[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
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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.
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\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.
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Minimize disruption to consumers
Whenever the transition ends, consumers who rely on over-the-air
television and do not yet have a DTV receiver will be faced with a
choice: purchase a digital TV set, purchase a digital-to-analog
converter, or subscribe to a multichannel video provider such as a
cable or satellite operator. Our goal is to minimize the number of
consumers forced to make that choice and to ensure that digital-to-
analog converter equipment is affordable for the average consumer.
Maintain consumer access to HDTV and other digital services
Today consumers have access to a growing level of compelling
digital content particularly high-definition (``HDTV'') content-over
the broadcast, cable and satellite television platforms. That access
should be maintained and encouraged under any proposal to advance the
DTV transition.
Comply with Constitutional and statutory requirements
Whatever solution is decided upon must be sustainable in court.
Some broadcasters have suggested, for instance, that cable television
operators should be required to carry both the analog and the digital
signals of every broadcast station in the market (i.e., ``dual
carriage'') until cable systems have converted to all digital
transmission. In 2001, the Commission tentatively concluded that such a
requirement would be an unconstitutional abridgement of cable
operators' First Amendment rights.\3\ Based on the evidence submitted
in the must-carry docket, the Bureau is convinced that the Commission's
tentative conclusion was correct. In constitutional parlance, a dual
carriage requirement clearly imposes a greater burden than necessary to
further any discernible government interest at stake. Indeed, I am
concerned that the imposition of a dual carriage requirement would, in
the inevitable judicial review that would follow, place the whole must-
carry regime at risk.
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\3\ See First Report and Order, 16 FCC 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.
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\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.
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5. The statutory 85 percent threshold \6\ for ending the transition
could be met nationwide on January 1, 2009:
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\6\ One of the criteria in Section 309(j)(14)(B) is the 85/15
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\
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\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\
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\10\ The Bureau has not yet conducted a detailed market-by-market
analysis, but will do so as the process continues.
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7. By January 1, 2009, the number of households that potentially
could lose television service with the end of analog broadcasting
should be well under the statutory maximum of 15 percent in many
markets.\11\ Indeed, cable penetration alone exceeds 85 percent in
several markets.\12\ In addition, the FCC's digital tuner and ``plug
and play'' mandates--together with the incentives provided by a hard
transition date--will ensure that a substantial number of viewers that
rely on over-the-air broadcasting will have purchased digital receivers
in the preceding five years.\13\
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\11\ Approximately 15 percent of TV households do not subscribe to
a pay television service and rely on over-the-air broadcasting.
\12\ E.g., cable penetration is 91 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\
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\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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