[Senate Hearing 107-1103]
[From the U.S. Government Publishing Office]



                                                       S. Hrg. 107-1103



                    TRANSITION TO DIGITAL TELEVISION

=======================================================================

                                HEARING

                               BEFORE THE

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 1, 2001

                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation



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           COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                     JOHN McCAIN, Arizona, Chairman
TED STEVENS, Alaska                  ERNEST F. HOLLINGS, South Carolina
CONRAD BURNS, Montana                DANIEL K. INOUYE, Hawaii
TRENT LOTT, Mississippi              JOHN D. ROCKEFELLER IV, West 
KAY BAILEY HUTCHISON, Texas              Virginia
OLYMPIA J. SNOWE, Maine              JOHN F. KERRY, Massachusetts
SAM BROWNBACK, Kansas                JOHN B. BREAUX, Louisiana
GORDON SMITH, Oregon                 BYRON L. DORGAN, North Dakota
PETER G. FITZGERALD, Illinois        RON WYDEN, Oregon
JOHN ENSIGN, Nevada                  MAX CLELAND, Georgia
GEORGE ALLEN, Virginia               BARBARA BOXER, California
                                     JOHN EDWARDS, North Carolina
                                     JEAN CARNAHAN, Missouri

                  Mark Buse, Republican Staff Director
            Martha P. Allbright, Republican General Counsel
               Kevin D. Kayes, Democratic Staff Director
                  Moses Boyd, Democratic Chief Counsel


                            C O N T E N T S

                              ----------                              

                                                                   Page
Hearing held on March 1, 2001....................................     1
Statement of Senator Brownback...................................    48
    Prepared statement...........................................    49
Statement of Senator Burns.......................................     4
    Prepared statement...........................................     4
Statement of Senator Cleland.....................................    49
Statement of Senator Dorgan......................................    42
Statement of Senator Fitzgerald..................................    52
Articles:
    Giving Away the Airwaves, March 27, 1997, New York Times.....    52
    Hold Broadcasters to the Deadline, July 18, 1997, St. 
      Petersburg Times...........................................    53
    Networks Ride Free--Delay Digital, October 11, 2000, New York 
      Times......................................................    54
    Spectrum `Pork' Blasted--Auction Threat Looms, February 3, 
      1997, 
      Electronic Media...........................................    55
    The Networks' Free Ride--Congress Should Take Back Channels 
      Given to Television Broadcasters, September 17, 1997, Grand 
      Rapids Press...............................................    56
Statement of Senator McCain......................................     1
Statement of Senator Stevens.....................................     2
Statement of Senator Wyden.......................................     3

                               Witnesses

Cooper, Dr. Mark, Director of Research, Consumer Federation of 
  America........................................................    58
    Prepared statement...........................................    60
Gattuso, James L., Vice President for Policy and Management, 
  Competitive Enterprise Institute...............................    62
    Prepared statement...........................................    64
Hazlett, Thomas W., Ph.D., Resident Scholar, American Enterprise 
  Institute for Public Policy Research...........................    78
    Prepared statement...........................................    79
Kraemer, Dr. Joseph S., Director, LECG, LLC......................    66
    Prepared statement...........................................    68
Sagansky, Jeff, President and Chief Executive Officer, Paxson 
  Communications Corporation.....................................     5
    Prepared statement...........................................     7
Tucker, Ben, Executive Vice President for Broadcast Operations, 
  Fisher Broadcasting, Inc., and Television Board Chairman, 
  National Association of Broadcasters...........................     8
    Prepared statement...........................................    10
Willner, Michael S., President and Chief Executive Officer, 
  Insight Communications.........................................    25
    Prepared statement...........................................    26

                                Appendix

Hollings, Hon. Ernest F., U.S. Senator from South Carolina, 
  prepared statement.............................................    91
Lewis, Richard M., Senior Vice President, Research and 
  Technology, Zenith Electronics Corp., prepared statement.......    91
Miller, Robert T., President, Viacel Corp., prepared statement...    97
Oakley, Ralph M., Vice President and Broadcast Group Head, Quincy 
  Newspapers, Inc., prepared statement...........................    94

 
                    TRANSITION TO DIGITAL TELEVISION

                              ----------                              


                        THURSDAY, MARCH 1, 2001

                               U.S. Senate,
        Committee on Commerce, Science, and Transportation,
                                                   Washington, D.C.
    The Committee met, pursuant to notice, at 9:35 a.m. in room 

SR-253, Russell Senate Office Building, Hon. John McCain, 
Chairman of the Committee, presiding.

            OPENING STATEMENT OF HON. JOHN McCAIN, 
                   U.S. SENATOR FROM ARIZONA

    The Chairman. Good morning. In 1997 the Congess embarked on 
a path that we hoped would lead to a revolution for the 
American consumer: digital television. Digital television 
technology--especially high definition television--we were told 
has the potential to provide sharp movie-quality pictures as 
well as CD-quality sound to the U.S. consumer.
    The Congress took some extraordinary steps in pursuit of 
the DTV goal, giving to the broadcast industry a huge amount of 
spectrum and engaging in what the Wall Street Journal then 
described as a ``planned multi-billion dollar handout for 
wealthy TV-station owners.'' Although other industries must buy 
their spectrum in competitive auctions, here, the government 
decided to give away the spectrum needed to provide free TV 
broadcasts in high definition television. Moreover, the 
government decided that the broadcasters could keep their old 
analog spectrum--a gift from the past--until 2006, or until 85 
percent of American homes had digital television.
    Considering it took approximately 20 years for color TV and 
16 years for VCRs to reach that level of market penetration, 
that was quite a gift.
    And now where are we? The situation is a mess--
characterized more by finger pointing than progress.
    Manufacturers blame the dearth of digital programming for 
low consumer demand for HDTV, and the cable companies blame the 
manufacturers for delays in agreeing to interoperability 
standards. And the broadcasters, well, the broadcasters blame 
the FCC, local zoning boards, standards disputes, equipment 
manufacturers, content providers and Congress--in short, 
everybody but themselves.
    And then there is still the question of standards and 
whether we actually are moving to digital TV of HDTV.
    An attempt to assign blame for this situation is futile.
    The interested parties all disagree about whether there is 
a problem, the extent of any problem, and who is to blame. But 
this much is clear: By 2006, this country will have neither the 
transmission facilities, nor the digital content, nor the 
reception equipment needed to ensure that 85 percent of the 
population will be able to received digital television as their 
exclusive source of television.
    Congress, having given away billions of dollars in public 
assets to ensure a smooth and rapid transition to a competitive 
DTV marketplace, will be held accountable by the public if that 
transition becomes even slower, more costly to the taxpayer, or 
anticompetitive.
    In short, no matter who is to blame for the existing 
problems, the Congress that devoted public assets to the DTV 
transition will be held accountable for finding solutions.
    But many of the solutions being proposed today presume that 
problems created by a failed attempt at centralized planning 
can be solved by more attempts at centralized planning. Worse 
yet, some of these proposed solutions would seem only to shift 
additional costs of the DTV transition onto the backs of 
taxpayers who have already devoted their valuable spectrum to 
the transition, or onto the backs of competing industries that 
pay for their spectrum.
    For example, some propose mandating that all television 
sets sold in America be made digitally compatible--even though 
this would substantially raise the cost of a new television 
set. Others propose that broadcasters should be allowed to 
benefit from a slow DTV transition by gaining indefinite use of 
free spectrum that could be used to multicast standard 
definition signals or to distort competition in the wireless 
communications markets by competing against companies and 
technologies that had to pay for the spectrum they use. We must 
examine all these issues here today.
    Political columnist William Safire noted in the New York 
Times, quote: In terms of ripping off the taxpayers with not a 
peep from the media, nothing compares with the broadcasters' 
lobby. This phalanx of freeloaders has stolen the free use of 
great chunks of the most valuable natural resource of the 
information age: the digital television spectrum owned by the 
American people. When private money is on the line, private 
companies move fast; but when public assets go to private 
pockets, at no interest, private companies sit tight.''
    We are here at this hearing to give the broadcast industry 
a chance to show its commitment to sound public policy--to show 
that it will do more than just sit tight.
    I thank today's witnesses for joining us and look forward 
to their testimony.
    Senator Stevens, do you have an opening comment?
    Senator Stevens. Senator Burns was here first, Mr. 
Chairman.
    The Chairman. I am sorry. We usually go by seniority as to 
when the hearing starts, but if you would like, Senator Burns, 
you are recognized.
    Senator Burns. Go ahead, Senator.

                STATEMENT OF HON. TED STEVENS, 
                    U.S. SENATOR FROM ALASKA

    Senator Stevens. Mr. Chairman, I think we should listen to 
the industry today. What we planned, obviously you are right, 
was not on track and the market has not responded to the 
timeframe that we originally envisioned for this transition.
    There are a lot of unique problems out there in converting 
to digital. In my State, for instance, one of the great 
problems is the terrain, and we find that instead of one tower 
in Anchorage, we are going to have to have two towers. If we 
put it high enough for one tower, it would interfere with the 
FAA restrictions to protect aircraft.
    We are going to have to have probably some specific 
legislation dealing with rural areas such as ours, but beyond 
that, we have got the problem of the public broadcasters. We 
did put up money to assist the small broadcasters to make the 
transition, but it was subject to authorization. Because no 
authorization bill has passed, the funds are not available for 
use. By definition, public broadcasters are going to be out 
probably 2 or 3 years beyond the deadline in existing law 
before they can make the conversions.
    I do think there is some need for extension of the 
deadlines in the existing law. I hear what you say and I 
respectfully disagree with some of it. I think we have got to 
listen to the market and see what the market is going to do 
with regard to development of demand for this new digital 
service. These people just cannot afford to convert ahead of 
the public and yet, the public will not convert until they 
start the mechanism, as you say, of conversion.
    So, it is time for us to listen, I think, and see what the 
respective portions of the industry advise us to do. Clearly, I 
think this Congress is going to have to do something, or else 
the deadlines in the existing law will come, and there is going 
to be real chaos out there in about 1 year. I hope this is just 
the first of a series of hearings to deal with this issue, 
because I think we are going to hear some rather divergent 
views here today. As I said, I think we should listen to them 
before we make our final judgment of what to do. Thank you.
    The Chairman. Thank you, Senator Stevens.
    Senator Wyden.

                 STATEMENT OF HON. RON WYDEN, 
                    U.S. SENATOR FROM OREGON

    Senator Wyden. Thank you, Mr. Chairman. I very much agree 
with what both you and Senator Stevens have said and it just 
seems to me we have got a classic chicken and egg situation 
here. Nobody wants to broadcast digital signals if consumers do 
not have TVs to receive them, and consumers do not want to buy 
the TVs to receive digital signals if nobody is broadcasting 
them. And you characterized it, Mr. Chairman, I think 
correctly, we have just got a lot of finger-pointing.
    The one area that I would like to explore is whether it 
might be possible to create some incentives on both sides of 
this debate, consumers and broadcasters, to encourage people to 
move more quickly. I am reluctant to move the dates back, 
because I think everything would fall apart if that were the 
case, but as both you and Senator Stevens have said, we do need 
to listen today and look for some creative ways to move 
forward, and I appreciate you holding the hearing.
    The Chairman. Thank you.
    Senator Burns.

                STATEMENT OF HON. CONRAD BURNS, 
                   U.S. SENATOR FROM MONTANA

    Senator Burns. Mr. President, I would ask unanimous consent 
that I put my statement in the record.
    The Chairman. Without objection.
    Senator Burns. Just with a comment, though, that I looked 
back and looked back over previous statements regarding this, 
and I think we took sort of a cautious approach to conversion. 
It seems strange to me that we go around the world promoting a 
market driven economy, and we said at the time that the 
conversion will be driven more by market than it will be by 
government mandates, and on how we make our investments in the 
broadcast industry and those things.
    I agree with you though, there are some problems out there 
engineering wise, and like in my State of Montana, and my State 
sort of mirrors, although not on near the scale that Alaska 
does, but we are confronted by some of the same problems.
    There are some components, and I think I would agree with 
both of you that we had better sit and listen today to the 
experts, and do some of our own individual investigation on 
what is truly going on in the market and how the progress is 
being made before we make any decisions that we would probably 
not like in 2 or 3 years. But we are coming down to a deadline 
where we are going to have to make some decisions.
    I thank you for holding this hearing today. I think it is 
very very important.
    [The prepared statement of Senator Burns follows:]

               Prepared Statement of Hon. Conrad Burns, 
                       U.S. Senator from Montana

    I thank the Chairman for calling the hearing today, as it concerns 
a topic that is both vitally important and often misunderstood--the 
transition to digital television. I think it's very appropriate that 
this hearing was elevated to the full committee level and I thank the 
Chairman for doing so.
    I share your interest in ensuring that the transition move forward 
as expeditiously as possible. The American people have a significant 
investment in this transition. We therefore owe it to the American 
people to make sure that this valuable resource is put to its best use. 
This includes ensuring that broadcasters' analog spectrum is returned 
at the earliest possible date so that spectrum can be re-allocated for 
other uses, such as next-generation mobile services.
    I should note that most broadcasters are ready and willing to move 
forward and keep the promises they made to Congress over the last 
several years. Indeed, many broadcasters have already invested many 
millions of dollars in creating the infrastructure necessary for a 
rapid transition to digital programming.
    I've always been skeptical of government mandates, just as I felt 
that hard-and-fast digital buildout requirements were more a product of 
budget politics than engineering reality. Rather, the debate should 
focus on the progress the broadcasters are making in their conversion 
to this exciting new technology and how it can be made available to the 
public as quickly as possible.
    I look forward to hearing from today's witnesses on the state of 
the transition. We need to analyze each of the three components to the 
transition, and assess where we are in the process.
    The first component is the broadcast stations' build-out 
requirements. The FCC has established firm build-out deadlines. The 
Committee needs to know where we stand on those deadlines. Are there 
any regulatory obstacles blocking our path to an expeditious build out?
    The second component relates to programming. Are program producers 
creating enough digital programming? Is that programming being filmed 
in analog format, and then converted to digital? Or is the programming 
originally filmed in digital format?
    The last of the three components relates to the American consumer. 
Like the stations and the program producers, consumers have to convert 
to digital as well. And in order for them to convert, they must have 
access to a robust DTV product market that offers consumers competitive 
choices and prices.
    On this point, I am concerned that the development of a robust DTV 
product is being slowed by the delay in industry negotiations over copy 
protection. Specifically, I understand that the negotiations are 
deadlocked over the question of whether DTV devices should be designed 
in such a that they protect against retransmission of local broadcast 
programming over the Internet.
    In my view, industry should agree to provide the same level of copy 
protection to broadcast programming that it provides come to non-
broadcast programming. Through the recent satellite television 
legislation, Congress re-affirmed its commitment to free, over-the-air 
television. I urge industry negotiators to renew their efforts in such 
a way that our commitment to free, over-the-air television is embodied 
in copy protection negotiations.
    In doing so, industry can do its part to encourage innovation in 
the DTV product market, which in turn will speed the transition to 
digital.
    Thank you, Mr. Chairman. I look forward to the testimony of today's 
witnesses.

    The Chairman. Thank you very much, Senator Burns.
    Our first panelist, Mr. Jeff Sagansky, is the President-CEO 
of Paxson Communications; Mr. Ben Tucker is the Executive Vice 
President for Broadcast Operations of Fisher Broadcasting; and 
Mr. Michael Willner is President and CEO of Insight 
Communications.
    I would like to welcome our first panel of witnesses, and 
Mr. Sagansky, we will begin with you.

        STATEMENT OF JEFF SAGANSKY, PRESIDENT AND CHIEF 
           EXECUTIVE OFFICER, PAXSON COMMUNICATIONS 
                          CORPORATION

    Mr. Sagansky. Thank you, Mr. Chairman and distinguished 
members of the Committee for providing me with the opportunity 
to appear before your panel today to discuss the digital 
television transition. My name is Jeff Sagansky and I am 
President and CEO of Paxson Communications.
    Senator Burns. A little closer with the microphone, thank 
you.
    Mr. Sagansky. I am CEO of Paxson Communications 
Corporation, the largest broadcast television group owner in 
the United States, 65 stations strong, and the creator of PAX-
TV network, which was launched in August 1998 and now reaches 
81 percent of all American homes.
    Throughout my career, I have programmed various broadcast 
networks that became No. 1 with family programming. At NBC in 
the 1980s, I programmed ``Cosby'' and ``Family Ties.'' At CBS 
in the 1990s, ``Touched by an Angel'' and ``Dr. Quinn Medicine 
Woman.'' This type of programming is no longer favored by the 
broadcast networks, so at PAX-TV we set out to create a network 
that was dedicated to family-oriented programming, with an 
emphasis on positive values and strong role models.
    When we launched two-and-a-half years ago, we repeatedly 
heard from media pundits--``no sex, no violence, no ratings.'' 
Yet, here we are today, turning a profit and proving that the 
public is looking for--and advertisers will support--family 
television.
    We would not exist today at all were it not for the ability 
of our owned stations and our affiliated stations to obtain 
cable and satellite carriage for their signals under the 1992 
Cable Act and the SHVIA Act of 1999.
    Our future as an emerging network is now tied directly to 
the success of digital television transition in this country 
and to the continued full cable and satellite carriage of our 
stations' programming. That digital future is a potentially 
great one. Some networks see the future of high definition TV 
showing sporting events and movies. We at PAX have always 
maintained that the highest and best use of our digital 
spectrum is multiple channels of high quality information, 
lifestyle news and entertainment centered around the family; 
enabling families to be more effective in their homes and in 
their communities.
    And yet, the digital transition that is our future is in 
very serious trouble. Within 14 months our 65 stations must be 
broadcasting digitally. However, at this hour only a third of 
our 65 stations have even received DTV construction permits 
from the FCC.
    Last year in the United States there were 33 million analog 
TV sets sold, compared to only 26 thousand digital tuners.
    We need a digital All-Channel Receiver Act that would 
enable all television sets sold to the American public to be 
capable of receiving both analog and digital signals. Consumers 
have a right, when they buy a TV set, to be assured that it 
will not shortly become obsolete.
    There are also copyright issues and cable-television 
interoperability issues that must be promptly resolved once and 
for all by the FCC. After 4 years, it is obvious that the 
marketplace is not establishing these standards. The FCC needs 
to deal with these issues now.
    Undoubtedly, the most important single issue for PAX-TV in 
terms of a successful DTV transition to cable is cable and 
satellite carriage of all 6 Mhz of our stations' digital 
signals.
    Like us, many other broadcasters, including public 
television stations, believe that the capability to multicast 
several programming services is the key to their use of the 
digital spectrum. We do not feel that our digital future is in 
devoting our entire digital capacity to a single stream of 
programming, nor in using our digital capacity for ancillary 
uses such as datacasting. But we need the assurance that our 
multiple free, over-the-air programming services will be 
received by 70 percent of the homes in this country that are 
served by cable and satellite. They are the gatekeeper.
    Our concern is that a divided FCC last month adopted rules 
that will not only hurt the DTV transition, but undermine PAX-
TV's efforts to multicast its free, over-the-air programming 
services. First, the FCC said that television stations cannot 
request cable carriage of their digital signal until they turn 
in their analog channels, which will be years away. We think 
this is a bad decision. This discourages broadcasters from 
building their digital stations and consumers from buying DTV 
sets, and it severely damages the overall chances for economic 
viability of digital television.
    The FCC also decided to permit cable operators to carry 
only one of a station's multiple channels of free, over-the-air 
programming rather than requiring cable systems to carry all 
such free programming. This decision was also wrong. It is 
contrary to the congressional intent evidence in 1992 when you 
adopted the must-carry rules. Anyone reading the recent FCC 
decision will recognize that the Commissioners were clearly 
uneasy with their decision and, in fact, were reaching out to 
Congress for guidance on this issue. PAX-TV urges this 
Committee to take the opportunity to reaffirm the congressional 
commitment to full digital must-carry and to the preservation 
of free, local television by endorsing multi-channel digital 
must-carry for all free, over-the-air programming services.
    If content is going to be one of the key drivers to the DTV 
transition, then give the consumer access to all the free 
content that we, the local broadcasters, have the ability to 
air.
    Thank you.
    [The prepared statement of Mr. Sagansky follows:]

  Prepared Statement of Jeff Sagansky, President and Chief Executive 
               Officer, Paxson Communications Corporation

    Thank you Mr. Chairman, Mr. Co-Chairman and distinguished Members 
of the Committee for providing me with the opportunity to appear before 
your panel today to discuss the Digital Television Transition. My name 
is Jeff Sagansky and I am President and CEO of Paxson Communications 
Corporation, the largest television group owner in the United States, 
65 stations strong, and the creator of the PAX-TV network, which was 
launched August, 1998 and now reaches 81 percent of all American Homes.
    Throughout my career I have programmed various broadcast networks 
that became No. 1 with family programming. At NBC in the 1980s, I 
programmed ``Cosby'' and ``Family Ties.'' At CBS in the 1990s, I 
developed ``Touched By An Angel'' and ``Dr. Quinn Medicine Woman.'' 
This type of programming is no longer favored by the broadcast 
networks, so at PAX-TV we set out to create a network that was 
dedicated to family oriented programming with an emphasis on positive 
values and strong role models.
    When we launched 2\1/2\ years ago, we repeatedly heard from media 
pundits--no sex, no violence, no ratings. And yet here we are today, 
turning a profit and proving that the public is looking for--and 
advertisers will support--family values television.
    We would not exist today were it not for the ability of our owned 
and affiliate stations to obtain cable and satellite carriage for their 
signals under the 1992 Cable Act and the SHVIA Act of 1999.
    Our future as an emerging network is now tied to the success of the 
digital television transition in this country and to the continued full 
cable and satellite carriage of our stations' programming. That digital 
future is a potentially great one. Some networks see a future of high 
definition TV showing sporting events and movies. We at PAX have always 
maintained that the highest and best use of our digital spectrum is 
multiple channels of high quality information, lifestyle news and 
entertainment centered on the family; enabling families to be more 
effective within their homes and communities.
    And yet, the digital transition that is our future is in very 
serious trouble. Within 14 months, our 65 television stations must be 
broadcasting digitally. However, at this hour only one-third of our 
stations have even received DTV construction permits from the FCC.
    Last year in the United States there were 33 million analog TV sets 
sold compared to only 26 thousand digital tuners.
    We need a Digital All-Channel Receiver Act that would require that 
all television sets sold to the American public be capable of receiving 
both analog and digital signals. Consumers have a right when they buy a 
TV set to be assured that it will not shortly become obsolete.
    There are also copyright issues and cable-television inter-
operability issues that must be promptly resolved once and for all by 
the FCC. After 4 years, it is obvious the marketplace is not 
establishing these standards. The FCC needs to deal with these issues 
now.
    Undoubtedly, the most important issue for PAX-TV in terms of a 
successful DTV transition is cable and satellite carriage of all 6 Mhz 
of our stations' digital signals.
    Like us, many other broadcasters including public television 
stations believe that the capability to multicast several programming 
services is the key to their use of the digital spectrum. We don't feel 
our digital future is in devoting our entire digital capacity to a 
single stream of programming nor in using digital capacity for 
ancillary uses such as datacasting. But we need the assurance that our 
multiple free, over-the-air programming services will be received by 
the 70 percent of the homes of this country that are served by cable 
and satellite.
    Our concern is that a divided FCC last month adopted rules that not 
only will hurt the DTV transition but undermine PAX-TV's efforts to 
multicast its free, over-the-air family program services. First, the 
FCC said that television stations cannot request cable carriage of 
their digital signal until they turn in their analog channels which 
will be years away. We think this is a bad decision that discourages 
broadcasters from building their digital stations and consumers from 
buying DTV sets and severely damages the chances for economic viability 
of digital television.
    The FCC also decided to permit cable operators to carry only one of 
a station's multiple channels of free, over-the-air programming rather 
than requiring cable systems to carry all such free programming. This 
decision was also wrong. It is contrary to the Congressional intent 
evidenced in 1992 when you adopted the must-carry rules. Anyone reading 
the recent FCC decision will recognize that the Commissioners were 
clearly uneasy with their decision and, in fact, were reaching out to 
Congress for guidance on this issue. PAX-TV urges this Committee to 
take the opportunity to reaffirm the Congressional commitment to full 
digital must-carry and to the preservation of free, local television by 
endorsing multi-channel digital must-carry of all free, over-the-air 
programming services.
    If content drives the DTV transition, then give the consumer access 
to all the free multichannel content that we, the local broadcasters, 
have the ability to air.

    The Chairman. Thank you very much.
    Mr. Tucker.

STATEMENT OF BEN TUCKER, EXECUTIVE VICE PRESIDENT FOR BROADCAST 
  OPERATIONS, FISHER BROADCASTING, INC., AND TELEVISION BOARD 
                      CHAIRMAN, NATIONAL 
                  ASSOCIATION OF BROADCASTERS

    Mr. Tucker. Thank you, Mr. Chairman, for the opportunity to 
appear before your Committee today to discuss the transition to 
digital television. My name is Ben Tucker. I am the Executive 
Vice President of Broadcast Operations for Fisher Broadcasting. 
We own 12 television stations in the States of Washington, 
Oregon, Idaho and Georgia, in both large and small markets. I 
am also the National Association of Broadcasters Television 
Board Chairman. I am pleased to represent the broadcasting 
industry today to provide an interim status report on the 
transition to digital television.
    I would like to point out that the DTV transition is all 
about consumers. We want to provide the American public with 
all the benefits of digital television. Right now, the 
broadcasting industry is working hard in achieving this goal. 
We have 183 digital stations on the air as of this morning. 
These stations reach over two-thirds of the TV households 
across the Nation. 71 of these stations currently on the air--
almost 40 percent--are ahead of their required build-out 
schedule.
    Other stations may not be so lucky. In 14 months from now, 
all commercial television stations are supposed to be operating 
with a digital signal. This means there are approximately 1,100 
stations yet to be on the air. We have seen some problems crop 
up with the DTV stations that have made it on the air. These 
involve delays in equipment delivery, local zoning board 
delays, delays from the FCC, and a shortage of tower crews. 
These issues will continue to impact local stations as they 
work to get on the air.
    In my company, Fisher Broadcasting, we currently have 2 DTV 
stations on the air, KATU in Portland, Oregon, and KOMO in 
Seattle, Washington. And after the earthquake yesterday, I 
would like to say that we are still on the air. Both are ABC 
affiliates. We have ordered DTV equipment for all of our 
stations. I would like to highlight the fact that KOMO in 
Seattle is one of only three stations in the Nation that 
broadcasts its local news in high definition. As you can see, 
Fisher Broadcasting, like other broadcasters, is committed to 
the DTV transition as quickly as possible.
    However, to get the job done, the other parties need to 
come to the table. There are four unlikely partners linked in 
this transition. The first three are broadcasters, consumer 
electronics manufacturers who make the televisions, and cable, 
the gatekeepers. The congressionally-appointed traffic cop, the 
FCC, is the fourth partner.
    Our goal is to reach our viewers as quickly as possible. It 
is not, and I want to emphasize not, in the best interest of 
the broadcasting community to delay the DTV transition. 
However, for your constituents--our viewers--to enjoy the 
wonderful benefits of digital television, we need three things.
    Number one, we do need must-carry. During the transition, 
digital cable systems must be required to carry both the analog 
and digital channels of local broadcasters. With 70 percent of 
the American public getting their broadcast channels through 
cable, cable cannot be allowed to act as the digital 
gatekeeper.
    As the general counsel of the Nation's largest cable 
operator told the FCC last year, once the upgrade to digital 
cable, they will be crying for content. After the transition, 
these same cable operators must-carry all of the preprogramming 
offered by digital broadcasters. America's consumers deserve to 
have all of the benefits of free over-the-air digital 
television.
    Number two, DTV sets. Set manufacturers must include DTV 
tuners in all new sets. Every set sold needs to have both an 
analog and digital tuner. In 1962, Congress mandated the UHF 
tuners in every set. The digital tuners should be mandated in 
every set in 2002.
    Number three, DTV-cable interoperability. Senators, it may 
surprise you, even if you bought a digital television set with 
a DTV tuner, you couldn't connect it to a digital cable set-top 
box. Why? Because the cable consumer electronics industries 
won't agree on a standard. Fixing this is the only way that the 
cable viewing public can see free over-the-air broadcast 
digital signals that will drive this transition to completion.
    These are the hurdles that must be cleared. If these three 
things happen, consumer exposure and the acceptance of digital 
television will skyrocket, digital prices will fall, and the 
American consumer will enjoy the benefits of digital 
television.
    What does all of this mean? The broadcasting industry is 
working toward the target set by Congress to make this DTV 
transition. We cannot make it work without access to our 
audience. Getting that access means that we need the 
cooperation of all the parties, the FCC, the cable industry, 
and the consumer electronics manufacturers.
    The FCC has the authority to resolve the regulatory issues, 
but the Congress must oversee this transition and take the 
necessary steps to make it happen.
    I would like to close with some final thoughts. There was a 
dispute regarding the digital transmission standard. That 
dispute has been resolved. Also in the aggregate, we have more 
than 1,000 hours of high definition programming coming from our 
networks, with CBS providing virtually all of its prime time 
programming in HDTV. And we have encouraged all of the networks 
to do more.
    Mr. Chairman, let us all work together to make sure the 
American public can watch the programming and enjoy the 
benefits of the wonderful digital service. Thank you, Mr. 
Chairman and members of the Committee.
    [The prepared statement of Mr. Tucker follows:]

    Prepared Statement of Ben Tucker, Executive Vice President for 
 Broadcast Operations, Fisher Broadcasting, Inc., and Television Board 
                               Chairman, 
                  National Association of Broadcasters

    Thank you, Mr. Chairman, for the opportunity to appear before your 
Committee today to discuss the transition to digital television. My 
name is Ben Tucker. I am the Executive Vice President for Broadcast 
Operations for Fisher Broadcasting, Inc. I also am the National 
Association of Broadcasters (NAB) Television Board Chairman. I'm 
pleased to represent the broadcasting industry at this hearing.
    Fisher Broadcasting, Inc. owns 12 television stations, the majority 
of which are licensed in the upper northwest states. We currently have 
two DTV stations on the air--KATU in Portland, OR and KOMO in Seattle, 
WA. DTV equipment is on order for the rest of our stations. I would 
like to highlight the fact that KOMO in Seattle currently provides 
local HDTV newscasts. As you can see, Fisher Broadcasting, Inc. is 
committed to making the DTV transition as quickly as possible. This 
commitment is the same for the entire broadcast industry.

Broadcasters Commitment to DTV

Stations on the Air
    As of February 26, 2001, 182 DTV stations are on the air in 62 
markets reaching 67.18 percent of all TV households across the 
nation.\1\ Seventy-one of these stations--almost 40 percent--currently 
on the air are ahead of their required build-out schedule. These 182 
DTV stations have met--or surpassed--the aggressive build-out schedule 
set by the FCC in order to meet the Congressional target date of 2006 
to complete the digital transition.
---------------------------------------------------------------------------
    \1\ A list of stations currently on the air is attached as Exhibit 
A.
---------------------------------------------------------------------------
Programming
    The obvious advantage of DTV is the crisper pictures and enhanced 
viewing experience. Stations will be able to offer many more choices to 
consumers. Consumers will be the driving force behind the programming 
offered by DTV stations.
    DTV stations are required to provide at least one free, over-the-
air channel. This could come in the form of one high definition TV 
(HDTV) channel, or several streams of standard definition TV (SDTV) 
signals. Stations also could choose to offer some HDTV programming and 
some SDTV programming depending on the time of day and consumer 
demands. DTV stations are allowed to offer ancillary or supplemental 
services.\2\
---------------------------------------------------------------------------
    \2\ Stations must pay a 5 percent fee on any profits earned from 
subscription services.
---------------------------------------------------------------------------
    The television networks currently offer hundreds of hours of HDTV 
programming. For example, CBS offers almost 1,000 hours per year, 
including nearly all prime time programming and major sporting events. 
ABC provides NYPD Blue and Disney films in HDTV. Locally, several 
stations--including Fisher Broadcasting's KOMO--provide local HDTV 
newscasts and a consortium of commercial stations exchange locally 
produced HDTV programs.
    We are far ahead in the programming offerings in the DTV transition 
from those offered when the television industry transitioned to color. 
In the first year of color television back in the 1950s, only 68 hours 
were offered to viewers. With over 1,000 hours of HDTV programming this 
year, we are far outpacing the color TV rollout. That's good news 
because as the transition moves forward, we can only expect content 
providers will produce more and more programming in HDTV.
    Even though there is consistent progress regarding programming and 
the number of DTV stations currently on the air, the transition still 
needs help with some major issues that threaten to throw the transition 
off the tracks.

Broadcasters Call for Action

    There are only 14 months left before the May 2002 deadline for all 
commercial stations to have a digital signal on the air. They face 
numerous obstacles from a regulatory standpoint, including the same 
build-out hurdles the existing 182 DTV stations faced.
    What we have learned in the last few years is that we cannot 
accomplish this monumental task on our own. The transition to DTV is 
the biggest step for the television industry since the advent of color 
TV and represents a multi-million dollar expense for each individual 
station. Additionally, during the transition, each broadcast station 
will be operating essentially two stations, without any guarantee of 
additional revenue. Broadcasters are committed to this transition to 
bring DTV service to the American public. However, at this point, the 
DTV transition appears to be faltering due to several remaining issues 
that have yet to be resolved by all of the parties involved in this 
transition.
    There are several entities that serve vital roles in this 
transition in addition to the broadcasting industry. In order for the 
transition to be successful, all parties must be willing do their part 
to get the job done.
    The first party, the Federal Communications Commission (FCC), is 
charged with overseeing the implementation of DTV service to the 
American public. While the FCC has accomplished a great deal regarding 
the transition--including assigning an additional 1600 new DTV channel 
allotments--it has taken a hands-off approach with some of the 
remaining critical issues such as digital must-carry, DTV/cable 
interoperability, and DTV set standards. It is time for the FCC to take 
a leadership role in this transition and help focus all parties on 
getting the remaining pieces put in place so the goal of DTV can be 
realized as quickly as possible.
    Cable operators, for example, have an important role in the 
transition. Nearly 70 percent of all homes receive over-the-air 
broadcast signals through cable providers. This means that cable 
operators hold an important key in the transition--access to viewers. A 
successful transition, after all, depends on consumers being able to 
see a broadcaster's digital product. Cable carriage of all over-the-air 
DTV channels and innovative digital services will create more demands 
for digital programming, resulting in consumers buying digital sets and 
converters at a faster pace, which helps drive the transition along.
    Finally, consumers need the proper equipment to experience the 
benefits of DTV. This means that new DTV sets or set-top converters 
must first be manufactured and second, made available to the public. 
Consumers must be assured that the new digital products will work with 
cable set-top boxes and that the equipment can receive and decode DTV 
signals. Thus, manufacturers must work with cable companies to ensure 
that DTV sets are interoperable with digital cable boxes. Manufacturers 
must ensure that more DTV sets will include DTV tuners so consumers can 
receive the over-the-air signals.
    The FCC has been relying on the marketplace to settle the remaining 
issues. We have learned that the marketplace is not driving the 
transition fast enough--placing the target date in jeopardy. We need 
resolution of the digital must-carry, DTV/cable interoperability, and 
DTV set reception issues or the transition will continue to falter and 
stall. I welcome the opportunity to outline these issues for you.

DTV Transmission Standard

    Before discussing the other issues mentioned above, I would like to 
take the opportunity to dismiss any questions regarding the 
broadcasting industry's commitment to the FCC-approved DTV transmission 
standard, 8-VSB.
    In the summer of 1999, concerns were raised among some in the 
broadcasting industry regarding the 8-VSB standard and its performance 
in urban markets and for mobile applications. Some believed that 
another transmission standard--COFDM--was more appropriate. When the 
issue was raised, most of the other entities involved in the transition 
accused the broadcasters of using it as a stalling tactic and 
questioned our commitment to DTV. We rose to this challenge and 
immediately took steps to resolve the issue.
    In 2000, the broadcasting industry conducted a parallel 
investigation of VSB improvements and COFDM performance. This joint 
initiative included the National Association of Broadcasters (NAB) and 
Maximum Service Television (MSTV), with funding from the four networks 
(PBS in-kind), group broadcasters, and NAB.
    Investigation of VSB included independent evaluations of second 
generation products and test performance in the field and improvements 
to the 8-VSB standard for possible modification of the standard to 
accommodate new applications. The project investigated the COFDM 
standard to test the performance of COFDM for existing and new 
services.
    Upon completion of the testing in 2000, results were reported to 
the NAB and MSTV Boards of Directors in January 2001. After reviewing 
the results, both Boards passed a joint resolution that stated there is 
insufficient evidence to add COFDM as a DTV standard and thus it 
reaffirmed the commitment to the VSB standard.\3\ Soon thereafter, the 
FCC affirmed the 8-VSB modulation system as the U.S. DTV transmission 
standard.
---------------------------------------------------------------------------
    \3\ A copy of the Joint Resolution is attached as Exhibit B.
---------------------------------------------------------------------------
    While virtually all of the broadcasting industry is now united 
behind the 8-VSB standard, DTV set reception must be improved. 
Broadcasters and, we hope, our manufacturer brethren are committed to 
seeing this happen post haste. Additionally, we are committed in 
helping to resolve the rest of the hurdles on this track to the DTV 
finish line.

DTV Must-Carry

    Digital must-carry is the most important issue still facing the DTV 
transition. At this point, not many consumers can receive the currently 
available DTV signals via cable because cable, generally, will not talk 
to broadcasters about carriage of DTV signals. Must-carry of digital 
signals during the transition will help fuel the demand for digital 
programming, and will entice consumers to buy digital sets. Why should 
the 70 percent of Americans who are cable subscribers join the DTV 
transition by purchasing an expensive DTV set if they cannot easily get 
DTV broadcasts that are in their market?
    The Communications Act of 1934, as amended by the Cable Act of 
1992, mandates carriage of both analog and DTV signals.\4\ The FCC is 
required to ensure the carriage of digital television signals; \5\ 
however, it has so far failed to comply with this mandate. The FCC 
issued a Notice of Proposed Rule Making for digital must-carry in July 
1998.\6\ Nearly two-and-a-half years later, it issued a ``partial'' 
decision.\7\ There, the FCC (1) refused to require dual must-carry of 
both analog and DTV signals; (2) asked for more information on channel 
capacity from cable operators; and (3) established that content to be 
carried after the transition is only one programming stream plus 
program related content.\8\
---------------------------------------------------------------------------
    \4\ Communications Act of 1934, Sec. 614(a).
    \5\ Id. at Sec. 614(b)(4)(B).
    \6\ Notice of Proposed Rule Making, CS Docket No. 98-120, July 10, 
1998.
    \7\ First Report and Order and Further Notice of Proposed Rule 
Making, CS Docket No. 98-120, January 18, 2001 [hereinafter First 
Report and Order ]
    \8\ Id. at para.para. 112 & 57.
---------------------------------------------------------------------------
    This partial decision does not solve the problems of the DTV 
transition--it only exacerbates them. Carriage of DTV signals during 
the transition is essential for a successful and timely conversion. 
Without must-carry, completing the transition even close to 2006 is 
impossible. The Congressional Budget Office recognized this in 1999 
when it stated:

    ``The availability of digital programming on cable systems is a 
necessary, though not sufficient, condition for a timely transition. 
Without it, reaching the 85 percent penetration rate needed to end 
analog broadcasts in a market will take much longer because whenever 
the transition is completed, the largest number of households will 
probably be receiving DTV programming from cable providers.'' 
Completing the Transition to Digital Television, Congressional Budget 
Office Report, September 1999.

