[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]



      DTV STAFF DISCUSSION DRAFT OF THE DTV TRANSITION ACT OF 2005

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

                                HEARING

                               before the

          SUBCOMMITTEE ON TELECOMMUNICATIONS AND THE INTERNET

                                 of the

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 26, 2005

                               __________

                           Serial No. 109-28

                               __________

       Printed for the use of the Committee on Energy and Commerce


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 house


                               __________

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                    ------------------------------  

                    COMMITTEE ON ENERGY AND COMMERCE

                      JOE BARTON, Texas, Chairman

RALPH M. HALL, Texas                 JOHN D. DINGELL, Michigan
MICHAEL BILIRAKIS, Florida             Ranking Member
  Vice Chairman                      HENRY A. WAXMAN, California
FRED UPTON, Michigan                 EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida               RICK BOUCHER, Virginia
PAUL E. GILLMOR, Ohio                EDOLPHUS TOWNS, New York
NATHAN DEAL, Georgia                 FRANK PALLONE, Jr., New Jersey
ED WHITFIELD, Kentucky               SHERROD BROWN, Ohio
CHARLIE NORWOOD, Georgia             BART GORDON, Tennessee
BARBARA CUBIN, Wyoming               BOBBY L. RUSH, Illinois
JOHN SHIMKUS, Illinois               ANNA G. ESHOO, California
HEATHER WILSON, New Mexico           BART STUPAK, Michigan
JOHN B. SHADEGG, Arizona             ELIOT L. ENGEL, New York
CHARLES W. ``CHIP'' PICKERING,       ALBERT R. WYNN, Maryland
Mississippi, Vice Chairman           GENE GREEN, Texas
VITO FOSSELLA, New York              TED STRICKLAND, Ohio
ROY BLUNT, Missouri                  DIANA DeGETTE, Colorado
STEVE BUYER, Indiana                 LOIS CAPPS, California
GEORGE RADANOVICH, California        MIKE DOYLE, Pennsylvania
CHARLES F. BASS, New Hampshire       TOM ALLEN, Maine
JOSEPH R. PITTS, Pennsylvania        JIM DAVIS, Florida
MARY BONO, California                JAN SCHAKOWSKY, Illinois
GREG WALDEN, Oregon                  HILDA L. SOLIS, California
LEE TERRY, Nebraska                  CHARLES A. GONZALEZ, Texas
MIKE FERGUSON, New Jersey            JAY INSLEE, Washington
MIKE ROGERS, Michigan                TAMMY BALDWIN, Wisconsin
C.L. ``BUTCH'' OTTER, Idaho          MIKE ROSS, Arkansas
SUE MYRICK, North Carolina
JOHN SULLIVAN, Oklahoma
TIM MURPHY, Pennsylvania
MICHAEL C. BURGESS, Texas
MARSHA BLACKBURN, Tennessee

                      Bud Albright, Staff Director

        David Cavicke, Deputy Staff Director and General Counsel

      Reid P.F. Stuntz, Minority Staff Director and Chief Counsel

                                 ______

          Subcommittee on Telecommunications and the Internet

                     FRED UPTON, Michigan, Chairman

MICHAEL BILIRAKIS, Florida           EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida                 Ranking Member
PAUL E. GILLMOR, Ohio                ELIOT L. ENGEL, New York
ED WHITFIELD, Kentucky               ALBERT R. WYNN, Maryland
BARBARA CUBIN, Wyoming               MIKE DOYLE, Pennsylvania
JOHN SHIMKUS, Illinois               CHARLES A. GONZALEZ, Texas
HEATHER WILSON, New Mexico           JAY INSLEE, Washington
CHARLES W. ``CHIP'' PICKERING,       RICK BOUCHER, Virginia
Mississippi                          EDOLPHUS TOWNS, New York
VITO FOSSELLA, New York              FRANK PALLONE, Jr., New Jersey
GEORGE RADANOVICH, California        SHERROD BROWN, Ohio
CHARLES F. BASS, New Hampshire       BART GORDON, Tennessee
GREG WALDEN, Oregon                  BOBBY L. RUSH, Illinois
LEE TERRY, Nebraska                  ANNA G. ESHOO, California
MIKE FERGUSON, New Jersey            BART STUPAK, Michigan
JOHN SULLIVAN, Oklahoma              JOHN D. DINGELL, Michigan,
MARSHA BLACKBURN, Tennessee            (Ex Officio)
JOE BARTON, Texas,
  (Ex Officio)

                                  (ii)




                            C O N T E N T S

                               __________
                                                                   Page

Testimony of:
    Abud, Manuel, Vice President and General Manager, Telemundo 
      Los Angeles................................................    73
    Chessen, Rick, Chair, DTV Task Force, Federal Communications 
      Commission.................................................    23
    Goldstein, Mark L., Director, Physical Infrastructure Team, 
      Government Accountability Office...........................    27
    Kimmelman, Gene, Senior Director of Public Policy, Consumers 
      Union......................................................    95
    Knorr, Patrick, Vice Chairman, Sunflower Broadband, on behalf 
      of American Cable Association..............................    83
    McCollough, W. Alan, Chairman and Chief Executive Officer, 
      Circuit City Stores, Inc., on behalf of Consumer 
      Electronics Retailers Coalition............................    76
    McSlarrow, Kyle E., President and Chief Executive Officer, 
      National Cable and Telecommunications Association..........    68
    Pitsch, Peter K., Communications Policy Director, Intel 
      Government Affairs.........................................   102
    Shapiro, Gary J., President and Chief Exectuive Officer, 
      Consumer Electronics Association...........................    45
    Souder, Steve, Director, Montgomery County, Maryland 911 
      Emergency Communications Center............................    92
    Yager, K. James, Chief Executive Officer, Barrington 
      Broadcasting Company, LLC, on behalf of National 
      Association of Broadcasters................................    51
Material submitted for the record by:
    Aloha Partners, letter dated April 27, 2005, to Hon. Joe 
      Barton, Hon. John D. Dingell, Hon. Fred Upton, and Hon. 
      Edward J. Markey...........................................   157
    APCO et al., letter dated May 25, 2005, to Hon. Joe Barton, 
      Hon. John D. Dingell, Hon. Fred Upton, and Hon. Edward J. 
      Markey.....................................................   164
    Bazelon, Colemen, Vice President, Analysis Group, paper 
      submitted by...............................................   145
    Brattle Group, letter dated May 18, 2005, to Hon. Joe Barton, 
      Hon. John D. Dingell, Hon. Fred Upton, and Hon. Edward J. 
      Markey.....................................................   165
    Cox, Hon. Christopher, a Representative in Congress from the 
      State of California, letter dated May 24, 2005, to Hon. Joe 
      Barton.....................................................   184
    Chessen, Rick, Chair, DTV Task Force, Federal Communications 
      Commission, response for the record........................   140
    EchoStar Communications Corporation, prepared statement of...   138
    Flanigan, Matthew J., President, Telecommunications Industry 
      Association, letter dated May 24, 2005, to Hon. Joe Barton.   226
    High Tech DTV Coalition, prepared statement of...............   215
    Largent, Steve, President, CTIA, letter dated May 26, 2005, 
      to Hon. Joe Barton.........................................   214
    National Troopers Coalition, letter dated September 12, 2005, 
      to Hon. Joe Barton.........................................   227
    Public Knowledge, prepared statement of......................   218
    Shapiro, Gary J., President and Chief Executive Officer, 
      Consumer Electronics Association, letter dated May 6, 2005, 
      to Hon. Joe Barton.........................................   177
    Walt Disney Company, material for the record.................   186

                                 (iii)

  

 
      DTV STAFF DISCUSSION DRAFT OF THE DTV TRANSITION ACT OF 2005

                              ----------                              


                         THURSDAY, MAY 26, 2005

              House of Representatives,    
              Committee on Energy and Commerce,    
                     Subcommittee on Telecommunications    
                                          and the Internet,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 11:40 a.m., in 
room 2123 of the Rayburn House Office Building, Hon. Fred Upton 
(chairman) presiding.
    Members present: Representatives Upton, Stearns, Gillmor, 
Cubin, Shimkus, Pickering, Fossella, Radanovich, Bass, Walden, 
Terry, Ferguson, Sullivan, Blackburn, Barton (ex officio), 
Markey, Engel, Wynn, Gonzalez, Inslee, Boucher, Towns, Gordon, 
Rush, Eshoo, Stupak, and Dingell (ex officio).
    Staff present: Howard Waltzman, chief counsel, 
telecommunications and the interet; Neil Fried, majority 
counsel; Kelly Cole, majority counsel; Will Norwind, policy 
coordinator; Jaylyn Jensen, senior legislative analyst; Anh 
Nguyen, legislative clerk; Johanna Shelton, minority counsel; 
Peter Filon, minority counsel; Turney Hall, staff assistant; 
and Alec Gerlach, staff assistant.
    Mr. Upton. I will note that a good number of my colleagues 
certainly on this subcommittee and the entire Congress are very 
interested in this hearing today, and we are in the middle of 
votes, and we are going to start now, just because I expect 
that this hearing will take a number of hours, and so we will 
get members as they come in for their opening statements before 
we start the hearing. But in an effort to be out of here by 
tomorrow, we will start today. And I appreciate all of those 
that have been waiting since yesterday to get into the room, as 
well. Some were lamenting the fact that there is a prohibition 
on earned income, and I guess line sitters would fit that test, 
as we have seen the last number of hours.
    Good morning. Today, we are, in fact, examining a staff 
discussion draft of the Digital Transition Act of 2005, and if 
the only goal of the staff discussion draft was simply to 
promote discussion, then based on the number of witnesses in 
attendance at today's hearing, I would say that the staff has 
certainly succeeded. But of course, the goal of the draft is 
much more profound than that. After many hearings over the 
years, multiple DTV round tables, numerous FCC proceedings, 
billions of dollars invested by both consumers in various 
industries and digital technology and services, the goal of 
this draft was to help crystallize the subcommittee's position 
on a myriad of issues in this debate, so that we can, in fact, 
actually put a bill together, move it through the legislative 
process in the coming weeks, and get it enacted into law as 
expeditiously as possible.
    At its core, the draft would set December 31, 2008 as the 
hard date for the end of the transition. This, along with the 
draft's comprehensive consumer education provisions, will best 
ensure that consumers, public safety, and all affected industry 
players can adequately plan and complete the transition as 
seamlessly as possible.
    The draft contains many other important elements, and I 
look forward to the input of the members on both sides of the 
aisle, and our witnesses, on those provisions. I want to 
commend somebody that is on his way back from the House floor, 
my chairman, Chairman Barton, for his leadership, his 
stewardship and commitment in getting us to where we are today.
    I want to tip my hat, also, to good friends, Ranking 
Members Dingell and Markey, for the many hours of bipartisan 
and good faith negotiations, constructive all, which they have 
invested into this process thus far, and I look forward to 
continuing those negotiations with them and all members of this 
subcommittee, in the coming days and weeks, to achieve what I 
hope will be a broad, bipartisan consensus.
    Failure to move or transition to a date certain, a digital 
world would be just that, a failure. Failure for the 
broadcasters, who have each invested millions of dollars to 
convert, failure for the manufacturers who have been encouraged 
to produce the sets, failure for those consumers expecting new 
advances and better quality to improve their lives, whether in 
new devices and technology or simply public safety. And failure 
for the taxpayers, expecting more than $10 billion for the sale 
of the analog spectrum. It would be a major setback. The stakes 
are high, but consumers will all benefit as we fully enter the 
digital age.
    I am confident that at the end of the day, we will have a 
DTV bill that will deliver something of real value to American 
consumers throughout the Nation, and I will yield for an 
opening statement to my friend and colleague from Washington 
State, Mr. Inslee.
    [The prepared statement of Hon. Fred Upton follows:]

   Prepared Statement of Hon. Fred Upton, Chairman, Subcommittee on 
                  Telecommunications and the Internet

    Good morning. Today we are examining a staff discussion draft of 
the Digital Transition Act of 2005. If the only goal of the staff 
discussion draft was simply to promote discussion, then--based on the 
number of witnesses and the attendance at today's hearing--I would say 
that the staff has succeeded.
    But, of course, the goal of the draft is much more profound than 
that. After many hearings, multiple DTV roundtables, numerous FCC 
proceedings, billions of dollars invested by both consumers and various 
industries in digital technology and services--the goal of the draft is 
to help crystallize this Subcommittee's positions on the myriad issues 
in this debate so that we can, in fact, actually put a bill together, 
move it through the legislative process in the coming weeks, and get it 
enacted into law as expeditiously as possible.
    At its core, the draft would set December 31, 2008 as the hard date 
for the end of the transition. This, along with the draft's 
comprehensive consumer education provisions, will best ensure that 
consumers, public safety, and all affected industry players can 
adequately plan and complete the transition as seamlessly as possible. 
The draft contains many other important elements, and I look forward to 
the input of the Members and our witnesses on them.
    I want to commend Chairman Barton for his leadership, stewardship, 
and commitment in getting us to where we are today. I also want to tip 
my hat to my good friends, Ranking Members Dingell and Markey, for the 
many hours of bipartisan, good faith negotiations which they have 
invested into this process thus far; and I look forward to continuing 
those negotiations with them--and all Members of this Subcommittee--in 
the coming days and weeks to achieve, what I hope will be, a broad, 
bipartisan consensus.
    Failure to move a transition to a date-certain, a digital world 
would be just that, a failure. Failure for the broadcasters who have 
each invested millions of dollars to convert. Failure for the 
manufacturers who have been encouraged to produce the sets. Failure for 
those consumers expecting new advances and better quality to improve 
their lives, whether in new devices and technology or public safety. 
And failure for the taxpayers expecting more than $10 billion for the 
sale of the analog spectrum. This would be a major setback.
    The stakes are high, but consumers will all benefit as we fully 
enter the digital age. I am confident that at the end of the day, we 
will have a DTV bill that will deliver something of real value to 
American consumers throughout the nation.

    Mr. Inslee. Thank you. Let me make a couple of small points 
and maybe a larger one.
    The first point, on the broadcast flag issue that I think 
needs some discussion. This recent court decision could result 
in less digital broadcast content being made available to 
consumers, and as a result, this could actually slow the 
acquisition of digital television transition, and I hope 
Congress will work with all interested parties to examine the 
pending broadcast flag issues and provide the FCC with 
appropriate authority, and these powers must be limited, 
however, explicitly, not to slow or meddle with technological 
innovation.
    Second point, I hope that we preserve unlicensed spectrum. 
WiFi has shown incredible scope and breadth and success, and I 
hope that we find a way to do that. But the third point that I 
wanted--that I suspect I will not be alone in making is the 
failure of at least the draft to address the issue of easing 
this transition. It seems to me that there is a new high tech 
principle that has been discovered, which is that you don't--
there are certain things you don't do. You don't tug on 
Superman's cape, you don't spit into the wind, you don't pull 
the mask from the Lone Ranger. You don't take people's 
television away without dealing with a subsidy issue 
effectively. And we have a lot of work to do in this regard.
    Now, I think if we do not provide Americans who are 
affected by this transition, we not only may not have a bill, 
ultimately, and we must have a bill, and the quicker, the 
better, but we will find a rebellion that makes the Whiskey 
Rebellion look like sort of a tea party, and maybe the Boston 
Tea Party.
    We need to have a system that recognizes a principle that 
the first claim on auctioned spectrum of Americans should not 
be bridges in our respective districts, or deficit reduction, 
or tax cuts, but subsidizing the acquisition of costs to pay 
for this transition that Americans are going to experience. And 
I think that I heard one of my colleagues suggest that if the 
bill passed on Tuesday, we would all be impeached on Wednesday. 
That would lead--I may be offering an amendment to say that the 
transition will actually take place 6 months after the 
retirement of the last person on the committee. But I would 
like a little earlier date.
    And I would hope that we would look for a direction to this 
bill as we work through this, have an earlier date and a larger 
subsidy, recognizing that the Americans who will be 
inconvenienced financially by this, all Americans, not just 
those of certain income groups, will have assistance for this, 
because those are the people of all Americans that ought to 
have the first claim on the auction, and it is very clear that 
this auction will generate sufficient funds to accomplish that 
goal. If you do the math, I think we will find the good news is 
there will be a large pot of money available to accomplish this 
end, and I think that we need to look at this as a universal 
service for people who are inconvenienced by this financially, 
not just one based on means testing. I think a means testing 
approach to this would not only be a difficult in its 
application, but will miss the fact that a person who earns 
$50,000 a year who has this rug pulled out from under them on 
their television set will be just as angry as a person who 
earns $7,000 a year, and that is an anger that the U.S. 
Congress should not allow to fester. And I really believe this 
is an issue that is bigger than just this sort of digital TV 
transition. It is one that can get enough Americans angry at 
the Federal Government that it can affect their willingness to 
pay taxes, their willingness to look at democracy as a fair 
place where people are treated fairly.
    I don't think we should understate the need to get this job 
done and done right, and thank goodness that we are going to 
have money available to do it. So I hope that, Mr. Chair, we 
are going to look for a way to get that, make sure the 
Americans who have to pay this are the ones who have first 
claim on this, and to the last dollar, and we find the best way 
to design a system to do that.
    Thank you.
    Mr. Upton. Mr. Bass.
    Mr. Bass. Thank you, Mr. Chairman, and I appreciate your 
allowing me to speak early on in this process, since I am 
sitting over here in Siberia for a reason. I have to preside 
over the military quality appropriations bill, which actually 
has already started, and so--but this is a very important 
hearing for me, and I wanted to be here just to give our 
witnesses today the benefit of a couple of observations.
    First, I sure would like to see the final product, a 
bipartisan product, and I know the Members of Congress on both 
sides of the aisle have been working on this issue. We are not 
there yet, but we ought to keep the discussions underway. It is 
unfortunate we are not there yet. I also feel that a plan to 
implement subsidies is going to be difficult, complicated, and 
potentially unworkable, and I believe that the bill itself, by 
moving the date forward to December 31, 2008, and adding to it 
provisions that will provide mechanisms to warn consumers about 
what is pending will lessen the--considerably, the surprise 
that we will all want to avoid when the actual conversion 
occurs.
    Absent being able to pass a bill with subsidies, or that 
has subsidies, I would be interested in the observations of our 
witnesses as to what kind of thought--what thoughts they might 
have on how we might create further incentives to get the 
industry itself to go through the conversion prior to December 
31, 2008, so that we--even lessen the shock--what could we do 
legislatively on a policy level that would make that conversion 
occur sooner, without backing right up to the deadline? This is 
a great opportunity to begin this discussion with this 
discussion draft, and I look forward to working with all the 
parties involved in this very complicated but very important 
national issue.
    Thank you, Mr. Chairman.
    Mr. Upton. I would recognize the ranking member of the 
subcommittee, Mr. Markey.
    Mr. Markey. Thank you, Mr. Chairman, very much.
    Today's hearing will focus upon draft legislation affecting 
digital television issued by the Republican committee staff. 
After several weeks of discussions involving Chairman Barton, 
Chairman Upton, Ranking Member Dingell, and myself, no 
agreement was reached on a consensus blueprint for the digital 
television era. We did, however, agree upon several items.
    We agreed, for instance, on the desirability of bringing 
the digital television transition to a timely conclusion, and 
the setting of a date certain for the cessation of analog 
television broadcasting. We agreed upon the need to do so in 
order to assist public safety entities in obtaining much-needed 
cleared frequencies for their vital public safety mission, and 
to free up frequencies for other wireless uses, such as 
broadband wireless services.
    We also agreed on the need for an effective consumer 
education campaign that includes public service announcements, 
consumer disclosure, and informational outreach, so that 
consumers are fully aware of the changes being wrought by this 
digital TV transition.
    Notwithstanding our general accord on these issues, several 
areas remain without resolution. These areas include public 
interest obligations and multicast must-carry issues, the 
policies for down-converting digital broadcast signals on cable 
systems from analog form, addressing spectrum-related and 
competition-related issues, and the principles for treating 
consumers fairly when the government renders their analog TVs 
inoperable.
    These areas of disagreement, while not insurmountable, are 
nonetheless significant. Constraining our ability to reach 
agreement is the fact that this legislation is intended to 
become part of the budget process, because of the revenue 
raising potential of the auctions of the frequencies the 
broadcasters relinquish. Many of us have criticized the fact, 
over several Congresses, and on both sides of the aisle, that 
unrelated budget priorities poison our ability to enact sound 
telecommunications policies. In the current instance, the 
implications of allowing budget policy to trump 
telecommunications policy are not academic. They could affect 
literally millions of American families. This is because when 
the date certain arise, on New Year's Day 2009, to turn off the 
analog TV signal, the Federal budget will still be in the red, 
even as consumer TVs go black. The core of any digital TV bill 
we approve should ensure that all affected consumers have some 
government backed remedy to restore the signals the government 
itself is ordering turned off.
    Even today, across the country, Americans will be walking 
into retail outlets and buying analog only televisions. If 
there is no plan for such consumers, then consumers will be 
rightly angered that they must bear that costs, that $50 or $60 
or $75, perhaps, to restore the TV pictures the government is 
shutting off per TV. Think about it. It would be as if the 
government turned off your phone or your computer, but offered 
to turn it back on if you sent in $50 or $60 or $75. What are 
we going to do for the American consumer, for the families who 
will be tuning in, expecting to watch a New Year's Day College 
Bowl in 2009, when the government reaches into their homes and 
turns off the set. How will we respond to these consumers?
    A digital TV tax will not go over very well with consumers, 
and the fact is that it is totally unnecessary, since the 
auction is expected to raise at least $10 billion. There are 
upwards estimates of $30 billion. There is more than enough 
money to make all affected consumers whole who are unfairly 
blacked out by this policy imposed from the top down. It is 
unacceptable that we have no plan to restore service to 
televisions that the Congress will render as inoperable, 
moreover, a plan which simply helps a few consumers, but leaves 
the vast majority with no remedy is not only challenging to 
implement, it is also unjust to the tens of millions of 
consumers who spent hard-earned money to buy a television set 
that they thought would work for decades.
    So if you are one of the millions of consumers who has an 
analog TV clicker in one hand, you had better have your other 
hand on your wallet, because the government is coming for both, 
and we need to pass legislation that ensures that the consumer 
is protected. I hope that in the course of this process, we 
have the opportunity to rectify the omissions and shortcomings 
in this draft, because I think it is critical for every 
American family that we do so.
    I thank you for holding this hearing, Mr. Chairman.
    Mr. Upton. Recognize Chairman Barton for an opening 
statement.
    Chairman Barton. Thank you, Mr. Chairman, and I want to 
apologize to our panelists. Mr. Upton likes to have one panel, 
and since we have so many of you, we have a very big one panel 
hearing, so we do--especially Mr. Pitsch, who will have to 
listen for an hour before he gets to give his 5 minutes of 
wisdom. Save the best for last, so to speak, maybe?
    Anyway, thank you all for being here. This is a legislative 
hearing on a draft proposal. It doesn't have a bill number, 
because Mr. Upton and myself have been in serious negotiations 
with Mr. Dingell and Mr. Markey, and those have been very 
productive and cordial negotiations, that we could not reach 
agreement on some of the finer points of the proposed bill, and 
I have a little thing called reconciliation staring me in the 
face, which is not something that my friends on the minority 
side have to be as concerned about as those of us on the 
majority. So we wanted to go ahead and introduce a bill to 
begin the public discussion, and that is what this bill is. But 
it is an evolving document. We are not trying to say this is 
what the legislation is going to be, but hopefully, we are 
setting some parameters.
    There is really only one principle that is not on the 
table, and that is that this date certain is going to become a 
date uncertain. I think the big failure in the current law is 
that the uncertainty, the December 21, 2006, or when 85 percent 
of a particular market, that or, in my opinion, is a fatal 
flaw, and if we don't eliminate that or, I am not sure this 
country is ever going to get the digital transition. So I would 
prefer that the date certain be December 31, 2006, but in 
discussions with Mr. Dingell and Mr. Markey, and in listening 
to stakeholders, it became apparent to me and Mr. Upton that we 
needed to give some more time, so we have extended that date in 
the draft 2 years, to December 31, 2008. I don't see that that 
is going to change, so I would have to say that date is 
probably frozen, but we will certainly listen on that point.
    There are some things that are not in the draft discussion. 
We have no subsidy, and obviously, we had discussed a subsidy. 
I myself would support a limited subsidy for low income 
households, means tested, at a reasonable cost to the Treasury. 
That is something that we will hear a lot of testimony on, and 
there will be a lot of negotiations on. The bill before us does 
not have a must-carry obligation. Obviously, in the analog 
world, we have must-carry, so that is something that would be 
worthy of discussion. Should there be must-carry, and if so, is 
it multicast must-carry? Is there a public interest component 
to any must-carry? We have our friends from the cable industry 
here. There is obviously going to be some discussion about down 
conversion at the head end, and we are interested to hear what 
our friends in the cable industry say about that.
    So this is a beginning of a process. You know, we do want 
to produce a bill. We would like to do it at subcommittee, and 
then full committee, go through regular order, so that all 
members on the subcommittee and the full committee can have 
their input, pass the bill out, and then my intention at this 
point in time would be to use the bill that comes out of 
committee as part of our reconciliation package that we send to 
the Budget Committee in September, so that it would become law 
at the end of the year.
    So we look forward to working together with all the 
stakeholders that are here today, perhaps some that were not 
able to testify, and the members on both sides of the aisle, so 
that at the appropriate time, we modify the bill and move 
forward in a bipartisan fashion.
    With that, Mr. Chairman, I yield back. I thank you for your 
leadership on this. We couldn't have a better person chairing 
this particular hearing, and your knowledge on this issue is 
going to be very, very helpful, as we move toward a resolution 
of some of the outstanding issues.
    [The prepared statement of Hon. Joe Barton follows:]

 Prepared Statement of Hon. Joe Barton, Chairman, Committee on Energy 
                              and Commerce

    Thank you, Mr. Chairman, for holding this legislative hearing on 
the DTV hard-deadline staff discussion draft. As I have made clear, I 
believe the 85-percent penetration test in current law is delaying the 
DTV transition, making it harder for industry and consumers to prepare 
for the end of analog broadcasts, and preventing use of the spectrum 
for critical public safety and wireless broadband purposes. I think a 
hard deadline creates the certainty we need to resolve these issues.
    While I prefer a December 31, 2006 hard deadline, I have listened 
to industry and my colleagues, and I am willing to wait until December 
31, 2008, if it will make my colleagues less anxious about completing 
the consumer education and regulatory steps needed to achieve as smooth 
a transition as possible.
    I have also said, in the context of a December 31, 2006 hard date, 
that I am willing to provide one, $50 rebate toward a digital-to-analog 
converter-box for each exclusively analog, over-the-air, low-income 
home. The need for a subsidy diminishes, however, if we move the hard 
date to December 31, 2008. By all accounts, the cost of digital-to-
analog converter boxes will have more time to drop. The tuner mandate 
will also have more time to increase the number of digital, over-the-
air tuners in consumers' homes, especially if we accelerate the tuner 
mandate deadline.
    The labeling and consumer education provisions in the bill also 
will ensure that consumers understand their options, and understand 
that they will have more time to decide whether to buy a digital 
television or a converter box, or to sign up for cable or satellite 
service. Consumers also will have more time to save. If I start putting 
aside just 30 cents per week, I'll save more than $50 by the time a 
December 31, 2008 hard deadline rolls around. I've got a lot of 
television sets, so I'm going to take my own advice and start saving 
now.
    But I am also here to listen. You all have before you a staff 
discussion draft. Tell me what you think works. Tell me how you think 
we can make it better. Chairman Upton and I intend to move a hard-
deadline bill expeditiously. I hope we can build consensus toward 
bipartisan legislation.
    I look forward to the testimony of our witnesses. I thank them for 
appearing, and yield back.

    Mr. Upton. I am just sure you want to hear when I praised 
you up and down as well, but I will make sure you get a copy of 
it for your district work period reading, and the same I said 
for Mr. Markey and Mr. Dingell. Mr. Towns.
    Mr. Towns. Thank you very much, Mr. Chairman, for holding 
this hearing.
    I am pleased that we are addressing the long-awaited 
tangible steps toward next generation television viewing. I am 
anxious to hear from our witnesses today, so therefore, I am 
going to be brief.
    America is lagging behind in technological advances, and I 
am confident that the digital TV transition will lead to 
improved hardware, better delivery, and more choices for 
consumers.
    Echoing many of my subcommittee's colleagues' sentiments, I 
feel that it is crucial for us to address the concerns of those 
who will be adversely affected by this transition, and we must 
be aware of their fears. I am certain that the subcommittee 
will perform the proper due diligence going forward, and I plan 
to raise our issues with my constituents in order to hear their 
thoughts. I was pleased to read about the educational 
initiatives proposed in the draft, and I look forward to 
working with the subcommittee on crafting a bill that leaves no 
stone unturned and no household left behind.
    Let me consider all of the options as we deliberate further 
toward a comprehensive and fair bill. One issue that I would 
like to stress today is the overwhelming need for more spectrum 
by the law enforcement community. September 11, 2001 was a 
terrible day in the history of this country, and it was 
especially awful for Brooklyn. Mr. Chairman, I hope that as we 
move this bill forward, we emphasize the need for additional 
spectrum allocation to our cops, firefighters, and other first 
responders who desperately need it. We owe them everything, and 
this is a perfect way to continue repaying them for all they do 
for us.
    Finally, another critical issue that needs to be addressed 
to ensure the success of the DTV transition is the protection 
of the free over the air digital broadcast content from 
unauthorized redistributions. Recently, the Federal 
Communications Commission addressed this issue in a broadcast 
flag ruling. Unfortunately, the United States Court of Appeals 
of the D.C. Circuit struck down this rule.
    Congress needs to pass legislation as soon as possible to 
give the FCC the necessary authority to implement the broadcast 
flag rule, and I would encourage the ranking member and the 
chairman to include in the markup free and unauthorized 
distribution of content is detrimental to a large number of New 
Yorkers and other American citizens, and we should work to 
protect all aspects of intellectual property and the jobs and 
innovations that results from it.
    So Mr. Chairman, I look forward to working very closely 
with you as we continue to develop this proposal, because I 
think that it is important that we make certain that we don't 
leave anybody behind.
    Thank you so much. I yield back.
    Mr. Upton. Thank you. Mr. Terry.
    Mr. Terry. Thank you. I will, too, try and be brief. I just 
want to say that I appreciate this draft that you have supplied 
or helped draft here. I think the date is absolutely the right 
date. It is far enough out that the FCC can provide the rules 
and regulations for the auction, et cetera, that have a 
seamless transition at least from their aspect, far enough out 
that we can educate the consumer. We move up the time in here 
for the dual tuner in the TV sets.
    Consumer electronic folks, I'd like to hear how you feel 
about that. I think that is a necessary component to this. To 
me, I think the one issue that is the most difficult to wrestle 
with is the subsidy issue, and I am open to some sort of 
subsidy. I have said at several of our hearings, though, I do 
think it needs to be limited to those folks that are the most 
affected by this transition, i.e., low income antenna users. 
And that we may have a response to those folks in particular. 
Therefore, a subsidy that is means-tested that helps those that 
are most in need is appropriate. Perhaps we can team up with 
the FCC and the State PSC's, PUC's on the lifeline, and use 
that as the mechanism or trigger mechanism, something that 
maybe we can explore here today.
    So I just want to want to say I appreciate the hard work 
that has gone into this draft, and I appreciate all of our 
witnesses here today that will help us come up with the next 
draft. I yield back.
    Mr. Upton. Mr. Boucher.
    Mr. Boucher. Thank you very much, Mr. Chairman. I want to 
commend both you and Chairman Barton for the thoughtful work 
that you have undertaken on this matter. I particularly 
appreciate your inclusion of our side of the aisle in the work 
that you have put forward to date, and I encourage you to wait 
for a markup on the bill until we have a bipartisan agreement 
on all of the elements, including the size and delivery 
mechanism of the converter box subsidy.
    In many respects, the draft bill moves in the right 
direction. For example, it has a more realistic date for analog 
spectrum surrender of December 31, 2008, allowing sufficient 
time for the manufacture and the distribution to television set 
owners of digital to analog converter boxes. The bill also 
addresses the need for cable operators to continue to make 
analog feeds available, so that analog set owners in cabled 
households can continue to use their analog television sets. 
Some further modifications of that particular provision may 
well be in order. And the bill appropriately imposes further 
requirements that new TV sets contain digital tuners, but the 
draft bill does not contain a means of holding harmless the 
owners of the 73 million analog television sets that are over-
the-air dependent. Without regard to income, these individuals 
should receive a free converter box. Restricting free boxes to 
low income individuals is unfair. It would also result, I 
believe, in a massive political backlash.
    No one is going to be pleased if the Congress imposes a 
cost of $50 per television set on individuals of whatever 
means. And we don't have to take that step. A full $50 subsidy 
for each of the 73 million analog TV sets dependent on over-
the-air signals would cost approximately $3.7 billion. The real 
cost would be somewhat less, as people decide to discard their 
older analog sets and purchase newer digital sets instead. But 
even at the $3.7 billion figure, the subsidy is clearly 
affordable. The latest estimate is that the analog spectrum 
auction will produce $28 billion. This committee's 
reconciliation obligation of $4.7 billion and the full subsidy 
of $3.7 billion would still leave a significant net 
contribution to the U.S. Treasury. Even the CBO estimate of $10 
billion from the sale of the spectrum leaves ample room for 
both reconciliation and the full subsidy to the owners of all 
over-the-air dependent analog television sets.
    So, Mr. Chairman, my advice is don't anger millions of 
Americans needlessly. There is no reason to be stingy with 
regard to this subsidy. Provide a full subsidy for the 
converter boxes, and all of these problems can be avoided. And 
then, we can report this bill with what will approach unanimous 
opinion from this subcommittee.
    Mr. Chairman, I thank you for the work you have done to 
date, and I look forward to working with you in further steps 
of this process, and I yield back.
    Mr. Upton. Mr. Stearns.
    Mr. Stearns. Thank you, Mr. Chairman, and like my 
colleagues, let me congratulate you for this hearing, and also 
Chairman Barton and the ranking member, Mr. Markey, for what 
they are doing. I have great respect for my colleague, Mr. 
Boucher. I am not convinced the subsidy is absolutely 
necessary. If all the consumers knew about this requirement, 
$50, that is $0.14 a day, they would have to save for 1 year. 
If they knew about it today, and they saved over the next 3 
years, that would be $0.035. The $3.7 billion to me is a lot of 
money, and I have some concern about setting up a government 
subsidy program, when we could have on the screens, 
notification at least 2 years out, that the analog set will not 
be able to take the digital, and you need to transition. So I 
am not sure that is--should be a key element of passing this 
bill is to have a large subsidy for the consumers. And I say 
that, knowing well that I have a Congressional district where 
there are parts of it that are quite rural. There is 40,000 of 
my constituents have the analog televisions, so they would be, 
obviously, affected. But in the end, I think a subsidy, if we 
give sufficient notice, is probably not necessary, and so I am 
hoping, Mr. Chairman, that we can work through this.
    I do have another concern, and that is the must-carry that 
we passed for analog TV in the 1992 Cable Act. I think we need 
to continue to find a way to strike the proper balance between 
cable and broadcasters, and use, of course, every technological 
tool that is available to promote broadcast independence and 
localism. There has been some sort of compromise to help these 
entities have a place in the digital landscape.
    In an ideal world, there would be a private and free 
negotiation between the interested parties, and I am hoping, 
Mr. Chairman, we can do that, without some type of 
Constitutional question involved. I am also interested to learn 
whether the down conversion provision in the draft provides 
some sort of compromise. Although I understand both 
broadcasters, small broadcasters, and cable have some serious 
objection. I believe in the free negotiation of these parties, 
and so I am hopeful that during the continuing discussions and 
markup that we can work through this.
    We have a lot of witnesses here, so, Mr. Chairman, with 
that, I yield back the balance of time, and commend you for 
this hearing.
    [The prepared statement of Hon. Cliff Stearns follows:]

Prepared Statement of Hon. Cliff Stearns, a Representative in Congress 
                       from the State of Florida

    Thank you Mr. Chairman for holding this hearing today on the DTV 
staff discussion draft.
    I commend you and Chairman Barton for bringing us to this point and 
everyone who helped work on the staff discussion draft that is the 
topic before us today, This is just a starting point, we have a ways to 
go but I hope that we can get where we're going in a timely fashion.
    No one ever said that the transition to digital would be easy. 
We've had at least ten hearings on this issue since 2001, and we've 
heard from broadcasters, cable operators, consumer groups and retailers 
on the various challenges everyone will face.
    There will be sacrifice and some uncertainty involved, but I think 
most everyone agrees that the transition offers its own reward: 
enhanced public safety services, new advanced wireless services for 
millions of Americans, auctioning of the spectrum, and of course vastly 
improved television viewing.
    That's why it's imperative that we use this hearing, and what I'm 
sure will be more hearings to come, to work together and to make the 
digital transition a reality.
    I believe that there are several highly useful provisions in the 
draft, particularly the parts about consumer education and accelerating 
the DTV tuner mandates. Hopefully these provisions and the certainty of 
a hard deadline will help Americans recognize the fact that this 
transition is indeed going to happen. There are still, at last count, 
about 15 million households who have only analog over-the-air sets, and 
that could be left in the dark even with the extended hard deadline. By 
one count, this includes approximately 40,000 of my own constituents.
    Another concern of mine is that my rural and diverse district 
depends on local broadcast programming for news and information, 
weather, sports and public affairs programming. These broadcasters 
provide a valuable service, which is why I voted for ``must carry'' for 
analog TV in the 1992 Cable Act.
    We should continue to try to find a way to strike the proper 
balance between cable and broadcasters and use every technological tool 
at our disposal in order to promote broadcast independence and 
localism. There has to be some sort of compromise to help these 
entities have a place in the digital television landscape.
    In an ideal world, there would be private and free negotiations 
between the interested parties--why aren't these agreements being 
worked out so that the government doesn't have to act?
    I am also interested to learn whether the ``downconversion'' 
provision in the draft provides some sort of compromise, although I 
understand both small broadcasters and cable have serious objections.
    These are my main concerns about the transition, and of course my 
colleagues have their own questions. I guess that's why we have ten 
witnesses here today, to help us answer these questions.
    I might also mention the broadcast flag issue, an issue that I have 
long supported and that seems especially relevant in the aftermath of 
the recent Appeals Court case. I see that such a provision is not 
included in this draft, and I understand that it may not make the final 
version, but this is an issue that we this subcommittee may want to 
take a look at, separately, after we take care of more prominent 
issues.
    So with that, Mr. Chairman, I would yield back the balance of my 
time and ask for unanimous consent to put the rest of my statement in 
the record.

    Mr. Upton. Thank you. Mr. Wynn.
    Mr. Wynn. Thank you, Mr. Chairman, for holding this very 
important hearing on how to best facilitate the transition to 
digital television.
    I would like to first welcome Steve Souder from my 
district, who is here to explain the impact that this 
transition will have on public safety. Mr. Souder's comments 
are extremely important, because districts like mine that are 
high target areas for terrorist attacks desperately need the 
extra spectrum to adequately serve their constituents.
    Additionally, since most individuals now turn first to 
their televisions in time of crisis, it is particularly 
important that we ensure that television sets do not go dark. 
This discussion draft is a good start to expedite the digital 
television transition. I support the hard deadline and the 
provisions that require public safety announcements on 
broadcast TV, notification in cable bills, the public education 
program by the FCC, and labeling on analog-only TVs, although I 
believe the language should be more consumer friendly.
    However, the draft obviously does not include provisions on 
the critical question of subsidizing those who are adversely 
affected by the bill. The draft does not begin to address how 
to best subsidize those individuals who, by no fault of their 
own, have bought and continue to buy analog-only TV sets that 
will not work after the transition. I believe that Congress 
should, at the very least, support the more than 21 million 
homes that solely rely on over-the-air television to ensure 
that their televisions do not go dark.
    I know this is critical. I think there are several 
approaches that we could consider in this regard, but I think 
it is without question a case in which government is imposing a 
burden on consumers, and government has a responsibility to 
alleviate at least some of that burden. Thank you, Mr. 
Chairman, again for allowing us to have this discussion. Thank 
you for the draft, and thank you for holding this hearing.
    Mr. Upton. Mr. Radanovich.
    Mr. Radanovich. Thank you, Mr. Chairman. I will be brief, 
but just want to say thank you for the work that you have put 
on this draft legislation, and I appreciate the process that 
you are laying out, so that we can have a collaborative effect 
on putting a bill, I think, that works best for the consumers 
and the industries. I appreciate the fact that it has been laid 
out that way, and I appreciate the work of Chairman Barton on 
this as well. Thank you.
    Mr. Upton. Mr. Gordon.
    Mr. Gordon. I ask that my remarks be made a part of the 
record, and move on.
    Mr. Upton. Mr. Rush, extra 3 minutes for Mr. Gordon.
    Mr. Rush. Thank you, Mr. Chairman. I wish I could be as 
gracious as my colleague from Tennessee, but I have to--a 
couple things I want to say.
    First of all, Mr. Chairman, I want to let you know how much 
I appreciate both you, the ranking member, and also, the 
ranking member, the chairman and the ranking member of the full 
committee, for the work that you have done on this particular 
bill.
    In this draft version of the--of this bill takes a step in 
the right direction, and I am extremely pleased that the draft 
includes a consumer education component provision, and I want 
to thank you and also the others who I have mentioned 
previously for your work on including this consumer education 
component provision.
    As I stated many times at our hearing, warning labels 
should be required on analog-only sets, so as to alert 
consumers to the limited use of their television sets, and for 
that, I thank you, again, you, for providing that provision. 
However, Mr. Chairman, I am disappointed that the bill does not 
include a subsidy for some 21 percent of the population that 
will be disenfranchised, because they rely solely on analog 
over-the-air broadcasts, and cannot afford to buy set top 
boxes. That said, I am confident that we will have a subsidy 
program in the final draft of this legislation, or else the 
legislation, in my opinion, would be DOA, dead on arrival.
    The question for discussion is not simply whether we would 
have a subsidy, but who would qualify for the subsidy, and what 
form will the subsidy take. For example, are we talking about a 
rebate, a voucher, or a government tax credit? Whatever form of 
subsidy we choose, we must ensure that low income households 
are, indeed, covered. As for the other provisions in the draft, 
I am concerned that the auction of spectrum would not be fair 
and balanced. As you know, the broadcasters will have to give 
back at least one third of their frequencies, and there are 
many interested entities clamoring for these beachfront 
frequencies. I would hope that this committee will ensure that 
these spectrums are available to public interest groups and 
economically disadvantaged small business entities.
    Before I end my statement, I want to--last comment, I want 
to remind this subcommittee that this legislation is one of the 
most important pieces of telecom legislation that we will work 
in, and it has the potential to be disastrous if it is not done 
right. One thing I have learned as a politician is that you do 
not mess with America's car or America's TV. Let us face it. We 
live in a society where the American person is more versed on 
who won American Idol than who is their Member of Congress, and 
I believe that if this transition, digital transition is done 
wrong, some of our brightly lit Congressional careers will 
suddenly go dark.
    Thank you, Mr. Chairman. I yield back the balance of my 
time.
    Mr. Upton. We look forward to making it the Rush Bill.
    Mr. Rush. Only if it is good.
    Mr. Upton. Mr. Walden.
    Mr. Walden. Mr. Chairman, I will yield in exchange for the 
additional 3 minutes of questioning.
    Mr. Upton. Ms. Cubin.
    Ms. Cubin. Thank you, Mr. Chairman, and I will be very 
brief. I would like to associate myself with the concerns that 
have been expressed here today about people having to pay for 
their own TV set boxes.
    I can tell you for sure single moms and senior citizens 
have more pressing needs. I don't--I think even if you aren't 
at the poverty level or near it, that forcing people to spend 
extra money for their television set just isn't a good way to 
go. I am also concerned very much that when this spectrum 
auction occurs, that the geographic areas that are covered by 
the auction will be beneficial to rural America. For example, 
if Wyoming, Colorado, and Utah are all auctioned together, then 
where will the investment go. It will go to Denver and it will 
go to Salt Lake, and how far behind will Wyoming be? So I think 
that those, the division has to be very clear, so that rural 
America isn't disadvantaged once again.
    I will close my remarks with that. I look forward to the 
testimony, and I thank everyone for being here today.
    Mr. Upton. Ms. Eshoo.
    Ms. Eshoo. Thank you, Mr. Chairman, for holding this 
hearing, and welcome to all of our witnesses, and I am just 
about on that side of the table, we are so close this time. So 
I am glad we have a table long enough to fit you all in.
    I am pleased to see that we are making some tangible 
progress toward completing the digital television transition, 
which in my view, and I have expressed this many times, has 
really dragged on for far too long. I am eager to work with the 
chairman and members of the committee to accelerate the 
process, so that we can deliver more innovative programming and 
services to consumers, and free up valuable spectrum for other 
purposes.
    I think the staff discussion draft is a start, but I think 
that there is obviously more work to be done. The omission of a 
subsidy program for analog converters, and I think that this 
has been mentioned by several members of the committee, is a 
glaring omission, and this is something that we can and we 
should do, for a whole of variety of reasons that I am not 
going to go into now.
    I would also like to pursue an earlier date. I started out 
by saying this has dragged on for a very long time, and I think 
that there is evidence emerging that we can accelerate the 
process without disenfranchising consumers, and without 
exacerbating our budget problems. I also think we have to 
devote greater attention to the spectrum auction process, which 
has really largely been ignored. Why? Because I think it 
presents such an enormous opportunity for our country. The 
analog spectrum which will become available can be used for 
advanced communication services, such as wireless broadband, 
and if it is managed properly, it really could create vigorous 
competition with new entrants into the high-speed Internet 
access marketplace.
    I think that we always have to be mindful of budget 
considerations, but with all due respect to the CBO, they are 
really not in charge of competition, and I think if we don't 
start looking after competition in this country, innovation and 
competition, in a very broad way, that we are really headed for 
an iceberg. When you see where we are in terms of broadband in 
our country, we place something like 16th in the world. You ask 
people in this country if they want to be a member of a C minus 
team, and they are insulted. So I think that this committee has 
to take into very, very high consideration competition, and 
what the opportunities are for us. The 700 megahertz band 
offers a historic opportunity to provide the equivalent of a 
third wire into the home, an alternative to telephone or cable 
broadband access.
    Without thoughtful spectrum management policies, what I 
call this new beachfront spectrum property could become the new 
wing of the mega-hotels that already dominate this shoreline, 
and I think that that is really where we have to focus a lot of 
attention. If the bulk of the spectrum that becomes available 
is purchased by the existing duopolies, we will have lost a 
once in a lifetime opportunity to create new competition and 
incentives for new entrants, innovation, and broader service 
offerings.
    So it is with all of this in mind, I think it is critical 
for this committee to establish a spectrum policy for these 
auctions that favors new entrants and competitive services. How 
we utilize the valuable resource made available by this 
extraordinary event, I think is going to shape the 
telecommunications landscape for decades to come.
    So thank you for holding the hearing, Mr. Chairman, and I 
look forward to the testimony and the debate that is going to 
ensue.
    [The prepared statement of Hon. Anna Eshoo follows:]

Prepared Statement of Hon. Anna G. Eshoo, a Representative in Congress 
                      from the State of California

    With the impending acquisition of the two largest long-distance 
phone companies by the two largest Bell operating companies, it's clear 
that the telecom wars surrounding the 1996 Telecommunications Act are 
drawing to a close. Last year's decision by the D.C. Circuit to remand 
local loop access rules back to the FCC, and the Bush Administration's 
decision not to appeal it, effectively ended the prospect of local 
wireline telephone competition. The mergers are regrettable, but they 
are just the final shovels of dirt on the efforts of Congress to 
engender local telephone competition in the ``96 Act. As one leading 
telecom analyst said, ``This is the end of World War I--the Bells vs. 
AT&T and MCI. Now, World War II, among the phone, cable, and tech 
companies, is about to begin.''
    Upon completion of these acquisitions, SBC and Verizon will 
together control more than half of the national wireline business 
market. The mergers also guarantee these companies access to the large 
swaths of the vital Internet backbone now controlled by AT&T and MCI. 
While the Bells are likely to become increasingly competitive with 
cable companies, that industry is also highly concentrated within 
regional markets, and most consumers are able to choose only a single 
cable provider. Eventually, technologies such as broadband over power 
lines or satellite may offer high-speed Internet access alternatives to 
the cable and Bell duopoly, but these technologies are not mature and 
do not yet have a foothold in most markets. For the foreseeable future, 
most consumers will only have two wires coming into their homes, and 
these two wires will usually be the only reliable means of reaching the 
Internet and advanced telecommunications services.
    However, a fortuitous development in the broadcast television 
industry will soon offer policymakers a unique opportunity to provide 
businesses and consumers additional choices for robust broadband 
access. In the next few years, analog television broadcast spectrum 
will be available for advanced communications services such as wireless 
broadband, and if properly managed could create vigorous competition 
and new entrants in the high-speed Internet access marketplace. It's 
essential for Congress and the FCC to develop policies that will 
encourage innovation, foster competition, and promote the deployment of 
new services.
    For almost twenty years, policymakers, industry leaders, and others 
have developed a strategy for moving American television broadcasts 
from the existing analog system to an advanced digital format. Digital 
television allows for better reception, greater picture quality, and 
additional services for viewers. To allow for this transition, the ``96 
Telecom Act granted existing analog broadcast licensees spectrum for an 
additional broadcast channel to provide over-the-air digital 
programming. The 1997 Balanced Budget Act established a deadline of 
December 31, 2006 for broadcasters to relinquish their existing analog 
channels, but this deadline was subject to several conditions, the most 
important of which specifies that 85% of viewers in the broadcaster's 
market have televisions capable of receiving the digital signal. Since 
the 85% requirement has proved unworkable, the House Energy & Commerce 
Committee is now considering legislation that would establish a new 
deadline with transitional measures to accommodate viewers that do not 
have digital-ready televisions.
    Ensuring a smooth transition that will not disenfranchise 
television viewers and will treat broadcasters, cable, and satellite 
providers fairly will undoubtedly prove to be a difficult task, but 
Members on both sides of the aisle are committed to achieving a swift, 
efficient move to digital TV. Achieving this transition will not be 
easy, but decades from now it will almost certainly be no more 
significant than the switch from black-and-white to color television.
    Of far greater significance will be the manner in which we 
distribute the valuable 108 MHz of communications spectrum that will be 
relinquished by television broadcasters. This spectrum in the 700 MHz 
band is considered ``beachfront'' property by telecommunications 
carriers because wireless signals at this frequency range pass easily 
through buildings, trees, and other interference. Many policymakers are 
understandably preoccupied with the billions of dollars that auctions 
of this spectrum are likely to bring into the U.S. Treasury to offset 
our massive budget deficits. Our nation's fiscal situation is bleak, 
but this doesn't mean that we should disregard the long-term 
implications of this extensive redistribution of public communications 
spectrum.
    The 700 MHz band offers a historic opportunity to provide the 
equivalent of a ``third wire'' into the home--an alternative to 
telephone or cable broadband access. Many Americans will be able to 
access the Internet through unlicensed spectrum and wireless community 
broadband services. However, the lion's share of investment capital and 
innovation will likely be dedicated to services offered over licensed 
spectrum controlled by commercial license holders. For most businesses 
and many consumers, the certainty, service, and reliability offered by 
a licensed provider will be preferable to relying on an unlicensed 
service.
    We should be very concerned, however, that this new beachfront 
spectrum property doesn't become the new wing of the mega-hotels that 
already dominate the shoreline. If the bulk of the spectrum that 
becomes available is purchased by the existing cable or telephone 
duopolies, we will have lost a once-in-a-lifetime opportunity to create 
new competition and incentives for new entrants, innovation, and 
broader service offerings. It's critical for Congress to establish a 
spectrum policy for these auctions that favors new entrants and 
competitive services.
    We must also keep our commitment to our country's police, fire, and 
rescue workers and provide the 24 MHz of spectrum allocated to them as 
part of the digital TV transition. First responders will be able to use 
this spectrum to employ advanced telecommunications services and 
address critical interoperability and capacity issues. We should also 
ensure that a portion of this spectrum is reserved for public or 
``unlicensed'' use. Already, thousands of government and non-profit 
organizations provide Internet access through unlicensed portions of 
the spectrum through services such as community Wi-Fi. Reserving a 
meaningful portion of the 700 MHz band for services such as these will 
facilitate innovative services and technology, and also help advance 
our country toward universal broadband access.
    Nearly all of our efforts in the digital television transition thus 
far have been dedicated to resolving the very difficult issues 
necessary to move television broadcasts from analog to digital, but the 
transition does not end when the analog broadcast stations go dark. How 
we utilize the valuable resource made available by this extraordinary 
event will shape the telecommunications landscape for decades to come.

    Mr. Upton. Mr. Pickering.
    Mr. Pickering. Mr. Chairman, just real quickly, thank you 
for this hearing. Thank you for your work, and the ranking 
member, and Chairman Barton. I believe it is a good beginning.
    My only message today is that this is going to happen. The 
numbers for the committee and the fact that we have 
reconciliation means that no one can avoid this or escape this, 
and so we should all come to the table, reach an agreement, and 
just realize that if you don't come to the table, then it is 
not going to go away. It will happen, and I think that we can 
find an agreement with the broad consensus of all parties, and 
now is the time to begin.
    With that, Mr. Chairman, thank you.
    Mr. Upton. Mr. Dingell.
    Mr. Dingell. Mr. Chairman, thank you. Thank you, Mr. 
Chairman, for holding this hearing. The transition to digital 
television is a complex undertaking. It has profound 
implications.
    Mr. Upton. Mr. Dingell, is your mic on?
    Mr. Dingell. I keep pushing this button, but nothing keeps 
happening. And worthy of careful review and consideration by 
this committee.
    As today's witnesses will describe, there is much for this 
country to gain if the transition is done correctly. But there 
is much to lose if it is not. Although well intentioned, the 
draft legislation does not take steps necessary to ensure a 
consumer friendly transition. It raises several 
telecommunications policy issues of significant concern.
    Including this legislation in the bipartisan reconciliation 
effort causes other problems. Given the stakes involved--the 
television sets that Americans depend upon every day for news, 
weather, and entertainment--it is of the utmost importance that 
this complex legislation receives the process that is due. We 
should not rush a bill through this committee simply because of 
budget or other artificial pressures. It is because of the 
budget pressures in 1997 that we are struggling to complete the 
digital transition the right way, and why we have wasted and 
lost a lot of money, and seen resources poorly applied.
    Sound telecommunications policy cannot be achieved when a 
bill is being crafted for budget purposes, and I think that the 
history I have referred to again proves this to be so. Most, if 
not all, of us support a hard date to end the analog 
broadcasting so that we can return this valuable spectrum for 
public safety and new wireless uses, and to maximize the 
auction proceeds for the Treasury. I am sure we all want, as 
well, to see a hard date established in a way that will focus 
consumers' attention, and complete the analog to digital 
transition in as fast and least disruptive manner as possible. 
But we must also recognize that a hard date could have the very 
opposite effect. It could prolong the transition if it is not 
accompanied by a proper program to educate and equip the 
consumers, so that they are not disenfranchised by the actions 
of their government.
    The Government Accountability Office estimates that almost 
21 million households in America, disproportionately low 
income, nonwhite and Hispanic, rely exclusively on over-the-air 
broadcasting for their television viewing. Millions more may 
subscribe to satellite service, yet continue to receive their 
local stations using over-the-air antennas. Countless others 
have chosen to subscribe to cable or satellite for some 
television sets in their home, yet rely on over-the-air 
broadcasting for other sets. All told, it is estimated that if 
the government shut off analog broadcasting today, 73 million 
television sets would go dark.
    This draft legislation does nothing to provide members of 
this committee any assurance that the transition will be 
smooth, and that it will be easy for millions of our 
constituents. This is primarily because the draft bill does not 
provide a well thought out program to help affected consumers 
to obtain the necessary equipment for their TVs in order to 
continue receiving television signals. Without such a program, 
the draft legislation imposes an unnecessary, and I predict, an 
enormously unpopular burden on millions of Americans, who will 
be forced to locate and purchase converter units at $50 to $70 
per television set to keep their televisions working. I wonder 
how many of my colleagues will enjoy the mail and the phone 
calls that come to their office when this transpires.
    The proper action for this committee to take, then, would 
be to agree that if we want a hard date to maximize the auction 
revenues, we must be prepared to protect all affected 
consumers. The Congressional Budget Office estimates that the 
auction for the returned analog television spectrum and other 
provisions in this bill should raise $10 billion. Other private 
sector estimates show upwards of $28 billion. We should try for 
the higher number for the benefit of our taxpayers and 
constituents. These double digit figures deserve some serious 
dialog about how the committee, and how the leadership of the 
committee and the Congress, especially my Republican friends, 
will use that money. Will the proceeds from selling off the 
public airwaves be used only to cover transition expenses 
imposed on ordinary citizens, or will the proceeds help to pay 
for the $107 billion in new tax cuts for the well-to-do 
included in the Republican budget?
    In conclusion, two fundamental questions must be answered. 
Why should ordinary citizens pay more because of a governmental 
decision that makes their television sets obsolete? And why 
can't the proceeds from the sale of the spectrum, which is a 
public good, be used to reimburse the citizens for their 
transition costs because of the actions of their government, 
and for other important telecommunications and public safety 
needs?
    I look forward to the testimony today, and to addressing 
these and other questions as we consider the legislation. Thank 
you, Mr. Chairman.
    Mr. Upton. Mr. Shimkus.
    Mr. Shimkus. I will pass, Mr. Chairman.
    Mr. Upton. Mr. Engel.
    Mr. Engel. Well, thank you, Mr. Chairman. Let me first say 
to the 11 witnesses about to testify. Your giving testimony 
before this subcommittee isn't the most difficult thing you 
have to do today, but listening to all of our opening 
statements certainly is.
    I have long been saying that if our constituents turned 
their TV sets on and find no signal on a premature date 
certain, we can guarantee that our political careers will be 
ended on a premature date certain as well, so I think that we 
have to get this right. In that regard, I am glad that the date 
has been moved from December 2006 to December 2008, but there 
are still many questions.
    As written, this bill does very little to protect consumers 
who are going to be impacted. The bill provides no subsidy to 
the people who rely on free, over-the-air TV. Why should they 
be put at a disadvantage because the Federal Government has 
made an industrial policy decision? The fact is, most over-the-
air families are low income, and are predominantly minority. 
Considering this bill is estimated to raise $10 billion for the 
United States, we certainly will have the resources to help all 
affected Americans.
    Let me also say, as a New York Member of Congress, I am 
disappointed that there is no flexibility in this bill for New 
York City. On September 11, most of our broadcasters lost their 
transmitters. They are now using the Empire State Building 
temporarily while waiting for the Freedom Tower to be 
constructed, but that will not be ready by the end of 2008. If 
broadcasters must upgrade Empire State to meet the deadline, it 
will cost approximately $40 million. Broadcasters, having spent 
that, will most likely stay on the Empire State Building, which 
is much shorter than the World Trade Center or the Freedom 
Tower will be. This will cause the New York media market to 
shrink. There must be something in the bill that addresses 
this.
    The bill also lacks any remedy to protect content in the 
digital age. The courts have thrown out the FCC's broadcast 
flag. Last week, many of us went to see the new Star Wars film. 
The next day, it was a preview. The next day, it was available 
on the Internet, and you could buy a DVD of it on the streets 
of Manhattan. That wasn't even broadcast. This isn't just about 
movie studio or record company profits. It is about the 
Nashville songwriters and the carpenters and cameramen keeping 
a paycheck coming in.
    The truth, I am most disappointed about this, is that this 
is really a budget bill, not telecom policy bill. The rush to 
include it in the annual budget reconciliation bill, because it 
will help the Federal Government's bottom line, is frustrating. 
After years of cutting taxes and increasing spending, the 
budget deficit has ballooned. Our committee has fought to keep 
its jurisdiction. We should not be making massive changes to 
policy to cover years of bad budget and tax policy.
    Mr. Chairman, this bill needs a lot of work. I hope we will 
resume bipartisan talks to do so. I look forward to the 
testimony today, and as always, I look forward to working with 
all of my colleagues. Thank you.
    Mr. Upton. I want to thank all members, and would make a 
unanimous consent request that members that are not here at the 
moment may be able to offer their statements as part of the 
record.
    [Additional statements submitted for the record follows:]

 Prepared Statement of Hon. Paul Gillmor, a Representative in Congress 
                         from the State of Ohio

    Mr. Chairman, first, I want to thank you for holding this very 
important hearing and welcome the distinguished witnesses that have 
joined us today to discuss this pressing issue.
    As we begin taking a serious look into the matter of completely 
shifting from an analog to a digital broadcast signal it will be 
important for us to take all viewpoints into consideration. This will 
allow for a truly comprehensive piece of legislation that once enacted 
into law will be unambiguous to industry members, provide certainty to 
our first responders and other government programs, and--most 
importantly--ensure that the American public is properly educated about 
the forthcoming changes.
    After reviewing the staff draft, I was pleased to see that we now 
had a strong foundation from which to build a comprehensive piece of 
legislation. However, there is much work to be done. In my rural Ohio 
district, I have many constituents still reliant upon over-the-air 
broadcasts and have nothing more than a simple analog television. To 
ensure that rural America and those reliant upon a fixed income--such 
as our country's over 35 million senior citizens--are not cut off from 
television broadcasts, I believe that it will be necessary to have some 
form of a subsidy program in place to offset the cost of a set-top box 
converter that can cost anywhere from $50 to $100.
    As the manufacturing sector of our economy continues to fight for 
survival in the world marketplace, we must not impose regulations upon 
those producing televisions and set-top boxes that make it more 
difficult and costly for them to bring a reliable and low-cost product 
to market. Finally, as Co-Chairman of the Public Broadcasting Caucus, I 
feel that it is incumbent upon this committee to find a way to 
integrate public broadcasters, and their important resources, into any 
DTV Transition legislation that passes the United States Congress.
    Mr. Chairman, I look forward to hearing from our panel of expert 
witnesses, and to working with you, and all the members of this 
subcommittee, so that we might be able to craft a comprehensive and 
commonsense digital transition bill.
    I yield back the balance of my time.
                                 ______
                                 
 Prepared Statement of Hon. John Shimkus, a Representative in Congress 
                       from the State of Illinois

    Thank you Mr. Chairman for a hearing on this legislation. I support 
this legislation, but also feel that there are a number of issues that 
need to still be addressed. I hope the Committee can try to address 
these issues, either in this legislation or in other legislation to 
come before the Committee this year.
    First, I think it is important that we find a way to make sure 
consumers can receive a digital signal, whether it be through a direct 
subsidy or some other way.
    I believe there needs to be some language dealing with ``multi-cast 
must carry''. I don't think we need to go as far as giving every 
broadcaster 6 digital stations that must be carried, but I do believe 
there is an answer out there that will allow the must carry of some 
digital signals, especially those that are in the public good.
    I would also hope at some point that the Committee can address the 
issue of ``retransmission consent''. While the cable industry should be 
congratulated for their efforts to educate parents on how to control 
what their children view, I believe more needs to be done. I voted 
against a la carte language because I think it would have resulted in 
higher prices and less choice for consumers. I realize extending 
indecency standards to cable and DBS would not survive a legal 
challenge. But I believe opening up how retransmission consent 
agreements are negotiated, will shed light on this issue and allow 
communities to better decide what kind of content is showing in their 
areas.
    It is also important that the Committee address the broadcast flag 
issue in some way. The Courts held that the FCC did not have the 
authority under current law to adopt the rule, but did NOT dispute the 
merits of the Broadcast Flag.
    In the end, the winners in this debate need to be the public safety 
community and the consumers. I believe this draft legislation starts us 
down that path.
                                 ______
                                 
Prepared Statement of Hon. Mike Ferguson, a Representative in Congress 
                      from the State of New Jersey

    I would like to congratulate Chairmen Barton and Upton for 
providing a solid starting point for American consumers to make a full 
transition to digital television.
    This discussion draft moves the transition forward significantly, 
most importantly setting a definitive hard date of December 31, 2008. 
This date, which is fair will provide long-needed certainty to all 
industries affected, and most importantly to the American consumer.
    To that effect, this draft places a premium on consumer education, 
placing the responsibility squarely on industry, retailers, 
manufacturers and government for preparing our constituents for the 
transition from analog to digital broadcasts. And the hard date 
established will provide ample time for this Committee to implement a 
thoughtful, fiscally responsible set top box subsidy program.
    As we move forward, we need to ensure that consumers are not 
unnecessarily inconvenienced during the transition, making sure that no 
televisions ``go dark'' after the transition. However, this needs to be 
done in a way that provides industry with the flexibility it needs to 
make certain that all consumers continue to enjoy the same programming 
the day after the DTV transition as the day before without displacing 
other valuable programming that they want.
    Most importantly Mr. Chairman, this legislation sets a definitive 
date for making spectrum available for our first responders. The new 
spectrum will help our firefighters, police officers and other first 
responders to achieve communications interoperability, and better 
respond to the safety needs of my constituents in the 7th district of 
New Jersey and across this nation.
    One additional point I would like to make is an item not included 
in this draft, but nevertheless is an important part of the digital 
transition--the Broadcast Flag rule that was recently vacated on 
jurisdictional grounds by the DC Circuit. Ensuring that content is 
protected from piracy is not something we will consider today, but is 
an issue our subcommittee should deal with in a timely way.
    Again, thank you to Chairmen Barton and Upton for putting forward a 
thoughtful proposal for the digital transition. I look forward to 
hearing the views of the many witnesses present here today.
                                 ______
                                 
Prepared Statement of Hon. John Sullivan, a Representative in Congress 
                       from the State of Oklahoma

    Thank you, Chairman Upton, for calling this hearing. I look forward 
to hearing from each of our witnesses today.
    We live in an interconnected world, and this debate is further 
proof of the responsibilities citizens of a democracy hold to one 
another. While the details of this draft may be contentious, the fact 
is that both Democrats and Republicans support the existence of a hard 
date for broadcasters to return their analog spectrum. This has been a 
goal for the industry for nearly ten years. Without a hard date, we 
could very well be waiting for another ten years, or longer, to achieve 
this goal. The overall social goal here is to provide additional 
spectrum for law enforcement and to further our nation's economy 
through advanced commercial services by the auction of the returned 
spectrum. We must bring clarity to the marketplace so that consumers, 
industry and government can plan. The public safety, technological, and 
economic benefits of completing the DTV transition can wait no longer.
    The flip side of this debate is the subsidy for set top boxes for 
those Americans who only receive over-the-air signals. Given the 
government mandate of the digital transition, Congress must respect the 
taxpayer's pocketbook and enact only the most minimal federal subsidy 
possible. Those who are truly in need should receive help; those who 
can provide for themselves should do so.
    Let us not forget the reasons why the hard date is so important. 
Twenty-four megahertz of the spectrum the broadcasters return has been 
earmarked for public safety use. In a post-9/11 world, this is a 
critically important national security goal. Another 60 MHz will be 
available for auction for advanced commercial services, such as 
wireless broadband. Since the U.S. is 13th worldwide in broadband 
deployment, this will be of great benefit to the U.S. in catching up 
with countries such as Korea, Canada, Germany, Sweden, Belgium and 
Italy.
    Again, Chairman Barton and Chairman Upton, thank you for your 
leadership on this issue.
                                 ______
                                 
 Prepared Statement of Hon. Bart Stupak, a Representative in Congress 
                       from the State of Michigan

    Thank you, Mr. Chairman, for your work on the difficult issue of 
the digital television transition and for holding this hearing on a 
``discussion draft'' before legislation is introduced.
    This is high stakes legislation. We are talking about people's 
televisions. I think every member of Congress knows that people are 
passionate about their television programming and television sets.
    If we thought the public's uproar about indecency after the Super 
Bowl was loud, just imagine what will happen if Americans in 21 million 
households wake up on January 1, 2009, and find they can't watch their 
college bowl games because their televisions don't work.
    I have a very rural, low-to-middle income district, and I am 
worried that once my constituents hear they have to purchase set-top 
boxes--at $50 or more a pop--they'll be throwing their set top boxes at 
me.
    Consumers didn't ask for this transition, for these added costs, or 
for their televisions to be made obsolete. Unless we want those set top 
boxes thrown at us, Congress had better meet its obligation to 
consumers and make the transition as inexpensive and least burdensome 
to consumers as possible.
    While I am encouraged by the consumer education provisions in this 
legislation, I am disappointed that there is absolutely no mention of 
help for consumers who get their television over-the-air. These 
households are more likely to be low-income (household income below 
$30,000). Many of these households are in my district!
    Congress can't just tell over the air viewers to go out and get 
cable or satellite. 41% of over-the-air viewers can't afford to buy 
cable or satellite. And many households in rural America don't have 
access to cable.
    The fact is that Congress has a tall order ahead of itself to even 
convince consumers that this transition is good thing. I know for 
certain that a bill that places the financial burden of the transition, 
which consumers never asked for, squarely on consumers is never going 
``to fly'' with in my district.
    As Members of this committee, we need to recognize the challenges 
we face. There are great opportunities to be realized if and when we 
can meet these challenges correctly and speed the transition. Giving 
back the spectrum will yield great benefits for public safety and for 
rural America. Wireless broadband holds great promise for rural 
America. That promise is beginning to be realized in my district where 
wi-fi projects are popping up all over.
    I am interested in hearing from the witnesses about ways we can 
best speed the deployment of wireless broadband to rural America.
    Important public safety opportunities are also at stake. As a 
former law enforcement officer, I have long held concerns about the 
ability of our nations' first responders to communicate.
    Public safety interoperability is critical: the inability of first 
responders from different agencies to talk to one another was a key 
factor in the deaths of at least 121 fire fighters on September 11th.
    The bottom line is that today's first responders need both more 
spectrum and more money to become fully interoperable. This transition 
could help public safety officials accomplish both those goals.
    The opportunities are great, but the challenges are greater. We 
need to meet those challenges head on, with meaningful solutions and 
actual dollars, if we ever have a hope for the American public to buy-
into the benefits of the transition: wireless broadband and public 
safety communications interoperability.

