[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/
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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:]



    


                                 
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