[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
THE DIGITAL TELEVISION TRANSITION: WHAT WE CAN LEARN FROM BERLIN
=======================================================================
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
__________
JULY 21, 2004
__________
Serial No. 108-101
__________
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:
Cooper, Mark N., Director of Research, Consumer Federation of
America.................................................... 11
Goldstein, Mark L., Director, Physical Infrastructure, U.S.
Government Accountability Office........................... 9
Hartenstein, Eddy W., Vice Chairman, DIRECTV Group, Inc...... 32
Lawson, John M., President and Chief Executive Officer,
Association of Public Television Stations.................. 26
McGrath, Carl J., Corporate Vice President and Chief
Technology Officer, Broadband Communications, Motorola, Inc 37
Schmidt, Gregory, President of New Development and General
Counsel, Lin Television Corporation........................ 15
Snider, James H., Senior Research Fellow, New America
Foundation................................................. 43
Willner, Michael S., Vice Chairman and Chief Executive
Officer, Insight Communications............................ 20
Additional material submitted for the record by:
National Cable & Telecommunications Association, prepared
statement of............................................... 63
(iii)
THE DIGITAL TELEVISION TRANSITION: WHAT WE CAN LEARN FROM BERLIN
----------
WEDNESDAY, JULY 21, 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 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, Bono, Terry, Barton (ex
officio), Wynn, Boucher, Stupak, and Engel.
Also present: Representatives Burr, Norwood, and Issa.
Staff present: Howard Waltzman, majority counsel; Neil
Fried, majority counsel; Will Nordwind, majority counsel and
policy coordinator; William Carty, legislative clerk; Gregg
Rothschild, minority counsel; and Peter Filon, minority
counsel.
Mr. Upton. Good morning. Cardinal fan, you are in trouble.
Today's hearing is entitled ``The Digital Television
Transition: What We Can Learn From Berlin.''
Mark Twain once said ``I don't believe there's anything in
the whole earth that you can't learn in Berlin, except the
German language.'' Fortunately, for us today we are simply
trying to learn about Berlin's recent experience with
implementing a hard date for its DTV transition. This is an
important evaluation because there's growing concern that
without a hard date, we may never see the timely end to the DTV
transition here in the United States.
With public safety--not to mention commercial, wireless
carriers--in need of spectrum currently encumbered by
broadcasters, time is of the essence. While opinions differ on
how to bring the DTV transition to a timely conclusion, I
believe that Congress may very well need to act, so we need to
explore all the options.
Last month, we examined a proposal by the FCC's Media
Bureau which would interpret the 85 percent penetration test in
a fashion that gets all of the Nation's broadcasters' analog
spectrum back by 2009, while many broadcasters would have to
return it well in advance of that. While I still view the Media
Bureau's plan as bringing a lot to the table and worthy of our
continued attention, some view that plan as fundamentally
flawed, particularly it's reliance in its calculations of the
85 percent penetration test on cable companies down converting
broadcasters' digital signals to analog at the cable
subscriber's home. Others view that plan as not aggressive
enough and still favor a hard date, perhaps as soon as December
31, 2006.
While the DTV transition intimately involves many
industries, it is still, above all, about the consumer. And as
we debate the terms of the broadcasters' surrender of the
analog spectrum, it is critically important that we put
ourselves in the shoes of the average American consumer before
we act. That's why I, and a number of our my colleagues, on
both sides of the aisle, commissioned the GAO to do a study of
Berlin's hard date implementation which occurred in August
2003.
We wanted to learn more about this implementation to
determine where, if anywhere, we could draw lessons for
application here in the U.S., particularly as it relates to the
consumers' experience. Based on my review of the GAO's work, I
think the title of the GAO testimony today sums it up best,
German DTV transition differs from U.S. transition in many
respects, but certain key challenges are similar.
To be sure, there are many differences between the TV
marketplace in Germany and the TV marketplace here. There are
also many differences with respect to the overall DTV
transition implementation in our respective nations.
Nevertheless, our process can be informed by the Berlin's
government implementation of the hard date and its attempt to
ease the impact of the transition on its citizens, particularly
those who rely solely on over-the-air TV.
Based on Berlin's experience, we should carefully examine
both the need and feasibility of providing a subsidy to low
income households for the purpose of digital to analog
converter boxes. Presumably, such a program could be
underwritten by tapping a portion of the proceedings derived
from the auction of the reclaimed spectrum. Also, the
implementation of such a program, along with a hard date might
very well spur mass production of such boxes and over a
relatively short period of time bring the price down
significantly. That could be very good for every consumer.
While on its face such a program may have considerable
appeal, we may need to determine what the scope of such a
subsidy should be. Would we limit to low-income households?
Would we limit it to one box per household? Would we limit it
to those households that rely solely on over-the-air? The
answers to those questions could dramatically impact the
potential cost and scale of such a program.
Moreover, we have to ask ourselves tough questions about
how a program would be administered and whether it could be
effectively administered. So I hope that we can begin to answer
some of those questions today.
In closing, I want to particularly welcome the GAO with its
newly coined name, the Government Accountability Office. I want
to congratulate the GAO on a job well done with its testimony
and as always, it provided an invaluable resource for the
Congress.
And I would yield to my colleague, Mr. Boucher, for an
opening statement.
Mr. Boucher. Well, thank you very much, Mr. Chairman, I
want to commend both you and Chairman Barton of the full
committee for the innovative thinking which has led to today's
hearing.
I think we all agree that the digital TV transition should
be accelerated. We would all welcome an early return of the
analog spectrum which could then be utilized for a variety of
valuable communication services. I think that all of us would
also agree that the owners of analog television sets should not
find themselves with stranded equipment as the conversion to
digital television takes place. It's a difficult balance to
strike. Accelerating the digital transition while holding
harmless the owners of analog television sets.
The Berlin experience is interesting and while in major
respects it does not translate well to the very different
characteristics that we have here in the United States, it is
certainly worth our examination this morning and I again,
commend the Chairman for convening this outstanding panel of
witnesses in order to address the subject.
In these remarks this morning, I want to strike a
cautionary note and underscore some problems that we would
encounter were we to employ the Berlin strategy in this Nation.
Berlin used public funds to subsidize the purchase of digital
to analog converter boxes for some of its population and I'll
underscore the word some in that sentence. The idea of using
public funds to purchase set-top converter boxes has a certain
appeal. In theory, ample revenues would be available for this
purpose when the analog spectrum in the United States is
returned to the government by the television broadcasters and
then auctioned by the Federal Government. But there are some
obvious complicating factors should we attempt this strategy in
our country.
First, I would note that Berlin is a city with a high
penetration of cable and satellite access, only about 8 percent
of the homes in Berlin relied, prior to this transition, on
terrestrial television broadcasts. In the United States, at
least 15 percent of homes receive their primary television
signals over-the-air, and this is very important, in at least
30 percent of homes, one or more television sets receive their
signals from over-the-air broadcasts even though other
televisions in the home may be connected to satellite of cable.
In rural areas of the United States where over-the-air signal
reliance is high, cable is often not available at all and
local-into-local satellite delivered television service is not
offered.
Funding by government means the acquisition of set-top
converter boxes in the United States would be far more costly
than funding the 6,000 boxes that ultimately were purchased
with government subsidies in the city of Berlin. I've seen
estimates that in the United States, 20 million analog
television sets receive signals today by over-the-air
broadcasts. At today's price of $150 per converter box, it
would cost $3 billion to fund the conversion, a problem that is
of a very different kind than that faced in Berlin.
Second, I think it's far from clear that the Berlin
strategy will be carried out in the balance of Germany,
including the rural areas of the Nation where more people rely
on over-the-air reception. So far, that experience is
restricted to the city of Berlin.
Third, only the people who qualified for welfare got public
subsidies in the Berlin experiment. Everyone else was basically
on their own. Let me say very clearly that that approach
absolutely will not work here in the United States. We cannot
have a means test if we decide on government funding of
converter box acquisition. The owners of analog sets must, in
my view, be held completely harmless as this transition occurs.
And fourth, if we adopt a modified Berlin strategy and
fully fund the $3 billion cost of buying converter boxes, we
have a challenge in making certain that proceeds from the
analog spectrum auction actually get spent for the purpose of
subsidizing the purchase of the converter boxes.
Our Federal budget is replete with dedicated revenue
streams that are frequently under appropriated for their
intended purpose: The Highway Trust Fund, the Abandoned Mine
Reclamation Fund, the Airport Trust Fund and the list goes on.
As the Representative of an area with a very high
percentage of over-the-air signal recipients, I will not be
able to support a hard analog transmission cutoff date with
public funding for the purchase of converters, unless the
measure that mandates the transmission termination also
contains an appropriation of money sufficient to fund the
entire converter box purchase and I hope we keep that principle
in mind should this committee decide to go forward with a
measure similar to that in Berlin.
Mr. Chairman, I thank you very much for a stimulating
conversation today. I think it is a subject worth our
examination and with these notes of caution, I very much look
forward to today's testimony. Thank you.
Mr. Upton. I recognize the chairman of the full committee,
Mr. Barton.
Chairman Barton. Thank you, Mr. Chairman. I appreciate you
for holding this hearing. I think it's important that we have a
debate on this particular idea of digital transmission in
Berlin. I personally believe that we should complete the DTV
transition here in the United States as soon as possible. I
believe that we can learn much from what happened in Berlin.
Obviously, the German television industry is very different
than our own. As the GAO has indicated, Germany and the United
States do face the same obstacles in the DTV transitions,
however, and that is fear that consumers relying on their old
analog sets and over-the-air broadcasts will sit there and
watch their television sets literally go blank. Berlin
addressed this problem by setting a hard date, educating their
consumers, and subsidizing digital to analog converter boxes to
help their low-income households. We should consider a similar
approach.
The education campaign and hard date would promote the
transition by giving industry and consumers the necessary
information and importantly, a concrete date for which to plan.
The increased auction value that the certainty of a hard date
would provide would more than offset the cost of any subsidy of
the broadband spectrum. Approximately 12 million households in
the United States now rely on over-the-air analog broadcasts.
There will likely be many fewer than that by December 31, 2006,
as more people buy digital receivers and subscribe to cable and
satellite services. If we presume 10 million people will still
be relying on over-the-air broadcasting at the time of the hard
date, near the December 31, 2006 deadline, you can assume that
it would cost as much as $1 billion to provide the set-top box
to convert to digital.
One billion dollars is a lot of money and it's nothing to
scoff off, but auctioning the reclaimed spectrum with a hard
date in place would bring in many, many more times that amount
to the United States Treasury. If a hard date can accelerate
the transition, free valuable spectrum for public safety and
commercial use would more than cover the cost of a subsidy and
still produce additional revenue for the United States
Treasury. It's an idea that is well worth considering.
I am encouraged by the FCC Media Bureau's idea to continue
for their DTV transition proposal. We discussed that some at
our last DTV hearing. However, that proposal does not, and
cannot, completely avoid a certain amount of delay that will
result from the current statutory provision that requires 85
percent digital penetration before the spectrum can be
reclaimed. The time has come to end the bottleneck created by
that provision and the Berlin proposal is an idea that has been
shown to work.
In contemplating a hard date deadline here in the United
States, we have to consider a number of fundamental questions.
No. 1, what date should we set? As I've stated in the past,
right now, I would favor December 31, 2006 date.
No. 2, should Congress subsidize digital to analog
converter boxes? Should the subsidy be available for only one
box per over-the-air household? Should it only be available to
low-income households? How would Congress administer such a
subsidy?
No. 3, should hard deadline legislation also impose other
requirements such as multicast, must carry obligations.
Four, should the hard deadline legislation prohibit down
conversion?
These are all questions that hopefully we may get some
answers to at today's hearing. I look forward to the hearing
today and asking questions of our witnesses. I want to thank
you all for attending and I hope that we have a very productive
hearing. With that, Mr. Chairman, I would yield back.
Mr. Upton. I recognize the gentleman from the great State
of Michigan, Mr. Stupak.
Mr. Stupak. Mr. Chairman, first, I'd like to commend you
and Ranking Member Markey for their dedicated pursuit of
digital television future prompted both by the benefits to
consumers that digital television has to offer, as well as the
desire to turn over spectrum to other important uses.
As co-chairman of Law Enforcement Caucus, I share in the
interest that public safety community has in obtaining this
spectrum. It's apparent that there is little or no chance of
full digital transition by the end of 2006 and further delays
in the transition will only hamper efforts to improve
communication systems amongst our public safety agencies.
We need to find a way to make this transition happen once
and for all. However, I also know that when it comes to the
transition to digital television in my rural District in
Northern Michigan, the challenge is great. We've had many
hearings on this subject and today's discussion will also be
informative in helping us to determine the right strategy to
implement this transition so that no consumer loses television
service while freeing this valuable spectrum for public safety
communications.
So with that, Mr. Chairman, those are the areas I'll be
focusing on and I look forward to hearing from our witnesses.
Mr. Upton. Thank you. Mr. Deal.
Mr. Deal. I'll waive, Mr. Chairman.
Mr. Upton. Mr. Shimkus.
Mr. Shimkus. Thank you, Mr. Chairman. Just briefly, this is
really an interesting hearing and I want to thank you for
calling it and reading some of the documents in preparation for
this. The issue falls down for me, theory and practicality, how
do you actually practically do this and move everybody, but
also, I'd like the German debate and discussion on the fact
that they wanted their broadcasters to have more signals to be
competitive to satellite and cable. And we have had the same
debate as far as do we still accept the premise of free over-
the-air broadcasting? And is there still a need?
So if we want a really competitive market with multiple
signals, providing broadcasters a little bit more of spectrum
so that they can be really competitive with satellite and
cable, may not be a bad idea and so that's why I think this
hearing is a good idea, Mr. Chairman. I thank you and I look
forward to hearing the testimony of the witnesses.
Mr. Upton. Mr. Stearns.
Mr. Stearns. I thank you, Mr. Chairman, and like my
colleagues, thank you for holding this hearing. We all
recognize the challenges that cable operators, broadcasters,
content community, manufacturers and retailers face in making
digital television a reality and as such, the light at the end
of the tunnel, I think, is starting to grow bigger as the
players in the different fields industry are working together
to make it a reality. I might point out, Mr. Chairman, in
Florida, we have the home of several broadcast companies that
focus on programming for under served and distinct
constituencies, not just only in the public educational area
and the religious area, Spanish language and family friendly
area. Many of these stations are smaller and are independent
and are not part of the major network groups. I believe their
service is invaluable in bringing local and varied viewpoints
to my District, State and to the country. And some of these
companies are making the transition ahead of the curve, others
aren't.
I think we have to, when we look at this transition and
what we can learn from Berlin, we must take into account the
valuable services of these local and varied broadcasters. For
example, a public station in Jacksonville, Florida, WJCT,
provides quality, educational programming and a high definition
prime time schedule. It's on target to introduce two more
broadcast streams focusing on children and lifelong learning
and in addition, the local cable provider has offered a
commitment to carry four streams of the WJCT programming, just
as soon as it is available. That, my colleagues, is the kind of
vision and cooperation that's needed in this industry. If they
can do it, others certainly should be able to do it in making
the successful transition.
It's vital that we ensure that an expedited transition to
digital remains a top priority for the government and industry.
While progress has been made in broadcast, cable, satellite and
consumer electronics, we still lack the certainty of a specific
transition date and I think that's the key, despite all of us
mandating the termination of analog signal by the year 2006.
Now I'm glad we're looking at how Germany is handling this.
I notice that Germany has additional taxes by the government as
incentives. I'm not sure we want to do that, but it's
worthwhile looking at that. They include the issue of consumers
who will likely be left in the dark once analog signals cease.
There are many differences and the size and the variability of
the U.S. market in terms of broadcasting sources offer, I
think, more complex challenges than in Berlin. Still, it's a
welcome opportunity to study what happened in Berlin. And I
look forward to the testimony and I thank you, Mr. Chairman.
Mr. Upton. That concludes the testimony. I'm going to make
unanimous consent that all members on our panel be allowed to
offer their statement as part of the record. So done. And I
would just note too that a number of subcommittees are meeting
and I've got a mark-up as an example in the Education
Committee. There's a very important hearing that Mr. Shimkus
has run off to on methyl bromide which is a major agriculture
issue. So he's got my proxy on that.
So you're going to see members come in and out, but those
opening statements will be part of the record.
[Additional statements submitted for the record follow:]
Prepared Statement of Hon. Barbara Cubin, a Representative in Congress
from the State of Wyoming
Thank you, Mr. Chairman.
This is our second hearing in two months on the Digital Television,
or DTV, transition. Since Congressional and FCC policies are not
crafted in a vacuum, this hearing will give us an opportunity to review
the successes and failures of the Berlin digital transition.
Not that the American and German television markets are identical--
they aren't. But there are similarities such that we can assemble some
lessons learned from the Berlin transition from last August. The matter
that affects both transitions is the percentage of residents who are
unable to receive the new digital programming over the air when the
transition occurs. How we address that situation is very important.
Clearly, no Member of Congress wants to be responsible for turning off
a television signal.
But there is a need to complete the Digital Transition, as that
will free up precious spectrum for important national interests--like
first responders and advanced wireless services. The longer this
transition drags on, the longer we put off a windfall to the U.S.
treasury, and the allocation of highly desirable spectrum assets.
The December 31, 2006 deadline is rapidly approaching. This
Committee has heard from many panelists on this matter and is seeking
to establish a record of deliberation on how to make the transition a
success. There are still difficult decisions to be made, and I believe
this requires Congressional action. Inaction, and retention of the
current statutory framework for Digital Transition could mean that
December 31, 2006 could slip to 2010 or later before we reap the
benefits of DTV and advanced wireless services.
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. Eliot Engel, a Representative in Congress
from the State of New York
Thank you Mr. Chairman,
I am very pleased we are looking into the issue of how to help
facilitate the transition to the digital television format. I am truly
appreciative that the Chairman of the full Committee has hinted that he
supports providing subsidies for at least the neediest among us.
A small step forward has already been made with the FCC's digital
tuner requirement. This will turn into a big step when all televisions
sold include one.
In reviewing the Berlin model, I find that the most compelling
effort was the public education campaign. I suspect that most people,
if they have heard of digital television, think it is just for
aficionados. They do not understand that, at least under existing law,
every analog TV will need to be either replaced or have a set top box
attached.
I think we should be looking at producing public service
announcements that can be used to educate the American people as to why
we are undertaking this enormous change. We are all aware that there is
a desperate need for interoperable radio communications for our first
responders. The additional spectrum set aside for public safety will
help ameliorate this problem greatly. I believe that is one way to
start the dialogue with the American people about digital television.
I do want to note that some have advocated a hard date in 2006 to
turn off the analog signal. I want to clearly state that the number one
media market will not be able to meet such a deadline. Most of our TV
transmission facilities are temporarily located atop the Empire State
Building. The Empire State Building does not have the electrical
capacity for all our needs. We lost our primary location on September
11th and are waiting for the Freedom Tower to be built.-- The builders
hope that it will be complete sometime in 2008 or 2009. Until then, the
people of New York and northern New Jersey will not be at full digital
capability. Should an effort be made to set such an early hard date, I
would hope that the Chairman would work with me on a waiver.
I want to explore ways that move this process forward more quickly
without causing undue harm to our constituents--or our political
careers.
______
Prepared Statement of Hon. John D. Dingell, a Representative in
Congress from the State of Michigan
Thank you, Mr. Chairman, for calling this hearing.
In August 2003, the state of Berlin, Germany completed its
transition to digital broadcasting and successfully shut-down all
broadcasting in the analog format. According to news reports at the
time, Berlin was able to take this step without damaging its
broadcasters and without leaving its residents unable to receive their
television broadcast signals.
Shortly thereafter, Mr. Chairman, you, Mr. Tauzin, and I asked the
GAO to take a close look at what happened in Berlin and to report back
to this Committee on whether there are lessons for us on how to improve
upon and, perhaps, expedite the transition here in the United States.
I have reviewed the GAO testimony. Though there are certainly
substantial differences in the U.S. and German broadcast markets, there
are also many similarities and much that we can learn from the Berlin
experience.
First, our top priority must be to protect the consumer and ensure
that our constituents are able to continue to receive free-over-the-air
television. As in Germany, both government and industry must work in
partnership to implement a major consumer education campaign. We must
work together to ensure that America's television households are aware
of the transition and what they must do to receive digital programming.
Government cannot do this without the full participation of the private
sector.
Second, we must work to ensure that all households have the
financial means to acquire converter boxes or other equipment essential
to receiving digital broadcast signals. If the transition results in
stranding millions of American homes without the ability to receive
their local broadcast signals, we will have failed miserably, and the
voters will know who to blame.
Finally, the Berlin transition demonstrated that a firm deadline
was essential to focus the attention of industry and consumers. The
transition suggests we must at least consider the option of
establishing a date-certain for the cessation of analog broadcast
signals and the return of the analog spectrum. It is very possible only
a hard deadline will induce all parties, including consumers, to make
final preparations for the digital conversion. Clearly, there are many
questions that must be asked and answered before Congress makes a final
decision to adopt such a hard deadline. The hearing today will put the
issue squarely before us.
The GAO has done a fine job in researching the Berlin transition. I
thank them for their effort, and I look forward to working with you,
Mr. Chairman, as we consider legislation in this area.
Mr. Upton. We are delighted to have the panel that we have
this morning. We are joined by Mr. Mark Goldstein, Director,
Physical Infrastructure from the U.S. Government Accountability
Office; Dr. Mark Cooper, Director of Research, The Consumer
Federation of America; Mr. Greg Schmidt; Vice President of the
New Development and General Counsel of LIN Television
Corporation; Mr. Michael Willner, Vice Chairman and CEO of
Insight Communications; Mr. John Lawson, President and Chief
Executive Officer, Association of Public Television Stations;
Mr. Eddy Hartenstein, Vice Chairman, The DirecTV Group, Inc.,
Mr. Carl McGrath, Corporate Vice President and Chief Technology
Officer of Broadband Communications for Motorola; and Mr. Jim
Snider, Senior Research Fellow of The New America Foundation
here in Washington.
Gentlemen, your statements are made part of the record in
their entirety. We'd like to limit your remarks to about 5
minutes apiece for your opening statement.
And Mr. Goldstein, we'll begin with you. Welcome.
STATEMENTS OF MARK L. GOLDSTEIN, DIRECTOR, PHYSICAL
INFRASTRUCTURE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE; MARK N.
COOPER, DIRECTOR OF RESEARCH, THE CONSUMER FEDERATION OF
AMERICA; GREGORY SCHMIDT, PRESIDENT OF NEW DEVELOPMENT AND
GENERAL COUNSEL, LIN TELEVISION CORPORATION; MICHAEL S.
WILLNER, VICE CHAIRMAN AND CHIEF EXECUTIVE OFFICER, INSIGHT
COMMUNICATIONS; JOHN M. LAWSON, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, ASSOCIATION OF PUBLIC TELEVISION STATIONS; EDDY W.
HARTENSTEIN, VICE CHAIRMAN, THE DIRECTV GROUP, INC.; CARL J.
MCGRATH, CORPORATE VICE PRESIDENT & CHIEF TECHNOLOGY OFFICER,
BROADBAND COMMUNICATIONS, MOTOROLA, INC.; AND JAMES H. SNIDER,
SENIOR RESEARCH FELLOW, THE NEW AMERICA FOUNDATION
Mr. Goldstein. Good morning, Mr. Chairman, and members of
the subcommittee. I'm pleased to be here today to report on our
on-going work on the DTV transition. The DTV transition offers
the promise of more programming options, interactive services
and high definition television. To facilitate the transition,
the Congress and the Federal Communications Commission
temporarily provided television stations nationwide with
additional spectrum to broadcast both an analog and a digital
signal simultaneously. This simulcast is mandated to end in
December 2006 where 85 percent of American households can
receive digital broadcast signals. At that time, TV stations
will return valuable radio spectrum for public safety and other
commercial services. However, as we reported in 2002, the
deadline seems unlikely to be met.