    Mr. Upton. And we are now prepared to listen to our panel, 
and I did choose to have one panel, so that we would have only 
one round of opening statements, and we would be able to bounce 
our questions and answers off all of you, and not put some of 
you at a disadvantage by not being here.
    So we are joined on my far left by Mr. Rick Chessen, Chair 
of the DTV Task Force, from the Federal Communications 
Commission; Mr. Mark Goldstein, Director of the Physical 
Infrastructure Team of the Government Accountability Office, 
the GAO; Mr. Gary Shapiro, President and CEO of the Consumer 
Electronics Association; Mr. James Yager, CEO of Barrington 
Broadcasting Company, on behalf of the National Association of 
Broadcasters; Mr. Kyle McSlarrow, President and CEO of National 
Cable & Telecommunications Association; Mr. Manuel Abud, Vice 
President and General Manager of Telemundo in Los Angeles; Mr. 
Alan McCollough, Chairman and CEO of Circuit City, on behalf of 
the Consumer Electronics Retailers Coalition; Mr. Patrick 
Knorr, Vice Chairman of Sunflower Broadband, on behalf of the 
American Cable Association; Mr. Steve Souder, Director of the 
Montgomery County, Maryland 911 Emergency Communications 
Center; Mr. Gene Kimmelman, Senior Director of Public Policy 
from the Consumers Union; and last but not least, Mr. Peter 
Pitsch, Communications Policy Director of Intel Government 
Affairs, here in Washington, DC.
    Gentlemen, your statements have been made part of the 
record in their entirety, and we would like to do is limit your 
remarks to no more than 5 minutes, and I don't know if here is 
a little clock on the table. Is that on from your side? It is 
not on. Well, we will--while you are speaking, we will get 
someone to turn it on, and Mr. Chessen, we will start with you. 
Welcome.

  STATEMENTS OF RICK CHESSEN, CHAIR, DTV TASK FORCE, FEDERAL 
    COMMUNICATIONS COMMISSION; MARK L. GOLDSTEIN, DIRECTOR, 
PHYSICAL INFRASTRUCTURE TEAM, GOVERNMENT ACCOUNTABILITY OFFICE; 
    GARY J. SHAPIRO, PRESIDENT AND CHIEF EXECTUIVE OFFICER, 
    CONSUMER ELECTRONICS ASSOCIATION; K. JAMES YAGER, CHIEF 
  EXECUTIVE OFFICER, BARRINGTON BROADCASTING COMPANY, LLC, ON 
    BEHALF OF NATIONAL ASSOCIATION OF BROADCASTERS; KYLE E. 
  MCSLARROW, PRESIDENT AND CHIEF EXECUTIVE OFFICER, NATIONAL 
   CABLE & TELECOMMUNICATIONS ASSOCIATION; MANUEL ABUD, VICE 
 PRESIDENT AND GENERAL MANAGER, TELEMUNDO LOS ANGELES; W. ALAN 
MCCOLLOUGH, CHAIRMAN AND CHIEF EXECUTIVE OFFICER, CIRCUIT CITY 
   STORES, INC., ON BEHALF OF CONSUMER ELECTRONICS RETAILERS 
 COALITION; PATRICK KNORR, VICE CHAIRMAN, SUNFLOWER BROADBAND, 
    ON BEHALF OF AMERICAN CABLE ASSOCIATION; STEVE SOUDER, 
      DIRECTOR, MONTGOMERY COUNTY, MARYLAND 911 EMERGENCY 
   COMMUNICATIONS CENTER; GENE KIMMELMAN, SENIOR DIRECTOR OF 
     PUBLIC POLICY, CONSUMERS UNION; AND PETER K. PITSCH, 
    COMMUNICATIONS POLICY DIRECTOR, INTEL GOVERNMENT AFFAIRS

    Mr. Chessen. Thank you. Chairman Upton, Ranking Member 
Markey, and members of the subcommittee, I am pleased to be 
here today.
    I am the Chair of the FCC's DTV Task Force, and have been 
since its inception in October 2001. At the time, the 
transition was still in its early stages and struggling to take 
off. Indeed, some openly wondered whether the transition would 
ever happen at all.
    As today's hearing indicates, times have changed, and we 
are no longer discussing whether the transition will end but 
when and how it will end as quickly and smoothly as possible 
for the American public.
    There is plenty of credit to go around. Each of the 
affected industries, many of whom are at this table with me 
today, deserve some of the credit for bringing us to this 
point. They developed the business plans, invested the capital, 
and are bringing the benefits of digital television to the 
American consumer.
    The government has been working hard as well. Over the past 
few years, both Congress and the FCC have demonstrated a 
renewed sense of urgency, doing whatever was needed to get the 
transition moving. Often informal tools were used, like the 
industry roundtable discussions convened by this committee that 
helped define and focus the issues. When necessary, the FCC 
used more formal regulatory tools, such as the DTV tuner 
mandate, rules for plug and play television sets, and penalties 
for broadcasters that failed to meet their build-out 
obligations.
    But we still have much work to do. At the FCC, we have 
begun the extremely complicated task of developing a Final 
Table of DTV channel allotments. That process is currently 
scheduled to be completed by mid 2007. We are also working on, 
among other things, digital must-carry rules for cable and 
satellite providers, overseeing deadlines for the DTV tuner 
mandate, and for broadcasters to build out to full power, and 
assisting low power and TV translator stations in their own 
transition to digital.
    Even with much to do, it is not too early to begin planning 
for the end of the transition. The more certainty we can 
provide, and the sooner we can provide it, the smoother the 
eventual switchover will be for consumers and industry alike, 
and the more efficiently public safety officials and advanced 
wireless service providers will be able to make use of the 
reclaimed broadcast spectrum.
    At the FCC, we stand ready to assist in any way we can. The 
draft legislation is another important step in addressing some 
of the outstanding issues before us, particularly on the issues 
of setting a hard date, and educating the public about how to 
prepare itself for the switchover. We look forward to working 
with this committee as we continue to make progress toward 
bringing the DTV transition to a speedy and successful 
conclusion, and I would be happy to answer any questions you 
might have.
    Thank you.
    [The prepared statement of Rick Chessen follows:]

  Prepared Statement of Rick Chessen, Chair, DTV Task Force, Federal 
                       Communications Commission

    Chairman Upton, Ranking Member Markey, and members of the 
Subcommittee, I am pleased to appear before you today as you consider 
potential changes to the statutory framework for the digital television 
transition.
    My name is Rick Chessen. I am Chair of the FCC's DTV Task Force, 
and have been since its inception in October 2001. At the time, the 
transition was still in its early stages, and struggling to take off. 
Indeed, some openly wondered whether the transition would ever happen 
at all.
    As today's hearing indicates, times have changed. We're no longer 
discussing whether the transition will end but when and how to end the 
transition as quickly and smoothly as possible for the American public.
    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 point. They developed the business 
plans, invested the capital, 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 have demonstrated a renewed sense of 
urgency, doing whatever was needed to get the transition moving. Often 
informal tools were used, like the industry roundtable discussions 
convened by this Committee that helped define and focus the issues. 
When necessary, the FCC used more formal regulatory tools, such as the 
DTV tuner mandate, rules for ``plug and play'' television sets, and 
penalties for broadcasters that failed to meet their build-out 
obligations.
    But we still have much work to do. My statement will outline some 
of the steps that the FCC has taken to further the transition, as well 
as provide a status update on several of the pending proceedings

                       FIRST DTV PERIODIC REVIEW

    One of the first major actions the Commission took after formation 
of the DTV Task Force was to reconsider some decisions made in the 
First DTV Periodic Review. These ``mid-course adjustments'' were 
necessary in order to maximize the number of DTV stations on the air 
and to provide incentives for consumers to purchase DTV equipment. In 
that Reconsideration Order, adopted November 8, 2001, the Commission 
permitted stations to initially build lower-powered--and less 
expensive--DTV facilities, while retaining the right to expand coverage 
as the transition progressed. The Commission deferred replication and/
or maximization requirements on stations, and also deferred 
requirements regarding the channel election process. However, the 
Commission declined to modify the deadlines for stations to be on the 
air with a digital signal, and refused to issue a blanket extension of 
remaining DTV construction deadlines. The result was that many more 
commercial and non-commercial stations were on the air with a digital 
signal (whether it was at licensed facilities or pursuant to a special 
temporary authority) by the May 1, 2002 and May 1, 2003 deadlines, 
respectively. From there, the number of stations on the air has 
continued to grow. As of April 7, 2005, 1,497 (or 87%) of the TV 
stations (both commercial and noncommercial) were on-the-air either 
with licensed DTV facilities or with special temporary authority.

                       SECOND DTV PERIODIC REVIEW

    The Commission adopted the Second DTV Periodic Review Report and 
Order on August 4, 2004. Among other things, the Order: (1) established 
firm deadlines for digital stations to increase their power levels to 
either replicate or maximize their service areas, or lose the 
interference protection for those unserved areas; (2) required PSIP 
information in digital broadcast signals in order to promote closed 
captioning, v-chip, channel numbering and other functionality; and (3) 
established a channel election process that will result in a Final DTV 
Table of Allotments.

                        CHANNEL ELECTION PROCESS

    On February 10, 2005, nearly all TV broadcasters filed an election 
for their channel preference for final DTV operations. In this first 
round of elections, most stations chose to operate on their existing 
DTV channel. Several hundred chose to operate on their existing NTSC 
channel. Fifty stations chose to defer their decision to the second 
round of elections. Twenty stations did not participate because both of 
their allotments were out of the ``core'' DTV spectrum (i.e. TV 
channels 2--51). These stations will elect in the second round as well.
    The Commission's goal is to complete the required interference 
analysis of these first round elections and issue tentative channel 
designations by the end of this summer, and have the second round of 
elections in the fall. Round three elections would occur in early 2006, 
with a Notice of Proposed Rulemaking proposing a new DTV Table of 
Allotments by August 2006.
    The channel election process is a complex undertaking involving not 
only domestic interference analysis for all stations, but also requires 
international coordination for those stations in the Northern and 
Southern border zones. At this point, the FCC's International Bureau 
currently is working on existing international coordination issues. 
There likely will be additional coordination necessary for a number of 
stations in the border zones that elected to retain their NTSC channels 
or those that elected to participate in round two elections, as well as 
the border zone stations that have both allotments out of core. It is 
anticipated that international coordination for those stations will 
begin as soon as the FCC's Media Bureau has cleared them domestically 
and issued tentative channel designations.

                        DIGITAL CARRIAGE ISSUES

    One of the most important issues regarding the DTV transition is 
how over-the-air broadcast stations are carried on multichannel video 
program distributors (``MVPDs''). A substantial majority of television 
households in most markets subscribe to either cable or satellite 
service. Thus, resolving the carriage issues will help facilitate the 
overall transition. The Commission recently issued a decision regarding 
dual carriage and multicast carriage issues as they relate to cable 
operators. In that decision, the Commission determined that the record 
did not support establishing either dual carriage obligations during 
the transition or multicast carriage requirements on cable operators. 
Several Petitions for Reconsideration were filed after the release of 
the Report and Order. The Commission still needs to address several 
issues related to cable carriage, including what constitutes material 
degradation of the broadcaster's signal. Additionally, the Commission 
is still considering how to define the digital carriage obligations for 
satellite carriers.

       LOW POWER TELEVISION, TV TRANSLATORS, AND CLASS A STATIONS

    There are approximately 2,100 LPTV stations and 4,700 TV 
translators operating in analog today. These LPTV stations and 
translators are secondary services to full-power stations and other 
primary services. Thus, these types of stations, which do not operate 
on channels in an allotment table, can continue operating as long as 
they do not cause interference to full-power stations or other primary 
service operations.
    The first step in the digital transition for analog TV translator 
and LPTV stations was taken in the adoption of the LPTV Digital Order 
on September 9, 2004. In that Order, the Commission outlined the 
existing options for translator stations to make the transition. As 
option one, any station on any channel may ``flashcut'' to digital on 
its analog channel at any time without waiting for the full power 
elections. Further, stations proposing to ``flashcut'' on channels 63, 
64, 68, or 69 (the public safety channels) must secure a ``coordinated 
use'' agreement with state and regional public safety representatives. 
By law, however, stations operating on channels 60-69 must vacate these 
channels by the end of the full service transition, and find another 
channel to operate on.
    As option two, any station licensee or permittee may apply for a 
digital ``companion'' channel in a window to be opened in the future, 
but may not apply for a companion channel in the 60-69 channel band. 
Any station proposing digital operations on channels 52-69 must notify 
potentially affected 700 MHz commercial wireless and public safety 
licensees before filing their application.
    There are approximately 600 Class A stations with enhanced spectrum 
rights. In an earlier proceeding that created the Class A service, 
these stations were permitted to ``flashcut'' to digital. They will 
also be eligible to apply for a digital companion channel.
    The Commission has recognized that it may not be possible for many 
of these low power stations to find companion channels until the end of 
the full-power transition, and thus, that the transition for these 
stations may extend beyond the end date for the full-power transition. 
The final transition date of low power stations will be considered in 
the Commission's Third DTV Periodic Review.

                           DTV TUNER MANDATE

    On August 8, 2002, the Commission adopted an Order that required 
digital TV tuners to be included in nearly all new TV sets by July 1, 
2007. The Commission's mandate, and its authority under the 1962 All 
Channel Receiver Act, was upheld by the Court of Appeals for the D.C. 
Circuit.
    The mandate required that all TV receivers with screen sizes 
greater than 13 inches and all television receiving equipment such as 
video cassette recorders (VCRs) and digital versatile disk (DVD) 
players/recorders, have DTV reception capability as of July 1, 2007. 
The mandate adopted a phased-in schedule, starting with the largest 
sets in an effort to minimize the costs for equipment manufacturers and 
consumers. Currently, the FCC has a pending Notice of Proposed Rule 
Making seeking comment on whether to modify the schedule and is poised 
to take action in this proceeding in the near term.

                     CABLE ``PLUG AND PLAY'' RULES

    On September 10, 2003, the Commission adopted rules for ``one-way'' 
digital ``plug and play'' cable compatibility. The rules enable 
consumers to purchase DTV sets that allow them to receive on-way cable 
programming without the need for a set-top box. Consumers must obtain a 
security card from their local cable operator to be inserted in the TV 
set to view scrambled programming. Currently, industry negotiations are 
on-going regarding ``two-way''/interactive plug and play receivers.

                             BROADCAST FLAG

    On November 4, 2003, the Commission adopted the redistribution 
control mechanism known as the ``broadcast flag.'' The goal was to 
foster the digital transition by preventing mass redistribution of 
broadcast content over platforms like the Internet, while ensuring that 
consumers' ability to make copies of such content was not affected. If 
broadcast content could not be protected from mass redistribution over 
the Internet, the FCC recognized that high-value digital content would 
migrate to distribution systems like cable and satellite, where it 
could be protected. However, the FCC's decision was overturned by the 
Court of Appeals for the D.C. Circuit on May 6, 2005. The court 
determined that the Commission lacked the statutory authority to impose 
the regulations.

                   CHILDREN'S PROGRAMMING OBLIGATIONS

    On September 9, 2004, the Commission adopted rules regarding 
broadcasters' children's programming obligations in the digital world. 
Among other things, the Order addresses how the current three-hour 
children's core educational programming processing guideline should 
apply to a DTV broadcaster that chooses to multicast. The Order 
increases the amount of the core programming guideline proportionally 
to the increase in free video programming offered by the broadcaster on 
multicast channels. The revised guideline provides flexibility to 
broadcasters that multicast by permitting them the choice whether to 
air core programming on a single or multiple channels, provided that at 
least three hours per week are shown on their main channel. The new 
guidelines will become effective after a one year phase-in period. The 
Order also applies the same commercial time limits placed on digital 
children's television programming that exist for analog children's 
television programming.

                           CONSUMER EDUCATION

    The FCC's Consumer and Governmental Affairs Bureau is actively 
engaged in a consumer outreach campaign designed to educate the public 
on the digital television transition. The Commission has established a 
special webpage (www.dtv.gov) that provides detailed information on the 
transition itself, including a Tip Sheet that was designed in 
coordination with the Consumer Electronics Association (``CEA'') and 
Consumer Electronics Retailers Coalition (``CERC''). Several major 
retailers are making this tip sheet available in their stores and on 
their web sites. The Bureau will continue to do outreach to all 
segments of the population to help ensure that the public is aware of 
the digital transition and how to prepare themselves for the end of 
analog broadcasting.
    It is not too early to begin planning for the end of the 
transition. The more certainty we can provide--and the sooner we can 
provide it--the smoother the eventual switch-over will be for consumers 
and industry alike, and the more efficiently public safety officials 
and advanced wireless service providers will be able to make use of the 
reclaimed broadcast spectrum.
    At the FCC, we stand ready to assist in any way we can. The draft 
legislation is another important step in addressing some of the 
outstanding issues before us, particularly on the issues of setting a 
hard date and educating the public about how to prepare itself for the 
switch-over. We look forward to working with this Committee as we 
continue to make progress toward bringing the DTV transition to a 
speedy and successful conclusion. I am happy to answer any questions 
you may have.

    Mr. Upton. Wow. Two and a half minutes. And that is with 
the clock not working. Maybe we should do this more often.
    Mr. Goldstein.

                 STATEMENT OF MARK L. GOLDSTEIN

    Mr. Goldstein. Thank you, Mr. Chairman, and members of the 
subcommittee.
    I am pleased to be here today to report on our work on the 
challenges to and the options for a DTV equipment subsidy 
program to accelerate the DTV transition. Because the 
transition's end is, in part, dictated by consumers' adoption 
of digital television equipment, encouraging households' 
purchase of this equipment could help to speed the recapture of 
highly valued spectrum. While the purchase of digital 
televisions is steadily increasing, it nevertheless appears 
unlikely that a sufficient proportion of households will have 
digital television equipment in place by the end of 2006, the 
date originally set by Congress as a goal for the transition's 
end.
    Those households relying exclusively on over-the-air 
television signals may be the most vulnerable to the loss of 
television service, because they must have certain equipment in 
place to be able to view digital broadcast signals, whereas 
cable or satellite subscribers will not necessarily need to 
take immediate action, depending on how the provider transmits 
those television signals. Some have suggested that the 
government provide a subsidy to certain households to purchase 
set-top boxes that can receive digital broadcast television 
signals and convert them into analog signals, so that they can 
be displayed on existing analog television sets.
    Today, we will discuss challenges to and options for 
administering a subsidy program for DTV equipment, examples of 
rebate and voucher programs, and other efforts necessary for 
the completion of the DTV transition. As we developed this 
work, no specific option for administering a DTV subsidy was 
formed, and as such, our work focused on the possible 
challenges to a hypothetical program. As in our previous work, 
we take no position on whether a subsidy should be implemented 
or not, or whether, if a subsidy program is established, it 
should be implemented in any particular way.
    In summary, we found that several administrative challenges 
might arise in implementing a subsidy for DTV equipment, 
including making determinations about which Federal entity 
would administer a subsidy program, whether rulemaking process 
would be necessary to fully determine and stipulate how the 
subsidy program will be structured, who would be eligible to 
receive a subsidy, what equipment would be covered, how 
information about the subsidy would be communicated to 
consumers and industry, and what measures, if any, would be 
taken to limit fraud. Some of these issues could be 
particularly difficult to address.
    Several administrative options could be used to provide a 
government to help households obtain DTV equipment. The four 
options for administering a DTV subsidy that we have reviewed 
are a refundable tax credit, government distribution of 
equipment, a voucher program, and a rebate program. We found 
that the suitability of any of these methods depends on aspects 
of the subsidy's design, such as which entity is most 
appropriate to administer the subsidy, and who would be 
eligible to receive the benefit. For example, if the DTV 
subsidy were only available to low-income households, a voucher 
might be a possible method to deliver the subsidy. 
Alternatively, if the subsidy is more widely available, a 
rebate might provide a good delivery mechanism.
    Various government programs make use of rebates or vouchers 
to subsidize consumers' purchase of equipment and products. We 
reviewed three local government rebate programs and three 
voucher programs. For the programs we reviewed, we found 
differences existed between the rebates and vouchers programs 
that might provide insight for development of the DTV subsidy. 
Regarding eligibility determinations, we observed that 
eligibility for the voucher programs was specifically defined, 
and the benefits were targeted to low-income individuals, 
whereas eligibility for the rebate programs was not based on 
income. Overall, however, we found that these programs differed 
substantially with respect to what might be undertaken for a 
DTV subsidy.
    There are other aspects of the DTV transition, not related 
to the implementation of a possible subsidy program, that are 
ongoing, and will take time to complete, or may pose their own 
challenges. For example, the channel election process, which 
will determine the channel placement for each television 
station's digital signal, is ongoing. According to FCC, all 
stations' final selections will not be set until some time in 
2007. Another example of an issue that may arise, with DTV 
transition progresses related--relates to antennas used to 
receive digital broadcast signals. While many stakeholders we 
interviewed told us that antennas used for analog over-the-air 
reception should work well for the digital broadcast signal, a 
few stakeholders told us that reception will depend on 
geographic and topographic factors, and that some people may 
need new antennas or adjustment of existing antennas.
    In conclusion, many aspects of a potential DTV subsidy 
program need consideration, and various determinations about 
its design will affect the suitability of the administrative 
method used to deliver the subsidy. Given the importance of the 
DTV transition, it appears essential for knowledgeable 
officials from government and industry to work together to find 
the best means to address any issues that might impede progress 
in completing the DTV transition, and the associated 
reclamation of valuable radiofrequency spectrum.
    Our work on the DTV transition continues for this 
committee, and we will provide more information in a report 
later this year.
    Mr. Chairman, this concludes my prepared statement.
    [The prepared statement of Mark L. Goldstein follows:]

      Prepared Statement of Mark L. Goldstein, Director, Physical 
 Infrastructure Issues, United States Government Accountability Office

    Mr. Chairman and Members of the Subcommittee: I am pleased to be 
here today to report on our work on the challenges to and the 
administrative options for implementing a subsidy program for consumers 
to purchase digital television (DTV) equipment. As you know, the return 
of radiofrequency spectrum used for analog broadcast television at the 
end of the DTV transition will provide many benefits to society, such 
as easing the spectrum scarcity facing public safety first responders, 
engendering economic growth and consumer value from spectrum redeployed 
to wireless services, and affording the federal government revenues 
from the proceeds of a spectrum auction. Under the law, the 
transition's end is, in part, dictated by consumers' adoption of 
digital television equipment. While the purchase of digital televisions 
is steadily increasing, it nevertheless appears unlikely that a 
sufficient proportion of households will have digital television 
equipment in place by the end of 2006--the date originally set by 
Congress as a goal for the transition's end.
    Households viewing television solely through the reception of over-
the-air signals must take action to ensure that they have the necessary 
equipment to be able to view digital broadcast signals before the 
transition occurs and analog broadcast signals are shut off. If they do 
not take such action, they will lose television service. Consequently, 
the DTV transition imposes costs on some American households, assuming 
those households purchase equipment capable of receiving digital 
television signals to avoid the loss of television service. In February 
we reported to this Subcommittee that of the roughly 21 million 
households in the United States that rely exclusively on over-the-air 
television, nearly half have incomes under $30,000. Cable and satellite 
subscribers might also, at some point, need to upgrade their 
equipment--and thus incur costs related to the DTV transition--in order 
to be able to continue to receive broadcasters' digital signals through 
their subscription providers.
    In order to spur households' adoption of the digital equipment 
necessary for the transition, some have suggested that the government 
provide a subsidy to certain households to purchase a device, known as 
a set-top box, that can receive digital broadcast television signals 
and convert them into analog signals so that they can be displayed on 
existing analog television sets. This device--which several 
manufacturers have stated could sell for as little as $50 1 
once they are produced in high volume--would enable the household to 
view digital broadcast signals without purchasing a digital television 
set.2 To the extent a subsidy facilitates the DTV 
transition, it might be advantageous for several reasons, such as (1) 
promoting a more rapid reclamation of valuable radiofrequency spectrum 
for other uses, which could spur economic growth and improve public 
safety, (2) possibly increasing government revenues from spectrum 
auctions by ensuring that companies that bid on spectrum can more 
quickly and with greater assuredness claim unencumbered spectrum, and 
(3) minimizing any loss in television service that households might 
suffer because they have not yet obtained necessary equipment for 
receiving digital broadcasts. At the same time, policymakers might 
consider these benefits in relation to other contexts in which policy 
decisions of the federal government have imposed costs and burdens on 
Americans without compensation. We believe while it is difficult to 
measure the specific benefits and costs of undertaking a specific DTV 
subsidy program, it is also difficult to evaluate the suitability of 
subsidizing the costs imposed by this particular government policy 
relative to other policies that have also imposed costs on citizens.
---------------------------------------------------------------------------
    \1\ Set-top boxes that have enhanced features, such as digital 
video recorders and output of high definition signals, would be more 
costly.
    \2\ Viewers using such a set-top box would not actually be viewing 
the channels digitally, but would be viewing the broadcasters' digital 
signals after they have been downconverted to analog.
---------------------------------------------------------------------------
    While there may be other policy options to spur the DTV transition, 
my testimony today only will focus on the use of a DTV equipment 
subsidy program. In particular, I will discuss the challenges to and 
several administrative options for a possible subsidy program. As we 
developed this work, no specific option for administering a DTV subsidy 
was formed, and as such, our work focused on the possible challenges to 
a hypothetical program. As in our previous work, we take no position on 
whether a subsidy should be implemented or not, or whether, if a 
subsidy program is established, it should be implemented in any 
particular way.
    In February we testified before this Subcommittee and provided 
estimates of the cost of a subsidy for set-top boxes using data on 
household television characteristics and expected set-top box costs. 
Today we will discuss (1) some challenges to administering a subsidy 
program for DTV equipment, (2) some administrative options for 
implementing a DTV subsidy, (3) examples of government programs that 
make use of rebates and vouchers to provide subsidies, and (4) some 
other efforts necessary for the completion of the DTV transition. In 
addition to information provided in this testimony, we will provide a 
more detailed study on these and other issues related to the DTV 
transition for the Committee later this year.
    To address the issues we will discuss today, we interviewed federal 
and state government officials who have experience in providing 
assistance to individuals or households through various subsidy 
programs. The agencies we contacted include the Department of the 
Treasury, the Department of Agriculture's Food and Nutrition Service, 
the Department of Health and Human Services, and state social service 
agencies from Alabama, Illinois, Maryland, and Texas. These states were 
chosen to represent varied demographic and geographic characteristics. 
We also spoke with companies in several key industry segments including 
nine electronics manufacturers, four electronics retailers, and a 
rebate fulfillment house (a company that processes rebates for 
manufacturers and retailers). Additionally, we interviewed a rebate and 
retail promotion expert, an academic who has studied consumer rebate 
redemption behavior, and representatives from the Promotion Marketing 
Association. We also contacted a company that provides identification 
and credential verification services. For general information about the 
DTV transition, we spoke with seven broadcasters, three cable and 
satellite companies, and five television station owners. We also had 
several meetings with Federal Communications Commission (FCC) staff and 
various industry trade groups, such as the National Cable & 
Telecommunications Association, the Satellite Broadcasting and 
Communications Association, the Consumer Electronics Association, the 
National Association of Broadcasters, and the American Cable 
Association. We obtained information on government programs that used 
rebates or vouchers from program administrators and other sources. We 
contacted the National Telecommunications and Information 
Administration (NTIA) to ask questions about their views on the 
administration of a DTV subsidy program, but an agency official stated 
that they had no official comment.
    We conducted our work from August 2004 to May 2005 in accordance 
with generally accepted government auditing standards. We discussed 
this testimony with FCC officials to obtain their comments. FCC 
provided technical corrections that we incorporated where appropriate.
    In summary:
     We found that several administrative challenges might arise in 
implementing a subsidy for DTV equipment. Key issues we identified 
include challenges related to making determinations about (1) which 
federal entity would administer a subsidy program, (2) whether a 
rulemaking process would be necessary to fully determine and stipulate 
how the subsidy program will be structured, (3) who would be eligible 
to receive a subsidy, (4) what equipment would be covered, (5) how 
information about the subsidy would be communicated to consumers and 
industry, and (6) what measures, if any, would be taken to limit fraud. 
Some of these issues could be particularly difficult to address. For 
example:
     If the subsidy were only available to low-income households, a 
possible method of identifying these households would be to use receipt 
of some other low-income assistance--such as food stamps--to identify 
those eligible for the DTV subsidy. A drawback to this approach, 
however, is that agencies overseeing such programs may not be allowed 
to release lists of their recipients to others. If the subsidy is only 
provided to households that rely exclusively on over-the-air 
television, the identification of these households may be difficult 
because no list of such households exists, and information on the 
inverse--those households that subscribe to cable or satellite 
service--is dispersed across hundreds of providers in the country, and 
these providers may also face limitations on the release of their 
subscribers' lists to others.
     Another key challenge would be to make sure that eligible 
recipients understand that a subsidy is available to them, how they can 
obtain it, which equipment the subsidy can be used for, and where they 
can obtain the equipment. Effectively communicating this information 
would likely first require that information about the broader DTV 
transition is effectively communicated to the public. Three years ago 
we found that many Americans did not have an awareness of the DTV 
transition. Recently, the Consumer Electronics Association reported 
that knowledge of DTV is increasing. Our interviews with several 
retailers and manufacturers, indicated, however, that while consumers 
are more familiar with the concept of high-definition television, many 
are still confused or unaware that at some point in the future analog 
television will cease operation and analog televisions sets will not be 
able to receive digital over-the-air television signals.
     Several administrative options could be used to provide a 
government subsidy to help households obtain DTV equipment. The four 
options for administering a DTV subsidy that we reviewed are a 
refundable tax credit, government distribution of equipment, a voucher 
program, and a rebate program. We found that the suitability of any of 
these methods depends on aspects of the subsidy's design, such as which 
entity is most appropriate to administer the subsidy and who would be 
eligible to receive the benefit. For example, if the DTV subsidy were 
only available to low-income households, a voucher might be a possible 
method to deliver the subsidy. Alternatively, if the subsidy is more 
widely available, a rebate might be a good delivery mechanism.
     Various government programs make use of rebates or vouchers to 
subsidize consumers' purchase of products. We reviewed three local 
government rebate programs that provide incentives for furthering 
environmental policy goals and three voucher programs, including one 
state program that subsidizes equipment for deaf and hard of hearing 
individuals and two federal programs that provide assistance to needy 
households to purchase food. For the programs we reviewed, we found 
differences existed between the rebates and vouchers programs that 
might provide insight for the development of DTV subsidy. Regarding 
eligibility determinations, we observed that eligibility for the 
voucher programs was specifically defined and the benefits were 
targeted to low-income individuals, whereas eligibility for the rebate 
programs was not based on income. Overall, however, we found these 
programs differed with respect to what might be undertaken for a DTV 
subsidy. Further, choosing not to participate in any of the programs we 
reviewed would not cause a household to lose any existing service or 
functionality. In contrast, if a household relying exclusively on over-
the-air television chose not to take advantage of a DTV subsidy for 
which it is qualified, and then did not obtain the necessary equipment 
to receive broadcast digital signals, the household would lose access 
to broadcast television signals when the transition occurs.
     If a subsidy program is implemented, it will pose many challenges 
for the implementing agency and industry. However, there are other 
aspects of the DTV transition not related to the implementation of 
possible subsidy program that are ongoing and will take time to 
complete or may pose their own challenges. For example, the channel 
election process, which will determine the channel placement for each 
television station's digital signal, is ongoing. Because a proposed 
rulemaking will follow the end of this selection process (scheduled to 
be completed in August 2006), all stations' final selections will not 
be set until sometime in 2007, according to an FCC official. Another 
example of an issue that may arise as the DTV transition progresses 
relates to antennas used to receive digital broadcast signals. While 
many stakeholders we interviewed told us that antennas used for analog 
over-the-air reception should work well for the digital broadcast 
signal, a few stakeholders (including an antenna manufacturer, a 
broadcaster, and a retailer) told us that reception will depend on 
geographic and topographic factors and that some people may need new 
antennas or adjustment of existing antennas.

                               BACKGROUND

    The United States is currently undergoing a transition from analog 
to digital broadcast television. With traditional analog technology, 
pictures and sounds are converted into ``waveform'' electrical signals 
for transmission through the radiofrequency spectrum, while digital 
technology converts these pictures and sounds into a stream of digits 
consisting of zeros and ones for transmission. Digital transmission of 
television signals provides several advantages compared to analog 
transmission, such as enabling better quality picture and sound 
reception as well as using the radiofrequency spectrum more efficiently 
than analog transmission.
    A primary goal of the DTV transition is for the federal government 
to reclaim spectrum that broadcasters currently use to provide analog 
television signals. The radiofrequency spectrum is a medium that 
enables many forms of wireless communications, such as mobile 
telephone, paging, broadcast television and radio, private radio 
systems, and satellite services. Because of the virtual explosion of 
wireless applications in recent years, there is considerable concern 
that future spectrum needs--both for commercial as well as for varied 
government purposes--will not be met. The spectrum that will be cleared 
at the end of the DTV transition is considered highly valuable 
spectrum--sometimes called ``beachfront spectrum''--because of its 
particular technical properties. In all, the DTV transition will clear 
108 MHz of spectrum--a fairly significant amount. In the Balanced 
Budget Act of 1997, the Congress directed FCC to reallocate 24 MHz of 
the reclaimed spectrum to public safety uses. Since the terrorist 
attacks of September 11, 2001, there has been a greater sense of 
urgency to free spectrum for public safety purposes. The remaining 
returned spectrum will be auctioned for use in advanced wireless 
services, such as wireless high-speed Internet access.3
---------------------------------------------------------------------------
    \3\ In addition to the 24 MHz that is allocated to public safety, 
another 24 MHz has already been auctioned.
---------------------------------------------------------------------------
    To implement the DTV transition, television stations must provide a 
digital signal, which requires them to upgrade their transmission 
facilities, such as transmission lines, antennas, and digital 
transmitters and encoders. Depending on each individual station's tower 
configuration, the digital conversion may require new towers or 
upgrades to existing towers. Most television stations throughout the 
country are now providing a digital broadcast signal in addition to 
their analog signal. After 2006, the transition will end in each 
market--that is, analog broadcast signals will no longer be provided--
when at least 85 percent of households in a given market have the 
ability to receive digital broadcast signals.

     SEVERAL CHALLENGES MIGHT ARISE THAT REQUIRE CONSIDERATION IN 
           ADMINISTERING A SUBSIDY PROGRAM FOR DTV EQUIPMENT

    During the course of our review, we identified several 
administrative challenges to implementing a subsidy for DTV equipment. 
For example, prior to implementing a subsidy program, various 
determinations need to be made, including (1) which federal entity will 
administer a subsidy program, (2) whether a rulemaking process is 
necessary to fully determine and stipulate how the subsidy program will 
be structured, (3) who will be eligible to receive a subsidy, (4) what 
equipment will be covered, (5) how information about the subsidy will 
be communicated to consumers and industry, and (6) what measures, if 
any, will be taken to limit fraud.

It is Unclear What Entity Would Be Best Suited to Administer the 
        Subsidy Program
    One challenge to the DTV subsidy that we identified is determining 
which entity should administer the subsidy program. An industry 
representative told us that the implementing agency should have some 
level of telecommunications expertise in order to be able to set 
appropriate standards for the equipment being subsidized and to 
effectively educate consumers about the DTV transition. In our opinion, 
policymakers might also consider if the entity has experience 
administering a household assistance program.
    Based on our discussions with government officials, it appears that 
no single entity has the combined technical knowledge and subsidy 
administration expertise that might be necessary to successfully 
implement a DTV subsidy. For example, while FCC and NTIA have 
telecommunications knowledge and are responsible for managing the use 
of the radiofrequency spectrum, neither has experience administering a 
federal subsidy program of this kind. We asked these agencies about 
their ability, based on their experience, to administer a DTV subsidy. 
NTIA had no official comment. FCC officials told us they believe the 
Commission could have some role, such as defining which equipment would 
be eligible for the subsidy, but did not believe FCC was best suited to 
administer the entire subsidy program. Further, an FCC official said it 
might be advantageous for the administering entity to leverage the 
expertise of state government agencies to assist with delivering the 
subsidy to low-income households.
    We also asked two agencies that have experience administering 
federal assistance programs, the Department of Health and Human 
Services and the Department of Agriculture's Food and Nutrition 
Service, about their ability to implement a DTV subsidy.4 
Although these agencies have experience with subsidy programs, they do 
not have expertise in telecommunications. Officials from the Department 
of Health and Human Services told us the agency would not be well 
suited to administer a DTV subsidy because their programs, such as 
Temporary Assistance for Needy Families, are narrowly defined--a 
household must have children to be eligible for Temporary Assistance 
for Needy Families--and would not offer broad enough coverage for a DTV 
subsidy. Similarly, officials from the Food and Nutrition Service said 
they did not believe their agency would be the best entity to 
administer the subsidy. However, after we asked whether the state 
agencies that administer food stamps could provide a DTV subsidy to 
their recipients, Food and Nutrition Service officials said that this 
might be possible under certain conditions, but that an agreement would 
most likely have to be reached with each state and, in their view, the 
states should be paid for the costs they incur in doing so.
---------------------------------------------------------------------------
    \4\ The Department of Heath and Human Services administers a number 
of programs, including Temporary Assistance for Needy Families. The 
Food and Nutrition Service also administers various programs, including 
the nation's Food Stamp Program and the Special Supplemental Nutrition 
Program for Women, Infants, and Children, better known as WIC.
---------------------------------------------------------------------------
    When we contacted four state heath and human services agencies that 
administer various assistance programs on behalf of the federal 
government, such as food stamps, all four indicated that it might be 
possible for the states to provide the DTV subsidy to the low-income 
individuals who already receive assistance from one or more programs 
they administer. However, they told us there would be costs associated 
with implementing a subsidy program, such as staff time, programming 
costs, postage, and envelopes. One state we contacted estimated that it 
would cost approximately $552,000 to mail vouchers to the approximately 
1.5 million households that receive food stamps, Medicaid, and 
Temporary Assistance for Needy Families within the state. However, two 
states told us that if the program ran over a period of time it would 
be difficult to track which households already received the DTV subsidy 
as people go on and off of assistance over time, so some households 
could receive duplicate benefits. Further, three of the four states 
told us that such a program would be burdensome on their limited staff 
resources.
Implementing a Subsidy Program May Require a Rulemaking Process
    A rulemaking process might be required to implement a DTV subsidy, 
and if so, this would likely have implications for how quickly a 
subsidy program could be established. While legislation could broadly 
define the parameters of the subsidy program and may even prescribe 
specific elements of the programs' structure and administration, it is 
not uncommon for a federal agency to determine that a rulemaking 
process is necessary to more fully detail how a program will be 
implemented. Through a rulemaking, the agency would finalize the rules 
of the program that were not specifically addressed in the legislation. 
FCC told us that if the legislation is very specific a rulemaking 
process may not be necessary for a DTV subsidy. However, FCC did note 
that rulemakings have been used in the past after legislation enacted 
new programs. For example, rulemaking processes have been undertaken 
several times to make adjustments to the Lifeline Assistance Program 
since it was established in 1985.5
---------------------------------------------------------------------------
    \5\ The Lifeline program, created in 1985, provides a discount on 
local telephone bills for certain low-income customers so that basic 
local phone service is more affordable.
---------------------------------------------------------------------------
    The rulemaking process generally takes time because it requires a 
wide range of procedural, consultative, and analytical actions on the 
part the agencies. Sometimes agencies take years to develop final 
rules. Among other things, the rulemaking process generally requires 
agencies to (1) publish a notice of proposed rulemaking in the Federal 
Register; (2) allow interested parties an opportunity to participate in 
the rulemaking process by providing written data, views, or arguments; 
(3) review the comments received and make any changes to the rule that 
it believes are necessary to respond to those comments; and (4) publish 
the final rule at least 30 days before it becomes effective. Further, 
the Office of Management and Budget reviews significant proposed and 
final rules initiated by executive branch agencies other than 
independent regulatory agencies before those rules are published in the 
Federal Register.6 A former official from the Department of 
Health and Human Services told us that industry participants, interest 
groups, or other stakeholders can challenge a proposed rulemaking, 
which can delay the process further. He said that in order to avoid 
such challenges, it is essential to have the key stakeholders involved 
early in the process. That is, if the key stakeholders have the 
opportunity to provide input prior to the development of the rulemaking 
and are satisfied that their concerns are addressed, they will be less 
likely to file a challenge to the proposed rulemaking.
---------------------------------------------------------------------------
    \6\ The Office of Management and Budget does not review rules of 
independent regulatory agencies, such as FCC.
---------------------------------------------------------------------------
Eligibility Criteria Pose Challenges to the Administration of a DTV 
        Subsidy Program
    Determining who would be eligible to receive the subsidy could 
present an administrative challenge to developing a subsidy program. If 
the government decides not to provide a DTV subsidy to all households, 
it would need to establish criteria to determine who is eligible. For 
example, a means test could be imposed to restrict eligibility to low-
income households determined to be in financial need of the subsidy. 
The subsidy could also be limited to only those households relying on 
over-the-air television signals, on the grounds that these households 
are likely to be the most adversely affected by the DTV transition.
    Eligibility for Low-Income Households: If it is determined that a 
DTV subsidy will only be made available to low-income households, a 
means test of some kind would need to be used to identify the 
appropriate target households. Officials from the Department of Health 
and Human Services told us that using the income-based eligibility 
criteria of existing social service programs to define eligibility for 
a DTV subsidy program would be the most efficient way to employ a means 
test. That is, by using the receipt of an existing program benefit that 
is means tested, a new program could be effectively implemented without 
developing a means test specifically for that program. However, we were 
also told that one of the drawbacks to using these existing programs is 
that not all who are eligible for any particular program actually 
choose to apply for and receive benefits. This would mean that by only 
providing a DTV subsidy to those already receiving other assistance, 
some people who would be eligible for the subsidy based on their 
underlying income would not qualify for the subsidy because they have 
chosen not to receive another form of assistance. Officials from the 
Food and Nutrition Service told us that for the Food Stamp Program, 
approximately 54 percent of those who would be eligible for the program 
receive the benefit nationwide. It was thus suggested to us that if 
recipient lists from social assistance programs were used in developing 
eligibility determinations for a DTV subsidy, it might be beneficial to 
use more than one program. By combining the participants of several 
programs, a DTV subsidy for low-income households would target a higher 
percentage of needy households than if only one program was used to 
establish eligibility. For example, FCC told us that the Lifeline 
Assistance Program uses receipt of any of seven social assistance 
programs, including food stamps and Medicaid, as an eligibility 
requirement.7
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    \7\ Consumers can receive assistance if they participate in 
Medicaid, the Food Stamp Program, Supplemental Security Income, Federal 
Public Housing Assistance (Section 8), the Low Income Home Energy 
Assistance Program, the National School Lunch Program's free lunch 
program, or Temporary Assistance for Needy Families.
---------------------------------------------------------------------------
    Privacy concerns could, however, be a limitation of using existing 
social welfare programs to develop eligibility for a DTV subsidy 
because the agencies administering these programs may be prohibited 
from providing the list of recipients to any outside entity. Under 
current law for example, food stamp recipient information might not be 
available to other federal agencies or to any private party or outside 
entity that might be involved in the administering the subsidy. Another 
limitation in using these data is that there is continuous change in 
recipient rolls because of people entering and leaving the program. 
Those implementing a DTV subsidy program would need to take into 
account the volatility of recipient rolls in deciding how this 
information could be used.
    Eligibility for Over-the-Air Households: Some stakeholders we 
contacted indicated that a DTV subsidy should be focused on or limited 
to only those households that rely exclusively on over-the-air 
television. Because no list of these households exists, limiting a 
subsidy in this manner will require determining who the over-the-air 
households are--a task that could pose administrative challenges. One 
possible approach to identifying over-the-air households is to first 
identify cable and satellite 8 subscribers. A combined list 
of all cable and satellite subscribers could be used as a mechanism to 
check whether those applying for a DTV subsidy are not qualified for 
the subsidy.
---------------------------------------------------------------------------
    \8\ For satellite subscribers, we are referring to those that 
subscribe to a direct broadcast satellite (DBS) service, such as 
DIRECTV or DISH Network.
---------------------------------------------------------------------------
    The process of combining cable and satellite subscriber information 
into a comprehensive list could be a highly challenging task. First, 
cable industry officials we interviewed expressed concern over 
providing their subscriber lists to a government agency or another 
entity. Cable officials told us that under current law, they could not 
turn over subscriber information to the government without prior 
permission from subscribers unless they were under a court 
order.9 Cable industry officials also told us that any 
change in current legislation would need to include liability 
protection for cable and satellite companies because their subscriber 
lists--which include personal information provided to these companies 
from subscribers--would be outside their control. An industry official 
said that even more stringent safeguards would need to be in place if 
the information were provided to an outside entity--such as a 
contractor--rather than to a government agency. One cable company 
official stated that even if the law were changed to allow the company 
to provide its subscriber lists, it would be placed in the awkward 
situation of having to inform their subscribers that their names were 
provided to the government to help administer a subsidy that the cable 
subscribers are not eligible to receive. The cable company official 
also stated that subscribers would be sensitive to their information 
being used in this manner, especially in light of recent security 
issues related to personal information.
---------------------------------------------------------------------------
    \9\ 47 U.S.C. 338(i) and 551.
---------------------------------------------------------------------------
    A second challenge to developing a national list of all cable and 
satellite subscribers is the difficulty of merging this information 
across all cable and satellite companies. Currently, there are over 
1,100 cable and satellite companies operating throughout the country, 
with a total of nearly 90 million subscribers. Information from these 
companies, which is maintained in various formats, would have to be 
collected and combined into a comprehensive list of subscribers. Cable 
industry officials stated that the process of merging and maintaining a 
list of nearly 90 million subscribers would not be an easy undertaking. 
For example, one cable industry official estimated that the process of 
working through all the technical logistics for establishing a list 
could take 6 to 12 months. Additionally, cable industry officials 
stated that there is significant ``churn'' (i.e., the number of people 
moving on and off subscriber lists) in the industry. For example, one 
cable company official stated that churn can be as high as 10 percent 
of subscribers from month to month. Another cable industry official 
told us that a significant level of resources would be needed to keep 
such a combined subscriber list up to date.
    Another possible, albeit difficult, way to determine who the over-
the-air households are would be to send queries to cable and satellite 
providers to ask if particular people who have applied for the DTV 
subsidy are, in fact, already subscribing to cable or satellite. For 
cable customers, a database would need to be developed to direct the 
queries to the applicable provider. According to FCC, the Commission 
maintains a master data base with information on all franchised cable 
areas--of which there are over 30,000. The most identifiable geographic 
information in that database is the name of county where each cable 
franchise is located. If an applicant for the DTV subsidy provided a 
county of residence, a query could be sent to all the franchised cable 
areas in that county. However, an FCC official told us that in many 
counties there are multiple cable franchises operating. Moreover, the 
FCC official stated that even though there is a contact name for each 
franchise area, in many cases, the contact was someone at a corporate 
headquarters of the cable company. Thus, we believe that to contact the 
local cable franchise directly, the database would need to be further 
developed to include information--perhaps an e-mail address at the 
local franchise level--to which the query could be sent. This process 
could be time consuming for both the entity processing the subsidy 
applications and the cable providers. On the satellite side, we believe 
querying the satellite providers might not be too difficult because 
there are only two primary providers. However, people may object to 
their personal information being sent to the satellite providers as 
well as the cable providers in their area. Another option might be to 
use information maintained by companies that perform subscriber billing 
for cable and satellite companies. We were told that about six large 
billing companies provide billing services for a substantial majority 
of the cable and satellite companies. Representatives from a company 
that provides identification and credential verification services told 
us they could verify that individuals applying for a DTV subsidy do not 
subscribe to a cable or satellite service by checking the applicant's 
address against the addresses maintained by the cable and satellite 
providers' billing companies. To protect the privacy of subsidy 
applicants, the identification and verification services company told 
us such queries should be based on an individual's address rather than 
name or Social Security number. Company officials also told us that it 
would likely take a few months to develop this checking process.

Congress and Implementing Agency Must Determine What Specific Equipment 
        Would Be Subsidized
    One of the administrative elements of a subsidy program that would 
likely need to be determined is exactly what equipment will be 
subsidized. In making this determination, policymakers might consider 
both policy issues as well as issues related to the ability of the 
program to be implemented and managed.
    From a policy perspective, several of the manufacturers and 
retailers we contacted told us that they believe it would be most 
beneficial to consumers if the program did not put highly specific 
limits on the type of equipment they could buy with the subsidy. In 
particular, some stakeholders generally believed that eligible 
consumers should not only be allowed to apply the subsidy toward a 
basic set-top box, but should also be allowed to apply that amount 
toward enhanced set-top boxes (those with upgraded features or 
functions) or digital televisions capable of receiving and displaying 
digital broadcast signals. Several stakeholders noted that any product 
that enables consumers to receive digital broadcast signals does the 
job of ensuring that there is no loss in television service when the 
transition occurs. Moreover, some said a wide application of the 
subsidy provides consumers the most choice and promotes the adoption of 
digital television. An opposing view is that a subsidy should only be 
designed to ensure that there is no loss of television service when the 
DTV transition is completed, and therefore the subsidy should only be 
applicable to a set-top box.
    From the perspective of administering the program, determining what 
items the subsidy can be applied towards is critical for communicating 
to manufacturers, retailers, and consumers a key parameter of the 
program. Some stakeholders noted that either the Congress or the 
administering agency would need to identify the products that would be 
subsidized so that manufacturers produce the appropriate equipment. If 
the intent is to subsidize only simple set-top boxes, FCC officials 
told us that the subsidy would cover boxes that have only analog 
outputs. If the Congress or the implementing agency determines that the 
subsidy will be more broadly applicable, the particular parameters of 
the program would need to be communicated to the manufacturing industry 
so that their business plans can proceed.
    There would also likely be some process by which specific items 
meeting the parameters of the subsidy program are approved and flagged 
as eligible for the subsidy. Manufacturers need certainty about what 
items are approved for the subsidy if they are to place a rebate coupon 
on or inside of the equipment boxes, along with any related 
information. Specific identification of subsidized items will also be 
important for retailers as they make inventory decisions and train 
staff about how to guide consumers' purchasing decisions. Also, if 
retailers are asked to play a part in the administration of the 
program, such as by accepting vouchers or printing rebate coupons at 
the time of sale, it will be critical for them to have validation of 
items that are eligible for the subsidy. And, clearly, consumers need 
to understand which items they can purchase using the subsidy.
    Some industry representatives we contacted also expressed concern 
about the interface between industry and the government in the design 
of the subsidy program. In particular, industry representatives said 
that the government should work with industry as the subsidy program is 
developed to ensure that the program is designed in a manner that will 
provide incentives for manufacturers and retailers to participate. 
Additionally, some companies noted that the government would need to 
provide industry with information on the expected scope of the program 
in order to avoid shortages of equipment at retail. In general, some 
companies told us that industry should be involved in the development 
of the program to help ensure that it is designed and implemented 
efficiently.

A Successful Subsidy Program Will Require an Effective Information 
        Campaign about the DTV Transition and Subsidy
    To successfully implement a DTV subsidy program, eligible 
recipients will need to understand that a subsidy is available, how to 
obtain it, which equipment the subsidy can be used for, and where they 
can obtain the equipment. Thus the agency responsible for implementing 
the program would need to undertake a communication campaign. At the 
same time, it could be difficult to provide information about the 
parameters of the subsidy program if there is not a general 
understanding about the broader DTV transition. As such, it appears 
that an information campaign regarding the availability of a subsidy 
for DTV equipment might need to be coordinated with a more general 
information campaign about the transition and its ramifications for 
American households.
    Three years ago we found that many Americans did not have 
significant awareness of the DTV transition, and we recommended that 
FCC explore options to raise public awareness about the transition and 
the impact it will have on consumers.10 Since that time, FCC 
and industry have undertaken efforts to better inform the public about 
the transition. In March of this year, the Consumer Electronics 
Association, an association of electronics manufacturers, reported that 
consumers' understanding of digital television has improved. This 
association surveyed individuals and found that, compared to past 
years, there has been an increase in consumer familiarity and 
understanding of DTV, as well as an increase in the likelihood of over-
the-air households to take action to avoid losing television service.
---------------------------------------------------------------------------
    \10\ See GAO, Telecommunications: Additional Federal Efforts Could 
Help Advance Digital Television Transition, GAO037 (Washington, D.C.: 
Nov. 8, 2002).
---------------------------------------------------------------------------
    Based on our interviews with several stakeholders, it appears that 
despite these findings many consumers--particularly those who may be 
the most affected by the transition--may still be unaware or confused 
about the DTV transition. Several of the company representatives with 
whom we spoke told us that while consumers are more familiar with the 
concept of high-definition television, they are still unaware or 
confused about other aspects of the DTV transition. Some told us that 
few consumers understand that at some point analog television will 
cease operation and analog television sets will be unable to receive 
digital over-the-air signals. We were told that it is especially 
difficult to provide consumers with a better understanding of this in 
the absence of a hard transition date. Additionally, some populations 
might be difficult to reach because English may not be their primary 
language or because they only receive television over-the-air and have 
no business relationship with a subscription television provider that 
would likely provide them with information about the transition.

Minimizing Fraud Might Be a Consideration in the Development of a 
        Subsidy Program
    Depending on how a subsidy program is structured and implemented, 
there may be opportunities for people to defraud the government. For 
example, one official familiar with government subsidy programs noted 
that if everyone were eligible for the subsidy, the opportunities for 
fraud would decline. For this reason, the more restrictive the 
eligibility requirements, the greater may be the chances for fraud. In 
terms of reducing fraud, those familiar with rebates noted that the 
more requirements for rebate redemption--that is, the more 
documentation the consumer must provide to redeem the rebate--the fewer 
problems with fraud there are likely to be. However, we were also told 
that increased requirements would tend to reduce the number of people 
who attempt to redeem the rebate. An additional consideration regarding 
fraud is the cost of fraud mitigation. A former official from the 
Department of Health and Human Services told us that while minimizing 
fraud should be considered in developing a subsidy program, the cost-
effectiveness of these efforts should also be measured. For example, we 
were told that administering systems to mitigate and prevent fraud may 
be costly and may not be worthwhile, especially if the value of the 
subsidy is low.