    Even the FCC acknowledges cable carriage likely ``is essential'' to 
the DTV transition.\9\ The question then remains--why does the FCC fail 
to take adequate steps to assure carriage on cable systems in order to 
facilitate the DTV transition?
---------------------------------------------------------------------------
    \9\ See Fourth Further Notice of Proposed Rulemaking/Third Notice 
of Inquiry, MM Docket No. 87-268, 10 FCC Rcd. 10540, 10542 (1995).
---------------------------------------------------------------------------
    Even after the transition is over, the FCC's decision on must-carry 
substantially cuts off consumers from realizing all the benefits of 
DTV. The FCC indicates it will require carriage of only one channel of 
each DTV broadcaster and other material ``related'' to that 
channel.\10\ However, this completely dismisses the desirable choices 
broadcasters may offer to consumers by providing several SDTV signals 
(i.e., multicasting). If a DTV station offers several free--but 
different--over-the-air programming choices, it should not be forced to 
choose which is the ``main'' program channel to be carried on the cable 
systems. Consumers should be offered all free broadcast programming 
through their cable system, regardless of whether that comes in the 
form of one HDTV channel or several SDTV channels, or a combination of 
both.\11\ The absence of digital must-carry frustrates Congressional 
intent in providing flexibility in the use of the spectrum to give 
consumers all the benefits of digital technology.
---------------------------------------------------------------------------
    \10\ First Report and Order at para. 112.
    \11\ Carriage of a ``multicast'' channel does not take up any more 
space on a cable system than a single HDTV channel. The same amount of 
space (19.4 megabits) is required. It makes no practical sense for 
cable companies not to allocate--at all times--enough space for a HDTV 
signal, which may follow or precede a multicast signal. It simply is 
not a space problem for cable to carry all free DTV channels sent from 
the broadcaster.
---------------------------------------------------------------------------
    Finally, we have all heard the cries from the cable companies that 
digital must-carry will force them to take existing cable channels off 
their systems to make room for the DTV signals. These concerns are 
disingenuous. The broadcasting industry is not asking for an increase 
in the Cable Act's caps on the number of cable channels that must be 
devoted to broadcast channel carriage. Further, we do not ask for 
carriage of digital signals on smaller cable companies until they make 
their own transition to upgraded facilities and digital cable.
    It is clear that cable companies are dramatically increasing their 
capacities, and will continue to do so with digital cable systems. In 
fact, at the height of the DTV transition when both analog and digital 
broadcast channels would be carried by cable systems,\12\ the average 
analog cable system will have the capacity for approximately 130 
channels.\13\ An average digital cable system is predicted to have a 
capacity of 172 channels.\14\ 1As a point of reference, the average 
capacity for cable systems in 1998 (when the FCC began its digital 
must-carry proceeding) was 75.\15\
---------------------------------------------------------------------------
    \12\ In 2002, when all commercial broadcast stations must have a 
digital signal on the air, there would be an average of 12 broadcast 
channels carried. As the transition progresses, this number decreases 
back to the average of 6 broadcast channels at the end of the DTV 
transition. See NAB's Reply Comments in CS Docket No. 98-120, at 
Exhibit F (Dec. 22, 1998).
    \13\ Id.
    \14\ Id.
    \15\ Id.
---------------------------------------------------------------------------
    As a final ``nail in the coffin'' on channel capacity concerns, at 
a FCC Cable Bureau hearing last year, the General Counsel of AT&T 
unwittingly but proudly professed that ``[cable] channel capacity is 
not only increasing exponentially, but is about to go even beyond that 
as it [cable] goes digital.'' \16\ He went on to say that AT&T's belief 
``is that we are going to be crying for content.'' \17\ He had no 
answer when asked if that included digital must-carry signals.\18\
---------------------------------------------------------------------------
    \16\ AT&T/Media One Cable Services Bureau Hearing, February 4, 
2000.
    \17\ Id.
    \18\ Similarly, the Senior Vice President, Engineering and 
Technology for Media One cable has been quoted saying that ``This 
digital capability effectively obliterat[es] the must-carry threat.'' 
Jim Barthold, Bandwidth Debate: Just How Much Will Be Enough (last 
modified Aug. 10, 1998). http://www.mediacentrall.com/Magazines/
CableWorld/News98/1998081003.html.
---------------------------------------------------------------------------
    Digital must-carry is the most important, yet unresolved issue for 
the digital transition. The plain text of the must-carry statute is 
clear, cable operators ``shall carry the signals'' of broadcast 
operators.\19\ We ask that Congress take every action necessary to 
ensure must-carry status for all digital broadcast channels during, as 
well as after, the transition.
---------------------------------------------------------------------------
    \19\ Communications Act of 1934, Sec. 614(b)(1)(B).
---------------------------------------------------------------------------

DTV/Cable Interoperability

    At this point, there are not standard DTV sets on the market that 
have connections that will work with digital cable set-top boxes.\20\ 
Thus, there is no practical way for the 70 percent of consumers who 
view television via cable to get a broadcast DTV signal over cable 
today. Nor is there completion of the long promised built-to specs for 
cable ready DTV sets. Nor is there an indication that either will occur 
in time for the DTV transition to meet the Congressional deadlines.
---------------------------------------------------------------------------
    \20\ See DTV Products Chart, attached as Exhibit C.
---------------------------------------------------------------------------
    There are incomplete, voluntary specifications between the consumer 
electronics and cable industries for DTV/Cable interoperability. 
Additionally, there is a remaining issue regarding copy protection for 
programming. All this translates into virtually no incentive for cable 
subscribers to purchase DTV receivers.
    Agreements on these issues are both close and stalled. Quick 
resolution is needed to move the transition forward. This means there 
needs to be consumer-friendly IEEE 1394 connectors on all DTV 
receivers, set-top boxes and other DTV products and ``cable-ready'' 
characteristics for direct connection DTV receivers.\21\
---------------------------------------------------------------------------
    \21\ While copy protection issues must be soon settled, 1394 
licensors should not be permitted to have a blanket ban on use of this 
copy protection technology for particular content, i.e. free broadcast 
programming.
---------------------------------------------------------------------------
    For years, the broadcasting industry has been urging the FCC to 
mandate interoperability standards for DTV and cable products. At a 
minimum, it needs to secure strong manufacturer commitments for near-
term provision of such products, or the transition will be further 
stalled. Again, Congress should take the necessary action to ensure 
resolution of these issues.

DTV Receiver Standards

    The issue of receiver standards is important to the transition--
this involves (1) mandating DTV tuners in all new TV sets sold, and (2) 
setting specific technical requirements regarding reception. Right now, 
if a consumer buys a DTV set, it is likely that the consumer will need 
to purchase an additional set-top box with a DTV tuner in order to 
receive DTV signals. Additionally, there is no guarantee that the DTV 
set will properly receive the over-the-air signals sent by 
broadcasters.
    In the beginning of the DTV transition, the FCC set specific DTV 
transmission standards based on technical assumptions about receiver 
performance. The consumer electronics manufacturers have resisted any 
mandated receiver standards to meet the FCC's assumptions for 
reception. The FCC has relied on the marketplace to take care of this 
issue and has refused to set performance levels for DTV sets. It 
reaffirmed its position in January 2001. However, it turns out--as 
broadcasters had predicted--that early receiver performance does not 
match the FCC's assumptions. It is inconsistent for the FCC to expect 
to achieve certain DTV coverage and service goals, yet be unwilling to 
set performance levels for DTV sets. Why should consumers purchase DTV 
sets with poor reception performance?
    By January 2001, there were approximately 780,000 DTV displays 
(with and without integrated tuners) sold to retailers. There are no 
breakout figures on sets with DTV tuners (integrated DTVs). At the same 
time, only 60,600 set-top tuner boxes were sold to retailers. Thus, 
there is only a small fraction of the hundreds of thousands of DTV 
displays that are able to receive a DTV signal over-the-air. At this 
rate, DTV receiver sales (integrated or set-top tuners) will not reach 
the penetration levels needed to complete the transition by the target 
date of 2006 set by Congress.
    Broadcasters have urged the FCC to adopt All Channel Television 
Receiver Rules that will require that all new television receivers 13 
inches and greater in screen size be capable of receiving all 
frequencies allocated by the FCC to television broadcasting, including 
all NTSC and all DTV channels.
    While this is a significant step, it is not without precedent. The 
All Channel Receiver Act (47 U.S.C. Sec. 303(s)) and the All Channel 
Television Receiver Rules,\22\ provide the authority for such action by 
the FCC. These previous actions were taken to promote and develop the 
UHF frequencies. Congress, at that time, found that the lack of 
receivers capable of receiving UHF signals was the root of the problem 
for the faltering UHF service. It determined that ``the only practical 
and effective means of insuring that such receivers get into the hands 
of the public is to enact legislation requiring that all sets 
manufactured are capable of receiving all of the channels allocated for 
television use.'' \23\ This reasoning from the UHF situation applies to 
the current DTV situation--but now, with even more force.
---------------------------------------------------------------------------
    \22\ First Report and Order, All Channel Television Receiver Rules 
(All Channel Act), Docket No. 14760, 27 Fed. Reg. 11698 (Nov. 28, 
1962).
    \23\ Senate Report No. 87-1526, 2d Sess. (1962), reprinted in 1962 
U.S.C.C.A.N. Vol. 1, 1873.
---------------------------------------------------------------------------
    In 1962, Congress determined that the dramatic step of the All 
Channel Receiver Act was necessary, even given initially increased 
costs (that would diminish with mass production). Congress reasoned 
that the small increase in cost was greatly offset by the benefits of 
``unlocking'' the valuable UHF channels.\24\ The same reasoning applies 
to the DTV transition today.
---------------------------------------------------------------------------
    \24\ Id. at 1876.
---------------------------------------------------------------------------
    DTV is a unique transition of the entire television system to 
digital technology. Even though the price to consumers for an all-
channel receiver will be higher than analog-only sets, the higher costs 
will be a small price to pay for ``unlocking'' the value of DTV 
channels for public benefit. Not to mention the fact that it also will 
release valuable NTSC channels, to be returned to the public for its 
benefit and use as Congress deems fit.
    This bold action is necessary to revitalize a transition that has 
languished far too long. In January 2001, the FCC issued a Further 
Notice of Proposed Rule Making regarding this issue.\25\ However, it 
only proposed to require tuners in sets that are 32 inches or larger, 
then phase-in tuner requirements for smaller sets. While this is a 
first step, it is not the bold action necessary to invigorate the DTV 
transition in order to meet Congress' 2006 timeframe. If necessary, 
Congress should take appropriate action to resolve these pending 
receiver issues.
---------------------------------------------------------------------------
    \25\ Report and Order and Further Notice of Proposed Rule Making, 
MM Docket No. 00-39, Sec. Sec. 103-112 (January 18, 2001).
---------------------------------------------------------------------------

Other Build-Out Problems

    As mentioned earlier, there are 14 months left before all 
commercial broadcasters must have a DTV signal on the air. There are 
approximately 1200 stations left to go on-air with DTV. Of the 182 DTV 
stations currently on the air, many faced build-out problems. These 
same problems, and more, will exist for the rest of the stations yet to 
make the transition.
Economic Issues
    It costs approximately $8 million to $10 million to fully convert a 
station to digital operation. To date, the industry has spent hundreds 
of millions of dollars. Just to get a digital station on the air costs 
roughly $2 million. For many of the remaining stations and markets, 
these costs are well above the value of the existing analog station. 
And this, when there is no guarantee of any additional revenue from 
running two stations.
Tower Citing/Zoning Delays
    New DTV stations require new DTV transmitting antennas. Stations 
must either use existing towers or build new towers. These changes 
often require approval from local zoning boards--which historically do 
not act quickly on these issues.
    As part of the FCC's Biennial Review of the DTV transition, NAB 
conducted a survey of all commercial television stations asking 
specific questions about implementation problems. A surprising number 
of broadcasters (38.4 percent of respondents) reported that 
government--local and Federal--was causing delays in their digital 
rollout.\26\ Stations cited numerous delays with local zoning or board 
approvals, the Federal Aviation Administration (FAA), local and Federal 
environmental agencies, as well as significant delays in the FCC 
approval process.
---------------------------------------------------------------------------
    \26\ See 2000 Digital Implementation Survey , May 2000 (attached as 
an Exhibit to NAB's Comments in MM Docket No. 00-39, May 17, 2000).
---------------------------------------------------------------------------
    Once clearance is approved for any tower changes, the next hurdle 
for stations will be to find a tower crew to actually perform the work. 
There are limited numbers of tower companies with crews to do this 
specialized work. Further, as nearly 1200 stations place orders for the 
necessary DTV equipment, delivery delays from manufacturers are likely.
    As you can see, merely getting a station on the air on schedule has 
its own difficulties, not to mention the larger regulatory issues that 
are threatening to hold up the DTV transition. Again, broadcasters are 
working toward the end, but there needs to be some help along the way 
from all parties involved, as previously discussed.

Conclusion

    Mr. Chairman, it has been my great privilege to address this 
Committee on the subject of the digital television transition. I 
believe that broadcasters are fully committed to this transition that 
is poised to offer huge new benefits to the American public.
    I hope that Congress will take a serious look at the issues facing 
the DTV transition and urge the cooperation of all parties to get the 
transition on a quicker pace toward completion.


                                                   EXHIBIT A--DTV STATIONS ON AIR BY STATE, 27-Feb-01
--------------------------------------------------------------------------------------------------------------------------------------------------------
              State                      Calls           City Of License          Network         Group/Organization       DMA Name          DMA Rank
--------------------------------------------------------------------------------------------------------------------------------------------------------
AL..............................  WALA...............  Mobile.............  FOX................  Emmis                Mobile-Pensacola..              62
                                                                                                  Communications
                                                                                                  Corp.
AZ..............................  KNXV...............  Phoenix............  ABC................  Scripps Howard       Phoenix...........              17
                                                                                                  Broadcasting.
                                  KPHO...............  Phoenix............  CBS................  Meredith Corp.       Phoenix...........              17
                                                                                                  Broadcasting.
                                  KSAZ...............  Phoenix............  FOX................  Fox Television       Phoenix...........              17
                                                                                                  Stations Inc..
                                  KPNX...............  Phoenix............  NBC................  Gannett              Phoenix...........              17
                                                                                                  Broadcasting.
                                  KUTP...............  Phoenix............  United Paramount     Chris Craft/United   Phoenix...........              17
                                                                             Net.                 Television.
CA..............................  KCOP...............  Hollywood..........  United Paramount     Chris Craft/United   Los Angeles.......               2
                                                                             Net.                 Television.
                                  KTLA...............  Hollywood..........  Warner Bros........  Turner Broadcasting  Los Angeles.......               2
                                                                                                  Co..
                                  KCAL...............  LA/Norwalk.........  Pure Independent...  Young Broadcasting   Los Angeles.......               2
                                                                                                  Inc..
                                  KABC...............  Los Angeles........  ABC................  ABC Broadcasting...  Los Angeles.......               2
                                  KCBS...............  Los Angeles........  CBS................  CBS Television       Los Angeles.......               2
                                                                                                  Stations.
                                  KTTV...............  Los Angeles........  FOX................  Fox Television       Los Angeles.......               2
                                                                                                  Stations Inc..
                                  KNBC...............  Los Angeles........  NBC................  NBC Television       Los Angeles.......               2
                                                                                                  Stations Div..
                                  KCET...............  Los Angeles........  PBS................  ...................  Los Angeles.......               2
                                  KWHY...............  Los Angeles........  Pure Independent...  ...................  Los Angeles.......               2
                                  KTVU...............  Oakland............  FOX................  Cox Television.....  San Francisco-                   5
                                                                                                                       Oakland-San Jose.
                                  KXTV...............  Sacramento.........  ABC................  Gannett              Sacramento-                     19
                                                                                                  Broadcasting.        Stockton-Modesto.
                                  KTXL...............  Sacramento.........  FOX................  Tribune              Sacramento-                     19
                                                                                                  Broadcasting Co..    Stockton-Modesto.
                                  KCRA...............  Sacramento.........  NBC................  Hearst-Argyle        Sacramento-                     19
                                                                                                  Television, Inc..    Stockton-Modesto.
                                  KGTV...............  San Diego..........  ABC................  McGraw-Hill          San Diego.........              25
                                                                                                  Broadcasting Co..
                                  KFMB...............  San Diego..........  CBS................  Midwest Television   San Diego.........              25
                                                                                                  Inc..
                                  KNSD...............  San Diego..........  NBC................  NBC Television       San Diego.........              25
                                                                                                  Stations Div..
                                  KSWB...............  San Diego..........  Warner Bros........  Tribune              San Diego.........              25
                                                                                                  Broadcasting Co..
                                  KGO................  San Francisco......  ABC................  ABC Broadcast Group  San Francisco-                   5
                                                                                                                       Oakland-San Jose.
                                  KPIX...............  San Francisco......  CBS................  CBS Television       San Francisco-                   5
                                                                                                  Stations.            Oakland-San Jose.
                                  KRON...............  San Francisco......  NBC................  Young Broadcasting   San Francisco-                   5
                                                                                                  Inc..                Oakland-San Jose.
                                  KQED...............  San Francisco......  PBS................  KQED, Inc..........  San Francisco-                   5
                                                                                                                       Oakland-San Jose.
                                  KBHK...............  San Francisco......  United Paramount     Chris Craft/United   San Francisco-                   5
                                                                             Net.                 Television.          Oakland-San Jose.
                                  KBWB...............  San Francisco......  Warner Bros........  Granite              San Francisco-                   5
                                                                                                  Broadcasting Corp..  Oakland-San Jose.
                                  KICU...............  San Jose...........  Pure Independent...  Cox Television.....  San Francisco-                   5
                                                                                                                       Oakland-San Jose.
                                  KNTV...............  San Jose...........  Pure Independent...  Granite              San Francisco-                   5
                                                                                                  Broadcasting Corp..  Oakland-San Jose.
                                  KOVR...............  Stockton...........  CBS................  Sinclair Broadcast   Sacramento-                     19
                                                                                                  Group Inc..          Stockton-Modesto.
CO..............................  KMGH...............  Denver.............  ABC................  McGraw-Hill          Denver............              18
                                                                                                  Broadcasting Co..
                                  KDVR...............  Denver.............  FOX................  Fox Television       Denver............              18
                                                                                                  Stations Inc..
                                  KRMA...............  Denver.............  PBS................  ...................  Denver............              18
CT..............................  WFSB...............  Hartford...........  CBS................  Meredith             Hartford & New                  27
                                                                                                  Corporation          Haven.
                                                                                                  Broadcasting.
                                  WTNH...............  New Haven..........  ABC................  LIN Television       Hartford & New                  27
                                                                                                  Corporation.         Haven.
DC..............................  WJLA...............  Washington.........  ABC................  Allbritton           Washington, DC....               8
                                                                                                  Communications.
                                  WUSA...............  Washington.........  CBS................  Gannett              Washington, DC....               8
                                                                                                  Broadcasting.
                                  WTTG...............  Washington.........  FOX................  Fox Television       Washington, DC....               8
                                                                                                  Stations Inc..
                                  WRC................  Washington.........  NBC................  NBC Television       Washington, DC....               8
                                                                                                  Stations Div..
                                  WETA...............  Washington.........  PBS................  Gtr. Wash. Educ.     Washington, DC....               8
                                                                                                  Telecomm..
DE..............................  WHYY...............  Wilmington.........  PBS................  WHYY Incorporated..  Philadelphia......               4
FL..............................  WTLV...............  Jacksonville.......  NBC................  Gannett              Jacksonville,                   52
                                                                                                  Broadcasting.        Brunswick.
                                  WPLG...............  Miami..............  ABC................  Post-Newsweek        Miami-Ft.                       16
                                                                                                  Stations, Inc..      Lauderdale.
                                  WSVN...............  Miami..............  FOX................  Sunbeam Television   Miami-Ft.                       16
                                                                                                  Corp..               Lauderdale.
                                  WFTV...............  Orlando............  ABC................  Cox Television.....  Orlando-Daytona                 22
                                                                                                                       Beach-Melbourne.
                                  WOFL...............  Orlando............  FOX................  Meredith             Orlando-Daytona                 22
                                                                                                  Corporation Broad..  Beach-Melbourne.
                                  WTSP...............  St. Petersburg.....  CBS................  Gannett              Tampa-St.                       13
                                                                                                  Broadcasting.        Petersburg
                                                                                                                       (Sarasota).
                                  WFTS...............  Tampa..............  ABC................  Scripps Howard       Tampa-St.                       13
                                                                                                  Broadcasting.        Petersburg
                                                                                                                       (Sarasota).
                                  WTVT...............  Tampa..............  FOX................  Fox Television       Tampa-St.                       13
                                                                                                  Stations Inc..       Petersburg
                                                                                                                       (Sarasota).
                                  WFLA...............  Tampa..............  NBC................  Media General Bcst.  Tampa-St.                       13
                                                                                                  Group.               Petersburg
                                                                                                                       (Sarasota).
GA..............................  WSB................  Atlanta............  ABC................  Cox Television.....  Atlanta...........              10
                                  WGCL...............  Atlanta............  CBS................  Meredith             Atlanta...........              10
                                                                                                  Corporation
                                                                                                  Broadcasting.
                                  WAGA...............  Atlanta............  FOX................  Fox Television       Atlanta...........              10
                                                                                                  Stations Inc..
                                  WXIA...............  Atlanta............  NBC................  Gannett              Atlanta...........              10
                                                                                                  Broadcasting.
                                  WRDW...............  Augusta............  CBS................  Gray Communications  Augusta...........             115
                                                                                                  System.
HI..............................  KHVO...............  Hilo...............  ABC................  Hearst-Argyle        Honolulu..........              71
                                                                                                  Television, Inc..
                                  KITV...............  Honolulu...........  ABC................  Hearst-Argyle        Honolulu..........              71
                                                                                                  Television, Inc..
                                  KMAU...............  Wailuku............  ABC................  Hearst-Argyle        Honolulu..........              71
                                                                                                  Television, Inc..
IL..............................  WLS................  Chicago............  ABC................  ABC Broadcast Group  Chicago...........               3
                                  WFLD...............  Chicago............  FOX................  Fox Television       Chicago...........               3
                                                                                                  Stations Inc..
                                  WMAQ...............  Chicago............  NBC................  NBC Television       Chicago...........               3
                                                                                                  Stations Div..
                                  WCPX...............  Chicago............  Pax TV.............  Paxson               Chicago...........               3
                                                                                                  Communications
                                                                                                  Corp..
                                  WSNS...............  Chicago............  Telemundo..........  Telemundo Group,     Chicago...........               3
                                                                                                  Inc..
                                  WGN................  Chicago............  Warner Bros........  Tribune              Chicago...........               3
                                                                                                  Broadcasting Comp..
                                  WGEM...............  Quincy.............  NBC................  QNI Broadcast Group  Quincy-Hannibal-               161
                                                                                                                       Keokuk.
IN..............................  WRTV...............  Indianapolis.......  ABC................  McGraw-Hill          Indianapolis......              26
                                                                                                  Broadcasting Co..
                                  WISH...............  Indianapolis.......  CBS................  LIN Television       Indianapolis......              26
                                                                                                  Corporation.
                                  WXIN...............  Indianapolis.......  FOX................  Tribune              Indianapolis......              26
                                                                                                  Broadcasting Co..
                                  WTHR...............  Indianapolis.......  NBC................  Dispatch Broadcast   Indianapolis......              26
                                                                                                  Group.
                                  WNDU...............  South Bend.........  NBC................  Michiana             South Bend-Elkhart              87
                                                                                                  Telecasting Corp..
KY..............................  WKPC...............  Louisville.........  PBS................  ...................  Louisville........              48
                                  WXIX...............  Newport............  FOX................  Raycom Media Inc...  Cincinnati........              32
LA..............................  WLPB...............  Baton Rouge........  PBS................  ...................  Baton Rouge.......              97
MA..............................  WCVB...............  Boston.............  ABC................  Hearst-Argyle        Boston............               6
                                                                                                  Television, Inc.
                                  WBZ................  Boston.............  CBS................  CBS Television       Boston............               6
                                                                                                  Stations.
                                  WFXT...............  Boston.............  FOX................  Fox Television       Boston............               6
                                                                                                  Stations Inc..
                                  WHDH...............  Boston.............  NBC................  Sunbeam Television   Boston............               6
                                                                                                  Corp..
                                  WHUB...............  Marlborough........  Pure Independent...  USA Broadcasting...  Boston............               6
                                  WGBY...............  Springfield........  PBS................  WGBH Educational     Springfield-                   105
                                                                                                  Foundation.          Holyoke.
MD..............................  WMPT...............  Annapolis..........  PBS................  ...................  Baltimore.........              24
                                  WMAR...............  Baltimore..........  ABC................  Scripps Howard       Baltimore.........              24
                                                                                                  Broadcasting.
                                  WJZ................  Baltimore..........  CBS................  CBS Television       Baltimore.........              24
                                                                                                  Stations.
                                  WBFF...............  Baltimore..........  FOX................  Sinclair Broadcast   Baltimore.........              24
                                                                                                  Group Inc..
                                  WBAL...............  Baltimore..........  NBC................  Hearst-Argyle        Baltimore.........              24
                                                                                                  Television, Inc..
                                  WBOC...............  Salisbury..........  CBS................  ...................  Salisbury.........             162
ME..............................  WCBB...............  Augusta............  PBS................  Maine Public         Portland-Auburn...              80
                                                                                                  Broadcasting.
MI..............................  WXYZ...............  Detroit............  ABC................  Scripps Howard       Detroit...........               9
                                                                                                  Broadcasting.
                                  WWJ................  Detroit............  CBS................  CBS Television       Detroit...........               9
                                                                                                  Stations.
                                  WJBK...............  Detroit............  FOX................  Fox Television       Detroit...........               9
                                                                                                  Stations Inc..
                                  WDIV...............  Detroit............  NBC................  Post-Newsweek        Detroit...........               9
                                                                                                  Stations, Inc..
                                  WTVS...............  Detroit............  PBS................  ...................  Detroit...........               9
                                  WOOD...............  Grand Rapids.......  NBC................  LIN Television       Grand Rapids-                   38
                                                                                                  Corporation.         Kalamazoo-Battle
                                                                                                                       Creek.
                                  WKBD...............  Southfield.........  United Paramount     CBS Television       Detroit...........               9
                                                                             Net.                 Stations.
MN..............................  KMSP...............  Minneapolis........  United Paramount     Chris Craft/United   Minneapolis-St.                 14
                                                                             Net.                 Television.          Paul.
                                  KTTC...............  Rochester..........  NBC................  QNI Broadcast Group  Rochester-Mason                153
                                                                                                                       City-Austin.
                                  KSTP...............  St. Paul...........  ABC................  Hubbard Television   Minneapolis-St.                 14
                                                                                                  Group.               Paul.
                                  KTCI...............  St. Paul...........  PBS................  ...................  Minneapolis-St.                 14
                                                                                                                       Paul.
MO..............................  KCPT...............  Kansas City........  PBS................  ...................  Kansas City.......              31
                                  KDNL...............  St. Louis..........  ABC................  Sinclair Broadcast   St. Louis.........              21
                                                                                                  Group Inc..
                                  KMOV...............  St. Louis..........  CBS................  Belo Corporation...  St. Louis.........              21
                                  KTVI...............  St. Louis..........  FOX................  Fox Television       St. Louis.........              21
                                                                                                  Stations Inc..
                                  KSDK...............  St. Louis..........  NBC................  Gannett              St. Louis.........              21
                                                                                                  Broadcasting.
MS..............................  WMPN...............  Jackson............  PBS................  Mississippi          Jackson, MS.......              89
                                                                                                  Authority for ET.
NC..............................  WSOC...............  Charlotte..........  ABC................  Cox Television.....  Charlotte.........              28
                                  WBTV...............  Charlotte..........  CBS................  Jefferson-Pilot      Charlotte.........              28
                                                                                                  Communication.
                                  WCCB...............  Charlotte..........  FOX................  Bahakel              Charlotte.........              28
                                                                                                  Communications,
                                                                                                  Lt..
                                  WCNC...............  Charlotte..........  NBC................  Belo Corporation...  Charlotte.........              28
                                  WTVD...............  Durham.............  ABC................  ABC Broadcast Group  Raleigh-Durham....              29
                                  WNCN...............  Goldsboro..........  NBC................  NBC Television       Raleigh-Durham....              29
                                                                                                  Stations Div..
                                  WCTI...............  New Bern...........  ABC................  Lamco                Greenville-New                 106
                                                                                                  Communications,      Bern-Washington.
                                                                                                  Inc..
                                  WRAL...............  Raleigh............  CBS................  Capitol              Raleigh-Durham....              29
                                                                                                  Broadcasting Co.,
                                                                                                  Inc.
                                  WRAZ...............  Raleigh............  FOX................  Capitol              Raleigh-Durham....              29
                                                                                                  Broadcasting Co.,
                                                                                                  Inc..
NE..............................  KMTV...............  Omaha..............  CBS................  Emmis                Omaha.............              73
                                                                                                  Communications
                                                                                                  Corp..
NH..............................  WENH...............  Durham.............  PBS................  ...................  Boston............               6
                                  WMUR...............  Manchester.........  ABC................  Imes Stations......  Boston............               6
NJ..............................  WNJT...............  Trenton............  PBS................  New Jersey Public    Philadelphia......               4
                                                                                                  Bcstg. Auth..
NV..............................  KLAS...............  Las Vegas..........  CBS................  Landmark             Las Vegas.........              53
                                                                                                  Broadcasting.
                                  KNPB...............  Reno...............  PBS................  ...................  Reno..............             111
NY..............................  WABC...............  New York...........  ABC................  ABC Broadcast Group  New York..........               1
                                  WCBS...............  New York...........  CBS................  CBS Television       New York..........               1
                                                                                                  Stations.
                                  WNYW...............  New York...........  FOX................  Fox Television       New York..........               1
                                                                                                  Stations Inc..
                                  WNBC...............  New York...........  NBC................  NBC Television       New York..........               1
                                                                                                  Stations Div..
                                  WPIX...............  New York...........  Warner Bros........  Tribune              New York..........               1
                                                                                                  Broadcasting Co..
OH..............................  WCPO...............  Cincinnati.........  ABC................  Scripps Howard       Cincinnati........              32
                                                                                                  Broadcasting.
                                  WKRC...............  Cincinnati.........  CBS................  Clear Channel        Cincinnati........              32
                                                                                                  Communications.
                                  WLWT...............  Cincinnati.........  NBC................  Hearst-Argyle        Cincinnati........              32
                                                                                                  Television, Inc..
                                  WEWS...............  Cleveland..........  ABC................  Scripps Howard       Cleveland.........              15
                                                                                                  Broadcasting.
                                  WJW................  Cleveland..........  FOX................  Fox Television       Cleveland.........              15
                                                                                                  Stations Inc..
                                  WKYC...............  Cleveland..........  NBC................  Gannett              Cleveland.........              15
                                                                                                  Broadcasting.
                                  WBNS...............  Columbus...........  CBS................  Dispatch Broadcast   Columbus..........              34
                                                                                                  Group.
                                  WMFD...............  Mansfield..........  Pure Independent...  Meisse Broadcasting  Cleveland.........              15
                                  WOIO...............  Shaker Heights.....  CBS................  Raycom Media Inc...  Cleveland.........              15
OK..............................  KFOR...............  Oklahoma City......  NBC................  New York Times Co.   Oklahoma City.....              45
                                                                                                  Bcstg..
OR..............................  KOAC...............  Corvallis..........  PBS................  Oregon Public        Eugene............             122
                                                                                                  Broadcasting.
                                  KATU...............  Portland...........  ABC................  Fisher Broadcasting  Portland..........              23
                                                                                                  Inc..
                                  KOIN...............  Portland...........  CBS................  Emmis                Portland..........              23
                                                                                                  Communications
                                                                                                  Corp..
                                  KGW................  Portland...........  NBC................  Belo Corporation...  Portland..........              23
                                  KOPB...............  Portland...........  PBS................  Oregon Public        Portland..........              23
                                                                                                  Broadcasting.
                                  KPTV...............  Portland...........  UPN................  Chris Craft/United   Portland..........              23
                                                                                                  Television.
PA..............................  WLVT...............  Allentown..........  PBS................  ...................  Philadelphia......               4
                                  WFMZ...............  Allentown..........  Pure Independent...  Maranatha Bcstg.     Philadelphia......               4
                                                                                                  Co. Inc..
                                  WITF...............  Harrisburg.........  PBS................  ...................  Harrisburg-                     46
                                                                                                                       Lancaster-Lebanon.
                                  WPVI...............  Philadelphia.......  ABC................  ABC Broadcast Group  Philadelphia......               4
                                  KYW................  Philadelphia.......  CBS................  CBS Television       Philadelphia......               4
                                                                                                  Stations.
                                  WTXF...............  Philadelphia.......  FOX................  Fox Television       Philadelphia......               4
                                                                                                  Stations Inc..
                                  WCAU...............  Philadelphia.......  NBC................  NBC Television       Philadelphia......               4
                                                                                                  Stations Div..
                                  WTAE...............  Pittsburgh.........  ABC................  Hearst-Argyle        Pittsburgh........              20
                                                                                                  Television, Inc..
                                  KDKA...............  Pittsburgh.........  CBS................  CBS Television       Pittsburgh........              20
                                                                                                  Stations.
                                  WPXI...............  Pittsburgh.........  NBC................  Cox Television.....  Pittsburgh........              20
                                  WVIA...............  Scranton/Wilkes      PBS................  ...................  Wilkes Barre-                   51
                                                        Barre.                                                         Scranton.
SC..............................  WRLK...............  Columbia...........  PBS................  South Carolina ETV   Columbia..........              86
                                                                                                  Commission.
                                  WSPA...............  Spartanburg........  CBS................  Media General Bcst.  Greenville-                     35
                                                                                                  Group.               Spartanburg-
                                                                                                                       Asheville.
TN..............................  WKPT...............  Kingsport..........  ABC................  Holston Valley       Tri-Cities, Tn-Va.              92
                                                                                                  Broadcasting.
TX..............................  KXAN...............  Austin.............  NBC................  LIN Television       Austin............              61
                                                                                                  Corporation.
                                  WFAA...............  Dallas.............  ABC................  Belo Corporation...  Dallas-Ft. Worth..               7
                                  KDFW...............  Dallas.............  FOX................  Fox Television       Dallas-Ft. Worth..               7
                                                                                                  Stations Inc..
                                  KERA...............  Dallas.............  PBS................  North TX Public      Dallas-Ft. Worth..               7
                                                                                                  Broadcasting.
                                  KDAF...............  Dallas.............  Warner Bros........  Tribune              Dallas-Ft. Worth..               7
                                                                                                  Broadcasting Co..
                                  KTVT...............  Fort Worth.........  CBS................  CBS Television       Dallas-Ft. Worth..               7
                                                                                                  Stations.
                                  KXAS...............  Fort Worth.........  NBC................  NBC Television       Dallas-Ft. Worth..               7
                                                                                                  Stations Div..
                                  KTXA...............  Fort Worth-Dallas..  UPN................  CBS Television       Dallas-Ft. Worth..               7
                                                                                                  Stations.
                                  KTRK...............  Houston............  ABC................  ABC Broadcast Group  Houston...........              11
                                  KHOU...............  Houston............  CBS................  Belo Corporation...  Houston...........              11
                                  KRIV...............  Houston............  FOX................  Fox Television       Houston...........              11
                                                                                                  Stations Inc..
                                  KPRC...............  Houston............  NBC................  Post-Newsweek        Houston...........              11
                                                                                                  Stations, Inc..
UT..............................  KBYU...............  Provo..............  PBS................  Brigham Young        Salt Lake City....              36
                                                                                                  University.
                                  KTVX...............  Salt Lake City.....  ABC................  Chris Craft/United   Salt Lake City....              36
                                                                                                  Television.
                                  KSL................  Salt Lake City.....  NBC................  Bonneville           Salt Lake City....              36
                                                                                                  International
                                                                                                  Corp..
VA..............................  WCYB...............  Bristol............  NBC................  Lamco                Tri-Cities, Tn-Va.              92
                                                                                                  Communications,
                                                                                                  Inc..
WA..............................  KOMO...............  Seattle............  ABC................  Fisher Broadcasting  Seattle-Tacoma....              12
                                                                                                  Inc..
                                  KIRO...............  Seattle............  CBS................  Cox Television.....  Seattle-Tacoma....              12
                                  KING...............  Seattle............  NBC................  Belo Corporation...  Seattle-Tacoma....              12
                                  KCTS...............  Seattle............  PBS................  ...................  Seattle-Tacoma....              12
                                  KXLY...............  Spokane............  ABC................  Morgan Murphy        Spokane...........              78
                                                                                                  Stations.
                                  KCPQ...............  Tacoma.............  FOX................  Tribune              Seattle-Tacoma....              12
                                                                                                  Broadcasting Co..
                                  KPDX...............  Vancouver..........  FOX................  Meredith Corp.       Portland, OR......              23
                                                                                                  Broadcasting.
WI..............................  WKOW...............  Madison............  ABC................  Shockley             Madison...........              85
                                                                                                  Communications Co..
                                  WISC...............  Madison............  CBS................  Morgan Murphy        Madison...........              85
                                                                                                  Stations.
                                  WTMJ...............  Milwaukee..........  NBC................  Journal Broadcast    Milwaukee.........              33
                                                                                                  Group, Inc..
                                  WMVS...............  Milwaukee..........  PBS................  ...................  Milwaukee.........              33
--------------------------------------------------------------------------------------------------------------------------------------------------------


                               Exhibit B

 RESOLUTION OF THE MSTV BOARD OF DIRECTORS AND THE NAB TELEVISION BOARD

    With the support of 30 major broadcast organizations and the 
oversight of technical committees consisting of some 25 engineers 
representing all major technical viewpoints, the broadcasting industry 
concluded a comprehensive, objective and expedited series of studies 
and tests to determine whether COMM should be added to the current 8-
VSB standard.
    We conclude that there is insufficient evidence to add COMM and we 
therefore reaffirm our endorsement of the VSB standard.
    We also conclude that there is an urgent need for swift and 
dramatic improvement in the performance of the present U.S. digital 
television system.
    We therefore will take all necessary steps to promote the rapid 
improvement of VSB technologies and other enhancements to digital 
television and direct the staffs to develop a plan and promptly submit 
it to the Boards.



    The Chairman. Thank you very much.
    Mr. Willner.

