[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]



 
 ADVANCING THE DTV TRANSITION: AN EXAMINATION OF THE FCC MEDIA BUREAU 
                                PROPOSAL

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

                                HEARING

                               before the

          SUBCOMMITTEE ON TELECOMMUNICATIONS AND THE INTERNET

                                 of the

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                              JUNE 2, 2004

                               __________

                           Serial No. 108-86

                               __________

       Printed for the use of the Committee on Energy and Commerce


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 house




                 U.S. GOVERNMENT PRINTING OFFICE

95-439                 WASHINGTON : 2004
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                              __________




                    ------------------------------  

                    COMMITTEE ON ENERGY AND COMMERCE

                      JOE BARTON, Texas, Chairman

W.J. ``BILLY'' TAUZIN, Louisiana     JOHN D. DINGELL, Michigan
RALPH M. HALL, Texas                   Ranking Member
MICHAEL BILIRAKIS, Florida           HENRY A. WAXMAN, California
FRED UPTON, Michigan                 EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida               RICK BOUCHER, Virginia
PAUL E. GILLMOR, Ohio                EDOLPHUS TOWNS, New York
JAMES C. GREENWOOD, Pennsylvania     FRANK PALLONE, Jr., New Jersey
CHRISTOPHER COX, California          SHERROD BROWN, Ohio
NATHAN DEAL, Georgia                 BART GORDON, Tennessee
RICHARD BURR, North Carolina         PETER DEUTSCH, Florida
ED WHITFIELD, Kentucky               BOBBY L. RUSH, Illinois
CHARLIE NORWOOD, Georgia             ANNA G. ESHOO, California
BARBARA CUBIN, Wyoming               BART STUPAK, Michigan
JOHN SHIMKUS, Illinois               ELIOT L. ENGEL, New York
HEATHER WILSON, New Mexico           ALBERT R. WYNN, Maryland
JOHN B. SHADEGG, Arizona             GENE GREEN, Texas
CHARLES W. ``CHIP'' PICKERING,       KAREN McCARTHY, Missouri
Mississippi, Vice Chairman           TED STRICKLAND, Ohio
VITO FOSSELLA, New York              DIANA DeGETTE, Colorado
STEVE BUYER, Indiana                 LOIS CAPPS, California
GEORGE RADANOVICH, California        MICHAEL F. DOYLE, Pennsylvania
CHARLES F. BASS, New Hampshire       CHRISTOPHER JOHN, Louisiana
JOSEPH R. PITTS, Pennsylvania        TOM ALLEN, Maine
MARY BONO, California                JIM DAVIS, Florida
GREG WALDEN, Oregon                  JANICE D. SCHAKOWSKY, Illinois
LEE TERRY, Nebraska                  HILDA L. SOLIS, California
MIKE FERGUSON, New Jersey            CHARLES A. GONZALEZ, Texas
MIKE ROGERS, Michigan
DARRELL E. ISSA, California
C.L. ``BUTCH'' OTTER, Idaho
JOHN SULLIVAN, Oklahoma

                      Bud Albright, Staff Director

                   James D. Barnette, General Counsel

      Reid P.F. Stuntz, Minority Staff Director and Chief Counsel

                                 ______

          Subcommittee on Telecommunications and the Internet

                     FRED UPTON, Michigan, Chairman

MICHAEL BILIRAKIS, Florida           EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida                 Ranking Member
  Vice Chairman                      ALBERT R. WYNN, Maryland
PAUL E. GILLMOR, Ohio                KAREN McCARTHY, Missouri
CHRISTOPHER COX, California          MICHAEL F. DOYLE, Pennsylvania
NATHAN DEAL, Georgia                 JIM DAVIS, Florida
ED WHITFIELD, Kentucky               CHARLES A. GONZALEZ, Texas
BARBARA CUBIN, Wyoming               RICK BOUCHER, Virginia
JOHN SHIMKUS, Illinois               EDOLPHUS TOWNS, New York
HEATHER WILSON, New Mexico           BART GORDON, Tennessee
CHARLES W. ``CHIP'' PICKERING,       PETER DEUTSCH, Florida
Mississippi                          BOBBY L. RUSH, Illinois
VITO FOSSELLA, New York              ANNA G. ESHOO, California
STEVE BUYER, Indiana                 BART STUPAK, Michigan
CHARLES F. BASS, New Hampshire       ELIOT L. ENGEL, New York
MARY BONO, California                JOHN D. DINGELL, Michigan,
GREG WALDEN, Oregon                    (Ex Officio)
LEE TERRY, Nebraska
JOE BARTON, Texas,
  (Ex Officio)

                                  (ii)



                            C O N T E N T S

                               __________
                                                                   Page

Testimony of:
    DalBello, Richard, President, Satellite Broadcasting and 
      Communications Association.................................    37
    Ferree, W. Kenneth, Chief, Media Bureau, Federal 
      Communications Commission..................................    13
    Fritts, Edward O., President and Chief Executive Officer, 
      National Association of Broadcasters.......................    22
    Lenard, Thomas M., Senior Fellow and Vice President for 
      Research, The Progress and Freedom Foundation..............    54
    Sachs, Robert, President and Chief Executive Officer, 
      National Cable and Television Association..................    30
    Shapiro, Gary J., President and Chief Executive Officer, 
      Consumer Electronics Association...........................    41
    Tristani, Gloria, Managing Director, Office of Communication, 
      The United Church of Christ, Inc...........................    48

                                 (iii)




 ADVANCING THE DTV TRANSITION: AN EXAMINATION OF THE FCC MEDIA BUREAU 
                                PROPOSAL

                              ----------                              


                        WEDNESDAY, JUNE 2, 2004

              House of Representatives,    
              Committee on Energy and Commerce,    
                     Subcommittee on Telecommunications    
                                          and the Internet,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:10 a.m., in 
room 2123, Rayburn House Office Building, Hon. Fred Upton 
(chairman) presiding.
    Members present: Representatives Upton, Stearns, Gillmor, 
Deal, Shimkus, Pickering, Buyer, Bass, Walden, Terry, Barton 
(ex officio), Markey, Wynn, McCarthy, Doyle, Gonzalez, Boucher, 
Towns, Engel, and Dingell (ex officio).
    Also present: Representative Burr.
    Staff present: Will Nordwind, majority counsel and policy 
coordinator; Neil Fried, majority counsel; Jaylyn Jensen, 
majority professional staff; William Carty, legislative clerk; 
Howard Waltzman, majority counsel; Andy Black, deputy chief, 
policy; Bud Albright, staff director; and Gregg Rothschild, 
minority counsel.
    Mr. Upton. Good morning. Today's hearing is entitled 
Advancing the DTV Transition: An Examination of the FCC Media 
Bureau Proposal.
    To be sure, we have come a long way since March 15, 2001, 
the date of the first digital TV hearing that I presided over 
as Chairman of this subcommittee. At that hearing we were 
trying to figure out how we could get the DTV transition back 
on track, but much of what we got was a lot of finger-pointing 
amongst the various industry stakeholders and frustration with 
the FCC's lack of leadership. Back then the transition appeared 
hopelessly caught in the vicious chicken and egg cycle, with no 
easy answers in sight.
    Three years, five subcommittee hearings, and more than a 
handful of DTV roundtables later, today I am pleased to report 
that much progress has been made. Whether it be with DTV 
tuners, plug-and-play agreements, the broadcast flag, 
commercial and noncommercial broadcast build-out, cable point 
digital upgrades, more broadcast network digital content, or a 
continued surge in the sale of digital consumer electronics, 
all industry stakeholders are to be commended for this 
progress, and in many cases interindustry cooperation.
    Moreover, I believe much of this progress can be attributed 
to the leadership of Chairman Powell and the FCC's Media 
Bureau. Generally speaking, whether one agrees with the FCC on 
any of its decisions or not, no one can fault the FCC for 
inaction.
    To be sure, much work lies ahead, and today we are focusing 
on one critically important element of a transition, the 
deadline for the end of the transition. As we all know, the 
statute provides that broadcasters must return their analog 
spectrum on December 31, 2006, but extensions shall be granted 
to broadcasters if 15 percent or more of consumers in its 
market cannot view digital broadcasts, whether via cable, 
satellite, digital receivers or analog TVs with converter 
boxes.
    In other words, this is the so called 85 percent 
penetration test, And depending upon how the 85 percent 
penetration test is calculated, some industry observers have 
stated that we won't hit the mark until the year 2020. To me 
that always has been and continues to be unacceptable.
    Today we are examining a proposal by the FCC's Media Bureau 
which would count consumers toward the 85 percent, even if they 
were receiving digital broadcasts on their analog TVs from 
their cable or satellite provider. This proposal brings a lot 
to the table, and I commend the Media Bureau for it.
    As I understand it, under this proposal many markets would 
reach the 85 percent penetration test near the December 31, 
2006, date, and most, if not all, would reach it by 2009. In 
addition, the Media Bureau proposal contemplates granting 
multicast carriage rights to broadcasters, and those rights 
would become effective in 2009.
    Moreover, the Media Bureau's proposal does not appear to 
exacerbate the existing challenge under the statute faced by 
the up to 15 percent of consumers who may not be able to get a 
digital signal at the time that broadcasters are required to 
return their analog spectrum.
    In fact, some suggest that the Media Bureau's proposal may 
help mitigate the impact. Of course, those consumers, 
particularly those of limited means, remain a concern to this 
Member, and I commend the Commission for its recent effort to 
seek comment on options for minimizing the disruption to 
consumers when that analog spectrum is returned.
    So to paraphrase Winston Churchill, today is not the end of 
this debate, nor is it the beginning of the end, but it is 
perhaps the end of the beginning in that the Media Bureau 
proposal is the first real proposal that I have seen which 
provides some semblance of an orderly transition in a 
reasonably timely fashion.
    Of course, it is just that, a proposal. And today's hearing 
will help guide our thoughts on its relative merits and perhaps 
demerits. I look forward to hearing from today's witnesses and 
engaging in thoughtful conversation.
    I yield to the ranking member of the subcommittee Mr. 
Markey.
    Mr. Markey. Thank you, Mr. Chairman, very much. And I would 
like to commend you for having this very important hearing and 
all of the key players in this discussion here with us today.
    In critical ways this subcommittee was instrumental in 
beginning the transition to high-definition TV for the country, 
and certainly shifting the debate from analog HDTV format to a 
digital one.
    For me the odyssey that began with an analog HDTV broadcast 
in this very room in 1987--and that was a big, big day in the 
history of the subcommittee when we had a live Canadian HDTV 
broadcast come right into this room, and most of the Members 
were then asking, when can I get one of those TV sets? To me it 
is a little bit scary if this is the end of the beginning, and 
the beginning started in 1987, I hope that we are slightly 
further along than that.
    With the computer industry, the telephone industry, the 
cable industry, the wireless industry all going digital, it was 
important growth and job creation to move the broadcast 
industry to digital as well. Because it is a licensed industry, 
and one which had tens of millions of consumers with analog TV 
sets, it was clear that we needed a transition. Broadcasters 
were lent additional spectrum for transitional purposes, and 
the law requires that when the transition is over, that they 
give back their analog spectrum.
    Because broadcasters were special in that they had a 
responsibility to use their licenses in the public interest, it 
furthered the public interest to move them into the digital age 
so that they could continue their free over-the-air public 
interest mission in local communities around the country.
    At the same time, we were having our flurry of HDTV 
hearings, Congress was also passing the must carry 
retransmission consent provisions of the 1992 Cable Act. These 
provisions also reflected the fact that broadcasters had a 
special role in our national media mix. And I know from 
firsthand experience that such broadcasters certainly hold a 
special place in Boston's media marketplace.
    Simply put, the grants of additional spectrum for free, as 
well as the government's requirement that cable operators carry 
broadcast signals, and, under must carry, require the carriage 
to be free of charge represents extraordinary involvement in 
the marketplace on behalf of broadcasters. We do this because 
they hold valuable licenses to the public's airwaves and 
because they are duty-bound to use those licenses in the public 
interest. Without such public interest obligations, in other 
words, there would be little justification for must carry 
rights or free spectrum.
    Since 1997, I have asked various broadcast witnesses at a 
series of hearings about their public interest commitment for 
the digital era. To their credit, each broadcast witness that I 
asked agreed that because their service would be enhanced in 
the digital format, their public interest commitment would 
similarly rise and be commensurate with the increased power and 
versatility of the digital medium. Each witness, however, 
resisted any articulation or quantification of what that 
digital public interest commitment would be. In addition, we 
are now 4 years into the FCC's regulatory proceeding on the 
public interest commitment of digital broadcasters with no end, 
apparently, in sight.
    For those of us in the policymaking realm who are prepared 
to endorse significant must carry policy options, including so-
called multicast must carry, the lack of industry and 
regulatory progress on establishing public interest commitments 
is a concern. The FCC Media Bureau proposal doesn't speak to 
this type of public interest obligation at all. It does have 
what seems to be a hail Mary pass proposal to end the DTV 
transition and get to the end zone sooner.
    Getting spectrum back sooner has obvious public interest 
and economic benefits to offer both consumers and taxpayers 
alike. Importantly, even freeing up the upper portion of the 
broadcast spectrum for public safety would be a significant 
public interest achievement that has also eluded regulators for 
some years. Integral to the Media Bureau plan, however, is the 
notion that cable operators would take the digital signals of 
broadcasters and down-convert that signal to analog. In other 
words, cable consumers would receive their local digital TV 
broadcasts in analog format to bring the DTV transition to a 
more rapid conclusion.
    Due to the likelihood of broadcasters multicasting and 
splitting their signal into several digital feeds, and the lack 
of any requirement that broadcasters actually broadcast in 
HDTV, over time we have tended in our policy discussions to 
drop the letter H. We typically now talk about DTV, not HDTV.
    My concern with the Media Bureau proposal is that it seems 
to portend the dropping of the letter D. That would certainly 
be an O. Henry ending to the HDTV policy. We started 17 years 
ago with analog HDTV, moved the Commission to a digital HDTV 
format. Then Congress allows multicasting, and many 
broadcasters move to the notion of simply DTV only to have the 
Media Bureau turn around and bring us back to analog TV over 
cable systems. I understand that some think the marketplace 
will resuscitate the D for digital TV over time on cable 
systems, but I am skeptical that it would work across the 
Nation.
    We must admit that at its core, the DTV transition 
represents a government-driven policy, not a purely market-
driven phenomenon, and it is therefore imperative that 
government create the conditions and environment for policy 
successes.
    Thank you, Mr. Chairman, very much.
    [The prepared statement of Hon. Edward J. Markey follows:]
   Prepared Statement of Hon. Edward J. Markey, a Representative in 
                Congress from the State of Massachusetts
    Good Morning. I'd like to commend Chairman Upton for calling this 
hearing today to further explore issues related to the transition to 
digital television (DTV). In critical ways, this Subcommittee was 
instrumental in beginning the transition to high definition TV for the 
country, and certainly in shifting the debate from an analog HDTV 
format to a digital one.
    For me, the odyssey that began with an analog HDTV broadcast in 
this very room in 1987 was about the public interest. With the computer 
industry, the telephone industry, cable industry, wireless industry, 
all going ``digital,'' it was important for economic growth and job 
creation to move the broadcast industry to digital too. Because it is a 
licensed industry and one which had tens of millions of consumers with 
analog TV sets, it was clear we needed a transition. Broadcasters were 
lent additional spectrum for transitional purposes and the law requires 
that when the transition is over they give back their analog spectrum.
    Because broadcasters were special in that they had a responsibility 
to use their licenses in the public interest, it furthered the public 
interest to move them into the digital age so that they could continue 
their free over-the-air, public interest mission in local communities 
around the country. At the same time we were having our flurry of HDTV 
hearings, Congress was also passing the must-carry/retransmission 
consent provisions of the 1992 Cable Act. Those provisions also 
reflected the fact that broadcasters had a special role in our national 
media mix, and I know from first-hand experience that such broadcasters 
certainly hold a special place in Boston's media marketplace.
    Simply put, the grant of additional spectrum for free as well as 
the government's requirement that cable operators carry broadcast 
signals and, under must carry, require that carriage to be free of 
charge represents extraordinary involvement in the marketplace on 
behalf of the broadcasters. We do this because they hold valuable 
licenses to the public's airways and because they are duty-bound to use 
those licenses in the public interest. Without such public interest 
obligations, in other words, there would be little justification for 
must-carry rights or free spectrum.
    Since 1997, I have asked various broadcast witnesses at a series of 
hearings about their public interest commitment for the digital era. To 
their credit, each broadcast witness that I asked agreed that because 
their service would be enhanced in the digital format, their public 
interest commitment would similarly rise and be commensurate with the 
increased power and versatility of the digital medium. Each witness, 
however, resisted any articulation or quantification of what that 
digital public interest commitment would be. In addition, we are now 
four years into the FCC's regulatory proceeding on the public interest 
commitment of digital broadcasters with no end apparently in sight. For 
those of us in the policymaking realm who are prepared to endorse 
significant must-carry policy options, including so-called multicast 
must-carry, the lack of industry and regulatory progress on 
establishing public interest commitments is a concern.
    The FCC Media Bureau proposal doesn't speak to this type of public 
interest obligation at all. It does have what seems to be a ``Hail 
Mary-pass'' proposal to end the DTV transition and get to the end zone 
sooner. Getting spectrum back sooner has obvious public interest and 
economic benefits to offer both consumers and taxpayers alike. 
Importantly, even freeing up the upper portion of the broadcast 
spectrum for public safety would be a significant public interest 
achievement that has also eluded regulators for some years. Integral to 
the Media Bureau plan, however, is the notion that cable operators 
would take the digital signals of broadcasters and ``down-convert'' 
that signal to analog. In other words, cable consumers would receive 
their local digital TV broadcasters in analog format to bring the DTV 
transition to a more rapid conclusion.
    Due to the likelihood of broadcasters multi-casting and splitting 
their signal into several digital feeds and the lack of any requirement 
that broadcasters actually broadcast in HDTV, over time we have tended 
in our policy discussions to drop the letter ``H''--we typically talk 
now about DTV not HDTV. My concern with the Media Bureau proposal is 
that it seems to portend the dropping of the letter ``D''. That would 
certainly be an ``O. Henry-like'' ending to our HDTV policy: we start 
17 years ago with analog HDTV, move the Commission to a digital HDTV 
format, then Congress allows multicasting and many broadcasters move to 
the notion of simply DTV, only to have the Media Bureau turn around and 
bring us back to analog TV over cable systems. I understand that some 
think the marketplace will resuscitate the ``D'' for digital TV over 
time on cable systems, but I'm skeptical that it would work across the 
nation.
    We must admit that at its core, the DTV transition represents a 
government-driven policy, not a purely market-driven phenomenon, and it 
is therefore imperative that government create the conditions and 
environment for policy success.
    Again, I want to congratulate the Subcommittee Chairman Mr. Upton 
for calling this hearing and commend as well Ranking Member Mr. Dingell 
and Chairman Barton for their continued efforts in making our digital 
television policy work for the country.

    Mr. Upton. Thank you.
    Mr. Barton.
    Chairman Barton. Thank you, Mr. Chairman, for holding this 
hearing on the FCC Media Bureau proposal to expedite the DTV 
transition.
    Expediting the transition is one of the top communications 
policy objectives of this committee, and I am intrigued so far 
by what I have heard about the proposal that is before us 
today. I am eager to learn more, and I want to thank the 
witnesses for testifying today. We have a good panel.
    The proposal is rooted in Section 309 of the Communications 
Act, which sets December 31, 2006, as the goal for return of 
the analog spectrum. Section 309 would also allow for 
extensions, however. For example, a broadcaster may seek an 
extension if 15 percent or more of the consumers in that 
specific market cannot view digital broadcasts, whether via 
cable, satellite, digital receivers or analog televisions with 
converter boxes.
    Consistent with the statute, the Media Bureau proposal 
would count consumers toward the 85 percent that can view 
digital broadcasts, even if they were watching on an analog 
television set in ordinary definition over their cable or 
satellite service.
    I think that that is appropriate. Section 309 is not about 
promoting high-definition television directly, but rather about 
reclaiming the analog spectrum as soon as possible while 
minimizing the number of consumers who must take additional 
steps after the transition to continue watching television.
    Some criticize the proposal for not promoting high-
definition television. That criticism is unjustified, in my 
opinion. When faced with the end of analog broadcasts, more 
consumers will purchase high-definition TV sets, and the more 
high-definition televisions that are in the marketplace, the 
more broadcasters, cable and satellite, will offer high-
definition content.
    Also keep in mind that not even the broadcasters argue that 
this transition is exclusively about high-definition. They 
continue to argue for multicast must-carry under which 
consumers would receive multiple standard definition streams, 
rather than a single high-definition one.
    Some would argue that by expediting the transition, the 
proposal will give consumers less time to replace their analog 
televisions. But, again, consumers will be more likely to 
purchase digital television sets when faced with the end of 
analog broadcasts.
    Moreover, the statute has always contemplated ending the 
transition with as many as 15 percent of households needing to 
take steps to continue receiving television broadcasts. The 
Media Bureau proposal will likely impact fewer consumers than 
that, since by the end of 2006, many more consumers will have 
digital televisions, cable service, satellite service, or 
digital-to-analog converter boxes.
    I would also note that the broadcasters have been seeking 
mandatory carriage of both their analog and digital broadcasts 
simultaneously under the must carry rules. Under their 
proposal, the transition would come to an end at about the same 
time as under the Media Bureau proposal in light of the fact 
that some markets already have almost 85 percent of their 
customers subscribing to cable or satellite. That is not to say 
that I support dual carriage or other digital must carry 
proposals.
    The Media Bureau proposal would grant broadcasters 
multicast must-carry rights. It is well known that I am 
skeptical of must-carry in the analog world. I am even more 
skeptical of must-carry in the digital world. Market forces are 
and will continue to promote high-definition multicast 
television where and when appropriate.
    I look forward to hearing more about these issues. I think 
this is a very important hearing, and I appreciate the 
subcommittee chairman holding it.
    [The prepared statement of Hon. Joe Barton follows:]
 Prepared Statement of Hon. Joe Barton, Chairman, Committee on Energy 
                              and Commerce
    Thank you, Mr. Chairman, for holding this hearing on the FCC Media 
Bureau proposal to expedite the DTV transition. Expediting the 
transition is one of my top communications policy objectives, and I am 
intrigued so far by what I have heard of the proposal. I am eager to 
learn more, and thank the witnesses for coming to testify.
    The proposal is rooted in Section 309 of the Communications Act, 
which sets December 31, 2006, as the goal for return of the analog 
spectrum. Section 309 also allows for extensions, however. For example, 
a broadcaster may seek an extension if 15 percent or more of consumers 
in its market cannot view digital broadcasts, whether via cable, 
satellite, digital receivers, or analog televisions with converter 
boxes. Consistent with the statute, the Media Bureau proposal would 
count consumers toward the 85-percent that can view digital broadcasts 
even if they were watching on analog televisions in ordinary definition 
over their cable or satellite service.
    This is appropriate. Section 309 is not about promoting high-
definition television directly, but about reclaiming the analog 
spectrum as soon as possible while minimizing the number of consumers 
who must take additional steps after the transition to continue 
watching television.
    Some criticize the proposal for not promoting high-definition 
television. I believe it does. When faced with the end of analog 
broadcasts, more consumers will purchase high-definition televisions. 
And the more high-definition televisions in the marketplace, the more 
broadcasters, cable, and satellite will offer high-definition content.
    Also keep in mind that not even the broadcasters argue that this 
transition is exclusively about high-definition. They continue to argue 
for multicast must-carriage, under which consumers would receive 
multiple standard definition streams rather than a single high-
definition one.
    Some also argue that by expediting the transition the proposal will 
give consumers less time to replace their analog televisions. But 
again, consumers will be more likely to purchase digital televisions 
when faced with the end of analog broadcasts. Moreover, the statute has 
always contemplated ending the transition with as many as 15 percent of 
households needing to take steps to continue receiving television 
broadcasts. The Media Bureau proposal is expected to impact fewer 
consumers than that, since by the end of 2006 many more consumers will 
have digital televisions, cable service, satellite service, or digital-
to-analog converter boxes.
    I also note that the broadcasters have been seeking mandatory 
carriage of both their analog and digital broadcasts simultaneously 
under the must-carry rules. Under that proposal, the transition would 
come to an end at about the same time as under the Media Bureau 
proposal, in light of the fact that in some markets almost 85 percent 
of customers already subscribe to cable or satellite.
    That is not to say that I support dual carriage or other digital 
must-carry proposals. The Media Bureau proposal would grant 
broadcasters multicast must-carry rights. I am skeptical of must-carry 
in the analog world. I have yet to be convinced why it should be 
expanded in the digital world. Market forces are and will continue to 
promote high-definition and multicast television where and when 
appropriate.
    I look forward to hearing more on all these issues during today's 
testimony. I yield back.

    Mr. Upton. Thank you, Mr. Barton.
    Mr. Upton. Mr. Dingell.
    Mr. Dingell. Mr. Chairman, good morning. I commend you for 
holding this hearing.
    As we all know, our country is in the midst of a very 
important transition from analog to digital television 
broadcasting. Along with most of my colleagues, I believe that 
the transition is progressing much more slowly than we had 
originally expected or hoped.
    I hope that this hearing is the first of several hearings 
to explore the issues confronting the transition, and I would 
note that there are some very intractable issues that need to 
be addressed by hearings here and actions by the FCC.
    As a result of the broadcast television migration from 
analog to the more efficient digital technology, the public 
will receive numerous benefits, including high-definition 
television and a greater selection of over-the-air broadcast 
programming.
    Equally important, 108 megahertz of the spectrum will be 
recovered for use by other services, including public safety 
and advanced video and data services. In particular, this 
spectrum will provide a major boost toward the goal of 
broadband services for all Americans. However, and this point 
is particularly important, this spectrum will not become 
available for such new uses until the transition is deemed 
complete and the broadcasters return their analog broadcast 
spectrum.
    In the Balanced Budget Act of 1997, Congress prescribed 
that analog broadcast facilities would be turned off on 
December 31, 2006 or when 85 percent of television households 
had the capability to receive digital programming. For this 
reason, one of the critical tasks confronting the FCC is 
implementing this provision of the 1997 statute.
    And let me make it clear what is at stake as we continue to 
delay reclaiming the analog broadcast spectrum. First, 24 
megahertz of this spectrum has been set aside for public safety 
purposes, and making such spectrum available for such purposes 
is clearly important to protecting our citizens and permitting 
public safety entities to perform their mission safely and 
efficiently.
    Second, the remaining spectrum is needed to satisfy the 
growing demand in the marketplace for wireless products and 
services. Continuing delay only serves to inhibit the ability 
of innovative companies to address this marketplace demand and 
to dampen the ability of such companies to attract capital and 
create jobs.
    The FCC Media Bureau's current plan to implement the 
statutory transition deadline would result in completing the 
transition in early 2009, and therefore provide important 
needed certainty as to the return date of analog broadcast 
spectrum. It would achieve this goal primarily by counting 
toward the 85 percent number those homes that subscribe to 
cable and receive a downconverted digital signal.
    Once that transition is complete, each broadcaster could 
elect whether it wants its local cable system to pass through 
the station's signal in digital, or to convert that signal to 
analog. And cable systems would be required to carry both the 
broadcaster's high-definition signals and multicast signals.
    This plan will merit thoughtful consideration by the 
Commission when it is put before them. The committee and the 
FCC should pay close attention to many other pressing issues 
where a lack of resolution continues to slow the transition. 
For example, the FCC in certain instances has been unable to 
grant construction permits or in other instances to permit 
stations to broadcast at maximum power levels because of 
potential interference with Canadian and Mexican transmitters. 
This is hurting local broadcasters in almost all of the border 
States, as I have indicated, including your State and my State 
of Michigan. And I would like to see the FCC work to resolve 
such questions in a far more expeditious fashion.
    In rural areas local broadcasters rely upon networks of 
repeaters and translators to cover their vast market areas. The 
FCC has not yet authorized their upgrade to digital, and this 
is having a significant hampering effect on the transition, 
particularly in rural markets.
    Finally, the FCC must move forward and create a final DTV 
table of channel assignments. Such action will require moving 
stations out of channels 52 to 69 and into the narrower core 
broadcast band of channels 2 to 51.
    I understand that the MSTV plan currently before the FCC 
has near unanimous industry support, and I urge the FCC 
strongly to make a decision on this question as soon as 
possible.
    Mr. Chairman, I look forward to working with you and all of 
the members of this committee as we examine the questions 
associated with digital transmission, and, if need be, I will 
be happy to work with you to consider legislation in this area. 
I thank you, Mr. Chairman, and I yield back the balance of my 
time.
    Mr. Upton. Thank you.
    Mr. Buyer.
    Mr. Buyer. I reserve my time.
    Mr. Upton. Mr. Walden.
    Mr. Walden. I reserve my time for questions, Mr. Chairman.
    Mr. Terry. Same.
    Mr. Shimkus. I will pass.
    Mr. Bass. Pass.
    Mr. Upton. Ms. McCarthy.
    Ms. McCarthy. I reserve my time.
    Mr. Upton. Mr. Doyle.
    Mr. Doyle. Thank you, Mr. Chairman. We were on a roll there 
for a second.
    Mr. Upton. We were. Sort of like that toll road in 
Pennsylvania.
    Mr. Doyle. Sorry to be the skunk at the garden party.
    Mr. Chairman, thank you, and I want to thank Mr. Markey 
also for scheduling this important hearing. And I also want to 
thank all of our witnesses for agreeing to appear before us to 
discuss the FCC Media Bureau's proposal to advance transition 
to digital TV.
    Today only between 8 and 9 percent of Americans are capable 
of viewing digital television signals, and at the current pace 
of transition, it will take many more years before the 85 
percent threshold for reclaiming the analog spectrum is met.
    As we all know the spectrum currently being used for the 
delivery of over-the-air analog television is extremely 
valuable to the interests of the American people. This spectrum 
will ultimately have significant public and consumer benefits, 
and it is imperative that we continuously look for ways to 
ensure its most immediate availability.
    Availability of this spectrum will be of significant 
benefit to public safety. First responders in large to midsized 
metropolitan areas need access to more spectrum to ensure the 
effectiveness of the important work they perform. I am told 
that reclaiming the analog spectrum will double the amount of 
public safety spectrum, which is of great importance.
    The public will also benefit by the greater availability of 
cutting-edge wireless services. Consumers in unserved and 
underserved areas do not have access to the technological 
advances in wireless communications that larger metropolitan 
areas have experienced in recent years. Reclaiming the analog 
spectrum will allow wireless companies to offer mere next-
generation wireless services to more areas of the country, 
which will allow for greater competition in the wireless 
industry and increased consumer satisfaction.
    And, finally, the reclamation of this spectrum will bring 
tens of billions of dollars into the U.S. Treasury, which in 
these times of exceedingly tight budgets would be a very 
welcome addition to our budget process.
    So it is clear to me, and I am sure to everyone in this 
room, as to why we need to think of creative ways to move this 
DTV transition along, which is why I am pleased that the Media 
Bureau has put forth this proposal for consideration.
    I want to thank our witnesses for appearing here today. I 
am very interested to know what impact the witnesses believe 
the Media Bureau's plan will have not only on the interests 
they represent, but also what impact it will have on consumers.
    I am sure that very few Americans fully understand both the 
benefits and the drawbacks of the transition to digital 
television. Consumers will certainly benefit from better 
picture quality and increased access to information services. 
But as we consider policies toease the transition to digital 
TV, we must remember the average consumer who doesn't want to 
or can't afford to spend considerable sums of money on their 
television service. We must try to make sure that transition to 
DTV will not place a significant financial burden on that 
consumer.
    Mr. Chairman, I thank you, and I yield back my time.
    Mr. Upton. Mr. Stearns.
    Mr. Stearns. Thank you, Mr. Chairman.
    When we passed the Telecom Act of 1996, we wanted to reduce 
regulation in order to secure lower prices and higher-quality 
service for American telecommunications consumers and encourage 
the rapid development of new technologies. One of the specific 
goals in the act was to transition from analog to digital 
television, of course, in a very timely manner.
    Today we are examining the FCC's proposal to expedite the 
digital transition. While progress has been made in broadcast, 
cable, satellite and consumer electronics, we still lack the 
certainty of a specific transition date, despite Congress 
mandating the termination of analog signals by the year 2006.
    With the existing statutory conditions, and the ability to 
file for extensions beyond the analog termination date, we lose 
a certainty that consumers and industry desire to make the full 
leap into the digital viewing environment. I think the Media 
Bureau's objectives outlined in the FCC testimony are exactly 
the same as Congress' intent in 1996, No. 1; a certain 
transition to reclaiming valuable spectrum; and, three, 
minimize disruption to consumers; and, four, maintain consumer 
access to digital offerings.
    I would argue that one of the goals is not to just merely 
maintain consumer access, but to encourage an explosive growth 
in digital products and services. These offerings are there, 
but consumer demand is not where it should be. For instance, 
consumers continue to purchase thousands of analog television 
sets, mainly because the threshold of digital offerings does 
not appear to be sufficient for the average consumer to cross 
over and spend that extra money.
    In fact, less than 10 percent of U.S. households have 
digital televisions. I noticed in Mr. Sachs testimony, on 
behalf of the cable industry, that 30 percent of cable 
customers subscribe to digital services. But how many of these 
customers view these services on an analog TV set? I don't 
think the number is very high.
    So I am hopeful that the agreement on plug-and-play, 
allowing consumers to connect digital cable systems directly to 
a digital television without a converter box, will provide for 
continued growth in digital purchases.
    And, last, a number of other issues must be addressed as we 
move forward on digital transition, such as multicasting under 
must carry obligations, down-converting digital broadcast 
signals, and addressing the 15 percent of consumers who will 
likely be left in the dark once analog signals cease.
    So, Mr. Chairman, I look forward to hearing from our 
panelists today. I appreciate you having this hearing.
    Mr. Upton. Mr. Gonzalez.
    Mr. Gonzalez. Waive opening. Thank you.
    Mr. Upton. Mr. Wynn.
    Mr. Wynn. I defer, Mr. Chairman.
    Mr. Upton. Well, that concludes our opening statements. 
Thank you.
    [Additional statements submitted for the record follow:]
Prepared Statement of Hon. Barbara Cubin, a Representative in Congress 
                       from the State of Wyoming
    I look forward to our hearing today on the Digital Television, or 
DTV, transition. This is an exciting time for the evolution of the 
television broadcast. Just like the change from black and white to 
color was a seminal moment in our history, DTV promises to provide an 
even more stark change with an ultra-high quality and dynamic viewing 
experience. We are getting closer to a time where all broadcasters will 
have the capability to transmit their signals in a digital format which 
will not only improve viewing quality for Americans, but will also free 
up precious spectrum for important national interests, like first 
responders and advanced wireless services.
    There are still hurdles to be cleared, however, and it will prove 
to be more difficult than past television evolution, I'm sure. But I am 
glad we are addressing these matters as a Committee, and hope that we 
can build momentum to make DTV a ubiquitous service for all Americans.
    Beside the assumptions that need to be ironed out regarding the DTV 
transition, there are also issues that need to be addressed about what 
that digital experience will look like in the future. Much like new 
technologies, such as digital video recorders, have changed our viewing 
habits, interactivity B apart from simply using your remote to change 
channels B will be commonplace.
    It may also be commonplace to have six different camera angles to 
choose from during a sporting event, or other functionality during the 
news or another program.
    But the future is still unclear and questions still need to be 
asked. Questions like, how much of the broadcast day will be in High 
Definition Television (HDTV) or multi-cast digital? How will the 
consumer know what programming will be available to them? When and 
where will they find it? And, how will all of this merge with the 
Internet?
    That's why I look forward to hearing from our distinguished panel 
on these matters Today and want to continue our dialog as we take the 
next steps in this transition.
    I yield back the balance of my time.
                                 ______
                                 