In Berlin, Germany, a rapid DTV transition culminated in
the shutoff of analog broadcast television signals in August
2003. To gain information on the German television market and
the Berlin TV transition, we met with a variety of Federal,
State and--with Federal and State government officials in
Germany as well as representatives of public television
stations, private television stations, cable providers, a
consumer group and several other key stakeholders. My statement
will summarize our findings.
First, the German television market is characterized by a
central role of public broadcasting and is regulated largely at
the State level. Although the Federal Government establishes
general objectives in the telecommunications sector, it manages
the allocations of the German radio frequency spectrum, 15
media authorities organize and regulate broadcasting services
within their areas of authority. The two public broadcasters,
whose broadcasts capture about 40 percent of viewers' time are
largely financed through a mandatory television license fee of
16 Euros or the equivalent of $19.68 per household per month.
Overall, this fee amounts to about 6 billion Euros, $7.38
billion per year.
Today, only 5 to 7 percent of German households rely
exclusively on terrestrial broadcasts and the remaining
households obtain either cable service which typically costs
less than 15 Euros, about $19 per month, or satellite service
which is free once the household has installed the satellite
receiving dish and receivers.
Two, in Germany, government officials and industry
participants are implementing the DTV transition largely for
the purposes of improving the viability of terrestrial
television. Government officials do not expect spectrum to
return after the transition. The transition only pertains to
terrestrial viewers, households that subscribe to cable or
obtain satellite television are not affected. Also, German
officials made the decision to transition major metropolitan
areas, or islands, in particular timeframes rather than to
attempt to transition all areas of Germany to DTV at once.
Officials from the Media Bureau in Berlin, as well as
representatives from industry, engage in extensive planning for
the rapid DTV transition which took less than 1 year. The media
authority in Berlin also made a decision to provide financial
and nonfinancial support to private broadcasters to cover their
costs and transition. The media authority, along with the
Social Welfare Office, provided subsidies to certain low-income
households for the purpose of necessary set-top boxes.
Additional, government and industry worked together to
undertake an extensive consumer education effort.
Three, certain aspects of the DTV transition in Berlin and
other regions in Germany are relevant to the on-going
transition in the United States because even though the
television market and the transition are structured differently
in the two countries, government officials in both countries
face similar challenges for completing the transition. In
particular, we found that leading up to and during the brief
simulcast in Berlin, government officials focused much of their
attention on ensuring the households obtain the necessary
consumer equipment to support the switchover to digital. In the
United States, most broadcast television stations are now
providing a simulcast signal. Thus, the concern today, as was
the case in Berlin is how to coax consumers to purchase set-top
boxes or digital televisions. The key components of the Berlin
transition that enabled the rapid deployment of set-top boxes
to terrestrial consumers and thereby enable the switchover to
digital television were (1) an extensive public information
campaign; (2) subsidies for needy households to defray the set-
top box costs; and (3) the setting of a near term date certain
for the cessation of analog broadcasts that all stakeholders
understood must be met.
Mr. Chairman, this concludes my prepared statement. I'd be
happy to respond to any questions that you or other members may
have at this time or once the panel is finished.
Thank you.
[The prepared statement of Mark Goldstein appears at the
end of the hearing.]
Mr. Upton. Thank you.
Dr. Cooper.
STATEMENT OF MARK N. COOPER
Mr. Cooper. Mr. Chairman, members of the committee, I
appreciate the opportunity to give the consumer answer to the
question what can we learn from Berlin. For me the answer is
quite clear. The gatekeeper model of exclusive program
licensing, spectrum licensing, is kaput. The digital transition
in America has been botched by the policy of driving broadcasts
and cajoling cable operators so that we just haven't even
barely started this transition.
Fortunately, while they were dragging their feet,
technology has made a whole new approach to digital spectrum
management possible. Thus, there are two transitions going on.
One is technological from analog to digital. The other is
sociological and legal, from licensed to unlicensed. If we
accomplish the technological transition without the socio-legal
transition, we will have failed and I believe by that standard,
Berlin has failed.
Spectrum is not property, real establish or resource. It
provides the capacity to communicate by transmitting signals
electronically at a distance. The nature and extent of the
capacity is defined by the power of technology, but the
opportunity to use the capacity is established by public
policy, by law, regulating where, when and how people can
transmit signals, thus technology determines capacity. Law
defines opportunity.
Because the communications capacity defines and is defined
by the first amendment right of free speech by all citizens,
spectrum ``belongs'' to the public. Now I placed the word
``belong'' in quotes because citizens don't own it, they all
share it as a common right. Licensing was an intrusion on the
free speech rights of people driven by the fear that a free for
all in spectrum would create interference and noise and drown
out all voices. Better to allow a few to have a clear
electronic voice, it was argued than to risk having no voices
at all.
To offset the compromise, the fact that only a few would
speak through spectrum and the vast majority would not have a
voice, we imposed public interest obligations on those who were
given the give of an electronic voice. Thus, the highest use of
spectrum is not now and never has been to maximize the economic
value of the opportunity to speak. It's highest use has always
been to maximize the opportunity for citizens to have a voice.
Of course, when commercial interests are given the opportunity,
they should pay for it.
The compromise embodied in licensing is no longer
necessary. Rules that reduced interference by excluding
speakers, because technology was dumb and weak, can now be
replaced by rules that instruct smart and powerful technologies
to not interfere with each other. The unlicensed wireless
networks that result promote democratic discourse. The
decentralized investment in communication and computer capacity
expands the opportunity for innovation. The distributed nature
of communications and capacity transforms passive listeners
into active speakers.
This digital transition attracts a great deal of attention
because the part of the spectrum that has been devoted to
analog television provides some of the best capacity for
communications. These signals pass through physical objects and
therefore they are a place where people really would like to be
able to have an electronic voice.
I believe that the technological possibility of unlicensing
makes licensing unconstitutional because licensing prevents me
from broadcasting and the Supreme Court does not take kindly to
people who infringe my right to speak. So I anticipate that
when unlicensing is demonstrated, the Supreme Court must
conclude that it is the only constitutional use of spectrum and
they will give me back my rights to speak.
Nevertheless, a transition is necessary so that we can
prove this is the right model to maximize the first amendment
right to speak. We must take care of the needs of citizens
first and consumers second. At least half of the spectrum that
is freed up in this transition should be dedicated to
unlicensed uses. All licensed uses should, in fact, pay for the
opportunity to use the spectrum. Broadcasters who continue to
occupy spectrum on an exclusive basis should continue to be
obligated to provide public interest programming and over time
they must accommodate more and more sharing or bear the burden
of proving why they cannot share spectrum.
For the consumer, public policy must not allow television
sets to go dark. The broadcast industry has not driven the
transition. The costs of that transition cannot fall on the
public. We must not allow the quality of pictures to be
deteriorated in order to achieve the transition. And we must
allow consumers to enjoy the benefits of the maximum use of
digital spectrum.
In short, if we speed the transition, it must be to promote
the interest of citizens first to protect the interests of
consumers second and ensure that we expand the right to speak
to the digital spectrum that we share.
Thank you.
[The prepared statement of Mark N. Cooper follows:]
Prepared Statement of Mark N. Cooper, Director of Research, Consumer
Federation of America
Mr. Chairman and Members of the Committee, my name is Dr. Mark
Cooper. I am Director of Research of the Consumer Federation of America
(CFA). CFA is a non-profit association of 300 groups that was founded
in 1968 to advance the consumer interest through research, advocacy and
education. I have testified several times on digital television in
Congress and CFA has filed comments in the numerous proceedings at the
Federal Communications Commission on various aspects of the digital
transition, including public interest obligations, the broadcast flag,
the digital tuner mandate, plug and play, and spectrum management.
I appreciate the opportunity to appear today to provide the
consumer and citizen answer to the question posed in the title of this
hearing--The Digital Television Transition, What Can We Learn from
Berlin? For me the answer is quite clear. We must learn that media
moguls have far too much power in America. The policy of bribing
broadcasters and cajoling cable operators into treating consumers
fairly and giving citizens new avenues for expression has failed. The
gatekeeper model of exclusive spectrum licensing on which this country
has relied for three-quarters of a century is kaput. The digital
transition in America has been botched so badly that an entirely new
approach should be tried.
In one sense, we should be thankful that the media moguls have been
so slow and acted in such an unfriendly manner to consumers and
citizens. Not only has their mismanagement of spectrum demonstrated the
bankruptcy of the old, gatekeeper model, but while they were dragging
their feet a revolution in digital technology has made an entirely new
appraoch to spectrum management possible. The end of the tyranny of
spectrum licensing is at hand.
There are actually two transitions going on in the use of spectrum.
One is technological--from analog to digital. The other is sociological
and legal--from licensed to unlicensed use of spectrum. I am much less
concerned about how quickly the former takes place than I am about
ensuring that the latter occurs. If we accomplish the technological
revolution without the socio-legal revolution, we will have failed
miserably.
the end of licensed gatekeepers
Spectrum is not ``property,'' ``real estate'' or a ``resource.'' It
provides a capacity to communicate by transmitting signals. The nature
and extent of the capacity is defined by the power of the
technologies--transmitters and receivers--that send signals through the
spectrum. The opportunity to use the capacity of spectrum to transmit
speech is established by public policy (by regulating where, when and
how people can transmit signals). Thus, technology defines capacity;
law defines opportunity.
Fortunately, three-quarters of a century ago, when technology first
created the capacity to use the spectrum to communicate electronically
at a distance, Congress and the Supreme Court recognized that use of
spectrum critically affects the ability of citizens to speak. Because
this communications capacity defines and is defined by the First
Amendment right of speech enjoyed by all citizens, spectrum is
considered to ``belong'' to the public. I place the word ``belong'' in
quotations because citizens do not own it; they all share it.
The highest use of spectrum is not to maximize the economic value
of the opportunity it provides; its highest use is to maximize the
opportunity for citizens to speak. Of course, when commercial interests
use the spectrum for profit, they should compensate the people for the
opportunity.
Licensing was an intrusion on the free speech rights of the people,
allowed by the Supreme Court only because it was believed that
exclusive licensing was necessary to allow at least some people to
speak. Policymakers feared that a free for all in the use of spectrum
would deteriorate into a babble of interference and noise in which all
voices would be drowned out. It was deemed better to allow a few to
have clear electronic voices, than risk having no voices at all. To
offset the exclusion of the vast majority from the ability to hold
broadcast licenses, the few who received the licenses were required to
serve the public interest. Unfortunately, they became gatekeepers, a
handful of wealthy and powerful corporations that enriched themselves,
much more than enriched (some would say the impoverished) our cultural
and political life.
The compromise embodied in licensing is no longer necessary.
Interference, which was reduced by excluding speakers because
technology was weak and could not manage interference, can now be
managed in a different way. Rather than preventing people from
speaking, we can now manage the flow of voices. Rules that exclude can
be replaced by rules for sharing. Smart transmitters and receivers can
share the spectrum without interfering with one another.
The unlicensed wireless networks that have grown up around the
country, indeed in this very building, promote democratic discourse.
The decentralized investment in communications capacity that typifies
unlicensed uses of the spectrum expands the opportunity for innovation.
The distributed nature of communications and computer capacity
transforms passive listeners into active speakers, consumers into
producers. Citizens, consumers and democracy all win.
The possibility of unlicensing exists throughout the spectrum, but
the digital transition attracts special attention because the part of
the spectrum that has been dedicated to the exclusive use of analog
television signals provides some of the best capacity for
communications. The characteristics of the signal transmitted in those
frequencies are such that they pass through physical objects readily,
which makes that a very inviting place for people to broadcast their
messages.
I am confident that the socio-legal revolution is inevitable,
because the technological possibility of unlicensed use of the spectrum
makes licensing unconstitutional. To wit: licensing prevents me from
broadcasting and the Supreme Court does not take kindly to such an
infringement of my right to speak. It should jump at the chance to
eliminate this impediment to speech, an opportunity I am certain it
will get quite soon.
Nevertheless, I agree that it is important to recognize that a
transition phase is necessary and to move the transition as quickly as
possible. It is especially important to manage the transition in such a
way that the viability of an unlicensed approach will be demonstrated.
Public policy could slow the transition down and we should not be naive
about how hard the media moguls will resist the revolution. An ancien
regime dies just as hard in cyberspace as it does in physical space.
Therefore, it is appropriate to ask how to speed and manage the
transition to unlicensed use of the spectrum. I believe that a rapid a
transition is in the public interest, if and only if, it ends the model
that subsidizes corporate gatekeepers and replaces it with one that
empowers citizens and consumers. First, we must take care of citizen
needs; then we should see to consumer interests.
for the citizen
First, the part of the spectrum currently occupied by licensees who
use it to broadcast analog TV signals needs to be vacated as quickly as
possible so that a large part of this wonderful opportunity can be
dedicated to unlicensed uses. At least half of the spectrum that is
made available by the transition should be dedicated to unlicensed uses
(net of what is set aside for security and safety uses, which are
public functions of equal, but not greater, importance with freedom of
speech). All spectrum that is set aside for exclusive television
licenses but is presently unutilized should be converted to unlicensed
status. All spectrum that is set aside for television licenses and is
currently utilized should be placed on notice that, over time, it will
have to accommodate increasing levels of sharing with unlicensed users.
A heavy burden of proof should be placed on those claiming the need for
exclusivity in access to the opportunity to broadcast.
Second, all licensed, commercial users of the spectrum should pay
for the opportunity to exploit it. All license fees, whether collected
at auction or as a recurring charge, should be dedicated to public
purposes--supporting non-commercial broadcasting and promoting program
diversity. The legacy of allocating the right to distribute radio and
television signals through licenses and franchises is very powerful. A
handful of corporations, all of whom have benefited mightily from the
exclusive right to distribute television programming, now dominates the
TV screen. Six corporations own all of the national broadcast networks
and account for three-quarters of the total TV programming and writing
budgets, as well as the TV audience. Vigorous steps to support
noncommercial programming, community media, and educational and civic
voices should be taken to balance the immense impact and reach of the
commercial broadcasters who have been favored by licenses.
Third, the broadcasters who occupy the spectrum being used for
transmission of digital television signals have squandered a golden
opportunity, but they remain the recipients of an immensely valuable
gift. Indeed, one might even argue that there are 75 years of
uncompensated opportunity costs due. On a going forward basis, they
remain obligated to provide public interest programming that serves the
cultural and political needs of the citizenry, not the narrow
commercial interest of the broadcasters.
for the consumer
First, public policy must ensure that television sets do not go
blank. Congress had hoped that the industry would drive the transition
to digital television by making compelling programming available, so
that consumers would voluntarily replace their analog sets with digital
receivers of one form or another. That approach has failed. Almost no
progress has been made. Just last week the cable industry estimated
that a full transition to digital set top boxes for the public it
serves would cost $34 billion and that does not include the twenty
million TV sets in households that receive their television signals
over the air. We think the number is overstated, but there is no doubt
that billions of dollars will have to be spent, if public policy seeks
to accomplish the transition on an accelerated basis without
obsolescing a substantial number of television receivers. The public,
which has received no compensation from broadcasters for the use of
spectrum, should not be forced to bear that burden. These costs should
be covered by the use of fees collected from the entities that make
commercial use of the spectrum.
Second, since digital delivery is supposed to expand consumer
choice, and it dramatically lowers the transaction costs of choice, any
television service that relies on use of the spectrum should be
required to offer consumers a la carte choice of programming. Because
distributors of multichannel video programming force consumers to buy
their service in huge bundles of channels, the rapid increase in
channel capacity made possible by digital delivery has resulted in a
dramatic increase in cost imposed on the public. The consumer is forced
to buy about 70 channels before he or she can enter the digital tier,
even though they do not watch three-quarters of those channels.
Third, efforts to diminish the ability of consumers to enjoy the
use of legally obtained programming, as with the broadcast flag or
digital rights manglement (DRM) should be halted. The ultimate value of
the digital transition is not in a prettier picture--if that were the
case, the television industry would not have failed so miserably. The
ultimate goal is to provide consumers with a wider array of
functionalities that empower them as users. This has been the driving
force behind all digital technology. The attack on consumer fair use
rights is a dagger aimed at the heart of the digital transition that
will ultimately diminish its ability to fulfill its promise, if it does
not destroy its value entirely. Of course, if an assault on the value
of digital television by diminishing its functionality is a concern,
the strategy of reducing the quality of the picture (reducing the
resolution or downrezzing) is so absurd it should be too embarrassing
to even mention. If we sell tuners and TV's that are programmed to
limit the quality of the picture, the public will rightly be outraged
and should reject them, along with the policymakers who concocted such
a scam in the first place.
A decade ago Congress debated whether to charge broadcasters for
the use of the spectrum. It chose to give them a free ride, hoping that
they would drive the transition to digital television with compelling
content. That approach, grounded in the old licensed-gatekeeper model,
was ill conceived and has failed--failed to produce meaningful new
avenues of expression for citizens or vigorous competition for
consumers. Technology has made an entirely new approach to spectrum
management possible and I urge you to embrace and speed the socio-legal
revolution that digital technology has ignited.
Mr. Upton. Thank you, Dr. Cooper.
Mr. Schmidt.
STATEMENT OF GREGORY SCHMIDT
Mr. Schmidt. Thank you, Mr. Chairman. I'm afraid my remarks
will be somewhat less provocative.
I'm Greg Schmidt with LIN Television, a licensee of WOTV in
Kalamazoo, Michigan. Thank you very much for having this
hearing today. I'm pleased to report on the status of the
transition to digital television and comment on some possible
lessons from the Berlin experience.
There are reasons for optimism in the DTV transition. We
now have 1411 television stations on-air and digital serving
207 markets that encompass more than 99 percent of U.S.
television households. Over 88 percent of U.S. households are
in markets that are served by five or more digital signals.
This season we will see over 2500 hours of broadcast high
definition programming. We commend both the committee and the
FCC for their leadership in the transition by implementing a
phased-in tuner mandate and the broadcast flag protection.
Television broadcasters have every financial incentive to see
this transition brought to a timely close. Our industry has
already spent billions of dollars rolling out DTV services. My
mid-size company has now spent over $70 million just in digital
transmission capital and is spending millions more each year on
maintaining dual transmissions, all of which has generated
exactly zero dollars in incremental revenue.
One major piece of the puzzle has yet to fall in place.
Cable companies continue dragging their feet, resisting
bringing the full benefits of over-the-air digital to the
American consumer. A digital must carry rulemaking has been
pending at the FCC for 6 years, but there are still no rules.
Cable carriage of digital signals is highly relevant to the
subject of today's hearing. In Berlin, mandatory cable carriage
was a crucial component of the plan for a rapid transition.
Cable companies were required to carry all broadcast signals
and to protect analog-only households after the switch over to
digital. Any transition that does not contain such a component
will take far, far longer to implement.
There are also, of course, many other reasons that Berlin
uniquely, not only in the world, but in its own country was
able to flash cut to digital. The biggest single reason was the
compelling proposition offered to consumers. For a one time
expenditure in the neighborhood of $100, a household with an
analog set received the equivalent of European basic cable free
for life. You may have had a public education campaign, but I
don't think it was too tough to convince the consumers that
that was a good deal. Buying a set-top box or digital set
increased your terrestrial broadcast viewing options from 7 or
8 channels to nearly 30. This digital channel bonus stems from
the decision of the Germans, like the British, and the rest of
the Europeans to use the digital transition to create more
channels of standard definition programming and forego the
greater signal quality of high definition. Foregoing HDTV also
reduced the cost of the digital set-top boxes and receivers.
And of course, the number of broadcast-only households is,
as Mr. Boucher pointed out, was not large, 160,000 total, only
about 7 percent of the Berlin households, as compared with
nearly 20 million, we believe, not 12, over 15 percent of U.S.
households. There was also a smaller percentage of households
with second or third sets, not hooked up to cable or satellite.
We believe that number is closer to 40 to 45 million sets.
So the Berlin success was achieved, in part, because their
goals were more modest and the area and population smaller.
Most importantly, the Germans have not, as we have, endeavored
to use the digital transition to ensure that digital broadcast
delivery can deliver the highest possible quality of service.
Since the inception of the DTV transition, Congress has
repeatedly stated that preserving and strengthening America's
system of free, local, over-the-air broadcasting for both urban
and rural America is an important policy goal. While, like the
Germans, we believe that increasing consumer choice should be
part of the equation, we also believe that broadcasters must
have the ability to provide HDTV with the highest quality
pictures available for the foreseeable future. I believe the
European broadcasters and consumers will come to regret the
fact that they have squandered the opportunity to provide HDTV.
The Berlin experience provides some valuable insights. I
will also note with some envy that the German government
heavily subsidized the out of pocket costs of the commercial
broadcasters which I find to be the most attractive feature of
the plan. But I do not think the Berlin experience shows us to
be basically on the wrong track, nor that there are any magic
bullets to speed the transition. A flash cut here would clearly
be vastly more complicated and expensive.
And while we may disagree with the Germans on their
tactics, we agree entirely, as Mr. Shimkus alluded, with their
over arching objective, the strengthen the terrestrial
broadcasting system and to create a viable broadband competitor
for cable and satellite. That too was the ultimate objective of
Congress in initiating the digital transition and should remain
its lodestar in these deliberations.
After years of effort and billions of dollars expended,
Congress, local broadcasters and your constituents, our
viewers, are well on the road to completing our shared journey
to digital television and to vigorous new competition in the
media marketplace. We appreciate the committee's continued
leadership on this issue and pledge to work with you to make
the transition as expeditious and cost effective as possible,
without losing sight of the ultimate goal.
Thank you.
[The prepared statement of Gregory Schmidt follows:]
Prepared Statement of Gregory M. Schmidt, Vice President-New
Development and General Counsel of LIN Television Corporation on Behalf
of the National Association on Broadcasters
Good morning Mr. Chairman. I am Gregory Schmidt, Vice President of
New Development and General Counsel of LIN Television Corporation, and
I appear today on behalf of the National Association of Broadcasters to
discuss the transition to digital television in Berlin and the
relevance of that experience to the DTV transition in the United
States.
Berlin--the first place in the world where digital television
broadcasting has completely supplanted analog--offers some instructive
comparisons to the DTV transition in the United States. There are
striking differences between the situation in Berlin and ours which
amply demonstrate why accelerating the digital transition will require
significantly more consumer-friendly actions by the government.
Let's look at some of the ways German digital television differs
from the DTV transition on which we are embarked. The single biggest
difference is that Berlin--like other European DTV plans--does not
include any provision for High Definition Television. DTV in the United
States began in response to HDTV, a new Japanese technology that
promised much greater picture and sound quality. Although the U.S.
digital television system will also permit multicasting and the
distribution of new data services, it has always included HDTV
capability, and the amount of HDTV programming available here is great
and continues to expand. In the United States, HD has been the only
incentive for consumers to purchase digital receivers, particularly
since most cable systems have refused to pass through any other DTV
services. The full benefits of HDTV are generally only realized on
large-screen TVs.
By contrast, European DTV was intended less to offer greater
quality of TV display than to offer more programming choices. European
analog television for the most part has offered far fewer television
signals to consumers than are available in the United States and a far
higher percentage of noncommercial services (for which viewers pay a
receiver tax).1
---------------------------------------------------------------------------
\1\ In many countries, penetration of cable or satellite multi-
channel video providers has been far less than in the United States
and, even where MVPD penetration has been substantial (like Berlin),
the number of channels provided has been fewer than typical American
systems provide.
