you agree that that is a 
good public policy goal?
    Mr. Willner. Absolutely. In fact, it is a good corporate 
goal for us. It would help us take those very expensive 
converter boxes off of our balance sheet, and we wouldn't mind 
that at all.
    Mr. Markey. And, Mr. McCollough, what progress have we made 
in accomplishing that goal?
    Mr. McCollough. At the moment, we still have boxes which 
would fall under the portable, works on any cable system and in 
fact and in fact supports all the functionality that the cable 
systems can provide.
    Recently, as we have been having these conversations, we 
have asked for a test box from a manufacturer who was trying to 
show us some of their wares. We said, ``Great, send us some. I 
want to plug it in and see how it works.'' And the first 
question is, well, wait a minute, what system are you going to 
put it on? We have to call and make sure it is provisioned 
properly so that it will work.
    And so I think progress is being made, and I want to--and I 
have think we have tried to recognize that I think Cable Labs 
is in fact trying to move this forward, it is just very tough 
with two sets of rules. It is tough when you say Cable Labs is 
going to devise the rules and then the cable operators don't 
have to play by the rules. If the Redskins could have that with 
their opponents, they would be 3 and 0.
    Mr. Markey. Mr. McCollough, one of the reasons I get a 
little bit skeptical in this whole era is that it is 6 years 
later and Cable Labs is supposed to be this hotbed of research 
capacity, and yet they can't figure out a way to have smart 
graduate students at MIT and Cal-Tech come up with software or 
set-top boxes that could operate compatibly with these cable 
systems. And I would just recommend that they take 20 kids out 
of MIT over in graduate school in my district. I think they 
could probably solve it in 6 months. But all of these questions 
6 years later really give me some problems because that was the 
promise of the revolution. That was what was going to empower 
consumers so that they got more out of it.
    And that is really what it is all about, that is what our 
committee is all about. It is about the public getting more, it 
is about the consumer getting more, more choices, more 
versatility. And instead when you see something like this, you 
kind of say, well, maybe that is not going to happen. Maybe 
just the institutional inertia of one industry or another is 
going to block the public from really seeing the true benefits. 
And I think if we are going to move forward, Mr. Chairman, both 
of you, I think it will be helpful for us if the industry can't 
resolve these issues for us to move in and to add the 
specificity and the deadlines that ensure that the public gets 
the benefit. Because for me that is the only return on 
investment I get or we get, and I am just hopeful that that 
will be the case. And I thank you, Mr. Chairman, for giving me 
a little extra time.
    Mr. Upton. Just a little plug, I know Zenith will be glad 
to sell you a digital TV since you don't have one in the Markey 
household as well. Right? Do you have a digital set?
    Mr. Markey. No, I do not have a digital set, and----
    Mr. Upton. It is an opportunity. That is why I brought him.
    Mr. Markey. It is an opportunity. How much are you going to 
charge me?
    No, what is the lowest price digital set you have got?
    Chairman Tauzin. For you?
    Mr. Lewis. Integrated.
    Mr. Markey. Integrated. What is that?
    Mr. Lewis. Integrated set with built-in tuner, it is under 
$1,500.
    Mr. Markey. Fifteen hundred dollars. So every person who is 
watching us, every person who needs to get a life who is 
watching this on C-Span--most likely--they are looking at this 
saying, ``Man, I am watching the TV. I have got a pretty good 
picture for $300 or $400 that I bought 7 or 8 or 10 years 
ago,'' right? So I need the add-value. The added-value would be 
NBC 2, 3, 4, 5, 6. It would be some of the things that the 
cable systems could do, but we haven't quite poked through that 
gordian knot yet. Thank you, Mr. Chairman.
    Mr. Upton. I know they need that weather station down in--
extra weather station down in Louisiana this time of year. So 
Mr. Tauzin is recognized.
    Chairman Tauzin. I just checked, we are half under water 
and half under indictment again.
    Just a point of reference, I read somewhere that the 
original HDTV sets in today's dollars actually come in favor 
comparable to the original color sets when they first came out 
and to the original black and white sets when they first came 
out, that it is a function, again, of market purchasing 
numbers, and I was very pleased to see that, and I think that 
is true. We have seen the prices begin to come down as more and 
more people begin to buy them. That is good news.
    By the way, Alan, I will mention to you the Saints don't 
have those advantages, we are 3 and 0.
    Mr. Wright. Mr. Chairman, if I could make a comment along 
that line, it came to my attention earlier today that 1953 is 
when the color standard was accepted, and it was not till 1964 
that any network had all color. It was NBC. It took 11 years.
    Chairman Tauzin. I want to talk to you about that. Let us 
talk about the rate in which broadcasters are getting into this 
game. Let me first read a very nice announcement that ESPn put 
out today. ESPN President George Bodenheimer announced today a 
new chapter in ESPN history, the future of sports television. 
It plans to provide high-definition simulcast service to its 
premier network, ESPN. It will be launched April 2003. ESPN HD 
will include in its first 100 live telecasts Major League 
Baseball, basketball Association, National Football League, 
hockey produced and distributed in high-definition television. 
It goes on to say that telecasts will be produced in high-
definition in 2003/2004 include those games, a variety of ESPN 
original entertainment proprietary programming, including X-
Games, Premier Action Sports Event, Great Outdoor Games 
program, ESPY Awards and college championships events, like the 
Women's Final Four and the ACC Men's Basketball Tournament. 
That is good news, Mr. Markey. And in 2004, they plan to go 
with Sports Center and other studio shows, adding another 3,700 
hours. That is good news, really good news.
    I also have a chart illustrating the amount of HDTV 
programming in primetime on the major networks. This is ABC's, 
this is CBS', this is NBC's, and this is FOX.
    Mr. Wright. You don't have late night on there, I don't 
think.
    Chairman Tauzin. I don't have late night on there. But the 
5.5 hours total primetime on NBC, 13 on ABC and 17 on CBS. You 
mention in your testimony, Mr. Wright, that you believe 
consumers must get better content than their analog experience, 
obviously. So I want to ask you, you also mention that you plan 
to increase your programming to 60 percent, but you didn't tell 
us exactly when. What is your time schedule?
    Mr. Wright. Well, it is now, right now. That is what it is 
now. You are just not including the 2 hours of late night, 
Conan O'Brien and Jay Leno, which are in HD.
    Chairman Tauzin. Yes. So the 60 percent includes hours 
outside of primetime.
    Mr. Wright. Right, but it is evening hours. I mean those 
are very popular shows.
    Chairman Tauzin. I think it is important that you describe 
for us why it is that protecting broadcast signal in a digital 
age is important. I mean, you know, ordinarily over-the-air 
broadcasting is unprotected today in the analog age, and the 
question people obviously in the lands of America will say, 
``Why do you want to protect it in the digital age if you are 
not protecting it in an analog age?'' Why is that?
    Mr. Wright. Well, a lot of the people that we will do 
business with, and do do business with, have ownership rights 
in the production of the content that they help produce, and 
that is never going to cease, that is always going to be the 
case. And they give us the rights to have it aired on an over-
the-air fashion, they give us the rights to have people use it 
in home and reproduce it for use in home. They don't give us 
the rights to have it sold or to be delivered to other people 
on a permanent basis for long periods of time, which has 
happened in the music industry when it gets digitized and sent 
on the Internet and continually distributed.
    Chairman Tauzin. Now, isn't part of the problem that in the 
analog age even if you have that kind of product, you can have 
the best quality product, I think Lion King was once produced 
for over-the-air broadcasting, that you make a copy of it but 
you can't make a million copies of it.
    Mr. Wright. Right.
    Chairman Tauzin. So there is a protection in the nature of 
it being analogued.
    Mr. Wright. Right.
    Chairman Tauzin. The concern about protecting over-the-air 
broadcasting in the digital age is by reason of it being 
digital and that you make enumerable copies of it forever. And 
if we don't somehow deal with that, it is my concern, I believe 
it is yours, I wish you would state it for us so we could 
understand it, that that rich content, that valuable content is 
not going to make its way into broadcast television for free 
over-the-air distribution; is that correct?
    Mr. Wright. It simply isn't, no. You are going to have huge 
restrictions on it. And there are ways to make it acceptable, 
to have it to be used on personal basis and to be used. That is 
the broadcast flag issue that has watermarking. There are a 
number of techniques which are not necessarily as sophisticated 
as we would like right this minute, and actually the music 
business is helping us with that as they try to figure out how 
to deal with that issue. So I mean there is a recognition of 
the Internet's power and its value, there is no question about 
it, but there is also recognition that you have to do what we 
can in a civil society where we have laws and we have 
intellectual property owners' subsequent usage of it. And we 
are caught here at a point in time where that isn't all as well 
defined as we would like. But, clearly, if we were to have to 
subject any program we had licensed to unlimited distribution 
in perpetuity, the terms would be different or they would be 
non-existent.
    Chairman Tauzin. Yes. And I don't know that Americans fully 
understand that distinction, that digital looks brighter, it is 
prettier, it is more detailed, and as you get into high 
definition, it is absolutely brilliant in all its quality, but 
is also implies a great deal of difference in the capacity to 
protect that information from outright total theft, which 
doesn't exist in the analog era.
    Mr. Wright. Well, Mr. Chairman, we have all lived in the 
world where you put the tape in the VCR and the first thing 
that comes up is the FBI warning.
    Chairman Tauzin. Yes.
    Mr. Wright. And that is the history.
    Chairman Tauzin. But even if you didn't follow the warning, 
you keep making copies of that tape, it gets pretty ugly.
    Mr. Wright. It certainly does.
    Chairman Tauzin. But a digital tape every one is just as 
good as the one before, and that is the big danger we are 
talking about.
    I want to talk, Mr. Kimmelman, in the time I have also 
about a most extraordinary tension that is going to exist in 
this bill that I need you to help us talk about. We have 
included in the staff draft a very aggressive cutoff date for 
the analog input. We have included it primarily to highlight 
the tension we face here. If people keep manufacturing analog 
devices and if every device has to be able to speak in analog 
and input into analog, don't we make it extraordinarily harder 
for content providers to protect their information. We create 
that analog or we create a problem in this transition. And, 
obviously, setting a hard cutoff date is a hard solution 
because it means at that point a lot of equipment you bought 
becomes obsolete, because the new equipment you got won't 
interface with it, it won't communicate with it, it won't be 
able to literally. It won't have the analog input. So to put it 
in layman's terms, my old VCR won't work anymore with the new 
equipment and I am in trouble already. I have got all this 
equipment, I can't use it anymore. And if we do what the staff 
draft says, set a cutoff date, we are condemning an awful lot 
of equipment to go into obsolete status on that date as new 
equipment is bought that cannot interface with it to that 
extent.
    Now, that is a hard solution, and we put it in this bill to 
force everybody to face that, but if we had to do that, all of 
us have a hard time answering to an awful lot of people in 
terms of obsoleting their equipment. Now, Mr. Kimmelman, I know 
you represent consumers here, and we have dealt a long time 
together. I don't want to face those angry consumers, I know 
you don't want to face them. What is your solution, how do we 
deal with this?
    Mr. Kimmelman. I sure don't want to face them, Mr. 
Chairman. And I appreciate your intent in trying to drive that 
solution. I would just like to suggest I would turn it around 
because the consumers didn't ask for high-definition 
television. Some like it when they see it, but they didn't know 
it was there, they didn't know about the spectrum that was 
involved, they didn't know about a lot of these decisions. I 
think it is going to be a very harsh morning when they wake up 
and that equipment doesn't work. So I would turn it around.
    Chairman Tauzin. But if I could interrupt you, we are not 
talking about high definition, we are just talking about 
digital.
    Mr. Kimmelman. I understand, I understand. I am just trying 
to turn this around here. We have got--when you did your 
opening statement you talked about the consumer expectation as 
kind of checklist, a test, and one was that there be exciting 
new content, and I think people--we know people pay for 
exciting new content. They like it, they want to watch it. How 
do we get it there? Exciting new content tends to drive 
revenue--advertising revenue, payment for programming. So I 
would flip this around and say those who are in the position to 
profit appropriately for providing good, new, high-quality 
content need to also bear some of the burden, some of the risks 
here of the equipment changes that are necessary in order to 
get us there. And in just in the same way that digital is 
better quality, better picture quality, sharper color, but has 
this potential theft problem, we need those who really need to 
protect their content working with the hardware industry, 
working with the software industry to make sure that those 
protections don't go too far, that we are not disenfranchising 
consumers for the ability to copy and tape and just watch----
    Chairman Tauzin. Well, but see that is not the issue I am 
asking. The question I am asking is how do we protect content 
in the digital age if we don't close the analog hole, if we 
don't see at some date analog input ends? And if we say that, 
we are obsoleting equipment, we are not just--it is not a 
question of whether or not you can copy. You still may copy in 
the new age. You can copy digitally with these protections, but 
you can't copy--you can't even use your old analog systems 
anymore. And that is the question. If that is the only solution 
that we face in order to allow for protection to be adequate 
and for all this rich content to reach the consumer, which 
ought to be his, as I said, quit pro quo for going through this 
transition, if that is not the right answer, what is the right 
answer? And I am looking for you, anyone else who may want to 
volunteer, what is your solution?