Prepared Statement of Hon. Ed Towns, a Representative in Congress from 
                         the State of New York
    Let me begin by thanking you Mr. Chairman for holding this hearing. 
The digital television transition is one of the most important issues 
in front of this committee and the FCC, and I salute Mr. Ferree for his 
innovative proposal.
    While words like ``critical'' or ``important'' are often loosely 
thrown around to describe issues and hearings, such descriptions are 
very appropriate for today. In fact, given the enormous value that 
would be generated through the return of broadcasters' analog spectrum, 
I do not think the importance can be over-emphasized.
    This is not to say that I do not have some reservations about the 
FCC's Media proposal. However, as we evaluate how different 
stakeholders are affected by the plan, we must also weigh the public 
benefits that will accrue by speeding up the return of the spectrum 
such as innovative wireless consumer services. As a New York member of 
Congress, the improved communications for public safety and homeland 
security that would be facilitated by the spectrum is also a tremendous 
concern.
    One glaring omission from the plan is addressing those viewers who 
rely on a free, over-the-air analog signal to receive television 
programming. In addition to the entertainment value of television, it 
also serves to inform citizens of important news and weather alerts.
    Any plan that speeds up the transition must make sure that those 
who rely on this free signal are not left behind. Without any 
intervention by Congress or the FCC, there are millions of people, 
presumably low-income homes that cannot afford cable or seniors who do 
not want additional programming, who could see their TVs go dark on the 
deadline. I understand that the Chairman is planning to hold a hearing 
on this specific issue, and I commend him for that action. However, 
given the importance of this issue, I think it must be raised as we 
discuss the overall proposal as well.
    I look forward to hearing from the witnesses on this issue as well 
as their overall views on the FCC's proposal. Thank you Mr. Chairman. I 
yield back the balance of my time.

    Mr. Upton. We are delighted to have the distinguished panel 
with us this morning. We are joined by Mr. Ken Ferree, the 
Chief of the Media Bureau from the FCC; Mr. Edward Fritts, 
President and CEO of the National Association of Broadcasters; 
Mr. Robert Sachs, President and Chief Executive Officer of the 
National Cable and Telecom Association; Mr. Richard DalBello, 
President of the Satellite Broadcasting and Communications 
Association; Mr. Gary Shapiro, President and CEO of the 
Consumer Electronics Association; Ms. Gloria Tristani, Managing 
Director of the Office of Communication from the United Church 
of Christ; and Mr. Thomas Lenard, Senior Fellow and Vice 
President for Research for the Progress and Freedom Foundation.
    Ladies and gentlemen, welcome. I also very much appreciate 
your submission of your testimony in advance so we can read it 
last night. We would like to limit your opening statements to 
about 5 minutes.
    Mr. Ferree, we will start with you. Welcome.

 STATEMENTS OF W. KENNETH FERREE, CHIEF, MEDIA BUREAU, FEDERAL 
  COMMUNICATIONS COMMISSION; EDWARD O. FRITTS, PRESIDENT AND 
CHIEF EXECUTIVE OFFICER, NATIONAL ASSOCIATION OF BROADCASTERS; 
 ROBERT SACHS, PRESIDENT AND CHIEF EXECUTIVE OFFICER, NATIONAL 
 CABLE & TELEVISION ASSOCIATION; RICHARD DALBELLO, PRESIDENT, 
 SATELLITE BROADCASTING & COMMUNICATIONS ASSOCIATION; GARY J. 
   SHAPIRO, PRESIDENT AND CHIEF EXECUTIVE OFFICER, CONSUMER 
 ELECTRONICS ASSOCIATION; GLORIA TRISTANI, MANAGING DIRECTOR, 
OFFICE OF COMMUNICATION, THE UNITED CHURCH OF CHRIST, INC.; AND 
    THOMAS M. LENARD, SENIOR FELLOW AND VICE PRESIDENT FOR 
          RESEARCH, THE PROGRESS & FREEDOM FOUNDATION

    Mr. Ferree. Thank you, Mr. Chairman, and good morning, 
Ranking Member Markey and members of the subcommittee. My name 
is Ken Ferree, and I am Chief of the Media Bureau at the FCC, 
and I appreciate the opportunity to testify this morning on the 
DTV transition.
    To date our efforts have been focused on getting the 
transition off the ground. Those efforts are proving 
successful. It is no longer a question of whether the 
transition will occur, but when and how. It is time, therefore, 
to focus on making the digital switch over as smooth as 
possible for consumers.
    The Bureau has been working on a plan to that end. In 
developing the plan, the Bureau had the following objectives: 
First, bring the transition to a timely and predictable 
conclusion which will benefit consumers and others with a stake 
in the digital transition.
    Second, reclaim valuable spectrum. The spectrum that will 
be recovered will bring tremendous benefits to the public. Some 
of it will be given directly to public safety authorities, 
vastly increasing the amount available to first responders. The 
remainder will be auctioned for use by the advanced wireless 
services, which will not only generate substantial auction 
revenues, but will also provide continuing benefits in terms of 
the economy and job creation.
    Third, minimize disruption to consumers. Whenever the 
transition ends, consumers should not lose access to their 
favorite programming. Our goal is to minimize the impact of the 
transition on consumer viewing patterns and to ensure that 
converter equipment is available at a reasonable cost for 
analog over-the-air viewers.
    Fourth, maintain consumer access to HDTV. Today consumers 
have access to a growing level of compelling digital content, 
particularly high-definition content. That access should be 
maintained and encouraged.
    Fifth, and finally, comply with constitutional and 
statutory requirements. Some broadcasters suggest, for 
instance, that cable operators should be required to carry both 
the analog and the digital signal of every broadcast station. 
The Commission has tentatively concluded that such mandatory 
dual carriage would be unconstitutional. Based on the record in 
this proceeding, I am convinced that that conclusion was 
correct. Dual carriage imposes a greater burden than necessary 
to further any discernable government interest.
    The Bureau has devised a plan that meets these objectives. 
The details of the plan are set forth in my written testimony. 
Generally the plan involves a switch in broadcasters' must 
carry rights from analog to digital in January 2009. Cable 
subscribers and satellite subscribers in local-into-local 
markets will therefore count toward the 85 percent trigger for 
the end of the transition. Combined with the households that 
will have digital TV sets, we expect to reach the 85 percent 
threshold virtually nationwide at that time.
    Now, let me briefly explain one of the policy cuts the 
Bureau made in developing the plan. When broadcasters must 
carry rights switch to digital, the question becomes, how 
should they be carried on cable systems? If a cable system is 
all digital so that all subscribers can watch a digital cable 
stream, the digital broadcast signal should also be passed 
through in digital. That is the easy case.
    But what if the cable systems in 2009, like cable systems 
today, have a mix of analog and digital subscribers? The 
options are either to require the cable system to deliver the 
signal digitally, which would deprive analog viewers of the 
programming that they are accustomed to, or require cable 
operators to down-convert the signals so that all consumers may 
receive it.
    The Bureau chose the latter course. Thus, the vast majority 
of consumers, including all cable subscribers and most or all 
satellite subscribers, will experience a seamless transition. 
They will be able to continue to watch the same programming 
that they always have.
    Now, there are two important points to be made about this 
requirement. First, broadcasters can, of course, continue to 
negotiate voluntary carriage of their digital signal. 
Approximately 400 broadcasters have already done so, and more 
are gaining digital carriage every day.
    Second, this is only a transitional requirement. Once a 
broadcaster has returned its analog license, it may decide 
whether it wants its digital signal down-converted or passed 
through in digital by the cable operators. It is their choice.
    Finally, to begin to address legitimate concerns about the 
effect of the transition on consumers who rely on over-the-air 
analog television, the Bureau has issued a public notice to 
help us learn more about these consumers and what can and 
should be done to make the transition as smooth as possible for 
them.
    Thank you for the opportunity to review our proposal. I 
look forward to continuing to work with the committee on the 
DTV transition and to bring it to a successful conclusion.
    [The prepared statement of W. Kenneth Ferree follows:]
 Prepared Statement of W. Kenneth Ferree, Chief, Media Bureau, Federal 
                       Communications Commission
                            i. introduction
    Good morning Chairman Upton, Ranking Member Markey, and members of 
the subcommittee. My name is Ken Ferree and I am Chief of the Media 
Bureau at the Federal Communications Commission. I appreciate the 
opportunity to testify today on bringing the digital television 
(``DTV'') transition to a timely and successful conclusion.
    It wasn't too long ago that using a phrase like ``timely and 
successful'' in connection with the DTV transition would have been 
considered a non sequitur. No longer. The DTV transition is beginning 
to gain momentum; we are witnessing one of the most dramatic 
marketplace shifts in recent memory.
    There is plenty of credit to go around. Each of the affected 
industries--broadcasters, cable and satellite operators, content 
providers, consumer electronics manufacturers and retailers--deserve 
some credit for bringing us to this juncture. They are the ones who 
developed the business plans, put the capital at risk, and are bringing 
the benefits of digital television to American consumers.
    Government deserves some of the credit as well. Over the past few 
years, both Congress and the FCC, under Chairman Powell's leadership, 
have created a renewed sense of urgency regarding the DTV transition, 
doing whatever was needed to get the transition moving. Often informal 
tools were used, like the industry roundtable discussions convened by 
this Committee that helped define and focus the issues, or the ``Powell 
Plan'' that resulted in voluntary industry commitments to advance the 
transition. When necessary, more formal regulatory tools were used, 
such as the DTV tuner mandate, rules for ``plug and play'' television 
sets, and the adoption of the ``broadcast flag'' system to protect 
digital broadcast content from widespread piracy over the Internet.
    It goes without saying that our work is far from done. Indeed, we 
are in the midst of an incredibly busy period at the FCC on issues 
relating to digital television, and we hope to act on several major 
proceedings in the near future, including the procedures for final 
channel allotments and deadlines for broadcasters to operate at full 
power.
    So why turn our attention to the end of the transition when we 
still have work in front of us? Because now is the time to start 
looking ahead and planning if we want the transition to end smoothly 
for the American public. Up to now, most of our efforts have been 
focused on getting the transition off the ground. But now that the 
wheels are finally lifting off the runway and the transition is pointed 
skyward, we can and should begin turning our attention to our 
destination, and how we will land this transition as quickly and as 
safely as possible.
    Put differently, it is no longer a question of whether the 
transition will occur, but when--and how we can make the final digital 
switch-over as smooth as possible for consumers.
    This emerging reality led the Media Bureau to develop a framework 
that would provide a soft landing for the DTV transition. The Bureau's 
framework is outlined below in some detail but, at this point, it is 
still a Bureau-level work-in-progress. No formal recommendations have 
been made to the full Commission, although we have discussed the 
framework with each of the Commissioners' offices, just as we have 
discussed it with Hill staff, industry, consumer groups, and others.
    One of the most important and difficult issues remaining to be 
solved is how to address those consumers who rely on over-the-air 
analog television when the transition is complete. Last week, the Media 
Bureau issued a Public Notice to help us learn more about these 
consumers and to explore potential options for helping them make the 
transition with as little disruption as possible.
                   ii. the media bureau's objectives
    In developing our framework for completing the digital television 
transition, the Media Bureau had the following objectives:
Bring the transition to a timely and predictable conclusion
    A timely and predictable end date would benefit all those with a 
stake in the transition to digital television, including the public, 
broadcasters, consumer electronics manufacturers and retailers, public 
safety officials, as well as advanced wireless service providers and 
their customers.1 Consumers would have fair warning of when 
analog broadcast signals will be terminated and can begin preparing 
themselves. Broadcasters would know precisely how long they will be 
required to run side-by-side analog and digital facilities and can make 
budget and maintenance decisions accordingly. Consumer electronics 
manufacturers and retailers would know when they will no longer need to 
produce, market, and support analog equipment. Public safety officials 
and advanced wireless providers waiting for broadcasters to vacate the 
700 MHz band would know with certainty when they will be able to begin 
operations.
---------------------------------------------------------------------------
    \1\ By statute, all analog broadcast licenses terminate on December 
31, 2006, unless the licensee requests and the Commission grants an 
extension based upon the criteria in Section 309(j)(14) of the 
Communications Act. 47 U.S.C.  309(j)(14)(A) and (B). In the absence 
of significant changes in circumstances, we do not think it likely that 
the standard set forth in Section 309(j)(14) will be met by that date 
and thus expect that the majority of stations will qualify for an 
extension of the initial deadline.
---------------------------------------------------------------------------
Reclaim valuable spectrum
    The spectrum that will be recovered at the end of the transition 
will bring tremendous benefits to consumers and the U.S. 
economy.2 As an initial matter, 24 MHz of spectrum will be 
used to address the critical needs of first responders and other public 
safety needs. The remaining 84 MHz in the 700 MHz band already has been 
or will be auctioned for use by cutting-edge wireless services. This is 
``beachfront'' spectrum, with propagation characteristics that make it 
ideal for providing wireless broadband access through foliage and 
building walls. Not only would the immediate revenues from an auction 
of this spectrum potentially be enormous (the value substantially 
increased by a date certain when the spectrum will become available) 
but, more importantly, the advanced services that will be introduced in 
this spectrum could provide continuing benefits many times greater in 
terms of the economy, jobs, and international competitiveness. The 
opportunity costs of keeping this spectrum ``bottled up'' by analog 
broadcasting grows higher and higher with each passing day.
---------------------------------------------------------------------------
    \2\ Channels 52-69 (a total of 108 MHz in the 700 MHz band) will be 
reclaimed from the broadcasting service for use by public safety (24 
MHz) and advanced wireless services (84 MHz). In the core broadcast 
spectrum (channels 2-51), the channels currently devoted to analog 
broadcasting would be available for potential auction or use by new 
entrants or other broadcasters.
---------------------------------------------------------------------------
Minimize disruption to consumers
    Whenever the transition ends, consumers who rely on over-the-air 
television and do not yet have a DTV receiver will be faced with a 
choice: purchase a digital TV set, purchase a digital-to-analog 
converter, or subscribe to a multichannel video provider such as a 
cable or satellite operator. Our goal is to minimize the number of 
consumers forced to make that choice and to ensure that digital-to-
analog converter equipment is affordable for the average consumer.
Maintain consumer access to HDTV and other digital services
    Today consumers have access to a growing level of compelling 
digital content--particularly high-definition (``HDTV'') content--over 
the broadcast, cable and satellite television platforms. That access 
should be maintained and encouraged under any proposal to advance the 
DTV transition.
Comply with Constitutional and statutory requirements
    Whatever solution is decided upon must be sustainable in court. 
Some broadcasters have suggested, for instance, that cable television 
operators should be required to carry both the analog and the digital 
signals of every broadcast station in the market (i.e., ``dual 
carriage'') until cable systems have converted to all digital 
transmission. In 2001, the Commission tentatively concluded that such a 
requirement would be an unconstitutional abridgement of cable 
operators' First Amendment rights.3 Based on the evidence 
submitted in the must-carry docket, the Bureau is convinced that the 
Commission's tentative conclusion was correct. In constitutional 
parlance, a dual carriage requirement clearly imposes a greater burden 
than necessary to further any discernible government interest at stake. 
Indeed, I am concerned that the imposition of a dual carriage 
requirement would, in the inevitable judicial review that would follow, 
place the whole must-carry regime at risk.
---------------------------------------------------------------------------
    \3\ See First Report and Order, 16 FCC Rcd 2598 (2001),  3, 112.
---------------------------------------------------------------------------
                    iii. the media bureau's proposal
    The current Media Bureau proposal has the following essential 
points:
    1. On a fixed date no later than January 1, 2009, broadcasters' 
must-carry rights on cable and satellite would switch from their analog 
signals to their digital signals.4
---------------------------------------------------------------------------
    \4\ Every three years, broadcasters elect whether they wish to 
invoke their statutory must-carry rights or negotiate for 
retransmission consent. The next election date is October 1, 2005 for 
carriage beginning January 1, 2006, then October 1, 2008 for carriage 
beginning January 1, 2009, and so on.
---------------------------------------------------------------------------
    2. Cable operators would be required to make the digital must-carry 
signals available to all subscribers by either: (a) down-converting a 
single digital broadcast stream from digital to analog at the cable 
head-end so that all subscribers, including analog-only subscribers, 
can continue to view the programming; or (b) passing through the 
digital must-carry signals to subscribers' homes, where the system has 
converted to ``all digital'' transmission and all subscribers have the 
ability to receive and display the digital signals (either on a digital 
set or down-converted by a set-top box for display on an analog set).
    3. Similarly, satellite operators in local-into-local markets would 
be required either: (a) to carry one standard-definition digital 
programming stream from each broadcaster in the market (down-converted 
from HDTV to standard-definition, if necessary); or (b) to pass through 
the digital broadcast signals to subscribers' homes, where all 
subscribers have the ability to receive and display the programming.
    4. In addition to any digital streams that are down-converted to 
analog, broadcasters electing must-carry may negotiate for cable pass-
through of their HDTV, multicasting, or other high-value digital 
programming. Broadcasters electing retransmission consent will continue 
to negotiate for cable carriage of their broadcast signals in digital 
and/or analog. As of March 2004, cable systems carried 382 local 
digital broadcast stations--239 of which are owned by commercial 
entities other than one of the top four broadcast networks--all 
pursuant to marketplace retransmission consent agreements.5 
Nothing in this proposal would negatively affect the continued 
availability of this or additional HDTV programming to consumers.
---------------------------------------------------------------------------
    \5\ The current 382 local digital broadcast stations being carried 
on cable represents a more than four-fold increase from January 2003, 
when 92 local digital broadcast stations were carried. In addition to 
local broadcast HDTV, cable systems also carry national HDTV cable 
programming services such as Discovery-HD, ESPN-HD, HBO-HD and 
Showtime-HD.
---------------------------------------------------------------------------
    5. The statutory 85 percent threshold 6 for ending the 
transition could be met nationwide on January 1, 2009:
---------------------------------------------------------------------------
    \6\ One of the criteria in Section 309(j)(14)(B) is the 85/15% 
test. At its most fundamental, this test asks if at least 85% of TV 
households in the licensee's market can continue to receive television 
service when the over-the-air analog signals are turned off. If 15% or 
more of the TV households in the market would lose service, then a 
licensee's analog license may be extended beyond December 31, 2006. See 
47 U.S.C.  309(j)(14)(B)(iii).

 All cable households (almost 70% of TV households nationwide) will 
        count towards the 85 percent threshold in each market.
 All satellite households in local-into-local markets that receive the 
        local broadcast package, and all satellite households with HDTV 
        service,7 will count towards the 85 percent 
        threshold in those markets.
---------------------------------------------------------------------------
    \7\ All HDTV set-top boxes deployed by DirecTV and EchoStar contain 
an over-the-air DTV tuner.
---------------------------------------------------------------------------
 All households that purchased a new television set covered by the 
        FCC's DTV tuner mandate will count towards the 85 percent 
        threshold.8 It is possible that the DTV tuner 
        mandate alone could result in the 85 percent threshold being 
        met in some markets by this timeframe. Sole reliance on the 
        tuner mandate, however, would result in a spotty transition 
        with a lack of predictability and advance notice for consumers 
        and the industries involved.
---------------------------------------------------------------------------
    \8\ The phase-in schedule of the DTV tuner mandate is as follows: 
(1) receivers with screens 36 inches and above--50% must include DTV 
tuners as of July 1, 2004; 100% must include DTV tuners as of July 1, 
2005; (2) receivers with screens 25-35 inches--50% must include DTV 
tuners as of July 1, 2005; 100% must include DTV tuners as of July 1, 
2006; (3) receivers with screens 13-24 inches--100% must include DTV 
tuners as of July 1, 2007; and (4) TV Interface Devices--VCRs and DVD 
players/recorders, etc. that receive broadcast television signals--100% 
must include DTV tuners as of July 1, 2007.
---------------------------------------------------------------------------
 All households that purchased a new ``plug-and-play'' DTV set, the 
        first of which will be introduced this year, will count towards 
        the 85 percent threshold.9
---------------------------------------------------------------------------
    \9\ ``Plug and play'' sets enable cable subscribers to receive 
digital programming without the need for a separate set top box. 
Pursuant to the FCC rule, all ``plug and play'' sets must also include 
a digital over-the-air tuner.
---------------------------------------------------------------------------
    6. As soon as possible after January 1, 2009, the FCC will make the 
appropriate findings that the 85 percent threshold is met in the 
relevant markets and reclaim the analog broadcast spectrum. There may 
be anomalous markets in which the 85 percent threshold is not met 
immediately, but it is expected that the proposal effectively will 
result in a nationwide transition on January 1, 2009.10
---------------------------------------------------------------------------
    \10\ The Bureau has not yet conducted a detailed market-by-market 
analysis, but will do so as the process continues.
---------------------------------------------------------------------------
    7. By January 1, 2009, the number of households that potentially 
could lose television service with the end of analog broadcasting 
should be well under the statutory maximum of 15 percent in many 
markets.11 Indeed, cable penetration alone exceeds 85 
percent in several markets.12 In addition, the FCC's digital 
tuner and ``plug and play'' mandates--together with the incentives 
provided by a hard transition date--will ensure that a substantial 
number of viewers that rely on over-the-air broadcasting will have 
purchased digital receivers in the preceding five years.13
---------------------------------------------------------------------------
    \11\ Approximately 15 percent of TV households do not subscribe to 
a pay television service and rely on over-the-air broadcasting.
    \12\ E.g., cable penetration is 91% in the Hartford/New Haven 
Designated Market Area (DMA), 91% in the Honolulu DMA, and 87% in the 
Palm Springs DMA.
    \13\ For instance, approximately 24.7 million analog-only sets were 
sold in 2003. That number could decline dramatically with a 2009 end 
date for analog broadcasting, even before the DTV tuner mandate becomes 
fully effective in 2007.
---------------------------------------------------------------------------
    8. The digital tuner and ``plug and play'' mandates will drive down 
the cost of digital-to-analog converter equipment for those over-the-
air viewers who have not invested in digital equipment by 2009. The 
Bureau and Commission are prepared to provide assistance to Congress in 
determining whether and how to assist these viewers in obtaining 
digital-to-analog converter boxes. Just last week, the Media Bureau 
issued a Public Notice seeking comment on those consumers that rely on 
over-the-air broadcast television service and potential options for 
addressing those over-the-air viewers with analog-only sets when the 
transition is complete.14
---------------------------------------------------------------------------
    \14\ A copy of the Public Notice is attached.
---------------------------------------------------------------------------
    9. When a broadcaster turns off its analog signal and is 
broadcasting only in digital (whether because the 85 percent threshold 
was met and the analog spectrum was reclaimed, or voluntarily prior to 
that date), the broadcaster may choose to have its digital signal 
passed through to subscribers' homes rather than being down-converted 
to analog at the cable head-end. Such a selection may be made at any 
time with notice to the cable operator and, in such circumstances, the 
cable operator would be required to notify subscribers that the digital 
signals are available if they obtain the necessary equipment from the 
cable operator or at retail. The cable operator would not be required 
to provide the equipment for subscribers to view the digital 
programming.
    10. If true digital must-carry meant that broadcasters were 
entitled to carriage of all free broadcast streams, including free 
broadcast HDTV and/or ``multicast'' programming, it would give 
broadcasters additional incentive to return their analog licenses in a 
timely manner.15 From a policy perspective and in the 
context of this proposal, the Media Bureau would recommend that as part 
of this Bureau proposal, true digital carriage would mean carriage of 
all free content bits, including carriage of all multicast programming. 
This proposal combines moving more quickly and certainly to the end of 
the transition, which both hastens the broadcasters' spectrum return 
and provides them opportunities to offer more programming to viewers. 
Cable operators claim it is a burden to carry multiple broadcast 
streams, but we believe the net result will be less cable capacity 
required to be devoted to broadcasters' programming as the transition 
moves more rapidly to all digital cable systems. The digital carriage 
obligations for satellite operators will be determined in a proceeding 
at the FCC examining alleged capacity constraints and potential 
technological solutions.
---------------------------------------------------------------------------
    \15\ The issue of ``primary video'' as one stream only versus 
``multicasting'' is on reconsideration before the FCC in the digital 
carriage proceeding.
---------------------------------------------------------------------------
                 iv. benefits of media bureau proposal
    As a result of the Media Bureau's proposal, the public will 
reclaim, on January 1, 2009, a significant amount of spectrum 
throughout the country that will yield great benefits to our citizens, 
economy and the industries involved in the digital television 
transition. The public interest benefits include advances in homeland 
security, broadband deployment, economic growth and job creation and 
the consumer adoption of digital television. The result of the Media 
Bureau's construct is that these substantial public interest benefits 
will be realized at minimal cost to the public and the various industry 
segments driving the digital transition.
    As the government reclaims broadcasters' analog spectrum and 
reclaims it for other uses on behalf of the public, consumers will reap 
the rewards in several areas of national importance, including:

 Homeland Security--the Media Bureau proposal will vastly increase the 
        amount of spectrum available to public safety officials across 
        the country. This additional spectrum will be especially useful 
        in improving communications systems and the ability to deploy 
        forces for first responders during national and local 
        emergencies. The need for this spectrum is greatest in many of 
        our nation's major metropolitan areas currently suffering from 
        spectrum shortages.
 Broadband Deployment--the proposal will free up spectrum that can be 
        used for wireless broadband services. Chairman Powell has 
        identified the deployment of broadband infrastructure as a 
        central communications policy. In addition, there is strong 
        bipartisan support in both the House and the Senate to make 
        broadband deployment a national policy objective. This plan 
        will further those national broadband ambitions.
 Economic Growth and Job Creation--as the Media Bureau plan unleashes 
        the development and deployment of broadband and other new and 
        improved wireless services, it, in turn, will help drive 
        economic growth through increased productivity and create jobs 
        throughout the economy, most notably in the small business 
        arena, as businesses are born and grow to provide and take 
        advantage of these new wireless services.
 Consumer Adoption of Digital Television--the Media Bureau proposal 
        will help drive the consumer adoption of digital television. 
        Last year, approximately 25 million analog television sets were 
        sold. By adopting a clear date for the end of analog 
        broadcasting, we can help shift the sales from analog to 
        digital sets. Publicity over the next five years in advance of 
        the 2009 date for the DTV switchover will combine with our 
        recent tuner and plug-and-play mandates and increased 
        production of HD programming to quicken the pace of consumer 
        purchases of digital televisions.
 Industry Benefits--the certainty of 2009 would provide benefits to 
        those that have a stake in an orderly transition, including 
        broadcasters, public safety authorities, advanced wireless 
        service providers, consumer electronics manufacturers and 
        retailers. Advanced wireless service providers, for instance, 
        could begin to develop business plans, place equipment orders 
        and participate in auctions knowing that the 700 MHz band will 
        become available on a nationwide basis in 2009. Retailers and 
        consumer publications will have a date-certain for describing 
        when analog-only televisions will need additional equipment and 
        when it is time to buy digital equipment. Broadcasters will be 
        ensured continued access to all cable subscribers, unless they 
        voluntarily choose not to be down-converted after the 
        transition is over and not all subscribers have the equipment 
        necessary to view the digital signal. In addition, broadcasters 
        will avoid the costs of running both analog and digital 
        broadcasting, freeing up capital to invest in their digital 
        services and programming.
    These substantial public interest benefits will come at little cost 
to the public and the industries with a stake in the digital television 
transition. By January 1, 2009, the actual number of consumers 
dependent solely on analog broadcasting may be far less than the 15 
percent statutory maximum. For those remaining analog broadcast 
viewers, the FCC's digital tuner and ``plug and play'' mandates will 
help to drive down the costs of digital-to-analog 
converters.16
---------------------------------------------------------------------------
    \16\ Manufacture of DTV tuners and plug and play sets will create 
economies of scale for use of the same technology, e.g., chips, to be 
used for the digital-to-analog converters.
---------------------------------------------------------------------------
    Cable and satellite television subscribers would experience a 
seamless transition under the Bureau's proposal. During the transition, 
they will continue to have access to at least one programming stream 
from every must-carry broadcaster. Moreover, the growing levels of HDTV 
and other value-added digital programming to which these subscribers 
have access based on voluntary agreements will not be affected.
    Finally, no additional capacity burdens will be imposed on cable 
television systems, either during or after the transition. This is in 
stark contrast to the questionable constitutionality and inherent legal 
risk of the ``dual carriage'' proposal advocated by some.
                             v. conclusion
    After many long years of hard work by all involved, the end of the 
DTV transition is now in sight. I know some Subcommittee members have 
expressed specific concerns, particularly regarding those consumers who 
rely on over-the-air television service. We share those concerns and 
look forward to working with this Subcommittee to bring the transition 
to a successful conclusion that will benefit all consumers and the 
national economy.
    Thank you for the opportunity to discuss the Media Bureau's recent 
work involving the DTV transition. I would be happy to respond to any 
questions the Subcommittee has concerning the Bureau's framework 
proposal or any other issues related to the DTV transition.
                               ATTACHMENT
                                                         DA 04-1497
                                                       May 27, 2004
                          MB Docket No. 04-210
MEDIA BUREAU SEEKS COMMENT ON OVER-THE-AIR BROADCAST TELEVISION VIEWERS
Comment Date: July 12, 2004
Reply Comment Date: August 5, 2004