STATEMENT OF MICHAEL S. WILLNER, PRESIDENT AND CHIEF EXECUTIVE 
                OFFICER, INSIGHT COMMUNICATIONS

    Mr. Willner. Thank you, Mr. Chairman, Senators, good 
morning. I am Michael Willner. I am the President and CEO of 
Insight Communications, the eighth largest cable company in the 
United States with 1.4 million subscribers. I also serve as 
Vice-Chairman of the National Cable Television Association.
    I would like to thank you for giving me the opportunity to 
tell a very exciting story about how digital television really 
is working in the marketplace. It is working not because of 
significant amounts of digital broadcasting by TV stations, but 
because of the cable industry voluntarily creating innovative 
and advanced new digital services.
    Cable has moved with supersonic speed into the digital 
world, not because anybody told us to do so, but because our 
customers want us to. Today, 10 million households subscribe to 
digital cable. The key to cable's innovation has always been 
two-fold. Number one, consumer demand; Number two, freedom from 
excessive regulation--a combination absolutely critical in 
allowing us to raise the billions of dollars needed to invest 
in upgrading our technology. Our customers have been the 
ultimate winners because they now have more choices.
    The cable industry's digital transition is happening with 
our own capital and without grants or subsidies from the 
government. Since the passage of the 1996 Telecommunications 
Act, cable has spent $42 billion to upgrade its infrastructure 
throughout the country.
    Insight has been an industry leader in the development of 
new advanced digital services. By virtue of our investment we 
have added scores of new channels, developed interactive 
community news and information platforms, created video-on-
demand services which electronically deliver up to 500 movie 
titles viewable whenever a viewer wants to watch them with full 
VCR functionality, made plans to open an electronic mall with 
up to 50 retailers, delivered lightning-fast access to the 
Internet, and we have recently launched our first facilities-
based telephone service finally offering consumers a choice of 
local phone carriers.
    To do all these things, our little company alone has 
invested nearly $500 million since the passage of the Act.
    Broadcasters now argue that we should give to them large 
blocks of this newly created capacity to carry duplicative 
digital versions of their analog channels. This is to complete 
the digital transition that they committed to when Congress 
gave them about $70 billion worth of additional spectrum. 
Frankly, I thought the free grant of spectrum was valuable 
enough for them to have been motivated.
    Cable is not seeking to hamstring a competitor here; we 
simply do not want to be the scapegoats for the broadcasters' 
problems.
    The reality is that the cable industry is not just talking 
about the digital transition, we are doing something about it. 
Our rebuilds are 75 percent complete. Cable network HBO alone 
is offering more high definition programming than all of the 
broadcast networks combined. We have negotiated a technical 
standards agreement with the consumer electronics industry. We 
are developing a multitude of new digital channels and 
services. Our industry has committed to carry all of the 
digital equivalents of today's analog broadcast stations as 
soon as the broadcasters return their analog spectrum. And we 
have also committed to agree to carry the primary signal of 
broadcasters who return their analog spectrum earlier than the 
deadline and become digital-only broadcasters.
    There should be no doubt about this. Cable wants to and 
will continue to provide customers complete access to the 
broadcast channels they enjoy today. But our customers do not 
want duplicative versions of each and every broadcast station. 
Dual must-carry is neither pro-consumer nor will it speed the 
digital transition because it does not encourage consumer 
migration to digital.
    One scenario would have the broadcasters deliver digital 
signals to the cable operator, only to have them reconverted 
back into analog for delivery to a consumer's analog television 
set. The consumer would not see any difference and thus would 
not be encouraged to purchase a digital TV that exploits the 
medium's full potential.
    The other scenario has cable systems retransmitting a 
digital version of the same programming consumers already 
receive in analog. The worst part about this scenario is that 
less than 1 percent of consumers would ever see it--only those 
few who have purchased very expensive digital TV sets.
    The real problem here is that the broadcasters do not have 
a digital business plan developed. Most do not even know how 
much spectrum they will devote to free TV. Six years ago, this 
entire discussion was about the broadcasters' need to deliver 
high definition television over the air. Now, with the digital 
spectrum prize in hand, that plan seems dead.
    Dual carriage would confiscate an additional 6 MHz of 
scarce channel capacity for programming services that do not 
even exist yet, and may never exist. Who benefits from that? 
Broadcasters. Why? Because in my view, they are seeking to 
block competition by occupying a second swath of bandwidth that 
otherwise could be used for new competitive rival services.
    Consumers benefit if cable operators are free to use their 
digital capacity for the things that consumers want.
    Mr. Chairman, there are a lot of different commercial 
interests here, broadcasters, cables, equipment manufacturers 
to name a few, but the most important is the public interest. 
The fact is that cable revenue comes directly from consumers. 
Therefore, cable operators must satisfy consumers' desires or 
risk losing them to our competitors. We respectfully submit 
that the public interest is best served by allowing cable the 
freedom to provide customers with new digital services that 
they want today and in the future, including those developed by 
broadcasters which are negotiated in a free and open 
marketplace. Thank you, sir.
    [The prepared statement of Mr. Willner follows:]

Prepared Statement of Michael S. Willner, President and Chief Executive 
                    Officer, Insight Communications

    Good morning. I am Michael Willner, President and CEO of Insight 
Communications. Insight serves approximately 1.4 million cable 
subscribers. I also serve as Vice-Chairman of NCTA. I would like to 
request that the NCTA paper on digital TV, which accompanies my 
testimony, be included in the record.
    Thank you for giving me the opportunity to tell a very exciting 
story about how digital television REALLY is working in the 
marketplace. Working, not because of significant amounts of digital 
broadcasting but, because the cable industry has voluntarily created 
innovative, new advanced digital services.
    Cable has moved with supersonic speed into the digital world not 
because anyone told us to but because our customers want us to. To 
date, 10 million digital cable boxes have been deployed. The key to 
innovation for cable has always been two-fold: consumer demand and 
freedom from excessive regulation--a combination absolutely critical in 
allowing us to raise the billions needed to complete our upgrades. Our 
customers have been the ultimate winners because they have more 
choices.
    And it is important to note that the cable industry's digital 
transition is happening with our own capital, and without grants or 
subsidies from the government. Since the passage of the 1996 
Telecommunications Act, cable has spent $42 billion dollars to upgrade 
its infrastructure.
    Insight has been an industry leader in the development of new 
advanced services. By virtue of our investment, we:
     Added scores of channels; developed interactive community 
news and information services;
     Created video-on-demand services which electronically 
deliver up to 500 movie titles viewable whenever our customers want, 
with full VCR functionality;
     Plan to open an electronic mall with 50 retail outlets;
     Delivered high-speed Internet access; and launched our 
first facilities-based local telephone service offering consumers a 
choice of local phone carriers.
    This is precisely what Congress intended in passing the 
Telecommunications Act 5 years ago.
    To do all these things, our company alone has invested more than 
$500 million dollars since then.
    In addition to carrying all of their analog signals, broadcasters 
now argue that we should give to them large blocks of this newly 
created capacity to carry duplicative digital versions of their analog 
channels. This is to complete the digital transition they committed to 
when Congress gave them $70 billion of additional spectrum. Frankly, I 
thought the free grant of that valuable spectrum was ample incentive.
    Cable is not seeking to hamstring a competitor or to blame anyone. 
We simply don't want to be the scapegoats for broadcasters' problems.
    The cable industry is not merely talking about the digital 
transition. Here's what we're doing to make it happen.
     Our digital rebuilds are 75 percent complete.
     HBO, Showtime and MSG are offering more high definition 
programming than all of the broadcast networks combined.
     We have negotiated a technical standards agreement with 
the consumer electronics industry so that new digital television sets 
will connect directly with cable systems.
     We are developing scores of new digital channels.
     Our industry has committed to carry the digital equivalent 
of today's analog broadcast stations when broadcasters return their 
analog spectrum.
     And to ensure consumers continued access to broadcast 
programming, we have agreed to carry the primary signal of broadcasters 
who return their analog spectrum and become digital-only broadcasters 
early.
    Let there be absolutely no doubt about this--cable will continue to 
provide consumers complete access to the broadcast channels they enjoy 
today. But we are not prepared, nor do we believe the law requires us, 
to carry duplicative versions of each and every broadcast station.
    Dual must carry is neither pro-consumer nor will it speed the 
digital transition because it does not encourage consumer migration to 
digital.
     One scenario would have the broadcasters deliver digital 
signals to the cable operator, only to have them converted into analog 
form for delivery to a consumer's analog TV set. The consumer would not 
see any difference and thus would not be encouraged to purchase digital 
TV sets that showcase the medium's promise.
     The other scenario has cable systems retransmitting the 
digital signal--which is largely a standard definition version of the 
same programming they receive in analog. This approach would take 
bandwidth away from digital services for millions of customers to 
deliver a duplicative broadcast channel to fewer than one half of 1 
percent of consumers who have digital TV sets.
    To date, broadcasters have not developed a digital business plan. 
They do not even know how much spectrum they will devote to ``free 
TV.'' Six years ago this entire discussion was about broadcasters' need 
to deliver HDTV over the air. With that spectrum now in hand, that plan 
seems dead.
    Dual carriage would appropriate an additional 6 MHz of scarce 
channel capacity for programming services that do not even exist yet, 
and may never exist. Even in newly rebuilt systems, cable bandwidth is 
far from unlimited. Reserving scarce capacity for one service 
inherently means that less spectrum is available for new interactive 
services or competing video services. Who benefits from that? Just 
broadcasters who would have reduced competition by occupying a second 
swath of bandwidth that could otherwise be used for new services.
    Consumers benefit if cable operators are free to use their new 
digital capacity for the things consumers want. Whether they be 
broadcasters' digital services or other new services. In fact, several 
major broadcasters and cable MSOs already have signed agreements for 
carriage of both a broadcaster's analog and digital channels. But, 
these have been negotiated, not government mandated.
    Mr. Chairman, there are many interests at stake here: broadcasters' 
interests, cable's interests, and equipment manufacturer's interests to 
name a few. But overarchingly, there is the public interest. Because 
cable's revenue comes directly from consumers, inherently, we must 
satisfy their desires or risk losing them to our competitors. We 
respectfully submit that the public interest is best served by allowing 
maximum flexibility for cable operators to provide consumers the new 
digital services they want today and in the future.
                                 ______
                                 
                  The Transition to Digital Television

         PREPARED BY THE NATIONAL CABLE TELEVISION ASSOCIATION

Introduction

    The transition to digitalis taking place in all sectors of the 
video distribution market. Digital television (DTV) technology has the 
capability to provide clearer and sharper, cinema-like pictures as well 
as CD-quality sound. It can also be used to compress video signals, 
allowing providers to offer multiple video programs in the same 6 MHz 
slot now occupied by one analog channel. Additionally, DTV technology 
can be used to provide new services such as data.
    Broadcasters have expressed frustration about the ongoing 
transition to digital and they blame the Federal Communications 
Commission (FCC), the cable industry and the television set 
manufacturers for what they perceive as a lack of progress toward 
digital. They accuse the Commission of foot-dragging and criticize the 
cable and consumer electronics industries for not moving quickly enough 
to solve interoperability problems. They criticize cable operators and 
programmers for opposing a dual must-carry requirement--under which a 
cable operator would have to carry every broadcaster's analog and 
digital channels during the transition to digital.\1\ And they complain 
that while broadcasters are honoring their end of the bargain, other 
parties to the process are not doing their part.
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    \1\ On January 23, 2001, the FCC released its First Report and 
Order and Further Notice of Proposed Rule Making on issues related to 
cable carriage of digital broadcast signals. In this decision, the FCC 
declined to impose a dual carriage requirement on cable operators. See 
p. 11 for further discussion of the FCC's decision.
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    From listening to broadcasters, one would hardly guess that they 
asked for and received from the government a second 6 MHz channel of 
valuable spectrum free of charge to make this transition.\2\ Contrary 
to their accusations, real progress is being made in the transition to 
digital.
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    \2\ The FCC estimated that the total value of the digital spectrum 
ranged from $11 billion to $70 billion. Letters from Dr. Robert Pepper, 
Chief, Office of Plans and Policy, FCC, to Senators Lieberman, Kerrey, 
Conrad and Leahy, May 5, 1995.
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    To understand the issues and criticisms that have been raised, it 
is useful to briefly review the history of the digital transition and 
to outline the efforts of various industries to promote this 
transition.

Background: Broadcasters' Transition To Digital

    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 that would offer consumers 
crystal-clear pictures and sound. It also required more than the 6 MHz 
of spectrum used by the existing analog TV system. Television set 
manufacturers saw HDTV as a way to sell more TV sets. Broadcasters saw 
it as a way to gain access to additional spectrum that otherwise might 
go to other users.\3\
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    \3\ In the mid-1980s, manufacturers and users of two-way radios 
were pushing the FCC to allocate spectrum for land mobile uses. Police 
departments, ambulance services, commercial delivery companies and 
Motorola, which manufactured most of these radios, were trying to 
convince the FCC that broadcasters were not using--and had no future 
use for--much of the spectrum allocated to them. Joel Brinkley, 
Defining Vision, Harcourt Brace & Company, 1997.
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    Broadcasters petitioned the FCC to investigate the potential of 
advanced TV technology, while the U.S. Government urged the development 
of an American HDTV standard. Scientists and engineers from the public 
and private sectors began work on a new television system. In the 
meantime, the FCC began to examine the many issues involved in making a 
smooth transition to a new television system. Broadcasters started to 
lobby the government for a second channel of free spectrum.
    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 instead of the 8 to 12 MHz used by the Japanese analog system. 
But, it was not compatible with the existing television system, meaning 
broadcasters would have to broadcast separate analog and digital 
signals during the transition to digital, and then return the analog 
spectrum at the end of the transition.
    Broadcasters continued to urge the government to give them an 
additional 6 MHz of spectrum which, they argued, was necessary to make 
the transition to digital and to remain competitive. The government 
supported the broadcasters' arguments about the importance of making 
the transition. But not everyone agreed that they needed a second 6 MHz 
channel, or that they should get the additional spectrum for free. 
Opponents of this spectrum ``giveaway'' proposed giving the 
broadcasters only the amount of spectrum necessary to transmit a single 
standard definition digital signal and to make them pay for the 
additional spectrum.\4\
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    \4\ See e.g., Statement of Senator Bob Dole (R-KS), Congressional 
Record, April 17, 1996, p. S3443.
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    Broadcasters 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. An executive of the 
National Association of Broadcasters (NAB) said that TV stations ``will 
use this spectrum for HDTV, pure and simple.'' \5\
---------------------------------------------------------------------------
    \5\ Neil Hickey, ``What's At Stake in the Spectrum War?'' quoting 
NAB Executive Vice President Jim May, Columbia Journalism Review, July/
August 1996.
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    In the end, broadcasters were granted 6 MHz of additional 
spectrum--valued at as much as $70 billion--free of charge. Despite 
their commitment to HDTV, broadcasters endorsed ``spectrum 
flexibility'' which would allow them to use the spectrum for other 
things. Broadcasters prevailed again and the government chose not to 
impose a HDTV requirement.\6\ Congress put its stamp of approval on 
this plan in the 1996 Telecommunications Act.\7\ Shortly thereafter, 
the FCC completed its 10-year-old proceeding on digital television by 
adopting a DTV table of allotments and establishing policies and rules 
for digital television.\8\
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    \6\ ``To bolster DTV's chance for success, the Commission's 
decisions today allow broadcasters to use their channels according to 
their best business judgment, as long as they continue to offer free 
programming on which the public has come to rely.'' FCC Press Release 
on adoption of the Fifth Report and Order, MM Docket No. 87-268, April 
3, 1997.
    \7\ 47 U.S.C. Sec. 336. Congress in 1996 limited eligibility for 
the new spectrum to incumbent broadcasters and permitted use of the 
spectrum for ancillary and supplementary services under certain 
circumstances.
    \8\ In the Matter of Advanced Television Systems and Their Impact 
Upon the Existing Television Broadcast Service, Fifth Report and Order, 
MM Docket No. 87-268, 12 FCC Rcd. 12809 (1997).
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    The FCC also established a digital television station buildout 
schedule and a target date of 2006 for cessation of analog broadcast 
service.\9\ The FCC's rules required the TV stations affiliated with 
ABC, CBS, Fox and NBC in the top 10 markets to begin transmitting a 
digital signal by May 1, 1999.\10\ By November 1, 1999, affiliates of 
these four broadcast networks in markets 11 to 30 were required to be 
on the air with a digital signal.\11\ All other commercial stations 
must be transmitting a digital signal by May 2002, and non-commercial 
stations must do so by May 2003.\12\
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    \9\ Congress made the 2006 target date conditional in the Balanced 
Budget Act of 1997. Broadcasters need not give back their analog 
spectrum until 85 percent of the television households in their market 
are capable of receiving digital broadcasts, either over the air using 
a digital TV set or a digital to analog converter box, or through a 
multichannel video programming distributor.
    \10\ As of January 23, 2001, 35 of these 40 stations were on the 
air; the other stations have requested extensions to complete 
construction. See Top 10 Markets' DTV Status, at www.fcc.gov, February 
6, 2001.
    \11\ Fifty-seven of these 80 stations were on the air as of January 
23, 2001; the others have requested extensions until May 1, 2001 to 
complete construction. See Top 11-30 Markets' DTV Status, at 
www.fcc.gov, February 6, 2001.
    \12\ A NAB poll shows that 70 percent of station owners favor a 
delay in this rollout schedule. Broadcasting & Cable, April 10, 2000, 
p. 31. While many broadcasters are reluctant to publicly ask for a 
delay, Paxson Commumcations Chairman Lowell ``Bud'' Paxson has made it 
clear that he doesn't think the 2002 deadline for going digital is 
realistic: ``We ain't going to make May of `02,'' ``Delaying Digital 
TV,'' Broadcasting & Cable, January 29, 2001, p. 59.
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    Today, with more than 170 stations \13\ transmitting a digital 
signal,\14\ the broadcasters' early commitment to HDTV seems long 
forgotten.\15\ Most broadcasters have made no major commitments to use 
the digital channels primarily to provide HDTV.\16\ While some 
broadcasters are providing a limited amount of HDTV programming, many 
other broadcasters seem poised to provide non-HDTV, standard definition 
video programming over some of the additional spectrum, and to use the 
rest of their spectrum to provide commercial applications. Several 
broadcasters, for example, are planning to pool some of their digital 
spectrum to distribute data. Station groups are joining together to 
pursue this opportunity. iBlast, a consortium of large station groups, 
plans to create an infrastructure for delivering multimedia content to 
stations.\17\ Another consortium of station groups, Broadcasters' 
Digital Cooperative, plans to lease part of their digital spectrum to 
support wireless data services.\18\
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    \13\ ``177 TV Stations Broadcasting in Digital,'' NAB News Release, 
January 22, 2001.
    \14\ It is unclear exactly what broadcast stations are transmitting 
using these digital signals. In some cases digital TV transmitters may 
only be turned on for certain hours of the day. The programming on 
these channels, beyond a limited number of high definition programs, 
often consists of tape loops of high definition promos and upconverted 
standard definition analog signals. See e.g., websites of KRON (San 
Francisco) at www.kron.com  and KCTS (Seattle) at www.kcts.org.
    \15\ Some Members of Congress have expressed concerns about the 
broadcasters' move away from HDTV. In a September 1997 hearing before 
the Senate Commerce Committee, Senator Conrad Burns (R-MT) expressed 
concern about broadcasters' public statements about HDTV: ``It would be 
unfortunate indeed if a stunning advance in technology made possible by 
American expertise--digital HDTV--would fail to be made widely 
available to our own citizens.'' House Telecommunications Subcommittee 
Chairman Billy Tauzin (R-LA) said that broadcasters' failure to provide 
HDTV ``would violate the spirit of that unwritten agreement.'' 
``Datacasting Plans Raise Govt. Concerns About HDTV,'' Communications 
Daily, April 6, 2000, p. 4. At a July 2000 House Telecommunications 
Subcommittee hearing, Tauzin said that without widespread HDTV, 
Congress would reconsider its decision to give every TV station a 
digital channel at no charge. ``Congress Disses Datacasting,'' 
Broadcasting & Cable, July 31, 2000, p. 17.
    \16\ CBS has taken the lead among the broadcast networks in 
providing high definition programming. It is originating most of its 
primetime entertainment programming and major sporting events in HD. 
ABC began broadcasting ``NYPD Blue'' in HD in January 2001 and 
broadcasts some HDTV movies on Saturday and Sunday nights. NBC airs 
`The Tonight Show'' in HDTV. Television set manufacturers are, in some 
cases, underwriting the production of high definition programming and 
these sponsorship agreements influence what programming is provided in 
HD.
    \17\ ``Getting Together Over Data,'' Broadcasting & Cable, March 
27, 2000, p. 6. There are 225 iBlast television stations including 
Tribune Broadcasting, Gannett Broadcasting, Cox Broadcasting, Post-
Newsweek Stations, E.W. Scripps, Meredith Broadcasting, Media General 
Broadcasting, Lee Enterprises, The New York Times Co., McGraw-Hill 
Broadcasting, Smith Broadcasting, Northwest Broadcasting, Bahakel 
Communications, Bonneville International, Cosmos Broadcasting, Emmis 
Communications, Evening Post Publishing, Gray Communications, and 
Raycom Media. See www.iblast.com, February 6, 2001.
    \18\ Id. Station groups participating in the Broadcasters' Digital 
Cooperative include Granite Broadcasting, Benedek Broadcasting, Capitol 
Broadcasting, Citadel Communications, Clear Channel Television, Cosmos 
Broadcasting, Morgan Murphy Stations, Gray Communications, Nexstar 
Broadcasting, Pappas Telecasting, Paxson Communications, and Sunbelt 
Communications.
    In an interview with Broadcasting & Cable magazine, Commerce 
Committee Chairman John McCain (R-AZ) said that if broadcasters leased 
their digital spectrum for data services rather than using it all 
themselves ``it would be in direct contradiction to the commitment that 
they (the broadcasters) made when they got the spectrum.'' ``Straight 
Telecom Talk,'' Broadcasting & Cable, July 24, 2000, p. 24.
---------------------------------------------------------------------------
    Even with these developments, many broadcasters are still unsure 
about what to do with their digital spectrum. Broadcast network 
officials have expressed uncertainty about their digital plans and 
acknowledge that they still have many questions about how to proceed. 
This uncertainty about the ultimate uses of the digital broadcast 
spectrum has not gone unnoticed at the FCC. At the NAB's annual 
convention in April 2000, former FCC Chairman William Kennard said he 
was reluctant to impose a dual carriage requirement on cable 
operators--that is, require operators to carry both a broadcaster's 
digital and analog signal--with broadcasters' digital business plans in 
a State of flux.\19\
---------------------------------------------------------------------------
    \19\ ``Kennard Seeking Channel-Space Data,'' Multichannel News 
Online, April 11, 2000.
---------------------------------------------------------------------------
    In addition to the questions about how broadcasters will use the 
digital spectrum, there have been nagging concerns about the digital 
transmission standard. Numerous broadcasters, led by Sinclair 
Broadcasting Group, urged a review of the standard adopted by the FCC 
as the transmission standard for digital broadcast television signals, 
called 8-VSB.\20\ Sinclair asked the FCC to allow broadcasters to 
transmit their digital signals using an alternative modulation method, 
called COFDM, in addition to 8-VSB.\21\ Sinclair argued that COFDM 
overcomes several shortcomings of the 8-VSB technology, including 
difficulty with indoor reception.
---------------------------------------------------------------------------
    \20\ Other broadcasters joined in calling for a reexamination of 
the standard. For example, in their DTV biennial review comments, ABC 
and NBC said ``[o]ur real world experience in receiving the 8VSB signal 
from our DTV stations is that this method of transmission does not 
provide reliable reception to our viewers.'' Joint Comments of NBC and 
The Walt Disney Company, MM Docket No. 00-39, filed June 16, 2000.
    \21\ More than 400 commercial and public stations supported the 
Sinclair petition.
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    In February 2000, the FCC rejected the Sinclair petition.\22\ The 
Commission reaffirmed the 8-VSB modulation system in a January 2001 
review of the digital television transition.\23\ In this decision, the 
FCC said ``based on our review of the record, the demonstrated 
improvements in DTV receiver performance, and the findings and 
recommendations of the industry, we find that there is no reason to 
revisit our decision to deny Sinclair's petition.'' \24\
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    \22\ Letter from Magalie Roman Salas, Secretary, FCC, to Martin R. 
Leader, Fisher, Wayland, Cooper, Leader & Zaragoza, Counsel to Sinclair 
Broadcast Group, Inc., February 4, 2000.
    \23\ Report and Order and Further Notice of Proposed Rulemaking, MM 
Docket No. 00-39, January 19, 2001, 92.
    \24\ Id., Sec. 92.
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    The Consumer Electronics Industry applauded the Commission's 
decision saying its action, coupled with the recommendation of the 
broadcast industry,'' ends the debate over the DTV modulation 
standard.'' \25\ Since completion of the industry tests, however, 
questions have arisen about the testing methodology.\26\ Time will tell 
whether these recent actions will finally bring closure to the 
modulation debate, and whether greater certainty in this area is 
sufficient to spur additional commitments by television set 
manufacturers to roll out the next generation of DTV sets.\27\ 
Broadcasters have embarked down the road to digital and, not 
surprisingly, some obstacles have arisen. But they began this journey 
at their own request and with a government grant of a second free 
channel of valuable spectrum.\28\ Given the issues outlined above, it 
is disingenuous for broadcasters to try to shift the blame for the pace 
of the digital transition to others. The fact is that these other 
industries are making significant strides to promote the transition.
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    \25\ ``CEA Applauds FCC Actions on DTV Transition,'' CEA News 
Release, January 19, 2001.
    \26\ ``DTV Data is Called Invalid,'' Broadcasting & Cable, February 
5, 2001, p. 38.
    \27\ Past uncertainty about the modulation technology did cause 
some manufacturers to delay rollout of the new DTV sets. For example, 
in June 2000, Sony announced just such a delay, acknowledging that 
review of the transmission method was one factor in its decision. 
``Sony Says Its Line of Digital HDTVs Will be Delayed,'' Wall Street 
Journal, June 8, 2000.
    \28\ See e.g., ``FCC's Chief Blasts Broadcasters for Delays in 
Digital-TV Shift,'' Wall Street Journal, October 11, 2000. ``Basically, 
the broadcast networks were the beneficiaries of the biggest government 
giveaway since Peter Stuyvesant bought Manhattan from the Indians for 
$24,'' Mr. Kennard said, adding that ``the networks' business model for 
the next decade can be summed up by the slogan of Twix candy bars: `Two 
for me, none for you!'''
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Digital Rollout by The Cable Industry

    The cable industry has been a leader in the transition to digital 
and has taken on this role without government mandate or subsidy. Cable 
operators and programmers are working in a number of areas to ensure 
cable customers have access to new and unique digital services. 
Progress is being made in each of these critical areas:
     Cable plant upgrades that allow operators to offer new 
digital services;
     Creation of unique digital and high definition cable 
programming;
     Negotiation of retransmission consent agreements to make 
digital broadcast programming available to cable customers;
     Agreement between the cable industry and the consumer 
electronics industry to ensure digital TV sets work with cable systems.
    Each of these areas is discussed in more detail below.
Cable Industry Upgrades
    Cable operators have invested more than $42 billion since 1996 to 
upgrade their facilities in order to offer consumers new services, 
including digital cable. Digital video service provides increased 
channel capacity through compression of four to 12 digital video 
signals in the same 6 MHz slot previously occupied by a single analog 
channel. As a result, cable customers are able to receive dozens of new 
programming services.
    Consumers are responding by signing up for digital tiers in record 
numbers. To date, cable systems have attracted about 10 million digital 
customers. A survey released in March 2000 by the Cable and 
Telecommunications Association for Marketing (CTAM) showed impressive 
positive customer response to their upgraded, digital cable offerings. 
Of nearly 2,600 consumers polled, 95 percent expressed satisfaction 
with their service.\29\
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    \29\ CTAM's 1999 Digital Cable TV Customer Satisfaction Study.
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Cable's New Digital and High Definition Programming
    Program networks have already launched some 60 new digital channels 
offering consumers additional choice and further program diversity. 
Examples include the Biography Channel and History Channel 
International (from A&E); Science, Civilization and Kids (from 
Discovery); Noggin, Nick Too and Nickelodeon Games & Sports (from 
Nickelodeon); and style. (from E!). There are six new Hispanic channels 
from Liberty Canales, new music channels from MTV and BET, and separate 
channels targeting Indian, Italian, Arabic, Filipino, French, South 
Asian and Chinese viewers from The International Channel. There are 
also many new premium offerings from HBO (HBO Family, ActionMAX and 
ThrillerMAX), Showtime (Showtime Extreme, Showtime Beyond) and Starz! 
Encore (Starz! Family, Cinema, Movies for the Soul, Adventure Zone).
    Moreover, cable programmers are ahead of broadcasters on the high 
definition front. HBO is providing more HDTV programming in any given 
week than all of the broadcast networks combined. Showtime, Madison 
Square Garden, A&E and Discovery are also producing high definition 
programming. This is just the kind of high quality programming that 
will facilitate the transition to digital by enticing people to buy DTV 
sets.
Digital Must-Carry & Retransmission Consent
    Broadcasters argue that a critical component of the digital 
transition is a government mandate that cable operators carry their 
digital signal as well as their analog signal during the transition to 
an all-digital broadcast system.\30\ They contend that such a 
requirement is the only way broadcasters' digital programming will be 
carried on cable systems.\31\ The cable industry strongly opposes--on 
legal, constitutional and policy grounds--a government-imposed 
requirement that cable operators carry both the analog and digital 
signals of every broadcaster.\32\ Government-mandated dual must-carry 
unduly burdens cable operators and programmers, does not enhance but 
decreases program diversity and, therefore, does not serve the public 
interest.\33\ The FCC recently expressed its own reservations about a 
dual must-carry requirement and tentatively concluded that such a 
requirement would be unconstitutional.\34\ In its decision, the 
Commission said:
---------------------------------------------------------------------------
    \30\ Broadcasters analog signals are carried on cable systems 
pursuant to the provisions of the 1992 Cable Act. Broadcasters can 
elect either mandatory cable carriage (``must-carry'') or seek 
compensation for carriage of their signal (``retransmission consent'') 
from cable operators in their coverage area.
    \31\ In fact, broadcasters want operators to carry more than just 
their digital television signals. National Association of Broadcasters 
President Eddie Fritts told attendees at the NAB's annual convention 
that operators should also have to carry broadcasters' Internet and 
other data services: ``That means carrying the entire bitstream, not 
eliminat[ing] our new competitive data systems.'' ``Fritts Says Cable 
Should Carry all of Local Broadcasters,'' Cableday, April 11, 2000.
    \32\ See Comments of the National Cable Television Association, CS 
Docket No. 98-120, filed October 13, 1998, and Reply Comments filed 
December 22, 1998.
    \33\ Giving two signals of every broadcast station preferential 
carriage over all cable networks is particularly disturbing when cable 
companies are the ones playing an increasingly prominent role in 
providing local programming and serving the interests of children--
areas increasingly ignored by many broadcasters. See e.g. comments of 
senior VP of operations at Emmis Communications: ``We think the 
government should have no say in what we do for children. It's a 
terrible financial business for us, and we don't think the government 
should tell us to run 3 hours of kids programming.'' ``Who Decides 
What's Good for Children?,'' Broadcasting & Cable, January 29, 2001, p. 
35.
    \34\ First Report and Order and Further Notice of Proposed Rule 
Making, CS Docket No. 98-120, January 23, 2001 at Sec. 3.
---------------------------------------------------------------------------
    ``Based on the existing record evidence, a dual carriage 
requirement appears to burden cable operators' First Amendment 
interests substantially more than is necessary to further the 
government's substantial interests of preserving the benefits of free 
over-the-air local broadcast television; promoting the widespread 
dissemination of information from a multiplicity of sources; and 
promoting fair competition in the market for television programming.'' 
\35\
---------------------------------------------------------------------------
    \35\ Id.
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    The Commission also said that after a broadcaster returns its 
analog channel and transmits only in digital format, the digital 
station will have must-carry rights--but only with respect to the 
``primary video'' of the digital signal. According to the FCC, 
``primary video'' means a single programming stream, along with any 
material related to that programming. New stations broadcasting only a 
digital signal are also entitled to carriage of the primary video of 
that signal.
    The FCC also addressed technical and legal questions regarding the 
manner in which digital stations are to be carried by cable systems, 
pursuant to must-carry obligations or retransmission consent. Finally, 
the FCC adopted a Further Notice of Proposed Rulemaking in which it 
asked for comment on sonic of its tentative conclusions and related 
digital must-carry issues.\36\
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    \36\ In conjunction with the Further Notice, the FCC sent out a 
survey to 16 cable operators seeking information on channel capacity 
and retransmission consent agreements to carry digital signals.
---------------------------------------------------------------------------
    The FCC was right to decide not to impose a dual carriage 
requirement on cable operators. The facts belie the broadcasters' claim 
that such a government mandate is necessary. The marketplace is working 
to resolve digital carriage issues. The cable industry will carry 
broadcasters' primary digital signal at the end of the transition, and 
will continue to carry their analog signals during the transition. No 
broadcaster will lose its voice, nor will any consumer lose access to 
his or her favorite broadcast channel.
    In addition, large cable MSOs have entered into retransmission 
consent agreements with some broadcast station owners to carry digital 
broadcast programming during the transition. For example, AOL Time 
Warner has entered into comprehensive agreements for carriage of the 
digital signals of the four major broadcast networks, several station 
group owners, and a group of public broadcasters. AT&T has digital 
carriage agreements with Fox and NBC, and continues discussions with 
other broadcasters. Other negotiations are underway between broadcast 
and cable companies and are likely to yield additional agreements for 
the carriage of broadcast stations' digital signals on cable systems.
    Like all aspects of the digital transition, these discussions take 
time.\37\ But, the marketplace is working to resolve the digital 
carriage issue. A government-imposed digital must-carry rule will in no 
way provide consumers with an incentive to buy new digital television 
sets. Instead of arguing for such a requirement, broadcasters can 
provide this incentive by developing distinct and compelling 
programming that consumers want to watch. The retransmission consent 
agreements that have been reached and the ongoing discussions between 
cable and broadcast companies validate that as cable companies add 
channel capacity, and as broadcasters develop specific digital 
programming that consumers want, cable companies will carry such 
programming.\38\
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    \37\ Retransmission consent discussions have in some cases been 
hampered by the fact that many broadcasters do not have in place 
definite business plans for their digital spectrum.
    \38\ See e.g. ``Time Warner Adds HDTV in Houston,'' Multichannel 
News, November 27, 2000, p. 22: ``High-Definition TV: So Close, and Yet 
So Far,'' Newsday, January 10, 2001, p. C5.
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Compatibility Issues
    Another area where progress has been made to ensure a smooth 
transition to digital is the compatibility between cable systems, set-
top boxes and digital television (DTV) sets. The cable industry has 
addressed the issue of compatibility and solutions are available. Cable 
systems deliver high definition digital signals to DTV sets by using 
so-called ``component analog'' connectors between a cable set-top box 
and a DTV set. In some cases, content providers may require copy 
protection before they will make high quality digital programming 
available to cable.
    There are two approaches by which DTV sets can be connected to 
cable with adequate copy protection and security. First, an HDTV-
capable set-top box can be connected to a DTV using a digital interface 
or connection, such as a ``1394/5C'' \39\ or functionally equivalent 
digital link. This digital link will include copy protection technology 
to ensure that the digital signals cannot be pirated as they cross 
between the set-top box and the DTV set. Second, the functionality of 
the set-top box can he incorporated within the digital television 
itself. Using this approach, the DTV set connects directly to the cable 
system without the need of a set-top box. Since there is no set-top box 
and, therefore, no extended connection to the DTV set, there is no 
opportunity for the digital signal to be stolen and copied.
---------------------------------------------------------------------------
    \39\ Several companies have developed the ``SC'' Digital 
Transmission Content Protection (DTCP) technology. Use of DTCP has been 
subject to ongoing discussion and the negotiation of terms and 
conditions between equipment manufacturers and content providers. The 
cable industry supports the proposed SC technology as an effective way 
to provide copy protection.
---------------------------------------------------------------------------
    Both of these approaches required inter-industry technical 
discussions and consensus. The cable and consumer electronics 
industries worked diligently to resolve these outstanding technical 
issues. In December 1998, the cable industry and the Consumer 
Electronics Association (CEA) agreed to the necessary changes in the 
IEEE 1394 specification to promote compatibility between digital 
television receivers and digital set-top boxes.\40\
---------------------------------------------------------------------------
    \40\ Through the efforts of CableLabs and its OpenCable project, 
the cable industry developed specifications for cable set-top boxes 
that could be sold at retail stores. The security features of these 
boxes would be included in a separate security module--a ``Point-of-
Deployment'' or ``POD'' module--to be obtained from the cable operator. 
On December 15, 2000, CableLabs submitted a final ``PHI'' (POD-HOST 
Interface) license agreement to the FCC. The technology provided by 
this license is used to ensure security and to facilitate copy 
protection of high quality digital content as it passes across the 
interface between the POD module and the cable set-top box. This 
license will allow equipment manufacturers to begin producing digital 
set top boxes to be sold at retail.
---------------------------------------------------------------------------
    Beginning in July 1999, the cable and consumer electronics 
industries conducted a series of joint meetings to address additional 
compatibility issues between cable systems and consumer electronics 
equipment. As a result of these meetings, three significant agreements 
were reached.
    On February 23, 2000, CEA and NCTA announced two voluntary 
agreements to allow future consumer digital television sets and digital 
cable systems to work together. The agreements detail the technical 
specifications that will enable consumers to receive DTV programming 
and services over cable systems.\41\ The first agreement details the 
technical specifications that will allow DTV receivers to connect to 
cable television systems. This agreement assures a cable customer who 
buys a DTV set that the set can be connected directly to his or her 
cable wire. The second agreement spells out how systems will transmit 
Program and System Information Protocol (``PSIP'') data--the raw 
material provided by broadcasters and cable programmers that is used to 
make up electronic program guides created in a TV set.
---------------------------------------------------------------------------
    \41\ See Letter from Robert Sachs, President and CEO, NCTA, and 
Gary Shapiro, President and CEO, CEA, to Chairman Bill Kennard, FCC, 
filed February 22, 2000.
---------------------------------------------------------------------------
    These two technical agreements allow manufacturers to proceed with 
the production of digital TV receivers built to the agreed-upon 
technical specifications.\42\
---------------------------------------------------------------------------
    \42\ DTV sets built to these specifications are likely to be 
available in retail stores within 14 to 18 months.
---------------------------------------------------------------------------
    On May 24, 2000, NCTA and CEA announced a third agreement to aid 
consumers in their purchase of new digital television equipment. This 
agreement established the labeling to be used to inform consumers about 
various digital television sets' capabilities to receive digital and 
interactive digital TV services. However, on September 15, 2000, the 
FCC, acting on a number of issues regarding cable and the digital 
television transition, instead required a different set of labels--
using the term ``cable ready'' \43\--for digital television sets to 
indicate their capability to operate with cable television systems.
---------------------------------------------------------------------------
    \43\ Report and Order, PP Docket No. 00-67, September 15, 2000. The 
Commission ordered that digital television sets that work with cable 
but that do not have a 1394 connector--therefore limiting the sets to 
one-way capability--will be labeled ``Digital Cable Ready 1.'' DTV sets 
with a 1394 connector will be labeled ``Digital Cable Ready 2.'' DTV 
sets that have set-top functionality integrated into the sets--and 
therefore do not need a 1394 connector to work with two-way cable 
services--will be labeled ``Digital Cable Ready 3.''