---------------------------------------------------------------------------
This profound difference has several consequences. First, European
consumers who move to DTV reception receive an immediate benefit of
more channels at no additional cost. In Berlin, buying a digital TV or
a set-top box increased viewer choice from eight channels to roughly 30
channels.2 Second, since there is no need to decode or
display HDTV signals, the memory and processing requirements of DTV
receivers and set-top boxes is much less in Europe than in the United
States. Thus, it is relatively cheaper to manufacture digital receivers
for European DTV. DTV receivers were available in Berlin, for example,
for around 200 euros, far less than HDTV-capable receivers cost
here,3 and set-top boxes there were also less
expensive.4
---------------------------------------------------------------------------
\2\ The Berlin authorities thought it particularly significant that
moving to DTV resulted in consumers ``receiving more services for which
the license fee is paid.'' DVB-TV: Das Uberall Fernsehen, Berlin Goes
Digital (accessed at http://www.mabb.de/start.cfm?content=
aktuelles&id=632) at 15 (hereinafter Berlin Goes Digital). Berlin
already had more operating channels than other parts of Germany where
three to five analog channels are typical. Berlin was able to have
these additional channels because of spectrum vacated by former East
German stations after reunification. While some other German cities are
expected to begin digital transmission this year, much of Germany under
current plans will never have digital over-the-air television because
sufficient channels are not available.
\3\ Id. at 5.
\4\ The current exchange rate is approximately $1.24 to the euro.
Set-top boxes have been on sale in Berlin for as little as 69 euros, or
about 85 dollars.
---------------------------------------------------------------------------
Moreover, because digital transmissions in Germany are not high
definition, a consumer with an analog receiver who acquires a digital
set-top box will receive the same programs at almost the same quality
as a consumer with a new digital receiver. Similarly, if a cable system
in Berlin converts a broadcast digital signal to analog for display on
analog receivers connected to the cable system, the cable subscriber
receives essentially the same thing as he or she would if the cable
system were delivering the digital signal in its native format to a
digital receiver. That is not the case in the United States. If a U.S.
cable system downconverts a broadcast DTV signal, as some have
suggested, cable subscribers will not receive what they would get if
they had a digital receiver and the cable system carried the broadcast
digital signal. They would not receive high definition pictures or
better sound and they would not receive multicast signals or data
transmissions. There would be little reason for those consumers to
purchase digital receivers and, of course, if they already had DTV
sets, they would not get much of the benefit of their purchase.
As a consequence of these differences, the digital conversion in
Berlin presented consumers with a very different value proposition--for
a fairly modest one-time expenditure, the consumers could get the
equivalent of free basic cable for life. Moreover, nearly the full
benefits of the conversion could be realized on TV sets, small and
large, analog and digital alike. So it was not difficult to persuade
consumers to buy the digital sets and boxes and there was little danger
of consumer resentment over the premature obsolescence of their
existing sets.5 In the long run, we believe that European
consumers and broadcasters will come to regret foreclosing the benefits
that HDTV will provide, particularly as other digital media increase
their ability to deliver the highest quality sound and pictures.
---------------------------------------------------------------------------
\5\ The license fee paid by all set owners is 16 euros per month,
so the cost of a set-top box represented about four months of license
fees.
---------------------------------------------------------------------------
Another distinction between the Berlin and American transitions are
the obligations placed on cable. Cable in Berlin was required to carry
all broadcast services and to protect analog-only households after the
switch-over to digital. Although the FCC has had a digital must carry
rulemaking proceeding pending since 1998, there are still no rules
requiring American cable or satellite systems to carry local digital
television signals, no rules ensuring that new broadcast digital
services will be available to cable or satellite households, and no
obligations on cable systems to ensure that their analog-only
subscribers will have access to local television signals after analog
broadcasting ends.
Indeed, one of the reasons that analog broadcasting was able to be
switched off in Berlin was the prevalence of cable and satellite
delivery systems. Only about seven percent of Berlin households
received television over the air, a lower percentage than in the rest
of Germany.6 An even smaller number of homes in Berlin
(about 90,000) relied on terrestrial transmission for second and third
sets.7 In the United States, it is estimated that there are
38-40 million sets in homes that are not connected to any cable or
satellite system and an additional 40-45 million unwired sets in cable
or satellite households. In total, about 30 percent of all televisions
(75-85 million receivers) rely solely on over-the-air transmission and
will need to be replaced or have converters attached in order to
operate after analog broadcasting ends.
---------------------------------------------------------------------------
\6\ Berlin Goes Digital at 2. In Germany, satellite service is free
to the consumer after the purchase of the receiver; cable service
typically costs only 12-15 euros, much less than the cost of American
cable service.
\7\ Id. at 3.
---------------------------------------------------------------------------
Because so large a percentage of Berlin homes relied on cable or
satellite to receive local television, and those systems were required
to ensure that broadcast digital programming reached all of their
subscribers, there was very little risk that ending analog broadcasting
would result in a significant loss of audience or revenue for
commercial broadcasting. In fact, the availability of more channels of
free television over the air appears to be reducing the reliance on
cable and satellite and thus reducing those providers' ability to
exercise gatekeeper control.
One of Congress' objectives when it authorized the transition to
digital beginning in 1996 was to strengthen the over-the-air
broadcasting system. A premature end to analog broadcasting before
consumers are ready may have the opposite effect of reducing the
audience of local stations and thus reducing their ability to provide
attractive programming and local public service. If consumers are
driven to cable and satellite programming, that would increase those
monopoly providers' gatekeeper power and frustrate Congress' goal of
improving local broadcasting.8
---------------------------------------------------------------------------
\8\ In this regard, it is worth noting that there are no plans to
bring terrestrial digital service to much of rural Germany. It is not
clear whether those areas will lose over-the-air service altogether or
be left with analog service only. The American DTV transition is
intended to ensure that high-quality digital television be available
across the country.
---------------------------------------------------------------------------
The Berlin plan also sought to avoid imposing on broadcasters the
costs of extended operation of dual systems. The transition was thus
designed to be short-lived and, unlike the U.S. plan where stations
have had to undertake the costs of dual operations, the government in
Berlin subsidized broadcasters which were required to provide both
analog and digital signals.
These differences are significant and call into question
suggestions that Berlin provides a ready model for the United States.
In particular, the very much larger number of sets that rely on over-
the-air transmissions, as well as the very large number of analog sets
in cable and satellite homes for which no DTV transitional carriage
rules have been established, make it impossible to conclude that a
Berlin-style transition would not harm the public interest in a strong
local broadcasting system.
On the other hand, there are certainly lessons that we can take
from the Berlin experience. The German authorities recognized that
moving millions of consumers from analog to digital, while resulting in
significant benefits for consumers, would create burdens that should
not fall on broadcasters. Instead, they concluded that ``[s]olving the
issue of social acceptability of the switchover is a public duty to be
fulfilled by the state.'' 9 The response from consumers in
Berlin also counters suggestions that it is not important to maintain
the level of over-the-air services. ``Numerous comments by viewers . .
. refute the claim that viewers traditionally receiving television
through the air would be content with fewer services--the opposite is
the case.'' 10
---------------------------------------------------------------------------
\9\ Berlin Goes Digital at 12.
\10\ Id. at 15.
---------------------------------------------------------------------------
Another important lesson is that free TV is crucial to any
transition from analog to digital. The experience not only in Germany,
but also in the United Kingdom and in Spain with pay digital
television--where those services languished--shows that the
``switchover must be undertaken with free-to-air television.''
11 Indeed, in England, the subscription terrestrial DTV
service collapsed; digital penetration began to increase significantly
only with the development of the Freeview system that greatly expanded
consumer choice by providing multiple channels of free over-the-air
programming.12
---------------------------------------------------------------------------
\11\ Id. at 3; see id. at 16.
\12\ See Office of Communications, Driving digital switchover: a
report to the Secretary of State (April 5, 2004)(accessed at http://
www.ofcom.org.uk/research/dso--report/?a=87101).
---------------------------------------------------------------------------
One other part of the Berlin experience is instructive. The Berlin
authorities concluded that one of the advantages that could be obtained
from a transition to DTV was the increased potential for portable
applications. This is achieved through a system of distributed
transmission where additional transmitters repeat the signal and enable
it to reach televisions without roof-top antennas. The same capability
has been developed for the U.S. digital broadcast system, and
broadcasters have asked the FCC to authorize its use. Quick action by
the FCC on this issue would also help advance the transition here.
What does this all mean for the United States? It tells us that
relying on cable or satellite services to drive the transition to
digital--as some have argued--will ultimately fail. Free local
broadcasting has always been the core of television service. It will
be, it must be a primary driver of the digital transition. With it, we
will have a vibrant new television service. Without it, we will have
simply more variations on the same pay services, as well as diminishing
news, emergency services and other public interest activities for which
our communities rely on local broadcasters.
It also tells us that the circumstances that allowed the Berlin
authorities to end analog broadcasting quickly without significant
public outcry do not exist here. The number of television receivers and
households that rely on over-the-air analog service is far greater here
than in Berlin. Replacing those sets or providing set-top boxes for
them will require a far larger public commitment than the German
authorities faced. Set-top boxes or cable or satellite converted
digital signals in Berlin were also equivalents for over-the-air
digital television; that is not true here where high definition,
multicasting and data services characterize DTV and will not be
available to consumers viewing a downconverted signal. Further, while
the obligation of cable systems in Germany to carry the complete
digital offerings of local broadcasters should be the rule here; so far
the FCC has declined to adopt such a rule.
It is worth noting that the German authorities have warned that
extending the Berlin model to even the rest of Germany ``would not
appear to present a realistic option at present.'' 13
Similarly, NCTA in a presentation to the FCC on the Berlin transition
concluded that ``it's highly uncertain whether those unique
circumstances exist elsewhere in Germany. They do not exist in the
United States.'' 14
---------------------------------------------------------------------------
\13\ Berlin Goes Digital at 20.
\14\ NCTA, The Transition to Digital Television in Berlin, MM
Docket No. 98-120 (filed March 30, 2004)(emphasis supplied).
---------------------------------------------------------------------------
Broadcasters share the desire to bring the DTV transition to a
close. Unlike Germany, American commercial broadcasters have been
required to shoulder an enormous financial burden to build and operate
digital facilities. No broadcaster wants to continue paying for both
analog and digital operations for any longer than necessary. Instead,
we look forward to an all-digital future.
The FCC has taken significant steps to advance the transition,
including the digital tuner mandate, the ``Powell plan'' and the
agreement on cable compatibility standards. It is to be commended for
its constructive approach. These steps are bearing fruit, not only in
the availability of more and more exciting programming, but also in
increased sales of digital receivers and displays. These steps and a
few more--notably the long-delayed adoption of digital must carry rules
for the transition and afterwards--can bring the transition to an end
in this decade without causing significant disruption to consumers or
reducing service.
Mr. Upton. Thank you.
Mr. Willner.
STATEMENT OF MICHAEL S. WILLNER
Mr. Willner. Thank you, Mr. Chairman. Needless to say I did
find parts of Mr. Schmidt's statement a little bit
controversial.
I'm Michael Willner, President and CEO of Insight
Communications, the ninth largest cable television operator in
the United States with about 1.3 million subscribers. I happen
to be very proud of the cable industry's leadership in
transitioning digital television in the United States. Cable
recognized the need to convert to digital when Congress
determined that our Nation must modernize its broadcast system
in order to efficiently utilize our valuable public spectrum.
The cable industry prepared itself for this event by developing
a platform that today delivers digital television to more
households than any other digital distribution system.
Because of our $85 billion investment which every time I
say the words I have to add fully funded without any government
help, cable is delivering not only high definition programming
created by numerous cable networks, but also high definition
services offered by many, many broadcasters. As of March 31 of
this year, the digital signals of nearly 400 broadcast stations
were being carried on cable.
What concerns me today is the continued assertion by
broadcasters that the transition will only occur if additional
regulatory burdens are placed on cable and satellite.
Specifically, broadcasters claim that they require a digital
multicast must carry on all cable systems in order to return
the analog spectrum that they previously promised to give back
in the year 2006. Some broadcasters claim that unless they are
given this right, they'll be unwilling to develop compelling
new programming for the digital spectrum and therefore nobody
will go out and buy a digital television.
Now that argument is really ironic. Mandated multicast must
carry would actually reduce the incentive of broadcasters to
create compelling new content, precisely the opposite of their
claim. Why? Because guaranteed carriage would remove the
marketplace focus of broadcasters to go after consumers and
interest those consumers and what they are creating in terms of
content.
Must carries lowers the bar and protects less desirable
programmers. Consumers are best served by simply letting the
marketplace work as it did for 400 broadcast stations in their
conversion to digital.
Digital must carry has no impact on easing the digital
transition for your constituents. Rather, the focus of
Congress, the FCC and industry should be on tackling the
fundamental issue of that digital transition, and that is, what
happens to all of those analog TV sets the morning after we
turn off the analog frequencies?
Analog televisions hooked up to digital cable will continue
to work on that date. Cable operators have already seen to
that. But millions of TVs in households with no cable or
satellite distribution systems and millions more in our
customers' households that are not hooked up to cable in the
bedrooms and the playrooms will not work the next morning
unless we do something about it.
This is not a household problem. It's not a cable problem.
It's not a satellite problem. It's a device problem. I believe
that it's not the intention of this government to force tens of
millions of consumers to purchase digital televisions before
they're ready to buy one. However, you can create a marketplace
that will result in the phasing out of analog TVS over time,
even after the analog broadcast system is turned off. The
consumer will then decide when they are ready to buy that new
TV while their old ones continue to function.
If I might, this is the device we're all talking about in
Europe. This is the size of it. It is a digital to analog
converter box and it is very inexpensive. And it converts
digital signals to analog. The success in Berlin occurred
principally because of one thing, the availability of this box.
And it was successful even though the device was far costlier
there than what might be available in the United States simply
because of the economies of scale that the U.S. market offers.
I urge you to stay the course and remain focused on
fostering the digital transition as quickly as possible. Set
and stick to a date certain. This is not about broadcasters
needing expanded digital must carry rights or imposing
additional regulatory burdens on their competitors. That action
will have no impact on this conversion. It's about enabling
analog TVs to continue to work after the transition. From
cable's perspective, as evidenced by our existing investment
and commitment, we stand ready, willing and able to support
this transition. Focus on the real solutions so that American
consumers can choose, if and when, to buy a new digital TV set
in order to receive all of the new services being developed in
a healthy, consumer-focused and competitive marketplace.
[The prepared statement of Michael S. Willner follows:]
Prepared Statement of Michael Willner, President and Chief Executive
Officer, Insight Communications
i. introduction
Mr. Chairman, Congressman Markey, members of the subcommittee, my
name is Michael Willner. I am President and CEO of Insight
Communications, the nation's ninth largest cable operator. I am also a
Director of the National Cable & Telecommunications Association (NCTA)
and serve on its Executive Committee. Thank you for inviting me to
testify about the cable industry's efforts to advance digital
television in the United States and what lessons we might learn from
the broadcasters' transition to DTV in Berlin.
ii. insight communications: company overview
Insight Communications provides bundled, state-of-the-art services
to 1.3 million cable customers living in mid-sized communities in
Illinois, Indiana, Kentucky, and Ohio. The company pursues an
aggressive business plan to deliver leading-edge technology to its
customers and has successfully upgraded its infrastructure to support
numerous advanced services including high definition television (HDTV),
digital video recorders (DVR), video-on-demand (VOD) and subscription
video-on-demand (SVOD), two tiers of high-speed Internet access
service, voice telephony, and standard analog video. At the end of the
first quarter of 2004, Insight Communications served 1,297,900 basic
customers; including 418,400 digital customers; 258,000 high-speed
Internet customers, and 60,100 switched telephony customers. The
capital investment required to make these enhancements was
approximately $500 million.
Insight Communications was an early proponent of HDTV programming
and first launched high definition service in 2002. Today, it provides
significant HDTV programming, including PBS in all markets where it is
available over-the-air. Insight carries at least one major broadcast
network in HD format in all but one market (where the company is
currently in negotiations). Currently 26,184 customers have HDTV-
enabled set-top boxes in their homes, and 94 percent of Insight's
customers have access to HD services (98 percent of Insight's digital
customers).
iii. the cable industry is leading the transition to digital television
in the united states
Insight exemplifies what the cable industry as a whole is doing to
promote digital television. With an investment of $85 billion since
1996, the cable industry has upgraded its facilities to launch a whole
host of digital services, including HDTV. As part of its deployment of
advanced video, voice, and data services, cable companies are now
offering high definition television on systems passing 84 million
homes. At least one cable operator in 99 of the top 100 markets now
offers HDTV, and HD over cable is available in 155 of the 210 U.S.
television markets.
Cable operators are now offering packages that include a full mix
of broadcast, basic, and premium networks featuring HD content.
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 the HD programming of
92 local broadcast stations was being carried.
Cable programmers are also leading the way in creating compelling
high definition content that will drive the sale of digital television
sets. Seventeen different cable networks are producing HD programming,
including Bravo HD+, Cinemax HDTV, Comcast SportsNet INHD, Discovery HD
Theater, Encore HD, ESPN HD, HBO HDTV, HDNet, HDNet Movies, INHD,
INHD2, MSG Networks in HD, NBA TV, Showtime HD, Starz! HD, The Movie
Channel HD, and TNT HD currently provide high definition programming.
Unlike many broadcast stations--which offer HD programming for only a
few hours a day--most cable networks that offer HD do so on a 24-hour
or nearly full-time basis.
Cable compatibility issues are being resolved through industry
agreements. The consumer electronics industry and the cable industry
have reached a landmark agreement which allows ``one-way'' digital
television sets to be connected directly to cable systems without the
need for a set top box. The FCC adopted implementing rules in September
2003 and multiparty, inter-industry negotiations to resolve issues
related to ``two-way'' digital television sets are fully underway.
iv. the television market in berlin is different than the u.s.
Today, the General Accountability Office (GAO) is releasing a
report requested by this subcommittee on the transition to DTV in
Berlin. NCTA was similarly interested in whether the Berlin experience
could provide a model for the United States and sent its own research
team to Germany earlier this year. To aid this subcommittee in its
review of the Berlin transition, I have appended a copy of the
researchers' report, The Transition to Digital Broadcasting in Berlin,
to my testimony.
Before drawing lessons from the Berlin experience, we must first
understand the differences between television markets in the United
States and Germany and why the Berlin experience does not provide a
rationale for imposing multiple must carry obligations on cable
operators and satellite providers in the United States.
Key differences between the German and U.S. television markets
include the following:
In Germany, HDTV was not the driver or goal of the digital
transition. The state of television in Germany is far less
advanced than in the U.S. Rather, the German Government simply
wanted to promote the survival of seven broadcasters who
reached only seven percent of the population over-the-air (the
other 93 percent of homes in Berlin receive broadcast signals
via cable and satellite).1 By transitioning to
digital television, broadcasters could multiplex four channels
in the space they formerly used to broadcast one, thus
quadrupling the number of broadcast channels available in
Berlin to 28. Since the local cable system has only 30
channels, this made reliance on over-the-air television a
viable consumer alternative to cable service.2 Both
the broadcast and cable industries in Germany lag their U.S.
counterparts in offering HDTV.
---------------------------------------------------------------------------
\1\ The transition to DTV occurred in Germany because commercial
broadcasters indicated that the expense of over-the-air broadcasts to
only seven percent of TV households had become too much to bear. They
threatened to stop broadcasting altogether and rely on DBS and cable to
reach their audience instead. In addition, it was also becoming
politically difficult to force 93 percent of households to pay the TV
tax used to subsidize free, over-the-air broadcasting to only 7 percent
of Germany's homes. The German Government, however, was not prepared to
cut off service to the 160,000 Berlin homes that relied on over-the-air
television.
\2\ Consumers pay cable operators a monthly subscription fee of 14
Euros (1 Euro = US$1.25), but they receive only one analog tier of 30
channels (mostly national and local broadcast networks) over aging
facilities that were built in the 1980s. The main attraction of cable
is signal quality, even though it requires payment of a monthly
subscription fee on top of the 16 Euros per month assessed on all TV
households to support public broadcasting.
---------------------------------------------------------------------------
The economic models for cable, broadcasting, and satellite in Berlin
do not compare with the United States. Broadcasters in Germany
do not own their own facilities for transmitting programming
over-the-air. Rather, they pay an independent broadcast network
operator (T-Systems, a branch of Deutsche Telekom) for
transmission service. They also lease capacity on cable and
satellite systems 3 to distribute their programming
and pay the cable and satellite operators for carriage. As
such, in Germany, broadcasters have to pay cable operators to
carry their 28 digital channels--much like leased access
channels are used by independent programmers in the United
States to reach cable audiences. In contrast, U.S. broadcasters
do not pay cable operators for ``must carry'' of their
signals--nor would they likely want to. (In fact, the economic
relationship in the U.S. is reversed, with cable operators
compensating broadcasters through copyright and retransmission
consent mechanisms.)
---------------------------------------------------------------------------
\3\ DBS in Europe has 690 channels and distributes program services
``in the clear'' (unscrambled) on satellite transponders leased by the
individual broadcasters and program networks. DBS does not serve as a
packager or distributor of bundled services the way Dish/EchoStar and
DirecTV do in the U.S.: once consumers have purchased a dish and
receiver, they can receive all 690 program services on satellite for
free, with no monthly subscription charge. If it weren't for the fact
that Berlin is highly urbanized and many residents do not have a clear
line of sight to a satellite, most Berliners would probably receive
their television via DBS.
---------------------------------------------------------------------------
All program networks--cable, satellite, and broadcasting--are
advertiser supported in Germany (with the exception of one
subscription service, Premier 4). Cable and
satellite program networks do not charge distributors licensing
fees, and cable serves primarily as a common carrier which is
paid by private and public broadcasters and other programmers
like Premier to carry their signals.
---------------------------------------------------------------------------
\4\ The only premium video service in Germany--Premier--leases
capacity from both cable and satellite operators to distribute its
encrypted video service directly to consumers. Customers get converter
boxes directly from Premier and pay a monthly subscription fee of 30
Euros to the premium service itself--not the cable or satellite
operator.
---------------------------------------------------------------------------
Much of the cable system's channel line-up is determined by
government regulators, who require carriage of local broadcast
stations (each of Germany's 15 media authorities establishes
its own must carry requirements). Cable prices to residential
customers are regulated, as are the rates which cable operators
charge broadcasters for mandatory carriage of their signals
(under a common carrier ``just and reasonable'' standard).
As noted, multicasting was a factor in Berlin because it allowed
broadcasters to quadruple the number of channels they offered over-the
air (to 28) and compete head-on with a 30-channel cable system. With
the one-time purchase of an affordable set-top converter, consumers in
Berlin can watch basically the same programming for free on broadcast
television that they pay 14 Euros a month to watch on cable. In the
U.S., by contrast, cable companies provide 200-300 channels of
programming, including HD and free carriage of must carry stations,
while most broadcasters have yet to develop a viable business plan for
multicasting. In Germany, it was possible for broadcasters to acquire
the program content needed to fill 21 new channels. (These channels
more closely resemble basic cable channels in the United States.) It
was also possible to quadruple the number of broadcast channels without
fatally diluting the advertising revenues required to sustain private
broadcasters due to the relative paucity of advertiser-supported cable
channels.
