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



    THE ROLE OF TECHNOLOGY IN ACHIEVING A HARD DEADLINE FOR THE DTV 
                               TRANSITION

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

                                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

                               __________

                           FEBRUARY 17, 2005

                               __________

                            Serial No. 109-9

                               __________

       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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_____________________________________________________________________________
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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

      James D. Barnette, 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:
    Goldstein, Mark L., Director, Physical Infrastructure Issues, 
      Government Accountability Office...........................    13
    Kim, Jong, Vice President, Public Affairs and Communications, 
      LG Electronics USA, Inc....................................    25
    Willner, Michael S., President and Chief Executive Officer, 
      Insight Communications.....................................    42
    Yager, K. James, Chief Executive Officer, Barrington 
      Broadcasting Company, LLC, on Behalf of Association for 
      Maximum Service Television, Inc., National Association of 
      Broadcasters...............................................    28

                                 (iii)

  

 
    THE ROLE OF TECHNOLOGY IN ACHIEVING A HARD DEADLINE FOR THE DTV 
                               TRANSITION

                              ----------                              


                      THURSDAY, FEBRUARY 17, 2005

              House of Representatives,    
              Committee on Energy and Commerce,    
                     Subcommittee on Telecommunications    
                                          and the Internet,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 9:36 a.m., in 
room 2123 of the Rayburn House Office Building, Hon. Fred Upton 
(chairman) presiding.
    Members present: Representatives Stearns, Whitfield, 
Shimkus, Wilson, Pickering, Fossella, Radanovich, Bass, Walden, 
Terry, Ferguson, Sullivan, Blackburn, Barton (ex officio), 
Markey, Engel, Wynn, Doyle, Gonzalez, Inslee, Boucher, Towns, 
Brown, and Rush.
    Staff present: Howard Waltzman, chief counsel; Will 
Nordwind, policy coordinator; Neil Fried, majority counsel; 
Kelly Cole, majority counsel; Jaylyn Jensen, senior research 
analyst; Billy Harvard, legislative clerk; Johanna Shelton, 
minority counsel; Peter Filon, minority counsel; Ashley 
Groesbeck, research assistant; and Turney Hall, staff 
assistant.
    Mr. Upton. Good morning. Today, we begin the first in a 
series of hearings this year on the DTV transition as we move 
with deliberate speed toward the introduction and consideration 
of legislation to bring the transition to an expeditious end by 
a date certain so that broadcasters and the analog spectrum can 
be returned and used for both public safety, interoperable 
radio communications, and advanced wireless services. And it is 
my goal to move DTV legislation in a timeframe to enable its 
consideration on the House floor by early summer.
    Today's hearing focuses on the role of technology in 
helping us achieve a hard deadline for the DTV transition. I 
would begin by noting that because of current law, Congress did 
nothing for those 15 percent of American households which rely 
exclusively on over-the-air television service could see their 
TV sets go dark at the end of the digital TV transition.
    Fortunately, exclusively over-the-air households could use 
digital to analog converter boxes to ensure that their current 
analog sets can receive digital broadcast signals. 
Alternatively, the could purchase a TV with a DTV tuner, 
subscribe to cable, or subscribe to satellite. We are 
contemplating in our hard day of legislation the creation of 
some type of digital to analog converter box program to assist 
exclusively over-the-air TV households in getting those 
converter boxes. Such a program could be financed by using a 
portion of the proceeds from auction of the returned analog 
spectrum.
    Consequently, we need to know how much those converter 
boxes will cost and when they will be available in mass 
quantities. I think that that is the right policy direction, 
but we will need to consider the appropriate scope of such a 
program and make sure that it is crafted in a way to prevent 
fraud, abuse, and mismanagement. Technology also enables cable 
and satellite operators to convert digital signals to analog 
for those subscribers who have analog TV sets so that those 
sets will continue to work. However, we need to grapple with 
the question of whether cable and satellite operators are 