    Mr. Kimmelman. Well, I am suggesting two ways to do it. If 
it is trading out perfectly good equipment that people bought 
with an expectation interest that it would work for something 
else, somebody else should help pay for that, because it is not 
their fault. If that one doesn't work, it strikes me that you 
have a cost/benefit analysis of whether that ability to 
preserve analog outputs is such a burden and such a cost versus 
the burden on consumers, you need to make cost/benefit 
analysis. Mine, at this point, given the technology and given 
what I have seen, and I keep hearing about watermarking and I 
keep hearing about a broadcast flag that will work, my 
suggestion is that that loophole is worth living with rather 
than putting this expense on.
    Chairman Tauzin. Whoa. Any of you want to challenge that? 
Mr. Wright, do you think that is a good solution, live with the 
loophole?
    Mr. Wright. Well, I just think that the path we are on is 
to try to provide basically protection and usefulness of the 
Internet, and it is going to have to evolve, whether we can do 
that effectively and efficiently. Obviously, that cost we are 
going to have to bear. It is very difficult to assume what all 
that you--it is very difficult to assume that the programmers 
and distributors are going to assume all of the costs that 
consumers might have to bear in terms of the obsolescence of 
equipment that comes with developments in technology and 
delivery. I don't know how--I mean there is not--that is a very 
big bill, and I am not so sure anybody is prepared to take on 
that cost.
    Chairman Tauzin. And, you know, we hear from the high-tech 
community, well, don't give us a solution that requires our 
computers and our equipment that will work on this broadband 
Internet world to have to read any watermarks or find out what 
is protected and what is not protected, that is not our 
business, and we should haven't to build equipment that does 
that. That is the argument we hear from the high-tech world. 
What are your thoughts on that?
    Mr. Wright. Well, I mean, that is essentially the--that is 
the Napster issue. The equipment is there, its ability you can 
deliver, you can transfer ownership control of a property you 
don't own to others without their approval. And it runs totally 
contrary to our whole legal plan of intellectual property and 
protection. So I think that anybody that is in the 
manufacturing equipment at any level of tech has to be aware of 
what the rules of the land are, what the guidelines are and 
cooperate with it.
    Chairman Tauzin. Well, let me just lay it down for all you 
to think about. If we are faced with the ugly choice of leaving 
that hole open and a lot of content providers deciding not to 
play because they can't risk losing the value of their products 
with that big hole open, and we are faced with the alternative 
of shutting that down by making all this equipment obsolete on 
a date certain, as the draft suggests, all of us will be 
looking for a third way, all of us. And I am suggesting that it 
would be very helpful if all of you would be thinking of what 
is a third way that we can come to terms with, because my guess 
is that if we were passing a bill today instead of discussing a 
draft, that members of this committee, Mr. Upton, would be 
looking for a third way. And if there is one available, they 
would be running to it. Because the two alternatives are awful. 
Either we don't get the content in the system and it all falls 
apart, because you know that content will drive this whole 
transition in the future, or we take this drastic step of 
setting a date certain when analog input ends, and, Mr. 
Kimmelman, I don't know where you go to hide, but I want to 
hide with you if we take that route.
    Give us a third way, please. Mr. McCollough.
    Mr. McCollough. If I could just offer, Mr. Chairman, it is 
important that you don't look at analog outputs collectively, 
because that covers a wide range of capability and that I 
believe, and Mr. Wright may want to offer, but I believe the 
great concern of the content owners is component analog 
outputs, that the old S-video and the old RCA jack that are the 
vast majority of TVs that are out there don't produce a quality 
that I think is going to give anybody a whole lot of heartburn, 
so that you ought to start with a much smaller set than the 
entire universe. And I think as the staff continues to do some 
work here, we would be delighted to continue to help, but it is 
important that you understand what the variety of analog 
outputs are and what their real capabilities are and which one 
of those in fact pose some challenge. At the end of the day, we 
do need--the thing you can't legislate that will drive this 
more than anything else is great content. We have just watched 
through DVD the greatest introduction of any consumer 
electronics retail product in history and in 4 years we are at 
30 percent penetration, and the price has dropped from $600 to 
$49 last Labor Day. So the business will work. We will go at 
it, we will work hard to do this, but you have to be careful 
that we take this in bite size chunks and not look at analog 
collectively as the issue, because I am not sure that is in 
fact the problem.
    Chairman Tauzin. Anyone else want to touch it before I go? 
Thank you, Mr. Chairman.
    Mr. Upton. Thank you. Mr. Luther.
    Mr. Luther. Thank you, Mr. Chairman. It is my understanding 
that two of the most controversial issues surrounding this 
debate are, first, the question of technological capability 
and, second, the question of incentives. In that regard, I have 
a couple of questions which I would address to any of the 
panelists.
    First, how do you respond to the argument that must-carry 
requirements create a disincentive for broadcasters to provide 
consumers with original and compelling programming? I have 
heard the argument that guaranteed carriage of a broadcaster 
signal takes away the competitive incentive that drives the 
market. And I would like anyone to comment on that.
    Mr. Wright. Well, programs are only useful from a 
broadcaster or any programmer standpoints if they are watched. 
And if you are not--you compete once you put the program on the 
air. You also compete to get the program on the air, but once 
it is on the air the competition is to get the viewer to watch. 
And so the thought that you can put on programs that nobody is 
interested in and derive any financial benefit from it or any 
satisfaction is pretty--you know, it speaks for itself.
    Now, there are certain public interest things that you put 
on the air and expect to get very little total viewership or 
usefulness, but it might be very important. So I think that the 
issue that must-carry drives programs that nobody wants to see, 
that only happens really in cases where there are just public 
service issues. Maybe they don't have big audiences but they 
are important. But, certainly, from the standpoint of trying to 
drive popular programming, must-carry just gets you there, it 
doesn't get people to watch. You can't exist very long on that 
operation.
    Mr. Willner. Congressman?
    Mr. Luther. Sure.
    Mr. Willner. If I may. One of the concerns that we have is 
that as long as we can accept the fact that we have a limited 
amount of real estate in any cable system with all of the 
things that we are delivering to our consumers right now in a 
digital cable network, you could actually make the argument 
that certain broadcasters who have must-carry ability are just 
taking up some of the real estate to prevent competition from 
the programs that they are really most concerned about, and 
that is on their primary signal. So there are all kinds of 
disincentives for the development of new and innovative 
programming and yet still have the advantage of reducing 
competition against their primary signals. So we are very 
concerned that we are going to have a reduction in the quality 
of the content as a result of must-carry if there is just a 
free-for-all on multiple streams.
    Ms. Corbi. Just to answer this as a programmer, we have 
just celebrated our 1-year anniversary and we have already been 
to the market with a very robust interactive product. We are in 
discussions about a number of movies for HDTV programming and 
that interactive product also includes a kids' educational 
product. And so we are incentivized because we don't have over-
the-air carriage, we don't have must-carry rights to make sure 
that we are providing compelling programming, not only in our 
main channel but also for the operator to promote and drive the 
digital set-top boxes. And so if there is no compelling reason 
for a broadcaster to have to provide compelling programming to 
the consumer and there is no timetable for them to do that, 
then ultimately it is our programming that gets pushed from the 
market simply because what is maybe now must-carry stations may 
be 100 if they have the rights to take up the multicast must-
carry rights if they have 4 or 5 or 6 channels available to 
them.
    Mr. Luther. Okay. Let me then touch on the second question 
that I have to make sure that we have time for that. The 
purpose, of course, of must-carry is to guarantee quality local 
programming to consumers no matter where they live or what type 
of delivery system they have. If a multicasting requirement 
does not burden the cable operator with any additional burdens 
in terms of capacity, how do you respond to the argument that 
multicasting of numerous local programming signals serves the 
exact spirit and purpose of the original must-carry mandate? To 
anyone again.
    Mr. Willner. Well, from my point of view as the operator, I 
have to tell you that I think that local broadcasting, as I 
said earlier, plays an important role in American society and 
produces a wonderful product to local communities. That was 
protected under the must-carry rules prior to any digital 
revolution. The cable industry is completely in favor of 
continuing the carriage of the primary signal and guaranteeing 
the carriage of the primary signal for any broadcaster who 
chooses must-carry for it.
    What is going to happen on those other streams of services 
is that new businesses are going to be created on frequencies 
that have been granted by the government, and they are going to 
compete with other businesses who don't have the same rights 
and who will give them an unfair advantage. And that is not 
necessarily in consumers' interests, and I think that this 
body, the congressional intent here is to create an environment 
that protects consumers' interests, not my interests, not Mr. 
Wright's interests, nobody sitting on this panel, maybe except 
for Mr. Kimmelman. But that is really what the focus should be. 
And I think that allowing an advantage to a certain group of 
content providers over others is not necessarily in the 
consumers' best interest.
    Mr. Fiorile. And if I may, I would suggest some of those 
additional programming opportunities are going to be 
regionalized newscasts, in our case they are going to be high 
school football games, and I can't believe it is in the 
consumers' best interests for those decisions to be made at 
that cable gatekeeper rather than in the home.
    Mr. Willner. Well, you ought to try and come and talk to us 
about and maybe we can come to an agreement. I am not sure it 
should be done here.
    Mr. Gleason. That was exactly from our perspective as the 
small cable operators I would weigh in here in that I agree 
with Mr. Willner that we are happy to carry that primary 
signal, but the key component here and the point that everybody 
has made here is that content is going to drive the digital 
revolution. If these multicast channels have high-quality and 
desirable programming on them, we will carry them because our 
customers will tell us to carry them. And if they are good 
enough, then we don't need to be force to carry them. But the 
fact of the matter is is that the customers will make that 
final decision.
    Mr. Luther. Thank you, Mr. Chairman. Thank you, panelists.
    Mr. Upton. And just to close that argument, I would note 
that if my friend, Mr. Markey--and, again, we have got a markup 
going downstairs that started awhile ago, which is why a number 
of members went down to vote, If Mr. Markey's team, the 
Fighting Eagles from BC were a little bit better, he might have 
a digital TV by now.
    Along with his Red Sox. I will hear about that one. I want 
to thank all of you for being with us today and by my count we 
had 23 Members of Congress that were here, and as I said in my 
opening statement, this is a very lively debate. It is a very 
pressing issue that we do have to deal with a deadline of 2006 
that is coming. I think this is a good step in the right 
direction. I would just advise all of you that we are going to 
continue in this direction and we spent a good 4\1/2\, 5 hours 
today, take away the time from the votes, but we are going to 
continue to press forward.
    Very much appreciate your testimony, your thoughtfulness, 
because we know at the end of the day we want all of our 
constituents, whether they be in Louisiana, Massachusetts or 
Michigan to have the technology to in fact get to the digital 
age, and I know that that is where your heart is, and we want 
to make sure that we get there. So appreciate your time and 
expertise. Thanks very much. God bless.
    [Whereupon, at 3:21 p.m., the subcommittee was adjourned, 
subject to the call of the Chair.]
    [Additional material submitted for the record follows:]
    Prepared Statement of Gary Shapiro, President and CEO, Consumer 
                        Electronics Association
                              introduction
    On behalf of the Consumer Electronics Association (``CEA''), I 
appreciate this opportunity to discuss our industry's views on topics 
related to the transition to digital television. CEA long has been in 
the forefront advocating a rapid and pro-consumer transition to digital 
television (DTV), and the marketplace is responding notwithstanding the 
ongoing shortage of over-the-air high definition (HDTV) programming and 
manufacturers' continuing inability to manufacture DTV products that 
work simply and nationally with digital cable systems. Many of the 
provisions in the recently circulated ``staff draft'' DTV legislation 
are laudable and would accelerate the transition. They should receive 
serious consideration if the matters they address remain stalled.
    In the CE industry, DTV has arrived in force, due to the rapid 
consumer adoption of DVD and DBS products. July marked a critical 
milestone when for the first time in history over half of all TV sales 
revenue--52%--was attributable to digital television products. By 
comparison, from January through July, DTV accounted for only 36.8 
percent of industry revenue. Meanwhile, more than 3.5 million Americans 
have invested over 7 billion dollars in DTV. These figures tell the 
story: the American public is moving to digital television technologies 
at an ever-increasing pace.
    However, as the Chairman and other Members recognize, multiple 
roadblocks are still holding DTV back from true mass-market status. We 
need national plug and play cable compatibility with DTV equipment. We 
need agreement on content protection methods that protect copyright 
owners while preserving consumer's customary fair use expectations. We 
also need more HDTV programming--and we need to ensure that the 
programming gets to consumers in its original form whether it is 
delivered by cable, a broadcast station, or any other distributor.
    Our industry greatly appreciates the efforts of Chairman Tauzin and 
others in calling the affected industries together to participate in 
roundtable discussions on these complex issues. These discussions have 
measurably accelerated the transition on some issues and redoubled the 
efforts of the participants to reach a consensus on others. The staff 
draft bill on DTV issues on the whole is beneficial in pushing forward 
on the transition. The bill directly addresses some of the most 
difficult unresolved problems that, while complex, must be resolved now 
to permit the transition to move forward.