A Variety of Options Exist for Administering a DTV Subsidy, Each with 
        Unique Challenges
    While a government subsidy for consumers to purchase DTV equipment 
could be administered in several ways, each of the subsidy options we 
examined had advantages and disadvantages. Following is a description 
of and stakeholders' views on four DTV subsidy options: a refundable 
tax credit, government distribution of equipment, a voucher program, 
and a rebate program. As we noted above, we take no position on whether 
a subsidy should be implemented, or whether, if a subsidy program is 
established, it should be implemented in any particular way.
    Refundable Tax Credit Program: One method that could be used to 
administer a subsidy program for DTV equipment would be a refundable 
tax credit, administered as part of the federal individual income tax. 
A refundable tax credit could be designed to provide qualifying 
taxpayers a refund greater than the amount of their tax liability 
before credits. Based on the manner in which tax credits work, we 
believe that a tax credit for DTV equipment would likely be structured 
such that consumers purchase an eligible set-top box, maintain required 
information on their purchase, and seek reimbursement for all or some 
portion of the cost from the federal government for the equipment when 
they file their federal income taxes. Based on discussions with an 
official from the Department of the Treasury, it does not appear that 
this method would be well suited for a DTV subsidy. The Treasury 
official told us that considerable administrative burdens would be 
imposed on the Internal Revenue Service (IRS) to administer a 
refundable tax credit for a one-time subsidy. This official noted that 
implementation of a new tax credit would require the IRS to change tax 
forms, as well as instructions, for the years that the program would be 
in operation. Changing tax forms imposes administrative costs, 
particularly if tax laws are changed after forms have been developed 
for a given tax year. Additionally, he noted that IRS Form 1040 is 
currently completely full, so that any new credit could require the 
form to be lengthened from two pages to three pages, which would be 
costly and burdensome. The official also noted that the availability of 
the tax credit may cause some individuals who otherwise would not file 
a tax form to do so, which would increase IRS administrative burdens. 
The Treasury official also noted that there could be compliance 
problems with a tax credit approach. Because of the small amount of the 
credit--likely about $50--it would not be cost-effective for the IRS to 
assign resources to check compliance, thus it would be very difficult 
to minimize fraudulent use of the credit. In fact, IRS has had 
difficulty assuring compliance for a refundable tax credit. In 
particular, for the Earned Income Tax Credit, IRS estimated that 
roughly 30 percent of the dollars claimed was erroneous.
    We heard from stakeholders that a tax credit for DTV equipment 
might not be the most helpful to low-income Americans because 
individuals would have to purchase the equipment with their own money 
and file--possibly many months later--for a tax refund. Also, we were 
told some low-income Americans do not file tax returns. We believe the 
additional costs and burdens for such individuals to file taxes for the 
purpose of obtaining a tax credit may exceed the value of the credit.
    Government Distribution: With government distribution, the 
government provides certain goods for needy citizens. One example of 
government distribution is the Emergency Food Assistance Program 
whereby the government provides food, such as dried fruit, non-fat dry 
milk, and peanut butter, to states for distribution to selected local 
agencies--usually food banks--which, in turn, distribute the food to 
soup kitchens and food pantries that serve the public directly.
    For the DTV transition, the government could directly provide the 
necessary equipment to individuals, but we found there would be a 
number of challenges to implementing and administering such a program, 
and, based on discussions with state social service agencies, it 
appears that this would be an unwieldy way to administer a DTV subsidy. 
One challenge would be finding locations for distributing the 
equipment. We heard from several officials whose state agencies 
administer benefit programs that using local social services offices as 
a distribution point would not be feasible. These officials cited the 
lack of space and staff resources to store, secure, and distribute 
equipment as reasons why local offices could not be used to administer 
such a program. Further, stakeholders told us that government 
distribution does not take advantage of existing retail supply chains 
that already move large quantities of goods to stores throughout the 
country.
    While a government distribution program would not require 
households to pay for equipment in advance of receiving the subsidy, 
which would be beneficial to low-income households, the program could 
present other challenges to those eligible to participate. For example, 
stakeholders we interviewed told us that a distribution program limits 
consumers' choices and provides no mechanism for consumers to obtain 
support if the equipment does not work properly. Additionally, 
officials from one state agency told us that people obtaining equipment 
at local offices would have to wait in long lines, which could be 
problematic for those with physical limitations, such as the disabled 
and the elderly.
    Voucher Program: Another mechanism to subsidize DTV equipment could 
be through a voucher program. A voucher--which is a coupon or 
electronic benefit card, similar to a credit card, which provides 
purchasing power for a restricted set of goods or services--could be 
provided to households that qualify for a DTV subsidy. The federal 
government has used vouchers to provide a variety of assistance to 
households, such as food stamps and housing subsidies. Also, vouchers 
have been used on a limited basis to provide benefits to consumers for 
the changeover of certain technology. For example, the Colorado 
Department of Human Services provided a voucher to individuals who 
qualified as hard of hearing to purchase text telephones and other 
specialized telecommunications equipment.
    For a DTV equipment subsidy using a voucher system, various 
administrative steps would be necessary to design and implement an 
effective program. After decisions were made about the specific 
equipment to be covered, vouchers would need to be distributed to 
eligible households. Several of those we contacted noted that if the 
program is to be means tested, state agencies--such as those that 
administer the Food Stamp Program--might be able to mail vouchers to 
their existing recipients.11 Additionally, with a voucher 
program, several administrative steps involving the retail industry 
would be required. Participating retailers would have to know how the 
program is structured, which specific items were covered by the 
subsidy, approximately how many pieces of DTV equipment were expected 
to be subsidized in a particular area, and how the mechanism for 
retailer reimbursement would operate.
---------------------------------------------------------------------------
    \11\ State agencies we contacted suggested that mailing a paper 
voucher to recipients would be the least difficult and most effective 
way of distributing a voucher for a potential DTV subsidy. While food 
stamp benefits are provided to recipients electronically (through an 
Electronic Benefit Transfer (EBT) card), the state agencies told us it 
would be costly and time-consuming to add the DTV subsidy to these 
electronic cards.
---------------------------------------------------------------------------
    Overall, using vouchers to administer a DTV subsidy might be 
beneficial for low-income households because such households would not 
be required to pay for the DTV equipment in advance and then wait to be 
reimbursed. However, stakeholders told us that this type of program 
could create a burden on retailers because they must determine the 
authenticity of the vouchers. Also, stakeholders mentioned that it 
might be more challenging to include smaller and independent retailers 
in a subsidy program that uses vouchers.
    Rebate Program: A rebate program could also be used to administer a 
DTV subsidy. Rebates generally require consumers to pay the full cost 
of an item at the time of purchase and then send documentation to an 
address specified by the manufacturer or retailer to receive a rebate 
by mail. The documentation required generally includes the original 
sales receipt, the UPC code from the product packaging, a rebate slip, 
and the customer's name, address, and telephone number. In most cases, 
this paperwork must be sent within 30 days of the purchase, and 
consumers generally receive their rebates up to 12 weeks later. 
According to the three rebate experts we interviewed, only about 30 
percent of rebates are ever redeemed. While two rebate experts said 
that redemption rates would likely rise with a larger rebate, such as 
might be provided with a DTV subsidy, none of the three we spoke with 
believed that the redemption rate would rise above 50 percent. Also we 
were told that depending on the type of rebate, on average 1 percent to 
20 percent of rebate applications are rejected based on the lack of 
proper documentation.
    Typically, a variety of decisions are made in developing a rebate 
program. For example, as we discussed these decisions with 
stakeholders, various methods of implementing a rebate were 
highlighted, including placing the rebate coupon inside the equipment 
box, affixing it to the outside of the box, or printing a coupon at the 
cash register at the time of sale. The method used would, in part, 
determine which entities have some administrative responsibility for 
the rebate program. If a DTV subsidy program were designed to have a 
rebate coupon placed in or on the box, it would be the responsibility 
of the manufacturer to do so, while if it were designed to have a 
rebate coupon generated at the cash register, the retailer would be 
responsible for managing this process. A consensus on the best rebate 
method did not emerge from our interviews with industry experts.
    One of the most difficult elements associated with using a rebate 
for a DTV subsidy would be applying eligibility requirements. As 
previously discussed, information about over-the-air and low-income 
eligibility is not readily available to the rebate fulfillment houses--
which are the entities that process rebates for manufacturers and 
retailers--and there are legal obstacles to the government collecting 
and providing that information to them. Another downside of rebates is 
that consumers generally pay the full cost of an item at the time of 
purchase, which could create a hardship for low-income households. 
Furthermore, one rebate fulfillment center representative told us that 
low-income individuals are less likely to redeem rebates than other 
segments of the population. Similarly, an official from a state agency 
told us that based on her experience a rebate program is not a good 
choice if the subsidy is supposed to target low-income individuals 
because many low-income individuals are not comfortable with rebates 
and will not redeem them. If eligibility for the subsidy is not 
restricted, a rebate might provide a good delivery mechanism. A benefit 
of using a rebate program for a DTV subsidy is that this method could 
take advantage of the relationships that already exist between 
retailers, manufacturers, and the rebate fulfillment industry.

Several Government Programs Have Employed Rebates or Vouchers to 
        Provide Subsidies
    We identified several government programs that have used or are 
using rebates or vouchers to subsidize consumers' purchase of products. 
While aspects of these programs might provide insight into the 
establishment of a DTV subsidy, we found, overall, that the programs we 
reviewed differed in many respects from what might be undertaken for a 
DTV subsidy. We reviewed three rebate programs that were implemented by 
local governments to provide incentives for furthering a policy goal, 
such as clean air, water conservation, and the use of energy-efficient 
appliances. We also reviewed three voucher programs, including one 
state program that subsidizes equipment for deaf and hard of hearing 
citizens and two federal programs that provide assistance to needy 
households to purchase food. See table 1 for key information about the 
six programs we reviewed.
    We believe some aspects of the programs' implementation, such as 
the time required to develop a program and the manner in which program 
information was disseminated, might have relevance to the establishment 
of a DTV subsidy. For example, for two of the rebate programs, we 
learned that it took several months to develop and implement the 
programs, with one rebate program taking 12 months and another taking 
18 months to implement. In reviewing various other aspects of the 
programs, such as eligibility determinations and what products were 
subsidized, we found that differences existed between the voucher and 
rebate programs that might also provide some insight for a DTV subsidy. 
For example, for all of the voucher programs we reviewed, benefits were 
targeted to low-income individuals, and eligibility was specifically 
defined. In contrast, eligibility for the rebate programs not based on 
income; rather, a person only had to reside in the location where the 
subsidy was being offered or be a water or power customer to be 
eligible. We also found differences in the types of products subsidized 
for the rebate and voucher programs that we reviewed. Whereas the 
rebates subsidized items in an effort to further a policy goal 
(generally environmental protection), the voucher programs provided 
recipients with items for their basic needs.
    Overall, however, we observed that aspects of these programs' 
implementation are dissimilar to what might be undertaken for a DTV 
subsidy. First, choosing not to participate in any of the programs we 
reviewed would not cause a household to lose any existing service or 
functionality. In contrast, if a household chose not to take advantage 
of a DTV subsidy for which is was qualified, and then did not obtain 
the necessary equipment to receive broadcast digital signals, the 
household might lose access to broadcast television signals when the 
transition occurs. Additionally, none of the rebate programs we 
reviewed are comparable to the size of a potential DTV subsidy in terms 
of number of people served. While the national voucher programs serve 
millions of households, they are unlike the DTV subsidy in that they 
are long-established programs with an entire infrastructure designed to 
provide benefits to recipients on a recurring monthly basis. Due to 
differences in the scope of the rebate and voucher programs we reviewed 
and a potential DTV subsidy, it is not clear how applicable the 
administrative costs of these programs are to estimating the costs of a 
DTV subsidy.

Other Efforts Necessary for the Completion of the DTV Transition Are 
        Ongoing
    If a subsidy program is implemented, it will pose many challenges 
for the implementing agency and industry. However, there are other 
aspects of the DTV transition not related to the implementation of 
possible subsidy program that are ongoing and will take time to 
complete or may pose their own challenges. For example:

 Under current FCC time frames, the final process for television 
        stations to select their permanent channel placement for their 
        digital signals is ongoing. Broadcast stations began the 
        process of choosing their final DTV channel in February 
        2005.12 In August 2006, FCC expects to issue a 
        Notice of Proposed Rulemaking that includes a tentative DTV 
        Table of Allotments once the channel election process is 
        finished. FCC will seek comment on the proposed Table and then 
        issue an order with a Final DTV Table of Allotments, which, at 
        a minimum, would take several months. An FCC official told us 
        that it would likely be sometime in 2007 before all the 
        allotments are finalized. In order for the DTV Table of 
        Allotments to be finalized by the end of 2006, FCC officials 
        told us that they would need to shorten the channel election 
        process time frames that they currently have in place. We were 
        told that once stations know their final channel assignments, 
        they might need to make adjustments to certain equipment. 
        Therefore, we found that for stations that do not have 
        certainty on their assignments until sometime in 2007, 
        equipment modifications will be undertaken well into that year.
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    \12\ In the Matter of Second Periodic Review of the Commission's 
Rules and Policies Affecting the Conversion to Digital Television, MB 
Docket No. 03-15, Report and Order, FCC 04-192, released September 7, 
2004, FCC established a multistep channel election and repacking 
process through which broadcast licensees will select their ultimate 
DTV channel (i.e., channels 2-51).
---------------------------------------------------------------------------
 Currently, a small number of television stations are not yet 
        broadcasting digital signals. FCC told us that issues of 
        technical interference and the permitting process for locating 
        and constructing broadcast towers are the primary reasons these 
        stations are not yet online with a digital broadcast signal. 
        For example, for any station located within 200 miles of the 
        Canadian border, coordination and approval from the Canadian 
        government is required, in accordance with international 
        treaties.
 At present, no requirements for the application of the Emergency 
        Alert System (EAS) apply to stations' digital broadcast 
        signals. FCC is now considering how requirements will be set. 
        An FCC official told us that rules for EAS on DTV stations that 
        are similar to requirements for analog stations should be 
        developed within a few months, but additional work will look at 
        whether there will be expanded functionality required in the 
        digital environment. According to FCC, the equipment that 
        stations will be required to purchase to meet the basic 
        requirements that are likely to be set before the end of 2005 
        is not very expensive. Because the requirements for expanded 
        functionality are not yet set, an FCC official told us that it 
        is not clear what the cost of any additional equipment will be.
 Another challenge that may be posed by the DTV transition relates to 
        antenna reception of digital over-the-air broadcast signals. 
        Many stakeholders said that antennas currently used to view 
        analog over-the-air signals will be sufficient to receive DTV 
        signals and an FCC official told us that many viewers will have 
        improved picture quality with digital signals. However, a few 
        indicated that improved antenna technology may be needed for 
        some households. An antenna manufacturer, a broadcaster, a 
        retailer, and other stakeholders said that the ability to 
        receive digital over-the-air signals is variable and contingent 
        on each household's geography, among other things, and that 
        some people may need new antennas or adjustment of existing 
        antennas. In particular, we were told that adjusting the 
        antenna to receive digital broadcast signals can be more 
        difficult than analog signals because if the antenna is not 
        aimed correctly, the television may not be able to display any 
        signal. Also, while interference from trees, buildings, and 
        other structures can distort an analog picture, this type of 
        interference can cause a complete loss of digital signals.
 Ensuring that households understand the transition and how they will 
        be affected is critical to a smooth transition. Any household 
        that does not understand what will occur could be adversely 
        affected. Over-the-air households are the most likely to be 
        impacted by the transition because, to whatever extent cable 
        subscribers will be affected, they will likely have support and 
        information provided by their subscription video providers. 
        Based on our work, other specific populations might also be 
        more difficult to reach with needed information about the 
        transition, including low-income households and those who do 
        not speak English as a first language. The consequences of any 
        information gaps are serious because households could lose 
        their access to television signals. During our work on the 
        transition to DTV in Berlin, Germany, we found that an 
        extensive information campaign was widely viewed as critical to 
        the success of the transition.

                        CONCLUDING OBSERVATIONS

    There are many difficult decisions and determinations that will 
likely be considered if a subsidy program for DTV equipment is 
developed. In addition, there are unique interfaces between the 
challenges we identified and the administrative method used to deliver 
the subsidy that will require careful consideration. For example, if 
such a program were developed and eligibility were limited to only low-
income individuals, it might be advantageous to leverage the 
infrastructure and expertise that state social service agencies have in 
providing assistance to needy households. But to utilize the state 
agencies, the subsidy might need to be provided in the form of a 
voucher because the state agencies have experience mailing information 
and could mail a voucher to the low-income recipients of other 
assistance. In contrast, if there were no eligibility restrictions 
applied to the subsidy, a rebate might be a good method for 
administering the subsidy because it would draw on the existing 
relationships between manufacturers, retailers, and rebate fulfillment 
companies, all of whom have extensive knowledge and experience in 
developing, advertising, and implementing rebates. However, such a 
design might render the subsidy less usable by low-income Americans.
    The return of the spectrum for public safety and commercial 
purposes is a critical goal for the United States. Implementing a 
subsidy program for DTV equipment poses a variety of difficult 
challenges and may not be the only policy option that could help 
advance the overall goal of reclaiming spectrum. Given the importance 
of this transition, it seems critical for knowledgeable officials in 
government and in industry to work together to find the best means to 
address any issues that may impede progress in completing the DTV 
transition--and the associated reclamation of valuable radiofrequency 
spectrum.
    Mr. Chairman, this concludes my prepared statement. I would be 
happy to respond to any questions you or other Members of the Committee 
may have at this time.

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[GRAPHIC] [TIFF OMITTED] T1643.002

[GRAPHIC] [TIFF OMITTED] T1643.003

    Mr. Upton. Thank you. Mr. Shapiro.

                  STATEMENT OF GARY J. SHAPIRO

    Mr. Shapiro. Mr. Chairman, Mr. Markey, members of the 
subcommittee, thank you.
    This committee has actually led the way, starting with you, 
Congressman Markey, at the first hearing a long time ago, and 
continued with even the consensus I heard today, in the year 
2008.
    That is a remarkable achievement. The fact is, the U.S. 
leads the world in the DTV transition. Japan started with 
analog, stuttered, had to recall the sets. Europe has not gone 
to HDTV. The U.S., through the government-industry partnership, 
this committee's oversight, the FCC, many of the industries 
represented in this panel, consumer groups, we have done it 
right, quite frankly.
    It is been a phenomenal success, and I don't want to be 
Pollyanna-ish, but this is the last big step, and I hear 
consensus on almost every major element. What we are talking 
about here is some of the details. And I would like to shed 
some light on that, if I may. The reality is is that DTV is 
selling phenomenally. We do not need any more government action 
to sell digital television sets. They are selling fine at this 
point, given the fact that we have come so far.
    The first 4 months of 2005, we have the greatest volume of 
DTV sets ever, 2.3 million products sold. That is a 36 percent 
increase in unit sales from the same time period last year. And 
Americans have already invested $25 billion in DTV products. 
Prices are 75 percent lower than they were 5 years ago, and 
they are declining by about 15 percent a year. And consumers 
can now choose from 200 television models that include over-
the-air ATSC tuners. We believe that 9 million DTVs with tuners 
will be sold this year alone. If Congress sets a hard deadline 
this year, and if the FCC acts on CEA's petition, we expect 
16.7 million DTVs with tuners will be sold in 2006, 27 million 
in 2007, and 33 million in 2008. And by 2009, we will have sold 
97 million DTV tuners, and we estimate that digital over-the-
air tuners will then be found in 86 percent of American homes.
    Analog sales are going down radically, 36 percent next 
year, 53 percent in another year. And we are succeeding because 
consumers are learning. We have a whole range of promotional 
materials that we have done separately, with other industries, 
with the FCC. We just received an award for alerting consumers. 
Most consumers in the country know about HDTV. We have done a 
phenomenal amount of research about this, and I think we are 
safe in saying that this is a successful transition, and with a 
hard date set, soon, that we could start putting labels on 
sets, just as you have proposed. We do need 180 days or so from 
the manufacturers' perspective to get the labels, and could put 
them in the right place, and we have some comments about that, 
on some of the technical details. But we are ready to go 
forward, if you set the hard date, and that will allow us to 
promote even more.
    Well, one of the questions is the perspective--and just to 
give you some facts, the reality is that most Americans today 
receive local and network broadcast signals over cable and 
satellite, and if there is any doubt about that, consider the 
fact that something which would have been big a few years ago, 
Monday Night Football, will no longer be an over-the-air 
broadcast. It is only going to be on cable and satellite. And 
yet, no one has said a word about it. So of the nearly 110 
million American homes with a TV set, 87 percent, and that is a 
hard number, 87 percent receive cable or satellite, and you can 
look at DirecTV, EchoStar numbers, the NCTA numbers. We have 
done three surveys, as well as Nielsen has done a survey, and 
many broadcasters themselves. So that 87 percent is a very hard 
number. So that means that if today, we cutoff analog, that is 
13 percent of the population of 110 million households would be 
denied access to a broadcast signal. Now, we asked those 
people, we actually surveyed last week, and we will release the 
details next week, we went to those people that don't have 
cable or satellite, we asked them what would you do if the 
government cuts off the analog signal? Over three quarters of 
them said they would do one of three things, they would buy a 
50 percent D to A transformers, they would get cable or 
satellite, or they would buy a new set. Only 22 percent said 
they wouldn't do anything. And as cable and satellite 
penetration goes, this problem will diminish. So the simple 
fact is that while an analog broadcasting cutoff is important 
for our Nation, it will only have a very small impact on the 
viewing habits of a very small number of people, and that is a 
very important population. And I appreciate the fact that you 
are trying to deal with it.
    We do recommend the following. The draft does require the 
FCC to move up the deadline for the inclusion of over the air 
tuners for 13 to 24 inch sets from 2007 to 2006. That is a full 
year between what our manufacturers and retailers have planned 
upon, and that is nearly 2.5 years before the 2008 hard 
deadline. We are pretty concerned about that, because such a 
requirement would severely reduce the retail market for these 
sets. Now, the analog, on the other hand, is $100 set for the 
most part, is just a feature. It is a feature that is barely 
used. In fact, it is a feature that is not even used in four 
out of five of the sets where this cable or satellite. So your 
second, third, or fourth set is already hooked up to cable or 
satellite, and that is what you are buying these sets for. So 
it is a low market, it is in the market, but it is an important 
market.
    The fact is, manufacturers have these sets on the planning 
board, they are already starting to go. Manufacturers have an 
18 to 24 month cycle for new equipment. So the accelerated 
mandate is a little bit problematic, quite frankly, and it 
would hit lower income consumers hard.
    We also ask you to look at the broadcasters' obligation to 
educate their viewers on the DTV transition. We think it is 
very marginal. At this point, we have spent millions of 
dollars. We have a website, we have brochures, we do road 
shows. We do everything to educate the Americans about the DTV 
transition. To our knowledge, although local broadcasters have 
done a good job and networks have done a good job, the reality 
is that the national organizations for broadcasters have done 
almost nothing to talk about free, over-the-air television, and 
that is what this is about. It is free, over-the-air 
television.
    So we commend you for taking it this far, and we ask you to 
keep going, set that date this Congress, and get us over the 
finish line here.
    [The prepared statement of Gary J. Shapiro follows:]

  Prepared Statement of Gary J. Shapiro, President and CEO, Consumer 
                        Electronics Association

    Mr. Chairman and Members of the Subcommittee: Thank you for 
inviting me to discuss our nation's progress in the transition to 
digital television (DTV), and the steps that should be taken to 
conclude the transition in the most beneficial and understandable 
manner.
    I represent the Consumer Electronics Association (CEA), the 
principal U.S. trade association of the consumer electronics and 
information technology industries. CEA's 2,000 members include 
virtually every DTV manufacturer. Our members invented DTV, and we are 
thrilled by its astounding marketplace success. CEA also represents the 
cutting-edge information technology companies who will use the 
recovered analog broadcast spectrum to provide all Americans with 
innovative new wireless products and services.
    CEA strongly supports the enactment of a hard deadline for the end 
of analog broadcasting. A hard deadline will bring certainty to the DTV 
transition. It will provide a ``win-win'' scenario for all 
stakeholders, while fostering innovation and strengthening our national 
security. We commend you for including a hard analog cutoff date in 
this draft legislation.

                 DTV SALES CONTINUE TO RAPIDLY INCREASE

    Our most recent sales figures show that the first four months of 
2005 brought the greatest volume of DTV sales ever recorded, with 2.3 
million DTV products accounting for $2.95 billion of consumer 
investment. This is a remarkable 36 percent increase in unit sales from 
the same time period in 2004.
    More than 17 million DTV products have been sold since the first 
HDTV sets hit the market in the fourth quarter of 1998. Americans 
already have invested an astonishing $25 billion in DTV products. HDTV 
is the driver behind these phenomenal sales figures, with high-
definition displays and receivers representing 85 percent of the DTV 
products sold to date.
    Sales are being driven by the rapid price declines that are typical 
of our industry. DTV prices are 75 percent lower than they were five 
years ago and are still declining by approximately 15 percent each 
year. Today there are numerous DTV options under the $700 mark and even 
some expected soon for as low as $400.
    Meanwhile, DTV products have spread from specialty retailers and 
major consumer electronics chains into warehouse clubs, mass merchants, 
and now discount stores like Wal-Mart and Target.
    When consumers walk into retail stores, they now enjoy an 
unprecedented variety of DTV products to meet their needs and budgets. 
Buyers can choose from a vast array of compelling displays from 
traditional CRT sets to cutting-edge new technologies like plasma, LCD, 
DLP, and LCoS.
    Most important to the current debate is the fact that consumers now 
can choose from 200 ``integrated'' models that include over-the-air 
ATSC tuners.
    To put this in perspective, digital television has been adopted 
twice as quickly as color television. While it took color television 
ten years to achieve 5% penetration from introduction, digital 
television products are already in 16 million American homes!
    Indeed, overall revenues from digital TV now outpace those from 
analog TV. Television manufacturing is now a digital industry.
    As impressive as those numbers sound, we are only beginning to move 
up the ``hockey stick curve'' of sales, especially with respect to 
integrated DTV sets equipped with digital over the air (ATSC) tuners. 
CEA forecasts that 9 million integrated DTVs will be sold this year, 
16.7 million in 2006, 27 million in 2007 and 33 million in 2008.
    Including set-top boxes, by 2009 we will have sold 97 million DTV 
tuners, and we estimate that over the air tuners will be found in 86 
percent of American homes.
    At the same time, sales of analog sets are declining precipitously. 
We project sales to decline 36 percent in 2006, and an additional 53 
percent in 2007. The current tuner mandate schedule established by the 
FCC is working.

              CEA IS THE LEADER IN DTV CONSUMER EDUCATION

    The CE industry has every business incentive to educate consumers 
about the qualities and features of the DTV they want to purchase. That 
is why CEA runs an extraordinary educational effort to ensure that 
consumers are fully informed about their DTV options.
    Indeed, last week the National Association of Consumer Agency 
Administrators (NACAA) presented CEA and the FCC with the Achievement 
in Consumer Education from for our joint work in informing consumers 
about the transition to DTV, and helping consumers make the digital 
choices that are right for them.
    As the primary conduit to consumers, and it is critical that retail 
floor staff is properly equipped to provide accurate and easy-to-
understand information.
    CEA aggressively responded to this challenge and created a 
comprehensive DTV retailer-training program called CEKnowHow (it can be 
viewed online at www.ceknowhow.com). This program is available to all 
retailers over the Internet. It equips them with the most up-to-date 
online training for sales associates, so that they can effectively 
respond to consumer inquiries on DTV and HDTV.
    CEA also designed, printed, and made available to retailers a ``tip 
sheet'' that explains the DTV transition and basic DTV terms and 
technology. In late 2004, CEA partnered with the FCC and the Consumer 
Electronics Retailers Coalition (CERC) to distribute to literally 
hundreds of thousands of copies of the tip sheet to consumers, 
retailers, and professional home theater installers.
    Over the last year, CEA also visited with major consumer 
electronics buying groups and talked to more than 2,000 dealers to 
bring them the latest information on the DTV transition. We have 
collaborated with Comcast on an educational DVD that covers DTV 
information ranging from basic definitions to the equipment required to 
receive and view HDTV content via antenna, satellite or cable delivery.
    CEA also is making every effort to reach out directly to consumers. 
Millions of readers across the country saw our inserts in TV Guide and 
Sports Illustrated magazines explaining the basics of DTV, how to get a 
signal, what product choices are available, and so on. We also have 
showcased HDTV before hundreds of thousands of consumers through 
exhibits at home design shows and trade exhibitions and viewing parties 
in public venues across the nation.
    CEA exposes millions of consumers to HDTV through our nationally 
pre-packaged video and news releases, as well as our national CEA media 
tour. And our quarterly HDTV Guide is the single most authoritative 
list of the DTV products and programming currently available.
    Meanwhile, CEA has taken the lead in promoting consumer awareness 
and use of over-the-air digital television reception. Through our 
AntennaWeb program, consumers can visit a website (www.antennaweb.org), 
enter their home address, and find the optimal outdoor television 
antenna for their specific location. This site receives approximately 
100,000 hits per month.
    We also see it as our obligation to recognize those who are going 
above and beyond the call of duty in furthering the DTV transition. 
Every year, our Academy of DTV Pioneers honors the best of the best in 
HDTV programming, reporting and retailing. And, as it should be, every 
year the categories get more crowded and competitive.
    This is just a sampling of CEA's strong commitment to educating 
consumers and retailers about the DTV transition.
    In short, for the DTV transition, everything is moving rapidly in 
the right direction. Product sales continue to rise, as prices decline. 
The amount and variety of HDTV programming continue to increase. 
Content delivery industries are increasingly jumping onto the HD 
bandwagon. Exciting new products are rolling into the marketplace. 
Consumer and retailer education is advancing. By almost any measure, 
digital television is a marketplace success.
    Now is the appropriate time to take the next step and bring the 
broadcast digital transition to a successful conclusion, just as 
envisioned by this Committee when the Congress loaned public spectrum 
to the broadcasters for the DTV transition a decade ago.

                  THE TIME FOR A HARD DEADLINE IS NOW

    The 700 MHz band currently occupied by analog broadcasters is 
beachfront property on the spectrum landscape. The prompt recovery of 
this spectrum by Congress will produce immense public interest and 
economic benefits while fostering innovation and protecting our 
national security.
    First, the analog TV broadcast spectrum is ideal for advanced 
wireless broadband applications. A hard date will spur innovators to 
develop a broad range of new wireless technologies and services. These 
new wireless services will offer unprecedented access to rural and 
underserved areas, while creating competition that drive down prices 
for all wireless consumers.
    A hard date also will fundamentally change and accelerate the DTV 
marketplace. With the certainty of a hard deadline, stations will know 
what to broadcast, manufacturers will know what to make, retailers will 
know what to stock, and consumers will know what to buy. With the 
completion of the digital transition now an imminent reality, all 
affected industries will shift our consumer education efforts into an 
even higher gear.
    But the rationale for a hard date goes deeper than promoting new 
technologies and broadband access. As reinforced by this month's 
evacuation of the White House and this Capitol, the gravest threat to 
our safety is another national calamity like we suffered on September 
11, 2001. It is now more apparent than ever that the 700 MHz band held 
by broadcasters is essential to the swift and effective response of 
Homeland Security, police, firefighters, and other first responders.
    That is why, in a recent letter to Chairman Barton, the Association 
of Public Safety Communications Officials implored you to set an analog 
broadcasting cutoff date, stating that ``the security of our homeland 
and the lives and property of our citizens as well as our responders 
are at stake''.
    The key to unleashing these benefits is for a hard date to be set, 
and set now. Fortunately, the video marketplace has now evolved to the 
point where an analog cutoff can be managed to cause the most minimal 
consumer disruption.

THE VAST MAJORITY OF AMERICANS NOW CHOOSE CABLE OR SATELLITE TO PROVIDE 
                      THEIR TELEVISION PROGRAMMING

    Americans now have more ways to receive video programming than ever 
before. The vast majority of Americans receive local and network 
broadcast signals via cable and satellite (and will soon have these 
services available via telephone, mobile and wireless broadband). 
Meanwhile, the statistics show that a small and declining number of 
households rely exclusively on a free over the air broadcast signal.
    If there is any doubt about this, consider the total lack of public 
outcry over the recent announcement that Monday Night Football, long a 
staple of broadcast TV, will soon be available only to satellite and 
cable households.
    Of the nearly 110 million American homes with at least one TV, 68 
percent receive a cable signal and 22 percent receive a DBS signal. Our 
research shows that roughly 2% receive both cable and DBS. In total, 
approximately 87 percent of American homes will have access to cable or 
satellite (and thus network and local broadcast feeds).
    This means that if the analog cut off occurred today, less than 13% 
of the population of 110 million TV households would not have access to 
a broadcast signal through cable or satellite.
    And this number is shrinking significantly every year. Cable and 
satellite penetration continues to grow by about one to two percentage 
points annually. What's more, the market research firm Sanford 
Bernstein has just concluded that cable and satellite subscribers are 
growing 3.6 percent annually.
    Further, the number of over-the-air homes will become less relevant 
as broadband penetration grows. Broadcasters are increasingly providing 
their content through other means including the Internet and mobile 
phones. Just recently, Verizon announced that a deal where it would 
provide NBC's feed over its fiber network.
    With respect to consumers with neither cable nor satellite, our 
research shows that this population's decision not to subscribe 
generally is not solely for economic reasons. Indeed, our data shows 
that 52 percent choose not to subscribe for a reason other than cost--
with almost a third reporting that they do not subscribe because they 
``don't watch that much TV.''
    Those who do not subscribe to cable or satellite watch, on average 
30% less television per week than cable and satellite subscribers. 
Nearly six of ten say television simply is not a high priority for 
them. Fewer than three in ten indicate that insufficient funds play a 
role in their decisions not to subscribe to cable or satellite 
television.
    Some opponents of a hard deadline raise concern about the 
unconnected analog TV sets in households that subscribe to satellite or 
cable TV, and claim that most of these sets are used with antennas for 
watching over the air analog signals. In fact, primary viewing most 
often occurs on the TV that is connected to pay services. More often, 
the unconnected TVs are shunted to a less used room and hooked up with 
a DVD, VCR, or video game. Indeed, our research shows these sets are 
used at least half the time for one of these many alternate uses. In 
addition, as many cable companies no longer have a monthly charge for 
additional outlets, this issue has become increasingly irrelevant for 
cable homes.
    In households utilizing an antenna, TVs connected to the antenna 
are often used for an activity other than watching broadcast 
television. In these households the TV connected to an antenna is used 
approximately 40 percent of the time for watching pre-recorded content, 
playing video games, and other non-broadcast uses.
    At the same time, we must acknowledge that some consumers may be 
adversely impacted by a hard date. That's why we respect and understand 
the interest of some members in creating a program whereby those 
viewers would have access to low cost digital to analog converters. In 
the past, our members have testified that, with economies of scale, 
converter prices will be in the fifty dollar range by the time of the 
proposed cut-off date. The only development that could interfere with 
this projection would be the imposition of state or national energy 
usage mandates on converters, which would adversely impact converter 
price and availability.
    By the time of a year-end 2008 cut-off--combining present adoption 
trends for cable and satellite and forecasts for uptake of recently 
announced TV services from telcos like Verizon and SBC, as well as the 
jump in purchases likely to occur with a hard cut off date--the number 
of American homes that would lose their primary video signal should be 
far less than 13%. The simple fact is that, while an analog 
broadcasting cut-off is important for our nation, it will have only 
small practical impact on the viewing habits of the vast majority of 
Americans, and we believe the types of education and public awareness 
steps included in the draft legislation can effectively address the 
needs of those who wish to rely only on broadcast television.

     CEA ENDORSES THE DISCUSSION DRAFT'S HARD DEADLINE, AND OFFERS 
        SUGGESTIONS TO BRING ABOUT A MORE EXPEDITIOUS TRANSITION

    In the United States, the transition to digital television has 
always been envisioned as having two purposes. The first was to bring 
the wonders of digital and especially high-definition TV to American 
consumers. The second was to capture the public interest and economic 
benefits of the return of the analog spectrum.
    We are now well on our way toward accomplishing the first objective 
and it is appropriate that we turn our attention to the second.
    CEA unequivocally endorses the Staff Draft's establishment of 
December 31 2008 for the recovery of the analog spectrum. The setting 
of a date certain will benefit consumers as spectrum is reallocated for 
purposes ranging from public safety communications to exciting new 
services such as wireless networking and Internet access.
    The Staff Draft also contains a number of other provisions intended 
to help hasten the digital transition. CEA offers a number of 
suggestions that will help this Committee craft legislation that will 
ensure the most expeditious, practical, and consumer friendly result.
    Specifically, we recommend the following:
    1. Tuner Mandate acceleration: The staff draft requires the FCC to 
move up the deadline for the inclusion of over the air tuners in 13 to 
24-inch sets from July 1 of 2007 to July 1 of 2006--a full year before 
the original deadline and nearly 2.5 years before the 2008 hard 
deadline.
    We are concerned that, if implemented, such a requirement would 
severely reduce the retail market for these sets.
    Manufacturers need a minimum of 18 to 24 months to plan, develop 
and deploy new equipment. An accelerated tuner mandate could force some 
manufacturers who determine that meeting the new regulations is not 
feasible (and fear inability to comply with the FCC's regulations) to 
move to tunerless sets or to stop manufacturing altogether the TV 
models which cannot be fitted with digital tuners--which many 
manufacturers are reluctant to do and which would defeat the purpose of 
the tuner mandate itself.
    Even if manufacturers were able to meet such a severely 
foreshortened production schedule, a July 2006 date could result in 
cost increases that the marketplace cannot sustain. Pushing up the 
tuner deadline for 13 to 26 inch sets to 2006 would double the 
development costs for manufacturers, as well as double the price of a 
typical 13 inch television to consumers. If the product is rejected by 
lower income and other consumers because the price exceeds their 
budget, it will not be carried by retailers and, eventually, not 
produced by manufacturers.
    The unfortunate result of accelerating the tuner mandate deadlines 
would be to decrease the number of DTV tuners in the marketplace, which 
clearly does not serve the transition. By contrast, the current and 
anticipated July 2007 date allows time for economies of scale to fully 
develop. This will lessen the ``sticker shock'' for consumers, allowing 
these products a chance to compete against less expensive, tuner-less 
alternatives. In sum, the current tuner mandate is working and should 
be left as is. Forcing the market could have unintended consequences 
for consumers, manufacturers, and the DTV transition.
    2. Digital Carriage and Non-Degradation: We appreciate that the 
Draft addresses the important issue of signal degradation, and ensuring 
that a digital signal is carried under all circumstances. It is 
fundamental that when cable operators are carrying broadcast signals 
digitally, they should not be allowed to reduce the sound or picture 
quality. American households--most of whom are cable customers--have 
invested more than $25 billion dollars in high-definition televisions. 
If a broadcaster is providing HDTV programming and Dolby Digital 
surround sound, then that is what HDTV owners who subscribe to cable 
should see and hear.
    3. Television Labeling: CEA fully supports educational labels on 
analog televisions when paired with the certainty of a hard date. 
However, manufacturers will need a minimum 120 days to include the 
labels or label text on the outside of the product packaging and on or 
near the television itself. In order to prevent screen damage upon 
removal by a consumer or retailer, consideration should be given 
regarding the necessity of placing the label ``on the screen'' so long 
as it is attached to the product as shipped.
    CEA urges that any label language should be concise or consumers 
may not read or understand it. CEA and CERC recommend the following 
language:
          ``This TV has only an `analog' broadcast tuner so will 
        require a converter box after [date] to receive over-the-air 
        broadcasts with an antenna, because of the transition to 
        digital broadcasting on that date. (It should continue to work 
        as before with cable and satellite TV systems, gaming consoles, 
        VCRs, DVD players, and similar products.)
    4. Channel allotments: CEA supports the Draft's proposed timetable 
of December 31 2006 as the final date for the FCC to issue final 
broadcaster channel allotments, and an additional seven months to 
conclude any reconsideration of such allotments. We urge the Committee 
not to extend the reconsideration period beyond seven months, as this 
could cause the final end date for analog broadcasting to slip to 2010.
    5. Broadcaster Disclosures: In light of our own aggressive consumer 
education efforts, CEA has been disappointed with the paltry level of 
DTV consumer education offered by the broadcasters to date, especially 
the almost complete lack of broadcaster-sponsored public service 
announcements (PSAs). We commend the Committee for addressing this 
issue, and we urge that the legislation require increased broadcaster 
consumer education activities. Specifically, the Committee should 
consider starting the required announcements at least one year before 
analog shut-off, and increasing the number of ads from two per day--at 
least in months closest to the analog shut-off--and imposing separate 
educational requirements on networks as well as local broadcasters. 
This makes sense because broadcasters are the ones with the vested 
interest in transitioning the remaining over-the-air viewers to 
digital. Broadcastering is a powerful and effective communications 
medium, and it is essential that the broadcasters themselves step up 
and do their part to educate the nation about the transition to digital 
television.

                               CONCLUSION

    Setting a realistic date certain for the end of analog broadcasting 
and the recovery of the analog spectrum for new purposes is the right 
thing to do. It is right for consumers, it is right for innovation, and 
it is right for America's national security. A hard deadline will help 
foster the creation of new, high-skill jobs, and it will promote 
America's technology leadership in an increasingly competitive world.
    We commend the staff draft as a critical step towards bringing the 
broadcast DTV transition to a successful and timely conclusion. 
Meanwhile we will continue our efforts to educate consumers about 
digital television. I pledge CEA's continuing commitment to working 
with this committee and other stakeholders to ensure the most timely 
and consumer friendly transition, and a prompt return of the analog 
broadcast spectrum.

    Mr. Upton. Thank you. Mr. Yager.

                   STATEMENT OF K. JAMES YAGER

    Mr. Yager. Thank you, Mr. Chairman, Mr. Markey, members of 
the subcommittee. I am Jim Yager, Chief Executive Officer of 
Barrington Broadcasting, which owns and operates four 
television stations in Michigan, Illinois, and Missouri.
    Today, there are nearly 1,500 local television stations on 
air in digital. Let me be very clear. All broadcasters, large 
and small, network, non-network, want to see the DTV transition 
brought to a successful conclusion. As an industry, we have 
consistently said that this transition is, first and foremost, 
about consumers, your constituents, our viewers.
    Many good things can be said about the Staff Draft in this 
regard. For instance, labeling as soon to be obsolete the 20 
million analog-only sets that manufacturers plan to sell this 
year is the right thing to do for consumers. Accelerating the 
FCC tuner integration deadline is a good thing, again, for 
consumers. Whether discussing the benefits of DTV, talking 
about cable carriage, or discussing over-the-air TV sets, the 
central piece of the equation must always come back to the 
consumer.
    In that vein, let me recommend a few modifications to the 
Staff Draft that would better protect consumer interests. First 
and foremost, protecting over the air viewers must be a 
priority. The GAO has said that there are 21 million households 
in this country that rely exclusively upon over-the-air 
reception. That is more homes than are located in the states of 
Texas, Michigan, Massachusetts, Mississippi, Nebraska, New 
Mexico, Oregon, Tennessee, and Wyoming combined. Under the 
draft's hard date, viewers will either lose their television 
service or have to pay for converter boxes, or even worse, 
subscribe to pay TV, all just to keep something they currently 
get for free. Many of these viewers are among society's most 
economically vulnerable demographics. Low-income senior 
citizens are disproportionately dependent upon off-the-air 
reception. African-American households are 22 more likely to 
rely exclusively on over-the-air reception; 43 percent of 
Spanish language only households rely solely on over-the-air 
television. Moreover, when you count the second and third sets 
in the bedrooms and kitchens of cable and satellite homes, 
there are 73 million sets in this country that risk being 
rendered obsolete by a premature hard date.
    Some of this committee have recognized that turning off 
these TV sets will create a firestorm of consumer outrage, and 
I agree. But even setting aside the political considerations, 
all of us here share an obligation to protect over-the-air 
television viewers. Local television broadcasters are ready to 
work with you to achieve that goal. Consumer interests should 
also drive the cable carriage discussion. Broadcasters commend 
the draft's authors for trying to tackle down conversion. The 
draft will allow cable subscribers with digital sets to enjoy 
the benefits of DTV. That is good for consumers. Allowing the 
cable systems to down-convert, as long as they also carry 
digital signals, will mean that subscribers with analog-only 
sets won't be cutoff, and that is also good for consumers.
    Under the current language, all must-carry stations in the 
market would be treated the same in terms of down conversion, 
and that is good for consumers, but the draft leaves room for a 
scenario in which paid TV services could essentially withhold 
smaller stations, religious stations, Spanish language only 
stations, from consumers who have not yet purchased DTV 
equipment. We see great promise in this section of the draft. 
However, it does require modest modification, so that all 
stations in America, large and small, are treated equally with 
regard to down conversion.
    Finally, let me touch briefly on multicast cable carriage. 
Today, 540 local television stations are using DTV to multicast 
and better serve the communities with enhanced programming 
options. These free services are the beginning of a whole 
series of new offerings that will evolve to the benefit of 
consumers, but only if cable does not withhold them. Should 
cable operators block consumers from receiving this 
programming, it will be difficult for stations to justify the 
risks and costs of developing these services, and the 
potentials of multicasting will not be realized.
    This is not a capacity issue. Cable carriage of these 
stations would occupy no more capacity than carrying a single 
high definition digital channel. Under the laws of physics, 
after all, 6 megahertz is 6 megahertz is 6 megahertz. The 
committee must protect consumers by adopting a strong multicast 
must-carry rule.
    Mr. Chairman, let me close by the draft is a good starting 
point. As the committee moves forward, local broadcasters are 
ready to work with you to develop the DTV policy that ends the 
transition, that clears the analog spectrum, that protects the 
interests of over-the-air television viewers, and ultimately 
enhances television for all consumers.
    Thank you.
    [The prepared statement of K. James Yager follows:]

  Prepared Statement of K. James Yager, CEO, Barrington Broadcasting 
     Company on behalf of the National Association of Broadcasters

    Thank you, Mr. Chairman, for the opportunity to appear today before 
the Subcommittee to discuss the staff draft of a bill aimed at 
advancing the digital television transition, while helping consumers to 
continue to use their analog televisions. My name is K. James Yager. I 
am CEO of Barrington Broadcasting Company. I appear before you today on 
behalf of the National Association of Broadcasters,
    First of all, I must say that I could not agree more with the 
purpose of the bill. Advancing the DTV transition while preserving 
television reception for consumers, particularly those reliant on free-
over-the-air television for news, entertainment, local information and 
critical emergency warnings, has long been the goal of Congress, and of 
us all. Crafting a plan that also helps consumers to continue to use 
their analog televisions until they are ready to join the full digital 
television experience by purchasing a digital set will respond to 
consumer needs and expectations in a forward thinking way. I support 
your efforts in this regard.
    It is, after all, the consumer for whom the DTV transition was 
launched. The American consumer, long the beneficiary of the finest 
television service in the world--in fact the ``envy of the world,'' 
must continue to receive the best television today's technology can 
provide. The American consumer deserves the best technical picture 
quality achievable, the greatest array of programming and information 
choices, the most varied supplemental services and the surest emergency 
warning capability. The DTV transition, long underway, will provide 
this to America's populace--and for free. Consumers deserve and will 
demand nothing less.
    Consumers deserve and will demand as well that their television 
reception not be interrupted in the midst of this transition to the 
amazing world of digital television. Which is why a DTV transition bill 
must contain provisions for continued use of both analog and digital 
receivers by the vast majority of consumers while they make the 
transition and buy new sets. Thus, the staff draft wisely includes 
provisions for cable subscribers, the largest segment of the viewing 
audience, to continue to use their analog sets after analog 
broadcasting ceases but at the same time have ready access to the 
digital version available to their cable-subscribing neighbors who have 
purchased HDTV receivers.
    We are confident that, as the Subcommittee works on the draft bill, 
it will also work to help free over-the-air consumers continue to watch 
their analog televisions while they taste true digital television and 
make their plans to join the digital television revolution. In this 
regard, it is essential that Congress have a plan to ensure that all 
households can get television reception. This plan is necessary to meet 
consumers expectations and prevent widespread outcry. Consumers expect 
their televisions to work, and they will continue to expect--and 
demand--this, until they are given advance and clear information to the 
contrary. The staff draft already includes provisions to give advance 
warning to the public. Without sufficient warnings, the public will 
rebel and will blame all in sight for newly or recently purchased sets 
going dark. If, on the other hand, consumers are given lead time, 
adequate explanation and clear consumer information about new 
digitally-capable sets as well as help equipping OTA-only households, 
they will embrace the digital television future with enthusiasm and 
excitement rather than with dismay and outrage.
    Broadcasters are ready to serve the public with brand new digital 
facilities and beefed up digital signals, high definition and high 
quality digital versions of their favorite shows, specials and sporting 
events including current and coming plans for multicasts like Final 
Four basketball and zoned newscasts. We are designing new news sets, 
purchasing digital cameras and seeking to exploit digital capabilities 
at every turn. Cable too has readied their digital plants, expanded 
capacity far beyond expectations and planned for advanced digital 
services. Set manufacturers have deployed increasingly cost-effective 
digital sets and sets at various size and price points with glorious 
high definition picture capability. They are adding digital tuning 
capability to analog sets, extending those ``second tier'' sets' lives 
beyond the analog turn off and providing popular ``cable ready'' 
versions of digital sets.
    The FCC has adopted measures designed to advance consumer take-up 
of digital sets, such as mandatory broadcaster build-out deadlines, 
jaw-boned voluntary measures for broadcasters, programmers, cable and 
manufacturers, encouraged and approved cable/DTV inter-operability 
specifications (including tuners in ``cable ready'' sets) and the all-
important tuner mandate. (That measure alone, once it is fully in 
place, will speed consumer penetration of digital reception capability 
in the course of normal replacement of televisions and do it in short 
order.)
    Now, this Subcommittee has taken the reins and is moving boldly to 
advance the digital television transition, encouraging consumers to 
cross the digital finish line while preserving use of the majority of 
analog sets for a reasonable period and setting a deadline and measures 
that will provide consumers with warning, information and education. 
NAB applauds your efforts to grapple with critical consumer issues, 
speed up the digital television transition and recover spectrum for 
national security and public safety use.
    We believe and hope that the Subcommittee, as it continues to work 
on the staff draft will keep consumers at the forefront and meet all 
the goals set out for the digital transition by Congress in 1997.
    Congress sought to achieve three overarching goals in the DTV 
transition:

(1) Bring the benefits of digital technology with its potential for 
        more programming options and advanced services to consumers;
(2) Avoid the loss of free television to large numbers of consumers 
        stranded with analog-only receivers; and
(3) Reclaim channels 52-69 to be reallocated for other 
        purposes.1
---------------------------------------------------------------------------
    \1\  47 U.S.C.  309(j)(14)(B).
---------------------------------------------------------------------------
    The staff draft now before you would achieve Congress' goal of 
reclaiming spectrum for re-use. It would help advance the digital 
transition, and hence help advance goal number one, by providing for 
cable carriage of digital broadcast signals, as broadcast and without 
material degradation, to entice the largest segment of the public to 
buy digital sets and by requiring advance warning and consumer 
education and information, which should incent consumers to buy digital 
sets. And it would begin to address goal number two by advancing the 
all-important Tuner mandate so that all televisions 13'' and larger 
sold after July 2006 will receive digital signals and thus many OTA-
only consumers will sooner have free, digital reception by normal 
replacement of television receivers and not be stranded by the analog 
cut-off.
    As it is worked on by the Subcommittee the staff draft bill can and 
should make clear that cable carriage of broadcasters' digital 
``primary video'' service includes the free multicast programming 
services that would advance Congress' goal number one of bringing the 
benefits of digital technology with its potential for more programming 
options and advanced services to consumers.
    And of course yet to be added to the staff draft is the missing 
critical piece necessary for the accomplishment of Congress' goal 
number two, namely enabling OTA consumers (over 20 million households) 
to continue to watch their analog televisions after the analog cut-off 
until they have purchased DTV sets. This critical piece of the puzzle 
that Congress has already identified (avoiding stranding OTA viewers) 
will necessarily involve a plan to make digital-to-analog converters 
accessible to OTA households without digital reception capability. As I 
have testified previously, many of those OTA viewers are not in a 
position to purchase new equipment--even a converter box. We must not 
disenfranchise those citizens.
    We do believe that the wise step of moving up the tuner mandate 
suggested in the draft will naturally equip many OTA households with 
digital reception. Other OTA consumers will have taken the plunge on 
their own and bought a HDTV or digital receiver, particularly after the 
consumer education and warnings the bill will require. But for a 
majority of OTA households, Congress must devise a solution to avoid 
loss of television service and its emergency warnings to millions of 
OTA households. This, the OTA viewing public will demand, and deserve. 
We expect the Subcommittee will be able to fashion a converter plan 
that will meet the basic needs and expectations of consumers, including 
those less well off financially, in the 20 million OTA-only households 
that they will continue to receive television service without 
subscribing to a pay television service.
    NAB believes that the draft bill can provide a useful framework for 
advancing the digital television transition, avoiding stranding OTA 
households, reclaiming spectrum for re-use and meet consumers' 
expectations that their existing televisions will continue working for 
a reasonable time.
    Before turning to each of the provisions of the draft bill in turn 
for more specific comment, I would like to describe for the 
Subcommittee the progress broadcasters have made in the DTV transition 
to date. After addressing the draft bill's specifics, I will lay out 
for the Subcommittee the challenge it faces as it seeks to grapple with 
the OTA households/digital-to-analog converter issues, as well as some 
comments about the converters consumers need.
       broadcasters are ready for the end game of the transition
    Even without the final pieces of the puzzle in place, evidence of 
the remarkable progress made so far can be found everywhere, due in no 
small measure to broadcasters' commitment and actions. Our industry has 
spent enormous sums of money and undertaken extraordinary steps to 
implement the transition, and I am pleased to report that these efforts 
are paying off. Broadcasters have built--and are on air with--DTV 
facilities in 211 markets that include 99.69% of all U.S. TV 
households.2 At this point in the transition, over four-
fifths--84.2%--of U.S. television households have access to at least 
six free, over-the-air digital television signals, per NAB database 
figures. According to the FCC, nationwide, at least 1497 television 
stations in 211 markets are delivering free, over-the-air digital 
signals today.3 Currently, more than 92 million households 
receive six or more DTV signals; 71 million households receive nine or 
more DTV signals; and a full 30 million households receive 12 or more 
DTV signals, per NAB database figures. More and more digital stations 
are overcoming their unique obstacles and going on air almost daily. 
The digital transition is working and moving ahead quickly, and any 
claims to the contrary are simply untrue.
---------------------------------------------------------------------------
    \2\ National Association of Broadcasters, DTV Stations in 
Operation, http://www.nab.org/Newsroom/issues/digitaltv/DTVStations.asp 
(as of May 25, 2005).
    \3\ See www.fcc.gov/mb/video/dtvstatus.html (``Commission 
statistics'').
---------------------------------------------------------------------------
    In the top ten markets, covering 30% of U.S. households, all top 
four network affiliates are on-air with digital signals,4 
and in markets 11-30 (24% of U.S. households), all 79 top four 
affiliated stations are on-air. Thus, all ABC, CBS, Fox, and NBC 
affiliates in the top 30 markets, representing 53.5% of all U.S. 
households, are on air with DTV. Even smaller stations in these markets 
and stations in smaller markets are making terrific progress, with at 
least 1378 out of a total 1603 stations currently on air in 
digital,5 despite the far fewer resources of these stations. 
In fact, many firms have been forced to mortgage their stations to 
afford the equipment needed to implement the transition, and without 
any immediate prospect of revenues to offset these huge investments.
---------------------------------------------------------------------------
    \4\ This includes 38 with licensed full-power digital facilities 
and two New York City stations with Special Temporary Authority 
(``STA'') currently covering a significant chunk of their service areas 
and with plans to expand even more.
    \5\ See Commission statistics.
---------------------------------------------------------------------------
    On the programming side, both networks and local stations are 
providing an extraordinary amount of high-quality DTV and HDTV 
programming, as well as a growing number of valuable multicast 
channels, to entice viewers to join the digital television transition 
and purchase DTV sets. For example, the four top networks currently 
offer virtually all their prime time programming in HDTV, along with 
high-profile specials and sporting events like the Academy Awards and 
the Grammy's, the Masters, and playoff games in all the major 
professional sports leagues. The WB network also is offering ten or 
more prime time programs in HD. And this continues to grow.
    Local stations are also doing more all the time to supplement the 
network HDTV and multicast fare, despite the enormous cost for full 
local HD production facilities. Examples of local HDTV programming 
abound. Stations that have begun to produce and broadcast their daily 
local newscasts in HD include WRAL-TV (Raleigh, NC), KOMO-TV (Seattle, 
WA), KUSA-TV (Denver, CO), WUSA-TV (Washington, D.C.), and WJW-TV 
(Cleveland, OH). HD broadcasts of local special events are numerous, 
like KTLA's (Los Angeles, CA) broadcast of the Rose Parade in a 
commercial-free HD broadcast that was simulcast in Spanish and closed 
captioned and distributed on many Tribune and other stations. Raycon 
Media this summer will roll-out a new 24-hour TV music video channel on 
30 of its stations, which includes coverage of local music artists and 
local concerts. NBC Universal has signed up enough affiliates for its 
Weather Plus digital channel to reach 60% of the U.S. Gray Television 
and UPN are partnering to expand DTV program options.
    All of these developments demonstrate that broadcasters are more 
anxious than anyone to get the transition over and done with. 
Broadcasters have no interest in shouldering the enormous costs of 
operating dual facilities any longer than absolutely necessary to avoid 
disruption to consumers. Building a second transmitter, and then 
maintaining and powering two transmitters for any period of time is 
extremely expensive, especially since there will be no opportunity to 
recover much of these costs. Similarly, any need to repair or replace 
analog equipment now is little more than wasted resources. Indeed, by 
the time the transition is over, broadcasters will spend between $10 
and $16 billion to fully convert to digital, and we simply cannot 
afford to strand this investment, or accept any further delays in our 
ability to provide new digital services to recoup at least some of this 
investment.
               staff draft--section by section discussion
Sec. 3 Analog Spectrum Recovery: Hard Deadline
    The 85 percent DTV penetration test contained in Congress' 1997 
Balanced Budget Act, which would be replaced with a hard deadline in 
the draft bill, was devised to protect the vast majority of consumers 
from an early end to the DTV transition and the need to replace 
hundreds of millions of televisions overnight. It would allow consumers 
to trade-out their analog sets and upgrade to digital sets over time, 
and in the normal course of replacing televisions. With the hard 
deadline in the staff draft, consumers will face the prospect of 
replacing at least their main television sooner than they may have 
expected.
    We believe, however, that other provisions of the draft bill, 
namely advancing the Tuner mandate and permitting cable downconversion 
of digital broadcast signals to analog for cable subscribers (who would 
still receive digital broadcast signals as broadcast), ameliorate much 
of this concern. We expect that there will be further discussion within 
the Subcommittee as to whether the specific date in the staff draft is 
the optimal hard cut-off deadline. And, of course, the major unresolved 
issue is provision in the bill for OTA households to continue to 
receive television service after the analog cut-off.
    One of Congress' objectives when it authorized the transition to 
digital beginning in 1996 was to strengthen the over-the-air 
broadcasting system. A premature end to analog broadcasting before 
consumers are ready may have the opposite effect of reducing the 
audience of local stations and thus reducing their ability to provide 
attractive programming and local public service. If consumers are 
driven to cable and satellite programming, that would increase those 
monopoly providers' power and frustrate Congress' goal of improving 
local broadcasting. This then, continued preservation of free local 
broadcasting, is another reason that the Subcommittee should make 
provision for converters for OTA-only households without digital 
reception capability, including some solution for the less well-off.
    The provision of Sec. 3 of the staff draft that directs the FCC to 
make final DTV channel assignments within the core by December 2006 and 
conclude any reconsideration of these assignments by July 31, 2007 
appears reasonable, given the FCC's current DTV channel assignment 
plan, and necessary to stations' ability to construct and move to new 
digital facilities before the analog cut-off. There may however be 
appeals of final channel assignments that would complicate completing 
final construction for some stations and consumers. This is all the 
more reason for the Commission to continue its diligent work to 
accommodate the channel changes needed by many stations.
    We are pleased to see in Sec. 3 of the draft bill six month 
``status reports'' by the Commission on progress in completing Canadian 
and Mexican coordination of outstanding DTV channel assignments. This 
coordination, of course, is necessary for all stations to complete DTV 
facilities construction and be on-air before analog broadcasting is to 
cease.
    NAB notes that, once the channel repacking plan is complete, the 
FCC must turn to the issue of channels within the core and licenses for 
digital translators. These ``repeaters'' of full power stations provide 
critical television service to thousands in rural and mountainous 
areas, which must be preserved in the digital switch-over. We urge the 
Subcommittee to consult with the FCC as to the most efficient way to 
protect translator service in light of this newly developing DTV 
transition plan.
Sec. 5. Consumer Education Regarding Analog Televisions
    NAB agrees that consumer education about the coming end of analog 
broadcasting and the need for converters and warnings on analog sets 
and in-store displays alerting consumers to the limited useful life of 
these sets is important for consumers and important to the transition. 
Promotion and education for consumers about DTV can encourage consumers 
to purchase DTVs, thereby reducing the number of households needing 
converters to continue receiving television service. NAB in fact urged 
provision of these measures in our February 2005 testimony to this 
Subcommittee. We agree that the Commission should undertake a 
substantial public outreach program for consumers, and that the various 
industry parties should participate in alerting consumers to the end of 
analog broadcasting.
    NAB supports the provision in Sec. 5 directing the FCC to preserve 
and expedite the all-important Tuner mandate schedule. This provision, 
once fully effectuated, will, on its own, result in sizeable numbers of 
households becoming digital capable, by dint of consumer replacement of 
analog televisions in the normal course. Extrapolating from the 
conclusions of an A.D. Little, Inc. report prepared for NAB and MSTV 
and submitted to the FCC on the cost of adding DTV reception capability 
to television sets and timeline scenarios for achieving 85% digital 
penetration,6 we estimate that the tuner mandate alone could 
result in reaching 85% digital penetration by 2009. This powerful 
provision can reduce the number of digitally-incapable households and 
thus the number of households needing converters.
---------------------------------------------------------------------------
    \6\ ``Assessment of the Impact of DTV on the Cost of Consumer 
Television Receivers,'' Final Report to MSTV and NAB, Arthur D. Little, 
Inc., September 10, 2001.
---------------------------------------------------------------------------
    NAB supports expediting the turner schedule as the staff draft 
does, but we suggest that a provision be added to similarly advance the 
``cable ready'' tuner schedule, which mirrors the tuner mandate.
Sec. 6 Digital-to-Analog Conversion and Tiering
    The draft bill provision permitting cable operators to downconvert 
digital broadcast signals to analog at the headend (or in subscribers' 
homes) for delivery to cable households with analog sets, coupled as it 
is with mandatory provision of the primary video of the digital signal 
to subscribers' homes, seeks to achieve the purposes of advancing the 
(true) DTV transition for cable consumers (enticing them to buy DTV 
sets), not obsoleting the tens of millions of analog sets connected to 
cable systems and providing digital broadcast service to cable 
subscribers with DTV sets. This provision addresses the fundamental 
flaw of the DTV transition plan previously discussed by the former 
Chief of the FCC's Media Bureau. The Media Bureau plan allowed only for 
downconversion and thus would have thwarted the many benefits that 
undegraded digital service would deliver to cable consumers. We urge 
the Subcommittee to carefully consider the language of the staff draft 
to ensure that it achieves the objective of ensuring carriage for all 
stations.
    This provision should also make clear that carriage of the digital 
``primary video'' includes all free broadcast programming, as the Cable 
Act must carry provision intended.7 Cable carriage of all 
multicast digital programming will accomplish for the 65% plus of 
consumers who are cable subscribers the goal number one of Congress for 
the DTV transition: bringing the benefits of digital technology with 
its potential for more programming options and advanced service to 
consumers. The opportunity for new universal free services was one of 
the key reasons that Congress authorized the DTV transition, and it is 
simple economics that the consumer appeal of the HDTV/multicast mix 
will help drive purchase of digital sets, to the benefit of the 
consumer. This tremendous consumer benefit, redounding as it will to 
the benefit and strengthening of the free over-the-air television 
service as the Cable Act intended, would come at scant cost to cable 
systems, with their vast complement of cable channel capacity.
---------------------------------------------------------------------------
    \7\ See NAB/MSTV/ALTV Petition for Reconsideration and 
Clarification, FCC CS Docket No. 98-120, filed April 25, 2001; Petition 
for Reconsideration of the National Association of Broadcasters and the 
Association for Maximum Service Television, Inc., FCC CS Docket No. 98-
120, filed April 21, 2005.
---------------------------------------------------------------------------
    Cable operators can no longer claim channel-locked capacity. The 
enormous growth in cable carrying capacity has been revealed by data 
submitted by the cable operators themselves, in response to a formal 
survey request by the Commission. NAB/MSTV/ALTV retained the Merrill 
Weiss Group to summarize and analyze this data.8 Some 
specific conclusions of the Weiss Report are:
---------------------------------------------------------------------------
    \8\ Merrill Weiss Group, Analysis of Cable Operator Responses to 
FCC Survey of Cable MSOs, Attachment A to the Reply Comments of NAB/
MSTV/ALTV, CS Docket No. 98-120 (filed Aug. 16, 2001)(``Weiss Study'').

