[Senate Hearing 108-1029]
[From the U.S. Government Publishing Office]








                                                       S. Hrg. 108-1029

                            COMPLETING THE 
                     DIGITAL TELEVISION TRANSITION

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

                                HEARING

                               before the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                              JUNE 9, 2004

                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation






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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                     JOHN McCAIN, Arizona, Chairman
TED STEVENS, Alaska                  ERNEST F. HOLLINGS, South 
CONRAD BURNS, Montana                    Carolina, Ranking
TRENT LOTT, Mississippi              DANIEL K. INOUYE, Hawaii
KAY BAILEY HUTCHISON, Texas          JOHN D. ROCKEFELLER IV, West 
OLYMPIA J. SNOWE, Maine                  Virginia
SAM BROWNBACK, Kansas                JOHN F. KERRY, Massachusetts
GORDON H. SMITH, Oregon              JOHN B. BREAUX, Louisiana
PETER G. FITZGERALD, Illinois        BYRON L. DORGAN, North Dakota
JOHN ENSIGN, Nevada                  RON WYDEN, Oregon
GEORGE ALLEN, Virginia               BARBARA BOXER, California
JOHN E. SUNUNU, New Hampshire        BILL NELSON, Florida
                                     MARIA CANTWELL, Washington
                                     FRANK R. LAUTENBERG, New Jersey
      Jeanne Bumpus, Republican Staff Director and General Counsel
             Robert W. Chamberlin, Republican Chief Counsel
      Kevin D. Kayes, Democratic Staff Director and Chief Counsel
                Gregg Elias, Democratic General Counsel
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                            C O N T E N T S

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                                                                   Page
Hearing held on June 9, 2004.....................................     1
Statement of Senator Dorgan......................................    49
Statement of Senator Ensign......................................    53
Statement of Senator Lautenberg..................................     5
    Prepared statement...........................................     5
Statement of Senator McCain......................................     1
Statement of Senator Nelson......................................    51
Statement of Senator Stevens.....................................    50
Statement of Senator Sununu......................................    55

                               Witnesses

Calabrese, Michael, Vice President and Director, Spectrum Policy 
  Program, New America Foundation................................    24
    Prepared statement...........................................    26
Ferree, Kenneth, Chief, Media Bureau, Federal Communications 
  Commission.....................................................     6
    Prepared statement...........................................     7
Gelsinger, Patrick P., Chief Technology Officer and Senior Vice 
  President, Intel Corporation...................................    34
    Prepared statement...........................................    35
Harman, Hon. Jane, U.S. Congresswoman from California............     2
Hazlett, Thomas W., Senior Fellow, The Manhattan Institute, 
  Center For A Digital Economy...................................    42
    Prepared statement...........................................    44
Lawson, John M., President and Chief Executive Officer, 
  Association of Public Television Stations......................    15
    Prepared statement...........................................    16
 
                            COMPLETING THE 
                     DIGITAL TELEVISION TRANSITION

                              ----------                              


                        WEDNESDAY, JUNE 9, 2004

                                       U.S. Senate,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 9:30 a.m., in SR-
253, Russell Senate Office Building, Hon. John McCain, Chairman 
of the Committee, presiding.

            OPENING STATEMENT OF HON. JOHN McCAIN, 
                   U.S. SENATOR FROM ARIZONA

    The Chairman. Good morning. Today the Committee examines 
various policy proposals designed to hasten the completion of 
the transition to digital television. The end of this 
transition will mark the beginning of a new age in wireless 
communications. The liberation of this spectrum will unleash a 
multitude of new commercial wireless services and new 
opportunities for enhancing public safety.
    By facilitating more broadband deployment and competition, 
freeing the spectrum would enable us to rely more heavily on 
the market rather than the government to regulate 
telecommunications. Moreover transmissions at the spectrum's 
frequency range pass easily and could start the deployment of 
more affordable broadband in rural areas.
    This point was underscored by former FCC Chairman Reed 
Hunt, who told the Committee earlier this year as we are now 
entering the decade of wireless broadband and called the 
broadcasters analog spectrum ideal for deploying these 
services. Mr. Hunt said ``the transformation of the use of that 
spectrum means for the economy literally hundreds of billions 
of dollars of extra growth and hundreds of thousands, if not 
ultimately, millions of new jobs provided it were done 
quickly.''
    We must recognize, however, that there are still many 
households that rely on over-the-air television signals. Let me 
be clear that any proposal to accelerate the digital television 
transition is incomplete unless it ensures that consumers may 
continue to use their existing television sets to view over-
the-air broadcast signals. We must not leave these consumers 
out in the digital cold.
    The good news is that the benefits from more efficient use 
of this spectrum should dwarf the cost of ensuring that these 
consumers can continue to use their old televisions. The 
proceeds received from auctioning even a small portion of the 
spectrum should easily cover this cost.
    In an April hearing, an entire panel of telecommunications 
experts from conservative to liberal agreed that such an 
approach makes perfect sense. Let's not forget another 
important beneficiary of liberation of this spectrum, public 
safety. The government has committed a significant portion of 
this spectrum to public safety organizations. We need this 
important asset to facilitate interoperable communications 
systems between Federal and state organizations, and between 
multiple jurisdictions.
    It's clear to me that now is the time for Congress to act 
to expedite the completion of this transition, and it appears 
that I'm not alone. Last week, House Energy and Commerce 
Chairman Barton questioned why the transition should not be 
completed by 2006, in order to retrieve this valuable spectrum 
for other consumer and public safety uses. I look forward to 
working with Chairman Barton on this issue.
    Finally, I note that I have repeatedly criticized the 
broadcasters during this transition for failing to meet their 
commitments to broadcast digital signals. Although many were 
inexcusably late in meeting their obligations, I recognized 
that the vast majority of broadcasters are now doing so. 
Commercial broadcasters are critical stakeholders who deserve a 
voice in this discussion, so we invited the National 
Association of Broadcasters and the networks to offer a 
broadcast executive to testify today. Unfortunately, they chose 
not to accept. I encourage them to participate in this process 
in the future.
    I thank the witnesses for being here and before the 
panelists begin, I ask Senator Ensign if he has any opening 
remarks?
    Senator Ensign. No.
    The Chairman. We are pleased to have with us a Member of 
Congress, Congresswoman Harman, a Representative from 
California who has been heavily involved in this issue, 
particularly in the aspect of public safety. We welcome you. 
Thank you for taking the time to be over here today, 
Congresswoman Harman.

                STATEMENT OF HON. JANE HARMAN, 
               U.S. CONGRESSWOMAN FROM CALIFORNIA

    Ms. Harman. Thank you, Mr. Chairman, and thank you, former 
colleague, Senator Ensign and hello, Senator Lautenberg. It is 
a privilege to appear before your committee and it was a 
privilege to be one of 30,000 people in the audience at the 
University of Southern California a couple of weeks ago when 
you gave a commencement address on courage.
    My son was one of the graduates in that audience, and I'm 
very proud of him. Voted entrepreneur of the year at the USC 
School of Business, but I'm going to exhibit some courage.
    The Chairman. I'd like to congratulate your son for his 
graduation from an outstanding institution, which my wife 
graduated from as well.
    Ms. Harman. That makes it even better. People testifying 
today will have different priorities and different reasons to 
support spectrum reclaim. I'd like to take a few minutes of the 
Committee's time to talk about the priorities of America's 
hometowns, and the critical importance of interoperable 
communications to their first responders, an issue that you and 
I have discussed before, Mr. Chairman. And an issue that you 
just mentioned in your opening remarks in which you echoed the 
comments of House Commerce Committee Chairman Joe Barton about 
the need for a firm deadline, hopefully the deadline of 2006 
which Congress promised in legislation in 1997.
    Interoperability is more than a public safety issue. It's a 
national security issue. And to our first responders, it can be 
the issue of life or death. As I mentioned in 1997, Congress 
made a promise to the American people to allocate dedicated 
radio spectrum to first responders. Seven years later, we have 
not made good on our commitment.
    Why have we broken our promise? Because a handful of 
broadcasters refuse to compromise on the issue. Thousands of 
lives are potentially at stake. We all know the tragic stories 
of firefighters who died in the World Trade Center on 9/11 
because NYPD helicopters circling overhead could not radio them 
that the towers were glowing and beginning to collapse.
    At the Pentagon on that same dark day, first responders 
from surrounding counties who converged on the scene were 
forced to use runners to convey messages as their 
communications equipment was not compatible and the same was 
true last year during California's devastating wildfires. 
Unbelievably, in such unimaginably critical and complex 
situations, our first responders were reduced to Roman era 
technology, runners, to do their jobs.
    Because of broadcaster intransigence, some 5 percent of the 
TV stations operating in the U.S. are holding the rest of 
America hostage by refusing to move their channels off the 
spectrum promised to first responders.
    Specifically, out of 1500 TV stations operating in this 
country today, 75 analog and digital stations operating on 
channels 62 through 65 and 67 through 69 are causing the 
blockage of much-needed spectrum for public safety purposes. An 
estimated 54 percent of the Nation's population lives in areas 
where public safety officials have no access, repeat, no access 
to the 700 megahertz spectrum.
    Think of it this way. Imagine if terrorists flew into the 
Bank One Center in Phoenix tomorrow, and local firefighters 
could not communicate with their colleagues on the ground or 
flying overhead. What would we tell the families of those lost 
in such a tragedy? Would we talk about the technicalities of 
the spectrum and the loophole left open for the broadcasters in 
1997?
    As someone who has been a strong supporter of the 
broadcasters on many occasions in the past, I must respectfully 
say that on this issue, they are dead wrong. More than once, I 
have attempted to work out a compromise with them and all 
efforts have been fruitless. Instead of addressing this issue 
head on, we are allowing 5 percent of the TV stations to 
prevent over half the American people from receiving any 
benefits of improved public safety communications in the 700 
megahertz band.
    All of us, including the broadcasters, have mothers, 
fathers, sons, daughters and siblings living and working in 
areas where there is no spectrum access for emergency purposes. 
Mr. Chairman and the Committee, we owe it to the American 
people to do the right thing. The first responders are counting 
on us to keep our promise. That is why it is imperative that 
Congress act quickly to enforce a hard and fast deadline for 
turning the spectrum over to first responders.
    A deadline of December 31, 2006, without any loopholes is 
entirely appropriate, and I believe it is still feasible. Key 
elements for first responders to begin using this spectrum are 
in place. The spectrum is allocated. States have already 
received licenses to use the 700 megahertz band and local 
jurisdictions are engaged in regional planning to get a 
license.
    However, the investment to use the spectrum by public 
safety agencies cannot commence unless there is a tangible date 
when the spectrum can be used. Essentially, the first 
responders are waiting on us, the Congress, to keep our 
promise. And I think they have waited long enough.
    Legislation that I have introduced in the House with my 
colleague, Curt Weldon, called the Homeland Emergency Response 
Operations Act, HERO, H.R. 1425, would hold the FCC to a 
December 31, 2006 deadline and eliminate any linkage to digital 
TV rollout to that deadline.
    The HERO Act is supported by absolutely everyone in the law 
enforcement and public safety business, including for example 
L.A. County Sheriff Lee Baca who I know, Mr. Chairman, is a 
good friend of yours and mine. It has been endorsed by the 
International Association of Chiefs of Police, the 
International Association of Fire Chiefs, the National 
Sheriff's Association, the National Association of Counties, 
the National Emergency Management Association, as well as the 
National Governors' Association and League of Cities. It has 
the Good Housekeeping Seal of Approval.
    But even with such stellar support, the Act introduced by 
us 2 years ago has made no progress but for one hearing on the 
House side, and for this hearing today. Mr. Chairman and 
members, I ask you to join me in moving forward on this 
important issue in the name of the victims of 9/11 and for the 
protection of the survivors. Thank you very much.
    The Chairman. Thank you, Congresswoman Harman. I have two 
quick questions for you. One, why do you feel that the 
broadcasters have been so intransigent on this issue? And 
number two is, as you know, I mentioned in my opening statement 
those people who still receive over-the-air television, one of 
the ideas that's been floated around is just purchase for them 
a set-top box.
    Ms. Harman. Well, on the first point, I think the 
broadcasters have been intransigent because they somehow feel 
they deserve compensation if they are removed. I have checked 
on this, and I understand that the cost of their original 
licenses was zero. They have made millions and millions of 
dollars in profit on the use of those licenses.
    And it would seem to me that as an obvious condition of a 
public license, they ought to put public safety first, it would 
protect their own families, as well as themselves. I just think 
they are being shortsighted.
    On the second issue, the use of the set-top box, there is 
another set of folks who then get mad if we go there, but I am 
for whatever it takes to close this loophole absolutely as of 
December 31. And I really think that after all this country has 
been through, putting the country first is the least we can 
ask.
    The Chairman. Well, I thank you for your outstanding work 
on this issue. I know that you have other obligations this 
morning and I thank you for being here and again 
congratulations on your son's successful graduation.
    Ms. Harman. Thank you very much, Mr. Chairman.
    The Chairman. Senator Lautenberg, would you like to make an 
opening comment?

            STATEMENT OF HON. FRANK R. LAUTENBERG, 
                  U.S. SENATOR FROM NEW JERSEY

    Senator Lautenberg. Just to say I truly appreciate 
Congresswoman Harman's insights here. I think we have to get 
moving here. We have complaints, Mr. Chairman, within a couple 
of counties in New Jersey about the interference that's 
presented by the status quo. And we have to get on with it. And 
I thank you for a good job.
    Ms. Harman. Thank you, Senator. It's good to have you back.
    The Chairman. Senator Ensign?
    Senator Ensign. No.
    The Chairman. Our next panel is Mr. Kenneth Ferree, Chief, 
Media Bureau, Federal Communications Commission. Please come 
forward, sir. This whole panel is Mr. Ken Ferree, Chief, Media 
Bureau; Mr. John Lawson, President and Chief Executive Officer, 
the Association of Public Television Stations, Mr. Michael 
Calabrese, who is the Vice President and Director of Spectrum 
Policy Program, The New America Foundation; Mr. Patrick 
Gelsinger, Chief Technology Officer and Senior Vice President, 
Intel; and Dr. Thomas Hazlett--is that the proper 
pronunciation--Hazlett, The Manhattan Institute. He is a Senior 
Fellow for the Center for a Digital Economy.
    Mr. Ferree, we begin with you. Thank you.
    Senator Lautenberg. Mr. Chairman, one second. One is to 
compliment you for holding this hearing. It's very important to 
me. Please permit me to enter my statement in the record 
because I do have to go elsewhere.
    The Chairman. Thank you very much, Senator Lautenberg. 
Without objection.
    [The prepared statement of Senator Lautenberg follows:]

            Prepared Statement of Hon. Frank R. Lautenberg, 
                      U.S. Senator from New Jersey
    Mr. Chairman:

    Thank you for holding this hearing on the transition to household 
televisions that receive digital, as opposed to analog, signals.
    Upon completing this ``DTV'' transition, consumers will enjoy a 
better television viewing experience.
    DTV will provide viewers with sharper pictures, a wider screen, CD-
quality sound, and better color rendition.
    More important, the television will really become an interactive 
medium, filled with new features and services.
    I would like to mention a few of these new services.
    One such service that I frequently talk about is the opportunity 
DTV offers to enhance the education our children receive. In the not 
too distant future, school buses and buildings will become less 
important as ``virtual classrooms'' become the norm.
    We will be able to target scarce educational resources to students 
who need specialized instruction in certain subject areas. Personalized 
tutoring will be available to children who need it--through interactive 
digital TVs.
    I have to compliment the Nation's public television stations for 
providing a host of innovative educational and civic programming that 
enriches the communities they serve.
    In my home state of New Jersey, WNJN--the New Jersey Network--is 
already using its digital signal to transmit job training data to a 
test site in Trenton.
    ``Workplace Essential Skills,'' an historic partnership with the 
New Jersey Department of Labor, is helping the unemployed get the basic 
skills they need to compete for jobs.
    New Jersey Network has also been involved with the State Office of 
Emergency Management to provide secure links between emergency 
authorities and nuclear power plant operators.
    I commend public broadcast television stations for offering these 
valuable services as they make the transition from analog to digital 
signals.
    So, the transition to digital TV is opening whole new realms of 
opportunities for enhancing education, job training, and public safety. 
Commercial broadcasters should learn from their public counterparts 
with regard to tapping into those realms.
    Of course, the big challenge we will face will be to prevent a 
``digital divide'' from developing between people who can afford DTVs 
and people who cannot. We cannot afford to leave anyone behind, 
especially our youth, as we begin to reap the benefits of the Digital 
Age.
    Thank you Mr. Chairman. I look forward to hearing the testimony of 
our witnesses.

    The Chairman. Mr. Ferree.

   STATEMENT OF KENNETH FERREE, CHIEF, MEDIA BUREAU, FEDERAL 
                   COMMUNICATIONS COMMISSION

    Mr. Ferree. Thank you and good morning, Chairman McCain and 
members of the Committee. My name is Ken Ferree, and I'm Chief 
of The Media Bureau of the FCC. And I appreciate the 
opportunity to testify this morning.
    Today our efforts have been focused on getting the 
transition off the ground. Those efforts are now proving 
successful and it's no longer a question of whether the 
transition will occur but when and how. It's time, therefore, 
to focus on making the digital switchover as smooth as possible 
for consumers. The Bureau has been working on a plan to that 
end. In developing this plan the Bureau had the following 
objectives.
    First, bring the transition to a timely, predictable 
conclusion which will benefit consumers and others with a stake 
in the digital transition.
    Second, to reclaim valuable spectrum. The spectrum that 
will be recovered will bring tremendous benefits to the public, 
vastly increasing the amount available for first responders. 
The remainder will be auctioned for use by advanced wireless 
services which not only will generate substantial auction 
revenues but will provide continuing benefits in terms of the 
economy and job creation.
    Third, minimize disruption to consumers. Whenever the 
transition ends, consumers should not lose access to their 
favorite programming. Our goal was to ensure that converter 
equipment is available at a reasonable cost for analog over-
the-air viewers.
    Fourth, maintain consumer access to high definition 
television. Today, consumers have access to a growing level of 
compelling digital content, particularly HDTV. That access 
should be maintained and encouraged.
    Fifth and finally, comply with constitutional and statutory 
requirements. Some broadcasters have suggested for instance 
that cable operators should be required to carry both the 
analog and the digital signals of every broadcast station. The 
Commission has tentatively concluded that such mandatory dual 
carriage would be unconstitutional. Based on the record in this 
proceeding, I think this is correct. Dual carriage creates a 
greater burden than necessary.
    The Bureau has devised a plan that meets these objectives, 
the details of the plan are set forth in my written testimony. 
Generally, the plan involves a switch in broadcasters must-
carry rights from analog to digital in January 2009. Cable 
subscribers and satellite subscribers in local markets will 
therefore count toward the 85 percent trigger for the end of 
the transition. Combined with the households who have digital 
TV sets, we expect to reach the 85 percent threshold virtually 
nationwide at that time.
    Let me briefly explain one of the policy cuts the Bureau 
made in developing the plan. When broadcasters must-carry 
rights switched to digital, the question becomes how should 
they be carried on cable systems. If a cable system is all 
digital so that all subscribers can watch a digital cable 
stream, the digital broadcast signal should also be passed 
through on digital. That's the easy case.
    But what if cable systems in 2009, like cable systems 
today, have a mix of analog and digital cable subscribers? The 
options are either to require the cable system to deliver the 
signal digitally, in which case analog viewers would be 
deprived of that programming or require the cable operators to 
down convert the signals so that all consumers may continue to 
receive it.
    The Bureau chose the latter course. Thus, the vast majority 
of consumers, including all cable subscribers and most or all 
satellite subscribers, will experience a seamless transition. 
They will be able to continue to watch the same programming 
they always have.
    Now, there are two important points to be made about this 
requirement. First, broadcasters can, of course, continue to 
negotiate voluntary carriage of their digital signal. 
Approximately 400 broadcasters have already done so and more 
are gaining digital carriage every day.
    Second, this is only a transitional requirement. Once a 
broadcaster has returned its analog license, it may decide 
whether it wants its digital signal down converted or passed 
through in digital by the cable operator. It's the 
broadcaster's choice at that point.
    Finally, to begin to address legitimate concerns of the 
effect of the transitions on consumers who rely on over-the-air 
television, the Bureau has issued a notice on these consumers 
to make the transition as smooth as possible. Thank you for the 
opportunity to review our proposal. I look forward to the work.
    [The prepared statement of Mr. Ferree follows:]

     Prepared Statement of W. Kenneth Ferree, Chief, Media Bureau, 
                   Federal Communications Commission
I. Introduction
    It wasn't too long ago that using a phrase like ``timely and 
successful'' in connection with the DTV transition would have been 
considered a non sequitur. No longer. The DTV transition is beginning 
to gain momentum; we are witnessing one of the most dramatic 
marketplace shifts in recent memory.
    There is plenty of credit to go around. Each of the affected 
industries -broadcasters, cable and satellite operators, content 
providers, consumer electronics manufacturers and retailers deserve 
some credit for bringing us to this juncture. They are the ones who 
developed the business plans, put the capital at risk, and are bringing 
the benefits of digital television to American consumers.
    Government deserves some of the credit as well. Over the past few 
years, both Congress and the FCC, under Chairman Powell's leadership, 
have created a renewed sense of urgency regarding the DTV transition, 
doing whatever was needed to get the transition moving. Often informal 
tools were used, like the industry roundtable discussions convened by 
the House Energy and Commerce Committee that helped define and focus 
the issues, or the ``Powell Plan'' that resulted in voluntary industry 
commitments to advance the transition. When necessary, more formal 
regulatory tools were used, such as the DTV tuner mandate, rules for 
``plug and play'' television sets, and the adoption of the ``broadcast 
flag'' system to protect digital broadcast content from widespread 
piracy over the Internet.
    It goes without saying that our work is far from done. Indeed, we 
are in the midst of an incredibly busy period at the FCC on issues 
relating to digital television, and we hope to act on several major 
proceedings in the near future, including the procedures for final 
channel allotments and deadlines for broadcasters to operate at full 
power.
    So why turn our attention to the end of the transition when we 
still have work in front of us? Because now is the time to start 
looking ahead and planning if we want the transition to end smoothly 
for the American public. Up to now, most of our efforts have been 
focused on getting the transition off the ground. But now that the 
wheels are finally lifting off the runway and the transition is pointed 
skyward, we can and should begin turning our attention to our 
destination, and how we will land this transition as quickly and as 
safely as possible.
    Put differently, it is no longer a question of whether the 
transition will occur, but when--and how we can make the final digital 
switch-over as smooth as possible for consumers.
    This emerging reality led Chairman Powell to direct the Media 
Bureau to develop a bold framework that would provide a soft landing 
and clear conclusion for the DTV transition. The framework is outlined 
below in some detail but, at this point, it is still a work-in-
progress. No formal recommendations have been made to the full 
Commission, although we have discussed the framework with each of the 
Commissioners' offices, just as we have discussed it with Hill staff, 
industry, consumer groups, and others.
    One of the most important and difficult issues remaining to be 
solved is how to address those consumers who rely on over-the-air 
analog television when the transition is complete. On May 27, 2004, the 
Media Bureau issued a Public Notice to help us learn more about these 
consumers and to explore potential options for helping them make the 
transition with as little disruption as possible.
II. The Media Bureau's Objectives
    In developing our framework for completing the digital television 
transition, the Media Bureau had the following objectives:

    Bring the transition to a timely and predictable conclusion

    A timely and predictable end date would benefit all those with a 
stake in the transition to digital television, including the public, 
broadcasters, consumer electronics manufacturers and retailers, public 
safety officials, as well as advanced wireless service providers and 
their customers.\1\ Consumers would have fair warning of when analog 
broadcast signals will be terminated and can begin preparing 
themselves. Broadcasters would know precisely how long they will be 
required to run side-by-side analog and digital facilities and can make 
budget and maintenance decisions accordingly. Consumer electronics 
manufacturers and retailers would know when they will no longer need to 
produce, market, and support analog equipment. Public safety officials 
and advanced wireless providers waiting for broadcasters to vacate the 
700 MHz band would know with certainty when they will be able to begin 
operations.
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    \1\ By statute, all analog broadcast licenses terminate on December 
31, 2006, unless the licensee requests and the Commission grants an 
extension based upon the criteria in Section 309G)(14) of the 
Communications Act. 47 U.S.C. Sec. 309(j)(l4)(A) and (B). In the 
absence of significant changes in circumstances, we do not think it 
likely that the standard set forth in Section 309(1)(14) will be met by 
that date and thus expect that the majority of stations will qualify 
for an extension of the initial deadline.

