[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
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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.
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\3\ See First Report and Order, 16 FCC Rcd 2598 (2001), 3, 112.
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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
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\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:
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\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
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\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.
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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.
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\1\ Satellite carriers would carry one down-converted stream to
subscribers in local-into-local markets.
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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.
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\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.
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\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:
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\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
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\9\ 47 U.S.C. 309(j)(14)(B).
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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
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\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).
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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
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\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
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\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
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\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:
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\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
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\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
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\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.
---------------------------------------------------------------------------
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).
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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.]