    The Chairman. Thank you very much, Mr. Willner.
    Mr. Sagansky, what do you expect Paxson Communications to 
look like in 10 years? Do you still expect to be a broadcaster?
    Mr. Sagansky. Yes, we do expect to be a broadcaster, and we 
expect to be a broadcaster which will be multicasting multiple 
channels of high quality DTV family programming. And you know, 
as we look out to the future, we think this is the best 
possible use of our spectrum. It is not datacasting and it is 
not HDTV, because we have said all along that HDTV is fantastic 
for sporting events and movies, and other kinds of programming 
that take up a lot of bandwidth. But for us, for our family 
programming, even a standard DTV signal is a huge improvement 
over what consumers are seeing today.
    The Chairman. It has been estimated that it costs between 
$2 and $8 million dollars to convert a broadcast TV station to 
digital. How much would you estimate that your company has 
spent on converting analog TV stations to DTV or HDTV?
    Mr. Sagansky. Well, so far this year alone, we are going to 
spend $25 million, and it is going to cost us $100 million by 
the time that we are done.
    The Chairman. How much have you spent?
    Mr. Sagansky. We have spent $25 million.
    The Chairman. Paxson Communications has been a vocal 
advocate of broadcasters being paid to vacate the spectrum 
early, effectively trying to sell the spectrum to other 
telecommunications concerns at a premium in return for vacating 
the spectrum early. Does this not presume that the broadcasters 
own the spectrum, while in reality it belongs to the American 
public, who has been loaning it to them based on the promise of 
digital television?
    Mr. Sagansky. Senator, I think you are talking about 
channels, the 700 MHz options which are coming up in September, 
and those are channels 60 to 69. We actually have 18 stations 
that are operating in that spectrum. And we know that once we 
have to vacate for the use of wireless advanced technology, we 
are going to lose our entire over-the-air audience, because 
there is no digital television reception out there.
    So what we are trying to do is we are working with a group 
of incumbent broadcasters, who are all licensed on that 59 to 
69 band, and we are formulating a plan in accordance with the 
FCC's direction to clear this 700 MHz band prior to the end of 
the digital transition period. The plan which will be 
finalized, we are working on it now, is going to be presented 
to all incumbent broadcasters as well as potential bidders in 
the FCC auction scheduled for this coming September.
    And the basis of the plan that we are developing has shown 
a lot of interest from the FCC. Discussions are ongoing with 
the FCC and among incumbent broadcasters but you know, we are 
hopeful that our initiative will clear the band and lead to a 
successful auction.
    The Chairman. Mr. Tucker, when Congress gave you this free 
spectrum, you pulled a classic bait and switch. In October of 
last year, William Safire in the New York Times wrote: ``The 
broadcasters insisted that the airwaves were their entitlement. 
With the gift of the new spectrum, they promised to deliver 
free TV broadcasts on high definition television.'' Yet in 
January of this year, former NAB executive vice president John 
Abel said, quote: ``Broadcasters shouldn't have to worry about 
HDTV, there's nothing in the 1996 Telecommunication Act 
requiring HDTV or forbidding data.''
    What I would like to know is what were your original 
intentions for this spectrum and what are your intentions 
today?
    Mr. Tucker. Senator, I would say that there has not been a 
classic bait and switch. In our company, as I said earlier, we 
are doing HDTV news in Seattle right now. The opportunity does 
exist within the law----
    The Chairman. May I interrupt? Your company may be doing 
it, but there is a very small number of companies that are. I 
think you are representing NAB here, not just your company.
    Mr. Tucker. Yes, sir, that is correct.
    The Chairman. OK.
    Mr. Tucker. I think that there is a lot of experimentation 
going on with this spectrum right now, and that was authorized 
under the statute, as far as I know. The ability to do an 
experiment----
    The Chairman. May I interrupt one more time? 182 DTV 
stations, or 11.3 percent of the nearly 1,600 TV broadcast 
stations, have been made DTV capable.
    Mr. Tucker. Yes, sir, and that is ahead of schedule.
    The Chairman. That is ahead of schedule?
    Mr. Tucker. That is ahead of schedule.
    The Chairman. We are going to reach 85 percent of the homes 
in America by the year 2006?
    Mr. Tucker. We have 1,100 more stations to come on the air.
    The Chairman. We are going to reach 85 percent of the homes 
in America by 2006, you are going to comply with the 
legislation? There is no one in America that believes that, Mr. 
Tucker.
    Mr. Tucker. Mr. Chairman, I think that date was condensed 
from the Congress. Originally, the expectations and the 
projections that the broadcasters looked at, was for that 
transition to take as long as possibly 2015.
    The Chairman. I think you will find congressional testimony 
to contradict your statement, sir, by the broadcasters.
    Mr. Tucker. Well, the FCC does not have the same date, sir.
    The Chairman. I will be glad to provide it with you. Go 
ahead. Please finish your response.
    Mr. Tucker. There is no question that we are encountering 
some problems with construction permits and FCC applications 
being held up, and that there probably will be some delays. 
There is an opportunity to go and ask for extensions for those 
stations that encounter those kinds of delays. But we expect 
the industry to be on track. As I said earlier----
    The Chairman. Track to do what?
    Mr. Tucker. On track to be broadcasting by May of 2002.
    The Chairman. What percentage of the industry?
    Mr. Tucker. As far as I know, sir, all broadcasters are 
projecting to try to be up on the air broadcasting by that 
date.
    The Chairman. I was not asking you about try to be. I was 
asking you about when they would be. I mean, we are going to 
have further testimony here that there is not a snowball's 
chance in Gila Bend, Arizona that that is going to happen by 
the year 2002, Mr. Tucker, by objective consumer groups. You 
are telling me that 85 percent of the American homes in America 
will be receiving high density television by the year 2002, 
which means then that you would be prepared to give back the 
analog channels that you have also been keeping. Is that 
correct?
    Mr. Tucker. Well, there are two different questions here, 
sir. We already reach 67 percent of the country with the 
stations that are on the air. The incremental of the other 18 
percent I think is doable by 2002. But the 85 percent set 
penetration means that the consumer has to have access to that 
programming.
    Right now we have 70 percent of the homes that cannot get 
it because of cable's roadblocks, so we do have some problems 
in those areas. We also do not have interoperable receivers or 
digital television sets that enable the consumer to get HD 
television at this particular point in time.
    The Chairman. Cable operators, Mr. Tucker, did not ask for 
$70 billion worth of spectrum, you did. Therefore, I am 
interested in hearing what you intend to do to increase the 
amount of programming that would give the consumers a reason to 
go out and purchase digital television sets.
    Mr. Tucker. Mr. Chairman, we already are doing more 
programming. As I said, we have over 1,000 hours of programming 
on the air right now. We are encouraging the networks to do 
more. Mr. Sagansky is right; in HD, high profile sports and 
theatricals are probably the best HD example. I think that 
there is a lot of innovation going on in the broadcasting 
industry to provide different digital services in multicasting 
and in HD combinations.
    The Chairman. When do you expect the analog channels to be 
given back?
    Mr. Tucker. As soon as we can reach 85 percent set 
penetration, sir.
    The Chairman. Which is when?
    Mr. Tucker. I think the consumer is going to determine 
that.
    The Chairman. Mr. Willner, one of the factors delaying the 
DTV transition is the inability of the content owners and 
transmission providers to resolve copyright issues. Do you know 
anything about that?
    Mr. Willner. A little bit, Mr. Chairman. I think that we 
have to walk the line of protecting the consumer's right to be 
able to do some time shifting and watch a program versus the 
copyright protection of the intellectual property owners. But I 
think there are probably technological solutions that would 
allow us to be able to transmit those programs.
    The Chairman. According to the FCC, where cable companies 
face competition from a telephone company offering cable 
service, the price of cable measured on a per channel basis is 
35 percent lower than where cable faces no competition. Please 
explain to me how in these communities with no competition, 
consumers are truly getting the value they deserve.
    Mr. Willner. Mr. Chairman, I do not know where there is a 
35 percent difference. We have competition, we have markets 
where we have wireline overbuilders. Our rates are no lower in 
those communities than they are anywhere else. Our belief is to 
roll out technology that will compete against satellite, which 
is a very significant competitor in our industry; they have 
gone from nowhere to 15 percent penetration nationwide in the 
last 5 years, and quite frankly, I do not know where the price 
differences are. They do not exist in my company.
    The Chairman. Senator Wyden.
    Senator Wyden. Thank you, Mr. Chairman.
    Gentlemen, I want this issue addressed using marketplace 
forces. And to me, the real question for this morning's hearing 
is what is it going to take to unleash those kind of 
marketplace forces. It seems to me if the advantages are 
significant here, consumers would actually go out and start 
demanding this product, and suffice it to say, there aren't a 
lot of folks marching the streets today asking for DTV-capable 
sets. The majority of sets sold last year were traditional 
sets.
    What I would like to do for my questions is to go down the 
row and have each of you state what the real advantages are 
here, so that the public gets a sense of what they are going to 
win if this issue is resolved, and why are marketplace forces 
not making it possible to get those benefits.
    Let's start with you, and we will go right down the end.
    Mr. Sagansky. Thank you. You know, I want to just go back 
and look at what drove cable acceptance 20 years ago. There 
were only two factors. One was better pictures, and two was 
better content. And when I say better content, I meant content 
that was proprietary toward that platform, that is HBO, 
Discovery Channel, things that you could not get over the air. 
And we maintain that it is going to be the exact same factors 
that drive the acceptance of DTV, that is better pictures, high 
definition pictures, standard definition television, as well as 
better content.
    And when I say better content, there are a lot of 
broadcasters like us, like public television, that do not feel 
that the best use of the spectrum is a single stream of 
programming, but multiple channels, channels that will only be 
able to be received on digital television. So those two factors 
are going to drive consumer acceptance.
    Then the question is, how does the consumer get it? Right 
now you can go out and buy a television. You cannot hook it 
into digital cable, because there are no accepted standards for 
digital cable hookup. So that digital television is useless.
    Then the FCC comes along and says, ``hey look, you cannot 
start, you cannot ask for must-carry on your digital until your 
analog is turned off.'' And my question there is, who is 
possibly going to buy a television set if they cannot get the 
digital, if they cannot get our digital signals over the air? 
Why would you buy a set? You will not.
    So there has to be some sort of must-carry for our digital 
signal so that we can encourage people to go out and buy a 
television set.
    Senator Wyden. OK. Let us hear from Fisher Broadcasting.
    Mr. Tucker. Senator, thank you. First of all, with 70 
percent of our viewers not capable of getting our signals that 
are sent through cable at this particular point in time, we do 
need cable cooperation to drive the marketplace. It is an 
unfortunate situation but that is just the reality that we live 
in.
    I think the fact that we deliver unique public interest 
programming, local news and local public service, is still the 
basis and the foundation for what local broadcasters do. I 
think that that has been recognized by the consumer over and 
over again to be a high-demand product.
    Senator Wyden. Let me ask you another marketplace question. 
Your second recommendation--you all made three recommendations, 
the broadcasters today--involved this matter of the digital 
tuner. Now clearly that could involve cost to consumers. Do you 
have a plan so that there would be a volume of scale so as to 
not hit the consumers with a significant cost there?
    Mr. Tucker. Senator, only the experience that I think that 
we all recognize with any consumer product's introduction, that 
once we get to mass production, that that particular cost will 
become de minimus over time, the more sets that are rolled out.
    Senator Wyden. So what does it cost at the beginning and 
under your theory, what does it go down to?
    Mr. Tucker. I think in the end there will not be a 
significant cost factor at all.
    Senator Wyden. So your three proposals as the broadcasters 
envisage would not involve significant cost to consumers?
    Mr. Tucker. I do not think so, no, sir.
    Senator Wyden. OK.
    Mr. Willner.
    Mr. Willner. Well, Senator, let me start by telling you a 
story that happened about 20 years ago, because I think it is 
significant here. I was in my office as we were building our 
cable system in Clearwater, Florida, and a fellow by the name 
of Bud Paxson came in with an idea in his mind that he wanted 
to start a very different type of television program that was 
not offered by anybody else in the cable industry. And in 15 
minutes he had worked out a carriage arrangement with me which 
started the Home Shopping Network.
    The fact of the matter is that the broadcasters are trying 
to make it into a government mandate about whether or not cable 
has to carry multiple signals or whatever it is that they want 
to do to in order to make money delivering their signals. This 
debate is about whether or not the cable operators have the 
consumer's best interests in mind when they do not want to 
broadcast duplicative signals, which will take away bandwidth 
from high speed data access, from voice telephony alternatives 
to local phone company, and from video on demand products, 
which are all very bandwidth intensive.
    I do not think that is the best use of our bandwidth or in 
our consumers' interests. We have markets now where Insight has 
launched our digital products, and these are real digital 
products going out, with interactive capability, and we have up 
to 30 percent penetration within 1 year of customers taking 
digital cable. So there is a market-oriented way of rolling out 
digital television.
    I am not sure I understand how the broadcasters are going 
to do it, but I do know how the cable operators are doing it.
    Senator Wyden. You have to wonder why we need this hearing. 
I mean, in one sense, if markets are working except in rural 
areas--Senator Smith and I have a rural State, Senator 
Rockefeller, Senator Dorgan, we have got some markets where 
because of the distance, rural communities, small numbers of 
people, I can see why this would be slow to kick in. But it is 
not kicking in anywhere, so we are going to have to look with 
you to find some additional incentives.
    I am particularly interested in the cost of the broadcaster 
package. All of you at Fisher, I think have been very 
community-minded on a number of instances, and without getting 
into it, I appreciate your supporting my stand by your ad 
proposal, the bipartisan proposal on campaign finance, not the 
topic for today, but we will look at the cost of your proposal 
as well, because there is a reason that consumers are not 
rushing to this product and that is that up to this point, the 
markets have not worked very well.
    And if you as the broadcasters have a proposal that will 
drive the costs down here, that is certainly worth looking at.
    I thank you, Mr. Chairman.
    The Chairman. Senator Burns, before I go to you.
    Mr. Tucker, on September 17th, 1997, at a hearing before 
this Committee, Mr. Robert Decherd, Chairman, President and CEO 
of A.H. Belo Corporation on behalf of the National Association 
of Broadcasters, said quote: ``Broadcasters have made a compact 
with the Congress concerning high definition television. We 
will meet our commitments. This compact is essential to our 
future since it insures the long-term viability of free over-
the-air television that American citizens have enjoyed. Now is 
the time to move to HDTV.''
    Senator Burns.
    Senator Burns. Thank you, Mr. Chairman. To the list of 
numerous difficulties through this whole thing, I have a couple 
of questions. In your estimate, Mr. Tucker, is there something 
that the FCC can do that would facilitate or to make this 
transition go a little bit faster and maybe smoother? Any 
recommendations that you would make to the FCC or to this 
Committee that the FCC could do?
    Mr. Tucker. Yes, sir, I think I have already asked for it. 
Must-carry and receiver set standards.
    Senator Burns. What do you believe is the single largest 
impediment right now in this transition, if you had to deal 
with just one? And I would welcome Mr. Sagansky's comment on 
that also.
    Mr. Tucker. I would say must-carry.
    Mr. Sagansky. I would also say must-carry. It is the single 
biggest thing because if we are getting the programming out 
there and people can receive it, then they will see the 
difference. It is an unbelievable difference. It is more 
content and it is better content. It is clearer content. That 
is the thing that drove us to say hey, we want to spend the 
$7.5 billion to convert to digital broadcasting to begin with.
    We think there is a huge difference for the consumer.
    Senator Burns. Give me an idea of the transition being made 
by the smaller and medium size and smaller markets. Where are 
they now?
    Mr. Tucker. Senator, they are due to be on the air by May 
of 2002. There is no question that there may be some delays in 
those markets. They also expected the transition to be further 
along. They expected sets to be in place and some part of must-
carry to have occurred so that there was an expectation that 
the consumer would get their product.
    I think that if the FCC were to expand the ability for them 
to ask for a delay based on economic hardship, the smaller 
markets might do that. But that does not speak to the majority 
of the American public. The larger markets have the ability up 
to about market 75 to deliver to close to 80 percent of the 
country.
    Senator Burns. I guess one would always worry about where 
he lives and how that affects you personally. I am in what we 
would call a small market. Of course, we have a tiny market in 
Montana where we are riding dry there, but what about the 
Billings, Montanas and the Casper, Wyomings, and for the most 
part, some areas in Alaska?
    Mr. Tucker. Senator, we have got a television station in 
Idaho Falls, Idaho, a 163rd market. We are going to be on the 
air by 2002. We have small terrestrial satellite stations in 
Coos Bay, Oregon and Tri Cities, Washington, and Lewiston, 
Idaho. Those will all be on the air as well, but we have the 
financial capability to do that.
    Single market small station owners are going to run into 
strong economic hardships, there is no questions about it. It 
will be better for us to be pioneers as broadcasters in the 
digital era to kind of facilitate for them some of the learning 
that we have to push the prices down for transmitters and to 
see sets start to come out so that the consumer is attracted to 
it, and move the demand forward.
    Senator Burns. Now the next question gets on the other end 
on the consumer part. Now I was out at the consumer electronics 
show and last year when they were asking $4,000 bucks for a 
receiver of digital television and the screen and the whole 
thing, it was costing around $4,000 bucks. This year, and I 
would agree with you, that cost had almost been cut in half 
this year they tell us.
    But still, as Scotch as I am, I am not ready to give $2,000 
for a television set, and I am wondering what the attitudes are 
in Idaho Falls; are there more like me or are they going to 
stand in line to order these television sets?
    Mr. Tucker. I think they are far more like you. I can tell 
you in Seattle, we only have about 10,000 HDTV sets in the 
market and we have all four major broadcasters that are up with 
HDTV. Of those 10,000 sets in the Seattle market, only about 
1,500 receive over-the-air television at this particular time.
    Senator Burns. So Mr. Sagansky, you are getting nervous 
here.
    Mr. Tucker. It is going to take a while, Senator, I mean it 
really is.
    Mr. Sagansky. Look, I do not think anybody, Senator, is 
going to go out and buy a $2,000 set if once they plug in their 
cable there is no programming. So you are right. I mean, it is 
not only the cost of the set and nobody is buying the sets 
because there is no interoperability standards for cable, and 
there is no must-carry so there is nothing on the cable to 
watch that is free, it is all just digital cable channels. So 
it is a huge problem.
    You know, if you go back to the 1992 Act that mandated 
must-carry, it was one of the most successful Acts in this 
history of this country in promoting diversity. You know, it 
gave rise to the WB, UPN, Telemundo, Univision, PAX, and a 
whole bunch of minority and religious broadcasters that could 
never be on the air before and get through to the consumer, 
because it mandated cable carriage. That is what we are asking 
today. We want to program for these digital consumers but it 
has to get through to the 70 percent of the consumers that have 
cable and satellite.
    Mr. Willner. Senator, could I respond to that?
    Senator Burns. Yes.
    Mr. Willner. I would just like to say that first of all, 
when the government decided that it was in the public interest 
to deliver to the broadcasters additional spectrum to the tune 
of about $70 billion, they did so with high definition 
television as being the reason for that.
    To the extent that broadcasters now want to multicast and 
deliver different types of programming to create different 
types of revenue streams, I do not believe it is in the 
interest of the government to determine whether or not they 
have the right to do that over any privately-built network that 
has been put in place around the country.
    The fact of the matter is that the biggest impediment to 
the delivery of digital television today over the broadcast 
network is the broadcasters' lack of a business plan and lack 
of content over that platform. To the extent they want to 
multicast, that is fine. Come talk to us and let us work out a 
business arrangement that makes some sense. You know, must-
carry was always originally intended to protect the local 
broadcasters' economic well being, to deliver news and to 
deliver weather, and local information in communities like New 
York City and like Idaho Falls. The problem is that we are now 
discussing delivering to them bandwidth that allows them to 
simply make money. It is not really necessarily in the public 
interest.
    Senator Burns. We know where the must-carry language came 
from. Thank you, Mr. Chairman.
    The Chairman. Senator Dorgan.

              STATEMENT OF HON. BYRON L. DORGAN, 
                 U.S. SENATOR FROM NORTH DAKOTA

    Senator Dorgan. Mr. Chairman, thank you very much.
    We are speaking here about HDTV and digital in some ways as 
if they are one and the same, and they are not. I am just 
trying to understand the circumstances of all this.
    Let me read something to you and see whether you think this 
is fair, and I guess what I am going to read describes part of 
the responsibility for the delay with respect to virtually 
everyone who is testifying and will testify.
    Broadcasters are frustrated with equipment manufacturers, 
as I understand it, because that has not gone very well and 
they are not producing a lot of sets that are less expensive.
    The equipment manufacturers are upset with the broadcasters 
because they say the broadcasters challenge the broadcast 
standard chosen by the FCC, which I believe the broadcasters 
now support.
    Equipment manufacturers and the cable operators haven't 
gotten together on interoperability standards to make sure 
purchasers who purchase the sets will be able to use the sets.
    It seems to me like you have a little blame laying at 
everyone's feet, and you probably could make the case that the 
FCC has not been particularly aggressive in providing 
leadership here. So, virtually everyone has a share of this, 
and the question today is, what do we do next?
    The Chairman makes the point that we have got spectrum out 
there for the purposes of conversion and he makes the point 
that it does not look like conversion is moving along with any 
great speed.
    Let me ask Mr. Willner, you testified that, in opposition 
to must-carry, you don't want the government involving itself 
in these issues. Let me ask you, is your opposition a 
philosophical one or a physical capacity one?
    Mr. Willner. Well, it is both. I mean, the fact of the 
matter is that there has been a lot of talk about a 750 MHz 
cable system having unlimited capacity and therefore, you might 
as well just give the broadcasters another channel. The reality 
of a 750 MHz cable system today is that 550 MHz of that system 
are allocated to the old bandwidth hog-analog television 
signals.
    The reason for that is because we are not trying to force 
digital down anybody's throats. We are trying to offer it as an 
optional tier so that we can create new revenue streams that 
will alleviate the pressures on the cable industry to raise 
basic rates, which I know is a concern of this Committee as 
well.
    And optional digital tiers are really the right answer in a 
world where our programming costs are going up 15 to 20 percent 
each year, and we are trying to keep our rate increases down at 
the rate of inflation.
    I would also like to correct one statement that you made 
before about the consumer electronics and cable industry not 
having an agreement. We do have an agreement on 
interoperability, it was filed with the FCC last year, and 
right now there are television manufacturers and box 
manufacturers who are beginning to make equipment that will 
allow cable and television sets to interact with each other.
    Senator Dorgan. Mr. Willner, if you were to purchase a 
television this afternoon in that case, then what would you 
purchase that would give you the feeling you could hook it up 
and achieve the signal you wanted off your cable system? Does 
that exist?
    Mr. Willner. Well, I think you could buy a high definition 
television set and determine what type of a tuner you are going 
to buy later on, because the pieces come in components.
    Senator Dorgan. But that is my point, is it not? And we are 
making the point that consumers are not out there able to buy 
at this point with some knowledge that if they come home and 
hook it up to their cable box, they are going to be able to 
advantage a signal that justifies the price they paid for that 
set. Is that not it?
    Mr. Willner. In Columbus, Ohio, 30 percent of our market is 
taking digital, they are buying our digital product at an 
incremental revenue of $22 per month. They are volunteering to 
pay it. They do not have to buy anything. We are delivering the 
equipment to them as part of that package.
    Senator Dorgan. Let me ask a question of Mr. Sagansky. The 
auction for the spectrum occupied by channels 60 to 69 has been 
delayed a number of times, and I believe your company has been 
describing an interest in having that happen.
    What happens to your non-cable viewers if you were to leave 
that spectrum without a place to go? I did not quite understand 
the answer you gave.
    Mr. Sagansky. The point is that we are willing to leave 
that spectrum. But we are going to lose our over-the-air 
viewers, unless they go out and buy a digital set. And so we 
are going to lose, you know, in some markets as much as 40 or 
50 percent of our viewers.
    But you know, in the interest of clearing the band early so 
it's used for advanced wireless, 3G wireless, we're trying to 
devise a plan that will help--you know, the people that are 
bidding on this so that they know that there is an agreement 
that we will leave the band.
    Senator Dorgan. Now let me ask the three of you a question. 
The Chairman has been asking questions about when will we reach 
the goal that we had intended, the 85 percent. It seems to me 
like we are crawling toward that finish line without great 
progress. And it is quite clear to me from the testimony the 
reason for that. We have several different interests that are 
moving around trying to prevent certain things from happening.
    Do any of you have any hope that we are going to reach an 
85 percent penetration of consumer sets at any point in the 
reasonable future here? I mean, can you give us any estimates? 
I do not think the Chairman got an answer on that, but we are 
talking about the 85 percent penetration with customers having 
sets that are able to access the digital signal. When is that 
going to happen?
    Mr. Willner.
    Mr. Willner. I think it is going to take a change in the 
way the broadcasters have been viewing whose responsibility it 
is to deliver content over this digital bandwidth that you have 
awarded to them.
    Senator Dorgan. So you don't know.
    Mr. Tucker.
    Mr. Tucker. Senator, first of all I would like to say that 
we did get the transmission standard taken care of in January, 
so at least we are in agreement as a broadcast industry that 
8VSP is the standard that we are going to transmit with. And 
there was some confusion in the marketplace about that.
    I would say that when we do not have access to 70 percent 
of our viewers, no matter how good the pictures are that we put 
up, if they are not passed through by the cable system, we are 
not going to drive those sets into the household. So until we 
get that, it is going to be some time.
    Senator Dorgan. Mr. Sagansky.
    Mr. Sagansky. Yes. All I can say is from the broadcasting 
standpoint, I know we will be ready with the pictures. We will 
be broadcasting digitally. Whether anybody out there is going 
to be able to receive it, I do not know. I think it is going to 
take the FCC and Congress together to say, hey look, we have 
got to make this happen, for a while you are going to have to 
carry those digital signals until we are fully penetrated, and 
then you can get rid of the analog.
    And that is what it is going to take, because unless people 
can get it, they are not going to buy the sets.
    Senator Dorgan. Well, Mr. Chairman, thank you. I did not 
ask questions about the rural areas because we know that is 
always going to be the tail on the dog here, and even if you 
get all of this solved and you begin to get density with 
respect to sets that can receive the digital signal, what is 
going to happen to Montana and Alaska and North Dakota? I know 
exactly what is going to happen here, and I will ask question 
about that at some later date. But I think the Chairman has 
expressed the frustration for many of us on the Committee that 
we need to get these issues resolved. I am real pleased that he 
is holding these hearings.
    The Chairman. Thank you, Senator Dorgan.
    Senator Stevens.
    Senator Stevens. Thank you, Mr. Chairman.
    Until we decided to, and Congress decided it, to auction 
spectrum, those who made application to the FCC for licenses, 
you got it free. And when we got to the point of trying to see 
if we could move into this new technology, we decided we would 
give broadcasters an area to convert to and to release the 
analog spectrum they had in the--if they did, when they did.
    I am informed now and I want to make sure that I understand 
this right, that with the 6 MHz of spectrum a broadcaster can 
either, it is an either or, broadcast one high definition TV 
signal or it could broadcast up to 6 channels under current 
technology of the digital. And if I understand this right, your 
testimony, Mr. Sagansky, there are 33 million analog TV sets 
and 26,000 digital tuners in the country so far.
    Mr. Sagansky. And that was just sold this year, sir.
    Senator Stevens. This year?
    Mr. Sagansky. Yes.
    Senator Stevens. I am like Senator Burns. I have enough 
Scotch in me--I said that once by the way, Mr. Chairman, on the 
floor, and someone in the House said I was admitting that I was 
half drunk.
    [Laughter.]
    But I'm half Scotch, and even a half Scot doesn't buy--I 
don't buy digital before the signals are there. So the really 
great problem I have here is what are we going to do to give an 
incentive to people to start buying the sets that will receive 
these digital or the high definition TV that all of you have 
indicated is out there sometime in the future?
    Don't we still have the cart before the horse? I mean, the 
horse really is, the driving force is the consumer, and the 
consumer does not have the sets.
    Mr. Willner, you do not have either, do you?
    Mr. Willner. No. We deliver our digital signals over the 
cable system and convert them in the home so that an analog 
television set can pick them up. The picture quality is very 
very high on that.
    Senator Stevens. I understand that. But you are not racing 
to get digital TV sets out there because you do not care, do 
you?
    Mr. Willner. No, I do not.
    Senator Stevens. Right. And these guys do, because they are 
sort of mandated to make the conversion that does not affect 
you at all.
    Mr. Willner. It does not affect me at all except to the 
extent that they try to confiscate our services.
    Senator Stevens. So I do not really think you ought to be 
the one that is pulling the cart either, because the problem 
is, how do we deal with these older TVs, and I am going back to 
the consumer. When you look at my State, more than half of the 
people who receive signals in my State receive public 
television signals. As a matter of fact, I think we are the 
only State that rebroadcasts signals at State expense to get to 
areas where they do not have reception otherwise. We put it up 
on there and they bring it down off the satellite.
    Now when you look at this, what is going to happen to the 
consumer? What is going to happen to the college classes, to 
the basic classes even in the schools which are now going into 
what, tele-education, or the medical facilities, telemedicine. 
What is going to happen to them in terms of this problem, in 
terms of this conversion from analog to digital as far as the 
system is concerned?
    Mr. Sagansky, you indicate that you believe that the cable 
systems ought to broadcast all of the multicast signals you can 
put within this spectrum, right?
    Mr. Sagansky. Within our 6 MHz that we have been allocated, 
right.
    Senator Stevens. And currently that would be up to 6 
channels, right?
    Mr. Sagansky. 5 or 6 channels, yes.
    Senator Stevens. And I am informed it is not too far away 
that we are going to start splitting that down and you will be 
able to--just like radio--to be sending more than 6 over that 
spectrum. Do you think as that technology improves, they should 
be required to carry whatever you can produce to carry over the 
6 MHz?
    Mr. Sagansky. I think as long as we are just broadcasting 
within that 6 MHz that whether we choose to do a high 
definition or multiple channels, or all news, or we appeal to 
some sort of ethnic group in each of our markets because we 
feel that is in the public interest and it is a business for 
us, whatever we choose to broadcast I think should be carried 
by the cable company.
    It is no more bandwidth for them whether they carry an HD 
signal or these 6 channels. It is still only 6 MHz.
    Senator Stevens. What are you going to do about the people 
that still have the analog sets?
    Mr. Sagansky. Well, those people will continue to get an 
analog signal until we reach this 85 percent of penetration of 
digital.
    Senator Stevens. So what you are saying now is you are 
going to require them, you want the cable people to carry both, 
do you not?
    Mr. Sagansky. We do, but our plan is, what we would like 
them to do is as they build out their systems, as they put in 
their digital boxes, that is when they start carrying our 
digital signals.
    Senator Stevens. Well, what is the incentive then to me to 
ever buy a digital set?
    Mr. Sagansky. Just only two things. One, because the 
picture quality, whether it is high definition or these 6 
channels, which are all in standard definition, which are much 
better than what you are seeing now on your analog set.
    Senator Stevens. Yes, but you see, the difference is once 
you get must-carry it doesn't make any difference, because with 
his signal, he straightens that up. So my set--you can be 
broadcasting in analog, but put it through the must-carry, and 
it is coming to me in digital form, as I understand it. Am I 
wrong, Mr. Willner?
    Mr. Willner. No, you are correct. And there are also 
numerous agreements already in place between broadcasters and 
cable operators to retransmit digital signals as a part of 
retransmission consent. So all this is is the marketplace at 
work. And what is really going on here is that there are 
broadcasters who are asking the government to do their job in 
negotiating deals with cable operators.
    Senator Stevens. But if I am informed right, and I am 
getting to the end of my time, but if I am informed right, most 
of the entities have agreed to carry at least some of the 
broadcast signals, not all of them, but some of them. The FCC 
decided there was no requirement to carry more than one, right?
    Mr. Willner. That's right, just one, which could be only 1 
MHz.
    Senator Stevens. But if I am informed right, Time Warner 
and others have agreed that they are going to carry more than 
one, but they are not going to be mandated to carry all.
    Mr. Sagansky. They have only agreed with the big operators 
like the News Corp. and Viacom. They have market power.
    Senator Stevens. I am talking about public stations now. 
They have agreed to carry the public stations but have not 
agreed to carry you, right?
    Mr. Sagansky. Us and thousands of other little 
broadcasters. Virtually no one I know other than the huge 
conglomerates that they need to carry because they have so much 
market clout.
    Senator Stevens. Well, I will tell you, again, I go right 
back to the question of the sets. Until we get some incentive 
to the Scotch consumers to buy additional tuners, I do not know 
how we can keep up with the timeframe that was in the original 
Act. You disagree with that, Mr. Willner, right? You think we 
should not change the timeframe of the original Act?
    Mr. Willner. I do not think that the course that we are 
taking is going to change anything. I think that the 
broadcasters have to determine what they want to do with that 
spectrum and go ahead and do it, and that is what will change 
the course of the transition to digital.
    Senator Stevens. But I have a problem with that because 
even if they do what we thought they were going to do, if John 
Q. Citizen does not have a digital set, it does not make any 
difference.
    Mr. Willner. Well, we will be able to deliver high 
definition television signals over the cable system.
    Senator Stevens. Yes, you will, but they will be delivering 
to people over the air in areas where they do not have cable, 
and they will be delivering a digital signal and I have an 
analog set out in my place out in Girdwood, and I have to tell 
you, I am not going to get any signal at all, am I?
    Mr. Willner. If they have turned off the analog stations, 
that is correct.
    Senator Stevens. Right. That, Mr. Chairman, is the worst 
problem. If we do not do this right, we are going to isolate 
the rural consumer and my State is all rural, so guys, we had 
better get together here pretty soon because I want to be on 
board when the crash comes, and I have to be on board at the 
takeoff. I do not think this is going to work unless we change 
that law in some way.
    Thank you, Mr. Chairman.
    The Chairman. Senator Brownback.

               STATEMENT OF HON. SAM BROWNBACK, 
                    U.S. SENATOR FROM KANSAS

    Senator Brownback. Thank you, Mr. Chairman, and thank you 
to the panel for being here.
    I think you can sense all of our frustration in dealing 
with this and I hope it spurs you on to doing a lot more to 
getting DTV deployed and moving on forward.
    I come from a rural State as well and one of the things 
that I am concerned and interested about that is taking place 
is the digital divide and the lack of high speed Internet 
access to rural areas. One of the ways to be able to broach 
through that is through wireless, which is going to go through 
a number of the channels that you folks are occupying right 
now, because a number of these advanced services are 
anticipating being able to use some of those various channels. 
If the DTV transition keeps delaying longer and longer, as the 
digital divide on high speed Internet access gets wider, there 
is going to be more pressure on Congress to act, and there is 
going to be another sector that is going to be pushing on this 
aggressively.
    I hope if the hearing does not do anything else, I hope it 
spurs you to say this is not about delaying and trying to 
occupy this bit of real estate for a longer period of time, and 
I hope it spurs the cable industry as well, into saying, ``what 
can we do to work with this.'' Because otherwise, there is 
going to be some pressure put on Congress that you probably do 
not want to see take place.
    I work a lot with the wireless industry and they are 
bumping up against these spectrum caps and they are needing 
more spectrum now, and they would do much more deployment of 
the advanced and 3G services but for the lack of spectrum. I 
think to date they have not pushed and screamed and hollered 
too much, but they are set to and they are getting ready to, 
and that is going to add pressure in this field.
    You hold the answer and the blockage to a couple of our 
problems. One is this digital divide in some of the rural areas 
that we are seeing take place on a massive scale, and we are 
looking toward this spectrum as a potential part of the 
solution.
    A second is the advanced wireless services that a number of 
us are looking at as great potential for a whole host of 
activities, and they are dependent upon this spectrum becoming 
available and useful.
    My point to all three of you would be that if you do not do 
something, probably something is going to happen and move 
forward, and that pressure is going to build in an ever 
aggressive amount. I have had a frustration that it appears as 
if in some sectors there either has not been enough impetus 
pushed to cause, that says this date is a hard and fast date, 
it is one we want to hit, or the people there have felt like it 
is just not imperative that these things start really moving 
aggressively.
    The pressure is building strong for this to take place.
    Mr. Chairman, I have a full statement I want to introduce 
into the record, if I could at this time.
    [The prepared statement of Senator Brownback follows:]

   Prepared Statement of Hon. Sam Brownback, U.S. Senator from Kansas
    Mr. Chairman, thank you for convening the Committee to once again 
review the transition to digital television. Unfortunately, in the more 
than 2 years since our last review of this issue, it appears that long-
standing and some new disagreements between industry participants 
continue to stall this transition.
    Since our most recent DTV hearing in 1998, the broadcast, cable TV, 
and consumer electronics industries have failed to resolve issues 
associated with interoperability, content protection and fair use, and 
HDTV versus multicasting. In the interim, an internal debate among 
broadcasters regarding the DTV broadcast standard itself did little to 
speed up the process. Most recently, the Federal Communications 
Commission's January 22nd decision rejecting dual analog and digital 
must-carry, as well as permitting cable operators to modify DTV signals 
they do carry, have unfortunately failed to prompt industry to renew 
their marketplace efforts instead of looking for resolution at the 
Commission or in Congress.
    I am eager to see the development of a transitional process that 
embraces the marketplace and the freedoms a market-based transition 
affords the affected industries. I, for one, cringe at the idea of a 
Federal bureaucracy, and Congress above all, stepping in to set 
standards and regulate this transition.
    While these outstanding issues remain to be resolved, I feel 
compelled to spend the balance of my time addressing an equally 
important and interdependent issue: how the continued failure to 
resolve issues slowing the DTV transition is threatening to deprive the 
American public of other much-needed services.
    Wireless broadband Internet access raises the prospect of helping 
to bridge the digital divide by providing many of my constituents, and 
rural communities across the nation, with the services and content 
broadband Internet access makes possible. While the wireless industry 
has an abundance of desire to deploy 3G services, the next generation 
of wireless network technology, they require additional spectrum 
resources to do so. The DTV transition is not simply about providing 
the broadcast industry, already the beneficiaries of tens of billions 
of dollars worth of free spectrum, with new capabilities and revenue 
streams. It was also intended to free up spectrum resources for new 
services such as 3G. The stagnant nature of the DTV transition is 
reducing the likelihood of achieving these twin goals.
    While the Committee reviews many of the same issues we focused on 
in 1998, I hope we all recognize that this transition is starting to 
become less about the new services digital television makes possible, 
and more about the opportunities the transition's continued stagnation 
will deny the public. I think we can all agree that isn't an outcome 
we're interested in.
    There's another point I want to raise: as the industry makes use of 
the enormous opportunities that digital television provides, it is 
timely and appropriate to consider the obligations incumbent upon them 
to serve the ``public interest, convenience, and necessity.'' Numerous 
studies have documented the decline in standards in some parts of the 
broadcast industry, resulting in the high levels of violence and steady 
rise in vulgarity that characterizes so many programs. We can do 
better. In addition to the adoption of a voluntary code of conduct on 
the part of the industry, we need to have an honest discussion about 
the nature and extent of broadcasters' public interest 
responsibilities.
    I urge the industries driving this process to redouble their 
efforts to resolve these outstanding issues. I look forward to a 
transitional process that not only succeeds in deploying the exciting 
capabilities of DTV to our homes, but one that also promotes the 
deployment of other vital services to the public.
    Thank you Mr. Chairman.

    The Chairman. Mr. Cleland.