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    Reclaim valuable spectrum

    The spectrum that will be recovered at the end of the transition 
will bring tremendous benefits to consumers and the U.S. economy.\2\ As 
an initial matter, 24 MHz of spectrum will be used to address the 
critical needs of first responders and other public safety needs. The 
remaining 84 MHz in the 700 MHz band already has been or will be 
auctioned for use by cutting-edge wireless services. This is 
``beachfront'' spectrum, with propagation characteristics that make it 
ideal for providing wireless broadband access through foliage and 
building walls. Not only would the immediate revenues from an auction 
of this spectrum potentially be enormous (the value substantially 
increased by a date certain when the spectrum will become available) 
but, more importantly, the advanced services that will be introduced in 
this spectrum could provide continuing benefits many times greater in 
terms of the economy, jobs, and international competitiveness. The 
opportunity costs of keeping this spectrum ``bottled up'' by analog 
broadcasting grows higher and higher with each passing day.
---------------------------------------------------------------------------
    \2\ Channels 52-69 (a total of 108 MHz in the 700 MHz band) will be 
reclaimed from the broadcasting service for use by public safety (24 
MHz) and advanced wireless services (84 MHz). In the core broadcast 
spectrum (channels 2-51), the channels currently devoted to analog 
broadcasting would be available for potential auction or use by new 
entrants or other broadcasters.

---------------------------------------------------------------------------
    Minimize disruption to consumers

    Whenever the transition ends, consumers who rely on over-the-air 
television and do not yet have a DTV receiver will be faced with a 
choice: purchase a digital TV set, purchase a digital-to-analog 
converter, or subscribe to a multichannel video provider such as a 
cable or satellite operator. Our goal is to minimize the number of 
consumers forced to make that choice and to ensure that digital-to-
analog converter equipment is affordable for the average consumer.

    Maintain consumer access to HDTV and other digital services

    Today consumers have access to a growing level of compelling 
digital content particularly high-definition (``HDTV'') content-over 
the broadcast, cable and satellite television platforms. That access 
should be maintained and encouraged under any proposal to advance the 
DTV transition.

    Comply with Constitutional and statutory requirements

    Whatever solution is decided upon must be sustainable in court. 
Some broadcasters have suggested, for instance, that cable television 
operators should be required to carry both the analog and the digital 
signals of every broadcast station in the market (i.e., ``dual 
carriage'') until cable systems have converted to all digital 
transmission. In 2001, the Commission tentatively concluded that such a 
requirement would be an unconstitutional abridgement of cable 
operators' First Amendment rights.\3\ Based on the evidence submitted 
in the must-carry docket, the Bureau is convinced that the Commission's 
tentative conclusion was correct. In constitutional parlance, a dual 
carriage requirement clearly imposes a greater burden than necessary to 
further any discernible government interest at stake. Indeed, I am 
concerned that the imposition of a dual carriage requirement would, in 
the inevitable judicial review that would follow, place the whole must-
carry regime at risk.
---------------------------------------------------------------------------
    \3\ See First Report and Order, 16 FCC Red 2598 (2001), PP 3, 112.
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III. The Media Bureau's Proposal
    The current Media Bureau proposal has the following essential 
points:

    1. On a fixed date no later than January 1, 2009, broadcasters' 
must-carry rights on cable and satellite would switch from their analog 
signals to their digital signals.\4\
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    \4\ Every three years, broadcasters elect whether they wish to 
invoke their statutory must-carry rights or negotiate for 
retransmission consent. The next election date is October 1, 2005 for 
carriage beginning January 1, 2006, then October 1, 2008 for carriage 
beginning January 1, 2009, and so on.
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    2. Cable operators would be required to make the digital must-carry 
signals available to all subscribers by either: (a) down-converting a 
single digital broadcast stream from digital to analog at the cable 
head-end so that all subscribers, including analog-only subscribers, 
can continue to view the programming; or (b) passing through the 
digital must-carry signals to subscribers' homes, where the system has 
converted to ``all digital'' transmission and all subscribers have the 
ability to receive and display the digital signals (either on a digital 
set or down-converted by a set-top box for display on an analog set).
    3. Similarly, satellite operators in local-into-local markets would 
be required either: (a) to carry one standard-definition digital 
programming stream from each broadcaster in the market (down-converted 
from HDTV to standard-definition, if necessary); or (b) to pass through 
the digital broadcast signals to subscribers' homes, where all 
subscribers have the ability to receive and display the programming.
    4. In addition to any digital streams that are down-converted to 
analog, broadcasters electing must-carry may negotiate for cable pass-
through of their HDTV, multicasting, or other high-value digital 
programming. Broadcasters electing retransmission consent will continue 
to negotiate for cable carriage of their broadcast signals in digital 
and/or analog. As of March 2004, cable systems carried 382 local 
digital broadcast stations--239 of which are owned by commercial 
entities other than one of the top four broadcast networks--all 
pursuant to marketplace retransmission consent agreements.\5\ Nothing 
in this proposal would negatively affect the continued availability of 
this or additional HDTV programming to consumers.
---------------------------------------------------------------------------
    \5\ The current 382 local digital broadcast stations being carried 
on cable represents a more than four-fold increase from January 2003, 
when 92 local digital broadcast stations were carried. In addition to 
local broadcast HDTV, cable systems also carry national HDTV cable 
programming services such as Discovery-HD, ESPN-HD, HBO-HD and 
Showtime-HD.
---------------------------------------------------------------------------
    5. The statutory 85 percent threshold \6\ for ending the transition 
could be met nationwide on January 1, 2009:
---------------------------------------------------------------------------
    \6\ One of the criteria in Section 309(j)(14)(B) is the 85/15 
percent test. At its most fundamental, this test asks if at least 85 
percent of TV households in the licensee's market can continue to 
receive television service when the over-the-air analog signals are 
turned off. If 15 percent or more of the TV households in the market 
would lose service, then a licensee's analog license may be extended 
beyond December 31, 2006. See 47 U.S.C. Sec. 309G)(l4)(B)(iii).

   All cable households (almost 70 percent of TV households 
        nationwide) will count towards the 85 percent threshold in each 
---------------------------------------------------------------------------
        market.

   All satellite households in local-into-local markets that 
        receive the local broadcast package, and all satellite 
        households with HDTV service,\7\ will count towards the 85 
        percent threshold in those markets.
---------------------------------------------------------------------------
    \7\ All HDTV set-top boxes deployed by DirecTV and EchoStar contain 
an over-the-air DTV tuner.

   All households that purchased a new television set covered 
        by the FCC's DTV tuner mandate will count towards the 85 
        percent threshold.\8\ It is possible that the DTV tuner mandate 
        alone could result in the 85 percent threshold being met in 
        some markets by this timeframe. Sole reliance on the tuner 
        mandate, however, would result in a spotty transition with a 
        lack of predictability and advance notice for consumers and the 
        industries involved.
---------------------------------------------------------------------------
    \8\ The phase-in schedule of the DTV tuner mandate is as follows: 
(1) rece1vers with screens 36 inches and above--50 percent must include 
DTV tuners as of July 1, 2004; 100 percent must include DTV tuners as 
of July 1, 2005; (2) receivers with screens 25-35 inches--50 percent 
must include DTV tuners as of July 1, 2005; 100 percent must include 
DTV tuners as of July 1, 2006; (3) receivers with screens 13-24 
inches--100 percent must include DTV tuners as of July 1, 2007; and (4) 
TV Interface Devices--VCRs and DVD players/recorders, etc. that receive 
broadcast television signals--100 percent must include DTV tuners as of 
July 1, 2007.

   All households that purchased a new ``plug-and-play'' DTV 
        set, the first of which will be introduced this year, will 
        count towards the 85 percent threshold.\9\
---------------------------------------------------------------------------
    \9\ ``Plug and play'' sets enable cable subscribers to receive 
digital programming without the need for a separate set top box. 
Pursuant to the FCC rule, all ``plug and play'' sets must also include 
a digital over-the-air tuner.

    6. As soon as possible after January 1, 2009, the FCC will make the 
appropriate findings that the 85 percent threshold is met in the 
relevant markets and reclaim the analog broadcast spectrum. There may 
be anomalous markets in which the 85 percent threshold is not met 
immediately, but it is expected that the proposal effectively will 
result in a nationwide transition on January 1, 2009.\10\
---------------------------------------------------------------------------
    \10\ The Bureau has not yet conducted a detailed market-by-market 
analysis, but will do so as the process continues.
---------------------------------------------------------------------------
    7. By January 1, 2009, the number of households that potentially 
could lose television service with the end of analog broadcasting 
should be well under the statutory maximum of 15 percent in many 
markets.\11\ Indeed, cable penetration alone exceeds 85 percent in 
several markets.\12\ In addition, the FCC's digital tuner and ``plug 
and play'' mandates--together with the incentives provided by a hard 
transition date--will ensure that a substantial number of viewers that 
rely on over-the-air broadcasting will have purchased digital receivers 
in the preceding five years.\13\
---------------------------------------------------------------------------
    \11\ Approximately 15 percent of TV households do not subscribe to 
a pay television service and rely on over-the-air broadcasting.
    \12\ E.g., cable penetration is 91 percent in the Hartford/New 
Haven Designated Market Area (DMA), 91 percent in the Honolulu DMA, and 
87 percent in the Palm Springs DMA.
    \13\ For instance, approximately 24.7 million analog-only sets were 
sold in 2003. That number could decline dramatically with a 2009 end 
date for analog broadcasting, even before the DTV tuner mandate becomes 
fully effective in 2007.
---------------------------------------------------------------------------
    8. The digital tuner and ``plug and play'' mandates will drive down 
the cost of digital-to analog converter equipment for those over-the-
air viewers who have not invested in digital equipment by 2009. The 
Bureau and Commission are prepared to provide assistance to Congress in 
determining whether and how to assist these viewers in obtaining 
digital-to-analog converter boxes. On May 27, 2004, the Media Bureau 
issued a Public Notice seeking comment on those consumers that rely on 
over-the-air broadcast television service and potential options for 
addressing those over-the-air viewers with analog-only sets when the 
transition is complete.\14\
---------------------------------------------------------------------------
    \14\ A copy of the Public Notice is attached.
---------------------------------------------------------------------------
    9. When a broadcaster turns off its analog signal and is 
broadcasting only in digital (whether because the 85 percent threshold 
was met and the analog spectrum was reclaimed, or voluntarily prior to 
that date), the broadcaster may choose to have its digital signal 
passed through to subscribers' homes rather than being down-converted 
to analog at the cable head-end. Such a selection may be made at any 
time with notice to the cable operator and, in such circumstances, the 
cable operator would be required to notify subscribers that the digital 
signals are available if they obtain the necessary equipment from the 
cable operator or at retail. The cable operator would not be required 
to provide the equipment for subscribers to view the digital 
programming.
    10. If true digital must-carry meant that broadcasters were 
entitled to carriage of all free broadcast streams, including free 
broadcast HDTV and/or ``multicast'' programming, it would give 
broadcasters additional incentive to return their analog licenses in a 
timely manner.\15\ This proposal combines moving more quickly and 
certainly to the end of the transition, which both hastens the 
broadcasters' spectrum return and provides them opportunities to offer 
more programming to viewers. Cable operators claim it is a burden to 
carry multiple broadcast streams, but the Bureau believes the net 
result will be less cable capacity required to be devoted to 
broadcasters' programming as the transition moves more rapidly to all 
digital cable systems. The digital carriage obligations for satellite 
operators will be determined in a proceeding at the FCC examining 
alleged capacity constraints and potential technological solutions. 
However, the issue of ``multicasting'' does raise some Constitutional 
issues, as well as potentially providing a disincentive for 
broadcasters to develop more HDTV programming. The Commission 
previously declined to provide multicasting carriage rights, but the 
issue is currently being reviewed on reconsideration.
---------------------------------------------------------------------------
    \15\ The issue of ``primary video'' as one stream only versus 
``multicasting'' is on reconsideration before the FCC in the digital 
carriage proceeding.
---------------------------------------------------------------------------
IV. Benefits of Media Bureau Proposal
    As a result of the Media Bureau's proposal, the public will 
reclaim, on January 1, 2009, a significant amount of spectrum 
throughout the country that will yield great benefits to our citizens, 
economy and the industries involved in the digital television 
transition. The public interest benefits include advances in homeland 
security, broadband deployment, economic growth and job creation and 
the consumer adoption of digital television. The result of the Media 
Bureau's construct is that these substantial public interest benefits 
will be realized at minimal cost to the public and the various industry 
segments driving the digital transition.
    As the government reclaims broadcasters' analog spectrum and 
reclaims it for other uses on behalf of the public, consumers will reap 
the rewards in several areas of national importance, including:

   Homeland Security--the Media Bureau proposal will vastly 
        increase the amount of spectrum available to public safety 
        officials across the country. This additional spectrum will be 
        especially useful in improving communications systems and the 
        ability to deploy forces for first responders during national 
        and local emergencies. The need for this spectrum is greatest 
        in many of our Nation's major metropolitan areas currently 
        suffering from spectrum shortages.

   Broadband Deployment--the proposal will free up spectrum 
        that can be used for wireless broadband services. Chairman 
        Powell has identified the deployment of broadband 
        infrastructure as a central communications policy. In addition, 
        there is strong bipartisan support in both the House and the 
        Senate to make broadband deployment a national policy 
        objective. This plan will further those national broadband 
        ambitions.

   Economic Growth and Job Creation--the Media Bureau plan will 
        spur the development and the deployment of broadband technology 
        as well as other new and improved wireless communications 
        services. In turn, this activity will help drive overall 
        economic growth through productivity gains, increased 
        investment and the creation of new businesses and jobs, 
        particularly in the small business sector.

   Consumer Adoption of Digital Television--the Media Bureau 
        proposal will help drive the consumer adoption of digital 
        television. Last year, approximately 25 million analog 
        television sets were sold. By adopting a clear date for the end 
        of analog broadcasting, we can help shift the sales from analog 
        to digital sets. Publicity over the next five years in advance 
        of the 2009 date for the DTV switchover will combine with our 
        recent tuner and plug-and-play mandates and increased 
        production of HD programming to quicken the pace of consumer 
        purchases of digital televisions.

   Industrv Benefits--the certainty of2009 would provide 
        benefits to those that have a stake in an orderly transition, 
        including broadcasters, public safety authorities, advanced 
        wireless service providers, consumer electronics manufacturers 
        and retailers. Advanced wireless service providers, for 
        instance, could begin to develop business plans, place 
        equipment orders and participate in auctions knowing that the 
        700 MHz band will become available on a nationwide basis in 
        2009. Retailers and consumer publications will have a date-
        certain for describing. when analog-only televisions will need 
        additional equipment and when it is time to buy digital 
        equipment. Broadcasters will be ensured continued access to all 
        cable subscribers, unless they voluntarily choose not to be 
        down converted after the transition is over and not all 
        subscribers have the equipment necessary to view the digital 
        signal.

   Survival of Over-the-Air Broadcasting--the Media Bureau 
        proposal will foster diversity and localism by protecting 
        broadcasters, particularly those in smaller markets. All 
        broadcasters will avoid the costs of running both analog and 
        digital broadcasting, freeing up capital to invest in their 
        digital services and programming to better compete in the 
        marketplace.

    These substantial public interest benefits will come at little cost 
to the public and the industries with a stake in the digital television 
transition. By January 1, 2009, the actual number of consumers 
dependent solely on analog broadcasting may be far less than the 15 
percent statutory maximum. For those remaining analog broadcast 
viewers, the FCC's digital tuner and ``plug and play'' mandates will 
help to drive down the costs of digital-to-analog converters.\16\
---------------------------------------------------------------------------
    \16\ Manufacture of DTV tuners and plug and play sets will create 
economies of scale for use of the same technology, e.g., chips, to be 
used for the digital-to-analog converters.
---------------------------------------------------------------------------
    Cable and satellite television subscribers would experience a 
seamless transition under the Bureau's proposal. During the transition, 
they will continue to have access to at least one programming stream 
from every must-carry broadcaster. Moreover, the growing levels of HDTV 
and other value-added digital programming to which these subscribers 
have access based on voluntary agreements will not be affected.
    Finally, no additional capacity burdens will be imposed on cable 
television systems, either during or after the transition. This is in 
stark contrast to the questionable constitutionality and inherent legal 
risk of the ``dual carriage'' proposal advocated by some.
V. Conclusion
    After many long years of hard work by all involved, the end of the 
DTV transition is now in sight. The Media Bureau recognizes that some 
Members of Congress have expressed specific concerns, particularly 
regarding those consumers who rely on over-the-air television service. 
We share those concerns and look forward to working with Congress to 
bring the transition to a successful conclusion that will benefit all 
consumers and the national economy.
                               Attachment
                          Federal Communications Commission
                                       Washington, DC, May 27, 2004
                             Public Notice
DA 04-1497
MB Docket No. 04-210
              Media Bureau Seeks Comment On Over-The-Air 
                      Broadcast Television Viewers

Comment Date: July 12, 2004
Reply Comment Date: August 5, 2004

    Section 309(j)(14) of the Communications Act sets forth the 
conditions under which analog television broadcasting will end in the 
United States. Those conditions could be met as early as December 31, 
2006, although the statute provides for extensions of that date if 
certain marketplace criteria have not been satisfied. As contemplated 
by Section 309(j)(14), up to 15 percent of television households in a 
given market could lose television service altogether if they rely 
exclusively on over-the-air broadcasting and have analog-only sets when 
the transition ends. In the remaining households, analog sets that are 
not connected to a pay television service could lose service as well.
    In this Public Notice, we seek comment on options for minimizing 
the disruption to consumers when the switch-over to digital 
broadcasting occurs. We are primarily concerned with those households 
that rely exclusively on over-the-air broadcasting for their television 
service, but we seek comment more broadly on minimizing the impact on 
all consumers. First, we seek comment on the identity of those 
consumers that rely on over-the-air television broadcasting and why 
they do not subscribe to a pay television service. Second, we seek 
comment on potential options for minimizing the impact on these and 
other consumers when broadcasters are operating solely in digital.
    Given the statutory directives and the nature of the potential 
solutions, we anticipate that the data submitted will be used primarily 
to help formulate possible recommendations to Congress. The Commission 
may, however, take other steps as appropriate.
Over-the-Air Television Viewers
    We seek quantitative data on consumers who watch over-the-air 
broadcast television, including:

    (1) The number of households that rely solely on over-the-air 
broadcasting (``over-the-air households'') for their television 
service;
    (2) The number of households that subscribe to a multi-channel 
video service provider (``MVPD'') and have one or more television sets 
that rely on over-the-air broadcast service;
    (3) The number of analog-only television sets in use by the 
households identified in (1) and (2), above;
    (4) The number of digital television receivers in use in the 
households identified in (1) and (2), above, that are capable of 
receiving over-the-air digital broadcast television signals;
    (5) The demographic characteristics of over-the-air households, 
including age, race or ethnicity, and education and income levels;
    (6) The geographic characteristics of over-the-air households, 
including urban/rural and regional disparities;
    (7) Data on why over-the-air households do not subscribe to an MVPD 
service, including specific data on: (a) the number of over-the-air 
households that would like to subscribe but cannot afford it, (b) the 
number of over-the-air households that could afford to subscribe to an 
MVPD service but choose not to, and (c) the number of over-the-air 
households that would like to subscribe and could afford it but their 
MVPD service of choice is not available in their community (e.g., no 
cable system or no satellite provider with local-into-local service).
Options for Addressing Analog-Only Television Sets
    We also seek comment on options for addressing the potential 
disruption to consumers with analog-only television sets when the 
transition is complete. As an initial matter, we seek comment on the 
extent to which market forces can be expected to deal with this 
problem-e.g., consumers voluntarily buying digital-to-analog converter 
boxes before the end of the transition, cable or satellite providers 
that carry all of the local digital broadcast stations connecting 
additional sets in subscribers' homes to their networks, and 
broadcasters, wireless auction winners or others voluntarily 
subsidizing or deploying converter boxes in order to accelerate the 
transition. If marketplace forces alone cannot be counted on to address 
this issue, can and should the affected industries be required to take 
steps to minimize the potential for consumer disruption?
    If government action is warranted, we seek comment on the nature 
and scope of such involvement. Should the government subsidize 
consumers' purchase of digital-to-analog converter boxes, or should it 
procure and distribute the equipment itself? In either event, what 
minimum technical capabilities should the converter boxes have? What do 
converter boxes cost today and what are they expected to cost in the 
future?
    If a subsidy is appropriate, we seek comment on the type and amount 
of subsidy that should be considered. For instance, we seek comment on 
whether the subsidy should be in the form of a tax credit, a refundable 
tax credit, or a voucher. We also seek comment on whether the subsidy 
should be available for consumers who wish to purchase a digital 
television set in lieu of a digital-to-analog converter, or for those 
who wish to purchase a multi-channel video service from providers that 
carry all the local digital broadcast signals.
    We seek comment on the scope of any potential government action. 
Who would qualify for the government subsidy or other program? If the 
subsidy or other program is means-tested, what test should be used? We 
also seek comment on the number of devices that the government should 
subsidize. For instance, is one digital-to-analog converter box per 
household sufficient, or should the government subsidize the conversion 
of additional analog-only sets in consumers' homes? Should the 
government subsidize conversion equipment for over-the-air households 
that have at least one digital receiver and one or more. analog-only 
sets? Should the government subsidize conversion equipment for MVPD 
subscribers who receive all the local digital broadcast signals on the 
television(s) hooked up to the pay service, but who have one or more 
analog-only sets not hooked up to the pay service?
    Finally, we seek comment on how a government program would be 
financed and administered. For instance, in bands where we intend to 
auction new licenses for spectrum freed up by the digital conversion, 
we seek comment on whether, under Section 309 and our precedent, we 
could require as a condition of the license that auction winners pay 
for conversion of analog only equipment as part of a mandatory band-
clearing mechanism. We note that in other auctioned bands, we have 
required new entrants to bear the costs to retune existing equipment to 
new bands or replace such equipment. We also seek comment on whether a 
government subsidy program could be financed directly through auction 
revenues, spectrum license fees, or other funding mechanisms, although 
we note that some of these options would require legislation.

    The Chairman. What are the options for the over-the-air 
viewers?
    Mr. Ferree. Chairman McCain, one option is to go ahead with 
the transition without any additional government involvement, 
in which case it would be up to the industries involved to take 
care of those viewers to make sure their TVs continue to work. 
And indeed all of the industries have a vested interest in 
making sure those TVs continue to work, not just the 
broadcasters, but the MPVDs, cable operators, advertisers want 
those TVs to work. Nobody wants to see those go dark.
    In the event there is further government involvement, we 
can look at things like subsidizing set-top box, converter 
boxes for consumers. These are all issues which we put out in 
our public notice and sought comment on to get some input both 
on the demographics of who these people are and also what it 
might take to take care of them that way. What boxes may cost 
at various times, depending on how many you are buying and so 
forth. So that's all information we are hoping to get through 
our public notice.
    The Chairman. Thank you. Mr. Lawson, welcome.