    Section 309(j)(14) of the Communications Act sets forth the 
conditions under which analog television broadcasting will end in the 
United States. Those conditions could be met as early as December 31, 
2006, although the statute provides for extensions of that date if 
certain marketplace criteria have not been satisfied. As contemplated 
by Section 309(j)(14), up to 15 percent of television households in a 
given market could lose television service altogether if they rely 
exclusively on over-the-air broadcasting and have analog-only sets when 
the transition ends. In the remaining households, analog sets that are 
not connected to a pay television service could lose service as well.
    In this Public Notice, we seek comment on options for minimizing 
the disruption to consumers when the switch-over to digital 
broadcasting occurs. We are primarily concerned with those households 
that rely exclusively on over-the-air broadcasting for their television 
service, but we seek comment more broadly on minimizing the impact on 
all consumers. First, we seek comment on the identity of those 
consumers that rely on over-the-air television broadcasting and why 
they do not subscribe to a pay television service. Second, we seek 
comment on potential options for minimizing the impact on these and 
other consumers when broadcasters are operating solely in digital.
    Given the statutory directives and the nature of the potential 
solutions, we anticipate that the data submitted will be used primarily 
to help formulate possible recommendations to Congress. The Commission 
may, however, take other steps as appropriate.
Over-the-Air Television Viewers
    We seek quantitative data on consumers who watch over-the-air 
broadcast television, including:
    (1) The number of households that rely solely on over-the-air 
broadcasting (``over-the-air households'') for their television 
service;
    (2) The number of households that subscribe to a multi-channel 
video service provider (``MVPD'') and have one or more television sets 
that rely on over-the-air broadcast service;
    (3) The number of analog-only television sets in use by the 
households identified in (1) and (2), above;
    (4) The number of digital television receivers in use in the 
households identified in (1) and (2), above, that are capable of 
receiving over-the-air digital broadcast television signals;
    (5) The demographic characteristics of over-the-air households, 
including age, race or ethnicity, and education and income levels;
    (6) The geographic characteristics of over-the-air households, 
including urban/rural and regional disparities;
    (7) Data on why over-the-air households do not subscribe to an MVPD 
service, including specific data on: (a) the number of over-the-air 
households that would like to subscribe but cannot afford it, (b) the 
number of over-the-air households that could afford to subscribe to an 
MVPD service but choose not to, and (c) the number of over-the-air 
households that would like to subscribe and could afford it but their 
MVPD service of choice is not available in their community (e.g., no 
cable system or no satellite provider with local-into-local service).
Options for Addressing Analog-Only Television Sets
    We also seek comment on options for addressing the potential 
disruption to consumers with analog-only television sets when the 
transition is complete. As an initial matter, we seek comment on the 
extent to which market forces can be expected to deal with this 
problem--e.g., consumers voluntarily buying digital-to-analog converter 
boxes before the end of the transition, cable or satellite providers 
that carry all of the local digital broadcast stations connecting 
additional sets in subscribers' homes to their networks, and 
broadcasters, wireless auction winners or others voluntarily 
subsidizing or deploying converter boxes in order to accelerate the 
transition. If marketplace forces alone cannot be counted on to address 
this issue, can and should the affected industries be required to take 
steps to minimize the potential for consumer disruption?
    If government action is warranted, we seek comment on the nature 
and scope of such involvement. Should the government subsidize 
consumers' purchase of digital-to-analog converter boxes, or should it 
procure and distribute the equipment itself? In either event, what 
minimum technical capabilities should the converter boxes have? What do 
converter boxes cost today and what are they expected to cost in the 
future?
    If a subsidy is appropriate, we seek comment on the type and amount 
of subsidy that should be considered. For instance, we seek comment on 
whether the subsidy should be in the form of a tax credit, a refundable 
tax credit, or a voucher. We also seek comment on whether the subsidy 
should be available for consumers who wish to purchase a digital 
television set in lieu of a digital-to-analog converter, or for those 
who wish to purchase a multi-channel video service from providers that 
carry all the local digital broadcast signals.
    We seek comment on the scope of any potential government action. 
Who would qualify for the government subsidy or other program? If the 
subsidy or other program is means-tested, what test should be used? We 
also seek comment on the number of devices that the government should 
subsidize. For instance, is one digital-to-analog converter box per 
household sufficient, or should the government subsidize the conversion 
of additional analog-only sets in consumers' homes? Should the 
government subsidize conversion equipment for over-the-air households 
that have at least one digital receiver and one or more analog-only 
sets? Should the government subsidize conversion equipment for MVPD 
subscribers who receive all the local digital broadcast signals on the 
television(s) hooked up to the pay service, but who have one or more 
analog-only sets not hooked up to the pay service?
    Finally, we seek comment on how a government program would be 
financed and administered. For instance, in bands where we intend to 
auction new licenses for spectrum freed up by the digital conversion, 
we seek comment on whether, under Section 309 and our precedent, we 
could require as a condition of the license that auction winners pay 
for conversion of analog-only equipment as part of a mandatory band-
clearing mechanism. We note that in other auctioned bands, we have 
required new entrants to bear the costs to retune existing equipment to 
new bands or replace such equipment. We also seek comment on whether a 
government subsidy program could be financed directly through auction 
revenues, spectrum license fees, or other funding mechanisms, although 
we note that some of these options would require legislation.
Procedural Matters
    Comments should be filed on or before July 12, 2004 and reply 
comments should be filed by August 5, 2004. Comments and reply comments 
may be filed using the Commission's Electronic Filing System (``ECFS'') 
or by filing paper copies. See Electronic Filing of Documents in 
Rulemaking Proceedings, 63 Fed. Reg 24121 (1998). All comments should 
reference MB Docket No. 04-210.
    Comments filed through the ECFS can be sent as an electronic file 
via the Internet to . Generally, 
only one copy of an electronic submission must be filed. In completing 
the transmittal screen, commenters should include their full name, U.S. 
Postal Service mailing address, and the applicable docket or rulemaking 
number. Parties may also submit an electronic comment by Internet e-
mail. To get filing instructions for e-mail comments, commenters should 
send an e-mail to [email protected], and should include the following words 
in the body of the message, ``get form.'' Parties who choose to file by 
paper must file an original and four copies of each filing. Filings can 
be sent by hand or messenger delivery, by commercial overnight courier, 
or by first-class or overnight U.S. Postal Service mail. The 
Commission's contractor, Natek, Inc., will receive hand-delivered or 
messenger-delivered paper filings for the Commission's Secretary at 236 
Massachusetts Avenue, N.E., Suite 110, Washington, D.C. 20002. The 
filing hours at this location are 8:00 a.m. to 7:00 p.m. All hand 
deliveries must be held together with rubber bands or fasteners. Any 
envelopes must be disposed of before entering the building. Commercial 
overnight mail (other than U.S. Postal Service Express Mail and 
Priority Mail) must be sent to 9300 East Hampton Drive, Capitol 
Heights, MD 20743. U.S. Postal Service first-class mail, Express Mail, 
and Priority Mail should be addressed to 445 12th Street, SW, 
Washington, D.C. 20554. All filings must be addressed to the 
Commission's Secretary, Office of the Secretary, Federal Communications 
Commission. In addition parties should serve a copy of each filing via 
e-mail or one paper copy to John Berresford, Suite 3-A662, Media 
Bureau, FCC, 445 12th St., S.W., Washington, D.C. 20554.
    Comments, reply comments, and other submissions will be available 
for public inspection during regular business hours in the FCC 
Reference Center, Federal Communications Commission, 445 12th Street, 
S.W., CY-A257, Washington, D.C. 20554. These documents also will be 
available electronically from the Commission's Electronic Comment 
Filing System. Documents are available electronically in ASCII text, 
Word 97, and Adobe Acrobat. Copies of filings in this proceeding may be 
obtained from Qualex International, Portals II, 445 12th Street, S.W., 
Room, CY-B402, Washington, D.C., 20554, telephone (202) 863-2893, 
facsimile (202) 863-2898, or via e-mail at [email protected]. To 
request materials in accessible formats for people with disabilities 
(Braille, large print, electronic files, audio format), send an e-mail 
to [email protected] or call the Consumer and Governmental Affairs Bureau 
at 202-418-0531 (voice), 202-418-7365 (TTY).
    For further information contact Rick Chessen, Media Bureau at (202) 
418-7200.
                                         By the Chief, Media Bureau

    Mr. Upton. Thank you.
    Mr. Fritts.

                  STATEMENT OF EDWARD O. FRITTS

    Mr. Fritts. Thank you, Mr. Chairman. Thank you for the 
opportunity to participate in this hearing on expediting the 
transition to digital television.
    The recently announced FCC Media Bureau plan to end analog 
television broadcasting is against the best interests of the 
American consumer, and, I would submit, premature. By counting 
local television signals that cable companies down-convert into 
an analog format as digital, the plan would turn the 
congressionally mandated 85 percent number on its head. 
Millions of Americans would potentially lose their local 
television service altogether, and millions more would find 
secondary television sets in their homes would be rendered 
obsolete. This was never the public policy objective of 
Congress.
    Since Congress began the transition, first by temporarily 
loaning spectrum for the transition, and second by establishing 
the 85 percent rule, it has consistently sought to advance 
three objectives: First, to bring benefits of digital 
technology to the American television viewer while 
strengthening our system of free over-the-air television and 
the unique benefits that system brings to American communities.
    Whether it be Amber Alerts, weather warnings, local news 
and public affairs, or life-line information during crises, 
local television stations are the only medium that can deliver 
these services to your constituents, our viewers. It was 
because of the inherent value of free over-the-air television 
that Congress established its second goal to minimize consumer 
disruption throughout the process. Changing out nearly 300 
million television sets from analog to digital would never be a 
simple process, but this committee made it clear that it sought 
to protect analog viewers.
    And the third goal was to free up the current analog 
television spectrum for other purposes. At the end of this 
transition, television broadcasters will use one-third less 
spectrum than is used today. We are the only industry to reduce 
the amount of spectrum we use while providing the same or 
additional services.
    Broadcasters share the goal of ending this transition by 
returning the analog spectrum. In fact, we have a strong 
economic incentive to do so, because we are now operating 
essentially two separate transmission systems. The FCC has 
taken three steps that have brought us close to realizing these 
goals: first, mandating TV sets be equipped with tuners; 
second, developing consumer-friendly plug-and-play standards; 
third, adopting broadcast flag technology to address copyright 
concerns.
    Local television stations have spent billions upholding our 
end of the pact. According to the FCC, there are now 1,411 
television stations on the air in digital in 207 markets 
serving over 99 percent of the U.S. television households.
    We believe the FCC can now take one more step to expedite 
this transition: ensuring the 70 million cable subscribers have 
access to local digital television signals. Today cable 
companies, which largely enjoy monopoly status, are denying 
consumer access to the vast majority of DTV broadcast services. 
NAB has introduced a plan that allows a broadcaster to choose 
either must carry for its digital signal or must carry for its 
analog signal. And this NAB/MSTV plan, we believe, is a 
proconsumer proposal. It does not mandate dual carriage, nor is 
it burdensome to cable operators, and the FCC could adopt it 
today. This is a plan that will expedite the DTV transition 
rather than delay it, and it calls for immediate action, rather 
than waiting for 5 years. It is a plan that protects consumers' 
interests while accelerating the transition.
    On the other hand, the proposal recently floated by the 
Media Bureau would wait 5 years, until 2009, to focus 
exclusively on retrieving the analog spectrum at the expense of 
consumers and to the detriment of local television. This plan 
would count as digital households the cable subscribers that 
receive a digital signal in a down-converted analog format. Why 
is that a solution? We have been spending billions of dollars 
and years, as has been mentioned here earlier, developing 
digital television.
    The Media Bureau plan, with all due respect to my good 
friend Ken Ferree, who I believe does a terrific job on most 
items, has it backwards. It takes TV from digital to analog, 
rather than from analog to digital. Furthermore, it will cause 
massive disruption with the consumers. In short, the Media 
Bureau plan turns its back on Congress' aspiration of bringing 
digital television into Americans' living rooms.
    Mr. Chairman, all of us, the Congress, the Commission, 
local broadcasters and the public, are close to bringing this 
transition to an end and thus achieving Congress' three goals. 
So I would urge the committee to reject any proposal that would 
pull the plug on digital television just as your constituents 
begin to turn it on. Thank you.
    [The prepared statement of Edward O. Fritts follows:]
  Prepared Statement of Edward O. Fritts, President and CEO, National 
                      Association of Broadcasters
    Thank you, Mr. Chairman, for the opportunity to appear today on the 
issue of advancing the digital television transition, and in 
particular, the Media Bureau's proposal for completing the transition. 
My name is Eddie Fritts. I am President of the National Association of 
Broadcasters.
    Broadcasters appreciate the efforts of Mr. Ferree and his staff to 
think creatively about ways to speed the DTV transition. We are also 
grateful for the Bureau's attempts to revise its thinking to address 
some of the plan's defects identified by broadcasters and others. For 
example, we support the Bureau's decision to move the target date for 
its plan to end the transition back from 2006 to 2009, thereby 
acknowledging the enormous dislocation and viewer disenfranchisement 
that the earlier date would have triggered.
    Nevertheless, we remain concerned about other elements of the plan, 
specifically because it mandates the down-conversion of broadcasters' 
digital signals at a cable or satellite operator's headend. This is a 
fundamental flaw since the plan not only sanctions cable operators' 
degradation of broadcasters' digital signals--in violation of the 
Communications Act--but it would also thwart the many benefits that 
digital service will deliver to consumers. In addition, the plan would 
block Congress' overarching goal for the digital transition, which is 
to assure the universal availability of digital services to the 
American public. Finally, the Ferree plan, by forcing broadcasters to 
choose between carriage of their full signals or serving their entire 
audience, would leave them second-class citizens in a digital world, 
instead of taking advantage of digital technology to strengthen free 
television service.
    Our understanding of the Bureau plan is as follows: In the 2009 
must-carry-retransmission consent election cycle (October 1, 2008 
deadline for carriage beginning January 1, 2009), television stations 
would have must-carry rights only for their digital signals. For 
stations electing must-carry, cable operators would be required to make 
broadcasters' digital signals ``available'' to subscribers by: (1) 
down-converting a single digital stream from each broadcaster to analog 
at the cable operator's headend; or (2) passing through broadcasters' 
digital signals, where all subscribers have the ability to receive and 
display digital signals (e.g., through a converter box or a digital 
plug-and-play set).1 Broadcasters would be allowed to 
negotiate for other carriage rights, such as for HDTV programming, as 
they do today.
---------------------------------------------------------------------------
    \1\ Satellite carriers would carry one down-converted stream to 
subscribers in local-into-local markets.
---------------------------------------------------------------------------
    Under this scenario, the Media Bureau claims that cable's carriage 
of a single digital stream, even if down-converted at the cable 
headend, would satisfy the requirement under Section 
309(j)(14)(B)(iii)(I) that an MVPD must carry ``at least one DTV 
program channel of each station in the market that is on-air in DTV.'' 
Thus, the approximately 68 percent of television households that 
receive television service over cable subscribers, and 10 percent who 
do so via satellite, would count towards the 85 percent statutory 
threshold for when the transition will end. Combining these households 
with those who will receive DTV over-the-air would mean that the 
transition will end soon after the Bureau's proposal became effect. In 
markets where the penetration threshold is met, analog broadcasting 
would cease and the government would reclaim the analog spectrum. At 
that time, a second election would occur and broadcasters could choose 
to have their digital signals, including any multicast channels, passed 
through to subscribers' homes rather than down-converted at the 
headend. Cable and satellite systems would have no obligation to ensure 
that subscribers without DTV receivers could see local broadcast 
signals.
    Let's examine some of the consequences of the Ferree plan. As 
Congress contemplated in the 1997 Budget Act, when analog broadcasting 
ends, 15 percent of all TV households--about 16,200,000 homes--will 
lose all television service until they purchase a DTV converter or a 
new set. We commend the FCC for its recent request for comments on how 
to avoid this disruption. Of course, analog sets in homes with DTV 
receivers will also lose service. But, under the Bureau proposal, a 
second transition will occur shortly after the FCC deems the 85 percent 
threshold to be met. At that time, the Bureau says broadcasters will 
have a second election between cable and satellite carrying their down 
converted signals or carrying their now-digital signals in digital 
form. If they choose the latter path--in order to obtain the benefits 
of digital technology that Congress wanted to achieve--millions of more 
cable and satellite homes without DTV receivers or converters will lose 
local broadcast service unless their cable or satellite provider 
voluntarily provides either a converter or agrees to carry a down-
converted signal in addition to the digital signal. These homes will 
lose access to local news, local political broadcasts, local emergency 
announcements, publicity for local charities and community groups and 
all the other services local stations provide. Thus, while the prospect 
of losing local service for some consumers was always part of Congress' 
plan to transition to digital, the Ferree plan multiplies the number of 
consumers who will lose access to local broadcasting. Consumers under 
this plan will pay a high--and totally unnecessary--price.
    I am not here just to criticize. To the contrary, broadcasters 
applaud the Commission, and especially Chairman Powell, on the great 
strides it has taken so far towards completing the digital transition. 
In 2001, the Commission adopted revised build-out rules that have been 
extremely successful in getting TV stations on air in digital. In 2002, 
Chairman Powell introduced his plan that recognized the key fact that 
all parts of the television industry--programmers, stations, 
multichannel video programming distributors and manufacturers--must 
play an active role in the transition to digital. The Powell Plan also 
recognized the importance of the availability to consumers of high 
definition signals in high definition format. Then, in 2003, the 
Commission adopted vital rules addressing plug and play and the 
broadcast flag, as well as rules mandating that all new television sets 
have a DTV tuner. Each of these steps has helped move the DTV 
transition towards a rapid conclusion.
    Indeed, we are almost there. Broadcasters sincerely believe that 
with the steps the Commission has taken so far, and a few additional 
steps designed to address the remaining issues, as discussed below, we 
will reach the end of the DTV transition in most markets by 2009 
without the need to go outside the statutory framework, as would be the 
case under the Bureau's proposal. Broadcasters and others already have 
entered into the Commission's record several proposals with the 
potential to rapidly resolve the few remaining issues and bring a 
prompt end to the transition within the statutory framework.
    Even without the final pieces of the puzzle in place, evidence of 
the remarkable progress made so far can be found everywhere, due in no 
small measure to broadcasters' commitment and actions. Our industry has 
spent enormous sums of money and undertaken extraordinary steps to 
implement the transition, and I am pleased to report that these efforts 
are paying off. Broadcasters have built--and are on air with--DTV 
facilities in 207 markets that include 99.69% of all U.S. TV 
households.2 Midway through the transition, almost three-
quarters--73.7%--of U.S. television households have access to at least 
six free, over-the-air digital television signals.3 
Nationwide, at least 1411 television stations in 207 markets are 
delivering free, over-the-air digital signals today.4 
Currently, more than 70 million households receive six or more DTV 
signals; 49 million households receive nine or more DTV signals; and a 
full 30 million households receive 12 or more DTV signals. More and 
more digital stations are overcoming their unique obstacles and going 
on air almost daily. The digital transition is working and moving ahead 
quickly, and any claims to the contrary are simply untrue.
---------------------------------------------------------------------------
    \2\ National Association of Broadcasters, DTV Stations in 
Operation, http://www.nab.org/Newsroom/issues/digitaltv/DTVStations.asp 
(as of May 25, 2004).
    \3\ See Mark R. Fratrik, Ph.D, Reaching the Audience: An Analysis 
of Digital Broadcast Power and Coverage (BIA Financial Network, Oct. 
17, 2003) (prepared for the Association for Maximum Service Television, 
Inc.) (``MSTV Study'').
    \4\ See www.fcc.gov/mb/video/dtvstatus.html (``Commission 
statistics'').
---------------------------------------------------------------------------
    In the top ten markets, covering 30% of U.S. households, all top 
four network affiliates are on-air with digital signals,5 
and in markets 11-30 (24% of U.S. households), all 79 top four 
affiliated stations are on-air.6 Thus, all ABC, CBS, Fox, 
and NBC affiliates in the top 30 markets, representing 53.5% of all 
U.S. households, are on air with DTV. Even smaller stations in these 
markets and in smaller markets are making terrific progress, with at 
least 1292 out of a total 1524 stations currently on air in 
digital,7/ and this despite the far fewer resources of these 
stations. In fact, many firms have been forced to mortgage their 
stations to afford the equipment needed to implement the transition, 
and without any immediate prospect of revenues to offset these huge 
investments.
---------------------------------------------------------------------------
    \5\ This includes 38 with licensed full-power digital facilities 
and two New York City stations with Special Temporary Authority 
(``STA'') currently covering a significant chunk of their service areas 
and with plans to expand even more.
    \6\ This includes 72 with full-power licensed digital facilities 
and seven with STAs.
    \7\ See Commission statistics.
---------------------------------------------------------------------------
    On the programming side, both networks and local stations are 
providing an extraordinary amount of high-quality DTV and HDTV 
programming, as well as a growing number of valuable multicast 
channels, to entice viewers to join the digital television transition 
and purchase DTV sets. For example, three networks currently offer 
virtually all their prime time programming in HDTV, along with high-
profile specials and sporting events like the Academy Awards and the 
Grammy's, the Masters, and playoff games in all the major professional 
sports leagues.
    Local stations are also doing more all the time to supplement the 
network HDTV and multicast fare, at an enormous cost for full local HD 
production facilities. Examples of local HDTV programming abound, 
including WRAL-TV's (Raleigh, NC) daily local newscast, the broadcast 
of America's Thanksgiving Day Parade by Post-Newsweek's station in 
Detroit, and KTLA's (Los Angeles, CA) broadcast of the Rose Parade in a 
commercial-free HD broadcast that was simulcast in Spanish and closed 
captioned and distributed on many Tribune and other stations, not to 
mention the large quantity of children's education, foreign language 
programming and gavel-to-gavel coverage of state legislatures provided 
by non-commercial DTV television stations nationwide. Indeed, the FCC's 
recent localism hearing in San Antonio was provided to local viewers in 
full on a multicast channel of Belo's San Antonio station.
    All of these developments demonstrate that broadcasters are more 
anxious than anyone to get the transition over and done with. 
Broadcasters have no interest in shouldering the enormous costs of 
operating dual facilities any longer than absolutely necessary to avoid 
disruption to consumers. Building a second transmitter, and then 
maintaining and powering two transmitters for any period of time is 
extremely expensive, especially since there will be no opportunity to 
recover much of these costs. Similarly, any need to repair or replace 
analog equipment now is little more than wasted resources. Indeed, by 
the time the transition is over, broadcasters will spend between $10 
and $16 billion to fully convert to digital, and we simply cannot 
afford to strand this investment, or accept any further delays in our 
ability to provide new digital services to recoup at least some of this 
investment.
    The purpose of the transition is to convert the American system of 
broadcasting to digital, ultimately for the benefit of the American 
consumer, not the broadcaster or the cable operator.8 
Congress sought to achieve three overarching goals in the DTV 
transition:
---------------------------------------------------------------------------
    \8\ 142 Cong. Rec. H8254-03 (explaining that broadcast licensees 
will have to make a huge investment in the digital transition ``[t]hat 
is for the benefit of the public, which is going to be watching a new 
kind of technology coming over their television sets'') (Rep. Dingell).

(1) Bring the benefits of digital technology with its potential for 
        more programming options and advanced services to consumers;
(2) Avoid the loss of free television to large numbers of consumers 
        stranded with analog-only receivers; and
(3) Reclaim channels 52-69 to be reallocated for other 
        purposes.9
---------------------------------------------------------------------------
    \9\ 47 U.S.C.  309(j)(14)(B).
---------------------------------------------------------------------------
    The Commission's actions under the Powell Plan have put the DTV 
transition on the right track towards completing the DTV transition. On 
the other hand, the Media Bureau's plan would knock the transition off 
course by focusing the Commission's attention solely on the third goal 
above, while essentially ignoring the first goal, and either punting on 
the second or perhaps making it harder to achieve.10 The 
Commission, however, may not pick and choose among the goals Congress 
established for the transition; rather, it must treat them all as 
equally important. The plan's emphasis on reclaiming spectrum as soon 
as possible is misplaced. For example, Congress's rejection in the 
Auction Reform Act of band clearing plans that would reduce the level 
of free television service clearly shows that early return of spectrum 
at the cost of television service is contrary to Congressional 
intent.11
---------------------------------------------------------------------------
    \10\ The Bureau's plan leaves the first two goals to the 
marketplace to achieve or not, although as noted above, the second 
election contemplated in the plan could result in millions of 
additional stranded analog homes. The Bureau apparently believes that 
full carriage of local broadcast digital signals will occur on cable 
systems through the operation of marketplace forces. The underlying 
point of the 1992 Cable Act, however, was that cable systems' carriage 
decisions were not based on consumer preference but on the opportunity 
to disadvantage competitors for advertising and ratings. See Cable 
Television Consumer Protection and Competition Act of 1992, Pub. L. No. 
102-385,  2(a)(15).
    \11\ Auction Reform Act of 2002, Pub. L. No. 107-195,  6, 116 
Stat. 715 (2002).
---------------------------------------------------------------------------
    The Bureau's plan conflicts with both Congressional intent and the 
Communications Act, and would undermine the economic incentives of 
consumers, set manufacturers and broadcasters to expedite the 
transition and achieve the consumer benefits of digital television.
    First, the Bureau plan violates Congress' vision for the DTV 
transition. The crux of the plan is to count cable and satellite homes 
as ``digital'' when, in reality, these households would receive only 
down-converted analog versions of digital signals; that is, the same 
analog quality they received before. Nevertheless, the Bureau would 
count all cable and satellite homes in a market toward the 85 percent 
benchmark for purposes of declaring the digital transition complete. 
However, in passing Section 309(j)(14), Congress intended that 
consumers would set the course for ending analog broadcasting, and not 
just watch from the sidelines while cable drives the pace car. 
Specifically, Congress recognized ``that not all consumers and 
broadcast stations will convert to the new digital services format at 
the same time,'' 12 and thus acted to ensure that ``a 
significant number of consumers in any given market are not left 
without broadcast television service'' at the end of the 
transition.13 The statute is squarely focused on the 
percentage of consumers who can actually receive and view digital 
signals in their homes, so that analog broadcasting may not end until 
it means that substantial numbers of consumers will not lose service. 
The number of digital signals delivered to cable or satellite operators 
is irrelevant.14
---------------------------------------------------------------------------
    \12\ H.R. Conf. Rep. No. 105-217, at 576 (1997).
    \13\ H.R. Conf. Rep. No. 105-2015 (1997).
    \14\ Moreover, it makes no sense to think that Congress intended 
that the 85 percent threshold could be crossed through a combination of 
cable and satellite subscribers. If this was the case, then the 
transition would be over in some markets before it ever started, since 
MVPD penetration already has reached over 85 percent of the television 
households in certain areas. Nothing in the legislative history 
contemplates calculating the benchmark in such a way, and the Congress 
and the Commission should recognize the Bureau's proposal for what it 
is; that is, a last-minute, artificial maneuver.
---------------------------------------------------------------------------
    The Ferree plan, by focusing only on the provision of Section 
309(j)(14)(b)(iii)(I) that refers to carriage of a digital programming 
channel, entirely reads out of the statute the next subsection. Section 
309(j)(14)(b)(iii)(II), provides that, in addition to carriage of a 
digital programming channel from each local DTV station, analog service 
should continue until 85 percent of TV homes in a market have either a 
DTV receiver or at least one DTV converter. Note that Congress--with 
laser-beam precision--required DTV reception capability at the home, 
not at a cable or satellite headend. Thus, the Ferree plan simply 
misreads the FCC's governing statute.
    Congress thus intended for consumers to have the choice of viewing 
local broadcast signals in digital format over new receivers or in 
analog format with converters attached to their old analog sets. The 
distinction between conversion at the headend or at a consumer's home 
is critical. In the latter case, while not being able to view HDTV, 
consumers could still have access to the full range of other broadcast 
digital services. Under the Bureau Plan with conversion at the headend, 
consumers would receive only a version of what they get today, without 
any of the benefits of digital. However, for consumers to have a 
meaningful choice about the way they will receive DTV, local 
broadcasters' digital signals must be delivered all the way to the 
television sets in consumers' homes, not just to the cable or satellite 
provider where they will be converted back to analog. Nothing in the 
statute or its legislative history contemplates counting cable and 
satellite subscriber without digital receive technology towards the 85 
percent benchmark.
    Down-conversion of broadcasters' digital signals at the headend 
also directly violates the Communications Act's bar on material 
degradation of local broadcast signals.15 Specifically, 
pursuant to section 614(b)(4)(A) of the Act, the Commission's rules 
must make sure that, ``to the extent technically feasible, the quality 
of signal processing and carriage provided by a cable system for the 
carriage of local commercial television stations will be no less than 
that provided by the system for carriage of any other type of signal.'' 
16
---------------------------------------------------------------------------
    \15\ 47 U.S.C.  614(b)(4)(A), 615(g)(2).
    \16\ DTV Must Carry Notice, 13 FCC Rcd 15122. A similar provision 
applies to DBS carriage of local broadcast signals. 47 U.S.C.  338(g).
---------------------------------------------------------------------------
    The Commission has recognized this mandate, stating in the DTV 
Must-Carry First Report and Order that ``the issue of material 
degradation is about the picture quality the consumer receives and is 
capable of perceiving . . .'' 17 The Commission went on to 
recognize specifically that, ``in the context of mandatory carriage of 
digital broadcast signals, a cable operator may not provide a digital 
broadcast signal in a lesser format or lower resolution than that 
afforded to any digital programmer . . . carried on the cable system, 
provided, however, that a broadcast signal delivered in HDTV must be 
carried in HDTV.'' 18
---------------------------------------------------------------------------
    \17\ First Report and Order and Further NPRM, 16 FCC Rcd 2598, 2629 
(2001).
    \18\ Id. (emphasis added). Moreover, Section 614(b)(4)(B) 
specifically requires that the FCC adapt the carriage rules applicable 
to analog signals to achieve the same goals for advanced television 
signals. Strengthening cable systems' gatekeeper opportunities, as the 
Bureau plan does, would be directly opposite to this statutory 
directive.
---------------------------------------------------------------------------
    The Bureau's proposal, however, would reverse that conclusion. 
Indeed, the Bureau's plan not only permits, but requires cable 
operators to do exactly what the Communications Act prohibits: carry 
local broadcast signals in a degraded fashion (i.e., down-converted) 
such that cable and satellite subscribers will receive digitally 
broadcast signals in a lesser format, while cable digital signals would 
be distributed as is. Consumers with digital receivers or converters 
should be able to receive television service through their cable or 
satellite provider that, at a minimum, is equal in quality to what they 
can obtain over-the-air. NAB can find no other reasonable way to read 
Section 614(b)(4)(A).
    Third, the Bureau's proposal undercuts the economic incentives of 
almost all the relevant parties to advance the transition. The fact 
that cable and satellite households would count as digital households 
under the plan, even though they will not actually receive digital 
television service, will reduce consumer demand for new digital 
television sets. Cable and DBS subscribers who recently purchased 
digital capable sets certainly will be upset to discover that their 
investment was for naught, since they still we be unable to view their 
local stations in digital, or access the additional local public 
interest programming and services that broadcasters will provide on 
multicast channels. It follows that word-of-mouth interest in digital 
programming will slow, as people with digital sets will not receive any 
programming or services they might praise to their friends or 
neighbors. Furthermore, people not yet interested in upgrading their 
television sets will find it more difficult to sample the benefits of 
digital service.
    In turn, the Bureau's proposal would stall the development of new 
and innovative free broadcast services that optimize consumer benefits, 
including not only HDTV, but also novel multicast services, many of 
which will deliver programming on local public affairs, or in Spanish 
and other languages, local weather and traffic, and other community-
oriented fare. The opportunity for these new universal free services 
was one of the key reasons that Congress authorized the DTV transition, 
and it is simple economics that the consumer appeal of the HDTV/
multicast mix will help drive the transition. However, the Bureau's 
plan would undercut broadcasters' incentives to invest in the creation 
of these new services. Indeed, the Bureau's proposal may better suit a 
digital-to-analog transition than the analog-to-digital transition 
envisioned by the Congress and the American public.
    Moreover, with respect to broadcasters, the Bureau's must-carry 
provision offers local television stations an impossible ``Hobson's 
Choice.'' That is, the plan would give broadcasters the right, after 
their analog signals are shut down, to choose between down-conversion 
of their digital signals to analog at the cable headend, or cable's 
pass-through of broadcasters' digital signals, without any provision 
requiring cable systems to make them viewable on analog receivers. 
Thus, a broadcaster could choose down-conversion of its signals at the 
cable headend, and thereby block the delivery of HDTV or any other 
digital service to the many consumers who already have invested in 
digital television sets. Or, a broadcaster could have its digital 
signals passed-through, and thereby cut off service to the millions of 
households that still have analog receivers. The Bureau's plan is a no-
win proposition for consumers.
    Mr. Chairman, the purpose of the transition is to convert the 
American system of broadcasting to digital, ultimately for the benefit 
of the American consumer, not for the benefit of the broadcaster or the 
cable operator. Congress directed the FCC to craft rules to ensure that 
cable subscribers get access to broadcasters' digital signals, whether 
HDTV or multicast or a mix.19 However, the Bureau's proposal 
would sacrifice that goal to focus exclusively on the goal of 
reclaiming the spectrum for new purposes. Indeed, the Bureau's idea not 
only would fail to advance, but also would retard, the primary goal of 
the transition: to deliver improved digital signals to the public and 
replace viewer reliance on analog service. Several specific harms to 
consumers would result:
---------------------------------------------------------------------------
    \19\ 47 U.S.C.  614(b)(4)(B).