Significantly, nothing in the Berlin experience supports the claim
made by U.S. broadcasters that the government needs to impose
additional must carry requirements on all cable systems in order to
expedite return of the analog frequencies that broadcasters promised to
give back by 2006. Some U.S. broadcasters claim that unless they are
given multiple must carry rights, they will be unwilling to develop new
digital broadcast programming and therefore people will not purchase
digital TVs. The irony of this argument is that multiple must carry
would actually reduce the broadcasters' motivation to create compelling
new content--precisely the opposite of their claim. The reason is
simple: guaranteed carriage would remove any incentive for broadcasters
to create content such as HDTV that consumers demonstrably want. Must
carry lowers the bar and protects little-viewed programming by taking
up valuable spectrum on cable systems which could otherwise be used by
programmers who offer compelling digital content.
v. policy lessons to be learned from the berlin experience
Despite the stark differences between the economics of cable,
satellite, and broadcast television in Berlin and the United States,
several lessons can be drawn from Berlin's successful 2003 transition
to digital broadcasting:
The U.S. Government should set a hard date for the broadcasters'
transition to digital television--as the government did in
Berlin. If Congress mandates the return of the analog spectrum
by a date certain, consumer electronics companies will develop
and manufacture tens of millions of inexpensive set-top
converters and the necessary antennae to receive digital
broadcast signals--just as they did in Germany.
Simple digital set-top boxes could be manufactured in quantity and
sold to consumers probably for about $50 in the U.S. (We have
already seen such scale economics in cable modems, which now
sell for about $50.) As in Berlin, the Government could provide
a subsidy directly to the consumers who need it--perhaps from
the revenue that will be raised by auctioning the analog
spectrum reclaimed from the broadcasters.
The public in Germany was willing to pay about 100 Euros for a set-
top box that converts digital broadcasts to analog so that they
can be viewed on analog TV sets. In the United States, the
public's willingness to buy inexpensive converter boxes is
critical since there are 250 to 300 million analog TV sets
still in service and 15 percent of TV households rely on over-
the-air broadcast transmissions. If the approximately 16
million TV households with no cable or satellite service have
the national average of 2.5 to 3 televisions per household, the
digital transition in the United States will require the
placement of 40-50 million inexpensive digital converter boxes
in these homes. In addition, set-top boxes must be readily
available at retail for cable and satellite subscribers who do
not wish to lease or purchase converter boxes from their
service providers for additional TV sets in their homes.
The U.S. Government is unlikely to adopt policies that require tens
of millions of consumers to purchase digital TV sets before
they really want to. Congress can facilitate a marketplace,
however, that will result in the phasing out of analog
televisions over time--years after the analog broadcast system
is turned off. The success of the digital marketplace will
depend on the availability--and low cost--of simple set-top
boxes that convert digital broadcast signals to analog,
allowing for the continued use of millions of ``legacy'' TV
sets in the United States. Consumers will decide when they are
ready to buy new digital TVs while their old sets continue to
deliver the analog pictures they were previously receiving.
To aid in the transition--especially before most consumers acquire
digital-to-analog broadcast converter boxes--cable operators
should be allowed to convert digital broadcast signals to
analog at the cable headend, providing continuity of local
broadcast service to all their customers. (As is the situation
today, many cable operators would also elect to carry the
broadcasters' HDTV signals.) As a matter of policy, if a cable
operator is best able to serve its customers by converting
digital broadcast signals to analog at the headend (until 85
percent or more of its customers have digital TVs or low-cost
digital-to-analog boxes), it ought to be given the right to do
so by either Congress or the FCC. Consumers could then choose
when to buy a new digital TV and receive all of the newly
developed services being delivered in a healthy, competitive
marketplace.
vi. conclusion
As NCTA's research team concluded in The Transition to Digital
Broadcasting in Berlin, ``The Berlin experience demonstrates that given
the right conditions, a hard cutover to digital terrestrial television
can be successful.'' I would add that the success in Berlin occurred
principally because of one thing--the widespread availability of
relatively inexpensive digital-to-analog converters. Quadrupling the
number of over-the-air broadcast channels to 28 (in a 30-channel cable
environment) was also a significant factor.
It is imperative for American policy makers to base our DTV
policies and timetable on the economic circumstances of the cable,
satellite, and broadcasting industries that exist in the United States.
For example, it would be a mistake to assume that ``must carry''
policies from Germany--where states determine which broadcast channels
are carried by cable, and where the government requires broadcasters to
compensate cable operators for carriage of their signals under a common
carrier regime--would work in the United States. In the U.S., a
successful transition to digital television will require: (1) adopting
a date certain for returning the analog spectrum and broadcasting in
digital; (2) solving the ``15 percent problem'' about how households
that rely on over-the-air transmissions for television will be able to
purchase equipment which allows their analog TV sets to receive the new
digital signals; (3) giving cable operators the flexibility they need
to convert broadcast signals from digital to analog; and (4) requiring
broadcasters to compete in the market with other programmers rather
than giving them expanded digital must carry rights.
Thank you again for the opportunity to appear before this
subcommittee. I would be pleased to answer any questions that you might
have.
INSIGHT COMMUNICATIONS, INC.
HD/DVR Deployment by market as of June 2004
All systems use Motorola DCT6208 set-top box for HD/DVR service
----------------------------------------------------------------------------------------------------------------
Market HD Broadcast Carriage HD Cable Programming DVR Deployment
----------------------------------------------------------------------------------------------------------------
Anderson, Noblesville, IN............ ABC-WRTV HBO, Showtime, Bravo Currently available
NBC-WTHR HD+, HD Pak**
CBS-WISH
PBS-WIPB
Bloomington, Greensburg, Greeenwood, ABC-WRTV HBO, Showtime, Bravo Currently available
Franklin, IN. CBS-WISH HD+, HD Pak**
NBC-WTHR
PBS-WTIU
Bowling Green, KY.................... ABC-WBKO HBO, Showtime, Bravo Currently available
CBS-WTVF HD+, HD Pak**
PBS-WKGB
PBS-WKYU
Champaign, IL........................ HBO, Showtime, Bravo Currently available
HD+, HD Pak**
Columbus, OH......................... ABC-WSYX HBO, Showtime, Bravo Currently available
CBS-WBNS HD+, HD Pak**
NBC-WCMH
Covington, KY........................ NBC-WLWT HBO, Showtime, Bravo Currently available
CBS-WKRC HD+, HD Pak**
ABC-WCPO
PBS KET 1-4
PBS-WCET 2-5
Dixon, IL............................ ABC-WQAD HBO, Showtime, HD Pak** Currently available
NBC-KWQC
CBS-WHBF
Evansville, IN....................... NBC-WFIE HBO, Showtime, Bravo Currently available
ABC-WEHT HD+, HD Pak**
PBS-WNIN
Kokomo, IN........................... ABC-WRTV HBO, Showtime, Bravo Currently available
NBC-WTHR HD+, HD Pak**
CBS-WISH
Ladd-Sterling, IL.................... ABC-WQAD HBO, Showtime, HD Pak** Currently available
NBC-KWQC
CBS-WHBF
Lafayette, IN........................ ABC-WRTV HBO, Showtime, Bravo Currently available
NBC-WTHR HD+, HD Pak**
CBS-WISH
PBS-WIPB
Lexington, KY........................ CBS-WKYT HBO, Showtime, Bravo Currently available
PBS-WKLE HD+, HD Pak**
Louisville, KY....................... ABC-WHAS HBO, Showtime, Bravo Currently available
CBS-WLKY HD+, HD Pak**
NBC-WAVE
PBS-KY Ed TV
(4 Channel Numbers
carrying whichever is
Broadcasting in HD)
Mendota-Peru, IL..................... ABC-WQAD HBO, Showtime, HD Pak** Currently available
NBC-WMAQ
CBS-WHBF
Peoria, Bloomington, IL.............. ABC-WHOI HBO, Showtime, Bravo, Currently available
PBS-WTVP HD Pak**
Richmond, IN......................... ABC-WRTV HBO, Showtime, Bravo Currently available
CBS-WISH HD+, HD Pak**
PBS-WIPB
NBC-WTHR
Rockford, Freeport, Belvidere, IL.... ABC-WTVO HBO, Showtime, HD Pak** Currently available
NBC-WREX
CBS-WIFR
Springfield-Decatur, IL.............. HBO, Showtime, Bravo Currently available
HD+, HD Pak**
----------------------------------------------------------------------------------------------------------------
*Insight Digital service required for access to all HD programming
**HD Pak includes the following networks: ESPN HD, Discovery HD Theater, HDNet and HDNet Movies.
Mr. Upton. Thank you.
Mr. Lawson.
STATEMENT OF JOHN M. LAWSON
Mr. Lawson. Thank you, Mr. Chairman. Public television's
mission has grown a lot since 1967 and we're fortunate to have
a 21st century delivery system, DTV, to meet it. Since the
transition began, our system has raised more than $1 billion to
make the conversion and as of today, 75 percent of U.S. public
stations are transmitting a digital signal in markets that
include more than 88 percent of households.
Our challenge now is to move from simply delivering a
digital signal to creating and delivering actual digital
services. Most stations are broadcasting in HD and
multicasting. Many are also data casting directly to PCs, for
instance, KERA in Dallas is data casting standards based
content directly to school computer networks and pioneering DTV
for homeland security.
However, while consumer acceptance of DTV has improved, it
has yet to reach a tipping point. Meanwhile, PTV stations are
spending more each year, running and replacing analog
transmission equipment and Congress appropriates to CPB for
digital grants. I know the committee is examining a hard date
for analog switchoff, but imposing a hard date without first
resolving the fate of carriage rights and over-the-air analog
consumers is a recipe for disaster.
The success in Berlin and with the U.K.'s Freeview service
led us to explore some new thinking about the transition. In
February, we surveyed our stations, you read polls, we read
member surveys. We found that 86 percent did not expect to be
able to switch off analog by the year 2009. However, under
three conditions, guaranteed cable and satellite carriage, low
cost converter boxes and yes, a limited trust fund to produce
content, the responses were almost exactly reversed. Eighty-one
percent of our stations said they could give up their analog
spectrum by 2007. Since public stations hold 21 percent of all
U.S. TV spectrum, this presents a clear roadmap to Congress for
freeing up a lot of spectrum early.
Our plan is based on the notion that all spectrum, like all
politics, is inherently local. It's not necessary or even
desirable for all spectrum to be returned at once. In Berlin,
15 separate regional authorities set the timetable for the
transition. A market by market approach might work well here as
well. Wireless service providers or others who want access to
spectrum might find it advantageous to test new applications
and business models before rolling them out nationwide. And who
knows, it might even help cover the cost of converter boxes, if
it helped them to gain access to spectrum early.
However, our recent real world experience in this area is
not encouraging. When public station KCSM in the Bay Area was
forced to go digital only, it launched a thorough campaign to
tell viewers where to purchase converter boxes. But when KCSM's
analog transmitter finally went dark this spring, many over-
the-air consumers, especially elderly ones, were stranded.
Converter boxes were very hard to find and prices for the few
that were available ranged from nearly $300 to $600. One
retailer actually called the station asking that it not send
any more customers to buy boxes that they did not stock.
Clearly, the nationwide shutoff that a hard date implies would
entail an enormous information campaign and the mobilization of
converter box production on a war time scale. The country would
benefit from trying digital only broadcast in a few test
markets first, allowing the supply chain and consumers to
adjust.
GAO's research also points out another key difference
between Germany and the U.S., how the two societies finance
public television. This is very important because public
television has been a driver of the transition in Berlin and
the U.K. The average household in Germany pays a fee the
equivalent of about $236 annually for their public broadcasting
system, while the American Federal subsidy for public
television and radio amounts to about $4.19 per household,
about the price of a Happy Meal at McDonald's.
While the tax on households would never fly in the U.S.,
the surrender of analog broadcast spectrum does present an
opportunity to both accelerate the transition and to finance
new educational content. The idea of a trust fund has been
around since the 1960's, but our concept is different. It's
limited in scope. It's highly targeted toward education and we
believe will help unlock tremendous economic benefits for the
Nation.
Mr. Chairman, generating auction revenue has been the main
objective of regaining the analog spectrum in the U.S., unlike
in Germany. However, a uniform hard date for the whole U.S.
would create a spectrum glut that will depress auction revenue
for the public. And the larger issue goes beyond auction
revenue. Our plan to return some spectrum early promises much
greater economic benefits than auction revenue. If the wireless
industry is correct, their use of vacated spectrum will lead to
equipment orders, jobs and tax revenue to the government. We
can make that happen sooner rather than later.
We believe this is a win-win-win proposal that will advance
the transition, begin to unleash the economic potential and
public safety benefits now bottled up with the analog spectrum
and finally, deliver a new generation of digital educational
services to our communities.
While time is running short on this Congress, we stand
ready to work with you and the other members of the committee
to accelerate the digital transition.
Thank you.
[The prepared statement of John M. Lawson follows:]
Prepared Statement of John M. Lawson, Association of Public Television
Stations
Thank you Mr. Chairman. I am John Lawson, president and CEO of the
Association of Public Television Stations, the national representative
of our nation's local public television stations. Local public
television stations are an important part of today's media landscape,
reaching 99 percent of the population with distinctly local programming
and services. Each of our 176 licensees is locally programmed, locally
managed, and--most important--truly locally controlled.
Given the many choices in media available today, public television
must offer something decidedly different and valuable if it is to
survive. Given that federal funding provides about 18 percent of our
system's total revenues, it is our duty to provide services to
communities that fill particular needs.
These twin objectives of localism and public service are at the
heart of everything our stations do. It is evident in our Ready To
Learn children's programming, which constitutes a true early childhood
learning experience with measurable results. It can be found in the
public affairs programming that we offer, including candidate debates
and other commercial-free political coverage.
And it is inherent in our role in offering truly universal service
that covers rural communities and underserved populations that may
benefit most from our services. The relevance to today's subject is
that no other stakeholder has a greater responsibility to ensure that
no viewer is left behind in the digital transition.
innovation with new digital services
Mr. Chairman, if one accepts that public television's mission has
grown since 1967, we are fortunate to today have a 21st century
delivery system to meet it. Digital television (DTV) has geometrically
expanded our capacity to meet our mission. Since the DTV transition
began, our system has raised more than $1 billion to make the
conversion. As of today, 271 of the country's 357 PTV stations are
transmitting a digital signal in markets that include more than 88
percent of households, and we are optimistic that most of the remainder
will be on the air by the end of this year.
It is no exaggeration to say that our local stations view digital
as their greatest opportunity ever to serve the public; our true
challenge now is to move from simply delivering a digital signal to
creating and delivering actual digital services. We are bullish on DTV,
and--to the point of this hearing--we are eager to entertain new ideas
for accelerating the DTV transition.
Most stations are broadcasting high-definition television,
especially in primetime. During the daytime, many are broadcasting new,
multiple standard-definition channels, which are expanding citizens'
access to quality children's and educational programming and public
affairs coverage. For instance, New Hampshire Public Television is
launching a new channel dedicated to local and statewide public affairs
and other New Hampshire content. SCETV has launched the South Carolina
Channel with local content. And Thirteen/WNET in New York and WGBH in
Boston are launching two new channels of content, titled ``World'' and
``Create.''
Many of our member stations are using some of their digital
bandwidth for datacasting, another service made possible by DTV.
Datacasting uses a station's digital signal for sending high-end video,
audio, text, and graphics, directly to personal computers--wirelessly.
Several stations, including KERA in Dallas, are datacasting standards-
based content directly to school computer networks to boost academic
achievement. This is one way that stations are fulfilling their
voluntary commitment of one-quarter of their digital bandwidth for
education.
Notably, many of our stations also are providing DTV datacasting to
improve emergency communications and enhance our homeland security. The
June 7 issue of Broadcasting and Cable magazine (see Appendix B)
reports on a soon-to-be-finalized agreement between the Federal
Emergency Management Agency at the Department of Homeland Security, our
association, WETA/Washington, Maryland Public Television and the Public
Broadcasting Service (PBS). The project will pilot DTV as a backbone of
emergency communications for the National Capital Region and could be
rolled out nationally after that. Meanwhile, Nashville Public
Television is pioneering the use of datacasting for local homeland
security applications in partnership with local and state agencies.
Appendix C of my testimony lists just some of the examples of how
local public television stations are pushing the envelope in the use of
digital broadcasting in real ways to help real people.
digital television at the crossroads
However, despite recent progress in the DTV transition, the nation
remains a long way from achieving the full benefits of digital. While
consumer awareness and acceptance of DTV has improved, it has not
reached a sufficient ``tipping point'' at which the transition might
shift into high gear. The analog broadcast spectrum, needed by public
safety and coveted by new wireless service providers, remains out-of-
reach for these other uses.
Meanwhile, broadcasters, both commercial and noncommercial,
continue to incur the costs of operating redundant transmitters. In
public television, we spend more each year running and replacing analog
transmission equipment than Congress appropriates to the Corporation
for Public Broadcasting for digital grants. The irony is not lost on
our stations.
Public stations hold licenses to 21 percent of the nation's
broadcast spectrum. Our stations know that they hold this spectrum in
trust, and that the government will reclaim it at some point.
But when? A 2002 study by the National Association Broadcasters
found that, absent new government action, the statutory conditions for
the end of the transition might not be met until 2021. Since then,
efforts such as Chairman Powell's voluntary plan and the DTV roundtable
discussions hosted by the leadership of this committee have had a
definite positive impact on the transition. However, with no change in
policy, the end of the transition remains a distant goal.
Recently, policymakers have begun to consider what policy reforms
might be appropriate. Most of the discussion has centered on imposing a
so-called ``hard date'' by which analog broadcasting would cease and
spectrum be returned to the government. The variables are first, how
soon that date might be; second, whether a single hard date would apply
universally to every market in the country; and third, how to handle
the rather significant details of cable and satellite carriage rights
and over-the-air analog consumers.
Setting a hard date is a tricky proposition: If the date is too
soon, policymakers risk damaging the economy and stranding consumers.
Also, regardless of the date itself, imposing a hard date without first
resolving the fate of carriage rights and over-the-air analog consumers
is a recipe for disaster.
public television's role in the transition
The success in Berlin, and in the U.K. with the Freeview digital
service, led us to begin exploring whether our stations could
contribute some new thinking about wedding some modest policy reforms
to market forces.
In February, we asked our stations when they believed conditions
would be in place that would allow them to switch off analog
broadcasting and achieve what we call DOB--Digital-Only Broadcasting.
The survey found that, assuming the status quo in government policy, 86
percent of stations didn't expect conditions to be in place for DOB by
2009, the hard date proposed by the FCC's Media Bureau plan.
This is the bleak DTV transition scenario with which we are all too
familiar. It led us to ask: What would it take to change that scenario?
So we asked the question again, this time proposing three reforms
to take place:
first--ensuring full post-transition cable and satellite carriage of
digital broadcast signals, including multicasting;
second--ensuring the availability of low-cost, digital-to-analog set-
top converter boxes for serving households that rely upon free,
over-the-air television; and,
third--creation by Congress of a new funding stream, such as a
digital content trust fund, for the production and distribution
of a new generation of digital educational content to drive
market acceptance of DTV.
The results were astonishing: 81 percent of stations indicated that
with implementation of these important reforms, the conditions would
exist for voluntary surrender of analog by the end of 2007, a year
earlier than the FCC's Media Bureau plan would require. (See Appendix
A)
Stations in Roanoke, Virginia; Houston, Texas; and Durham, Hew
Hampshire; have indicated they might be ready for Digital-Only
Broadcasting by an early date if the above conditions are met. Barry
Baker of WDCQ in Michigan, which serves thirteen counties in the
``thumb'' of Michigan, says his station could be ready to return its
spectrum by the end of this year. However, we need to protect consumers
in states like Montana, Oregon and North Carolina where some believe
that DOB may take much longer.
In sum, we concluded that 1) it may be unnecessary or even
undesirable for the entire country to be subject to a single hard date,
and 2) there may be great benefits to encouraging early return of
analog spectrum in the markets that are ready to go sooner.
public television's dtv blueprint
Mr. Chairman, we think we are on to something here, and we would
like to offer a blueprint today that would accomplish the triple goals
of returning a significant amount of spectrum to the government in the
next four years, providing a market-based boost for the transition
and--most important--delivering new digital services, in the truest
sense of the word, to consumers. Let me note that the plan we are
presenting is still a work-in-progress, and much is dependent upon
Congressional and FCC action. But we appreciate the opportunity to
share our thinking with the Committee today.
First, we ask that the Commission adopt rules providing for full
post-transition digital carriage rights, including multicasting, for
local broadcast signals on cable and satellite, and that individual
stations be accorded those rights when they surrender analog. We would
rather negotiate these agreements with the cable and satellite
industries, but it is critical that the Commission and/or Congress be
prepared to weigh in if necessary. We have shared our views with the
Committee regarding carriage provisions in the reauthorization of the
Satellite Home Viewer Improvement Act.
Second, we propose that Congress create a trust fund, based upon
auction revenues that would support the creation of digital education
content by public stations and our partner institutions. GAO's valuable
research points out on page one of its report a key difference between
Germany and the U.S.: how the two societies finance public television.
In Germany, public broadcasters are financed through a monthly fee of
nearly $20 per household, which nets about $7.4 billion per year.
Here is a comparison to consider: The average household in Germany
contributes about $236 annually to the German public television system
while the American federal subsidy for public television amounts to
about $4.19 per household. About the price of a cheeseburger and fries.
While a tax on households would never fly in the U.S., the
surrender of analog broadcast spectrum presents an historic opportunity
to both accelerate the transition and to finance new educational
services. The idea of a public broadcasting trust fund has been around
since the 1960s, but we believe our concept is different. It is limited
in scope, is highly targeted toward education and, we believe, will
help unlock tremendous economic benefits for the country.
Under our plan, public stations would be permitted to surrender
their analog spectrum--on a market-by-market basis--almost immediately,
if the policy changes we have outlined are instituted. Our plan is
based on the notion that all spectrum, like all politics, is inherently
local. It is not necessary or even desirable for all spectrum--public
and commercial--to be returned at once. In Berlin, 15 separate regional
authorities set the timetable for transition. A regional or market-by-
market approach might work here, as well.
Wireless service providers or others who want access to UHF and VHF
spectrum might find it advantageous to market test new applications in
specific markets before rolling them out nationwide. Others have
referred to this as ``conditioning'' the market.
Here is a hypothetical example: If ten public stations were willing
to surrender analog by the end of 2005 or even sooner, some of the new
wireless applications we have heard so much about might be tested in
those markets, to be rolled out more broadly as spectrum became
available. We would expect that wireless broadband companies would seek
to work with stations in those markets to speed the process: For
instance, might a wireless company be willing to help underwrite set-
top boxes in a particular market if it knew it would gain access to the
spectrum sooner?
By contrast, putting all analog broadcast spectrum on the market at
the same time might create a spectrum glut, ensuring an uncertain
return for the Treasury and taxpayers. And if spectrum is not to be
auctioned all at once, there is little point to forcing the country to
go through a massive common analog switchoff that a universal hard date
would entail.
no viewer left behind
This last point addresses the need for protecting universal access
for consumers who rely upon over-the-air television, either exclusively
or for second and third sets in the home. Taking care of these citizens
is a prerequisite for completing the digital transition.
There may be, therefore, a need to subsidize digital-to-analog set-
top converter boxes for some Americans, perhaps on a means-tested
basis. However, we believe most consumers can be motivated to buy set-
top boxes or new digital sets. The key is rolling out and marketing
new, over-the-air digital services to consumers. The success of the
Freeview service in Great Britain is very encouraging in this regard.
Perhaps in America, there is an opportunity to re-brand and re-launch
broadcast television as ``wireless TV'' for new generations who have
known only cable.
Actually, as three public television licensees already have ceased
analog broadcasting, we have some real world experience on which to
draw. For example, when KCSM/San Mateo, California was forced to go
digital-only about a year ago, it instituted a thorough notification
campaign, which included information on where over-the-air analog
viewers might go to purchase converter boxes. When KCSM's analog
transmitter finally went dark this spring, many consumers, especially
elderly ones, still were not prepared to deal with the change. Those
who were prepared found a shortage of converter boxes in stores, with
prices ranging from $299 to $600 and had to go to other stores to
purchase rooftop antennas. One national retailer actually called the
station asking that it not send any more customers to buy the scarce
boxes.