    It is essential that the pressure be increased on all parties to 
move forward and find solutions to the problems that are delaying the 
transition. The consumer electronics industry, represented by CEA, 
recommits its resources to continuing to work with you, the Federal 
Communications Commission (FCC), and other parties to achieve the 
nation's digital goals.
       cable compatibility is critical to the digital transition
    The ability of cable subscribers to view digital broadcast 
programming is critical to the successful transition by broadcasters to 
digital television. Seventy percent of Americans subscribe to cable 
television service, yet today, four years after the first digital 
television broadcasts, a consumer cannot purchase a digital television 
set with assurance that it will receive digital signals carried by 
cable systems in this country. This situation must be corrected if the 
digital transition is to succeed.
    While compatibility between cable systems and television receiving 
equipment long has been an explicit Congressional requirement as 
contained in Sections 624A and 629 of the Communications Act, lack of 
resolution of this issue has been a major obstacle to DTV market 
penetration. Representatives of the cable and manufacturing industries 
have been meeting regularly, some progress has been made, and we have 
committed to update the FCC on the status of our efforts by mid-
October. At the same time, it is vital to the DTV transition that full 
``plug-and-play'' compatibility be required as soon as possible.
    The urgency of this issue was heightened by the digital tuner order 
issued by the FCC in August. The circuitry required to add digital 
reception capability in a TV overlaps significantly with what is needed 
to add cable reception. If the outstanding cable compatibility issues 
are resolved immediately, the integration of both capabilities could be 
done simultaneously resulting in a vastly more attractive product for 
consumers and significant economies of scale.
    CEA supports statutory language to ensure that technical standards 
are put in place, are supported fully by all cable operators nationwide 
by a specific deadline, and that the implementation of these standards 
is accompanied by reasonable licensing terms that do not diminish 
consumers' equipment functionality or fair use expectations. Essential 
to cable compatibility is a national plug-and-play cable standard with 
which consumer equipment manufacturers can design and build television 
receivers, set-top boxes, and other consumer equipment intended to 
receive digital cable programming. In addition, cable operators 
nationwide should be required to support and use the standards. Experts 
in the CE and cable industries have developed the necessary minimal 
standards for digital-compatible products but remain in negotiations 
concerning the terms and conditions for implementing them. It is our 
hope that this draft legislation in the near future will accelerate 
efforts by the FCC to implement a minimal level of cable compatibility 
throughout the industry.
    CEA has submitted to the FCC a proposed standard that would allow 
consumers to purchase digital televisions and cable boxes that plug 
directly into their digital cable systems. Along with the standard, CEA 
also submitted a proposed pod host interface (PHI) license that would 
comply with FCC rules while preventing theft of cable service or harm 
to the cable network. Our proposal would:

 Enable an inexpensive digital set-top box or off-the-shelf 
        television to work directly with any digital cable system to 
        receive both ``in the clear'' and ``scrambled'' programming;
 Allow cable operators to deliver their product offerings and 
        advanced features;
 Include a license agreement that protects the security of 
        cable services and content, while preserving normal and 
        reasonable ``fair use'' expectations; and
 Provide an open and innovative marketplace for DTV cable 
        products that will permit more consumers to benefit from 
        competition in DTV products.
    The proposed legislation embraces these goals. We will continue 
working with the Committee, the FCC and other parties to reach 
agreements and move forward on cable compatibility issues.
                          copyright protection
    Recording programs for later personal viewing is a well-established 
consumer expectation, the legality of which was upheld by the U.S. 
Supreme Court in the 1984 ``Betamax'' case. Recording devices are in 94 
percent of homes today. Legitimate home recording must continue to be 
available to consumers if we expect viewers to accept and help promote 
the transition to digital television.
    Home recording and piracy should not be confused. Home recording 
practices have nothing to do with commercial retransmission of signals 
or with unauthorized commercial reproduction of content. We recognize 
that unauthorized copying and distribution is a legitimate objective of 
program owners, including unauthorized distribution over the Internet.
    Affected industries must find a way to satisfy consumers' 
legitimate expectations to record programs, while preventing the 
unauthorized redistribution of programs. Any protective method must be 
demonstrated to be feasible technically, to avoid chilling innovation 
and to protect consumers' reasonable and customary recording rights. 
Fair use remains vital to consumer welfare and expectations.
    We appreciate the draft legislation's concern that broadcast flag 
technology not deprive Americans of the functionality of the products 
that they currently own. Americans have come to expect that their 
consumer electronic products will work for a long time. While they 
appreciate the dynamism of our industry and recognize that new 
technologies will enter the market they still expect that their current 
product will retain its value. Meeting these high expectations is part 
of our industry's pact with American consumers and one that we take 
very seriously.
    For this reason we are concerned about the staff draft's proposal 
to ban all analog outputs. Such a provision would hinder or eliminate 
the functionality of millions of products in consumers' homes, 
including the 3.5 million DTVs sold to date (all of which are equipped 
only with analog inputs). In addition, such a requirement would make 
consumers understandably reluctant to invest in DTVs currently on the 
market, leading to a slowdown in DTV sales. Finally, the provision 
would eliminate the potential for relatively inexpensive set-top 
converters that would allow today's analog televisions to display 
digital over-the-air and cable programs.
    We urge the Committee to consider carefully the potential hardship 
for consumers that would be brought about by such a requirement as well 
as the detrimental impact on the DTV transition. Instead, the Committee 
should seek a commitment from the affected industries to redouble their 
efforts to reach agreement on digital watermarking and other technical 
solutions that would protect intellectual property while preserving 
Americans' good faith investment in their consumer electronic products.
                              programming
    The essential prerequisite for a successful DTV transition is high 
quality, compelling high definition (HDTV) programming. As is typical 
with consumer electronics products, sales of DTV sets are driven by 
ample and compelling content. Currently, the delay in digital 
broadcasts has resulted in DVDs and digital satellite programming 
driving the consumer migration to digital television monitors and 
receivers. Satellite services have several full time HDTV networks, 
including HDNet, Discovery, HBO and Showtime and plan to add more in 
the future.
    In contrast to satellite programmers, broadcast networks are 
offering limited high definition programming. Currently, HDTV broadcast 
network programming does not reach as many viewers as it might seem. 
Digital stations are not required to maintain the high definition 
quality of programming when they pass the signals through to the 
viewers in their local markets and some network affiliates are not 
doing so. Even with the network HDTV broadcasts, therefore, it is 
important to require the network affiliates to pass through to 
consumers the entire signal in its full resolution.
    Another reason why digital broadcast signals are reaching fewer 
viewers is that stations are not required to use the power and antennas 
necessary to reach the viewers in their analog service area (except the 
120 stations that are network affiliates in the top 30 markets). 
Although the FCC continues to reserve the spectrum for each station to 
provide full service area coverage, stations are permitted to use 50- 
and 100-watt transmitters and short towers capable of covering only 
their licensed service community. The unfortunate result is that when 
viewers of a perfectly clear analog signal upgrade to a digital 
receiver, they have no guarantee that they will be able to view that 
station's digital signal unless they are within the relatively small 
area being served with a DTV signal.
    The relatively little high definition programming available over-
the-air, the uncertainty of whether affiliates are passing through the 
full high definition signal when one is available, and the ability of 
most commercial stations to serve with their digital signal only a 
subset of their existing viewers has minimized over-the-air digital 
viewing. In addition, as of today, less than half of the commercial 
stations required to be on the air with a digital signal by May 2002, 
have met that FCC requirement.
    Given the recent FCC order requiring the inclusion of an ATSC tuner 
in nearly every television, the burden is squarely on the broadcasters 
to meet their obligations in getting full, undiluted HDTV on the air. 
We are pleased that the DTV draft addresses passing through the full 
network signal. We suggest respectively that allowing broadcast 
stations to leave spectrum vacant and serving only a fraction of their 
analog service areas also should be addressed. By a date certain, all 
viewers should be able to purchase a digital television set or set-top 
box with a reasonable expectation that the digital signals of the 
analog stations they watch will be receivable.
                               conclusion
    We applaud the Committee for holding these hearings to consider the 
state of the digital television transition and commend all that it has 
done on behalf of DTV and the American consumer. The draft legislation 
has many good and positive points. We eagerly anticipate working with 
Committee and all other interested parties as the draft moves forward.
                                 ______
                                 
Prepared Statement of Gary J. Shapiro, Chairman, Home Recording Rights 
                               Coalition
    Consumer expectations about their use of home viewing displays, and 
home recorders, must be satisfied if the digital transition is to 
succeed. Yet, in the last few years we have seen license and regulatory 
proposals, aimed at other targets, call into question whether consumers 
will be able to use their HDTV and other displays in ways they clearly 
expected when they bought them.
    The basic question, raised by proposals such as the ``PHILA'' 
license, and addressed by the draft legislation, is whether home-based 
consumer electronics and information technology products should be 
constrained in their operation, out of concern that non-home networks 
have become capable of delivering too much content. Ironically, just as 
Congress, the courts, and the motion picture and recording industries 
have acknowledged consumer fair use as a principle, the threat to 
actual consumer practices has grown and spread, even beyond home 
recording.
    Twenty years ago, when the HRRC was formed, the question was 
whether product innovations such as the VCR should be suppressed, out 
of concern that recording within the home would damage content 
providers. Today the question is not only whether such recording 
products should be suppressed or constrained, but also whether display 
products should be disabled as well.
  the staff draft takes major steps forward re the ``phila'' license.
    Ironically, the FCC is in a position to enforce anti-consumer 
license provisions because of a provision in the 1996 
Telecommunications Act that was meant to be explicitly pro-consumer. 
Section 304 requires the FCC to assure in its regulations the 
competitive commercial availability of devices that attach directly to 
cable systems--breaking the 50-year monopoly that cable multi-system 
operators have enjoyed. To achieve competitive entry with a range of 
new devices, as occurred in telephone deregulation, the FCC oversaw a 
standards development process in CS Docket 97-80 (which remains open). 
CableLabs volunteered and was chosen by the FCC to set such standards. 
One of those standards is for a security interface, to empower a range 
of competitive devices to work on digital cable by accepting a ``Point 
of Deployment Module,'' or ``POD.''
CableLabs Demands In The ``PHILA'' License
    The version of a ``POD-Host Interface License Agreement'' 
(``PHILA'') demanded of manufacturers by CableLabs is not just a 
license for the patent necessary to use this security interface. It is, 
rather, a comprehensive contract that would require the manufacturer to 
implement additional technical specifications and provisions. These 
specifications and contract provisions would eliminate much home 
recording, and could cause even recently purchased displays to ``go 
dark'' or accept signals of reduced resolution. It would require that 
newly introduced digital interfaces, widely accepted as secure, may be 
shut off at the whim of the movie studio or cable operator.
    According to the CableLabs specifications to which PHILA would 
require adherence, all licensed devices would be required to read and 
respond to data called ``Extended Copy Control Information.'' The 
requirement to read and respond to this data would allow commercial 
entities outside the home to control, on a program by program basis, 
which wire or wireless outputs from the device would be active, and 
which would be switched off for all purposes. A studio, cable MSO, or 
satellite provider that did not want to permit any home recording on 
VCRs would simply turn off, by remote control, the wire connecting one 
home device to another.
    The ``interfaces'' turned off by remote control serve the HDTV 
displays, as well as any recorders. So by shutting off the wire with 
the high resolution output, the movie studio or cable operator is also 
shutting of the high definition signal to the HDTV display. This means 
that a consumer who recently has bought a state of the art HDTV 
receiver, with a copy-protected digital interface, could still have the 
digital signal from a set-top box to this receiver cut off. Nor could 
that consumer fall back on the ``component video'' analog interface--
that could be turned off also by remote control. This regime is 
referred to as ``Selectable Output Control,'' and is a mandatory 
element of a mandatory specification in the version of the PHILA 
license that CableLabs has offered to product manufacturers.
    Most HDTV displays in the market today, and sold over the last 
three years, rely on ``component video''--the same sort of analog 
broadband interface that is used to deliver signals from PCs to nearly 
all computer monitors. (In computer terminology it is called ``RGB.'' 
Its consumer electronics cousin is known as ``Y, Pb, Pr.'') Even if the 
movie studio or cable operator does not choose to turn that interface 
off entirely, another provision of PHILA would explicitly allow the 
content provider or cable operator to trigger the removal of three-
fourths of the resolution of signals transmitted over these component 
video analog outputs. This is referred to as ``downresolution'' in the 
license.
    Why would a movie studio or operator choose to shut off a wire that 
enables viewing, as well as recording? Because certain studios have 
views, based on their own plans and preferences, as to what sort of 
equipment should be allowed into the marketplace. By reserving the 
right to shut off the digital and analog interfaces that best support 
home recording, they can drive the market toward employing only digital 
interfaces that do not support home recording.
    After being questioned closely about this requirement by the 
leadership of this Committee, the Motion Picture Association of America 
(``MPAA'') advised Chairman Tauzin by letter that it no longer is 
demanding Selectable Output Control (though it continues to insist on 
``downresolution''). However, the cable industry, through CableLabs and 
NCTA, has continued to demand agreement to both ``Selectable Output 
Control'' and ``downresolution'' from any manufacturer wishing to be 
licensed under the patent for the ``POD'' interface. (This patent was 
not even a CableLabs invention--the rights were acquired from a cable 
industry supplier.)