 No assured HDTV for cable viewers with digital sets: Cable homes with 
        digital sets would not be assured of access to HDTV or 
        multicast services because cable operators would down-convert 
        broadcast digital signals at the headend, unless television 
        stations elected to pass-through their digital signals at the 
        cost of disenfranchising MVPD subscribers with analog sets.
 No assured HDTV for DBS viewers with digital sets: DBS systems could 
        presumably downconvert broadcasters' HDTV services pursuant to 
        the Bureau's proposal indefinitely into the future, so that 
        even DBS homes with DTV sets would not receive HDTV 
        service.20
---------------------------------------------------------------------------
    \20\ Allowing DBS providers to deliver high definition distant 
signals to subscribers would not be a remedy and indeed would harm 
local digital broadcast service. Like cable operators, DBS providers 
should be required to provide local digital signals without 
degradation, as the Act requires. See Letter from Marsha J. MacBride 
and Benjamin F.P. Ivins, National Association of Broadcasters, to 
Michael K. Powell, Chairman, FCC, in MB Docket No. 03-15 (Mar. 22, 
2004).
---------------------------------------------------------------------------
 Stalled access to affordable digital sets: Cable subscribers with 
        analog sets will have reduced incentives to purchase digital 
        sets because they would have no assurance of receiving 
        broadcasters' digital signals after making that investment. As 
        a result, the price for digital sets would remain high, thereby 
        discouraging adoption by American viewers.
 No television service of any kind for analog over-the-air households, 
        including many rural and poor viewers: Over-the-air viewers 
        with digital sets would continue to receive service after 2009, 
        but over-the-air viewers with analog sets, unless they 
        purchased set-top boxes, would lose service. Many rural viewers 
        and the poor would be disenfranchised, and broadcasting would 
        lose its proud achievement of providing universal 
        service.21
---------------------------------------------------------------------------
    \21\ Although the Bureau appears to recognize the need for 
Congressional action to take care of consumers who would be stranded by 
the Bureau Plan, statements by Bureau officials seem to indicate that 
the Commission could act on its own to adopt the Ferree plan. It is 
worth noting in this regard that even the cable industry has concluded 
that a Berlin-like forced transition is not appropriate for the United 
States. See Letter from Michael S. Schooler, NCTA, to Marlene H. 
Dortch, CS Docket Nos. 98-120, 03-15 (March 29, 2004) & Attachment.
---------------------------------------------------------------------------
    In addition to the consumer harms described above, the Bureau's 
proposal would also harm the public interest:

 Harm to the DTV transition: The incentive for consumers to obtain DTV 
        receivers or converters would decline, delaying or preventing 
        the benefits of digital technology flowing to consumers. The 
        consumer benefits of the Commission's tuner and plug and play 
        decisions would largely be lost since most consumers would 
        receive only analog versions of DTV signals.
 Harm to manufacturers: Set manufacturers would suffer because the 
        plan would discourage the demand for digital sets and for new 
        digital features that receiver manufacturers have been mandated 
        to produce in increasing volume.
 Harm to diversity: Cable programmers would not have the greater 
        access to cable carriage that would result if cable systems 
        were to transmit broadcasters' digital signals from their 
        headends, which would free up 50 percent of the capacity that 
        cable systems currently devote to carriage of broadcast 
        signals.22 Also, programmers seeking access to 
        consumers over broadcasters' multicast services would be 
        thwarted because there would be no assurance that consumers 
        could receive them.
---------------------------------------------------------------------------
    \22\ This would not be the case where broadcasters chose full 
digital pass-through.
---------------------------------------------------------------------------
 Harm to localism and public service: By not being able to deliver 
        HDTV and multicast services to cable and DBS subscribers with 
        HDTV sets, broadcasters would be relegated to second-class 
        status. After analog broadcasting ends, many cable households 
        would lose access to local signals and their essential services 
        altogether. Avoiding these results and strengthening the free, 
        over-the-air system were the reasons the Commission and 
        Congress supported the DTV transition in the first place. 
        Broadcasters' efforts to deliver localized multicast services 
        (local news and weather and local sports coverage, for 
        example), as well as multicast services offered by independent 
        programmers, would be aborted.23
---------------------------------------------------------------------------
    \23\ This harm could be avoided under the revised Bureau plan by 
broadcasters' choosing digital pass-through, but only at the cost of 
cable homes with analog sets losing local broadcast service.
---------------------------------------------------------------------------
    As noted above, the broadcasting industry sincerely believes that 
the Commission under the Powell Plan is on the right track towards an 
end to the transition. The Commission has taken several successful 
actions to expedite the conclusion, including rules governing cable 
compatibility, the broadcast flag and tuner requirements, and with a 
few more steps designed to address the remaining issues, NAB is 
convinced that the digital transition will reach a natural conclusion 
in most markets on its own by 2009. It is simply unnecessary to adopt a 
proposal that violates the Act, Congress' intent, and consumers' 
interests, in an ill-conceived attempt to accelerate the transition.
    First, and most significantly, the Commission must deal with the 
issue of cable carriage of digital signals. This question continues to 
stall what has been the Commission's otherwise constructive 
implementation of Congress' will. NAB and MSTV have already placed in 
the Commission's record a reasonable, middle ground position that will 
advance the transition consistent with the Act and not harm 
consumers.24 Specifically, MSTV and NAB proposed in November 
2003 that a cable system be permitted to ``terminate carriage of a 
station's analog channel if the cable system (a) passes through the 
station's digital signal to all digital television receivers and (b) 
down-converts the digital signal for receipt at no extra charge on all 
analog-only receivers for carriage on the analog basic tier.'' 
25 Such a rule would:
---------------------------------------------------------------------------
    \24\ This proposal imposes no material burden on cable operators. 
At its option, a cable system could cease carrying broadcasters' analog 
signals when it had provided digital set-top boxes to all of its 
subscribers. Cable operators recently have volunteered to provide new 
set-top boxes in order to ensure broad-based channel blocking 
capability by all consumers (in an effort to avoid Congressional 
decency mandates).
    \25\ Letter from Edward O. Fritts, NAB, and David L. Donovan, MSTV, 
to Michael Powell, Chairman, FCC, in CS Docket Nos. 98-120, 00-96, at 2 
(Nov. 25, 2003).

 Ensure that all non-subscription content in digital signals are 
        passed through to subscribers' homes without material 
        degradation;
 Allow MVPD households with analog sets to continue to receive local 
        broadcast signals by down-converting at the home; and
 Count toward the 85 percent threshold only those households that 
        receive un-degraded digital signals.
    Other steps that the Commission must take to bring the transition 
to an end by 2009 include rapidly resolving long-pending negotiations 
with Canada to provide interim DTV channels for all U.S. stations. The 
Commission also should initiate discussions to develop a final DTV 
channel agreement with Canada and Mexico. Further, the Commission 
should require stations with analog and DTV assignments in the ``core'' 
to make a channel election in 2005. All of these steps are essential to 
developing a final channel assignment plan, something that must be 
completed well before the end of the transition so that stations can 
construct and move to new digital facilities.
    Broadcasters already have discussed with Commission staff a 
repacking plan that represents industry-consensus on how to address the 
many thorny, technical relevant issues. To date, however, the 
Commission staff has not been receptive to industry's efforts, although 
we remain committed to cooperating with the Commission to craft a 
workable repacking plan that addresses all of the Commission's 
concerns.
    Mr. Chairman, the Commission and the country are on the threshold 
of achieving the primary goal of the digital transition: the ubiquitous 
availability of HDTV (and multicast services) to all Americans on 
television receivers that are becoming increasingly affordable and of 
higher quality. NAB believes that the Commission under the Powell Plan 
has brought us to the cusp of success, and that the prompt resolution 
of a few remaining issues will ensure a natural end to the transition 
before the end of 2009. On the other hand, the ``short cuts'' offered 
in the Media Bureau's plan will stall, if not nullify, all of the 
efforts already made by the Commission, broadcasters, cable operators, 
manufacturers, and most importantly, the American public. NAB believes 
that the Commission instead should remain faithful to the path that 
Congress envisioned and correctly believed would best serve consumer 
interests.

    Mr. Upton. Thank you.
    Mr. Sachs, welcome.

                    STATEMENT OF ROBERT SACHS

    Mr. Sachs. Thank you, Mr. Chairman and members of the 
subcommittee. Thank you for providing us this opportunity to 
testify this morning. This subcommittee has played a pivotal 
role in promoting the transition from analog to digital 
television. Your leadership has produced increased cooperation 
among all parties.
    For cable's part, I am pleased to report that our industry 
has made substantial progress in creating and delivering high-
definition programming and other digital cable services to 
consumers. We have also negotiated a landmark agreement with 
the consumer electronics industry for digital cable-ready 
products, and cable operators have voluntarily entered into 
agreements to carry digital TV signals of nearly 400 local 
broadcast stations.
    The technological advances which have transformed our 
business have resulted from cable companies investing risk 
capital without any government guarantees or subsidies. With an 
8-year capital investment of nearly $85 billion that began with 
passage of the 1996 Telecommunications Act, the cable industry 
has built a highly versatile broadband infrastructure.
    In addition to offering high-speed Internet and digital 
phone service, cable systems now provide HDTV, personal video 
recording, video on demand and other interactive digital 
services. More than 30 percent of basic cable customers already 
subscribe to digital cable.
    The full scale deployment of HDTV has been the fastest 
rollout of any cable product. HD is today available from at 
least one cable system in 99 of the top 100 markets, plus 56 
smaller markets. Cable companies across the U.S. are offering 
digital programming packages that include a mix of broadcast 
and cable HD content. As of March 31 of this year, cable 
systems carried 382 broadcast stations offering HDTV, a more 
than fourfold increase since January 2003. This remarkable 
growth demonstrates that market forces are working and working 
well.
    According to Keegan Research, a leading industry analyst, 
12 million, or about 10 percent, of U.S. TV households will own 
digital televisions by the end of this year. By the end of 
2008, Keegan projects that number will soar to 64 million or 55 
percent of television households. Similarly Keegan projects 
digital cable subscribership will jump from 23 million, or 30 
percent of cable households today, to 41 million, or about 60 
percent in 2008, the end of 2008.
    Even with such impressive growth, by the Media Bureau's 
proposed DTV transition date, December 31, 2008, tens of 
millions of American consumers will still watch television on 
analog TV sets. And herein lies the real challenge of 
expediting return of the analog broadcast spectrum.
    We commend FCC Media Bureau Chief Ken Ferree and his staff 
for thinking creatively about ways to complete the transition, 
while at the same time minimizing disruption to consumers. We 
think all stakeholders would benefit by having greater 
certainty as to the transition's end date, be it December 31, 
2008, or some other date.
    Clearly, the biggest challenge posed by the DTV transition 
is to ensure uninterrupted television viewing by the 
approximately 15 percent of TV households that don't subscribe 
to cable or DBS. Having sufficient numbers of low-cost digital-
to-analog broadcast converter devices available in the market 
is essential to avoiding massive consumer disruption.
    Also, it must be recognized that at year end 2008, at the 
time that the transition would occur under the Bureau's plan, 
only 40 million or 41 million cable subscribers would be 
digital cable subscribers. Another 30 million would still have 
not voluntarily upgraded from analog to digital. For this 
reason, we think the Bureau plan has it right by recognizing 
that digital-to-analog conversion of broadcast signals at a 
cable system's head end may be the best way to ensure 
uninterrupted viewing of broadcast television by millions of 
analog-only cable subscribers.
    However, we respectfully disagree with the Bureau's 
suggestion that must carry broadcasters should decide whether a 
cable operator can convert digital broadcast signals to analog 
at the cable system head end. Cable operators have a great 
interest in minimizing disruption to cable customers, so we 
believe it would be more appropriate to let them determine how 
to deliver digital must carry broadcast signals to their 
customers, at least until cable systems are fully digital or 85 
percent of a cable systems customers have digital-to-analog 
equipment. An earlier version of the Bureau's plan recommended 
just this.
    Second, the DTV transition plan should not expand existing 
must carry broadcast rights. The FCC has already ruled that a 
cable operator is not required to carry under the Cable Act 
more than one digital video channel per broadcast station. As 
we explain in our written testimony, mandated cable carriage of 
up to six digital video channels per broadcast station would be 
harmful to cable programmers, operators and consumers, and do 
nothing to advance the digital TV transition.
    In closing, Mr. Chairman, let me reiterate that the Media 
Bureau should be commended for putting forward ideas for others 
to scrutinize. These are complex issues that warrant thorough 
review. We appreciate as well the evolving nature of the 
Bureau's plan and the Bureau's willingness to consider further 
changes.
    Finally, let me again congratulate this committee for its 
leadership in exploring ways to expedite the digital television 
transition. Since the DTV roundtable discussions that committee 
leaders convened 3 years ago, a great deal of progress has been 
made, and much of this is due to your constructive efforts. 
Thank you very much.
    [The pepared statement of Robert Sachs follows:]
 Prepared Statement of Robert Sachs, President and CEO, National Cable 
                   and Telecommunications Association
    Mr. Chairman, and members of the Subcommittee, my name is Robert 
Sachs and I am President and CEO of the National Cable & 
Telecommunications Association. NCTA is the principal trade association 
of the cable television industry in the United States. It represents 
cable operators serving more than 90% of the nation's approximately 70 
million cable television households and more than 200 cable program 
networks, as well as equipment suppliers and providers of other 
services to the cable industry. Thank you for providing me with the 
opportunity to testify this morning.
                              introduction
    This Subcommittee has played a pivotal role in promoting the 
transition from analog to digital television and I commend you for your 
ongoing commitment to seeing the process through to completion. Your 
leadership has been important to encouraging increased cooperation and 
inter-industry negotiations between the cable, consumer electronics, 
broadcast and content industries. For cable's part, I am pleased to 
report that our industry has made major progress in delivering HDTV and 
other digital products to our customers and is continuing its efforts 
to advance the DTV transition on various fronts.
    As I discuss the specifics of our efforts, it's important to point 
out that the cable industry's leadership in the digital revolution is 
largely attributable to a regulatory environment which has allowed 
companies to invest, take risks and compete in the video marketplace. 
Cable's own transition from analog to digital technology has been 
spurred by competitive market forces. The technological advances which 
have transformed our business and benefited consumers have resulted 
from cable entrepreneurs risking private capital without any government 
guarantees or subsidies.
    Starting with an eight-year capital investment of nearly $85 
billion, or nearly $1,200 per customer, that began with the passage of 
the 1996 Telecommunications Act, the cable industry has built a robust, 
multi-functional and highly versatile infrastructure. This has not only 
enhanced our delivery of traditional cable services to tens of millions 
of basic cable customers, but provided the platform for the cable 
industry to provide broadband services to 23 million digital cable, 17 
million high-speed Internet, and two-and-a-half million digital phone 
customers. This broadband platform has enabled cable companies to 
greatly increase the quality and expand the variety of video 
programming and other services available over their systems. Today 
cable offers high definition television, personal video recording 
capability, video-on-demand and other interactive services that were 
not available in the market at the time of the ``96 Act.
    Consumers are becoming more and more aware of what digital 
technology offers and are buying digital products in record numbers. 
More than 30% of cable customers already subscribe to digital cable 
services. And as consumer awareness grows, so are consumer expectations 
about viewing options, convenience and control. The cable industry's 
incentive to bring the digital transition to full fruition is about 
serving these growing needs and interests in a highly competitive video 
marketplace.
    When Michael Willner, President and CEO of Insight Communications, 
testified almost two years ago before this Committee about the nation's 
transition from analog to digital broadcasting, he reported that cable 
had fully embraced digital technology in an effort to offer consumers 
new competitive services and that the industry was committed to help 
expedite the DTV transition.
    Over the past two years, the cable industry's unwavering commitment 
to the digital transition has been marked by the rapid rollout of high 
definition services, the development of new and exciting HDTV content, 
and the completion of a major stage of negotiations with the consumer 
electronics industry on national standards for digital television 
products. Competition from an aggressive, well-financed direct 
broadcast satellite (DBS) industry has played no small part in 
accelerating cable's digital advances.
     cable companies have rolled out hdtv services at a rapid pace
    The full-scale deployment of HD service has been the fastest 
rollout of any product launched by the cable industry. Beginning in 
early 2003, cable companies initiated HDTV service in various markets 
across the country. At that time, HD content was available over cable 
systems to approximately 37 million US households. By the end of the 
first quarter of this year, that figure has more than doubled with 84 
million American households able to receive high quality HDTV 
programming from their local cable operator. The availability of high 
definition services to cable subscribers jumped 125 percent from 
January 2003 through March 2004. HDTV is now available from at least 
one cable system in 99 of the top 100 markets.
    HD over cable is by no means limited to large urban areas. Cable 
operators in a variety of mid-sized to smaller markets are providing 
the service to their customers too. An additional 56 markets beyond the 
top 100 have a package of HDTV channels being offered over cable, 
bringing the total number of markets where cable systems are offering 
HDTV to 155 nationwide.
    Cable companies are now offering packages that include a full mix 
of broadcast, basic and premium networks featuring HD content. Here in 
Washington, for example, Comcast provides 11 channels of HDTV 
programming, including five broadcast stations. Time Warner Cable has 
entered into carriage agreements with all of the major commercial 
broadcast networks for the HD programming carried by the stations they 
own, and in testimony two weeks ago before this Subcommittee said that 
by year-end, its systems will offer an average of 15 HD channels each.
    Cox Communications recently announced an agreement with the Public 
Broadcasting Service (PBS) and Association of Public Television 
Stations (APTS) to carry the digital signals, including high definition 
programming, of 70 PBS stations on its systems. Public broadcasters 
have similar company-wide deals with Time Warner Cable and Insight 
Communications, as well as market-specific carriage agreements with 
Comcast, Adelphia, Cablevision, Bright House and other cable operators. 
Overall, cable systems are currently carrying nearly 400 broadcast 
stations offering HDTV or other compelling digital content--a more than 
four-fold increase just since January 2003, when 92 local broadcast 
stations' HD programming was being carried.
    This remarkable growth demonstrates that market forces are working, 
and working well. And it confirms what the cable industry has said 
since the outset of the DTV transition--that when local broadcasters 
offer HDTV and other compelling digital content, and make it freely 
available to cable, cable companies want to carry it, and are doing so. 
It also reminds us that consumer demand is at the core of the digital 
transition and that marketplace solutions usually produce better 
results than government mandates.
          cable networks are leaders in providing hdtv content
    In addition to cable systems carrying broadcast HD programming, 
cable systems are carrying HD programming from cable networks who have 
catapulted over their broadcast counterparts in creating HD content. 
Today, 15 different cable networks are producing HD programming in 
popular genres, such as movies and sports, and a wide array of original 
and general interest programming. Pay TV pioneers HBO and Showtime were 
the first to offer HDTV programming, including original movies. Other 
premium channels, such as Cinemax HDTV, The Movie Channel HD, Starz HD! 
and INHD have now joined their ranks offering first-run and recent 
movies and other HD programming, commercial-free 24-hours a day.
    Unlike many broadcast stations which just offer HD programming a 
few hours a day, most cable networks that offer HD do so on a 24-hour 
or nearly full-time basis. Discovery launched its 24-hour-a-day HD 
Theater two years ago. It recently announced plans to spend $65 million 
over the next five years on Atlas HD, a series of 30 two-hour, high 
definition documentary specials on countries around the world. Bravo HD 
now offers symphonic concerts, ballet, theater, and opera in high 
definition. TNT-HD, which launched just last week, will feature 
original dramatic series, sporting events and other HD programming.
    Mark Cuban's HDNet produces and televises sports, news and 
entertainment programming in high definition 24 hours a day. The 
network includes NHL games, Major League Soccer games, horse and auto 
racing, and NCAA football and basketball games.
    Regional sports networks, MSG Network, Comcast SportsNet and Fox 
Sports Net NY, are also major providers of HD programming. And NBA-TV 
provides exclusive live National Basketball Association games in high 
definition.
    For its outstanding leadership in advancing the digital television 
transition through innovative HDTV programming, ESPN HD was recently 
honored by the Consumer Electronics Association. This month the network 
will debut the ESPN Digital Center, a state-of-the-art facility, that 
will telecast the network's signature sports news and information 
program, SportsCenter, and offer over 3000 hours of originally produced 
high definition studio programming a year.
                     marketplace forces are working
    The rapid rollout of HDTV over cable would not have occurred but 
for compelling HD content and the enhanced viewing and listening 
experience that HD offers to consumers.
    According to Kagan Research LLC (``Kagan''), a leading industry 
analyst, more than eight million DTV's were purchased by consumers 
through the end of last year and an additional six million are expected 
to be purchased in 2004, bringing total U.S. DTV sales to nearly 15 
million by the end of this year. (In view of the fact that some of 
these sales represent multiple purchases by the same TV household, 
Kagan estimates that approximately 12 million TV households (``TVHH'') 
or 10.7% of total TVHH's will own DTVs by the end of this year.)
    Clearly, there is something of a ``chicken and egg'' phenomenon 
when it comes to HDTV programming and equipment. But as equipment 
prices drop, more and more American consumers will be able to avail 
themselves of the crystal clear pictures and Dolby surround sound that 
HD uniquely provides. According to Kagan, total numbers of DTV sales 
and households are likely to reach 35 million (sales) and 27 million 
(23.9% TV HH) by year end 2006 and 89 million (sales) and 64 million 
(55.1% TVHH) by year end 2008. So, even though less than 10% of TV 
households own DTVs today, these growth projections may help to explain 
why cable operators and programmers have so strongly embraced HDTV.
    dbs competition sparked strong growth in cable delivery of hdtv
    The growth in cable delivery of HDTV is also stark evidence of the 
fierce competition between cable and DBS. The battle between these two 
industries to attract and retain customers is a major driver of HD. As 
the FCC recognized this year in its 10th Annual Video Competition 
Report, cable operators face vigorous competition from an ever-stronger 
DBS industry serving nearly one out of four multi-channel video 
households. DirecTV and Dish Network are now the second and fourth 
largest providers of multi-channel video services in the US. In the 
first quarter of 2004 alone, DBS added 820,000 new customers, bringing 
its total subscriber base to 22.4 million.
    Competition is a very powerful motivator and cable companies are 
continually seeking new sources of high quality digital content to 
maintain their competitive edge.
   national digital tv technical standards are helping to speed the 
                               transition
    Along with creating and carrying compelling digital programming, 
the cable industry has joined with the consumer electronics industry 
and various standards-setting organizations to establish digital 
standards. In December 2002, the cable and consumer electronics 
industries entered into a landmark agreement that set the stage for a 
national ``plug and play'' standard between digital television products 
and digital cable systems. As a result of this agreement, cable 
customers can buy unidirectional DTVs and other devices that connect to 
digital cable systems without a set-top box, and enjoy easy access to 
HDTV and other services offered by cable providers.
    The agreement ensures that the next generation of digital 
television sets will receive one-way cable services without the need 
for set top converter boxes; enable consumers to receive HDTV signals 
with full image quality and easily record digital content; allow for an 
array of new devices easily to be connected to the new HDTV sets; 
permit access to cable's two-way services through digital connectors on 
high definition digital sets; and encourage manufacturers to speed the 
production of new sets and services for delivery to market.
    The FCC adopted implementing rules in September 2003. These rules 
track the voluntary agreements between the cable and consumer 
electronics industries and impose legal obligations on cable operators 
to facilitate the commercial availability of ``digital cable ready'' 
equipment. The FCC also required that these ``cable-ready'' DTV sets 
include over-the-air digital tuners, a requirement the cable industry 
supported.
    The FCC's rules assure consumers that cable operators will provide 
them with Point of Deployment or POD separate security modules, now 
called CableCARDs, that will work in their CableCARD-enabled equipment 
purchased at retail. Motorola and Scientific-Atlanta have shipped 
CableCARDs to MSOs.
    Under the rules, all digital cable systems are required to maintain 
an adequate supply of CableCARDs and ensure convenient access to these 
devices for their customers. In addition, all digital cable systems 
must conform to technical standards governing digital interfaces and 
the CableCARD copy protection system.
    Most large cable systems already comply with these standards and 
other operators are implementing them at their head-ends and in their 
networks in the near term.
    As cable operators implement the ``plug and play'' agreement, 
unidirectional digital cable ready products are well on their way into 
the market, as evidenced by the presence of products from a number of 
manufacturers at the January 2004 Consumer Electronics Show in Las 
Vegas and last month's NCTA Show in New Orleans.
    I am also pleased to report that the cable and consumer electronics 
industry discussions on two-way digital cable ready products are well 
underway. This process includes many other interested industries and 
companies. The CE and cable industries--individually and jointly--have 
reached out to third parties, including representatives of the 
information technology and content communities, and the broadcast and 
satellite industries, to get their views on the key components of a 
two-way digital cable ready framework. NCTA will continue to 
collaborate with other industries and the FCC to implement the 
unidirectional ``plug and play'' agreement and to expeditiously reach 
agreement on ``two-way'' digital cable ready products.
    Meanwhile, CableLabs, the cable industry's research and development 
consortium, is continuing to work with manufacturers in testing 
products that are built to conform to CableLabs' OpenCable 
specifications as well as the FCC rules for unidirectional ``plug and 
play'' digital cable products.
    On the consumer side of the equation, cable companies recognize the 
importance of minimizing the potential for confusion regarding the 
capabilities of ``digital cable ready'' devices. To avoid such 
confusion, the cable industry has partnered with the CE industry to 
develop logos to make consumers aware of ``Digital Cable Ready'' and 
``Interactive Digital Cable Ready'' devices.
     the fcc media bureau proposal to accelerate the dtv transition
    As you have heard this morning, the Media Bureau of the FCC has 
initiated an important discussion about how the government can 
accelerate return of the spectrum loaned to television broadcasters to 
transition to digital broadcasting. We commend Bureau Chief Ken Ferree 
and the Bureau for thinking creatively about how to end the transition 
in order to reclaim valuable public spectrum for public safety and 
wireless needs while, at the same time, minimizing disruption to 
consumers. We think all those affected by the transition are benefited 
by a Bureau proposal to interpret existing law to provide some 
certainty as to the transition's end date--either December 31, 2008 or 
at some later date, depending on the immediacy of the government's 
needs for reclaiming the analog spectrum. And we think it's vitally 
important that any policies adopted minimize disruption to consumers.
    Given the evolving nature of the Bureau's plan and the fact that we 
have only just recently seen it described in writing, it is difficult 
to offer definitive comments about it. However, we are able to offer 
some preliminary observations.
    First, clearly the biggest challenge posed by the DTV transition is 
to ensure that television viewing enjoyed by some 15 million broadcast-
only TV households and tens of millions of cable and satellite 
households where multiple TV sets may not be hooked up to cable or DBS 
is not disrupted. At a minimum, marketplace availability of low-cost 
digital-to-analog converter devices is essential to ensure that massive 
disruption of consumers who rely solely on broadcast TV does not occur. 
In this regard, the FCC recently issued an NOI seeking public comment 
on how this problem can be addressed. We commend the Commission for 
recognizing the critical importance of having consumer solutions in 
place well in advance of the date by which broadcasters must return the 
analog spectrum to the government.
    Second, it must be recognized that the broadcasters transition to a 
digital-only broadcast system under the Bureau's transition plan will 
occur long before a substantial number of cable customers have migrated 
from analog to digital viewing. As I mentioned earlier, 23 million or 
more than 30% of cable customers subscribe to digital cable today. 
While only a small percentage of these consumers own DTVs, enabling 
them to receive programs in HDTV or standard definition TV, digital 
cable set-top-boxes still allow them to enjoy digital cable channels, 
video-on-demand and other interactive programs in analog on existing TV 
sets.
    By the end of 2008, Kagan Research LLC projects that nearly 41 
million cable subscribers will be digital cable subscribers. If these 
projections are correct, it means that nearly 30 million cable 
customers will still be analog-only as of December 31, 2008. Kagan also 
estimates that digital cable homes will contain an average of 1.9 
digital set top boxes versus an average of 2.6 TV sets. This means that 
an additional 30 million TV sets in digital cable households will not 
be able to receive digital broadcast signals without a digital-to-
analog cable converter device. As shown in the following chart, a total 
of 106 million analog TV sets (30 million analog cable customers x 2.6 
TV sets (78 million TV sets) plus 40 million digital cable customers x 
.7 TV sets (28 million TV sets) will be in cable households:
    Cable operators have a very strong interest in ensuring that these 
106 million analog TV sets continue to work in their customers' homes. 
For this reason, we think the Bureau plan has it right where it 
recognizes that down-conversion of a digital broadcast signal to analog 
at the cable system's head-end would be the most cost-efficient way to 
continue to serve these millions of sets. Unlike over-the-air viewing, 
for which digital-to-analog converter devices will be the only way that 
broadcast viewers can continue to watch television on their analog 
sets, cable operators must have the option of down-conversion for its 
customers to achieve this same goal.
    Where we take issue with the Bureau's plan is its proposal that a 
must carry broadcaster should be able to determine when and whether a 
cable operator can down-convert its digital signal to analog at the 
head-end. We believe it would make more sense and be more appropriate 
to allow cable operators to decide how best to deliver digital must 
carry broadcast signals to cable customers until a cable system has 
totally converted to digital, or at least until 85 percent of its 
customers have ``plug and play'' DTV sets or digital-to-analog 
converter devices. Giving broadcasters control would limit cable 
operators' ability to serve cable customers in the least disruptive 
manner or effectively impose a dual must carry regime on cable 
operators. In an earlier version of its plan, the Bureau proposed that 
cable carriage of broadcasters' digital signals in digital would be 
subject to the above conditions. We believe that the Bureau's earlier 
plan would prove much less disruptive for cable consumers.
    Second, the DTV transition plan should not provide must carry 
broadcasters with expanded must carry rights. The FCC in 2001 already 
ruled that a cable operator is not required under the Cable Act to 
carry more than a single digital program stream, plus program-related 
material. The Commission concluded that ``based on the plain words of 
the [Cable] Act . . . to the extent a television station is 
broadcasting more than a single video stream at a time, only one of 
such streof each television station is considered `primary' '' and 
therefore entitled to mandatory carriage. In the FCC's digital must 
carry proceeding, CS Docket No. 98-120, NCTA and others have commented 
extensively on the substantial legal and policy reasons why that is the 
right decision.
    As we have made clear in those filings, imposing multicast carriage 
requirements would do nothing to advance the digital transition. Most 
obviously, a multicast must carry rule, were it legal, would, under the 
Bureau's plan, take effect only after the broadcaster has returned its 
analog spectrum. By counting a broadcaster's single down-converted 
signal carried by cable towards the 85 percent test, the Bureau's plan 
already would achieve the goal of expediting the transition's end. 
Secondly, there is no reason to believe that standard definition 
multicast digital signals would cause consumers to purchase HDTV sets. 
Indeed, multicast rights for must carry stations after the transition 
adds nothing to the objectives sought by the Bureau's plan. As 
importantly, government-required cable carriage of multicast digital 
broadcast signals would be harmful to other programmers, consumers and 
public policy goals of promoting programming diversity.
    Multicast must carry would harm the public interest by greatly 
expanding the number of channels that the government would compel cable 
operators to carry from broadcasters that already have a voice on the 
cable system. Under current technology, six standard definition digital 
video channels can be compressed within a 19.4 megabits stream. If 
under the FCC's new media ownership rules a broadcaster were to own two 
or three TV stations in some markets, the Bureau plan would require 
cable operators to carry as many as a dozen or 18 digital video 
channels from a single broadcast source in those markets. How is that 
possibly fair to other programmers who must compete for carriage on the 
basis of program quality and consumer demand?
    The Bureau plan sweeps aside these clear legal, practical and 
public policy reasons for maintaining the Commission's existing 
decision against mandatory multicast carriage. It instead raises the 
prospect of government-mandated multicast carriage after the transition 
as an ``additional incentive'' for broadcasters to ``return their 
analog licenses in a timely manner.'' But broadcasters should need no 
added inducement to return this valuable government-owned property, 
which the government loaned them to transition to digital television by 
2006. Moreover, broadcasters should not be rewarded for doing what the 
law requires them to do at the expense of cable operators, programmers 
and consumers.
    We appreciate the Bureau's continued efforts to seek input as it 
develops its DTV transition plan. We look forward to working with the 
Bureau, the Commission and Congress as this plan continues to evolve.
                               conclusion
    Mr. Chairman, in summary, the cable industry has advanced the 
digital transition by undertaking a massive, multi-year upgrade of its 
plant and facilities, spurred by intense competition from DBS and 
fueled by a private capital investment of over $85 billion since 1996. 
The resulting digital broadband platform has positioned the industry to 
continue to be a leader in the provision of home entertainment, 
information, and other services to the American public. The benefits of 
cable's investment in digital technology and infrastructure 
improvements is shown in the dramatic growth in cable's delivery of 
HDTV services to consumers from both broadcast stations and cable 
networks, the creation of new and exciting HDTV content, and the 
emphasis on resolving standards issues for new digital television 
products. It also shows that the marketplace is working well and that 
consumer demand will further drive the digital transition.
    The government's need for the return of the analog spectrum for 
important public safety and wireless purposes provides further impetus 
for expediting the digital transition. But as the FCC Media Bureau plan 
properly recognizes, the transition must be accomplished with a minimum 
of consumer disruption.
    The cable industry stands ready to work with the Subcommittee in 
its efforts to advance the DTV transition for the benefit of American 
consumers.