Clearly, the nationwide shutoff that a hard date implies would
entail an enormous information campaign and the mobilization of
converter box production of wartime proportions. We believe the country
would benefit from trying digital-only broadcast in a few test markets
first, allowing the supply chain and consumers to adjust. Certainly,
there is less risk--and potentially greater gain--in this approach.
trust fund for a new generation of digital education content
Under our scenario, self-selected stations that choose to surrender
analog early would be eligible for grants from a new federal digital
educational services trust fund. This fund would not replace the
current appropriation to the Corporation for Public Broadcasting; it
would instead provide a new, targeted source of funding for Public
Television digital educational and informational content, paid for by
future auction revenues.
Because stations would be unlikely to participate in this plan if
they were forced to wait years for spectrum auctions, we propose that
this fund be created by an initial appropriation. The Treasury then
would be reimbursed later by the proceeds of the spectrum auctions but,
in the meantime, local stations could begin immediately to deliver new
digital educational content.
Mr. Chairman, I realize that much of the focus on the return of
analog television spectrum has centered on auction revenue for the
government. However, we believe there are much greater economic
benefits at stake if the analog spectrum is freed up sooner rather than
later. If the wireless industry is correct, their use of vacated
spectrum will lead to a great deal of new economic activity. This means
equipment orders, jobs, and tax revenue to the government.
The establishment of a digital educational services trust fund
itself will have important economic benefits for the nation. The fund
would support the creation of a new generation of education and
training content and services, and the link between education and
economic growth is well known. A trust fund would allow for the
localization of educational content and services; universal access to
education; meeting the training needs for tomorrow's workforce;
building richer digital libraries; and finally, fulfilling public
television's original mission to provide quality educational services
to the American public.
a market-based solution
We believe the voluntary, market-based solution we propose will
free up large blocks of spectrum much earlier than would otherwise be
the case with minimal consumer disruption. Furthermore, our plan would
rely upon market forces and the involvement of future spectrum
beneficiaries in ensuring universal service and the provision of set-
top converter boxes. The new educational services that would flow from
the creation of a dedicated fund would represent true digital public
service that otherwise will not happen.
Mr. Chairman, we believe this is a win-win-win proposal that will
advance the transition, begin to unleash the economic potential of the
now-bottled up analog broadcast spectrum and, finally, deliver a new
generation of digital educational services to our communities.
While time is running short in the 108th Congress, we stand ready
to work with you to seek the most efficient ways to accelerate the
digital transition. Thank you for the opportunity to be here today, and
I look forward to responding to your questions.
[Additional material submitted is retained in subcommittee files.]
Mr. Upton. Thank you.
Mr. Hartenstein, welcome.
STATEMENT OF EDDY W. HARTENSTEIN
Mr. Hartenstein. Thank you, Chairman Upton and members of
the subcommittee. My name is Eddy Hartenstein. I'm the Vice
Chairman of DirecTV and thank you for inviting me to testify
briefly regarding the DTV transition and in particular, the
Berlin model.
My message today is quite simple. As the Berlin model
suggests, satellite operators can play an important role in
achieving a hard date for the return of analog spectrum.
DirecTV stands ready, as my colleague, Mr. Willner has said in
the cable side, to play such a role in that transition, but
cannot do so if required to carry broadcasters' multicast
programming or datacast services and to forego the use, in our
case of compression technology. The Berlin model is attractive
in several ways. By relying on cable and satellite operators to
deliver broadcast signals, it seems to have enabled a nearly
instantaneous transition from analog to digital broadcasting.
If a similar approach could be reached to accelerate the
digital transition here, it could create enormous benefits for
the American public. It would make spectrum available for
public safety and commercial purposes, generating, by some
estimates, tens of billions of dollars in auction revenue. It
would give all parties in the digital transition greater
certainty, and it would end the controversy and possibly future
litigation over dual must-carry.
Can a Berlin variant accomplish this in the United States?
It's certainly worth exploring. In any event, the most
important thing is that this committee is leaving no stone
unturned in finding ways to accelerate the digital transition.
Indeed, as a company that made its name by offering the
first all digital service a decade ago, DirecTV has been at the
forefront of the digital transition for years and is now
exploring ways to retransmit hundreds of high definition local
channels in markets nationwide. DirecTV thus stands ready to
play its part in advancing the digital transition.
I'd like, however, to spend the balance of my time
discussing one crucial point. DirecTV cannot help advance the
digital transition if required to carry multicast and datacast
services in the same way broadcasters have suggested. If
DirecTV must make available to each broadcaster an enormous and
fixed amount of capacity, it cannot offer a full slate of local
broadcaster DTV service. As this committee is currently
considering SHVIA reauthorization, you're well aware that
satellite systems operate under very different capacity
constraints than due cable systems. A typical cable system will
transmit even in the largest markets at most about 20 broadcast
signals at one time. Satellite operators, by contrast, must
retransmit all broadcast signals nationwide using a very
limited number of orbital locations in spectrum.
Thus, in order to provide local service in the first 105
markets that it does today, here at DirecTV, we must retransmit
the signals of nearly 900 local stations simultaneously.
DirecTV has met this challenge by employing state-of-the-air
technology. First, we've launched spot beam satellites that
allow the geographic reuse of satellite spectrum. Second,
DirecTV has created capacity by compressing signals, that is,
removing unneeded bits in the video signals. Such technologies
have enabled DirecTV to provide local-into-local service in 105
markets today and hopefully in a few weeks, take that up to
130, and are a crucial underpinning of our commitment to serve
all 210 markets in the United States by no later at the outside
of 2008.
Some broadcasters, however, want to change this
formulation, arguing that satellite carriers should retransmit
not just the primary video of DTV signals, but also associated
multicast and datacast material. Satellite carriers would
essentially have to offer a fixed capacity pipe to all
broadcasters in a market before retransmitting the DTV signals
for any such broadcaster. DirecTV simply could not provide
meaningful DTV service under such a rule.
DirecTV is procuring over $1 billion worth of satellites
beyond what we already have up there that will enable us to
retransmit the high definition signals of all broadcasters in
many markets, but these plans depend upon the ability to
compress signals and the carriage of primary video signals
only.
Both of these elements are crucial. In fact, compression
will be even more important in tomorrow's high definition and
high bandwidth world than it is today and because even
compression has its limits, the amount of underlying material
to be carried must be reasonable.
In conclusion, DirecTV's ability to deliver local, standard
and high def signals to its consumers depends on its continued
ability to use compression and on reasonable limitations on the
material that it must carry.
Thank you for allowing me to present our view and
perspective on these issues. I welcome questions later.
[The prepared statement of Eddy W. Hartenstein follows:]
Prepared Statement of Eddy Hartenstein, Vice Chairman, The DIRECTV
Group, Inc.
Chairman Upton, Mr. Markey and members of the Subcommittee, my name
is Eddy Hartenstein and I am the Vice Chairman of The DIRECTV Group,
Inc. (``DIRECTV''). Thank you for inviting me to testify on behalf of
DIRECTV regarding the digital television (``DTV'') transition, and, in
particular, the so-called Berlin model. My message today is quite
simple. First, DIRECTV believes the Berlin model can provide useful
lessons for the United States in advancing the digital transition, in
particular the role that satellite operators can play in achieving a
hard date for the return of analog spectrum. Second, while DIRECTV
stands ready to play such a role, I must caution members of the
Committee that our ability to bring digital services to U.S. consumers
will collapse if satellite operators are required to carry
broadcasters' multicast programming or datacast services.
While I am not an expert on the Berlin model, it certainly appears
to have some extremely attractive aspects. By relying on cable and
satellite operators to deliver over-the-air signals to viewers, it
seems to have made possible a nearly instantaneous transition from
analog to digital broadcasting. If a similar approach could accelerate
the digital transition in the United States (for example, as suggested
by FCC Media Bureau Chief Ken Ferree), it would create enormous
benefits for the American public.
It would, of course, make prime ``beachfront'' spectrum available for
a wide variety of public safety and commercial purposes--a
worthy goal in and of itself. By doing so, it would generate an
enormous amount of auction revenue for the U.S. Treasury--as
much as $40 billion, according to some estimates.
It would give everyone involved--consumers, broadcasters, consumer
electronics manufacturers, and programming distributors--
greater certainty and a stable target toward which to work.
This would eliminate the ``chicken and egg'' dilemma that has
plagued the digital transition to date. A date certain for the
transition would lead to greater capital investment by
distributors to carry digital content, the creation of more
high-definition programming, and better and cheaper consumer
equipment. The efforts of this Committee and FCC Chairman
Michael Powell have certainly led to significant progress in
this regard, but I think we all agree that a hard transition
date would dramatically jump-start the transition.
And not least, it would end the controversy over whether distributors
should be required to carry simultaneously the analog and
digital signals of broadcasters. While the FCC has tentatively
concluded that so-called ``dual carriage'' is unconstitutional,
a final ruling on this subject has yet to be issued. Regardless
of the ultimate decision, it would lead to years of litigation,
which in itself would slow the digital transition for years to
come.
Can the Berlin model or some variant thereof accomplish all this in
the United States? DIRECTV believes it is well worth exploring.
Certainly, the Berlin experience provides one answer to perhaps the
most important question associated with the digital transition--how to
avoid ``stranding'' the 12.5 million Americans who still rely on over-
the-air television. And, as some of my fellow panelists have observed,
in the United States it might be possible to use proceeds from the
analog spectrum auctions to fund subsidies of digital-analog
converters, or even cable or DBS subscriptions. While there may be some
elements of the Berlin plan that will make implementation difficult in
this country, the most important thing is that the Committee is leaving
no stone unturned in finding ways to accelerate the digital transition.
We applaud this approach.
Indeed, as a company that made its name by offering the first all-
digital service a decade ago, DIRECTV has been at the forefront of the
digital transition for years. It is now actively exploring ways to
create the infrastructure necessary to retransmit hundreds of high-
definition local channels in markets nationwide. Therefore, if policy-
makers conclude that such a plan makes sense in the United States,
DIRECTV stands ready to play its part in advancing the digital
transition.
I'd like to spend the balance of my time discussing one point I do
not believe has received enough attention in this discussion: DIRECTV
and other U.S. satellite operators simply cannot help advance the
digital transition if required to carry multicast and datacast services
in the way some broadcasters have suggested. Unlike cable operators,
DIRECTV retransmits broadcast signals today by first digitizing the
analog signal into a standard definition format and then employing
video compression techniques. This allows us to make the most efficient
use of valuable spectrum resources without degrading signal quality
received by our viewers. Indeed, DIRECTV uses such compression to
deliver viewers its current slate of high definition programming as
well. A key underpinning to our future plans for transmitting high
definition programming is the continued ability to use such advanced
technology. If, as some broadcasters ask, DIRECTV must instead make
available to each broadcaster an enormous (and fixed) amount of
capacity on its satellites, DIRECTV will be unable to use these
techniques. Without them, DIRECTV will simply be unable to offer a full
slate of local broadcasters' DTV service, and our ability to advance
the digital transition will effectively be negated.
Satellite Operators Have More Severe Capacity Constraints Than Do Cable
Operators
As this Committee is currently considering reauthorization of the
Satellite Home Viewer Improvement Act (``SHVIA''), I probably do not
need to remind you that, when it comes to retransmitting local
broadcast signals, satellite systems operate under very different
capacity constraints than do cable systems. A typical cable central
office, or ``headend,'' collects over-the-air broadcast signals from
the surrounding community, and retransmits those signals to viewers.
Thus, a cable system will retransmit, at most, perhaps twenty broadcast
signals at a time.
Satellite operators, by contrast, must retransmit all broadcast
signals in each of the markets they serve from coast to coast using a
very limited number of orbital locations (the satellite equivalent of
the cable headend). Thus, in order to provide local-into-local service
in the 105 markets it does today, DIRECTV's distribution system needs
to retransmit the signals of nearly 900 local stations simultaneously
from two orbital slots. This requires an enormous amount of capacity,
and has been the principle engineering challenge DIRECTV has faced
since SHVIA's enactment.
DIRECTV Relies on State of the Art Technology to Retransmit Local
Stations
DIRECTV has met this challenge by employing state of the art
technology. First, DIRECTV has launched spot-beam satellites that
create additional capacity by reusing spectrum in different geographic
areas. The more traditional CONUS-beam satellites have a single, multi-
frequency (or multi-transponder 1) footprint that covers the
entire continental United States. While CONUS satellites are excellent
for retransmitting national programming, using them to retransmit local
broadcast programming is a very wasteful use of spectrum. For example,
if DIRECTV wanted to retransmit a Boston station on a CONUS satellite,
it would have to retransmit the station to the entire United States,
even though, by law, only Boston-area subscribers could watch it.
Naturally, if one were to try to retransmit local broadcast stations in
every market throughout the country via CONUS satellites, capacity on
the satellites would quickly be exhausted leaving little, if any room
for national cable programming.
---------------------------------------------------------------------------
\1\ A single DBS transponder covers 24 MHz of spectrum.
---------------------------------------------------------------------------
By contrast, spot-beam satellites are much better for the
retransmission of local broadcast signals because, rather than
``seeing'' the entire United States with a large number of
transponders, they ``see'' multiple, discrete areas, each with only one
or two transponders. Spot beam satellites thus allow the geographic
``reuse'' of satellite frequencies--as transponders operating over the
same frequencies can simultaneously transmit signals to Houston and
Chicago. This reuse is akin to your car radio--there might be FM
stations operating at 99.5 in Washington, D.C., New York, and Boston,
and, as long as they are far enough apart, they do not interfere with
one another. Thus, the 99.5 frequency is ``re-used'' among these three
cities. By covering discrete and non-overlapping geographic areas,
satellite spot-beams can accomplish much the same thing.
To give you an idea of how important this technology is, DIRECTV
has 46 DBS frequencies, 10 of which have been dedicated for use in spot
beams to deliver nearly 900 local broadcast stations. If these same
frequencies were used in CONUS beams, they could carry only on the
order of 120 stations. Clearly, DIRECTV's use of advanced spot beam
technology has been a lynchpin of its local service capability.
The second technique used to increase capacity is compression, a
technique for mathematically manipulating digital content to remove
redundant and unneeded bits. In the early 1990s, compression rates were
roughly 5:1 (meaning that you could fit five cable channels or
broadcast signals on a standard 24 MHz DBS transponder). Today, for
standard definition television signals, compression rates are typically
between 11:1 to 12:1 (although we occasionally compress at a slightly
higher rate in order to fit stations into a particular spot beam), and
further improvements are likely on the horizon. Compression rates for
HD signals are, of course, much lower--but these, too, are expected to
improve.
This is, of course, a very complicated subject. But the bottom line
is that, if you want to know how much capacity a satellite operator has
to retransmit local broadcast signals in a particular market, you need
to know not just how many transponders the satellite operator has, but
also how many transponders are available in the spot beam or beams
covering that market, as well as how much the satellite operator is
able to compress the signal while still maintaining signal quality.
Take, for example, the Washington D.C. designated market area.
DIRECTV has assigned two transponders to the spot beam covering
Washington, D.C. At 12:1 compression, the retransmission of each of
Washington's 12 broadcast stations in standard definition format can be
achieved using a single transponder in this beam, leaving additional
capacity for carriage of local signals in other markets covered by this
beam. However, if DIRECTV were required to carry each station's
multicast signal without using compression, it would have to allocate
an entire transponder to each station. Under this scenario, DIRECTV
could carry only two Washington stations, and thus, under the current
``carry one carry all'' rules, DIRECTV could not retransmit any signals
to Washington (much less have capacity remaining to support local
service in other markets within the beam). Accordingly, the spot beam
infrastructure that DIRECTV has developed and deployed at a cost of
hundreds of millions of dollars would be rendered essentially useless.
Moreover, even if it were possible to take all of the frequencies
DIRECTV currently uses for local signal carriage nationwide and
dedicate them to providing local stations in Washington at a 1:1
compression ratio, there still would not be sufficient capacity to
serve even this single market.
Multicast and Datacast Proposals Would Prevent DIRECTV From Advancing
the Digital Transition
DIRECTV is able to retransmit local broadcast signals in the first
place only because the ``carry one, carry all'' rules specify only that
DIRECTV retransmit the ``primary video [and] accompanying audio''
signals of local broadcast stations. They do not mandate the amount of
bandwidth that DIRECTV must use to retransmit the signals, or that
DIRECTV must retransmit signals that do not relate to the primary video
feed. Indeed, the law specifically permits DIRECTV to use ``reasonable
compression techniques'' in such retransmissions. DIRECTV can thus meet
its statutory obligations while reducing the bandwidth of the signals,
all the while maintaining the digital clarity that is a hallmark of our
service.
Some broadcasters, however, want to change this formulation for the
retransmission of DTV signals. They say that satellite carriers should
be required to retransmit not just the ``primary video'' of digital
signals but also associated multicast and even datacast material. This
may sound benign, but what it really means is that satellite carriers
would be required to retransmit the entire bitstream of a broadcaster's
digital transmission--including redundant and other bits unnecessary
for a quality digital video signal and even bits that have nothing to
do with video service at all.2 Were such a rule applied
under today's carry one, carry all regime, this would mean that
satellite operators would have to offer such a ``pipe'' to all
broadcasters in a market before retransmitting the digital signals of
any such broadcaster. As my earlier discussion of the Washington, DC
market illustrates, if that were the rule, I can assure you DIRECTV
would be carrying local stations in a handful of markets versus the 105
we are in today.
---------------------------------------------------------------------------
\2\ See, e.g., Letter from Henry L. Baumann, NAB, et al., to
Chairman Michael Powell, FCC, MB Docket No. 98-120 (Sept. 5, 2002)
(suggesting that cable operators not be permitted to ``alter the bits
within the ``data packets'' of the broadcast DTV stream).
---------------------------------------------------------------------------
DIRECTV believes its future lies in bringing its customers more
high-definition signals, particularly local stations in high
definition. Moreover, those signals will have to be of sufficient
quality to compete with the high-definition offerings of cable
operators, or DIRECTV will likely lose subscribers to cable. To this
end, DIRECTV is in the process of procuring a billion dollars worth of
spot-beam satellites that will enable it to retransmit the high-
definition signals of all broadcasters in many markets within a few
years. These plans depend critically upon the ability to use cutting-
edge technology, especially the use of advanced compression techniques,
and the carriage of a broadcaster's primary video signal only.
Both of these elements are crucial. First, compression has long
been the key to DIRECTV's ability to provide the widest possible array
of compelling programming to consumers given a limited amount of
bandwidth. That technology will be just as fundamental in tomorrow's
high definition world as it is today. Second, because even compression
has its limits, the amount of underlying material to be carried must be
reasonable. If DIRECTV must carry each broadcaster's multicast
programming, it will simply have to cut back on the number of markets
it can serve. Moreover, if DIRECTV must carry each broadcaster's
datacast signals as well, the problem is exacerbated even further--
DIRECTV will be unable to achieve the benefits of compression because
data transmissions are already compressed. Thus, it is imperative that
satellite carriers be allowed to transmit only the compressed primary
video signal--as they do today under SHVIA--if they are to continue
providing local-into-local service in a substantial number of the
nation's markets.
All of this obviously has enormous implications for DIRECTV's
ability to help accelerate the digital transition, and, indeed, to
retransmit local signals in high definition after the transition. We
stand ready to assist in the digital transition. But the key to any
decision in this area is DIRECTV's continued ability to use state of
the art technology for the most efficient use of spectrum for the
delivery of broadcasters' primary video signals. This in turn will
drive the digital transition forward, and we look forward to continuing
to be at the forefront of this effort.
Mr. Chairman and Members of the Subcommittee, I would like to thank
you for allowing me to give DIRECTV's perspective on these issues. I am
happy to take your questions.
Mr. Upton. Thank you.
Mr. McGrath.
STATEMENT OF CARL J. McGRATH
Mr. McGrath. Good morning, Chairman Upton, Ranking Member
Markey and members of the subcommittee. My name is Carl
McGrath. I am the CTO of Motorola's Broadband Business Sector.
My business is a leader in developing and deployment digital
broadband entertainment communications and information systems
for the home and for the office.
I want to thank you, Mr. Chairman, for your leadership on
communication matters and for scheduling this hearing to
address the issue of how to resolve the DTV transition in a
timely manner and preserving and improving the TV viewing
experience of the American public.
Mr. Chairman, since the beginning of television and
throughout its transitions, Motorola has been at the forefront
of technology development in the field. In 1947, we built one
of the first affordable television sets. In 1963, Motorola
developed the first truly rectangular picture tube for color
TV. In 1972, we developed the first remote controlled set top
box and in 1992, Motorola helped launch the digital revolution
by proposing a transition from analog to digital technology to
drive the market to HDTV and facilitate the recovery of
spectrum.
Along the way and with a complete set of products for
broadcasters, cable network operators and consumers, Motorola
has continued to pioneer solutions that drive the delivery of
digital television.
You are developing a solid record on the path forward to
concluding the transition. On June 2, you heard about the FCC's
DTV plan. The committee leadership sent a strong message that
the digital day should be January 1, 2007. Chairman Barton's
proposal changed the debate and we would like to express
appreciation for his leadership and the direction he is setting
for the transition. This gives rise to the subject of today's
hearing.
Pursuing a model like that used in Berlin will provide
certainty for U.S. consumers, law enforcement and industry by
setting a firm date of no later than December 31, 2006, you
will enable all sectors of industry and public safety to plan
for the deployment of technologies in the 700 megahertz band.
This will spur all of the relevant stakeholders to quickly
conclude this transition.
Chairman Upton, as you and Ranking Members Dingell and
Markey noted at the last hearing, another of the key benefits
of concluding the DTV transition as soon as possible is
improved public safety communications interoperability.
Wireless communications provide our first responders with the
right information at the right time in the right place whether
that information is video, voice or data. Use of this spectrum
can literally save lives.
We are mindful of the other considerations that are
involved in clearing these channels and we believe the adverse
effects can be mitigated. As you explore ways to resolve the
transition, we are encouraged by the examination of the Berlin
experience where crisp, analog cutoff date was achieved by
deploying digital to analog converter boxes to some analog TV
owners who did not subscribe to cable or satellite service.
This intervention ensured a seamless changeover for all TV
customers and protected every consumer's continued availability
to enjoy broadcast TV content.
It is encouraging to note that the GAO is working with this
body to assess the applicability of the solution to the U.S.
While there are high end digital analog converters on the
market today, what is required for wire to consumer market is a
low cost device that will allow our TV viewers to continue to
use their existing televisions. There's currently no demand for
such a mass market product because of the uncertainty created
by the 85 percent penetration loophole in the Telecom Act. If
Congress removes this uncertainty, there will be clear market
for low cost converter boxes and manufacturers will have the
incentives to produce them in quantities that drive down cost.
Such boxes will benefit consumers, providing low cost
alternative to view free over-the-air programming.
To support the conclusion of DTV transition, my team is
presently completing its cost analysis for an over-the-air
digital to analog converter that would facilitate a Berlin-type
solution in the U.S. by 2007. In fact, we anticipate placing on
record at the SEC an estimated cost of $67 per unit if the hard
transition date was set in early 2007.
Today, approximately 80 percent of the television viewers
nationwide receiver their content via cable and satellite
services. Set top solutions like this can provide the remaining
Americans with full TV access. This technology solution would
facilitate an affordable implementation of a Berlin-type
solution in the U.S. Government subsidies for converter
equipment and effective consumer education campaign informing
the public about the transition to digital television will ease
the transition.