             STATEMENT OF JOHN M. LAWSON, PRESIDENT

                  AND CHIEF EXECUTIVE OFFICER,

           ASSOCIATION OF PUBLIC TELEVISION STATIONS

    Mr. Lawson. Thank you, Mr. Chairman. Members of the 
Committee. I'm John Lawson. I represent the public television 
stations. I appreciate your inviting me here to testify.
    Mr. Chairman, public television is bullish on DTV, we have 
raised over $1 million for this conversion. Most of that has 
been non-Federal. The Federal money has been crucial to getting 
our stations on the air and today about 70 percent of them are 
broadcasting a digital signal. Our embrace of digital 
television goes beyond meeting a Federal mandate. Our stations 
are beginning the actual deployment of real DTV services, these 
are real services for real people.
    High definition multicast, standard definition, datacasting 
for education and for homeland security and I call your 
attention to the Appendix C in my written testimony, an article 
this week about a new project between us and FEMA, Department 
of Homeland Security, the public station WETA and PBS to use 
datacasting as a backbone for emergency communications here in 
the national capital region.
    So we have made much progress, but major challenges remain. 
And if these challenges are not addressed the digital 
transition will drag on for many years. The good news is there 
are specific policy steps that can greatly accelerate the 
digital transition. Please allow me to illustrate the clear 
choice.
    We conducted a survey of our members in February of this 
year, this is covered in Appendix A to the charts and the chart 
here to my right. We asked our stations if they knew that they 
were guaranteed full carriage of their digital signals post 
transition on cable and satellite, if they knew that low-cost 
set-top boxes, simple digital to analog converter boxes were 
available to serve the remaining over-the-air households, and 
three, if Congress created a dedicated funding source, a trust 
fund to support the production of digital content, when do 
they--when would they believe they would be able to turn off 
analog, what we call digital only broadcasting. The results 
were very surprising.
    With these three changes, 81 percent, 81 percent of our 
stations said they could do it by the end of 2007. Without 
these conditions, 86 percent of the stations told us they would 
not be able to turn off analog until 2010 or much later mostly 
because of the need to serve over-the-air households.
    Believe me, Mr. Chairman, running analog and digital is 
very expensive. Most stations don't want to run both any longer 
than they have to. Based on this research, we'd like to offer 
our blueprint for completing the transition. It's a work in 
progress, but we appreciate being able to share our thinking 
with you.
    First, the Commission should immediately adopt rules for 
full digital post transition carriage of our signals, including 
multicast on cable. We believe this should apply to commercial, 
as well as public stations. We would prefer to negotiate these 
agreements, but it's critical that FCC and/or Congress be 
prepared to step in if necessary and that cable knows it. We 
have provided our views on the re-authorization of the 
Satellite Home Viewer Improvement Act to the Committee.
    Second, we propose that Congress create a digital education 
trust fund. The idea of a trust fund for public broadcasting 
has been around since the 1960s but this proposal is different. 
It would be conditioned on the voluntary early return of analog 
spectrum by public stations. It would be funded by auction 
revenues upon the return of public television spectrum with 
funding in advance by Congress to be repaid through the 
auctions. And funding would be targeted through the creation of 
digital education content.
    Mr. Chairman, this plan would be an economic win-win for 
the Nation in two basic ways. Although the debate has centered 
on the auction revenue, we believe that the most important 
calculation should be the greater impact to the U.S. economy 
from freeing up the spectrum sooner rather than later, points 
that you alluded to from Mr. Hunt and others.
    Second, we believe the trust fund itself will generate 
economic benefits. With it, we could make high-quality 
education and training available to citizens at all levels, 
becoming ubiquitous on a just in time basis.
    Finally, Mr. Chairman, a few comments about the over-the-
air viewer. After cable and satellite carriage, this is the 
greatest barrier to the transition, making sure that we take 
care of these over-the-air viewers that we are talking about, 
minimum, 14 percent of U.S. TV households, over 30 million 
people, plus our tens of millions of second and third sets in 
homes that aren't tied to cable or satellite.
    Public television and Members of Congress are in exactly 
the same boat. We cannot just turn off these people's analog 
sets. We must give the consumer a simple halfway to go digital. 
Some subsidies may be necessary, however, we believe most 
consumers can be motivated to buy set-top boxes or new digital 
sets.
    Price is a factor, and there is good news on that front, 
but the real key is for us broadcasters to get together and 
roll out and market new over-the-air digital services to those 
consumers.
    Mr. Chairman, we believe we are developing a market-based 
proposal that will be good for America. It will advance the 
transition. It will unleash the full potential of analog 
spectrum, including for public safety, and it will deliver new 
generation of education services to the country. Thank you for 
the opportunity to be here today. I look forward to your 
questions.
    [The prepared statement of Mr. Lawson follows:]

  Prepared Statement of John M. Lawson, President and Chief Executive 
           Officer, 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. I emphasize the word 
local because, however one feels about increasing media concentration, 
one thing is clear: Local public television stations are and will 
remain locally controlled, operated, and programmed.
Historic Leadership from the Senate Commerce Committee
    Let me begin by thanking you, Mr. Chairman, for your leadership in 
convening this hearing. Completing the digital transition is not just 
important for the communications industry, but for the economic 
competitiveness of our country as a whole. You are a real driver in 
getting this transition completed, and I appreciate your inviting me to 
testify today.
    I also want to acknowledge the long history of bipartisan support 
that public broadcasting has enjoyed from members and leaders of the 
Senate Commerce Committee, including Senators Warren Magnuson and Barry 
Goldwater. They played key roles in building Public Television into a 
unique institution of public service that reaches and has been welcomed 
into nearly every home in America.
    This long history includes current leaders such as Senators Ted 
Stevens and Daniel Inouye. And I especially want to acknowledge, upon 
his pending retirement, the leadership of Senator Hollings. He has 
supported public broadcasting from his governorship of South Carolina, 
my native state, through today. I want to thank you, Senator Hollings, 
for all you have done for locally-controlled, noncommercial media in 
this country.
Innovation with New Digital Services
    Mr. Chairman, Public Television is bullish on DTV. Since 1996, our 
stations have raised over $1 billion for digital conversion, the 
majority of which has come from non-federal sources. This is $1 billion 
over and above what we have to raise each year for programming and 
operations. When economic pressures caused state and private funding to 
decline early in this decade, Congress stepped up Federal funding, 
which has been crucial for many of our stations' getting on the air 
with a digital signal--currently 248 stations, or 70 percent of all 
public stations.
    Our embrace of digital technology goes well beyond meeting a 
Federal mandate. In fact, it is no exaggeration to say that our local 
stations view digital as their greatest opportunity ever to serve the 
public. Our stations have continuing infrastructure investment needs. 
Nevertheless, many are beginning the actual deployment of exciting new 
digital services. We are entering a time of great innovation and 
experimentation with digital technology, and the early results are very 
encouraging.
    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. The South Carolina Channel from SCETV, for example, 
is a new digital channel that provides gavel-to-gavel coverage of the 
state legislature and other local and statewide programming.
    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 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, the 
Association of Public Television Stations (my association), local 
public station WETA, 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.
    I encourage members of the Committee to examine Appendix C of my 
testimony. It 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. Stations are launching 
new initiatives every day.
Clear Choice for the Federal Government
    However, despite recent progress in the DTV transition, the Nation 
remains a long way from achieving the full benefits of digital. 
Carriage of the digital signals on cable and satellite is still 
uncertain for most stations. Broadcasters and elected officials are in 
the same boat when it comes to serving households with over-the-air 
analog television sets: we cannot just turn off people's access to 
free, broadcast television. And for public television, especially, we 
must find a way to fund the production of digital content that will 
help drive consumer acceptance of DTV.
    The implication of the status quo in government policy is clear: 
without bold government and industry action to quicken the transition's 
pace, the benefits of digital television will remain beyond the reach 
of most households for an unacceptably long period of time. 
Furthermore, the current analog broadcast spectrum that is to be 
returned to the government for other uses will likewise remain 
unavailable for the same unacceptably long period of time.
    Clearly, it is time for a bold initiative to unleash digital. We 
applaud the work of the FCC's Media Bureau in developing a proactive 
framework for completing the transition. We continue to have questions 
about some elements of the plan as it has been crafted to date, but we 
appreciate the bureau's continued willingness to work with us. I would 
note that one key element of the Media Bureau's draft plan is a 
national ``hard date'' of January 1, 2009 to turn off analog 
broadcasting. The plan that we in public television are developing 
would free up considerable blocks of analog spectrum well before 2009. 
At the same time, we have an obligation to ensure that viewers who only 
own analog TV sets will not be stranded by the imposition of a hard 
deadline. We take our universal service obligations very seriously.
    Public stations hold licenses to 21 percent of the Nation's 
broadcast spectrum. They know that they hold spectrum in trust, and 
that the government will reclaim the analog spectrum at some point. 
However, there is great disparity about when stations believe 
conditions will be in place that will allow them to switch off analog 
broadcasting and achieve what we call DOB--Digital-Only Broadcasting. 
In February, a survey of our member stations found that, assuming the 
status quo, 86 percent of stations do not believe conditions will be in 
place for DOB by 2009, the hard date proposed by the 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 Media Bureau would require. (See Appendix A)
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. The idea of a 
public broadcasting trust fund has been around since the 1960s, but 
this one 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.
    It is important that this be a voluntary plan. Stations in Roanoke, 
Virginia; Houston, Texas; Anchorage, Alaska; and Tucson, Arizona; have 
indicated they might be ready for Digital-Only Broadcasting by an early 
date if the above conditions are met. However, we need to protect 
consumers in states like Montana, Oregon and North Carolina where some 
believe that DOB may take much longer.
    Our plan is based on the notion that it is not necessary or even 
desirable for all spectrum--public and commercial--to be returned at 
once. Moreover, all spectrum, like all politics, is local. 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.
    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?
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.
Trust Fund for a New Generation of Digital Education Content
    The next step under our proposal is for stations electing DOB and 
an early return of analog to file a ``universal service plan'' with the 
Commission outlining how they would serve their over-the-air analog 
consumers in a digital-only world. Again, presumably, they would likely 
have the assistance and support of commercial entities in crafting 
these plans.
    Upon acceptance of the plan, analog spectrum would be surrendered 
and--this is crucial--stations 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 educational digital 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
    In sum, the Public Television digital transition plan, still in 
development, builds on ideas raised by the Media Bureau plan, such as 
full post-transition carriage rights, including multicasting, and goes 
a couple of steps further. 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 rather than 
relying heavily on a Federal subsidy. The new educational content 
services that would flow from the creation of a dedicated fund would 
represent true digital public service that otherwise might not happen. 
And very importantly, our plan accelerates the day that public safety 
agencies will have access to the spectrum they sorely need.
    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.
    With the expectation that this Committee will consider 
reauthorizing the Public Broadcasting Act this summer, we believe there 
is no better time to launch an initiative such as this. We hope you 
will give this proposal your serious consideration and work with us to 
develop it. Thank you for the opportunity to be here today, and I look 
forward to responding to your questions.
                               Appendix A
Question A: If you knew that cable would carry your digital signals 
        when you switch off analog, that low cost digital-to-analog 
        set-top boxes were available to consumers, and that Congress 
        would establish a trust fund tied to the return of PTV's analog 
        spectrum, how soon would your station be willing to turn off 
        analog?
        
        
      [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]  
        
        
        
Question B: Without cable carriage, low cost d/a set-top boxes, or a 
        trust fund, how soon would you expect your station to turn off 
        analog?
        
        
    Source: APTS Online Member Consultation, February 2004
                               Appendix B

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


                               Appendix C
How Public Television Stations Use Datacasting in the DTV Transition
    One promise of the digital transition is the ability for stations 
to implement datacasting--using digital TV bandwidth to deliver data in 
many locations throughout the broadcast area of a local public 
television station. Much like a TV program is broadcast to many 
television receivers, datacasting delivers digital content--video, 
audio, data files--to local content servers. Datacasting provides 
significantly superior quality and reliability with several advantages 
over satellite or Internet mediums, such as:

   Datacasting is inexpensive compared to satellite 
        transmissions.

   Datacasting in not dependent on large data pipes the way 
        streaming is.

   Datacasting will not bottleneck limited network resources.

   Datacasting provides copyright protection to streaming.

    Many APTS member stations are developing applications for 
datacasting that range from homeland security uses to education and 
workforce development as a vital part of the digital transition. 
Following is a sample of local station innovation in datacasting.
Homeland Security/Emergency Preparedness

   The New Jersey Network (NJN) was the first in the Nation to 
        utilize public digital television to enhance emergency 
        preparedness for nuclear power plants. NJN uses its broadcast 
        signal to send emergency messages at high speeds to desktop 
        computers at New Jersey Office of Emergency Management (OEM) 
        sites around the Oyster Creek Nuclear Generating Station. This 
        is yet another example of NJN's pioneering work in digital 
        transmission technology and will serve as a model for other 
        communities.

   KLVX/Las Vegas has worked with the Clarke County Emergency 
        Preparedness office to take advantage of the system KLVX has in 
        place to transmit video and other information to the 300 
        schools in the region currently linked to KLVX. Current 
        emergency plans from the county designate the public schools as 
        safe evacuation sites and KLVX can communicate with these 
        centers in case of emergency. KLVX is now working to leverage 
        the same technologies to provide for communication links to 
        rural communities and the protection of incoming water supplies 
        to the area.

    KLVX is also using their television technology to help Las Vegas 
        public safety personnel get up-to-the-minute information that 
        can help them respond to emergencies. KLVX can use a portion of 
        its digital television signal to beam information--such as 
        building blueprints or video and audio files--directly to first 
        responders' computers or mobile data terminals. The information 
        can be received using a traditional television antenna that is 
        connected to a special receiver that plugs into a computer or 
        mobile data device. Through the over-the-air digital signal, 
        emergency workers can receive files just as they would with an 
        Internet connection. Because datacasting only uses excess parts 
        of the spectrum, it doesn't interfere with the station's normal 
        HDTV broadcasts.

   In partnership with the University of Texas Medical Branch-
        Galveston, the KERA/Dallas Homeland Security system can deliver 
        crisis communications to discrete or general audiences, 
        including simultaneously sending different messages to health 
        departments, DMAT teams, hospitals, law enforcement/fire 
        safety, and general public. The University of Texas Medical 
        Branch-Galveston is the largest telemedicine provider in the 
        Nation and the only academic campus in the U.S. with a maximum 
        CDC-related biological containment laboratory (BSL4 research 
        laboratory).

   The Kentucky Network (KET) is capable of datacasting 
        significant amounts of information over the airwaves through 
        their digital transmitter network in what could be called the 
        ``wireless portion of Kentucky's information highway.'' This 
        digital datacasting capability will enable emergency and other 
        high priority information to be delivered to computers around 
        the state on a moment's notice. KET is working with partners 
        such as the Dept. of Public Health, Kentucky State Police, 
        Emergency Management, NDS, Inc., and several others to develop 
        the potential of this new service.

   Thirteen/WNET in New York City is developing a program to 
        test and analyze end-to-end communication with first responders 
        over the station's digital broadcast spectrum. A prototype of 
        the Smart Dissemination Networks Project (Smart Nets) is 
        currently being tested. Smart Nets will incorporate a sensor 
        network to collect local data, integrate, disseminate and 
        display video, other sensor data, and multi-source national 
        intelligence data related to special operations for urban 
        environments, perimeter defense, homeland defense, emergency 
        response systems, emergency broadcast systems, and mobile 
        command and control. Covering a 50-75 mile urban area, the 
        system would also receive return requests for information in 
        the same broadcast channel (``in-band return path''). The 
        unique aspect of this system is that the architecture turns a 
        traditionally one-way communications stream into a two-way 
        band. In the event of a failure of cellular and landline 
        communications during a catastrophe like that of 9/11 or the 
        blackout of August 2003, Smart Nets would enable first-
        responders on the scene to remain in continuous contact.

    ``The FDNY is very excited about the kinds of capabilities that 
        Smart Nets will provide our units in the field,'' said Deputy 
        Fire Commissioner of Support Services Milton Fischberger. ``We 
        have taken significant steps in improving our communications 
        infrastructure since 9/11. The addition of Smart Nets will only 
        further increase the scope of our ability to communicate to our 
        members, and in turn, the ability to efficiently operate at 
        emergencies.''
Education

   KERA/Dallas uses a local content server to receive and store 
        transmitted information, which maximizes the available DTV 
        bandwidth because information can be received 24 hours a day. 
        Data transmissions can occur at anytime and are then stored for 
        use at a school's convenience. Beyond equipment, the KERA 
        datacasting program includes installation, technical training 
        and support, opportunistic bandwidth management (scheduling and 
        capacity maximization), customer installations and front-line 
        support, and the development of broad content networks to 
        provide a wide range of quality titles and enriched content to 
        the schools.

    The real value is to the teacher and ultimately the students. Most 
        content is readily accessible from the KERA on-site content 
        library. At the user interface, teachers can easily search the 
        large library by grade, subject, title or indexed learning 
        objectives. Teachers spend less time acquiring and manually 
        manipulating the video segments and more time enriching their 
        lesson plans. The students get more information in a more 
        interesting and entertaining format, which increases the 
        probability of connection and information retention.

   KCPT/Kansas City, in partnership with three other Missouri 
        stations (KMOS/Warrensburg-Sedalia, KETC/St. Louis and KOZK/
        Springfield), the adult education division of the Missouri 
        Department of Education, and the state library system are 
        looking to use datacasting to train librarians in local 
        libraries to mentor students taking GED courses for 
        certification. This project is in the discussion phase, but 
        builds on a successful datacasting pilot project with two local 
        colleges and one area middle school to test the educational and 
        practical applications of this enhanced service.

    This proposal offers a unique solution for those living in rural 
        areas. Trained librarians, who will act as facilitators for the 
        students pursuing a GED certificate, help make up for the 
        shortage of money to pay teachers. Situating the ``study 
        groups'' in libraries makes it more readily available to adult 
        students who may get cold feet having to enter a classroom 
        setting again after years of being away from this environment. 
        Study groups will meet at the library to watch videos and use 
        workbooks from GED Connection that will be located at the sites 
        along with curriculums. Librarians will connect students, via 
        phone or Internet, with tutors when needed.
Workforce Development

   New Jersey Network (NJN) is working with the N.J. Department 
        of Labor, other state agencies and community-based 
        organizations to provide workforce development services through 
        the ``New Jersey Workplace Literacy Program.'' NJN is using a 
        variety of technologies to deliver workforce training materials 
        to welfare recipients, dislocated workers and other job seekers 
        at 14 sites across the state.

    This program fully incorporates the Workplace Essential Skills 
        video and web-based instructional system to teach individuals 
        at the pilot sites basic skills needed for workplace success. A 
        crucial element of the program is that it enables participants 
        to address their own employment and skills issues at their own 
        place. The videos teach basic reading, writing and math skills 
        in the context of real-life work settings. At the same time, 
        important concepts such as making a good impression, employee 
        dependability, making the most of introductory training and 
        growing within the job are reinforced.

   WHYY/Philadelphia has been involved in a two-year 
        datacasting pilot project to digitize most of the GED 
        Connection and Workplace Essential Skills content from PBS 
        LiteracyLink. WHYY made this instructional content and 
        accompanying print materials available at 20 locations in four 
        counties, including a homeless shelter, job centers and two 
        community colleges.

    The pilot project focuses on adult basic education: preparing the 
        entry-level worker to enter the workplace and increase the 
        number of residents in Pennsylvania completing their high 
        school and college educations through distance learning. WHYY 
        is participating in this pilot project to demonstrate the 
        effectiveness and potential digital broadcast-based delivery to 
        help bridge the digital divide and deliver training where 
        people need it most.

    The Chairman. Thank you very much. Mr. Calabrese.

 STATEMENT OF MICHAEL CALABRESE, VICE PRESIDENT AND DIRECTOR, 
        SPECTRUM POLICY PROGRAM, NEW AMERICA FOUNDATION

    Mr. Calabrese. Thank you, Mr. Chairman and members of the 
Committee for providing this opportunity. My name is Michael 
Calabrese, I direct the Spectrum Policy Program at the New 
America Foundation, a nonpartisan policy institute in 
Washington.
    There is a general consensus that rapidly completing the 
DTV transition, thereby freeing up the beach front spectrum 
that corresponds to channels 62 to 69 is clearly in the public 
interest. Because wireless signals at this frequency range pass 
easily through walls and trees, reallocating the 700 megahertz 
band should jump-start the deployment of more affordable 
wireless broadband connections.
    As you have heard from Ken Ferree, the real DTV transition 
is taking place over the cable and satellite systems that 
already provide the primary TV service for at least 85 percent 
of American households.
    Unfortunately, the Media Bureau plan by itself is unlikely 
to succeed. By focusing on the arbitrary 85 percent statutory 
industry threshold, the Ferree plan does not resolve the far 
more daunting obstacle, which is the 17 million households that 
continue to rely on over-the-air analog TV. We call this 
roadblock the last granny rule.
    The political reality is that neither broadcasters nor the 
government will turn off analog TV when as many as 15 percent 
of Americans could lose access to their local TV stations. We 
believe it is necessary for Congress to step in and fix the 
problem it created in 1996 when it loaned broadcasters, with no 
strings attached, a second free channel of spectrum.
    We believe that in three short years, the DTV transition 
can be completed, 108 megahertz of prime spectrum can be 
repurposed to public safety and wireless broadband. Tens of 
billions of dollars in new Federal revenue can be collected and 
the FCC's costly TV tuner mandate can be repealed.
    All of this can be done, but only if Congress chooses to 
earmark roughly 10 percent of the likely auction revenue from 
this band to pay for a tax credit to help consumers who rely on 
over-the-air analog broadcasting. A rapid and smooth transition 
was completed in Berlin, Germany and can likewise be successful 
here.
    We recommend that Congress both accelerate and improve upon 
the Media Bureau's plan by adopting the following provisions. 
First, announce a January 1, 2008, deadline for analog turn off 
and spectrum clearance. The Berlin switch took a total of 18 
months. Assuming that Congress ask complete action by the end 
of its 2005 session, we believe that a two-year transition 
after that would be more than adequate.
    Auctions of returned spectrum could then occur in 2006, and 
fetch full value, thanks to the certainty of turn off and--of a 
turn off and clearance deadline. Ideally, only an initial ten-
year license term would be auctioned, reducing the up-front 
cost to bidders with an annual user fee kicking in at renewal.
    The third and most critical element would be a consumer 
equipment subsidy. In Berlin, the government distributed 
digital to analog converters directly to 6,000 very low-income 
households. In the U.S. context, we believe that a one-time tax 
credit on the order of $75 would be far more flexible and 
administratively efficient.
    Currently, because so few are produced, converters with the 
capacity to down convert from high definition digital signals 
to analog cost over $200. However, in mass production, 
electronics industry analysts expect that cost to fall into the 
$50 to $100 range. The tax credit should be available during a 
single 12-month period corresponding to the 2007 tax or fiscal 
year.
    Unlike Berlin, consumers should have the flexibility to 
apply the credit not only to a converter but to a new DTV set 
or to a satellite dish or to the setup costs of a cable 
subscription. The trickiest issue is who should be eligible for 
the subsidy.
    In the U.S., free TV has taken on the nature of a social 
entitlement. This means that legislation that makes analog TV 
sets obsolete will be keenly felt, even in middle class homes 
as a type of taxing.
    There are two ways this can be mitigated. One is to revoke 
the FCC's over-the-air tuner mandate, a hidden tax that will 
cost American consumers more than $1 billion for a year after 
it phases in, beginning next month. Because 85 percent of homes 
already choose not to receive their primary TV service over-
the-air, the mandate imposes an unnecessary cost on everyone.
    A second and more direct means to minimize consumer 
resistance is to make most if not all households eligible for 
the tax credit.
    In my written testimony, I provide cost estimates for a 
range of eligibility options from means test to go universal. 
Limiting the refundable credit to the eight million households 
with incomes under $40,000 and which rely exclusively on off-
air reception would cost roughly $600 million. This is less 
than 2 percent of the value of the returned spectrum based on 
receipt transactions for cellular licenses. Extending the 
subsidy to all 17 million households that rely exclusively on 
over-the-air reception would cost approximately $1.3 billion.
    A third option is to allow all TV households in America to 
claim a single credit. Assuming that 50 percent of cable and 
satellite subscribers claimed the credit to retrofit a 
secondary analog set, the total cost for all households is $4.7 
billion. This is roughly 10 percent of the return of spectrum's 
market value.
    As a matter of equity, we believe it is also critical that 
the tax credit be refundable. There seems to be no good reason 
to deny the transition subsidy to a household, particularly a 
senior citizen or low-income household that cannot offset an 
income tax liability that particular year.
    I'd like to mention three final elements quickly that would 
also require Congressional action. The first is reallocation of 
a frequency that has been freed up. Currently, public safety 
has been promised four of the 18 channels freed up. We 
recommend that Congress divide the remaining 84 megahertz 
equally between licensed and unlicensed spectrum.
    Unlicensed spectrum for entrepreneurs and community 
networks is particularly important for rural and low-income 
areas, where wire connections are unavailable or unaffordable. 
Today, more than 1500 wireless start-ups are using unlicensed 
spectrum to offer high-speed broadband connections to 300,000 
homes and businesses up to 30 miles over the airwaves. At low 
frequencies, unlicensed wireless broadband could be a far more 
affordable alternative to cable and copper as an Internet 
connection.
    The final elements and perhaps most neglected aspect of the 
DTV transition is the need to update the public interest. DTV 
licensing gives potential revenue and increased capacity. We 
urge the Committee to enact a minimum requirement for local, 
civil and electoral programming along the lines performed by 
the Public Interest, Public Airwaves Coalition.
    Modeled after FCC's license renewal guidelines for 3 hours 
of children's educational programming, the Coalition proposes 
that stations air a minimum 3 hours-per-week of local, civic 
and electoral coverage on the most watched channel as well as 
additional hours equal to 3 percent of the additional 
multicasting they are able to do.
    Thank you for your time. I look forward to answering any 
questions.
    [The prepared statement of Mr. Calabrese follows:]