    Mr. Upton. Thank you.
    Mr. DalBello.

                  STATEMENT OF RICHARD DALBELLO

    Mr. DalBello. Thank you, Mr. Chairman and members of the 
subcommittee. We appreciate this opportunity to give the 
satellite industry's perspective on the FCC digital transition 
plan.
    The digital transition has long been a priority for 
Congress and the FCC. SBCA supports the FCC Media Bureau 
proposal because we believe it will produce tangible benefits 
for consumers, drive the adoption rates for new HD devices, 
encourage the demand for our member services, spur the economy, 
and free up spectrum that is important for many reasons, 
including homeland security.
    Today over 22 million households in the United States 
receive multichannel video service via satellite. That is one 
in every five television households in the country. DBS has 
offered subscribers 100 percent digital transmission since 
launch in 1994. DBS also pioneered the carriage of HD 
television by broadcasting the first HD signals in 1999.
    The DBS industry is also supporting the digital transition 
from the hardware side of the equation. All DBS providers 
currently offer set-top boxes that decode both satellite and 
over-the-air HD programming. By providing compelling content on 
an all-digital platform, DBS providers are giving the American 
consumer a reason to invest in digital equipment.
    In the past 2 years, the FCC has done a commendable job of 
resolving many of the complex technical and legal issues 
surrounding the transition to digital; however, there are two 
issues that I would like to mention this morning. The first 
issue is a concern over possible digital must carry 
requirements.
    The carriage regime for over-the-air digital television 
stations both during and after the transition has not yet been 
finalized by the Commission. Due to the finite amount of 
spectrum and orbital resources available to satellite 
operators, special consideration must be taken when imposing 
mandatory carriage of local digital signals on the satellite 
industry.
    DBS operators have spent millions of dollars to design, 
build, launch and operate the satellites that are now in orbit. 
The bandwidth consumption required by full digital must carry 
obligations would force DBS companies to dramatically 
restructure their entire business model, potentially 
eliminating the local-into-local services currently being 
offered in 127 markets. This could undermine the congressional 
and FCC intent to provided local-into-local services to as many 
consumers as possible as rapidly as possible.
    The second issue is the lack of definition of an unserved 
digital viewer. It is inevitable that certain households for 
topographical reasons or due to their distance from the 
broadcaster's tower will not be able to receive an over-the-air 
digital signal. The current statute only defines an unserved 
analog household, not the unserved digital household. Before 
satellite carriers can avail themselves of the compulsory 
license to retransmit digital signals, Congress, the FCC and 
the copyright office will have to develop an unserved household 
definition for digital broadcast signals.
    Once there is a reliable predictive model of which 
consumers will be unserved by over-the-air digital broadcast 
stations, the DBS industry is uniquely positioned to help 
ensure that digital television will become available to all 
Americans. Our proposal is simple: Allow households that cannot 
receive their local affiliate's digital signals to receive 
network DTV signals from their satellite TV provider. This can 
be done by broadening the existing compulsory license to permit 
DBS providers to offer network digital services in unserved 
areas.
    In conclusion, SBCA and the DBS industry support the FCC's 
plan to accelerate the transition to digital broadcasting. As 
we have stated, we believe the plan will result in tangible and 
important benefits for consumers, taxpayers and the security of 
our Nation. We understand that the plan could mean that there 
are people who will no longer be able to receive an over-the-
air signal on their analog television. However, as an industry, 
we have been providing a national digital signal to consumers 
with analog televisions since our inception. We believe that 
affordable technologies can be made available to solve the 
analog-to-digital conversion problem. The DBS industry is 
willing to work with Congress to aid in any additional 
solutions to meeting these consumer needs in a manner that is 
reasonable and cost-effective for both the consumer and the 
government.
    Thank you again for your time again today. I look forward 
to your questions.
    [The prepared statement of Richard DalBello follows:]
     Prepared Statement of Richard DalBello, President, Satellite 
              Broadcasting and Communications Association
    Thank you Mr. Chairman and members of the Subcommittee, my name is 
Richard DalBello, and I am the president of the Satellite Broadcasting 
and Communications Association, or SBCA. SBCA is the national trade 
association that represents the consumer satellite services industry--
our members include satellite television, radio and broadband 
providers, programmers, equipment manufacturers, distributors and 
retailers. Thank you for taking the time to hear the satellite 
industry's perspective on the digital transition.
    The digital transition has long been a priority for the Congress 
and the FCC. SBCA supports the FCC Media Bureau proposal as it has been 
described to SBCA by FCC staff, because we believe the proposal will:

 Accelerate the timeframe in which millions of Americans will receive 
        quality digital and high definition television services
 Rapidly increase the sales of digital and HD televisions
 Spur the production of high-quality digital and HD programming
 Return more than $50 billion to the US treasury as a result of the 
        auction of the analog spectrum
 Free up valuable spectrum for new applications and essential public 
        safety services
                     dbs and the digital transition
    Today, over 22 million households in the U.S. receive multi-channel 
video service via satellite--that is one out of every five television 
households in the country. The growth that DBS has experienced and the 
resulting benefit to consumers of having a competitive alternative to 
cable are due in large part to the support the industry has received 
from Congress--especially in the form of a local-into-local license 
from the 1999 Satellite Home Viewer Improvement Act--and the FCC.
    DBS has offered subscribers a 100% digital transmission since its 
launch in 1994. For consumers with analog televisions, the digital 
signal sent from the satellites operated by the DBS providers is, for 
the most part, transformed back to an analog signal in the subscriber's 
set-top box, enabling service to these customers.
    Without the introduction of DBS as a viable competitor in the 
multi-channel video market, the word ``digital'' would not be part of 
the cable industry on such a widespread scale today. By offering a 
superior quality product at a competitive price, the DBS industry has 
not only given consumers a choice, but it has also accelerated the 
digital transition by introducing digital signals to the U.S. 
television industry.
    DBS also pioneered the carriage of High Definition, or HD, 
television by broadcasting the first HD signals by a multi-channel 
video programming distributor in 1999. By providing compelling content 
on an all-digital platform, DBS providers are giving the American 
consumer a reason to invest in digital equipment. DBS providers offer 
movies, sporting events, documentaries, concerts, public affairs 
programming and original series in HD. Right now, the two largest DBS 
service providers, DIRECTV and EchoStar, offer eight and nine HD 
channels respectively, and programmers are continuing to roll out HD 
programs and channels to meet this growing demand. With regard to 
network programming, both DIRECTV and EchoStar have negotiated a deal 
with Viacom to permit the rebroadcast of a distant HDTV feed of CBS 
into the owned-and-operated markets of Viacom providing a viable 
alternative to over-the-air reception. In addition, a new DBS operator, 
Rainbow DBS's VOOM, launched late last year. They offer an exclusive 
package of 39 High-Definition channels via satellite--including 21 
exclusive HD channels and HD channels from many popular national cable 
networks.
    The DBS industry is also addressing the digital transition from the 
hardware side of the equation. All DBS providers currently offer set 
top boxes, or the boxes which sit on top of your television set, which 
decode both satellite and terrestrial (over-the-air) HD programming. 
Furthermore, DBS providers are the first pay television providers to 
offer high definition receivers with personal video recording 
capabilities. By continuing to lead the way in providing HD to homes 
across America, DBS is not only meeting consumer's wants and needs but 
also driving money into the economy by giving consumers a reason to 
upgrade their existing television sets.
                    issues raised by fcc's proposal
    In the past two years, the FCC has done a commendable job of 
resolving many of the complex technical and legal issues surrounding 
the transition to digital, which at one time seemed an impossible task. 
I would like to take this opportunity to thank them for their hard work 
and their efforts to come up with a feasible plan for this transition. 
However, there are two issues that I'd like to raise for discussion 
surrounding the overall digital transition: what material must be 
carried by satellite operators under the must-carry regime, and how to 
define an un-served digital household for the importation of a distant 
digital network signal.
                      digital must-carry concerns
    The carriage regime for over-the-air digital television stations 
both during and after the transition has not yet been finalized by the 
Commission. Due to technical burdens shouldered only by satellite 
operators because of the finite amount of spectrum available, special 
consideration must be taken when imposing mandatory carriage of local 
digital signals on satellite operators. DBS operators have spent 
billions of dollars to design, build, launch and operate satellites 
that now are now in orbit. The bandwidth consumption required by full 
digital must-carry obligations (dual carriage, multicast must-carry, 
full local HD carriage) would force DBS companies to dramatically 
restructure their entire business model, potentially eliminating the 
local-into-local services currently being offered in 127 markets. This 
undermines the Congressional and FCC intent to provide local-into-local 
service to as many consumers as possible as rapidly as possible.
Dual Carriage of Analog and Digital Signals During the Transition
    In 2001, the FCC correctly concluded that ``a dual carriage 
requirement may burden cable operators' First Amendment interests more 
than is necessary to further the important government interests they 
would promote.'' While the FCC Order did not address dual carriage 
requirements for DBS, technical and statutory reasons exist that make 
dual carriage even less appropriate for satellite operators. Satellite 
operators have a fixed amount of allocated spectrum within which to 
operate. If a dual carriage regime were imposed during the transition 
that required a satellite operator to carry both a broadcaster's analog 
and digital signal, DBS operators would be forced to turn off local 
service in many of its 127 markets where it is currently offered today, 
and the roll out of new markets would be aborted.
Multicast Must-Carry Should Not be Required
    The FCC addressed cable's carriage requirement for a broadcasters' 
multicast programming stream in 2001, and determined that only one 
video stream and program-related services can be considered ``primary'' 
for carriage under the cable must-carry regime. Program-related 
services that are entitled to carriage include: closed captioning, V-
chip/program ratings, Source ID Codes (used by Nielsen), and channel 
mapping and tuning protocol.
    We believe the FCC made the appropriate determination that 
multicast programming should not have to be carried by any MVPD. 
However, multicast must-carry is a bigger strain on DBS than cable, due 
to the nationwide nature of DBS and the severe spectrum limitations in 
which we operate. If a broadcaster's multicast content is compelling 
enough and our subscribers want it, we would carry it on our systems. 
The selection of HD and multicast programming stations should be driven 
by consumer choice and market demand rather than a government mandate.
DBS Should be Allowed to ``Downres'' High-Definition Local Broadcasts
    Since High Definition (HD) provides up to six times greater the 
resolution of standard definition television, HD transmissions require 
significantly larger amounts of bandwidth than a standard digital 
definition (SD) signal. On our current satellites, compression methods 
allow for as many as 12 standard definition broadcast channels per 
transponder--with HD broadcasts, only 2-3 channels can be carried per 
transponder. Therefore, a DBS provider broadcasting 1 HD program must 
eliminate approximately 6 standard definition channels. A requirement 
that satellite carriers retransmit the full HD signal of every local 
broadcaster would severely reduce the number of local markets where DBS 
offers local-into-local.
    As long as the local broadcasters are making their digital signal 
available over-the-air, DBS consumers can receive the local HD 
transmissions through the digital tuners included in high-definition 
set-top boxes, therefore avoiding loss of local HD content while at the 
same time, conserving spectrum. For this reason, we encourage 
broadcasters to increase the power of their digital broadcast signals. 
These HD set-top boxes are becoming more widespread, and will continue 
to do so as the transition to digital television progresses.
                       un-served digital viewers
    It is inevitable that certain households, for topographic reasons 
or due to their distance from a broadcaster's tower, will not be able 
to receive an over-the-air digital signal. The compulsory license which 
authorizes satellite carriers to transmit distant network signals to 
those households who are unable to receive an over the air network 
signal doesn't distinguish between digital or analog transmissions. 
Despite the fact that nothing in the compulsory license itself would 
prevent a DBS provider from retransmitting a broadcaster's digital 
signal to subscribers, there are both regulatory and practical 
limitations on the satellite industry's ability to make digital signals 
available to consumers.
    Section 119 of the Copyright Act includes a very important 
limitation on the transmission of distant network signals. Such signals 
can only be retransmitted to un-served households. Un-served households 
are determined according to the Individual-Longley Rice (ILLR) model 
developed by the FCC. The FCC's ILLR is based on each individual 
broadcast station's analog signal propagation characteristics. In other 
words, the statute only defines the un-served analog households--not 
the un-served digital households. While propagation of digital signals 
may have many of the same characteristics as the analog signals, there 
will be differences. Indeed, a representative of the NAB told the House 
Judiciary Committee earlier this year that broadcasters have discovered 
that the digital contour ``has some holes in it.'' In other words, some 
people who can receive the broadcaster's analog signal are not able to 
receive the digital signal. Before satellite carriers can avail 
themselves of the compulsory license to retransmit digital signals, 
Congress, the FCC and the Copyright Office will have to develop an un-
served household definition for digital broadcast signals.
    Once there is a reliable predictive model of which consumers will 
be un-served by over-the-air digital broadcast stations, the DBS 
industry is uniquely positioned to make good on Congress' goal that 
digital television become available to all Americans. Our proposal is 
simple. Allow households that cannot receive their local affiliates' 
digital signals to receive network DTV signals from their satellite TV 
provider. This can be done by broadening the existing compulsory 
license to permit DBS providers to offer network digital service in un-
served areas. The expanded license would limit DBS service to only 
those households that cannot receive an over-the-air digital network 
signal. The availability of distant digital signals would have no real 
impact on the roll out of analog local-into-local service to additional 
markets by DBS operators.
                               conclusion
    SBCA and the DBS industry support the FCC's plan to accelerate the 
transition to digital broadcasting. As we have stated, we believe the 
plan will result in tangible and important benefits for consumers, 
taxpayers, and the security of our nation. We understand that the plan 
could mean that there are people who will no longer be able to receive 
an over-the-air signal on their analog televisions. However, as an 
industry, we have been providing a national digital signal to consumers 
with analog televisions since our inception. We believe that affordable 
technologies can be made available to solve the analog to digital 
conversion problem. The DBS industry is willing to work with Congress 
to aid in any additional solutions to meeting these consumers needs in 
a manner that's reasonable to the consumer, the government and the DBS 
industry.
    Satellite operators were the first to offer digital multi-channel 
video to consumers, spurring a $75 billion investment by the cable 
industry to keep up with our digital offerings. We have long believed 
in digital. However, due to the technical burdens of spectrum 
constraints and the questionable constitutionality of forced dual, 
multicast and full local HD carriage, we encourage Congress and the FCC 
to continue to not impose a carriage regime for digital signals that 
will slow the rollout of local channels via satellite and thus harm the 
MVPD competition fostered by over ten years of this Subcommittee's and 
FCC policy.
    Thank you again for your time today, I look forward to answering 
any questions that you may have.

    Mr. Upton. Thank you.
    Mr. Shapiro.

                  STATEMENT OF GARY J. SHAPIRO

    Mr. Shapiro. Thank you, Mr. Chairman, members of the 
subcommittee. I am Gary Shapiro, president of the Consumer 
Electronics Association. We have 1,500 corporate members, and 
we producers the Nation's largest annual event, the 
international CES.
    I thank you for inviting us to discuss the steps necessary 
to finish the transition to digital television. While most were 
skeptical, we were true believers not only in digital 
television, but, in its purest form, HDTV, with all of the 
glory, the full audio and video experience HDTV bestows.
    DTV is one of the fastest-selling products in our history. 
Americans have bought more than 9 million DTV products since 
the late 1998 introduction. Indeed, HDTV is the primary driver 
behind this phenomenal sales figure, as 87 percent of the DTV 
products sold to date are high-definition.
    We now forecast that about 6 million digital TV units will 
be sold this year, and it keeps going up. Indeed, DTV sales 
have surpassed those of the VCR, PC, and color TV at similar 
stages, and we have a chart which demonstrates that on your 
right side. You can see that DTV is a killer product.
    Indeed, we are at the start of the steep hockey stick curve 
of sales. Under certain assumptions, with cable-ready sets and 
CableCARDS being one of them, by 2010 we expect Americans will 
own more than 90 million DTV sets, and over 85 percent of 
American's homes will contain over-the-air DTV tuners.
    Intense competition and low prices are helping drive HDTV 
sales. Indeed, there are 800 different models from 60 
manufacturers of HDTV products, DTV products. And consumers can 
buy several DTV products under the magic $1,000 mark, and even 
some below $500.
    As a trade association and as an industry, we have focused 
our efforts wholly to assist the congressional mandate to shift 
to digital television. We use every medium possible. We have a 
range of pamphlets, brochures, media resources, everything, 
computer programs to educate retailers and millions of 
consumers about the benefits, functions and features of digital 
television.
    As a result HDTV is an unquestioned success. Product sales 
continue to rise; HDTV content is increasing; satellite 
broadcast and cable are jumping onto the HDTV bandwagon; and 
manufacturers are rolling out exciting new HDTV products every 
week.
    With DTV becoming a mass-market product now, we must ensure 
the rapid recovery of the analog broadcast spectrum, while also 
ensuring that at the end of the transition, every American has 
received the benefits of DTV. We endorse the Media Bureau's 
approach as we understand it, but we offer some slight 
modifications that we believe will hasten the conclusion of the 
transition.
    First, the plan should include a hard deadline for cable to 
stop down-converting digital broadcast signals at the head end. 
This is the only way we can be sure that HDTV signals will 
someday be delivered to all Americans, including cable 
subscribers. This is the exact opposite of what you heard Mr. 
Sachs just said about down downresing potentially forever. HDTV 
is worth getting and requiring.
    Second, cable operators should be required to keep their 
broadcast signal unencrypted. This will permit consumers with a 
DTV to receive broadcast signals without a set-top box or extra 
fees, like they can today with a cable-ready set in the analog 
world.
    Third, cable operators are carrying digital broadcast 
signals. They should not be allowed to reduce their sound or 
picture quality. If a broadcaster is making the investment to 
provide HDTV and Dolby Digital Surround Sound, that is exactly 
what the cable consumer deserves and expects to see and hear.
    Fourth, cable operators must carry all broadcasters' free 
programming and program-related material. This should include 
multicast channels as well as V-chip, closed captioning and 
other information.
    Fifth, the FCC should ensure that all broadcasters are on 
their permanent digital channels and operating their digital 
stations at full power by 2006. Only one-third of the 
commercial stations are delivering a full-powered DTV signal 
today. Millions of Americans will soon be buying these over-
the-air DTV tuners. Because of a mandate, broadcasters have an 
obligation to reach them because they are spending a lot more 
for that purchase.
    Finally, the FCC should ensure a competitive market for 
cable plug-and-play equipment by requiring cable operators to 
rely on separable security or CableCARDS in the equipment they 
lease to consumers.
    In addition to these measures recommended in the Media 
Bureau plan, there are other bold steps that can be taken to 
speed the transition. For example, we urge, as the SBCA 
suggested, Congress allow satellite providers to carry distant 
network signals in an area where local broadcasters are not 
providing them.
    Also, the FCC should reject content industry requests they 
be allowed to impose selectable output control or 
downresolution on HDTV owners.
    Finally, Congress and the FCC should closely oversee the 
introduction of digital cable-ready sets. When these sets are 
introduced in a few months, American consumers will be able to 
buy a DTV, plug the set into the wall, and with a local 
operator's CableCARD, view glorious HD programming without a 
set-top box. We presume the cable industry has ordered a 
sufficient quantity of the new cards to support the anticipated 
consumer demand for DCR sets. We also presume that they won't 
be charging a lot for them, and they will be available at less 
than the cost of a set-top box.
    I was an early adoptee of DTV, and I believe that the 
American public should join me in thanking this subcommittee 
for its focus on the DTV transition as a national priority.
    In closing, we will continue our broad efforts to educate 
consumers and retailers about digital television. And I pledge 
our commitment as an industry and as an association to work 
with you, the FCC, and others to ensure a speedy and consumer-
friendly transition and a prompt return of the analog broadcast 
spectrum.
    [The prepared statement of Gary J. Shapiro follows:]
  Prepared Statement of Gary J. Shapiro, President and CEO, Consumer 
                        Electronics Association
    Mr. Chairman and Members of the Subcommittee: Thank you for 
inviting me to discuss our progress in the transition to digital 
television (DTV), and the steps that should be taken to conclude the 
transition in the most beneficial and consumer-friendly manner.
    I represent the Consumer Electronics Association (CEA), the 
principal U.S. trade association of the consumer electronics and 
information technology industries. Our 1,500 members include virtually 
every DTV manufacturer, and our products are found in 99 percent of 
American homes.
    Our members invented DTV, and DTV is very much our baby. We 
marveled at the miracle of birth, cheered when it took its first steps, 
were thrilled with its rapid growth, and now look on proudly as it 
matures into a popular, mainstream consumer electronics product. In 
fact, you could say that our one-time baby has grown up, gotten hold of 
the car keys and is now heading down the highway.
DTV Sales Continue to Rapidly Increase
    Our most recent sales figures show that the first quarter of 2004 
brought the greatest volume of DTV sales ever recorded, with 1.39 
million monitors and integrated sets sold accounting for $2.1 billion 
of consumer investment. This is a remarkable 104 percent increase in 
unit sales from the same time period in 2003.
    More than 10 million DTV products have been sold since the first 
sets hit the market in the fourth quarter of 1998. Americans already 
have invested an astonishing $20 billion in DTV products, not including 
additional billions spent on DTV cable set top boxes and satellite 
receivers. As we predicted years ago, HDTV is the driver behind these 
phenomenal sales figures, as 87 percent of the products sold to date 
are HD.
    To put this into historical context, DTV sales already have far 
surpassed those of the VCR, PC, and color TV at a similar point after 
introduction. Indeed, overall revenues from digital TV now regularly 
outstrip those from analog TV. Television manufacturing now is a 
digital industry, and there is no going back.
    Consumer enthusiasm for HDTV is so strong that CEA has upwardly 
revised its digital television sales projections. CEA now forecasts 
that 5.7 million digital television units will be sold this year, 9.4 
million in 2005, 15.6 million in 2006 and 23 million in 2007.
    As impressive as those numbers sound, we are only beginning to move 
up the steep ``hockey stick curve'' of sales. By 2010 we expect that 
more than 90 million DTV sets will reside in American homes.
    Sales of DTV products have spread from specialty retailers and 
major consumer electronics chains into warehouse clubs, mass merchants, 
and now discount stores like Wal-Mart and Target. Weekly advertisements 
from national and regional retailers and specialty dealers are packed 
with ads for DTVs of various sizes and capabilities.
    When consumers walk into retail stores, they now enjoy an 
unprecedented variety of DTV products with more than 800 models 
available from 60-plus manufacturers. Buyers can choose from a vast 
array of compelling displays from traditional CRT sets to cutting-edge 
new technologies like plasma, LCD, DLP, and LCOS.
    To be sure, the DTV category is so hot that new entrants with no 
previous history in television are leaping into the DTV marketplace. 
Companies like Gateway, Hewlett-Packard, Dell and Motorola are now 
seeking to surf the wave of consumer DTV enthusiasm.
    Sales are being driven by plummeting prices--after all, this is the 
consumer electronics industry. DTV prices have been steadily declining 
by about 10 percent per year. Today there are a host of DTV options for 
consumers under the magic $1,000 mark, and even some below $500.
    Not only do consumers have more options at lower prices, but also 
the latest generation DTVs offers an array of compelling, consumer-
friendly features.
    For example, consumers now can choose from 81 models that include 
over-the-air ATSC tuners. An avalanche of tuners will enter the market 
over the next few years as manufacturers respond to the Federal 
Communications Commission (FCC) DTV tuner mandate beginning next 
months. We estimate that by 2010, 86 percent of American homes will 
contain TVs capable with DTV over-the-air tuners.
New Digital Cable Ready Plug-and-Play DTVs Will Help Drive the 
        Transition, So Long as CableCARDS are Readily Available to 
        Consumers
    2004 also is the year that a ``plug-and-play'' transition to cable 
DTV should become a reality for American consumers. Last fall the FCC 
formally adopted the Digital Cable Ready DTV agreement for a nationwide 
plug-and-play digital cable standard. That means that American 
consumers--70 percent of whom rely on cable for their primary TV 
reception--will now be able to buy a DTV, and, with a local operator's 
CableCARD, plug the set into the cable jack in their wall and view 
glorious high-definition programming without a set-top box.
    Several models designed to accept CableCARDS are already on the 
market, and dozens more will be available in the second half of this 
year. We anticipate that these new CableCARD-ready sets will be a huge 
hit in the marketplace. In fact, we project that more than one million 
digital cable ready sets and other products will be sold over the next 
six or seven months. And of course, every CableCARD-ready DCR set also 
will include an over the air digital tuner.
    Starting July 1, FCC regulations require local cable operators to 
provide explicit support for ``Plug and Play'' DTVs. Since hundreds of 
thousands of CableCARDS--which contain security and other circuitry for 
particular local systems--will be necessary before football season 
begins, we presume the cable industry has ordered a sufficient quantity 
of the new cards to support the anticipated consumer demand for DCR 
sets, and will make them available to subscribers in a fast, simple and 
consumer-friendly manner.
    We also presume that--to the extent cable operators are permitted 
to and elect to charge consumers for the CableCARDS--they will be 
available at a reasonable price that is significantly less than that 
charged for a set-top box.
    Given the critical importance of plug-and-play to the DTV 
transition, we call upon cable operators to join the CE industry in 
aggressively promoting the use of CableCARDs and DCR sets. We urge 
Congress and the FCC to continue their close oversight of the rollout 
of digital cable ready products, and the resolution of remaining DTV-
cable compatibility issues.
    Digital CableCARD-ready sets are not the only attractive new 
technology that is entering the marketplace. New products such as HDTV 
digital video recorders are already giving Americans even more 
incentive to buy digital sets and demand high definition.
The Amount of Compelling HDTV Content is Increasing
    Of course, as much as we love our hardware, we recognize that an 
ample supply of compelling content is critical to DTVs success. It is 
no coincidence that the upsurge in DTV sales happened at the same time 
that the amount of content began to rapidly increase.
    The recent explosion of HDTV content is the result of a beneficial 
competitive dynamic among broadcast, cable, and satellite operators. 
Each realized that consumers want the best, and whoever does not 
provide it could wind up as the AM radio of video delivery service. One 
new satellite service, VOOM, is building its entire business plan 
around HDTV.
CEA is the Leader in DTV Consumer Education
    CEA has embarked on an unprecedented promotional effort to ensure 
that consumers are fully informed about their DTV options. Our industry 
has every business incentive to educate consumers about the qualities 
and features of the DTV they want to purchase. That is why we have 
developed a system of voluntary labels describing DTV product 
capabilities that is being widely used across the industry.
    Most consumers today get their primary information through 
retailers. It is imperative that retailers are able to provide accurate 
and easy-to-understand information. CEA has aggressively responded to 
this challenge.
    In the last three months alone, we have visited four of the major 
consumer electronics buying groups and talked with more than 2,000 
dealers to bring them the latest information on the DTV transition. We 
have generated point-of-sale materials for use in stores; including 
consumer guides and retailer tip sheets. We have collaborated with 
Comcast on an educational DVD that covers DTV information ranging from 
basic definitions to the equipment required to receive and view HDTV 
content via antenna, satellite or cable delivery.
    We also have launched a new retailer-training program called 
CEKnowHow (it can be viewed online at www.ceknowhow.com). This program 
is available to all retailers over the Internet. It equips them with 
the most up-to-date online training for sales associates, so that they 
can effectively respond to consumer inquiries on DTV and HDTV.
    CEA also is making every effort to reach out directly to consumers. 
Millions of readers across the country saw our recent insert in TV 
Guide explaining the DTV basics. We also have showcased HDTV before 
hundreds of thousands of consumers through exhibits at home design 
shows and trade exhibitions across the nation.
    CEA exposes millions of consumers to HDTV through our nationally 
pre-packaged video and news releases, as well as our national CEA media 
tour. And our quarterly HDTV Guide is the single most authoritative 
list of the DTV products and programming currently available to 
consumers.
    CEA has single-handedly taken the lead in promoting consumer 
awareness and use of over-the-air digital television reception. Through 
our AntennaWeb program, consumers can visit a website 
(www.antennaweb.org), enter their home address, and find the optimal 
outdoor television antenna for their specific location.
    We also see it as our obligation to recognize those who are going 
above and beyond the call of duty in furthering the DTV transition. 
Every year, our Academy of DTV Pioneers honors the best of the best in 
HDTV programming, reporting and retailing. And, as it should be, every 
year the categories get more crowded and competitive.
    In short, for the DTV transition, everything is moving rapidly in 
the right direction. Product sales continue to rise. HDTV programming 
continues to increase. Content delivery industries increasingly are 
jumping onto the HD bandwagon. Exciting new products are rolling into 
the marketplace. Consumer and retailer education is advancing. By 
almost any measure, digital television--particularly HDTV--is a 
marketplace success.
CEA Endorses the Media Bureau's Approach with Modifications
    The question now facing our industry--along with this Subcommittee 
and the FCC--is how to bring the transition to a successful conclusion 
in the most beneficial and consumer-friendly manner.
    In particular, we believe it imperative to ensure the expeditious 
and certain return of the analog spectrum. The recovery of the analog 
spectrum will benefit consumers as it is reallocated for purposes 
ranging from public safety communications to exciting new services like 
wireless networking and Internet access.
    For that reason, we appreciate the FCC Media Bureau's initiative in 
its proposed interpretation of the Congressionally-mandated 85 percent 
take back trigger for reclaiming the analog TV spectrum. Although we 
project that more than 85 percent of American homes will contain DTV 
tuners by 2010, we recognize the public benefits of setting a national, 
fixed date for the end of analog service.
    However, the DTV transition is not just about recovering the analog 
spectrum. From the beginning it has also been about bringing a new and 
improved TV experience to consumers. A primary reason that broadcasters 
were allocated 6 MHz of spectrum in the first place was to allow them 
to provide their viewers with a full HDTV signal.
    While the Media Bureau's plan creates a nationwide transition from 
analog to digital over-air broadcasting on a certain date, it does not 
create a national digital transition for broadcast signals carried on 
cable, which is the delivery method for the vast majority of American 
viewers.
    Of course, the FCC recognizes that delivery of a broadcaster's 
digital signal in down-converted analog form is not digital TV and will 
not motivate consumers to buy new digital products or enable them to 
enjoy a new digital experience. The Media Bureau's plan trusts that 
market forces will motivate cable operators to carry at least the most 
desirable broadcast signals in digital form in order to please their 
subscribers.
    CEA agrees that current market forces appear to be pushing cable 
operators to carry growing numbers of broadcast channels digitally, 
including high definition and to a lesser extent, multicast standard 
definition broadcasts. However, this voluntary transition is not 
comprehensive, will not achieve a simultaneous nationwide digital 
conversion on cable, and will confuse consumers about the timing and 
availability of digital TV. Moreover, market forces can change rapidly 
in our industry, and there is no guarantee that cable operators will 
continue to support digital carriage even to the extent they do today.
    CEA therefore endorses the Media Bureau's approach as we currently 
understand it, but with modifications to ensure that it achieves both 
of the equally vital goals of recovering broadcast spectrum and 
completing the digital transition for the benefit of all consumers. 
Specifically, we recommend the following:
    1. Down Conversion Deadline: Cable and DBS operators should be 
required to transmit all broadcasters' DTV signals digitally (i.e., 
rather than sending only a version that is down converted at the head-
end) by January 2009. This will ensure that consumers with DTV sets 
will have access to digital signals. By 2009, cable operators will have 
had ample time to deploy digital-to-analog converters to customers with 
analog sets. Cable digital-to analog converters should be available in 
large volumes at low cost by that date. Most major cable systems will 
be almost completely digital by this time, given that more than 30 
percent of cable customers are already subscribed to digital cable. In 
addition to carrying all DTV broadcast content digitally, cable 
operators, of course, may also choose to transmit the down converted 
version of the signal as well.
    2. No Cable Encryption: When cable operators carry broadcast 
signals digitally, the broadcast signals must remain unencrypted. This 
will ensure that subscribers who have a digital receiver can receive 
broadcast digital TV without a cable operator-provided set top box or 
Cable CARD and with no extra fees, as is the case today for analog 
cable-ready TV.
    3. No Material Degradation: The FCC should require that when cable 
operators are carrying broadcast signals digitally, they cannot reduce 
the sound or picture quality. All of the broadcast signal's program-
related bits should be carried. In other words, if a broadcaster is 
making the investment to provide HDTV programming and Dolby Digital 
surround sound, then that is what the cable viewer should see and hear.
    4. Carriage of All Free Bits: We endorse the FCC's proposal that, 
when cable operators are carrying the broadcast signals digitally, they 
must carry all the free broadcast streams, including multicast 
channels. It is essential that broadcaster program-related data, such 
as V-Chip, closed captioning, and program system information protocol 
(PSIP) information also be passed on to the television. Broadcasters' 
pay services need not be carried, consistent with the statutory 
exemption to must-carry that exempts ancillary or supplementary 
services.
    5. Full Power Broadcasting: To ensure the public continues to have 
robust access to digital broadcast TV comparable to its access to 
analog broadcasts, the FCC should require all broadcasters to be on 
their permanent digital channels and digitally transmit at their full 
authorized power by January 1, 2006. While many DTV stations claim to 
be replicating their analog broadcast service area, according to FCC 
data, only 477 of the 1362 commercial broadcast stations are actually 
delivering a full power DTV signal. The result is that spectrum 
continues to be unused and yet, because it is reserved for incumbent 
broadcasters, others are blocked from providing DTV to unserved 
consumers. A full-power requirement ensures that all consumers who 
currently can receive an analog signal over-the-air can obtain a 
digital tuner and receive a digital signal over-the-air. This is 
particularly important as DTV manufacturers move ahead with the 
implementation of the FCC's over-the-air tuner requirement.
    6. Ensure that All Parties Rely on the Plug-and-Play Standards: 
Since most consumers are cable customers, they are motivated to buy DTV 
products in large part by their ability to receive digital cable 
programming. For this reason digital cable plug-and-play compatibility 
is critically important to the digital transition.
    Our industry negotiated a set of ``one way'' digital plug-and-play 
standards and licensing terms with the cable industry, and the FCC has 
implemented regulations based on this agreement. Our two industries are 
now negotiating to add compatibility in cable systems and consumer 
products for two-way interactive services.
    We appreciate the encouragement of this Committee, and of the FCC, 
in that next important step to expanding digital cable-ready access by 
consumers. By the way, this step and future enhancements--as cable 
systems continue to develop their services and their infrastructures 
and operations--will require completion of the ``two-way'' CableCARD 
(now under development through CableLabs). This must be a ``multi-
stream'' CableCARD which will permit multiple cable services to operate 
simultaneously on a DTV or computer or other cable-ready digital 
product. This kind of flexibility is part of what the digital 
revolution is all about; and consumers want and deserve a choice of 
such fully digital cable-ready products both from their cable operator 
and from independent retailers and manufacturers.
    However, unless the cable operators also rely on the use of 
CableCARD in all the equipment they acquire and provide or lease to 
their customers, consumers will never be sure that retail products will 
work on cable systems as well as the cable operators' equipment. CEA 
therefore recommends that the FCC maintain, if not move forward, its 
current requirement that cable operators also rely exclusively on 
CableCARDs in their new equipment starting July 1, 2006. Indeed, in 
whatever new equipment they provide to consumers after that date--
whether themselves directly or through retail or other channels--cable 
operators themselves should rely solely on techniques that are made 
available simultaneously to competitive entrants. The FCC set this 
requirement in its rules in 1998. Despite having provided cable 
operators five years to plan and implement, the Commission last year 
slipped the deadline another eighteen months, to July 1, 2006. There 
must be no more delay. Common reliance by all parties on common 
technical requirements is the only way to fulfill Congress' direction 
to ensure a competitive retail market in cable equipment. It is the 
only way that consumers will see the benefit of this competition, in 
the choice, variety, and cost of the equipment they wish to attach to 
their local cable system.
    With these modifications, we believe that the Media Bureau's plan 
will successfully hasten the return of the analog spectrum and ensure 
that all Americans receive the full benefits of the transition to 
digital television.
    We must also deal with the fact that, under the Congressional 85 
percent test, TV households that rely solely on over-the-air broadcasts 
will someday have to purchase a new set or a digital-to-analog 
converter box when the analog spectrum is returned. We applaud the 
FCC's recent announcement of a study on how best to ensure that 
consumers who depend on over-the-air broadcasting and cannot convert to 
digital on their own for financial reasons are not stranded when analog 
broadcasts are turned off. For example, one option could be a tax 
credit or subsidy for the purchase of a digital-to-analog converter 
box.
    One way to estimate the worst-case number of viewers who may 
require assistance is to consider the number of households who receive 
assistance with telephone service. In May 2002, FCC data showed that 
approximately 7.7 million households, or 7 percent, received either 
LifeLine or Linkup assistance. Of course, by 2008-09, the prices of 
simple digital-to-analog converters will be very affordable for most 
Americans.
Congress and the FCC Can Take Additional Actions to Spur the DTV 
        Transition
    In addition to the actions recommended in the Media Bureau Plan, 
there are other things that can be done by Congress and the FCC to move 
the DTV transition forward.
    For example, CEA endorses and urges Congress to act on the proposal 
allowing satellite providers to carry distant network HDTV signals in 
areas where local broadcasters are not providing them. Congress can do 
this simply by broadening the SHVIA definition of ``unserved 
household'' to include these viewers.
    This ``digital white area'' proposal would provide an incentive for 
the purchase of DTV sets, and would give broadcasters a strong 
incentive to get on the air with a full-power HDTV signal. As I noted 
previously, less than half of the nation's commercial broadcasters are 
currently providing a digital signal at full power. Viewers should not 
be deprived of the extraordinary HDTV experience simply because the 
local broadcaster is not yet offering the service, or offering it only 
to a reduced service area.
    Finally, a successful transition will require Congress and the FCC 
to safeguard consumers' customary viewing, recording, and time shifting 
rights in the digital age. CEA recognizes the right of the content 
industry to protect its intellectual property from commercial piracy, 
and our industry has developed a number of effective copy protection 
technologies for this purpose.
    At the same time, it will be difficult to convince Americans to 
invest in DTV if they must forfeit their reasonable viewing and 
recording rights as the price of moving form the analog to the digital 
age.
    For example, there now are proposals before the FCC that would 
allow cable operators, at the behest of Hollywood to unilaterally 
``downres'' or remove three quarters of the pixel resolution from HDTV 
programming. Hollywood also is seeking permission to invoke 
``selectable output control'' to unilaterally turn off outputs into 
consumers' DTV sets.
    Both of these measures are promoted as combating pirates, but 
primarily punish law-abiding consumers. Needless to say, Americans will 
not be eager to purchase HDTV if they understand that their viewing 
privileges can be revoked unilaterally, by a third party, through no 
fault of the consumer. We call on the FCC to reject these proposals.
    While these ``white area'' and digital rights management issues are 
not the primary focus of this hearing, they significantly impact the 
pace at which Americans will invest in DTV, and the speed at which 
broadcasters will be able to return their spectrum to the government. 
We welcome the Subcommittee's focus on these issues as its agenda 
allows.
Conclusion
    Speaking personally, I have been fortunate enough to be an early 
adopter of DTV. For years I have watched eagerly as more compelling 
content has become available over broadcast, satellite and cable. Now, 
along with millions of Americans, I enjoy everything from ``CSI'' to 
the ``Sopranos'' to the ``NBA Playoffs,'' all in brilliant high 
definition.
    All of us should be gratified to know that, within a few short 
years, most American households will be sharing this extraordinary DTV 
experience.
    I believe the American viewing public should join me in thanking 
this Subcommittee for its longstanding focus on the DTV transition as a 
national priority. This Subcommittee can be proud that HDTV is well on 
its way to being a fixture in the American living room.
    In closing, CEA will continue our unprecedented efforts to educate 
consumers and retailers about digital television. I pledge CEA's 
continuing commitment to working with you, the FCC and other 
stakeholders to ensure a speedy and consumer friendly transition, and a 
prompt return of the analog broadcast spectrum.