In closing, Mr. Chairman and members of the subcommittee,
making spectrum available for new innovative technologies for
first responders and consumers nationwide by the start of 2007
will not happen without your commitment and your help. We
respectfully urge Congress to take action and close out the DTV
transition we began together. We are proud of our technology
heritage and Motorola pledges its support to you to help make
this happen smoothly. We feel strongly that with digital to
analog solutions like ours, this can be achieved with a
trifeca, a win for the consumer, a win for industry and a win
for the first responders. Thank you.
[The prepared statement of Carl J. McGrath follows:]
Prepared Statement of Carl McGrath, Corporate Vice President & Chief
Technology Officer, Broadband Communications Sector, Motorola
Good morning, Chairman Upton, Ranking Member Markey and Members of
the Subcommittee.
motorola's technology heritage
My name is Carl McGrath, and I am the Chief Technology Officer of
Motorola's broadband business sector. I have worked with the cable,
broadcast, and satellite industry for nearly 25 years, and my business
is a leader in developing and deploying digital broadband
entertainment, communication and information systems for the home and
for the office.
I want to express my appreciation to you, Mr. Chairman, for
scheduling this hearing to address such an important issue as how to
resolve the digital television transition in a timely manner while
preserving and improving the TV viewing experience of the American
public.
Mr. Chairman, since the beginning of television and throughout its
various transitions, Motorola has been at the forefront of technology
development in the field. In 1947, we built one of the first affordable
TV sets, which was offered to consumers for under $200. In 1957, the
company built the technology for the first pay-per-view cable event. In
1963, as TV upgraded from black and white to color, Motorola developed
the first truly rectangular picture tube for color television in a
joint venture with the National Video Corporation. The tube quickly
became the standard for the industry. In 1972, we developed the first
remote-controlled set-top box, and in 1992, Motorola helped launch the
digital revolution by proposing to the government a concept that no one
else had seriously considered--transitioning from analog to digital
technology to drive the market to High-Definition TV (HDTV) and
facilitate the recovery of spectrum.
Along the way, Motorola has continued to pioneer solutions that
drive the delivery of digital television. With a complete set of
products for broadcasters, cable network operators, and consumers, the
company looks forward to bringing technology to the table that will
help the Committee meet its objective of expeditiously concluding the
DTV transition.
In 2003, Motorola began bringing innovative HDTV solutions to a
growing number of consumers--HD enthusiasts who desire these
capabilities in their homes. As part of the company's connected home
vision, Motorola enables viewers to enjoy the functionality of digital
cable and HD, with products such as fully-integrated set-tops and media
center gateways that support both standard and high-definition
television signals.
Motorola's HDTV consumer equipment includes set-tops, which support
both standard- and high-definition television signals and allows
viewers to enjoy the functionality of digital cable and HD in a single,
cost-effective solution--enhancing their TV experience with seamless
surfing between analog TV channels, digital standard-definition
channels, off-air (local broadcast) HD programming carried by cable
operators. In addition to HDTV, some of our boxes are equipped with a
cable modem to support future IP and video-based interactivity,
including streaming media, IP and video telephony, file transfer
capability, and session-oriented gaming.
We also offer media center gateways which allow consumers to send
an array of advanced digital entertainment and communications
services--including HDTV and Personal Video Recorder--to any room of
the home when used with Motorola Broadband Media Center Extension
(BMCx) devices. By attaching a Motorola BMCx to TVs, stereo systems,
PCs, and other devices, consumers can network numerous electronic
products, and enjoy the sharing of data and video throughout their
homes. As you can see, moving all content to the digital environment
will bring immeasurable benefits to consumers.
technology can enable a date certain for digital transition and
preserve consumer choice
With approximately 70 percent of television viewers nationwide
receiving their content via cable, the efficient carriage of digital HD
content over cable systems is crucial to the successful, economical
rollout of HDTV services.
Accordingly, Motorola continues to help lead the DTV transition
through the development of a line of products that enable the simple
and efficient carriage of digital HD content over cable systems--making
it easier and even more efficient for broadcasters to offer HD
programming to viewers.
Building on a decade of experience in HD encoding technology,
Motorola also offers encoders that now incorporate techniques to
provide users with exceptional picture quality at bit rates far below
those originally anticipated. Using these new encoders, broadcasters
are able to combine additional standard-definition services with their
HD broadcasts, and cable programmers can transmit multiple HD streams
on existing transponders.
As you can see, we have been working to develop complex solutions
to deliver on the promise of the new technology that industry and
Congress envisioned would take shape in the digital TV environment. It
is an honor to be here with you today to discuss how digital-to-analog
converter technology can enable new services for consumers and first
responders when used as a tool to complete the transition. The right
decisions by the Congress can provide an aggressive and achievable
timetable by which the public can benefit from improved public safety
communications, new commercial services and new broadcast entertainment
services.
You are developing a solid record on the path forward to concluding
the transition. On June 2nd you heard about the FCC's DTV plan, and the
Committee leadership sent a strong message that the digital day was
beginning to dawn. Chairman Barton's proposal changed the debate, and
we would like to express our appreciation for his leadership and the
direction he is setting for the transition. This gives rise to the
subject of today's hearing.
Pursuing a model like that used in Berlin will inject needed
certainty into the US market for consumers, law enforcement, and
industry. By setting a firm date of no later than December 31, 2006,
you will enable all sectors of the industry and public safety to plan
for the deployment of beneficial technologies in the 700 MHz band. This
will spur all of the relevant stakeholders to quickly conclude this
transition in the best interests of the public.
We generally believe that government intervention in the
marketplace is to be avoided. However, in this case it is necessary to
correct an unintended market conflict that flows from the Telecom Act.
Setting a firm transition date is critical to resolve the current
chicken and egg conundrum of the DTV transition. As you know, doing so
will unlock new entertainment and information services for consumers
and will provide additional opportunities for American industry.
Chairman Upton, as you and Ranking Members Dingell and Markey noted
at the last hearing, another of the key benefits to concluding the DTV
transition as soon as possible is improved public safety communications
interoperability. Wireless communications provide our first responders
with the right information, at the right time and in the right place,
whether that information is voice, data, or video.
Public safety must have access to the 700 MHz spectrum by year-end
2006 to deploy interoperable voice and advanced data technology as
early as possible. This spectrum can literally save lives. Together, we
can improve the quality of mission critical information to our front
line responders. While 24 MHz of spectrum has been allocated to public
safety in the band, even more may be required to support homeland
security coordination among Federal, State & local agencies and
critical infrastructure entities.
Unfortunately, most metropolitan area public safety operations
cannot use this spectrum today, nor can they predict with any certainty
when they might have access to these frequencies. The 85% threshold
raises uncertainty. In reality, there is no ``hard date'' for ending
the DTV transition, leaving public safety and the deployment of vital
technology in limbo.
We are mindful of the other considerations that are involved in
clearing these channels, and we believe the adverse effects can be
mitigated. As you explore ways to resolve the transition, we are
encouraged by your examination of the Berlin experience where a crisp
analog cut-off date was achieved by deploying digital to analog
converter boxes to some analog TV owners who did not subscribe to cable
or satellite service. This intervention ensured a seamless change-over
for all TV consumers and protected every consumer's continued ability
to enjoy broadcast TV content. It is encouraging to note that the GAO
is expertly working with this body to assess the applicability of this
solution in the US.
While there are digital-to-analog converters on the market today,
they are generally targeted at the high-end, ``early adopters'' who
want to experience the benefits of new technology as soon as possible.
For example, Motorola has a high-end digital tuner box on the market
today that displays digital content on TV sets that otherwise could not
receive it, including conventional analog television. However, what is
required for the wider consumer market is a low cost device that will
allow TV viewers to continue to use their existing televisions. There
is currently no demand for such a mass market product because of the
uncertainty created by the 85% penetration loophole in the Telecom Act.
If Congress removes this uncertainty, there will be a clear market for
low cost converter boxes and manufacturers will have incentives to
produce them in quantities that drive down costs. Such boxes will
benefit consumers, not only by providing a low cost alternative for
continuing to view free over-the-air programming, but also by allowing
the public to access the multiple streams of content that broadcasters
can place on a digital channel.
To support the conclusion of the DTV transition, my team is
presently completing its cost analysis for an over-the-air digital-to-
analog converter that would facilitate a Berlin Model-type solution in
the US by 2007. Based on our analysis, the cost of such a device should
be well under $100. In fact, we anticipate placing on the record at the
FCC an estimated cost to retailers of $67 per unit, if the hard
transition date was set in early 2007. This technology solution would
facilitate an affordable implementation of a Berlin Model-type solution
in the US. Government subsidies for converter equipment and an
effective consumer education campaign informing the public about the
transition to digital television will ease the transition.
Manufacturers generally need 12-18 months to design and build a new
device such as this. This cycle time points to the need to enact DTV
transition legislation, if such a solution were part of the plan, by
mid-year next year to meet the 2007 goal without disruption. In
addition to providing those consumers who rely on over-the-air TV
delivery with a cost effective way to continue to do so, Motorola
believes the availability of a cost-effective converter box is another
tool to help recover spectrum for new services.
public safety needs 700 mhz spectrum for critical technologies
Motorola's partnership with the public safety community over the
years has taught us that first responders need systems designed
specifically for mission critical operations to get the job done. As
with most of the Northeast and Midwest, the State of Michigan was
confronted with a large-scale emergency during the August 2003
blackout. Despite the failures experienced by various commercial
carrier networks in Michigan and surrounding states due to these power
outages, Michigan's nearly 12,000 public safety radios experienced no
interruptions in communications. Police officers, firefighters and EMS
providers worked as a team in real time to serve the public. Michigan
had control over its communications because it had created a statewide
mission critical network designed specifically for catastrophic
situations and events, including the disruption of normal power
sources. While many public safety entities also use public carrier
networks for less critical communications, there is no substitute for
mission critical systems when the safety of first responders and the
public they serve is at risk.
Effective mission critical mobile and portable communications
systems are absolutely essential to public safety operations. Police
officers, firefighters, emergency medical personnel and their
departments use mobile and portable communications to exchange
information that can help protect public safety officials and the
citizens they serve. Traditionally, this information was mostly
exchanged by voice. Increasingly, as public safety entities strive to
increase efficiency and effectiveness in today's world, they also need
the capability to reliably transmit and receive high performance data,
still images and video . Spectrum is the road upon which such
communications travel, and increased communications requirements lead
to the need for more spectrum.
Based on a thorough justification of need, Congress and the Federal
Communications Commission dedicated 24 MHz of spectrum in the 700 MHz
band to State and local public safety in 1997. The FCC established
specific nationwide interoperability channels within this spectrum
allocation, as well as both narrowband and broadband channels to
support a variety of identified public safety communications
requirements.
However, seven years later, incumbent television stations operating
on channels 62, 63, 64, 65, 67, 68 and 69 prevent public safety access
to this essential resource in most major urban areas where the demand
for more spectrum is the greatest. The recent focus on increased
interoperability and Homeland Security make availability of this public
safety spectrum nationwide even more critical.
These channels are critical to public safety for two reasons:
(1) Together, the new 700 MHz and current 800 MHz bands provide the
best opportunity to integrate interoperable communications. The
700 MHz band's proximity to the 800 MHz band allows public
safety agencies to expand their current 800 MHz narrowband
voice and data systems for interoperability and regional
coordination on an ``intra'' as well as ``inter'' agency basis.
Equipment operating in these combined frequency bands on the
FCC-endorsed Project 25 interoperability standard is
commercially available today. The FCC has granted each state a
license to operate such narrowband communications in the 700
MHz band. Localities throughout the country are actively
engaged in spectrum planning at 700 MHz, a prerequisite for
obtaining their own FCC licenses. For example, after a yearlong
review by the FCC, the Southern California regional plan was
recently approved, but TV incumbency prevents actual use of the
spectrum in much of that area.
(2) 700 MHz is the only dedicated spectrum allocation where public
safety can implement advanced mobile wide area systems that
bring high-speed access to databases, the intranet, imaging and
video to first responders out in the field.
This technology offers a whole new level of mobile communications
capabilities, which is far beyond today's voice and low speed data
applications. For example:
a. An officer or agent could transmit video of a potential bomb, or
biological weapon and get real time counsel from an expert in
another location.
b. Local or state police could instantly send or receive a photograph
of a missing or abducted child.
c. Crime scene investigators can transmit live video of footprints,
fingerprints and evidence to speed analysis and apprehension of
perpetrators.
d. Firefighters can access building blueprints, hydrant locations
hazardous material data and other critical information.
e. Paramedics can transmit live video of the patient to doctors at the
hospital that would help save lives.
Motorola previously conducted wideband trials together with public
safety entities in Pinellas County, Florida and the City of Chicago,
and we are currently participating in the District of Columbia's
broadband trial. As to the Chicago trial, we greatly appreciate
Chairman Upton leading a delegation of Committee Members, including
Congressmen Bass, Rush, and Terry to participate in a demonstration
last year with the Chicago Police Department. Trials like this one
operate under experimental 700 MHz licenses from the FCC. The
capabilities demonstrated are the emerging powerful multi-media
applications that will bring public safety communications into the
Twenty-First Century.
We commend and encourage efforts by this Committee and the FCC to
ensure that this 700 MHz spectrum is cleared nationwide for public
safety and other uses. The reality is that only 75 stations, equally
less than 5% of this country's of the more than 1500 US television
stations are blocking improved public safety communications for 84% of
the population in the largest cities, those over 200,000. Motorola's
analysis of independent television industry data shows that, on
average, only 14% of the TV households who have the option to view
these stations actually do so at all, and that of those viewing, 82%
watch by cable. This means that, on average, only 3% of the TV
households within these stations' coverage areas actually tune to these
stations over-the-air sometime during an average week.
The Committee is also aware of an FCC plan that would complete the
analog to digital TV transition by January 1, 2009. We applaud the FCC
for taking the leadership and initiative to move the debate toward a
successful conclusion. While 2009 may be an appropriate date by which
all 1500 or more TV stations would complete the transition, the public
safety community has stated that its needs justify clearing the
stations blocking its channels by year-end 2006. At that time, public
safety will have waited almost ten years to access this spectrum.
Digital-to-analog converter box solutions could also be brought to bear
in this environment to preserve access to broadcast TV content for all
Americans.
We urge the Committee not to be deterred from sticking to the
December 31, 2006 goal because it has been hard to achieve to date.
Rather, once it has been reaffirmed without exceptions, the affected
parties, including the relevant government agencies, the public safety
community, the broadcasters and other industry parties, including our
company, should be called upon to devote our energies to making it
happen.
As you know, the 24 MHz of spectrum in the 700 MHz band is
allocated for State and local public safety use. That spectrum, if
cleared, would only partially satisfy the spectrum need documented by
the public safety community. No comparable spectrum allocation exists
for meeting the Homeland Security requirements of Federal agencies or
critical infrastructure entities. Such interoperability among State and
local first responders, Federal agencies and critical infrastructure
entities will best be achieved through the availability of comparable
spectrum resources. Therefore, we recommend that Congress consider
meeting these additional needs by reallocating the remaining 30 MHz of
commercial spectrum in the 747-762 MHz and 777-792 MHz portions of the
band which are presently targeted for auction. This spectrum should be
reallocated as a Homeland Security band to support State, local,
Federal and critical infrastructure (such a utilities and nuclear
facilities) communications needs. In the previous hearing, this
Committee also heard testimony from Mr. Robert LeGrande, Deputy Chief
Technology Officer for the District of Columbia Government. Mr.
LeGrande pointed out that a portion of this additional 700 MHz spectrum
is critical for broadband public safety services.
Should the government wish to pursue this important reallocation of
spectrum, anticipated auction revenue from this 700 MHz band spectrum
would no longer be available. However, we believe substitute spectrum
that could provide potentially stronger auction receipts can be
identified to replace this anticipated revenue and could be used to
support a Berlin Model-type subsidy solution domestically.
Motorola greatly appreciates this Committee's continued policy
thrust to find ways to reinvest spectrum auction revenues in ways to
advance technology deployment and economic development, whether it is
the Commercial Spectrum Enhancement Act that this body passed last year
and is under active consideration in the Senate, or the Chairman's
discussion of using auction revenue to help support the return of the
analog TV frequencies for other valuable services--including public
safety interoperability.
In closing, Mr. Chairman and Members of the Subcommittee, making
spectrum available for new innovative technologies to support first
responders and consumers nationwide by the end of 2006 will not happen
without your commitment and your help.
We respectfully urge the Congress to take action to conclude the
DTV transition we began together. We are proud of our technology
heritage in this space, and Motorola pledges its support to our
customers and to this Committee to help make this happen as smoothly as
possible. We feel strongly that an expeditious date certain, together
with digital-to-analog solutions like ours and those of the industry at
large, will provide a trifecta--a win for first responders, a win for
American consumers, and a win for industry.
Thank you.
Mr. Deal [presiding]. Thank you.
Mr. Snider.
STATEMENT OF JAMES H. SNIDER
Mr. Snider. Thank you, Mr. Chairman, for the opportunity to
testify about the freeing up 108 megahertz of the most valuable
natural resource of the information age, the public airways.
I believe there's a consensus about two points on this
committee and that is first, that it is desirable to free up as
quickly as possible those 108 megahertz and that second, we
want to do so in such a way that those relying on analog TV
sets are not disenfranchised.
To pursue this goal there are two types of means, the means
that we've employed for the last 15 years in the United States
is what I call the producer subsidy model. The alternative
represented by Berlin is the consumer subsidy model and I'm
going to devote my comments to contrasting those two
approaches.
The consumer subsidy model directly addresses the problem
that is the bottleneck for the DTV transition which is the
consumers that have analog TV sets. The producer subsidy model
attempts to deal with that problem indirectly and is a far less
efficient, in my view, method to incentivize the transition. As
an example, if I want to get my daughter to clean up her room
and do chores, I can give her a direct incentive or I could
perhaps bribe all her friends not to distract her. I could
bribe her not to watch TV and use the family car and I could
hope that her sister who is manically clean will at some point
just clean up because she doesn't like the mess. Clearly, the
more efficient method is to give my daughter the direct
incentive.
Berlin is a case in point and in 18 months they did the
transition and they did it on a per capita cost at a tiny
fraction of the U.S. transition. There are producer subsidies
in the Berlin, don't get me wrong, but the cost per capita is a
tiny fraction of the producer subsidies we're employing in the
United States. So just a sample of some of the producer
subsidies that we have given over the last 15 years to speed
the transition, the biggest one has been spectrum flexibility.
Originally broadcasters had a right to provide one standard
definition TV channel as a result of this transition. They have
the right to provide numerous standard definition TV channels
or multiple high definition channels and data services.
They got a free spectrum loan, indefinite time to return to
spectrum which gives them incredible negotiating leverage to
get additional producer subsidies which is one of the reasons
we're here today, a very valuable benefit. They won the rights
to provide pay TV service. They only have to provide one free
analog TV channel. With current compression technology, they
get 19.4 megabits a second. You can get a standard definition
TV channel now in 1.5 megabits a second. More than 90 percent
of their spectrum now can be used for pay TV service. That's an
extraordinary change. The DTV tutor mandate requiring every
American and every TV to provide a broadcast TV tuner even
though more than 85 percent rely on other means, cable and
satellite being the most notable, to receive their TV.
Larger geographic areas, the larger the geographic area,
the more eyeballs revenue and ultimately subscription revenue
the broadcasters have used the transition to secure large
geographic areas. Digital TV allows you to use more of the
guardbands and they are doing so.
Better spectrum. They've moved from UHF spectrum, high UHF
to lower spectrum which is far more valuable spectrum as a
result of this transition. And that's just a subset of the
producer subsidies. And there are many on the table going
forward to so-call speed the transition.
Has this been a success? No. I would say it's been an
abject failure, all these producer subsidies. A, look at the
United States at the relative penetration of DTV via broadcast
versus cable, satellite, broadband, DVD, all those DTV
transitions have progressed very rapidly and far more
successfully without a subsidy. We have less than 2 percent
penetration of broadcast DTV in the United States. More than 40
percent, 8 percent penetration with all these other DTV formats
and with no producer subsidies. I think that speaks volumes.
Internationally, England is actually the great case. They
have 1200 percent more broadcast DTV penetration in England
without any producer subsidies or minimal producer subsidies,
plus they have greater DTV penetration in cable and satellite,
again, without DTV transitions. So the DTV transition has not
at all been speeded up with all these subsidies. England is a
great case for that argument.
Now, I don't want to say that the producer subsidy model is
the sole reason for the failure of the DTV transition. One of
the big problems is we chose an inferior DTV standard in the
United States as opposed to Europe. In Europe, they emphasize
choice and mobility in their DTV standard. In the United
States, we emphasize pretty pictures. The proof is that four
countries have, the last I checked, have adopted the ATSC or
the USDTV standard. Thirty-six countries have adopted the
European DTV standard.
Now in phase two, they will have more like European choice
and mobility emphasis with the U.S. standard and conversely, in
Europe, in phase two, they will have more high definition.
So now let's go to the consumer subsidy model which is the
heart of my comment here. The key element is how do you finance
the DTV sets. My preferred approach would be to revoke the
tuner mandate because you're requiring 85 percent of the people
who don't even want to watch broadcast TV to buy a tuner set
which is a very inefficient mode to speed this up. But the
proposal that I would like to focus on is auction receipts
because that is the most politically feasible approach.
So revenue,the going rate for spectrum today is about $500
million per megahertz. That's down about 60 percent for the
peak in 2001 with the Next Wave auction. Verification or
backing for that number is recently, for example, Verizon
offered a minimum opening bid of $5 billion on the 10
megahertz, 1.9 gigahertz band. And the FCC in the last few
weeks has endorsed that number by coming up with the Nextel
swap that they estimated at $4.8 billion for that 10 megahertz
and there's quite a bit of other backing now for that number as
a reasonable rate for unencumbered beachfront spectrum.
So if you have 108 megahertz and you multiply it by $500
million in megahertz, you get $54 billion. Now we're not
assuming that all of that is going to be auctioned. We want to
take some of it off for public safety. A little of it has
already been auctioned, but we're talking about many billions
of dollars.
On the cost side, in a recent cable TV show they were
showing cable converter set top boxes for as low as $35. Using
$50 which APTS and the FCC and various forums have used, if you
bought a converter box for all 110 million American households
that's a little over $5 billion. If you just provide converter
boxes to low-income people dependent on over-the-air TV, you're
talking about maybe $8 million, a total cost of $400 million,
which is still much greater than what they did in Berlin
because they focused only narrowly on low income. This is a low
and middle income converter box subsidy that I'm proposing.
The bottom line is the economic analysis is overwhelmingly
favorable in terms of return on investment for a consumer
converter box subsidy. It's a very robust analysis. Even if the
selling price is a third of the current market rate, and even
if you auctioned less than a third of the spectrum, you still
end up with a tremendous return on investment.
Now we argue that we also, we have enough money that we can
fund the APTS Broadcast Trust Fund and also the dual proposal
with those fees.
So what is the--I'd like to focus on----
Mr. Deal. Mr. Snider, I'm going to have to ask you to wrap
it up. You're about 3\1/2\ minutes over.
Mr. Snider. Okay. One critical difference between the U.S.
and the Berlin one is in Berlin they were able to give digital
flexibility as part of the transition. We've already given away
that carrot, so we have to come up with a new carrot and the
one on the table is must carry is the most--that's a real
significant difference. Also, they were willing to just focus
on low-income consumers for the converter box subsidy in
Berlin. The focus in the United States has been we need to
protect everybody or a larger segment of the population than
just the low income people.
For more details, I have a detailed issue brief that we've
submitted as an appendix to our testimony and I would encourage
you to look at that for the details of our proposal. Thank you
for this opportunity.