Staff Draft Provision Re PHILA
    The staff draft addresses the PHILA license issues in several 
constructive ways:

 It instructs the FCC to ban impositions on consumer products, 
        ``directly or indirectly,'' other than as necessary to prevent 
        ``theft of services and physical harm to the cable system;''
 It requires FCC regulations to ensure that not only set-top 
        boxes, but also receivers, recorders, and displays must be 
        supported by nationwide interoperability with digital cable 
        systems;
 It requires a family of uniform, open standards, administered 
        by an organization accredited by the American National 
        Standards Institute (ANSI) (rather than closed, proprietary 
        CableLabs specifications); and
 It requires that there be no impositions on devices that would 
        result in ``the altered or diminished functionality of a 
        consumer's digital television reception, recording, and display 
        equipment as intended for legal, noncommercial use.
    In instructing the FCC to clarify or interpret its regulations so 
as to prevent impositions on consumers of the sort that PHILA would 
wreak, the staff draft has taken a big step forward.
 the draft recognizes the importance of ``encoding rules,'' but should 
                     require them more explicitly.
    The era of public policy negotiations over copy protection status 
of digital consumer devices began in 1993, with attempts by the HRRC 
and the motion picture industry to draft and seek introduction of a 
mutually-acceptable ``Digital Video Recording Act'' (``DVRA'') that 
would provide balanced outcomes as to new products. The basic tradeoff, 
first put on the table then, has been a part of every good faith 
discussion ever since: in exchange for constraints (by license or 
recommendation as to government mandate) on signal transmission or 
recording, content providers must accept ``encoding rules'' that define 
and limit the circumstances in which such constraints may be triggered, 
so as to preserve the reasonable and customary expectations of 
consumers as to past, present, and future products. Although the 
``DVRA'' itself was never enacted, its draft ``encoding rule'' regime 
was followed, as to analog recording products, in Section 1201(k) of 
the Digital Millennium Copyright Act of 1998 (the ``DMCA'').
PHILA Lacks Encoding Rules.
    One longstanding complaint, by HRRC and others, about the CableLabs 
version of PHILA has been that its ``compliance rules'' lack any such 
protection for consumers. These rules would define various ``copy 
protection'' states, including ``never copy,'' but fail to impose any 
limitations on when these states may be used, or when the constraining 
technology may be triggered. Therefore, the CableLabs version of PHILA 
would leave it entirely open to content providers and cable operators 
to use ``never copy'' encoding and triggers for all sorts of programs, 
including those originated as free, over-the-air broadcasts.
    HRRC has long advocated that the consumer protections adopted in 
Section 1201(k)--the only product design mandate in that section--be 
employed elsewhere, as well. These ``encoding rules'' limit the use of 
``never copy'' encoding to pay-per-view and video-on-demand 
programming. As to all other programming, the consumer can make at 
least one generation of copies, and no interference is allowed with 
consumer recording of programs originating as free, over-the-air 
broadcasts or as basic cable programming.
The Staff Draft Anticipates Encoding Rules.
    As to PHILA, the staff draft provides that ``any'' encoding rules 
must respect the consumer protections discussed above. However, it does 
not specifically require that encoding rules must be included in the 
FCC regulations, or in PHILA. In order to afford consumers the 
protection that the draft otherwise would provide for them, this should 
be corrected.
    As to the ``broadcast flag,'' HRRC supports the encoding rules of 
section 5(b)(4) of the staff draft, which provide that the broadcast 
flag may not be used ``to signal protection for news and public affairs 
programs (including political debates).'' We would encourage the 
Committee to expand the scope of this section to include educational 
programs, as well as such other programs as the Commission believes the 
broad redistribution of which would be in the public interest.
    analog outputs are and must be heavily relied upon by consumers.
    Analog broadcasts and device outputs have been a public policy 
target for various reasons. The Congress and the FCC would like to 
eliminate analog broadcasts so as to speed the digital transition, and 
recover the existing analog spectrum for auction. Movie studios would 
target high definition analog (``component video'' and ``RGB'') outputs 
for extinction, because they cannot feasibly be copy protected (even if 
subject to ``encoding rules'') unless some ``watermark'' technology is 
agreed upon and an enforcement system is legislated.
    HRRC has no position of record as to whether the return of analog 
spectrum by 2006 should be conditional or unconditional. HRRC is 
committed, however, to policies that would maintain the utility of 
television displays and recorders that rely on analog inputs and were 
purchased by the American public in good faith. Even in the digital 
age, it must remain possible to provide an appropriate, high-quality 
output for every input on which consumers rely.
The Staff Draft's Treatment Of Analog Outputs Needs To Be Revisited.
    Even if the staff draft did not provide for the unconditional 
termination of analog broadcasts by 2006, its provision banning all 
analog outputs of products that demodulate digital broadcasts would 
need to be revisited.
    The following categories of display devices in consumers' homes 
today have only analog inputs:

 Most of the three million DTV or HDTV-ready displays sold to 
        date. (These have higher bandwidth ``component video'' analog 
        inputs).
 All other (250 million-plus) television receivers sold to date 
        that are still in consumers' homes. (Various ``RF,'' [e.g., 
        channel 3], component, composite, and ``S'' inputs.)
 All analog VCRs, and many digital recording devices. (Same as 
        TVs and DTVs.)
 Most PC monitors sold to date. (These have high-bandwidth 
        ``RGB'' inputs.)
    Together, these add up to perhaps 500 million units. The question, 
then, is what sort of hardship would the analog ban impose on the use 
of these devices, and what is its justification?
    The provision in the staff draft--subsection (b)(3) of Section 5--
does not have a clear antecedent. Subsections (b)(1) and (b)(2) outline 
a technical regime that embraces both products that demodulate digital 
broadcast signals, and products that distribute those signals via a 
Multichannel Video Program Distribution (``MVPD'') service. Subsection 
(b)(3) then stands alone, in requiring that the FCC regulations 
implementing such a regime must provide for ``the termination of the 
manufacture of equipment that has analog outputs by July 1, 2005.''
    To which ``equipment'' would (b)(3) apply? Possibilities are:

(1) only equipment that demodulates a DTV broadcast signal
(2) equipment as in (1), plus devices that receive a digital output 
        directly from equipment (1)
(3) (1) and (2), plus devices used to receive MVPD (e.g., cable and 
        satellite) programming if originated as a broadcast
    In HRRC's view, none of these possible consequences should be 
viewed as acceptable. Case (1) would simply add expense for consumers, 
to little apparent end. For every analog TV or VCR now reliant on 
antenna, the consumer would have to purchase a DTV converter plus a 
digital-to-analog converter, rather than a DTV converter with an analog 
output. Even PC owners with tuner cards would have to add a digital-to-
analog converter. The result would be the same either way, except that 
the consumer would have to pay more. Or, the consumer would be forced 
to acquire a cable or satellite converter for every TV in the house.
    Case (2) would rule out the broadcast DTV converter option 
entirely. Every TV and VCR, to be functional, would need to be 
connected to a cable or satellite service, as a matter of law. Even PCs 
with digital tuner cards could not provide programs to most monitors in 
existence today. Case (3) would simply consign most existing TV 
receivers and VCRs, including almost all of the three million DTV and 
HDTV receivers purchased in the last few years, to displaying 
prerecorded content only (unless (b)(3) were interpreted as prohibiting 
analog outputs from playback devices as well).
    HRRC stands ready to comment on any more specific version of 
(b)(3). It has long been HRRC's position of record that HRRC is willing 
to discuss any proposal that would address content owner ``analog 
hole'' concerns, but that in the implementation of any such proposal, 
technological progress and innovation should not be chilled or 
impaired; appropriate encoding rules, as discussed above, should be 
agreed to and enforced; and adverse effects on consumers' legacy 
devices should be avoided. HRRC is skeptical that the alternative of 
shutting off analog outputs could produce a result fair or acceptable 
to consumers.
the broadcast flag rulemaking provisions should secure consumer rights 
             to flexible personal uses of digital equipment
    Navigating the tensions between the fair and reasonable 
expectations of consumers, yet trying to help content providers prevent 
broad-scale redistribution of programs, calls for careful analysis and 
balancing. The Broadcast Protection Discussion Group sessions were 
often contentious, and could not provide any consensus input on some 
significant policy questions. These include the scope of protection to 
be applied, and the means by which protection technologies could be 
certified as satisfying these expectations and interests. HRRC believes 
that the staff draft has gone a long way toward charting a fair and 
balanced course between these goals.
Scope of Protection
    HRRC agrees with the formulation in the staff draft that the proper 
scope of protection should be ``to prevent the unauthorized 
distribution of marked digital terrestrial broadcast television content 
to the public over the Internet.'' One of HRRC's core concerns is that 
the flexibility offered by new digital communications technology not be 
reserved for enjoyment only by content industries. Subsection (a) of 
Section 5 of the staff draft correctly recognizes consumers' 
entitlement to use new digital technologies for personal purposes, such 
as sending content to second residences, vehicles or close family 
members, without threatening the legitimate marketplace for licensing 
and syndication of television content.
   hrrc supports self-certification according to objective technical 
                                criteria
    Perhaps the most contentious debate in the BPDG concerned the 
criteria used to determine which protection technologies could be used 
to output and record digital broadcast content. HRRC applauds the staff 
draft for promoting objective technical criteria and possible self 
certification.
     Objective Technical Criteria. Technical levels of 
protection should be specified so that any technology company that 
wishes to compete in the marketplace need only meet clear, well-defined 
and neutral criteria. As the staff draft observes, the criteria should 
be set only ``high enough'' to achieve the stated goals of the 
Broadcast Flag, without unnecessarily burdening product design, 
manufacture or performance, or stifling innovation into new 
technologies.
     Self-Certification. HRRC further appreciates the draft's 
reliance on manufacturer self-certification, rather than adding some 
approval step before products can be offered on the open market. Self-
certification under objective technical criteria should help ensure 
that new technologies will reach the market without undue delay.
    HRRC believes that this Committee's overall focus and insistence on 
advancing the digital transition while protecting consumers' reasonable 
and customary expectations is necessary and laudable. The staff 
legislative draft produced by this Committee's leadership has shown 
concern and sensitivity toward the issues HRRC has raised for several 
years. We will be pleased to work with any entity sharing the goals of 
this Committee's leadership.
                                 ______
                                 
  Prepared Statement of Mark Jackson, Senior Vice President, EchoStar 
                        Technologies Corporation
    EchoStar Communications Corp. (``EchoStar'') applauds the 
Committee's continued attention to the digital transition and thanks 
Chairman Tauzin and Committee Members for this opportunity to comment 
on the Staff Discussion Draft legislation (Draft).
    EchoStar started 21 years ago providing large, C-band satellite TV 
dishes to rural Americans. The demand grew quickly as consumers, 
schools and businesses sought television service in areas untouched by 
cable or off-air network TV signals. In 1996, we launched the small 
dish satellite TV service called DISH Network to provide competitive 
television services to urban and suburban consumers as well as those in 
rural areas. Since its debut, EchoStar's DISH Network has been the 
leader in the pay television industry in offering low prices for 
superior, digital television products. Other notable items about 
EchoStar include the following:

a) EchoStar began lowering its prices for satellite TV equipment to 
        offer affordable or even free equipment and switched its annual 
        programming fees for consumers to monthly rates, all in an 
        attempt to compete better with cable companies.
b) Today, DISH Network offers consumers four main programming packages 
        starting with America's Top 50 for $22.99 per month for over 60 
        channels that include the best in entertainment, sports, news 
        and children's programming.
c) DISH Network has been ranked either #1 or #2 for each of the last 
        four years in the J.D. Power and Associates' customer 
        satisfaction survey among satellite and cable TV subscribers.
d) We currently have 8 high-power direct broadcast satellites in orbit, 
        and we expect to launch one more satellite within the next year 
        to expand our local TV channel service, to comply with must-
        carry rules and to offer other services.
e) We have invested billions of dollars and extensive technological 
        resources to compete vigorously in the marketplace with cable 
        and to make satellite technology affordable and accessible for 
        all Americans.
    EchoStar is a leader in digital television. Our platform has been 
digital from the start and we believe that consumers desire quality, 
high definition (HD) programming. We have developed sound business 
strategies for harnessing this demand and in the process are driving 
consumer adaptation of digital receiver technology.
    Specifically, we currently offer five programming services that 
contain HD content. We recently announced our agreement with Discovery 
Communications, Inc. to carry Discovery's new all-HD channel, Discovery 
HD Theater. We believe that Discovery's compelling programming is well 
suited to HD and that consumers will respond positively to this new 
service. We also entered an agreement last year with CBS to carry the 
digital signal of a major-market CBS owned-and-operated station to our 
subscribers who reside in either (a) markets served by CBS owned-and-
operated stations; (b) unserved areas; or (c) markets where the non-
owned-and-operated CBS affiliate has agreed to allow EchoStar to 
provide the CBS digital signal. CBS today offers network programming in 
HD and we are confident that it will offer an increasing amount of 
compelling HD content. We also offer HBO, Showtime, and certain pay-
per-view programs in HD. Finally, EchoStar provides an HD demonstration 
channel.