                STATEMENT OF HON. MAX CLELAND, 
                   U.S. SENATOR FROM GEORGIA

    Senator Cleland. Thank you very much, Mr. Chairman. May I 
say that I can remember in my little hometown of Lithonia, 
Georgia when I first actually saw a television. It was 1950, I 
was in the third grade, and I can remember the first TV program 
I ever saw was the ``Lone Ranger,'' and I grew up thinking I 
was the Lone Ranger. And television had a powerful impact on my 
life, and later on I identified with other cowboy heroes like 
Roy Rogers and others. It was unbelievable to my mother how 
much time I actually spent in front of the television.
    I have been fascinated anticipating the arrival of digital 
television, DTV. To ease the transition to DTV, Congress 
allowed 10 years for its completion. However, we are not on 
schedule to meet the 2006 deadline, and Roy Rogers and the Lone 
Ranger are dead.
    There are forces in the marketplace which we cannot 
control, like the demand for and the price of the sets, which I 
understand can be upwards of $5,000. I think my first 
television secondhand cost $50. In 1950 terms that was a lot of 
money, but $5,000 is still a lot of money in today's 
terminology.
    But I think we can, on the other hand, encourage all of our 
relevant parties to work together and settle the disputes that 
are standing in the way of reaching the goal.
    I would just like to recognize that some industries are 
transmitting digital signals currently. Consumers are able to 
receive a digital broadcast from cable and satellite companies. 
Additionally, virtually all of the top 30 market broadcasters 
and many of the remaining markets are transmitting a digital 
signal for those households able to receive it. I applaud these 
industries for their work.
    The United States has been the leader in broadcasting and 
entertainment. I hope that the problems we have encountered so 
far will not stifle our leadership. We live in an age, as we 
all know, where things happen in Internet time. What is it Bill 
Gates says, ``business at the speed of thought.'' And I think 
we probably need to put a lot more thought now into how digital 
TV comes into the marketplace.
    I think we have got to be flexible, I think we have got to 
understand that compromise might be what we need to do, and 
make sure that this state-of-the-art product is not 
overshadowed by technology that we have not even given a 
thought to.
    I would just like to ask all of the panelists here, what 
are your suggestions for us here as a Committee? What do you 
think we should do? Do you think the 2006 deadline is too soon, 
too quick? I mean, putting a deadline on technology and its 
implementation is like putting a deadline on withdrawing the 
troops from Bosnia. It may be completely irrelevant.
    Mr. Sagansky, any ideas?
    Mr. Sagansky. A couple of things. First of all, the 
deadline of 2002, I think, is going to be very very hard to 
hit. For a lot of broadcasters, they will hit it. But half the 
broadcasters have not even gotten their DTV construction 
permit. They have not gotten the permit to build the digital 
station.
    So here we are 14 months away. If you have not gotten it 
now, you are not going to be ready by 2002. You cannot build 
them that fast. There is not the availability of the equipment 
that can come that fast. So that is one of the big problems.
    And then, the consumer has to have a plug-and-play TV set, 
just as easy as you go out and buy an analog set. You go home, 
you hook it up to your cable, you are on. You do not have to 
think about anything more. And right now there is no digital 
cable standard. You cannot plug it into cable. There is no 
standard. Then you have to go out and buy a tuner, so you have 
to buy a tuner and a monitor. And then you have to go and put a 
rabbit--you know, you have to go and put an antenna on your 
roof. I mean, this is what you had to do when you were watching 
the ``Lone Ranger.''
    Senator Cleland. I still have the rabbit ears in my 
basement.
    Mr. Sagansky. You are going to need it again.
    That is obviously a very critical component to this, you 
know, the plug and play.
    Finally, once you plug it in, you get all that stuff done, 
is there going to be anything there worth seeing? Right now, if 
the cable companies do not have to carry the programming, our 
free programming that we want to produce and put over, then 
what is the point? You are not going to get clear images. You 
will not even see our programming at all, because they do not 
have to carry it.
    So those are the three things that have to happen for this 
thing to work.
    Senator Cleland. You are with PAX-TV, right?
    Mr. Sagansky. That is right.
    Senator Cleland. They are a family-friendly network, and I 
applaud you for that, and good luck to you in that regard.
    Mr. Tucker, where are we on this? Is the 2006 deadline 
unrealistic or are we just dreaming here, or should we just 
forget that and let the market forces take us wherever we go?
    Mr. Tucker. Senator, I agree with that, with the three 
things that Mr. Sagansky mentions, and I would also say that 
the broadcasters as an industry will have stations, I expect 
them to have their stations up and running well before 2006.
    But to get to 70 percent of our viewers, we need to get 
through the cable gatekeeper. And to incentivize the viewer to 
watch HDTV, they need to have access to that programming from 
their cable system. We are only talking about the same 6 MHz of 
spectrum for the cable company whether we are doing HD or 
standard definition television. I think that will be the 
biggest catalyst, to get must-carry taken care of. I think 2006 
is going to be a very difficult deadline to meet.
    Senator Cleland. Thank you. I would agree with that.
    Mr. Willner, comments, suggestions?
    Mr. Willner. Senator, thank you. First of all, I would like 
to correct for the record that there is an interoperability 
agreement in place between the consumer electronics industry 
and the cable industry to manufacture television sets that will 
be able to plug and play onto a cable system. So that is 
already in place.
    I would like to just repeat some of my earlier testimony 
that we are already achieving penetrations of digital 
television in some of our markets in excess of 30 percent and I 
would hope that by 2006, more than half, and maybe three-
quarters of our subscribers, will voluntarily subscribe to some 
sort of digital services.
    I would like to remind my broadcasting colleagues that all 
it takes is a business negotiation to carry signals other than 
the one that the government was interested in protecting. 
Analog must-carry is fine, we will carry the local signals.
    But to the extent that broadcasters want a special right 
over cable networks like Oxygen, like National Geographic, for 
must-carry status in order to build a business out of it, I do 
not understand that. Those people go out and raise hundreds of 
millions of dollars of high-risk capital to invest in 
additional programming, and then they come to the cable 
industry after they have done that and they negotiate carriage 
agreements. There is no difference between a broadcaster and a 
cable network when it comes to that.
    Senator Cleland. Fascinating.
    Mr. Sagansky, do you believe that broadcasters have a 
public interest requirement in exchange for the free spectrum 
received in the 1996 Act?
    Mr. Sagansky. I absolutely do. I think we exercise that. 
The one thing I would like to take exception to is something 
that was just said, and that is, our content is free to the 
consumer. We do not charge them. Unlike digital cable, we do 
not charge them. It is free. It is advertiser supported.
    Senator Cleland. Thank you very much.
    Mr. Chairman, my time has expired. Thank you very much.
    The Chairman. Thank you.
    Senator Fitzgerald.

            STATEMENT OF HON. PETER G. FITZGERALD, 
                   U.S. SENATOR FROM ILLINOIS

    Senator Fitzgerald. Thank you, Mr. Chairman, and thank all 
the witnesses for being here.
    I wish I had been in the U.S. Senate back in the late 1990s 
when this law was passed that gave rise to these problems we 
now have. I can assure you, Senator McCain, I would have been 
battling against what you called at the time a big taxpayer 
giveaway. In fact, when I announced my candidacy for the U.S. 
Senate, I cited the giveaway of the digital broadcast spectrum 
as one of the types of corporate welfare giveaways that I would 
like to go to Washington to fight.
    I understand, Mr. Chairman, you read into the record parts 
of Mr. Safire's op-ed from the New York Times. I would like to 
introduce that full article, as well as several editorials that 
I brought with me, into the record. I would like to have 
unanimous consent.
    The Chairman. Without objection.
    [The information referred to follows:]

               [From The New York Times, March 27, 1997]

                        GIVING AWAY THE AIRWAVES

                             (By Bob Dole)

    Washington--The Clinton Administration, Congress and the Federal 
Communications Commission are about to make the already difficult job 
of balancing the Federal budget harder than it has to be.
    In just a few days, the F.C.C. is going to give away the first 
broadcast licenses for digital television to broadcasters for 
absolutely nothing. If the Government sold this new spectrum, it could 
be worth $12 billion to $70 billion.
    The network news programs are proud of their commendable watchdog 
segments like ``The Fleecing of America,'' ``Reality Check'' and ``Your 
Money.'' But the networks and many newspapers that own TV stations have 
largely ignored their own fleecing of the taxpayers.
    The broadcasters insist that they need these airwaves--on which 
they will duplicate their programming in digital--to make the 
transition to high-definition television. O.K., but why not pay a fair 
price?
    Since 1993, wireless phone and direct-broadcast satellite companies 
have paid for airwaves to upgrade or offer new services. Just last 
year, the Government auctioned off licenses for lower-quality spectrum, 
raising a whopping $20 billion.
    We don't give away trees to newspaper publishers. Why should we 
give away more airwaves to broadcasters? The airwaves are a natural 
resource. They do not belong to the broadcasters, phone companies or 
any other industry. They belong to the American people.
    The stakes in this debate are high. The national debt now exceeds 
$5 trillion. This year, the budget deficit is expected to top $112 
billion. Balancing the budget with the help of proceeds from the new 
digital spectrum could lower interest rates by 2 percentage points, 
reducing costs for home mortgages and student loans.
    While the needs of less economically viable stations and those in 
rural areas should be considered, broadcasters should be expected to 
pay for additional spectrum. After all, broadcasters have a long 
history of paying top dollar for existing channels. And the new 
technology will allow them to cram other potentially lucrative 
services--additional TV stations and CD-quality radio broadcasts--into 
the same amount of spectrum that currently accommodates one TV signal.
    The Clinton Administration and a majority of the F.C.C. 
commissioners insist that the transition to the digital spectrum will 
allow the Government to sell the old analog spectrum by 2002. Indeed, 
the projected money from this sale is used by President Clinton to 
claim a balanced budget by then. But few believe Mr. Clinton's budget 
is really balanced, and even fewer believe the transition to high-
definition TV can be completed according to his timetable.
    As it is, this mandated transition to digital television is going 
to cost taxpayers plenty. Consumers will find their current televisions 
rendered obsolete by digital broadcasts. Replacing all 222 million TV 
sets in the country could cost upward of $200 billion. That's pretty 
serious sticker shock for ``free'' broadcast television.
    Before leaving the Senate, I secured a written commitment from the 
Congressional leadership and all five F.C.C. commissioners to prohibit 
the distribution of digital-TV licenses until Congress passed 
legislation concerning the use of these airwaves. Strangely, no new 
laws have been passed, and the resolve of Members of Congress has 
melted (with the exception of Senator John McCain). And despite their 
commitment, F.C.C. commissioners plan to proceed with the giveaway.
    Given recent developments, what's the rush? Broadcasters are 
scrambling to meet the Government's timetable. President Clinton 
belatedly proposed that in exchange for the licenses, broadcasters 
provide free time to political candidates. Still others propose trading 
licenses for a stronger TV-ratings system. At the very least, the next 
step should be to let the free market work and delay the giveaway until 
politicians and regulators get their priorities straight.
    Taxpayers should demand better from the President, Congress, the 
F.C.C. and the broadcasters. After all, we're talking about billions of 
dollars--and that's your money.
    Bob Dole, the former Senate majority leader, was the 1996 
Republican Presidential candidate.
                                 ______
                                 

        [From the St. Petersburg Times (Florida), July 18, 1997]

                   HOLD BROADCASTERS TO THE DEADLINE

    You don't need high-definition television to see a naked display of 
corporate greed.
    In April, the Federal Government loaned the nation's 1,600 TV 
stations a second broadcast channel. It was a giveaway worth billions--
a legitimate public investment, according to the welfare queens of Wall 
Street, to ease the costly transition to cinema-quality TV.
    Now broadcasters are dropping their end of the bargain. The TV 
industry wants to retain its new digital channels, while squeezing more 
life (and profits) from existing analog channels. Those channels were 
supposed to be returned by 2006 and auctioned by the government. 
Congress should remain firm. Any delay would further fleece taxpayers 
and send the wrong message.
    Two protections sought by the industry could--if adopted by 
Congress--ultimately harm consumers. One would allow broadcasters to 
retain both channels in cities until 95 percent of the homes used 
digital TV. That threshold, given that digital TV will be unaffordable 
to many, is ridiculously high. Broadcasters could double-dip on public 
airwaves for years.
    Another measure could delay the advent of digital television, a 
needless interference with the market. To be sure, the Federal 
Government has a responsibility to ensure that the transition from 
analog to digital is orderly and affordable. But artificially slowing 
the move could have drastic effects, from smothering competition to 
forestalling the convergence of telecommunication technologies. Again, 
the people lose.
    The Federal Government needs to speak with a single voice. Congress 
should join hands with the Clinton administration and hold broadcasters 
to the 2006 deadline. Cutting a deal now would weaken the leverage of 
the Federal Communications Commission, just as the information and 
entertainment industries awaken to the new digital age. By siding with 
broadcasters, Congress would lose a fair and painless way to generate 
billions for the Treasury, and leave behind a golden opportunity to 
create a long-term trust to fund public broadcasting. Such short-
sighted policy serves neither political party. It undermines the future 
of digital television. It certainly is unfair to taxpayers.
    The industry maintains that government would still own the second 
channels, and that, technically, is true. But extending the free ride 
would likely drive down the market price for the returned channels. Why 
should taxpayers take a hit on a booming market--one the government has 
generously stoked already?
    Americans have proved, over generations, their insatiable desire 
for better TV. Going digital is not--in a business sense, at least--the 
leap of faith that some broadcasters would have us believe. What's 
more, fudging the deadline could effectively keep some communities from 
upgrading their communications for law enforcement. Security blankets 
are fine. But this one broadcasters cannot justify, and Congress cannot 
afford.
                                 ______
                                 

              [From The New York Times, October 11, 2000]

                   NETWORKS RIDE FREE, DELAY DIGITAL

                          (By William Safire)

    Washington--What powerful special interest strikes terror in the 
heart of both parties in Congress, and turns both Al Gore and George 
Bush into quavering sycophants?
    In terms of ripping off the taxpayers with not a peep from the news 
media, nothing compares with the broadcasters' lobby. This phalanx of 
freeloaders has stolen the free use of great chunks of the most 
valuable natural resource of the Information Age: the digital 
television spectrum owned by the American people.
    Five years ago, despite warnings of John McCain, Bob Dole and 
former Federal Communications Commission Chairman Reed Hundt, NBC, ABC 
and CBS pulled a bait-and-switch. Because their analog spectrum, a gift 
to them from the past, was outdated, they demanded a lion's share of 
the new, digital bandwidth.
    When a few of us suggested that this national resource be opened to 
competitive bidding rather than given away, the broadcasters insisted 
that the airwaves were their entitlement. With a gift of the new 
spectrum, they promised to deliver free television broadcasts on high-
definition television.
    The Republican Congress and Clinton White House promptly doubled 
the broadcasters' bandwidth--a freebie estimated then at $70 billion, 
now worth far more.
    Worse, the lobby was told it could keep making money on its old 
analog portion of the spectrum until 2006, or until 85 percent of 
American homes have digital TV, whichever is later. But it took more 
than 20 years for color television and 16 years for video recorders to 
reach that level of market penetration. That's like giving the 
broadcasters squatting rights on the digital spectrum for decades to 
come.
    Result of Congress' foolish and craven gift of such a cost-free 
option? Broadcasters have been sitting on their hands, delaying new 
development and looking for ways to use the new spectrum for profitable 
cell phones and wireless e-mail, which has nothing to do with 
broadcasting the promised free digital TV.
    Meanwhile, cable and satellite companies, having invested heavily 
in digital technology, provide the new wares to consumers--but at a 
high price. U.S. taxpayers, who invested $70 billion of spectrum value 
in broadcasters to get free digital TV, are forced to wait for decades. 
Lesson: When private money is on the line, private companies move fast; 
but when public assets go to private pockets, at no interest, private 
companies sit tight.
    William Kennard, chairman of the FCC, uses a homely analogy about 
spectrum squatters: It's as if Congress gave each broadcaster two rent-
controlled apartments on Manhattan's Upper West Side, and the 
broadcaster occupied one while leaving the other empty.
    What's the FCC to do when Congress and the White House refuse to 
say ``use it or lose it'' to the squatters--and thereby let a lobby 
threaten the U.S. lead in new technologies? To speed our transition to 
free digital TV, Kennard will mount the bully pulpit in a New York 
speech today.
    He'll call on Congress to require that all new television sets be 
DTV-capable in 2 years. High volume would not only lower the price of 
receiver chips to manufacturers but also stimulate consumer demand for 
the improved images--which, in turn, would provide the profit incentive 
to broadcasters to get off their duffs.
    Then the FCC chairman will urge Congress to close the 85 percent 
loophole that now turns the double dose of spectrum into a generation-
long broadcasters' entitlement to corporate welfare.
    Then he'll suggest requiring a fee after 2006 for the use of the 
old analog channels. ``This `spectrum squatter's fee,' Kennard said, 
``would escalate yearly, until broadcasters complete their transition 
to digital and return the analog spectrum to the American people.''
    That would light a fire under the networks and even encourage 
debates at public-dispirited NBC.
    Although the subsidized industry's legion of lobbyists will lash 
back in fury, now's the time to ask: How will Al Gore, the professed 
populist, handle this hot potato?
    Where stands George Bush, who would probably appoint the FCC 
commissioner Mike Powell, Colin's son, to the chairmanship?
    Let's find out if either candidate would propose legislation to 
stop the giveaway and to sell or lease the public's spectrum--thereby 
bringing free broadcast digital TV to average Americans. Or would both 
let the huge ripoff roll?
                                 ______
                                 

               [From Electronic Media, February 3, 1997]

             SPECTRUM `PORK' BLASTED--AUCTION THREAT LOOMS

                            (By David Hatch)

     Washington--Broadcasters got another chilly blast on Capitol Hill 
last week when Sen. John McCain, R-Ariz., vowed to eliminate 
``broadcasting spectrum giveaways'' as part of a larger congressional 
effort to trim ``corporate pork'' from government spending.
    The senator specifically said the government should not give 
digital television spectrum to broadcasters for free because such 
``corporate welfare'' would cheat taxpayers out of tens of billions of 
dollars in potential spectrum auction revenue.
    The powerful chairman of the Senate Commerce Committee also noted 
that the White House's fiscal year 1998 budget proposal, to be unveiled 
next week, is expected to call for spectrum auctions.
    But he told reporters that the proposal likely will recommend only 
that ``generic'' spectrum auctions be held over the next several years 
to raise between $25 billion and $35 billion.
    The White House isn't ``going to be so dumb as to specify'' which 
spectrum should be auctioned, he said, adding that the ``heavy 
lifting'' will be left to Congress.
    Meanwhile, Mark Buse, an aide to Sen. McCain, estimated last week 
that auctioning the digital TV spectrum alone could generate between 
$14 billion and $30 billion ``over time.'' At the press briefing, the 
senator made clear that he's willing to negotiate with the industry and 
strive for an accommodation on auctions.
    ``I realize that the broadcasters have a very powerful lobby here 
in Washington,'' he told reporters. ``I want to get as much as I can 
for the taxpayers on this (issue), so I'm willing to sit down and 
negotiate.''
    Broadcasters remain opposed to auctions and maintain that digital 
TV spectrum would not be distributed for free-it would be ``loaned'' to 
them because they'd be obligated to return their analog spectrum, which 
would later be auctioned.
    Regarding the targeting of corporate pork, Sen. McCain and Rep. 
John Kasich, R-Ohio, chairman of the influential House Budget 
Committee, are heading up a bipartisan coalition of senators and 
congressman that supports creation of an independent commission to 
review potentially wasteful government programs.
    To that end, Sen. McCain and Sen. Russ Feingold, D-Wis., last week 
introduced a bill to create such a commission, whose members would be 
appointed by the president and congressional leadership. The commission 
would make recommendations about program cuts that could be included in 
the White House's fiscal year 1999 budget.
    Rep. Kasich plans to introduce a similar bill in the House in the 
near future, a congressional staffer said.
    Despite his strong rhetoric, Sen. McCain still has some convincing 
to do among his colleagues. Rep. Kasich and other House Republicans 
held a separate press conference last week to unveil a list of pork 
programs they'll target, but spectrum giveaways weren't on the list.
                                 ______
                                 

             [From the Grand Rapids Press, Sept. 17, 1997]

 THE NETWORKS' FREE RIDE--CONGRESS SHOULD TAKE BACK CHANNELS GIVEN TO 
                        TELEVISION BROADCASTERS

    Television broadcasters owe American taxpayers $70 billion. That's 
the value of new TV channels they received without cost earlier this 
year in exchange for their pledge to develop high-quality digital 
television. Today, the digital TV promises are emptier than the 
programming the networks offer.
    Gullible Federal lawmakers and regulators should wise up. They must 
either demand payment for the channels or take them back and auction 
them off as should have been done at the start. If Congress has no use 
for the money, taxpayers certainly would.
    The issue revolves around high definition television (HDTV). 
Proponents say that HDTV provides a far superior picture than the 
existing analog signal. In April, the Federal Communications Commission 
agreed to give away TV bandwidths to broadcasters after the TV 
companies promised that all their programming would be in digital form 
by 2006.
    A not-so-funny thing happened on the way to television nirvana. 
Several broadcasters, led by ABC, have abandoned HDTV. Instead they 
will chop up the spectrum given to them and create as many as a dozen 
lower quality digital channels. Adding insult, the new channels 
probably won't be available to the general public. The networks are 
likely to scramble the signals so they are viewable only a pay basis, 
like cable television.
    Other broadcasters say they intend to offer digital television, but 
they wont meet the 2006 target because of the cost. Billions must be 
spent in new equipment. Local television stations are expected to 
absorb the largest chunk because they will have to modify transmission 
towers.
    A compromise has been proposed by the Public Broadcasting System. 
PBS pledges to broadcast two to 3 hours a day of HDTV. But what good is 
that? A digital television is likely to cost about $3,000 when first 
introduced. Anyone who would pay anything close to that amount with 
only 2 hours a day of digital programming ought to be locked up.
    Congress must step in and order the FCC to stop giving away digital 
airwaves. Then it should revoke the channels already given away. 
Michigan has three members on the House Commerce Committee, which 
oversees the FCC, who should use their influence: John Dingell, D-
Dearborn, Bart Stupak, D-Menominee, and Fred Upton, R-St. Joseph. 
Broadcasters use the airwaves at the discretion and pleasure of the 
public. There is nothing pleasing about the way they finagled free 
channels.

    Senator Fitzgerald. Thank you. And I would also like to 
read from a letter to the editor that Bob Dole wrote to the New 
York Times on Thursday, March 27th, 1997, because I think he 
summed up the situation pretty well.
    He said, ``the Clinton Administration, Congress, and the 
Federal Communications Commission are about to make the already 
difficult job of balancing the Federal budget harder than it 
has to be. In just a few days, the FCC is going to give away 
the first broadcast licenses for digital television to 
broadcasters for absolutely nothing. If the government sold 
this new spectrum, it could be worth $12 billion to $70 
billion. The network news programs are proud of their 
commendable watchdog segments like `The Fleecing of America,' 
`Reality Check,' and `Your Money.' But the networks and many 
newspapers that own TV stations have largely ignored their own 
fleecing of the taxpayers.''
    Now to the gentlemen who are here on the witness stand, 
wireless phone and direct broadcast satellite companies have 
paid for airways to upgrade or offer new services. Are you 
willing to pay anything at all for this spectrum that has been 
given you, particularly if you are going in 2006 to say, to 
rely on this exception, that 85 percent of the homes don't have 
the digital TV, therefore under that exception we should be 
able to keep our old analog spectrum too. Are you willing to 
pay anything at all to the taxpayers of this country?
    Mr. Willner. Senator, as a spokesman for the cable industry 
and the operator in Rockford, Illinois where we spent $30 
million to rebuild that cable system from soup to nuts in order 
to deliver digital television to our subscribers there, the 
industry has already paid $42 billion in upgrading its plant 
and we are 75 percent of the way finished. So, the cable 
industry has put its money where its mouth is, and we are 
delivering digital.
    Senator Fitzgerald. How about the broadcasters?
    Mr. Tucker. Senator, first of all, that $70 billion 
giveaway, I can tell you that there are no local broadcasters 
that have benefited from that and we have not enlarged our bank 
accounts at all. All we have done to make our date right now, 
and to provide digital service to the communities, HDTV or 
SDTV, is spent money to convert our plants.
    We are a free over-the-air service, and the only way we 
raise any money or get any money for our business is by 
creating advertising revenue.
    Senator Fitzgerald. But that spectrum has value, right? The 
government could have auctioned it off, others would have 
bought it for cell phone operations or for any variety of 
communications. Is that not correct?
    Mr. Tucker. Yes, sir, it is. I do not think it is ours 
permanently, I think it is on loan to us during this transition 
only.
    Senator Fitzgerald. But, do you expect to be loaned 
permanently for free both the analog and the digital spectrum, 
or do you anticipate you will be giving up the analog spectrum?
    Mr. Tucker. We anticipate giving it back, sir.
    Senator Fitzgerald. You do?
    Mr. Tucker. Yes.
    Senator Fitzgerald. But only at such time that 85 percent 
of the country has digital television sets, which we are 
finding out is going to be a very long time.
    Mr. Tucker. Senator, I do not think that any of us want to 
turn off the analog signals and disenfranchise a whole group of 
Americans. So until we get those sets deployed and in the 
houses, no.
    Senator Fitzgerald. If in 2006 you still have the digital 
and the analog, what would you think if Congress proposed that 
you pay a rent for keeping your analog stations?
    Mr. Tucker. All we are doing right now is running dual 
plants, sir.
    Senator Stevens. I could tell you, Senator, you could not 
do that unless you canceled their licenses. They have got them 
now.
    Senator Fitzgerald. Well, that is what I am saying we do. 
They are supposed to give them back by law.
    Mr. Tucker. Senator----
    Senator Fitzgerald. You do not want to pay rent?
    Mr. Tucker. No, sir.
    The Chairman. The problem here is going to the Congress to 
get an extension, and that is what you are planning on doing.
    Senator Fitzgerald. Mr. Sagansky.
    Mr. Sagansky. Senator, our business is free to the 
consumer. What we get paid for is delivering eyeballs. We sell 
advertising.
    So right now we are $2 billion into probably an $8 billion 
digital buildout, and we haven't received one penny. We would 
like nothing more than for this digital buildout to be over, 
because then we will be able to give back the analogs to the 
government, but more importantly, for the consumer, it is going 
to be a much better television experience. They are going to 
get more content and better pictures.
    Everywhere else in the world that it has happened, the 
consumer has enjoyed palpable benefits. So we want to get this 
thing over with. We are spending money right now and we are not 
getting any return whatsoever. That is not in our interests. 
That is not in anybody's interest.
    Senator Fitzgerald. Well, I just think had I been here in 
1996, 1997, I would have strongly urged the government to 
auction off this new spectrum, and I think that would have been 
a fairer way to do it than to determine by raw political clout 
who gets to own this new spectrum.
    I am hopeful that we will come to some resolution that 
would allow you to have your digital spectrum but make you pay 
something if you are keeping the digital spectrum along with 
the analog spectrum in 2006. I think that is only fair to the 
taxpayers. But thank you for being here.
    The Chairman. Thank you very much.
    We will have the next panel, which is Dr. Mark Cooper, the 
Director of Research for the Consumer Federation of America; 
Mr. James Gattuso, Vice President for Policy and Management of 
the Competitive Enterprise Institute; Dr. Joseph Kraemer, 
Director, LECG, LLC; and Dr. Tom Hazlett, Resident Scholar, 
American Enterprise Institute.
    Would everybody take their seats please so we can continue 
with--including the member of the press standing there and the 
gentleman talking to him.
    Dr. Cooper, welcome. Thank you very much.

 STATEMENT OF DR. MARK COOPER, DIRECTOR OF RESEARCH, CONSUMER 
                     FEDERATION OF AMERICA

    Dr. Cooper. Thank you, Mr. Chairman, members of the 
Committee.
    Almost halfway through the transition to digital TV we find 
that considerably less than half of the programming during 
considerably less than half of the viewing hours on 
considerably less than half of the stations in considerably 
less than half of the markets in this country have a digital 
product available. Now when you do the math, you will discover 
that less than 5 percent of the product space has been 
populated by the broadcast industry.
    Clearly, TV time is too slow for the digital age. And there 
is no chicken and egg problem here as referred to earlier. The 
first mover risk that the broadcast industry was supposed to 
take was compensated more than adequately by the giveaway of 
spectrum. But broadcasters, having received the second or third 
most valuable real estate in the digital media economy, want 
more concessions.
    They want guaranteed must-carry, low charges for ancillary 
service fees, and they want consumers who have paid the 
opportunity costs of giving the spectrum away, to pay real 
dollars up front to buy tuners for programming that doesn't 
exist. They want consumers to buy, pay for tuners that will be 
useless 95 percent of the time.
    Now we are confident that if they had not received this 
asset for free, they would have been much more quick to develop 
it. In other words, the digital spectrum is a grossly 
underperforming asset that was mismanaged at the outset by 
Federal policymakers and is being mismanaged by the 
corporations that now control it.
    In the same 5 years since we began this debate, in which 
digital TV has populated no more than 5 percent of the product 
space, cellular phones have moved from 15 million to 100 
million customers. The Internet has moved from about 5 million 
to over 50 million customers. In other words, there is immense 
demand for channels of communication in the digital age, and 
the TV industry is moving too slowly.
    We need to go in a different direction. Spectrum is a 
public resource. The right to use a channel of spectrum is a 
monopoly granted to broadcasters who are allowed to use that 
space and exclude others from that space, and they haven't paid 
for it.
    Moreover, because television is the dominant means of 
communications and dissemination of information in our society, 
it has always borne special pubic interest obligations. As 
higher quality and interactive TV intensified its reach, 
immediacy and impact, given the greater and greater power to 
influence, educate and communicate, the consumers of this 
country believe that the public interest obligations on this 
new powerful medium should be expanded.
    It is time for the public to get full value for its very 
very valuable property. Let us relieve the broadcasters of 
their burden of trying to figure out how to use this space. Let 
us license it at an auction price to the highest bidder, for 
the freedom to use it however they want for a limited time 
sufficient to recover their other investments, and capture that 
full value, economic value. Let us take the proceeds from those 
auctions and put them in a trust fund used solely to develop 
civic non-commercial programming based on public interest and 
culturally relevant content that is locally developed to fill a 
very clear need in this country for that kind of responsive 
programming.
    Third, part of the spectrum should be set aside for airing 
that civic non-commercial programming.
    Fourth, development of the spectrum should insure universal 
availability of digital pictures.
    And fifth, maybe it is time to use part of the spectrum to 
experiment with entirely new ways of exploiting this very 
valuable public space.
    We believe this is the perfect time to expand the public 
interest use of this new medium. The broadcasting industry is 
exactly the right place to start, because it is so completely 
reliant upon a public asset, the airways. We should do this 
early in the process before it becomes filled up with 
commercial applications which will make it even more difficult 
for non-commercial applications to find a space.
    The broadcasters have had their chance and it looks like 
they blew it. They will not meet the deadlines, they have gone 
on strike, and they will come back and force this Congress to 
let them out of their obligations. It is time to subject this 
valuable public resource to a market test. It is time to rent 
the digital spectrum to the highest bidder, rent not sell, for 
a timeframe sufficiently long to allow reasonable development 
and recovery of capital costs, and apply those proceeds 
directly to the meaningful public purposes that are much more 
commensurate with this extremely powerful and valuable new 
means of communications, entertainment and education.
    Thank you.
    [The prepared statement of Dr. Cooper follows:]

 Prepared Statement of Dr. Mark Cooper, Director of Research, Consumer 
                         Federation of America

    Mr. Chairman and Members of the Committee, today we are evaluating 
whether the broadcasters have been good stewards of a windfall they 
received over half a decade ago--free use of the digital television 
spectrum in exchange for a promise that they would rapidly roll out 
valuable new services to the public. We conclude that the broadcasters 
have not been good stewards. While they inch toward rollout of digital 
television, there are hundreds of innovators--operators with business 
models that could provide real competition across a wide range of 
communications and entertainment industries--who are being denied the 
chance to compete.
    The public must be given something in return for the windfall that 
the broadcasters have received. We could take this opportunity to do 
one of three things: (1) compensate the public by setting aside some of 
spectrum for noncommercial use, and applying the proceeds of an auction 
of the rest of this spectrum band for a public interest communications 
trust fund, (2) enact mechanisms to ensure that the broadcasters roll 
out new digital services expediently, (3) open this spectrum to 
innovative, efficient new competitors who could eliminate monopoly 
leverage across the full range of communications industries.
    However, instead of compensating the public, there are proposals on 
the table to make the public bear the costs of additional windfalls to 
the broadcasters--by requiring that new television sets include digital 
tuners, forcing any consumer wishing to buy a television to pay extra; 
by requiring cable companies to set aside more space for broadcasters; 
and by charging broadcasters an extremely low fee for use of spectrum 
to provide ancillary services. As I hope to make clear, these are out-
of-pocket and opportunity costs that the public should not be forced to 
bear.
    When the American broadcasting industry was given use of the 
digital broadcast spectrum at no charge over half a decade ago, the 
give-away was controversial for at least two reasons. First, we must 
remember that the right to use a channel of spectrum is a monopoly 
given to an individual where that individual and no one else has the 
right to convey information. In other words, the broadcasters got the 
right to communicate in these channels and the right to exclude others 
from communicating in these channels. And they got that at no cost. Of 
course, they did not ``build'' the spectrum--the airwaves existed long 
before the broadcasters. Consumer Federation of America and Consumers 
Union were dismayed that private corporations would be given exclusive 
rights to transmit in the digital television spectrum without paying 
for it, and without adequate financial incentives to rapidly put it to 
meaningful use.
    The second reason this give-away was so controversial was because 
broadcast television is the dominant means of disseminating information 
in our democratic society, it has always borne special public interest 
obligations. As higher quality and interactivity intensify television's 
broad reach, impact and immediacy, giving it even greater power to 
influence, educate and communicate, CFA and CU believe that the public 
interest obligations it bears should expand, or at least traditional 
obligations should remain. At the time of the digital spectrum give 
away, no such obligations were imposed.
    Unfortunately, when entrepreneurs receive valuable public assets 
for nothing, they do not have the normal economic incentives of 
competitive market players to meet consumer needs in an efficient 
manner. The effort that goes into exploiting assets generally reflects 
their underlying costs to the firm, not their value to the public. In 
the case of broadcast spectrum, which had a price tag of zero, the 
broadcasters have not shown themselves to be worthy stewards of this 
valuable resource.
    While corporations have sat on their asse(t)s, Federal policymakers 
have also failed to move aggressively to define the nature of the 
public interest obligation that would be attached to this valuable 
windfall. Lacking the compulsion of investment at risk or public 
obligations, the broadcasters have moved very slowly in developing the 
programming that will fully exploit the value of this resource. We are 
confident that if these corporations had been forced to pay for 
spectrum, they would have moved much more quickly to exploit its value.
    Five years of wasted opportunity imposes a heavy cost on the 
public, especially in cybertime. The digital spectrum is a grossly 
underperforming asset that was mismanaged at the outset by Federal 
policymakers and is being mismanaged by the corporations that control 
it. In the 5 years that the digital spectrum has been underutilized, 
the number of cellular telephone users in this country has increased 
about eight fold, from around 15 million to around 100 million. The 
number of households on the Internet has increased more than ten fold, 
from about 5 million to well over 50 million. In other words, the 
demand for open channels of communication is increasing rapidly while 
the broadcasters move at a snail's pace. In a proceeding currently 
before the Federal Communications Commission, the Commission is 
considering stripping educational users of their spectrum to 
accommodate the burgeoning demand for new wireless services. That 
educational users should be displaced while broadcasters sit on idle 
spectrum seems to be the reverse of what ought to happen.
    Confronted with the industry's failure to take off, the Federal 
Communications Commission (FCC) has been searching for solutions. One 
very bad idea it is considering is to make the public, which has 
already borne the opportunity cost of giving the spectrum away for 
free, pay for digital sets before there is adequate digital 
programming. The FCC is considering easing the way for broadcasters by 
forcing equipment manufacturers to install digital tuners, the cost of 
which will certainly drive up the price of new television sets.
    While there is an inevitable ``chicken and egg problem'' with any 
new broadcast technology, the only possible point of the give-away was 
to compensate the broadcaster for their first mover, ``chicken or egg'' 
risk. Having been given the most important input, they were supposed to 
develop the programming, which would pull consumers to the new product. 
At the inception of television, the industry did not develop because 
millions of consumers went and bought expensive television sets before 
any programming was available. It developed because programming was 
available and it was something that consumers wanted. But right now the 
FCC is contemplating making the consumers ante up again, with no 
guarantees that the broadcasters will live up to their part of the new 
bargain. We should not tell consumers ``if you come, we will build 
it.'' Instead, if the broadcasters build what they promised, consumers 
will come.
    It is time to revisit past policy mistakes regarding digital 
television. The public owns the spectrum and it should get full and 
immediate value out of it in four ways.
    1. Licenses should be auctioned off to the highest bidder with the 
freedom to use the spectrum for a limited time for the use the highest 
bidder values most.
    2. Proceeds from those auctions should be placed in a trust fund 
used solely to develop civic, noncommercial programming, based on 
public interest and culturally relevant content, locally developed.
    3. Part of the spectrum should be set aside for the airing of that 
civic, noncommercial programming, including a set aside for candidates 
for public office to air their views prior to elections.
    4. Development of the spectrum should ensure universal availability 
of the digital media.
    Let me stress that we believe this is exactly the right time to 
expand the public interest obligations of all the digital media, and 
broadcasting is exactly the right industry to start with because it so 
clearly relies on the use of a public asset. As communications, 
computers and entertainment converge in the digital media economy, we 
frequently hear the claim by the companies which dominate these 
component industries that public interest obligations must be 
abandoned. Each of the industry segments that is converging points to a 
public interest obligation that it bears, which its competitors do not 
bear, and claims that it must be excused from that obligation. This 
race to the bottom obliterates all compensation for public assets and 
public interest obligations.
    We take the opposite view. Each of the industries relies on a 
public resource in some fashion, spectrum or right of way, and is 
imbued with the public interest. Convergence should improve performance 
in all respects, including raising the level of civic and political 
discourse, not lowering it. We should have a highest common denominator 
in which the converged media takes on the public interest obligations 
of each of the component industries and perhaps even adds some to 
reflect the increased power and impact of the new digital medium. It 
should come early in the process, before commercial applications fill 
up the expanded digital product space and place even greater pressure 
on the educational, civic and culturally uplifting programming that is 
not as commercially attractive. In short, we support efforts to extract 
full value from public resources and we think that a part of that value 
must be realized through payment for use of the digital spectrum and 
through fulfillment of expanded public interest obligations.
    We are certain that the broadcasters will moan and groan about how 
much it costs them to add other assets necessary to use this spectrum, 
but we are skeptical about these claims. The most that this could mean, 
even if it were true, is that policymakers have allocated the spectrum 
to the wrong uses, because there appear to be many other entities that 
are more than willing to pay for spectrum to bring digital products to 
the market.
    The broadcasters had their chance and it looks like they blew it. 
It is time to subject this valuable public resource to a market test. 
It is time to rent the digital spectrum to the highest bidder (rent, 
not sell, for a timeframe sufficiently long to allow the reasonable 
opportunity to recover investment costs) and apply the proceeds 
directly to meaningful public purposes that are more commensurate with 
the full value of this new rich, powerful and influential means of 
communications, entertainment and education.
    The Consumer Federation of America is the nation's largest consumer 
advocacy group, composed of over two hundred and forty State and local 
affiliates representing consumer, senior-citizen, low-income, labor, 
farm, public power and cooperative organizations, with more than fifty 
million individual members.
    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 subscribers, 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.