[The prepared statement of James H. Snider follows:]
Prepared Statement of J.H. Snider, Senior Research Fellow, Spectrum
Policy Program, New America Foundation
Good morning. My name is Jim Snider, and I'm a senior research
fellow at the New America Foundation, a nonpartisan public policy
institute here in Washington. Thank you, Mr. Chairman and members of
the Subcommittee, for this opportunity to testify today. My comments
will focus on the difference between the Berlin and U.S. models for
speeding the broadcasters' DTV transition while also ensuring that no
American loses access to ``free'' over-the-air programming. Please see
Appendix A, a New America Foundation issue brief co-authored by myself
and Michael Calabrese, for a more detailed discussion of this proposal.
There is a general consensus that rapidly completing the
broadcasters' digital TV transition--thereby freeing up 108 MHz of
``beachfront'' spectrum corresponding to TV channels 52-to-69--is in
the public interest. There is also a general consensus that this
transition cannot come at the expense of large numbers of Americans
losing access to ``free'' over-the-air TV. The debate centers on the
best means to achieve these two ends: continuing the present producer
subsidy model or shifting to the consumer subsidy model illustrated by
Berlin.
We believe that the Berlin experience teaches us that the direct
consumer subsidy model is a faster and more efficient way to speed the
broadcasters' DTV transition than the indirect producer subsidy model
employed in the United States. In Berlin, the broadcasters' DTV
transition took a total of 18 months and was completed at a cost per
capita to taxpayers and consumers only a tiny fraction of the lagging
transition in the United States.
The underlying reason the consumer subsidy model has proven to be
so much more efficient is that it directly addresses the problem that
is slowing the broadcasters' DTV transition: the slow rate of consumer
purchase of devices that can receive broadcast DTV signals over-the-
air. The producer subsidy model, in contrast, only indirectly deals
with that problem. The difference is a bit like encouraging my teenage
daughter to finish her chores not by offering her a simple and direct
bonus for doing so but by paying all her friends not to distract her,
bribing her not to watch TV or use my car, and granting her numerous
extensions in the hope that her younger sister, who is compulsively
clean, will do the job for her. The complex, indirect approach may
indeed get the chores done but not without huge waste.
the producer subsidy model
During the past 15 years, local TV broadcasters have lobbied for
and won a myriad of government subsidies to speed America's transition
to digital TV services. The most valuable of these subsidies include:
``Spectrum Flexibility''--Converting an FCC license with the right
to provide one standard definition TV programming stream into a license
to transmit ten or more standard definition TV programming streams or
other data services, including HDTV.1
---------------------------------------------------------------------------
\1\ With current video compression standards such as Windows Media
Player 9 and MPEG4, a standard definition TV signal can be compressed
into 1.5mbps. The broadcast DTV stream is 19.4 mbps, suggesting that 13
standard definition TV signals could be carried over that data stream.
RealNetworks, Inc., distributor of the popular RealPlayer, claims to
have video compression software that can compress an HDTV signal into 5
mbps, suggesting the 19.4 mbps data stream could carry three HDTV
signals, with data to spare.
---------------------------------------------------------------------------
``Free Spectrum Loan''--An indefinite, interest-free loan to
existing broadcast TV licensees of a second 6 MHz channel with no fixed
termination date.
``Pay TV over Public Airwaves''--Rights to use as much as 90% of
the 6 MHz DTV channel for pay TV or other pay data services, the
revenue from which is supposed to subsidize ad-supported (``free'')
broadcast DTV services (subject to a 5 percent ancillary service fee to
the government).
``DTV Tuner Mandate''--Last year the FCC adopted a terrestrial,
broadcast over-the-air tuner mandate--which began phasing in on July 1
of this year (for high end TVs) and applies to all new sets by July
2007--requiring manufacturers to produce TVs with a built-in tuner,
even though the vast majority of TVs will receive their TV programming
via cable, satellite, Internet, or DVD.
``Broadcast Flag''--A requirement that the sphere of free TV be
potentially restricted by requiring consumer electronics devices to
recognize a ``broadcast flag,'' which prevents retransmission of an FCC
licensed broadcast signal without the permission of the broadcaster.
``More eyeballs''--Expanded geographic and household coverage for
existing TV licenses rather than allowing ``white space'' to be
auctioned or otherwise used by a potential competitor.2
---------------------------------------------------------------------------
\2\ In the average TV market, more than 80% of spectrum is set
aside as guard band spectrum, the type of ``white space'' referred to
here. Digital technology allows for a reduction in guard band spectrum.
Some of that spectrum has been allocated for migrating channels 52-69
to 2-51; some of the balance has been allocated to increase the
coverage areas for incumbent TV stations, especially UHF stations.
---------------------------------------------------------------------------
``Sales Tax Exemption''--A sales tax exemption in more than a dozen
states on all equipment purchased for broadcast studios. (The exemption
is only for DTV equipment but there is little analog equipment now
being purchased).
The abject failure of the producer subsidy model is illustrated
both domestically and internationally. In the U.S, non-broadcasters
have led the DTV transition both in terms of penetration and
innovation. Figure 1 shows the relative U.S. penetration of broadcast
DTV and other forms of DTV, including satellite DTV, cable DTV,
broadband DTV, and DVD DTV. Despite all its subsidies and early start,
broadcast DTV represents only a tiny fraction of the total DTV market.
Internationally, consider the case of England, shown in Table 1.
British broadcasters were given minimal subsidies, yet the rate of
broadcast DTV uptake is more than 1,200% (12 times) higher than in the
U.S. Moreover, the DTV transitions over satellite and cable have
progressed at virtually the same rate in the U.S. and England. Total
DTV penetration, including cable, satellite, and broadcast DTV, is 20%
higher in England.
Table 1: Digital TV Transition Rates in England vs. U.S.
----------------------------------------------------------------------------------------------------------------
Digital Terrestrial Digital Satellite
(% of all Digital Cable (% of (% of all Total Digital (% of
Households) all Households) Households) all Households)
----------------------------------------------------------------------------------------------------------------
U.K......................... 12% 9% 29% 50%
U.S......................... 1.1% 20.8% 19% 41%
----------------------------------------------------------------------------------------------------------------
Admittedly, the failure of the producer subsidy model in the U.S.
may be influenced by a number of factors having nothing to with the
intrinsic problems of producer subsidies. In particular, the U.S.
adopted a broadcast DTV standard that is inferior in crucial respects
to the one adopted in both England and Berlin. In Europe, a decision
was made that consumers most wanted choice and mobility from an
enhanced broadcast TV service, not high resolution pictures, so the DTV
transition was focused on providing enhanced choice and mobility, with
HDTV left for a future upgrade. The wisdom of that approach is
illustrated by the fact that only four countries have adopted the U.S.
broadcast DTV standard while 36 have adopted the standard used in
England and Berlin. It is also illustrated by the fact that the
broadcasters themselves are actively seeking to modify their standard
so that it can better compete with the type of technology used in
England and Berlin.
Another factor may be that the level of marketplace competition is
higher in England and Berlin. Neither market provides commercial
broadcasters with the same degree of must-carry rights, yet
broadcasters must compete with more than a hundred channels offered via
satellite. The result of the U.S. must-carry rights--the government
guaranteeing broadcasters free distribution into the viewer's living
room--is that U.S. broadcasters may have less incentive to innovate.
the consumer subsidy model
We propose that the consumer subsidy model be paid for via one of
three methods: Auction receipts, leasing receipts, or repeal of the
broadcaster only tuner mandate. From an economic standpoint, repeal of
the tuner mandate would probably maximize consumer welfare. But from a
political standpoint, an auction is most feasible, so my comments here
will focus on that proposal.
Let's start with potential auction receipts. The going rate for
unencumbered beachfront spectrum in the United States is approximately
$500 million/MHz,3 down about 60% from its peak in 2000 and
2001.4 That suggests that if all 108 MHz of returned
spectrum were auctioned--an outcome we neither expect nor desire--the
auction receipts would be $54 billion. Note that 24 MHz of the returned
spectrum has been promised for public safety and another sliver has
already been auctioned, albeit without the goal of maximizing auction
receipts. If only a third of the returned spectrum were auctioned to
maximize receipts, and it, in turn, generated less than a third of the
expected market price, the receipts would still be over $5 billion.
---------------------------------------------------------------------------
\3\ The $/MHz metric applies to the value of one megahertz of
spectrum with national coverage. A more conventional measure of
spectrum value for the investment community is $/MHz-pop, the value of
one megahertz per person. Translated into this metric, the $500/MHz
figure suggests a valuation of approximately $1.50 to $2.00/MHz-pop.
Most auctions are either not designed to maximize revenue (e.g., the
lower 700 MHz auction) or do not offer beachfront, lower frequency
spectrum (e.g., the proposed 24 GHz auction).
\4\ The 2001 Nextwave auction brought in bids totaling more than
$16 billion, or $1.2 billion/MHz. The high bidders tended to be very
savvy telecommunications companies such as Verizon and Sprint. Recent
bids by these same companies have been substantially lower. For
example, Verizon recently offered $5 billion as the opening bid for 10
MHz of spectrum at 1.9 GHz, providing a valuation of $500 million/MHz.
This month the FCC confirmed that valuation with its Nextel compromise
proposal valued at $4.8 billion for the same 10 MHz of spectrum.
---------------------------------------------------------------------------
Now let's look at the cost of the consumer subsidy.5
Digital to analog converters, which allow analog TV sets to receiver
broadcast digital signals over-the-air, were demonstrated last month at
a cable show for as low as $35 a converter box. But for the sake of
argument, let us use $50/converter box, a figure used by the FCC and
the Association of Public Television Stations. If all 108 million TV
households were mailed one of these cigarette box sized converters, the
cost would be approximately $5.4 billion or 10% of the market value of
the returned spectrum. If a converter box subsidy were only provided to
low-income households exclusively dependent on over-the-air TV--the
only type of household that received such a subsidy in Berlin--the
number of households requiring a converter box subsidy would be under 8
million, with a total cost of $400 million.
---------------------------------------------------------------------------
\5\ The accompanying policy analysis in Appendix A uses a slightly
different set of numbers based on the information available when it was
written.
---------------------------------------------------------------------------
We thus conclude that if strictly financial concerns dominate the
analysis, the consumer subsidy model offers an outstanding return on
investment. Moreover, this economic analysis is so robust that it comes
to the same conclusion even when the most unfavorable assumptions are
used: 110 million households, rather than 8 million, need the converter
box subsidy; the auction price is only a third of the current market
price of $500 million/MHz; and only a third of the 108 MHz returned
spectrum is auctioned to maximize receipts.
Indeed, the economic analysis of the consumer subsidy model is so
favorable that we feel no hesitancy in endorsing both the APTS and DOIT
proposals to earmark a portion of spectrum auction revenue for
investment in the future of public television and digital education.
These proposals address the distinctive market failures of the digital
age, so it is appropriate that receipts from auctioning the most
valuable natural resource of the information age, the public airwaves,
be earmarked to address that market failure.
We also believe that 42 MHz of the 108 MHz of returned spectrum
should be set aside for unlicensed service. This figure was derived by
deducting the 24 MHz allocated for public safety and then splitting the
difference between licensed and unlicensed service. In recent years,
unlicensed service has been at the heart of spectrum innovation and
investment. Already, American families own far more unlicensed than
licensed devices. But only about 1% of spectrum below 1 GHz--the
beachfront spectrum--is currently allocated to unlicensed service on a
dedicated basis. To bring the next generation of broadband Internet
services most economically to America, we believe more lower frequency
spectrum needs to be allocated as unlicensed. For the details on this
argument, please see Appendix B, a New America Foundation issue brief
written by MIT economist William Lehr.
political differences between the berlin and u.s. situations
I'd like to highlight two critical political differences between
the U.S. and Berlin DTV transitions.
First, in regard to producer subsidies, U.S. broadcasters have
already been given spectrum flexibility, whereas in Berlin this subsidy
could be provided to the broadcasters to win their political support.
The consequence is that in the U.S. a new producer subsidy will
probably have to be provided to get the broadcasters to return their
indefinitely loaned spectrum. The producer subsidy most often cited is
digital multicasting must-carry.
Second, in regard to consumer subsidies, Berlin demonstrated less
concern about middle- and upper-class consumers who lost use of their
analog TV sets as a result of broadcasters' shift to digital TV. The
Berlin converter box subsidy was directed solely to low income
individuals. In the U.S., broadcasters and policymakers have expressed
greater concern about any individual, regardless of income, losing
analog TV functionality as a result of the DTV transition.
These two political considerations suggest that both producer and
consumer subsidies are likely to be substantially larger for the U.S.
than in Berlin. It's not my expertise to advise members of Congress on
the political consequences of turning off analog broadcast TV. But
there are a few considerations I hope members of Congress will keep in
mind.
The public has ample experience with technological obsolescence.
For example, a comparable number of Americans own TVs and computers.
Despite the fact that computers are more expensive than TVs and become
obsolete more frequently, the public has come to understand this
obsolescence as the price of progress. In Berlin, there was minimal
public outcry as a result of the government-mandated shutdown of analog
service. Perhaps we should reconsider the price of viewing a five-year-
old computer as a doorstop but a 20-year-old TV as a public good.
Lastly, the timing of any additional producer subsidies is
critical. Any future producer subsidies should be timed to coincide
with or follow the return of the loaned 108 MHz of spectrum. Otherwise,
as the history of the first fifteen years of the broadcast DTV
transition illustrates, the public compensation for the returned
spectrum may be renegotiated, reduced, and perhaps even eliminated by
the time payment is supposed to be made.
conclusion
This subcommittee can best serve the public interest by adopting a
modified version of the Berlin DTV transition plan that includes the
following highlights from the New America Foundation's detailed
transition plan contained in Appendix A.
Fixed Turn-off Date: Announce a January 1, 2008 deadline (at the
latest) for analog turn-off and spectrum clearance.
Consumer Converter Subsidy: Using a fraction of auction revenues,
authorize a refundable tax credit available to consumers during a 12-
month period to offset the cost of converting from analog to DTV
reception.
Consumer Choice: Give consumers the flexibility to apply the credit
to a digital-to-analog converter box, a new DTV set, or for initial
satellite dish or cable set-up costs.
Revoke the DTV ``Tuner Tax'': Reverse the FCC's 2003 DTV tuner
mandate, which seeks to reach the statutory 85% DTV threshold by
requiring manufacturers to integrate over-the-air digital reception in
every set over 13 inches by 2007--increasing the cost to consumers by
over $1 billion annually--despite the fact that 85% of consumers who
receive TV by cable or satellite may not need or want a broadcast over-
the-air tuner.
Spectrum Reallocation for both Unlicensed and Licensed Wireless: In
addition to the 24 MHz allocated for public safety, divide the
remaining 84 MHz equally for use by licensed and unlicensed wireless
broadband providers.
Update the DTV Public Interest Obligations: In return for the many
new subsidies broadcasters have received in recent years--often with
the express intent to preserve and enhance the public's access to local
civic and electoral information--the obligations of broadcasters should
be extended to all ``free'' over-the-air programming streams and
quantified to include the lesser each week of 3 hours or 3 percent of
programming time (half of this in prime time) of local civic and
electoral programming.
Earmark Spectrum Revenue to Capitalize a PBS trust and DOIT: A
portion of the spectrum auction revenue should be earmarked for
investment in the future of public television and digital education.
Thank you again for this opportunity to testify. I will be most
happy to respond to any questions or to assist staff as the Committee
develops its own solution to the difficult problem of 1) reclaiming
spectrum for 21st century information services, without 2) harming
those still possessing the information technology of the last century.
[Additional material submitted is retained in subcommittee files.)
Mr. Deal. Thank you. I want to thank all the panel members.
It's certainly been an interesting panel and a variety of
opinions have been expressed. Certainly, some of these we have
heard before. Some, we have not.
Let me just across the board with the panel, ask you one
general question and without getting into the details of the
dates and the structure of a subsidy which we've heard some
details in your comments, without getting into those details,
do you, each of you, do you believe that Congress should
expedite the DTV transition by setting a hard deadline.
I guess a yes or no, if you possibly could to that
response.
We'll start over here, Mr. Goldstein.
Mr. Goldstein. Congressman, from our perspective, it's
really a policy issue for the Congress. What we can tell you is
what we found in Germany which is that it clearly did help in
the Berlin scenario and quite frankly in the other areas, the
other islands in Germany, the simulcast period and the date
certain, the amount of time between the beginning and the ends
of the periods are likely to be shorter, even than it was in
Berlin.
Mr. Deal. Mr. Cooper.
Mr. Cooper. I guess the answer is yes, but and there's lots
of buts. We've outlined in our testimony. The point of the
transition is not to get there, but to make sure you end up in
the right place. And one of the buts I didn't get a chance to
mention was a la carte choice. We think that ought to be
wrapped in here.
Mr. Deal. Strange you should mention it.
Mr. Cooper. It just popped into my head when you moved to
the chair. So that this can be in the public and citizen and
consumer interest. But it has not been well managed. It was
just a pure giveaway 10 years ago. It hasn't worked and now we
have a chance to really establish the policy goals we want, so
do it as fast as you can, but make sure you end up in the right
place.
Mr. Deal. Mr. Schmidt?
Mr. Schmidt. I don't believe that NAB or MSTV has taken a
position on a hard date yet, but I think the same issues,
similar to what Mr. Cooper, Dr. Cooper was talking about. At
some point, you're going to have to draw a line. Where you draw
that line really matters and what you do before then really
matters. And if you can do things that will mitigate the
expense and the dislocation and confusion for the viewers,
obviously, our concerns are mitigated as well, but it really
matters what happens before you get to that date. And just
setting a hard now without taking those extra steps is going to
be catastrophic.
Mr. Deal. Mr. Willner?
Mr. Willner. I for one am really prepared to move forward
with the digital transition. I think the Nation could be moving
forward with digital transition as early as the date that's
already set. So I'd be prepared to say yes. As a New Yorker and
a witness to September 11 and I know some of the uses being
contemplated for those frequencies, I would encourage this
committee and Congress to move along as quickly as they can.
Mr. Deal. Mr. Lawson?
Mr. Lawson. I would agree with Mr. Schmidt. A hard date, by
itself, without the other conditions in place will be a
catastrophe. Second, I think it would be unwise to impose a
uniform national hard date. I think we have to look at
conditions in different markets. And third, Public Television's
offer is that against any reasonable hard date, under right
conditions, we will voluntarily free up spectrum early.
Mr. Deal. Mr. Hartenstein?
Mr. Hartenstein. I think an unequivocal yes is the right
answer for all the reasons of getting the spectrum back, but it
has to be reduced to something very simple that first of all
consumers can understand what yes means and when that date is
it means, what's it going to mean to them.
This is an amazing economy. This is an amazing industry.
But a yes with the correct provisos that say what will happen,
who has to carry what is, I would urge this committee and the
Congress to put a complete answer together so that everyone
understands what it means. The manufacturers, the distributors,
the broadcasters, all need to make preparations for that.
So I think the elements are all on the table here and we
stand, I think all of us stand ready to have the debate that's
associated with it and let's move on. We are behind, as you
look at other countries, in doing this and we ought to take a
leadership role.
Mr. Deal. Mr. McGrath?
Mr. McGrath. I would say absolutely yes. There are many
challenges. The technology is ready to help resolve those
challenges. A quick focus on a date will get the dialog focused
and those challenges can be solved very quickly.
Mr. Deal. Mr. Snider.
Mr. Snider. Yes, absolutely, with one caveat. The 2009 FCC
plan date is too late. Berlin took a total of 18 months from
the time the parties came to agreement to when it was done and
the simulcast period was 9 months for the next set of
transitions. It's now even been reduced to 6 months. We don't
need to wait so long to get to that hard date.
Mr. Deal. I think there's general agreement that we
certainly need to move with some deliberate speed in that
direction. Obviously, I think if I asked you all what would be
the actual transition date in the absence of a hard date
without all the contingencies that are currently attached to
the date we've established, we probably would be all over the
spectrum in terms of your estimation of when that date would
be, but I would--let me just ask it this way then. Do any of
you think that we will reach the target date now that it's set
of 2006 without some additional action by Congress to
facilitate that? Does anybody think we'll do that? I don't see
anybody saying so.
Well, all of you have touched on a variety of things that
we could do to expedite it and I would like to ask just very
briefly, Mr. McGrath, I believe you said that the unit that you
were talking about would be a $67 price per unit.
Mr. Snider, is that in the range of what you estimated the
cost of the device to be?
Mr. Snider. Yes. I'd just like to bring this committee's
attention to a report that NAB and MSTV did in 2001 on the DTV
tuner cost. They estimated over 5 years that the cost of those
tuners would decline from $200 to roughly $10 because of
learning curve and manufacturing. If you apply, these are
computer devices, any type of analogous learning and production
curve, even if they are $70 today and as I mentioned the
company came out with the $35 converter at the recent cable
show, we're talking about clearly a decline in cost, whatever
it might be at this time.
Mr. Deal. Mr. Willner, what would be price range of the
device you're talking about there?
Mr. Willner. Our view is that--this particular device was
over $100. There are different models in Germany, but our view
is that in the mass market with CD manufacturers competing for
the marketplace in a retail model that the price could be as
low as what Mr. Snider said originally which was between $35
and $50.
Mr. McGrath. And I guess I would just add that any
benchmark cost or price in the marketplace, I No. 1 absolutely
believe that the competitive marketplace will meet or beat $67.
And I intend to be a player in that market, but this is
achievable. I just remind you that a 50 kilowatt analog voice
modem still costs you over $50 at Wal-Mart.
Mr. Deal. But if that 110 million households is the target,
obviously, the magnitude of the target tends to bring the cost
of the box down.
Mr. McGrath. I would absolutely agree. Our targets are on
the much lower end of that, maybe a lower $8 to $10 million
type of number and if this gets into the multi tens of millions
certainly costs will come down faster. Learning curve here is
the key. Get it started and get down the price learning curve.
Mr. Schmidt. Mr. Chairman, if I might add one note,
however, one party that's not at this table is the receiver
manufacturers.
Mr. Deal. Yes.
Mr. Schmidt. And you can see the difficulties presented by
putting a hard date on--I don't know what their time table is
on putting these things in the sets, but if you put a hard date
on any of the dates that these gentlemen are talking about, it
seems to me it's going to be incumbent upon the retailers to
put a sticker on each of those sets that says this DV will not
work after January 1, 2007, unless you have an extra $50, $100
box or subscribe to cable or satellite. I'm not sure what that
means for their sales, but I suspect it will not help them.
Mr. Deal. Well, we have had manufacturer representatives in
previous hearings and I think your point is well taken. And one
of the concerns I think I have and I'm sure others is that
every time we let somebody buy a television set or not let
them, but every time they buy a television set voluntarily in
this country that is not equipped to make the transition, your
point is correct, is that they made an investment for which
they will have to make an additional investment if they're
going to move into the transition stage.
Mr. Schmidt. And I think we're going to see another 20
million analog sets sold this year.
Mr. Deal. That is a lot. I've used way beyond my time and
I'm borrowing the chair, so I don't want to abuse my time.
We'll get back to some of you.
Mr. Boucher, I'll go to you.
Mr. Boucher. Thank you, Mr. Chairman, and I want to thank
each of the witnesses for sharing their very interesting views
with us today on what I think is a timely subject, but one that
is fraught with a certain amount of uncertainty and I think our
witnesses have underscored the degree of uncertainty that
attends the question of whether or not the Berlin experience
would translate well into the United States.
Mr. Schmidt, let me ask a couple of questions of you. Your
testimony reveals some very interesting figures which I think
perhaps bear underscoring. Let me start by just asking a basic
question and that is do you agree that the owners of analog
sets should be held completely harmless if we set a hard date
for the termination of analog over-the-air transmission?
Mr. Schmidt. Yes.
Mr. Boucher. And by holding them completely harmless, that
means that they should not have to incur any cost in keeping
their analog television set functioning in a totally digital
era, is that correct?