    In addition to providing HD content on our satellite-delivered 
programming services, we also facilitate over-the-air reception of 
broadcasters' digital signals. Specifically, the Model 6010 set-top box 
that EchoStar subscribers must use to view our HD programming also 
allows the subscriber to insert an optional 8-VSB over-the-air receiver 
module. Thus, in addition to viewing EchoStar's HD programming, a 
subscriber may view any locally-originated HD broadcasts.
    EchoStar's commitment to digital television is clear. While others 
have talked about going digital, we put our money where our mouth is 
and invested in the digital future. We support the goals and spirit of 
the Committee's draft legislation and offer the following comments and 
suggestions that we believe will make this an even better bill:
    The proposed phase-out of analog outputs could strand tens of 
millions of consumers with obsolete television receivers, VCRs, and 
set-top boxes and should be replaced with a more technology-neutral 
provision.
    EchoStar does not object to imposition of a broadcast flag 
requirement, provided that the requirement is flexible and allows 
EchoStar to continue its track record of providing successful signal 
security that requires minimal capacity and satisfies both content 
providers and subscribers. For the most part, the Committee's draft 
strikes an appropriate balance. However, one element of the Committee's 
proposal would cause severe disruption to consumers while doing little 
to achieve the Committee's goals.
    The bill would prohibit the manufacture of equipment with ``analog 
outputs'' starting July 1, 2005.1 To tens of millions of 
consumers, it would mean having to buy a household-worth of new 
electronics equipment. Hundreds of millions of television receivers, 
audio stereo receivers, video cassette recorders, Digital Versatile 
Disk players, personal video recorders, satellite set-top boxes, and 
cable set-top boxes that currently employ analog inputs and have usable 
lifetimes stretching into the next decade could be rendered obsolete 
for consumers wishing to attach new equipment. EchoStar and other 
companies that manufacture video equipment must take into account the 
legacy base of analog television receivers currently in the market. In 
fact, a state-of-the-art EchoStar digital set-top box today will work 
just as well with a 1950's vintage black-and-white TV as it will with a 
digital, plasma flat-screen TV. EchoStar's platform--from the uplink 
facility, to the satellite, to the consumer's home dish is all digital, 
and EchoStar offers consumer equipment with digital outputs for those 
consumers who have purchased digital televisions. However, all EchoStar 
equipment also offers analog outputs. In this way, EchoStar can offer 
high-quality digital equipment to a population that still relies on an 
existing base of analog receivers. The Committee's proposed provision 
would require EchoStar to design equipment that is not compatible with 
the majority of our subscribers' current TV receivers and would require 
tens millions of consumers--not just EchoStar subscribers--to purchase 
new equipment.2
---------------------------------------------------------------------------
    \1\ See Draft at Sec. 5 (establishing new section 47 U.S.C. 340; 
340(b)(3)).
    \2\ EchoStar acknowledges the Committee's endorsement of the FCC's 
digital receiver component implementation schedule, see Draft at Sec. 
9, but does not believe that this would solve the dilemma faced by 
consumers in 2005 who would like to purchase DBS equipment or a new VCR 
without having to replace their existing television receiver.
---------------------------------------------------------------------------
    In addition, it is not clear whether the provision would eliminate 
analog outputs of all kinds, including those that are used today to 
complement digital platforms. For example, analog technology is 
incorporated into component HDTV; stereo audio; headphones; camcorders; 
and telephone speakers, among other items. The prohibition against 
analog outputs would impact the use of such devices unnecessarily.
    Finally, the analog prohibition also seems to undermine the 
internal consistency of the bill. On the one hand, the bill directs the 
FCC not to ``impose unnecessary or unreasonable burdens on product 
design'' or to otherwise ``stifle innovation,'' 3 clearly 
recognizing the fluid and unpredictable nature of technology 
development and the imperative of keeping regulatory mandates out of 
the laboratory and the technology marketplace. The bill also directs 
the FCC to ``protect the full functionality'' of equipment manufactured 
before January 1, 2006,4 an acknowledgement that the new 
policy must take into account legacy consumer electronics equipment. 
Yet the bill's own prohibition against manufacturing equipment with 
analog outputs after a date certain directly contradicts these 
directives by making a technology-specific rule that would render 
obsolete a vast swath of legacy consumer electronics equipment. For an 
agency like the FCC charged by law with implementing statutes in their 
entirety,5 this is a recipe for an unpredictable outcome.
---------------------------------------------------------------------------
    \3\ See Draft at Sec. 5; new sec. 340(b)(2)(B).
    \4\ See id. at new sec. 340(b)(2)(C).
    \5\ See, e.g., Bell Atlantic Tel. Co. v. FCC, 131 F.3d 1044, 1045-
47 (D.C. Cir. 1994) (applying plain meaning of provisions regarding 
BOCs' ability to offer interLATA services would lead to internal 
inconsistencies within the statute; FCC therefore should examine 
``context'' of entire statute); Alarm Industry Communications Committee 
v. FCC, 131 F.3d 1066, 1070-71 (D.C. Cir. 1997) (FCC could not apply 
dictionary definition of ``entity'' because this caused one provision 
to nullify another; FCC should examine Congressional intent).
---------------------------------------------------------------------------
    The Committee presumably included a prohibition against devices 
with analog outputs in order to avoid the circumvention of a digital 
broadcast flag. EchoStar believes that this is an admirable goal, but 
one which should be achieved less disruptively by simply directing the 
FCC to take that problem into account, using the parameters already 
laid out in the bill, without mandating a technology-specific rule 
impacting consumers' existing equipment.
     i. the proposed cable compatibility provision could undermine 
         competition policy by favoring cable over other mvpds.
    In general, EchoStar believes that the cable industry has leveraged 
its MVPD market dominance into the navigation device market. EchoStar 
therefore applauds any effort by the Committee to infuse more market 
discipline against cable. As currently drafted, however, the 
Committee's proposed digital cable compatibility provision could have 
the unintended consequence of solidifying cable's market dominance 
rather than reducing it.
    As a practical matter, DBS operators appropriately do not face 
compatibility requirements because DBS has never posed the same 
problems in this area as has cable. The FCC found in implementing the 
current rules that, unlike cable boxes that were only usable within 
certain territories and only available from the cable operators 
themselves, DBS equipment is usable anywhere in the U.S. due to DBS's 
national footprint, and is obtainable from any number of retailers 
unaffiliated with DBS operators.6 These circumstances have 
not changed since the FCC first implemented the cable compatibility 
rules, as the Committee apparently recognized by keeping the focus of 
the compatibility provision on cable.
---------------------------------------------------------------------------
    \6\ See Implementation of Section 304 of the Telecommunications Act 
of 1996; Commercial Availability of Navigation Devices, 13 FCC Rcd. 
14775, Report and Order, at para.para. 64-66 (June 24, 1998).
---------------------------------------------------------------------------
    In contrast to this traditional differentiation in the 
compatibility rules between cable and other competing MVPDs like DBS, 
however, the proposed provision could place an unnecessary competitive 
burden on companies like EchoStar. First, the provision appears to 
require point-of-deployment (POD) modules compatible with digital 
receivers.7 If this were to result in integrated TV 
receivers with plug-and-play functionality for cable, but not satellite 
or other MVPDs, consumers who already own such integrated receivers 
would not have to acquire additional equipment to get cable, but would 
need new equipment to get DBS or another MVPD. This would give an 
unnecessary competitive advantage to the already entrenched incumbent 
cable operator. The Committee should take great care to not give cable 
such an advantage and to restrict the compatibility rules only to cable 
set-top boxes, not TV receivers generally.
---------------------------------------------------------------------------
    \7\ See Draft at Sec. 8 (implementing, inter alia, new section 
624A(d)(2)(B)).
---------------------------------------------------------------------------
    Second, as described above, EchoStar manufactures set-top boxes 
with over-the-air receivers integrated into the box. Because the bill 
applies to equipment ``capable of receiving'' digital over-the-air 
signals, 8 it appears to require EchoStar to build cable POD 
functionality into such boxes. This would impose a significant cost on 
EchoStar without producing a single benefit to consumers, especially 
since the typical DBS subscriber is a formerly unsatisfied cable 
subscriber.
---------------------------------------------------------------------------
    \8\ See id., adding new section 624A(c)(2)(G).
---------------------------------------------------------------------------
    The Committee should ensure that, in using the cable compatibility 
rules to speed up the digital transition, it does not undermine the 
pro-competition goal of the compatibility provision itself. As 
currently drafted, the bill appears to give cable a windfall benefit 
while imposing on DBS an unnecessary cost, all at the expense of 
consumers. The Committee should ensure that any new legislation does 
not unfairly tip the balance of the marketplace in favor of one 
industry over another.
    EchoStar supports the Committee's efforts to complete the digital 
transition and looks forward to working closely with Chairman Tauzin 
and other Members to devise a pro-consumer, pro-competition means of 
bringing digital television to fruition.
               About Echostar Communications Corporation
    EchoStar Communications Corporation is one of the leading direct 
broadcast satellite (DBS) television providers and DBS equipment 
designers in the United States. Headquartered in Littleton, Colo., 
EchoStar consists of over 14,010 employees worldwide with Customer 
Service Centers in Littleton and Thornton, Colo.; McKeesport, Pa.; El 
Paso, Texas; Christiansburg, Va.; and Bluefield, West Va. EchoStar's 
state-of-the-art satellite uplink centers in Cheyenne, Wyo., and 
Gilbert, Ariz., transmits signals to and from EchoStar's eight 
satellites. EchoStar's satellite fleet already provides capacity of 
more than 500 channels for its more than 7 million DISH Network 
TM customers nationwide. DISH Network offers HDTV, 
interactive services, international channels, satellite Internet 
service, plus popular digital video and audio channels, such as Disney, 
ESPN, The Weather Channel and local stations in more than 40 U.S. 
cities. EchoStar (NASDAQ: DISH) is included in the NASDAQ-100 Index and 
is listed as a Fortune 500 company.
   echostar communications corporation includes two primary business 
                                 units:
 DISH Network TM is EchoStar's state-of-the-art 
        direct broadcast satellite TV system that is capable of 
        offering over 500 channels of digital video and CD-quality 
        audio programming, as well as fully advanced satellite 
        television receiver hardware and installation. DISH Network 
        satellite television systems are available in major retail 
        stores, such as Sears, Sam's Club, Costco, P.C. Richard & Son 
        and HH Gregg, as well as in over 20,010 independent electronics 
        stores across the country. DISH Network was ranked number one 
        in the American Customer Satisfaction Index (ACSI) conducted by 
        the University of Michigan Business School in 2001.
 EchoStar Technologies Corporation designs, distributes and 
        oversees the manufacturing of DBS set-top boxes, antennas and 
        other digital equipment for DISH Network and various 
        international customers, including Bell ExpressVu Canada and 
        the Via Digital system in Spain. ETC has also provided 
        construction oversight and project integration services for 
        customers internationally. ETC also oversees EchoStar Data 
        Networks Corporation in Atlanta, a designer of broadband IP 
        streaming products and services for DISH Network. DISH Network 
        also provides the delivery of interactive video, audio and data 
        services to business television customers and other satellite 
        users. These services include satellite uplink, satellite 
        transponder space usage, business solutions and other services. 
        DISH Network also oversees the design and delivery of 
        interactive television services and satellite equipment.
                           About Mark Jackson
           senior vice president, echostar technologies corp.
    Mark Jackson is responsible for EchoStar Technologies Corporation, 
as well as the six coupled business units that address markets that 
fall outside of the current Dish Network residential market: Product 
Marketing and Architecture, Business Television Operations, Broadcast 
and Interactive Data Services, New Business Ventures, Educational 
Services, Transmission and Satellite Services. Starting in 1993, 
Jackson served as vice president of Engineering at EchoStar. Prior to 
joining EchoStar, Jackson was director of Engineering at Tandon 
Corporation, Inc., where he was responsible for product development, 
strategic planning and new product conception and definition. He earned 
his degree in electrical engineering from Texas Tech University.
                                 ______
                                 
       Prepared Statement of the Home Recording Rights Coalition
    Consumer expectations about their use of home viewing displays, and 
home recorders, must be satisfied if the digital transition is to 
succeed. Yet, in the last few years we have seen license and regulatory 
proposals, aimed at other targets, call into question whether consumers 
will be able to use their HDTV and other displays in ways they clearly 
expected when they bought them. The staff legislative draft produced by 
this Committee's leadership has shown concern and sensitivity toward 
this problem.
    The basic question, raised by proposals such as the ``PHILA'' 
license, and addressed by the draft legislation, is whether home-based 
consumer electronics and information technology products should be 
constrained in their operation, out of concern that non-home networks 
have become capable of delivering too much content. Ironically, just as 
Congress, the courts, and the motion picture and recording industries 
have acknowledged consumer fair use as a principle, the threat to 
actual consumer practices has grown and spread, even beyond home 
recording.
    Twenty years ago, when the HRRC was formed, the question was 
whether product innovations such as the VCR should be suppressed, out 
of concern that recording within the home would damage content 
providers. Today the question remains not only whether such recording 
products should be suppressed or constrained, but also whether display 
products should be disabled as well.
  the staff draft takes major steps forward re the ``phila'' license.