 Overall bandwidth delivered to the average subscriber increases from 
        622 MHz to 752.2 MHz over the period from yearend 1999 to 
        yearend 2003.
 Subscribers receiving 750 MHz or greater total bandwidth service 
        increase from 56.1 to 86 percent over the period of the survey.
 Calculations show a capacity range of 261.8 to 295.7 total program 
        services to the average subscriber at yearend 2003, with 
        capacity continuing to increase as cable completes upgrades 
        currently underway.
 Calculations show a capacity range of 298.7 to 399.9 total program 
        services to the 86 percent of subscribers receiving 750 MHz or 
        more total bandwidth service at yearend 2003.
    Cable parties agree the problem is that innovative and diverse 
program offerings as well as new advanced non-video services would be 
squeezed out by DTV must carry. But as seen in the Weiss Report, in 
2003 the average cable subscriber will have delivered to it 725.2 MHz 
of bandwidth, with somewhere between 261.8 to 295.7 total program 
services, in addition to a full allocation of channels for non-video 
services.
    The Weiss Report also includes a chart utilizing the new cable data 
that shows that the relative burden of carrying both DTV and NTSC 
signals will be less than the initial must carry burden (13.42 percent 
for analog commercial stations in 1993 and 8.43 percent for both DTV 
and NTSC at yearend 2003).9 In addition to the explosion in 
cable capacity, this is also due to the fact that two digital broadcast 
television signals can be carried on one six MHz channel.10 
In short, cable cannot properly argue that capacity constraints 
preclude temporary inclusion of all broadcast signals.
---------------------------------------------------------------------------
    \9\ Weiss Study at 15.
    \10\ Id. at 12.
---------------------------------------------------------------------------
    The provision in this section of the draft bill that authorizes the 
FCC to sunset this ``carry-one-carry-all'' requirement after five 
years, depending on penetration of digital capability further limits 
the miniscule burden on cable operators. Moreover, this sunset feature 
of the provision limits the small burden on cable to achievement of the 
benefits of downconversion to consumers, to the transition and to the 
free local television service.
    This provision gives cable consumers the opportunity to trade out 
their analog sets and upgrade to DTV in a more normal course and thus 
avoids consumer frustration and outcry.
The Need for a Converter Solution for OTA Households
    NAB has recognized that, while the DTV transition was designed to 
afford consumers the opportunity to trade out their analog receivers 
for digital sets on their own timetable, the transition must come to a 
conclusion at some reasonable point. Nonetheless, we remain convinced 
that any transition plan must protect OTA consumers from the loss of 
television service and preserves local broadcast service for all cable 
subscribers. We also believe that consumers will demand a cost-
effective solution for analog OTA sets in all homes. We thus believe 
that the staff draft should include an accommodation for OTA only 
households and present a solution for analog OTA sets in general. The 
numbers of sets and consumers at issue here speak for themselves and 
for the expected public reaction if some real solutions are not 
included in the Subcommittee DTV plan.
    At the time of the conversion to all digital, consumers in 20.5 
million households that rely solely on over-the-air (``OTA'') broadcast 
television will lose all television service if they have not procured 
digital television-capable receivers or converters. This situation has 
the sure signs of significant disruption, and the Subcommittee is wise 
to begin to plan for that time, in order to minimize disruption.
    NAB believes that protecting consumer's access to their favorite 
television programming and channels, as well as to news, information 
and emergency alerts, will be critical to a successful conclusion to 
our digital television transition. We must not forget that there are 
millions of unwired television sets in cable and satellite homes as 
well. Approximately 18.3 million MVPD households have one or more 
television sets that rely solely on over-the-air television reception. 
There are today approximately 280.5 million analog sets in 
use.11 Consumers may not readily dispose of these sets, even 
if they have purchased a new digital television receiver.
---------------------------------------------------------------------------
    \11\ NAB appends hereto, as Attachment A, a series of charts 
constructed for the FCC's proceeding inquiring about options for 
minimizing the disruption to consumers when the switch-over to digital 
broadcasting occurs. See Public Notice, MB Docket No. 04-210, DA 04-
1497, May 27, 2004. In that proceeding, the FCC asked for quantitative 
data on viewers and receivers. See also Comments and Reply Comments of 
the National Association of Broadcasters and the Association for 
Maximum Service Television, Inc. in that docket. The estimates used in 
this testimony are from Attachment A.
---------------------------------------------------------------------------
    Congress must take the steps necessary to protect OTA sets from 
obsolescence. Clearly, the free, universal OTA broadcast service must 
be preserved and the 20.5 million households that rely on it must be 
protected against loss of television service.
    Many OTA households will likely have purchased DTV-capable 
receivers by the time analog broadcasting ends. But for the remaining 
OTA households (and for analog sets in all households), there must be a 
solution, or rather, a series of solutions. One measure already 
included in the draft bill is promotion and education about DTV, to 
encourage consumers to purchase DTVs. A near term measure, also 
included in the draft bill, is to require warning labels on analog-only 
sets, alerting consumers to the limited useful life of these sets.
    The needed key to avoiding disenfranchising large numbers of 
consumers and to mitigating the disruption for consumers with analog 
sets, will be making digital-to-analog converters widely available at a 
reasonable price. Without the widespread availability of low cost 
digital-to-analog down-converters, Congress risks disenfranchising 
millions of viewers and rendering useless the analog sets they rely on 
and, in many cases, just recently bought. Not only is the OTA analog 
set population enormous (73 million) and the number of OTA-only homes 
huge (20.3 million households), as I have previously testified, the 
importance of OTA service cannot be overstated in terms of the OTA 
viewing public's reliance on the free, over-the-air service for news 
and information and emergency alerts.
    To evaluate the stake the public has in this transition (and to 
assess the damage that various proposals affecting the digital 
transition may inflict on the public), Congress must take into account 
three components of the public interest served by over-the-air 
television. The first component is the 18.9 percent of viewers that 
rely solely on over-the-air service, whether because they cannot afford 
to subscribe to cable or DBS, because cable or DBS service is not 
available to them or does not provide local broadcast signals, or 
because they believe in the universal availability of free, over-the-
air broadcast service. The second component is the owners of the 28 
million of television sets in MVPD homes that are OTA-only analog sets. 
The third component consists of all viewers, because all viewers rely 
on over-the-air service in times of weather, terrorist or other 
emergencies when cable or satellite service may not be available and 
because broadcast television service provides an effective competitive 
check on cable and DBS services in terms of price, service, and 
diversity.
    Many of the 18.9 percent of U.S. households that receive television 
service solely over the air do so by choice, not because economics 
dictates it. For example, a survey conducted by the Consumer 
Electronics Association found that ``[l]ess than 30 percent [of 
households that have chosen not to subscribe to cable or DBS] indicate 
that insufficient funds play a role in their decision not to 
subscribe.'' 12 Many Spanish-speaking viewers choose not to 
subscribe to cable or DBS because these services offer primarily 
English-language programming.13
---------------------------------------------------------------------------
    \12\ Comments of the Consumer Electronics Association, FCC MB 
Docket No. 04-210, August 11, 2004 (``CEA'') at 4.
    \13\ Comments of Entravision Holdings, LLC, FCC MB Docket No. 04-
210, August 11, 2004, at 2.
---------------------------------------------------------------------------
    But there are also a large number of viewers who cannot afford pay 
television. Twelve percent of American households fall below the 
poverty line.14 They should not be forced by government 
policy into paying subscriber fees that only escalate over time and 
that they can't afford. They deserve as an option--the preferred and 
responsible option--a vibrant, over-the-air service that provides the 
benefits of new digital technologies.
---------------------------------------------------------------------------
    \14\ See Census Bureau says 1.3 million more slipped into poverty 
last year; health care coverage also drops, CNN Money (Aug. 26, 2004), 
available at http://money.cnn.com/2004/08/26/news/economy/
poverty_survey.
---------------------------------------------------------------------------
    Over-the-air viewers have important, well thought out and 
legitimate reasons for relying on over-the-air reception, e.g., they 
believe in the value of free, over-the-air television; they do not want 
to be locked into the ever-increasing costs of pay television service; 
they view primarily alternative-language programming; they have 
additional sets that are not hooked up to cable or satellite, among 
others. They feel well-served by the locally-oriented and public 
interest programming they receive over the air and do not see the need 
nor do they want to be pushed to ever more expensive pay television 
services. Because broadcast television is universally available and is 
the only service used by millions of Americans, Congress should ensure 
that these viewers are not shut out or marginalized, but continue to 
have the option to rely on over-the-air reception and still receive 
meaningful local broadcast service.
    To preserve this access and mitigate the disruption for consumers 
with analog sets, digital-to-analog converters must be widely available 
at a reasonable price. In this regard, it is important to keep in mind 
not only the cost of such converters, but the capabilities of those 
converters. At a minimum, digital converters should be capable of 
receiving all digital broadcast formats, both HD and SD, on any VHF or 
UHF broadcast channel, and provide connection to an existing analog TV 
receiver via a channel 3 (or 4) RF interface. Thus, in conjunction with 
any analog receiver, the digital converter box should be able to 
receive, render and display usable pictures and sound from high 
definition as well as standard definition broadcasts, but would not be 
required to render pictures and sound at more than standard definition 
quality.
    In order not to disenfranchise current OTA-only television viewers, 
digital converter boxes should be designed so as to maximize the 
likelihood that they will work with digital broadcast signals in the 
same receiving configuration (same antenna, location, etc.) as used for 
current analog NTSC reception. Thus, the digital converters should be 
able to receive and display signals under the most challenging 
receiving conditions, including low signal level, severe multipath and 
adjacent channel interference conditions. While marginal NTSC pictures 
are often comprehensible and accepted by TV viewers, the digital 
``cliff effect'' cleanly separates digital TV viewers into those with 
watchable pictures and those without pictures at all. Thus, because 
viewers with poor digital reception would be essentially eliminated as 
television viewers, allowing less than excellent RF receiver 
performance in digital converters may sacrifice much of the broadcast-
only viewing audience when analog transmissions cease.
    Current DTV converters are available from about $200 and up, 
although none are presently available with SD-only outputs. Like all 
other electronic components, the manufacturing cost of a digital 
converter box is closely related to the manufacturing volume. NAB and 
MSTV previously studied the cost of adding DTV capability to television 
receivers as well as the likely cost of set top boxes.15 The 
Arthur D. Little study noted that by the year 2006 digital converter 
boxes could be expected to sell at retail for under $200, with a 
manufacturing cost near $100, composed mostly of the fixed recurring 
costs of manufacturing (a physical box with a TV tuner, power supply, 
cabinet, remote control, switches, knobs, jacks, etc.) and only 
slightly impacted by the cost of the integrated circuits required to 
receive and process digital broadcasts.
---------------------------------------------------------------------------
    \15\ ``Assessment of the Impact of DTV on the Cost of Consumer 
Television Receivers,'' Final Report to MSTV and NAB, Arthur D. Little, 
Inc., September 10, 2001.
---------------------------------------------------------------------------
    Motorola's 2004 testimony before this Subcommittee 16 
that a digital converter box with a retail price of $67 is possible in 
2007 would indicate that further price reductions from large volume 
production are possible. Similarly, LG Electronics indicated in FCC 
filings last summer that the retail price of a simple digital-to-analog 
converter box could be under $100 by late 2005, assuming production 
volumes in the millions of units and that they believe that digital-
analog TV converter prices may be as low as $50 by 2008, assuming 
industry-wide demand of tens of millions of units by then.17
---------------------------------------------------------------------------
    \16\ ``Motorola Broadband CTO to Speak Before House Subcommittee on 
Telecommunications Regarding DTV Transition,'' Motorola press release, 
July 21, 2004.
    \17\ Comments of LG Electronics filed in FCC MB Docket, 04-210, 
August 11, 2004 at 3.
---------------------------------------------------------------------------
                               CONCLUSION

    NAB stands ready to work with the Subcommittee as it continues to 
refine the draft bill on the DTV transition that is the subject of this 
hearing. We believe that the DTV transition is progressing and the full 
effect of the tuner mandate coupled with the growing awareness of DTV's 
amazing improvement to television viewing will move the transition 
across the finish line in the next few years. But we appreciate the 
Subcommittee's desire to bring a certain end to the transition and its 
efforts to date to accomplish that goal. Our abiding belief in the 
necessity to preserve television service for OTA households without 
digital capability and the wisdom of devising a cost-effective solution 
for all OTA analog sets leads us to urge the Subcommittee to focus on 
this critical remaining piece for its plan to conclude the DTV 
transition.

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[GRAPHIC] [TIFF OMITTED] T1643.007

[GRAPHIC] [TIFF OMITTED] T1643.008

[GRAPHIC] [TIFF OMITTED] T1643.009

[GRAPHIC] [TIFF OMITTED] T1643.010

    Mr. Upton. Thank you. Mr. McSlarrow.

                 STATEMENT OF KYLE E. MCSLARROW

    Mr. McSlarrow. Thank you, Mr. Chairman, Congressman Markey, 
and members of the subcommittee. I am Kyle McSlarrow, President 
and CEO of the National Cable & Telecommunications Association.
    As our industry has explained in prior testimony, the cable 
industry has not taken a position on establishing a hard date 
by which the broadcasters must relinquish their analog 
spectrum. Nonetheless, we recognize the importance that you and 
other members of this committee place on making the spectrum 
available for public safety and homeland security purposes, as 
well as for new commercial uses.
    The cable industry is ready, willing, and able to work with 
you to achieve these important policy goals, and we applaud 
your leadership and hard work to make them happen. Accelerating 
the digital transition means that broadcasters will be 
transmitting in digital format, even though the vast majority 
of televisions still have analog tuners. NCTA estimates that 
just in the homes of cable subscribers, there are 134 million 
analog television sets, including digital subscribers who have 
one or more analog sets without a digital box. With such a 
large number of analog sets still in use, the cable industry's 
first priority is ensuring that our consumers suffer the least 
amount of disruption to their television service.
    We believe the cable industry can best assist the digital 
transition by guaranteeing that our customers can, on the first 
day of digital only broadcasts, continue to watch their 
favorite stations on their existing televisions without having 
to buy any new equipment or subscribe to any new service. 
Congress can accomplish this goal by giving cable operators the 
flexibility to down-convert digital must-carry signals to 
analog format at the head end, and to carry some of those down-
converted signals in lieu of the digital version. We recognize 
that this is not a perfect solution. Some customers with 
digital video equipment on the first day of the digital only 
era might not be able to watch some must-carry stations in 
digital format, but once a decision has been made to switch 
exclusively to digital signals, broadcast signals, at a time 
when most households are analog, there are no perfect 
solutions.
    We believe our proposal minimizes costs and inconvenience 
to consumers and allows you, as policymakers, not to have to 
worry about disrupting anyone who is a cable customer, and to 
do so at no cost to the government. Today, we offer analog to 
our analog customers, digital to our digital customers, 
increasingly the opportunity to watch a growing number of 
channels in high definition. In addition, many of our operators 
have already announced their own plans to simulcast many analog 
channels in digital.
    Consequently, what is true today will still be true the day 
after the transition, under our proposal. The bottom line, Mr. 
Chairman, is that cable customers would notice no change from 
the day before the transition to the day after, and in the 
meantime, increasing numbers of our subscribers will continue 
to switch to digital services, and many of them will become 
high definition subscribers.
    By contrast, Mr. Chairman, as you know, we don't think the 
staff discussion draft strikes the right balance, and in 
particular, we have major concerns that what is, in effect, a 
dual carriage mandate will harm the very consumers and 
customers that we all care about in this room, and we recognize 
that it is a discussion draft, and we appreciate the 
willingness that you and the other members of the committee 
have exhibited to work with us, and we look forward to working 
with you to make this bill even better.
    Thank you, Mr. Chairman.
    [The prepared statement of Kyle E. McSlarrow follows:]

Prepared Statement of Kyle McSlarrow, President and CEO, National Cable 
                    & Telecommunications Association

                              INTRODUCTION

    Mr. Chairman, Congressman Markey, members of the subcommittee, my 
name is Kyle McSlarrow. I am the President and CEO of the National 
Cable & Telecommunications Association and it is a privilege to appear 
before you today. NCTA is the principal trade association for the cable 
television industry in the United States. It represents cable operators 
serving more than 90 percent of the nation's 66 million cable 
television households and more than 200 cable program networks, as well 
as equipment suppliers and providers of ancillary services to the cable 
industry.
    I appreciate your invitation to testify today about the staff's 
draft bill to expedite the transition to digital broadcasting. As our 
industry has explained in prior testimony, the cable industry has not 
taken a position on establishing a ``hard date'' by which broadcasters 
must relinquish their analog spectrum. Nonetheless, we recognize the 
importance that you and other members of this committee place on making 
this spectrum available for public safety and homeland security 
purposes, as well as for new commercial uses. The cable industry is 
ready, willing, and able to work with you to achieve these important 
policy goals, and we applaud your leadership and hard work to make them 
happen.

                      OVERVIEW OF THE STAFF DRAFT

    Accelerating the digital transition means that broadcasters will be 
transmitting only in digital format even though the vast majority of 
televisions still have analog-only tuners. There are currently 110 
million television households in the United States, and the FCC 
estimates that at least 15 percent of them (17 million) rely 
exclusively on analog, over-the-air broadcast transmissions to get 
their TV.1 Moreover, NCTA estimates that--just in the homes 
of cable subscribers--there are 134 million analog television sets that 
are not equipped to receive digital transmissions or are not connected 
to a digital-to-analog set-top box (including digital subscribers who 
have one or more analog sets without a digital box).
---------------------------------------------------------------------------
    \1\ Eleventh Annual Report to Congress on the Status of Competition 
in the Market for the Delivery of Video Programming, FCC-05-13, 
released February 2, 2005.
---------------------------------------------------------------------------
    With such a large number of analog sets still in use, the cable 
industry's first priority is ensuring that our customers suffer the 
least amount of disruption to their television service. We believe the 
cable industry can best assist the digital transition by guaranteeing 
that our customers can--on the first day of digital-only broadcasts--
continue to watch their favorite stations on their existing televisions 
without having to buy any new equipment or subscribe to any new 
service. Congress can accomplish this goal by giving cable operators 
the flexibility to down-convert digital must carry signals to analog 
format at the headend and to carry some of those down-converted signals 
in lieu of the digital versions.
    We recognize this is not a perfect solution: some customers with 
digital video equipment on the first day of the digital-only era might 
not be able to watch a very few must carry stations in digital format--
as is the case today. But once a decision has been made to switch 
exclusively to digital broadcast signals at a time when most households 
are analog, there are no perfect solutions. We believe our proposal 
minimizes costs and inconvenience to consumers, and allows you as 
policy-makers not to have to worry about disrupting anyone who is a 
cable customer--and to do so at no cost to the government.
    What does this mean for cable customers? It means their viewing 
choices and preferences will not be disrupted. Today, we offer analog 
to our analog customers, analog and digital to our digital customers, 
and increasingly the opportunity for customers with high definition 
sets to watch a growing number of channels in high definition. In 
addition, many of our operators have already announced their own plans 
to simulcast analog channels in digital. Consequently, what is true 
today will still be true the day after the transition under our 
proposal. The bottom line, Mr. Chairman, is that cable customers will 
notice no change from the day before the transition to the day after. 
In the meantime, increasing numbers of our subscribers will continue to 
switch to digital services, and many of them will become high 
definition subscribers.
    The alternatives to our proposal are far less palatable.
    In particular, the staff draft that has been circulated for 
discussion today fails to strike an appropriate balance. Instead of 
allowing cable operators to carry down-converted analog signals in lieu 
of the digital signals transmitted by must carry broadcasters, the 
staff draft would require operators to carry every must carry 
broadcaster's digital signal in digital format. While the staff draft 
would allow cable operators to carry down-converted analog signals in 
addition to the digital signals, an operator who chose to carry one 
must carry broadcast station's down-converted signal would be required 
to carry the down-converted signals of all must carry broadcasters as 
well as all their digital signals.
    This provision would provide cable operators with two options, each 
of which is worse for consumers than the status quo and worse than the 
option of allowing carriage of down-converted signals in lieu of 
digital signals. Cable operators would have to choose between (1) 
carrying all must carry stations only in the digital format in which 
they are broadcast, or (2) ``dual carriage'' of all must carry stations 
in both digital and down-converted analog format.
    If cable operators were to carry must carry stations only in 
digital format, those stations would disappear from the viewable 
channel lineups of the majority of cable subscribers. Only those with 
digital sets or digital set-top boxes would be able to view the 
signals. Indeed, even the majority of customers who subscribe to 
digital tiers (and therefore have digital set-top boxes) would be 
unable to view the digital signals of must carry broadcasters if those 
broadcasters were broadcasting in high-definition, since the set-top 
boxes of most digital tier subscribers who do not have high definition 
television sets are not capable of converting high definition signals 
for viewing on analog sets.
    It is hard to imagine any reason for requiring operators to carry 
broadcasters' digital standard definition signals instead of down-
converted analog versions of those signals. Any difference in the 
picture quality between a standard definition digital signal and a 
down-converted analog version of that signal would surely be outweighed 
by the fact that only customers with digital sets and set-top boxes 
could view the digital signals. It is equally hard to imagine any 
reason for requiring operators to carry must carry broadcasters' high 
definition signals instead of down-converted versions of those signals, 
since an even smaller number of customers--only those with high 
definition sets and high definition set-top boxes--could watch the 
broadcasters' programming.
    Yet this last scenario--with the fewest number of consumers able to 
watch digital programming--is the likely outcome if the only other 
option for cable operators is to dual carry a broadcaster's signal in 
digital and down-converted analog format--or, even worse, to dual carry 
every broadcaster's signal as outlined in the staff draft. Dual 
carriage of every must carry broadcaster's high definition signal and 
its down-converted analog signal would impose an untenable burden on 
cable operators and programmers. By preempting an excessive amount of 
capacity on cable systems, it would interfere with the ability of cable 
operators to offer the broadest array of programming as well as new and 
innovative digital services to consumers. It would be especially unfair 
to non-broadcast program networks, which have no guarantee of carriage 
of their programming in analog or digital format--much less in both.
    Today, while broadcasters are still transmitting both analog and 
digital signals, cable operators may fulfill their must carry 
obligations by carrying a broadcaster's analog signal for viewing by 
all customers while also allowing operators to carry--in addition--
those digital signals that provide additional compelling benefits to 
customers with high definition sets or digital set-top boxes. This 
approach has provided broadcasters with incentives to offer compelling 
digital content in order to gain additional carriage of their digital 
signals. It has also enabled cable operators and program networks to 
deploy digital services that best meet the needs and interests of cable 
customers. Finally, it has ensured continued availability of a must 
carry broadcaster's primary video programming to the widest cable 
audience without requiring cable customers to purchase digital 
television sets or set-top boxes in order to view that primary video 
stream.
    If Congress decides that the analog spectrum needs to be returned 
before most television viewers are equipped to receive digital signals, 
it can ensure that these positive developments continue without 
disruption or significant costs--at least to cable customers, if not to 
over-the-air viewers. To do so, however, we urge you to revise the 
approach taken in the staff draft with respect to must carry and down-
conversion. Instead of permitting operators to carry down-converted 
signals in addition to mandated carriage of the digital signals 
transmitted by must carry broadcasters, one needs simply to permit 
carriage of down-converted signals in lieu of the digital signals, 
while giving operators the discretion to carry both the down-converted 
and digital versions of the signal.

      CABLE IS LEADING THE BROADER NATIONAL TRANSITION TO DIGITAL

    In the United States, the broadcasters' transition from analog to 
digital is only a small part of the larger digital transition that is 
occurring in every area of our nation's economy. Since 1996, when 
Congress enabled cable's investment in new technology and programming 
by substantially reducing regulation, cable operators have completely 
rebuilt their facilities.2 With an investment of more than 
$95 billion, operators have replaced coaxial cable with fiber and 
installed new digital equipment in homes and system headends, thus 
enabling the transmission of voice, video, and Internet services in 
digital format. As a result, cable customers are already enjoying a 
full complement of digital programming and advanced information 
services independently of the broadcasters' slower conversion to 
digital.
---------------------------------------------------------------------------
    \2\ In return for deregulation, the cable industry promised 
Congress and American consumers that it would provide: (1) facilities-
based competition to the telephone companies, and (2) a whole new 
generation of advanced information and video services--both of which we 
have done.
---------------------------------------------------------------------------
    For example, cable customers can purchase digital programming tiers 
that include a diverse array of video networks and commercial-free 
music channels. Digital customers also have access to video-on-demand 
programming, digital video recording, and electronic program guides. 
These features allow programs to be viewed at the customer's 
convenience and at a time of the customer's choosing. They also allow 
cable subscribers to block access to programming they do not want their 
children or households to see. All of cable's digital services can be 
enjoyed by consumers with analog sets who use digital set-top boxes 
that convert digital signals to analog. More innovative, interactive 
video services are on the way, in addition to the Internet and digital 
telephone services that are already attracting large numbers of 
customers.
    Cable customers with HDTV sets have even more options.3 
They can receive a wide selection of programming transmitted in high 
definition, including 18 HD cable networks that transmit much of their 
programming in high definition.4 In addition, cable 
operators are now voluntarily carrying the digital channels of a 
substantial number of over-the-air broadcast stations in addition to 
those stations' analog signals (either through retransmission consent 
agreements with individual commercial stations 5 or 
voluntary initiatives such as cable's recent carriage agreement with 
public television stations.6) Note that cable's contractual 
agreement with public television stations was reached through private 
negotiations--not federal legislation or FCC regulations.
---------------------------------------------------------------------------
    \3\ The cable industry is rapidly rolling out high definition 
programming. As of January 1, 2005, cable companies had launched high 
definition television service on systems passing 92 million homes. At 
least one cable operator in all of the top 100 markets now offers HDTV, 
and HD over cable is available in 184 of the 210 U.S. television 
markets.
    \4\ Cinemax HDTV, Comcast SportsNet HD, Discovery HD Theater, ESPN 
HD, ESPN2 HD, HBO HDTV, HDNet, HDNet Movies, INHD, INHD2, MSG Networks 
in HD, NBA TV, NFL HD, Showtime HD, STARZ! HD, The Movie Channel HD, 
TNT HD, and Universal HD.
    \5\ In 2002, the cable industry was the first to embrace FCC 
Chairman Powell's call for voluntary industry action to speed the 
digital television transition. As of January 1, 2005, cable operators 
voluntarily carried 504 digital broadcast signals--a 66 percent 
increase over the 304 stations carried in December 2003.
    \6\ On January 31, 2005, NCTA reached agreement with the 
Association of Public Television Stations (APTS) to ensure that the 
digital programming offered by local public TV stations is carried on 
cable systems serving the vast majority of cable subscribers across the 
nation. The boards of NCTA, APTS, and PBS ratified the agreement on 
February 4, 2005.
---------------------------------------------------------------------------
                 CABLE'S CARRIAGE OF BROADCAST SIGNALS

    The vast majority of cable customers have analog television sets, 
and most of those sets--as in over-the-air households--are not equipped 
with digital set-top boxes.7 Today, cable operators provide 
the analog signals of virtually all local television stations, which 
can be viewed by all customers--those with and without digital boxes, 
and those with and without digital television sets. In addition, 
operators also provide the digital signals of some, but not all, 
broadcast stations--in particular, those stations that provide 
compelling digital programming that is likely to enhance the value of 
cable service for the small but growing number of customers with high 
definition sets.
---------------------------------------------------------------------------
    \7\ There are approximately 172 million television sets in the 66 
million cable households across the country. 26 million cable homes 
subscribe to digital service, but not all digital households have 
digital boxes on all their TVs. This means that there are approximately 
28 million analog TVs in digital homes that will require boxes after 
the transition. If one adds these 28 million sets to the approximately 
106 million analog TVs in homes with only analog cable service (41 
million), there are a total of around 134 million analog TV sets in 
cable homes that will require digital boxes in order to get digital 
service. The cost of deploying 134 million set-top boxes is $9 billion 
for a simple $67 digital-to-analog box and $29 billion for a $200 
interactive digital cable box.
---------------------------------------------------------------------------
    Cable's current carriage practices are wholly consistent with what 
both the marketplace and the ``must carry'' rules dictate. Existing law 
requires cable operators to carry the analog signals of all ``must 
carry'' broadcast stations during the digital transition, while making 
carriage of the digital signals optional and subject to 
``retransmission consent'' agreements with broadcasters. The FCC has 
recognized that requiring ``dual carriage'' of the analog and digital 
signals of all must carry stations--regardless of whether the digital 
programming is valuable to the few cable households capable of viewing 
it on their sets--would do nothing to further the purposes of the must 
carry requirements or the digital transition while unduly burdening the 
First Amendment rights of cable operators and programmers.
    This sensible balance, which serves the interests of must carry 
broadcasters, cable operators, cable programmers, and cable customers, 
can be preserved even after broadcasters stop transmitting analog 
channels. To do so, Congress should allow cable operators to ``down-
convert'' the digital signals of must carry broadcasters to analog at 
the headend and provide the primary video programming stream of those 
down-converted signals to cable homes in lieu of the primary digital 
video stream. This will ensure that all cable households can receive 
the programming provided by those must carry broadcasters without 
having to purchase digital television sets or digital set-top boxes.
    Households with HDTV sets would, of course, continue to watch the 
increasing number of HD channels that exist now, but in some instances 
would watch a small number of must carry channels in analog even if the 
broadcaster were transmitting in high definition. I would note that 
cable operators could still choose to provide the digital signal in 
addition to the down-converted analog signal if the digital version 
were uniquely compelling and attractive to customers with digital and 
HDTV equipment.
    Current law requires cable operators to carry must carry signals 
without ``material degradation.'' The FCC has interpreted this to mean 
that--after the transition when broadcasters are transmitting only a 
digital signal--``a broadcast signal delivered in HDTV must be carried 
in HDTV.'' 8 This ``no material degradation'' requirement 
makes sense if--as is the case under current law--the transition to 
digital-only broadcasting does not occur until most households are 
equipped to receive digital signals on their television sets. If 
Congress is going to impose a ``hard date'' that occurs before most 
consumers have digital sets or set-top boxes, however, then it should 
also permit carriage of down-converted must carry signals in lieu of 
the digital signals in order to ensure a seamless transition for 
consumers.
---------------------------------------------------------------------------
    \8\ In re Carriage of Digital Television Broadcast Signals, First 
Report and Order and Further Notice of Proposed Rulemaking, 16 FCC Rcd. 
2598, 2629 (2001) (emphasis added).
---------------------------------------------------------------------------
                               CONCLUSION

    Mr. Chairman, there is much to commend in the staff draft, and 
there is obviously much more that needs to be done with regard to the 
issue of providing converters for analog TV sets after the transition. 
We are grateful for the opportunities we have had to discuss these 
issues with you, and we want to continue working with you and other 
members of this committee on our shared goal of ensuring that the 
maximum number of consumers continue to have access to the same digital 
programming after the transition that they currently enjoy during the 
transition.
    I would be pleased to answer any questions you might have.

    Mr. Upton. Mr. Abud.

                    STATEMENT OF MANUEL ABUD

    Mr. Abud. Mr. Chairman, Congressman Markey, and members of 
the subcommittee. My name is Manuel Abud, and I am the Vice 
President and General Manager of KVEA, Channel 52, Telemundo's 
station in Los Angeles. And I thank you for the opportunity to 
testify today on behalf of Telemundo regarding the Digital 
Television Transition Act of 2005 Staff Draft.
    My appearance before you today is not simply as a Telemundo 
executive or as a broadcaster. I am also testifying in my 
capacity as a member of the Hispanic community. My community is 
dependent on Spanish language over-the-air broadcasting as 
their primary source of news and local information. My station 
alone does 19.5 hours per week of local Spanish language news 
to serve our viewers.
    Forty-three percent of Spanish-speaking households watch 
over-the-air television exclusively. Moreover, digital 
television technology has failed to make significant inroads 
into the Hispanic community. If Congress produces DTV 
legislation that fails to extend the benefits of DTV to all 
consumers, Spanish language television viewers will be 
disproportionately harmed.
    The Staff Draft attempts to strike an important balance 
between the need to bring the digital television transition to 
a close while protecting the overwhelming majority of consumers 
who still only have analog television sets. Telemundo supports 
a hard date for ending analog broadcasts. The December 31, 2008 
deadline in the Staff Draft is more realistic than earlier 
dates. We support the Staff Draft's receiver and retailer 
labeling requirements, as well as the requirements that cable 
operators must carry broadcast stations on their basic tier of 
service after analog broadcasting ceases.
    Unfortunately, there are several critical omissions from 
the Staff Draft. I urge this committee to address these 
omissions before the bill is formally introduced.
    First, the Staff Draft fails to require cable operators to 
carry multicast programming services from Spanish language 
broadcasters. Failure to include multicast carriage denies 
important benefits of DTV for the viewer, such as unprecedented 
amounts of new and innovative locally originated or community-
oriented programming, as well as increased local news and 
political coverage, weather reporting, and critical public 
safety information. Failure to require multicast must-carry 
will hinder the development of new programming choices 
available to over-the-air and cable consumers alike, and 
inhibit broadcasters' ability to hold down cable rates by 
offering competitive programming alternatives to cable.
    Without having assurances that the Spanish language 
audience will have access to multicast programming channels, we 
cannot create business models with which to fund this 
initiative.
    Second, the Staff Draft fails to include transition 
assistance to consumers exclusively relying on over-the-air 
broadcasts, who will need to acquire a digital-to-analog 
converter box when analog broadcast ceases. Television is a 
lifeline for many Americans. We cannot permit television 
screens to go black in the homes of poor people or older 
Americans who are most dependent on broadcast television.
    Finally, the Staff Draft's down-conversion provisions 
threaten to eliminate access to Spanish language broadcast 
signals for analog cable subscribers. Under the Draft, a cable 
operator would be permitted to discriminate in favor of major 
broadcast stations in choosing to provide an analog feed. 
Nearly all Telemundo stations are must-carry stations. This 
makes us unacceptably vulnerable to being shut off from our 
analog cable viewers, unless cable operators decide to give all 
analog cable subscribers a set-top box. Don't bet on that. To 
correct this problem, the Staff Draft should be modified to 
require that if one digital broadcast signal is down-converted, 
all local digital broadcast signals should be down-converted.
    Cable industry leaders have repeatedly stated that they do 
not want to disrupt analog cable subscribers as the DTV 
conversion occurs. All we are saying here, to quote President 
Reagan, is ``Trust, but verify.'' I appreciate the opportunity 
to appear before you today and share with you concerns of 
Spanish speaking Americans who have much to gain but also much 
to lose in this transition.
    [The prepared statement of Manuel Abud follows:]

  Prepared Statement of Manuel Abud, Vice President, General Manager, 
              KVEA-TV, Channel 52, on Behalf of Telemundo

    Mr. Chairman, Congressman Markey, and Members of the Subcommittee, 
my name is Manuel Abud, and I am the Vice President and General Manager 
of KVEA-TV, Channel 52, Telemundo's station in Los Angeles, California. 
I thank you for the opportunity to testify today on behalf of Telemundo 
regarding the Digital Television Transition Act of 2005 Staff Draft.
    My appearance before you today is not simply as a Telemundo 
executive or even a broadcaster. I am also testifying in my capacity as 
a member of the Hispanic-American community, and as a Spanish language 
speaker. Many members of my community speak Spanish as their primary 
language, and are dependent on Spanish language over-the-air 
broadcasting as their primary source of news and local information. We 
are the ``go to'' source for news and information for the Spanish 
speaking community. The work of this Committee ultimately will 
determine to what extent Spanish language television viewers continue 
to have critical access to free over-the-air Spanish language 
television in the digital era.
    Households where Spanish is the primary language are far more 
likely to rely on over-the-air television than other households. 
Nationally, 43 percent of households where Spanish is the primary 
language spoken watch over-the-air television exclusively. At the same 
time, analysis of the consumer market reveals that digital television 
technology has failed to make significant inroads into the Hispanic 
community. Nielsen data indicates that the use of DTV receivers in 
Hispanic households nationally is the lowest among all consumer groups. 
As a result, if Congress fails to produce a final DTV transition plan 
that focuses on extending the benefits of DTV to all consumers, Spanish 
language television viewers will be subject to a disproportionate share 
of the resulting harm. In short, we really need the Congress to get the 
DTV transition right.
    In plain terms, getting it right means ensuring that Spanish-
speaking consumers have access to the revolutionary benefits that 
digital television offers, especially High Definition television 
programming and multicasting. It also means that our audiences are not 
disenfranchised, whether they rely on over-the-air broadcasting, cable, 
or satellite for their television. The disruption and cost accompanying 
the DTV transition must be kept to a minimum.

The Staff Draft
    Tested against these core principles, there is much to commend in 
the Staff Draft. There also is room for substantial improvement as the 
legislative process moves forward.
    The Staff Draft reflects a sincere effort to strike an important 
balance between the need to bring the digital television transition to 
a close while protecting the overwhelming majority of consumers who 
still only have analog television sets. Telemundo supports a hard cut-
off date for ending analog broadcasts. The December 31, 2008 date in 
the Staff Draft provides more time than previous public discussion 
suggested might be the case, which will help ease the burden of the 
transition on consumers. Similarly, the receiver and retailer labeling 
requirements included in the Staff Draft are critical for improving 
consumer education about digital television and DTV products, as well 
as publicizing the impending shut off of analog television. The Staff 
Draft requires cable operators to retransmit High Definition broadcast 
programming sent by a broadcast station electing must carry in the same 
format--High Definition--to its cable subscribers. Moreover, digital 
broadcast signals must be carried on the basic tier of cable service. 
Both provisions are good for consumers because they ensure receipt of 
one of the principal benefits of DTV technology--the glorious video and 
audio quality of High Definition--at basic cable rates.
    Unfortunately, there are several critical omissions from the Staff 
Draft that have the net effect of denying a principal benefit of 
digital television technology to Telemundo and its audience, your 
constituents, and also pose a serious threat of disenfranchising 
Spanish-speaking viewers across America. I urge this Committee to 
address these omissions before the final bill is introduced.
    First, the Staff Draft fails to require cable operators' carriage 
of Spanish language broadcasters' multicast programming services. 
Failure to include multicast carriage as part of digital must-carry 
will deny one of the most important benefits of DTV to Spanish language 
television viewers and will hinder the development of new programming 
choices available to over-the-air and cable consumers alike.
    Second, the bill fails to include transition assistance to 
consumers who only watch television over-the-air, and may ultimately 
lose access to all television in the absence of a subsidy to finance 
the cost of purchasing a digital-to-analog converter box. Television is 
a lifeline for many Americans. We cannot permit television screens to 
go black in the homes of poor people who are in many ways the most 
dependent on broadcast television.
    Finally, the bill's down-conversion provisions do not go far 
enough. If a cable operator chooses not to provide an analog feed of 
any must carry station's broadcast programming, a Spanish speaking 
analog cable subscriber likely will be left without access to Spanish 
language broadcast signals unless they make substantial expenditures 
for set-top boxes or new digital television receivers. Since the vast 
majority of Spanish-speaking cable subscribers own analog television 
sets, not digital receivers, they will be injured disproportionately.

Cable Carriage of Multicast Programming Is Essential
    Digital television enables broadcasters to offer four or more 
programming channels in place of their one analog channel. 
Multicasting, as this is known, enables broadcasters to offer a 
competitive alternative to cable programming that should help keep 
cable rates down. Multicasting also allows broadcasters to serve their 
local communities better than ever before by providing multiple streams 
of locally-produced or community-oriented programs, including but not 
limited to: ``hyper-local'' news, covering smaller parts of large 
metropolitan areas, programming that covers local political issues and 
candidates; newscasts that serve specific segments of the local market; 
local events, including school and amateur sports activities; and local 
weather, traffic, and emergency information.
    In this time of heightened alert against terrorism, local broadcast 
stations are the first providers of emergency news and information to 
the public concerning not only actual or potential terror threats to 
public safety, but also local emergency incidents such as chemical 
spills, dangerous storms, floods, escaped prisoners, and similar 
incidents of urgent import. Multicast channels permit the rapid 
dissemination of such information in much greater detail by enabling 
stations to target information for particular communities on particular 
streams.
    Beyond emergency or local information, the increasingly diverse 
character of American society makes the availability of Spanish 
language local television programming critically important in 
permitting Spanish language speaking residents to become better 
integrated into and function more effectively in the communities in 
which they reside. Multicasting increases the ability of broadcast 
stations to transmit Spanish language programming to Spanish speaking 
populations within their service area. Absent a meaningful must-carry 
requirement that includes multicast carriage, this digital dividend 
will be sacrificed.
    Telemundo and other broadcasters cannot avail themselves of the 
powerful benefits of multicasting in the marketplace absent cable 
carriage of multicast programming channels, which is not required by 
the Staff Draft. Broadcast television in any language is advertiser 
supported, and our ability to attract advertising dollars is directly 
tied to the number of viewers we have the opportunity to attract to our 
programming. The majority of all television viewers watch broadcast 
television via cable or satellite, and if those services do not carry 
multicast programming services the overwhelming majority of television 
viewers will not have the opportunity to see them.
    As a result, the fundamental basis upon which must-carry has been 
traditionally supported by Congress--the preservation of free over-the-
air television--is critical in the context of multicasting. Absent 
congressional support for multicast must-carry, Telemundo and other 
Spanish language broadcasters will have no economic model upon which to 
rely to offer Spanish language viewers new and innovative multicast 
programming services. As Congress is requiring millions of consumers to 
invest in new digital equipment in order to watch television, it will 
simultaneously be depriving them of one of the most important benefits 
they will receive for their purchases. Failure to include multicast 
must carry in a final DTV transition bill strikes at the core of the 
critical balance between reward and risk upon which the success of the 
DTV transition rests.

A Subsidy Is Needed for Consumers To Purchase Digital-to-Analog 
        Converters
    The Staff Draft is notable for not including a subsidy program for 
households relying exclusively on over-the-air broadcasting to support 
the purchase of digital-to-analog converter boxes. While Telemundo is 
not suggesting any particular concept, Telemundo does support the 
inclusion of a consumer assistance program in this legislation to 
ensure that households exclusively reliant on over-the-air broadcasting 
are not literally left in the dark once analog television is shut off. 
As I previously noted, failure to include a consumer assistance program 
in the bill will have a disproportionate impact on Spanish language 
households who are not currently purchasing DTV products and will be 
hit hardest on December 31, 2008. A subsidy program to defray the costs 
of a digital-to-analog converter box is a necessity in any mandated end 
to the digital television transition.

The ``Carry One, Carry All'' Downconversion Requirement Should Apply to 
        All Broadcast Signals, Not Just Those of Must Carry Stations
    Finally, the Staff Draft's attempt to prevent disenfranchisement of 
analog cable subscribers is a good start but needs to do more for cable 
consumers. Under the Staff Draft, if a cable operator voluntarily 
downconverts a must carry broadcast station's digital broadcast signal 
into analog format, it must provide an analog feed of all other must 
carry stations. The problem arises, however, if the cable operator 
chooses only to provide an analog feed of very strong broadcast 
stations which have elected retransmission consent rather than must 
carry. In that situation, the cable operator is under absolutely no 
obligation to provide an analog feed of any must carry stations. Nearly 
all Telemundo stations are carried pursuant to must carry. We are 
unacceptably vulnerable to losing our analog cable subscribers unless 
cable operators decide to give all analog cable subscribers a set top 
box. Don't bet on that. To correct this vulnerability of our analog 
cable viewers to disenfranchisement, the Staff Draft's ``carry one, 
carry all'' down-conversion requirement should be modified to be true 
to its term: if a cable operator downconverts any one broadcast signal 
to analog, regardless of whether that signal is carried pursuant to a 
retransmission consent agreement or must carry, it should be required 
to downconvert all other broadcast signals.
    Cable industry leaders have repeatedly stated that they do not want 
to disrupt analog cable subscribers as the DTV conversion occurs. All 
we are saying, to quote President Reagan, is: ``Trust, but verify.''
    I appreciate the opportunity to appear before you today, and share 
with you concerns of Spanish speaking Americans who have much to gain 
but also much to lose in the digital television transition. I stand 
ready to work with each Member of this Committee to ensure that final 
digital television transition legislation serves the interests of our 
Nation and of all television viewers.

    Mr. Upton. Thank you. Mr. McCollough.

                 STATEMENT OF W. ALAN MCCOLLOUGH

    Mr. McCollough. Chairman Upton, Ranking Member Markey, 
members of the committee, I do appreciate the opportunity to be 
here to testify today. Circuit City and the other members of 
the Consumer Electronics Retail Coalition applaud the efforts 
of this committee and the subcommittee to definitively and 
meaningfully drive the digital transition to conclusion.
    I begin my remarks with what I would consider three sort of 
basic retail truths. First, retailers can only prosper when we 
give customers products they want at prices they are willing to 
pay. Supply and demand continues to work in the market when 
left. Second, customers are smart people, and able to make 
intelligent decisions. We learn that day in and day out in our 
stores. And third, retailers make a lot more profit when a 
customer chooses higher priced, more fully featured product 
than when they buy entry level product, which is often sold at 
or near our acquisition cost.
    It has been suggested by some that there is some sort of a 
vast consumer electronics retail conspiracy out there to 
prevent customers from buying better sets, and to insist that 
they continue to buy low margin, inexpensive sets that will 
help us lose more money. Obviously, it is entirely in our 
interest to sell the best product that we can, and to make such 
an assertion, I am not sure how folks would do that with a 
straight face. But if you would take a minute, indulge me for a 
minute.
    Imagine what a sales transaction with full information 
would look like today, and I will use a customer who I will 
refer to, since there is none here, as a Mr. Jones, who has 
come in on an advertisement for a 13 inch TV, and we would say 
yes, Mr. Jones, you can choose between the 13 inch analog TV in 
our advertisement for $69 or you can get one which also has a 
digital over-the-air tuner for only $149. I must warn you, 
however, that if you choose the lower priced set, it may no 
longer be capable of receiving over-the-air signals at some 
point in the future, although at this point, we are not certain 
of when that point will be. What does happen--when that does 
happen, you will be able to a buy a converter box and continue 
to receive over-the-air signals, that is, unless you are one of 
the 85 percent who are receiving signals via cable or satellite 
already, and it doesn't matter to you in that case. Well, Mr. 
Jones says well, why am I--why is that happening? Why is this 
one going to be useless, and why am I going to have to pay 
twice as much for this other one. We will correctly say, 
because Congress has mandated that we--that the broadcasters 
change from analog to digital, and if you are the customer in 
that case, what do you think will happen? One of two letters 
will get written. They will write to me, and say you are 
baiting and switching. You were trying to sell me better 
product, and trying to disparage low end product. Or they will 
write to you, and want to know why you have doubled the cost of 
their television set.
    It was interesting in the earlier comments by the members, 
people are wondering about what happens when the transition 
date happens. What cards and letters will you get then? The 
transition date will start, the cards and letters will start 
coming the day you mandate digital tuners, and start doubling 
the price of entry level television sets. And the folks it will 
affect are the folks who can afford it least from the first 
day.
    So if you want to get the transition momentum going, and I 
think without having to drag customers kicking and screaming 
along the way, you have to start with a date by which the 
transition will be unequivocally 100 percent complete. We will 
do that, if you will set such a date, and it becomes law, that 
same day, I will make the call and start putting signs up in 
stores, start changing our Internet, doing everything we can to 
tell the customers when we know the day. Until that day, the 
transaction will look like the one I described, about some 
uncertain day in the future that we know not when it will be, 
and just further confuse the issue.
    I believe setting a hard date will result in a very 
substantial, though possibly short-lived market for converter 
boxes that receive a digital signal from an antenna, and 
deliver a standard analog broadcast-type signal to good old 
Channel 3 or Channel 4. Setting a hard date will indeed strand 
some customers who rely on analog broadcasting now, and we have 
no objection in principle to the government subsidizing the 
purchase of products that receive digital broadcasts, or even 
simply giving away converter boxes.
    In my written testimony, I discuss some of the potential 
difficulties and complications of any subsidy program, and the 
hard dates that you will have in trying to make this fair to 
everybody. All we ask is you avoid solutions that work on paper 
but don't get the real world test.
    One level in the Staff Draft that we believe is more of a 
paper solution than a real one is the tuner mandate. That 
requires phase-in of--a phase-in requirement where every TV 
with an analog broadcast tuner also has to have a digital 
broadcast tuner, whether or not the customer wants it or needs 
it. When you try to mandate supply in this way, supply and 
demand in this way, you are always going to get unintended, 
typically bad, consequences.
    The first unintended consequence has been the effect of a 
so-called 50 percent rule, that for every product manufactured 
with only an analog tuner, you have to also sell one with a 
digital tuner as well. Since well over 50 percent of the 
customers don't need or want broadcast tuners, you will quickly 
have a supply imbalance, as most customers will make the 
entirely rational decision for them to buy the less expensive 
set, or buy one with no tuner at all. We will start selling a 
few monitors, and that way, we won't have a tuner discussion.
    The Staff Draft has a provision that would not allow the 
FCC to address this situation by moving to an earlier 100 
percent rule for mid-sized TVs, again unfortunate if some 27 
inch TVs now sell for as little as $180, and according to 
recent statements by semiconductor manufacturers, we have seen 
a 2006 DTV tuner could add $80 to $100 to a set. Again, the 
laws of supply and demand will prevail here. Folks will go for 
the less expensive sets.
    Even more difficult is the staff's provision to move up the 
mandate for a 13 inch color TV set, for it now sells as little 
as I pointed out, $69. These products often tend to be bought 
out of necessity, in many cases, on layaway programs, by people 
who can't afford to pay more.
    In summary, Mr. Chairman, you have absolutely identified 
the right lever to get the DTV transition moving. Set a hard, 
unambiguous date by which analog broadcasts must once and for 
all cease. I believe that any of the ideas advanced in the 
draft, of all the ideas advanced in the draft, only this, along 
with an appropriate subsidy provision, is essential to move 
forward.
    [The prepared statement of W. Alan McCollough follows:]

Prepared Statement of W. Alan McCollough, Chairman and Chief Executive 
                   Officer, Circuit City Stores, Inc.

    I am pleased to be here today on behalf of the Consumer Electronics 
Retailers Coalition (``CERC'') to discuss the digital television 
transition, and the draft legislation prepared by Chairman Upton's 
staff. Consumer electronics retailers have been involved in the 
transition to digital techniques since 1985, when they helped introduce 
the digital audio Compact Disc. We agree that, two decades later, it is 
high time to complete this transition. The single most effective thing 
that you can do is to set a clear, definite, unconditional date for the 
cessation of analog broadcasts. On behalf of CERC I applaud this 
Committee for taking the initiative to do precisely this, and pledge 
our support to making this happen. Once you take this key step, the 
marketplace can and should be the main driver for helping all the other 
pieces fall into place. Setting a firm date, and then relying primarily 
on the marketplace, is the best way to avoid the costs of the 
transition from being put on our customers who are least able to bear 
them.
    CERC includes, in addition to Circuit City, specialist retailers 
Best Buy, RadioShack, and Tweeter, and general retailers Target and 
Wal-Mart. The three major retail associations--the North American 
Retail Dealers Association, the National Retail Federation, and the 
Retail Industry Leaders Association, are also members.
    As Len Roberts of RadioShack discussed with this Subcommittee on 
March 10, the fact that digital broadcasting is a final piece of the 
digital transition makes explaining it to consumers a rather complex 
proposition, because so many familiar products and techniques are 
already digital. Product developers have worked to help ``analog'' and 
``digital'' products work together seamlessly in consumers' homes--so 
we cannot truthfully tell consumers that ``analog'' products will stop 
working on any particular date, because for most purposes, for most 
consumers, they will continue to work just fine. CERC and its members 
have been pleased to work with the majority and minority staffs on 
these complex issues.

      DECEMBER 31, 2008 CESSATION OF ANALOG TELEVISION BROADCASTS

    CERC has long favored a ``hard'' and unconditional date for moving 
exclusively to digital terrestrial broadcasts. In light of the complex 
budgetary and other factors involved, we have not presumed to tell the 
Congress what that date should be. The key factor, from our 
perspective, is that the date be reliable and unconditional, so that if 
we tell consumers that analog terrestrial broadcasting via an antenna 
will not be delivered after that date, it will be a truthful statement. 
We do not want to be in the position of telling customers to buy or not 
to buy products based on inaccurate or unverifiable information.
    Once the transition date is clearly and reliably set, we and our 
vendors can start advising consumers that, on a specific future date, 
they will need to rely on alternatives to receiving analog signals from 
an antenna. Speaking for Circuit City, we would expect to begin this 
education process as soon as Congress sets the date--whether or not we 
have been legally mandated to do so.
  text and placement of label for tv receivers lacking digital tuners
    CERC members have continually updated their consumer information, 
in our product displays, advertising, and websites, to explain to 
consumers the sometimes dizzying array of choices in this transitional 
environment. (A list of some of the product / interface / service 
choices that consumers face was contained in Len Roberts' March 10 
written testimony to this Subcommittee.) We have also worked with the 
FCC on its Digital Transition program. The CERC website, and those of 
my company and some other CERC members, contain the ``DTV Tip Sheet'' 
that we jointly developed with the Consumer Electronics Association 
(``CEA'') and the FCC. We also are engaged, at the FCC's request, in 
distributing hundreds of thousands of these DTV Tip Sheets to our 
retail stores. CERC also has endorsed mandatory product labeling once a 
reliable Transition Date has been set. We have the following comments 
on the Staff Draft's language that provides for such a label:
    Text. We think it is important that the label be as concise as 
possible, while not misleading the consumer or unnecessarily driving 
him or her to more expensive products. Based on our experience as 
retailers, we are concerned that too long a label will not be read by 
many consumers. We are accustomed to making complex ``forward looking 
statements'' for financial reporting purposes. Our information to 
consumers, however, needs to be keyed to non-specialists.
    While the label text contained in the Staff Draft is accurate, in 
our experience it is a bit too long to be understood at a glance. We 
want it to be readily understood when placed on or near a product on a 
retail shelf. So, if there is to be a mandated retail label, CERC 
suggests a more concise formulation that is equally accurate, but that 
consumers would be more likely to read and understand:
          Notice: This TV has only an 'analog' broadcast tuner so will 
        require a converter box after [date] to receive over-the-air 
        broadcasts with an antenna, because of the transition to 
        digital broadcasting on that date. (It should continue to work 
        as before with cable and satellite TV systems, gaming consoles, 
        VCRs, DVD players, and similar products.)
    Placement. CERC advised this Subcommittee on March 10 that a 
mandatory product label will be appropriate once an unconditional 
transition date has been set. We have suggested to your staff that the 
label should be packed with or affixed to the television receiver, so a 
retailer would have the choice of leaving the label on the set for 
shelf display, or moving it to the vicinity of the set (so as not to 
cover the screen). We also suggested that the label be printed on the 
outside of boxes. The Staff Draft is generally in accord with our 
ideas:

 We agree that the labels should be packed with the covered TV 
        receivers, to reduce uncertainty and to avoid mistakes, at 
        retail, about the products to which the labels apply. To avoid 
        screen damage upon removal by a retailer or consumer, the label 
        should not necessarily have to be ``on the screen'' so long as 
        it is attached to the product as shipped.
 The Staff Draft might be clarified to assure that a retailer would 
        comply with the requirement if it either leaves the label on 
        the product for shelf display, or moves this label to the 
        vicinity\1\ of the point of product display. If a label is 
        affixed to a screen, it should not necessarily have to remain 
        there, as this could make it difficult for consumers to compare 
        products.
---------------------------------------------------------------------------
    \1\ CERC believes that a display requirement of a label ``in the 
vicinity'' of the product on the shelf is more realistic than the 
``adjacent to'' language of the Staff Draft--depending on how 
``adjacent'' is interpreted, this might not be possible without 
blocking other important information or features of the product or of 
another product on display.
---------------------------------------------------------------------------
 As the Staff Draft provides, the label text should also be printed on 
        the outside of the retail boxes for the products to which it 
        applies, because some retailers display TV products only in the 
        closed boxes. Requiring that these boxes be opened could lessen 
        a consumer's confidence that he or she is receiving a factory-
        fresh product.
 We believe that Internet-based sellers (including our own sites) 
        should have equivalent ``labeling'' obligations at their own 
        ``point of display'' for the product, or, if there is no 
        ``display,'' at the point of sale.

                    OBLIGATIONS ON OTHER INDUSTRIES

    CERC supports the provisions that would oblige broadcasters to make 
consumers aware of their digital channels and of the Transition. CERC, 
like CEA, has been disappointed with the total lack of effort on the 
part of broadcasters to educate the consumer about the DTV Transition. 
Instead, broadcasters have chosen to engage in distorting the truth in 
newspaper advertisements, further confusing the public about the 
transition. To say, or even to imply, that viewers would necessarily 
have to buy a new TV receiver after the transition date is simply 
untrue. As retailers we would like to sell everyone a new TV. We would 
also like to sell anyone who buys a TV one that has a DTV tuner in it. 
These are more expensive products and we love to sell them. As 
retailers in perhaps the most competitive market on earth, however, we 
must sell consumers what they want and what they need. And we must be 
honest about how these products will and will not serve consumers in 
the future.
    For our own public education efforts, the key factor is being able 
to give consumers a clear, reliable date, as of which we can tell them 
that feature X will no longer work, but feature Y will. Broadcasters 
already are airing their digital channels, but not at full power. They 
are not conspicuously promoting these channels. It is in our interest 
to sell products with DTV tuners, but we need help from the 
broadcasters in interesting our customers in buying them.

                    PROVISIONS RE ``TUNER MANDATE``

    CERC understands the desire to get more DTV tuners into consumers' 
hands. We also deal every day, however, with the harsh laws of supply 
and demand. Thus far, under the FCC's ``Tuner Mandate'' regime, our 
experience has been that a government mandate trying to force all 
shoppers to buy features that many or most do not in fact need can be 
counterproductive to the success of the Transition. We therefore 
caution against trying, in this legislation, to use a government 
mandate rather than the ``hard date'' itself as the main instrument for 
influencing supply and demand. In particular, we are concerned about 
the potential marketplace effects of some of the Draft's provisions:

 They will likely drive the market toward products with no off-air 
        tuners at all;
 They will deny useful products to those consumers least able to 
        afford television receivers; and
 They seem inconsistent with, and detract from, the Draft's provisions 
        that recognize cable headend conversion to analog transmission 
        as meeting Transition requirements.
    The FCC's Tuner Mandate has proved a fragile instrument for driving 
the television receiver market toward the inclusion of DTV tuners. We 
have found the mandate to equip 50 percent of all displays of 36 inches 
and above with digital tuners to be counterproductive. By rationing the 
ultimate supply of products without such tuners, it has encouraged 
retailers to secure their supplies by ordering these products up front, 
and to await price cuts on the products that contain tuners, because 
manufacturers will be required to sell these whether or not there is a 
demand for them. Such demand will be limited because, while many 
consumers may need or want terrestrial tuners in their displays, most 
of our customers are cable and satellite subscribers who might not need 
or want to pay for a broadcast tuner.
    Even the requirement that 100 percent of a size category of 
television receivers must include DTV tuners can have only limited 
impact on consumer choices, because not all video display products are 
``television receivers.'' \2\ In an era in which more than 85 percent 
of households are connected to cable or satellite, the hard fact is 
that most consumer displays for video programming do not need to be 
``television receivers''--that is, the displays meet consumer needs 
without relying on any TV tuner, analog or digital, because they 
receive their programming from a cable, satellite, or other set-top box 
over non-broadcast interfaces.
---------------------------------------------------------------------------
    \2\ A ``Television Receiver'' is a product having an off-air 
broadcast tuner and antenna terminals. The Tuner Mandate requires only 
that products with analog off-air tuners must have digital off-air 
tuners as well. A consumer display product, such as a PC monitor, may 
have a variety of interfaces to accept both analog and digital 
television signals from cable, satellite, or other set-top boxes, yet 
lack any off-air tuner, so it is not a ``Television Receiver.''
---------------------------------------------------------------------------
    Faced with these facts, and with their experience to date under the 
Commission's mandate, CERC and the CEA jointly petitioned the 
Commission for adjustments in its regulations, in order to align them 
to the extent possible with demand and product cycles. For the 
``midsize'' TV size category, CEA and CERC recommended that the 
Commission drop its counterproductive 50 percent rule, but advance the 
effective date of its 100 percent rule, from July 1, 2006 to March 1, 
2006. We firmly believe that this proposal would advance the DTV 
Transition by allowing us to better align the Commission's mandates 
with supply and demand. Accordingly, we think that the provision in the 
Staff Draft--that would not allow the FCC to adjust its Mandate dates 
in this size category so as to eliminate the counterproductive 50 
percent rule--would result in fewer, rather than more, DTV tuners being 
distributed to consumers.
    We are also very concerned about, and strongly oppose, a new 
proposal in the Staff Draft, which would move the Mandate date for 
televisions with screen sizes of 13 through 24 inches up by a year. 
This proposal would damage both the transition and the least affluent 
portion of the viewing public.

