[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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\4\ See e.g., Statement of Senator Bob Dole (R-KS), Congressional
Record, April 17, 1996, p. S3443.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
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.
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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.
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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.
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\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.
---------------------------------------------------------------------------
\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:
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\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.
---------------------------------------------------------------------------
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\
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\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.
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\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.
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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
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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?
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\3\ See Thomas W. Hazlett, Digitizing Must-Carry Under Turner v.
FCC (1997), http://www.aei.org/ra/rahazl1.pdf.).
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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.
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\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.
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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.
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\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.
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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\
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\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.
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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.