    Ironically, the FCC is in a position to enforce anti-consumer 
license provisions because of a provision in the 1996 
Telecommunications Act that was meant to be explicitly pro-consumer. 
Section 304 requires the FCC to assure in its regulations the 
competitive commercial availability of devices that attach directly to 
cable systems--breaking the 50-year monopoly, based on their concerns 
over theft of service, that cable multi-system operators have enjoyed. 
To achieve competitive entry with a range of new devices, as occurred 
in telephone deregulation, the FCC oversaw a standards development 
process in CS Docket 97-80 (which remains open). CableLabs volunteered 
and was chosen by the FCC to set such standards. One of those standards 
is for a security interface, to empower a range of competitive devices 
to work on digital cable by accepting a ``Point of Deployment Module,'' 
or ``POD.''
CableLabs Demands In The ``PHILA'' License
    The version of a ``POD-Host Interface License Agreement'' 
(``PHILA'') demanded of manufacturers by CableLabs is not just a 
license for the patent necessary to use this security interface. It is, 
rather, a comprehensive contract that would require the manufacturer to 
implement additional technical specifications and provisions. These 
specifications and contract provisions would eliminate much home 
recording, and could cause even recently purchased displays to ``go 
dark'' or accept signals of reduced resolution. It would require that 
newly introduced digital interfaces, widely accepted as secure, may be 
shut off at the whim of the movie studio or cable operator.
    According to the CableLabs specifications to which PHILA would 
require adherence, all licensed devices would be required to read and 
respond to data called ``Extended Copy Control Information.'' The 
requirement to read and respond to this data would allow commercial 
entities outside the home to control, on a program by program basis, 
which wire (or wireless) outputs from the device would be active, and 
which would be switched off for all purposes. A studio, cable MSO, or 
satellite provider that did not want to permit any home recording on 
VCRs would simply turn off, by remote control, the wire connecting one 
home device to another.
    The ``interfaces'' turned off by remote control serve the HDTV 
displays, as well as any recorders. So by shutting off the wire with 
the high resolution output, the movie studio or cable operator is also 
shutting off the high definition signal to the HDTV display. This means 
that a consumer who recently has bought a state of the art HDTV 
receiver, with a copy-protected digital interface, could still have the 
digital signal from a set-top box receiver cut off. Nor could that 
consumer fall back on the ``component video'' analog interface--that 
could be turned off also by remote control. This regime is referred to 
as ``Selectable Output Control,'' and is a mandatory element of a 
mandatory specification in the version of the PHILA license that 
CableLabs has offered to product manufacturers.
    Most HDTV displays in the market today, and sold over the last 
three years, rely on ``component video''--the same sort of analog 
broadband interface that is used to deliver signals from PCs to 
computer monitors. (In computer terminology it is called ``RGB.'' Its 
consumer electronics cousin is component video, also known as ``Y, Pb, 
Pr.'') Even if the movie studio or cable operator does not choose to 
turn that interface off entirely, another provision of PHILA would 
explicitly allow the content provider or cable operator to trigger the 
removal of three-fourths of the resolution of signals transmitted over 
these component video analog outputs. This is referred to as 
``downresolution'' in the license.
    Why would a movie studio or operator choose to shut off a wire that 
enables viewing, as well as recording? Because certain studios have 
views, based on their own plans and preferences, as to what sort of 
equipment should be allowed into the marketplace. By reserving the 
right to shut off the digital and analog interfaces that best support 
home recording, they can drive the market toward employing only digital 
interfaces that do not support home recording.
    After being questioned closely about this requirement by the 
leadership of this Committee, the Motion Picture Association of America 
(``MPAA'') advised Chairman Tauzin by letter that it no longer is 
demanding Selectable Output Control (though it continues to insist on 
``downresolution''). However, the cable industry, through CableLabs and 
NCTA, has continued to demand agreement to both ``Selectable Output 
Control'' and ``downresolution'' from any manufacturer wishing to be 
licensed under the patent over the ``POD'' interface.
Staff Draft Provision Re PHILA
    The staff draft addresses the PHILA license issues in several 
constructive ways:

 It instructs the FCC to ban impositions on consumer products, 
        ``directly or indirectly,'' other than as necessary to prevent 
        ``theft of services and physical harm to the cable system;''
 It requires FCC regulations to ensure that not only set-top 
        boxes, but also receivers, recorders, and displays must be 
        supported by nationwide interoperability with digital cable 
        systems;
 It requires a family of uniform, open standards, administered 
        by an organization accredited by the American National 
        Standards Institute (ANSI) (rather than closed, proprietary 
        CableLabs specifications); and
 It requires that there be no impositions on devices that would 
        result in ``the altered or diminished functionality of a 
        consumer's digital television reception, recording, and display 
        equipment as intended for legal, noncommercial use.''
    In instructing the FCC to clarify or interpret its regulations so 
as to prevent impositions on consumers of the sort that PHILA would 
wreak, the staff draft has taken a big step forward.
 the draft recognizes the importance of ``encoding rules,'' but should 
                     require them more explicitly.
    The era of public policy negotiations over copy protection status 
of digital consumer devices began in 1993, with attempts by the HRRC 
and the motion picture industry to draft and seek introduction of a 
mutually-acceptable ``Digital Video Recording Act'' (``DVRA'') that 
would provide balanced outcomes as to new products. The basic tradeoff, 
first put on the table then, has been a part of every good faith 
discussion ever since: in exchange for constraints (by license or 
recommendation as to government mandate) on signal transmission or 
recording, content providers must accept ``encoding rules'' that define 
and limit the circumstances in which such constraints may be triggered, 
so as to preserve the reasonable and customary expectations of 
consumers as to past, present, and future products. Although the 
``DVRA'' itself was never enacted, its draft ``encoding rule'' regime 
was followed, as to analog recording products, in Section 1201(k) of 
the Digital Millennium Copyright Act of 1998 (the ``DMCA'').
Broadcast Flag Encoding Rule
    We support section 5(b)(4) of the staff draft, which provides that 
the broadcast flag may not be used ``to signal protection for news and 
public affairs programs (including political debates).'' We would 
encourage the Committee to expand the scope of this section to include 
educational programs, as well as such other programs as the Commission 
believes the broad redistribution of which would be in the public 
interest.
PHILA Lacks Encoding Rules.
    One longstanding complaint, by HRRC and others, about the CableLabs 
version of PHILA has been that its ``compliance rules'' lack any such 
protection for consumers. These rules would define various ``copy 
protection'' states, including ``never copy,'' but fail to impose any 
limitations on when these states may be used, or the constraining 
technology may be triggered. Therefore, the CableLabs version of PHILA 
would leave it entirely open to content providers and cable operators 
to use ``never copy'' coding and triggers for all sorts of programs, 
including those originated as free, over-the-air broadcasts.
    HRRC has long advocated that the consumer protections adopted in 
Section 1201(k)--the only product design mandate in that section--
should be employed elsewhere, as well. These ``encoding rules'' limit 
the use of ``never copy'' encoding to pay-per-view and video-on-demand 
programming. As to all other programming, the consumer can make at 
least one generation of copies, and no interference is allowed with 
consumer recording of programs originating as free, over-the-air 
broadcasts or as basic cable programming.
The Staff Draft Anticipates Encoding Rules.
    The staff draft provides that ``any'' encoding rules must respect 
the consumer protections discussed above. However, it does not 
specifically require that encoding rules be included in the FCC 
regulations, or in PHILA. In order to afford consumers the protection 
that the draft otherwise would provide for them, this should be 
corrected.
    analog outputs are and must be heavily relied upon by consumers.
    Analog broadcasts and device outputs have been a public policy 
target for various reasons. The Congress and the FCC would like to 
eliminate analog broadcasts so as to speed the digital transition, and 
recover the existing analog spectrum for auction. Movie studios would 
target high definition analog (``component video'' and ``RGB'') outputs 
for extinction, because they cannot feasibly be copy protected (even if 
subject to ``encoding rules'') unless some ``watermark'' technology is 
agreed upon and an enforcement system is legislated.
    HRRC has no position as to whether the return of analog spectrum by 
2006 should be conditional or unconditional. HRRC is committed, 
however, to policies that would maintain the utility of television 
displays and recorders that rely on analog inputs and were purchased by 
the American public in good faith. Even in the digital age, it must 
remain possible to provide an appropriate, high-quality output for 
every input on which consumers rely.
The Staff Draft's Treatment Of Analog Outputs Needs To Be Revisited.
    Even if the staff draft did not provide for the unconditional 
termination of analog broadcasts by 2006, its provision banning all 
analog outputs of products that demodulate digital broadcasts would 
need to be revisited.
    The following categories of display devices in consumers' homes 
today have only analog inputs:

 Most of the three million DTV or HDTV-ready displays sold to 
        date. (These have higher bandwidth ``component video'' analog 
        inputs).
 All other television receivers sold to date. (Various ``RF,'' 
        [e.g., channel 3], component, composite, and ``S'' inputs.)
 All analog VCRs, and many digital recording devices. (Same as 
        TVs and DTVs.)
 Most PC monitors sold to date. (These have high-bandwidth 
        ``RGB'' inputs.)
    Together, these add up to perhaps 500 million units. The question, 
then, is what sort of hardship would the analog ban impose on the use 
of these devices, and what is its justification?
    The provision in the staff draft--subsection (b)(3) of Section 5--
does not have a clear antecedent. Subsections (b)(1) and (b)(2) outline 
a technical regime that embraces both products that demodulate digital 
broadcast signals, and products that distribute those signals via a 
Multichannel Video Program Distribution (``MVPD'') service. Subsection 
(b)(3) then stands alone, in requiring that the FCC regulations 
implementing such a regime must provide for: ``the termination of the 
manufacture of equipment that has analog outputs by July 1, 2005.''
    To which ``equipment'' would (b)(3) apply? Possibilities are:

(1) only equipment that demodulates a DTV broadcast signal
(2) equipment as in (1), plus devices that receive a digital output 
        directly from equipment (1)
(3) (1) and (2), plus devices used to receive MVPD (e.g., cable and 
        satellite) programming if originated as a broadcast
    In HRRC's view, none of these possible consequences should be 
viewed as acceptable. Case (1) would simply add expense for consumers, 
to little apparent end. For every analog TV or VCR now reliant on 
antenna, the consumer would have to purchase a DTV converter plus a 
digital-to-analog converter, rather than a DTV converter with an analog 
output. Even PC owners with tuner cards would have to add a digital-to-
analog converter. The result would be the same either way, except that 
the consumer would have to pay more. Or, the consumer would be forced 
to acquire a cable or satellite converter for every TV in the house.
    Case (2) would rule out the broadcast DTV converter option 
entirely. Every TV and VCR, to be functional, would need to be 
connected to a cable or satellite service, as a matter of law. Even PCs 
with digital tuner cards could not provide programs to most monitors in 
existence today. Case (3) would simply consign most existing TV 
receivers and VCRs, including almost all of the three million DTV and 
HDTV receivers purchased in the last few years, to displaying 
prerecorded content only (unless (b)(3) were interpreted as prohibiting 
analog outputs from playback devices as well).
    HRRC stands ready to comment on any more specific version of 
(b)(3). It has long been HRRC's position that it is willing to discuss 
any proposal that would address content owner ``analog hole'' concerns, 
provided that technological progress and innovation are not impaired, 
and that appropriate encoding rules, as discussed above, are 
implemented and enforced at the same time. HRRC is skeptical that the 
alternative of shutting off analog outputs could produce a result fair 
or acceptable to consumers.
              the broadcast flag, flexible personal uses.
    Navigating the tensions between the fair and reasonable 
expectations of consumers, yet trying to help content providers prevent 
broad-scale redistribution of programs, calls for careful analysis and 
balancing. The Broadcast Protection Discussion Group sessions were 
often contentious, and could not provide any consensus input as to some 
significant policy questions. These include the scope of protection to 
be applied, and the means by which protection technologies could be 
certified as satisfying these expectations and interests. HRRC believes 
that the staff draft has gone a long way toward charting a fair and 
balanced course between these goals.
Scope of Protection
    HRRC agrees with the formulation in the staff draft that the proper 
scope of protection should be ``to prevent the unauthorized 
distribution of marked digital terrestrial broadcast television content 
to the public over the Internet.'' One of HRRC's core concerns is that 
the flexibility offered by new digital communications technology not be 
reserved for enjoyment only by content industries. Subsection (a) of 
Section 5 of the staff draft correctly recognizes consumers' 
entitlement to use new digital technologies for personal purposes, such 
as sending content to second residences, vehicles or close family 
members, without threatening the legitimate marketplace for licensing 
and syndication of television content.
   hrrc supports self-certification according to objective technical 
                               criteria.
    Perhaps the most contentious debate in the BPDG concerned the 
criteria used to determine which protection technologies could be used 
to output and record digital broadcast content. HRRC applauds the staff 
draft for promoting objective technical criteria and possible self 
certification.