    Mr. Upton. Thank you.
    Ms. Tristani.

                  STATEMENT OF GLORIA TRISTANI

    Ms. Tristani. Mr. Chairman and members of the committee, 
thank you for the opportunity to testify on behalf of the 
Public Interest, Public Airwaves Coalition and the Children's 
Media Policy Coalition. I am the managing director of the 
Office of Communication of the United Church of Christ, Inc. I 
am also a former FCC commissioner. Throughout the years, the 
Office of Communication has advocated for those historically 
excluded from the media, especially women and people of color. 
We are a member of the Public Interest, Public Airwaves 
Coalition, an alliance that is urging the FCC and Congress to 
take advantage of the transition to digital to reestablish 
meaningful public interest obligations for America's television 
broadcasters. I am also testifying on behalf of the Children's 
Media Policy Coalition which seeks to improve the media 
environment for our children and is urging the FCC to ensure 
that broadcasters meet their public interest obligations to 
children in the digital age. What we would like to highlight 
today is what is missing from the Ferree plan, and that is any 
discussion of the public interest. While broadcasters stand 
ready and eager to reap the benefits of the digital largesse 
and the FCC appears ready and eager to speed up the digital 
transition, the public interest has been woefully neglected.
    It has been almost 4 years and I know, because I was there, 
since the FCC initiated proceedings asking how the public 
interest should be served by digital television, but the FCC 
has yet to act. Both our coalitions believe it is imperative 
that the FCC reestablish meaningful public interest obligations 
now and before it reaches any decision on must carry or on any 
Ferree-type plan. It makes no sense to talk about the potential 
consumer benefits of digital television or of achieving a full 
transition before reestablishing the public interest 
obligations, whether it is enhanced children's educational 
programming, serving Americans with disabilities, programming 
for underserved communities or enhanced opportunities for civic 
and electoral discourse. The public interest coalition has 
asked the FCC to adopt a processing guideline for expedited 
license renewal. The proposal focuses on a core component of 
the public interest, that broadcasters provide opportunities 
for citizens to become informed about local civic affairs and 
elections.
    A Lear Center study showed that 56 percent of local 
newscasts that aired in the weeks leading up to the 2002 
elections contained no mention of any campaign. And a 2003 
Alliance For Better Campaigns analysis of seven media markets 
found that in a typical week, just .4 percent of television was 
devoted to local public affairs. Our proposal seeks to ensure 
that broadcasters air a minimum of 3 hours per week of local, 
civic or electoral affairs on the most-watched channel; and in 
the 6 weeks prior to the election, 2 of the 3 hours per week 
must be devoted to electoral affairs. The proposal includes 
language to ensure access for independently produced 
programming and we also support enhanced disclosure and 
reporting requirements.
    The Children's Coalition has recommended that broadcasters 
provide educational and informational programming in the 
digital age, that the FCC prohibit commercial Web sites from 
being embedded in children's programming and that datacasting 
technology is used to help parents make informed decisions 
about the programs their children watch. The current 
requirement that broadcasters air 3 hours of children's 
educational programming per week should translate into a 
digital children's programming requirement of 3 percent of the 
total number of hours broadcast over digital streams. 
Datacasting technologies would be used to provide parents with 
ratings information throughout the length of a program. We also 
ask that the FCC mandate an open V-chip system.
    We are also concerned about the potential harms from 
advertisers' use of interactive technology that is targeting 
children. Many companies are already using a new type of 
marketing, known as advergaming, which encourages children to 
play Internet games and permit advertisers to monitor players 
without their knowledge. The Children's Online Privacy and 
Protection Act should be incorporated into the digital 
transition. Congress and the courts have repeatedly recognized 
that among the media, broadcasting is unique. Broadcasters are 
the trustees of the publish airwaves and they have a statutory 
and fiduciary responsibility to serve the public interest. They 
now stand ready to reap enormous profits from the digital 
spectrum they have been gifted and this is a critical 
opportunity to reestablish meaningful public interest 
obligations and to ensure that the public does not miss out on 
the unique benefits of the digital age. Thank you, Mr. 
Chairman.
    [the prepared statement of Gloria Tristani follows:]
  Prepared Statement of Gloria Tristani, Managing Director, Office of 
           Communication of the United Church of Christ, Inc.
    As Thomas Jefferson put it long ago: ``I know of no safe depository 
of the ultimate power of the society but the people themselves. And if 
we think them not enlightened enough to exercise their control with a 
wholesome discretion, the remedy is not to take it from them, but to 
inform their discretion.''
    Good morning. Thank you for the opportunity to testify today on 
behalf of the Public Airwaves, Public Interest Coalition and the 
Children's Media Policy Coalition at the Subcommittee's hearing 
entitled ``Advancing the DTV Transition, An Examination of the FCC's 
Media Bureau Proposal.''
    I am Gloria Tristani, Managing Director of the Office of 
Communication of the United Church of Christ. The United Church of 
Christ is a mainline Protestant denomination of 1.4 million members in 
more than 6,000 churches, 30 colleges and institutions of higher 
education, 15 seminaries and more than 340 health and human service 
centers in every state and in Puerto Rico. I am also a former Federal 
Communications Commissioner, and served from November 3, 1997 to 
September 7, 2001.
    The Office of Communication (OC, Inc.) advocates for the public 
interest in media and communications before the courts and the FCC. 
Throughout the years OC., Inc. has advocated for those historically 
excluded from the media, especially women and people of color, for 
equal employment opportunity rules in broadcasting and cable, for 
minimum hours of children's educational and informational programming 
and for other public interest obligations.
    OC, Inc. is a member of the Public Interest, Public Airwaves 
Coalition. (List of Public Interest Coalition members attached as 
Exhibit 1). This Coalition, an alliance of public interest groups, 
media activists and grassroots organizations, is urging the Federal
    Communications Commission (FCC) and the Congress to take advantage 
of the transition to digital to reestablish meaningful public interest 
obligations for America's television broadcasters.
    I am also testifying on behalf of the Children's Media Policy 
Coalition and as a Board member of Children Now, itself a member of the 
Children's Coalition. (List of Children's Coalition members attached as 
Exhibit 2). The Children's Coalition is dedicated to improve the media 
environment for children and is currently urging the FCC to ensure that 
broadcasters meet their public interest obligations to children and 
their families in the digital age.
                            the ferree plan
    The Committee has asked for comment on the FCC Media Bureau's 
proposal to advance the digital transition, commonly referred to as the 
``Ferree'' plan. This plan has been floated around by the FCC, 
discussed by the press and interested parties, but there is no written 
or definitive version publicly available. As understood, the purpose of 
the Ferree plan is to speed up the digital transition and free up the 
valuable analog spectrum held by the broadcasters. It would do so by 
counting anyone who has a DTV set, as well as those who have digital-
to-analog converters and anyone with a cable or satellite set-top that 
can either ``down covert'' or pass-through a broadcaster's digital 
signal, towards the threshold ``85% of the population who is capable of 
receiving a digital signal.'' It would also push back the conversion 
date to 2009.
    Many in the public interest community and the public safety 
community welcome any idea that might speed up the return of the 
valuable analog spectrum. But many are also concerned about the details 
and trade-offs that may be involved, including potential harm to 
consumers that still rely exclusively on over-the-air free television 
for their news, information, and entertainment.
    Both coalitions that I represent today, the Public Interest, Public 
Airwaves Coalition and the Children's Media Policy Coalition have not 
taken a position as Coalitions on the Ferree plan at this time, 
although many coalition members may have specific positions. Given the 
fact that the Ferree plan is still fluid, it is important that this 
Committee explore the answers to some of the following questions before 
it passes judgment on the merits of the plan. Does the plan comply with 
the law as written by Congress? Does the plan, by counting any consumer 
that receives cable and/or satellite, even though the consumer may down 
convert to analog, comply with the intent of the statute? Do the 
benefits of quickly freeing up the analog spectrum to the public safety 
community and consumers generally outweigh the harms to consumers that 
may be left in the dark, with outdated equipment and the need to invest 
in new equipment? If government mandates this sped up transition should 
government and industry or both, subsidize this new transition plan? 
And under any plan what provisions will be made for the consumers that 
rely exclusively on over-the-air free television?
    As a former FCC Commissioner that dealt with some of these issues, 
I know how critical it is to get as much information and discussion as 
possible before making major policy choices. And too often, the public 
looses out as evidenced the major consolidation that has occurred in 
radio and other media.
    While we appreciate the efforts by the FCC to propose ideas to 
advance and to address some of the mechanics of the digital transition 
we'd like to comment on what has been missing from this picture. And, 
that is, any discussion of the public interest in the digital age.
                          the public interest
    The public interest is the foundation of broadcasting as we know it 
and Congress has repeatedly directed the FCC to ensure that the public 
interest is served. With the Children's Television Act, Congress of 
1990 directed the FCC to ensure that children receive specifically-
designed educational and informational programming under the current 
single analog channel. In the Telecommunications Act of 1996, Congress 
required that the FCC ensure that broadcasters fulfill obligations in 
the public interest.
    In December 1999, the FCC initiated various proceedings dealing 
with the public interest in the digital age--a Notice of Inquiry on the 
Public Interest Obligations generally, a Notice of Proposed Rulemaking 
on the Children's Public Interest Obligations and a Notice of Proposed 
Rulemaking on Disclosure. Almost four years later, the FCC has yet to 
act on any of these proceedings and to ensure that the American 
public--children, families and citizens--will meaningfully benefit from 
the digital transition. Yet, at the same time, the television industry 
stands ready and eager to use the government giveaway involving billion 
of dollars worth of digital broadcasting capacity.
    Both the Public Interest and Children's Coalitions believe that it 
is imperative that the FCC clearly define broadcasters' public interest 
obligations now and before the FCC reaches any decision on 
broadcasters' demands that it compel local cable operators to carry not 
just one, but all their digital program channels.
    While both Coalitions would like to see a successful transition to 
digital, it is imperative that the FCC first clearly define the 
broadcaster's public interest obligations so that the public knows what 
it is getting for its benefits. Both Coalitions have advocated for 
meaningful public interest obligations and have presented specific 
proposals and/or recommendations to the FCC on what the public interest 
should entail in the digital age. The Public Interest Coalition has 
also presented a specific proposal to improve broadcaster disclosure 
and reporting. Following is a brief discussion of the Public Interest, 
Public Airwaves Coalition ``processing guideline'' proposal; and the 
Children's Media Policy Coalition's recommendations.
        the public interest, public airwaves coalition proposal
    The Congress and the courts have repeatedly recognized that among 
the media broadcasting is unique. Under the current statutory regime 
broadcasters are the trustees of the public airwaves, and they have a 
statutory and fiduciary responsibility to serve the public interest. 
The Public Interest, Public Airwaves Coalition sees the digital 
transition--the moment when broadcasters stand poised to reap enormous 
profits from multicasting--as the critical opportunity to reestablish 
meaningful public interest obligations. The Coalition recognizes the 
television industry has changed significantly over the last twenty 
years. The Coalition also recognizes that the public interest is broad 
and requires that broadcasters air programming that serves the 
educational needs of children, Americans with Disabilities (i.e., 
closed captioning, video description, digital features that would 
provide for more access), underserved communities, and generally 
promote local and community programming and a diversity of viewpoints 
and voices.
    The Public Interest Coalition has focused on the core component of 
the public interest requirement--that broadcasters provide 
opportunities for citizens to become informed about local civic affairs 
and elections. Our proposal (attached as Exhibit 3) is in the form of a 
``processing guideline'' to allow for expedited license renewal. The 
proposal seeks to ensure that broadcasters air a minimum of three (3) 
hours per week of local civic or electoral affairs programming on the 
most watched channel they operate, and also contains provisions 
addressing additional free over-the-air programming streams. The 
proposal requires that at least 50 percent of the local civil and 
electoral programming on the most watched channel be aired between 5:00 
pm and 11:35 pm. And during the six (6) weeks prior to a general 
election, at least two hours of the three hour minimum shall be local 
electoral affairs programming, aired between the hours of 5:00 pm and 
11:35 pm.
    Broadcasters may counter that they are already providing ample 
programming covering local civic and electoral affairs. Yet study after 
study shows that local civic and electoral affairs programming is 
woefully inadequate. According to a Lear Center study 56% of local 
newscasts that aired in the six weeks leading up to the 2002 midterm 
elections contained no mention of any campaign. What little coverage 
there was mostly focused on strategy and polls. And less than one 
quarter of all stories examined candidate issue positions. (See 
Broadcaster Public Interest Obligations: Local, Civic and Independently 
Produced Programming, Background Material List attached as Exhibit 4).
    An October 2003 Alliance for Better Campaign analysis of seven 
media markets found that, in a typical week, just 0.4 percent of 
television programming was devoted to local public affairs. This 
compared with 14.4 percent in paid programming (home shopping or 
infomercials), 9.9 percent in reality or game shows, and 7.9 percent in 
sporting events. Also, most of the local public affairs programming 
aired on weekend mornings, not at times when the greatest number of 
people are watching television. (See Alliance for Better Campaigns 
website at www.ourairwaves.org).
    The proposal includes language to ensure access for independently 
produced programming. A licensee that is an affiliate of a national 
television network (ABC, CBS, NBC, FOX, UPN and WB) must air 
independently produced programming for at least 25 percent of the 
primary channel's prime time schedule.
    The proposal is crafted to balance the First Amendment rights of 
broadcasters and the First Amendment rights of the viewers, and allows 
broadcasters to retain editorial control while ensuring that the public 
receives a reasonable minimum of local civic and electoral discourse.
    Nonetheless, broadcasters may counter that this proposal is 
unconstitutional and infringes on their First Amendment rights. More 
than 70 years of legislation, regulation and court rulings argue 
against this. In the landmark court ruling, Red Lion v. FCC, 395 U.S. 
367 (1969) (which was favorably cited in McConnell v. FEC, No. Slip Op. 
No. 02-1674 (Dec. 10,2003)), the Supreme Court held than when the 
government regulates access to the spectrum it must balance the First 
Amendment rights of broadcasters against the rights of the public, and 
that when these rights come into conflict, the rights of the public are 
``paramount.''
           children's media policy coalition recommendations
    The Children's Media Coalition, which is comprised of eight (8) 
children and children related advocacy groups, sees the digital 
transition as an opportunity to improve the media environment for 
children and to protect against any potential harm to children from the 
new and ever expanding digital interactive technologies. The Children's 
Media Coalition has made specific recommendations to the FCC including 
the following; 1) that broadcasters be required to provide educational/
informational (E/I) programming in the digital age; 2) that it prohibit 
commercial web sites from being embedded in children's programming; and 
3) that datacasting technology be used to help parents make informed 
decisions about the programs their children watch, including using 
datacasting to provide parents with ratings information throughout the 
length of any given program and to help find educational programming. 
(See Children Now Spring 2004 Newsletter on Digital Television 
available at www.childrennow.org).
    Despite the amount of time children spend watching television, they 
still have limited options for educational programming. Numerous 
research studies show that exposure to educational television has 
positive effects on the social, intellectual and educational 
development of young children.
    In the current world, broadcasters are required to air three (3) 
hours of educational/informational (E/I) programming per week between 
the hours of 7:00 am and 10:00 pm as part of their station licensing 
renewal guidelines. This amounts to about three (3) percent of their 
total broadcasting. In the digital world, broadcasters will have the 
potential to multicast up to six (6) channel streams which should 
translate into a minimum digital children's hour requirement of three 
(3) percent of the time broadcast over all a broadcasters channel 
streams. This proportional rule would offer a minimum guarantee of 
programming for children, while at the same time giving broadcasters 
the flexibility to determine how to meet their educational programming 
obligation.
    Already advertisers are trying new ways to reach consumers 
including using interactive advertising technologies to target 
children. Young children, however, inherently lack the reasoning 
ability to understand that advertising may be biased and exaggerated. 
The vulnerability of children to commercial persuasion, coupled with 
innovations by advertisers to reach child consumers, raise serious 
concerns about the marketing methods that may be employed on digital 
television.
    Advertisers are using interactive media, specifically the Internet, 
to entice child customers. Many companies are using a new type of 
marketing, known as ``advergaming,'' which encourages children to play 
Internet games. Advergames are often found on Web sites of popular 
products or video games. Some advergames permit advertisers to monitor 
players without their knowledge, providing advertisers information 
about the length of time child consumers are online and what choices 
they make while playing.
    Advocates are concerned that this new technology will be used to 
track the viewing habits and interest of viewers without their 
knowledge or consent. In an interactive television environment, 
advertisers will be able to target children according to their gender, 
age, household income and/or race, tracking the history of their 
individual viewing habits.
    The FCC should prohibit commercial web site links from being 
embedded in children's programming. To further protect children, The 
Children's Online Privacy and Protection Act should be incorporated 
into the digital television transition.
    One of the potential benefits of the digital television is that it 
could be used to better inform parents about programs their children 
watch. The TV ratings system have had limited success in helping 
parents control their children's viewing habits because often parents 
do not understand how it works. With datacasting technology, a 
program's rating could be shown throughout the length of a program.
    The FCC should require that datacasting be used to provide parents 
with ratings and other useful information to help parents guide their 
children's television viewing. The FCC should also mandate an ``open V-
chip system, which would allow a broader range of ratings to be 
supported by digital television sets. An ``open'' system could help 
parents proactively find educational programming.
                             in conclusion
    Before the FCC makes any new decisions on the digital transition, 
whether it is the adoption of a Ferree type proposal or the carriage 
rights of digital broadcasters, it must clearly define the public 
interest obligations of broadcasters in the digital age. The public 
deserves to know what benefits it will get from the digital largesse 
that has been gifted to the broadcasters.
    That benefit should include reasonable minimums of local civic and 
electoral discourse as described in the Public Interest Proposal; and 
for children, commensurate amounts of educational and informational 
programming, a prohibition of commercial website links embedded in 
children's programming and incorporation of children's privacy 
protections, and, the use of datacasting to provide enhanced and better 
information for parents about programs their children watch.
    The public should not miss out on this unique opportunity to 
benefit from the new digital age.

    Mr. Upton. Thank you.
    Mr. Lenard.