 Prepared Statement of Michael Calabrese, Vice President and Director, 
            Spectrum Policy Program, New America Foundation

 ``Completing the Digital Television Transition: A Consumer Converter 
     Subsidy Can Reduce the Deficit and Redeploy UHF Spectrum for 
                          Wireless Broadband''

    Good morning. My name is Michael Calabrese, Vice President and 
Director of the Spectrum Policy Program at the New America Foundation, 
a nonpartisan public policy institute here in Washington. Thank you, 
Mr. Chairman and members of the Committee, for this opportunity to 
testify today. I will focus on our proposal for a consumer subsidy that 
can bring the long-stalled DTV transition to a swift conclusion while 
also ensuring that no American loses their access to ``free'' over-the-
air programming.
    There is a general consensus that rapidly completing the digital TV 
transition--thereby freeing up the 108 MHz of ``beachfront'' spectrum 
corresponding to TV channels 52-to-69--is clearly in the public 
interest. Because wireless signals at this frequency range pass easily 
through walls and trees, the 700 MHz band could jumpstart the 
deployment of more affordable wireless broadband connections, 
particularly in rural areas.
    Although Congress has already reallocated a portion of these TV 
channels for public safety agencies (to address interoperability 
problems) and for auction to licensed cellular services (which could 
yield $30-to-$40 billion in Federal revenue), the DTV transition is 
badly stalled. There is no fixed deadline for redeploying these 
precious frequencies from analog broadcasting for the few to productive 
broadband for all. And, as FCC Media Bureau Chief Kenneth Ferree 
testified before the House Commerce Committee last week, under current 
law it could take decades before these economically critical 
frequencies are cleared for wireless broadband and other emerging 
technologies. The controversial question is how to end analog 
broadcasting without stranding the roughly 15 percent of consumers who 
still rely on analog over-the-air reception for their ``free'' TV.

   How U.S. Households Receive Television, Comparing 1993 and 2003 \1\
------------------------------------------------------------------------
                                         Dec. 1993    June 2003   Change
    TV Households in United States       (millions)   (millions)    (%)
------------------------------------------------------------------------
Over the Air Only                              33.9        12.5%    -63%
                                              (26%)      (11.7%)
 
MVPD Subscribers*
  Cable                                        57.2     70.5 \2\
  DBS                                           .07           20
  Other                                           3          3.4
 
Total
Subscription MVPD                              60.3         93.9     37%
                                              (64%)      (88.3%)
------------------------------------------------------------------------
*MVPD = Multichannel Video Programming Distributors are Cable, Direct
  Broadcast Satellite, and other service providers.

    Last month the FCC's Media Bureau floated a new DTV transition plan 
that represents a fairly radical departure from the government's 
current approach. Rather than relying on additional subsidies to 
broadcasters, the ``Ferree Plan'' recognizes that the real DTV 
transition is taking place not over the air, but over the cable and 
satellite systems that already provide the primary TV service to at 
least 85 percent of U.S. households.\3\ By counting all cable 
households as capable of receiving digital broadcasts, the FCC could 
declare that the statutory 85 percent threshold of DTV-capable homes in 
each market has been reached--and on that basis schedule the 
termination of analog broadcasting, and the reallocation of the 
spectrum used by TV Channels 52-to-69, for January 1, 2009.
---------------------------------------------------------------------------
    \1\ FCC, ``Annual Assessment of the Status of Competition in the 
Market for the Delivery of Video Programming: Tenth Annual Report,'' 
January 28, 2004. Available at http://hraunfoss.fcc.gov/edocs_public/
attachmatch/FCC-04-5A1.pdf.
    \2\ Of these 70.5 million cable subscribers, an estimated 22 
million receive digital cable, see http://www.ncta.com/Docs/
PageContent.cfm?pageID=86
    \3\ As of June 2003, according to the FCC only 12.5 million U.S. 
households relied on terrestrial (over-the-air) for their primary TV 
signal. More than 94 million of the Nation's 106.6 million TV 
households subscribed to cable, direct broadcast satellite or other 
multichannel video program distribution service. See supra, note 1, 
FCC, p. 54. However, because other credible survey data from the 
broadcast industry suggests that the OTA reliance may be as high as 
17.5 million, or 16.1 percent of the Nation's 108 million TV households 
(as of Nov. 2003), we use that conservative estimate here. See Andrew 
D. Cotlar, ``Digital-Only Broadcasting: A Roadmap for Early Return of 
Public Television's Analog,'' Association of Public Television 
Stations, Feb. 2004, at pp. 12-13 and Appendix C.
---------------------------------------------------------------------------
    Unfortunately, while the Media Bureau plan is a step in the right 
direction, it is insufficient. By focusing solely on meeting the 85 
percent statutory threshold for ending analog broadcasting, it ignores 
the far more relevant obstacle to redeploying the 700 MHz band to 
public safety and wireless broadband: the 17 million consumers who 
continue to rely on over-the-air analog TV. The switch from analog to 
digital-only broadcasting would currently force millions of households 
to purchase a digital TV, to purchase a digital-to-analog converter (so 
that their current TV still functions), or to subscribe to a paid cable 
or satellite service.
    It is true that product obsolescence is an everyday fact of life 
for Americans. Every year Americans throw away tens of millions of 
perfectly usable computers and mobile telephones because new technology 
comes along that makes them obsolete. Yet the potential backlash from 
consumers who continue to rely on terrestrial (over-the-air) 
broadcasting means the Ferree Plan is unlikely to succeed without a 
one-time consumer equipment subsidy.
    We believe it is necessary for Congress to step in and fix the 
problem it created when it loaned broadcasters, with no strings 
attached, a second free channel of spectrum in the 1996 Communications 
Act. At a cost equal to about 10 percent of the likely revenue the 
government can receive by reassigning Channels 52-to-69, a consumer 
subsidy can facilitate a two-year switchover from analog to DTV. By 
January 1, 2008 the DTV transition can be completed, the 108 MHz of 
channel 52-to-69 spectrum can be re-purposed to public safety and 
wireless broadband, tens of billions of dollars of new Federal revenue 
can be collected, and the FCC's costly DTV tuner mandate can be 
repealed if Congress chooses to earmark a fraction of the spectrum 
auction revenue (between 5 and 15 percent) for a tax credit to offset 
the cost for consumers who still rely on analog over-the-air 
broadcasting. A rapid and smooth DTV transition along these lines was 
completed last year in Berlin, Germany--and can likewise be successful 
here.
Summary of New America's DTV Transition Proposal
    We believe that that this Committee can best serve the public 
interest by adopting an enhanced version of the Media Bureau's plan 
that emphasizes two goals:
    First, to protect consumer choice and consumer access to local 
broadcast programming. It's important to note that preserving every 
American's current ability to view their local OTA channels is not the 
same thing as requiring every American to watch digital-quality 
pictures.
    Second, to quickly clear and reallocate Channel 52-to-69 spectrum 
for both unlicensed and licensed wireless broadband, which will 
generate even greater economic and social gains in the long-term than 
the spectrum auction revenues generated in the short-term.
    We recommend that Congress both accelerate and improve upon the 
Media Bureau's DTV transition plan by adopting the following 
provisions:

 1.  Fixed Turn-off Date: Announce a January 1, 2008 deadline for 
        analog turn-off and spectrum clearance.

 2.  Reschedule Auctions: Schedule auctions for assignment of licensed 
        portion of the returned spectrum for 2006 (ideally only the 
        initial license term would be auctioned, specifying an annual 
        user fee to compensate the public thereafter).

 3.  Consumer Converter Subsidy: Using a fraction of auction revenues, 
        authorize a refundable tax credit available to consumers during 
        a 12-month period (calendar or Fiscal Year 2007) to offset the 
        cost of converting from analog to DTV reception.

 4.  Consumer Choice: Give consumers the flexibility to apply the 
        credit to a digital-to-analog (D-A) converter boxes, a new DTV 
        set, or for initial satellite dish or cable set-up costs.

 5.  Revoke the DTV ``Tuner Tax'': Reverse the FCC's 2003 DTV tuner 
        mandate, which seeks to reach the statutory 85 percent 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 at least $1.4 billion 
        annually--despite the fact that the 85 percent of consumers who 
        receive TV by cable or satellite may not need or want an OTA 
        tuner.

 6.  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.

 7.  Switch from Analog to Digital Must-Carry: Upon return of their 
        analog channel license, a broadcaster should be allowed to 
        choose single channel digital must-carry (with no signal 
        degradation); after Jan. 1, 2008, cable systems must pass 
        through broadcasters' primary digital signal, but can choose to 
        cease down-converting the digital signal for analog reception.

 8.  Update the DTV Public Interest Obligations: The obligations of 
        broadcast licensees should be extended to all ``free'' over-
        the-air programming streams and expanded to air each week the 
        lesser of 3 hours, or 3 percent of programming time, of local 
        civic and electoral programming (half of this in prime 
        time).\4\
---------------------------------------------------------------------------
    \4\ See ``Proposed Processing Guidelines for DTV Public Interest 
Obligations,'' submitted to the FCC April 7, 2004, by a coalition of 
nonprofit groups including Commons Cause, New America Foundation, 
Alliance for Better Campaigns, Center for Digital Democracy, Media 
Access Project, et al. Available at http://www.ourairwaves.org/docs/
index.php?DocID=56

 9.  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, capitalizing a trust fund for the future of PBS and/
        or a Digital Opportunity Investment Trust.\5\
---------------------------------------------------------------------------
    \5\ See The Digital Opportunity Investment Trust Act, S. 1854, 
sponsored by Senators Dodd, Snowe, and Durbin. A bill summary and 
Report to Congress by the Federation of American Science is available 
at http://www.digitalpromise.org/legislation_hearings/index.asp.
---------------------------------------------------------------------------
Time to Shift from Broadcaster to Consumer Subsidies
    There are two general approaches to speeding up the DTV transition. 
The first is what we call the ``Broadcaster Subsidy Model.'' This is 
the approach America has taken to date. The second approach, 
implemented successfully last year in Berlin, Germany, is the 
``Consumer Subsidy Model.'' This latter approach is premised on 
earmarking roughly 10 percent of the auction value of just a portion of 
the channel 52-to-59 spectrum to give every U.S. household (not just 
low-income households, as they did in Berlin) the option to claim a tax 
credit to offset the cost of converting from analog to digital 
reception.
    During the past 15 years, local TV broadcasters have lobbied for 
and won a myriad of government subsidies justified by the Federal 
industrial policy in favor of transitioning to DTV while preserving 
``free'' (ad-supported) over-the-air TV. The most valuable of these 
include:

   ``Free Spectrum Loan''--An indefinite, interest-free loan to 
        existing broadcast TV licensees of a second 6 MHz channel with 
        no fixed termination date.

   ``Spectrum Flexibility''--Rights to use new digital 
        technology to transmit ten or more standard definition TV 
        programs (or two or more high definition TV programs) in the 6 
        MHz of spectrum that could previously only transmit one 
        standard definition analog program.\6\
---------------------------------------------------------------------------
    \6\ This assumes use of a state-of-the-art digital compression 
technology. The current broadcast standard is generally thought to be 
able to support only about six standard definition programs or one true 
HDTV program and several standard definition programs. Microsoft Media 
Player 9 needs only about 1.5 Mbps for a standard definition program. 
With a 19.4 Mbps broadcast DTV data rate, 13 standard definition 
programs per DTV channel would be feasible. Broadcasters are only 
required to provide one standard definition program for owners of 1st 
generation broadcast equipment; they can use the rest of their spectrum 
for enhanced services.

   ``Pay TV over Public Airwaves''--Rights to use as much as 90 
        percent of the DTV spectrum 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 services fee to the government).

   ``DTV Tuner Mandate''--Last year the FCC adopted an OTA 
        tuner mandate--which begins phasing in next month (for high end 
        TVs) and applies to all new sets by July 2007--prohibiting 
        consumers from purchasing a new TV set without a broadcast 
        digital TV tuner inside it, even though the vast majority of 
        TVs will never be used OTA.

   ``Broadcast Flag''--A requirement that all consumer 
        electronics devices include a ``broadcast flag'' to prevent 
        retransmission of an FCC licensed broadcast signal out-of-the-
        home without payment to the broadcaster.

   ``Plug and Play''--A requirement that all set top boxes sold 
        for cable TV include built-in compatibility with broadcast DTV.

   ``More Eyeballs''--Expanded geographic and household 
        coverage for existing broadcast TV licensees.

    After more than six years of this DTV industrial policy, the 
Consumer Electronics Association projects that only 53 percent of U.S. 
households will receive digital signals by 2007, the target date for 
the end of the 10-year transition adopted in 1996. The overwhelming 
majority of these digital signals will be received by cable and 
satellite subscribers until many years after the government's DTV tuner 
mandate becomes fully effective in 2007.\7\ This is a primary rationale 
why many savvy insiders believe that the broadcast DTV transition, as 
defined under current law, won't be complete until 2025 at the 
earliest.
---------------------------------------------------------------------------
    \7\ Drew Clark, ``Deadline for Transition May Be Missed Despite 
Progress,'' TechDaily, March 29, 2004.
---------------------------------------------------------------------------
``The Last Granny Rule''
    In addition to the tens of billions of dollars in costs imposed on 
consumers--both directly and because the spectrum is not available for 
advanced wireless services--the basic premise of the broadcaster 
subsidy is a fraud: Although current law assumes TV licensees will 
return their analog channel when 85 percent of the households in their 
market are capable of receiving digital signals, the political reality 
is that neither broadcasters nor the government will order the 
unplugging of analog broadcast TV when as many as 15 percent of 
Americans who rely exclusively on analog TV will lose at least partial 
access to their local TV stations. This is an unwritten obstacle to 
ending the DTV transition that we call ``The Last Granny Rule.''
The Consumer Subsidy Model
    The theory behind the Consumer Subsidy Model is that if granny 
needs to be subsidized to speed the DTV transition, why not subsidize 
her directly rather than indirectly via handouts to producers? The 
Consumer Subsidy Model is derived from the successful broadcast DTV 
transition completed in the Berlin-Brandenburg area of Germany 
(henceforth ``Berlin''). A similar model was briefly proposed but not 
seriously pursued by the Clinton Commerce Department in 1996 during the 
debate over the 1996 second (DTV) channel giveaway. This testimony 
suggests a number of changes to the Berlin Model to fit U.S. 
circumstances better.
The Berlin Transition
    On February 13, 2002, the Berlin-Brandenburg, Germany regulatory 
authority known as MABB (the FCC-like regional regulatory agency) ruled 
that the digital TV transition would begin on November 1, 2002 and be 
complete by August 4, 2003. According to all reports, the Berlin DTV 
transition went smoothly. As a result, very similar transitions will 
soon be implemented in half dozen other states in Germany.
    The Berlin transition was very much a win-win proposition for 
consumers and industry alike. Consumers in general benefited because, 
thanks to the wonders of digital compression technology, they could 
receive approximately four times as many free (i.e., 100 percent ad-
supported) standard definition TV programs after the transition as they 
could with analog broadcast TV before the transition. In addition, they 
could receive new types of data services such as on-demand news and 
weather reports.
    In Berlin, only 7.4 percent of households were primarily reliant on 
free, broadcast TV. The rest chose to receive their TV from cable or 
satellite TV. However, the government didn't want low-income 
individuals to face the burden of either purchasing a digital TV set or 
doing without free (ad-supported) TV. So it purchased digital-to-analog 
converter boxes for 6,000 low-income individuals.
    Broadcasters benefited because whereas before the transition they 
were only able to provide one standard definition TV program, after the 
transition, thanks to digital compression, on the same spectrum space 
they are able to provide additional channels of programming plus other 
types of services. In addition, the government mandated that after the 
DTV transition, cable TV companies continue with the status quo 
requirement that they broadcast analog versions of local TV broadcasts. 
Thus, cable subscribers were not affected by the transition.
Cost of a One-Time Consumer Tax Credit Subsidy
    In Berlin, only low-income households received subsidies to 
purchase digital to analog converter boxes. However, although low-
income homes have a greater need for a converter subsidy, because 
``free'' TV has taken on the nature of an entitlement in American 
culture--and legislation that makes analog TV sets obsolete will be 
keenly felt even in middle-class homes as a type of ``taking''--the 
combination of modest cost and the ability to pay for it with a 
fraction of the likely auction revenues from the band suggest that a 
limited but universal subsidy should be employed. As explained just 
below, a refundable tax credit would provide the most efficient and 
flexible means to distribute the subsidy, while enforcement issues 
would be minimized by making eligibility as broad as feasible.
    Another difference with the Berlin experience is the nature of the 
subsidy. In Berlin, the government purchased and distributed DTA 
converters directly to 6,000 very low-income households. In the U.S. 
context we believe that a one-time tax credit that reimburses consumers 
a flat dollar amount (e.g., $75) would be far more efficient and 
flexible. To simplify IRS implementation, the tax credit should be 
available only during a 12-month period corresponding to a single tax 
year (i.e., 2007). Although the government could certainly procure 
converter boxes in bulk at a wholesale price, the administrative costs 
of a government distribution could be excessive and unpredictable. A 
tax credit streamlines the process and makes the public cost more 
predictable.
    As a matter of equity, it is important that the tax credit be 
``refundable,'' which means that if a family has no income tax 
liability during that particular tax year, the subsidy would still be 
paid as a refund (the Federal Earned Income Tax Credit works this way). 
Considering the public purpose of the converter subsidy, there seems to 
be no reason to deny its benefits to a household--most typically a very 
low-income household--that cannot offset an income tax liability that 
particular tax year.

                       The Cost of Four Options for a DTV Transition Consumer Subsidy \8\
----------------------------------------------------------------------------------------------------------------
Household  eligibility based  on                        Refundable  Tax                           Total Cost
reliance on  over-the-air  (OTA)  Number  Of Credits   Credit  (Subsidy/   Total Cost  (100%     (Progressive
               TV                    (TVs Eligible)       Converter)           Subsidy)            Subsidy)
----------------------------------------------------------------------------------------------------------------
Option #1: Only low-income OTA                7.7 m                 $75              $578 m              $578 m
 exclusives; Limit one set/hh           (44% of OTA                                                      (100%)
                                           Only HH)
----------------------------------------------------------------------------------------------------------------
Option #2: All exclusive OTA hh;             17.4 m                 $75              $1.3 B              $942 m
 Limit one set/hh                                                                              (100% credit for
                                                                                                low-income; 50%
                                                                                                for all others)
----------------------------------------------------------------------------------------------------------------
Option #3: All TV hh; Limit one              62.5 m                 $75              $4.7 B   $3.4 B (100%, low-
 set/hh                              (17.4 + 50% of                                                 income; 50%
                                  90.1 million non-                                                     others)
                                            OTA hh)
----------------------------------------------------------------------------------------------------------------
Option #4 (NAB Scenario \9\):                  82 m                 $75              $6.2 B   $4.4 B (100%, low
 OTA sets in all hh; No limit on                                                                 income primary
 sets/hh                                                                                       set; 50% others)
----------------------------------------------------------------------------------------------------------------
Sources: Options #1 and #2, \10\ Options #3 and #4