     Objective Technical Criteria. Technical levels of 
protection should be specified so that any technology company that 
wishes to compete in the marketplace need only meet clear, well-defined 
and neutral criteria. As the staff draft observes, the criteria should 
be set only ``high enough'' to achieve the stated goals of the 
Broadcast Flag, without unnecessarily burdening product design, 
manufacture or performance, or stifling innovation into new 
technologies.
     Self-Certification. HRRC further appreciates the draft's 
reliance on manufacturer self-certification, rather than adding some 
approval step before products can be offered on the open market. Self-
certification under objective technical criteria should help ensure 
that new technologies will reach the market without undue delay.
    HRRC believes that this Committee's overall focus and insistence on 
advancing the digital transition while protecting consumers' reasonable 
and customary expectations is necessary and laudable. We will be 
pleased to work with any entity sharing those goals.
                                 ______
                                 
                                          Intel Corporation
                                                 September 24, 2002
United States House of Representatives
The Committee on Energy and Commerce
2125 Rayburn House Office Building
Washington, DC 20515
    Dear Chairman Tauzin & Committee Members, we appreciate the 
opportunity to comment with respect to some of the cable compatibility 
issues outlined in the recent draft bill circulated by the Committee 
(``Draft Bill'') in advance of the September 25, 2002 hearings. We are 
still studying many issues addressed in the Draft Bill (and the 
specifics of the cable compatibility language) and look forward to an 
opportunity in the future to comment on the full range of issues 
addressed in the Draft Bill. With respect the cable compatibility 
issues, however, we would like to provide some general comments and 
applaud this Committee's efforts to advance the transition to digital 
television by creating a competitive marketplace for standards-based 
cable navigation devices.
    We support the Committee's efforts as set out in the Draft Bill to 
advance the ``right to attach'' vision to all categories of qualifying 
devices, foster innovation and promote consumer choice by: (i) enabling 
device interoperability and safeguarding the network by limiting the 
scope of required specifications to the minimum extent necessary, (ii) 
opening the door to innovation, integration and market participation 
through design freedom and self certification, (iii) safeguarding 
consumer rights and expectations by removing requirements that anti-
consumer enabling features be included in all implementations, and (iv) 
opening the door for encoding rules that safeguard customary consumer 
practices.
    We hope that the Committee finds the following comments useful. 
These comments (1) touch on general principles with respect to the 
development of a standards-based competitive market, and (2) apply 
those principles to the current Pod-Host Interface Specification 
(``Specification'') and Pod-Host Interface License Agreement 
(``PHILA'') currently being developed and offered by CableLabs under 
FCC oversight.
    We would also like to take this opportunity to applaud the 
Committee's recognition in the Draft Bill of the importance of product 
labeling, especially with respect to restricted content. Intel strongly 
supports product labeling. Product labeling informs consumer choice. 
Labeling not only protects consumers against misleading products, but 
it also plays an important role in driving effective digital markets 
and the creation of new and exciting digital products that meet 
consumer demand with respect to choice, flexibility and portability. 
Indeed, as the world of digital rights management and access control 
technologies continue to grow and evolve, consumer protection efforts 
like those contemplated in labeling requirements are increasingly 
important. We encourage this Committee to not only pursue the labeling 
requirements set forth in its draft, but also mandate labeling of all 
restricted content so that consumers can participate in the digital 
marketplace with full knowledge and awareness whenever they buy, lease 
or rent restricted content.
                              introduction
    Intel Corporation is the world's largest semi-conductor 
manufacturing company. It is a leader in the development and deployment 
of digital communications and computing technologies. Intel has a 
direct interest in seeing a competitive, standards-based marketplace 
for cable compatible navigation devices based on the ``right to 
attach'' proscribed by Congress. Intel is interested not only because 
it wants the opportunity to provide navigation devices, but because of 
the broader opportunities to provide a wide array of interoperable 
computing devices and the building blocks for those devices. Intel is 
uniquely positioned to contribute to this discussion as an information 
technology company. We therefore offer these comments from that 
perspective.
                           congress' vision.
    Congress codified its vision of a competitive retail market for 
Navigation Devices in Section 629 of the Communications Act (entitled 
``Competitive Availability of Navigation Devices''). That vision 
contemplates rich consumer choice and product innovation in robust 
markets. Congress enabled that vision by giving all product and 
technology providers the right to attach their devices to cable 
television networks, only limiting that right to prevent harm to the 
network or theft of service. In light of the right to attach, the only 
technical obstacles standing in the way of this vision are the absence 
of standard interfaces that remove barriers to market entry and enable 
interoperability and product innovation. With standard interfaces in 
place, Congress believed the market would respond with products 
providing rich innovation and choice to the direct and immediate 
benefit of consumers and content providers alike. Intel shares 
Congress' vision.
      intel shares congress' vision: the digital home initiative.
    As digital communications and computing technologies advance, 
digital devices are both evolving and converging as the natural market 
demand for integration and interoperability marches forward. Intel 
shares' Congress' vision of a world where intelligent platforms and 
devices seamlessly interoperate in the home-networked environment, 
enabling consumers to enjoy any content, any place, in any device, any 
time, in new rich and compelling ways.1 (Such products 
include not only computers, ``smart'' set top boxes, televisions, media 
players and recorders, game consoles, wireless tablets and peripherals, 
but devices we cannot even contemplate today.) To that end, Intel 
actively participates in cross-industry efforts to establish 
cooperative networked platforms providing vastly enhanced media value 
within the home. In addition, Intel has worked for the past six years 
with content providers to create and deploy digital content protection 
technologies. Those technologies are based on strict principles of 
interoperability and consistency with this vision.2 Intel's 
vision is to enable any and all classes of digital devices to compete 
on a level playing field; enabling consumers to choose the products 
that best fit their particular needs.
---------------------------------------------------------------------------
    \1\ It goes without saying that enjoyment of copyrighted works 
should be done in authorized manners.
    \2\ Such technologies include some the Committee may be familiar 
with, such as Digital Transmission Content Protection (``DTCP'') 
offered by the 5C Entity LLC, Content Protection for Removable Media 
(``CPRM'') and Content Protection for Pre-recorded Media (DVD Audio or 
``CPPM'') offered by the 4C Entity LLC, and High-bandwidth Digital 
Content Protection (``HDCP'') offered by Digital Content Protection 
LLC.
---------------------------------------------------------------------------
   competitive standards based markets: some principles for success.
    Over the years, Intel has participated in, and indeed driven, many 
efforts to grow competitive market-segments through interoperability 
specifications and industry standards, including, for example, USB, 
PCI, 802.11, and many others. We have learned a great deal through 
these efforts and appreciate the opportunity to share some of that 
knowledge with the Committee.
    Creating a robust and competitive environment based on industry 
standards and specifications in large measure depends on removing 
barriers to market entry for new product offerings. There are many 
``best methods'' for achieving this goal. The following are just a few 
culled from our years of experience in promoting efforts designed to 
remove barriers and foster a proliferation of market devices and 
participants. We have applied these general principles both in strict 
technology/interoperability efforts such as USB, and in efforts where 
principles of content protection (policy and technology) are also 
employed such as DTCP.
    First, successful standards and specifications must limit required 
features (``normative references'') to a very narrowly defined but 
robust interface specification. This will enable and promote 
interoperability, innovation and integration. Anything else not 
specifically required to achieve this technical objective and ensure 
interoperability must be included in the specification as an optional 
feature (an ``informative reference''). While normative references 
should be minimal, a robust specification should contain those optional 
features that enable implementers to produce innovative products. This 
is particularly true in the cable environment where an understanding of 
an underlying cable technology may be imperative to innovation. The 
license and the specification, however, should clearly distinguish 
between normative and informative references
    Second, implementers must have design freedom to enable them to 
implement the technology in ways that encourage not only diversity of 
product offering and application, but also enable differentiation from 
competing products in the market place. This underscores the importance 
of the point above.
    Third, the specifications must be robust enough to permit 
innovation over time and enable features that the ultimate products' 
consumers will demand.
    Fourth, and perhaps most important, implementers should be free to 
self certify their products' interoperability and compliance with the 
specification. Voluntary means for assisting implementers (such as test 
suites, software, plug fests, etc.) are useful, but self-certification 
is key as it eliminates bottlenecks and creates an even playing field 
for market entry.
                improving phila and the specifications.
    Applying the principles set out above to both the PHILA and the 
Specifications reveals several areas of concern, particularly for 
makers of multi-function devices that have multiple configurations, 
like computers. Most of these issues are addressed by the draft license 
recently submitted to the FCC by the Consumer Electronics Association 
(``CEA Draft''), and Intel respectfully suggests that the Committee 
might find the CEA Draft useful. In the interest of brevity, in the 
following examination we have highlighted some of the larger issues but 
have not provided an exhaustive analysis. We would be pleased to 
discuss in greater detail any or all of these issues with the Committee 
at its convenience.
    1. The current PHILA/Specifications do not to accomplish Congress' 
goals. From a technical and implementation perspective the PHILA/
Specifications are simply too broad, and are not limited to a narrowly 
defined interface or even to necessary security technology. Rather, the 
PHILA/Specifications contain a whole host of features and functions 
that are unrelated to interoperability and security 3, and 
an extremely large number of related normative specifications are 
included by reference.4 Despite the requirement that 
implementers must enable this broad range of features unrelated to the 
interface, there is no assurance or requirement of any kind that 
content providers and cable operators will ever even avail themselves 
of those features and functions. Intel recommends specifically limiting 
the Specifications to normative interface specifications approved by 
ANSI 5, and adopting the approach advocated by CEA in the 
CEA Draft. We believe that the Draft Bill takes substantial positive 
steps in this direction and we support the Committee's efforts in this 
regard.
---------------------------------------------------------------------------
    \3\ Just by way of example, section 7.2.2 of the OpenCable Host 
Device Core Functional Requirements specifies requirements for the 
resolution, aspect ratio, frame rate, and scan sequence of a terminal 
host device's display. Another example, found in section 10, requires 
the navigation device to maintain network connectivity, consume power, 
and run the processor, operating system, and navigator shell, even 
though it is powered ``off''. In section 12, requirements include 
mechanical and environmental properties such as: Input Line Voltage, 
Input Line Frequency, Nominal Power Consumption, Physical Security/
Tampering-Resistance, RF Susceptibility, Radiated RF, Conducted 
Lightning Surge Tolerance, Line Surge Test, Line Surge Test , Power 
Cross, Electrostatic Discharge, Brown Out Effects, Operating Ambient 
Temperature and Humidity, External Surface Temperature, Storage 
Temperature, Storage Humidity, Altitude, Thermal Shock, Humidity Shock, 
Solvent Resistance, Shipping Vibration, Mounting Feet, Keypad Keys, 
Impact Test, Static Load on Keypad Keys, Handling Drop Test, Strain 
Relief Test, Non-volatile Memory Battery Life, Microphonic Shock, etc. 
These types of requirements do nothing to promote interoperability, 
prevent theft of service, protect copyrights, or secure the cable 
network. Their only effect is to restrict innovation and product 
differentiation, add unnecessary and burdensome product cost, and limit 
consumer choice.
    \4\ The Specifications contain 130 separate normative references to 
other specifications and publications.
    \5\ Some of the security enhancements to those ANSI specifications, 
such as mutual authentication between host and pod, may be appropriate 
to carry over.
---------------------------------------------------------------------------
    2. No real design freedom. In light of the problems already 
identified in Paragraph 1 above, in reality, the PHILA/Specifications 
define a traditional set top box and undermine real design freedom, the 
ability to innovate, and the ability to integrate, navigation features 
and functionality into multi-function devices. The PHILA/ 
Specifications define a limited consumer device (both with respect to 
form and function) with specific features. The Specifications require 
strict compliance as to product design and operation unrelated to 
security. Moreover, the Specifications define functionality and 
mechanical integrity of products ``as a whole'' and not just with 
respect those portions of a device that in fact implement the Pod-Host 
Interface, or even those portions of a device that represent the 
``Host'' instantiation. In addition, CableLabs retains discretionary 
power both to further define these features, and to replace the 
Specification with an entirely new or material different specification. 
It is even more troubling that the PHILA contains no requirement that 
any materially changed or new specification be backwards compatible 
with previous versions of the Specifications. This potentially makes 
entire generations of products and their associated capital investments 
worthless. The Compliance and Robustness Rules complicate these facts 
by opening the door for CableLabs to dictate the features and behavior 
of other technologies that might be approved outputs without regard for 
security concerns. Collectively, these issues not only eliminate design 
freedom, but create material barriers to market entry. Intel recommends 
eliminating all ``requirements'' unrelated to the interface and network 
security and allowing the market to drive product features and other 
functionality. In this context, Intel supports the approach adopted by 
the CEA in its draft, and supports the efforts of this Committee to 
move in these directions as evidenced by the Draft Bill.