Mr. Schmidt. I think we share that interest.
Mr. Boucher. And so you would say then that the means test
that was employed in Berlin where the only people who got a
government subsidy for the purchase of a converter box to
convert digital to analog signals for their sets were the ones
eligible for welfare. You would agree that we should not use
that kind of model in the United States.
Mr. Schmidt. I agree.
Mr. Boucher. And so whatever subsidy we provide should be
provided uniformly to whoever owns an analog set, is that
correct?
Mr. Schmidt. That's correct. I think also competition
policy would support that as well, because you don't want that
extra stickiness from people switching providers by the fact
that they not only have to go through the difficulties of
switching, but now getting another box if they want to switch
back to over-the-air.
Mr. Boucher. Another matter that you mentioned in your
testimony was the approximate number of television sets that
are not connected either to cable or satellite and therefore
depend upon over-the-air transmission and I think you pegged
that number at something on the order of 45 million.
How reliable do you think that estimate is?
Mr. Schmidt. Well, we've done some studies. I don't think
anybody has a firm grip on it, but it's--we know it's a very
big number, much bigger than the number that are exclusively
the household of 15 percent number. That number is pretty good
because these guys keep track of their subscribers, but the
other number is less clear, but I think if anything, I suspect
it's conservative.
Mr. Boucher. And included in that larger number would be
the homes where one or more television sets would be connected
to either cable or satellite, but where there are other
television sets in the house that are not connected to cable or
satellite and therefore depend upon over-the-air delivery, is
that correct?
Mr. Schmidt. That's correct. I believe there are also other
devices such as video recorders that also have over-the-air
tuners that would be disabled, that are not even included in
that count.
Mr. Boucher. So the number of sets that we would have to
take into account, if there were some kind of government
subsidy to purchase converter boxes and we've agreed at least
the two of us have that every consumer who has an analog set
should be eligible equally for this subsidy would be on the
order of 45 million sets.
Now does every one of those sets require a separate
converter box?
Mr. Schmidt. At this point they would. And even though this
box is small, a lot of those sets are not very large and this
box might be kind of unwieldy to have on a TV that you say took
to a football game or carried around otherwise. I mean there's
going to be some breakage here, no matter what, but I think
you're generally talking about sets that are not the high end
set in the household and to have a $50, even a $50 proposition
on a $75 TV is not a very consumer-friendly proposition.
Mr. Boucher. Well, I just did some rough math here. The
approximate price of the converter box today is $150. That's
about what it was in Berlin. I understand that's about what the
typical device sells for in the United States. If you multiply
that number times the 45 millon sets to which one of these
would have to be attached, you get a figure of approximately $7
billion. Now discounting the price of the box to $100 a box,
you would get $4.5 billion which would be the cost of providing
this subsidy which is considerable.
And I have heard that the low end of the estimate, in terms
of what revenues the government would receive as we auction a
portion of the analog spectrum would be approximately $4
billion. Now I heard with interest Mr. Snider's comments that
he anticipates a far higher sum. But I think he's anticipating
that we will auction a principal portion of the 108 megahertz
of the analog spectrum that would be returned. Some substantial
portion of that will be devoted to public safety. Some
substantial portion I hope and I know others hope will be
devoted to unlicensed uses and so we may wind up auctioning
only approximately half of that spectrum and the estimate I've
seen at the low end is $4 billion. By that number, we might not
even realize enough from the total receipts from the government
from the analog spectrum auction to finance the $4.5 billion
cost of subsidizing converter boxes.
Now my numbers may be low and I'll readily concede that,
but others' estimates may be high and we're frankly dealing
with something that we really can't estimate with any
proficiency. What we have learned over the years is that every
time we try to estimate the receipts from a public auction of
spectrum, we're always wrong, sometimes on the high side,
sometimes on the low side, but we're normally fairly
dramatically wrong. And so before we head off into a
legislative effort here, based upon assumptions that are
hopeful, but perhaps inaccurate, I think we need to have a
realistic view of what these costs potentially could be and the
fact that we may not have enough receipts from the spectrum
auction to satisfy the subsidy to 45 million television sets.
I want to say thank you once again to each of these
witnesses and thank you, Mr. Chairman, for your indulgence.
Mr. Upton. Mr. Shimkus.
Mr. Shimkus. Thank you, Mr. Chairman. As you know, you and
I have been at different meetings and stuff, and so let me--
something just popped into my head. Again, the great debate, a
lot of friends at the table, answer me this question. Can you
provide, okay, my opening statement mentioned in interest to
the German model about over-the-air broadcast and maybe a
little more spectrum so they can what I'll say is send more
programs. And many times during this subcommittee, I've asked
the question, I guess I'll start with that. Is free over-the-
air TV still in the national interest and should be public
policy of the United States of America? And I can exempt the
GAO guy since he's the Accountability Office.
But why don't we go from the far left? Is free over-the-air
TV still--to have that still in the public interest, yes or no?
Mr. Cooper. Yes, but----
Mr. Shimkus. That's fine.
Mr. Cooper. Can I do that again?
Mr. Shimkus. I really have limited time and if we can go
yes or no, then I can move on. That's what I got last time.
Next?
Mr. Cooper. One sentence on the but.
Mr. Shimkus. Okay.
Mr. Cooper. The but is in my testimony I described one of
the essential characteristics of why we wanted free over-the-
air TV as a manner of speech.
Mr. Shimkus. That's one sentence.
Mr. Cooper. That's what we have to get back to and I
believe unlicensed can fill a substantial part of that
objective.
Mr. Shimkus. Mr. Schmidt?
Mr. Schmidt. Yes, no buts.
Mr. Shimkus. Mr. Willner?
Mr. Willner. Yes, I do believe there is a place.
Mr. Shimkus. Yes, thank you. Mr. Lawson.
Mr. Lawson. Yes, no buts.
Mr. Shimkus. Thank you. Mr. Hartenstein?
Mr. Hartenstein. Yes.
Mr. Shimkus. Mr. McGrath.
Mr. McGrath. Yes. I do have to add two caveats. First----
Mr. Shimkus. Is that two sentences?
Mr. McGrath. Yes. It should not be just restricted to
broadcasters. Satellite should be able to provide free service
like they do in Europe. The satellite is a free service.
Mr. Shimkus. That is a different thing when----
Mr. McGrath. But the key point is as a de facto policy
we've abandoned free TV as a model. Again, only one channel,
less than 10 percent of the spectrum now needs to be allocated
to free TV and the broadcast side of that is a major move away
to free TV.
Mr. Shimkus. Let me follow up on that comment. Would
allowing the broadcasters the ability to keep--I'm not saying
the whole spectrum that they're required to turn back, but some
so they have a couple of different options will that help us
return to the debate of free over-the-air and the ability of
the public at large to have access to that or is really free
over-the-air gone by the wayside of the buggy whips and the
candles and everything else?
Mr. Snider. I think there is very little commitment within
the broadcast community for free over-the-air TV. They very
much want a dual stream and if you look at the actual
regulations they already allow it.
Mr. Shimkus. The dual stream subscription revenue, multiple
sources.
Mr. Snider. Right. They can do that already with your DTV
spectrum, the vast majority. Only a trivial portion are they
required to provide free TV on now, so it's already happened.
Mr. Shimkus. So the argument that you provide a limitless
spectrum for the broadcasters to compete that has to be with a
requirement of the broadcasters to demand dual must carriage of
all these additional channels that they then give the
opportunity of? I mean that's the complaint from the cable and
the satellite folks is they don't want to be forced to carry
the additional channels of the local broadcasters. Is that
correct?
Mr. Cooper. Mr. Shimkus, the broadcasters have told you
their model of free over-the-air TV won't work. They're
demanding access to the wire, that is--and they've said, we
can't make this work. So they've given you the answer to the
question. The world is changed and they say they must have
carriage on closed systems, on wired systems in order to
survive.
Mr. Shimkus. But we still accept the debate going back to
the first question, are we as a Nation still concerned with
free over-the-air? If free over-the-air doesn't work, based
upon what you're saying is the premise of the broadcasters, the
question is can through public policy can we reclaim that
through more opportunity for free over-the-air. Can you ever
reclaim that or is a gone by era?
Mr. Schmidt. Actually, let me clarify our position for Dr.
Cooper. We did not say it did not work. We said you can't pick
one of these dates without that carriage, that we can't move
the transition along on the time and pace that he's talking
about. There is no question that being a single revenue stream
business in a multiple revenue stream world is an enormous
liability. And might I add it's a liability that is imposed on
us by law and is the reason we needed the second channel to
convert because we had a legal mandate to be available in every
set and unlike everybody else who is converting to digital,
whether it's cellular or satellite or anybody else, we don't
have control over the consumer equipment. Everybody else does.
And that is an obligation imposed on us by the government. So
we're not, in Mr. Snider's words, the producer subsidy is
somewhat undercut by this huge liability.
Now we can deal with that liability and there's some
exciting new proposals to do the kinds of things I think you're
talking about even without additional spectrum. There's an
outfit called U.S. Digital and a proposal by Mr. Smuylan of
Emmis Communications to create wireless cable, essentially, out
of the broadcast digital spectrum. They're launched in three
markets and I think there's some promise there for something
that might provide the basis for a longer term viability.
As Mr. Snider said, the components have to be some element
of a second revenue stream in order to assure that we have that
open, unencrypted universally available part of the signal. It
is not, as Mr. Snider said, however, a trivial part of the
signal. Virtually all of us are providing full, high definition
in prime time every night and that is a huge part of our
bandwidth.
Mr. Shimkus. Thank you again and my time is well exceeded.
Thank you, Chairman, and this just continues to highlight the
great debate between friends. Thank you, Mr. Chairman.
Mr. Upton. Thank you, Mr. Shimkus.
Mr. Goldstein, how do they deal with multicasting in
Berlin? And who paid for it and walk us through that?
Mr. Goldstein. Multicasting in Berlin was decided by the
media authority, principally. They determined that the various
broadcasters could do it. In some of the other----
Mr. Upton. And the broadcasters pay the cable companies, is
that right?
Mr. Goldstein. That's correct. Yes sir. In some of the
other areas of the country where they're deciding this now,
it's still unclear as to whether or not there's going to be
allowed sort of a full must-carry or not. It's unclear. Some
have indicated to us that that is not the case and I think it's
still evolving at this point.
Mr. Upton. And you indicated in your testimony that you
thought, again, Berlin did this, the rest of Germany didn't,
right? But you said that there might be even a quicker
transition throughout the rest of Germany without perhaps
setting a hard date? Where are we in terms of that?
Mr. Goldstein. I think most of the islands, most of the
other parts of the country that are transitioning and many of
them are transitioning this year, do have a hard date, but the
amount of time in which that transition is occurring appears to
be less than it was in Berlin.
Mr. Upton. What is that hard date that they set for the
rest? Is it by States?
Mr. Goldstein. It varies. In each State--some States have
two areas that are transitioning. Others have just one. It just
depends on the geography and those dates vary.
Mr. Upton. One of the things that I see as a true benefit
of transition to digital, not only do we obviously recapture
that analog spectrum, but the advantage of digital would be the
use of high def is what really sells it to the consumers. A
consumer can go into any--and see that picture, and that's what
you want.
And it's my understanding that in Berlin, Berlin model,
they don't--the digital capability that's being provided, does
not allow for high def. Is that right?
Mr. Goldstein. That's correct. At this point, what they've
provided is standard definition which allows for a lot more
stations. It's allowing for terrestrial television to be much
more competitive with cable because they've been able to
greatly increase the number of channels. In fact, they can
provide almost as many channels now as cable and while still
allowing--of course, it's free and will also----
Mr. Upton. But at some point they're going to say we want
to get with the rest of the planet. We want to get with the
Yanks. They're going to see----
Mr. Goldstein. I didn't hear them say that.
Mr. Upton. They're going to want high def. They're going to
want to watch those ballgames and news and Olympics and all
those different things and what type of transition will they
then have to go through 5, 10, 15 years from now, all of a
sudden, hey, how come we're getting in essence a real
degradation of what we're able to get?
What kind of transition will they then have to go through
for those folks that now have that little converter box to get
high def so they can get with the rest of us?
Mr. Snider. Mr. Chairman, if I could address that question?
Mr. Upton. Yes. Go ahead.
Mr. Snider. I think England is a great example. They do not
have high definition TV in England, but they have 1200 percent,
12 times the penetration of D Broadcast DTV of the United
States. What they offer is choice, more channels and they offer
mobility which, for example, allows them to provide radio
services which our TV standard does not allow under 19-4.4.
Those are killer applications. So they have the option to
upgrade later to HDTV, but for phase one, they don't. In the
United States, we went with the pretty pictures approach.
There's less consumer demand as evidenced by U.K., but for
phase two, the enhanced VSB, the next generation which will
create other obsolescence problems, we will be able to----
Mr. Upton. My question is how--what will the cost be and
how will they come about timewise and technology-wise to move
from where they are now to be able to get the high def at some
point later.
Mr. Snider. Are you talking about the European standard,
how they might----
Mr. Upton. Yes.
Mr. Snider. They have an HDTV option to the DVB standard,
but they just haven't implemented it because they don't think
the market most wants that for their phase one. They have to
have more spectrum or different boxes.
Mr. Upton. Actually, are the boxes wired--as I've gone out
to the cable, to the CEA Show, they have great technology
already built into that cable box that they know it's ready to
just be flipped n, right?
Mr. Snider. Yes.
Mr. Upton. The box, Mr. Willner, that you showed us, is
that going to be able to bring them high def at some point?
Mr. Willner. No, this box doesn't bring in any high def.
This is about making televisions work after you turn off the
analog frequency so that consumers don't have to purchase high
definition televisions until they are ready to. And the
question really is--it all gets mumbled up all the time. This
is about getting the frequencies back to the United States
government so they can auction them off again and they can use
them for public safety and how do you make all the consumers in
America continue to watch television the day after you do that?
When they choose to go out and buy a high definition television
set or a television set that's capable of using interactive
digital services that are available either over-the-air or over
the cable system is their choice. And that should be their
choice. And I think if we can stop expanding the focus on all
these other issues and talk about how do you make everything
work so you can get your frequencies back and do what you need
to do with them. It's about an inexpensive set top or behind-
the-set box that will make those TVs work.
Mr. Upton. All right. Mr. Terry.
Mr. Terry. I want to follow up on some questions by Mr.
Boucher regarding the cost of the boxes. I think the
fundamental question if we're going to do a Berlin-esque plan
and who to get the consumer electronics to for over-the-air,
I'm more inclined to focus on those folks who can't absorb the
cost of buying that consumer equipment to continue watching TV.
In fact, most of the people that I know that don't have
cable or satellite are doing it more out of protest to not
giving in to that system than it is about economics and not
having the dollars for it. And frankly, as we adopt policies on
who should be eligible, I don't want to pay for them to have a
box, quite frankly. But I do feel and am compassionate toward
those folks that are economically deprived that will have to
fork out dollars that may take food off the table so that they
can continue to get their free over-the-air.
So I want to know from you, is there societal or are there
policy implications of just the government buying boxes for the
economically deprived folks and not everyone, the 45 million
that get free over-the-air television and whoever wants to pipe
up, come on up.
Mr. Willner. Look, I personally believe it's up to the
wisdom of Congress to decide that. I don't think it has any
impact on our industries if that's what the policy of Congress
is and either Mr. Boucher's viewpoint or your viewpoint will
prevail and whatever you decide, you decide.
Mr. Terry. So you said there will be no impact on your
industry. Do you view that there are any greater societal
impacts then?
Mr. Willner. Look, if you were subsidizing everybody and I
had three TVs personally in my house, I don't know that I'd
even think about filing for the refund. I would forego it. But
I can afford to forego it. I do understand that some people
can't and as long as the safety net is put in place and I'm
speaking as an American citizen now and not as a cable
operator, because it isn't a cable issue. I would think it has
no societal issues whatsoever, the decision that you would
make.
Mr. Terry. Any others that have an opinion of whether there
is----
Mr. Cooper. I would invite you to seek out the citizens in
your District and tell them that you turned off their TV set
and if they want to turn it back on, they can spend another $50
or $100. I think consumers have purchased those devices. They
like to have them in the garage to watch the game while they're
working on their cars and that will go blank. That's a cost
that you imposed upon them by picking a date certain and
unplugging it. I think that's a consumer impact and the fact
that you think that person can afford the $50, I suspect that
person would like--will suggest that you really ought to fork
in the $50. First answer.
Second answer----
Mr. Terry. I've had those calls.
Mr. Cooper. So the answer is that it's interesting to
suggest that we only want to do it for poor people, but
everyone will be disadvantaged.
The second answer I'd like to offer is it's fascinating to
me on how quickly these costs will decline when they want to
get something done and yet, if we have another hearing on a
different issue, they'll swear these costs are going to stick
up there because they don't want it to happen. So you get a lot
of really excited people about oh, every chip costs a nickel,
that's because they like the policy and next week every chip
costs $5 because well, they don't want to do it. So I think
there's a real cost here and I think it has an impact.
Mr. Terry. I'll you also I'll probably get more calls from
people who say I bought it out of my own pocket and I'm tired
of my tax dollars paying it for people who could afford it too.
So it will cut both ways.
Mr. Snider. Just to note as an enforcement problem, it was
easy in Berlin because all TV sets are licensed, so it was easy
to identify who had TV sets and they gave a subsidy to people
already on the welfare rolls and they already had a system,
believe it or not, for subsidizing TV sets for low income
people. It's harder in the U.S. with our unlicensed system on
the TV sets to administer the program. I would not
underestimate the political problem that Mark has estimated and
the very real problem that if there's any granny in the United
States who is going to lose her TV that's a serious problem.
That's why we're endorsing expanding the eligibility pool
significantly.
you may question why we have to say the United States, a 5-
year-old computer is a door stop and a 25-year-old TV is a
public good. But whether that makes sense or not, that's the
political reality of the United States and we think we ought to
break from that premise.
Mr. Terry. Anybody else like to comment?
Mr. Goldstein. Congressman, I would just add one quick
point which is that GAO is continuing work for this committee
in which we are looking at what the overall costs are going to
be. We're looking at a number of things about the transition,
including what equipment may be needed, what the costs might be
in terms of if subsidies were required and that kind of thing.
We will be reporting to the committee early next year.
Mr. Terry. I appreciate that.
Mr. Lawson. Mr. Congressman, if you look at the experience
of the other European experience which I would urge the
committee to look at very closely is the Freeview service in
the U.K. which is through digital bringing back free over-the-
air television and that model, as in fact, in Berlin, most
consumers were motivated to go out and buy these boxes and
under the right circumstances I think we could make that happen
here.
Mr. McGrath. I guess I would also add that we should not
lose sight of the offset that there is a dramatic improvement
in the communications ability of public safety and first
responder that flows out of this and one way or the other every
American would benefit from this.
Mr. Upton. Mr. Bass.
Mr. Bass. Thank you, Mr. Chairman. Another interesting
hearing on a very complex subject.
Mr. Schmidt, you represent the broadcasters, right?
Mr. Schmidt. That's correct, yes.
Mr. Bass. It's my understanding that you're worried about
televisions going dark after the deadline. Why not let cable
and satellite operators down convert for consumers who want to
continue using analog televisions, consumers with high
definition TVs will receive your signals over-the-air and cable
and satellite operators will gladly charge consumers for your
and their own high definition programming.
Do you have any comments on that?
Mr. Schmidt. Well, we have proposed a slight modification.
We would like the down conversions to be done at the consumer
equipment rather than at the head end so that the consumers
actually have the choice. It's not so easy to do a combination
of over-the-air and satellite. It is doable, but I think that's
our tweak on the down conversion approach.
It's not clear to me as a matter of public policy why you
would want to reinforce the dependence on those providers,
rather than have a transition phase where at the end of the day
you're looking at a fully independent provider, multicasting,
broadband wireless provider and ultimately I think that ought
to be the goal but as a transition matter, again, with some
tweaks on it, the down conversion idea is obviously inherent in
some of what we've been proposing.
I think it doesn't get you out of all of these other
problems. It doesn't deal with the 15 percent. You still have
to find a motivation and I don't think it's going to be quite--
we've glossed over the difficulties of getting those things out
there, but I can tell you that my mother is never going to be
able to figure out that box no matter how small and simple it
looks. And one of us is going to have to go over there and fix
it for her and with my wife's parents, somebody's going to have
to figure out how to do it in California and it's going to be--
there are going to be a lot of dislocation and trouble getting
these things done.
In Berlin, as I think it's another reason why Mr. Lawson is
clearly correct. The more you can get people to do this
voluntarily, through an incentive program, the less fall out
you'll get on consumer resentment from that kind of
implementation problem which is going to be formidable.
Mr. Bass. One other quick question, Mr. Schmidt, according
to GAO written testimony, Berlin broadcasters must compensate
cable operators for carriage, even when they have must carry
rights. Why aren't you willing to compensate cable for carrying
your multicast programming?
Mr. Schmidt. I'm not fully familiar with the model there,
but I believe the cable carriers there are essentially common
carriers without their own services that they provide
independently and that that model is a different model than the
cable we have here and satellites similar and they provide
their services, especially the satellite providers, provide
their services free over-the-air and I can definitely see how
you would end up paying there and I believe that's what happens
with Freeview as well.
Mr. Willner. If I could respond to that. The model in
Germany about multicast was very different. They had 30
channels on a cable system. They had seven channels over-the-
air. This was about more television programming being available
and using the easiest technology to deliver it. This is the
usual blurring of the issues here, bring in multicast, must
carry, so that we can have another land grab here and take more
frequency space away from cable operators who then can't offer
those to other programmers who don't have the gift of public
airwaves to be delivered to consumers. They have to come and
negotiate their deals based on the content that they are
creating for us to deliver to our consumers.
So the entire concept of multicast must carry just expands
the bad idea of must carry to begin with which lowers the bar
for programming to be created, because it's a free pass into
people's homes and that's just not good marketplace practice.
Mr. Bass. I yield back, Mr. Chairman.
Mr. Upton. Mr. Engel.
Mr. Engel. Well, thank you. Thank you, Mr. Chairman. I know
the hour is late and we have a vote and I had a bunch of things
to run around to this morning and I'm going to read the
testimony of all the distinguished witnesses, but I just want
to say from a parochial point of view, representing New York
City, I just want to state my opposition to a date hard in 2006
to turn off the analog signal. Obviously, most of our TV
transmission facilities are temporarily located adopt the
Empire State Building which doesn't have the electrical
capacity for all our needs and obviously on September 11, we
lost our primary location and the new Freedom Tower is waiting
to be built and they're talking about a completion date of 2008
or 2009. So until then, the people of New York and northern New
Jersey and southern Connecticut won't be at a full digital
capacity.
So I just would hope that there ultimately is an effort
made to set an early hard date. We're going to need a waiver
and I would hope that we could work with it, but there's quite
a distinguished panel and I'm going to do a lot of reading
today and tonight to look at their testimony and I thank them
all for coming here.
Mr. Upton. And we'll quiz you on your reading tomorrow.
If I see you at the Republican Dinner tonight I'll know
that you have not done your reading.
Mr. Engel. You can attend for me, Mr. Chairman.
Mr. Upton. All right.
Mr. Engel. I'll do the reading of the testimony.
Mr. Upton. I saw you at another table.
Gentlemen, thank you. And we have four votes in the House
floor, so we're going to adjourn the hearing. We appreciate
very much your expertise, your willingness to be before us
today. I would guess that a number of us will have additional
questions that we'll be asking and maybe a different setting,
but your work today has been very valuable as we progress on
this road.
Thank you very much.
[Whereupon, at 11:55 a.m., the hearing was concluded.]
[Additional material submitted for the record follows:]