    The Table above shows estimates of the cost associated with a range 
of eligibility options for a one-time $75 refundable tax credit to 
offset the cost of a digital-to-analog (D-A) converter, or other 
qualifying device. Currently, because few are produced, the price of a 
D-A converter with the capacity to down-convert high-definition 
broadcast signals for display on an analog set is between $200 and $250 
each. However, the price of D-A converters, like other computer 
products, will fall substantially over time and with economies of 
scale. If the government creates a market for five million or more D-A 
converters, analysts at the Consumer Electronics Association estimate 
that the cost should fall into the $50 to $100 range. Although the 
FCC's Media Bureau and the Association of Public Television Stations 
use a $50 estimate, the cost estimates here are based on a more 
conservative $75 per converter, consistent with preliminary electronics 
industry projections.
---------------------------------------------------------------------------
    \8\ Source: November 2003 Television Bureau of Advertising (TVB) 
study states that 17.4 million U.S. Households, rely exclusively on OTA 
reception. See supra, note 3, Cotlar, pp. 12, 14, 44.
    \9\ Option #4 is the solution most called for by the NAB, which 
assumes that a converter credit be made available for every analog TV 
set in all households that rely on OTA (i.e., all sets not connected to 
cable, DBS, or another subscriber service.) See Reply Comments of NAB, 
MSTV, ALTV, In the Matter of Carriage of Digital Television Broadcast 
Signals, Docket 98-120, August 16, 2001, p. 22; Comments of the NAB, In 
the Matter of Annual Assessment of the Status of Competition in the 
Market for the Delivery of Video Programming, CS Docket 01-129, August 
3, 2001.
    \10\ Option #1: 44 percent of U.S. households earn less than 
$40,000. 16.1 percent of U.S. households (17.4 million) exclusively 
rely on terrestrial OTA broadcast TV (44 percent X 17.4 million = 7.7 
million).
---------------------------------------------------------------------------
    Option #1 would limit the $75 refundable credit to the 
approximately eight million households that rely exclusively on OTA 
reception and have incomes under $40,000. This means-tested approach 
would cost roughly $578 million--less than 2 percent of the value of 
the returned spectrum based on recent transactions for cellular 
licenses. A second, more obvious option would be to extend the subsidy 
to all 17.4 million households that rely exclusively on OTA reception, 
regardless of income level. Assuming each taxpayer/family is limited to 
a single converter credit, the cost would be approximately $1.3 
billion.
    While Options #1 and #2 would each cost the government less than 5 
percent of the returned spectrum's likely auction value, the tax credit 
would be denied to a household that subscribes to cable or DBS, but 
which also owns a secondary analog set that is used OTA only. Equity 
aside, it would be difficult if not impossible to enforce a rule 
limiting the tax credit to households that do not already subscribe to 
a paid TV service, since the IRS has no way to know how particular 
taxpayers receive their TV signals.
    Thus, a third alternative (Option #3) would permit all TV 
households to claim a single credit for the purchase of qualifying DTV 
equipment. We assume that only 50 percent of households already 
subscribing to cable or DBS will bother to retrofit a secondary analog 
set and claim the credit, which puts the likely cost at $4.7 billion--
roughly 10 percent of the returned spectrum's market value.\11\
---------------------------------------------------------------------------
    \11\ Option #4 indicates that it would cost a comparable amount to 
convert all analog sets owned by households that do not subscribe to a 
paid TV service. However, there appears to be no compelling reason to 
subsidize multiple sets per household, or to distinguish between the 
secondary sets of OTA and subscription TV households.
---------------------------------------------------------------------------
    Qualifying DTV Devices: If Congress authorizes a consumer subsidy, 
we believe there is no reason to limit consumer choice to a D-A 
converter box. A refundable tax credit could as easily allow consumers 
to choose to apply their rebate to reduce the cost of a new DTV set, or 
to the equipment costs for a new cable or DBS subscription. Moreover, 
whereas a D-A converter simply preserves the consumer's ability to 
watch analog TV, greater choice will lead many consumers to make the 
switch to high-definition platforms.
Other Key Elements to Complete America's DTV Transition
    A Fixed Deadline for Analog Turn Off. In Berlin, the total time 
from passage of the law to completion of the transition was 
approximately 18 months. The transition began nine months after the law 
was passed and was completed nine months after that. In contrast, the 
Media Bureau plan would drag the transition out more than four more 
years, until 2009.
    Assuming Congress can complete action by the end of its 2005 
session (by November 2005), we believe that a two-year transition 
period would be more than adequate. Both consumers and manufacturers 
would then also know more than a year in advance of the coming 12-month 
window (presumably corresponding to fiscal or calendar/tax year 2007) 
for the procurement of digital-to-analog converters. Consumers need 
this time to be educated about the need to purchase either a D-A 
converter or a new digital TV set, and manufacturers need time to ramp 
up mass production. Any auction for the reallocation of returned 
spectrum could occur in 2006--and fetch full value thanks to the 
certainty of the January 1, 2008 turn-off and clearance deadline.
    Phased in Transition: According to the Television Bureau of 
Advertising, thirty markets have 10 percent or fewer households that 
rely on over-the-air reception. In nine markets, the percentage is even 
lower than in Berlin. An even earlier (2007) transition in some of 
these markets--as trial markets--has some advantages in terms of 
reducing public education costs, increasing lead times and competition 
among manufacturers, and learning from experience.
    Allowing Down Conversion for Analog Cable Subscribers. The cable 
DTV transition should be viewed as a completely separate issue from the 
broadcast DTV transition. The key question is whether cable TV's 
transition should be market-based or not. We believe it should, since 
pay TV customers can always choose to receive their local TV stations 
over-the-air. Moreover, the cable TV industry has strong motivations to 
transition to digital because it can then use its bandwidth far more 
efficiently. By transitioning from analog to digital, a cable system 
opens up capacity for hundreds of new DTV channels and allocates more 
spectrum for next-generation broadband service. This allows cable to 
charge for additional services as well as better compete with both 
satellite and telephone competitors.
    On the cost side, digital conversion over cable can be accomplished 
by adding a $25 chip to a standard set top box, or by providing 
customers with a $75 standalone converter box. When this cost is 
amortized over the lifecycle of a set top box or cable subscription, 
its cost per month is expected to be negligible compared to the 
benefits it provides. One major cable company, Charter Communications, 
has already converted to DTV all its subscribers in Long Beach, 
California.\12\
---------------------------------------------------------------------------
    \12\ See ``Cable,'' Communications Daily, January 20, 2004: 
``Converting to digital from analog recovers capacity that can be used 
to provide more high-definition TV, as well as targeted services, 
including video-on-demand and specialized subscription packages. 
Charter said all-digital service would save money by using lower cost 
digital-only set-top boxes. Entry-level digital set-tops that support 
broadcast, interactive and on-demand services cost about 50 percent 
less than comparable analog/digital set-tops . . .''
---------------------------------------------------------------------------
    In short, although this Committee may want to extend the one-time 
consumer credit to cable households, whether a cable customer ends up 
watching in analog-or digital-quality should not be dictated by the 
government. For this same reason--and because a consumer equipment 
subsidy would make the statutory 85 percent analog turn-off threshold 
irrelevant--we urge the Committee to repeal the FCC's digital tuner 
integration mandate, thereby saving pay TV subscribers at least $1 
billion annually. It is the height of regulatory arrogance for the 
government to force manufacturers to charge non-OTA households extra to 
integrate a piece of equipment that consumers have overwhelmingly 
demonstrated they do not want or need.
    Allocation of Spectrum After the Transition. Currently, public 
safety is promised 24 MHz (channels 63, 64, 68, and 69) of the 108 MHz 
(channels 52-69) available after the broadcast DTV transition. We 
recommend that Congress reallocate the remainder of the cleared 700 MHz 
band so that it is evenly divided (42 MHz and 42 MHz) between licensed 
and unlicensed spectrum, with the licensed spectrum auctioned to the 
highest bidder.
    We also urge the Congress to earmark a larger portion of the 
spectrum revenue from Channels 52-to-69 to address the distinctive 
information market failures of our information age, with 50 percent of 
the proceeds used to fund the public TV trust fund proposed by the 
Association of Public TV Stations and 50 percent used to fund the 
Digital Opportunity Investment Trust Act (S. 1854) introduced by 
Senators Snowe, Dodd and Durbin.
An Opportunity to Expand Unlicensed Wireless Broadband
    In addition, guard band and unassigned channels in each market 
below Channel 52 should be opened up as soon as practicable for 
unlicensed providers of local wireless broadband networks. Wi-Fi is 
just beginning of a wireless paradigm shift--a radio revolution 
premised on shared, unlicensed access to the airwaves that will 
determine if the U.S. will be a leader or a laggard in the next 
generation of network technologies. While the Wi-Fi boom has been about 
short-range mobility, more than 1,500 wireless Internet service 
providers (WISPs) already are using unlicensed spectrum to offer high-
speed broadband to homes and businesses up to 30 miles from the 
Internet backbone. This is particularly important for rural areas, 
where wired connections are unavailable or unaffordable. WISPs such as 
AMA*TechTel and Prairie iNet are building wide area networks on 
unlicensed frequencies that cover 20,000 square miles or more in rural 
and small town Texas, Oklahoma, Iowa and other states.
    As a national goal, we need to think and plan not merely in terms 
of universal broadband access, but in terms of pervasive connectivity. 
We can try to do this by relying on a pair of regulated monopolies--one 
cable, one copper--to trench fiber into every home and small business. 
We also could wait for a few national wireless carriers to invest tens 
of billions to blanket the Nation with a thick quilt of cell towers 
needed to extend high-speed connections everywhere. Alternatively, we 
can spread our bets by promoting competition in the last-mile by 
opening more spectrum to thousands of entrepreneurial WISPs and 
nonprofit community access networks that are already offering last-mile 
connections on unlicensed frequencies.
    Unlicensed access is especially important for connecting rural and 
low-income areas. We urge the Committee both to reallocate a portion of 
Channels 52-to-69 for unlicensed wireless broadband and to express 
support for the rulemaking the FCC opened last month, in which it 
proposes to open empty TV channels below Channel 52 for unlicensed 
broadband.
DTV Public Interest Obligations for Local Civic and Electoral 
        Programming
    Perhaps the most neglected aspect of the DTV transition is an 
updating of the public interest obligations of local DTV broadcast 
licensees in exchange for the tremendous increase in broadcasting 
capacity they receive in the switch from analog to digital. As the age 
of DTV multicasting dawns, Congress and the FCC has a fresh opportunity 
to create meaningful public interest obligations for broadcasters. 
Licensees should be required to use DTV's enormously increased capacity 
to expand the coverage of diverse viewpoints and of local civic affairs 
and election contests.
    We urge the Committee to include in any DTV transition legislation 
a provision that adopts the local civic and electoral programming 
obligation proposed by the Public Interest, Public Airwaves Coalition. 
In April the Coalition presented the FCC with a proposed ``processing 
guideline,'' modeled after the FCC's guideline on children's 
educational programming, that allows for expedited license renewal for 
stations that air a minimum of three hours per week of local civic and 
electoral affairs programming on the most-watched channel, with at 
least 50 percent aired between 5 and 11:35 p.m. Additional hours of 
civic affairs and election coverage--no less than 3 percent of the 
aggregate hours multicast--would be required on licensee's additional 
``free'' (ad-supported) OTA programming streams. Strengthened 
disclosure requirements would also help the public determine whether 
this obligation and others was being faithfully fulfilled by individual 
stations in individual markets.\13\
---------------------------------------------------------------------------
    \13\ The Coalition proposal and supporting information is available 
online at http://www.ourairwaves.org/.
---------------------------------------------------------------------------
Conclusion
    The producer subsidy model has been a dismal failure. Local TV 
broadcasting, perhaps the most profitable legal business in America 
today, has arguably received the largest government subsidies in U.S. 
history. Yet there is no end in sight to the OTA digital transition. 
Every year this delay imposes an opportunity cost of tens of billions 
of dollars on taxpayers and consumers who are deprived of both payment 
for commercial use of the public airwaves and the economic value that 
spectrum-starved wireless broadband services providers could provide 
more efficiently at low frequencies.
    We urge Congress to earmark a portion (roughly 10 percent) of the 
Federal revenue likely from reassignment of TV Channel 52-to-69 
spectrum for a one-time refundable tax credit to enable the remaining 
17 million households relying on analog OTA reception to switch to 
digital-only--and to deal address the social dimensions of the DTV 
transition by extending TV licensees' public interest obligations and 
by earmarking spectrum revenue to invest in the digital future of 
public broadcasting and education technology.
    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 this important problem.

    The Chairman. Thank you very much. Mr. Gelsinger.

STATEMENT OF PATRICK P. GELSINGER, CHIEF TECHNOLOGY OFFICER AND 
            SENIOR VICE PRESIDENT, INTEL CORPORATION

    Mr. Gelsinger. Thank you. My name is Pat Gelsinger, I'm the 
Chief Technology Officer for Intel, the largest semiconductor 
manufacturer in the world, second largest provider of 
communications chips. I oversee development, including 
wireless, I oversee policy activities, including those in the 
area of spectrum. It's an honor to appear before the Committee 
today.
    In my written testimony, I have discussed the benefits of 
Moore's Law, the heartbeat of the semiconductor industry, this 
doubling of transistors every 2 years and the benefits it will 
bring to radios in the near future, or radio revolution, which 
will make radios far more prolific and flexible.
    But radios need spectrum. Unfortunately, the vast majority 
of spectrum today is governed by a command and control model 
which provides very mixed and limited uses for that spectrum 
creating an artificial spectrum. We encourage unlicensed 
spectrum as well as far more flexibility in the licensing of 
spectrum to solve this problem.
    We think the single most important thing that could be done 
to accelerate broadband deployment in the Nation is the 
allocation of the TV spectrum. I want to emphasize two things 
in my oral comments. First, the value of that spectrum. And 
second, such specific proposals with respect to how we can 
accelerate the allocation of that spectrum.
    Broadband wireless, we believe, is on the cusp of a major 
revolution much like Wi-Fi has littered the globe with millions 
of hot spots in the last couple of years, we see broadband 
wireless creating a similar phenomenon of hot zones.
    This creates a third pipe, an alternative, complement to 
DSL and to cable. We see this as complementing the national 
priority as President Bush has emphasized a broadband nation by 
2007. We see it as a matter of international competitiveness, 
an opportunity to follow or an opportunity to lead in the 
broadband revolution.
    The TV spectrum, given its propagation characteristics, is 
uniquely valuable. Propagation characteristics allowed it to 
cover much larger rural areas, much larger geographic areas 
allowing a significant cost savings. Our estimates indicate a 
quarter of the costs of capital for base stations but 
penetrates walls allowing mobile, consumer, self-install, 
minimizing the cost. Literally, it is the beach front property 
of spectrum.
    I emphasize in the most underserved areas of broadband 
availability today, rural areas the spectrum is by far the most 
value, delivering broadband services we believe very 
effectively to those customers. We see three proposals that are 
balanced, complementary and can be acted on very quickly.
    First, the FCC has a notice of proposed rule around the 
availability of unlicensed use of unused TV channels today. 
This would represent on the order of half of all TV channels, 
even in densely populated areas and far more in more rural 
areas. Radio technology today is clearly capable of listening 
before talking, and being able to detect when a noninterference 
is possible. We would encourage the FCC to act on this before 
the end of this year.
    Second, we support the Mass Media Bureau ban. We encourage 
an end certain date, as is proposed here of January 1, 2009. We 
would also see that the TV spectrum 62 to 69 a clear channel of 
108 megahertz, 124 for public and 84 for broadband wireless. If 
anything, we believe this plan should be accelerated before 
January of 2009. We would also complement that by other actions 
that could be taken more expeditiously.
    We believe that should be a voluntary turn back program 
that's made available that broadcasters who want to make their 
spectrum available more rapidly would be incented to do so by 
participating in a pro rata portion of the results at auctions. 
We believe this would accelerate DTV conversion, as well as 
accelerate broadband deployment.
    In summary, we see there is an opportunity before us today 
to significantly accelerate broadband wireless. We also see 
that the value of the TV spectrum is hugely important to 
accomplish that. We see that there is a win, win, win. A win 
for users in new devices and servers, an even bigger win for 
rural deployment, a win for public safety and a win ultimately 
for the United States. Thank you very much.
    [The prepared statement of Mr. Gelsinger follows:]

 Prepared Statement of Patrick P. Gelsinger, Chief Technical Officer, 
                           Intel Corporation
Executive Summary
    I am Patrick Gelsinger, Chief Technical Officer of Intel 
Corporation. Today, I want to address four topics: the coming 
revolution in radio technology, the need for spectrum policy reform, 
the value of TV spectrum for wireless broadband applications, and three 
possible ways of making TV spectrum available for new uses.
    The Coming Radio Revolution. Moore's Law is going to revolutionize 
Marconi's transmitter. Phenomenal ``silicon'' improvements will produce 
two profound effects in radio technology. First, radios will continue 
to get ``digitized.'' The result will be that every electronic device 
will include a radio and more importantly there will be an explosion in 
the number of wireless devices used for communication, commercial, 
medical, entertainment and numerous other purposes. Radio 
communication, like music files or video DVDs, will become another 
function on your computer. Second, additional processing power will 
make radios much smarter and more flexible. Once the radio itself is 
primarily digital, it will be able to change radio air interface 
standards by downloading different software. One new radio technology 
Intel is particularly excited about is WiMAX, an IEEE standard (802.16-
REVd) that has been architected to cost effectively deliver broadband 
services.
    The Need for Spectrum Reform. The biggest obstacle facing the 
coming radio revolution is artificial spectrum scarcity created by over 
reliance on ``command and control'' spectrum management. Two promising 
spectrum management techniques can serve as a guide for reform--the 
grant of increasing flexibility to exclusive licensees and the creation 
of largely unregulated, unlicensed bands. The flexible licensed 
approach fostered enormous innovation and investment on the PCS 
spectrum and unlicensed use created the Wi-Fi revolution at 2.4 and now 
5 GHz. These techniques have succeeded because they give users more 
freedom to innovate and respond to changing market forces without 
seeking government approval. Intel actively supports both types of 
reform.
    The value of TV Frequencies. The ability to use TV frequencies 
would accelerate the growth, expand the reach, reduce the cost and 
improve the quality of broadband wireless service. Even when compared 
to the 2.5 GHz frequencies--the best alternative available to WiMAX in 
the U.S.--the TV frequencies make it far more economical to serve rural 
areas and to compete with wireline broadband alternatives in urban 
areas.
    For a given level of quality to a given coverage area, the TV 
frequencies require fewer antennas and use less power than 2.5 GHz 
frequencies. To cover the same geographic area we estimate that using 
2.5 GHz frequencies would approximately result in an 11db drop in 
signal strength. (For non engineers, a simple rule of thumb is that 
every 3 dB of additional loss represents a factor of two difference in 
signal strength.) This drop in signal strength would require 4 to 5 
times as many base stations to achieve equal geographic area coverage, 
for a given air interface and bandwidth. Of course, one could ``make 
up'' for this loss by introducing innovative antenna enhancements or 
increasing the transmit power at 2.5 GHz. The former is being done in 
the WiMAX standard but at increased system costs. The latter--a greater 
than ten-fold increase in transmit power--is not feasible. Receiving 
devices would have to exceed FCC power limitations to successfully 
transmit back to the base station.
    Also, because TV frequencies better penetrate walls, they would be 
less dependent on line of sight transmission to outdoor antennas. 
Besides the value that consumers could derive from portability, indoor 
use would also facilitate self-installation, avoid expensive truck 
rolls and make it attractive to launch market wide marketing and 
advertising campaigns. And indoor service to untethered laptops will 
accelerate the integration of WiMAX radios into microprocessors thereby 
generating the efficiencies from Moore's Law.
    Three Possible Reforms of the TV Spectrum. If the United States 
were to move forward expeditiously to make this spectrum available for 
new wireless broadband services, the resulting gains to American 
consumers, especially in rural areas, would be stupendous and U.S. 
based companies would achieve important first to market advantages.

 1.  Intel supports the FCC's recently opened Notice of Proposed 
        Rulemaking considering unlicensed use on vacant television 
        channels. Given the current limitations of television 
        receivers, most of the TV channels in any geographical area are 
        unused. Advanced radio techniques, however, permit unlicensed 
        use, without any adverse impact on the broadcasters. Indeed, 
        because the channels ``in use'' seldom changes, agile radios 
        may be able share these frequencies. Intel has and continues to 
        do extensive due diligence to demonstrate exactly how 
        unlicensed devices can access vacant TV channels with no 
        significant risk to over-the-air broadcasters.
 2.  Intel believes that the Mass Media Bureau has proposed a very 
        constructive plan. It would enable consumers and a myriad of 
        other affected interests to plan towards a certain end date, 
        January 1, 2009. It would also free valuable spectrum. Channels 
        52-69 represent 108 MHz in the 700 MHz band--24 MHz for use by 
        public safety and 84 MHz for use by advanced wireless services. 
        Indeed, if I were to recommend any change to the Mass Media 
        Bureau plan, it would be to move the date certain forward. 2009 
        is almost five years away.
 3.  Intel believes that the FCC should explore giving broadcasters 
        incentives to turn back their channels in advance of the 2009 
        for a pro rata share of the auction proceeds. This approach 
        would compensate broadcasters for clearing before they would be 
        compelled to return their analog channels. Under this approach, 
        they would have strong incentives to voluntarily clear their 
        channels early. Their compensation would be set by the 
        marketplace. If the Mass Media Bureau plan is the ``stick,'' a 
        linked auction could be the ``carrot.'' The two approaches 
        could be highly complementary.
Introduction
    I am Patrick Gelsinger, Chief Technical Officer of Intel 
Corporation. Intel is the world's largest semiconductor manufacturer 
and a leader in technical innovation. Intel is also a leading 
manufacturer of communications and networking chips. Our mission is to 
accelerate the convergence of computing and communications through 
silicon-based integration.
    I manage much of Intel's research and development activities 
including those targeted at developing radio innovations. During my 24 
years at Intel, I have worked in a variety of areas including 
microprocessor and computing platform (PC) design and the development 
of wired and wireless communications technologies. As CTO I also head 
Intel's technology policy and standards activities including content 
protection and digital rights management and spectrum policy and 
planning.
    It is an honor to appear before this Committee to testify on 
whether and how the digital television (DTV) transition should be 
expedited. Let me begin by saying that Intel has long recognized the 
great potential of DTV and has invested significant R&D in DTV 
including the development of DTV tuners for PCs. In 1998 Intel and the 
PBS teamed up to deliver ``Frank Lloyd Wright''--the first digital 
television trial that allowed viewers to obtain Web-based content while 
watching TV. Also, Intel's experimental station KICU, broadcasting from 
Intel's headquarters in Santa Clara, was one of the first over-the-air 
DTV broadcasters in the Bay area.
    Today, I want to address four topics:

   The coming revolution in radio technology,

   The need for spectrum policy reform,

   The value of TV spectrum for applications such as wireless 
        broadband, and