    3. Anti-Consumer Features. The PHILA fails to support, and in fact 
prohibits, consumer features such as moving PVR recordings to another 
device in the home network. Features like ``move'' are critical for 
consumers to be able to set up their home networks in a flexible 
manner.6 In addition, enabling these features is necessary 
to create a level playing field among competing devices in the home 
network. On the other hand, PHILA/Specifications enable and require 
support for many anti-consumer features such as ``selectable output 
control'' 7 without providing any safeguards for product 
manufacturers and consumers with respect to how those features might be 
used. Requiring implementers to support anti-consumer capabilities with 
no guarantee that cable operators and content providers will respect 
consumer rights is not acceptable, either from a consumer perspective 
or from a product manufacturer perspective. Encoding rules, like those 
contained in the DTCP license offered by 5C, define the ways content 
providers may use a conditional access technology and establish a 
minimum set of consumer rights. For example, consumers should be 
guaranteed the right to record for time and space shifting purposes 
most programming as long as the recordings are reasonably protected 
against unauthorized Internet retransmission. Intel recommends that the 
Specifications be amended to include, e.g., ``move'' capability, and 
that a uniform set of encoding rules be included for the benefit and 
protection of consumers and device manufacturers alike. Intel supports 
and recognizes the efforts of the Committee reflected in the Draft Bill 
to move in this direction.
---------------------------------------------------------------------------
    \6\ Many consumers, for example, record a program in one room to 
watch later and then view that recording on a screen in another room.
    \7\ ``Selectable output control'' is the ability of a cable 
operator to ``shut off'' specific outputs of a consumer's device, such 
as the consumer's 1394 or USB connection.
---------------------------------------------------------------------------
    4. PHILA contains many provisions that discourage entry into the 
market place. The license, for example, creates implementer liability 
not only to CableLabs but also to an extremely broad class of unnamed 
third party beneficiaries (content providers, cable operators, and 
others) for non-compliance with the PHILA/Specifications. Implementers 
also face the threat of injunction to stop the manufacture and sale of 
their products resulting from claims made by this same class of third 
party beneficiaries. There simply are no safe harbors for 
manufacturers, even if they obtain CableLabs certification for a 
specific product. The license also contains other over-reaching legal 
provisions, such as the covenants not to sue. Those provisions extend 
well beyond necessary or essential patent claims to implement an 
interface, and include the intellectual property contained in the 
entire product, even if only a portion of that product actually 
implements the Specifications. These kinds of provisions discourage 
adoption and Intel recommends adoption of an approach like that 
contemplated in the DTCP license agreement. That agreement both 
specifically identifies third party beneficiaries and the process for 
third party beneficiary claims and appropriately tailors the 
intellectual property provisions (such as the covenants not to sue) to 
narrowly cover no more than the interface itself. Intel believes that 
the Committee's affirmative statements in the Draft Bill that require 
reasonable and non-discriminatory licensing are specifically intended 
to covers of this nature, and we applaud the Committees efforts in this 
regard.
    5. The certification requirement. Certification is another area 
that greatly discourages makers of multiple function devices to adopt 
the PHILA and implement the Specifications. The certification process 
is extremely broad with no assurance that products will be 
interoperable or portable to other systems. History suggests the 
process will be slow, expensive, and unpredictable and interfere with 
product introduction.8 The complexity of the unnecessarily 
referenced specifications, coupled with detailed requirements regarding 
form factor and other features unrelated to security, make the 
certification requirement a bottleneck for market entry. In large 
measure this bottleneck is wholly unrelated to interoperability and 
security. Whole product cycles and valuable business opportunities can 
be lost to the certification process. In addition, as pointed out 
above, certification does not create a ``safe harbor'' with respect to 
liability, or even guarantee interoperability. The certification 
process is especially troublesome for makers of multi-function, and 
integrated devices as the process covers the entire ``device'' rather 
than just the ``Host'' implementation. The PHILA creates even more 
uncertainty because it couples these complexities with the need to 
individually certify both multiple device types and each particular 
product configuration. This is particularly true for computer products 
where multiple vendors offer multiple products with multiple 
configurations that change on a rapid basis in order to meet consumer 
demand and keep up with the evolution of technology and product 
innovation. For example, consumers today can go to leading PC OEMs and 
have their PC custom configured to meet their particular needs. Each 
and every configuration, each upgraded or slightly changed product must 
be separately certified with respect to the entire device before it can 
enter the market. The impact that this will have on the ability of 
multi-function devices to be cable compatible will be immeasurable. 
Therefore, Intel recommends that this serious defect be remedied by 
self-certification.
---------------------------------------------------------------------------
    \8\ CableLabs has reserved the right to charge for certification, 
but it is unclear what the fee might be. In addition, although the 
proposed certification period for an OpenCable device is six weeks, we 
question whether that is realistic. By way of example and comparison, 
for DOCSIS cable modem certification, there is a $98,010. Both DOCSIS 
and OpenCable use the ``wave'' process and guidelines. In this process, 
whenever a product is changed in the slightest manner, that slightly 
changed product must be re-submitted for certification with a fee. 
Certification ``waves'' begin in relative rapid succession (a few weeks 
apart), usually not giving the product manufacturer adequate time to 
even address the reasons for failure in time for the next ``wave''. 
Each certification ``wave'' takes (in the case of a modem) several 
months. Whole product cycles can easily be missed for immaterial 
failures.
---------------------------------------------------------------------------
    Self-certification is standard procedure for many interoperability 
specifications, including many that have been approved and are being 
deployed by the content community. Examples include DTCP, CPPM, CPRM, 
HDCP and CSS for DVD Video. The fact that DTCP and HDCP are approved 
outputs for OpenCable Navigation Devices, and CPRM is an approved 
recording technology, demonstrates that self-certification is 
appropriate and normal, even where content protection and security 
principles and technologies are deployed. In this context, Intel 
supports the self-certification approach reflected in the CEA draft. 
Intel applauds the Committee's recognition of the importance of self-
certification by supporting self-certification in the Draft Bill.
                        summary and conclusions.
    Intel's vision of the future Digital Home is not only consistent 
with, but embodies, Congress' vision of the future. As this Committee 
has recognized in its Draft Bill, the principles and issues raised in 
our analysis are not unique to computer manufacturers but reach all 
market participants and ultimately all consumers. Indeed, we appreciate 
the fact that this Committee shares our vision of the Digital Home, 
wherein all device manufacturers are able to compete openly and fairly. 
That vision will permit consumers to ultimately decide which selection 
of products, goods and services best fit their lifestyles and 
particular needs. Interoperability, innovation and integration create 
the path that leads not only to market opportunities for new and 
existing companies, but also to consumer satisfaction through choice, 
flexibility and portability. In this context, we again applaud this 
Committee's recognition of the importance of consumer labeling in the 
creation and development of effective digital markets. Intel believes 
that this Committee is making bold efforts to bring Congress' vision 
into line with the realities of standards-based, competitive markets, 
and we encourage and support further efforts in that direction.
    Thank you for your consideration.
            Respectfully submitted,
                                        Donald M. Whiteside
                   VP Legal & Government Affairs, Intel Corporation
                                 ______
                                 
    Prepared Statement of Lawrence J. Blanford, Chairman and Chief 
     Executive Officer, Philips Consumer Electronics North America
    WASHINGTON, DC--September 25, 2002--Philips applauds the efforts of 
Chairman Tauzin and Congressman Dingell to accelerate the transition to 
digital television.
    The Committee staff discussion draft is comprehensive in its scope 
and bold in its approach. It advances the cause of the digital 
television transition by embracing several vital core principles.
    Specifically, the draft recognizes that compatibility between cable 
systems and digital TV products is absolutely essential for the DTV 
transition to succeed. A consumer must be able to purchase, from a 
retail outlet, a ``cable ready'' digital TV receiver that works with a 
cable system anywhere in the country without a set top box.
    The draft also recognizes the need to strike a proper balance 
between the legitimate rights of content providers to protect their 
digital content from unauthorized redistribution over the Internet to 
the public and consumers' expectations that they will be able to freely 
record and use such content for legitimate, noncommercial purposes.
    The draft creates a framework in which the development of digital 
content protection technologies for use with the broadcast flag should 
promote competition and innovation rather than stifle it.
    Philips looks forward to working with the Committee and others in 
Congress to enact DTV transition legislation that builds on this draft 
by protecting consumers, encouraging innovation in consumer products, 
and ensuring competition in the digital television marketplace.
                             About Philips
    Royal Philips Electronics of the Netherlands is one of the world's 
biggest electronics companies and Europe's largest, with sales of $28.8 
billion (EUR 32.3 billion) in 2001. It is a global leader in color 
television sets, lighting, electric shavers, medical diagnostic imaging 
and patient monitoring, and one-chip TV products. Its 184,010 employees 
in more than 60 countries are active in the areas of lighting, consumer 
electronics, domestic appliances, components, semiconductors, and 
medical systems. Philips is quoted on the NYSE (symbol: PHG), London, 
Frankfurt, Amsterdam and other stock exchanges. News from Philips is 
located at www.news.
philips.com
                                 ______
                                 
       Prepared Statement of the Religious Voices in Broadcasting
                              introduction
    On behalf of the Religious Voices in Broadcasting, we submit the 
following statement for the record of the House of Representatives 
Energy and Commerce Committee hearing on digital television.
    Diversity of opinions and the ability to express distinctive points 
of view are core elements of American life. Broadcast television serves 
as the single most identifiable medium to communicate and reach 
American citizens. Most Americans support expressions of varying 
beliefs, even when those expressions are contrary to their personal 
beliefs.
    Unfortunately, the balance of diversity in broadcasting often 
disfavors small, independent broadcasters. These broadcasters are 
comprised in large part of religious broadcasters.
    The specific issue of multicast must-carry is crucial for these 
voices to be heard. We ask the committee to take into account the 
concerns of our group, and the need for our programming to continue to 
be part of the American television experience--to ensure the very 
diversity that our nation treasures.
                               background
    The 1992 Cable Act and its application to Digital Must Carry
    In the 1992 Cable Act, Congress legislated that all free over-the-
air broadcasters should be carried on a cable system up to \1/3\ of a 
cable operator's channel capacity. This formula was carefully 
constructed after evaluating the number of cable channels and broadcast 
stations. This percentage formula ensured a balanced regulation that 
would be relevant as both cable and broadcast evolved.
    In 1997 the Supreme Court determined that this requirement was 
reasonable, not an undue burden on cable operators, and most 
importantly, not an infringement of their First Amendment rights.
    Digital technology allows cable operators to expand their systems 
to 400 channels or more. This expansion will add to programming 
capabilities of cable operators, and give audiences more viewing 
choices, not less. Digital television technology also allows for 
multiple streams of broadcasting within that same 6 mhz of spectrum 
that carried one channel of analog programming. Congress, while unable 
to anticipate the exact nature of emerging digital television 
technology, did anticipate in the 1992 Cable Act the necessity of must-
carry requirements in ``advanced television.''
    Nonetheless, in January 2001 the FCC under former Chairman Kennard 
ruled that only one ``primary channel'' from a digital broadcaster must 
be carried by a cable operator (either standard definition or high 
definition).
    This decision to limit a broadcaster's must-carry rights to the 
``primary video stream'' was an incorrect interpretation of the 1992 
Cable Act. It has been harmful to the digital television transition by 
ensuring broadcaster's voices will be diminished, thus restricting the 
future of diverse voices in the market. This has proven to be 
particularly true with independent broadcasters.
    With the implementation of must-carry in 1992, the vibrancy of 
television has been enhanced, increasing the choices of outlets and 
programming. Over the last 10 years, both broadcast and cable 
television have experienced tremendous growth marked by additional 
broadcast networks, strong independent stations, expanded cable 
channels, and a multitude of new program offerings.
    However, free over-the-air broadcasting will be limited under the 
existing ``primary channel'' interpretation, as broadcasters will be 
dwarfed in a sea of hundreds of cable channels. To limit broadcasters 
to either one stream of a multicast of channels or a high definition 
signal instead of maintaining carriage of the entire 6 mhz of spectrum 
is financially unfeasible for most small and local broadcasters. Many 
will be unable to compete in a digital television world with these 
limitations.
    Without full multicast must carry, cable operators will be in a 
position to exclude channels that compete directly with their owned 
services. Through vertical and horizontal integration, they may further 
consolidate editorial control and programming, thus eroding the 
diversity of voices.
    Thus, carriage of only the one ``primary channel'' will not satisfy 
the governmental interests in preserving the benefits of free broadcast 
television that traditionally have been available to over-the-air 
viewers. Furthermore, it controverts the clear governmental interest 
mandated by Congress, and identified by the Supreme Court and justified 
by a carefully tailored maximum \1/3\ cable capacity ceiling to ensure 
the widespread dissemination of information from a multiplicity of 
voices in the market.
                               conclusion
    This committee should require full must carry provisions of the 
entire 6 mhz of spectrum to hasten the digital transition. This should 
include all free over-the-air channels up to \1/3\ of a cable 
operator's capacity. Multicast must carry will maintain the balance 
struck by Congress and upheld by the Supreme Court, which has allowed 
broadcasters to remain viable and enable the emergence of new networks 
and strong independent stations, while simultaneously allowing cable to 
grow and prosper with hundreds of new channels.
    We are local and independent broadcasters that provide a diversity 
of important viewpoints, family friendly programming, and uplifting and 
inspirational entertainment. We support diversity in the medium, and 
while we know that must-carry must be content neutral, the essence of 
multi-cast must-carry provides for a variety of content that promotes 
our core mission as well as all other programmers.
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