 First, these sets are very severely affected by price considerations. 
        A consumer who buys a $79 13 inch color television is generally 
        moved by necessity, more than by a search for the most 
        compelling experience. CERC's general retail members have noted 
        that many of these sets are bought on layaway, by customers who 
        do not have bank accounts. Even semiconductor maker Zoran, 
        which has no retail experience and has made predictions based 
        on assumptions that are at best aggressive and at worst 
        unrealistic, admits that adding a DTV tuner on the Staff 
        Draft's timeframe would increase the cost of such a product by 
        ``around $80--$100 depending on the brand and model.'' \3\ 
        Having the price of a $79 color TV go to $179 by July 1, 2006 
        would eviscerate the low end of this product category, 
        punishing the consumers who are least able to afford television 
        receivers.
---------------------------------------------------------------------------
    \3\ See Zoran May 16, 2005 ex parte letter in FCC Docket No. 05-24.
---------------------------------------------------------------------------
 If small TVs become too expensive for their market, the only 
        alternative would be product lines of ``receivers'' with no 
        off-air tuners at all. We have seen this class of ``monitor'' 
        product emerge already in the large-screen category, even 
        though the DTV tuner is a much smaller component of the cost of 
        a large-screen television. A 22 inch LCD display with no tuner, 
        for example, could be an alternative for a consumer who relies 
        on a cable or satellite set-top box anyway.\4\
---------------------------------------------------------------------------
    \4\ We had hoped that prospective inclusion of the ``CableCARD'' 
feature, which can be inexpensively added to products with DTV tuners, 
would heighten their appeal to consumers, but unfortunately these 
products are not being promoted by the cable industry, and issues have 
been raised as to their technical support. Of the approximately one 
million such TV receivers sold to date, only about 40,000 are being 
served by CableCARDS.
---------------------------------------------------------------------------
 Driving analog tuners out of inexpensive televisions seems especially 
        counterproductive in light of the Staff Draft's expectation 
        that cable operators will convert DTV broadcasts to analog 
        broadcast transmissions at their headends, so that consumers 
        with analog tuner TVs will be served. If TV sets do not have 
        analog tuners, there is no point in converting signals to 
        analog at cable headends. And ``basic cable'' customers who 
        rely on analog tuners to tune these channels will be sorely 
        surprised when their sets have no place to plug in the cable.
 The Congress, concerned as it is about consumers who must bear the 
        costs of the transition, needs to confront the fact that a low-
        end TV with only an analog tuner may be the only affordable 
        option for some consumers. To drive these sets out of the 
        market prematurely, by advancing Tuner Mandate dates that 
        double the prices of such sets, is to place the burden of the 
        Transition on those who are least able to afford it.
    CERC has not asked that the existing Tuner Mandate dates for 13 
inch receivers be pushed back. But we think it would be contrary to the 
legislation's purposes, and very unfair to low income consumers, to try 
to move them up.

                           CONSUMER SUBSIDIES

    While the Staff Draft does not address consumer subsidies, CERC is 
aware that this is an issue under lively discussion. CERC has not 
presumed to tell the Congress whether there should be such a subsidy or 
who should be eligible to receive it, but we do have concerns over how 
a subsidy might be applied or administered. Our core concerns are 
these:

 Ideally, any subsidy should apply to any product, for sale to 
        consumers, with an ATSC (digital off-air) tuner and an antenna 
        terminal. Consumers should have a choice as to which sort of 
        products will serve their marketplace needs. Consumer choice is 
        the best driver of lower prices. However, if the Congress feels 
        constrained, for budgetary purposes, as to the time and scope 
        of the subsidy, it may want to go in the opposite direction, 
        and severely limit the capabilities of products that are 
        eligible for subsidy.\5\
---------------------------------------------------------------------------
    \5\ For example, if subsidized converter products contain outputs 
other than the familiar ``RF'' (channel 3 or 4) coaxial output, they 
would be useful for enabling many pure ``monitor'' products to receive 
off-air signals, even though these products have not been relied upon 
for analog reception. This could expand and prolong the demand for 
subsidized products, causing the Congress to consider a time and 
household limitation as to the availability of subsidized products. We 
prefer to sell multifunction products, but Congress might have a 
narrower goal.
---------------------------------------------------------------------------
 While various subsidy figures have been floated, Congress should not 
        attempt to fix the prices of real-world products based on the 
        funds available for a subsidy. There are too many variables, 
        including large differences in the projections of costs two 
        years hence, and of the number of households and sets for which 
        there is a demand.\6\
---------------------------------------------------------------------------
    \6\ There are potential regulatory hurdles, as well. For example, 
California recently established an energy standard of 8 watts in 
standby mode for converter boxes. If such state provisions are not pre-
empted in the subsidy law they could impede acquisition of products or 
increase costs.
---------------------------------------------------------------------------
 We believe that any subsidy should flow directly from the government 
        to eligible consumers. Retailers' role in the process should be 
        limited to doing what we do best: providing the best product 
        that fits the consumer's needs and desires.
 CERC would have severe concerns over a subsidy program that would 
        require retailers to advance the subsidy amount to consumers, 
        and to attempt to recover it from the government:
       Any retailer reimbursement program that would require retailers 
            to carry receivables on our books would need to be a direct 
            obligation of the U.S. government for each sale of a 
            specified product, payable within 60 days of claim and 
            subject to suit for nonpayment.
       Even so, imponderable questions would abound: How to prevent 
            false claims? Would all retailers, no matter how large or 
            small, be audited regularly by the government? How to apply 
            the program to Internet-based merchants; how to find them 
            to audit the bona fides of their claims for reimbursement? 
            CERC members are concerned that the opportunities for abuse 
            presented by such a reimbursement program--as to which 
            internal accounting data would be the only evidence of 
            actual sales--would lead either to loss of credibility for 
            all claims, or to government and retail auditing costs that 
            are dramatically out of scale to the amounts being claimed. 
            Would eligibility requirements for retailers be imposed? 
            Would attempts be made to artificially set or define retail 
            prices for particular products? Would adequate provision be 
            made for the expenses imposed on retailers? \7\
---------------------------------------------------------------------------
    \7\ CERC would oppose both retailer eligibility requirements and 
attempts to set or pre-define the retail price of products. Retailers 
should be reimbursed for their transaction and shipping costs, 
including the direct and indirect costs of audits--but at present these 
seem imponderable.
---------------------------------------------------------------------------
    Several CERC members have been interviewed by, and voiced their 
views and concerns to, the U.S. Government Accountability Office. CERC 
can well understand why subsidy issues have proved vexing and 
controversial. We must caution that difficulties should not be 
purportedly ``solved'' via unrealistic assumptions with respect to how 
programs might operate.
    On behalf of Circuit City and the other members of CERC, I 
appreciate your invitation to appear today, Mr. Chairman. We will 
continue to work with the Committee and with the FCC in your effort to 
add terrestrial broadcasting to those industries that have successfully 
completed the digital transition.

    Mr. Upton. Thank you. Mr. Knorr.

                   STATEMENT OF PATRICK KNORR

    Mr. Knorr. Thank you, Mr. Chairman and members of the 
subcommittee. My name is Patrick Knorr, and I am General 
Manager of Sunflower Broadband, an independent cable business 
based in Lawrence, Kansas, currently serving 35,000 customers. 
My company provides cable television, digital cable, high-speed 
Internet, local phone service, digital video recorders, and 
other advanced services in eight smaller systems and rural 
areas throughout northeast Kansas.
    I am also the vice chairman of the American Cable 
Association, with systems in every State represented on this 
committee. I believe you stand at an historic moment, when we 
shift from the antiquated policies of the analog world to the 
exciting and enticing future that the digital revolution can 
provide. The DTV Transition Act takes an important step in the 
right direction.
    As you consider how best to address the transition to 
digital television, I believe there are two separate, but 
intertwined issues that you must balance. First, in rural 
America, the primary challenge of making the transition work is 
a unique and inescapable truth that the transition will cost 
money that small communities and systems simply do not have.
    The second is that the value of television is the content 
that flows over its signal and not just its picture quality. 
Technologically, dual carriage presents significant problems 
for small operators. Most small systems will be unable to 
comply, because their systems cannot carry all those signals 
due to lack of capacity. The alternative option provided in the 
bill, solely carrying the primary digital signal, which in most 
cases is an HD signal, would force every customer in the market 
to have a costly HD tuner for every single TV in their house. 
This could cost over $1,000 for every subscriber in a cable 
system, which rural America cannot afford. ACA members support 
the ability to down-convert digital signals to analog without 
the obligation for dual carriage, a concept this committee has 
discussed.
    Additionally, many rural systems will suffer the digital 
cliff effect, where today's analog signal would reach the head 
end, but the digital signal will not. Congress can solve this 
problem by making satellite delivered, local into local signals 
available to operators on a nondiscriminatory basis. The price 
of not addressing this issue is that many consumers in 
compliant systems will find themselves still staring at blank 
TV screens.
    As for our concerns about the rules that govern content, 
ACA members are seeing early signs that broadcasters are using 
the latest round of retransmission consent negotiations to 
extract cash payments. We estimate that broadcasters will 
leverage retransmission consent rules to extract an additional 
$1 billion from consumers served just by ACA members for the 
privilege of receiving free over-the-air signals, increasing 
their bills by $2 to $5 per month. I believe the intent of 
retransmission consent was to assist with localism, not to 
promote profiteering. The situation occurs for many reasons, 
most importantly, network non-duplication and syndicated 
exclusivity allow broadcasters to block cable operators from 
obtaining competing signals, eliminating any chance for a free 
market to emerge.
    There are solutions to this dilemma. One, maintaining 
broadcast exclusivity for stations that elect must-carry, or 
that do not seek additional consideration for retransmission 
consent. Two, eliminate exclusivity when a broadcaster elects 
retransmission consent and chooses to seek additional 
consideration for carriage. Three, prohibit any party, 
including a network, from preventing a broadcast station from 
granting retransmission consent. Four, to codify the 
retransmission consent conditions imposed on the Fox/News Corp/
DirecTV merger to apply to all retransmission consent 
agreements.
    In summary, the retransmission consent and broadcast 
exclusivity regulations have been used by networks and stations 
to raise rates and force unwanted programming onto consumers. 
This must stop, but it won't unless Congress acts.
    Finally, I would encourage you to pierce the programming 
veil of secrecy by authorizing the FCC to obtain specific 
programming contracts and rate information, in order to develop 
a programming price index. This PPI would be a very simple, yet 
effective, way to gauge how programming rates rise or fall, 
while still protecting proprietary elements of the individual 
contracts.
    Mr. Chairman, this committee stands today at the threshold 
of the new digital world, but the challenges are many, and the 
risks are great. Clearly, rural America and its service 
providers have unique financial and geographical challenges to 
face while making this conversion. Additionally, outdated 
regulatory structures that raise rates and force programming on 
your constituents must be abandoned. I hope you will be able to 
address both of these problems, and I appreciate the 
opportunity to testify on ACA's views in this matter.
    Thank you.
    [The prepared statement of Patrick Knorr follows:]

    Prepared Statement of Patrick Knorr, General Manager--Sunflower 
           Broadband on Behalf of American Cable Association

                              INTRODUCTION

    Thank you, Mr. Chairman and members of the subcommittee.
    My name is Patrick Knorr, and I am General Manager of Sunflower 
Broadband, an independent cable business based in Lawrence, Kansas, 
currently serving 35,000 customers. My company provides cable 
television, digital cable, high-speed internet, local phone service, 
digital video recorders and other advanced services in eight smaller 
systems and rural areas throughout Northeast Kansas.
    I am also the vice chairman of the American Cable Association. ACA 
represents nearly 1,100 smaller and medium-sized independent cable 
businesses. These companies do one thing--serve our customers, who are 
found in areas the bigger entities don't serve. ACA members don't own 
programming or content; nor are they run by the large media companies. 
Collectively, ACA members serve nearly 8 million customers, mostly in 
smaller markets. Our members serve customers in every state and in 
nearly every congressional district, particularly those of this 
Committee.
    I believe you stand at an historic moment, when we shift from the 
1970s-era policies of the analog world to the exciting and enticing 
future that the digital revolution can provide. All of us here today 
want our constituents and customers to receive the best in advanced, 
high-speed, digital services. The DTV Transition Act takes an important 
step in the right direction. But at the same time, all of us here today 
want to ensure that no one is left behind as we actually move from 
analog to digital.
    As we look today at specific legislative proposals concerning the 
transition to digital television, there are two realities this 
Committee must take into account.
    The first reality is that the transition to digital television is 
both a question of technology and of public policy--a reality 
recognized by the existence of this hearing and the very necessity of a 
DTV bill. Many very important and relevant public policy issues exist 
today concerning the digital pipe and the content that flows through 
it. Issues such as ``rising cable and satellite rates,'' ``media 
consolidation,'' ``indecency,'' ``retransmission consent abuse,'' 
``family programming tiers'' and the ``Digital Divide,'' cannot be 
viewed as separate from the DTV transition. In fact, these policy 
issues are the central focus of your constituents and our customers. 
Moving a limited DTV bill will only postpone and exacerbate 
marketplace, media, programming, and pricing problems that already 
exist back home in your districts. The transition from analog to 
digital, and the underlying need for legislation to facilitate that 
shift, provides you with the first appropriate opportunity to address 
these germane issues in a comprehensive manner and I encourage you to 
take advantage of this moment.
    Digital platforms can provide consumers with a wondrous world of 
new and valuable programming. But if you allow the old rules to stay in 
place, it will just be more of the same. To move forward on just one 
technological aspect of the digital revolution without moving forward 
on the broader issues would be the equivalent of putting a fancy new 
engine in a rusty old car, thus severely limiting how far and how fast 
you can really go. To provide consumers with the greatest benefit, it 
is imperative that you break with the past and recognize that some old 
ideas no longer serve the greater good.
    I strongly urge this Committee to seize this moment to restore the 
balance of power between programmers, operators, media consortiums and 
broadcasters. In short, it's time to recalibrate for the digital world 
so that each is subject to the creative power of competitive market 
forces and to the consumers they serve.
    Moving on to the second reality, provisions in the DTV Transition 
Act that require dual carriage of broadcast signals will threaten ACA's 
members very survival and ability to provide advanced services such as 
high-speed internet, VOIP, and VOD. Unless the specific financial 
realities of smaller, independent providers are addressed in this bill, 
consumers and communities across America will lose access to signals 
and services they rely on today. In fact, what worries me is that 
without efforts to help these systems make the transition, many of the 
small businesses that provide video and broadband services in rural 
America will cease to exist and the digital divide will actually grow.
    Out in the smaller communities ACA members serve from Illinois to 
Nebraska to Oregon to Mississippi, it is our core video business that 
allows us to finance and provide the high-speed services, including 
digital television, which everyone wants in order to bridge the Digital 
Divide. It is independent cable companies like mine that provide 
broadband services to small towns throughout the country. Satellite 
providers, telephone giants or major cable companies--unlike ACA's 
members--are not rushing to serve these communities and I can 
appreciate why. Large companies will never come rushing into these 
communities because of the cost and difficulty of providing service in 
rural America. The headlines you read about in the media are about new 
services and suites of services offered to larger communities. If ACA 
members' video service cannot survive, I can assure you we will not be 
around to offer the cable modem services these communities need and the 
DTV services this Committee wants. In short, video programming is not 
``just'' about programming choices and rates, but it is also the 
foundation upon which advanced services, including DTV, are built.
    As a result, there are four fundamental and specific changes that 
must be made if your goal is to provide the greatest diversity of 
video, DTV and advanced services and to ensure that all consumers--even 
in smaller markets and rural areas--have access to them.
    The four changes are:

1. Ensure that consumers in smaller markets and rural areas are not 
        left behind in the digital transition. Take into account and 
        address the unique financial, technical and operational 
        requirements of those companies that will be providing DTV 
        service in rural America.
2. Update and change the current retransmission consent rules to help 
        remedy the imbalance of power caused by media consolidation.
3. Correct rules that allow for abusive behavior because of media 
        consolidation and control of content.
4. Make access to quality local-into-local television signals 
        available.

What needs to be changed and why:
    1. Ensure that consumers in smaller markets and rural areas are not 
leftbehind in the digital transition. Take into account and address the 
unique financial, technical and operational requirements of those 
companies that will be providing DTV service in rural America.

What the DTV Transition Act would require:
    Section 6 of The DTV Transition Act Staff Draft would require cable 
operators to carry the primary digital signal of all broadcast 
stations, but gives the cable operator the choice to also 
simultaneously downconvert certain commercial and educational stations 
to analog and carry both digital and analog signals all on the 
broadcast basic tier. From the perspective of the independent cable 
operators serving rural America today, this is a Hobson's Choice--no 
choice at all--for the following reasons:
    Dual Carriage. Independent cable operators in smaller markets and 
rural areas cannot afford the transition and equipment costs to 
transmit solely digital signals. They will need to downconvert digital 
signals to analog so that their subscribers in smaller markets and 
rural America will have a signal to receive. If dual carriage is the 
only option, most small systems will be unable to comply due to the 
fact that the limitations of their systems will prevent them from 
carrying those signals (as the actual carrying capacity of the pipe 
into the home will be too small). In addition, the cost of just 
carrying the digital signal for most ACA members would be over $1,000 
per subscriber. That's a cost that many operators cannot recover nor 
absorb. Additionally, such a solution would force every customer in my 
market to have a HD tuner for every TV in the house. In short, the 
requirement in the Staff Draft for dual carriage of both the digital 
and analog signal will impose significant additional unrecoverable cost 
and siphon off precious bandwidth used today to offer advanced 
communications services like high-speed Internet, VOIP and VOD, to name 
a few.
    Hard Deadline. The DTV transition Act imposes a hard deadline of 
December 31, 2008 when all analog transmission by broadcast stations 
must cease. The ``hard deadline'' for the digital transition will 
impact disproportionately ACA members in rural America and their 
subscribers in at least two ways:

 Some ACA members in remote areas are subject to the ``digital cliff'' 
        effect. When broadcasters turn off their analog signal these 
        members will be unable to pick up any signal to retransmit to 
        their subscribers due to the technical characteristics of the 
        digital signal. If a cable operator cannot pick up the digital 
        signal, its subscribers are even less likely to be able to pick 
        up the signal off-air signal with a home antenna.
 Cable subscribers in rural areas are less able to afford digital 
        receivers or converters than subscribers in urban areas.
    Retransmission consent. As previously discussed, some broadcasters 
are already using their DTV signal as a lever to impose more tying 
demands and higher fees for retransmission consent on cable operators. 
When a broadcaster prevents a smaller operator from carrying broadcast 
DTV stations by requiring the operator to carry unspecified multicast 
or tied programming, or by demanding exorbitant fees, this behavior 
slows the DTV transition. The bill must address these problems to 
ensure the increased bandwidth available in the digital world will not 
just become increased opportunity for more unwanted programming and 
higher rates to be leveraged down to consumers in rural America.
    Digital-to-analog conversion. ACA members support the concept of 
allowing the digital-to-analog conversion that this committee has 
considered. Such a decision would allow smaller systems to minimize the 
disruption to their consumers and would ensure our continued viability. 
Unfortunately, the current provisions in Section 6 of the staff draft 
are not a practical option. First, it will again require consumers to 
purchase new equipment. Second, it places an insurmountable economic 
burden on operators by forcing them to replace their networks. (See 
Exhibit 3) The simplest solution would be to give operators the 
flexibility to downconvert digital signals at the head-end without the 
dual carry obligation.
    The stark reality is that ACA members, without changes to the draft 
that reflects their unique circumstances, face extinction. This means 
that consumers served by ACA members in most of the districts 
represented on this Committee will lose their provider and all of the 
advanced services these companies provide.
    Some may say that the loss in the marketplace of certain providers 
like ACA members is simply a function of survival of the fittest. We 
would argue that rural America deserves competition in the video 
marketplace just like the rest of the country. They also deserve to 
experience the advanced services that bigger entities are rushing to 
provide in more populated and profitable areas. The reality is that in 
the rural markets ACA members companies serve and operate, larger cable 
television providers will not fill in the service gaps if ACA members 
are forced to exit their business.

Solutions to ensure no consumer, community or provider are left behind 
        in the DTV transition:
 Provide the ability to downconvert digital signals to analog without 
        the obligation for dual carriage;
 Assist independent cable operators to upgrade facilities to avoid the 
        digital cliff effect and to be able to receive and transmit DTV 
        signals to their consumers;
 Allow waivers of the carry-one-carry-all requirement to ease the 
        burden on smaller operators;
 Make adjustments to retransmission consent rules and exclusivity 
        regulations.
    ACA and its members understand and support the need for the 
Committee to move swiftly to recapture analog spectrum for other noble 
purposes. However, we strongly caution the Committee to compare the 
pursuit of such purposes with the potential of leaving consumers and 
providers in smaller markets and rural America out in the cold with no 
choices, no signals and lost services. We hope to work with the 
Committee to develop a DTV transition bill that will recognize the 
unique circumstances faced by providers and consumers in smaller 
markets and rural areas so that the DTV transition will take place in 
positive ways for all consumers, not just those located in populated 
areas.

2. Current retransmission consent rules must be updated to help remedy 
        the imbalance of power caused by media consolidation
 The current retransmission consent and broadcast exclusivity laws and 
        regulations limit consumer choice and impede independent cable 
        operators' ability to compete in smaller markets and rural 
        America by permitting distant media conglomerates to charge 
        monopoly prices for programming. This situation must not be 
        carried forward into the post-DTV world.
    The current laws and regulations allow broadcasters to combine 
retransmission consent and market exclusivity into a monopolistic 
hammer. Both of these rules were created to preserve local 
broadcasting, but now large media companies use those rules to hold 
localism hostage to increase profits and gain wide distribution for 
niche programming like SoapNet and more recently LOGO, a gay-themed 
Viacom Network. These same practices that were used with analog 
broadcasting are already being applied to the digital world, 
accelerating the problem.
    Across America our association is seeing early signs that 
broadcasters are using this leverage to lean excessively on independent 
cable operators to extract cash. Individually the independent cable 
systems that are our members usually represent less than a fraction of 
1% of any given DMA and have no leverage in negotiations with 
broadcasters. However, collectively our ACA members serve 8% of all 
television households and most of rural America. We estimate that this 
year broadcasters will leverage retransmission consent rules to extract 
an additional $1 billion from consumers served by ACA members for the 
``privilege'' to receive free over-the-air signals. The average 
increase in basic cable rates as a result could well be $2-$5 per 
subscriber per month! Remember, for the consumer, they will not 
experience any improvement in service nor receive any new programming 
in spite of paying this increase.
    And broadcasters don't only demand cash for the right to carry 
their local television stations. Some members of the largest media 
conglomerates even require our cable companies to carry affiliated 
satellite programming in local systems and even in systems outside of 
the member's local broadcast market. In this way, ownership of a 
broadcast license is used to force carriage of, and payment for, 
affiliated programming by consumers who do not even receive the 
broadcast signal at issue. These forced carriage requirements are also 
responsible for forcing on some of the most objectionable and indecent 
content on television today, such as SpikeTV, F/X and Soap Net, among 
many others.
    Unless this Committee addresses these issues, imposed broadcaster 
cost, price increases and forced content will continue unabated in the 
digital world. In fact, increased bandwidth will only add fuel to this 
fire. Large media companies are using the free spectrum licenses 
granted by the government for local broadcasting to pad margins and to 
leverage often questionable nationally delivered content. How those 
licenses are used is fundamentally part of Congress's obligation in 
managing the transition of licenses from analog to digital. Congress 
created the retransmission consent laws in 1992 to protect localism and 
must change them in 2005 to protect it from the unforeseen consequences 
of media consolidation in a new digital world.
    Broadcasters and programmers get away with these abuses today 
because the pricing of retransmission consent does not occur in a 
competitive market. Under the current regulatory scheme, media 
conglomerates and major affiliate groups are free to demand monopoly 
``prices'' for retransmission consent while blocking access to readily 
available lower cost substitutes.
    They do so by two methods:

 First, the network non-duplication and syndicated exclusivity laws 
        and regulations allow broadcasters to block cable operators 
        from cable-casting network and syndicated programming carried 
        by stations outside of the broadcaster's protected zone. In 
        other words, the conglomerate-owned station makes itself the 
        only game in town and can charge the cable operator a monopoly 
        ``price'' for its must-have network programming. The cable 
        operator needs this programming to compete. So your 
        constituents end up paying monopoly prices.
 Second, the media conglomerates require network affiliates to sign 
        contracts that prevent the affiliate from selling their 
        programming to a cable operator in a different market. Again, 
        the conglomerate-owned and operated stations are the only game 
        in town.
    In these situations, the cable companies' only defense is to refuse 
to carry the programming. This has virtually no effect on the media 
conglomerates, but it prevents your constituents from receiving must-
have network programming and local news. This result directly conflicts 
with the historic goals and intent of the retransmission consent and 
broadcast exclusivity rules, which were to promote consumer choice and 
localism.
    There are ready solutions to this dilemma. When a broadcaster seeks 
a ``price'' for retransmission consent, give independent, smaller and 
medium-sized cable companies the ability to shop for lower cost network 
programming for their customers.
    Accordingly, in our March 2, 2005, Petition for Rulemaking to the 
FCC, ACA proposed the following adjustments to the FCC's retransmission 
consent and broadcast exclusivity regulations:

 One: Maintain broadcast exclusivity for stations that elect must-
        carry or that do not seek additional consideration for 
        retransmission consent. This ensures must-carry remains the 
        primary option for programmers and ensures ``localism.''
 Two: Eliminate exclusivity when a broadcaster elects retransmission 
        consent and seeks additional consideration for carriage. If the 
        programmer decides to forego their must-carry rights in the 
        hopes of putting together a business deal with an operator, 
        allow the operator to negotiate freely without having their 
        hands tied.
 Three: Prohibit any party, including a network, from preventing a 
        broadcast station from granting retransmission consent.
    On March 17, 2005, the FCC released ACA's petition for comments. By 
opening ACA's petition for public comment, the FCC has acknowledged 
that the current retransmission consent and broadcast exclusivity 
scheme requires further scrutiny. Before codifying a new regulatory 
regime for digital television, carrying all the baggage from the analog 
world with it, Congress should ask similar questions and make the 
important decision to update current law to rebalance the role of 
programmers and providers.
    Congress, too, should revisit the retransmission consent laws to 
correct the imbalance caused by the substantial media ownership 
concentration that has taken place since 1992. One solution is to 
codify the retransmission consent conditions imposed on Fox/News Corp./
DirecTV to apply across the retransmission consent process. The three 
key components of those conditions include: (i) a streamlined 
arbitration process; (ii) the ability to carry a signal pending dispute 
resolution; and (iii) special conditions for smaller cable companies.
    In summary, the retransmission consent and broadcast exclusivity 
regulations have been used by the networks and stations to raise rates 
and to force unwanted programming onto consumers. This must stop, but 
it won't unless Congress acts. If a station wants to be carried, it can 
elect must-carry. If a station wants to charge for retransmission 
consent, let a true competitive marketplace establish the price.

3. Correct rules that allow for abusive behavior because of media 
        consolidation and control of content.
    What most consumers do not understand is that my independent 
company and ACA member companies must purchase most of their 
programming wholesale from just four media conglomerates, referred to 
here as the ``Big Four''--Disney/ABC, Viacom/CBS, News Corp./DirecTV/
Fox, and General Electric/NBC. All of these companies have at their 
core one of the top four national broadcast networks. In dealing with 
the Big Four, all ACA members continually face contractual restrictions 
that eliminate local cable companies' flexibility to package and 
distribute programming the way our customers would like it. Instead, 
programming cartels, headquartered thousands of miles away, decide what 
they think is ``valuable'' content and what our customers and local 
communities see. On a basic level the digital transition is a 
fundamental paradigm shift that could be very disruptive for consumers. 
Addressing these abuses is an opportunity for congress to (1) provide 
tangible benefits to consumers; (2) fulfill the true promise of the 
digital transition by providing more choice and control to consumers; 
and, (3) to make a consolidated media more accountable to people they 
serve.
    To fix this situation, Congress must update and reform the rules so 
that:

a. Local providers of all forms and customers have more choice and 
        flexibility in how programming channels are priced and 
        packaged, including the ability to sell programming channels on 
        a theme-based tier if necessary;
b. Tying through retransmission consent must end. Today, the media 
        giants hold local broadcast signals hostage with monopolistic 
        cash-for-carriage demands or demands for carriage of affiliated 
        media-giant programming, which was never the intention of 
        Congress when granting this power;
c. The programming pricing gap between the biggest and smallest 
        providers is closed to ensure that customers and local 
        providers in smaller markets are not subsidizing large 
        companies and subscribers in urban America; and,
d. The programming media giants must disclose, at least to Congress and 
        the FCC, what they are charging local providers, ending the 
        strict confidentiality and non-disclosure dictated by the media 
        giants. Confidentiality and non-disclosure mean lack of 
        accountability of the media giants.
    Let me explain.

Forced Cost and Channels
    For nearly all of the 50 most distributed channels (see Exhibit 1), 
the Big Four contractually obligate my company and all ACA members to 
distribute the programming to all basic or expanded basic customers 
regardless of whether we think that makes sense for our community. 
These same contracts also mandate carriage of less desirable channels 
in exchange for the rights to distribute desirable programming.
    A small cable company that violated these carriage requirements 
would be subject to legal action by the media conglomerates, and for 
ACA's members, this is a very real threat.
    These carriage restrictions prohibit ACA members from offering more 
customized channel offerings that may reflect the interests and values 
of our specific community. Thus, any interest we may have in offering a 
family tier as the basic tier to our constituencies is made virtually 
impossible due to the corporate decisions made by the Big 4 and the 
terms and conditions they impose on our companies.
More Forced Cost and Channels Through Retransmission Consent
    As previously discussed, retransmission consent has morphed from 
its original intent to provide another means to impose additional cost 
and channel carriage obligations. As a result, nearly all customers 
have to purchase basic or expanded basic packages filled with channels 
owned by the Big Four (See Exhibit 2).

Forced Carriage Eliminates Diverse Programming Channels.
    The programming practices of certain Big Four members have also 
restricted the ability of some ACA members to launch and continue to 
carry independent, niche, minority, religious and ethnic programming. 
The main problem: requirements to carry Big Four affiliated programming 
on expanded basic eliminate ``shelf space'' where the cable provider 
could offer independent programming.
    If new independent programmers are to provide outlets for this type 
of programming to reach consumers, you must ensure that they are not 
subject to the handcuffs current programming practices place upon them.
Local Flexibility is Needed.
    In order to give consumers more flexibility and better value, 
changes in current wholesale programming practices and market 
conditions are needed for all providers. Operators must be given more 
flexibility to tailor channel offerings that work best in their own 
local marketplaces.
    As I have stated, the Big Four condition access to popular 
programming on a range of distribution obligations and additional 
carriage requirements. These restrictions and obligations eliminate 
flexibility to offer more customized channel packages in local markets.
    It's important to point out that neither my company nor any ACA 
member controls the content that's on today's programming channels. 
That content--decent or not--is controlled by the media conglomerates 
that contractually and legally prevent us from changing or preempting 
any questionable or indecent content.
    However, if my company and other ACA members had more flexibility 
to package these channels with the involvement of our customers, 
current indecency concerns raised by both Congress and the FCC could 
also be addressed.
Price discrimination against smaller cable companies makes matters 
        worse.
    The wholesale price differentials between what a smaller cable 
company pays in rural America compared to larger providers in urban 
America have little to do with differences in cost, and much to do with 
disparities in market power. These differences are not economically 
cost-justified and could easily be replicated in the IP world as 
smaller entrants are treated to the same treatment our members face.
    Price discrimination against independent, smaller and medium-sized 
cable companies and their customers is clearly anti-competitive conduct 
on the part of the Big Four--they offer a lower price to one competitor 
and force another other competitor to pay a 30-55% higher price FOR THE 
SAME PROGRAMMING. In this way, smaller cable systems and their 
customers actually subsidize the programming costs of larger urban 
distributors and consumers. This sad reality should not carryover with 
the digital transition.
    In order to give consumers in smaller markets and rural areas more 
choice and better value, media conglomerates must be required to 
eliminate non-cost-based price discrimination against independent, 
smaller and medium-sized cable operators and customers in rural 
America.
    With less wholesale price discrimination, ACA members could offer 
their customers better value and stop subsidizing programming costs of 
large distributors.

Basis For Legislative and Regulatory Action
    Congress has the legal and constitutional foundation to impose 
content neutral regulation on wholesale programming transactions. The 
program access laws provide the model and the vehicle, and those laws 
have withstood First Amendment scrutiny. This hearing provides the 
Committee with a key opportunity to help determine the important 
governmental interests that are being harmed by current programming 
practices.
    Furthermore, based in large part on the FCC's actions in the 
DirecTV-News Corp. merger, there is precedent for Congress and the FCC 
to address the legal and policy concerns raised by the current 
programming and retransmission consent practices of the media 
conglomerates. The FCC's analysis and conclusions in the News Corp. 
Order persuasively establish the market power wielded by owners of 
``must have'' satellite programming and broadcast channels and how that 
market power can be used to harm consumers. That analysis applies with 
equal force to other media conglomerates besides News Corp.

Pierce the Programming Veil of Secrecy--End Non-Disclosure and 
        Confidentiality.
    Most programming contracts are subject to strict confidentiality 
and nondisclosure obligations, and my company and ACA members are very 
concerned about legal retaliation by certain Big Four programmers for 
violating this confidentiality. Ask me what I have to pay to receive a 
given channel and I cannot tell you due to terms and conditions the 
conglomerates insist upon. Why does this confidentiality and non-
disclosure exist? Who does it benefit? Consumers, Congress, the FCC? I 
don't think so. Why is this information so secret when much of the 
infrastructure the media giants benefit from derives from licenses and 
frequencies granted by the government?
    Congress should obtain specific programming contracts and rate 
information directly from the programmers, either by agreement or under 
the Committee's subpoena power. That information should then be 
compiled, at a minimum, to develop a Programming Pricing Index (PPI). 
The PPI would be a simple yet effective way to gauge how programming 
rates rise or fall while still protecting the rates, terms, and 
conditions of the individual contract. By authorizing the FCC to 
collect this information in a manner that protects the unique details 
of individual agreements, I cannot see who could object.
    Armed with this information, Congress and the FCC would finally be 
able to gauge whether rising cable rates are due to rising programming 
prices as we have claimed or whether cable operators have simply used 
that argument as a ruse. A PPI would finally help everyone get to the 
bottom of the problems behind higher cable and satellite rates. We at 
ACA are so convinced that this type of information will aid you in your 
deliberations that we challenge our colleagues in the programming 
marketplace to work with us and this Committee to craft a process for 
the collection of that data.
    In short, without disclosure, there is no accountability. The 
digital transition is about how to manage broadcasting in America and 
is an opportunity to make things fundamentally better for consumers.

4. Make Access To Quality Local-Into-Local Television Signals 
        Available.
    In the previous section, I outlined the enormous technical, 
financial and operational challenges facing independent cable in 
smaller markets and rural areas to accomplish the DTV transition. While 
we are committed to making the transition work, it will be no small 
feat to make this transition happen in ACA members' marketplaces 
without putting the many advanced services we now provide at great 
risk.
    Another important reality about digital signals is that they will 
not likely have the same distribution range as the analog signals they 
replace. One way to help solve this problem is to grant cable access to 
local-into-local television signals already being delivered by direct 
broadcast satellite (DBS) companies.
    The digital spectrum assigned will not have the same propagation 
qualities as many of the analog signals they replace. As a result, 
while most metropolitan cable operators and DBS will have access to 
improved digital signals, some rural cable operators will find they no 
longer can receive any usable signal at all. This is what refered to as 
the digital cliff. In local-into-local markets, DBS can deliver clear 
local broadcast signals regardless of distance from transmitters. ACA 
members and their buying representative, the National Cable Television 
Cooperative in Lenexa, Kansas, have asked both DirecTV and EchoStar for 
the right to buy and pay for access to DBS' local-into-local signals 
where a good quality signal is not available over-the-air. However, the 
DBS duopoly refuses to allow rural cable systems to receive these DBS-
delivered broadcast signals, even though DBS now sells the same signals 
to private cable operators, satellite master antenna system owners, and 
several Bell companies.
    Ironically, DBS now refuses to grant access to its programming, 
despite the favored regulatory treatment it received to have access to 
cable programming. The ability to receive local broadcast signals was 
the reason Congress enacted the Satellite Home Viewer Improvement Act 
in 1999, which Congress recently reauthorized through SHVERA. But 
SHVERA does nothing to solve the local signal problem for rural cable 
operators and customers.
    Congress can solve this problem by revising the retransmission 
consent laws as follows:
          In markets where a satellite carrier delivers local-into-
        local signals, that satellite carrier shall make those signals 
        available to MVPDs of all types on nondiscriminatory prices, 
        terms and conditions where the MVPD has the consent of the 
        broadcaster to retransmit the signal.
    ACA's recommended revisions to the laws and regulations governing 
retransmission transmission consent and broadcast exclusivity are 
modest. But they will advance the widespread dissemination of good 
quality local broadcast signals to your constituents and will address 
the serious competitive imbalance currently hurting small market and 
rural cable systems. Carrying this restrictive situation into the DTV 
world would further compound this mistake. All video vendors must be 
able to have access to quality signals if they are going to be viable 
competitors within in the DTV marketplace.

                               CONCLUSION

    This Committee stands today at the threshold of the new digital 
world, but it is also a precipice. The challenges are many and the 
risks are great.
    This legislation provides you with the power to determine whether 
to recognize that rural America and its service providers have unique 
financial and geographic challenges to face while making this 
conversation. Additionally, at the same time, you have the opportunity 
to repudiate outdated regulatory structures that raise rates and force 
programming on your constituents while replacing it by injecting 
market-based solutions. I hope you will be able to address both halves 
to this problem and appreciate the opportunity to testify on ACA's 
views on these matters.

    Mr. Upton. Thank you. Mr. Souder.

                    STATEMENT OF STEVE SOUDER

    Mr. Souder. Good afternoon, Chairman Upton, Ranking Member 
Markey, and members of the subcommittee, and especially 
Representative Wynn, from my home country and district. Thank 
you.
    My name is Steve Souder, and I am the Director of the 
Montgomery County, Maryland 911 Emergency Communications 
Center. I previously served as the administrator of the 
Arlington County, Virginia 911 Public Safety Emergency 
Communications Center, where I served on September 11, 2001, 
and was one of the many public safety communications leaders 
called upon to address the terrorist attack on the Pentagon.
    I want to thank you, Mr. Chairman, for scheduling this 
hearing, and for focusing on the communications needs of the 
Nation's first responders. It is an honor to be here with you 
today and support your mission to clear needed spectrum for 
first responders by ending the DTV transition as soon as 
possible. It is important that we set aside and close the date 
on December 31, 2006, as soon as possible, because every year 
that we wait is another year too late.
    You concurred with the 9/11 Commission in last year's 
intelligence reform legislation that dedicated spectrum must be 
made available to our Nation's police officers, firefighters, 
emergency medical technicians, to enable them to carry out 
their critical mission. The spectrum referred to in the 9/11 
Report is in the 700 megahertz band. Public safety identified 
the need for this spectrum eight long years ago. Ironically, 
and on September 11, 1996, a report by the Public Safety 
Wireless Advisory Committee. That report rather eerily 
indicated that the 24 megahertz of spectrum under consideration 
today should be available within 5 years. As we all know now, 
exactly 5 years to the day was the deadly day that the 
terrorists attacked our soil, which gave rise to the 9/11 
Commission, which again urged that these frequencies be made 
available to public safety.
    The events of September 11, 2001 have brought much 
attention to the manner in which the terrorist attacks on the 
Pentagon was responded to by local law and fire rescue 
personnel that were indeed the first responders, and how 
interoperability was achieved at that event. Today, technology 
exists to improve the quality and effectiveness of public 
safety communications operations. But public safety must have 
access to the 700 megahertz spectrum by the end of 2006 to 
deploy interoperable voice and advanced data technology as 
early as possible, in order to benefit from that technology.
    In 1997, this committee and the FCC recognized the need to 
allocate spectrum in the 700 megahertz band for mission-
critical State and local public safety communications. This 
allocated spectrum continues to be used for analog TV and needs 
to be cleared. In reality, there is no hard date for ending the 
DTV transition, leaving public safety and the deployment of 
vital technology in limbo. Until this problem is addressed, 5 
percent of the country's TV stations block improved public 
safety communications for over 50 percent of the Nation's 
population.
    Finally, I strongly concur with the statement made by the 
Association of Public Safety Communications Officials, the 
Congressional Fire Services Institute, the International 
Association of Police Chiefs, the International Association of 
Fire Chiefs, the Major Cities Chiefs Association, the Major 
Counties Sheriffs Association, the National Association of 
Counties, the National League of Cities, and the National 
Sheriffs Association, in a letter they sent to the committee on 
May 5, 2005.
    In that letter, Public Safety strongly challenged the 
letter that the National Association of Broadcasters had sent 
to the committee on March 4, 2005, which said that the 
broadcasting remains a primary first responder during times of 
crisis. Members of the committee, law enforcement officers, 
firefighters, and emergency medical providers, and 
communications dispatchers and call-takers are the Nation's 
first responders, not the NAB.
    In closing, Mr. Chairman, making the public safety spectrum 
available nationwide by the start of 2007 will not happen 
without the committee's leadership. We again urge the Congress 
to fulfill the promise made in last year's Intelligence Reform 
and Terrorism Prevention Act. Please adopt legislation this 
year that provides public safety with early date certain access 
to 700 megahertz spectrum that we desperately need for the 
security of our homeland, our hometowns, and the citizens you 
represent are at stake.
    Thank you very much.
    [The prepared statement of Steve Souder follows:]

    Prepared Statement of Steve Souder, Director, Montgomery County 
              Maryland 911 Emergency Communications Center

    Good morning Chairman Upton, Ranking Member Markey and Members of 
the Subcommittee. It is a pleasure to appear before you. You have both 
been great champions for First Responder communications capabilities.
    Thank you for holding today's hearing on the need to expeditiously 
end the digital television transition. The transition must be concluded 
as soon as possible and with a hard date. Indeed, every year we wait is 
another year to late for America's first responders and their access to 
critical communications capabilities in the reclaimed spectrum once 
television broadcasters follow the plan and finally migrate to digital 
services.
    I also want to thank Chairman Barton for powerfully changing the 
terms of the DTV debate and Ranking Member Dingell who has also 
committed to setting a hard transition date which will enhance the 
safety and security of our citizens. It is no longer a question of will 
the DTV transition ever occur--but when will Congress make it happen. 
On behalf of the public safety community, I urge you to conclusively 
end the transition as promptly as possible.
    My name is Steve Souder, and I am the Director of the Montgomery 
County, Maryland 9-1-1 Emergency Communications Center. In 1982, I was 
assigned to the District of Columbia Fire Department Communications 
Center and subsequently became the Administrator of the Arlington 
County, Virginia 9-1-1 Public Safety Emergency Communications Center, 
where I served on September 11, 2001 and was one of the public safety 
communications leaders called upon to address the terrorist attack on 
the Pentagon.
    Our people at the Montgomery County 9-1-1 Center, like 
communications officers across the country, are the most unsung of the 
unsung heroes, yet heroes they are in every respect. They operate 
behind the scenes in emergency communications centers which are in many 
ways similar to NASA's Mission Control Center, both in the 
sophistication of the technology utilized and in the critical nature of 
the mission performed.
    Montgomery County opened a new Emergency Communications Center in 
July of 2003 and completely updated its emergency communications 
systems. The entire ECC staff had to change the way they had done 
business for 15 years and adjust to many new types of equipment and 
procedures, including: a new radio system; Computer Aided Dispatch 
system; Automatic Vehicle Location system; Automatic Vehicle Routing 
Recommendation system; Mobile Data Terminal system; and, a Geographic 
Information (mapping) System. Public safety communications 
capabilities, nationwide, must continually advance to the cutting edge 
and increasingly must become mobile as our first responders go about 
the business of protecting the public, their property and themselves at 
times we all recognize to be dangerous.

Preventing or Responding to Emergencies Requires Mobile Public Safety 
        Communications Tools and Spectrum
    The events of September 11, 2001 brought much attention to the 
manner in which the terrorist attack on the Pentagon was responded to 
by First Responders and how we communicated with each other. The 
preparations that allowed for seamless and effective radio 
communications among the initial local area Fire-Rescue-Emergency 
Medical Service and Law Enforcement agency response on that fateful day 
were necessitated by a tragic event that had occurred twenty years 
prior and less then , mile from the Pentagon. That event was the crash 
of Air Florida Flight 90 onto the 14th Street Bridge and into the 
Potomac River after taking off from Washington National Airport on 
January 13, 1982 during a severe snowstorm.
    That crash highlighted the concern public safety agencies had been 
expressing for many years concerning the lack of interoperable radio 
systems and the lack of adequate spectrum on which to effectively 
communicate. As a result of that event, local area public safety 
communications personnel pledged themselves to, within their ability, 
correct or at least improve this situation. My testimony today is a 
continuation of that duty to seek to improve communications 
capabilities for my fellow public safety officers as we seek to carry 
out our vital mission to protect others. I thank you for this 
opportunity.
    As you know, the report of the National Commission on Terrorist 
Attacks Upon the United States also highlighted the critical need of 
the public safety community to have access to radio spectrum for 
mission critical communications.

The 9/11 Commission Report
    The Report by the 9/11 Commission reviewed how emergency responders 
communicated or, in many cases, were unable to communicate, during the 
tragic events of September 11, 2001. Absent proper resources, 
communications capabilities can become overwhelmed and less effective. 
Proper resources include radios that can interoperate among agencies 
and spectrum to ensure sufficient system capacity. The 9/11 Commission 
recognized this and recommended that Congress pass legislation to 
provide access to spectrum for public safety.
    The spectrum referred to in the 9/11 Report is in the 700 MHz band 
and is squarely at the heart of the DTV transition debate--without 
ending the transition this spectrum will never be utilizable by First 
Responders nationwide. Indeed, public safety identified the need for 
this spectrum more than eight years ago in a September 11, 1996 report 
by the Public Safety Wireless Advisory Committee (PSWAC). That report 
indicated that the 24 MHz, which I am discussing with you today, should 
be available within 5 years. As we all know five years--to the day--
from the issuance of that public safety study, the terrorists attacked 
America. The attacks led to the 9/11 Commission which again, urged that 
these frequencies be made available to public safety. Let's commit to 
not having another repeat. This 9/11 Commission recommendation has not 
yet been enacted by the Congress, and public safety respectfully asks 
that you swiftly do so.
    After the PSWAC report was published, Congress acted quickly and 
allocated the spectrum to public safety in 1997. However, eight years 
later, television stations operating on channels 62, 63, 64, 65, 67, 68 
and 69 prevent public safety access in most major urban areas where the 
demand for spectrum is the greatest. The reason is the continued use of 
the spectrum for analog broadcast television services--and there is not 
a date certain as to when the spectrum will be fully transferred to 
public safety's use. The communications needs of public safety are too 
important to allow this uncertainty to continue.
    As you know, current law sets December 31, 2006 as the date for 
clearing television from the band. However, this is not a firm date. 
Broadcasters do not have to clear out until 85% of the households in 
their markets have the capability to receive digital TV--they have the 
ability to enjoy virtually unlimited extensions of this deadline based 
on this loophole. So, there is no ``hard date'' when the transition 
will end and the spectrum will really be accessible to public safety 
everywhere. I urge this Committee not to ignore the recommendation of 
the 9/11 Commission that legislation be enacted that would clear this 
spectrum nationwide for public safety use no later than year-end 2006. 
Indeed, on December 8, 2004 when you passed the Intel Reform 
legislation, the Congress expressed its intent to pass DTV-ending 
legislation in 2005 and that the hard date should be as close to year-
end 2006 as possible. I urge you adhere to this important mission.

First Responders Need this Spectrum for Critical Services
    To serve the American people, First Responders need systems 
designed specifically for mission critical operations. Effective 
mission critical mobile communications systems are vital to our 
operations. Police officers, firefighters, emergency medical personnel 
and their departments must exchange information in the field that can 
help protect public safety officials and the citizens we serve. This 
information formerly was exchanged by voice. With technological 
advances, as public safety entities strive to increase effectiveness 
against more complicated challenges we also need the capability to 
reliably transmit and receive high performance data, still images and 
video. Increased communications requirements lead to the need for 
access to more spectrum.
    These channels are critical to public safety. The 700 MHz band's 
proximity to existing public safety operations in the 800 MHz band 
allows public safety agencies to engage in vital expansion of current 
800 MHz narrowband voice and data systems for interoperability and 
regional coordination. Also, 700 MHz is the only dedicated spectrum 
allocation where public safety can implement advanced mobile wide area 
systems that bring high-speed access to databases, the intranet, 
imaging and video to first responders out in the field. This technology 
offers a whole new level of mobile communications capabilities, which 
is far beyond today's voice and low speed data applications. For 
example:

a. An officer or agent could transmit video of a potential bomb, or 
        biological weapon and get real time counsel from an expert in 
        another location.
b. Law enforcement could instantly send or receive a photograph of a 
        missing or abducted child or transmit live video of footprints, 
        fingerprints and evidence to speed analysis and apprehension of 
        perpetrators.
c. Firefighters could access building blueprints, hydrant locations 
        hazardous material data and other critical information.
    As you can see, the public safety applications that will be 
possible in the reclaimed spectrum are the very type that are too 
valuable for our safety and security to remain in the on-deck circle 
indefinitely.
    I urge the Committee not to be deterred from sticking as close as 
possible to the December 31, 2006 goal because spectrum auction revenue 
timing projections for the reclaimed frequencies might make it more 
expedient to draw the transition further out into the future. In my 
view, the cost of not making the transition happen as soon as possible 
costs the nation too much in terms of reduced preparedness. One thing I 
do know from all of the experts is that dangerous people still seek to 
do more harm on our soil--We just don't know when. Another thing I know 
is that we should not have to say anymore that the DTV transition will 
end in America--We just don't know when. Help First Responders to have 
the best fighting chance with the tools we need. The costs of not doing 
so are too high.
    In closing, Mr. Chairman and Members of the Committee, making this 
spectrum available to support first responders as close as possible to 
the end of 2006 will not happen without your commitment and leadership. 
I urge you to take swift action to make higher use of this spectrum a 
near-term reality for law enforcement, firefighters, emergency medics, 
and your better-protected constituents.
    Thank you.

    Mr. Upton. Exactly 5 minutes.
    Mr. Souder. Thank you.
    Mr. Upton. Mr. Kimmelman.

                   STATEMENT OF GENE KIMMELMAN

    Mr. Kimmelman. Thank you, Mr. Chairman, Congressman Markey, 
members of the subcommittee. On behalf of Consumers Union, the 
print and online publisher of Consumer Reports, we appreciate 
the opportunity to testify, and thank you for bringing this 
important issue of digital television to the legislative 
process.
    Now, I am not going to try to scare you about how consumers 
are going to react if there is a tax on their TVs, or the cost 
of a TV goes up 25 or 50--you have already done enough to scare 
yourselves, I believe, as to what is at stake here.
    I would like to step back and just ask you to look at this 
and the rationale for why consumers really ought to be held 
harmless in this. Who drove this process to a digital 
television transition? Did you ever hear from constituents that 
they are dying to have a digital television transition? I 
haven't heard from it. Consumers who want digital equipment 
know how to buy it, and those who can afford to do it are doing 
it, and you heard they are doing it in droves. People who want 
it can get digital equipment.
    We know this is driven by government policy, and there is 
no question about the fact. There is no reason to be ashamed 
that public safety is at risk. There is no reason to be ashamed 
that through auctions, you can find greater financing for 
important government services that the American people need, 
and hopefully, you will find opportunities to expand 
competition and bring greater diversity of ownership and 
content through media through this process. There is nothing to 
be ashamed about, but it is a government-driven process. Why 
burden--it is not about whether some people can afford this.
    People bought a television with a legitimate expectation 
that it would work, and it was sold to them at a price with 
virtually a guarantee that it would get over-the-air signals. 
If we take that away, that is like taking away private 
property. That is not an issue as to whether you are poor or 
middle class or rich. In this country, when we take away 
property, even for the most laudable public purposes, we 
compensate people. This is about holding people harmless who, 
out of no fault of their own, could lose their over-the-air 
signals.
    But don't be too hard on yourselves. It was an important 
government decision, and there are important things that need 
to be done, and in doing so, you have effectively created 
important benefits for the industries at this table, and you 
heard about it. They are going to sell more equipment. 
Televisions that wouldn't have been thrown out earlier may get 
thrown out earlier. They are going to sell more. Cable 
companies are probably going to be able to hook up more people. 
That second and third set, that fourth set, people are going to 
want it, because they are going to want digital TV. Satellite 
as well. So when we think about whether it is a nickel, a dime, 
a quarter, out of people's pockets. Who else is benefiting 
here? Broadcasters used to get one signal for their 6 
megahertz. Here, they are probably going to be able to get high 
definition at least six signals over those same 6 megahertz. 
Enormous benefit to them. Maybe they should be reaching into 
their pockets and helping out as well.
    So if you can find a way to hold the industry accountable 
and protect consumers, you also have enormous opportunities 
here with the digital transition and a hard date. I think 
competition policy is critical. We have got fewer and fewer 
phone companies consolidating, controlling the broadband access 
that every consumer needs for local phone, long distance, high 
speed Internet. We have a few cable companies dominating as the 
single alternative and prices keep rising, and they all have a 
chokehold. We need more broadband connections for consumers. We 
need more transmission companies out there offering service for 
consumers. You have an opportunity, by ensuring that not all 
the spectrum is auctioned, by ensuring that rural interests, by 
ensuring that low-income interests, by ensuring that greater 
diversity is met, through a greater diverse ownership, through 
a focusing on local opportunities through new uses of spectrum. 
All of this can be done as part of this transition.
    You can set aside some spectrum. You can also look to the 
broadcasters. That 6 megahertz is an awful lot these days. It 
originally was supposed to provide one high definition signal. 
It provides much more, given the technological improvements. 
Should some of that be available to community needs, to local 
needs, to rural needs, to religious broadcasters? Community 
wireless systems are popping up. This spectrum would be 
enormously valuable to bring us greater competition and greater 
diversity, as the other portions of the industry consolidate.
    And it is important to also look at with the 6 megahertz, 
whether we are creating a new problem of dominance in local 
news and information. Half the broadcast television stations in 
this country do not produce and offer local news. In some 
instances, we have already allowed some stations to own two 
stations in a community. We are talking about possibly letting 
them own the dominant newspaper, and they own radio. If 6 
megahertz can deliver as much as six channels worth of 
programming, is there a concern here that a few dominant 
broadcasters could own too much? We urge you to look at that.
    In conclusion, Mr. Chairman, we urge you, as you move 
forward with legislation, to not put an undue burden on 
consumers, to make sure that those who are not at fault for TVs 
going blank do not have to pay to make the signals come back, 
and we also urge you to ensure that there are real benefits, 
not just to the industries involved, but to the consumers of 
these services, so that we get more competition and we get more 
diversity and more diversely owned sources of media.
    Thank you.
    [The prepared statement of Gene Kimmelman follows:]

Prepared Statement of Gene Kimmelman, Senior Director of Public Policy 
                     and Advocacy, Consumers Union

    Consumers Union 1 and Consumer Federation of America 
2 appreciate the opportunity to testify on the transition 
from analog to digital television. We are grateful to Chairman Barton 
and members of this Subcommittee for their leadership on these 
important consumer issues.
    We agree, as the staff discussion draft suggests, that the 
transition to digital television as envisioned by the 1996 
Telecommunications Act has failed, requiring additional congressional 
action to ensure a smooth transition and to protect American consumers.
    Setting a hard date for the conversion from analog to digital and 
return of the analog spectrum may play an important role in meeting the 
underlying goals of the Act. However, any legislation that this 
Subcommittee takes up to on the digital transition must:

 Ensure that consumers do not bear the financial burden of the 
        transition or suffer from the loss of television signals they 
        rightfully expect to receive;
 Promote market competition, rather than consolidation, through 
        appropriate allocation of the 108MHz of returned spectrum to 
        new entrants and smaller existing market players, particularly 
        in the area of broadband wireless;
 Promote unlicensed use of spectrum by both commercial and non-
        commercial entities in either the retained or returned spectrum 
        to promote competition, offer advanced communications services, 
        and bridge the digital divide; and
 Prevent further concentration of local media markets by ensuring that 
        a portion of the remaining 6 MHz is used to provide more news, 
        information and entertainment from independent sources and 
        addressing ownership restrictions for dominant local broadcast 
        outlets.
    Although the discussion draft requires important broad-based 
consumer education by retailers and manufacturers to help ease the 
transition, it fails to address the four critical needs identified 
above. As a result, Consumers Union and Consumer Federation of American 
oppose the draft in its current form. We look forward, however, to 
working with you to ensure that any legislation reported by the 
Subcommittee incorporates these core consumer provisions. We elaborate 
on these critical needs below.

Hold Consumers Harmless
    Consumers buy televisions with the reasonable expectation that they 
will be able to receive broadcast signals over the life of the set. And 
that life can be substantial. Research from Consumer Reports shows that 
televisions are the workhorses of consumer electronics: they last for 
decades. Even today, as Congress focuses on a hard digital television 
transition date, millions of consumers are buying new analog sets on 
the assumption they will work for years to come. The digital transition 
turns that assumption on its head: for consumers relying on over-the-
air broadcasts, the sets will be useless for their primary purpose. Any 
conversion to digital television must ensure that this expectation will 
continue to be met without imposing additional costs.
    The number of consumers that could be left in the dark without 
further congressional action is substantial. Currently, 21 million 
households rely solely on over-the-air broadcasts. Another 16 million 
cable and satellite households have at least one television that is not 
connected to their cable or satellite service.3 All these 
sets will go dark after the transition unless consumers buy digital-to-
analog converter boxes.
    The costs to individual households to purchase those boxes will 
likewise by substantial. With estimates of their cost at between $50 
and $60, the digital conversion effectively increases the cost of 
television sets consumers have already purchased. According to the 
Consumer Electronics Association, a 25-inch television--the most 
popular set--sells on average for about $200. A $50 converter box 
increases the cost of that set by 25 percent. The costs of smaller sets 
selling for $100 dollars would effectively increase by 50 percent. 
Given that, according to the Government Accountability Office (GAO), 
the average over-the-air household has two televisions, the costs are 
double--effectively a consumer tax of $100 or more just to facilitate a 
transition that benefits broadcasters, equipment makers, retailers and 
other industry players.
    Unless Congress makes changes to the discussion draft under 
consideration and provides a full consumer subsidy, Congress will 
impose dramatic cost increases and substantial inconvenience on 
consumers.
    At the macro-level, the consumer cost of the transition is 
startling. GAO estimates the cost of purchasing new converter boxes for 
relevant households to be as much as $2 billion. Other estimates 
suggest the costs could rise to nearly $3 billion. It is completely 
unacceptable for consumers to bear these costs just to be able to 
receive over-the-air broadcasts their sets used to provide.
    Though we support provisions of the discussion draft designed to 
hold cable and satellite subscribers harmless by providing for down-
conversion of digital signals, the draft, in its most serious 
shortcoming, omits provisions to hold harmless the 37 million 
households that continue to rely on over-the-air broadcasts. Congress 
must establish a full consumer subsidy program for digital-to-analog 
converter boxes for all over-the-air households in a manner that does 
not impose costs on consumers. And cable and satellite subscribers must 
be certain they will receive all broadcast channels from their service 
providers.
    This principle is not new to this Subcommittee. The Commercial 
Spectrum Enhancement Act (CSEA), enacted in 2003, has been instrumental 
in encouraging the development of new uses for spectrum. But that law 
also stipulates that auction proceeds must cover 110 percent of the 
costs of relocation. While the law does not apply in this case, 
Congress must recognize the significant costs it will impose on 
consumers, and hold them harmless for policy decisions that will 
substantially benefit other parties. Broadcasters, who demanded the 
ability to go digital in the first place, incurred their costs 
willingly. But, according to the New American Foundation, sales of 
digital-ready televisions represented just four percent of all 
televisions sales in 2004, suggesting public demand for digital 
television is insignificant. For DTV transition legislation, the 
Subcommittee therefore should adopt a principle similar to that 
embodied in the CSEA: digital transition costs to consumers should be 
paid not from their pockets but by proceeds from future spectrum 
auctions or by the industries that will benefit from the transition.
    The digital transition may, if managed appropriately, provide 
significant public benefits. But, unquestionably, it will be viewed as 
an abject failure by consumers if they are forced to bear the costs of 
acquiring digital-to-analog converter boxes or face the equally 
unpalatable alternative of losing access to over-the-air television.

Promote Market Competition
    It is unacceptable to have two incredibly valuable, publicly owned 
blocks of spectrum--for which the broadcast industry paid nothing--
remain underutilized. However, how this spectrum is allocated at 
auction will determine whether the U.S. broadband market grows more 
concentrated or benefits from greater market competition. Cable 
providers and telephone companies offering DSL dominate their markets 
and don't compete against each other outside of their territories. Data 
supplied by the Federal Communications Commission and J.P. Morgan show 
that the high-speed product space is highly concentrated; in fact, it 
has become a cozy duopoly. As a result of weak competition, broadband 
penetration in the U.S. is proceeding at a slower rate than many other 
countries--the U.S. now ranks 16th in the world.
    And if the merger between Sprint and Nextel is approved, just three 
companies will dominate the wireless industry. The owners of two of 
those wireless companies--Verizon and SBC--are near-monopoly telephone 
companies that also dominate local and long-distance calling throughout 
the United States. Other, smaller wireless companies remain minor 
players that lack the spectrum needed to compete and match services 
over the long-term.
    Congress has the important opportunity to ensure that spectrum made 
available from the analog give-back will facilitate robust competition 
in the broadband market--providing new opportunities for smaller cell 
phone companies and other wireless providers to access valuable 
spectrum that will allow them to better serve their customers and 
effectively compete in the marketplace. In addition, if portions of 
this spectrum were made available for wireless community networks, 
consumers could receive substantially lower broadband prices from an 
important competitive alternative to dominant market players.
    But if rights to this valuable spectrum are available only to the 
dominant wireless carriers as smaller players are priced out of the 
market, the auctions will only make a badly concentrated market even 
less competitive--undercutting quality of service, reducing choices and 
inflating prices. As the findings of the discussion draft bill 
indicate, newly available spectrum could be used for wireless broadband 
in rural and urban communities. Even licensed options could be new 
alternatives to the incumbents for high-speed Internet access.
    Unfortunately, despite this finding, the discussion draft remains 
silent on the allocation of newly available, high-quality spectrum for 
unlicensed use by providers of community wireless internet services or 
for other purposes. This virtually ensures the auctioning of spectrum 
to dominant wireless providers that already control the bulk of this 
concentrated market. The Subcommittee should ensure that of the 
estimated 108 MHz to be returned and offered at auction, adequate 
spectrum is reserved for new market entrants and small existing 
players. Doing so will put pressure on the largest market players to 
compete, resulting in lower consumer prices, higher quality, and 
expanded choices.