   Three possible ways of making TV spectrum available for new 
        uses.
Moore's Law and the Coming Radio Revolution
    Moore's Law is going to revolutionize Marconi's transmitter. Over 
30 years ago, Intel founder Gordon Moore predicted that the density of 
transistors would double roughly every 18 months. These improvements in 
density increase speed and reduce cost. In the past 30 years, 
microprocessors have increased 1,000 times in speed and decreased 100 
times in cost. If Moore's Law continues to hold, as we expect it will, 
by 2010 a single microprocessor will contain ten billion transistors 
and process a trillion instructions per second.
    These phenomenal ``silicon'' improvements will produce two profound 
effects in radio technology. First, radios will continue to get 
``digitized.'' Increasingly, radios will encode information digitally, 
increasing the robustness of its transmission and allowing it to be 
processed by general purpose microprocessors. Radio communication, like 
music files or video DVDs, will become just another standard function 
on your computer. As Moore's law produces still more powerful chips, 
the percentage of the chip needed to provide radio communications will 
become trivial. Only somewhat facetiously, I call it ``Radio Free 
Intel.'' The result will be that every electronic device will include a 
radio and more importantly there will be an explosion in the number of 
wireless devices used for communication, commercial, medical, 
entertainment and numerous other purposes.
    Second, additional processing power will make radios much smarter 
and more flexible. Separate circuits will not be needed to decode an 
AM, FM, GSM, CDMA, NTSC or DTV signal. Once the radio itself is 
primarily digital, these functions can be added by downloading 
different software. The FCC recognized this eventuality when it enabled 
these flexible ``Software Defined'' radios or SDRs.
    In addition to making radios more flexible, additional processing 
power will enable radios to alter their operating parameters to make 
the most efficient use of the available frequencies. Today's cell 
phones can scan multiple frequencies, switch from GSM or CDMA air 
interfaces and when roaming choose which carrier offers the best 
business arrangement. Verizon states that its ``CDMA transmitters 
adjust power levels 800 times per second--to ensure that only the 
minimum power necessary is used to maintain a connection.'' \1\
---------------------------------------------------------------------------
    \1\ Comments of Verizon Wireless in Facilitating Opportunities for 
Flexible, Efficient and Reliable Spectrum Use Employing Cognitive Radio 
Technologies; ET Docket No. 03-108, p. 3.
---------------------------------------------------------------------------
    One new radio technology Intel is particularly excited about is 
WiMAX. Like Wi-Fi (802.11), WiMAX is an IEEE standard (802.16-REVd) 
that is expected to be accepted as a global standard. WiMAX is expected 
to be deployed for both licensed use (like Cellular) and unlicensed 
(like Wi-Fi) applications. With the latest in modulation techniques 
(such as OFDM) and antennae techniques (such as MIMO) WiMAX has been 
architected to cost effectively deliver broadband services. Before 
yearend we expect to see radios using the WiMAX to provide wireless 
broadband access to fixed locations and in 2005 we expect the mobile 
version of the specification (IEEE 802.16e) to be complete. It will be 
deployed for Line of Sight at ranges of 50 kilometers or more and non-
Line of Sight applications at somewhat shorter ranges.
    A wireless ISP using a small 802.16 installation could provide 
sufficient shared data rates (up to 75 Mbps) to simultaneously support 
more than 60 businesses with T-1 style connectivity and hundreds of 
homes DSL-speed connectivity.\2\ In 2006 WiMAX will begin to be 
deployed in laptops. Intel has announced that it intends to put WiMAX 
radios in its chipsets by 2007--just as it has done with Wi-Fi in its 
Centrino TM chipsets beginning in 2003.
---------------------------------------------------------------------------
    \2\ WiMAX Press Teleconference Script, April 8, 2004.
---------------------------------------------------------------------------
    WiMAX is expected to improve bandwidth and service while radically 
reducing radio costs. The result WiMAX should dramatically spur 
wireless broadband deployment as a third broadband pipe augmenting DSL 
and Cable. It holds special promise in rural areas or developing 
markets where service providers haven't deployed wired infrastructure. 
Countries around the globe are already beginning pre-standard trials of 
WiMAX.
General Spectrum Reform
    The biggest obstacle facing the coming radio revolution is 
artificial spectrum scarcity created by over reliance on ``command and 
control'' spectrum management. The current system is cumbersome, 
litigation-prone and politicized. Its tendency to ``lock in'' 
inefficient uses and technologies has become more costly with the 
burgeoning demand for diverse wireless uses and the increased ability 
of technology to minimize interference.
    The FCC's Spectrum Policy Task Force identified two promising 
spectrum management techniques that can serve as a guide for reform--
the grant of increasing flexibility to exclusive licensees and the 
creation of largely unregulated, unlicensed bands. The flexible 
licensed approach fostered enormous innovation and investment on the 
PCS spectrum, e.g., the creation of 147,719 cellular base stations.\3\ 
Unlicensed use created the Wi-Fi revolution at 2.4 and now 5 GHz. In 
the fourth quarter of 2003 alone, worldwide Wi-Fi sales exceeded half a 
billion dollars--16 percent growth over the previous quarter.\4\ These 
techniques have succeeded because they give users more freedom to 
innovate and respond to changing market forces without seeking 
government approval.
---------------------------------------------------------------------------
    \3\ Cellular Telecommunications & Internet Association, Annualized 
Wireless Industry Survey Results (June 2003).
    \4\ Dell'Oro Group Wireless LAN Report, 4Q03. www.delloro.com/
feature_story.shtml
---------------------------------------------------------------------------
    Importantly, these reforms need not be mutually exclusive and 
should be considered simultaneously. Some advocates of spectrum reform 
espouse a ``property-rights'' approach. They believe that we should 
spend all of our efforts in creating a license structure that better 
emulates markets for other resources such as land. Other spectrum 
reformers espouse only unlicensed reforms. These advocates of so-called 
``spectrum commons'' believe unlicensed spectrum can meet most if not 
all of society's spectrum needs.
    Intel does not take an ``either/or'' approach. In fact, you might 
say we are in the ``and/both'' camp. The reality is that over 80 
percent of the radio spectrum from 300 to 3,000 MHz is managed under 
the ``command and control'' approach. Less than 10 percent is devoted 
to what could be called flexibly licensed and less than 10 percent is 
allocated to unlicensed. What we need are significant increases in the 
amount of spectrum available to exclusive but flexible use and 
unlicensed use. Intel has been active on both fronts.
    I would like to give you an example of each kind of reform. On the 
licensed front, Intel supports reform of the 2.5-2.7 GHz frequencies 
under consideration in the MMDS/ITFS proceeding that the FCC has 
scheduled for consideration tomorrow. Currently, these frequencies are 
primarily allocated to 1-way video services by industry (MMDS) and 
educational (ITFS) licensees. While most ITFS spectrum is leased to 
commercial interests, the fragmented band plan has impeded developing 
new more valuable uses. Hopefully, the FCC will restructure the band to 
create contiguous blocks of spectrum--132 MHz in total--that could be 
used for several purposes including WiMAX.
    Intel has also aggressively supported unlicensed reforms. For 
example, we were active in NTIA and FCC deliberations about whether the 
5 GHz mid-band frequencies could be made available to Wi-Fi use. Intel 
and other high tech companies worked closely with NTIA to set 
parameters that would assure that a Wi-Fi system would reliably 
identify when a military radar begins to operate in its channel and 
rapidly move its operation to a different unused channel. Ultimately, 
this approach was adopted at the June 2003 World Radio Conference.
Reform of the TV Spectrum
    The focus of today's hearing is whether and how the DTV transition 
can be expedited so that the analog channels currently used by 
broadcasters can be returned to the FCC and put to valuable new uses. I 
want to address how valuable this spectrum could be for wireless 
broadband service--a likely new use for the returned analog TV 
channels. I also want to speak briefly in favor of 3 possible reforms 
which could accelerate improved use of this spectrum.
1. The Value of the TV Spectrum
    The television spectrum would offer enormous advantages for wide 
area wireless broadband services. The frequencies currently available 
for wireless broadband are up in the 2.5, 3.3 and even 5.8 GHz region. 
In contrast, TV channels are much lower in frequency--from 700 MHz all 
the way down to 76 MHz.\5\
---------------------------------------------------------------------------
    \5\ 76 MHz, VHF Channel 5, is the lowest channel considered in the 
FCC Unlicensed Operation in the TV Broadcast Bands NPRM, and hence 
potentially available for wireless broadband. Broadcast television in 
the U.S. begins at 54 MHz, channel 2.
---------------------------------------------------------------------------
    It is true that technology has continually improved our ability to 
feasibly use higher frequencies. In Marconi's day, very low frequencies 
around 100 KHz were preferred because they hugged the earth. As 
technology advanced, it was discovered that short-wave frequencies, 
from about 2 to about 30 MHz, could bounce off the ionosphere, giving 
them dramatically greater distance. In 1962, conquering distance 
changed again with the introduction of geostationary telecommunications 
satellites that use frequencies in the GHz range.
    Notwithstanding these improvements, lower frequencies still travel 
farther at given power. This simple fact enables VHF television 
licensees to provide a better quality over the air signal with less 
power than its UHF television counterpart. Similarly, a cellular system 
operating at 800 MHz can provide better coverage than a PCS system 
operating in the 2 GHz range.
    The ability to use TV frequencies would accelerate the growth, 
expand the reach, reduce the cost and improve the quality of broadband 
wireless service. Even when compared to the 2.5 GHz frequencies--the 
best alternative available to WiMAX in the U.S.--the TV frequencies 
make it far more economical to serve rural areas and to compete with 
wireline broadband alternatives in urban areas. For a given level of 
quality to a given coverage area, these frequencies require fewer 
antennas and use less power.
    Chris Knudsen of Vulcan Capital estimated the capital and 
operational costs of providing wireless broadband service in Bellevue/
Seattle, Washington using 2.6 GHz. Then he estimated what happened to 
the capital and operating costs of providing wireless broadband service 
to the same territory using 700 MHz. He found that using TV frequencies 
required only \1/3\ to \1/4\ of the cell sites. Even more importantly, 
it required about only \1/2\ to \1/3\ of the capital to reach positive 
free cash flow.\6\
---------------------------------------------------------------------------
    \6\ Chris Knudsen, ``Lower Frequencies Improve the Subscriber 
Operating Model,'' June 3, 2004, WCA Convention, Washington, D.C. For 
interpretation and analysis of Knudsen's work see slides presented by 
Pierre de Vries, Chief of Incubation at Microsoft at the NTIA Spectrum 
Management Forum held in Santa Clara on March 8, 2004.
---------------------------------------------------------------------------
    For purposes of this testimony, we did our own analysis of the 
advantages of 700 MHz vis a vis 2.5 GHz frequencies. Our results were 
similar to those of Vulcan Capital. For a given level of quality to a 
given coverage area, the 700 MHz frequencies require fewer antennas and 
use less power than 2.5 GHz frequencies. To cover the same geographic 
area we estimate that using 2.5 GHz frequencies would approximately 
result in an 11db drop in signal strength. (For non engineers, a simple 
rule of thumb is that every 3 dB of additional loss represents a factor 
of two difference in signal strength.) This drop in signal strength 
would require 4 to 5 times as many base stations to achieve equal 
geographic area coverage, for a given air interface and bandwidth. Of 
course, one could ``make up'' for this loss by introducing innovative 
antenna enhancements or increasing the transmit power at 2.5 GHz. The 
former is being done in the WiMAX standard but at increased system 
costs. The latter--a greater than ten-fold increase in transmit power--
is not feasible. Receiving devices would have to exceed FCC power 
limitations to successfully transmit back to the base station.
    Also, because TV frequencies better penetrate walls, they would be 
less dependent on line of sight transmission to outdoor antennas. 
Besides the value that consumers could derive from portability, indoor 
use would also facilitate self-installation, avoid expensive truck 
rolls and make it attractive to launch market wide marketing and 
advertising campaigns. And indoor service to untethered laptops will 
accelerate the integration of WiMAX radios into microprocessors thereby 
generating the efficiencies from Moore's Law that I discussed at the 
outset.
    While perhaps obvious, the cumulative impact of these differences 
on the feasibility of providing wireless broadband in rural areas bears 
emphasis. The upshot for some rural areas is that opening the TV 
frequencies to wireless broadband use would likely make the difference 
between a high quality wireless broadband alternative and none at all. 
In simple terms, frequencies below 1 GHz are premier beach front 
property. We believe the allocation of these frequencies for licensed 
and unlicensed use could dramatically accelerate broadband deployment 
with nationwide benefit but particular benefit toward rural and 
underserved areas.
2. Permit Unlicensed Use of Vacant TV Channels
    Policymakers should consider three possible reforms that could 
increase the use of the TV spectrum. First, the FCC recently opened a 
Notice of Proposed Rulemaking considering unlicensed use on vacant 
television channels. Given the current limitations of television 
receivers, most of the TV channels in any geographical area are unused. 
Advanced radio techniques, however, permit unlicensed use, without any 
adverse impact on the broadcasters. Indeed, because the channels ``in 
use'' seldom changes, agile radios may be able share these frequencies. 
The technology required to use these frequencies without interference 
to existing stations is comparable to what is deployed in today's cell 
phone. Even inexpensive TV sets have the ability scan for over-the-air 
channels as part of their set-up routine. Intel has and continues to do 
extensive due diligence to demonstrate exactly how unlicensed devices 
can access vacant TV channels with no significant risk to over-the-air 
broadcasters.
    Another method under consideration is to use Global Positioning 
System receivers built into the unlicensed devices to determine the 
device location relative to fixed broadcast transmitters. Again, rural 
communities could especially benefit from this approach. They have the 
greatest number of vacant TV channels and fewer wireline broadband 
alternatives. Rural deployments might also be accelerated by allowing 
somewhat higher power levels to increase coverage with minimal capital 
costs required.
    Ironically, by creating the incentive for millions of devices to be 
able to scan TV channels, unlicensed use of vacant TV channels could 
create, as Chairman Powell stated, ``potentially an enormous 
opportunity for broadcasters.'' \7\ Indeed, making it possible for 
millions of devices to interact with on air broadcasters could promote 
the FCC's second initiative in this area: the DTV Transition.
---------------------------------------------------------------------------
    \7\ Statement of Chairman Michael K. Powell regarding ``Unlicensed 
Operation in the TV Broadcast Bands'' (ET Docket No. 04-186) at FCC 
open meeting held May 13, 2004.
---------------------------------------------------------------------------
3. Expedite The DTV Transition
    Currently, each broadcaster has two 6 MHz channels--one channel for 
analog distribution and one for digital distribution. Congress 
established a DTV transition plan that in essence requires a 
broadcasters return its analog channel to the FCC by 2006 or when 85 
percent of the households in its market can receive digital television, 
whichever occurs later.
    The Mass Media Bureau has proposed a plan that would accelerate 
this transition and provide a date certain by which broadcasters would 
return their analog channels. There are many details in the Bureau's 
proposal and I do not purport to be expert on ``must carry'' and other 
regulation.
    Essentially, it provides that broadcasters' must-carry rights on 
cable systems would switch from their analog signals to their digital 
signals on January 1, 2009. At the same time cable operators would be 
required to make the digital must-carry signals available to all 
subscribers. They would have a ``down conversion'' or an ``all digital 
option.'' \8\ Satellite operators in ``local-into-local'' markets would 
have analogous requirements.\9\ The cumulative reach of cable and 
satellite providers together with the impact of the FCC's DTV tuner 
mandate and new ``plug-and-play'' DTV sets would almost certainly 
assure that the 85 percent metric would be met everywhere by January 1, 
2009.
---------------------------------------------------------------------------
    \8\ The Mass Media Bureau's proposal provides that the cable 
operator could: (1) ``down-convert'' a single digital broadcast stream 
from digital to analog at the cable head-end so that all subscribers, 
including analog-only subscribers, could continue to view the 
programming or (2) pass through the digital must-carry signals to 
subscribers' homes, where the system has converted to ``all digital'' 
transmission and all subscribers have the ability to receive and 
display the digital signals (either on a digital set or down-converted 
by a set-top box for display on an analog set). Written Statement of W. 
Kenneth Ferree, Chief of the Mass Media Bureau, Federal Communications 
Commission, on ``Advancing the DTV Transition: An Examination of the 
FCC Medial Bureau Proposal,'' before the Subcommittee on 
Telecommunications and the Internet, U.S. House of Representatives, 
June 2, 2004, p. 4.
    \9\ The Mass Media Bureau's proposal provides that satellite 
operators in local-into-local markets would be required to make sure 
that its customers either: (a) to carry one standard-definition digital 
programming stream from each broadcaster in the market (down-converted 
from HDTV to standard-definition, if necessary); or (b) to pass through 
the digital broadcast signals to subscribers' homes, where all 
subscribers have the ability to receive and display the programming. 
Id.
---------------------------------------------------------------------------
    Intel believes that the Mass Media Bureau has proposed a very 
constructive plan. It would enable consumers and a myriad of other 
affected interests to plan towards a certain end date. It would also 
free valuable spectrum. Channels 52-69 represent 108 MHz in the 700 MHz 
band--24 MHz for use by public safety and 84 MHz for use by advanced 
wireless services. In channels 2-51, the analog channels would be 
available for auction.
    As I indicated above, the benefits from making this spectrum 
available for wireless broadband could be enormous. Indeed, if I were 
to recommend any change to the Mass Media Bureau plan, it would be to 
move the date certain forward. 2009 is almost five years away.
4. Move Forward with Auctions of Channels 52-69
    That brings me to my third proposal. Once the date certain is set, 
it may be possible to provide incentive for broadcasters to vacate 
their channels even earlier. The FCC might be able to spur their 
movement by simply moving forward with the spectrum auctions of the 
unassigned spectrum for channels 52-69. The auction winners would have 
strong incentives to buy these broadcasters out and help them move to 
their digital channels. When the FCC proposed to auction these channels 
a few years back, several broadcasters appeared ready to move to their 
digital channels and vacate their analog channels earlier than they 
would have been required to under the law in exchange for compensation.
    Now it may possible to structure the auctions to induce the 
broadcasters to voluntarily clear these channels much earlier than 
2009. For example, FCC could give broadcasters incentives to turn back 
their channels in advance of the auction for a pro rata share of the 
proceeds. This approach would compensate broadcasters for clearing 
before 2009--the new date by which they would be compelled to return 
their analog channels. Under this approach, they would have strong 
incentives to voluntarily clear their channels early. Their 
compensation would be set by the marketplace. If the Mass Media Bureau 
plan is the ``stick,'' a linked auction could be the ``carrot.'' The 
two approaches could be highly complementary.
    I have not worked out all the details. Nor have I fully considered 
all the legal ramifications. I leave those to the FCC and to the 
members of this Committee. But I do think this approach is worth 
considering. In fact, I am confident that if there is the will, a way 
could be found.
    In the end I keep coming back to the benefits to our country of 
clearing this spectrum in 2005 instead of 2009 or beyond. Even if 
limited to channels 60-69, the benefits from clearing the 24 MHz that 
has been allocated for public safety use and the 30 MHz that could be 
used for wireless broadband use would be stupendous.
A Final Thought
    I want to close by returning to the potential benefits of clearing 
the TV spectrum for new uses such as WiMAX. There could be significant 
first mover consequences in this market. If the United States were to 
move forward expeditiously to make this spectrum available for new 
uses, it could start a bandwagon effect. I believe the benefits of the 
new wireless broadband services would be so compelling that a critical 
mass of other countries would quickly move to clear spectrum in this 
range. The resulting gains in economies of scale would give American 
consumers still lower prices and U.S. based companies important first 
to market advantages.
    On the other hand, the U.S. does not have a monopoly on spectrum 
reform. In particular, emerging countries have a special interest in 
developing wireless broadband alternatives because they have less 
wireline infrastructure. Also, they frequently face fewer transition 
costs because they have fewer broadcasters and other incumbent users.
    In short, the opportunity is great and the challenge is equally 
great. The time to begin reform is now.
    Thank you.

    The Chairman. Thank you very much. Mr. Hazlett.

 STATEMENT OF THOMAS W. HAZLETT, SENIOR FELLOW, THE MANHATTAN 
            INSTITUTE, CENTER FOR A DIGITAL ECONOMY

    Mr. Hazlett. Thank you, Mr. Chairman, and thanks very much 
for having me at the hearing. The official opening of the 
advanced television proceeding at the Federal Communications 
Commission occurred in 1987. It was a rather rude response to 
requests made by cellular equipment manufacturers such as 
Motorola and public safety organizations to reallocate some 
part of the little-used TV band for other services. It put 
these requests on hold, waiting for high definition television 
where they still sit today, 17 years later.
    Meanwhile, TV spectrum, an extremely productive block of 
radio frequencies that is more than twice the bandwidth of all 
the airwaves devoted to mobile telephone service continues to 
support traditional broadcast TV service and virtually nothing 
else. That constitutes a regulatory debacle for two reasons.
    The first is that U.S. consumers would dearly love the 
wireless services that the TV band could host. We know from 
analyzing the intense usage of commercial mobile radio services 
band that there is huge pent up demand to utilize additional 
bandwidth for voice and data. Currently, wireless phone service 
in the United States generates about $90 billion annually. 
Historical data indicate the consumer surplus, benefits to 
customers over and above what they pay is at least another $80 
billion per year.
    I have recently estimated that allowing another 80 
megahertz, a fifth of the TV band spectrum, another 80 
megahertz of radio spectrum to be used by cellular operators 
would lower per-minute wireless charge by nearly 25 percent, 
increasing usage by about 47 percent and generating over $30 
billion-a-year in annual, most per year, annual, and $30 
billion in annual benefits. Underscoring it.
    These gains are so large because the use is spectrum 
hungry. European Union countries average between 250 and 300 
megahertz of allocated radio spectrum for mobile services, 
while the U.S. struggles to allocate 189 megahertz. Nearly 30 
megahertz of course has been tied up for nearly a decade now on 
the next wave problem. Germany uses 302 megahertz of spectrum, 
the UK, 340, the Netherlands, 355.
    If the U.S. can come close to this spectrum allocation, 
efficiency here would increase dramatically. That would lower 
prices for customers, cell phone use and high-speed wireless 
data would be far more widely deployed. Additionally, American 
businesses would become much more competitive in both domestic 
and international markets, as has recently been noted.
    The second reason the TV band should be made available for 
alternative uses is that it offers Americans very little value 
in its current deployment. Let us be very clear. The programs 
TV broadcasters create are popular and generate consumer value. 
The 400 megahertz distribution channel TV broadcasters plug up, 
however, is hugely inefficient, only about 10 million 
households today remain without subscription television 
service. At $300 for a cable box or satellite dish, a price 
that includes installation, virtually all of these homes could 
be added to existing distribution networks at a one-time cost 
of under $3 billion.
    From there, the retransmission of broadcast programming has 
zero marginal costs to society. Well, various details of all 
subscriber transition are interesting, none bear costs that 
come close to the magnitude of the benefits garnered in freeing 
up radio spectrum for advanced wireless services.
    Unfortunately, this reharvesting of valuable frequency 
space has become enmeshed in the digital TV transition now 
playing in slow motion for nearly two decades. There are signs 
that there may be light if not at the end of the tunnel, at 
least gleaming through a crack in the ceiling. The most 
important is that policymakers jettison the policy goal of high 
definition television in favor of pushing the airwave 
reallocation.
    The interminable waste of valuable resources is receiving 
public frustration it deserves. Why has the TV transition not 
worked? Government has planned the entire policy and so 
politics, not market efficiencies, have driven the process. 
There is nothing exceptional about the digital TV transition. 
It was a classic tragedy. Nor is the problem particularly 
challenging in a technical or economic sense.
    Americans are constantly upgrading technology, but the 
economic incentives have to be right. To get there, I believe 
two things should be done. One, awarding incumbent TV 
broadcasters flexible use rights to the air space implicitly 
defined in their current TV station licenses.
    Two, award similarly flexible rights to use the spectrum 
allocated to each unoccupied TV channel and then allocate this 
spectrum to overlay licenses assigned via licensed auctions. 
Some may recognize this as the plan suggested 8 years ago by 
U.S. Senator Larry Pressler. It relies on the overlay concept 
successfully deployed in the PCS band where incumbents are 
grandfathered.
    Getting these economic incentives in place is no mean task, 
of course. Broadcast TV relations is a public policy train 
wreck. The issue of exclusively assigned spectrum rights 
similar to those employed by cellular operators offers an exit 
strategy.
    What is to be avoided is to impose central planning to yet 
another generation of wireless service. That is the approach 
represented by the FCC's current rulemaking to consider 
authorization of unlicensed devices, accessing the TV band. By 
imposing government-mandated spectrum sharing rules the FCC 
would block market forces from revealing the value of the band 
to entrepreneurs or consumers.
    Technologies not fitting into the FCC's approval of very 
low power devices including powerful 4G wireless broadband 
systems now deployed in Australia and other countries would be 
ruled out. This central planning approach is the cause of the 
current problem. The superior program is to allow technologies 
to be selected by rivals. Outcome would be networks would 
compete and jockey to introduce an array of innovative 
applications.
    This is the pro-consumer way to reform and it is the one 
way to curb windfalls without punishing consumers with the 
collateral days of delay and inefficiency. 17 years of 
transition have inflicted quite enough of both. Thank you.
    [The prepared statement of Mr. Hazlett follows:]

                Prepared Statement of Thomas W. Hazlett

             Exit Strategies for the Digital TV Transition

                         Thomas W. Hazlett \1\
---------------------------------------------------------------------------

    \1\ Senior Fellow, Manhattan Institute for Policy Research; former 
Chief Economist, Federal Communications Commission. Relevant research 
by the author includes, The Rationality of US. Regulation of the 
Broadcast Spectrum, 33 Journal of Law & Economics (April 1990); 
Assigning Property Rights to Radio Spectrum Users: Why Did FCC License 
Auctions Take 67 Years? 41 Journal of Law & Economics (Oct. 1998); An 
Essay on Airwave Allocation Policy, 14 Harvard Journal on Law & 
Technology (Spring 2001); The US. Digital TV Transition: Time to Toss 
the Negroponte Switch AEI-Brookings Joint Center for Regulatory Studies 
Working Paper 01-15 (Nov. 2001); Property Rights and Wireless License 
Values, AEI-Brookings Joint Center for Regulatory Studies Working Paper 
04-08 (March 2004); We Don't Want our DTV, Wall Street Journal (Aug. 8, 
2002); Finally, Something Good on German Television, Slate (Oct. 7, 
2003); As Berlin's TVs Go Digital, Airwaves Lie Unused, Wall Street 
Journal Europe (Nov. 24, 2003); Would Last TV Station Turn Out the 
Lights The Hill (March 23, 2004). These articles are available online: 
www.manhattan-institute.org/scholars/hazlett.html. Contact: twhazlett@
yahoo.com

    The official opening of the Advanced Television proceeding at the 
Federal Communications Commission occurred in 1987. It was a rather 
rude response to requests made by cellular equipment manufacturers 
(such as Motorola) and public safety organizations to reallocate some 
part of the little-used TV band for other services. Yet, that 
spectrum--an extremely productive block of frequencies that is more 
than twice the bandwidth of all the airwaves allotted mobile phone 
service--continues to support traditional broadcast TV service and 
virtually nothing else. That constitutes a regulatory debacle for two 
reasons.
    The first is that U.S. consumers would absolutely love the wireless 
services that the TV band could host. We know, from analyzing the 
intense usage of the commercial mobile radio services (CMRS) bands, 
that there is huge pent-up demand to utilize additional bandwidth for 
voice and data. Currently, wireless phone service in the United States 
generates about $90 billion in annual revenues, and historical data 
indicate that consumer surplus is at least another $80 annually.\2\
---------------------------------------------------------------------------
    \2\ This calculation is given in Thomas W. Hazlett and Matthew L. 
Spitzer, Advanced Wireless Services, Spectrum Sharing, and the 
Economics of an Interference Temperature, paper submitted to the 
Federal Communications Commission, In the Matter of Establishment of an 
Interference Temperature Metric to Quantify and Manage Interference and 
to Expand Available Unlicensed Operation in Certain Fixed, Mobile and 
Satellite Frequency Bands, ET Docket No. 03-237 (April 5, 2004).
---------------------------------------------------------------------------
    In recent economic research, Roberto Munoz and I have found that 
the price of mobile phone service is strongly related to two important 
variables: the degree of competition among suppliers, and the amount of 
bandwidth made available to wireless networks. Based on a model 
calibrated with data from 29 countries, we estimate that allowing 
another 80 MHz of radio spectrum to be used by cellular operators would 
lower per-minute wireless charges nearly 25 percent, increasing usage 
by about 47 percent and generating over $30 billion annually in 
consumer benefits. Allowing operators to make productive use of greater 
TV band radio spectrum would result in still higher social gains. See 
Figure 1. (Please note that these are gains accruing to consumers 
rather than suppliers. They should not be confused with license values 
or expected auction receipts, which are relatively small.)