    The Chairman. Thank you, Dr. Cooper.
    Mr. Gattuso, welcome.

 STATEMENT OF JAMES L. GATTUSO, VICE PRESIDENT FOR POLICY AND 
              MANAGEMENT, COMPETITIVE ENTERPRISE 
                           INSTITUTE

    Mr. Gattuso. Thank you. Advanced television is a technology 
that has long been in development, long on the public policy 
plate, and long promised to consumers. Looking through my files 
this week, I found several studies like this one from the 
Congressional Budget Office from 1989, predicting widespread 
use of HDTV by the late 1990s. One part of the study showing 
10-, 12 million users by the year 2001. Many times we have been 
disappointed with this technology.
    Despite all these delays, digital television was authorized 
and allocated by the FCC under congressional guidance in the 
late 1990s. In a departure from recent practice with other new 
services, however, no competitive bidding was used to determine 
the licensees for this new service. Instead, as this Committee 
well knows, the assignments for the new digital channels were 
given to existing broadcasters on the basis of a loan, a loan 
that was supposed to be a short-term situation for this 
transition to take place.
    Today however, the status of that loan is in doubt. Based 
on current adoption rates, digital television is extremely 
unlikely to achieve the 85 percent penetration rate by the year 
2006 called for by legislation.
    This is not to say that DTV has been a total failure. As 
the Consumer Electronics Association points out, sales of DTV 
units have increased substantially in the last year or so, with 
some 600,000 total units sold in the year 2000. Just a couple 
of days ago CEA announced about 81,000 units sold in the month 
of January alone. So the units are being sold, but that's not 
the whole picture. There are several caveats to those numbers.
    The most important is that most consumers buying DTV units 
are buying monitors instead of integrated sets that will allow 
them to receive broadcast signals without a set-top box, and 
the number of set-top boxes being sold is very very small. As a 
result, although a lot of people have DTV units, the number of 
people watching digital broadcast is still extremely small. 
It's minuscule.
    I think this is what led Broadcast and Cable magazine not 
too long ago to say that digital television has become one of 
the leading cocktail party conversation killers among 
broadcasters. It's something that's not working out, we do not 
have the excitement over it and the optimism over it, that 
might have seen in prior years.
    Even using the more optimistic numbers as to sales, as to 
total units, we are not going to reach the 85 percent 
penetration rate. We are far from it. That is basically not 
going to happen.
    Now this delay is of particular concern to taxpayers and 
consumers because of the potential value of the spectrum in 
alternative uses. Third generation wireless, Internet access, 
all sorts of new technologies are on line. In terms of monetary 
value, it is hard to estimate, but late last year the re-
auction of the C-block spectrum alone raised some $17 billion. 
We are talking about a substantial amount of money here.
    So what should the public policy response be? A number of 
approaches have been already proposed. One that you have heard 
earlier today would be to increase content regulation of 
broadcasters. I think that is the wrong approach. First, it 
doesn't address the basic spectrum problem that we are facing, 
that 12 MHz spectrum now being used for television is not 
available for other uses.
    Content regulation could also drive viewers away from over-
the-air broadcasting to other media that are not so regulated, 
the opposite of what presumably we want to do. And also, there 
are non-trivial free speech questions which should not be 
ignored.
    Various forms of economic regulation have also been 
proposed, including--as has been discussed today--whether new 
receivers should be required to accept digital signals. As a 
practical matter, such a requirement would impose significant 
costs to consumers, as much as several hundred dollars. $200 to 
$300 is what I have heard.
    More broadly, despite all the promise of DTV, there is no 
guarantee that consumers ultimately will prefer it at all. A 
decision should not be forced on them by policymakers.
    Another option would be to simply require the return by 
broadcasters of the analog on the original date of December 31, 
2006. This would hold broadcasters to the original agreement to 
return the frequencies and make this spectrum available for 
other uses. One problem with this is that a mandated end to 
analog broadcasting will also put the government in the 
position of picking technological winners and losers. Millions 
of consumers--arguably having rejected DTV in the marketplace--
would be mandated to convert to another technology.
    It may be possible to address this problem by simply 
terminating current analog licenses, but allowing private 
negotiations to allow analog broadcasting to continue. Under 
such an approach, if analog broadcasting was sufficiently 
valued, more so than other wireless services, it could 
continue. If consumers found alternative wireless services more 
valuable, then analog broadcasting could be discontinued. It 
would be a market test.
    An alternative marketplace approach would involve providing 
incentives to broadcasters to vacate spectrum rather than 
having them pay to remain. Under a voluntary band clearing 
mechanism recently adopted by the FCC, broadcasters are 
encouraged to negotiate with potential new wireless licensees 
on that spectrum to vacate their frequencies.
    This voluntary approach seems to create a win-win situation 
for all involved. The new wireless licensees receive access to 
spectrum more quickly, allows consumers to more quickly benefit 
from the services, and broadcasters that do enter into 
agreements receive payments that could be used to finance their 
transition into digital services. Consumers gain on both ends. 
Currently this policy is in effect for channels 60 to 69 and 
could be extended to other bands as well.
    In conclusion, the debate over advanced services has been a 
long running one throughout the FCC and Congress. At the 
moment, it does seem likely that there will be an extended 
transition period, causing valuable spectrum to be misallocated 
and consumers deprived of potential new services and more 
valuable new services. The answer to the problem is not new 
regulation to punish broadcasters or to mandate the use of 
preferred technology. Instead, policymakers should look for 
ways to use market mechanisms to insure the best use of 
spectrum resources.
    Thank you.
    [The prepared statement of Mr. Gattuso follows:]

 Prepared Statement of James L. Gattuso, Vice President for Policy and 
              Management, Competitive Enterprise Institute

    Good morning. I am pleased to be here today to discuss Federal 
policies concerning the transition to digital television. I am Vice 
President for Policy and, Management at the Competitive Enterprise 
Institute, a non-profit, 501(c)3 public policy organization that 
focuses on regulatory policy. Founded in 1984, we have been active on a 
wide range of technology policy issues. I previously served at the 
Federal Communications Commission, where I was Deputy Chief of the 
Office of Plans and Policy from 1990 to 1993.
    Advanced television is a technology that has long been in 
development, and on the public policy plate for many years. Members of 
the committee may remember the hype that accompanied advanced 
television during the 1980's, when many touted it as the greatest 
technological advance since the invention of television itself. It was 
also seen by many at that time as a necessary step to keep pace with 
the Japanese, who were perceived as having a significant lead in the 
technology. Fortunately for the U.S., however, we did not jump into 
advanced television at that time, as the technology was then analog 
based--digital advanced television did not become available until 
several years later. We narrowly missed being locked into an obsolete 
technology.
    Under congressional guidance, the FCC allocated frequencies and set 
standards for digital advanced television in the late 1990s. Aware of 
the dangers of being locked into a specific technology, the commission 
wisely did not mandate that ``high-definition television,'' using the 
highest level of resolution be used. Instead, broadcasters would be 
allowed to provide other services to their viewers as appropriate, 
including the possibility of multi-casting multiple channels of 
programming, or providing simultaneous data, transmissions.
    In a departure from recent practice with other new services, 
however, no competitive bidding was used to determine the licensees for 
this new service. Instead, licenses were assigned to existing 
broadcasters. Broadcasters would then hold two, licenses--their 
existing ``analog'' license and a new ``digital'' license for a 
transition period. Nominally, this transition period was limited--to 
expire on December 31, 2006, but an extension was required by statute 
if 85 percent of households in a market did not have access to digital 
television by that date, either directly or through a multi-channel 
provider, such as cable.
    As you know, there was considerable opposition to this plan.\1\ On 
equity grounds, this plan represented a transfer of a immensely 
valuable resource, worth tens of billions of dollars, free of charge to 
the broadcast industry. Perhaps of even greater concern were the 
economic concerns that by protecting the frequencies from marketplace 
pressures, it would be less likely to be used as efficiently as 
possible.
---------------------------------------------------------------------------
    \1\ Along with others, I testified before this Committee in favor 
of competitive bidding in March 1996.
---------------------------------------------------------------------------
    Nevertheless, the plan was adopted, largely on the premise that the 
additional spectrum provided to the broadcasters was only for a short 
period of time. It was to be a loan, not a giveaway.
    Today, however, the status of that loan is in doubt. Based on 
current adoption rates, digital television is extremely unlikely to 
achieve the 85 percent goal by 2006.
    This is not to say that DTV has been a total failure. The record 
has been mixed. In the first year or so that DTV units were available, 
sales were minuscule. Last year, however, sales increased 
substantially, with some 600,000 total units sold, according to, the 
Consumer Electronics Association (CEA). Earlier this week, the CEA 
announced that January factory-to-dealer sales of DTV units totaled 
81,629, a 234 percent increase over last year. It predicted 1.1 million 
units to be sold in 2001, and 10.5 million to be sold by 2006. This is 
pretty much what the Consumer Electronics Manufacturers' Association 
(CEMA) predicted when sales began in 1998, which originally predicted 
10 million in sales between 1999 and 2003.\2\
---------------------------------------------------------------------------
    \2\ Timothy Somheil, ``TV or DTV?'', Appliance, December 1, 1998.
---------------------------------------------------------------------------
    There are some important caveats to these numbers, however. First, 
the CEA numbers refer to sales to dealers. The number of units sold to 
consumers is much lower, about 200,000 last year according to one 
report.\3\ In addition, many consumers are buying DTV monitors 
separately, instead of integrated sets that allow them to receive 
broadcast signals without a set-top box. The number of such integrated 
sets sold has only a small fraction of total unit sales. As a result, 
despite the impressive total number of units sold, the number of people 
watching digital broadcasts is still extremely small.
---------------------------------------------------------------------------
    \3\ Cited in Electronic Engineering Times, December 22, 2000.
---------------------------------------------------------------------------
    Even CEA's more optimistic numbers, however, raise a concern about 
the digital transition. At that rate, market penetration would almost 
certainly be far below the 85 percent needed to trigger a return of the 
analog spectrum. In fact, if the numbers track, CEMA's original 
projection, consumer penetration would only be at 30 percent in 2006. 
As a result, we may face a long wait--perhaps decades--before the 
spectrum ``loaned'' to broadcasters is returned.
    This delay is of particular concern to taxpayers and consumers 
because of the potential value of this spectrum in alternative uses. 
The frequencies involved are (in, spectrum terms) prime real estate, 
and could be employed for a variety of wireless services, including 
third-generation mobile services. Given the wide variation in auction 
revenues over the years, putting a specific value on these frequencies 
is a tricky business, but it is sure to be significant. Last year's re-
auction of the ``C-block'' PCS spectrum, alone garnered some $17 
billion.
    A number of approaches have been proposed for dealing with this 
situation, many of them bad. One approach is to increase content 
regulation of broadcasters. Such, regulation could decrease the value 
broadcasters receive from the spectrum, in effect, decreasing the size 
of the giveaway. The problem is that it would also punish consumers, by 
limiting broadcasters' ability to provide them with what they want. It 
also raises significant free speech concerns. Government intrusion into 
content is simply not an answer to spectrum management problems.
    Various forms of economic regulation have also been proposed in 
order to drive consumers to DTV. The FCC, for instance, recently began 
an inquiry into whether all new receivers should be required to accept 
digital signals. While such a step was taken in regard to UHF signals, 
policymakers should always be careful about imposing such mandates. As 
a practical matter, such a requirement could impose significant costs 
on consumers--as much as several hundred dollars. More broadly, despite 
all the promise, of DTV, there is no guarantee that consumers will 
ultimately prefer it. A decision should not be forced on them by 
policymakers.
    Another option would be to simply require the return by 
broadcasters of analog television licenses on the original date of 
December 31, 2006. That would certainly be a fair option, for it would 
merely hold broadcasters to the original agreement to return the 
frequencies. It would also serve the important goal of making this 
spectrum available for other uses.
    A mandated end to analog broadcasting, however, would also put the 
government in the position of picking technological winners and losers 
for consumers. Millions of consumers, having arguably rejected DTV in 
the marketplace, would be mandated to convert to another technology.
    It may be possible, however, to terminate current analog licenses, 
while allowing the ultimate choice of technology to be left to the 
market. Broadcasters, for instance, could be allowed to negotiate with 
the new license holders to continue to use their frequencies for analog 
broadcasting. Under such an approach, if analog broadcasting were 
sufficiently valued--more so than other wireless services--then it 
could continue. If consumers found alternative wireless services more 
valuable, then analog broadcasting could be discontinued.
    An alternative marketplace approach would involve providing 
incentives for broadcasters to vacate spectrum, rather than having them 
pay to remain. Under a voluntary band clearing mechanism adopted by the 
FCC, broadcasters are encouraged to negotiate with potential new 
wireless licensees on that spectrum to vacate their frequencies. 
Specifically, the Commission established a rebuttable presumption that 
such agreements to relocate are in the public interest.
    This voluntary approach seems to create a win-win situation for all 
involved. The new wireless licensees receive access to spectrum much 
more quickly, allowing consumers to more quickly benefit from those 
services. Broadcasters are not required to relocate, but will gain the 
incentive to do so. This incentive would be proportionate to the value 
of their stations--meaning the least-watched stations would (all things 
being, equal), the first to relocate, and the most-watched stations the 
last. And broadcasters who do enter into agreements receive payments 
that could be used to finance their transition to digital 
television.\4\
---------------------------------------------------------------------------
    \4\ To facilitate such negotiated relocating, one firm, Spectrum 
Exchange, has already outlined plans to hold a ``secondary auction'' 
simultaneously with the FCC's auction of these frequencies. This 
auction will help bidders ensure that the spectrum they receive 
licenses for coincides with the broadcasters with whom they enter into 
band clearing agreements.
---------------------------------------------------------------------------
    Currently, this policy is in effect for channels 60-69 (and for 
three-way deals involving broadcasters on other channels). Based on the 
success of this policy, the Commission will determine whether to extend 
voluntary band-clearing down the dial to channels 52-59. It is too 
early to assess the success of this policy, but it looks promising.

Conclusion

    The debate over advanced television has been a long-running one for 
the FCC and for Congress. The issues are complex ones; I know there are 
no simple answers. At the moment, however, it seems very likely that an 
extended digital television transition period will cause valuable 
spectrum to be misallocated, and deprive consumers of valuable wireless 
services they want and need. The answer to this problem, however, is 
not new regulation to punish broadcasters or to mandate use of 
preferred technologies. Instead, policymakers should look for ways to 
use market mechanisms to ensure the best use of spectrum resources.

    The Chairman. Thank you.
    Dr. Kraemer.

              STATEMENT OF DR. JOSEPH S. KRAEMER, 
                      DIRECTOR, LECG, LLC

    Dr. Kraemer. Thank you. I am Joe Kraemer, an equity partner 
in a consulting firm, LECG. I am actually responding to 
questions that were posed by the staff. I was contacted by the 
Majority staff and the Minority staff and we had consensus, 
they asked the same question. The question was, given the state 
of the transition of digital television, can and should 
government intervene? If yes, how can we make an effective 
intervention? Those are the questions to which I am responding.
    If you look at my testimony, I have run three scenarios 
with respect to digital television transition, taking into 
account the various factors such as programming, availability, 
must-carry, and all the issues of spectrum auctions and the 
like. When you do that, you really have three scenarios.
    You have a transition that is fast, and when you look at 
the rapid transition, the best you do is turn off analog no 
later than December 31, 2010. You have another scenario which 
is essentially moderate, that gets you there at December 31, 
2015. Then you have a slow one, which is plausible based on 
just the conversations and the questions we have had today, 
which gets you out to 2020, probably at which point it is 
Liberia, Paraguay and the United States still trying to do the 
transition.
    And the real issue is that the actions taken by the 
government and all the parties, cable, consumer electronics, 
the programmers--you did not have the networks here. There is a 
lot of talk about programming, but the networks buy the 
programming and they were not here. Where is NBC, CBS? You need 
to bring them in. That is the source. The broadcasters, like 
NAB, are local licensees. They do not do the network 
programming.
    But you need to take all those into account, and the 
decisions that you make now really have lead times of 3, 4, 5 
years, so if you do not make decisions, you are pushing 
yourself out to 2015 or 2020.
    Now, the question becomes who wins if we accelerate the 
transition to digital. Well, first of all, it would return the 
analog spectrum, in which case you have auction revenues. You 
also have a buildout of the wireless spectrum, which will pump 
a multiplier effect through the economy which is important, 
because the telecomm industry in a wired sense is no longer 
buying technology and you can see the air gap in the economy. 
We've got to keep the buildout going.
    You also shift to a sustaining demand pull. Right now, this 
is industrial policy which is extremely unusual for the United 
States. DTV started with government and is being pushed by 
government. We don't have the DVD, the cellular phone kind of 
pull out there with the consumers. We've got to move there.
    You also can trigger waves of investment by programmers, 
manufacturers, broadcasters themselves. All these parties are 
just going sideways and when you do that, you do not have 
multiplier effects in terms of employment, in terms of the 
economy. There is a benefit to consumers. Every set of focus 
groups shows that consumers enjoy and appreciate the 
improvement in audio and the sort of quality associated with 
digital. This is something that if they can get exposure to, 
you could very well trigger a demand for the change to digital 
and no more hearings will be required.
    And also, you should decrease the length of time that 
broadcasters are operating both analog and digital operations. 
Broadcasters really do a win-win. Actually, when you run 
parallel digital-analog plants, it costs you a lot of money 
and, if you do that for 20 years, you're going to affect your 
profitability. It isn't logical at an operating level to do 
both analog and digital for years.
    So one question becomes, can government intervene? Yes. 
Now, if so, can you be effective? And the real question is, can 
you tip the market? In other words, can you create sustained 
demand by consumers so we don't need hearings--we really can 
look on this as a success, not a failure.
    In my testimony at page 4, I did have a chart that 
basically shows what the tipping point would be. What you want 
to is move that to the left. Can government move it to the 
left? Can government accelerate the demand for consumers? If 
you let it drift to the right, then you are talking about 2020 
before you turn analog off.
    So just looking at it, there are probably two areas where 
government can intervene--and this is more likely actually the 
FCC, not Congress. All-channel receivers, there is a logic for 
mandating those. The manufacturers themselves will not take the 
initiative one by one, because essentially it puts them in a 
less-than-optimal competitive position.
    If you do that, you will basically move to reduce the 
embedded base of analog sets. We have 280 million sets in the 
U.S. that are analog only. We need to decrease that base. We 
buy 25 million sets a year minimum. You basically mandate there 
that they have to be able to receive digital; in 4 years you 
will have probably on average one digital set minimum per 
household, so you move forward to an early cutoff for analog.
    Digital must-carry is also required. There is a lot of 
infighting, chewing on each other over that. I would suggest 
you do need to move toward digital must-carry, but sunset it 
after 3 years. In other words, they carry it for 3 years and at 
the end of that time the programming should compel the 
consumers to want it. If the consumers want broadcast digital 
programming, then the cable folks will put it up and leave it.
    And so those are two areas. Obviously there are other 
issues you need to look at. You need to look at things like 
programming, but, given that staff only gave me 2 days, this is 
the best I could do.
    Responsibility probably goes to the FCC, not to Congress, 
just because of the nature of the institutions. So you really 
have to look at the FCC and maybe you can, you know, talk to 
Mr. Powell about what he is doing. In the end, should the FCC 
be dormant on this, you are going to go to 2015 or later. The 
FCC has got to take the lead, they have got to move out, they 
have got to make some things happen. Thank you.
    [The prepared statement of Dr. Kraemer follows:]

    Prepared Statement of Dr. Joseph S. Kraemer, Director, LECG, LLC

Summary of Testimony: Digital Television Transition

    I. A range of outcomes is possible. In this testimony and in an 
attachment hereto, I have outlined three scenarios:


------------------------------------------------------------------------
            Scenario                Analog Turn-off     Government Role
------------------------------------------------------------------------
Rapid...........................  2010..............  Intervenes Early
Moderate........................  2015..............  Largely Passive
Slow............................  2020..............  Uninvolved
------------------------------------------------------------------------


    Actions taken or not taken by Government in 2001 will affect 
decisively which scenario is realized.
    II. It is in the interest of most stakeholders to accelerate the 
DTV transition (i.e., achieve the rapid scenario). Benefits include: 1. 
Return analog spectrum leading to auction revenues for the Government 
and the build out of wireless high speed data networks; 2. Shift to a 
self-sustaining demand pull market; 3. Trigger waves of capital 
investment by manufacturers, programmers, broadcasters, and networks 
which will have multiplier effects on employment and income at each 
stage in the industry's supply chain; 4. Improve the quality of the TV 
picture and audio experience for consumers; and 5. Decrease the length 
of time broadcasters operate expensive dual analog and digital 
transmission systems.
    III. Government intervention is both possible and necessary to 
accelerate the transition. The critical factor is to expose consumers 
to digital TV. Once exposed, consumer demand will ``tip'' the market, 
creating a self-sustaining mass market.
    It is time to consider whether Government can intervene positively 
and then step aside and let market forces work. Two points of leverage 
exist:
    1. All channel receivers: logic exists to enable sets, sold after a 
date certain to receive over-the-air digital broadcasts; and 2. Digital 
must-carry: with the primary set in 65 percent of U.S. households 
hooked up to cable, a time-limited (three-year?) requirement to carry 
both analog and digital over-the-air broadcasts allows consumers to 
experience DTV.
    The lead on intervene probably belongs to the FCC, but Congress has 
a role as well.

[GRAPHIC] [TIFF OMITTED] T7414.004

I. Digital Television (DTV) Transition Scenarios

A. DTV Scenarios
    DTV requires a very long-term perspective. The transition to 
digital could take all or most of the next two decades and will affect 
literally all 100 million U.S. households.
    With respect to DTV, the decisions made in the 2001-02 timeframe 
have a ``long fuse,'' and a ``big bang,'' three to 5 years later, with 
a material impact on shareholders, employees, partners, suppliers, 
customers, and management.\1\ Many participants in the DTV transition 
are playing a game of ``bet the company.'' At a minimum, most 
stakeholders are placing a significant portion of future earnings at 
risk.
---------------------------------------------------------------------------
    \1\ ``Long fuse, big bang'' decisions involve judgments made, 
instructions given, and actions taken, the success of which cannot be 
measured for years but the outcome of which will determine the survival 
of the organization. One of the ironies of ``long fuse, big bang'' 
decisions is that the management that makes these decisions has often 
moved on and a new generation of managers (and shareholders) have to 
live with the outcome.
---------------------------------------------------------------------------
    Scenarios assist decisionmaking under conditions of uncertainty. 
Scenarios are not intended to predict the future. Rather, they can be 
used to facilitate an understanding of a reasonable range of options 
and the consequences of those options. The development of the scenarios 
used in this testimony are based on the results of interviews conducted 
in late 2000, as well as a general understanding of industry 
developments.
    In order to be successful, scenarios must be reality based, taking 
into account external conditions that are ``givens'' and cannot be 
changed in the short or intermediate future. For DTV scenarios, it is 
important to remember that:
    1. No dominant player exists. The television supply chain is 
fragmented at each level from manufacturing of equipment through 
production and distribution of content. No equivalent of Microsoft in 
the PC operating systems business or Intel in the chip business--or 
even a duoploy like Coke and Pepsi--exists. Therefore, no single 
company by itself--not Sony, not General Electric, not Disney/ABC--can 
determine the outcome. Thus, each stakeholder must formulate their own 
unique strategies because there is no leader to fall in line behind.
    2. Government is relevant and can affect the speed and course of 
DTV rollout. DTV has a political dimension. The FCC, Congress, the 
courts, and multiple presidents yet-to-be-elected will influence the 
pace of DTV rollout.
    It must be remembered that achievement of the legislated objective 
of 85 percent of households with digital capability (defined as the 
primary viewing set) could be attained by some mix of: (1) digital-to-
analog cable set-top boxes in combination with digital set-tops for 
digital sets; (2) satellite digital-to-analog conversion; and (3) free-
to-air broadcasts to digital sets with or without a roof antenna. Also, 
the 85 percent is of primary sets only; it does not address the 
embedded base of 150+ million secondary sets (that are in addition to 
the 100 million primary sets in the U.S.).
    For DTV three general scenarios make sense:
    1. Rapid Transition: This scenario incorporates a series of 
assumptions so that the transition resembles the rapid take up of black 
and white TV after World War II or the rise in usage of the World Wide 
Web (i.e., fast, deep, and successful).
    Rapid Transition: 85 percent in 2006-08; Analog turn-off 2010-11.
     Stakeholders cut deal to move DTV forward.
     Consumer exposed to DTV and demand ``tips'' 2005-06 so 
that mass market emerges.
     Channels 60-69 and 52-59 are auctioned almost on schedule.
     Congress and the FCC intervene on matters such as all 
channel receivers and must-carry.
    2. Moderate Transition: The core theme is that the interlocking 
series of events necessary for DTV go neither terribly right nor 
terribly wrong.
    Moderate Transition: 85 percent in 2010-12; Analog turn-off 2014-
15--No stakeholder deal is negotiated.
     Auctions are delayed and not meet expectations; spectrum 
use taxes are probable.
     Broadcasters operate expensive parallel system both analog 
& digital.
     Government remains passive and hesitant to intervene.
    3. Slow Transition: Under this scenario, many factors combine to 
frustrate and slow the DTV rollout. This could occur due to some 
combination of technology, regulatory, and/or market factors. 
(Exogenous events, such as a stock market collapse combined with rising 
unemployment and declining consumer confidence could also play a causal 
role.)
    Slow Transition: 85 percent after 2014; Analog turn-off 2020.
     Free-to-air broadcast TV becomes increasingly less 
relevant.
     Networks bypass affiliates and go to cable head ends.
     Government takes no action; FCC adopts ``let the market 
decide'' attitude.
    DTV scenarios do not predict the future. However, they serve to: 
(1) sensitize stakeholders (including Government officials) to the 
implications of actions taken or not taken; and (2) emphasize the 
extent to which stakeholders must cooperate because no single company 
can control the outcome.
B. Diverse Points-of-View, But Some Consensus on the DTV Transition
    As part of an analysis I conducted late last year, broadcasters, 
manufacturers, network representatives, public officials and industry 
observers provided facts, opinions, official on-the-record positions, 
and unofficial not-for-attribution perspectives. Summaries of relevant, 
key themes that emerged are presented below.
    1. Resolution of certain issues is required to accelerate the 
rollout of DTV. The two issues mentioned most often as the most 
critical to broadcast DTV rollout were: (a) cable must carry; and (b) 
the availability of high definition and enhanced programming. The logic 
of the respondents was that, if consumers could see DTV, then this 
would create demand pull and initiate a market-led transition to DTV. 
Other factors such as content availability, copy protection, receiver 
prices, and all-channel tuner requirements must also come into line, or 
rollout will be delayed.
    2. The core drivers are primarily business and public policy, not 
technical. Almost all DTV technical issues have been resolved. 
Therefore, the issues remaining tend to be: (a) economic--who spends 
how much and for what return; and/or (b) public policy--should and how 
can government influence the transition to DTV?
    3. The free-to-air television business will change significantly 
over the next 5 years. Over the longer term, 90 percent of primary sets 
will be wired (either cable or satellite). Therefore, the long-term 
U.S. free-to-air market will consist primarily of secondary sets (e.g., 
smaller, largely portable, potentially pedestrian or better speeds), as 
well as computers (fixed or portable) as receivers.
    4. No single stakeholder controls the rollout of DTV. A multitude 
of DTV stakeholders (e.g., consumer electronics firms, networks, local 
broadcasters, program producers, cable, the FCC) exist with their own 
business or public policy interests. The potential exists for paralysis 
through mutually neutralizing business and public policy actions. On 
the other hand, most of the stakeholders have a shared economic 
interest in moving the transition forward.
    5. The digitalization of television in the U.S. will proceed; the 
issue is when, not if. The rollout of digital video could occur without 
much of a fixed free-to-air component. Digital production, DVD, 
satellite, digital cable, and streaming video are accelerating. Local 
broadcasters remain influential but by themselves are not decisive and 
could be isolated over the long term, especially if the broadcasters 
lack consensus on key DTV issues while other stakeholders press ahead 
with non-free-to-air digital television.

II. Acceleration of the DTV Transition

A. The Benefits of Acceleration
    When the history is written, there is a high probability that 
digital television (DTV) will be compared in some ways to the 
Internet--slow to take off, dominated in the early market phase by 
visionaries, benefiting from occasional government intervention, and 
global in impact but with distinctly American nuances. DTV will also be 
recognized in retrospect as one of those paradigm shifts that rearrange 
the economics of entire industries and create lists of winners and 
losers. Adaptability, flexibility, and a talent for strategic thinking 
(or lack there of) constitute the three attributes that will separate 
the former from the latter.
    A rapid transition to DTV will: 1. Facilitate the return of analog 
spectrum that in turn will be auctioned to network operators, which, in 
turn, will trigger a wave of investment in wireless broadband 
infrastructure, as well as contribute to maintaining budget surpluses; 
2. Decrease the length of time broadcasters will need to operate dual 
analog-digital transmission systems; no trivial issue for stations in 
small markets and/or small stations in any market; 3. Shift the basis 
for the DTV market in the U.S. from the current `supply push' model 
(i.e., government compels and broadcasters acquiesce) to a `demand 
pull' model that sustains itself as a mass consumer market; 4. 
Materially improve the quality of the TV picture and audio experience 
for consumers; 5. Transform the entire TV supply chain from program 
planning and production through local transmission and reception; 6. 
Provide a potential new lease on life for the broadcasting industry 
that has been hemorrhaging viewers for 10 years; 7. Trigger waves of 
investment spending by manufacturers, programmers, local broadcasters, 
and TV networks (including free-to-air, cable, and satellite), which 
will roll through the industry's supply chain with a multiplier effect 
on employment and income.
    If DTV had no other effects other than those above, it would be 
worth accelerating the transition. However, beyond its first tier 
effects, DTV will also act as a catalyst and cause second tier effects 
that will be at least as significant, if not more so. In this second 
tier, the impacts of DTV will include:
    1. Merge the TV and the PC so that the TV will have more in common 
with today's PCs than contemporary TVs; 2. Double the number of U.S. 
households with web access to collect information, send/receive e-mail, 
and shop at home thereby providing television a role in the networked 
economy of the 21st Century for TV networks; and 3. Intensify 
competition between and among video suppliers as networks are upgraded 
for digital transmission which will also provide bandwidth for Internet 
and other services.
    Only a realistic assessment of the situation will achieve the 
potential of digital television in a reasonable period of time. That 
promise, by the way, can be more than even the optimists predict, but 
only if the digital transition is realistically planned and implemented 
by networks, manufacturers, government, broadcasters, and consumers 
themselves.
    DTV is being rolled out currently without material consumer demand. 
Consumers that have invested in DTV sets tend to be either: (1) 
``technophiles'' (responding to the potential of digital to merge the 
TV and the PC); or (2) ``videophiles'' (emphasizing the improved 
picture and audio capabilities of digital). These categories constitute 
the early market. The critical issue is when the DTV market ``tips'' 
and becomes a mass market. After the market tips, then it will become 
self-sustaining and based on `demand pull' as did other markets such as 
color televisions, PCs, and cellular telephones.
    In order to tip the market (i.e., accelerate the point in time when 
demand ramps up as a mass market), consumers must be exposed to DTV. 
Exposure will trigger demand for DTV receivers, digital programming, 
and ancillary services such as broadcasting to PCs (i.e., shift the 
market from its current `supply push' context to a sustainable `demand 
pull' basis).
B. The Role of Government
    Government and the DTV transition have been inseparable from the 
beginning. If anything, there has probably been enough government 
intervention that DTV constitutes a rare example of industrial policy 
in the United States. The FCC guided the process that developed the DTV 
standards and then followed congressional guidance when awarding the 
spectrum necessary to transmit digital programming. At various points 
along the way (especially on the matter of spectrum award), Congress 
and the incumbent administration got involved and endorsed or modified 
private sector and/or FCC decisions as part of the public policy 
process in the late 1980's and 1990's. Now with the DTV transition 
slowed, it is time to consider whether government can intervene one 
last time and, in a positive way to accelerate the transition.
    I assume there is: (a) a public policy interest in facilitating a 
rapid transition to digital television to permit spectrum clearing; and 
(b) a belief on the part of regulators that market forces should be the 
ultimate driver of both the growth of digital television programming by 
broadcasters and acquisition of receivers by consumers. Therefore, if 
government is to accelerate the transition, then government must 
accelerate the rate at which consumers are exposed to DTV then step 
aside and let market forces work. There are two leverage points 
available.
    Both the all-channel and digital must carry requirements would 
appear to be necessary to catalyze a market-driven DTV transition. If 
most TV sets cannot receive a digital signal, then there is very little 
incentive to generate digital programming. Such programming would be 
almost a novelty as was the case with color broadcasting when there 
were very few color television sets. However, since about 65 percent of 
total U.S. homes have cable service, simply equipping the TV sets with 
the capability to receive digital signals may not provide the necessary 
incentive unless the cable systems also must carry digital as well as 
analog off-the-air signals.\2\
---------------------------------------------------------------------------
    \2\ For the households with the most sought after demographics by 
broadcasters and advertisers, cable penetration probably is higher than 
65 percent.
---------------------------------------------------------------------------
    Although the FCC is considering the all-channel and digital must 
carry issues in separate proceedings, the two requirements are 
interrelated. The first step would be to require that all new TV sets 
sold be capable of receiving a digital signal. Then, at a date on, or 
shortly after, the date when all new sets sold must be digital-capable, 
all cable TV systems would be required to carry both the digital and 
analog signals generated by the off-the-air stations. This requirement 
that cable TV systems carry both signals need only be in place for 3 
years or so. After that, market forces would protect the public 
interest.
    1. Requiring TV Sets to Be Able to Receive Both Analog and Digital 
Signals. The causal connection between needing a substantial installed 
base of TV sets capable of receiving a digital signal before the 
broadcasters will offer most, if not all, programming in a digital 
format seems obvious. The need to have such an installed base can be 
demonstrated by examining what happened to the viewership of UHF 
stations and the number of UHF stations after the all channel (VHF and 
UHF) tuner was required for all TV sets. The relative viewership of UHF 
stations increased among the off-the-air signals. Also, the ease of 
access of UHF channels and the increased viewership also led to more 
UHF stations being on-the-air. Finally, this also assisted the 
emergence of the new networks (e.g., FOX, WB, and UPN). Prior to the 
All Channel Tuner Act, the UHF stations had a relatively high failure 
rate and that entry by UHF stations had been very disappointing.
    Second, the experience with color television also can be helpful. 
Color television was never mandated, but color programming was very 
limited until the installed base of color television sets reached a 
critical mass. Similarly, one cannot expect a substantial increase in 
digital programming until there is a substantial installed base of TV 
sets that can receive digital signals. NBC was seen as taking a 
substantial risk when it took the lead in going to all-color prime-time 
broadcasting. At that time, of course, RCA/NBC was vertically 
integrated into TV set production. Today, even if a network were to 
make a DTV programming commitment (as CBS appears to be doing), the 
transition would be stillborn if set manufacturers did not provide 
follow through with set production.
    The argument that making all TVs so that they could receive and 
process digital and analog signals would raise the costs of these sets 
substantially would not be true in the case where all TV sets had to 
have the capability. The engineering and design costs needed to make 
such a conversion would not be high on a per-TV-set basis if all TV 
sets had to have this capability.
    Nevertheless, without an all-channel requirement, given the highly 
price sensitive competitive nature of selling the high-volume TV set 
models, it is less likely that any manufacturer of such sets would take 
the risk of adding digital reception capability to mass market sets 
even if the resulting cost per set were low. Even a minimally higher 
price could be seen as placing the manufacturer at a competitive 
disadvantage in the mass market. If such a capability were offered only 
on upper-end sets, the per-TV set cost of offering the capability just 
on this small subset would be quite high making it unlikely that the 
price-sensitive customer would purchase such sets.
    However, if DTV reception had to be available in all sets, the 
manufacturers' efforts would be focused on making this capability as 
low-cost as possible. Further, the costs would be spread over a very 
large number of manufactured units making the average cost small. New 
TV sales each year amount to about 25 percent of TV households.\3\ 
Approximately 25 million sets sold annually into an embedded base of 
approximately 100 million U.S. households. If it were mandated, the 
manufacturers' efforts would shift to making the capability as 
inexpensive as possible. There are numerous examples of how offering a 
feature on all models dramatically reduces the cost of such features 
and, when a feature becomes standard, that the manufacturers quickly 
move to reduce costs.
---------------------------------------------------------------------------
    \3\ Approximately 25 million sets sold annually into an embedded 
base of approximately 100 million U.S. households.
---------------------------------------------------------------------------
    Finally, the high annual sales rate relative to the installed base 
of TV sets (about 25 percent of households per year) suggests that a 
large percentage of TV homes would be likely to have at least one 
digital-capable TV set within 4 years. This would provide a very strong 
incentive for networks to provide digital programming.
    2. Requiring Cable Systems to Carry Both Analog and Digital Off-
the-Air Signals. The requirement that all cable TV systems must carry 
both digital and analog off-the-air signals should be implemented no 
sooner than the date when all new TV sets sold must be able to receive 
both a digital and analog signal. The implementation might be delayed 
somewhat because there will be only a small number of TV sets in the 
base for the first 6 months to a year after the requirement that all 
new TV sets sold must be digital-capable. It is important to require 
cable systems to carry both the analog and digital off-the-air signals 
for at least 3 years. After that, market forces should be relied upon.
    At the outset, market forces are not likely to be sufficient. These 
cable systems would be under some competitive pressure from off-the-air 
digital signals and possibly from satellite providers (e.g., Direct TV) 
to carry the digital signals, but these providers also may not provide 
digital ``local into local'' broadcast programming, limiting the cable 
operators' competitive incentives to do so.
    Again, however, the market pull for digital carriage needs an 
initial regulatory catalyst. If the cable systems do not carry both 
digital and analog off-the-air signals, then any digital programming 
generated by the off-the-air stations will not reach the TV sets in 
cable homes.\4\ Given that 65 percent of all U.S. homes are cable TV 
homes, it would appear essential that cable systems carry the digital 
signals generated by the off-the-air station to make digital 
broadcasting valuable for broadcasters.
---------------------------------------------------------------------------
    \4\ Often, there are TV sets in cable homes that are not hooked 
into the cable (i.e., get an off-the-air signal). However, the prime-
time viewing is most often done in front of the TV sets hooked into the 
cable system.
---------------------------------------------------------------------------
    Cable systems probably will claim that it is not feasible to carry 
both the analog and digital signals due to channel availability 
limitations and/or that adding the digital signals is prohibitively 
expensive. However, digital compression will allow multiple DTV 
channels to carried within a 6 MHz cable channel. It may be necessary 
for cable systems to use a converter box to allow the digital signal to 
be delivered in a form that the digital-ready TV set can process. Such 
boxes should be ready by the time the must-carry requirement kicks in, 
or such capabilities could be installed in sets meeting the FCC's 
``digital cable-ready'' specification.
    The FCC has asked whether the dual-carriage burden could be reduced 
by making the dual carriage limitation of limited duration. I believe 
it would be necessary to mandate only that cable systems carry both 
analog and digital signals for 3 years after the date when new TV sets 
sold are to be capable of receiving both a digital and analog signal. 
At the end of this period, the majority of primary TV sets hooked into 
cable systems should be digital-capable. Given this situation, market 
forces would keep the cable system from removing the superior digital 
signal.