permitted to convert the broadcasters of digital signal at the 
head end or at the subscriber's house. The answer to the 
question may have a dramatic impact on what we will have to do 
to ensure that their analog TVs continue to work the way that 
they expect them to work.
    I look forward to hearing from today's witnesses on these 
important issues. I appreciate their willingness to be with us 
today for sure. And I want to thank the GAO for its tremendous 
work and competence.
    With that, I yield to an opening statement to my friend and 
colleague, the ranking member of the subcommittee, Mr. Markey 
from Massachusetts.
    Mr. Markey. Thank you, Mr. Chairman. Thank you very much 
for helping us to explore these issues today.
    Today's hearing will explore issues related to ending 
analog television broadcasting in the United States. I think 
for public policy discussion we can safely assume that the 
analog era will end on a date certain. This is largely because 
budgetary interests will force a hard date for shutting down 
the analog signal in order to obtain proceeds from any auctions 
for licenses to use frequencies that the broadcast industry 
vacates.
    The question remains which date should be chosen. My 
feeling is that the date should be driven not by budgetary 
considerations but rather by our telecommunications policy 
goals. We must be mindful that television penetration in the 
United States exceeds telephone penetration. The Government 
Accountability Office will report to us this morning that some 
21 million households in the United States rely exclusively 
upon free over-the-air analog broadcasting. On average, 
American consumers also have multiple television sets in their 
households, and today, all over the country, consumers will be 
walking into a store and, rather than buying a DTV set, they 
will buy yet another analog TV set, and these TV sets typically 
last 15 to 20 years longer, not 18 months, like an Ipod, 15 to 
20 years. Ipod automatically goes broke in 18 months. Isn't 
that something? That is the new technology. The old technology 
lasts for 15 to 20 years.
    There is little debate that getting the analog TV spectrum 
backed soon can offer consumers and taxpayers alike important 
public and economic benefits. More importantly, even freeing up 
the upper portion of the broadcast spectrum for our public 
safety would be a significant public interest achievement that 
has also eluded the Federal Communications Commission for 
several years. At its core, the DTV transition represents a 
government-driven policy, not a purely market-driven 
phenomenon, and it is therefore imperative that government 
create the conditions and environment for policy success. In 
that context, any transition plan that abruptly cuts off analog 
television service must come only after consumers have been 
adequately informed of the impending shut off of service. 
Moreover, it should only occur after the government has fully 
implemented a program to effectively identify individuals who 
may warrant a subsidy to buy needed equipment so that they do 
not lose TV reception in their household. And in considering a 
timetable for this proposed--for this purpose, we must remember 
that neither the FCC nor the Commerce Department has any 
experience in administering this type of program.
    Finally, a date certain shut off of the analog television 
feed should arrive only after consumers have had sufficient 
time to make the purchases they need to continue receiving 
television broadcasts in the digital TV era. Another intricate 
component of any early and less costly date certain shut off of 
the analog signal is the notion that cable operators will take 
the digital signals of broadcasters and down-convert such 
signals to analog. In other words, millions of cable consumers 
would receive their local TV broadcasters in analog format 
rather than in digital format in order to bring the DTV 
transition to a more rapid conclusion.
    I believe we have to have a discussion of the consumer 
impact of down-converting a broadcaster's signal. Over the next 
couple of years, millions of consumers will make investments in 
digital television equipment. And millions more may be induced 
to make such purchases if the government is advertising that it 
is ending the analog TV era on a certain date. If we permit the 
down-conversion of the quality of the broadcaster's signal in 
order to end up--in order to end the DTV transition early, will 
there be any policy of up-conversion of that signal back to its 
original digital format further down the road so that all cable 
consumers eventually get to see the digital quality picture the 
broadcaster is delivering to the cable operator on the new 
digital set that this committee will have advised all consumers 
to have purchased although they are now watching an analog set 
in the digital era in--oh, God, is it going to be confusing.
    These are important issues that the subcommittee must 