                 STATEMENT OF THOMAS M. LENARD

    Mr. Lenard. Thank you, Mr. Chairman and members of the 
subcommittee. I am vice president for research at the Progress 
& Freedom Foundation. PFF is a market-oriented think tank that 
studies the digital revolution and its implications for public 
policy. I appreciate this opportunity to testify on the DTV 
transition, which I believe is one of the most important 
communications policy issues we face today. In my opinion, the 
transition to DTV has foundered on the shoals of a policy that 
is at odds with the reality of where the market is going.
    Namely, we are embarked on a prescribed course premised on 
a transition to free over-the-air broadcast DTV when, in fact, 
only about 10 percent of the viewing population receives its 
television that way and that percentage is declining over time. 
As a result, the transition has stalled and something is needed 
to get it moving again, which is why the new ideas emanating 
from the FCC are very encouraging. The government, by 
necessity, has an integral role in the DTV transition because 
of its role as the manager of the radio spectrum.
    Indeed, in my view, the government's primary goal should be 
to free up the very valuable chunk of spectrum currently 
allocated to broadcast television because delay in freeing up 
the spectrum means delay in making new wireless services 
available to consumers. There are significant benefits in 
making that happen sooner rather than later. The current 
deadline for the end of the transition when the broadcasters 
are supposed to relinquish their analog spectrum, the end of 
December 2006, is not a meaningful deadline.
    Nobody believes it will happen because it is conditional on 
85 percent of the households in any market being able to 
receive digital broadcasts and the way this condition is now 
interpreted, cable and satellite don't count toward the 85 
percent. This, as I indicated, flies in the face of reality 
because almost 90 percent of households subscribe to an MVPD, 
75 percent to cable and almost 22 percent to DBS. As FCC 
Chairman Powell has noted, ``It seems clear to me that at some 
point on the horizon, all Americans, perhaps in 10 years, will 
have pay TV.'' By that time a significant portion of Americans 
may also be getting their TV over the Internet, a technology 
that was in its infancy when the DTV transition plans were 
being developed. As Chairman Powell has also noted, ``If 100 
percent of Americans don't get free over-the-air TV, what are 
we protecting?''
    Moreover, in the past 10 years, most MVPD has become 
digital. The cable industry has been investing heavily in its 
facilities and digital cable service is now available to almost 
all cable subscribers. The agreement on the new plug-and-play 
standard between manufacturers of digital television sets and 
the cable systems will also help to speed this transition 
along. Direct broadcast satellite which barely existed 10 years 
ago is all digital. Currently the two major DBS providers, 
DirecTV and Echostar, both offer HDTV services in packages.
    For its part, the FCC staff is proposing a way to move the 
process forward by establishing a new deadline of January 1, 
2009 for the end of the transition at which time the 
broadcasters would return their analog spectrum. To make this 
happen, the FCC has devised a plan that would count cable and 
satellite subscribers toward the 85 percent threshold and 
combined with other initiatives this would help assure that the 
85 percent threshold is met and thereby free up the 108 
megahertz of analog spectrum that the broadcasters have been 
scheduled to return in 2006. Freeing up the analog spectrum 
will produce public safety benefits, tens of billions of 
dollars for the Treasury, and when benefits for consumers are 
included, probably hundreds of billions in total economic 
benefits, benefits that will accrue to consumers from all the 
new wireless services that would be available.
    I would commend the FCC staff for trying to tackle this 
very difficult problem but while a firm 2009 deadline is better 
than a deadline nobody believes will be met it is still quite a 
long way off. The dominant priority, as I said, for 
policymakers in the transition, should be to free up as much of 
the spectrum allocated to broadcast TV as possible as soon as 
possible.
    Finally, in this Internet age, it is not too early to start 
thinking about freeing up all of the spectrum allocated to 
broadcast because it may not be long before virtually all 
Americans will get their TV from another source. When that day 
comes, as Chairman Powell has said, ``What are we protecting?'' 
thank you.
    [The prepared statement of Thomas M. Lenard follows:]
    Prepared Statement of Thomas M. Lenard, Senior Fellow and Vice 
       President for Research, The Progress & Freedom Foundation
    Mr. Chairman and members of the Subcommittee, my name is Thomas 
Lenard and I am senior fellow and vice president for research at The 
Progress & Freedom Foundation. PFF is a market-oriented think tank that 
studies the digital revolution and its implications for public policy. 
I appreciate this opportunity to testify on the DTV transition, which I 
believe is one of the most important communications policy issues we 
face today.
                              introduction
    DTV offers a number of advantages, including the ability to provide 
better-quality pictures, a greater array of programming, and new 
services, such as interactive TV. But the transition has foundered on 
the shoals of a government policy that is at odds with the reality of 
where the market is going. Specifically, we are embarked on a 
government-prescribed course premised on a transition to free over-the-
air broadcast DTV when, in fact, only about 10 percent of the viewing 
population receives its television this way, and that percentage is 
declining over time.
    As a result, the transition has stalled, and something is needed to 
get it moving again--which is why the new ideas emanating from the FCC 
are very encouraging. Hopefully, the FCC media staff proposals signal 
the beginning of a broader discussion that will lead to greater 
certainty and completion of the transition (however that is defined) in 
a timely manner. The current policy has large costs because it involves 
tying up large blocks of spectrum that have valuable alternative uses--
especially now, when demand for the airwaves for innovative new 
wireless communications technologies is exploding.
    Even at its simplest, the transition to DTV is a classic ``chicken-
and-egg'' problem characteristic of many network industries. In the 
early stages of the transition, program producers and broadcasters have 
a limited incentive to provide digital programming because very few 
consumers have DTV receivers. Consumers, on the other hand, have little 
interest in purchasing such receivers because there is limited digital 
programming available, all of it is available in analog format anyway, 
and because digital receivers (especially at the beginning) are very 
expensive. Nevertheless, successful transitions to new superior formats 
in network industries are frequently made. The transitions from long-
playing records to CDs and from VHS tapes to DVDs are two recent 
examples.
    Left to its own devices, the market could be expected to make a 
successful transition in the case of DTV as well, but probably a 
transition to digital subscription TV--cable and satellite--rather than 
over-the-air broadcast TV. However, the federal government is by 
necessity integrally involved, because of its role as the manager of 
the radio spectrum, and because each of the program delivery media--
broadcast, cable and satellite TV--is affected in significant ways by a 
range of government policies.
    The government's primary goal should be to free up the very 
valuable chunk of spectrum currently allocated to broadcast television, 
because, under current law, the normal market mechanisms for that 
spectrum to find its way to higher-valued uses are not available. 
Because delay in freeing up the spectrum means delay in making new 
wireless services available to consumers, there are significant 
benefits in making this happen sooner rather than later.
                  the current dtv transition framework
    The basic framework for transitioning to DTV was established in the 
Telecommunications Act of 1996 and the Balanced Budget Act of 1997. The 
1996 Telecommunications Act directed the FCC to give each analog 
television licensee an additional digital channel free of charge to 
provide over-the-air digital broadcasting. Each broadcast station now 
is licensed to use 6 MHz of spectrum for analog and an additional 6 MHz 
for digital broadcasting so that, during the transition, broadcasters 
can broadcast on both channels simultaneously.
    The 1997 Balanced Budget Act (BBA) established December 31, 2006 as 
the conditional deadline for the end of the transition. After the 
transition is complete, the broadcasters are supposed to relinquish 
their analog spectrum, which can then be used by the government for 
public safety or auctioned to the private sector for other uses. The 
initial FCC plan (from the early 1990s) was to release 138 MHz (out of 
402 MHz dedicated to television broadcasting), with the remainder 
continuing to be allocated to television after the transition. The FCC 
subsequently reduced this to 114 MHz, with 24 MHz allocated to public 
safety uses (in response to a BBA directive), and then further to 
108MHz.1
---------------------------------------------------------------------------
    \1\ See Federal Communications Commission Report and Order In the 
Matter of Reallocation and Service Rules for the 698-746 MHz Spectrum 
Band (Television Channels 52-59), GN Docket No. 01-74, released January 
18, 2002; and ``Completing the Transition to Digital Television,'' 
Congressional Budget Office, September 1999.
---------------------------------------------------------------------------
    The 2006 date for relinquishing the spectrum is subject to three 
statutory conditions:

1. All of the licensees or affiliates of the four largest networks are 
        broadcasting a DTV signal.
2. Digital-to-analog converter technology is generally available (so 
        that individuals with analog TVs can still use them).
3. 85 percent of households in any market are capable of receiving 
        digital broadcasts. To be counted, a household needs to be able 
        to receive over-the-air digital signals using a digital TV set 
        or a digital-to-analog converter, or subscribe to a 
        multichannel video programming distributor (MVPD, such as cable 
        or satellite) that carries at least one digital programming 
        channel of each broadcaster in the market.
    Finally, the FCC has established timetables to speed up the 
transition: a schedule for stations receiving DTV licenses to build out 
DTV facilities, with all commercial stations required to broadcast 
digital signals by May 1, 2002; and a schedule for manufacturers to 
include over-the-air tuners that receive digital broadcast signals, 
with all sets over 13 inches required to include the tuners by July 1, 
2007.
                 how far has the transition progressed?
    If the goal is to meet the statutory conditions (specified above) 
for freeing up the spectrum, it is safe to say we are not close. While 
the first two conditions are not likely to present a problem, there is 
no market in which the third condition--85 percent of households 
capable of receiving digital broadcasts--is close to being satisfied. 
Indeed, the FCC has yet to precisely define what a market is for 
purposes of meeting this condition.
    Whatever the definition, only about 8 to 9 percent of U.S. 
households have DTVs (mostly monitors) and about 1 percent have the 
ability to receive digital over-the-air signals.2 Moreover, 
in order for cable and satellite to be counted in the 85 percent they 
must carry at least one digital channel for every broadcaster, which 
they don't do now, and probably won't in the future, because of 
capacity constraints and because some of the programming is of limited 
value to their customers. If MVPD viewers are not counted the third 
condition, in effect, means that 85 percent of the viewers in any 
market must be capable of receiving over-the-air digital broadcasts. 
This, in turn, means that consumers would have to buy potentially 
expensive over-the-air receivers for the third condition to be 
satisfied. These receivers would have virtually no utility for cable 
subscribers and would be useful for satellite subscribers only in 
selected areas where satellite may not carry the local signals.
---------------------------------------------------------------------------
    \2\ CRS Report for Congress, Lennard G. Kruger, ``Digital 
Television: An Overview,'' Updated April 23, 2004.
---------------------------------------------------------------------------
    With respect to DTV build-out status, 1,642 stations (97 percent) 
have been granted a DTV construction permit or license.3 Of 
these, 642 are authorized to be on the air with licensed facilities, 
implying that the remaining 1000 have not met the 2002 conversion 
deadline. Of the 1000, 781 stations are operating with ``special or 
experimental'' authority and the remaining 219 are presumably not on 
the air at all.
---------------------------------------------------------------------------
    \3\ See Summary of DTV Applications Filed and DTV Build Out Status, 
May 26, 2004, http://www.fcc.gov/mb/video/files/dtvsum.html
---------------------------------------------------------------------------
    The problem is that the federal government's plan to transition to 
over-the-air DTV flies in the face of reality, because almost 90 
percent of households subscribe to a MVPD--75 percent to cable and 
almost 22 percent to DBS.4 The remaining 10 percent--
households that presumably place a fairly low value on TV viewing--will 
move more slowly, but many of them eventually will get there. As FCC 
Chairman Powell has noted, ``[I]t seems clear to me that at some point 
on the horizon, all Americans--perhaps in 10 years--will have pay-TV. 
As an entity, [over-the-air TV broadcasting] may and probably will be 
there but as a program supplying interest more than a distribution 
platform.'' 5 By that time, a significant portion of 
Americans may be getting their TV over the Internet, a technology that 
was in its infancy when the DTV transition plans were being developed. 
As Powell has also noted, ``If 100 percent of Americans don't get free, 
over-the-air TV, what are we protecting?'' 6
---------------------------------------------------------------------------
    \4\ Federal Communications Commission, Annual Assessment of the 
Status of Competition in the Market for the Delivery of Video 
Programming, released January 28, 2004 (FCC 2003 Report).
    \5\ ``FCC's Powell Sees Big Change in Broadcast Environment,'' 
Communications Daily, October 23, 2001, pp. 1-2.
    \6\ Ted Hearn, ``Could TV Stations Lose Their Spectrum,'' 
MultiChannel News, June 18, 2001, p. 56.
---------------------------------------------------------------------------
    Moreover, in the past 10 years, most MVPD has become digital. The 
cable industry has been investing heavily in its facilities. Digital 
cable service is available to 90 percent of subscribers and, as of June 
2003, there were more than 20 million subscribers.7 In 
addition, over 60 million households are passed by cable systems 
offering HDTV.8 Agreement on a new ``plug and play'' 
standard between manufacturers of digital television sets and cable 
systems will help speed the transition to digital cable.9
---------------------------------------------------------------------------
    \7\ FCC 2003 Report, p. 32.
    \8\ FCC 2003 Report, p. 35.
    \9\ FCC 2003 Report, p. 33.
---------------------------------------------------------------------------
    DBS, which barely existed 10 years ago, is all-digital. Currently, 
the two major DBS providers, DirecTV and EchoStar, both offer HDTV 
services and packages. EchoStar has recently introduced a new satellite 
dish with which subscribers can receive up to 50 HD 
channels.10
---------------------------------------------------------------------------
    \10\ FCC 2003 Report, p. 54.
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                      the fcc media staff proposal
    If 90 percent of Americans are getting their TV from a subscription 
service, why do we have a national strategy to transition to over-the-
air DTV--especially since that strategy has associated with it very 
large costs?
    The FCC staff is proposing a way to move the process forward. As I 
understand the proposal, it would establish a new deadline of January 
1, 2009 for the end of the transition, at which time broadcasters would 
return their analog spectrum. To make this happen, the FCC would 
require that broadcasters, if they want to assert their ``must carry'' 
rights, do so with a digital rather than an analog feed. The cable 
operators would then convert the digital signals to analog for viewers 
who don't have a digital TV. These subscribers would all count as being 
able to receive digital broadcasts. Combined with other initiatives, 
this would help assure that the 85-percent threshold is met and thereby 
free up the 108 MHz of analog spectrum that the broadcasters have been 
scheduled to return in 2006.
    Other initiatives should include the ``digital white area'' 
proposal currently under consideration as part of the reauthorization 
of the Satellite Home Viewer Improvement Act (SHVIA). This provision 
would extend the distant signal retransmission provision of SHVIA to 
include distant digital signals. Measures like this, which increase the 
demand for subscription TV and for digital TVs, make a lot of sense, 
especially in the context of the overall DTV transition and the need to 
free up the broadcast spectrum.11
---------------------------------------------------------------------------
    \11\ See discussion in Thomas M. Lenard, ``Accelerating the 
Transition to Digital TV: The Satellite Home Viewer Improvement Act Can 
Help,'' The Progress & Freedom Foundation, Progress on Point 11.4 
(February 2004).
---------------------------------------------------------------------------
                       the value of the spectrum
    Freeing up the analog spectrum will produce public safety benefits, 
tens of billions for the Treasury and, when benefits for consumers are 
included, probably hundreds of billions in total economic benefits--
benefits that will accrue to consumers from all the new services that 
would be available.
    We should not, however, limit ourselves to thinking about the 108 
MHz of analog spectrum, because we are very close to moving the nation 
the rest of the way from its current approximately 90-percent 
subscription viewership to 100-percent, and TV over the Internet may be 
just over the horizon. All this raises the prospect of being able to 
reclaim the entire 402 MHz allocated to broadcast TV and auction it off 
for other, higher-valued uses. The value of this spectrum in terms of 
innovative new services would be some multiple of the value of the 
analog spectrum--probably well over a trillion dollars.12
---------------------------------------------------------------------------
    \12\ These numbers are very large, but note that they represent 
discounted present values, not annual figures. A 2002 paper by Thomas 
Hazlett estimates that the market value of the 402 MHz of TV band 
spectrum is between $52 billion and $470 billion and suggests that the 
annual consumer surplus would be in the same range. See Thomas W. 
Hazlett, ``The U.S. Digital TV Transition: Time to Toss the Negroponte 
Switch,'' Manhattan Institute, revised, December 26, 2002. More 
recently, Hazlett has estimated the social gains from productive use of 
100 MHz of TV band spectrum at about $1 trillion and of 400 MHz at 
about twice that amount. Another estimate, based on recent auctions for 
3G spectrum in both the U.S. and Europe, puts the market value of the 
TV spectrum as high as $367 billion. See Tom Wolzein, ``Whose Bandwidth 
is it Anyway?'' Speech, National Association of Broadcasters Futures 
Summit, Bernstein Research, April 2001, referenced in Michael 
Calabrese, ``Battle Over the Airwaves, Principles for Spectrum Policy 
Reform,'' New America Foundation, October 2001, p. 4.
---------------------------------------------------------------------------
                               conclusion
    In conclusion, I would commend the FCC staff for trying to tackle 
this very difficult problem. But, while a firm 2009 deadline is better 
than a deadline nobody believes will be met, it is still quite a long 
way off. The dominant priority for policy makers in the transition to 
DTV should be to free up as much of the spectrum allocated to broadcast 
TV as possible as soon as possible.
    In this Internet age, it is not too early to start thinking about 
freeing up all of the spectrum allocated to broadcast, because it may 
not be long before virtually all Americans will get their TV from 
another source. When that day comes, as Chairman Powell has said, 
``what are we protecting?''