                                         BROADCAST DTV ROLLOUT SCENARIOS
----------------------------------------------------------------------------------------------------------------
                                        Rapid Transition         Moderate Transition         Slow Transition
----------------------------------------------------------------------------------------------------------------
Legislation & Regulation *.......  1. The FCC Chairman        1. The FCC remains a non- 1. DTV not adopted by
                                    adopts DTV as a critical   player until the next     any administration or
                                    issue for the FCC.         administration at which   FCC Chairman as an
                                   12. Proactive FCC           time the year 2005        issue upon which to
                                    mandates all channel       Chairman of the FCC       spend political
                                    receivers as of date       adopts DTV as one of      capital.
                                    certain (e.g., Jan 1,      his/her make or break    2. Congress holds
                                    2004) for sets 13'' and    issues.                   occasional hearings but
                                    larger.                   2. FCC proceeds to rule    becomes irrelevant to
                                   3. FCC resolves all set-    on/close out open         DTV.
                                    top box technical          issues as per the rapid  3. FCC adopts ``let the
                                    issues, including copy     transition scenario       market decide''
                                    protection.                only 4 years later and    approach on all key
                                   4. FCC reaffirms the 2002   with free-to-air          issues.
                                    free-to-air DTV rollout    somewhat less            4. FCC remains reactive
                                    requirement for            significant.              not proactive.
                                    commercial broadcasters   3. On-air digital dates
                                    but allows small markets   for broadcasters
                                    (e.g., 101 and above) to   stretch out with
                                    opt to defer until no      waivers easy to obtain.
                                    later than June 30, 2004.
DTV Must-Carry...................  1. FCC resolves cable      1. FCC delays initiation  1. No mandated free-to-
                                    must-carry (e.g., cable    of must-carry             air DTV carriage until
                                    must-carry free-to-air     resolution until 2005     analog shut off.
                                    DTV signals up to          (new administration);    2. DTV carriage prior to
                                    capacity limits with       outcome similar to        analog shut off only
                                    station election of        rapid transition but a    pursuant to voluntary
                                    signal to be carried);     half decade later.        agreements.
                                    program-related
                                    enhancements (including
                                    advertising and program
                                    interactivity) must be
                                    passed; HDTV signals
                                    must be passed without
                                    material alteration;
                                    reasonable fees imposed
                                    for retransmission of
                                    multiplexed programs for
                                    which broadcasters
                                    charge a subscription
                                    fee.
Consumer Electronics & Set-Top     1. CE industry reaffirms   1. CE industry puts free- 1. CE industry assigns
 Technology.                        commitment to U.S. free-   to-air DTV on hold        low priority to free-to-
                                    to-air DTV; R&D funds      until market more         air DTV; focuses on
                                    committed to improve       promising; R&D diverted   cable and satellite
                                    digital reception;         to satellite and cable.   markets; R&D funds
                                    fourth generation chips   2. Volume ramp up for      diverted away from free-
                                    in sets as of mid-2002.    mass market delayed;      to-air improvements.
                                   2. Set prices decline as    probably begins no       2. Because of low volume
                                    volume increases           sooner than 2006.         sales, prices decline
                                    consistent with prior CE  3. Same as rapid           slowly as sales of free-
                                    industry practice.         transition scenario       to-air receivers are
                                   3. CE industry supports     except four to 6 years    minor compared to cable
                                    All- Channel Receiver      later.                    and satellite digital
                                    Act as one price of                                  receivers.
                                    moving DTV forward in                               3. CE industry gradually
                                    the U.S.                                             and voluntarily
                                   4. Cable set-top boxes                                installs all channel
                                    available with DTV pass                              receivers so that
                                    through capabilities.                                analog-only new sales
                                   5. Low-cost digital-to-                               no longer occur after
                                    analog converters                                    2010.
                                    available at retail                                 4. Cable operators never
                                    stores in late 2004 for                              make available
                                    unwired sets.                                        converter boxes for DTV
                                   6. DBS and broadcasters                               pass through until
                                    deploy joint antenna                                 analog turn off.
                                    systems for free-to-air                             5. Limited retail
                                    pick-up of digital                                   availability of digital-
                                    signal.                                              to-analog converters.
Programming/Content..............  1. Networks make           1. Networks delay         1. Networks hold
                                    available significant      content; delay rolls      production costs down;
                                    HDTV programming,          through production        limited availability of
                                    particularly sports and    supply chain delaying     HDTV and enhanced
                                    movies, as well as other   digitalization of         programming until after
                                    enhanced programming.      content.                  2005-06 season.
                                   2. Local broadcasters use  2. Local broadcasters     2. Broadcasters make
                                    multiplex capabilities     stretch out multi-        limited use of
                                    to transmit local          casting trials because:   multiplex capabilities
                                    content (e.g., news and    (a) lack of must-carry    (e.g., due to lack of
                                    high school sports with    rules frustrate           cable carriage and/or
                                    channel choice by          business case; and (b)    production costs).
                                    county).                   free-to-air DTV          3. Consumers indifferent
                                   3. Consumers increase       receivers remain scarce.  to free-to-air DTV for
                                    demand for DTV; market    3. Advertisers focus on    most of first decade of
                                    pull begins to replace     cable networks with       21st century.
                                    supply push circa 2004-    return channel for       4. Lack of consumer
                                    05.                        interactive advertising.  interest dooms
                                   4. Broadcasters sell       4. Over-the-air content    advertiser interest.
                                    advertisers on DTV's       not in significant in
                                    enhanced capabilities      quantity until 2003-04
                                    (e.g., interactive         season.
                                    advertising and very
                                    attractive
                                    demographics);
                                    advertising revenues
                                    increase.
Spectrum Auctions **.............  1. Congress recognizes     1. Channel 60-69          1. Channel 60-69
                                    difficulty of shutting     auctions occur in March   auctions deferred until
                                    off analog in 2006 but     2002 but auction fervor   2003; bid revenue fails
                                    makes it a policy          subsides due to no        materially to meet CBO
                                    priority to achieve turn   realistic analog shut     projections because
                                    off no later than Dec.     off plan; government      bidders doubt spectrum
                                    31, 2010; FCC instructed   frustrated at inability   will be vacated within
                                    to facilitate.             to generate auction       business relevant
                                   2. Government continues     revenues.                 timeframe.
                                    pressure for auctions;    2. Channel 52-59          2. Government suspends
                                    channel 60-69 auctions     auctions deferred         further spectrum
                                    occur in late 2001 or      indefinitely.             auctions, resolves to
                                    early 2002; broadcasters  3. Broadcasters retain     offset auction revenue
                                    relocated prior to         dual channels with        foregone with spectrum
                                    analog switch off in       digital channel largely   use taxes; such taxes
                                    their DMA with             underutilized;            based on hypothetical
                                    incentives paid by         Government displeased.    highest and best use
                                    auction winners.          4. Government imposes      (not actual use).
                                   3. Channel 52-59            escalating spectrum use  3. Industries that could
                                    auctioned in 2005 (three   taxes.                    use spectrum
                                    years late); relocation                              accommodated elsewhere
                                    process similar to                                   and/or forced to
                                    channel 60-69.                                       adjust.
                                                                                        4. Situation persists
                                                                                         until end of second
                                                                                         decade (circa 2020).
----------------------------------------------------------------------------------------------------------------
* See next section for a discussion of must-carry issue.
** Spectrum auctions are relevant to DTV rollout because government agencies desirous of maximizing auction
  revenue have an incentive to take actions that support broadcasters vacating rapidly the auctioned or to-be-
  auctioned spectrum. Conversely, the government has an incentive to punish (i.e., tax) broadcasters if the
  perception is that the broadcast industry is delaying the auction process.

    The Chairman. Thank you.
    Dr. Hazlett.

   STATEMENT OF THOMAS W. HAZLETT, Ph.D., RESIDENT SCHOLAR, 
    AMERICAN ENTERPRISE INSTITUTE FOR PUBLIC POLICY RESEARCH

    Dr. Hazlett. Thank you, Senator, and thanks for inviting me 
today.
    To say that the transition to digital television is not 
going well is a bit like saying that Mikhail Gorbachev's 
perestroika is falling somewhat behind schedule. The disastrous 
failure of public policy is hidden only by lack of news 
coverage. This problem may be solved soon when the media comes 
to focus on this issue. The press, of course, loves a good 
train wreck.
    Comparing the digital TV transition to perestroika is not 
gratuitous. The central planning mechanism at the heart of 
spectrum allocation in the United States through the Federal 
Communications Commission is a structure and restructuring 
process which looks at wireless telecommunications from the top 
down. This system is inefficient, unresponsive to consumer 
demand, and a huge barrier to entry for new technologies 
anxious to compete in the marketplace.
    Recently at the Federal Communications Commission, a group 
of 37 economists expert in telecommunications policy, filed a 
comment urging liberalization in spectrum policy, and I would 
refer you to that document. It was signed by Nobel Laureate 
Ronald Coase, the immediate past chairman of the Council of 
Economic Advisors, Martin Bailey, and at least a half-a-dozen 
former Chief Economists of the Federal Communications 
Commission. It is available at the FCC or at the website of the 
AEI Brookings Joint Center for Regulatory Studies.
    The history of DTV already reads like a Russian novel. It 
was born not in the laboratory, but on K Street, as an attempt 
by broadcast lobbyists to block land mobile services from 
getting access to UHF spectrum in the mid-1980s. High 
definition TV was the reason created for freezing any use of 
idle bandwidth, despite pressing demands for more wireless 
telephone competition.
    Over a decade, technical standards were hammered out and 
complicated transition rules ordained. The result is technology 
adoption by committee. While a switchover date has been set in 
law, no one seriously believes that analog broadcasting will go 
dark in 2006. If they did, they would be buying digital TV 
sets. Of 100 million U.S. television households, only about 
50,000 are equipped to receive digital off-air signals. What do 
consumers know that policymakers do not?
    Well, this leads me to a brief discussion of today's policy 
choice, clamp down or loosen up. I think that discussion should 
start with this realization: Consumers correctly see high 
prices and major uncertainties. They don't see a killer app. 
They don't even see a modestly threatening app. The obvious 
solution, obvious to some, is to: (a) mandate digital 
compatibility for all newly sold TV sets in the United States; 
(b) mandate digital must-carry; and (c) move to a quick 
elimination of analog broadcasting. This approach concedes that 
only through brute policy guarantees will customers embrace 
digital TV.
    Do not do it. As policy, this is ultra-high-risk. It lacks 
cross-checks from the marketplace and feedback from customers. 
It opposes costs on viewers, competitors and technology 
creators, who are eliminated from this analysis. In just one 
area, digital must-carry, significant costs may be imposed by 
soaking up valuable bandwidth on cable and satellite systems 
which distribute programming, only to distribute programming of 
little interest to customers.
    By the way, satellite systems are even more impacted by the 
negative anti-competitive effects than are cable systems, and 
of course, it is the satellite television that is bringing 
competition to the multichannel video market.
    In short, the brute policy approach puts us further down 
the path of industrial policy. It has a high probability of 
proving disastrous, forcing costs on the economy, while 
blocking more valuable wireless services. The superior solution 
lies in liberalization, quickly giving new competitors access 
to radio waves in the TV band. This can be achieved by giving 
broadcasters the freedom to offer extensive broadcast and non-
broadcast service over both the new digital and old analog 
channels.
    The FCC, however, should immediately allocate all unused TV 
bandwidth to new wireless licenses with broad flexibility. 
These would be called overlay rights. As only 13 TV stations 
broadcast in the typical U.S. market, even doubling such 
assignments with digital broadcasting leaves vast unused gaps 
in the 67 channels or 402 MHz allocated to TV. These overlay 
rights, these new rights would allow new users to access radio 
spectrum and should be assigned by competitive bidding. Winning 
bidders would then negotiate with current users, TV stations, 
to vacate their positions for a fee.
    This would create additional bandwidth for new services 
such as 3G wireless and fixed wireless broadband access. It 
could also unleash vigorous competition to existing 
broadcasting, cable and satellite services. Thank you very 
much.
    [The prepared statement of Dr. Hazlett follows:]

   Prepared Statement of Thomas W. Hazlett, Ph.D., Resident Scholar, 
        American Enterprise Institute for Public Policy Research

Spectrum Allocation

    1. To say that the transition to digital television is not going 
well is a bit like saying that Mikhail Gorbachev's perestroika is 
falling somewhat behind schedule. The disastrous failure of public 
policy is hidden only by lack of news coverage. This problem may be 
solved when the media come to focus on this issue in upcoming years. 
The press, of course, loves to cover a good train wreck.
    2. Comparing the digital TV transition to perestroika is not 
gratuitous violence. The central planning at the heart of the spectrum 
allocation system leads the U.S. Government, through the Federal 
Communications Commission, to structure and restructure wireless 
services from the top down. This system is inefficient, unresponsive to 
consumer demand, and a huge barrier to entry for new technologies 
anxious to compete in the marketplace. The consensus among policy 
economists is that the entire system is in need of substantial reforms 
allowing wireless bandwidth markets to emerge. In a February 2001 
Comment filed with the FCC, 37 economists with expertise in 
telecommunications and public policy, including Nobel Laureate Ronald 
Coase, the immediate past chairman of the Council of Economic Advisors, 
Martin Bailey, and six former FCC Chief Economists,\1\ urged regulators 
to relax licensing rules such that existing operators can use spectrum 
flexibly and new competitors or technologies can challenge the status 
quo. This filing is available online: http://www.aei.brookings.org/
publications/related/fcc.pdf
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    \1\ The list of signatories includes: Martin Neil Baily, Jonathan 
Baker, Timothy Bresnahan, Ronald Coase, Peter Cramton, Robert W. 
Crandall, Richard Gilbert, Shane Greenstein, Robert W. Hahn, Robert 
Hall, Barry Harris, Robert Harris, Jerry A. Hausman, Thomas W. Hazlett, 
Andrew Joskow, Alfred E. Kahn, Michael Katz, Robert E. Litan, Paul 
Milgrom, Roger G. Noll, Janusz Ordover, Bruce Owen, Michael Riordan, 
William Rogerson, Gregory Rosston, Daniel L. Rubinfeld, David Salant, 
Richard L. Schmalensee, Marius Schwartz, Howard Shelanski, J. Gregory 
Sidak, Pablo Spiller, David Teece, Michael Topper, Hal Varian, Leonard 
Waverman and Lawrence J. White.
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The Origins of Digital Television

    3. Extending spectrum liberalization to the TV Band is easy at a 
theoretical level. Industrial policy is anti-competitive and ultimately 
anti-consumer. Competitive markets include far more nuanced information 
than FCC rulemakings, and are not biased by the political lobbying that 
pervades that process. When investors decide how to use radio spectrum 
they are careful to weigh the alternatives, searching for opportunities 
that may be unseen, undeveloped, or uncertain. They are calculating and 
relentless in discovering what is possible, what customers are willing 
to pay for, how much to invest in new technology, and how long to wait 
for new science.
    4. At the specific level of implementation, these tradeoffs are 
crucial. Not only are digital TV sets, stations, and programming 
expensive to create, the use of bandwidth for digital TV crowds out 
potentially valuable services like cellular telephony, fixed wireless 
broadband, or 3G (mobile web services). Since the DTV transition has 
been mandated by FCC rulemakings, entrepreneurs have been prevented 
from attempting innovative ways to offer new services to the public.
    5. The history of DTV already reads like a Russian novel. It was 
born not in the laboratory, but on K Street, an attempt by broadcasting 
lobbyists to block land mobile services from gaining access to UHF 
spectrum in the mid-1980s. High Definition TV was the reason created 
for freezing any use of idle bandwidth, despite pressing demands for 
more wireless telephone competition.
    6. Over a decade, technical standards were hammered out and 
complicated transition rules ordained. The result is technology 
adoption by committee. While a switch-over date has been set in law, no 
one seriously believes that analog broadcasting will go dark in 2006. 
If they did, they'd be buying digital TV sets. Yet, of 100 million U.S. 
TV households, only 50,000 are equipped to receive digital off-air 
signals.\2\ What do consumers know that policymakers don't?
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    \2\ Christopher Stern, Mixed Signals, Broadcasters' Promise of a 
Digital TV Age has Not Been Met, And Now Congress Is Having Second 
Thoughts About Its Role, Washington Post (Dec. 17, 2000), H1.
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Clamp Down, or Loosen Up?

    7. Consumers see high prices and major uncertainties about long-
term adoption. They don't want to be stuck with expensive equipment 
that isn't needed and doesn't receive desirable programming. The 
seemingly obvious solution is to: (a) mandate digital compatibility for 
all newly sold TV sets (thereby getting economies of scale to kick in), 
(b) mandate digital must-carry, (c) eliminate analog broadcasts in 
2006. This approach concedes that only through brute policy guarantees 
will customers embrace digital TV.
    8. Don't do it. As policy, this is the ultra-high-risk approach. It 
assumes that the digital television transition, as mapped out, is the 
one and true path to consumer satisfaction. And it does so without 
cross-checks from the marketplace, feedback from customers. Costs to 
viewers, competitors, and technology creators are eliminated from the 
analysis. In just one area--digital must-carry--these costs may be 
terribly high, soaking up valuable bandwidth on cable and satellite 
systems to distribute programming of little interest to customers.\3\ 
In short, this approach puts us further down the path of industrial 
policy. It has a high probability of proving disastrous, forcing costs 
on the economy while blocking more valuable services.
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    \3\ See Thomas W. Hazlett, Digitizing Must-Carry Under Turner v. 
FCC (1997), http://www.aei.org/ra/rahazl1.pdf.).
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    9. The superior solution lies in liberalization, quickly giving new 
competitors access to radio waves in the TV Band. This can be achieved 
by giving broadcasters the freedom to offer extensive broadcast and 
non-broadcast service over both their new (digital) and old (analog) 
channels. The FCC should immediately allocate all unused TV band 
airspace to new wireless licenses with broad flexibility. As only 13 
analog stations broadcast in the typical U.S. market, even doubling 
such assignments with digital broadcasting leaves great unused gaps in 
the 67 channels (402 MHz) allocated to the TV band. These overlay 
rights would allow new users to access radio spectrum, and should be 
assigned by competitive bidding. Winning bidders would then negotiate 
with current users (TV stations) to vacate their positions for a fee. 
This will create additional bandwidth for new services, such as 3G 
wireless. It could also unleash vigorous competition to existing 
broadcasting, cable and satellite services.\4\
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    \4\ For further elaboration, see my ``Essay on Airwave Allocation 
Policy,'' forthcoming in the Harvard Journal of Law & Technology: 
http://www.aei.brookings.org/publications/working/working-01-02.pdf.

    The Chairman. Thank you, Dr. Hazlett.
    Dr. Cooper, in the past, your organization supported the 
broadcasters efforts to have the government guarantee carriage 
of all broadcast stations on cable systems. Now you support a 
full free market auction of spectrum that the broadcasters 
claim they should have for free.
    Why have you moved to this free market approach?
    Dr. Cooper. Well, our view of the spectrum has to do with 
the alternative uses that are available here, and what we have 
learned in the past half decade, particularly with the 
statistics I gave you, is that there is an immense potential 
for the use of that spectrum that has a great deal of value to 
the public.
    We never believed that spectrum should be given away for 
free. We always were supposed to get compensated for it in the 
past through public interest obligations. Going forward, we 
think the best way to extract the public's value for the 
public's resource is to mine it in terms of its alternative 
uses, and make sure those funds remain, flow back to the 
public.
    And in a certain sense, I would disagree with the 
suggestions that were made by the last two speakers who want to 
allow the broadcasters to sublet something that they never 
rented. They have never paid for that stuff, and so creating 
that secondary market, we want those dollars for that sublet to 
end up back in the public's pocket, and we want it to be used 
again in the public interest ways we have identified.
    But clearly, you have to recognize the value of this real 
estate which is owned by the public, and that is the 
fundamental driving force in our change.
    The Chairman. Thank you.
    Mr. Gattuso, one of the penalties of coming before this 
Committee is that you have been here before. In March 1996, you 
testified before this Committee on spectrum policy. During the 
hearing you stated, ``spectrum should be treated more like 
other resources in society, giving its users the ability and 
incentive to put it to its best use.''
    Do you believe the spectrum is being put to its best use, 
and what are the consequences as a result of this spectrum 
being given away to broadcasters for free?
    Mr. Gattuso. Well, first, I think we are dealing both in 
this field as in most other fields, especially in any field of 
technology and any field of great uncertainty. Government 
policymakers as individuals do not know what the best use is, 
and that is why we have to set up processes, market-based 
processes, to determine that.
    My own personal view is that the spectrum is not currently 
being used for its best use. I see, as evidenced by wireless 
auctions in other areas, a huge amount of value in other uses, 
and I am very very worried that we are holding back 12 MHz of 
spectrum, or at least 6 of the 12, at the expense of these much 
more valuable uses.
    The Chairman. Dr. Kraemer, your testimony indicates you 
would take more of a regulatory approach to solving the 
transition to DTV. You mentioned that the FCC should require 
that all new television sets that are sold should include the 
capability to receive digital signals. Currently, digital 
tuners cost $500; it is estimated they will still be as high as 
$300 by 2003.
    By requiring digital tuners that will double or triple the 
price, do you really believe that that is in the best interest 
of consumers to pass on such a mandate?
    Dr. Kraemer. Senator, I do not think it will double or 
triple the price. The reality is what you are looking at is the 
chip set that essentially does the conversion, and effectively 
you are talking about chips. In the end, chips cost less than a 
dollar. If the chip manufacturers know that everybody must do 
it as of 1/1/04, they will essentially create a chip that in a 
single chip takes both NTSC, which is over-the-air analog, and 
ATSC, over-the-air digital, and put it into a single chip. And 
for that matter, they may even put into that chip the cable 
standard, which is QAM.
    So that, in the end, a great deal of what we are talking 
about here will be taking place at the chip level in the set, 
and there is a large room for technology to be effective here.
    The Chairman. Dr. Hazlett, in your testimony you argue that 
broadcasters should be given the freedom to offer extensive 
broadcast and non-broadcast service over both their digital and 
analog channels. But I gather you do not believe that the U.S. 
taxpayer should continue to pick up the tab for this 
flexibility.
    To what extent should the broadcasters continue to be able 
to use the spectrum for free if they are going to then turn 
around and use it as a profit-making mechanism?
    Dr. Hazlett. The question of whether or not to auction 
these licenses was a very lively question, as I know that the 
Senator recalls in some detail, and I was also here in March 
1996--call it March madness--and was testifying in favor of 
auctions at that time, and I am glad that more people now are 
coming to the auction view.
    But the problem is, today you have a consumer welfare train 
wreck on your hands. The licenses have gone out. Broadcasters 
are starting to invest in these new technologies, and some 
consumers are actually starting to invest by buying these 
expensive, in fact, very expensive TV sets.
    The concern should be how to get new services, competitive 
services, to consumers in the marketplace. If you are going to 
worry about mistakes that were made in the past, you will be 
here having a hearing in 5 years, 10 years, 15 years, talking 
about how the digital transition for television is going. The 
thing to do now to get at the broadcasters and to institute 
some equity is to introduce to the broadcasters. That is the 
way to get at the value of the licenses, and in fact, produce 
additional economic activity, competition, lower prices, and in 
fact, tax revenues for the U.S. Treasury. That is the way to 
get equity.
    The Chairman. But they use either analog or additional 
digital spectrum for other uses; OK?
    Dr. Hazlett. Right.
    The Chairman. Then they are competing with people like 
wireless, who have to pay for their spectrum.
    Dr. Hazlett. Right.
    The Chairman. In the case of the last spectrum, $17--what, 
auctioned $17 billion. How do you compete? How do people paying 
for their spectrum compete with people who have it for free?
    Dr. Hazlett. Well, I was actually one of those who said 
back in the 1980s--and I can give you the citations--that 
cellular telephone licenses should have been auctioned. They 
were not auctioned, but those cellular telephone licensees 
compete head-to-head with PCS licensees. One is auctioned, one 
has not been. So you have got these inequities. There are 
inequities everywhere.
    Now if you are going to spend time and political capital 
figuring out the inequities, not only are you not going to 
solve the inequities, I can guarantee you that----
    The Chairman. I am not trying to solve the inequities, I am 
trying to at least give some kind of competition capability. If 
you get a baseball team for free, and I pay $700 million for 
it, it is very hard for us to compete for the players. I mean, 
I am not an economist, but look, I am not trying to right the 
inequities, but if you have an inequity that gives one of the 
competitors a dramatic advantage, then you have to do something 
to level the playing field.
    Dr. Hazlett. Well, the dramatic advantage is already sunk, 
and in fact, the taxpayers----
    The Chairman. Sure it is.
    Dr. Hazlett. The shareholders that got the advantage of 
that auctioned it off. They have gone, they have sold. You 
cannot even get the people who got the advantage of those free 
licenses that were awarded in 1997. But right now, you hurt 
consumers by delaying for years of even shorter periods, by 
delaying new services that could compete with the broadcasters 
in the TV band.
    So the real solution to the problem that has been created 
because of policies that were much to aligned toward industrial 
policy----
    The Chairman. Do you believe the analog spectrum should be 
given back?
    Dr. Hazlett. If you want to put a trip-wire on that, I do 
not object to that. But the fact is, if there are millions of 
people that do get analog services, that looks like a very 
popular service. And if you are going to put all your chips on 
this transition that analog is going to go back by 2006, 
obviously there is a train wreck right there, customers are not 
going to get TV. That is why nobody seriously thinks that there 
is going to be a 2006 switchover.
    So you have to respect what consumers have invested in and 
not kill--I mean, the objective of this is to help customers. 
And you cannot lose sight of that because you are worried that 
the broadcasters have some advantages, and they have great 
advantages. I have been quite concerned about this in the 
political process.
    But the fact is, they have already won that war. If you 
continue to fight that war, you are going to lose this one. 
This one is for consumers right now that want digital services 
like 3G and fixed wireless.
    The Chairman. I am sure that our dialog has stimulated some 
response from our other members, so I will just go right down 
the list. Dr. Cooper, and then Dr. Kraemer and Mr. Gattuso.
    Dr. Cooper. Well, one of the key things from our point of 
view is no more concessions. Dr. Hazlett is talking about a 
sunk cost and he is trying to find a workaround around that. 
The first answer is not to make more concessions or not to 
reach back into the consumer's pocket.
    Now if you can deliver that all-purpose tuner for a buck, 
we will not complain about it, but no one believes you can. The 
dollar chip that is going to receive all signals comes after an 
awful lot of front-end fixed costs that the manufacturers are 
going to try to recover.
    It may well be if public policy needs to do that, the first 
thing you should do is make sure the public does not pay, so 
that the broadcasters maybe should pony up the development cost 
for that tuner, so that it does not end up in increasing the 
cost of my TV set. One possibility.
    You can tax one group to make sure that you accomplish your 
industrial policy. Frankly, we would rather go the opposite 
way. Subject this resource to a market test as soon as 
possible, reallocate those licenses according to their highest 
value, and make no more concessions to folks who have been 
given the most important asset, investment asset, in getting us 
to the digital age.
    The Chairman. We will go in order. Mr. Gattuso and then Dr. 
Kraemer.
    Mr. Gattuso. I think the most important thing is, as Tom 
Hazlett said, is to help consumers, and to make this spectrum 
available for its most valuable uses. I would love to make the 
broadcasters pay for what they got for free. That potentially 
can be done, as mentioned in my testimony, by setting a firm 
cutoff date. I do not know how politically possible that is. 
But that is something that economically would be fine.
    If that is not possible, it is much better to take the 
steps that are necessary to insure that this spectrum is moved 
to its most valuable uses so consumers are helped. Even if 
broadcasters do not end up paying in the end, consumers should 
be the first priority.
    The Chairman. Dr. Kraemer.
    Dr. Kraemer. If you want to accomplish a quick transition 
so that broadcasters start out with one channel, now have two, 
and go back to one, well then, you really have to focus on what 
your leverage points are around making that happen.
    A second point I would make is that we have evolved a devil 
theory of the broadcasters, which simplifies the debate, but 
which is misleading. The reality is there is a very complex 
value chain here. Multiple manufacturers, none of whom are 
U.S.-based, manufacture sets. You have networks that do the 
programming, and they buy it from a whole series of studios, 
many of which are not integrated and have nothing to do with 
the networks. And then you have broadcasters, some of whom have 
three stations, some of whom have 50. A very diverse industry. 
And when you just say the broadcasters, you make it very 
difficult to pin it down.
    The third thing is with these spectrum auctions, you may 
need to look at the economics. The more spectrum you make 
available, the less valuable it becomes; therefore, the auction 
prices go down. Another thing is, you cannot chop up the 
spectrum. You do not do channel 7 in Philadelphia and channel 
13 in Phoenix. Wireless operators want a single frequency 
nationwide; that is why they bid the money.
    So you really need to get out a fact set around some of 
these issues.
    The Chairman. Thank you, Dr. Kraemer. I would mention that 
as more spectrum has become available, more use of the spectrum 
has occurred as well, which has actually driven up the value of 
the spectrum in a rather dramatic fashion. The next wave 
spectrum which went for $4.5 million originally, a billion 
originally, recently was auctioned off for $17-some billion. 
Quite a remarkable increase in value, but I think your point is 
well made.
    And I thank the witnesses. You have been very helpful.
    Senator Burns.
    Senator Burns. Thank you, Mr. Chairman. I only have a 
couple of questions and I am just going to let you all react to 
it.
    When we were wrestling with this problem back in 1996, and 
in fact, whenever we decided we would sell spectrum at auction, 
should we have sold the digital spectrum at auction and let the 
broadcasters invest if they wanted to, and still allow them to 
retain the ownership in the analog spectrum? In other words, 
should we have sold it to the highest bidder and then let the 
broadcasters, if you want to stay in the covered wagon without 
going on the rails, why, we would stay in the analog business. 
Should we have done that? Your reaction.
    Dr. Cooper, now I want to tell you what you sound like. I 
know you do not want meanness, but I want to tell you what you 
sounded like a minute ago. You want the consumers to pay 
nothing for the service, yet you want them to collect the 
money. In other words, you want their cake and eat it too, and 
I think the consumer has a responsibility in this also, and the 
responsibility is that I think you cannot ask the broadcasters 
to pull up both ends of the wagon. That is what you sound like.
    I just want to answer that question though. What would 
happen if we had just sold that spectrum and said, it is going 
to be designed for digital or high definition television, and 
anybody can buy it. Whether you are in the broadcasting 
business or not, here is your chance to get into the 
broadcasting business on the cutting edge, and not even bother 
about the requirement of returning the analog spectrum.
    Dr. Cooper. In point of fact, the consumer buys the set and 
the consumer watches the advertising, so they pay at least with 
their opportunity, cost and time, and that drives the TV 
industry, so they do not get it for free.
    If you had sold the spectrum, which would have monetized 
the public value there, and remember, this is public money in 
our view. If you had sold that spectrum, you would have a lot 
more programming, because----
    Senator Burns. Let me get it. It is not public money until 
I spend it.
    Dr. Cooper. Well, it is not public money until it comes in 
the Treasury and we want to put it in a special place and use 
it for specific purposes, which was have outlined. But it is 
clearly a public resource owned by the public which has been 
rented at no price, given away. If you had sold it and they had 
a real capital cost on their books that they had paid for that 
asset, they would be getting a lot more value out of it. It is 
only because they had a free good that they have not had to 
exploit it.
    And so, they have got the best bottom land in the county 
and they do not have to plant any crops, because it does not 
cost them anything. And they are still trying to figure out 
what they want to do with it. And so from our point of view, if 
they had paid for it, we would be getting a lot more value out 
of it, we would be buying the digital TV sets because there 
would be programming out there.
    And so we do not get that--we do not pay nothing. Consumers 
pay for the TV and they watch the advertising.
    Senator Burns. Well then, should that have--and not the 
requirement of turning back the analog spectrum, that end of 
it. We are just saying we should have put it on the open market 
and sold it, without any attachment to the analog spectrum.
    Dr. Cooper. You should have rented it, and we like to make 
the point that we own it in perpetuity, you rent it for a 
period of time, you do not own it forever, and when the lease 
runs out we get to reevaluate it. We do not want to lose 
control over it permanently, so as the value rises we can--just 
like a piece of property.
    Senator Burns. Do you want to comment on that, Dr. Kraemer?
    Dr. Kraemer. Let me just respond to your original question. 
Senator, the issue would be, after you auction this, do you 
want free-to-air television. In other words, if you put this up 
for auction and the bidders paid for it, they are not going to 
continue free-to-air television. They are going to have some 
type of subscription wireless service, and that is what you 
would have gotten.
    Now if that is what you want, that is fine. The public 
treasury would have gotten money, and if people wanted to see 
the digital programming, they would have paid for it. What you 
would have had was wireless cable. The issue is, as I 
understood the debate, you wanted to maintain free-to-air 
television.
    Senator Burns. Let us say that we just put the requirement 
that you have to have free over-the-air television. That is the 
only requirement we made. You had to be a broadcasting free 
over-the-air broadcaster to buy it. That is what you are going 
to use the spectrum.
    Dr. Kraemer. Well, you probably would have reduced the 
value. The other thing you might have done is kill analog, 
because the buyer would have been General Electric or somebody 
like that, who basically would have been able to, at least in 
theory, cut loose from the analog side of it and the local 
broadcasting, to create an integrated national digital network.
    Senator Burns. OK.
    Yes, sir, Dr. Hazlett.
    Dr. Hazlett. You have actually asked a very interesting and 
a very difficult question, and it sort of gets to the reason of 
why you see these estimates that these digital TV licenses are 
worth between $12 and $70 billion. That is a substantial range. 
In fact, the 95 percent confidence interval is probably wider 
than that. The FCC does not really know what these licenses 
would have garnered, particularly under the conditions that you 
suggest, where analog stays where it is, and there is just a 
new license called digital TV, how much will you pay.
    Now what the evidence is now, if this was the anticipation, 
that there is very little consumer demand evident in the 
marketplace, given all the transitional difficulties, that 
would have been reflected in very low bids for the licenses.
    But let me further suggest something, that there is a 
little bit of a semantic problem with all these discussions 
about spectrum auctions and giving away spectrum to the 
broadcasters. At the heart of the problem is that broadcasters 
were not given spectrum. The broadcasters were given TV 
licenses and they were forced to deliver a product with the 
license. That is what they can do with the spectrum. The FCC is 
the one that has the spectrum. They allocated it to TV, 
specifically digital TV, and they set the rules.
    Now if the spectrum is worth a lot more providing fixed 
wireless broadband or 3G wireless mobile service, that cannot 
be done on a TV license, barring some future policy change at 
the FCC. So the real problem is that these licenses lock in 
regulated uses.
    So now you have a situation where you did have this quid 
pro quo, provide digital TV and we will give you this free 
license, where we have locked into that technology by virtue of 
that transaction, and other services that are much more 
potentially valuable use of the spectrum cannot get access to 
those radio waves. That is our basic policy conundrum and that 
is why there has to be substantial liberalization of this 
entire industrial policy approach to really deliver value to 
customers.
    Senator Burns. Mr. Gattuso.
    Mr. Gattuso. You need to create an opportunity cost. I 
think that as I testified 5 years ago, an auction would have 
been the best way to go and that would have helped insure the 
people who were getting the licenses have good plans for it, 
that they are willing to put their money down on that, behind 
the fact that they could use this resource.
    But that would not have been enough. As Tom just mentioned, 
if you do not have that opportunity cost, if you do not have 
the possibility of using the frequencies for an alternative 
use, you are not insuring that it will be used for the highest 
and best use. That is why I supported plans for negotiations 
and allowing other wireless providers to use the spectrum. 
Without that, you still are locking in a potentially lower 
value use. I say potentially, we do not know for sure now, but 
you do need to find out.
    The Chairman. Senator Fitzgerald.
    Senator Fitzgerald. Well, it looks like we cannot go back 
and change what we did in 1997, and obviously we gave away some 
very valuable spectrum to the digital broadcasters. My concern 
now is that we salvage this situation and that's why I want to 
focus on whether we try to salvage this situation by mandating, 
as Dr. Kraemer suggested, that new TV sets contain the chip so 
that they could receive the digital broadcast, and then require 
the broadcasters to give back their analog spectrum after a 
reasonable period of time, and then we could reallocate the 
analog spectrum to its highest and best use, hopefully through 
an auction.
    Now, Dr. Hazlett, you were opposed to that because that was 
further going down the road to the industrial policy. Does it 
not seem, Dr. Hazlett, in order so that this does not become a 
bigger boondoggle than we already know it is, that we actually 
have to go the heavy-handed step of mandating that new 
television sets carry the chip, or else these broadcasters will 
be squatting on both the digital and analog spectrum for as 
long as we can foresee, probably until 2020, as Dr. Kraemer 
suggested.
    Dr. Hazlett. No. The fact is that these kinds of--this is 
exactly why industrial policy ends in these Byzantine 
regulatory structures where you are fixing--you know, years 
later you are fixing problems. You never know how this whole 
thing started, and in fact, right now, we do not remember this 
whole thing started because there was a dispute at the FCC in 
1985 about whether or not to give more UHF TV spectrum to 
cellular because it was not being used by TV, and that led to 
high definition. High definition is long gone, now we are 
talking about digital TV, now we are talking about mandating 
must-carry.
    The fact is that all these requirements are going to be 
very expensive. Now if it really does cost a dollar for the 
chips, the chips will be provided by the market. The problem 
is, it is not going to cost--according to the set manufacturers 
that are holding off on this thing--it is not going to be a 
trivial cost. If it is $100, that is $10 billion to equip 100 
million TV sets. That is real money, and that is only one TV 
set per television household.
    If you start mandating these things like must-carry, you 
drive off CASPIAN and----
    Senator Fitzgerald. OK. But if we don't do that aren't we 
going to see that broadcasters continue to retain their analog 
spectrum and have the digital TV, and we are wasting a lot of 
spectrum?
    Dr. Hazlett. Well, you are wasting spectrum, not because 
the broadcaster is holding it, you are wasting it because of 
the rules that lock in inefficient use. That is why the 
suggestion that I made was to liberalize that, allow the 
broadcasters to compete in these other markets, and to allow 
others, new entry to compete in these other markets. That can 
be done through these overlay rights that are auctioned off, 
compete head-to-head with the broadcasters in addition to all 
the competitors that are out there in some of these spaces 
today. And new competitors through additional spectrum 
liberalization should be invited in a general policy which is 
very favorable to consumers in efficiency.
    But you cannot undo those old mistakes. You know, I was 
here to argue the other way. But the fact is that you have to 
deal now with what is in the consumers' interest in going 
forward. If you go down the road to intensify the industrial 
policy, you are going to make a huge gamble with consumers' 
dollars.
    Senator Fitzgerald. Mr. Gattuso, I know you have had your--
--
    Mr. Gattuso. I think the basic premise we need to follow 
here is that two wrongs do not make a right. We did not auction 
the digital spectrum, we did not put in proper service rules. 
Further regulation will only make the problem worse. I would 
not want to be in the situation where responding to these 
constituent calls when the cost of televisions does do go up. I 
know people said that will not happen, it could happen. I would 
not want to be taking the calls explaining why because we gave 
broadcasters $X billion worth of free spectrum now they have to 
pay more for their televisions.
    Senator Fitzgerald. How do we get the analog spectrum back, 
though?
    Mr. Gattuso. Everyone seems to assume today that there is a 
chicken and egg problem that is unsolvable, and that chicken 
and egg problems cannot be overcome. Chickens and eggs exist; I 
have seen them. If it was not for the market's ability to get 
over these chicken and egg problems, you would not have CD 
players, you would not have DVD today, you would not have VCRs, 
you would not have virtually anything.
    In the marketplace, when there is a good product with 
consumer demand, there are ways to get these problems. There 
has been a lot of good academic work on this. Stan Liebowitz at 
the University of Texas, who has done a lot of work on network 
effects, finds out that good products get over this problem, 
even though it does at first look unsolvable.
    Senator Fitzgerald. Dr. Cooper.
    Dr. Cooper. Mr. Fitzgerald, if you want to go down the 
route of--basically you are looking for a penetration price on 
the tuner. You want to get the tuners out there in the world. 
And I have suggested that you should not ask the public to pay 
for that. The question is, who benefits from this network 
effect? We have just heard about the chicken and egg problem 
and network effect.
    The answer is, the broadcasters are the primary 
beneficiaries. Set manufacturers cannot possibly benefit from 
this because they simply sell a piece of hardware in the middle 
of the network, right? The guys who benefit from it are the 
ones who get the eyeballs. And they told you, we may have 6 
times as many eyeballs in the sense that we have many more 
channels in that one space.
    So they are the folks who should, in fact, be willing to 
engage in what is called penetration pricing. They ought to be 
willing to price below cost on this network element, because 
when the network grows, they get the benefit, in addition to 
which they have already received the benefit of having the 
asset for free.
    So if you are contemplating forcing tuners on the public, 
the answer is the public should be held harmless, the 
broadcasters should be the one to subsidize the front end.
    Senator Fitzgerald. Make them buy the tuners?
    Dr. Cooper. Make them pay for the tuners. And of course, 
they will have a real interest in getting those tuners out 
there in the cheapest manner possible, and they are the 
beneficiaries of network effects.
    Senator Fitzgerald. I agree with that, but just 
realistically, I do not think that will ever happen. Even 
though I might vote for something like that, that obviously is 
not going to happen from what I can tell right now.
    Dr. Cooper. Well, we will pat you on the back for trying.
    Senator Fitzgerald. All right. Well, thank you all.
    The Chairman. Thank you very much. It has been a very good 
hearing. Is that about it?
    Senator Burns. You can go as long as you want, but I am 
going to dinner.
    The Chairman. Yes, there you go. Well, thank you all very 
much.
    Thank you, gentlemen, for coming today, and your testimony, 
and I know there will be other members of this Committee who 
will probably require information. If you get questions, please 
respond to the senders and to the Committee.
    Thank you for coming. The record remains open.
    [The hearing adjourned at 11:55 a.m.]