Promote Unlicensed Use of Spectrum
    The findings of the draft legislation observe that the use of 
spectrum for wireless broadband is an important public policy goal. 
Unfortunately, the draft does nothing to advance unlicensed use of 
spectrum for wireless services, such as high-speed, community wireless 
Internet. This flaw that must be corrected if the digital transition is 
to offer any significant benefit to the public.
    The growth of unlicensed use of spectrum in what used to be known 
as ``junk bands,'' through the application of wireless Internet 
technologies like Wi-Fi, is one of the most remarkable accomplishments 
of the past decade. It expands the ability of ordinary citizens to use 
and share the public airwaves. But the potential to further expand the 
ability of the people to use their airwaves is constrained by 
relegating unlicensed use to these ``junk bands.''
    The ``junk bands'' were given this moniker precisely because the 
signals that can be transmitted at these frequencies are limited--the 
signals do not pass through walls or trees like TV signals do. And many 
other devices--like garage door openers, microwaves and cordless 
phones--use the same space. But what is important is the frequency on 
which they operate, not what kind of information they're sending, such 
as TV or Internet signals.
    If the principle of sharing the spectrum in a non-interfering 
manner is extended to other parts of the spectrum, the potential to 
deliver broadband and other communications services at lower costs will 
expand dramatically. Congress can and should expand the space in which 
the unlicensed or noncommercial use of the airwaves is encouraged and 
allowed. It can do so in three ways.
    First, it should set aside a small part of the recovered analog 
spectrum to be dedicated for unlicensed use. A set aside of 10 percent 
of recovered spectrum on a nationwide basis would open a substantial 
space to promote unlicensed uses.
    Second, it can set aside a small part of the digital spectrum, 
which was given to the broadcasters on an exclusive basis and at no 
charge, for unlicensed use. Congress cannot ignore the fact that the 
digital spectrum is the largest part of the spectrum made available to 
private entities not subject to auction.4 With the windfall 
provided to broadcasters in the 6MHz they will be allowed to retain, 
broadcasters will be able to provide six or more digital channels--far 
more than ever anticipated when Congress enacted the 1996 
Telecommunications Act--where they previously offered one. Instead of 
moving to the equivalent of six channels, the Congress can set aside 
part of the digital spectrum for unlicensed use. This could be 
accomplished as part of the process of assigning full power channels, 
which the legislation contemplates. Again, a 10 percent set aside would 
open a substantial space to promote unlicensed uses.
    Third, Congress should enact clear public policy that supports the 
non-infringing sharing of other parts of the spectrum. In many other 
parts of the spectrum, frequencies remain unused during all, or part of 
the day. These are referred to as ``white spaces.'' They are unused 
because ``dumb, old technology'' cannot dynamically move into and out 
of these spaces. These white spaces are particularly unnecessary in 
rural areas. ``Smart radio'' technologies can use these frequencies 
without interfering with other uses. Under current rules and 
proceedings, the Federal Communications Commission has moved haltingly 
to expand the non-interfering uses of the spectrum. A clear public 
policy promoting the non-interfering use of spectrum would speed the 
process along and allow unlicensed sharing of spectrum to advance much 
more rapidly.
    The unlicensed use of even a small portion of newly available 
spectrum would provide untold public benefits. Among many, perhaps the 
most notable is the opportunity to support expansion of community 
wireless internet services, offering perhaps the first meaningful 
opportunity for bridging the digital divide that has confounded policy 
makers for more than a decade.

Address Media Ownership
    At a time when concerns about competition, cost and diversity of 
programming have prompted a revisiting of media ownership rules, the 
DTV transition could worsen the problem in local markets. Congress 
should not ignore the serious implications digital transmission has on 
media concentration.
    We have significant concern about the power provided to local news 
companies that already own and control local newspapers and radio 
stations being provided with the capacity to offer six or more digital 
channels where they previously offered one.
    Though all local broadcasters will receive the same new digital 
capacity, they cannot all take equal advantage of it. Only a few 
stations in any market currently produce or offer local news.
    A Consumers Union/Consumer Federation of America study of station 
ownership between 1975 and 2000, found that the number of television 
station owners fell from 540 to 360 and the overall number of stations 
rose. But the number of TV newsrooms declined during this same period. 
In fact, only half of all broadcast TV stations provide news. Stations 
with newsrooms, particularly those affiliated with large news 
conglomerates, will be better able to utilize the additional digital 
capacity, dominating local news carriage, reducing diversity of news 
and information, and increasing the volume and impact of a single 
owner's voice in the news marketplace in their community.
    In 2003, millions of Americans, a bipartisan coalition from the 
House, a majority of the Senate and leaders from both parties raised 
concerns about media conglomerates owning two stations in most markets, 
or three stations in the largest ones. Unless Congress acts to prevent 
it, the digital transition has the very real potential to substantially 
increase the ability of a few broadcast giants to dominate local news 
markets nationwide.
    Of the 6 MHz of spectrum that will remain with broadcasters post-
transition, Congress should allocate a portion of it for exclusive use 
by diverse and independent sources of local news and information. 
Congress should also consider adopting new rules that specifically 
address the concentration of local news content providers that the 
transition will facilitate.

Serving the Public Interest
    In exchange for the privilege of free and exclusive use of the 
public airwaves, broadcasters must serve the ``public interest, 
convenience and necessity'' through the fulfillment of public interest 
obligations, such as the provision of educational, civic, political and 
other programming. Among many shortcomings of these obligations, 
however, has been the ability of the broadcasters themselves to define 
what constitutes programming in the public interest. In addition, 
compliance with overly vague obligations is difficult both to verify 
and enforce. In short, these obligations have failed to serve the 
public.
    The FCC should hold broadcasters accountable for their public 
interest obligations, both now and after the DTV transition, preferably 
through quantifiable and enforceable requirements. These are worthy 
goals and they should be met. However, given the historical and 
inevitable shortcomings of these obligations, improvements to the 
public interest obligation in any digital transition legislation will 
be insufficient to serve the public interest.
    Such provisions are neither an effective nor equivalent substitute 
for legislative requirements allocating spectrum to promote market 
competition and unlicensed and noncommercial use or for requirements 
allocating a portion of retained spectrum for independent local news, 
information, or entertainment programming.
    There is little debate that, to date, the obligations of 
broadcasters have failed the public interest. In order to serve it, 
Congress must address the critical competitive, diversity and ownership 
concentration issues we have raised in our testimony through the 
effective, equitable and appropriate allocation of one of the most 
valuable publicly owned resources--radio spectrum. If Congress takes 
these steps, it will provide far more meaningful public benefits than 
any improvement to public interest obligations can offer.

Summary
    As we said in our testimony on this issue in 2002, ``Consumers will 
not thank Congress for digital television if it also means they have 
Congress to thank for higher prices and inconvenience when they buy new 
TVs and new computers, or integrate their home entertainment systems.'' 
That statement remains true today.
    Digital television is a positive technology that has the potential 
to benefit consumers and the public as a whole. But it must be rolled 
out in accordance with competitive market principles in a manner that 
serves the public interest.
    We look forward to working with the Subcommittee in stimulating a 
rapid transition to digital television broadcasting and to craft 
legislation that will resolve these important issues for both consumers 
and affected industries. But the burden and costs of the digital 
transition should properly rest on the broadcast, cable and satellite 
television providers, not on consumers.

                                Endnotes

    1 Consumers Union is a nonprofit membership organization 
chartered in 1936 under the laws of the state of New York to Provide 
consumers with information, education and counsel about good, services, 
health and personal finance, and to initiate and cooperate with 
individual and group efforts to maintain and enhance the quality of 
life for consumers. Consumers Union's income is solely derived from the 
sale of Consumer Reports, its other publications and from noncommercial 
contributions, grants and fees. In addition to reports on Consumers 
Union's own product testing, Consumer Reports with more than--5 million 
paid circulation, regularly, carries articles on health, product 
safety, marketplace economics and legislative, judicial and regulatory 
actions which affect consumer welfare. Consumers Union's publications 
carry no advertising and receive no commercial support.
    2 The Consumer Federation of America is the nation's 
largest consumer advocacy group, composed of over 280 state and local 
affiliates representing consumer, senior, citizen, low-income, labor, 
farm, public power an cooperative organizations, with more than 50 
million individual members.
    3 Digital Broadcast Television Transition: Estimated 
Cost of Supporting Set-top Boxes to Help Advance the DTV Transition. 
February 17, 2005, Government Accountability Office, GAO-05-258T
    4 Certain parts of the spectrum have been set aside or 
assigned for public governmental uses, like defense, safety and 
education, and not subject to auction. The original cellular licenses 
were also given as a gift to licensees.

    Mr. Upton. Thank you. Mr. Pitsch. You knew this moment 
would come.
    Mr. Pitsch. I did. I did. I can't see the signal, though, 
so I want to be respectful of your rules, Mr. Chairman.
    Mr. Upton. Yes, yes.

                  STATEMENT OF PETER K. PITSCH

    Mr. Pitsch. Thank you, Mr. Chairman, Mr. Markey, and 
members of the subcommittee. I am Intel's global spectrum and 
communications policy director. Intel is the world's largest 
semiconductor manufacturer.
    Prior to joining Intel 7 years ago, I worked on 
telecommunications policy at the FCC, and in private practice, 
I have been doing these issues now for nearly 24 years.
    It is an honor to appear before this subcommittee to 
testify on the discussion draft. I want to, today, focus on two 
topics, the larger societal benefits from setting a date 
certain, and the particular benefits from freeing up the 700 
megahertz for WiMAX and other wireless broadband technologies, 
particularly in rural areas.
    This subcommittee has already heard much testimony on the 
benefits and costs of this proposal. This morning, I want to 
focus on some new information and analysis that I think is 
relevant to the debate. Coleman Bazelon, an economist formerly 
with the CBO and now with the Analysis Group, on behalf of 
Intel recently analyzed the auction and consumer benefit and 
many other issues. We will be sharing this study with you next 
week, when it is finalized. I just want to give you a few key 
conclusions this morning.
    Many people have argued that the auction revenues would be 
lower, because substantial amounts of additional spectrum will 
be made available in the marketplace. The Bazelon study 
rigorously analyzes this question, looking at the elasticity of 
demand for spectrum, and concludes that even accounting for 
this fact, the amount of revenue generated would be 
substantial, on the order of $20 to $24 billion.
    The Bazelon study also estimates the consumer benefit from 
freeing up the 700 megahertz spectrum, or in economic parlance, 
the consumer surplus. The consumer benefit intuitively here 
will come from new services, more minutes, lower prices, all 
made possible from the additional capacity. Applying existing 
analysis to the 60 megahertz at stake, the Bazelon study 
concludes that the benefit to consumers would be an astounding 
$200 to $432 billion. In other words, the net present value of 
the stream of benefits that come from all of these additional 
services will be in the hundreds of billions of dollars.
    Now, I would like to turn to the benefits, the particular 
benefits that will come from using 700 megahertz in WiMAX or 
other wireless broadband services. WiMAX is a particular 
standard, IEEE standard, it is a technology that we are excited 
about. Others are possible. WiMAX will make it possible to 
improve bandwidth, make service more generally available, 
radically reduce radio costs. It will enable a third pipe in 
urban areas, and particularly noteworthy, it will make it 
possible to provide low-cost wireless broadband in rural areas. 
The ability to use TV frequencies for WiMAX and other wireless 
broadband technologies will accelerate the growth, expand the 
reach, reduce the cost, and improve the quality of broadband.
    For example, because TV frequencies better penetrate walls, 
they would be less dependent on line of sight transmission to 
outdoor antennas. This means that consumers are going to get 
portability, indoor use which facilitates self installation. 
Carriers would not need to use expensive truck rolls. But even 
more important are the benefits in rural areas. Based on 
Intel's internal analysis, the infrastructure costs in rural 
areas of using 700 megahertz spectrum would be one fourth to 
one fifth of what they would be using 2.5 gigahertz spectrum. 
The upshot is that for some rural areas, opening the TV 
frequencies to wireless broadband use would likely make the 
difference between having a high quality wireless broadband 
alternative or none at all.
    In sum, the benefits to consumers, especially in rural 
areas and underserved areas from freeing up this spectrum, the 
additional auction proceeds, not to mention the benefits from 
public safety, will be in the hundreds of billions of dollars.
    Now, the transition problems are real. They are 
significant. They need to be dealt with carefully. We and 
others in the high tech community stand ready to deal with 
these problems constructively. But I am confident that if we 
act with good judgment and proceed with good faith, we can 
create an enormous win-win solution for all Americans.
    Thank you very much.
    [The prepared statement of Peter K. Pitsch follows:]

Prepared Statement of Peter K. Pitsch, Director, Communications Policy, 
                           Intel Corporation

                              INTRODUCTION

    I am Peter K. Pitsch, director of Intel's global spectrum and 
communications policy efforts. 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.
    Prior to joining Intel seven years ago, I worked on 
telecommunications policy issues at the FCC from 1981 to 1989 as chief 
of staff to Chairman Dennis Patrick and as chief of policy and planning 
for Chairman Mark Fowler and in private practice from 1989 to 1998. In 
total I have worked on spectrum and other telecommunications policy 
issues for nearly 24 years.
    It is an honor to appear before this Subcommittee to testify on the 
benefits of setting a date certain for completion of the digital 
television (DTV) transition. 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.
    The staff discussion draft of the ``DTV Transition Act of 2005'' 
would set a date certain of December 31, 2008 for completion of the DTV 
transition. In so doing it would make an additional 700 MHz band 
spectrum available-60 MHz for commercial wireless broadband use and 24 
MHz for public safety use. Today, I want to address two topics:

 Estimates of the larger societal benefits of setting an early date 
        certain for completion of the DTV transition; and
 The particular benefits of freeing the 700 MHz spectrum for WiMAX and 
        other wireless broadband uses, especially in rural and 
        underserved areas.
         the larger societal benefits of an early date certain
    This Subcommittee has already heard much testimony on the costs and 
benefits of setting an early date certain for completion of the DTV 
transition. On the cost side, there will be transition costs for owners 
of analog sets used to receive over the air broadcast signals.
    On the benefit side, there will be four substantial advantages. 
First, setting an early date certain will give consumers, 
manufacturers, retailers, broadcasters and all interested parties 
substantial advance notice and the ability to plan and minimize 
transition costs. Second, auction of the cleared 60 MHz of unassigned 
spectrum allocated to commercial use will generate billions of dollars 
in auction proceeds. Third, setting an early date certain will clear 
the 24 MHz of spectrum allocated to public safety which should give 
``first responders'' communications systems with greater 
interoperability and new broadband capabilities. Finally, new wireless 
broadband services and capacity will generate consumer benefits from 
the new capabilities, lower prices and additional usage made possible.
    This morning I want to focus on new information and analysis 
relevant to this debate that has been generated for Intel by Coleman 
Bazelon, an economist formerly with CBO and now at the Analysis Group. 
We will submit the Bazelon study to this Subcommittee when it is 
finalized early next week. I would like summarize key conclusions this 
forthcoming study reaches regarding auction proceeds, consumer benefits 
from new wireless broadband uses and the opportunity cost of the public 
safety spectrum.

Auction revenues
    Two independent analyses of the market value of the 60 MHz that 
would become available for auction generate estimates ranging from $20 
to $28 billion. Both of these analyses are based on a review of recent 
auctions and transactions. The prices generated in these ``comparable 
sales'' clearly factored in the previously announced 90 MHz of advanced 
wireless spectrum expected to be auctioned approximately a year from 
now. Both analyses recognize that auctioning the 60 MHz cleared by 
completing the DTV transition could generate a lower average price (in 
dollars/MHz/pop). They account for this downward pressure in various 
ways.
    The Bazelon study rigorously addresses this factor by estimating 
the elasticity of demand for spectrum and the increase in spectrum 
supply made available by completing the DTV transition. The study 
estimates the resulting price would be 17 percent below that predicted 
based on comparable sales. Importantly, even this more conservative 
analysis of the market value of the spectrum made available for auction 
estimates the proceeds to be a substantial sum--$20 to $24 billion. By 
raising more than sufficient money to fund a transition program for 
those households who rely on over the air broadcast signals, these 
auction proceeds should make it possible to create a ``win-win 
situation.''

Consumer surplus
    The Bazelon study also estimates the consumer benefit (or, in 
economic parlance, the ``consumer surplus'') that would be generated by 
clearing the 700 MHz spectrum. The consumer benefit generated from 
making increased spectrum available is typically many times the auction 
proceeds. Intuitively, these benefits come from new services and 
capabilities, the additional minutes of use and the lower prices the 
additional spectrum will make possible. Applying existing studies of 
the consumer benefit from adding spectrum, the Bazelon study estimates 
the added consumer benefit to be 10 to 18 times the expected auction 
proceeds-that is, at least $200 to $432 billion!

Public safety
    Completing the DTV transition will provide significant benefits to 
society by allocating 24 MHz of 700 MHz spectrum to public safety. 
While it is difficult to estimate the value of this additional public 
safety spectrum, from a public policy perspective the foregone proceeds 
that this spectrum could have garnered in an auction represent the 
``opportunity cost'' to the government of that spectrum. Of course, the 
actual benefits might be larger, but the opportunity cost provides a 
logical lower bound of the value that policymakers are placing on these 
benefits. The Bazelon study (again employing its estimate of the demand 
elasticity of spectrum) estimates that the opportunity cost of the 
public safety spectrum to be $8 to $10 billion.

             THE BENEFITS OF THE 700 MHZ SPECTRUM FOR WIMAX

    Moore's Law is going to revolutionize Marconi's transmitter. In the 
past 30 years, microprocessors have increased 1,000 times in speed and 
decreased 100 times in cost. These phenomenal ``silicon'' improvements 
will produce profound effects in radio technology. Radios will become 
ever smarter, more flexible and ubiquitous.
    One new radio technology Intel is particularly excited about is 
WiMAX. Like Wi-Fi (802.11), WiMAX is an IEEE technology (802.16) 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. It will be deployed for 
Line of Sight at ranges of up to 50 kilometers and non-Line of Sight 
applications at 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 with DSL-speed connectivity.\1\ In the 2007-2008 timeframe, 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.)
---------------------------------------------------------------------------
    \1\ WiMAX Press Teleconference Script, April 8, 2004.
---------------------------------------------------------------------------
    WiMAX is expected to improve bandwidth and service while radically 
reducing radio costs. As a result WiMAX should dramatically spur 
wireless broadband deployment as a third broadband pipe augmenting DSL 
and Cable. WiMAX holds special promise in rural areas or developing 
markets where service providers have not deployed wired infrastructure. 
Countries around the globe are already beginning pre-standard trials of 
WiMAX.
    The television spectrum would offer enormous advantages for wide 
area wireless broadband services such as WiMAX. The frequencies 
currently available for wireless broadband are in the 2.5, 3.5 and 5.8 
GHz region. In contrast, TV channels are much lower in frequency-from 
700 MHz all the way down to 76 MHz.\2\
---------------------------------------------------------------------------
    \2\ 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 US begins at 54 MHz, channel 2.
---------------------------------------------------------------------------
    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 700 MHz frequencies require fewer 
antennas and use less power.
    Based on Intel's internal analysis of the advantages of 700 MHz vis 
a vis 2.5 GHz frequencies, we estimate that to cover the same 
geographic area using 2.5 GHz frequencies 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 earlier.
    The cumulative impact of these differences on the feasibility of 
providing wireless broadband service 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. That is, 
frequencies below 1 GHz are premier beach front property. Intel 
believes the allocation of these frequencies for licensed use could 
dramatically accelerate broadband deployment with nationwide benefit, 
but with particular benefit to rural and underserved areas.
    Thank you.