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Source: Results are estimates based on empirical model calibrated 
in: Thomas W. Hazlett and Roberto Munoz, Welfare Effects of Spectrum 
Policy, Manhattan Institute for Policy Research (June 2004).

    One reason that these gains are so large is that the U.S. is 
spectrum-hungry. European Union countries average between 250 and 300 
MHz of allocated radio spectrum, while the U.S. struggles to allocate 
189 MHz, nearly 30 MHz of which is involved in the NextWave licensing 
fiasco and has yet to be productively utilized. In contrast, Germany 
uses 302 MHz of spectrum, the United Kingdom 340, and the Netherlands 
355. If the U.S. could come close to the spectrum allocations of these 
nations, efficiency would dramatically increase. Consumers would enjoy 
lower prices and much better service, with cellphone use and highspeed 
wireless data being far more widely deployed. Additionally, American 
business users would become much more competitive in both domestic and 
international markets.
    The second basic reason the TV band should be made available for 
alternative uses is that it offers Americans very little value in its 
current deployment. Let us be very clear here. The programs TV 
broadcasters create are popular and generate substantial consumer 
value. The 400 MHz distribution channel TV broadcasters plug up, 
however, is hugely inefficient. Only about 10 million U.S. households 
remain without subscription service. At $300 for a cable ``drop'' or a 
satellite dish, a price that includes installation, virtually all of 
these homes could be added to existing networks at a one-time cost of 
under $3 billion. From there, the retransmission of broadcast 
programming has zero marginal cost to society. While various details of 
an all-subscriber transition are interesting, none bear costs that come 
close to the magnitude of the benefits garnered in freeing up radio 
spectrum for advanced wireless services.
    Unfortunately, this re-harvesting of valuable frequency space has 
become enmeshed in the digital TV transition, now playing in slow 
motion for nearly two decades. There are hopeful signs, however, that 
there may be light--if not at the end of the tunnel--at least gleaming 
through a crack in the ceiling. The most important is that policy 
makers appear willing to jettison the industrial policy goal of ``high 
definition television'' in favor of pushing airwave reallocation 
forward. The interminable waste of valuable resources is at long last 
receiving the public frustration it deserves.
    Yet, it is vital that we understand why the digital TV transition 
has not worked if we are to chart a successful exit. Government has 
planned this entire policy, and so politics, not market efficiencies, 
have driven the process. There is nothing exceptional about the digital 
TV transition--it is a classic ``tragedy of the commons.'' Nor is the 
problem particularly challenging in technical terms; Americans are 
constantly upgrading. But the economic incentives have to be right.
    Such incentives are in place where well-defined rights to use radio 
spectrum are found. Take the strikingly undisastrous analog-to-digital 
transition in cellular. When FCC licenses were awarded in the 1980s, 
mobile phone carriers were mandated to install analog systems. But the 
advantages of digital transmissions were already apparent. In 1988, 
cellular operators were belatedly allowed to use digital standards. By 
this time, however, scores of major markets-with millions of 
subscribers--were offering analog cellular service.
    Over a number of years, mobile phone carriers invested billions of 
dollars to upgrade to digital. They carefully migrated customers, 
coordinating shared use of cellular frequenci s. Carriers gavaway d! 
tal hands.ets to customers, subsidizing technology adoption and s 
oothing transition. This was very expensive but economically smart: by 
getting customers to use better phones, calls spewed less interference, 
leaving greater capacity for others. As network operators with 
exclusively-assigned rights, cellular carriers captured some of the 
increase in value.
    You'll note that no calamities befell the transition to digital 
cellular, a delicate and complex process that is nearing completion. 
The situation contrasts sharply with that in television where rights to 
control radio spectrum are extremely fragmented. Instead of seeking to 
subsidize transition, incumbents actively seek to sabotage it. This is 
not a matter of bad character but of poor public policy. Economic 
incentives--and the behavior of both incumbents and entrants--would 
change instantly were two things to happen:

  1.  Incumbent broadcasters were awarded flexible use rights to the 
        airspace implicitly defined by their TV station licenses;

  2.  Similarly flexible rights to use the spectrum allocated to each 
        unoccupied TV channel were allocated to overlay licenses and 
        sold at auction.

    This is the plan put forth some eight years ago by U.S. Senator 
Larry Pressler.\3\ It relies on the ``overlay'' concept successfully 
deployed in the PCS band,\4\ where incumbent users in a band are 
grandfathered while a new licensee obtains permission to use 
surrounding frequency space. Vast bandwidth is available for productive 
use in the TV band. There are only about 1600 full power TV stations 
for 210 TV markets--8 stations per market, compared to a total of 
between 49 and 67 allocated channels, depending on how one counts. With 
the right economic incentives, broadcasters and other wireless 
companies would negotiate to figure out reasonable interference rules, 
and a plan to rationally use airspace in the new millennium. Rather 
than blocking new technologies, broadcast stations would seek out more 
efficient video distribution platforms, capturing part of the social 
gains created.
---------------------------------------------------------------------------
    \3\ 142 CONG. REC. 10672, 10672-76 (1996). See discussion in: 
Hazlett, An Essay on Airwave Allocation Policy, 14 Harvard Journal of 
Law & Technowgy (2001), 442-43.
    \4\ See Peter Cramton, Evan Kwerel, and John Williams, Efficient 
Relocation of Spectrum Incumbents, 41 Journal of Law & Economics (Oct. 
1998), 647-675.
---------------------------------------------------------------------------
    Getting these economic incentives in place, of course, is no mean 
task: broadcast TV regulation is a public policy train wreck. Issuing 
exclusively-assigned, flexible Use spectrum rights--similar to those 
enjoyed by CMRS operators--offers a reliable exit strategy. What is to 
be avoided is to impose central planning to yet another generation of 
wireless service. That is the approach represented by the FCC's current 
rule making to consider authorization of unlicensed devices accessing 
the TV band.
    By imposing government-mandated sharing rules, the FCC would block 
market forces from revealing the value of the band to entrepreneurs and 
consumers. Technologies not fitting into the FCC's approved list of 
very low powered devices--including powerful 4G wireless broadband 
systems now deployed in Australia and other countries--would be ruled 
out by administrative fiat. This approach is the cause of the current 
problem. The superior solution is to let technologies be selected by 
market rivals.
    The outcome would be that networks would compete to offer current 
services at much lower prices, and jockey to introduce an array of 
innovative applications. This is the pro-consumer way to reform, and it 
is the one way to curb windfalls without punishing consumers with the 
collateral damage of delay and inefficiency. Seventeen years of 
``digital TV transition'' have already inflicted quite enough of both.

    The Chairman. Why do you think, Mr. Hazlett, that there has 
been such a delay in this transition, if it makes sense 
economically and technologically and every other way?
    Mr. Hazlett. The delay, I was being generous when I only 
traced it to 1987. This has been going on since the late 1940s 
that we have been trying to take away TV band spectrum from TV 
broadcasters. You asked the question to Congressman Harman, why 
are the broadcasters so intransigent, and I think the answer is 
because they can be.
    Under this regime, the incumbent broadcaster has the right 
to veto a reallocation and they have been vetoing reallocations 
literally since the late 1940s. There was a huge hassle that 
took many, many years of course to peel away a little bit of 
spectrum between channel 70 and 83 in the 1970s to get 50 
megahertz for cellular. That's where that came from.
    Broadcasters blocked that for years, saying people would 
die if you took away those TV station slots. They are waiting 
for regulatory payment to remove themselves. That's the game 
that's played under this central planning regime. Those are the 
rules of the game. I suggest the game be shifted and so 
economic incentives be put into place where the broadcasters 
would have an incentive to in fact do something efficient which 
is to reallocate and cooperate with the reallocation plan 
themselves.
    If you go head-to-head and try to do this, we know that 
story. It's been going on for well over 50 years.
    The Chairman. Mr. Calabrese, do you have any comment on 
that?
    Mr. Calabrese. Yes. I think Tom may have missed one point 
or two, which is I believe, and Mr. Ferree sort of suggested 
this a month ago, that the broadcasters have also I believe 
been holding out for a payoff on the second free channel they 
were given to make this transition back in 1996, and members--
--
    The Chairman. Even though they were given it free, they 
want a payoff?
    Mr. Calabrese. Right. Of course, this committee dealt with 
that in 2002 when you passed the Spectrum Reform Act. That was 
when the Commission was going to do what Tom was requesting. 
They were going to get back a few of the channels on channel 
69, take two-thirds of the auction revenue, sell their licenses 
to the second free channel directly to the cell phone industry 
and turn off analog.
    And this committee reported out a bill that the President 
signed that canceled those give away auctions. That's why we 
are here today to finish the job. Just before that FCC order, 
the top analyst for the broadcast industry, Tom Wolz, even 
spoke before the NAB and told them your primary business is no 
longer broadcasting. You are spectrum farmers. The value of the 
licenses you hold are worth twice as much as the market value 
of all your stations combined.
    And he said, you know, harvest it wisely, and they have 
been trying to do that politically. They have succeeded at the 
FCC so far, and I think it's up to this committee to really 
make the switch at least on 52 to 69 from broadcast to 
broadband.
    The Chairman. Mr. Lawson?
    Mr. Lawson. Mr. Chairman, I think Mr. Hazlett's plan and 
some of the other comments that we hear really discount what 
over-the-air broadcast television means to the American public. 
This is not spectrum farming. And I can tell you----
    The Chairman. I don't mean to interrupt, but I have heard 
no testimony that doesn't want to take into consideration those 
Americans that are receiving over-the-air television, whether 
it be $578 million for the poorest or as much as $3 billion for 
others. So I don't quite understand your statement there--
because I think every witness has said we have to take care of 
those people. Particularly since they are the lowest income 
Americans, generally speaking. Go ahead.
    Mr. Lawson. Certainly, granting broadcasters flexible 
rights to the spectrum they hold would be a motivation for them 
to do something different. We question whether that's 
politically viable for one thing, and in fact is it fair?
    The Chairman. Could we make the argument that if you're 
talking about tens of billions of dollars in revenue as 
associated with the digital spectrum or the analog spectrum 
that would be made available, that a couple of billion dollars 
to provide every American with either satellite, cable or set-
top capability is an answer?
    Mr. Lawson. Yes, sir. In fact, we are proposing a variation 
that is also market based. We believe that the real driver for 
the digital transition will be to create the content of the 
services to motivate consumers to buy set-top boxes, to buy new 
digital sets. We believe that the value of the spectrum for us 
is if we could convert that into a trust fund that would allow 
us to create that content to help drive consumer acceptance.
    We also think there are other market solutions beyond that 
to getting set-top boxes and digital set penetration. It could 
be that the interests like Intel and others who would like to 
develop this spectrum could be brought into a process of making 
sure that consumers are taken care of, that over-the-air 
consumers are taken care of and perhaps underwriting the cost 
of some of these boxes.
    But we believe that free over-the-air television is 
important. We believe it's poised for a comeback in the United 
States. We have seen a great example of that in England, and 
content really is the driver.
    The Chairman. Mr. Ferree?
    Mr. Ferree. Well, thank you, Mr. Chairman.
    The Chairman. We can't leave from this discussion the 
absolute criticality of the public safety aspect of the 
allocation of the spectrum, and none of us will go home without 
having heard from the chief of police, the firemen, the mayors, 
others who are deeply concerned about this issue of 
interoperability and freeing up of spectrum to be used for 
emergency services. Add that to your comments.
    Mr. Ferree. Sure. No question about it. You won't get any 
philosophical disagreement from me with anything that's been 
said. Obviously, this is one of the most important policy 
initiatives for the Nation, getting back this spectrum not only 
for the economic benefits that we have already talked about but 
for these public safety benefits, the first responder spectrum.
    The only thing I would add is that our plan was an attempt 
to do it within the existing statutory framework and not to 
rethink the entire framework. I don't have any philosophical 
difference with trying to think of other ways to do this and 
perhaps faster, just recognizing that the sooner we do this the 
bumpier the ride will be, so to speak, for the consumers.
    If we do this today, we have a lot of consumers that would 
have to face getting the converter boxes. Boxes would be 
relatively expensive today. We think by moving it from the 
existing statutory date, in essence from the January 1, 2007 to 
January 1, 2009 will have more local penetration by DVS, but a 
lot more consumer education time.
    The prices of the converter equipment will come down 
dramatically, by the way, because of our tuner mandate which 
drives the mass production of the tuners which are the same 
technology that goes into the converter boxes. All of those 
things will happen and we also think, by the way, by 2009, the 
number will be far less than 15 percent, perhaps on the order 
of 5 percent.
    So it's a smoother transition at that point, too. It's just 
a policy tradeoff. I don't have any philosophical difference 
with moving it up.
    The Chairman. When can we expect a formal proposal from the 
FCC?
    Mr. Ferree. We are drafting this now in two different 
dockets. There are two dockets involved in this, and we will be 
presenting it to the Chairman's office in short order. We need 
to get back our comments on the 15 percent cure so that we can 
also educate the Chairman and the Commissioners on our thinking 
about what to do about those folks.
    The Chairman. Senator Dorgan?

              STATEMENT OF HON. BYRON L. DORGAN, 
                 U.S. SENATOR FROM NORTH DAKOTA

    Senator Dorgan. Mr. Chairman, thank you very much. You 
talked about the ability to watch someone eat maggots on Fear 
Factor on HDTV is hardly less enlightening than old style 
television. I think we are converting perhaps less aggressively 
than we had expected when we began to develop these policies to 
digital, HDTV. But I think, Mr. Calabrese, you have used the 
point, you have used the comment that those who own the 
spectrum, in fact, we simply license the use of the spectrum. 
Broadcasters do not own the spectrum, do they, technically?
    Mr. Calabrese. That's correct. It's a temporary license 
which needs to be renewed.
    Senator Dorgan. The spectrum belongs to the American people 
and we license its use and we attend to that license certain 
requirements. Can someone here, perhaps Mr. Ferree, maybe you 
could tell us, what are the requirements that we use when we 
license this spectrum to a broadcaster? What do we expect of 
the broadcaster?
    Mr. Ferree. The general standard is they have to serve the 
public interest and necessity. The Commission has developed a 
number of rules and policies to add substance to that more 
general requirement that may have to do with more certain 
children's programming requirements, complying with certain 
advertising rules, political advertising rules, and in general, 
serving the public interest.
    Senator Dorgan. The reason I asked the question is there is 
a distinction here about ownership. And Mr. Hazlett, you talked 
about the market driving this and certain efficiencies driving 
that. I guess one of the questions I would ask you is if 
efficiencies are obvious in a certain direction, why does one 
need incentives to induce enterprises to move toward 
efficiencies?
    Mr. Hazlett. That's a great mid-term question. Because 
the--efficiencies that are obvious when you step back and look 
at what consumers want and are willing to pay for and what a 
various group of suppliers and technologists will be happy to 
offer them, those are the efficiencies I'm seeing. And you are 
seeing everybody talking about what we can do that's more 
productive with this bandwidth.
    But the people right now who have a right to use it are 
very seriously constrained for exactly the reason you suggest. 
They don't have a right to radio spectrum. They have use 
permits that allow them to operate transmitters according to 
the public interest rules so they don't have a right to 
aggregate the spectrum, to move the channels around. I have no 
doubt that there may be some long-term life for over-the-air 
broadcasting.
    I'm absolutely certain, however, that you will not in 50 
years see anything remotely like what we have today in terms of 
this 400 megahertz allocation because it is so inefficient that 
I expect between Congress and the FCC and the industry, they 
will work out a much better set of rules, so that the players 
that actually make productive investments here can make them.
    But under the current rules, those incentives are not 
there.
    Senator Dorgan. Mr. Chairman, first of all, I think this 
hearing is really important. There is a thicket of issues that 
are very complex. I must say, and I think it also relates in a 
larger sense to the questions that we have dealt with with 
respect to concentrations of ownership because as we go down 
the road here, the term that Mr. Calabrese used with respect to 
owning spectrum, there is an assumption, even though 
broadcasters don't technically own spectrum, they would speak 
of it as they own the spectrum.
    As we talk about the other issues of broadcast ownership 
and concentration and a whole range of enterprises, it, I 
think, really requires us to try to develop new strategies and 
new approaches that we think will serve the public interest.
    I mean, there are a whole series of very large private 
interests involved and industries have become very large in 
this sector and so I regret I was late. I have read most of the 
testimony. And I think that this is a really interesting 
hearing and a good contribution to a very important set of 
questions. I'm perhaps developing more questions than answers 
the more I learn about this issue, but thank you very much for 
holding the hearing.
    The Chairman. Thank you. Senator Stevens.

                STATEMENT OF HON. TED STEVENS, 
                    U.S. SENATOR FROM ALASKA

    Senator Stevens. Mr. Chairman, my mind was going back to 
the time when we fought for 3 years to get the right to have a 
spectrum auction, as opposed to lottery to pick up the spectrum 
that had been let go of by failing companies or by changes in 
ownership. And the luxury of now looking at spectrum from the 
point of view of its total use I think is really the greatest 
part of the change that has come about.
    But I have got to go to another meeting. I would just say 
this, that I do think that the hearing, this hearing is very 
important and it's opening the door for us, as Senator Dorgan 
said, to issues that we should explore thoroughly.
    Can I just ask one question? Mr. Ferree, what is the time-
frame for the two actions that you say you are working on now?
    Mr. Ferree. Certainly this year, Senator, and hopefully 
sooner rather than later. Again, we want to complete the 
comment cycle asking for input on the true over-the-air viewer, 
those that receive their programming solely in analog over-the-
air format now, so that will probably take us until sort of end 
of June, early July and then we will be presenting something to 
the floor over there.
    Senator Stevens. The participation of those two 
proceedings, is it industry-wide or limited to specific 
applications?
    Mr. Ferree. No. They are industry-wide notices of proposed 
rulemaking. The record is complete and the dockets are ready 
for action.
    Senator Stevens. No more hearings before the FCC?
    Mr. Ferree. I do not know what the FCC will do. There is no 
need for any further hearings or comments or notices or 
anything of that nature. Both dockets are ripe for decision.
    Senator Stevens. You say final decision will be made this 
year sometime?
    Mr. Ferree. That was my hope.
    The Chairman. Senator Nelson?

                STATEMENT OF HON. BILL NELSON, 
                   U.S. SENATOR FROM FLORIDA

    Senator Nelson. Thank you, Mr. Chairman. I approached this 
with the simple question, what is in the interest of the 
public. Clearly, I think what has been enumerated here, freeing 
up spectrum so that some of these emergency responders and law 
enforcement agencies can have that spectrum, in the rude 
awakening that we had in the aftermath of September 11th. That 
is clearly a goal worth achieving.
    So in light of that, Mr. Ferree, the broadcasters claim 
that your plan actually thwarts the Congressional intent by 
slowing the universal availability of digital services to the 
American public. What is your response?
    Mr. Ferree. That's just flat wrong. The plan that I--the 
outline that I briefed earlier has to do with must-carry 
stations and their rights are on cable systems and satellite 
systems that are delivering local--into local service.
    There are countless broadcasters, I think something in the 
range of 400 today, that have negotiated voluntary carriage of 
their digital signals. So consumers are already seeing in most 
markets digital and indeed high definition broadcast 
programming on their cable systems from those retransmission 
stations, in addition to quite a bit of now cable digital 
programming, cable high definition programming, things like 
ESPN HD and Discovery HD.
    There is quite an incentive for consumers to go out and buy 
digital equipment to see that programming. With all due respect 
to the must-carry broadcasters out there, it's typically not 
the must-carry stations that are driving the transition. It's 
not their programming. For the most part they are not doing 
high definition programming, the kinds of things that people 
are going to want to run out and buy an expensive TV set to 
get.
    Indeed, if one were to do that, to buy an HD set and then 
be disappointed that their cable system was not carrying 
voluntarily the digital programming of a must-carry 
broadcaster, because of our tuner mandate, the consumer would 
then be able to switch off air and receive that service, and 
it's at least sort of ironic to me that the broadcasters seem 
to forget that they have this other transmission platform, 
i.e., broadcast, to reach their viewers.
    Senator Nelson. Mr. Calabrese, Berlin accomplished a 
successful DTV transition. To what extent can we learn from the 
Berlin example or why might Berlin not be a good example?
    Mr. Calabrese. That's a good question and I think its 
relevance has been called into question somewhat. You know, I 
think it is a good example of just bringing some certainty, you 
know, that they said OK, we are going to have just a one-year 
switchover, date certain. We'll provide subsidies to certain 
low-income people and just get that done.
    What is very different, I think the greatest difference in 
some ways is it was more obviously a win-win there for both 
consumers and broadcasters, because Germany had not yet given 
away a--they hadn't given a second channel to their 
broadcasters. So what they did in their switchover was they 
told broadcasters if you go along with this, then we'll let you 
keep as much spectrum as you are using for analog and with 
digital compression, you can offer at least four times as many 
channels.
    And so the broadcasters went with government subsidy from 
having one channel to having four and they got their carrot as 
part of the deal. Unfortunately, here that horse is out of the 
barn. We have given not only all the extra capacity that 
digital provides for nothing, but a second channel in addition, 
so now broadcasters have 2 6-megahertz channels, one of which 
they are reluctant to return as required under the law because 
they can still possibly get a pay back for that, and the other, 
they can--they can in the future broadcast as many as two HDTV 
signals or as many as 10 standard television channels.
    What is different from Germany is use, is just go ahead and 
do this with the subsidy since we have already given away the 
producer subsidies of broadcasters.
    Senator Nelson. Mr. Lawson, the public television stations 
have taken a lead role in introducing digital services. What 
public interest obligations should be applicable to digital 
broadcasters?
    Mr. Lawson. Well, I can speak to public broadcasters. We 
take our obligations very seriously.
    Senator Nelson. How about speaking to digital broadcasters?
    Mr. Lawson. I believe that having a license from the 
government, so this spectrum does impose certain obligations to 
serve the public interest. I'm not an expert on what exactly 
those should be for the commercial broadcasters, but I can tell 
you that public affairs coverage, local coverage is to me, has 
to be at the top of the list as items that are obligations 
here.
    And we believe, we are--our stations are committed to using 
some of our spectrum for public safety. The current emergency 
alert system is broken. There are people in the government who 
are looking at ways to re-create that. Our stations are willing 
to place bandwidth at the disposal of emergency authorities as 
needed, as part of an emergency alert system, whether it's 
severe weather or something man-made.
    So we see an obligation, but we also see a great 
opportunity because of the expanded capabilities that we have.
    Senator Nelson. Thank you, Mr. Chairman.
    The Chairman. Senator Ensign?