understand so that we can explain it to our constituents. And 
we appreciate all of the expert testimony that we are going to 
hear today, because Congress is a stimulating--is a stimulus-
response institution, and there is nothing more stimulating 
than millions of consumers who will demand to know why they 
can't see their favorite programming this coming Sunday. There 
could never--I can't even imagine the issue that could match it 
in its intensity if this committee mishandles this issue.
    I yield back the balance of my time.
    Mr. Upton. Thank you.
    The gentleman from Illinois, Mr. Shimkus, for an opening 
statement.
    Mr. Shimkus. Just briefly, Mr. Chairman, let me use this 
time to welcome at least two of the panelists who are 
testifying today. We have Mr. James Yager who is testifying on 
behalf of NAB. He is from Hoffman Estates in Illinois. He was 
in the Army and owns a CBS affiliate in Quincy, and I--Quincy 
was part of my old District, so I know the community well and 
the broadcast area. And Michael Willner is testifying for 
cable. He is president of Insight Communications, which has a 
large presence in central Illinois. So following up on Mr. 
Markey's comments, there is schizophrenia in the committee room 
and I welcome two folks who probably have different views on 
this issue. And we will try to work it out.
    I yield back my time, Mr. Chairman.
    Mr. Upton. Thank you.
    Mr. Boucher.
    Mr. Boucher. Well, thank you very much, Mr. Chairman.
    I think all of us would welcome an early return of the 
analog spectrum, which could then be utilized for a variety of 
valuable communications services. I think that all of us would 
also agree that the owners of the 73 million analog television 
sets currently in use in the United States should not find 
themselves with stranded equipment as a consequence of the 
digital television transition.
    It is a difficult balance to strike, accelerating the 
digital transition while holding harmless the owners of analog 
television sets. In these remarks, I want to strike a 
cautionary note and underscore the difficulty that a hard date 
for surrender of the analog spectrum could create for analog 
set owners.
    As I indicated, there are 73 million analog sets currently 
in use in the Nation today. 45 million of these sets are in 
households that rely solely on over-the-air reception. These 
20.5 million households don't have a cable or a satellite 
subscription. They get their television solely over the air. 
These 20.5 million households represent some of the most 
economically challenged residents in our Nation. Many are in 
less financially fortunate rural areas. 43 percent of the 
Spanish language households are in over-the-air markets only. 
25 percent of households with incomes of less than $30,000 are 
over-the-air reliant. I don't think any of us would expect 
these individuals to bear the burden of a transition that will 
turn their television sets into scrap metal.
    Some have suggested that we use proceeds from the auction 
of the analog 6 megahertz to purchase converters that would 
then be given to analog set owners along the lines of the 
experience that occurred in the city of Berlin. But the math 
that underlies this suggestion is questionable at best. A $100 
converter box supplied for 73 million television sets would 
cost $7.3 billion. The low end of the estimate of the revenue 
that the government would receive upon the auction of the 
return of 6 megahertz of analog spectrum is approximately $4 
billion. Even if the converter boxes prove cheaper than $100, 
and even if many of the owners of analog sets decide to 
purchase digital sets, the cost of the converter boxes could 
well exceed the revenues that the government will get for the 
auction of the analog spectrum.
    And so I urge the members not to rush to judgment and to 
pose a hard date for analog spectrum surrender. There are other 
steps that we can take to accelerate the transition, and I will 
look forward to suggestions this morning from our witnesses 
about what some of those steps might be.
    Thank you very much, Mr. Chairman. I yield back.
    Mr. Upton. Thank you.
    Mr. Walden.
    Mr. Walden. Thank you very much, Mr. Chairman. I appreciate 
your holding this hearing on this DTV conversion issue, and I 
want to especially thank our witnesses for their testimony 
today. I have read the report from the General Accounting--or 
the Government Accountability Office. I have to keep reminding 
myself of the name change there. And I appreciate it, because 
it really lays out, in a very factual context, the kind of TV 
tax we are looking at here. And I label it there because 
somewhere between $463 million and $10 billion is at issue 
here.
    And for what? I am a Republican. I came here as a 
Republican. I intend to leave as a Republican, and I think the 
marketplace is probably the best place to resolve this issue. 
And consumers aren't exactly ready for this transition and 