                            A P P E N D I X

            Prepared Statement of Hon. Ernest F. Hollings, 
                    U.S. Senator from South Carolina

    Today's hearing examines issues related to the transition of the 
broadcast industry from analog to digital service. As early as 1986, 
broadcasters had begun advocating that they needed to transition to 
``high definition'' television. They worked to have the FCC begin the 
necessary regulatory process for the transition and to obtain 
legislation from Congress with respect to the transition. It has taken 
a number of years to develop high definition television, and at times, 
the progress has been difficult.
    Today's hearing will certainly provide us with a better 
understanding of where we are in the process and the remaining issues 
that need to be resolved in order for the transition to move forward. 
Indeed, a thorny issue which must be resolved is that of ``must-
carry.'' During the transition broadcasters expect to be transmitting 
both analog and digital signals and expect both signals to be carried 
by cable operators. Broadcasters also have argued that cable operators 
must carry all of their free digital programming. However, the cable 
industry opposes the broadcasters' position on these issues.
    In order to move forward, the FCC must conclude its review of these 
issues quickly and in a manner that ensures a successful conversion to 
digital television. This means ensuring that consumers can receive 
their broadcast signals during the transition and cable networks are 
not unfairly displaced in the process.
    Another issue that also needs to be resolved in order for this 
transition to move forward is how to protect digital content from being 
illegally misappropriated while also protecting the rights of consumers 
to use and record programming. I suspect that making digital 
programming available to consumers will stir demand for programming and 
equipment and ultimately, speed the transition. Therefore, I encourage 
the parties involved to resolve this matter.
    The additional issues that also must be addressed include the 
buildout and upgrading of broadcast stations and the availability of 
digital television equipment so that consumers can see high definition 
programming.
    In the end, in order to obtain the rewards of digital television, 
everyone must continue to work together to resolve the difficult issues 
that still exist. Ultimately, the transition to digital television will 
be a success if consumers have greater choices at affordable prices. 
    I welcome the witnesses and look forward to hearing their 
testimony.
                                 ______
                                 
Prepared Statement of Richard M. Lewis, Senior Vice President, Research 
                and Technology, Zenith Electronics Corp.

    As a long-time participant in the digital television (DTV) 
transition, Zenith Electronics Corporation appreciates the opportunity 
to submit this statement for the record discussing where we are today, 
the challenges we face, and the steps that are necessary to complete 
the transition to DTV.
    We are pleased to report that DTV sales are growing and customer 
satisfaction levels are high with these products. In fact, according to 
the Consumer Electronics Association (CEA), approximately 687,000 DTV 
displays and receivers were sold in 2000, accounting for $1.4 billion 
in consumer spending. These numbers represent a sevenfold increase over 
the previous year. Looking forward, CEA estimates that unit sales of 
DTV products will grow 80 percent in 2001, with consumer investment 
climbing to $2.1 billion.
    Not only do these numbers exceed CEA's initial projections, but 
they also compare favorably with previous blockbuster consumer 
electronics product introductions. Annual unit sales growth and dollar 
sales for DTV during its first 4 years on the market is projected to 
surpass those of computers, VCRs, CD players, and color TVs. This 
consumer interest is due to the wide variety of DTV products currently 
on the market. Over two dozen manufacturers have introduced more than 
200 different DTV products, which are being sold at more than a 
thousand retail locations around the country. Availability increases 
every day as prices come down, more models are introduced and new 
retailers begin stocking DTV.
    Best of all, consumer interest and satisfaction with DTV continues 
to rise. When consumers see the extraordinary sound and video 
experience offered by DTV, they want it--and today's analog television 
never looks the same again. Consumers are buying DTV even in those 
markets where broadcast programming is limited or unavailable. 
Americans are finding that digital and high-definition displays enhance 
the analog TV experience, and provide the best display for DVD and 
other pre-recorded content.
    While these facts show that DTV momentum is growing, we at Zenith 
do not suggest that the DTV transition has advanced as quickly as 
needed or as far as possible. One issue that has previously impeded the 
DTV transition has been the debate over the DTV transmission standard. 
Fortunately, that matter now is resolved.
    As one of the original developers of DTV technology in general and 
inventor of the vestigial sideband (VSB) transmission system in 
particular, we at Zenith are understandably pleased by recent 
reaffirmations of the ATSC standard. In January of this year, the 
Federal Communications Commission (FCC) reiterated its long-standing 
support for VSB and stated there is absolutely no reason to revisit the 
DTV standards issue. Also in January, the boards of directors of the 
nation's leading broadcast trade groups, the National Association of 
Broadcasters (NAB) and the Association for Maximum Service Television 
(MSTV), voted overwhelmingly to stay the course on VSB modulation and 
reject a European alternative. Repeated testing by the FCC's own Office 
of Engineering and Technology shows that the current 8-VSB transmission 
standard should be retained. All the evidence confirms that the 8-VSB 
standard is the correct standard for use in the United States, and with 
this debate resolved, manufacturers, broadcasters and consumers have 
the certainty they need to invest in further DTV enhancements.
    As proof of our industry's focus on meeting market needs and 
willingness to cooperate, we continue to explore possible enhancements 
in the ATSC DTV standard to address broadcasters' changing needs. 
Receiver manufacturers and chipmaking labs are moving forward 
aggressively with improved designs for standard applications as well as 
proposing extensions to provide additional capabilities and 
flexibility. Because the ATSC standard was designed to offer plenty of 
``headroom,'' we are confident that a number of VSB enhancements will 
be adopted in the near term. Zenith has two such enhancements under 
development: E-VSB (Enhanced VSB), which would break the 19.4 megabit-
per-second bitstream into two parts, one for regular HDTV and another 
for more robust applications, such as datacasting, and M-VSB, which 
would provide a mobile solution if broadcasters decide they need such 
applications.
    We urge you to consider the remaining roadblocks to widespread DTV 
acceptance. In our view, there are four such impediments: (1) the lack 
of compelling digital content; (2) affordability of consumer equipment; 
(3) cable carriage and interoperability issues, and (4) the digital 
copyright situation. Not surprisingly, these issues cut across multiple 
industries--broadcast, consumer electronics, cable and programming--and 
therefore pose some thorny challenges for both the private sector and 
U.S. policymakers.

Broadcaster Activities

    U.S. broadcasters have made impressive investments in DTV 
transmission equipment. With more than 180 stations currently 
broadcasting a DTV signal, the industry is far outpacing the DTV 
transition timetable established by the FCC. Most broadcasters are 
meeting, if not exceeding, their obligations to begin DTV service. 
While some stations have encountered tower siting and construction 
problems, the majority of major network affiliates in the 30 largest 
media markets are broadcasting in digital. Special credit goes to the 
growing number of stations in smaller markets--such as Quincy, Illinois 
(market number 161) and Salisbury, Maryland (number 162)--that have 
begun DTV broadcasting well in advance of the government-mandated 
schedule.
    At the risk of being labeled optimists, we at Zenith continue to 
believe that the 2006 deadline for effecting the digital conversion 
remains theoretically achievable, assuming that the key industries come 
together to reach agreement on the issues identified above. The real 
barrier to this timetable is that the transition has not yet captured 
the hearts and minds of American consumers. For all of us to succeed, 
consumers need a reason and the means to adopt these new technologies. 
Without compelling content (whether HDTV, datacasting or some new 
application), DTV will not flourish. Without equipment that the average 
consumer can afford, DTV will become a footnote in the digital age. The 
lack of access to DTV signals, whether over the air or through cable, 
renders all other issues irrelevant.

Importance of Digital Programming

    Broadcasters can do their part in the all-important area of digital 
programming, a critical element in the overall DTV equation. Despite 
the leadership provided by CBS (which accounts for the lion's share of 
HDTV programming), the major commercial networks have yet to feed, let 
alone originate, their fair share of digital content. In addition to 
its commitment to prime-time programs in HD, CBS has offered an 
unequaled amount of HDTV sports programming, including the AFC 
playoffs, the Super Bowl, the Masters and the NCAA Final Four.
    Without the efforts of CBS, PBS and a small number of independents 
like WRAL-TV in Raleigh, North Carolina, that have produced and 
televised a number of exceptional programs (and pushed the envelope on 
data broadcasting), the early DTV purchaser would have virtually 
nothing to watch in true HDTV. In fact, absent far greater amounts of 
compelling digital content, consumers will have little incentive to 
make the investment in DTV equipment, especially at today's prices.
    Besides HDTV, innovative applications of multiple standard-
definition television (SDTV) and datacasting may also prove compelling 
and help drive the DTV market. While we support broadcasters' efforts 
to provide supplementary and ancillary services such as datacasting, 
these efforts must not come at the expense of their primary 
obligation--to provide consumers the opportunity to experience high-
quality HDTV programming.

Affordable Consumer Products

    Given the meager amount of digital programming, it is remarkable 
that initial sales of consumer DTV equipment have posted such 
respectable numbers. Predictions by CEA that sales of DTV equipment 
this year will exceed one million units compares favorably with the 
sales curve of color TV, for example, which needed a full decade to 
reach sales of one million units annually. While some may point to the 
small number of tuners sold to date as an indication of DTV's failure, 
the reality is that the high number of sales of HDTV displays proves 
consumers want digital television. Today's consumers are very 
sophisticated and will not pay extra for items requiring content that 
is not available. Increased HDTV broadcast programming or other digital 
content will give them the reason to spend the extra money for a tuner 
or integrated set.
    Over the last 2 years, receiver and display prices have been 
reduced by nearly half. This decline in the prices of DTV sets is in 
line with the 44 percent decline seen for DVD players, and much more 
rapid than the initial price declines of products like CD players, VCRs 
and large screen analog TVs. In addition, a wide variety of set-top 
boxes in the $600 range have been introduced, including boxes that 
incorporate reception for satellite and over-the-air DTV signals as 
well as analog signals. With the certainty provided by broadcasters' 
reaffirmation of the 8-VSB standard, CEA expects to see a strong 
upsurge in sales of set-top receivers this year.
    Zenith is doing its part to offer consumers a wide array of quality 
DTV products at affordable prices. At the Consumer Electronics Show in 
January of this year, Zenith expanded its DTV line to include not only 
new widescreen (16:9) integrated rear-projection HDTVs and 16:9 HDTV 
monitors (plasma, direct-view, LCD and projection), but also the 
industry's first fully integrated digital TV set priced below $1,000. 
Consumer electronics is an intensely competitive business, and history 
suggests that it won't be long before demand for DTVs explodes, 
critical mass and production efficiencies are achieved, prices fall to 
even more affordable levels, and the product begins to earn mass-market 
acceptance. Once consumers experience the crisp images and theater-
quality sound of DTV, they'll never go back to analog, particularly as 
DTV products become more affordable and available.

Cable and Content Producer Cooperation Needed

    With some 70 percent of all U.S. TV households receiving their 
local, over-the-air stations via cable, the cable industry also needs 
to be on board if the DTV transition is to succeed. While some headway 
has been made on the issue of compatibility between cable equipment and 
consumer electronics products, we are concerned by the cable industry's 
slow pace in devising standards that will allow DTVs to connect to 
cable systems.
    The cable issue proving to be even more difficult is the digital 
must-carry controversy. Ignoring the pleas of broadcasters that cable 
companies should be required to carry each station's analog and digital 
signals during the transition, last month the FCC ruled preliminarily 
that cable operators must carry only one or the other signal. 
Logically, if a broadcaster is only upconverting analog content, it is 
hard to understand why a cable company should be required to carry two 
versions of the same content. On the other hand, if the broadcaster is 
providing a different program stream, HDTV or SDTV with additional data 
content, the consumer is provided with benefit beyond analog 
television. In this case it is hard to see why the cable company should 
not provide the full, undiluted benefits of broadcast-quality DTV or 
true digital HDTV. Failure to resolve this must-carry issue presents a 
huge potential barrier to the DTV transition.
    Digital copyright concerns must also be addressed and resolved if 
DTV is to succeed in the marketplace. Deeply troubled by the Internet 
music phenomenon and fearing the ``Napsterization'' of movies, the 
Motion Picture Association of America is expected to advocate severe 
limits on digital video copying. While no one condones the crime of 
video piracy, the Supreme Court held in 1984 that consumers have a 
right to make copies of TV programs, including movies, provided they 
are for ``personal, non-commercial use.'' A reasonable balance must be 
struck between the legitimate concerns of content owners, on the one 
hand, and the well-established principle of ``fair use'' on the other. 
The digital age complicates, but should not fundamentally alter, the 
traditional fair use rights of consumers. As with other delivery media, 
any attempt on the part of copyright holders to deny consumers an over-
the-air movie or other program, or degrade its transmission quality, 
obviates one of the primary reasons for buying widescreen HDTV: to 
enjoy movies the way they were intended to be seen.

Conclusion

    No one said that the DTV transition would be easy. But there is 
momentum. We are pleased that DTV product sales thus far are well ahead 
of our industry's projections and that the number of DTV stations is 
growing as well. Now, manufacturers, broadcasters, cable operators and 
content producers must work together to formulate lasting solutions 
that will allow this fledgling medium to succeed. With the transmission 
standards debate behind us, we must resolve these few remaining issues 
and make DTV happen for the benefit of American consumers, who in the 
end will judge the true success of the DTV transition.
                                 ______
                                 
  Prepared Statement of Ralph M. Oakley, Vice President and Broadcast 
                  Group Head, Quincy Newspapers, Inc.

    Quincy Newspapers, Inc. (QNI) is a privately held, family owned 
media company headquartered in Quincy, Illinois. We have provided 
service to the public through five generations. QNI operates six 
network-affiliated television stations in medium- and small-sized 
markets in the Midwest. As is the case with many other television 
broadcasters, QNI's ability to continue to serve its audience 
effectively in the future will be impacted significantly by the 
transition to digital television.\1\ We submit this statement in the 
hearing today to make our views known on this extremely important 
matter.
---------------------------------------------------------------------------
    \1\ QNI takes its responsibility to serve the public interest very 
seriously. In addition to providing comprehensive news and public 
affairs programs, the Company supports its communities through numerous 
efforts both on and off the air. QNI's television stations, during 
2000, provided over 65,000 no-charge public service announcements at a 
value of over $5 million and helped area groups raise over $20 million.
---------------------------------------------------------------------------
    It is important to State at the outset that QNI is committed to 
digital television and is working hard on the transition. Of QNI's 
stations, two have already completed construction of digital facilities 
in advance of their required May 2002 deadline and are presently on-air 
digitally. In this statement we report on our progress and inform the 
Committee of the practical challenges we face in our communities in 
making this transition.

A. Background on QNI

    We first provide background on QNI. The company has long held media 
interests, as the roots of the company date back to 1835 with our 
newspaper, The Quincy Herald-Whig, being the lineal descendant of the 
Illinois Bounty Register. The ownership of QNI today remains 
principally in the descendants of the Oakley and Lindsay families who 
merged two local newspapers in 1926.
    QNI entered the broadcast business in 1947, by signing on WQDI-FM 
(now WGEM-FM) in Quincy, the first FM station to serve the tri-state 
area. It purchased WGEM(AM) in 1948. In 1953, the company signed on the 
first television station in Quincy, WGEM-TV, an NBC affiliate.
    In the early 1960s, the company partnered with Continental 
Cablevision on five cable systems in Illinois and Iowa. These systems 
were some of the first started by Continental. QNI sold its cable 
interest to Continental in 1974 when it began the acquisition of the 
additional five television stations which it now holds.
    The six television stations operated by QNI include five NBC 
affiliates: KTIV Sioux City, Iowa, Market 144; KTTC Rochester, 
Minnesota, Market 153 WGEM-TV Quincy, Illinois, Market 161 WREX-TV 
Rockford, Illinois, Market 135; and WVVA Bluefield, West Virginia, 
Market 148.
    The sixth station, WSJV, Elkhart/South Bend, Indiana, Market 87, is 
a Fox affiliate. QNI is currently in the process of acquiring five more 
television stations in Wisconsin to further expand its Midwest 
television cluster; these stations are all ABC affiliates.

B. QNI Has Been at the Forefront of New Technologies

    QNI has been a leader in the early adoption of broadcast 
technology. In 1947, when QNI began operations of WQDI-FM in Quincy, 
Illinois, only a handful of FM's were on the air across the entire 
country. FM service didn't begin to penetrate and gain market share 
until the early 1970's. Another QNI station, WGEM(AM) was one of the 
first to broadcast in AM Stereo in 1976. WGEM-TV was an early adopter 
of color in 1962. Television stations KTTC, WGEM, WSJV and WVVA 
installed and began broadcasting in stereo in 1986 shortly after the 
BTSC standard was approved. We were one of the first broadcasters to 
use server-based technology for radio and later television. We have 
encouraged our local broadcast vendors to use our facilities as a test-
bed for AM and FM IBOC (In band on channel) digital radio.

C. QNI's DTV Efforts

    We have taken this same approach with respect to DTV. QNI has 
diligently planned for the DTV transition since the Telecommunications 
Act of 1996 became law. We attended all the early regional channel 
allocation meetings. We were also involved in submitting comments in 
the FCC's rulemaking process.
    As early as the first quarter of 1997, QNI began choosing antennas, 
feed lines and commissioning tower studies to evaluate which of its 
towers would need to be replaced, and which ones could handle 
additional load. We knew early on that several of our towers weren't 
capable of or cost-effective to be used to support the addition of new 
antennas for digital. In August 1997, we formed a strategic partnership 
with Pappas Communications and Waitt Media to construct a new 2000-foot 
community tower in Sioux City, Iowa to serve the digital needs of the 
market, extend the service of existing stations, and add new television 
services to the market. Construction on this tower was completed in 
late 1998. This tower stands ready to be used for digital service on 
QNI's station KTIV as well as two other television stations in the 
market.
    In January of 2000 we decided to move up our DTV launch of two of 
our stations, KTTC, Rochester and WGEM, Quincy, which are both required 
to be on-air by May 2002. WGEM went on the air on June 25, 2000 at a 
low power of 2.5kw. KTTC went on the air at full power on September 22, 
2000 at 324kw. Both stations went on the air under Special Temporary 
Authority from the FCC, which was specifically applied for by QNI 
because the FCC had not yet issued construction permits for either 
station. We choose to launch DTV operations early for WGEM, Quincy, 
because of WGEM's connection to the broadcast manufacturing community 
in Quincy. In this regard, Quincy, Illinois is home to both Harris 
Communications and Broadcast Electronics. QNI frequently partners with 
these organizations to test and implement cutting edge technology. 
Currently WGEM is operating on the air testing Harris' Master Plus HD 
switcher. We decided to move forward early in Rochester because KTTC's 
service area encompasses affluent Olmstead County, Minnesota.\2\ 
Counties with high affluency ratings tend to be early technology 
adopters.
---------------------------------------------------------------------------
    \2\ According to Nielsen Research, Olmstead County has one of the 
highest affluency ratings in the United States, with a median household 
income of $43,977. This places Olmstead County in the top 40 counties 
of per capita income for the entire United States.
---------------------------------------------------------------------------
    In mid-2000, we finalized our DTV roll-out for our remaining four 
stations and the upgrade of WGEM to full power. Our plan called for all 
stations to be DTV-operational by October 1, 2001, well ahead of the 
mandatory May 2002 date. This plan, however, has changed. Not only are 
we going to miss our self-imposed October 1, 2001 deadline, but we may 
not be able to make the May 2002 deadline for these stations.

D. DTV Challenges

    The difficulties we face are substantial. Certainly, the confusing 
and ongoing debate with respect to a transmission standard (8VSB v. 
COFDM) muddied the water and has caused delays. Hopefully this issue is 
now resolved. But we have also experienced problems concerning confused 
consumer response to DTV, lack of promotion and understanding of DTV by 
electronics retailers, cable system carriage, FCC processing, equipment 
availability, lack of programming, and costly and unrecoverable 
expenditures. We briefly highlight some of these problems below.
    As to consumer response, after extensive promotion of the new 
digital service QNI has offered in the Rochester and Quincy markets, we 
are aware of only three high definition television sets in use in 
Rochester and five in Quincy, although well over 600 digital-ready sets 
have been sold in these markets. This is likely due in part to the fact 
that HDTV receivers and converters have not been readily available for 
purchase at area electronics stores, or if they are available, are not 
being promoted or even displayed properly. Our General Manager of KTTC 
visited one such store in Rochester that did have a DTV tuner but it 
was not demonstrating digital programming. The store manager and staff 
simply didn't understand, and don't really care to understand, what 
broadcast DTV is all about. Major chain stores and local consumer 
electronics stores have large inventories and don't want to lose a sale 
by confusing a customer with this new digital product.
    In the area of cable carriage, with our channel allotment for 
Rochester, we launched a digital UHF service in a predominantly VHF 
market, with 82 percent cable penetration. However, it has been our 
experience that cable systems aren't interested in discussing 
retransmission or must carry of a digital signal.
    With respect to FCC construction permits, the FCC is processing a 
substantial number of DTV applications. As a result, the majority of 
our stations' DTV construction permits were recently issued in January 
2001, yet are still subject to the May 2002 deadline. One CP is 
currently being resubmitted to the FCC to resolve Canadian border 
issues--issues that weren't clarified until the fall of 2000. Another 
permit contains an error which will have to be corrected, and will 
thereby result in additional processing delays. Signing purchase 
contracts for millions of dollars for antennas, transmission line, 
transmitters, and towers without granted construction permits presented 
unreasonable financial risk.
    Equipment delays have not become a serious problem for us yet, but 
they will be. We have been told by manufacturers that lead-time for 
transmitter orders is 4 to 6 months, for antenna orders is 7 to 10 
months, and for guy wires is 3 months. This assumes, of course, that we 
have existing towers that can handle the additional load. If not, tower 
construction is a 2-year project.
    The biggest delays even now are for installation service for 
antennas and transmission line on towers. The impact on the transition 
of a scarcity of tower construction crews should not be underestimated. 
The ramifications of the demand on and shortage of tower crews are far-
reaching. Before the transition began, it was not uncommon to find 
same-day service to fix a transmission line burnout for a television or 
FM radio station. Today we are told that it may be several weeks or up 
to a month before a crew becomes available to make the repair. In the 
interim, a station in all likelihood may find itself off the air during 
this time or operating at very reduced power.\3\
---------------------------------------------------------------------------
    \3\ In reference to zoning, QNI has been fortunate and hasn't faced 
major local zoning or permit issues. However, in many areas of the 
country, broadcast efforts have come to a complete stop due to a lack 
of local zoning approval. The transition is further complicated for 
stations in the northern part of the United States where it is not 
uncommon to only have five or 6 months of the year during which tower 
crews can install or erect systems due to weather conditions.
---------------------------------------------------------------------------
    It must also be recognized that this conversion to DTV is not a 
financial boon for broadcasters. From the very beginning it became 
clear that no definitive business plan exists for the DTV conversion. 
To try to anticipate avenues which would allow QNI to recoup a portion 
of what we are spending for DTV, we have considered the future use of 
part of the spectrum for data service. To date, QNI hasn't made any 
agreement to utilize our spectrum space for data transmission. From our 
standpoint, very little ``upside'' or benefit exists in this arena to 
offset the major capital investment we plan to make to remain in the 
television business. At this point, multicasting may offer a more 
realistic and immediate upside. Multicasting would allow us to expand 
services to the public and use the spectrum as a distribution tool for 
new services.

E. Meeting the Challenges

    In spite of the numerous obstacles we face, in 2001 we will proceed 
to make necessary modifications to buildings, power systems, and 
microwave and fiber interconnections to support DTV implementation. We 
will install transmitters and mount remaining antenna and line in 2002. 
QNI has already spent $4.5 million on the transition and expects to 
spend another $12-$14 million. We have recently started construction on 
a new digital operations center in Quincy, Illinois to help manage 
personnel, traffic, and billing and to help operate the stations more 
efficiently and ease the financial burden of the DTV rollout. We are 
dedicated to the DTV transition and are farther along in the process 
than many broadcasters are at this point, especially in the smaller 
markets. But we recognize that substantial challenges remain.
    In meeting the challenges of the transition, broadcasters, 
particularly those in medium and small markets, need assistance--not 
additional obstacles. We respectfully submit that broadcasters must 
continue to be granted flexibility in creating digital services so that 
digital spectrum can be used for multicasting and data services in 
addition to HDTV. QNI also urges flexibility in the rollout schedule 
rather than rigid adherence to the construction deadline of May 2002, 
which is simply not realistic. We also strongly support the NAB and 
other broadcasters who have called for the following: 1. 
Interoperability standards for DTV and cable products; 2. Must-carry, 
including analog and digital must-carry during the transition; 3. DTV 
receiver performance standards; and 4. DTV reception capability in 
every TV receiver.
    Without this support, it doesn't matter how aggressively we 
approach the transition or how we promote the potential for DTV. 
Without support, we will be unable as broadcasters to make a successful 
transition to digital television.
                                 ______
                                 
    Prepared Statement of Robert T. Miller, President, Viacel Corp.

    Viacel was asked to be a witness at the House Subcommittee on 
Telecommunications last summer and was the designated ``datacaster'' at 
that hearing. We feel datacasting is a valid use of the DTV spectrum 
and allows that spectrum to be used very efficiently. We further 
understand that any hearing cannot possibly cover all aspects of such a 
complicated subject as broadcasting in the digital age. We therefore 
have asked some questions of the broadcasters and proposed some answers 
here that were not asked in the hearings.
    Of the broadcasters represented by Mr. Jeff Sagansky of Paxson 
Communications and Mr. Ben Tucker of Fisher Broadcasting I would ask: 
during most of your testimony you both strongly suggested that 
broadcasters needed ``must-carry.'' In fact, in one exchange between 
Mr. Sagansky and one of the Senators a joking reference to ``going in 
the cellar and getting the old rabbit ears out or putting an antenna up 
on the roof'' was made, the implication being that this was a horrible 
outcome if ``must-carry'' was not extended to all proposed broadcast 
content. You suggested that 70 percent of your viewers received their 
TV through the marvels of cable and another 15 percent used satellite 
reception for a total of 85 percent. And, as we know, these numbers are 
growing. Soon they will be 90 percent and then 95 percent.
    Your strong argument for ``must-carry'' seems to suggest that you 
do not now, or soon will not, need any spectrum at all. Other than a 
declining over-the-air viewership of 15 percent, you only use your 
spectrum to get your signal to the cable headend. You don't need it at 
all to get to the satellite headend. That feed to the cable headend 
could be replaced with a T-3 line or a piece of fiber and you may have 
already done that.
    I believe Mr. Bud Paxson made a statement recently to the effect 
that he would be willing to give up channels in the 60 through 69 range 
in exchange for money and ``must-carry,'' in effect leaving the ranks 
of broadcasters and becoming a content provider to cable companies, 
protected by Government decree. Your testimony suggests that other 
broadcasters are thinking the same way.
    In other words, ``must-carry'' is all-important and actual 
broadcasting is a joke about ``rabbit ears.'' You don't actually expect 
many people to receive over-the-air broadcast. In fact the digital TV 
8-VSB modulation standard you recently voted to retain doesn't even 
reach as many people as the current NTSC analog system, does it? In 
fact, it would be receivable by just 92 percent of those 15 percent 
still dependent on over-the-air reception of TV, according to your 
recent NAB/MSTV tests.
    Who are those 15 percent whose NTSC analog TV service will be 
turned off? Probably they are people who cannot afford cable and 
satellite. They surely are not the early adopters who are buying HDTV 
sets. These people will lose all access to free over-the-air TV, won't 
they?
    And who will the free over-the-air DTV viewers be? Well-heeled 
suburbanites who can afford cable and satellite and HDTV sets and 8-VSB 
receivers. In fact, you may find that most of them will have all three.
    Maintaining the fiction that you are broadcasters is very important 
to you. You tread a fine line between stating that almost everyone 
receives your signal over cable and admitting that you wouldn't mind 
turning off your transmitters and saving the power bills, because if 
that veil falls your legitimacy to demand ``must-carry'' of your 
content evaporates also. That veil is dropping daily as fewer people 
rely on over-the-air reception of your signal and sign up for cable and 
satellite. The incredible under-use of this ``beachfront property'' 
spectrum is becoming more and more apparent.
    The ``emperor has no clothes'' is translating to ``the broadcaster 
has no-over-the-air viewers.'' Nationally, there are 1600 NTSC analog 
stations plus 1600 ATSC digital stations, each with 6 MHz of spectrum, 
which comes to 38,400 MHz of prime spectrum being used to reach fewer 
and fewer viewers.
    4435 MHz of ``C&F BLOCK'' PCS not so prime cellular spectrum just 
went at auction for $16,857,046,150.00 or $3,800,912.32 per MHz in 
January 2001. Now if it is comparable to the 38,400 MHz of TV spectrum 
lent to the broadcaster (maybe the TV spectrum is more valuable), then 
38,400 MHz of TV spectrum would be worth $145,955,033,088.00, or 
roughly $146 billion.
    As the number of viewers steadily drops, as more and more of them 
move to cable and satellite where our broadcaster friends tell us their 
signals must be carried, the rationale for using this national $146 
billion resource declines as well. Nowhere in their testimony did they 
talk about more people receiving over-the-air free DTV. They talked 
about forcing every TV purchaser to buy a potentially expensive DTV 
tuner but then they laugh in mock terror at the notion that it may 
``come to'' going in the basement to find the old rabbit ears or, 
heaven forbid, going up on the roof and strapping a Yagi antenna to the 
chimney.
    Their tests, the NAB/MSTV tests, showed that with 8-VSB modulation, 
the one they recently settled on, 30 ft. antennas are the only way to 
receive free over-the-air DTV in the United States. Even then the tests 
showed only a 70 percent plus success rate, and probably a less than 20 
percent success rate in the typical city, which they didn't even bother 
to test. The rabbit ear antenna which most of us would probably 
actually be able to use had a failure rate of 70 percent plus. So you 
won't and I won't and most of us are not going to be getting our HDTV 
over-the-air free, now are we? We are going to wait for cable and 
satellite. That is what the sales numbers say. Of 384,000 HDTV-ready 
monitors sold, only between 7,000 and 70,000 were sold with 8-VSB 
tuners for over-the-air reception. This means that those folks who 
could afford to spend $3,000.00 to $25,000.00 on HDTV monitors and 
everything that goes with it, would not part with a measly $500.00 more 
for a 8-VSB receiver. That is pretty telling. Sounds like with all the 
problems with over-the-air reception people just want to wait for cable 
and satellite.
    Well, which is it? Are we all going to enjoy free over-the-air TV 
or are we all going to get our HDTV from cable and satellite? From the 
testimony of the broadcasters, it appears it will be overwhelmingly 
cable and satellite.
    So they don't need any spectrum at all except for that nagging 
problem of the poor l5 percent that can't afford cable or satellite. 
That number will decline, it is assumed, by the transition date of 2006 
or 2015, or 3000 if you are a pessimist, to something less than 15 
percent, lets say 5 percent by 2015. We could reduce the spectrum 
allocated to broadcasters to 1 or 2 MHz instead of 6 MHz and let them 
continue broadcasting NTSC free over-the-air and have them deliver 
converter equipment so that the viewer could receive the digital signal 
and convert it to NTSC on their current analog sets.
    This would free up 35,200 MHz at least of the 38,400 MHz that the 
broadcasters are now using. The cost of converter boxes for the 5 
percent still relying on over-the-air reception could be paid for out 
of proceeds from the auction of the 35,200 MHz. Those proceeds would 
exceed the nominal $134 billion suggested above for no other reason 
than inflation till the year 2015. If a converter box costs $300 and 5 
percent of 100 million TV homes needed one, this would come to 5 
million times $300.00, which is $1.5 billion, or just over 1 percent of 
the $134 billion received.
    So we give the broadcasters what they want, which is ``must-carry'' 
on cable and satellite. They can remain legitimate broadcasters with 2 
MHz of spectrum broadcasting to 5 percent of the population (no one 
loses free over-the-air TV), the Treasury gets a windfall of $134 
billion, everyone gets as much HDTV as they want due to the wonders of 
the free market, and everyone is happy.

The Modulation Debate

    The other question of both the Senators and the broadcasters is why 
does Congress and its operative the FCC not exercise more direct 
control of the process of picking the modulation method that the United 
States citizens will suffer with for who knows how many years? The 
original picking and the subsequent retesting of the mandated 8-VSB and 
its rival the COFDM standards was left up to biased industry groups 
such as the NAB and the MSTV. The FCC then relies on these tests to 
issue orders that ``reaffirm'' that 8-VSB is indeed the modulation for 
the US.
    The very fact that the tiresome phrase ``the modulation debate has 
been decided, its over'' is repeated so emphatically and so often by 
the biased parties tends to confirm what these hearings and further 
hearings in the House also tend to confirm, it is not over until we get 
it right and the digital TV transition is accomplished.
    Saying that the modulation debate is over is hike treating a 
patient in a trauma emergency ward for superficial cuts and bruises 
while ignoring the fact that he is not breathing. You can talk all you 
want about the other big problems of the digital transition but it will 
remain dead until you deal with the central issue. 8-VSB is not working 
and we have no idea when it might be made to work in the future.
    Congress should take a good long look at the RFP that the ATSC 
published to ``fix'' 8-VSB. It is a specification sheet for COFDM. In 
other words COFDM already does everything we want to fix about 8-VSB. 
If 8-VSB could and were indeed fixed according to the dictates of this 
RFP it would then be a closer relative to COFDM then to the current 8-
VSB. It would also quite possibly be a new standard that is 
incompatible with current receivers and have to be reviewed by the FCC 
all over again. We would be, in a few years if we are lucky with 
``inventions'' that fix 8-VSB, in the same boat that we are in now with 
COFDM. Why should we wait? Why not allow COFDM now and see what happens 
to 8-VSB in the inventor's hands. Current 8-VSB receivers would go on 
working, maybe only a few broadcasters would even attempt COFDM since 
the vote on January 15, 2001 was 27 for 8-VSB and only 3 for COFDM. It 
wouldn't be any fuss since the MSTV/NAB test showed that there was no 
difference between the interference patterns of COFDM and 8-VSB.
    Why do I bring up this debate again? Because if a working 
modulation standard were allowed then companies like ours could hatch 
business plans that actually might accomplish the digital transition 
without all the fuss.
    Our plan calls for a free service with the distribution of free 
receivers to millions of viewers that would not impact the broadcast of 
HDTV or SDTV. We need the broadcast spectrum to actually reach people 
over-the-air. We don't need ``must-carry'' we need ``must-receive.''
    We believe our plan will have copycats as soon as we start. The 
transition could be over before you know it.

The Conspiracy Theory

    If we believe that the broadcasters or most of them want must-carry 
at almost any cost then we can imagine some perverted reasoning going 
on in their content centric heads. For example, the cable and satellite 
industries both were initially invented to solve TV's biggest problem, 
reception. Both NTSC and the new digital ATSC both have similar 
reception problems. In fact the new digital ATSC standard, 8-VSB, is 
slightly worse in reception than the old NTSC (ATSC equals 92 percent 
of NTSC according to the MSTV test). The very reason for ``must-carry'' 
is related to the reception problems of NTSC. Jeff and Ben strongly 
argued for ``must-carry'' because otherwise their viewers could ``not 
receive'' their content. That seems to be their main argument for 
``must-carry.''
    If broadcasters who are already having a major problem pushing 
through ``must-carry'' even with their reception affliction suddenly 
were cured that could cause them a problem.
    If they as broadcasters have no problem with reception by their 
customers in their coverage area what would be the rationale for 
``must-carry''? They have already argued that all TVs be sold with 
digital receivers so if there was no problem with reception and 
everyone has receivers they have no need for ``must-carry'' right?
    COFDM does solve the problem of reception. It is the biggest 
nightmare of the big broadcasters who depend on content delivery to 
cable companies. They will do and have done anything to muddy the 
waters about COFDM's capabilities. They have attacked every test around 
the world that showed COFDM to be far superior. They went to great 
lengths to make sure that COFDM did not get a fair treatment in the 
MSTV test.
    First they tried to force COFDM to operate at a lower power, and 
then they operated in secrecy and with precision zeroed in on one piece 
of equipment that could be called a professional COFDM receiver only if 
you translate the English phrase ``transmitter monitor'' through a 
random series of foreign tongues till by chance the term ``receiver'' 
pops out.

In Conclusion

    The problem with the digital transition is twofold. The digital 
transition has been kidnapped by the HDTV virus. First we should 
concentrate on the DIV transition.
    Second the political process has failed us. The regulatory agency, 
the FCC has been kidnapped by the industries they regulate. Biased and 
special interest have intruded into the decisionmaking process and an 
unscientific decision had been made as to the technology we should use 
in our digital transition.
    COFDM is one of the correct answers, 8-VSB is a wrong answer.
    Companies like Viacel Corporation would flood the market with free 
digital TV receivers and non-subscription free services quickly if a 
working and receivable digital modulation standard were adopted, (just 
allowed is good enough), COFDM receivers are already available for as 
little as $100.00 wholesale.
  

                                  
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