                STATEMENT OF HON. JOHN ENSIGN, 
                    U.S. SENATOR FROM NEVADA

    Senator Ensign. Thank you, Mr. Chairman. I appreciate your 
holding this hearing because I think it's a critical issue to 
the future of our economy. Senator Nelson mentioned, what is 
the public interest and overall what is the public good as we 
go forward with this digital migration.
    Our role, and the role of the FCC--is to make sure that we 
are doing our jobs right so that the public gets the maximum 
benefit. And just from some of the comments, it is clear that 
if we can get the broadcasters off this spectrum it helps 
public safety.
    One thing that wasn't mentioned that I have talked to 
various people about is that a lot of new technologies will be 
developed that we can't even foresee. Obviously, the huge 
amount of revenues that would come to the Federal Government, 
especially when we are running the deficits is much needed, I 
think everyone would agree that the faster we do this, the 
faster we'll get to, auction the spectrum and lower the cost of 
the televisions or converter boxes.
    There are going to be more produced so the costs will come 
down. So that helps consumers. It was mentioned, I think Mr. 
Calabrese, in fact I think several of you mentioned the idea of 
U.S. competitiveness in the world. When you are talking about 
broadband and all of the different applications for consumers, 
we have to think about competitiveness in this global market.
    When we have countries that can outcompete us because of 
labor costs, we have to look at every way that we can maintain 
an edge and certainly this is one of those issues. And 
obviously, decreasing the cost of broadband for the consumers 
is another aspect. And in making broadband more available, 
especially to rural areas with WiMAX. I think that the idea of 
using the spectrum for that certainly makes sense.
    The comment that was made about a date certain, and we 
spoke to Chairman Powell about this, we need a hard date, I 
think 2009 is too late, frankly. Mr. Ferree, with a hard date, 
the spectrum would dramatically increase in value because then 
people would know that okay, we can develop a business model, 
our business plan based on a date certain.
    Would any of you care to react to any of the things that I 
just said? Let's start with Mr. Ferree.
    Mr. Ferree. Briefly, I think that's right. You give people 
a certain date. They know there is going to be a nationwide 
transition at that point which is 24 months after the statutory 
date of January 2007. The auctions can actually occur before 
then because you don't need to wait until that date to auction 
the spectrum.
    Equipment can begin to be made beforehand. These new 
technologies that you referred to, again, it's somewhat 
speculative, but it's a reasonable speculation that those new 
technologies will be developed there. And perhaps Mr. Gelsinger 
can add to that, but that process can start, too, once people 
know that the spectrum is in fact going to be available and not 
at some indefinite time in the near, distant future.
    Senator Ensign. Mr. Hazlett, people talk about interference 
and how technology and smart radios, can take care of some of 
that.
    Mr. Hazlett. Well, there is enormous possibility for this 
huge block of frequencies. The problem is using it for 
distributing broadcasting when we have other ways to get 
broadcasting out and 90 percent of households have elected to 
pay extra for those alternative distribution platforms.
    In this kind of a world those opportunities are exactly 
where we ought to be focused. It may be an improvement, an 
innovation to go to a 2009 regulatory intervention that moves 
it along, but it has to be very disappointing to have this 
transition be 17 years to this point and then have people 
talking about the improvement of a 5-year date certain.
    In terms of estimating the value of these things and you 
talk about advanced wireless technologies and obviously Intel 
is on the cutting edge and knows about many of them, but the 
interesting metrics that I gave, I think, should be understood. 
I'm not talking about license receipts or auction revenues. 
Those are absolutely trivial.
    Through 2002, let me just toss out, the total auction 
revenues in this country were $14 billion, that was the total 
amount collected by the U.S. Government. Annual revenues in 
wireless telephony, $90 billion a year. If we got a fifth of 
the TV band to be available for cellular services, we would 
generate $30 billion plus per year in consumer benefits. That's 
not, that's way above any license revenue forecast, and so I 
think really you have to look at how you get there quickly, and 
I think 5 years is a long time.
    Just one thing I want to mention about the Berlin switch. 
Michael has been talking about that. In Berlin, they had 
160,000 households that did not have access to offer digital TV 
signals because they did not subscribe to cable or satellite. 
In those 160,000 households they had to buy their own new 
digital tuners. August of last year, no off the air TV. TV sets 
went blank. There was no revolution.
    There was a subsidy plan, very limited, 6,000 households 
got one box, one time. That cost a very small amount of money 
so you can't think about a transition. Consumers got more 
signals. They went from 12 over-the-air signals to 27. So the 
greater digital choice softened the blow of spending $20 
million to--20 to get a new TV set.
    Senator Ensign. If this happened in the U.S. with the size 
of the market, the volume of those converter boxes would be so 
huge the price would have to come down dramatically?
    Mr. Hazlett. No question.
    Senator Ensign. My time is up. If you could summarize 
briefly.
    Mr. Gelsinger. On the interference aspect that you 
questioned, most of the TV regulations were established with 
the technology 50-years-old. Today we can build radios much 
better than that. We are underway in understanding those issues 
with the FCC and feel very confident that there aren't any real 
factors there, that they can be resolved. It's an engineering 
problem.
    You mentioned the competitiveness issue. The United States 
is not competitive in its broadband service today. Our 
definition of broadband is anything over 100K bits. If you were 
in Japan, anything less than 10 megabits is considered 
broadband, and the comparison of those and the potential 
incentive that we could have by making the spectrum available 
for broadband wireless is the most valuable thing that we could 
do.
    I want to say broadband is in many regards a medium of many 
services. For that matter, it could carry radio. It can carry 
TV as well as education, websites, all sorts of different 
commerce activities, and I think the importance of that can't 
be understated.
    Senator Ensign. Thank you, Mr. Chairman, for this hearing.
    The Chairman. Senator Sununu.

               STATEMENT OF HON. JOHN E. SUNUNU, 
                U.S. SENATOR FROM NEW HAMPSHIRE

    Senator Sununu. Thank you, Mr. Chairman. Mr. Gelsinger, 
maybe I'll pick up on that last point. Are you saying that the 
single biggest reason for our lag in broadband deployment 
relative to other countries is the lack of building penetrating 
bandwidth of the type that we are talking?
    Mr. Gelsinger. Today's environment for broadband is driven 
by duopoly and demand for DSL. These are growing businesses 
that are--both of those types of services are growing today. 
Most other nations around the world, they have taken much more 
aggressive, national policies to build their broadband 
infrastructure and are thus dramatically ahead of where we are 
in the U.S. with two-tiered regulated environments, structures 
of both local LECs as well as national carriers has created a 
largely broad process to get broadband structure in place.
    There is an opportunity right now where we can leap ahead 
of what have largely been central driven programs in the rest 
of the world and actually create a free market environment 
around broadband wireless making the spectrum available, large 
portions of it. The U.S. is already well positioned in some of 
the fundamental technologies as both service providers and some 
experiments that we have recently, in market trials, completed. 
And shown phenomenally good results.
    The Chairman. Senator, since the two of us are here, can I 
interrupt a second. Your question is very important. When we 
have had continuous testimony that we rank 10th, 11th, 20th in 
the world yet when we had a panel of experts on this issue of 
broadband, I asked every one of them, would you adopt a policy 
that say South Korea or any of these countries have. They said 
absolutely not, that they would not adopt the national policies 
of these countries that have been successful.
    So it seems to me it's facile to say we are behind the 
other countries yet no expert believes we should adopt them. 
And also comparisons are not exactly accurate when you compare 
us to a country like South Korea, where they are basically a 
very urbanized country with tall apartment buildings and far 
different from the United States of America.
    I just think that's important to add in this discussion as 
we talk about our failures to provide broadband services to all 
Americans.
    Mr. Gelsinger. I believe much of the testimony that was 
provided wouldn't argue with central planning, but they also 
would argue that many of the policies of the U.S. have 
prevented the acceleration of market forces, delivery of fiber 
or other technologies like that. So while there have been 
regulatory encumbrances to allow market forces to keep us in a 
competitive position in the world, that's what we have with 
broadband wireless.
    Senator Sununu. To clarify that point a little bit about 
the value of making some of this spectrum available whether 
it's unlicensed or not, for wireless and broadband services, I 
think Mr. Calabrese proposed using half of the 84 megahertz for 
unlicensed uses.
    What is the relative availability of similar spectrum for 
wireless or broadband services today?
    Mr. Gelsinger. The primary spectrum that's being considered 
for things like WiMAX, 3.5, 5.8 and 2.5 and those are being 
proposed. So there are meaningful portions of spectrum being 
pursued. However, the propagation characteristics----
    Senator Sununu. Those do not penetrate buildings 
effectively? Not with the effectiveness of this range.
    Mr. Gelsinger. Correct.
    Senator Sununu. I'm curious to know whether there is 
similar licensed or unlicensed uses for broadband services at 
this frequency, that is with the potential----
    Mr. Gelsinger. None that we are aware of.
    Mr. Calabrese. Senator, there have been studies that 
involve conjectures and the former DARPA engineer who now runs 
a company, Shared Spectrum, for example, did a study in West 
Virginia for Senator Rockefeller showing that the cost of 
broadband deployment goes down by nearly a factor of 10 when 
you are in the broadcast band with wireless broadband, compared 
to being up at 5 gigahertz, which is the only new spectrum for 
unlicensed that's been given out.
    Senator Sununu. By 10, that's a big number?
    Mr. Calabrese. In terms of the number of cell coverage 
sites.
    Mr. Gelsinger. For the testimony today, we have some 
materials we produced specifically for studies, two and a half, 
approximately a quarter, when you get to the 5 gigahertz, it's 
approximately a tenth.
    Senator Sununu. Mr. Hazlett, do you want to speak to all 
the economists in the world on that point?
    Mr. Hazlett. Just to embarrass them. There are other 
frequencies used there, unlicensed and licensed, some of which 
is used for broadband. But the big picture is that this is the 
mother load. The TV band is really where you want to look if 
you want to get broadband and other wireless services, advanced 
services rolled out.
    Senator Sununu. The distinction for those of us that aren't 
experts in the technical aspects, the distinction is it's not 
just that it's bandwidth, it's characteristics, though, 
behavior characteristics for carrying high data volumes and 
carrying broadband signals over long distances effectively, is 
that correct?
    Mr. Gelsinger. It's the population characteristics, the 
lower frequencies travel farther and they penetrate buildings 
without any interference.
    Senator Sununu. Given that, it seems like such an obvious 
valuable use of very valuable spectrum, I can't help but be 
rent with fear that we'll somehow find a way to handle this 
very poorly. And to that point, it seems that the biggest 
stumbling block, at least with the current set of rules is 
defining what 85 percent is, and the fact that we can agree on 
what 85 percent means is a little bit unnerving.
    Mr. Lawson, you talked of, or tried to emphasize the 
importance of the over-the-air broadcast to the American 
consumer. It seems to me that the American consumer can't run 
away from over-the-air broadcasts fast enough. Over the last 10 
years alone, the number of consumers choosing to receive their 
TV signals over-the-air has been cut in half. It's now 12 
percent of households, and it continues to fall.
    Rich, poor, inner city, rural consumers across all 
spectrums are choosing some kind of subscription service or 
alternative to over-the-air services. Now, over-the-air 
broadcasters, great history in this country, and consumers from 
the testimony we have heard are interested in local content and 
local broadcast. But that's very different than choosing to 
receive your signal over-the-air.
    So given that consumers are choosing not to select over-
the-air broadcasts, why would you say that there is a special 
or a unique relationship or interest.
    Mr. Lawson. First on the numbers. The FCC is undertaking a 
notice of inquiry to look at the over-the-air population in the 
U.S.
    Senator Sununu. Right. Demographics.
    Mr. Lawson. The demographics. It is not clear that that 
number is continuing to drop. We have been told, in fact, by 
other experts, research people, that it is not dropping. We 
have also been told that although we use the 14 percent number 
for households that rely exclusively upon over-the-air 
television, based on Nielsen data, if you factor in other uses 
of television, other places where television is used it might 
be 22 percent.
    Senator Sununu. For what other places are you talking 
about?
    Mr. Lawson. Mobile homes, RVs, public stations where 
television is displayed, dorms, college dorms. We also know 
that there are tens of millions, perhaps 79 million----
    Senator Sununu. I'm sorry to interrupt, but I would be very 
interested in you providing for the record the college dorms in 
the country that use over-the-air signals. I would be--I'd be 
very interested to know. I'm not denying that there are any, 
but I would be very curious to know where they might be.
    The Chairman. Lest the over-the-air television is covering 
ESPN, Mr. Lawson.
    Mr. Lawson. I'm just relaying third party information. We 
can't turn off analog until we understand who these people are. 
We know there are 10 million homes that have satellite and 
cable, we have one in the kitchen that uses rabbit ears. If 
those go dark, you and we have a political problem. I'm not 
sure of the trends or the demographics, the numbers there.
    Second, I think it's important for our country to maintain 
over-the-air broadcasting for other reasons, even if people are 
buying cable and satellite, if they are choosing to do that, 
having the option to take free over-the-air television is a 
powerful economic tool for consumers to just say no to cable 
rates and satellite rates.
    And third, I do believe it's important for our country as a 
democracy to maintain other channels for different voices to 
come into people's households. If all of our media is 
controlled by one or two pipes that come into the home, I'm not 
sure how healthy that is for our democracy.
    Senator Sununu. I have got to at least provide some 
response there. Well, why don't I ask someone that might want 
to respond to those last couple of points. Mr. Ferree?
    Mr. Ferree. Sure. Senator Sununu, I would not challenge the 
notion that broadcast today is a challenged platform. It 
certainly has--and some of the trends we have seen are the 
trends you suggested. I actually admire my friend, John Lawson, 
for being one of the few in that industry that is thinking 
creatively about ways to turn broadcasting into a service that 
can be truly competitive with cable and satellite and offer a 
third choice, third vehicle for consumers. But in large part, I 
agree with your statement.
    The Chairman. Isn't that third alternative wireless?
    Mr. Ferree. It's wireless TV, as Mr. Lawson says, creating 
a platform that offers consumers a reasonable choice of 
services, something they actually want to see, free over-the-
air and perhaps even there is a part of it that's a 
subscription service.
    I don't know what that model is going to look like, but it 
seems to me it's a good thing for consumers if there is another 
choice.
    Mr. Lawson. Senator, we talked about Berlin a moment ago. 
Perhaps another model for us is the UK. The UK launched digital 
for broadcasting as a pay platform called I TV Digital. It 
failed. The government recalled those licenses, recompeted them 
in a nonauction, beauty contest, and a consortium, unlikely 
consortium of the BBC, Rupert Murdoch's company and another 
company. They could not figure out a way to do a pay platform, 
so they came up with free view, a free platform and made a very 
simple offer to the British consumer.
    Now you get nine analog channels, if you go digital, you 
can get 30, one-time payment and set-top box. They have gotten 
very cheap over there. Never have another cable or satellite 
bill. Last time we checked, they were selling 100,000 of these 
boxes a month. And that's why I believe if the broadcasters, if 
we could get together, a critical mass of us and rebrand and 
relaunch, as Ken says, wireless TV for new generations of 
Americans who are total cable babies and don't even know this 
stuff comes over-the-air, you might be able to see a resurgence 
of free over-the-air broadcast.
    Senator Sununu. Are they broadcasting in analog now in the 
UK?
    Mr. Lawson. They are. They are simulcasting and the British 
government is now seeing, I think, a blueprint to turning off 
analog, based on consumer penetration where they are not going 
to strand people because people are buying the boxes.
    Senator Sununu. Mr. Calabrese, what are your most 
significant areas of agreement and disagreement with Mr. 
Ferree's plan?
    Mr. Calabrese. Well, I'm in basic agreement with the plan. 
It just doesn't go far enough because the FCC's authority 
doesn't go far enough. I suppose in terms of particulars----
    Senator Sununu. With respect to the tax credit and the 
trust, those would be the two most significant?
    Mr. Calabrese. Exactly. And I think it's important with 
respect to what John was saying that one reason that we suggest 
offering a single converter credit to every household is then 
we don't need to worry about whether we are talking about 17 
million or 22 million.
    And I think if Congress can pass this by the end of next 
year, we should be able to do it, there should be no problem 
completing this by January 2008, rather than 2009. But yes, the 
biggest difference is just that the FCC cannot do it alone, and 
so it really doesn't matter.
    The 85 percent number we should just throw out the window. 
It's meaningless because the FCC can go through the motions of 
doing this rulemaking this year, and when push comes to shove, 
we are not going to--that's my last granny rule. We are not 
going to unplug analog TV without some sort of mechanism to 
take care of these faults.
    The Chairman. What do you think of Chairman Barton's 
proposal that it can be done by the end of 2006?
    Mr. Calabrese. Personally, I don't think that can happen, 
both because the biggest thing is manufacturers need to gear 
up. That point was made earlier. The converter boxes will be--
they are over $200 now and they are only going to drop below 
$100 in mass production. But if manufacturers know, for 
example, that in 2 years a window, a 12-month window will open 
for the tax credit and effectively consumers are being forced 
to buy these things so they know they have a market for 5, 10, 
15 million then the price, electronics industry tells us the 
price will come down to the $75 range.
    Mr. Hazlett. I'm surprised to hear Michael say that. I 
would think moving it up would just move it up. The incentives 
for mass production are there when the market is there. Now we 
are delaying that market.
    I mean, I would be very much in favor of trying to keep 
this 2006. 2006 was feasible a few years ago. Why set it back?
    The Chairman. As the broadcasters assured us when they 
received it for free, there would be no problem.
    Senator Sununu. Mr. Gelsinger, your company still 
manufacturers things. I would be curious to know your thought 
about the amount of time it might take. Is 2 years too little 
time to move from a $200 mass produced box to a $100 mass 
produced box?
    Mr. Gelsinger. To see an effect on price within any 2 years 
based on a volume of economics if there was a clear target for 
the industry. My first point would be setting a clear target. 
The clear target is more valuable and clearly understood and 
accepted then the particular date. Technically, the sooner the 
better. I think 3 years might be politically more acceptable 
but clearly 5 years is clearly an eternity.
    Senator Sununu. Mr. Hazlett, what are your most significant 
areas of agreement or disagreement with the points afforded by 
Mr. Ferree?
    Mr. Hazlett. The most important thing they are doing at the 
Commission is looking at this 85 percent rule. The 85 percent 
rule is basically the kill switch on the whole transition. It's 
very important now that the Commission is trying to figure out 
some way to get us to 85 percent, but the way that was written 
in the 1997 Budget Act, we are just not going to hit it.
    If they attack that and get the 85 percent to be a real 
goal, I think that that's very important. I think the argument 
about the year is very important, too, and I think there are 
other issues there that we might not agree so much on, but I 
think it's important that they are trying to fix that 85 
percent rule.
    The Chairman. It's also of interest the way that rule, 
where that rule appeared legislatively, certainly not 
legislation from this committee. Another indicator of how 
broken our legislative process is that an issue this critical, 
talking about hundreds of billions of dollars, would be written 
in a balanced budget act amendment. It's remarkable.
    Mr. Ferree. Could I add one comment? I don't disagree with 
any of these folks.
    The Chairman. You are trying to do the best you can.
    Mr. Ferree. I'm surprised that I'm the one saying slow down 
there.
    The Chairman. Bureaucracies never do that.
    Mr. Ferree. I have been chastened by the broadcasters for 
trying to speed this whole thing up. The one element that I 
don't want to lose sight of is the consumer education part of 
this. We are seeing consumers buying over 20 million analog TV 
sets a year now. For that set to stop working without some kind 
of ramp down----
    The Chairman. Aren't you also seeing, really since the cost 
of HDTV is finally getting down in the consumer range, are you 
seeing a dramatic increase in sales of HDTV?
    Mr. Ferree. Definitely. Over the next few years, the pain, 
as it were, for consumers would be considerably less than if we 
try to do this tomorrow.
    Mr. Lawson. If I may, what we are offering is regardless of 
a hard date, we have a lot of stations that under certain 
conditions would be willing to get off of analog by the end of 
2005 or 2006. We have three stations off the air right now. One 
voluntarily who are broadcasting in digital only. And----
    The Chairman. So you are not highly regarded by the NAB, I 
guess, then, Mr. Lawson?
    Mr. Lawson. Well, we prefer, let's say a market driven, 
market by market approach ending the transition. We think that 
our stations hold license to 21 percent of U.S. television 
spectrum. We think that under the right conditions we would 
voluntarily get off of it early.
    Mr. Gelsinger. We would just emphasize that whatever date 
is set, it's probably more conservative than this group would 
appreciate or enjoy, based upon the testimony today. But there 
would be incentives put in place for accelerations voluntarily 
by broadcasters allowing us to begin the deployment of new 
services on an accelerated basis.
    Senator Sununu. I don't understand. Why do you need a 
mandate, and an incentive to comply with a mandate? Either you 
mandate it or you create a set of incentives to accelerate its 
eventuality, but I don't see what the justification is for 
doing both.
    Mr. Gelsinger. If there is a fixed certain date, let's take 
2009, the one proposed in the Mass Media Bureau to date, that's 
still 3, 4, 5 years away depending on what date is selected.
    Senator Sununu. So if you choose a date that isn't timely, 
if you choose a late date like 2009, it would be nice to have 
incentives so it could happen faster.
    Mr. Gelsinger. Even 2006 is 2 years away. I think there 
is--a voluntary turn back program will simply accelerate the 
overall market of conversion to HDTV and services.
    Mr. Hazlett. There is a very important incentive to have 
these in for early turn back. It makes the eventual turnoff 
real. That is to say when you see the migration happening and 
it's in effect, that tells customers, OK, this is here and it 
tells the other TV stations that haven't done it, yes, and 
their excuse to not turn off is undermined by the fact that all 
of these other stations have done it.
    Mr. Calabrese. If we have any incentive, I don't believe 
that it needs to be some new financial incentive at taxpayer 
cost. I mean, certainly the best thing would be to make it soon 
if we can, but remember, broadcasters have incentives even 
without more payments. They can save electricity costs and 
that's something that John Lawson's group has emphasized by 
turning it off, yet still being assured that all viewers will 
be able to see it.
    And also under the Ferree plan, they get a choice of 
carriage when they turn off. And so they do have some 
incentives. Also what makes this spectrum so valuable, at least 
in the license side, not on the unlicensed so much, unlicensed 
we can use it market by market but on the licensed side, you 
recall when this committee reported out the Spectrum Reform Act 
it was heavily lobbied in favor by the cell phone companies.
    And you know, one reason they gave was they wanted the 
certainty of clear national channels because that's how their 
equipment worked. And so just having some small commercial 
broadcasters get paid to go off the air early in a few small 
markets is really not going to do anything much, certainly on 
the license side, for broadband or for increasing the auction 
value.
    And to the extent that they do go off early with incentives 
I mentioned, we can allow public safety for those communities 
who use it.
    Senator Sununu. Thank you, Mr. Chairman.
    The Chairman. I want to thank the witnesses. This has been 
very helpful. This is obviously an issue of tremendous 
importance and we appreciate your input. Thank you. This 
hearing is adjourned.
    [The hearing adjourned at 11:10 a.m.]

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