    Mr. Upton. Right on the nose. Thank you all. I will start 
with the questions. Mr. Ferree, in Mr. Fritts' testimony, he 
said that the NAB further suggests that it, ``makes no sense to 
think that Congress intended that the 85 percent threshold 
could be crossed through a combination of cable and satellite 
subscribers and that nothing in the legislative history 
contemplates calculating the bench mark in such a way and that 
Congress and the Commission should recognize the bureau's 
proposal for what it is, a last minute artificial maneuver.'' 
How do you respond to that claim?
    Mr. Ferree. I have a lot of responses, Mr. Chairman. It is 
not a last-minute, artificial proposal. It is a timely attempt 
at interpreting the must carry statute and the digital 
conversion statute in a way that makes sense and will not leave 
consumers stranded without their televisions. These are must-
carry stations we are talking about. The only way they will be 
carried on a cable system is if the government mandates that 
they be carried. These are not retransmission consent stations 
which are negotiating their carriage. So at some point in time, 
if we are to ever have their digital signals carried on cable 
systems, the government is going to have to say, ``Cable 
systems, you must carry these digital signals.'' At that point 
you have an option. If you are going to try dual carriage, 
which again we think is unconstitutional, the cable system 
would be required to carry both. Putting aside dual carriage 
then, you have a choice. Either the cable system is going to 
downconvert that signal so that all consumers continue to see 
the same programming they have always seen or they carry it in 
digital, which is fine, but that means that all of those analog 
subscribers will no longer see the programming.
    As a Bureau looking after the public interest, we opted for 
the former and said these signals should be downconverted, 
these must carry signals, so that all consumers continue to see 
them. That then meets the first prong of the statutory 85 
percent test which is the carriage by a cable system of all the 
digital signals.
    Mr. Upton. How do you respond, then, to the degradation of 
the broadcaster's signal by being converted from digital to 
analog? I think just about everyone would admit that, in fact, 
it does degrade the picture.
    Mr. Ferree. Yes, that's right.
    Mr. Upton. What is your response to that?
    Mr. Ferree. The first part of the response is that this is 
only a transitional mechanism. It is only during the transition 
which, in effect, can be for zero time because the broadcasters 
will know that come January 1, 2009, this switch in the must-
carry right is going to happen, so they can turn in their 
analog license at the same moment and then immediately it 
becomes their decision to have their signal downgraded or not.
    In this sense, we are very pro-choice in the Bureau and it 
is the broadcaster's choice, nobody else's. Not the cable 
system's, not CEA's, not the Bureau's. It is their signal. It 
is their choice. If they want it carried in full digital 
splendor, it is up to them, but they will recognize at that 
point that they may lose some of the analog subscribers on the 
cable system unless of course the cable system voluntarily 
carries it in analog, too, which they may.
    Mr. Upton. Mr. Fritts? What is your response to that?
    Mr. Fritts. One, I don't think we need to wait till 2009 to 
start the transition. I think Ranking Member Markey talked 
about starting in 1987 in this very room. I happened to be here 
along with others when that occurred. I think we are in a 
transition. If you look at it this way, the transition began 
and we are here, and the end of the transition is there. The 
FCC has proposed rules that take place in 2009, ostensibly at 
the end of the transition. The question is what happens to 
consumers between now and then? Our plan where a broadcaster 
would be allowed to choose either digital carriage or analog 
carriage on the cable system, not both but one or the other, 
would, in fact, and indeed, expedite this transition.
    Mr. Upton. Mr. Shapiro, what is your comment?
    Mr. Shapiro. I think the plan is actually quite creative 
because actually it gives broadcasters an opportunity to 
compete with cable and promote over-the-air broadcasting. We 
have been working for several years to promote the concept of 
people actually buying antennas and getting the free over-the-
air signal. We are a little bit uncomfortable with the fact 
that you are taking an HDTV signal and making it analog on 
cable, but every subscriber will have the opportunity for a 
couple of bucks to put up an antenna and get a beautiful HDTV 
signal and broadcasters will promote that naturally in a free 
market under the plan.
    Mr. Upton. Mr. Sachs?
    Mr. Sachs. I think that the picture being painted is 
somewhat unrealistic. What the bureau plan takes account of is 
that at the end of 2008, there will be 30 million cable homes 
that are still analog cable subscribers and even in the homes 
of digital cable subscribers, there will be additional TV sets, 
third or fourth sets that may be in a den or a child's room 
that are analog TV sets. The Kagan Research figures showed that 
there will be approximately 100 million such analog sets in 
cable homes as of the end of 2008. That is, with 60 percent 
digital cable penetration. So what the bureau plan, as we 
understand it is attempting to do is to assure that those 
consumers are still going to be able to watch broadcast 
television on those sets if the cable operator is able to 
downconvert that signal at the cable system head end.
    This does not mean that HD broadcast signals are not going 
to be carried as well on cable systems. Today market forces are 
at play here. We are competing vigorously with satellite and 
approximately 400 digital broadcast stations, most of whom are 
doing HD, are being carried on cable systems in addition to the 
broadcaster's analog system pursuant to voluntary agreements.
    Mr. Upton. My time has expired. Mr. Gonzalez is recognized 
for 5 plus a 3-minute bonus, 8 minutes.
    Mr. Gonzalez. I will try not to take it all. Thank you very 
much, Mr. Chairman. Not to make it real complicated, of course, 
I guess the whole game is getting to 85 and deciding that we 
may just simply enlarge the pool definition and rather than 
aspire to having the consumer having HD-ready TV, just 
basically put it on someone else's responsibility, so that if 
they don't have it they still get the HD signal. I think the 
most telling testimony today is the reality of the consumer. 
None of us would be able to go back to our districts if we 
mandated that the consumer had to have an HDTV set, otherwise 
they wouldn't receive certain programming or whatever.
    It is never going to happen. To even entertain that and--I 
don't know. We attempted to do it, I guess. I wasn't on this 
committee, I wasn't even in Congress, but obviously all efforts 
have fallen short. Manufacturers weren't required obviously in 
any new set being built to have that capability. I don't know 
what happened along that line. But the thing is we are facing 
that--the reality of it today is we are still going to have 
millions of homes that are not going to be capable of receiving 
that type of HD signal. I guess what the bureau is proposing 
makes sense. When it comes to the different stakeholders, I 
understand that they have business considerations. But can we 
start off with the basic proposition that even in 2009 or 2010, 
and I was looking at the numbers, in 2008--I think this was the 
testimony of Mr. Sachs--that 55 percent of the TVs that are in 
households would be HD capable, whatever it is. That is still 
45 percent. Does anyone have any idea when we finally will 
reach a point where it will be such an insignificant number of 
consumers that have the old sets? I just don't see that day 
coming anytime soon, so we do have to move forward and being 
realistic. I will ask Mr. Shapiro.
    Mr. Shapiro. Congressman Gonzalez, actually we have some 
marketplace projections based on the sales. Keep in mind that 
there will be plenty of TV sets out there which are not HDTV, 
but there is a requirement now legally that every TV set sold 
with an analog tuner will have a digital tuner. The FCC has 
required it, it is phased in over time, so a consumer really 
will not have a choice. Also the cable ready sets will have 
over-the-air tuners so it will evolve over time. Yes, there may 
be some concern that some of the sets in the future, the analog 
sets, will not get an over-the-air signal that is digital, but 
there will be inexpensive converter boxes, plus those sets will 
be usable for a variety of functions as they are today, whether 
it is for video games or playing things with a video camera or 
so many other things that TVs are used for. TVs are no longer 
just--in fact, the minority of the use is for over-the-air 
broadcast signals.
    Mr. Gonzalez. Which goes back to what is going to happen 
with Internet and everything else, and I guess we will cross 
that bridge later. But the point being, every Sunday I love 
looking through the electronic advertisements because we all 
dream--what we dream about are basically these monitors that we 
have here. Until they get down to where they are reasonably 
priced other than at about $100 per inch, some of us will not 
have them. What they are not telling you, the majority of the 
televisions that I see in any of these ads really aren't HD. 
They may say that they are compatible or they are, and that is, 
on the very high end, and I realize that we have something that 
is marginalizing over time, depending on the size of the screen 
and so on, but can you tell me with any real definiteness, when 
are we going to reach a point when there is only 5 percent or 
whatever? We are not.
    In the meantime, we have to take care of that consumer. I 
know that the cost that is being incurred by broadcasters and 
such is enormous, and I don't know if this is really 
counterproductive to getting to where we want to, but the 
bottom line is we want to free up the spectrum, we don't want 
to deprive the consumer of the service in the product and which 
is the best way to do it.
    I understand that in today's testimony, we are probably not 
touching on some of the economic considerations faced by the 
different stakeholders. That will await a different discussion 
and probably a meeting in the office. Again, thank you very 
much for your testimony. Unless there is anyone that wants to 
respond to anything that I have said.
    Mr. Ferree. Congressman, can I just make one comment about 
that? I think you hit the nail on the head in the sense that if 
we wait for 85 percent of consumers to have digital equipment 
in their homes, we could well be waiting to 2050 or beyond to 
recover this spectrum, and even then it is likely it is only 
one TV in the home. The rest of those TVs that may be hooked up 
to cable or satellite systems may well be the old analog TVs. 
Again, if we want most people to feel nothing on the transition 
day, not even to know a transition occurred, the only way to do 
that is to have downconversion for those TVs.
    Mr. Gonzalez. Yes, Mr. Fritts.
    Mr. Fritts. Mr. Gonzalez, just to follow up on what you 
said, you hit the nail on the head. This is all about 
consumers, no question about it, and how do we take care of the 
consumers? In a way, broadcasters and Members of Congress have 
the same constituents. Our viewers are your constituents. Our 
goal is not to disenfranchise any of these viewers and, if so, 
a very minimal number of them. We are concerned that this plan 
which goes up until 2009 and makes a flash cut. In fairness, we 
commend the Media Bureau for thinking creatively and we 
obviously have some ideas that could enhance that. But I would 
suggest that this plan is about cable.
    In 1992, the Congress looked at this and said we are not 
going to meet our mandated objectives unless we impose upon the 
cable industry a thing called must carry. That has worked well. 
The same arguments that we heard in 1990 and 1991 about not 
having capacity and about imposition and about first amendment 
rights were upheld by the Supreme Court, I might add. I am 
suggesting now that you give the broadcaster, or you encourage 
the FCC, either way, to give the broadcaster the right to 
choose either carriage of the digital signal, or of the analog 
signal on the cable system, not both. If you would do that, 
then we can expedite this transition, and 2009 in my view will 
be a victory day as opposed to a day of angst and problems.
    Mr. Ferree. Unless NAB has changed their proposal, what 
they submitted to us was that there would be this either/or 
election until January 2007 at which point unless the cable 
systems had converted to all digital, they were demanding dual 
carriage at that point. Maybe I should let Mr. Sachs comment on 
this, but I suspect there will be very few, if any, cable 
systems all digital in January 2007.
    Mr. Gonzalez. Mr. Sachs?
    Mr. Sachs. Congressman Gonzalez, what you have heard from 
my friend, Mr. Fritts, is essentially a recycled version of the 
broadcast industry's dual must-carry plan. This is something 
that the FCC tentatively concluded 3 years ago was 
unconstitutional. Cable operators are carrying in every market 
the television signal of the local broadcast station either 
pursuant to must carry or retransmission consent. In a number 
of markets, cable operators are also carrying the digital 
version as well as the analog version of the broadcast station 
because the broadcaster is offering something additional of 
value to consumers.
    In most instances, that is high definition television. That 
is what is going to cause consumers to go out and purchase an 
HD-ready TV set, not simply a standard definition digital 
duplicate of the programming in analog that the cable system is 
already carrying.
    Mr. Gonzalez. Thank you very much. My time is about up.
    Mr. Upton. Mr. Barton.
    Chairman Barton. Thank you, Mr. Chairman. Mr. Ferree, does 
the FCC have any estimates of how much the value of the 
spectrum will be that would be freed up when we get to the 
digital transition, what the value of that is?
    Mr. Ferree. Congressman, I don't know that there is any 
definitive estimate of that. We certainly don't have an 
official Commission estimate, but I have heard numbers in the 
multiple tens of billions of dollars and I have no reason to 
question those. I would add that the great benefit may not come 
just from the auction revenues, but in terms of the ongoing 
benefits to the economy, of new jobs through the new services 
provided to consumers that will be developed in that spectrum.
    Chairman Barton. I don't want to hold you to--I am just 
asking for a ballpark number. Is there anybody on the panel 
that disputes that ballpark number, tens of billions? That is 
close enough for this subcommittee hearing. If you gentlemen 
were up here on the podium given the fact that we have got a 
commodity here, the public airwaves, that is worth a lot of 
money, should we try to expedite the transition or should we 
try to restrain the transition?
    Mr. Fritts. I would move that you expedite the transition.
    Mr. Ferree. Here, here. I agree with Mr. Fritts.
    Chairman Barton. I especially appreciate Mr. Fritts saying 
that because he represents a group that has a valuable 
commodity right now and not all of his members but some of his 
members might wish to retain that.
    Mr. Fritts. Mr. Chairman, you know that we have agreed to 
return one-third of the spectrum and to use new technology to 
skinny down, if you will, the amount of spectrum that 
television uses and to return that to the government. I think 
the question at hand is how do we best get to that point 
without disenfranchising consumers. That is what we are saying. 
It is going to take a mix of the cable industry, the broadcast 
industry, the satellite industry and all of us working 
together. This committee has brought us together from time to 
time and has----
    Chairman Barton. Today is one of those times.
    Mr. Fritts. Today is one of those times. Let me say this. 
Unequivocally broadcasters want to end this transition quickly. 
We are currently running two transmitter systems, two 
television stations. We are paying the power companies an 
enormous amount of money to broadcast two signals when we know 
that one signal would satisfy the concerns.
    Chairman Barton. We want to help you do that. Let's 
stipulate that everybody at the table is a white hat person. 
You are all wearing white hats, you are all good guys and 
girls. Woman. Lady. Let's get it right. My last question is, 
given that we are talking about a transition and human nature 
being what it is, there are going to be some people in this 
country that never want to pay the money to upgrade to high 
definition television. I am probably one of those people.
    Mr. Upton. Do you have a TV, Mr. Chairman?
    Chairman Barton. As Mr. Gonzalez said, when the price gets 
down to where guys like me can actually afford those high 
definition TV sets or somebody wants to give me one legally as 
a Christmas present, then we will be okay. Why shouldn't this 
committee in the next Congress, if not this Congress, just say 
we are going to uphold the 2006 deadline and set up some sort 
of a fund to pay for the converter boxes for low-income 
citizens that can't afford them? Why shouldn't we just do that 
and just short-circuit this debate about a transition that 
might drag out to 2009 or some further date? Why don't we just 
do that? Anybody.
    Mr. Shapiro. Mr. Chairman, that is an option that has been 
successfully deployed in Berlin as they were the first city to 
make a full transition to digital. On behalf of the consumer 
electronics industry, I guess that is an option. We are 
uncomfortable in asking the government to pay for consumers to 
buy their products.
    Chairman Barton. I know, but that is our job. We can have 
that debate. We have got a broad, diverse panel here of 
Members. We have got folks that represent high-income 
constituencies and low-income constituencies and middle-income 
constituencies. That will be a real debate. I am not saying 
that is trivial. If we debate the exact best time and place to 
do a transition, it is possible we will be having that debate 
30 years from now.
    On the other hand, the Act says to December 31, 2006, or, 
if we can find a consensus, we can just say it is going to be 
December 31, 2006 and then how to help pay for those citizens 
that can't pay themselves for the converter boxes if they 
choose not to actually have an HDTV set. My time has expired. I 
will take this answer.
    Mr. Ferree. Just very briefly. Even were you to do that, we 
would still have this issue of how that signal is carried on 
the cable system and would the broadcaster have a right to have 
its digital signal carried digitally which might be an answer. 
But you have to recognize again that means all of the analog 
subscribers are not going to see the programming and are 
probably not going to be too happy at that point.
    Mr. Fritts. You could downconvert at the box as opposed to 
the head end, however.
    Mr. Ferree. If the cable system were all digital.
    Chairman Barton. That is an important debate, but that is a 
secondary debate to when we do it. The primary is when we do it 
and how we do it. First you decide when to do it, then you 
decide how to do it and then we want equity. We want all the 
players at this table, the satellite people, the cable people, 
the broadcast people, the equipment people, to be fairly 
treated. I think this committee has got the ability to do that. 
I would yield back to the chairman.
    Mr. Upton. Mr. Towns.
    Mr. Towns. Thank you very much, Mr. Chairman. Mr. Ferree, 
let me ask you, have you done any projections on what it would 
cost to help consumers get a converter which would enable the 
analog television to receive a digital signal or even have you 
thought about it?
    Mr. Ferree. Yes, Mr. Congressman, we have thought about it. 
In fact, we have issued a public notice seeking comment and 
information about how to make this transition smooth for analog 
over-the-air viewers including what to do with the kind of 
converter equipment you are talking about. At this point, I 
have had informal discussions with some of Mr. Shapiro's 
constituents and have been told that if they were to mass 
produce D-to-A converters today, they would be in the ballpark 
of $100 apiece. By 2009, I have been told that number probably 
would be half that, maybe in the $50 range. But actually, I 
probably should let Mr. Shapiro answer that question.
    Mr. Towns. Mr. Shapiro, if we expedite it in terms of 
increased the amount, what would it cost?
    Mr. Shapiro. I think Mr. Ferree's numbers are probably 
close. We will be responding to that inquiry and gathering 
actual data from manufacturers. But there are licensing fees. 
That is an issue. There is the issue of producing it today is 
fairly expensive, they are a few hundred dollars apiece, but 
with manufacturer efficiencies, if you are talking about orders 
of more than a million or so, the costs come down considerably. 
But there is still a base cost there. It is the same type of 
thing with the DTV tuner itself, the over-the-air tuner. It is 
an expensive proposition today because of patent royalties and 
because of the cost of manufacturing, it is added to the price 
at the low end of TV sets. But over time, that price will come 
down considerably with mass production.
    Mr. Towns. When you say ``considerably,'' would that be 
like half?
    Mr. Shapiro. At some point, half. It is just a question of 
when.
    Mr. Towns. Thank you very much.
    Mr. Sachs, your testimony highlighted that Time Warner has 
entered into agreements with the major broadcast networks to 
carry high definition programming and that regional sports 
networks like Madison Square Garden Network, also in New York, 
offer high definition programming. There is nothing in this 
proposal that would impede these agreements from continuing and 
furthering the digital transition, is that not correct?
    Mr. Sachs. You are absolutely correct. Time Warner is not 
alone. In the New York market, Cablevision is currently 
carrying 14 HD channels including the major broadcasters in 
that market. Comcast here in the DC metro area is carrying 11 
HD channels, including five local broadcast stations in HD. 
These are not mutually exclusive propositions that the bureau 
has put forward.
    Mr. Towns. Mr. Chairman, I yield back.
    Mr. Upton. Thank you.
    Mr. Buyer.
    Mr. Buyer. First of all, I would like to recognize the 
contributions of Chairman Powell. I think he has done a pretty 
good job working this issue. I would take special notice of the 
letter he used to respond to a letter I sent, and also then the 
public notice that the Bureau had sent on their comment period 
on over-the-air broadcast television viewers. Mr. Ferree, 
thanks for your good work. I think this is very timely to help 
identify who these people are out there. I note that bringing 
the DTV transition to completion as quickly as possible was and 
is one of Chairman Powell's strongest priorities.
    I recognize he formed the digital television task force 
shortly after he became chairman. He helped coordinate and 
prioritize the Commission's efforts related to DTV transition. 
He has been leaning on industry to come up with some workable 
solutions in the private sector rather than turning to 
government. The Commission adopted the digital tuner mandate. 
They adopted rules to enable the production of the cable plug-
and-play digital television sets. They approved the broadcast 
flag system to protect digital television broadcast content 
from mass piracy over the Internet. The Commission also enacted 
a clear set of graduated penalties for broadcast stations that 
fail to meet the digital buildout deadlines. Please take it 
back.
    I recognize the chairman and his good work and those of you 
who are working on this. I think there is a real test of our 
wise tolerance. On that, I have some specific questions. We can 
talk about different alternatives out there, whether the 
government subsidizes or tax credits or whatever. I just have 
to come right at you, Mr. Shapiro, and ask you, under the Media 
Bureau plan, it appears that all analog TVs will virtually go 
dark in a little over 4 years.
    So my question is, when is your industry going to stop 
making these analog television sets? We don't want you to 
continue making these television sets if you want government to 
somehow participate in a subsidized process.
    Mr. Shapiro. We still make black and white sets because 
consumers demand them. There are price points for everything. 
Those sets have value. They have value as security systems. 
They have value in so many different areas. Our industry 
responds to marketplace demand. Those TV sets, the analog sets, 
are available for a very, very low price, and they serve needs 
of lower income Americans and other Americans as well.
    As I said earlier, most TV sets are not used to get an 
over-the-air signal. Indeed with converter boxes, low-cost 
converter boxes, it may be a smart economic choice for someone 
to buy a large analog set and even use a converter box to get a 
digital signal. I would not suggest making those sets or any 
other types of product illegal because I think the American 
consumer is the one that should make that decision. Certainly, 
though, there is a phenomenal demand for HDTV and digital 
products. This is a marketplace which is growing 
extraordinarily rapidly. Americans have decided with their 
pocketbook that they want these products. They are buying them 
in record numbers.
    It is a phenomenal adoption curve. They have already 
invested $10 million in these products and they keep investing. 
It is just going to go up radically. With the FCC various 
plans, I think that has enhanced it. With the work of Congress, 
I think it has enhanced it. I think we are on the right track. 
I think there is very little doom and gloom here. We have a 
success story on our hands. It is just a question of when and 
how we declare victory, and we are almost there.
    Mr. Buyer. Your comment on doom and gloom, the reason I 
smiled is the only time I sometimes hear this, I am walking 
down the mall, I have got your consumers who are my 
constituents complaining about the televisions they just 
purchased at a particular--I don't want to start naming names, 
but they'll say, when I walked into this place, you should have 
seen what this set looked like and the picture and the quality 
and they told me all the things it was going to do. When I took 
it home and plugged it in, they said it was supposed to be 
cable ready and it was supposed to do all kinds of certain 
things and my picture is not the same as it was back at X where 
I bought it. I just want to say that there is an education 
phaseout there that is very poor. Would you concur?
    Mr. Shapiro. I agree that consumers and retailers and even 
the cable industry as do manufacturers have to step up more. 
That is why we have consumer pamphlets, we have a Web site 
where a consumer can go and find out the type of correct 
antenna they could use to get the best signal. We have done 
retailer training in every major portion of the country with 
every major retailer, every major buying group. We are doing 
everything we can to ease the transition. The fact is it is in 
our financial interest to do so. We will sell more, and 
Americans believe they have a constitutional right to return 
the products if they don't work.
    So they will return them if they don't like them. That is a 
huge cost for the retailer and for the manufacturer. What we 
are focusing on, I think, as a committee to avoid that problem 
is this great cable ready deal that we have cut with the cable 
industry. We are about to produce several hundred thousand, if 
not millions of cable ready sets. They require the cable 
industry to provide cable cards at a very reasonable or low 
cost. We are a little bit concerned because the initial reports 
we are hearing is they may be discouraging, they are charging 
the same as a converter box. At least some cables companies 
have said that. If you want good cable-ready sets, it is a two-
way system that requires the cable companies and the 
manufacturers and also the retailer to explain it well.
    Mr. Buyer. I have to get into a hypothetical. Mr. Ferree, 
how quickly would it be to reclaim the spectrum and end the 
transition if cable companies carried all the broadcast digital 
signals tomorrow?
    Mr. Ferree. If cable companies carried all of the digital 
broadcast signals as of December 31, 2006, the first prong of 
the 85 percent test statute would be met and the transition 
would end. Broadcasters would not get extensions and they would 
have to turn in their analog licenses at that point.
    Mr. Buyer. How does the Media Bureau plan deal with the 80 
or so million sets out there today in June 2004 that rely 
solely on an over-the-air analog signal?
    Mr. Ferree. Those are the true analog over-the-air sets. 
Many of those are third and fourth sets in homes and those are 
the ones that we are seeking comment on in our public notice 
about what to do with those sets. The statute is set up to work 
such that there will be some sets left over at the end of the 
transition that tune only to analog signals.
    Presumably they are going to have to get D-to-A converters 
for those. Then we get back to the earlier question about what 
a D-to-A converter will cost. One of the reasons we initially 
pushed this plan out to 2009 is because with our mandated tuner 
requirement that Mr. Shapiro referred to, that is the same 
technology that goes into the D-to-A converter boxes. We are 
essentially making them mass produce these things now and the 
benefits of that mass production will drive the costs of the D-
to-A converters down so that by 2009 again, we believe they 
will be very reasonably priced, probably in the $50 range, 
maybe less.
    Mr. Buyer. Another question. Why not just require cable 
carriage for a transitional period of both analog and digital 
signals? Second, is that a proper way to get to 85 percent by 
dealing with today and not in 2009 the 70 percent of households 
served by cable?
    Mr. Ferree. Firstly, if you did the dual carriage, you 
would have the same problem. You would trigger the transition 
essentially so you would still have that 15 percent test and 
the 80 million sets and all of that and then you would just run 
into the constitutional question. Based on the record in our 
proceeding, I am absolutely convinced that that would be struck 
down and perhaps the entire must carry regime would be struck 
down as unconstitutional as a result.
    Mr. Fritts. In fairness, in the 1992 Cable Act, the same 
things were said. It went to the Supreme Court and it passed 
clearance at the Supreme Court. I am not so quick to prejudge 
that. If the goal for this committee and indeed this Congress 
is to resolve the transition, to return the spectrum, to 
auction it for the government use, then I would be 
investigating the ways to end the transition most quickly 
including, if indeed it needed to be, the must-carry regime.
    Mr. Sachs. If I could comment on that, the 1992 Act 
pertained to the carriage of a single broadcast channel per 
station, not two versions of it for every station. We agree 
with the FCC's preliminary conclusions here, that that would be 
unconstitutional, but there is a larger issue here. The cable 
industry has just invested $85 billion or about $1,200 per 
customer, essentially to create 200 megahertz of digital 
spectrum which is used for high definition television, for high 
speed Internet, for cable telephony, for video on demand and a 
host of services. If Congress or the FCC were to mandate a 
double dose of must-carry, it would be at the expense of new 
and innovative programming and other services. We have not 
created unlimited bandwidth and until our systems can reclaim 
their analog bandwidth, we are going to have to look for the 
highest and best use of that limited digital capacity.
    Mr. Fritts. If I may follow up, Mr. Chairman, one of the 
issues, of course, is that the cable industry will benefit from 
the return of the analog spectrum. It will free up spectrum on 
the cable systems that Mr. Sachs talked about and consequently 
there is a benefit, I think, for the government and for the 
cable industry for broadcasters returning and ending the analog 
era. I, again, would underscore the idea that broadcasting 
wants to end this transition as quickly as possible, and I 
would encourage this committee to explore every possible option 
toward moving this transition to a conclusion.
    Mr. Upton. Mr. Engel.
    Mr. Engel. Thank you, Mr. Chairman. I want to first, before 
I ask a question, say that Chairman Barton had mentioned the 
possibility of the government just making the purchases and us 
looking into that. I would really like to second that. I think 
that is something that we should consider. I am not saying we 
should do it, but I certainly think that it is something that 
we really need to look at. I just want to say that. Mr. Fritts, 
I have some questions about New York's broadcasters. As you 
know, the Freedom Tower is about to be built. They are breaking 
ground, I think, on July 4 at the site of the World Trade 
Center. Do you know how many plan to use the Freedom Tower for 
the digital transmitters and what would happen in New York in 
2009 if the Freedom Tower is not yet built already?
    Mr. Fritts. It is my understanding, Congressman Engel, that 
virtually all of the New York television sets would like to use 
the Freedom Tower. I guess if it is not concluded by 2009, that 
they will need to find alternative sites or will upgrade the 
sites that they are currently broadcasting from.
    Mr. Engel. Thank you. In looking at your testimony, you 
spoke at some length about Mr. Ferree's plan and your 
trepidation about multiplying the number of consumers who will 
lose access to local broadcasting. Losing local service has 
always been a concern of mine. I wonder if you would care to 
expound on that. I know you said quite a bit in your testimony.
    Mr. Fritts. I think this is all about consumers. This is 
about disenfranchising consumers. Mr. Sachs' companies are 
going to continue with the cable systems being strong and 
healthy. Mr. Shapiro's companies are going to enjoy the largest 
transference of electronic wealth in modern history. 
Broadcasters have made the investment. There is no new revenue 
stream for broadcasters attached to digital. It is quite 
frankly an opportunity for us to be digital--were we to 
continue to be analog in a digital world, we would be out of 
play basically because computers, cable and everyone else is 
moving in that direction.
    Again, I just want to underscore the idea that, one, 
broadcasters are living up to our responsibility in this area 
and that we encourage this committee to move forward. If it 
requires legislation, so be it. If it requires government 
intervention with the FCC, so be it. It is time to move this 
forward. In 1992 we heard the same arguments, it was 
unconstitutional, we don't have space, it is a problem. But you 
know what, it worked. And this will work also.
    Mr. Engel. Thank you. Mr. Sachs, would you be opposed to 
the Federal Government using a portion of the money it realizes 
from auctioning off spectrum to purchase, especially for low-
income and senior citizens, converter boxes to help finish or 
expedite the transition to digital?
    Mr. Sachs. We would not be opposed to that at all. But I 
should point out that the cable industry has not sought or 
received any government subsidies as we have undertaken our own 
digital transition. So I don't want my response to you to be 
interpreted as cable seeking government subsidies. I think you 
are talking about the end users and people who meet some sort 
of needs test. I think that may well be an important component 
of completing the digital transition.
    Mr. Engel. Thank you. In your testimony, you mentioned that 
Michael Wilner, who is the president and CEO of Insight 
Communications, testified about 2 years ago before our 
committee about the transition from analog to digital and 
talked a lot about cable embracing digital technology. You 
mentioned how the industry is committed to help expedite this 
transition. I am wondering, you said it in your testimony, if 
you would care to tell us a little more about what the industry 
has been doing.
    Mr. Sachs. Sure. At that time, the only carriage of high 
definition, for instance, on cable systems was anecdotal, so we 
have gone from a handful of markets to more than 150 markets in 
the country. At that point in time, essentially two cable 
networks, HBO and Showtime, had a large portion of their 
schedules in HD. Today, 15 different cable networks are 
offering high definition programming, most of them full-time or 
near full-time. So there has been a tremendous amount of 
progress, not to mention the landmark agreement that our 
industry reached with the consumer electronics industry for 
plug-and-play digital TV sets.
    Mr. Engel. Thank you. Mr. Shapiro, I think you sort of 
answered this, but I would like to give you a chance to respond 
about what CEA's position would be if the Federal Government 
decided to assist low-income and senior citizens who would rely 
on free over-the-air TV in purchasing converter boxes. I would 
like to also ask you how much would a converter box cost now 
and what would be the expected cost in 2009?
    Mr. Shapiro. The cost now is about $200 to $400 a converter 
box. It is a range. If there is sufficient demand, it should be 
able to get under $100. That is millions of units being 
produced in the next several years. Those are ballpark 
estimates obviously. As you know, the consumer electronics 
business is phenomenally competitive, and if there is a way of 
getting the cost down, it will. Indeed, part of the success 
story of HDTV is that prices have dropped anywhere between 10 
and 25 percent a year for all the products as they have gotten 
better, which is the history of consumer electronics. In terms 
of your first question, which was about----
    Mr. Engel. Whether you would support the government, the 
Federal Government, if we decided to assist low-income and 
senior citizens.
    Mr. Shapiro. That is a tough one for us. The Clinton 
administration dropped a trial balloon on that several years 
ago early on when we were talking about the transition and we 
resisted it. We really are uncomfortable asking the Federal 
Government to subsidize a product that is purchased by 
consumers. But on the other hand, we recognize the value of 
speeding this transition along. I think we have to--we will be 
responding to the FCC notice on that and we will be looking at 
what other countries have done. In Berlin, it wasn't as big a 
deal as everyone thought it would be to take that approach, and 
I think that is going to be very instructive as we keep 
studying what others have done.
    Mr. Engel. Thank you. Thank you, Mr. Chairman.
    Mr. Upton. Thank you. Mr. Bass.
    Mr. Bass. Thank you, Mr. Chairman. Mr. Shapiro, $200 to 
$400 for a converter box. Is that what they cost in Berlin?
    Mr. Shapiro. The difference between us and Europe is the 
U.S. took an approach on HDTV, which, I think, is the world's 
best approach. In Japan, they went to an analog system and they 
had to change it. In Europe, they haven't gone to HDTV yet. 
They just have a digital system. If you talk to the people 
there, they are very envious of the way we are doing it here.
    Mr. Bass. These converter boxes are for high definition? 
How much does a converter box cost for analog to digital?
    Mr. Shapiro. For analog to digital?
    Mr. Bass. I mean digital to analog. Excuse me. The other 
way around.
    Mr. Shapiro. I would have to get back to you for the record 
on what it is.
    Mr. Bass. But it is more like 15, 20. I mean, $200 is the 
cost of a whole television.
    Mr. Shapiro. The actual, what it takes to capture a digital 
signal, millions of bits of information per second and convert 
that to analog is a very expensive process. It is a real 
miracle what occurs in the TV set. These are no longer dumb 
monitors. They are actually computers and it takes a lot to 
make it work certainly. But there is such competition out there 
with 80 different manufacturers, I guarantee you they are 
fighting to get the price down. No one has ever accused us of 
raising our prices ever in the history of consumer electronics.
    Mr. Bass. Returning to Mr. Barton's comments earlier, the 
bottom line is that if overnight there were digital-to-analog 
converters on the 80 million analog televisions that will 
exist, the issue would, for all intents and purposes, be over. 
The politics would be gone. We would be out of the picture. We 
have to make the policy decision in that respect. I can't 
believe that in that kind of an environment, these converters 
would cost much at all. Does anybody have any comment on Mr. 
Barton's contention that the underlying issue is getting analog 
televisions capable of receiving a digital signal? After that, 
the debate has ended. Is that true?
    Mr. Ferree. Congressman Bass, I have two comments. First of 
all, the prices that Mr. Shapiro are quoting you is in today's 
environment, which has no real consumer demand for these 
devices. Nobody is running out to buy D-to-A converters today. 
If you are talking about 80 million sets and purchases in those 
multiple millions of ranges, I am sure the price will be 
considerably lower than that and again we will wait to hear 
from CEA in our docket on that. The other comment I have is 
again, we can't confuse the over-the-air transition with the 
cable transition. Even once you shut off the over-the-air 
analog signal, there is still this issue of how are you going 
to take care of the analog cable subscribers. Are you going to 
allow cable systems to downconvert so those people continue to 
see the programming, or are you not?
    Mr. Bass. Analog cable subscribers. Mr. Sachs, can you 
comment on that. I don't understand it.
    Mr. Sachs. Sure. Our industry serves approximately 70 
million cable customers. Of those 70 million, about 30 percent 
are digital. So in addition to taking----
    Mr. Bass. Meaning they have a digital set?
    Mr. Sachs. No, meaning that they have a digital converter 
box. Some small percentage may own a digital television or an 
HD-ready digital television, but they have a digital converter 
box which enables them to receive additional channels of 
programming on the digital tier and still use an analog TV set. 
Our industry is working with manufacturers to try to drive the 
price of digital-to-analog equipment below $50. But it is a 
work in progress, and the price range quoted today is accurate. 
My understanding in Berlin is that the boxes, the box cost was 
an average of about 175 euros.
    Mr. Bass. Mr. Ferree, I notice that Mr. Shapiro made a 
series of recommendations to your group. Have you given any 
thought to Mr. Shapiro's suggestions to your plan?
    Mr. Ferree. Yes, Congressman. The only suggestion he had 
with respect to this particular plan had to do with mandatory 
digital carriage in 2009. Again, that is a policy decision that 
has to be made recognizing that if the government says 
mandatory digital carriage, that will mean millions of people 
with analog TVs hooked up to their cable system will lose 
access to their programming. We don't think that is a good 
outcome from a public policy standpoint. The rest of Mr. 
Shapiro's suggestions have to do with issues that are either in 
other dockets teed up already or that he would like teed up in 
other dockets.
    We will consider them, we are considering them, and I am 
not going to prejudge how the Commission would act on any of 
them other than to say it will act reasonably.
    Mr. Shapiro. Actually there are a couple of suggestions 
there if you read carefully. One was about not allowing 
consumers to get less than the full audio and video signal from 
the broadcaster downrezzing, if you will, by the cable. That is 
something we are uncomfortable with. It is a concern. If a 
consumer buys an HDTV set, I think Mr. Fritts referred to this 
earlier, they expect to get a broadcast signal and it is not 
really HDTV, they may be pretty disappointed. And if they are 
told that Congress or the government was the one who required 
that it be downrezzed, that is something that people would 
probably complain to their government and to the manufacturer 
and to the cable company about.
    Mr. Ferree. Fair enough. I was only talking about where you 
suggested changes to our plan. Our plan already includes a full 
carriage requirement once it is in digital which is the thing 
Mr. Sachs objects to.
    Mr. Bass. I guess I have one last general question. The 
debate here as has been mentioned 4 or 5 times by panelists is 
about consumers ultimately. Can we envision the day when 
consumers would be truly able to select what they want to watch 
and when? I don't want to get into Mr. Deal's ala carte debate 
here. But will it be possible to pick stations and only the 
stations you want whether local or distance, broadcast, cable 
or whatever?
    Mr. Sachs. From a technical standpoint, that will be 
achievable. There are economic issues which go to how basic 
advertising-supported networks exist and broadcast stations 
exist, for that matter. Some companies in our industry today 
are offering scription video on demand. I was in Philadelphia 
last week and saw where Comcast has a couple of thousand hours 
of programming essentially in a library where consumers, to 
their digital product, can pick and watch any of that 
programming at whatever time they want and can fast forward or 
pause, whatever. I think we are moving toward a more 
personalized television environment. The issues ultimately 
probably are not technical issues but they are economic issues.
    Mr. Shapiro. They are also legal issues. There is a great 
product called the Tivo, which allows you to do that. There was 
another great product called Replay which was litigated out of 
existence. There is bipartisan legislation called H.R. 107, 
which would make it clear that products that allow you to do 
just what you want like that are legal. It is before your 
committee and I urge you to support it.
    Mr. Bass. Thank you, Mr. Chairman.
    Mr. Upton. Mr. Boucher.
    Mr. Boucher. Thank you very much, Mr. Chairman. I had also 
intended to question these witnesses about the Berlin solution. 
I am pleased that Mr. Barton opened that subject. Let me simply 
note my very strong interest in finding a way to hold harmless 
the owners of analog television sets when the digital 
transition fully occurs, whatever the date chosen for that may 
wind up being. I think the Berlin solution offers some real 
guidance for this committee. I hope that we will look at it 
carefully.
    Let me turn to another area. I think one of the most 
tangible things that the FCC has done to date in order to 
stimulate the digital transition has been the embodiment in a 
regulation or an order of the Commission of the plug-and-play 
agreement that has been achieved by the external interested 
parties. The purpose of that agreement and the Commission's 
order was to make sure that digital television sets are just as 
portable from cable system to cable system as analog sets are 
today, so that you can simply plug the coaxial line into the 
back of the set and plug the cable compatibility card into the 
front of the set. I guess that is where these slots are going 
to be located. And then you have a television set that can 
operate with every cable system in the country without the need 
to buy a separate set top box as you go from one cable system 
to the other.
    While, I think, that agreement and the embodiment of it in 
an order may not have achieved a lot of public notice, it was 
tremendously important in order to set a firm foundation for 
the digital television transition. But it really only works 
well if the cable compatibility cards are made available on a 
proper schedule, if they are made available to the consumer in 
a convenient way, and if they are made available to the 
consumer at a minuscule cost that doesn't exceed the 
transaction cost in actually creating the card and making it 
available to the consumer.
    This subject was opened somewhat in previous questioning 
and I know that Mr. Sachs wants an opportunity to elaborate on 
the cable industry's positions with regard to these matters. 
Let me ask you, Mr. Sachs, some very precise questions. By the 
end of this year, it is estimated that there will be 
approximately 1 million plug-and-play capable TV sets in the 
market. These will have the slots included and they are simply 
then ready for the cards to be inserted. So the first question 
is, what assurance can you give us that the cable industry is 
producing a sufficient number of cards to have them ready for 
the plug-and-play capable digital TV sets that about 1 million 
in number will be in the consumer market before the end of this 
year?
    That is question No. 1. Question No. 2. If you want to take 
notes, that is okay. Question No. 2, how do you intend to make 
these cards available? I would suggest that the best way to do 
it is at the retailer, so that when a person goes in to buy a 
digital TV set as a part of the transaction, the retailer 
supplies that person with the cable compatibility card for the 
cable system that particular consumer will be connecting to. I 
guess another way to do it perhaps as a supplement to making it 
available at the retailer is to have you send it by mail, maybe 
not you personally, but your component members could send by 
mail the cable compatibility card to that cable system's 
customers.
    Question No. 3. At what price? I have heard a rumor. I 
think Mr. Shapiro alluded to this, that some cable systems 
might be planning to charge as much as the cost of a cable set 
top box for this cable compatibility card. And we are looking 
for your assurance that no cable system in the country will do 
that, and that the price of the card be no more than the 
transaction cost to the cable industry in preparing the card, 
making it available, et cetera.
    So, Mr. Sachs, three questions.
    Mr. Sachs. Thank you, Congressman Boucher. I should also 
recognize that for a very long time, you were and have been a 
champion of resolving the digital compatibility issues. And 
were very helpful in bringing the parties together.
    Question number 1, on the number of cable cards. My 
understanding is that we are facing a July 1 FCC deadline, by 
FCC rule, that cable operators I was--at a cable ops meeting in 
the last couple of weeks, and cable operators have stocked up 
on cable cards in anticipation of the fact that consumers are 
going to be purchasing these units.
    These are for the one-way digital cable-ready products. 
There are ongoing negotiations concerning two-way devices. Now, 
some of those consumers who purchase the one-way sets may want 
to avail themselves of two-way interactive cable services, in 
which case they would still need a convertor box.
    Mr. Boucher. That is understood. But can you----
    Mr. Sachs. That is why each operator is anticipating their 
own needs, mindful of what manufacturers have told them about 
what they are planning to produce between now and year end.
    And I believe our companies understand the imperative of 
being able to respond and respond properly to consumer demands 
and have received delivery of cards and have more on order.
    Second, how cards are to be made available. Each company 
does its own marketing, its own pricing. But, I would assume 
that these cards will be made available from cable operators, 
not at retail. The card contains the conditional access 
mechanism for all of the programming offered over the cable. 
One of the biggest issues for our industry, and as well as the 
satellite industry, has been theft of service. So the cable 
operator needs to know what equipment customers have in their 
home that enables the customer to receive the cable operator's 
services.
    As to your question about price----
    Mr. Boucher. Before we get to price, we would like to 
have--I would like to have your assurance that it is not 
anticipated that a cable company technician would have to go to 
the premises of the consumer simply for the purpose of 
inserting this plug-and-play cable compatibility card. So you 
would intend to send it by mail?
    Mr. Sachs. It costs a cable operator anywhere from 35 to 
$55 dollar for a truck roll. So I am sure that cable operators 
will either want to enable customers to stop by the office and 
pick it up, or to get it to them in some other way.
    Mr. Boucher. By mail perhaps.
    Mr. Sachs. Instead of incurring that expense.
    As to the price of cards, since the 1992 Cable Act, most 
cable equipment, including these cards which didn't exist at 
the time, but would be used also to receive basic cable 
services, are subject still to price regulation, which I 
believe is at cost plus, I think Congress had set 11.25 percent 
markup.
    So I don't know what rumors Mr. Shapiro has heard. Most of 
these TVs are not even available at retail yet. So I would 
assign those to the trash pile of rumors.
    Mr. Boucher. Well, thank you very much. So you would--just 
to stress the last point--you would give us assurance that the 
industry will be making the card available at a price to the 
consumer that does not exceed cost plus some small percentage 
mark-up?
    Mr. Sachs. Whatever the--I am sure cable companies will 
provide the equipment within the confines of this.
    Mr. Upton. Mr. Walden.
    Mr. Walden. Thank you very much, Mr. Chairman. Mr. Ferree, 
one of the issues that I have heard from broadcasters when it 
comes to getting signals, allowing distant signals into markets 
where there isn't digital penetration of adequate level, the 
problem exists in some rural committees that a lot of their 
audience in a market is actually served by translators. Can you 
update me on where the FCC is in filling that gap so that 
translators can actually broadcast digitally, and when will 
broadcasters be able to take advantage of that?
    Mr. Ferree. Sure. Happy to do that, Congressman. We have an 
ongoing proceeding now on low power TV and translator, the 
transition for those stations as well. We expect to resolve 
that this summer, hopefully at the July agenda meeting.
    And in terms of the transition time for those stations, it 
has to be congruent, of course, with whatever we do for the 
full power stations, whether this plan or something like it is 
adopted or not. And, at the same time, we are trying to make it 
as financially unburdensome on the translator and low power TV 
stations as possible. So we are balancing those concerns. But 
that item should be resolved this summer.
    Mr. Walden. But there are markets where this is a problem.
    Mr. Ferree. Yes, sir.
    Mr. Walden. Do you think that the rulemaking that you have 
entered into, not this one, but the one before us today, 
sufficiently provides time for that transition, given the fact 
that a broadcaster couldn't today go file an application for a 
translator to broadcast digitally, I mean, and still meet the 
various deadlines that are out there?
    Mr. Ferree. If I understand the question, yes, I do. The 
timeframes we have proposed here we think are very realistic 
and would result in a nationwide transition and would not lead 
to any kind of burden or a hardship on the rural or small 
markets.
    Mr. Walden. Would those broadcasters be able to use the 
same frequency they now broadcast in, analog in, or would they 
have to be assigned a new frequency for their translator, and 
how will that analog-digital piece work?
    Mr. Ferree. Those are issues in the proceeding as well. 
Whether they can flashcut on their existing station, which some 
would like to do, or whether they will be assigned a second 
station to make the transition the way the full power stations 
have.
    For that latter course, we really have to complete the 
first transition and recover some of those stations from the 
full power analog broadcasters if we are going to be assigning 
second stations to the low power ones.
    Mr. Walden. So if I am a broadcaster in Medford, Oregon, 
and I rely on translators to serve a wide part of my viewing 
audience, if you do decide I have to get a second frequency, 
then what will the time line be on application processes for 
those translators? Will they be subject to auction? And how 
will that be handled, because I know in the radio side, 
translator window open, translator window closed. It is 
probably many years before that happens again.
    Can you give me some sort of time line there?
    Mr. Ferree. I can't give you a very precise time line. We 
are aware of those concerns. I think, again, we have to balance 
the hardship versus how to get them to the end of the 
transition. And, you know, again if we are going to assign 
second frequency to those channels, we have got to complete the 
first transition and do the repacking that was referred to 
earlier.
    Mr. Walden. Well, then it leads me to this issue then, on 
the calls by some that say in markets where there isn't 
adequate penetration you can bring in a distant network signal 
via another type of carriage, cable or satellite. That doesn't 
seem really fair, if, on the other hand, you have got the 
broadcaster who can't fully serve their market digitally 
because they don't have access to the translators. Am I making 
my point here?
    Mr. Ferree. Yes, you are making your point. Was there a 
question for me?
    Mr. Walden. No, I just wanted to make a point, because I 
think it is a real issue in some markets around the country, 
where you could get run over by the notion, if you aren't 
serving an adequate percentage of your audience, then we are 
going to allow other stations that are digital to come in and 
provide a distant signal. It just doesn't seem fair. That is 
all. They are in a bit of a catch-22.
    Mr. Fritts, could you talk about what you think the 
response of consumers is going to be the day they wake up and 
their analog set no longer works. I have toyed with the idea of 
maybe the best thing we can do if we are really bold is change 
the deadline to say, oh, October 10, October 31, of an even 
numbered year, and then we will measure audience reaction when 
the analog set no longer works.
    I wonder about this issue and where consumers are going to 
go.
    Mr. Fritts. Well, we share that concern obviously. And we 
are hopeful that we don't have a time when consumers wake up 
and they don't have a television set. We are hopeful that this 
Congress, this committee, will lead the way in setting the 
parameters or setting forward the structure by which we can 
seamlessly move through this transition. We have some ideas on 
that which we have submitted.
    But, obviously, you can't take care of the 15 percent until 
you satisfy the 85 percent. So it seems to me the largest 
concern of this committee is satisfying the 85 percent. Then, I 
think, Mr. Shapiro and Mr. Sachs and myself and our respective 
industries will find a way to resolve that 15 percent.
    Mr. Walden. Mr. Sachs, let me ask you, just on the cable 
systems. What percent of your cable systems now have the 
capability to distribute their programming digitally?
    Mr. Sachs. It is probably 85 to 90 percent have upgraded to 
digital, which means they are probably still using 550 
megahertz analog and then another 200 megahertz digital.
    Mr. Walden. What would the impact be if you were mandated, 
like broadcasters are, to have all of your programming in 
digital, if we are going to drive this fully digital?
    Mr. Sachs. Well, today it would be a huge consumer impact 
because you would be imposing on your customers the obligation 
to have a set top device for multiple TV sets in their homes. 
So I think we can give you the arithmetic, but I think you are 
talking $10, $20, $30 billion, that range or degree of 
magnitude.
    Mr. Walden. Is that obligation not the same, though, for 
consumers today who receive their TV over the air, when the 
analog cutoff occurs?
    Mr. Sachs. No, because I think under the bureau plan, they 
have proposed providing the option of converting the signal at 
the head end. If we were to----
    Mr. Walden. I am taking about over the air receivers. We 
have 15 percent out there that don't get their TV via cable or 
satellite.
    Mr. Sachs. Correct.
    Mr. Walden. Isn't the obligation that you would have, if 
you were forced to go all digital and get rid of analog the 
same placed on the consumers, that consumers have with 
broadcast when they lose the analog?
    Mr. Sachs. Today, broadcast-only customers would have to 
get converter devices for each analog TV set that they have.
    Mr. Walden. And in an all-digital cable environment, that 
would be the same requirement? I would have to get a converter 
for my analog TV?
    Mr. Sachs. Some signals may be converted to analog and 
other--and if the--if the cost is low enough for digital to 
set-top equipment, the operator may want to provide that to all 
of its customers. But, we are not at those price points today.
    Mr. Walden. I realize my time has expired, Mr. Chairman. 
Thank you.
    Mr. Upton. Well, I want to thank all of you today. You 
answered a lot of good questions. We have made a quite a but of 
progress on this. We appreciate your time and the many hours of 
our roundtable discussions as well.
    I would just note that I talked to former Chairman Billy 
Tauzin yesterday. He is looking forward to grabbing this issue 
by the horns when he returns back to Washington perhaps as 
early as next week. So I look forward to his continued 
involvement on this issue as well.
    I would just note that we are tentatively planning another 
hearing, particularly as it relates to the Berlin transition 
probably next month. And we will look forward to some of our 
input there.
    We have votes now, multiple votes. So this hearing is now 
adjourned. Thank you very much.
    [Whereupon, at 12:25 p.m., the subcommittee was adjourned.]

                                 
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