    Mr. Upton. Thank you. I appreciate all of you for 
listening, those in the audience as well. That is for sure. And 
I just want to say that we are expecting a couple of votes 
momentarily, so we will probably take about a 25 minute break, 
and then we will come back for questions and answers, and then, 
we will have another vote on the House floor about an hour 
after that or so.
    So it gives us time to ask some questions, and at this 
point, we will start 5 minutes by the members that are here in 
the order of their appearance.
    I want to get a little bit into the whole down-conversion 
of the digital signal, and get a couple comments from all of 
you.
    Mr. McSlarrow, you stated that ``cable operators could 
still choose to provide the digital signal in addition to the 
down-converted analog signal, if the digital signal were 
uniquely compelling and attractive to consumers with digital 
and HD equipment.'' How would the cable operator make the 
determination about whether the digital content is compelling 
or attractive? And Mr. Abud, I am going to have you comment 
afterwards.
    Mr. McSlarrow. Well, it is the bottom line consideration 
for a cable operator making a decision is going to be what is 
it that he or she believes the customer wants. Now, that is a 
judgment call, but they are probably best placed to make that 
judgment call.
    And as you pointed out, what we are asking for, 
essentially, is to allow a pace of change in the real world, as 
opposed to just things that we decide by fiat, to take place 
where the world we have today will be the same world that we 
have in terms of the consumers the day after, even though we 
know it is all changing, and of course, everybody here wants it 
to change to the digital world.
    And it is important to understand, in the world we have 
today, cable carries 500 digital broadcast signals in addition 
to analog. I think I heard the number before, there were 1,500 
broadcasters. So there are 500 broadcast digital today. In 
addition, you have got a number of channels that are carrying 
HD content today, and that is not even taking into account all 
of the cable networks who are running things in HD.
    So without a government mandate, the market is working in 
such a way that because we want to serve the consumer, our 
customer, we are driving as much digital and HD content to them 
as possible. So that is not going to change. That will be true 
the day after the transition. What we want to make sure of is 
that they don't lose the analog service the day after.
    Mr. Upton. Mr. Abud.
    Mr. Abud. From our point of view, Mr. Chairman, at the end 
of the day, what is important for us is that everybody on the 
consumer side gets the benefit of the digital transition, not 
only those that subscribe to digital, but also those who 
subscribe to analog. And that is why we want to have access to 
all the possible viewers, and not leave it up to the cable 
company to decide which of the stations should be down-
converted. They down-convert one of the local stations, they 
should convert all of them, regardless of their retransmission 
consent or their must-carry status.
    Mr. Upton. Well, let me ask this, and I raised this in the 
hearing that we had a couple months ago, and a discussion. Mr. 
Wilner was testifying for the cable industry. NAB was here as 
well. And now, I have a--you know, in my household, I have got 
four TVs. Two are analog and two are digital. One of my digital 
sets is HD. I get the full cable package. I want to know that 
when we hit this date, which we have moved back to what I think 
is an appropriate date. And I absolutely stand with my chairman 
on 12/31/08. I want to know that that Rose Bowl game with 
January 1, with the Michigan Wolverines and maybe Boston 
College, if they could get up there, and then see how they did 
on recruiting. I want to make sure that on my HD set in my 
living room, I am going to get the signal that I paid for when 
I got that set. And I wish I had known you before, Mr. 
McCollough, before I went, but I want to make sure that only 
that channel is going to get it, but I--whatever else that I 
watch. If I go into my kitchen where my small analog set is, 
that is attached to my cable, that it is going to get all the 
different programs that I get today.
    Mr. Knorr.
    Mr. Knorr. If I may, I can address that. Sunflower 
Broadband is uniquely positioned. As ACA members, we are very 
fortunate. We serve a fairly large market. Our primary market 
is Lawrence, Kansas. It is a fairly affluent market. In our 
cases, we are today triple casting many of our broadcast 
signals.
    Mr. Upton. HD?
    Mr. Knorr. HD, standard definition digital, and----
    Mr. Upton. Analog.
    Mr. Knorr. [continuing] analog. Broadcasters don't give us 
all those signals. We have to modify--the current----
    Mr. Upton. But is this--the question is, and I am watching 
the time, because every member has got a question. But I want--
is the way that we have written this in the draft discussion, 
does this work, so that when we get to the transition date, 
whether it be a Telemundo, or a religious broadcaster, or an 
NBC, which is probably going to cover the Rose Bowl that day, I 
mean is it going to work, so that I am not going to get black?
    Mr. Knorr. It doesn't give--as it is written today, it does 
not give cable operators the flexibility to try and provide 
signals that best serve their community, which in any case, we 
can't down-convert, as the bill is written, we could not down-
convert an HD signal into a standard definition digital signal, 
which is a hole, as it is written today.
    I think, furthermore, in small communities that aren't as 
affluent as the ones we serve, I think there is a huge issue. 
They may not have very many HDTV sets, and they don't have the 
ability to just choose to down-convert and focus on analog to 
serve those communities, or possibly addressing Mr. Abud, and 
you know, minority communities, as well.
    Mr. Upton. Let me just go to Mr. Yager to respond, and then 
I will--my time is expiring.
    Mr. Yager. Mr. Chairman, I do think the Staff Draft 
addressed the situation you talked about, I think 2.5, almost 3 
months ago, in which I believe Mr. Wilner proposed, from the 
NCTA, as an NCTA witness, I was a little confused in the 
explanation, but what I understand the Staff Draft proposes is 
that digital signals would be carried through, and that would 
be both HD and standard definition digital signals would be 
carried through, and that you would have a converted, down-
converted digital signal to analog, so you would be able, on 
your set, on New Year's Day, to receive both the Rose Bowl in 
digital and--or high definition, as well as, if your family 
wanted to watch something in analog, I mean on an analog set, 
they would also get that.
    I think that is a very important piece. As I read this 
Staff Draft, that is a very important piece of the legislation.
    Mr. Upton. But does this work the way that we have written 
it? Does it work?
    Mr. Yager. There is only one little caveat there, and that 
would be for the small stations in large markets, who could be 
shut out of only having a digital carriage only, and I think 
that is what Mr. Abud is referring to. I think with very minor 
tweaking, that could be corrected in the Staff Draft.
    Mr. Abud. Yeah, but the issue for us is that if one is 
down-converted, all should be down-converted, not only the 
must-carry, but all the local broadcasters.
    Mr. Chessen. Yes, Mr. Chairman, I think that the effect of 
this would be to permit the cable system to down-convert simply 
the retransmission consent stations, the powerful stations, and 
not trip the carry one, carry all provision. It seems like that 
would be the potential scenario, so you would get carriage of, 
in analog, of the more powerful network stations that negotiate 
retransmission consent, but the other stations, the religious, 
Hispanic, other smaller stations may not be down-converted.
    Mr. Upton. And so are you saying that if--and if I have a 
digital set, and I want to watch Telemundo, that it may not 
come through, if the determination is----
    Mr. Chessen. It could come through, but not on your analog.
    Mr. Upton. Yeah. The way it is written now----
    Mr. Yager. The way it is written now. The way it is 
written.
    Mr. Knorr. And I think for rural America, the way it is 
written is that it would apply to all the broadcast stations, 
not just the small broadcasters like Telemundo, that it would 
apply to major networks, like ABC and NBC, in a rural market, 
that only your HD set will be able to receive.
    Mr. Shapiro. Mr. Chairman, 87 percent of the products sold 
are HDTV products. That wasn't a common perception of what 
would occur, but Americans said they want the highest quality. 
And if you want to get the Super Bowl or any other television 
program that is broadcast in HDTV on your cable set in HDTV, 
you have to make that very clear in this draft.
    Mr. Upton. Okay. Thank you. My time has expired. I will 
yield to Mr. Markey.
    Mr. Markey. Thank you, Mr. Chairman. I think--Mr. Dingell, 
I think that you might have----
    Mr. Dingell. I am going to defer to my good friend.
    Mr. Markey. Okay.
    Mr. Dingell. I am enjoying this.
    Mr. Markey. I thank----
    Mr. Upton. He is a big Wolverines fan as well, I want you 
to know, so he represents the great city of Ann Arbor.
    Mr. Markey. I thank you, Mr. Chairman, very much. When, on 
the 10,000th NFL game in 1997, they did a survey of the most 
memorable of the 10,000 games ever played. It was not the 
immaculate conception--reception of--that is another thing--of 
Franco Harris. It wasn't the Snow Bowl. It wasn't the Great 
Chicago Bears team, the Bears, in 1985. The most memorable 
football game of all time was when the New York Jets were 
playing the Oakland Raiders in 1968, November 17, and at 7, 
after Joe Namath had just thrown a pass to Don Maynard to take 
the lead, NBC switched to Heidi. It shut down NBC. It shut down 
the New York telephone company. It shut down the New York 
Police Department. It shut down everything. There were two 
touchdowns scored in the next 20 minutes. No one quite 
remembers now how Heidi ended, but people remember that NBC and 
CBS and ABC and all subsequent networks to never, ever shut off 
television sets as people are watching football games.
    As the Chairman just said, on January 1, 2009, there very 
well could be millions of Americans who are looking forward to 
their bowl team, and with the proliferation of bowls we have, 
it could be just about every school in America that is going 
that day, every one of our alma maters, even Boston College, in 
a bowl. And so it is a big moment that day. We have got to make 
sure that every consumer has their TV. More people have, as you 
know, televisions than have phones in America, which is all you 
got to know about the relationship between TVs and the American 
public.
    Now, Mr. Yager, for the last decade, I have been asking the 
broadcasters, what is the public interest commitment that the 
broadcasters are willing to make in order for this committee to 
tell Mr. McSlarrow that he and his organization should carry 
your stations? What is the commitment? After 10 years, I 
haven't heard anything. Because if all it is is just a plan to 
make money, and there is no public interest commitment, you 
know, and I don't mean an hour or 2 a week, but I mean a real 
commitment that benefits the local community, diversity in the 
community, then I am really not inclined to tell Mr. McSlarrow 
that he should have to carry your stations on his cable system.
    If, on the other hand, you have a plan, and you are willing 
to announce it, as to how much you are willing to serve the 
local community with these additional channels, then I am open-
minded. So could you tell us today what the broadcasters are 
willing to commit to in local public service, as a condition of 
Congress mandating that they must carry those new signals.
    Mr. Yager. Well, if we are talking here about digital must-
carry of the multicast signal, that is one thing. If we are 
just talking about what broadcasters are willing to commit to 
in terms of just carriage, that is a different thing.
    But I think all broadcasters, whether they be large or 
small, are committed to serving the public interest. We have to 
be.
    Mr. Markey. And how do you define that?
    Mr. Yager. What I consider the public interest is what are 
the interests, needs, and kind of each individual community we 
serve, and we serve very divergent communities.
    Mr. Markey. So do you think it would be reasonable to say 
that in order to mandate Mr. McSlarrow and Mr. Knorr that they 
must carry your second or third, you know, multicast signal, 
that each local station has to provide 3 hours or 4 hours per 
day of local programming, and then you can make money with the 
rest of the time? Where would--where are you going to draw the 
line?
    Mr. Yager. That kind of one size fits all mandating the 
number of hours of programming a day scares me, because that 
means that we do in Flint-Saginaw might be the same thing you 
would want us to do in Columbia----
    Mr. Markey. Okay. But having no definition scares me.
    Mr. Yager. Well----
    Mr. Markey. And because, you know, unfortunately, there are 
too many people who, you know, if you kick them in the heart, 
you are going to break your toe, in the broadcasting industry.
    So how do we make sure that those people--you have been in 
it your whole life, Mr. Yager, but you know, there has been--
some new people have arrived in the industry, that don't come 
totally out of the broadcasting industry background. So how do 
we ensure--what is the minimum?
    Mr. Yager. I think you really ensure it by licenses who, if 
they are going to operate in a local community, have to serve 
the public interest if they are going to survive economically.
    Mr. Markey. Okay. So how do we mandate that?
    Mr. Yager. Well, that is where I think we get to--I am not 
sure how you mandate that. We have a station in Flint-Saginaw 
that I am considering very seriously right now of doing a 
channel with the UAW-CIO. It is not a great television station, 
even though it is an NBC affiliate. It is a UHF competing 
against two VHFs. What can we do with that television station, 
competing against an ABC O&O and a very large group operator, 
and another very large group operator, and we are a very small 
company. What can we do to make that station more relevant to 
the community we serve? And we have spent hours so far 
discussing exactly how we do that. To say that we should do 2 
hours or 3 hours, that every station in the country should do 
that, I think would be a mistake on the part----
    Mr. Markey. Okay.
    Mr. Yager. [continuing] of Congress.
    Mr. Markey. Would you actually go to multicasting if it had 
to be exclusively public interest, or exclusively local 
programming? Would you even consider----
    Mr. Yager. Exclusively local programming? If we could 
define exclusively local as programs----
    Mr. Markey. No. No Seinfeld reruns, no----
    Mr. Yager. No, no. You know, informationals has been the 
big----
    Mr. Markey. Yeah. Just----
    Mr. Yager. [continuing] thing that cable----
    Mr. Markey. If it was just local public interest, local 
public affairs, could you--would stations even consider----
    Mr. Yager. I think small markets would not consider that.
    Mr. Markey. Okay.
    Mr. Yager. Because economically, they could not afford it.
    Mr. Markey. Okay. So what we are looking for, then, Mr. 
Yager, is a balance. In other words, I am open-minded to saying 
okay, for you know, 15 hours a day, you can be commercial, but 
you got to, you are going to have to give something back as 
well, because this is a huge transition for the public, in 
order to move to digital, and they have got to get something 
out of it in the local community, or else Mr. McSlarrow is 
saying all you are doing it just putting on a new channel that 
is competing with his already totally commercial programming, 
because they really can't do local programming. So that becomes 
a challenge for us, and I am not inclined, to be frank with 
you, unless it is meaningful and measurable, to support 
multicast must-carry----
    Mr. Yager. Don't you have to look at each case on a case-
by-case, each market on a case-by-case basis, rather than 
dictate or mandate that there be 2 hours of programming, or 3 
hours of programming, produced that doesn't--isn't relevant to 
the community. And then what do you do when you have four 
stations or five stations in a market? Who is----
    Mr. Markey. Let me ask you this.
    Mr. Yager. Yeah.
    Mr. Markey. Is there any broadcaster in America that you 
don't think can do more with the extra channels to serve their 
local community? Do you think there is any broadcaster that 
can't----
    Mr. Yager. No. I----
    Mr. Markey. Okay.
    Mr. Yager. We could all do more.
    Mr. Markey. All right. So there--so we start there. So now 
we begin with that as the basis, and now, Mr. Yager, I would 
appreciate it if you could begin with your organization to then 
propose to us what that minimum standard is, if you agree that 
everyone can do it. What is it? Because I do think we can 
really move forward to mandate on other industries these 
dictates until we know what we are getting for the public, 
especially the local community, because that has always been 
the biggest promise. And we do want to work together with you, 
but I would advise you not to allow the least enthusiastic to 
drive--the most radical to drive the policy for the entire 
organization, which in my opinion is willing to move forward to 
serve the local community, okay. So in many--and you know, 
there is an old definition, the most radical element of any 
group defines the agenda for the whole group, okay, and I have 
to make sure that the whole group, ultimately, says to even 
that minority, you are going to have to do something.
    Thank you, Mr. Chairman.
    Mr. Upton. Mr. Barton.
    Chairman Barton. Thank you. Thank you, Mr. Chairman. I 
appreciate, again, all our panelists being here. I have got 2 
or 3 questions, and I know we don't have a lot of time, so I am 
going to try to go pretty quick here. I am going to ask Mr. 
Shapiro, on behalf of the Consumer Electronics Association, if 
the December 31, 2008 hard date is a date that your group would 
find acceptable.
    Mr. Shapiro. Absolutely, and we support it.
    Chairman Barton. Okay. I want to ask Mr. McSlarrow, on 
behalf of the National Cable & Telecommunications Association 
what your views are on the down-conversion at the head end 
section of the bill.
    Mr. McSlarrow. Mr. Chairman, we have major concerns, as 
currently drafted. I think the goal, which we all share, is to 
ensure that all our existing customers on the day after the 
transition can see the same programming without additional 
cost. As it is currently drafted, it is, in effect, a dual 
must-carry provision, and our cable plant is full. And if 
something gets added on, something is going to get dropped off, 
No. 1. No. 2, it is going to put us in a position where the way 
it is drafted right now, it actually would give operators the 
choice of just carrying the digital stream and no analog, which 
seems to be no choice at all, except that if you couple that 
with the other provision, which is--which my colleagues have 
been talking about, which is carry one, carry all, you have in 
effect forced that kind of choice on system operators who need 
to manage a network that actually has capacity constraints. So 
what we have urged is to give us the flexibility, and we admit 
this is not a perfect solution, but to give us the flexibility, 
knowing that we want as many of our customers to have analog 
and digital, which we do today, to make the decision at the 
head end whether or not we are going to down-convert, and 
whether or not, in some circumstances, because it is possible, 
an operator might decide to distribute set-top boxes.
    Chairman Barton. Well, what----
    Mr. McSlarrow. Allow them the flexibility.
    Chairman Barton. What would your reaction be if we said 
okay, but if you choose not to do the analog carriage, you, the 
cable operator, you have to provide free of charge, a set-top 
box to the analog owner who doesn't have digital? If we let you 
have that choice that way, what would your reaction be to that?
    Mr. McSlarrow. Not positive.
    Chairman Barton. Just an idea.
    Mr. McSlarrow. Just--thanks for the offer.
    Mr. Upton. My bet is some manufacturers might like that a 
lot.
    Chairman Barton. Well, you know, that is why we hold these 
hearings. I want to ask the gentleman who is the Chief 
Executive Officer of the Circuit City stores, what your opinion 
on the provision in the bill before us that would move forward 
the deadline for all sets sold in the United States having to 
have a digital tuner.
    Mr. McCollough. My opinion is all you need to do is set a 
firm date, and the market will take care of itself. The day you 
set the firm date, we will begin putting signs on the shelf, 
changing our Internet site, labeling televisions, and making 
consumers aware of what will happen. I think if you just get 
out of their way, they will make an intelligent decision.
    Chairman Barton. You know, absent that, you really don't 
think there would be some manufacturers and distributors that 
would want to sell an analog set just because they would be so 
much less expensive at the end?
    Mr. McCollough. What you need to understand is we make a 
lot more money when we sell a fully featured, more expensive 
television set. The entry-level sets, when you see us run 
television sets at $69 for a 13 inch set, we are not putting 
profit dollars on the bottom line. It is in our interest to 
sell the very best set possible. So we don't need artificial 
motivation to try. What you have is customers who are making 
informed decisions on what is the economic value to them at 
that point. It is hard to do if you don't know a date certain 
about when the transition will be. Give us a date certain, and 
the market will take care of it.
    Chairman Barton. Are you okay on the December 31, 2008 date 
certain?
    Mr. McCollough. Absolutely.
    Chairman Barton. And that is enough time to get the 
distribution system and the manufacturing system and 
educational system all in place, so that the market will work?
    Mr. McCollough. That, as I say, the day that decision is 
made, and that comes to be the law, we will start the process.
    Chairman Barton. Okay. Thank you, Mr. Chairman.
    Mr. Upton. Mr. Dingell.
    Mr. Dingell. Thank you, Mr. Chairman. Mr. Goldstein, I want 
to go through some things I think will happen, and then I want 
you to tell you me what you think. We are hearing that $500 
million or a billion dollars may be set aside from spectrum 
auction revenues for a rebate program to cover means-tested 
over-the-air households. Now, first, somebody has to set up the 
program. That is going to cost money. I don't know how many 
billions or millions. Second of all, the consumer has got to 
buy a converter box that sends some type--and he has to send 
some type of documentation to the program administrator. The 
administrator receives that form and examines it for 
completeness. There is cost involved here. To verify over-the-
air eligibility, the administrator has to send the address to a 
data base company, who has contracted with the billing systems 
of the country's 1,100 cable and satellite operators to obtain 
copies of their subscribers list. There is a cost here. Now, 
there would also be a cost for the cable and satellite billing 
systems to coordinate with the data base company. Then the data 
base company verifies the address, which is not listed as cable 
or satellite subscriber, and sends the answer back to the 
program administrator. There is a cost here. And of course, the 
administrator has to receive the address and match up the 
consumer's information. Then, to verify the means test, the 
administrator sends the consumer's information to the relevant 
entitlement program, let us say food stamps, which is 
administered by the states. There is a cost here which has to 
be addressed by the program again. The State agency would then 
verify whether the person is participating in the program. That 
would involve cost. The State agency would then send the 
verification back to the program administrator. There is a cost 
to the agency to send the administrator this information, and 
to receive and process the administration. At this point, some 
time later, the administrator would tell the Treasury 
Department to mail that household one $50 check, or one check 
for a certain amount. That includes cost. And if the 
administrator thinks he was inappropriately--if a consumer, 
rather, thinks he was inappropriately denied, there would be 
costs involving the dispute, including probable lawsuits. There 
also might be lawsuits about setting up the program in the 
first place. This program is getting, I think, a bit 
complicated.
    Now, Mr. Goldstein, after each of these startup 
administrative costs were paid out, how can you estimate how 
much of the $500 million would be left aside to fund converter 
boxes to assist the disenfranchised families with the Nation's 
transition to digital television?
    Mr. Goldstein. Congressman, we don't know how much it would 
cost to administer this program, for the very reasons that you 
have just talked about. We were unable to really estimate how 
much it would cost. There are just so many variables at this 
point, and so we have not done that. What we have talked about 
in our previous testimony was the amount that it would cost 
simply if you, you know, multiplied the number of people who 
needed that converter box, say, who were over-the-air, or low-
income, by the estimated prices of the boxes. The area that you 
didn't mention, one thing that is also important note in 
dealing with the eligibility requirements that you have just 
talked about is that both of the kinds of eligibility 
requirements, both whether it is over-the-air, or whether it is 
the low-income kinds of eligibility, there is a good deal of 
churn in both of those lists. We have been told that the cable 
company lists can churn as much as up to 10 percent a month, 
and quite a number of people go on and off various assistance 
programs, you know, routinely. So it is a very difficult thing 
to--it is a very challenging and complicated thing to try and 
do.
    Mr. Dingell. How much would that leave--well, how do we 
estimate how much this would leave to pay each other, each 
citizen, out of this fund which we are going to set aside? If 
we set aside a half a million, we have all these administrative 
costs that have to go on the top, how much finally goes to get 
to each consumer in the public, and how much does each consumer 
get out of this pocket full of money after everybody else has 
dipped their hand in it?
    Mr. Goldstein. As I say, I don't know at this point, sir. 
We would have to wait until there is a better framework and 
approach for the bill, and then, either ourselves or CBO would 
have to try and do that, but at this point, as I mentioned, the 
variables are considerable.
    Mr. Dingell. Would the administrative----
    Mr. Goldstein. I really can't----
    Mr. Dingell. [continuing] costs----
    Mr. Goldstein. There is no precision that we could provide.
    Mr. Dingell. [continuing] be greater than not having 
administrative--not having all these administrative steps?
    Mr. Goldstein. The business and industry do rebates all the 
time, of course. The problem is----
    Mr. Dingell. But we are----
    Mr. Goldstein. [continuing] they don't do eligibility----
    Mr. Dingell. We are setting up a huge number of 
administrative steps that have to be taken. Wouldn't it be 
cheaper and easier just to say here fellows, here is your $50 
bill for the--for what this is going to cost you, and avoid all 
these wonderful administrative costs that are going to be a 
fine, fine overhead for some deserving bureaucrat, or 
administrator in some business.
    Mr. Goldstein. It may be. We have not costed out any of 
those. But you are right in recognizing the complexity of the 
program and the costs that are endemic to it.
    Mr. Dingell. Could it be that this is awesomely complex 
program, or a magnificently complex program, or a splendidly 
complex program?
    Mr. Goldstein. I will probably leave the modifiers to you, 
sir, but it is a very challenging program with a considerable 
complexity, which will have to be unraveled, whether it is a 
rebate, whether it is a voucher, how--as long as there is 
eligibility requirements tied to it, it makes it more complex.
    Mr. Dingell. Mr. Chairman, I find this a fascinating set of 
questions, and I know my time has expired, so I would ask 
unanimous consent that I be permitted to put--to send a letter 
to our friends at the GAO, asking a series of questions on 
these matters, and that the response to that be inserted in the 
record.
    Mr. Upton. Without objection, that will be the case, and 
we----
    Mr. Goldstein. We would be happy to comply. Hopefully, it 
will receive a timely response.
    Mr. Upton. Of course.
    Mr. Dingell. And Mr. Chairman, because of your kindness, I 
would also ask that I be permitted to ask some questions of our 
other witnesses today, because this does appear to be a 
somewhat complex question, and I think--and I am--I just would 
observe that I am contemplating putting forward an amendment 
which would give the names and the telephone numbers of the 
sponsors of this bill, so that they will be available for 
people that call when their sets go dark.
    Mr. Upton. I remind you that it is a discussion staff draft 
at the moment, so I would authorize unanimous consent that a 
couple of documents be part of the record. And I would yield to 
Ms. Blackburn.
    Ms. Blackburn. Thank you, Mr. Chairman, and I thank all of 
our witnesses for being here. And I want to thank the committee 
chairman and the subcommittee chairman for their participation, 
and the work they have put into this, and Mr. Chairman, before 
I ask my questions, I do have one thing that I would like to 
just say. It is on the agenda today, but I think it is an 
important part of this discussion, and that is the issue with 
the broadcast flag, and the concerns that we have on that, and 
the fact that the--the decision being vacated here in DC, and 
today is not the time for that, but I hope at some point, we 
have a discussion on that issue, as we move forward on this.
    I want to talk a little bit about the cost on all of this, 
not so much about the signals and the spectrum and all of that, 
but look at the cost. And Mr. Goldstein, I want to go back and 
let us visit for just a minute, if you will revisit the issue 
of the voucher program. And let us talk about how you see that 
being structured, what you think the cost of that would be, who 
would administer that program. What type bureaucracy are we 
talking about? If you want to define that just a little more 
succinctly, please, sir.
    Mr. Goldstein. Sure. I will try, ma'am. As I mentioned, we 
have not costed out any of these programs, because of the 
variables that we are talking about. We have not done that, and 
so it is not possible at this time for us to tell you. Once, as 
I have indicated, once the programs have greater precision to 
them, either us or, more likely, CBO will be able to do that. 
What we were asked by the committee to do was simply, was to 
present the various challenges that some options might provide, 
to give some insight.
    Ms. Blackburn. Sir, if I may interrupt for a moment. Your 
thoughts, then, are all still in theory.
    Mr. Goldstein. Yes, ma'am.
    Ms. Blackburn. Okay. All right. Great. Thank you, sir. Mr. 
Knorr, let me come to you. I want to go--first, let me move to 
page 10 of your testimony, if I may. And let us talk a little 
bit--you have raised the issue of the disclosure of rates, 
terms, conditions. And I am interested in your thoughts on a 
couple of different things.
    Looking at how--protecting the privacy and the sanctity of 
private contracts, while you are still providing legislators, 
regulators, local communities, with the type of valuated data 
on why cable rates continue to rise, looking at costs, and then 
I want you to say a little bit more, I want your thoughts on 
protecting that privacy, and then I would like for you to 
speak, if you will, to the programming pricing index, and you 
mention creating that to address the information black hole, 
and I want you to explain a little bit about how you would see 
that working, and why you think that would help. So if you will 
speak to that, please.
    Mr. Knorr. Well, I think one of the central issues that we 
face, especially as a small cable operator, is that the--what--
the costs that drive cable are really hidden from consumers, 
and hidden from everyone, primarily because of nondisclosure, 
very strict nondisclosure clauses, that are within the 
programming agreements that contain the content, including 
retransmission agreements from broadcasters. This really 
insulates the programmers that create content from the 
consumers that they are supposed to be serving.
    What we think is very critical is to break down that 
insulation, and a first good step would be a PPI index, and 
that, basically, would be reporting similar to the reporting on 
rates that is given to the FCC today, that would contain the 
information on effective rates for programming, all 
programming, so that that could be compiled and indexed, and 
really indexed in the same way the rates are, and kind of 
provide a balanced picture to consumers and to officials on 
what is driving rates. We do think that that is--completely 
does insulate the details of the contract, which has been 
expressed as a concern, and provides that confidentiality. 
However, ultimately, the leverage of large media companies, it 
may need to go beyond that to fully paint the picture, because 
increasingly complex contract terms determine how customers 
receive their content, whether it is retransmission consent, 
whether it is tying. Basically, every opportunity, every lever 
at the disposal of large companies, because it is profit-
driven, is being levered against a cable operator, to maximize 
distribution of content, regardless of indecency, regardless of 
the value of that content to consumers.
    Ms. Blackburn. Okay. Thank you for that. My time has 
expired. Thank you, Mr. Chairman.
    Mr. Upton. Ms. Eshoo.
    Ms. Eshoo. Thank you, again, Mr. Chairman, for holding this 
hearing, and thank you to all of the witnesses. I have three 
questions, two of Mr. Pitsch, and one of Mr. Yager. I think I 
will start out with Mr. Yager, since you have just one.
    Your organization is running what I guess I would dub 
``snow job'' ads. They are in today's Roll Call, and seem to me 
to be an attempt to somewhat frighten consumers and urge them 
to oppose moves to accelerate the transition. In your 
testimony, you say that broadcasters are more anxious than 
anyone to get the transition over and done with. I don't think 
this ad says that, but be that as it may. Do you fully support 
2008 or earlier?
    Mr. Yager. I think 2008 is a very, very aggressive date to 
set in motion all of the things that are in this proposed 
legislation or draft bill.
    Ms. Eshoo. The transition date, do you support 2008? Does 
the Association support that?
    Mr. Yager. I think what we support is a date that consumers 
eventually will accept. To put an arbitrary date on----
    Ms. Eshoo. But how are you going to do that? Are you going 
to survey consumers? How----
    Mr. Yager. No. I--where we are right now is there are many 
elements in this draft legislation that have to come together 
in order for the 2008 date to work. And----
    Ms. Eshoo. Okay.
    Mr. Yager. [continuing] until they come together, I don't--
--
    Ms. Eshoo. I think you have given me the answer. You don't 
support it. Well, I think that fits with the ad: ``Don't give 
over 20 million American homes a snow job.'' I mean, at some 
point, you can't hold on to both spectrums. I mean, you can't 
have all of it forever. So we are talking about a peaceful and 
sensible transition here, and at some point, I think 
broadcasters who are major players in this really need to 
decide where their advocacy lies. If you really want to be 
upfront and keep holding the position that you want to hold 
everything, then just say so. But we need you to help make this 
very important transition for people in the country.
    Mr. Pitsch, the United States is now 16th in broadband 
penetration, down from 4th as recently as 2001. That is a sorry 
position for our country, in my view. The President has 
promised to deliver ubiquitous broadband by 2007. It seems 
pretty farfetched, and we really haven't seen anything, I don't 
think, on this from the Administration to move us toward the 
goal. What opportunities do you think the 700 megahertz 
spectrum present to provide the competition and the innovation, 
and I spoke about this in my opening statement, to deliver 
universal broadband? Let me ask my second question, and then 
you can provide your answers on both.
    In 2001, the NTIA reported that relocation costs for moving 
the military from spectrum needed for third generation wireless 
systems was upwards of $2 billion. We also subsidized, as you 
know, Nextel's move from public safety spectrum with 
replacement spectrum worth hundreds of millions of dollars. Is 
there any reason we should not also be subsidizing television 
viewers that will be displaced as a result of this transition? 
I think that the committee and the Congress have already set 
this pattern, and established where it is really necessary, and 
it is a high priority to do so.
    So would you comment or answer both of my questions? Thank 
you.
    Mr. Pitsch. Yes. First, as to----
    Ms. Eshoo. Yes to both? Okay, thank you. Teasing.
    Mr. Pitsch. As to the value of the 700 megahertz 
frequencies, the propagation characteristics are such that we 
estimate, in rural areas in particular, and suburban areas, 
that the infrastructure costs at 700 megahertz would be one-
fourth or one-fifth of what they would be at, say, 2.5 
gigahertz, another alternative for wireless broadband today.
    So this may be one of the most important things Congress 
can do to promote wireless broadband, particularly in rural 
areas and underserved areas. I think it would also hold the 
potential for creating competition. Intel and other companies 
want to embed this type of technology in our laptops and PDAs, 
and so on, dramatically reducing device costs. That could be 
very valuable.
    Briefly, on the defense issue, I think you make a very 
valid point. When the Congress decided to move the defense 
frequencies to higher valued uses, it recognized that it could 
create a win-win situation by giving them new equipment. If the 
auction revenues are greater, I think a similar approach could 
be used here. I think we are not in the--we have not gotten 
into what the right structure for the subsidy program could be. 
I think, on the other side, one could legitimately say that 
many of the benefits from wireless broadband and laptop 
improvements and so on will go to higher income consumers. So 
we prepared--we are prepared to be constructive. I think you 
raise a valid point.
    Ms. Eshoo. Thank you, Mr. Chairman.
    Mr. Upton. And we are--the House floor, you all heard the 
buzzers and beepers go on. We are like in the worst of all 
worlds right now. We have two votes on the House floor, so we 
are going to have to adjourn for those two votes, and then we 
are going to come back immediately after that, so I would guess 
we will take about a 20 minute intermission. Restrooms are on 
either end of the hallway, men's and women's. We will take 
about a 20 minute break. We are going to come back. Mr. Walden 
is next, and we will be able to do him, and maybe one other 
before, then, we get called again for two votes, and then we 
will have an hour before the last vote of the day. So that is--
we will be back in about 20 minutes.
    [Brief recess.]
    Mr. Upton. Going to get started. Is that vote over on the 
floor? Again, votes are going to be called here on the floor, 
two votes in 10 minutes. So we will just--I know there are long 
lines in those restrooms. Souder. If you could just shut that 
outer door, and Mr. Souder will be here for a moment. Mr. 
Walden.
    Mr. Walden. I believe I get 8 minutes, Mr. Chairman. Thank 
you very much, Mr. Chairman. Again, I appreciate your hearing 
and our panel of witnesses today, and I went without an opening 
statement, because I wanted to get into the Q&A, but I can't 
help but make a few comments as I move toward that point.
    As I listened to some of my colleagues talk about the need 
for every household in America, regardless of income, to get a 
converter for every television in America, I am struck by the 
phrase that we need a converter box for the rich, so we put up 
with tax cuts for the rich, and now we are going to hear about 
converter boxes for the rich, and it--amazing that Warren 
Buffett just bought the electrical utility that serves my State 
and most of the West, and yet I am going to get to buy him a 
converter box, because he can't afford it, and I am sort of 
amazed by all that nonsense.
    I want to go to GAO. And I want to tell me, because I am a 
journalism major, not a math major, what it is going to cost if 
you have unlimited, no restriction on providing set-top 
converter boxes to 73 million people at $50 apiece.
    Mr. Goldstein. Just for the boxes themselves, and not the 
administration of them, that is about $3.5 billion or $3.7 
billion.
    Mr. Walden. Good, $3.5 billion. I mean, the math is 
pretty----
    Mr. Goldstein. I was a journalism major, too.
    Mr. Walden. Oh. Well, congratulations. Maybe the Ducks will 
get to the Rose Bowl again some day. That is where I went. 
Well, yeah. We will deal with that one later.
    Mr. McSlarrow, I want to ask a clarifying question. You 
said, I believe, in your comments, I think to one of us here, 
that we would see a channel for channel offset. In other words, 
if you had multichannel must-carry of some sort, there would 
be--basically would be--if you put on that channel your cable 
folks are at complete capacity and you have to take a channel 
off. Is that really what you testified to?
    Mr. McSlarrow. Sort of. And then let me--I appreciate the 
opportunity to clarify. What I am saying is--let me just take 
one example, a real world example.
    Mr. Walden. Sure.
    Mr. McSlarrow. Cox in Northern Virginia.
    Mr. Walden. Right.
    Mr. McSlarrow. It is actually a very robust plant. It is an 
860 megahertz plant.
    Mr. Walden. Okay.
    Mr. McSlarrow. So it is a pretty good pipe, 134 channels, 
every single one of them is full.
    Mr. Walden. So there is no bandwidth capacity left.
    Mr. McSlarrow. Not at this time. Although we are, and this 
is why I think your question is a good one, we are obviously 
working on technologies, digital compression.
    Mr. Walden. Right, right.
    Mr. McSlarrow. I mean, there are lots of things that are 
happening to squeeze more out of the bandwidth, but--and we are 
trying to bring on more advanced services, more speed for the 
high speed Internet service, and so all I am saying is you 
can't keep layering on all these requirements----
    Mr. Walden. But that----
    Mr. McSlarrow. [continuing] without bursting the seams. And 
so yes, there will be operators, and probably my colleague over 
here, with the smaller operators, who clearly will not----
    Mr. Walden. Right.
    Mr. McSlarrow. [continuing] be able to deal with this.
    Mr. Walden. But not every system in America----
    Mr. McSlarrow. Not every system, no.
    Mr. Walden. [continuing] will be channel for channel.
    Mr. McSlarrow. Not every system, no.
    Mr. Walden. Okay. Mr. Yager, my colleague from California 
made the comment about broadcasters holding onto analog and 
digital. Can you talk to me about the kind of revenues you are 
generating as a result of having both the analog signal and the 
digital signal?
    Mr. Yager. I wish I could talk to you about the analog 
revenues. Unfortunately----
    Mr. Walden. Or the digital revenues.
    Mr. Yager. The digital revenues. Unfortunately, I can't, 
because I am not aware of any small market, mid-sized market 
television station in the country that is generating any 
revenues at all right now off of their digital signal. As a 
matter of fact, we have costs involved in transmitting a 
digital signal.
    Mr. Walden. And is there anybody else at this table, other 
than maybe CEA, but--that has expended as much to comply with 
Congress' 1997 act on DTV than broadcasters?
    Mr. Yager. No.
    Mr. Walden. And I confess, I am a broadcaster, and 
broadcast for 38 years, we have nothing to do with TV, so I 
really don't have a dog----
    Mr. Yager. And the estimate is that broadcasters have spent 
someplace between $10 and $16 billion to convert to digital, 
and to the best of my knowledge, the return on that is de 
minimis.
    Mr. Walden. Do you know any broadcasters that seek to be 
able to run two sets of transmitters, one digital and one 
analog, forever?
    Mr. Yager. No. I know of none that want to, or wouldn't 
love to see the end of the transition come as soon as possible.
    Mr. Walden. All right. I want to go to our FCC witness, who 
is so far away, I cannot see your name, Mr. Chessen. And my 
question is a real life one. Okay. I am sitting in my hometown. 
I look across at a mountain in Washington called Underwood, 
where there are the translators for the local community 
television whatever it is, that does the translators for the 
Portland stations. I pick those up off air analog today. What 
happens when the over-the-air main channel analog goes away? 
How are those translators, how do they continue to provide 
service in an analog environment or convert to a digital 
environment?
    Mr. Chessen. Last fall, we came up with rules for 
translators to transition to digital. We recognized they did 
not have a digital television transition laid out for them like 
the full power broadcasters.
    Mr. Walden. Right.
    Mr. Chessen. So we recently adopted rules that give them a 
couple options. Starting probably this summer, we could give 
them the opportunity to switch to digital immediately on that 
particular channel, or we also are planning on opening up a 
filing period for translators to file for a companion channel, 
so that they can have their own transition with two channels, 
just like full power broadcasters. Now, we recognize that it is 
probably not going to be on the same timeframe as the full 
power broadcasters, as you say----
    Mr. Walden. Right. And in fact, doesn't your own notice of 
rulemaking indicate that some of those allocations for the 
digital translators won't be made until after the analog 
spectrum has been handed back?
    Mr. Chessen. Right. Many translators won't be able to find 
that extra second channel until the spectrum opens up, when the 
full power broadcasters turn back their first channels.
    Mr. Walden. So then tell me, in the real world, how all 
this is going to work for that 15 percent that still rely on 
over the air transmission of broadcast, but may indeed actually 
rely on those translators. In many of these rural areas, that 
is really how you get it.
    Mr. Chessen. Well, at some period of time, after, again, 
they will go get a second channel hopefully to broadcast in 
digital, and for some period of time after the full power 
transition they are probably going to have to take the digital 
signal from the main station, convert it to analog to send out 
to their analog viewers. Then they will have their own 
transition time, subsequently, where they will be broadcasting 
still both in analog and digital, even once the full power 
broadcasters have gone all digital. And eventually, the FCC 
will then reclaim one of the channels from the translator.
    We haven't set the deadline for that, but we plan on doing 
so in our next review of our DTV rules.
    Mr. Walden. Mr. Yager, how will that work?
    Mr. Yager. I am a little confused, Congressman, as to how 
that would work. If we are going to have a hard date, give back 
date, and we are going to continue to feed translators with an 
analog signal from a transmitter, I am confused as to how that 
would exactly work. I don't see how the two are compatible.
    Mr. Chessen. There will be just a digital signal going out 
from the main station.
    Mr. Walden. Right.
    Mr. Chessen. The translator will take that digital signal. 
It will down-convert on one channel to analog, because they are 
still serving analog viewers, and it will pass through a 
digital version on another channel for digital.
    Mr. Walden. Which hasn't been allocated yet.
    Mr. Chessen. Which has not yet been allocated to the 
translators, correct.
    Mr. Walden. All right. But the analog translators will 
continue to function for how long?
    Mr. Chessen. We have not yet set a date. We will try to 
make it as close to the overall transition as possible, but we 
said we would look at that in our next periodic review. I note 
that the Staff Draft sort of leaves open the possibility, by 
talking about full power transition being over, but that is 
something that perhaps could be clarified.
    Mr. Walden. And you are--I am not up to when your periodic 
review process would occur. What kind of timeline is that, sir?
    Mr. Chessen. I think it is slated to begin this year.
    Mr. Walden. Okay.
    Mr. Chessen. We do it every 2 years, and it is slated to 
begin again this year.
    Mr. Walden. So in a 2-year cycle, you will look at this to 
see how this might----
    Mr. Chessen. To see and set----
    Mr. Walden. Because that is an issue I hear, representing a 
very rural district that is also very rugged terrain. I mean, I 
have talked to some stations that have dozens of translators to 
fill in just in their own market, and they are trying to deal 
with this.
    Mr. Chessen. Yes, we have been working with the Translator 
Association and trying to make sure that they have a legitimate 
way to transition, too, because we recognize that lots of rural 
communities, especially out West, rely on those translators for 
service.
    Mr. Walden. Yeah, and it is a big issue. I am sure my 
colleague from Wyoming would----
    Mr. Chessen. One other thing.
    Mr. Walden. Yes, sir.
    Mr. Chessen. What is not in the bill, we are required by 
law, and this is sort of a caveat, we are required by the law 
to currently displace all translators at the end of the full 
power transition on channels 60 to 69.
    Mr. Walden. Right.
    Mr. Chessen. Even if, for instance, the public safety 
authorities are not ready to use it in that particular rural 
area. That is something, though, that we don't have the 
flexibility, we think, under the statute, to permit them to 
continue to operate on those channels even after the full power 
transition, and that is something that also, if Congress wished 
to clarify, could be clarified.
    Mr. Walden. And that is channels 60 through 69?
    Mr. Chessen. 60 to 69, we are precluded by law from 
permitting----
    Mr. Walden. Do you know how many translators might be out 
there in those areas?
    Mr. Chessen. I actually do.
    Mr. Walden. You are prepared.
    Mr. Chessen. There is 465 translators in 60 to 69, and 
there are 269 low power stations on those channels, so all of 
them would have to vacate those channels at the end of the full 
power transition, unless the law were changed.
    Mr. Walden. All right. And I note Mr. Engel has returned. 
And I guess if I am de facto chairman, we are going to a work 
session. I got a few changes. But I just--I have to follow up 
on something you said, Mr. Souder, because I--is it Souder or 
Souder? Souder. Because I--as I readily admit, I have been--I 
am a broadcaster, been in a broadcast family. My dad got his 
ham license in 1934, and so, I have grown up around public 
service in small community radio broadcasting. I wired in the 
EAS in my stations. I know about Amber Alerts, and it--I have 
to tell you just the way you sort of talked about how 
broadcasters aren't first responders. I don't disagree. You are 
the ones out there with the fire trucks and the guns, and I 
readily appreciate that. But I would hope you would not 
diminish the partnership that has existed, and your comments--I 
heard them that way, and I found them not exactly flattering. 
Because I--we work very closely with our law enforcement and 
fire departments, always have, and maybe it doesn't work that 
way in the big cities, but I got to tell you, when there is an 
emergency, we drop our programming and we go live, and we 
interact, and we tell people where the wrecks are, to avoid 
them. We work with the fire departments and the police 
departments, and help give guidance, and I can't think of a 
time when we haven't--and I don't think I am alone in that. And 
so, I just--I know what happened on 9/11 around here, you know. 
And we--you get the EAS, and wasn't it the FCC that told the 
station in New York to quit using the EAS. And so I mean, I 
hope we can get over whatever that issue is that has got your 
folks all twisted up.
    Mr. Souder. I think it is the use of the term first 
responder.
    Mr. Walden. Okay.
    Mr. Souder. I think in the general public, the first 
responder is viewed as those that first respond.
    Mr. Walden. Yeah.
    Mr. Souder. As opposed to some that might support us in 
many ways, and no one would deny that there is a strong, and 
there must be a strong partnership----
    Mr. Walden. Yeah.
    Mr. Souder. [continuing] between the first responder 
community and the broadcast industry----
    Mr. Walden. Right.
    Mr. Souder. [continuing] and many others----
    Mr. Walden. All right. All right. Okay. I know I have 
exhausted my time. I think I have to go vote. I am going to 
turn the gavel over to my colleague from New Hampshire.
    Mr. Bass [presiding]. The Chair recognizes Mr. Engel for 5 
minutes.
    Mr. Engel. Thank you, Mr. Chairman. We are all running to 
votes, from votes, and whatever. But we are all here. Mr. 
Chessen, can you tell me what the FCC is doing to work--in my 
opening statement, I mentioned the September 11 tragedy, and 
how New York now has transmitters off the Empire State 
Building, which is of lesser height than either the rebuilt 
World Trade Center or the new Freedom Tower would be. What is 
the FCC doing to work with New York broadcasters who have been 
affected by it, and are you aware of the difficulties of 
staying on the Empire State Building, and the ongoing plans for 
the new Freedom Tower?
    Mr. Chessen. Yes, Congressman. We have been working with 
the New York broadcasters since the very moment on September 
11, we, within hours, got them special emergency temporary 
authority to relocate. Ever since, we have been working with 
them very closely on trying to get them back on the air, and 
recognizing their unique circumstances. It has often been an 
express exemption to some of the other rules that we have. For 
instance, right now, we have a rule that prohibits 
modifications to digital stations. There is an express 
exception in there for the New York broadcasters affected by 9/
11, and we continue to work with them as they try to find a 
permanent home, and we are well aware of the different moves 
they have tried to make, and the difficulties they have had in 
finding a permanent home, and we will continue to do that. But 
at the same time we are still trying to get as much service as 
possible to the New York City area, which is the No. 1 market 
in the country. So we are trying to recognize the unique 
circumstances and still make sure that we get service out 
there.
    Mr. Engel. Thank you. I hope we can recognize that in the 
final, ultimate passage of this legislation, and the revision 
of this legislation.
    Mr. Yager, obviously, you remember a few years ago when 
some satellite subscribers lost their distant network signals. 
I am sure you do.
    Mr. Yager. I remember it very well, sir.
    Mr. Engel. Right. That didn't involve losing any local 
television stations. Am I correct about that?
    Mr. Yager. What it involved was losing network affiliate, I 
mean network stations that were being brought into local 
television markets, and what happened there is that, quite 
obviously, the satellite companies did not have authorization 
under the laws of the time. They were bringing in illegal 
signals into our markets. Congress quite rightly told them to 
cease and desist bringing in illegal signals, and I think you 
know, and I certainly know the outcry that created. And there 
were about 550,000 households that were involved in that.
    Mr. Engel. Well, I remember members receiving so many 
emails on that issue than we did for the impeachment 
proceeding. It was just an incredible and, as you pointed out, 
so many consumers lost their signal. I have been saying for a 
long time if we face such massive outrage over the loss of 
distant network signals, what would the response be from 20 
million consumers who might lose all of their television 
service. I think that is something that we really need to keep 
in mind. I am not, you know, opposed to the transition, but I 
think we have got to keep these things in mind.
    Mr. Yager. I couldn't agree with you more.
    Mr. Engel. Yes, thank you. Mr. Kimmelman, I agree with your 
statement about the need to hold harmless consumers who rely on 
over-the-air television. But I have to disagree with you 
regarding the broadcast flag. How else would you protect a 
songwriter's work, and the jobs of cameramen and makeup artists 
and just anybody in the entertainment industry? That is a 
concern that I have.
    Mr. Kimmelman. Well, we share the concern that any piracy 
ought to be stopped. The question is whether you change the 
Federal Communications Communication into a regulator of all 
computer electronic equipment and everything that touches it, 
or whether you find a more narrow, tailored way to go after 
piracy. We think the flag, as it was proposed by the FCC, was 
vastly overbroad. We urge you, as you look at the issue, not to 
just resurrect a bad plan that would, in essence, indirectly 
and through the side door, start regulating all computer 
equipment.
    The difficulty we have from the consumer side is that 
piracy is horrible, but what about plain old consumer copying 
of simple content for your family, for your friends. If you are 
going on vacation, the broadcast flag, while attempting to 
protect that, was in no way guaranteeing that consumers could 
make simple copies of digital content.
    Mr. Engel. Yes, absolutely.
    Mr. Chessen. Correct one thing for the record. The 
broadcast flag did not regulate computer equipment. It only 
regulated digital television over-the-air receivers, so regular 
computer equipment wouldn't be affected. It also did not in any 
way restrict copying. Consumers were free to make as many 
copies as they want of the content under the regulations. The 
only thing it tried to prevent was a very narrow thing, which 
is the mass Internet redistribution of broadcast content, in 
order to permit broadcasters to compete for content against 
cable and satellite, where that content could be protected.
    Mr. Kimmelman. What it tried to do and what it actually 
would do are vastly different, I assert to you.
    Mr. Engel. Thank you. I have no further questions, unless 
anyone would care to comment on any of the questions that I 
asked.
    Mr. Shapiro. I would like to comment.
    Mr. Engel. Mr. Shapiro. I thought you might.
    Mr. Shapiro. Actually, but not what you probably think. I 
am not going to comment on the broadcast flag. What I would 
like to comment is your use of the number, and some others have 
used the number 20 million disenfranchised viewers. And I think 
it is important that the committee get to the facts, because 
there are facts here, and if the question is how many people 
does this affect, and there is two types of people, those that 
don't have cable or satellite, which is by six different 
surveys that we have done, is 13 percent of the 110 million 
American households. And then there are those that have cable 
and satellite. Do they have other TV sets which will be 
impacted? And only 14 percent of these people use an antenna to 
receive television programming on a second, third, or fourth 
television in their house. So when you see these ads that Anna 
Eshoo referred to, and you see these other claims, they are 
grossly exaggerated. But I don't want to diminish the fact that 
there will be people, a small segment of people, who will be 
upset, who may not get enough notice, and those are the ones I 
think you should focus on, and there are some very creative 
ideas, in addition to the rather lengthy ones that have been 
discussed, about ways of having those consumers get access, and 
if you look at the Berlin, Germany example, and at this point 
in history, Berlin is the only area I know of that transitioned 
from digital, to digital, and cutoff the analog signal. They 
just made these devices available, and they were--the 
government authorities were amazed that so few of their 
citizens took advantage and went for it, and it was not a very 
expensive government program.
    Mr. Engel. Well, let me just say that I think we obviously, 
all of us, want the same thing. We don't want people 
inconvenienced, and we want this transition to go smoothly. I 
think that--and I applaud the chairman for holding these 
hearings. I just think that we need to be smart about it, and I 
am just very happy that we are not rushed to it by an 2006 
deadline that I have long felt was far too premature. But I do, 
you know, understand what you are saying.
    Mr. Shapiro. Thank you.
    Mr. Engel. Thank you.
    Mr. Upton. Mr. Bass.
    Mr. Bass. Thank you, Mr. Chairman, and I want--I was here 
at the very beginning, as you guys well know. I went over and 
presided over the entire military quality appropriation bill, 
amendments, and everything else, and now I am back here again.
    Mr. Radanovich. That was easier.
    Mr. Bass. Yeah. And I want to apologize for having missed 
all the testimony and the questions and everything else. This 
is a very important hearing, and I am going to ask a few 
questions. I hope I don't repeat myself, or repeat answers, and 
if I do, just summarize very quickly, and again, I apologize 
for the situation.
    Mr. Shapiro, the FCC estimates that there are 16 million 
households that get exclusive over-the-air reception and the 
GAO estimates 20 million. Do you think that the NAB's estimate 
that there are 73 million unconnected televisions, do you think 
that is accurate? Or which estimate do you think is closest?
    Mr. Shapiro. Well, let us walk through the numbers. Let us 
walk through the numbers. There are 110 million U.S. households 
with a television set. Now, according to the last census, about 
1.8 percent of American households don't have a television set, 
and let us agree that they are not relevant, because they won't 
be disenfranchised, because they already decided not to buy a 
TV. So we are at 110 million, 68 percent of those households, 
according to the NCTA, have cable service, paid for cable 
service. I am not even counting pirates. These are paid for 
cable providers. They all are served. There is another 22 or 23 
million satellite subscribers. Those are--this is from SEC 
filings from DirecTV and EchoStar.
    Mr. Bass. Did you say 68 percent or 68 million?
    Mr. Shapiro. I am sorry. I----
    Mr. McSlarrow. Sixty six million.
    Mr. Bass. Sixty six million. Okay, thank you.
    Mr. Shapiro. Sixty six million, not a percentage.
    Mr. Bass. Cable.
    Mr. Shapiro. And with cable, it is 22 or 23 million--I am 
sorry, with satellite, it is 22 or 23 million. And put it 
together, you get around 90 percent, but you have to subtract 
some people. You have to subtract people who have both cable 
and satellite. And according--we have done research, we have 
called up people, we said do you have cable, do you have 
satellite, do you have both? And our estimate is that it is 
about 3 percent who have both cable and satellite. So you get 
to 87 percent of the American population has cable or satellite 
or both. So 87 percent of 110 million homes comes up with a 
number which I can't do in my head.
    Mr. Bass. Okay.
    Mr. Shapiro. And then you go to those people, so there is 
two sets of people. There is that 87 percent, and there is the 
13 percent who have no cable or satellite. The 13 percent who 
have no cable or satellite, what are they doing? Well, it turns 
out that the 13 percent, they watch a lot less TV. Money really 
isn't the issue. They are just not interested in television, 
and that 13 percent has a lot of other attributes. About half 
of them are already hooked up to the Internet. Most of them 
have radios. Most of them have telephones. They are not going 
to be that disenfranchised. And also, we asked those 13 
million, we actually went to people, we surveyed people who 
have no cable, no satellite, and we asked them what would you 
do if the government cutoff analog broadcasting. Twenty 2 
percent said they would buy a new TV capable of receiving DTV 
signals, 42 percent said they would spend $50 to buy a set-top 
converter, 9 percent said they would subscribe to cable or 
satellite, and 22 percent of that 13 percent said they would do 
nothing. So the 22 percent are the ones who might be really 
angry and write letters.
    Mr. Bass. Mr. Yager, do you have any response to that?
    Mr. Yager. Well, I--we have been using GAO figures in terms 
of the disserved or unserved households in this country, and 
when we are talking about 20.5 million households that are--
receive over-the-air only signals, there are normally 2.3 
television sets in most households. It is very easy to get to a 
40 to 45 million set kind of universe there. Then, the rest of 
those households, 20 million, roughly estimated, are second, 
third, fourth, and fifth sets in consumers' homes that are not 
hooked to any MVT multiple distribution system. So it is very 
easy to get to the 73 million figure. I am not aware of Mr. 
Shapiro's figures. They are the first I have heard them. I know 
he has used there are only 13 percent that are over-the-air----
    Mr. Bass. Well, now, Mr. Goldstein, where did you get your 
numbers from?
    Mr. Goldstein. I knew you would come to me sooner or later. 
Our numbers come from a survey that was done in 2004 by 
Knowledge Networks, with a 47 percent return rate. We purchased 
that information in order to do the work for this committee 
earlier this year. The information that we used was also 
purchased by NAB, I must say that, but at the same time, we, 
you know, the numbers that we have, we think, are valid. We are 
likely to check some of the numbers later this year, and ask 
some additional questions, but the numbers we have reported to 
the committee in--earlier this year in our testimony are still 
the numbers that we stand by.
    Mr. Bass. All right. Well----
    Mr. Goldstein. So we--just to add, Mr. Shapiro and I have 
agreed, actually, we are going to try and sit down in the very 
near future, and see if we can come to some understanding of 
the difference----
    Mr. Bass. That would be really helpful.
    Mr. Goldstein. [continuing] between our numbers.
    Mr. Bass. That would be helpful, because--Mr. Chessen, how 
about you?
    Mr. Chessen. We are somewhere in the middle. From the 13 
percent to the 19 percent, our 15 percent number is derived 
from commercial sources, such as Nielsen and Kagan, which this 
is their business, and they get publicly available data and do 
surveys, and based on that, we come out with our report every 
year, and right now, the percentage that we report was 14.86 
percent.
    Mr. Bass. Thank you.
    Mr. Pitsch. Congressman.
    Mr. Bass. Yes, sir. Mr. Pitsch. Apologize.
    Mr. Pitsch. Congressman Bass, in a study we just recently 
completed, and it will be released next week, we look at the 
same question, and our estimate is that there are 14 to 15 
million households that rely primarily over-the-air, so a 
number much lower and closer to Mr. Shapiro's.
    Mr. Shapiro. You are actually lower, then. It is 12 percent 
is what you are saying.
    Mr. Bass. All right. Fair enough. Mr. Chairman, my time is 
expired. I will yield back to you.
    Mr. Upton. Mr. Inslee.
    Mr. Inslee. Thank you. I was thinking, after our opening 
comments this morning about this issue--and we have been using 
the word subsidy about this issue--of what, if any, subsidy 
there is going to be for people who experience this problem. 
And I was thinking that maybe that is really the wrong word, 
that leads to some not really precise thinking about this.
    I really think it is an issue of compensation for a loss 
that the Federal Government is taking away from consumers, and 
I really think that we should start thinking about this issue 
as compensating citizens who are losing a working asset as a 
result of their Federal Government removing access to a 
spectrum which they own, by a conscious, Congressionally 
mandated decision. And if you look at it in those terms, when 
you start to look at it as a compensatory issue, rather than 
something like an agricultural subsidy, or a subsidy for early 
childhood education, or Aid to Families with Dependent 
Children, it really leads to a different conclusion, one which 
would lead to suggest everyone ought to be having this takings, 
in a sense, it almost comes close to a property right in my 
view, because we were administering this public spectrum for 
the public, that they relied upon when they went out and bought 
a television set. And when they bought that television set, 
they thought that was going to be available to them as long as 
the grasses grow and the wind blows, and no one suggested to 
them that this was a temporary manifestation.
    So I really think that we need--it is incumbent on our 
committee to design a compensation system for the loss of this 
asset, just as we would if this committee went in and disabled 
a person's refrigerator or air conditioning set, we are 
disabling a working asset that is dependent on a Federal public 
asset that every citizen of the United States has a partial 
ownership of. And I think that is how citizens are going to 
think about this, and whether it is 2 percent or 22 percent of 
the 13 percent Mr. Shapiro has suggested, or some larger 
number, it is going to be a large number when we start hearing 
about it. In fact, I almost would suggest before we pass this 
bill, maybe we should have a prototype where we have 1,000 
people we do this to in each one of our districts next month, 
and then we all come back 30 days from now, and we just sort of 
see what happens. I think it may lead us to a more enlightened 
decision on what to do about this.
    So assuming that the committee would go the direction where 
I would like it to do it, where we would compensate people for 
the loss of this asset, what is the best way to accomplish 
that, be it Federal acquisition and distribution of specified 
technology to do this, whether it is a voucher program, whether 
it is a situation like the Berlin experience, and Mr. Shapiro, 
if you can provide me any description of that, I would love to 
see that as well. I haven't been able to be here through the 
whole hearing, but what is your wisdom on the best way to do 
that? If we wanted to have the most comprehensive system of 
compensating people for their loss, what would it look like?
    Mr. McCollough. Congressman, I think the simplest thing 
would be to provide a box at no cost. I believe if you build a 
box to replace the service, so there is no loss of service, 
essentially, you could build a box with an ATSC tuner, a 
digital to analog converter, and a simple RF only output, so 
that there would be no use of that box for anybody other than 
to receive over-the-air signals and bring them into a TV that 
couldn't receive them in digital format. But you couldn't take 
it and do other things, or with high definition outs, or so 
forth. It would be the equivalent, in this case, slightly 
better service. If you were to provide those at no cost, I 
don't think--I would think you would be surprised, as in the 
example Gary cited, that you won't have a whole line of folks 
lined up to get them. And if you do, fine. Then, they will have 
the same--they will have, actually, slightly better service 
than they are getting today over-the-air.
    Mr. Inslee. And why do you share that view that you don't 
think many people would actually take that option?
    Mr. McCollough. I probably have seven TVs in my house. I 
have one from when I was serving in the Navy, this black and 
white in my attic that is not connected to anything. I have one 
in my garage that is sitting in the corner. I think, when you 
talk to folks who have lots of TVs, they have lots of TVs, and 
many of them aren't used or ever turned on. I wouldn't get out 
of my chair to go pick up the free box. If I was relying 
heavily on it, I absolutely would go get the free box. You will 
find out in a hurry who really needs one and who doesn't. I get 
anxious about subsidies and dollars passing all around. If you 
just say you need the box, come get it, folks who really need 
it will come get one.
    Mr. Inslee. Are there economic savings to Uncle Sam doing 
it that way?
    Mr. McCollough. My guess is there will be a whole lot less 
boxes given out than there would be vouchers handed out. I 
can't know that for sure. That is speculation. And it would be 
a pretty straightforward process. And I do believe that would 
end up being probably the lowest cost alternative to Uncle Sam.
    Mr. Goldstein. Congressman, I think the question has to 
come back to, and I think you are focusing on it, what is the 
policy you are trying to achieve first, and that drives the 
kind of program, in our opinion, based on what the research we 
have done. If, indeed, you are looking to create sort of a 
relatively broad program that doesn't have eligibility 
restrictions to it, you are most likely to use a fairly simple 
rebate kind of program. If, indeed, you wanted to restrict it, 
if it was simply for people who are over-the-air, or even more 
restricted, just to people who are low-income, you would more 
likely use a voucher program, we found in the research that we 
did. The other two options that we looked at, as we mentioned 
this morning, were government distribution. We didn't feel 
that, as we looked at it, that that seemed to be the most 
viable based on the kinds of interviews did. If the government 
itself physically distributed boxes in the way that, you know, 
it does various foods, to food banks and things like that, and 
that the other, the--a tax, a refundable tax credit, that, too, 
had a lot of difficulties associated with it, and 
administratively, might be more burdensome than you would need 
to get out of it. You would actually be forcing some people to 
file taxes who don't even file them just in order to do a--to 
get a box.
    Mr. Inslee. Well, my time is up. Thank you, Mr. Chair.
    Mr. Upton. Mr. Radanovich.
    Mr. Radanovich. Thank you, Mr. Chairman. I am--I have got 
one question out of the text and then maybe another one. Mr. 
Abud, you expressed concern that the Staff Draft leaves it to 
cable, the discretion whether or not to convert your signals to 
analog. Would you rather that we require cable operators to 
carry your signal in analog format in lieu of carrying them in 
digital format, as Mr. McSlarrow suggests, or----
    Mr. Abud. Yeah, we would prefer to have the same treatment 
for all broadcasters, for all local broadcasters. My issue is 
getting it to everybody in terms of our viewers, No. 1, and No. 
2, getting the same treatment for all broadcasters, for all 
local broadcasters.
    Mr. Radanovich. Thank you. Thank you very much. I did have 
a question. I had a demonstration in my office the other day 
by--I got a chance to see an analog signal with a converter 
box, and what a digital--what it did by having gone through the 
digital converter. And I swear, when the analog signal, this 
was in my capitol office, I don't know if you guys have seen 
it, but when I looked at the analog signal, it was just snow. I 
couldn't see anything. And when it was hooked on, I could--it 
was incredible. I mean, it was just amazing, and I grew up in 
the Sierras, and we were always on the roof twisting the 
antenna when we grew up, to just try to get a signal out of 
Fresno, and there is a huge mountain in the way. And just 
thinking about how nice that would have been to have even at 
that time, but because of that, and it is remarkable, you 
really should get that demonstration----
    Mr. Markey. Let me say this, Mr. Radanovich has the No. 1 
website of all 535 Members of Congress, so this is--you are 
listening to Caesar here on this subject.
    Mr. Radanovich. But how does that speak to--is there some 
potential there to speak to a must-carry rule or something, by 
having this converter on--a digital converter on an analog 
over-the-air signal to meet a must-carry requirement in a 
large, urban area? Is it--I mean, I can't help but think--to 
wonder that some people would just be happy with an analog 
over-the-air that got in some incredible digital pictures. I 
mean, am I out in left field on this, or is there some 
potential for that, or what? How does it--could it possibly 
speak to a must-carry rule?
    Mr. Chessen. I do think it goes to the point of, whether 
there si a way to incentivize consumers to go out and buy these 
converter boxes. And one way to do that, using a must-carry 
approach, is the multicast approach. I think that there is a 
tie between the multicasting, possibly, and getting consumers 
an incentive to go out and buy these boxes. If you look at the 
experience in England, they were very successful with their 
over-the-air digital program and getting people to buy these 
converter boxes, because there are so many channels available. 
So a multicasting requirement actually, here, could give people 
incentive--everybody is assuming that the boxes are going to 
only be sold at the end of the transition. It is possible they 
could provide consumers with an incentive, if they got 
something more for their money, more than just the four or five 
broadcasters that they get over the air, that they could 
actually go out and buy them before, and that is one possible 
benefit of a multicast requirement.
    Mr. Radanovich. Could it speak to a must-carry rule? I 
mean----
    Mr. McSlarrow. I guess, Congressman, the way I would look 
at it is, right now, as you know, cable is going through a 
digital transition itself, with no government subsidies or 
government mandates, and we have gone from 6 million digital 
customers 5 years ago to 26 million today, and it is 
accelerating, and we are providing lots of two way digital 
services.
    And when we get to a transition, whenever that transition 
takes place, and we are faced with what do we do with the 
analog customers, what we are proposing is to allow us to down-
convert, in some circumstances, just for the limited number of 
must-carry stations. In the meantime, you are exactly right. 
The converter boxes, or the more elaborate boxes that some 
people may want, particularly if they want high definition or 
DVRs, or those kinds of things, are increasingly going to 
penetrate the subscribership. So what you have a universe 
which, you know, we have gone through the numbers ad nauseam 
right now, but I think we all agree, the largest television 
universe is the cable customer universe, 66 million people, and 
what we are offering is to incur the cost themselves. It is not 
going to cost the government a dime. We will take care of the 
problem. No one on day one of the transition will see any 
difference from the day before. In the meantime, the digital 
transition is taking place. And when it comes to must-carry, I 
guess our concern is this. We are saying we will step up, we 
will do this. We are not asking you to place an obligation on 
anybody else. And near as I can tell, everybody at this table 
would love to place obligations on cable or some other 
industry. We are not going to ask you to do that. We will take 
care of it. So those 66 million people, you can park over here, 
they are done, and you still have the hard nut of the true 
over-the-air customers, but this is a vanishing problem, and 
the further out the date will be, the more likely it is that 
the transition will go easier, and you are going to have 
converter boxes that are $50, perhaps $30.
    Mr. Radanovich. Right.
    Mr. McSlarrow. It gets easier. And as you said, today, with 
today's technology, people are going to want these kinds of 
devices, we hope. We are kind of betting our business plan on 
it. And so if we don't do anything to layer on requirements 
that suddenly put cable operators in the position of actually 
cutting people off from analog, which is what we would argue 
the discussion draft does, this can go pretty seamlessly.
    Mr. Radanovich. All right. Thank you. And the only other 
point I wanted to make, too, was that in the way that this bill 
is going to develop, the selling of the spectrum is, I think, 
would generate something in--upwards of $10 billion. I am not a 
big subsidy person for these boxes. I think maybe if--on a 
lifeline basis, they might be reasonable, but whatever the cost 
of this subsidy is going to come out of, the $10 billion, which 
is credited toward savings and Medicare reform that we are 
doing in this same overall committee, so it is really, you 
know, we are kind of pitting Medicaid savings against financing 
of converter boxes. So, you know, I am interested in the idea, 
Charlie, but I yield back. Thanks.
    Mr. Upton. Mr. Stupak.
    Mr. Stupak. Thank you, Mr. Chairman. Let me pick up where 
Mr. Radanovich left off, because as you know, I feel when we 
sell the spectrum, on a date certain, part of that money has to 
go into law enforcement, to our first responders. I mean, where 
you saw with 9/11 the problems we had there, and having been 
law enforcement all those years, I guess I am still getting 
tired of when there is a flood, in order to communicate with 
the jurisdiction on the other side of the flood, you have to 
yell across the river, because the radios don't talk to each 
other. So interoperability is one of these things we really 
have to do, and Mr. Souder, you brought it up in your 
testimony, so just let me ask you a few questions, if I may.
    We have this date that is sort of supposed to be a hard 
date, and I am sure you would not want to see that hard date 
slip when we go to converting over and selling this spectrum, 
correct?
    Mr. Souder. Absolutely not. The sooner, the better, for a 
whole host of reasons.
    Mr. Stupak. So as you view this legislation, I am sure you 
want to see something, whether it is converter boxes, whatever 
we do, to do it in a way that will be consumer friendly, so we 
can get this spectrum sold, and hopefully, by then, myself, Mr. 
Fossella, Mr. Engel, who has a legislation, dedicate part of 
those proceeds to law enforcement first responders, so they can 
go to interoperability. I am sure you are interested in finding 
a careful and consumer friendly way in which we can establish a 
hard date and carry it through, I take it, right?
    Mr. Souder. Absolutely so, and keep in mind that the law 
enforcement and public safety community are, in fact, consumers 
also. And similar to the gentlemen at the table with me, my 10 
neighbors for the afternoon and morning, they are 911 consumers 
as well, so we do have a vested interest in both solutions.
    Mr. Stupak. And I take it you have no problem with our 
legislation. We have heard estimates that the broadband 
spectrum may yield at least $10 to $15 million, and so far, we 
have heard it should go to converter boxes, it should go to 
Medicare. We feel at least part of it should go to 
interoperability, something this country needs. So I take it 
you would be in support of our legislation to allow public 
safety officials to buy, purchase communications for 
interoperability?
    Mr. Souder. Absolutely. But we have to have the spectrum to 
purchase the equipment to use on it.
    Mr. Stupak. Correct. Correct. Got to have the spectrum, get 
the hard date, give out the spectrum, give you the 700 
megahertz, and then get the interoperability moving. Correct?
    Mr. Souder. Correct. Absolutely.
    Mr. Stupak. Thanks. Mr. McSlarrow, you were talking about 
the 66 million people that you had, and according to some facts 
I have seen, or figures I have seen, there is like 134 million 
analog sets just connected to cable alone. Is that about right?
    Mr. McSlarrow. That is correct, sir.
    Mr. Stupak. Okay. And you were saying you are going to take 
care of the customer yourself, meaning cable is going to take 
care of it. So if we do a hard date, you will be ready to go, 
and those cable people will not lose anything.
    Mr. McSlarrow. Right.
    Mr. Stupak. Okay. What about the small cable systems that, 
you know, serve areas like I represent in very, very rural 
northern Michigan. How do they--how will they come into the 
picture?
    Mr. McSlarrow. Well, and we have representatives of smaller 
cable systems here, but obviously, my organization also has 
small systems, so I will just take a first crack, and maybe----
    Mr. Stupak. Sure.
    Mr. McSlarrow. --Patch can answer too. What we have 
requested from you all is that we be allowed to down-convert at 
the head end, and while a set-top box subsidy or cost would be 
in the billions of dollars, our estimate of that is that it is 
not insignificant, but it is probably around $80 to $100 
million, and that is spread out over, you know, thousands of 
cable systems. So it is a cost, but our view, and at least from 
small, medium, to large, it is a manageable cost.
    Mr. Stupak. Mr. Knorr, you want to add.
    Mr. Knorr. Yes. We are on a little bit different metric 
than large cable operators. The largest systems, the average 
capacity is around 750 megahertz. The largest systems serve 
approximately 100,000 customers per head end, somewhere in that 
neighbors. And our customer base, our capacity is almost half 
that.
    Mr. Stupak. Sure.
    Mr. Knorr. Our average system size is closer to 1,000 
instead of 100,000. So our head end costs are multiplied, so 
whereas, you know, a head end cost for a small operator might 
be $100 or as much as $1,000 per subscriber, large cable 
companies, it is a tenth or a hundredth of that cost. So it is 
a significant burden on small operators, even--no matter what 
the option is.
    In addition to that, we have very, very serious concerns 
about how the bill is written, because there is simply not the 
capacity for dual carriage on those small systems, and as the 
bill is written, if you have to carry the primary signal, that 
means rural systems in extreme rural Michigan will be forced to 
only carry an HD signal, which means every subscriber would 
need an HD receiver to receive the signal. If that is the only 
option, that would be a very significant expense for small 
cable operators and their customers, significant to the point 
that many operators would go out of business, and I think it is 
an important point that it is not just a matter of video 
competition in rural areas. It is also a matter of those 
companies that are providing broadband services in rural area. 
So it is also a digital divide question of those cable 
companies, if they cease to exist, in addition to losing video 
competition, those subscribers will be losing access to 
broadband services.
    Mr. Stupak. So is that the main challenge you see in this 
legislation as drafted, the small cable operators?
    Mr. Knorr. I think that is the bullet that is aimed at the 
head of the small cable operators is the dual carriage 
requirements, and the requirements to carry the primary video 
signal unmodified, I think the options that the NCTA is 
proposing is very important for small systems is the ability 
and the option of carrying only the analog signals to certain 
constituencies. I think marketplace forces will take care of 
the options. Digital signals will still be available to these 
customers, if nothing else, through satellite. I mean, that is, 
you know, a marketplace force that exists, and if that 
community has demand for digital services, to be competitive, 
you will need to meet that demand.
    But on the flipside, if it is a small community, there is 
not a lot of HD television sets. That community may be best 
served by making sure the analog signals are available as cost 
effectively as possible.
    Mr. Stupak. Well, thank you, Mr. Chairman, and thanks to 
our panel. I have been in and out all day for other hearings, 
but it has been a good discussion. Thank you.
    Mr. Upton. Mr. Gonzalez.
    Mr. Gonzalez. Thank you very much, Mr. Chairman, and I 
apologize for coming in late, and then asking a question when 
everybody has testified and had so many questions, but the 
question is really regarding, to Mr.--is it Chessen--Mr. 
Chessen, and that is, of course, I come from San Antonio. I 
represent half of that city. Spanish speakers predominate, and 
all studies indicate that those analog TVs happen to be located 
in many of the homes occupied by my constituents who are 
Spanish-speaking. And the question I have is what effort have 
you all made regarding the Spanish-speaking population out 
there, with these analog televisions, as far as educating them 
on what is going to happen, taking any steps, again, just part 
of the education process, and what are you doing? Is there any 
kind of Spanish language component to address those needs?
    Mr. Chessen. We have a major comprehensive consumer 
education effort that we launched last fall. We have begun 
outreach to all segments. Part of what we have been doing, at 
least segments of it, are currently in Spanish language. I 
can't say that the entire website at this point is, but 
certainly elements of it are in Spanish, and we have continued 
plans to keep--continue doing outreach to all segments, and we 
are meeting with all sorts of constituent groups, and speaking 
to different groups, and doing everything we can within our 
resources and expertise to try to get the word out there. And 
we are making some progress, but obviously, there is a lot more 
that needs to be done.
    Mr. Gonzalez. Making reference to websites is just never 
going to get out. The message doesn't get out. Advocacy groups 
is a good idea, and utilizing the many that we do have, local, 
State and of national significance. So I would like to get back 
to your office, and maybe talk to the individual who might be 
in charge of that specific part of the whole endeavor, and see 
who they are working with, and maybe we can suggest some, a 
couple of different thoughts on it.
    Mr. Chessen. Absolutely.
    Mr. Gonzalez. Okay. Thank you very much, and I yield back, 
Mr. Chairman.
    Mr. Upton. I am told that Mr. Markey has an additional 
question, and Mr. Inslee as well. Mr. Markey.
    Mr. Markey. Thank you, Mr. Chairman. You know, I remember 
back in 1995, when the Republican revolution took over, and 
there was a Contract with America. I don't know if any of you 
remember that, but Mr.----
    Mr. Upton. We are still waiting for your signature on it.
    Mr. Markey. Yeah, Mr. Tauzin--well, my signature wasn't on 
it. That is the point, that there was one item that Mr.--one of 
the 10 commandments was the Private Property Protection Act of 
1995, and what it said was that any time any private property 
was reduced by government regulations, that the citizens should 
be compensated. Mr. Inslee called it a takings. Mr. Tauzin, in 
that amendment, and I can actually feel the spirit, an analog 
form of Mr. Tauzin in this room right now. And in fact, he led 
the charge against my amendment in 1997, which would have 
mandated that no TV set could be sold, beginning in 2001, that 
couldn't receive a digital signal. And so his analog spirit 
still lives here, but that decision, back in 1997, affects what 
we are doing right now. If we had done that then, we wouldn't 
even be having this hearing right now. We would have sold 180 
or 200 million of these TV sets by 2008.
    Mr. Kimmelman, quickly, I am going to do this very quickly. 
You give me a quick answer. Wireless policy. We are kind of 
coming down to only a couple of competitors in wireless. What 
can this change do to help wireless broadband competition?
    Mr. Kimmelman. It is very simple, Mr. Markey. You have got 
to make sure the two dominant wireless players, Verizon 
Wireless and Cingular, owned by SBC and BellSouth, don't gobble 
up all the spectrum that you want to get all the money from 
through the auctions. You need more players in the wireless 
market to have competition.
    Mr. Markey. Okay. Thank you. Mr. McSlarrow, you heard Mr. 
Abud talk about Spanish language stations. Could you respond to 
the concerns which were raised by Mr. Abud, and how you think 
the cable industry can respond to it?
    Mr. McSlarrow. Yeah. I have to say, and I actually tried to 
persuade him during the break, although I think unsuccessfully, 
that we actually have interests in common here. I think the 
concerns are perfectly legitimate. My only point would be we 
have, since we have a customer base, and a growing customer 
base, with an interest in either Spanish-speaking television 
and programming or targeted to that audience, in delivering it.
    Now, what we have to remember is the universe of 
programming isn't just Spanish-speaking broadcasts. They also 
have Spanish-speaking cable networks, and we have things like 
CTV, which is English, but directed at a Hispanic audience, but 
we have Discovery en Espanol, we have History Channel en 
Espanol. They don't have must-carry rights. So my point would 
be why not allow all of those programming, networks broadcast 
to compete in the marketplace for carriage on a distribution 
platform that has some capacity constraints.
    Mr. Markey. Okay. Let me go back to Mr. Abud quickly.
    Mr. Abud. Quickly. The relationship that the local Spanish 
language television stations have with their audience is very 
different than a national network. We provide them with 
service, and going to your point initially about what are we 
going to be giving in return. We provide a lot of community 
services, and having additional capacity to everybody is 
crucial for us to keep providing those services to the 
community.
    Mr. Markey. Thank you, Mr. Abud, very much. By the way, 
McCollough, my brother-in-law lives in Palo Alto. He hasn't got 
the word yet. He sent me a brand new, beautiful, 27 inch analog 
TV set for Christmas. So he is a very intelligent guy. I didn't 
have the nerve to say I don't want this. Get me a digital one. 
You know what I mean? And I think a lot of people are in that 
situation. So together, there is a real consumer issue there, 
and I appreciate what you are saying.
    Mr. McCollough. That is probably because he probably 
doesn't know when the transition date is.
    Mr. Markey. He would be shocked. He would be shocked to 
know that--he is a very successful lawyer out there.
    Mr. Goldstein, final question. In your testimony, when we 
talk about any eligibility requirements, such as a financial 
means testing or exclusively free over-the-air, it makes a 
consumer reimbursement fund both challenging and complex. It is 
not going to be easy to figure out how to put together that 
fund. And if we simply sent the FCC a set sum of money, say 
$500 million, and told the FCC to take care of consumers, that 
amount of money would be insufficient for making all consumers 
whole. So the FCC would have to limit eligibility in some way 
that ensured that that money was spent best, but is there a 
precedent for such a one time program that you have been able 
to find anywhere, where an agency was handed a sum of money, 
and said, and closed their eyes, then, and said try to do your 
best with it.
    Mr. Goldstein. Not that we have been able to find so far. 
We have looked at a variety of programs, and we have discussed 
some in the testimony in the back, but they are not analogous 
to what we are talking about today, really, in terms, 
potentially, of the numbers of people, or in the one time 
approach that we are talking about here.
    Mr. Markey. So we are in political terra incognita here. Is 
that----
    Mr. Goldstein. It seems that way to us at this point, yes.
    Mr. Markey. Yeah, this would be a challenge of 
unprecedented complexity, especially since, like 43 percent, I 
think, of food stamp eligible people don't even take food 
stamps, you know. So no matter what list you use, it is going 
to be incomplete in terms of the number of people who would 
potentially be qualified under a subsidy program that only 
helped the people who were in the bottom, you know, 20 or 30 
percentile of income, and----
    Mr. Goldstein. It would also have to be a live list, 
because there is significant churning in both kinds of lists, 
both cable lists, if you were going to try to pay against OTA, 
as well as in the various subsidy programs, that do offer food 
stamps and things like that. There is plenty of people coming 
on and off assistance programs all the time.
    Mr. Markey. Okay. Thank you. Thank you, Mr. Chairman.
    Mr. Upton. Mr. Bass.
    Mr. Bass. Thank you. Could you gentlemen all just answer 
with a yes, no. December 31, 2008, yes, no. Just go right down 
the line.
    Mr. Chessen. We will meet whatever date Congress sets for 
us.
    Mr. Bass. That will not be acceptable from now on.
    Mr. Goldstein. I would have to say yes, but obviously, 
there are many challenges that remain.
    Mr. Shapiro. Yes.
    Mr. Yager. I would say it would be very difficult. Okay.
    Mr. McSlarrow. We will be ready.
    Mr. Abud. We are ready.
    Mr. McCollough. Yes.
    Mr. Knorr. Yes, but----
    Mr. Bass. Next.
    Mr. Souder. Yes----
    Mr. Kimmelman. By the way you are phrasing it, I would just 
say no, if it costs consumers.
    Mr. Pitsch. Yes. Or earlier.
    Mr. Bass. Fair enough. One last question. Mr. Yager, are 
there--is there anything we could incorporate under this bill, 
any provision, that would provide--I mentioned this in my 
opening statement, incentives to broadcasters or other parties, 
perhaps, to convert to digital, sole digital, nothing but 
digital, earlier than December 31, 2008.
    Mr. Yager. I think, if we got all of the pieces that have 
been outlined here today, and I heard Congressman Dingell's 
kind of questioning of Mr. Goldstein about how you would put a 
subsidy program together, how we are going to draft this 
legislation, and that it could go forward with no hitches, no 
problems, that we were sure that the consumer was not going to 
be deprived of his over-the-air television, broadcasters are 
there. We want to----
    Mr. Bass. That is not what I asked. If there--I will make 
this--if--is there anything we could put into the bill that 
would have broadcasters say we want to convert earlier than 
then. We will take the heat. We want to convert early.
    Mr. Yager. No. I think the bill is----
    Mr. Bass. Nothing we can do about that----
    Mr. Yager. Where it is is very good.
    Mr. Bass. It doesn't need to be improved upon.
    Mr. Yager. Well, it could be improved upon in that one area 
that we talked about in terms of the must-carry for small 
market stations.
    Mr. Bass. Anybody else have any other comments. You don't 
have to. Because we just had a vote called. All right. Thank 
you very much, Mr. Chairman.
    Mr. Upton. Mr. Inslee, do you have one more question before 
we adjourn?
    Mr. Inslee. I just wondered if you think it would be good 
to have a--the consumer needing a voucher for $50, or you get a 
voucher for $25, but the box will block out the Michael Jackson 
trial, if that is the consumer choice here. Mr. McSlarrow, 
could you respond to the assertion that the Hispanic community 
may not be well served by the cable industry's down-conversion 
proposals. Someone has made that suggestion, I think.
    Mr. McSlarrow. Sure. And I think it is exactly the 
opposite. What we were saying is the discussion draft today 
actually makes it an option for cable to offer digital only, 
and digital only including Spanish-speaking broadcast stations, 
to a market where we all know that most of their customers will 
be analog receivers. We are the ones who are saying give us the 
flexibility to offer those stations, so that we can reach the 
entire market. That is what we want, because they are our 
customers, too.
    Mr. Inslee. Thank you.
    Mr. Markey. Mr. Chairman, if I may, and I appreciate your 
indulgence. Mr. Goldstein, if instead of ending it on December 
31, 2008, we ended it on December 31, 2009, and another 30 or 
35 million digital sets were sold in that year, how would that 
affect the subsidy that was needed, and the complexity of the 
distribution of a subsidy, in terms of the reduced number of 
people would then feel that they were eligible or would apply?
    Mr. Goldstein. I am not sure how it would affect the 
complexity, if the same kind of eligibility requirements were 
still being utilized, whether it--regardless of which kind we 
have talked about, whether it was over the air or whether it 
was low-income, but clearly, the more----
    Mr. Markey. Would it have a substantial impact on the 
amount of money that would have to be part of the subsidy?
    Mr. Goldstein. Well, certainly. If--the more TVs that are 
digital, the fewer converter boxes we may need to utilize, the 
better off we are going to be.
    Mr. Markey. Okay. Thank you, Mr. Chairman.
    Mr. Upton. So does that mean that it would go under $500 
million?
    Mr. Goldstein. I don't know that yet.
    Mr. Upton. I just want to say, I appreciate all the many 
hours by the staff on both sides. Obviously, the members' 
involvement, your preparation, your testimony. We look forward 
to working with all of you as we get, for sure the right fix. I 
might just say to my friend, Mr. Markey, that I don't think 
Brother Barton will be very happy if this date moves any 
further than it is. But I won't tell him that on the last vote 
to spoil his Memorial Day break, as we finish up.
    But again, we appreciate your testimony, we look forward to 
working with you, and we will adjourn the hearing for the vote.
    [Whereupon, at 3:42 p.m., the subcommittee was adjourned.]
    [Additional material submitted for the record follows:]
       Prepared Statement of EchoStar Communications Corporation
    EchoStar Communications Corporation (``EchoStar'') thanks Chairman 
Upton, Congressman Markey, and the distinguished members of the 
Subcommittee for inviting EchoStar to discuss the staff discussion 
draft of the DTV Transition Act of 2005. EchoStar operates the DISH 
Network Direct Broadcast Satellite (``DBS'') service, which provides 
hundreds of channels of digital video and other programming to more 
than eleven million subscribers nationwide.
    As a distributor of television programming, EchoStar has long been 
interested in the nation's transition to digital television (``DTV'') 
and the benefits the transition will bring to television viewers 
including EchoStar's subscribers. In the last Congress, EchoStar 
testified in support of the so-called ``digital white area'' proposal 
that was designed to hasten the lagging DTV transition by permitting 
satellite TV providers to offer DTV programming to households that are 
not served with a local over-the-air digital signal. EchoStar applauds 
Congress's passage of the digital white area provision as part of the 
Satellite Home Viewer Extension and Reauthorization Act of 2004 last 
December.\1\ This law allows consumers, especially those in rural 
areas, to receive a network DTV signal via satellite when they cannot 
receive one from their local network affiliate over the air.
---------------------------------------------------------------------------
    \1\ Satellite Home Viewer Extension and Reauthorization Act of 2004 
(``SHVERA''), Pub. L. No. 108-447, 118 Stat. 2809 (2004),  Section 
204.
---------------------------------------------------------------------------
    Congress is recognizing, however, that more may be necessary to get 
the transition done in an expeditious fashion. And this Subcommittee is 
accordingly considering today a draft bill that, while extending the 
transition deadline from December 31, 2006 to December 31, 2008, would 
make the new deadline a hard one. While the desire to impose a hard and 
fast deadline for completing the DTV transition is understandable, 
Congress should resist attempts by broadcasters to transfer the cost of 
the transition to cable operators and satellite carriers.
    EchoStar has documented elsewhere the tremendous burdens that even 
single-feed DTV must-carry would mean for satellite distributors. These 
burdens are significantly greater than the ones for cable operators. 
This is due to two reasons: first, DBS is a national service, with a 
finite amount of spectrum that must serve broad geographical areas, in 
contrast with the local headend architecture of cable. Second, DBS 
suffers from a spectrum handicap compared to digital cable systems. For 
these and other reasons, EchoStar has detailed the constitutional 
problems that would attend any obligation that requires a satellite TV 
operator to carry all stations in a market in high definition 
television (``HDTV'').
    But of course the so-called ``multicast'' and ``dual must-carry'' 
obligations would go even farther in being inappropriate as a matter of 
policy and law. EchoStar is referring to any measure that would require 
multichannel video programming distributors (``MVPDs'') such as cable 
and DBS operators to shoulder the burden of carrying a multiplicity of 
DTV programming streams for each local DTV broadcaster (known as 
``multicasting''), or to carry simultaneously both an analog and 
digital programming stream for each local broadcast station (known as 
``dual carriage'').
    Significantly, the Federal Communications Commission (``FCC'') in 
February declined to impose either a multicast or a dual carriage 
requirement because it found that such requirements would not pass 
constitutional muster under the O'Brien, Turner I, and Turner II 
criteria.\2\ The FCC's order on this issue provides an illuminating 
discussion of why mandatory multicasting and dual carriage are ill 
advised.
---------------------------------------------------------------------------
    \2\ In the Matter of Carriage of Digital Television Broadcast 
Signals: Amendment to Part 76 of the Commission's Rules, Second Report 
and Order and First Order on Reconsideration, CS Docket No. 98-120, FC 
05-27 (rel. Feb. 23, 2005) (``FCC Digital Signal Carriage Order'') 
(citing United States v. O'Brien, 391 U.S. 367 (1968), Turner Broad. 
Sys., Inc. v. FCC, 512 U.S. 622 (1994) (``Turner I''), and Turner 
Broad. Sys., Inc. v. FCC, 520 U.S. 180 (1997 (``Turner II'')).
---------------------------------------------------------------------------
    While the staff's draft of the DTV Transition Act got it right on 
the multicast issue, it raises some concerns regarding dual carriage. 
There is no doubt that mandatory dual carriage would be 
unconstitutional. It will not further any important governmental 
interest as is required by O'Brien, Turner I, and Turner II. As the FCC 
found, there is no evidence that a lack of dual carriage will 
substantially diminish the availability or quality of broadcast signals 
available to over-the-air subscribers.\3\ Nor would dual carriage 
promote diversity among programming voices since it only entails 
digital programming that simulcasts existing analog programming. So, 
even setting aside the burdens from such an obligation, the FCC has 
already found that there is no compelling government interest that it 
would advance.
---------------------------------------------------------------------------
    \3\ See FCC Digital Signal Carriage Order at  18 (pointing out 
that the focus of the governmental interest test in the Turner cases is 
not the economic health of broadcasting per se, but the benefits that 
broadcasting provides to consumers) (citing Turner II, 520 U.S. at 
222).
---------------------------------------------------------------------------
    Section 6 of the draft provides that a cable operator may convert a 
digital signal to an analog signal so long as the cable operator 
continues to provide its subscribers with the digital version of the 
signal. This flexibility is in fact not necessary for the distributor. 
For many years, a sizable proportion of MVPD subscribers will not be 
equipped with DTV sets, so allowing dual carriage for popular channels 
will be in the interest of the broadcaster anyway. But, in return for 
this unnecessary flexibility, distributors would appear to become 
subject to a form of back-door dual carriage, in the guise of a 
modified dual carry-one-carry-all. Certainly, EchoStar does not read 
this draft to impose dual carriage across the board. If a cable 
operator makes the analog signal of one retransmission consent local 
station available to subscribers (as it must in order to provide it to 
its analog customer), according to EchoStar's reading of the law, it 
need not do the same for all local stations in the same market. 
Nevertheless, if a cable operator makes the analog signal of one must 
carry local station available to subscribers (as it must if it is to 
provide it to its analog customer), it must do the same for all must 
carry stations in the same market. This is dual must carry. The draft 
further directs the FCC to adopt similar requirements for satellite 
television providers, which means that DBS operators such as EchoStar 
would become subject to this dual carriage regime. Although DBS systems 
are digital, many subscriber set-top boxes are only equipped to receive 
standard definition television. EchoStar might therefore be forced to 
dual carriage of certain popular channels to serve its subscribers. It 
also might be desirable to provide dual carriage of a very limited 
number of must carry stations. This latter plan would be thwarted by 
the bandwidth burden imposed by the draft's a dual carry-one, dual 
carry-all rule. Such a regime would be misguided.
    EchoStar would also like to bring to the committee's attention a 
very vexing problem endemic to the entire must-carry regime. By 
requiring the carriage of non-local and duplicative signals that use up 
spectrum that could instead be devoted to other uses, must-carry 
actually diminishes the ability of satellite television to provide 
local service in as many local markets as possible. ``Local'' stations 
that merely broadcast a feed duplicative of a national programming 
network, such as affiliates of home shopping networks, are an example 
of this counter-productive effect of the must-carry regime. Carriage of 
such non-local and duplicative programming should not be required as 
part of the must-carry regime.
    For its part, EchoStar is preparing for and attempting to promote 
the DTV transition by, among other things: offering extensive HDTV 
packages now; purchasing satellites, such as its recently announced 
intention to acquire the Rainbow 1 satellite, which will be used to 
provide DTV programming; implementing internal system upgrades to 
enable EchoStar to handle more HD programming; and rolling out more 
set-top boxes with HD capability to consumers.
    Congress should recognize, however, that the effectuation of the 
DTV transition itself will require more spectrum for satellite 
television services. An HD signal requires significantly more bandwidth 
than the bandwidth required by a standard definition analog signal. The 
FCC should make additional spectrum available to direct to home 
satellite service, including authorizing service to the U.S. from 
foreign DBS slots.
    Congress should also acknowledge the reality that DBS operators 
compress digital signals in order to maximize the number of programming 
streams that may be carried, and confirm that such compression does not 
constitute ``material degradation'' under the must carry statute. 
Compression allows us to make the most efficient use of valuable 
spectrum resources without degrading signal quality received by our 
viewers. Indeed, EchoStar currently uses advanced compression 
techniques to deliver its current slate of high definition programming 
without noticeable degradation in picture quality for its subscribers, 
and a key underpinning to our future plans for transmitting high 
definition programming is the continued ability to use such advanced 
technology. Without this technology, EchoStar will simply be unable to 
offer a full slate of local broadcasters' DTV service, and our ability 
to advance the digital transition will effectively be negated. However, 
some broadcasters have demanded that the FCC prohibit the use of 
compression, equating compression with ``material degradation'' of the 
broadcast signal and suggesting that compression is unnecessary. These 
assertions are simply wrong.
    In conclusion, EchoStar applauds the Subcommittee for deliberating 
on measures to effect the expeditious completion of the DTV transition. 
However, we urge you not to adopt the misguided dual carry-one, dual 
carry-all provision in the staff discussion draft.
                                 ______
                                 
Response for the Record by Rick Chessen, Chair, DTV Task Force, Federal 
Communications Commission, to Questions of Representative Bobby L. Rush

    Question 1: How many spectrum auctions has the FCC conducted?
    Answer: The Federal Communications Commission (``Commission'') has 
conducted 56 spectrum auctions.
    Question 2: What is the average time it takes to complete an 
auction?
    Answer: Spectrum-based services that are subject to competitive 
bidding or any other license assignment method typically require 
allocation and rulemaking proceedings conducted pursuant to the 
Administrative Procedure Act (``APA''). See 5 U.S.C.  553. The APA 
mandates notice and an opportunity for public comment, to allocate or 
reallocate spectrum and to establish or modify the rules for the 
service to be licensed, which would include whether or not the service 
is subject to competitive bidding. Once the Commission establishes 
these rules, the time for conducting individual auctions varies widely 
depending upon the complexity of each auction. Also, the Commission has 
streamlined and improved its process and procedures since the initial 
auctions in 1994, so an average time--from the rulemaking process 
through the actual grant of the license--would not present an accurate 
picture of a typical auction in recent years. For the 22 auctions that 
the Commission has conducted since implementing an Internet-based 
bidding system in 2001, the average number of bidding days per auction 
has been 8-9 days (minimum = 1, maximum = 24), and the average number 
of calendar days per auction has been 12 days (minimum = 1, maximum = 
37). The answer to Question 7 below provides a more thorough timeline 
of the complete auctions process.
    A complete summary of completed and scheduled auctions can be found 
on the Commission's Auctions web site at http://wireless.fcc.gov/
auctions/default.htm?
job=auctions--all.
    Question 3: How many licenses have been awarded through the auction 
process?
    Answer: Bidders in the 56 auctions held to date have won 28,449 
licenses. However, the Commission did not award some of these licenses 
because some winning bidders defaulted before the grant of the licensee 
applications.
    Question 4: How many of these licenses have been returned to the 
FCC due to nonpayment, licensee failure to build out, or for other 
reasons?
    Answer: Approximately 1,700 licenses of the 28,449 licenses won 
through the auctions process have been returned to the Commission due 
to nonpayment, bankruptcy settlements, restructurings conducted by the 
Commission or failure to meet the Commission's build out requirements. 
Not all of the licenses returned to the Commission include the same 
amount of spectrum or entire market area originally auctioned because 
licensees may disaggregate and partition licenses after license grant. 
Thus, for some of the licenses, only a portion of the original license 
won at auction has been returned. In some cases, licenses were returned 
voluntarily by the licensees. After licenses are returned, the 
Commission can auction a new license for the same spectrum covered by 
the returned license.
    Question 5: How many licensees have declared bankruptcy?
    Answer: Thirty licensees with auction-related installment debt have 
declared bankruptcy. These licensees won licenses in the following 
services: 218-219 MHz Service, Broadband and Narrowband PCS, Multimedia 
Distribution Service, and the 900 MHz Specialized Mobile Radio Service. 
Licensees in other auctioned services have reorganized under bankruptcy 
(e.g., Worldcom, Teligent, Winstar, Adelphia), but the Commission was 
not a creditor in those cases because the licenses won at auction had 
already been paid in full.
    Question 6: What has the FCC done since the NextWave case to ensure 
that the Commission does not find itself in a similar situation when a 
licensee experiences financial difficulty?
    Answer: In 1997, before any of the court decisions in the NextWave 
bankruptcy case (FCC v. NextWave Personal Communications, Inc., 537 
U.S. 293 (2003)), the Commission suspended the use of installment 
payments. It affirmed this decision in 2000. This action eliminated 
protracted payment periods when a winning bidder could enter bankruptcy 
or otherwise fail to meet its payment obligations. In addition, since 
the Supreme Court's decision in the NextWave case, payment procedures 
generally require the deposit of a winning bidder's final payment 20 
business days after the close of the auction is announced. These 
payment procedures mitigate the risk that the Commission will not 
receive the full amount of the winning bid because of bankruptcy or 
other reasons. The Commission's rules do not subject broadcast auctions 
to this revised payment procedure, but in a Notice of Proposed 
Rulemaking released on June 14, 2005, the Commission proposed to change 
its rules to allow for more discretion in setting post-auction payment 
deadlines.
    Question 7: What steps are involved in an auction? Please provide 
me with a list of such steps from planning to when the FCC hands over 
the license. Please include an approximate timeline for each step.
    Answer:

Overview of Typical Auction Timeline:
 Establishing Allocation and Service Rules--The Commission must 
        first--conduct a notice-and-comment rulemaking to allocate the 
        spectrum for a particular use (e.g., satellite, fixed, mobile, 
        broadcasting). The Commission must also conduct a separate--
        rulemaking to determine whether the service should be subject 
        to competitive bidding and to develop rules governing the 
        technical operations for the service and eligibility for 
        licenses.
 Pre-auction preparation--Standard pre-auction procedures begin after 
        release of final allocation and service rules for the spectrum 
        to be auctioned. The Commission provides prospective bidders 
        approximately six months from the announcement of a start date 
        to prepare for the bidding to commence. These procedures 
        include:
     Auction Design Comment Public Notice (``PN'')--approximately 4-6 
            months before bidding start date (seeks comment on auction 
            procedures and provides 3-4 weeks for interested parties to 
            submit comments and reply comments);
     Auction Procedures PN--approximately 3-5 months before bidding 
            start date;
     Bidders' Seminar--approximately 60-75 days before bidding start 
            date
     Short-form Auction Application (FCC Form 175) Deadline--
            approximately 45-60 days before bidding start date;
     Short-form Application Status PN --approximately 10-14 days after 
            short-form deadline;
     Upfront Payment Deadline--approximately 3-4 weeks before bidding 
            start date;
     Short-form Application Resubmission Deadline--approximately 3-4 
            weeks before bidding start date;
     Qualified Bidder PN--approximately 10-12 days before bidding 
            start date;
     Qualified Bidders Registration--immediately after release of 
            Qualified Bidders PN;
     Mock Auction--approximately 2-5 days before bidding start date.
      The Commission uses this pre-auction process pursuant to the 
            requirements of Section 309(j)(3)(E) of the Communications 
            Act (added in 1997). The timeline, along with additional 
            explanation, is posted on the Commission's Auctions web 
            site at: http://wireless.fcc.gov/auctions/
            default.htm?job=about--auctions&page=3
 Duration of Bidding--Length varies depending upon complexity of 
        auction. As noted in the answer to Question 2, the average 
        number of bidding days since 2001 has been 8-9 days.
     Auction Closing PN--approximately 3-5 days after bidding ends.
 Post-auction payment and award of licenses--Licensing may take as 
        little as two months for those applications not subject to 
        petitions to deny, designated entity issues, tribal lands 
        bidding credit requests, or competitive issues. Attachment A to 
        this document contains a summary of auctions and post-auction 
        processing times. Licensing steps include:
     Long-form (FCC Form 601) License Applications Deadline--
            approximately 10 business days after Auction Closing PN is 
            released;
     Down payments due on winning bids--approximately 10 business days 
            after Auction Closing PN is released;
     Final payments due on winning bids--approximately 10 business 
            days after down payment deadline (as noted above in 
            response to Question 6, broadcast auctions have been 
            subject to different procedures and final payments are due 
            10 business days following the issuance of a ``Ready to 
            Grant'' PN after the long-form application has been 
            processed);
     Accepted for Filing PN--approximately 2 weeks after long-forms 
            are filed;
     Petitions to Deny due--10 days after Accepted for Filing PN is 
            released (with Oppositions due five business days after a 
            Petition to Deny and Replies due five business days after 
            an Opposition);
     Grant PN--approximately 20 business days after Accepted for 
            Filing PN is released (assuming no petitions to deny, 
            designated entity issues, tribal lands bidding credit 
            requests, or competitive issues).
    Question 8: At what point can the Federal government count as 
revenue the proceeds raised from the auction process?
    Answer: Consistent with federal accounting standards, the 
Commission recognizes auction revenue at the time a public notice is 
released announcing that the license has been granted. The Commission 
transfers funds received from auctions as revenue at the end of the 
fiscal year in which the license is granted.
    Question 9: What is the average amount of time it takes the 
Commission to count as revenue proceeds raised from the auction 
process?
    Answer: The Commission recognizes funds received from auctions as 
revenue at the end of the fiscal year in which the licenses are 
granted. The Commission processes long-form applications for licenses 
won at auction and grants licenses throughout each fiscal year. For all 
of the licenses granted by the Commission as part of the auctions 
program, 35 percent were granted within 120 days, 56 percent were 
granted within 180 days, and 96 percent were granted within one year of 
the end of each auction. Approximately four percent of licenses granted 
have taken longer than one year. These special cases are typically due 
to circumstances such as Commission investigations into applicant 
qualifications, requests for waiver of Commission rules, petitions to 
deny, or delays due to tribal lands bidding credit notifications.
    Question 10: What is the amount of revenue that has been generated 
by spectrum auctions?
    Answer: As of September 30, 2004, the total revenue raised from the 
Commission's spectrum auctions is $26.8 billion. As of that date, more 
than $16.5 billion in actual receipts have been deposited into the U.S. 
Treasury.
    Question 11: How many licensees have yet to build out in their 
license areas?
    Answer: Commission licensees that have won their spectrum through 
auctions have complied with the build out rules 98 percent of the time. 
If construction does not occur by deadline, the license may be 
terminated and re-auctioned.
    It is important to note the differences in build out rules for the 
wide variety of services subject to auction because the Commission 
adopts particular construction rules, benchmarks, and timeframes for 
each different service. In terms of timing, the Commission requires 
some licensees to undertake initial construction early or mid-way 
through their license terms, and provide for further construction by 
the expiration of the first license term. Rules applicable to other 
services require licensees to construct by the expiration of the first 
license term, and some licensees have construction permits requiring 
construction over a relatively short period of time. For licenses won 
at auction since the inception of the auctions program, some have 
construction deadlines that have already passed, while others have 
construction deadlines occurring months or years from now.
    Also, there are a number of rule variations defining construction. 
Construction requirements include population-based (i.e., a certain 
percentage of the population of the licensed area must be covered), 
geographic-based (i.e., a certain percentage of the geographic area of 
the licensed area must be covered), a substantial service requirement 
(which is neither a bright-line population-based nor geographic-based 
requirement), and in the broadcast case, the requirement to construct 
facilities in the manner described in their application at a particular 
site.
    Question 12: How has the auctioning of spectrum served the public 
interest?
    Answer: The Commission manages the auctions program pursuant to 
Congressional directive. Congress first authorized spectrum auctions in 
the Omnibus Budget Reconciliation Act of 1993, (Pub.L. No. 103-66), 
amending the Communications Act of 1934 (auction authority is codified 
at 47 U.S.C.  309(j)). Congress later amended this section of the code 
in the Balanced Budget Act of 1997 (Pub.L. 105-33; Aug. 5 1997) to 
expand and extend the Commission's auction authority. Legislative 
history indicates that Congress sees this program as an important 
option for licensing a limited national resource.
    The auctioning of spectrum has led to the ubiquitous rollout of 
spectrum to licensees that have a financial stake in the rapid delivery 
of new services. This method of assigning spectrum is more efficient 
and less time consuming than past licensing regimes such as comparative 
hearings where licensing decisions sometimes took years to resolve. The 
Commission's ability to license spectrum quickly and efficiently spurs 
competition, leads to the development of new technologies, and aids in 
the growth of the telecommunications sector.
    In addition, auctions serve the public interest goal of 
transparency and objectivity in government processes--the Commission 
publishes precise bidding procedures and each bidder begins the process 
knowing that the highest bid will result in a license. Finally, 
spectrum auctions return a portion of the value of the public spectrum 
resource to the United States Treasury. To date, auctioning spectrum 
has raised more than $26 billion.
    Question 13: Has the auction process resulted in the spectrum being 
used in the most productive way?
    Answer: This past September, the Commission adopted its Ninth 
Annual Report and Analysis of Competitive Market Conditions with 
Respect to Commercial Mobile Services, an annual report required by the 
Omnibus Budget Reconciliation Act of 1993. The information in this 
annual report demonstrates the impact of the auctions process. By the 
end of 2003, there were approximately 161 million mobile telephone 
subscribers, up from 16 million for year end 1993. At the same time, 
the average revenue per minute, a proxy for price per minute, 
dramatically decreased over that time from $0.44 in 1993, to $0.29 in 
1998 and to $0.09 at year end 2003. In addition, the monthly minutes of 
use by mobile telephone users dramatically increased from 119 minutes 
in 1993, to 185 minutes 1998 and 507 minutes in 2003.
    Question 14: What is the FCC doing to ensure that spectrum is being 
used in the most efficient manner?
    Answer: The Commission uses several mechanisms for ensuring that 
spectrum is used in the most efficient manner. In circumstances where 
competitive bidding for spectrum licenses is required, the Commission 
has designed its competitive bidding mechanisms and service rules to 
serve several public interest objectives, including, but not limited 
to, the efficient and intensive use of the public spectrum resource. 
The Commission seeks to assure that licensed spectrum is put to its 
highest and best use based largely on the demands of the market and 
available technology. Licensees that have paid full value for spectrum 
licenses at auction or in the secondary market have every incentive to 
make the most efficient use of the spectrum, consistent with the 
particular rules of each service, the capabilities of existing 
technology, and the physical characteristics of the authorized 
frequencies being used.
    In other radio services that have not been subject to competitive 
bidding (e.g., private land mobile, public safety, and international 
satellite services), the Commission has adopted specific service and 
technical rules and licensing procedures that enhance efficient use. 
These rules are designed to ensure timely construction of facilities 
and to provide licensees with adequate spectrum for their stated 
purposes or pursuant to regional planning. They also achieve efficiency 
by, for example, mandating narrowband or other spectrally efficient 
technologies that use less spectrum.
    Flexible secondary market policies also allow licenses in certain 
services to be freely transferred to other qualified entities under new 
streamlined procedures. In satellite and broadcast services, the 
Commission determines the specific amount of spectrum to allocate for 
the stated purposes imposes strict construction milestones and imposes 
financial qualifications or bonding requirements. In authorizing the 
use of unlicensed devices in many frequency bands, the Commission's 
Part 15 rules ensure that many low power devices can effectively share 
the spectrum without causing harmful interference to each other or 
licensed uses.
    Question 15: Would greater flexibility in the FCC's authority to 
issue licenses result in greater diversity of license holders?
    Answer: The Commission's current authority under Section 309(j) of 
the Communications Act provides discretion to achieve the statutory 
objectives put in place in 1993 to promote economic opportunity, avoid 
excessive concentration of licenses and to disseminate licenses among a 
wide variety of applicants, including small businesses, rural telephone 
companies, and businesses owned by members of minority groups and 
women.
    As noted below in response to question 18, the Commission has 
promoted participation in auctions by women, minorities and small 
businesses through the offer of bidding credits to small entities and 
new entrants and the designation of small geographic license areas.
    Question 16: Does the FCC want to see the auction process 
reauthorized? If so, what improvements does the FCC think should be 
made to the auction program?
    Answer: The decision to reauthorize the auctions process is a 
policy decision squarely within the purview of Congress. The 
Commission's experience over the last 12 years demonstrates that the 
auctions process is a speedy, efficient mechanism for deploying 
spectrum. Auctions have assigned quickly licenses to the parties that 
value them most highly and facilitated efficient aggregation of 
spectrum, which has encouraged rapid deployment of service and 
permitted increased competition among service providers. The auctions 
process has proved to be a fair, objective, open, and transparent 
process that, as of September 30, 2004, has resulted in the recognition 
of $26.8 billion to the U.S. government.
    If auction authority terminates in 2007, as currently provided by 
statute, the Commission would lose an important tool for resolving 
mutually exclusive applications and recovering a portion of the value 
of the spectrum for the public.
    The current statutory framework governing auctions has permitted 
the program to evolve and successfully meet new challenges since the 
inception of the program. The flexible nature of the current statutory 
framework would allow the Commission to adapt the auctions program to 
technological and industry changes.
    Question 17: How many women, minorities, and small businesses have 
been awarded licenses through the auction process?
    Answer: The Commission has not required applicants to report 
statistics on these issues since the Supreme Court's decision in 
Adarand Constructors, Inc. v. Pena, 515 U.S. 200 (1995) (``Adarand'') 
(holding that all racial classifications, imposed by federal, state, or 
local governmental actor, must be analyzed by a reviewing court under 
strict scrutiny).
    During the pre-Adarand period, the Commission held four auctions in 
which it offered 733 licenses. In all, there were 64 minority-owned 
bidders that won 200 licenses, 73 women-owned bidders that won 292 
licenses, and 16 bidders owned by minority women that won 59 licenses. 
There were also 171 small businesses that won 578 licenses. During the 
post-Adarand period, the Commission has conducted 52 auctions, through 
which 27,716 licenses were sold. The Commission's FCC Form 175 short-
form application requests that applicants voluntarily report whether 
they are minority- or women-owned. Based on voluntary self-reporting, 
in the 52 auctions conducted since Adarand, there have been 115 women-
owned bidders that won 846 licenses, 122 minority-owned bidders that 
won 832 licenses, and 35 bidders owned by minority women that won 258 
licenses. There have also been 1,094 small businesses that won 15,428 
licenses.
    Question 18: What is the FCC doing to ensure that women, minorities 
and small businesses are able to successfully participate in the 
auction process?
    Answer: The Commission employs a number of measures to promote the 
successful participation of women, minorities and small businesses in 
the auctions process. These measures include the following:

 Bidding credits: The Commission offers bidding credits to small 
        businesses in most of its auctions (or to ``new entrants'' in 
        auctions for broadcast construction permits).
 Band plans and geographic license areas: The Commission adopts 
        different band plans and geographic license areas for different 
        wireless services. The Commission frequently considers and 
        adopts relatively small spectrum blocks and geographic license 
        areas so that smaller entities need not bid on licenses for 
        more spectrum or larger geographic areas than their business 
        plans require.
 Available tools and support: The Commission's bidding system is a 
        user-friendly Internet based bidding system (specifically 
        designed for novice bidders). The Commission also makes 
        available dedicated staff to address the specific needs of 
        small bidders by telephone, fax, e-mail, or Internet as well as 
        in person at a free bidder seminar before each auction. 
        Commission staff can provide step-by-step instruction regarding 
        upcoming auctions; the auctions process; completion of auction 
        applications; bidding procedures; and post auction processes. 
        In addition, the Commission conducts outreach and education 
        initiatives directed toward small bidders.
    Question 19: Of the original C-block licenses awarded, how many of 
the licenses remain in the hands of the original small business 
licensees?
    Answer: In September of 1996, the Commission granted most of the 
original 493 C block licenses to 89 eligible entrepreneurs and small 
businesses for a ten year term. NextWave received 63 of these licenses. 
The Commission's rules prohibited the original C block license winners 
from transferring their licenses to non-entrepreneurs within the first 
five years of the license term unless the licensee met the build out 
requirements. At this time, nine years after the initial license grant, 
seventeen of the original 89 licensees still hold a total of 62 
licenses.
    Question 20: What is the FCC doing to ensure that there is true 
diversity of licensees in the upcoming FM auction?
    Answer: FM Auction No. 62 procedures are designed to promote the 
broadest possible participation in the November 2005 auction for 172 
vacant FM allotments. The rules provide bidding credits of 35 and 25 
percent to applicants that qualify as new entrants with no attributable 
interest in any other media of mass communications or attributable 
interest in no more than three mass media facilities, respectively. 
During the auction, the rules require applicants to report 
diminishments in their eligibility bidding credits so that those 
entities which qualify for new entrant bidding credits will have full 
and timely bidding information about their competitors.
    In addition, the Commission will take the usual steps to help 
educate potential bidders about auctions procedures. Commission staff 
will hold an auction seminar on July 27, 2005, immediately prior to the 
opening of the short form filing window. The Commission also will make 
available a webcast of this event for those not able to attend. 
Commission staff will hold a ``mock'' auction on October 28, 2005 for 
qualified bidders. As part of the outreach for this specific auction, 
the Commission exhibited at the National Association of Broadcasters 
(NAB) Radio Show last fall and again at the NAB National Convention 
this past April. The Commission also plans to advertise in the July 
issues of Radio World Magazine and Radio & Television Business Report. 
These events and publications have a diverse, extensive audience that 
caters to both large and small bidders alike.
                                 ______
                                 
        Analysis of an Accelerated Digital Television Transition
            Coleman Bazelon, Vice President, Analysis Group
                              may 31, 2005

             This paper was sponsored by Intel Corporation.

                      I. INTRODUCTION AND SUMMARY

    Television broadcasting in the United States is currently 
undergoing a transition from analog to digital transmission. A shift to 
digital television (``DTV'') broadcasts not only provides viewers with 
more and better viewing options, but it frees a portion of the spectrum 
used by analog broadcasts for new uses. More specifically, the eventual 
end of analog broadcasts has already prompted the FCC to reorganize the 
108 MHz of prime spectrum used by television channels 52 to 69. Under 
current rules, however, incumbent analog broadcasters could continue to 
operate in this spectrum--and thus prevent full use of the spectrum for 
new services--for many years to come.
    This report presents and analyzes a generic proposal (``the 
Proposal'') to accelerate the DTV transition. Under current law, analog 
signals will not be turned off until 85% of households in a given 
market qualify as DTV households. Less than 2% currently do.\1\ At the 
heart of the Proposal is a plan to replace the 85% benchmark with a 
firm date for ending analog broadcast signals, thus freeing the 108 MHz 
of spectrum, including 60 MHz that still awaits auction. To make this 
hard shut-off date feasible, the Proposal includes a plan for supplying 
households that rely on over-the-air TV broadcasts with the converter 
boxes necessary for viewing digital broadcasts on analog television 
sets.
---------------------------------------------------------------------------
    \1\ Under 2% of households are able to view over-the-air digital 
signals. Comments of the National Association of Broadcasters and the 
Association for Maximum Service Television, Inc., Over-the-Air 
Broadcast Television Viewers, FCC MB Docket No. 04-210, August 11, 
2004, at Attachment A, p. 5, and Eric A. Taub, ``High Maintenance TV,'' 
The New York Times, June 24, 2004. Though many cable and satellite 
customers receive some digital broadcast signals through their 
subscription services, these households do not count towards the 85% 
unless the video provider includes all digital broadcast channels 
available in their respective markets. Cable and satellite systems have 
no obligation to carry digital broadcast signals as long as the analog 
signals remain. See Congressional Budget Office, Completing the 
Transition to Digital Television, September 1999 (``1999 CBO Report'').
---------------------------------------------------------------------------
    The Proposal will create significant value. The costs of 
implementing the proposal would be modest compared to the value 
created. Supplying households that rely exclusively on over-the-air 
broadcast signals with set-top converter boxes would likely cost no 
more than $1 billion.
    The current market value of licenses to use the unsold 60 MHz would 
be $20 billion to $24 billion if the Proposal were enacted. (The net 
budget impact would be less: from $16 billion to $19 billion on the low 
end and from $20 billion to $23 billion on the high end.) These 
estimates of the spectrum's value are dwarfed by the social value of 
the Proposal, which would be an estimated $233 billion to $473 billion.

          II. BACKGROUND ON THE DIGITAL TELEVISION TRANSITION

    Since the first television license was issued by the Federal Radio 
Commission in 1928, TV stations have used analog signals--in which a 
moving image's electrical impulses are converted to radio waves--to 
broadcast their programming.\2\ In recent years, new DTV technology has 
enabled broadcasters to digitize the signals before transmitting them 
over radio waves.
---------------------------------------------------------------------------
    \2\ See, e.g., Federal Communications Commission, Historical 
Periods in Television Technology: 1880-1929 (http://www.fcc.gov/omd/
history/tv/1880-1929.html).
---------------------------------------------------------------------------
    A widespread transition to digital transmission brings with it 
numerous benefits. It can bring the nation's over-the-air TV viewers a 
clearer picture, a greater quantity of programming, and a variety of 
new services. Most significant, because DTV broadcasts require less 
idle spectrum as a buffer between signals, a large section of highly 
valuable bandwidth in the 700 MHz band of spectrum (``the 700 MHz 
Band'') can be made available for other commercial and public safety 
uses. The newly freed spectrum could be used to deliver a variety of 
advanced wireless services for which there is growing demand, such as 
wireless broadband. Consequently, any efforts to hasten a transition to 
DTV will create significant value for society.
    Both viewers and broadcasters require additional equipment before 
DTV can take hold. Viewers who rely on over-the-air broadcasts need 
equipment that is capable of receiving the digital signals, whether a 
TV with a built-in digital tuner or a set-top converter box that 
enables the display of a digital signal on an analog TV set. 
Broadcasters must make significant investments to upgrade their 
transmission facilities. Neither viewers nor broadcasters, however, 
have an incentive to invest without the participation of the other.\3\ 
With this fact in mind, the Federal Communications Commission (FCC) has 
been managing a transition to nationwide DTV broadcasting for almost 20 
years.\4\
---------------------------------------------------------------------------
    \3\ See, e.g.,1999 CBO Report.
    \4\ See, Congressional Budget Office, ``The Scope of High-
Definition Television Market and Its Implications for Competition,'' 
CBO Staff Working Paper, July 1989.
---------------------------------------------------------------------------
    Currently, analog television licensees in the United States 
broadcast their signals over channels numbered 2 through 69.\5\ Each 
channel corresponds to a 6 MHz block of spectrum in the 54 MHz to 806 
MHz range. The Telecommunications Act of 1996 granted an additional 
digital channel to each analog television licensee, requiring that each 
station begin digital broadcasts while phasing out analog 
broadcasts.\6\ The Balanced Budget Act of 1997 then specified the 
conditions under which a complete transition to DTV would take place. 
Most important, it established that the FCC would reclaim all analog 
licenses in any market in which 85% of TV households were able to 
receive DTV signals at the end of 2006.\6\ Markets that did not reach 
the 85% threshold would continue broadcasting both analog and digital 
signals until the threshold was met.
---------------------------------------------------------------------------
    \5\ The spectrum of would-be channel 37 is reserved for radio 
astronomy.
    \7\ Telecommunications Act of 1996, S. 652, 104Congress.
    \8\ Balanced Budget Act of 1997, H.R. 2015, 105Congress.
---------------------------------------------------------------------------
    According to the existing plan, once the analog broadcasts have 
been turned off, the digital channels in the 700 MHz Band, channels 52 
to 69, will be transferred to the ``core spectrum'' in the 54 MHz to 
698 MHz range. This can be done because ``digital TV signals tolerate 
interference better than analog signals,'' and thus ``more DTV stations 
can be fitted into less spectrum than the analog stations would 
occupy.'' \8\ Ending the DTV transition and clearing channels 52 to 69 
would free the entire 700 MHz Band of spectrum for valuable commercial 
and public safety uses.
---------------------------------------------------------------------------
    \8\ 1999 CBO Report, p. vii.
---------------------------------------------------------------------------
    The 700 MHz Band consists of 108 MHz of spectrum in two distinct 
segments: a ``lower'' band, which consists of TV channels 52-59 (``the 
Lower 700 MHz Band''), and an ``upper'' band, which consists of 
channels 60-69 (``the Upper 700 MHz Band''). See Figures 1 and 2 (next 
page). Both possess favorable characteristics that distinguish them 
from other spectrum bands. Foremost among these is that radio signals 
in the 700 MHz Band travel farther for a given amount of radiated 
energy, which can reduce infrastructure costs by as much as half as 
compared to the 1.9 GHz band or three-quarters in comparison to the 2.5 
GHz band.\9\
---------------------------------------------------------------------------
    \9\ Letter from Charles C. Townsend, Aloha Partners, L.P., to the 
Honorable Joe Barton, Chairman, Committee on Energy and Commerce, U.S. 
House of Representatives, et al., April 27, 2005. See also Testimony of 
Patrick P. Gelsinger, Chief Technology Officer and Senior Vice 
President, Intel Corporation, before the Committee on Commerce, Science 
and Transportation, U.S. Senate, June 9, 2004.
---------------------------------------------------------------------------
    As shown in Figures 1 and 2, of the 108 MHz of total spectrum, 24 
MHz is assigned to public safety users, another 24 MHz has been 
assigned by auction,\10\ and 60 MHz still awaits auction. New, non-TV 
license holders in the 700 MHz Band are currently free to use their 
spectrum, but only if they do not interfere with existing analog 
television broadcasters. The broadcasters' signals have priority over 
new spectrum uses and thus encumber most of the spectrum in the 700 MHz 
Band. Table 1 shows the number of existing broadcasters in the 700 MHz 
Band. The broadcasters' continued encumbrance of the spectrum greatly 
reduces its value. When the FCC auctioned the C & D blocks in the Lower 
700 MHz Band, for example, the licenses sold at enormous discounts to 
comparable spectrum license prices.
---------------------------------------------------------------------------
    \10\ Although 24 MHz of the spectrum have been auctioned to private 
users, some have returned their licenses to the FCC. Only about 20 MHz 
remain in private hands.
---------------------------------------------------------------------------
    Major blocks in both bands--the A, B, and E blocks in the Lower 700 
MHz Band and the C and D blocks in the Upper 700 MHz Band--remain 
unassigned. The value of this combined 60 MHz of spectrum under an 
accelerated transition to DTV is the focus of this paper.

                            TABLE 1. TELEVISION ENCUMBRANCE BY BAND AND LICENSE TYPE
----------------------------------------------------------------------------------------------------------------
                                                                Digital       Analog       Total      Licensees
                            Band                               Licensees    Licensees    Licensees   per Channel
----------------------------------------------------------------------------------------------------------------
Lower 700 MHz...............................................           59          116          175         21.9
Upper 700 MHz...............................................            9           96          105         10.5
Total.......................................................           68          212          280        15.6
----------------------------------------------------------------------------------------------------------------
Source: FCC TVQ TV Database, available at http://www.fcc.gov/mb/video/tvq.html.

            III. A PROPOSAL TO ACCELERATE THE DTV TRANSITION

    This report will evaluate a generic proposal (``the Proposal'') to 
accelerate the DTV transition. The Proposal has the following key 
components:

 Analog stations would cease broadcasting no later than December 31, 
        2008.
 Households that rely exclusively on over-the-air broadcasting could 
        be eligible to receive a set-top converter box or other 
        compensation tied to a set-top converter box. Eligibility of 
        over-the-air households could be related to income.
 Auctions for the Lower 700 MHz Band A Block, B Block, and E Block and 
        the Upper 700 MHz Band C Block and D Block (collectively 
        referred to as the ``Auction Bands'') would begin no later than 
        April 1, 2008.
 The Auction Bands would be ``liberally licensed'', meaning that 
        licensees would be constrained only by non-interference 
        requirements when deciding how to use their licenses.

                     IV. THE VALUE OF THE PROPOSAL

    An accelerated DTV transition will increase the market value of the 
spectrum in both the Lower 700 MHz Band and the Upper 700 MHz Band. It 
will also likely raise additional revenues for the federal government 
and create significant social value.
    For purposes of this analysis, it is useful to divide the spectrum 
in the 700 MHz Band into three categories: the privately held bands, 
the public safety bands, and the Auction Bands. The latter refers to 
the 60 MHz of spectrum awaiting auction and is the focus of the 
valuation analysis below.
    The independent estimates reviewed in this section do not account 
for the cost of the Proposal. (See Section V for estimates of the cost 
of the Proposal.)
A. The market value of the radio spectrum
    The Proposal will enhance the value of all 108 MHz of spectrum in 
the 700 MHz Band by removing the current encumbrances in that band. The 
degree to which the value of a particular allocation or license is 
enhanced depends on the degree to which full-power broadcast licensees 
currently prevent the use of the spectrum.
    Two independent estimates of the market value of the Auction Bands 
have recently been produced. See Table 2. The first estimate, by 
William P. Zarakas and Dorothy Robyn of The Brattle Group, is based 
directly on market comparables, including two major sales of broadband 
PCS (1.9 GHz) licenses in 2005 and the FCC's 2004 valuation of rights 
to 10 MHz of spectrum in the 1.9 GHz band. Zarakas and Robyn estimate 
that licenses for the Auction Bands would sell for $1.65 per MHz-Pop, 
or $28 billion in total. They argue that the prices paid for broadband 
PCS licenses in 2005 reflect the market's expectation that a 
significant increase in supply is imminent. Thus, they conclude that 
there is no reason to believe that the auction of 90 MHz of Advanced 
Wireless Services (``AWS'') spectrum, which the FCC has said will occur 
as early as June 2006, will cause the price of the 700 MHz spectrum to 
drop significantly. They also argue that, to some extent, the market 
has anticipated the increase in supply from the 700 MHz Band, and that 
downward pressure on price from the unanticipated increase likely would 
be offset by technical advantages of the 700 MHz Band.
    The second estimate, prepared by Charles C. Townsend of Aloha 
Partners, L.P., also reviews auctions and recent transactions. This 
analysis concludes that the current value of the spectrum is $1.63 per 
MHz-Pop. The analysis further estimates that the increased supply of 
spectrum expected in the next few years might reduce prices by as much 
as 33%, implying that auction bids could average $1.10 per MHz-Pop. 
Townsend discounts the lower number because he believes that increased 
demand for spectrum based services will mitigate the effects of 
increased supply of spectrum licenses. At these projected prices, the 
estimated revenues from the 60 MHz of the Auction Bands would be 
between $20 billion to $30 billion.\11\
---------------------------------------------------------------------------
    \11\ $1.63 per MHz-Pop * 60 MHz * 296 million pops = $29 billion, 
but the Townsend analysis rounds that to $30 billion. Throughout this 
paper, I use 296 million as the estimate of U.S. population. This is 
interpolated for 2005 based on the Census Bureau's 2004 population 
estimate of 293.7 million and 2010 forecast of 308.9 million. See 
intercensal estimates and interim projections from U.S. Census Bureau.

      TABLE 2. MARKET VALUE ESTIMATES OF 60 MHZ IN THE 700 MHZ BAND
------------------------------------------------------------------------
             Source                Price per MHz-Pop   Auction Revenues
------------------------------------------------------------------------
Brattle Group...................  $1.65.............  $28 Billion
Aloha Partners..................  $1.10 to $1.63....  $20 Billion to $29
                                                       Billion
------------------------------------------------------------------------
Source: Letters from William P. Zarakas and Dorothy Robyn, The Brattle
  Group, and Charles C. Townsend, Aloha Partners, L.P., to the Honorable
  Joe Barton, Chairman, Committee on Energy and Commerce, U.S. House of
  Representatives, et al., May 18, 2005 and April 27, 2005,
  respectively.

    Supply effect. An accelerated DTV transition will increase the 
total amount of liberally licensed spectrum available. With a greater 
total supply of licensed spectrum, the price of spectrum would be 
expected to fall. The Brattle Group argues that the market has 
partially anticipated the increase in supply from the 700 MHz Band (and 
has fully anticipated the supply effect of the planned AWS auction), 
and that other factors will offset the unanticipated increase. Aloha 
Partners provides an estimate that takes into account the potential 
effect of increased supply, although that analysis discounts the 
probability of that outcome and places more weight on estimates of 
current market valuations. Nevertheless, I take a more conservative 
approach and assume that the price of spectrum will fall with the 
increased supply of spectrum from the 700 MHz Band.
    The impact on price of an increase in the quantity of spectrum 
available can be estimated by applying the concept of elasticity.\12\ 
An elasticity measures the ratio of the percentage change in quantity 
to a given percentage change in price. As an approximate example, an 
elasticity of demand of -3 implies that a 10% decrease in price would 
induce a 30% increase in quantity demanded at that new price. Likewise, 
an elasticity of demand of -0.5 would imply that a 5% increase in 
supply would require a decrease in price of 10% to induce enough 
increased demand to meet that new supply. The advantage of using 
elasticity to characterize the relationship between price and quantity 
changes is that it is unit-free; elasticity does not depend on the 
units used to measure price ($, , Yen) or quantity (kHz, 
MHz, GHz).
---------------------------------------------------------------------------
    \12\ Ultimately, the Congressional Budget Office (``CBO'') will 
score specific legislative proposals. The analysis in this section is 
only an estimate of what the CBO analysis could be.
---------------------------------------------------------------------------
    I am not aware of any direct estimates of the elasticity of demand 
for spectrum. Nevertheless, some existing evidence can be used to point 
to a reasonable value of the elasticity of demand for spectrum. The 
demand should be at least as elastic as the demand for spectrum-based 
services such as mobile telephony. This means that, in general, one 
would expect demand for spectrum to be at least as responsive to a 
change in the price of spectrum as the demand for mobile telephony 
would be to a change in the price of mobile telephony. I estimate the 
elasticity of demand for spectrum to be -1.2. (See Appendix.)
    In this analysis, I use the elasticity measure to recover the 
percentage change in price from a given change in quantity. The 
Proposal will increase the total supply of liberally licensed spectrum 
by 78 MHz. This includes the 60 MHz of the Auction Bands and the 18 MHz 
of the previously auctioned C Block and D Block in the Lower 700 MHz 
Band.
    The existing base of spectrum includes current allocations and 
expected future allocations. The expected likelihood of any future 
allocation depends on many factors. In Table 3 below, I list current 
and future allocations and put subjective probabilities next to the 
future allocations. The AWS and Broadband Radio Service/Educational 
Broadband Service (``BRS/EBS'') allocations were well known when the 
comparables used above were established, and they are expected to be 
useful allocations and thus have fairly high probabilities associated 
with them. The BRS/EBS licenses that allow high powered operations are 
less likely to be useful for new services and therefore have a lower 
probability attached to them.
    The 78 MHz of privately licensed spectrum affected by the Proposal 
represents a 20% increase in the supply of spectrum. This estimate is 
derived by dividing 78 MHz by an expected base of liberally licensed 
private spectrum of 390 MHz.

                              TABLE 3. BASE OF LIBERALLY LICENSED PRIVATE SPECTRUM
----------------------------------------------------------------------------------------------------------------
            Band Name                    Location                 MHz               Available        Probability
----------------------------------------------------------------------------------------------------------------
PCS..............................  1.9 GHz.............  120 MHz.............  Now................          1.0
Cellular.........................  800 MHz.............  50 MHz..............  Now................          1.0
SMR..............................  800 MHz/900 MHz.....  14 MHz+5 MHz........  Now/Within a few             1.0
                                                                                years.
Nextel 1.9 GHz...................  1.9 GHz.............  10 MHz..............  Now/Very soon......          1.0
BRS/EBS-low \1\..................  2.5 GHz.............  132 MHz.............  Within a few years.          0.8
BRS/EBS-high \2\.................  2.5 GHz.............  42 MHz..............  Within a few years.          0.1
AWS..............................  1.7 GHz/2.1 GHz.....  90 MHz..............  Within a few years.          0.9
                                   Total MHz...........  463 MHz.............  Total probability-      390 MHz
                                                                                weighted MHz.
----------------------------------------------------------------------------------------------------------------
\1\ Includes low-powered licenses only.
\2\ Includes high-powered licenses only.
Sources: Congressional Budget Office, Where Do We Go From Here? The FCC Auctions and the Future of Radio
  Spectrum Management, April 1997; FCC Wireless Telecommunications Bureau, Cellular Services (http://
  wireless.fcc.gov/services/cellular/); FCC Wireless Telecommunications Bureau, 900 MHz SMR (http://
  wireless.fcc.gov/smrs/900.html); Improving Public Safety Communications in the 800 MHz Band, Report and Order,
  Fifth Report and Order, Fourth Memorandum Opinion and Order, and Order, 19 FCC Rcd 14969 (2004); FCC Wireless
  Telecommunications Bureau, BRS & EBS Radio Services (http://wireless.fcc.gov/services/brsebs/); Amendment of
  Part 2 of the Commission's Rules to Allocate Spectrum Below 3 MHz for Mobile and Fixed Services to Support the
  Introduction of New Advanced Wireless Services, Including Third Generation Wireless Systems, Second Report and
  Order, 17 FCC Rcd 23193 (2002).

    Using the elasticity measure of 1.2 and the quantity increase of 
20% implies a price decrease of 17%. My revised market value estimates 
of the 700 MHz band are presented in Table 4. The lower estimate 
reported by Aloha Partners is already adjusted for the effect of 
increased supply and does not require a further adjustment.

                      TABLE 4. REVISED MARKET VALUE ESTIMATES OF 60 MHZ IN THE 700 MHZ BAND
----------------------------------------------------------------------------------------------------------------
                                                    Revised Price per MHz-
                      Source                                  Pop                  Revised Auction Revenues
----------------------------------------------------------------------------------------------------------------
Brattle Group....................................                    $1.37                          $23 Billion
Aloha Partners...................................           $1.10 to $1.35           $20 Billion to $24 Billion
----------------------------------------------------------------------------------------------------------------

B. The budgetary value of the Proposal
    In the case of the 700 MHz Band, estimated auction revenues do not 
translate directly into increased revenues in the federal budget. 
Auction design can have a significant impact on the proportion of the 
value of a spectrum license that is paid to the federal government. 
Throughout this analysis, I assume a well designed auction that 
extracts most of the value of the spectrum for the government. In any 
case, estimated auction receipts must be reduced to account for 1) the 
costs involved in removing incumbents from the spectrum and 2) 
decreased revenues from auctions already included in budget estimates.
    Cost of the proposal. The Proposal is estimated to cost the federal 
government no more than $1 billion. (See Section V.)
    Baseline spectrum prices. Increasing the expected supply of 
liberally licensed private spectrum by 60 MHz will decrease the price 
of spectrum. This lower price will affect the revenues expected in 
other auctions.
    The CBO budget baseline is an estimate of all federal receipts and 
expenditures. It includes all revenues from spectrum auctions expected 
under current law. The CBO budget baseline provides for incidental 
auctions totaling less than $1 billion, and it includes the following 
statement:
        The auction of rights to use portions of the electromagnetic 
        spectrum constitutes another source of offsetting receipts. 
        Such auctions are expected to continue until the Federal 
        Communications Commission's (FCC's) authority expires at the 
        end of 2007. CBO assumes that the FCC will auction at least 90 
        megahertz of spectrum for advanced wireless services sometime 
        in 2006 and 2007. Those auctions will bring in about $15 
        billion through 2015, with the receipts being tallied in 2007 
        and 2008.\13\
---------------------------------------------------------------------------
    \13\ Congressional Budget Office, The Budget and Economic Outlook: 
Fiscal Years 2006 to 2015, January 2005, p. 62.
---------------------------------------------------------------------------
    Implicit in the CBO budget baseline estimate is the assumption that 
the auction will net the government approximately $0.56 per MHz-
Pop.\14\ This price associated with this spectrum does not necessarily 
reflect the price that will be paid at auction.
---------------------------------------------------------------------------
    \14\ $15 billion/(90 MHz * 296 million pops).
---------------------------------------------------------------------------
    The CBO does not specify which bands of spectrum are included in 
the baseline estimate, but a likely candidate is the 90 MHz of AWS 
spectrum that consists of 45 MHz at 1.7 GHz paired with 45 MHz at 2.1 
GHz.\15\
---------------------------------------------------------------------------
    \15\ Amendment of Part 2 of the Commission's Rules to Allocate 
Spectrum Below 3 GHz for Mobile and Fixed Services to Support the 
Introduction of New Advanced Wireless Services, including Third 
Generation Wireless Systems, Sixth Report and Order, Third Memorandum 
Opinion and Order, and Fifth Memorandum Opinion and Order, 19 FCC Rcd 
20720 (2004).
---------------------------------------------------------------------------
    If the 90 MHz of spectrum in the CBO baseline were priced at the 
market values reported in Table 2, the $1.10 per MHz-Pop to $1.65 per 
MHz-Pop would translate into $29 billion to $44 billion in expected 
revenues under current law.\16\ The implied price in the CBO baseline 
of $15 billion is substantially below that range of value estimates. 
CBO does not make the details of its baseline public, so it is 
impossible to know which other factors it includes in its estimate. One 
possible source of a discount could be the rules governing the clearing 
of federal users from the AWS band, rules that could delay indefinitely 
the full availability of the band to the new licensees. Consequently, 
we do not know what base price of spectrum, prior to the supply 
increase created by the Proposal, CBO is using for its estimate of 
receipts under current law.
---------------------------------------------------------------------------
    \16\ $1.10 per MHz-Pop * 90 MHz * 296 million pops = $29 billion, 
and $1.65 per MHz-Pop * 90 MHz * 296 million pops = $44 billion.
---------------------------------------------------------------------------
    Price impact of an increase in supply. The previous analysis of how 
increased supply would affect price also applies to the 90 MHz in the 
CBO baseline.
    CBO has not estimated the impact that receipts from the sale of the 
Auction Bands would have on baseline revenues. Nevertheless, the 
analysis of elasticities applies equally to the implicit CBO baseline 
numbers. A 20% increase in spectrum and an elasticity of 1.2 implies a 
17% decrease in the price of spectrum. If the CBO baseline is $15 
billion for 90 MHz, then the decrease in those revenues associated with 
the additional 60 MHz of the Auction Bands would be $3 billion.\17\
---------------------------------------------------------------------------
    \17\ $15 billion * 0.17 = $3 billion. Alternatively, applying the 
Aloha Partners estimate of a potential 33% supply-induced decrease in 
price to the CBO baseline would imply a decrease in revenues of $5 
billion. But using that larger decrease would be consistent only with 
the higher Aloha estimate for the 60 MHz of $23 billion.
---------------------------------------------------------------------------
    If the Proposal were implemented, based on the valuations reported 
in Table 4, the value of the 90 MHz of spectrum would decrease to $1.10 
per MHz-Pop to $1.37 per MHz-Pop, implying expected revenues of $29 
billion to $36 billion.\18\ This is $14 billion to $21 billion more 
than the CBO baseline estimate for this spectrum. The CBO is not free 
to increase its baseline during the legislative budget process. 
Therefore, the significant difference between the supply-adjusted 
market value of the 90 MHz and its lower estimated revenues in the 
baseline could justify ignoring the $3 billion adjustment to the 
current CBO baseline discussed above.
---------------------------------------------------------------------------
    \18\ $1.10 per MHz-Pop * 90 MHz * 296 million pops = $29 billion 
and $1.37 per MHz-Pop * 90 MHz * 296 million pops = $36 billion.
---------------------------------------------------------------------------
    Net budget impact. The Proposal's net impact on the budget would be 
$16 billion to $20 billion. See Table 5. This includes $20 billion to 
$24 billion in auction revenues from the sale of the Auction Bands; $1 
billion in federal costs for the Proposal; and a possible loss of $3 
billion in revenues from the 90 MHz in the budget baseline.

                                   TABLE 5. NET BUDGET IMPACT OF THE PROPOSAL
----------------------------------------------------------------------------------------------------------------
                           Source                              Budget Gain (Loss) Low    Budget Gain (Loss) High
----------------------------------------------------------------------------------------------------------------
Sale of 60 MHz Auction Band.................................              $20 Billion               $24 Billion
Federal Costs of Converter Boxes............................             ($1 Billion)              ($1 Billion)
Budget Impact, No Baseline Adjustment.......................              $19 Billion               $23 Billion
Loss from 90 MHz in Budget Baseline.........................             ($3 Billion)            ($3 Billion) ]
Total.......................................................              $16 Billion               $20 Billion
----------------------------------------------------------------------------------------------------------------

C. The social value of the Proposal
    The social value that would be created by the Proposal includes the 
increase in market value of the spectrum, the increase in consumer 
welfare from the Proposal, the benefits to public safety users, and, 
potentially, the welfare effects associated with auction revenues that 
offset distortions caused by federal borrowing or taxing activities.
    Increase in market value of the spectrum. The willingness of 
wireless companies to pay for spectrum sets the market value. That 
willingness to pay is derived from the companies' expected profits from 
spectrum-based services and is called producer surplus. It constitutes 
one contribution to the social value of the spectrum.
    Increase in consumer welfare. The consumer welfare generated by 
increased spectrum allocations is large and typically many times the 
producer surplus. One noted study by Thomas Hazlett and Roberto Munoz 
finds that the increase in consumer welfare associated with a 60 MHz 
increase in spectrum allocated for mobile phone use in the U.S. is $24 
billion per year.\19\ The analysis indicates that the consumer surplus 
would be almost 18 times the producer surplus associated with that 
spectrum.\20\
---------------------------------------------------------------------------
    \19\ Thomas W. Hazlett and Roberto E. Munoz, ``A Welfare Analysis 
of Spectrum Allocation Policies,'' Manhattan Institute for Policy 
Research, June 10, 2004, p. 17.
    \20\ 18 = ($24 billion/0.05)/($27 billion). See Thomas W. Hazlett 
and Roberto E. Munoz, ``A Welfare Analysis of Spectrum Allocation 
Policies,'' Manhattan Institute for Policy Research, June 10, 2004, p. 
17.
---------------------------------------------------------------------------
    The Hazlett and Munoz estimate is not directly applicable to the 
analysis of an accelerated DTV transition for at least two reasons. 
First, it does not account for the Proposal's interaction with other 
allocations of spectrum expected in the near future. Hazlett's and 
Munoz's estimate may be applicable to the 60 MHz of the Auction Bands, 
but to be properly applied here, it also needs to account for changes 
in consumer surplus associated with the 90 MHz anticipated in the CBO 
baseline or the effects on the BRS/EBS allocations at 2.5 GHz. 
Consequently, the increase in consumer surplus could be less than the 
$24 billion per year estimated by Hazlett and Munoz. How much less is 
uncertain, but Congressional testimony by Dr. Hazlett before the U.S. 
Senate Commerce Committee provides an indication. In that testimony, 
Dr. Hazlett reported the information in the following table:

                       TABLE 6. ANNUAL CONSUMER GAINS FROM INCREASED SPECTRUM AVAILABILITY
----------------------------------------------------------------------------------------------------------------
                                                              Increase in Spectrum Available for CMRS
                                                  --------------------------------------------------------------
                                                          80 MHz              140 MHz              200 MHz
----------------------------------------------------------------------------------------------------------------
Change in Consumer Surplus.......................       $31.9 Billion        $55.1 Billion        $77.4 Billion
Marginal Surplus of 60 MHz.......................                 N/A        $23.2 Billion       $22.3 Billion
----------------------------------------------------------------------------------------------------------------
Source: Testimony of Thomas W. Hazlett before the United States Senate Commerce Committee, June 9, 2004.

    The table indicates that the value of the consumer surplus from 
additional increments of spectrum declines, but at a fairly slow rate 
over the relevant range. Compare the change in consumer surplus of 
$23.2 billion when the total additional spectrum is increased from 80 
MHz to 140 MHz with the change in consumer surplus of $22.3 billion 
when the total additional spectrum is increased from 140 MHz to 200 
MHz.
    The Hazlett and Munoz analysis explicitly assumes that the 
additional spectrum will be allocated for Commercial Mobile Radio 
Services (``CMRS''). Although CMRS uses may be the highest-value uses 
for additional allocations, the Proposal does not restrict the Auction 
Bands to CMRS uses. Because the new allocations can at least be used 
for CMRS, the Hazlett and Munoz value estimates, including estimates of 
consumer surplus, set a lower boundary on the estimates for even less 
restricted spectrum.
    Taking into account these considerations, a plausible and 
conservative estimate of the range of ratios of consumer surplus to 
producer surplus would be between 10 to 1 and 18 to 1.\21\ The 
estimates of the value of the Auction Bands reported in Table 5 range 
from $20 billion to $24 billion dollars, implying consumer surplus 
increases of at least $200 billion to $432 billion.
---------------------------------------------------------------------------
    \21\ A ratio of 10 to 1 is also consistent with the ratio of 
consumer surplus to private value noted in Gregory L. Rosston, ``The 
Long and Winding Road: the FCC Paves the Path with Good Intentions,'' 
27 Telecommunications Policy 501, 513 (2003).
---------------------------------------------------------------------------
    Public safety benefits. Although it is difficult to estimate the 
Proposal's impact on the value of the public safety allocations in the 
700 MHz Band, the Proposal provides significant benefit to public 
safety spectrum users by clearing the incumbent broadcasters from the 
public safety bands. From a public policy perspective, the opportunity 
cost to the government of allocating 24 MHz of 700 MHz Band spectrum to 
public safety is the receipts the spectrum could garner in an 
auction.\22\ In this case, the current public safety allocation would 
be valued at approximately $8 billion to $10 billion.\23\ The total 
benefit of those bands could be more than the opportunity cost of the 
allocation, but placing a monetary value on those total benefits is 
beyond the scope of this analysis.
---------------------------------------------------------------------------
    \22\ In the context of a spectrum trade involving Nextel, the FCC 
notes the difficulty of putting a dollar value on public safety 
spectrum. ``We believe that no strictly economic analysis can 
satisfactorily resolve the ultimate question of whether interference-
free public safety communications--a largely unquantifiable benefit--
has a dollar value commensurate with the fair market value of the 1.9 
GHz spectrum Nextel will receive. However, we still believe such 
financial analyses are relevant . . .'' Improving Public Safety 
Communications in the 800 MHz Band, Report and Order, Fifth Report and 
Order, Fourth Memorandum Opinion and Order, and Order, 19 FCC Rcd 14969 
 284 (2004).
    \23\ $1.10 per MHz-Pop * 24 MHz * 296 million pops = $8 billion and 
$1.37 per MHz-Pop * 24 MHz * 296 million pops = $10 billion. If the 24 
MHz were sold to private users, the impact on price of the increased 
supply would be approximately an additional -4% ((24 MHz/(390 MHz + 60 
MHz))/elasticity of -1.2).
---------------------------------------------------------------------------
    Federal financing effects. Federal financing activities, whether 
through increased taxes or increased borrowing, create distortions in 
the economy. Reducing federal financing activities therefore reduces 
economic distortions, and, holding all else equal, increases economic 
activity. To the extent that auction revenues reduce the federal 
government's funding requirements, they create an added bonus of 
reducing distortions created by the federal government's financing 
activities. The economic cost of an additional dollar of federal 
spending is estimated to be about $1.33.\24\ Consequently, the 
financing dividend is typically estimated to be about one third of the 
auction revenues.\25\ Applying this proportion to the estimated net 
budget receipts would yield a financing dividend of approximately $5 
billion to $7 billion.\26\
---------------------------------------------------------------------------
    \24\ Michael H. Rothkopf and Coleman Bazelon, ``Interlicense 
Competition: Spectrum Deregulation Without Confiscation or Giveaways,'' 
New America Foundation, Spectrum Series Working Paper No. 8, August 
2003.
    \25\ Thomas W. Hazlett and Robert E. Munoz, ``What Really Matters 
in Spectrum Allocation Design,'' AEI-Brookings Joint Center for 
Regulatory Studies, Working Paper 04-16, August 2004.
    \26\ $16 billion * 0.33 = $5 billion and $20 billion * 0.33 = $7 
billion.
---------------------------------------------------------------------------
    The social value of the Proposal. Combining the producer surplus, 
consumer surplus, public safety benefits, and federal financing effects 
leads to an estimate of the total social value of the Proposal of $233 
billion to $473 billion. See Table 7.

                TABLE 7. SOCIAL BENEFITS OF THE PROPOSAL
------------------------------------------------------------------------
                                                     Amount (billions)
                     Source                      -----------------------
                                                      Low        High
------------------------------------------------------------------------
Producer surplus................................         $20         $24
Consumer surplus................................        $200        $432
Public safety...................................          $8         $10
Federal financing effect........................          $5          $7
Total...........................................        $233        $473
------------------------------------------------------------------------

                      V. THE COSTS OF THE PROPOSAL

    The costs of accelerating the end of the DTV transition are driven 
by the number of set-top boxes distributed, the costs of those boxes, 
and the costs of administering the program. The Government 
Accountability Office (GAO) has provided one such cost estimate.\27\ 
Scrutiny of its analysis indicates that the GAO likely overestimated 
the costs of an accelerated transition.
---------------------------------------------------------------------------
    \27\ U.S. Government Accountability Office, ``Digital Broadcast 
Television Transition: Estimated Cost of Supporting Set-Top Boxes to 
Help Advance the DTV Transition,'' February 17, 2005 (``GAO Report'').
---------------------------------------------------------------------------
A. The number of set-top boxes
    Crucial to determining the number of set-top boxes distributed is 
the number of households that will rely on over-the-air analog 
television broadcasts at the end date of the transition. These are the 
television households that do not subscribe to a multi-channel video 
distribution system. Different estimates of the number of over-the-air-
only households are presented in Table 8.

                             TABLE 8. RECENT ESTIMATES OF TELEVISION HOUSEHOLD DATA
----------------------------------------------------------------------------------------------------------------
                                                                                      MVPD
               Source                      Date Published          U.S. TV        Subscribing     OTA Households
                                                                  Households     Households \1\
----------------------------------------------------------------------------------------------------------------
FCC.................................  Feb. 2005..............        108.4 \3\             92.3             16.0
GAO.................................  Feb. 2005..............                                               20.8
Deutsche Bank.......................  Apr. 2005..............        109.9 \3\             88.2             21.8
Wachovia............................  Apr. 2005..............            110.3             97.2             13.2
Vintage Research....................  Feb. 2005..............        109.6 \3\            100.4              9.1
NAB.................................  Aug. 2004..............        108.4 \3\             87.9             20.5
CEA.................................  Aug. 2004..............        107.3 \2\             93.4             13.9
2006 Projected......................                                     109.0             94.4            14.6
----------------------------------------------------------------------------------------------------------------
Data is in millions.
\1\ Figures indicate MVPD subscriptions net of double-subscribers when possible.
\2\ The Consumer Electronics Association uses 2002 Census data to determine its number of TV households.
\3\ These sources all use year-end 2003 or 2004 Nielsen Media Research data as a basis for their numbers of U.S.
  TV households.
Sources: Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming,
  Eleventh Annual Report, 20 FCC Rcd 2755 (2005); U.S. Government Accountability Office, ``Digital Broadcast
  Television Transition: Estimated Cost of Supporting Set-Top Boxes to Help Advance the DTV Transition,''
  February 17, 2005; Douglas Mitchelson and Christopher Gilbert, Deutsche Bank, ``Cable/Sat Spotlight--1Q05
  Preview,'' April 27, 2005; Jeff Wlodarczak and Royden Summers, Wachovia Capital Markets, ``Reports of Demise
  of DBS Greatly Exaggerated,'' April 14, 2005; William Kidd and Alden Mahabir, Vintage Research, ``It Takes
  More Than the Bundle To Beat DBS,'' February 2, 2005; Comments of the National Association of Broadcasters and
  the Association for Maximum Service Television, Inc., Over-the-Air Broadcast Television Viewers, FCC MB Docket
  No. 04-210, August 11, 2004; Comments of the Consumer Electronics Association, Inquiry into Over-the-Air
  Broadcast Television Viewers, FCC MB Docket No. 04-210, August 11, 2004.

    I estimate that in 2006 there will be 14.6 million over-the-air-
only television households. This estimate is based on Census Bureau 
numbers of 111.4 million households in 2006.\28\ This number is reduced 
by 2.1% to account for non-TV households, resulting in an estimate of 
109.0 million television households.\29\ I then take the FCC's June 
2004 estimate of Multichannel Video Program Distributor (``MVPD'') 
subscribers, 92.3 million households, and make two adjustments. First, 
I increase the number by 2.7% annually for the trend growth in MVPD 
subscribers.\30\ Second, I reduce the number by 3% for the number of 
households that subscribe to both cable and a Direct Broadcast 
Satellite service.\31\ Although I do not make an adjustment here, it 
would be appropriate to decrease the number for the households that 
receive an MVPD service but are not included in reported subscriber 
totals.\32\ These adjustments provide an estimate of television 
households that receive an MVPD service of 94.4 million in 2006. The 
difference between that number and all television households is 14.6 
million, the estimate of the number of over-the-air-only television 
households.
---------------------------------------------------------------------------
    \28\ The household estimate for 2006 is based on (1) the American 
Community Survey (ACS) household estimate of 108.4 million for 2003 and 
(2) the annual growth rates implied by the Census Bureau's 2004 
population estimate of 293.7 million and 2010 forecast of 308.9 
million. I believe that the Census Bureau's ACS household number is a 
more appropriate estimate of the total number of households than the 
figures reported in the oft-cited Current Population Survey. This is 
because data from the larger ACS sample are adjusted to more accurately 
reflect household definitions from the decennial census.
    \29\ This represents 1 minus 97.9% (the average of 98.3% television 
households estimated by Deutsche Bank and 97.5% television households 
estimated by Wachovia). Douglas Mitchelson and Christopher Gilbert, 
Deutsche Bank, ``Cable/Sat Spotlight--1Q05 Preview,'' April 27, 2005, 
and Jeff Wlodarczak and Royden Summers, Wachovia Capital Markets, 
Reports of Demise of DBS Greatly Exaggerated, April 14, 2005.
    \30\ This is an average of annual subscriber growth as reported by 
the FCC from 2001-2005. This figure falls roughly in the middle of the 
range reported by other analysts.
    \31\ GAO Report and Comments of the Consumer Electronics 
Association, Inquiry into Over-the-Air Broadcast Television Viewers, 
FCC MB Docket No. 04-210, August 11, 2004.
    \32\ This would include households that steal the service.
---------------------------------------------------------------------------
    There is a well-known relationship between income and the choice 
not to subscribe to an MVPD.\33\ Income is an important reason for 
choosing not to subscribe: two-thirds of non-subscribing households are 
within 300% of the poverty level, but less than half of all households 
are within that same range.\34\ Income, however, is not the only 
determinant. A study of household cable subscribers from 1997 found 
that 22% of households that did not subscribe to cable television had a 
household income of $50,000 or more.\35\ Another study found that only 
30% of non-subscribers cite income as a reason for not subscribing.\36\ 
The FCC also cites a lack of interest in television and other reasons 
such as a lack of foreign language programming for households' 
decisions not to subscribe to a MVPD.\37\
---------------------------------------------------------------------------
    \33\ Federal Communications Commission, ``Media Bureau Staff Report 
Concerning Over-the-Air Broadcast Television Viewers,'' MB Docket No. 
04-210, February 28, 2005,  10 (``FCC OTA Report'').
    \34\ GAO Report, pp. 14-15.
    \35\ Robert Kieschnick and B.D. McCullough, ``Why Do People Not 
Subscribe to Cable Television? A Review of the Evidence,'' presented at 
the Telecommunications Policy Research Conference, October 1998, Tables 
2 and 3 (as cited in 1999 CBO Report).
    \36\ Comments of the Consumer Electronics Association, Inquiry into 
Over-the-Air Broadcast Television Viewers, FCC MB Docket No. 04-210, 
August 11, 2004, p. 4.
    \37\ FCC OTA Report  15-16.
---------------------------------------------------------------------------
B. The cost of set-top boxes
    Today, a set-top converter box can be purchased for $80 to 
$1,000.\38\ Producing several million set-top converter boxes over the 
course of a year or two will likely provide sufficient economies of 
scale in production to allow a significant fall from current price 
levels. How far they fall will depend on the total demand for the boxes 
and the time allowed for their production. At least one industry 
participant estimates that the retail cost of set-top converter boxes 
could be $65 within half a year of the first order and fall to $50 
within one and a half years.\39\ I take this as a reasonable estimate 
of retail costs.
---------------------------------------------------------------------------
    \38\ FCC OTA Report  17.
    \39\ Letter from David Pederson, Vice President, Corporate 
Strategic Marketing, Zoran Corporation, to Mr. Alan Stillwell, Senior 
Associate Chief, Office of Engineering and Technology, Federal 
Communications Commission, FCC ET Docket 05-24, May 16, 2005.
---------------------------------------------------------------------------
C. Administrative costs
    Administrative costs are a relevant cost of the Proposal. These 
include the salaries, overhead costs, and expenses of administering the 
program. By far the greatest expense of the program would be the costs 
of distributing the set-top boxes to the eligible households. In this 
analysis, I assume that the boxes are sold by retailers, and that the 
federal government reimburses retailers for the costs of the set-top 
converter boxes distributed to eligible households. This approach 
assumes that the distribution costs are covered in the retail price of 
the box.
    Additional administrative costs will be incurred for processing and 
auditing the reimbursement requests from retailers. Further costs may 
also be incurred in establishing a database of eligible households. I 
assume that these costs will be a small fraction of the retail cost of 
a set-top box.
D. Total costs of the Proposal
    I assume that the cost per set-top box will range from $50 to $65, 
inclusive of administrative costs. The total cost of the proposal is 
the number of set-top boxes distributed times the cost per set-top box. 
These estimates are presented in Table 9. Overall, the costs of the 
proposal would be no more than $1 billion.

                                         TABLE 9. TOTAL COST OF PROPOSAL
----------------------------------------------------------------------------------------------------------------
                                                              Cost per box
                                               # of boxes       including       Total cost of     GAO Estimate
                  Scenario                     (millions)    administrative     the Proposal       (millions)
                                                                  costs          (millions)
----------------------------------------------------------------------------------------------------------------
200% of poverty.............................          7.3           $50-$65         $365-$475         $463-$925
300% of poverty.............................          9.7           $50-$65         $485-$631       $626-$1,252
All OTA only TV HHs.........................         14.6           $50-$65         $730-$949    $1,042-$2,083
----------------------------------------------------------------------------------------------------------------
Source: Author's calculations and U.S. Government Accountability Office, ``Digital Broadcast Television
  Transition: Estimated Cost of Supporting Set-Top Boxes to Help Advance the DTV Transition,'' February 17,
  2005, p. 14.

                                APPENDIX

    To understand why the elasticity of demand for spectrum should be 
at least as large as the elasticity of demand for mobile telephony, 
first observe that the demand for spectrum is a ``derived demand.'' It 
is derived from the demand for the services that use it as an input. 
For example, the value of a television broadcast license is derived 
from the value of a television broadcast station. If television 
broadcasting becomes more profitable, for example, because of a rise in 
advertising rates, then the derived demand for a television broadcast 
license increases.\40\ Likewise, the demand for licenses in the 700 MHz 
Band will be based on the value of the services supplied by operators 
using these licenses. Consequently, the demand for spectrum is related 
to the demand for spectrum-based services.
---------------------------------------------------------------------------
    \40\ Because the supply of television licenses is fixed, the 
increased demand is completely absorbed into an increase in the license 
price.
---------------------------------------------------------------------------
    Economists have long had an interest in the elasticity of derived 
demand.\41\ Ultimately, the elasticity of a derived demand depends on 
the specifics of the markets for the final good or service, the markets 
for other inputs, and the way the input is used in creating the final 
good or service. Nevertheless, it is possible to characterize whether 
the derived demand is likely to be elastic or inelastic and compare it 
to the elasticity of demand in the output market.
---------------------------------------------------------------------------
    \41\ Much of the interest was in analyzing the demand for labor to 
see if it was inelastic and, thus, susceptible to union wage bargaining 
demands. See ``Derived Demand'' in The New Palgrave: A Dictionary of 
Economics, John Eatwell, et al., ed., New York: Palgrave Publishers, 
1998.
---------------------------------------------------------------------------
    The Marshall-Hicks criteria outline the determinants of the 
elasticity of derived demand.\42\ Applied to radio spectrum, they are:
---------------------------------------------------------------------------
    \42\ Morley Gunderson and W. Craig Riddell, Labour Market 
Economics, 3Ed., McGraw-Hill Ryerson, 1993, pp. 203-206.

 The availability of substitutes for spectrum (Substitutability of 
        inputs). One determinant of the elasticity of demand for 
        spectrum is the degree to which wireless service providers can 
        substitute away from spectrum when its price increases. With 
        current technology, companies must have some spectrum below 3 
        GHz to provide mobile services. One significant advantage of 
        wireless systems that use cellular architecture is the ability 
        to subdivide a cell into several smaller cells. This increases 
        the reuse of frequencies and therefore increases the capacity 
        of the wireless system. Consequently, capital--in the form of 
        more cell sites and supporting infrastructure--can be 
        substituted for more spectrum to increase capacity (or used to 
        maintain capacity with less spectrum). The more the production 
        technology allows capital to substitute for spectrum, the more 
        elastic the derived demand for spectrum will be.
 The elasticity of supply of capital and other inputs into the final 
        wireless service (Complementary input elasticity). If the 
        inputs other than spectrum used to produce a wireless service 
        have an inelastic supply--i.e., it will cost proportionately 
        more to purchase additional supply of those inputs--then it is 
        costly to substitute away from spectrum and into those other 
        inputs. Much of the capital that can substitute for spectrum--
        radios, for example--is likely to be supplied very elastically. 
        Other capital--possibly towers--may be somewhat less elastic in 
        supply. Overall, as capital goods are substituted for spectrum, 
        their price is not likely to increase significantly. This tends 
        to make the demand for spectrum more elastic.
 The proportion of total costs associated with spectrum (Input costs 
        as a portion of total costs). The smaller the proportion of 
        spectrum costs in providing the wireless service, the less it 
        is necessary for the service provider to change its demand for 
        spectrum in response to a change in the price of spectrum.\43\ 
        The smaller the portion of total costs spent on spectrum, the 
        smaller the impact a given percentage price change in spectrum 
        will have on the total costs of wireless services. A smaller 
        share, therefore, tends to make the derived demand less 
        elastic. Spectrum is an important component of production, but 
        not overwhelmingly so. One rule of thumb states that spectrum 
        costs are equal to capital costs. If depreciation and 
        amortization are 20% of revenues and revenues are approximately 
        equal to total costs,\44\ then spectrum costs equal 
        approximately one fifth of total costs. Spectrum costs do not 
        appear to be so small that operators are indifferent to their 
        level. Consequently, the portion-of-total-costs criterion does 
        not strongly support an inelastic demand for spectrum.
---------------------------------------------------------------------------
    \43\ This condition, known as ``the importance of being 
unimportant,'' is relevant only if the elasticity of demand for the 
final output is greater than the elasticity of substitution between the 
inputs. In other words, if the demand for the final service is more 
sensitive to price than the ability to substitute away from spectrum 
when its price increases, then derived demand is more likely to be 
inelastic if ``the importance of being unimportant'' criterion holds. 
See Morley Gunderson and W. Craig Riddell, Labour Market Economics, 
3Ed., McGraw-Hill Ryerson, 1993, p. 206.
    \44\ See, e.g., Sprint Corporation, SEC Form 10-K/A, for the period 
ending December 31, 2004 (filed April 29, 2005), and Nextel 
Communications, Inc., SEC Form 10-K, for the period ending December 31, 
2004 (filed March 15, 2005).
---------------------------------------------------------------------------
 The elasticity of demand for spectrum based services (Output demand 
        elasticity). The elasticity of demand for the final wireless 
        services affects the elasticity of demand for spectrum because 
        it either mutes or amplifies the effect of the input price 
        change. As discussed below, demand for spectrum based services 
        is elastic, indicating an elastic demand for spectrum.
    These four factors are summarized in Table A.

          TABLE A. MARSHALL-HICKS CRITERIA APPLIED TO SPECTRUM
------------------------------------------------------------------------
                                                           Effect on
                                      In wireless        elasticity of
                                      production      derived demand for
                                                           spectrum
------------------------------------------------------------------------
Substitutability of inputs......  Medium............  More elastic
Complementary input elasticity..  Elastic...........  Elastic
Input costs as a portion of       Medium............  Not inelastic
 total costs.
Output demand elasticity........  Elastic...........  Elastic
------------------------------------------------------------------------

    Recent elasticity estimates of mobile telephony in the US range 
from -1.12 to -1.29.\45\ Mobile telephony is only one use of liberally 
licensed wireless spectrum. It is likely that additional allocations of 
spectrum will be used for wireless broadband services. Adding other 
potential services to the demands from the mobile phone market 
increases the total demand for spectrum licenses. Any given percentage 
decrease in price will be met by increased demand in the mobile phone 
market plus increased demand in the wireless broadband market. Demand 
for wireless broadband is likely to be at least as elastic as demand 
for mobile phones.\46\ Therefore, the sum of the two demands will be at 
least as elastic as the demand for mobile phones alone.
---------------------------------------------------------------------------
    \45\ Allan T. Ingraham and J. Gregory Sidak, ``Do States Tax 
Wireless Services Inefficiently? Evidence on the Price Elasticity of 
Demand,'' 24 Virginia Tax Review (2004) (forthcoming).
    \46\ The elasticity of demand for wired broadband is estimated to 
be between -1.2 and -1.46. Robert W. Crandall, Competition and Chaos: 
U.S. Telecommunications Since the 1996 Telecom Act, Brookings 
Institution Press, 2005, p. 120 Demand for wireless phone service is 
more elastic than demand for wired phone service. For similar reasons, 
the elasticity of demand for wireless broadband services is expected to 
be more elastic than the elasticity of demand for wired broadband 
services.
---------------------------------------------------------------------------
    I conclude that demand for spectrum is at least as elastic as the 
demand for spectrum-based services, and that demand for spectrum-based 
services is at least as elastic as the demand for mobile phone 
services. Based on the average of the two estimates of the elasticity 
of demand for mobile phone service in the U.S., I conclude that the 
elasticity of demand for spectrum is -1.2 or greater (in absolute 
value).

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