apparently, according to the GAO's report, aren't necessarily 
embracing what it may cost them. Over time, they will get 
there, but if we drop this hammer on consumers, the 
sledgehammer is going to come back on us, as it should. I am 
concerned about issues relating to down-converting when 
broadcasters are having to convert their signals to digital 
only to have the bulk of their audience see it in analog, 
because there is no requirement on cable to maintain that 
digital pass-through. And then I don't know how I am going to 
explain a drop dead date to consumers when they realize the 
three to five television sets they have in their house no 
longer will function as of a given date. I know the pushback 
that is received by us when there is a small add-on fee on a 
phone bill, for example, of 25 cents a month or something. I 
hasten to wonder what that feedback will be when that fee is 
somewhere in the $50 to $100 range just to watch TV. And for 
those who may not have read the constitution lately having gone 
through the satellite TV issues, I have found this little 
clause that says being able to watch TV is a constitutional 
right that we will all hear about.
    And so, Mr. Chairman, I appreciate the opportunity to hear 
from our witnesses today, and I look forward to this vigorous 
debate.
    Mr. Upton. Mr. Gonzalez.
    Mr. Gonzalez. Thank you. With that comment, Walden for 
Supreme Court Justice. I like that interpretation.
    Mr. Walden. Do you have to be a lawyer?
    Mr. Gonzalez. Actually not for the Supreme Court.
    Anyway, that is another story.
    But thank you very much, Mr. Chairman, and I welcome this 
opportunity. I don't know what it will take. I am new to the 
committee. This has been going around for a number of years. 
How do you bring all of the stakeholders together and respect 
their interests? Do we ever really get this thing moving? Do we 
keep talking about it? And have we created something that we 
don't know what we are going to do? As we get to the end of the 
road, my suggestion, of course, to get Congress moving is maybe 
to restrict all political advertising to be digitally 
transmitted. And we probably would have some real movement.
    But again, just thank you. And I look forward to it. My 
apologies. I may be called to some meetings, and I will try to 
attend as much of this as possible.
    Again, thank you, and I yield back.
    Mr. Upton. Mr. Terry.
    Mr. Terry. Thank you, Mr. Chairman.
    I am a strong believer in the digital transition and a firm 
believer that in order to make this transition a reality, we 
need to have a hard date. However, we have to realize that 
there are consequences associated with the transition that we 
need to vet and fix. I am happy today to see that today's 
hearing will be the first in a series of hearings to discuss 
this transition. And I am delighted to see today that we will 
be focusing on an issue that I think is one of the most 
important, and that is the technology associated with the 
conversion.
    According to the NAB, as Rick said, 20.5 million U.S. 
households rely solely on over-the-air broadcasting for their 
TV viewing. Now we don't know if this is an exact number, but I 
am going to take it as such. Therefore, we need to realize that 
there are just a heck of a lot of folks that still get their 
signal over the air that will be significantly harmed by a hard 
date.
    We also have to focus on those that receive their signal 
from cable or satellite that have analog sets that will lose 
their services unless the consumer is provided a converter box 
where the signal is down-converted at the cable head end. For 
these consumers, I believe it is up to the provider to figure 
out how to get them the best quality signal to their customer.
    The issue then becomes, of the people who rely solely on 
over-the-air broadcasting, how does the Federal Government help 
to get set-top boxes to them, and who do we provide this help 
to.
    One of our witnesses today, LG Electronics, has stated that 
they believe that the retail price of a simple digital to 
analog converter box should be under $100 by 2006 and under $50 
by 2008. But as the price of the set-top box decreases, there 
are still those that will not be able to afford one, let alone 
several, at whatever price these boxes are sold at. It is for 
these people that I think we have an obligation to help and 
allow them to go to Nebraska Furniture Mart in Omaha, Nebraska, 
yes, a selfless plug for one of our biggest electronic stores, 
or Best Buys or other electronic stores in other areas and 
purchase a set-top box. Maybe under a voucher type of program--
there are a number of ways to put a program like this into 
place that we must explore.
    Again, thank you, Mr. Chairman, for holding this hearing. 
And I look forward to hearing from our witnesses.
    [The prepared statement of Hon. Lee Terry follows:]

Prepared Statement of Hon. Lee Terry, a Representative in Congress from 
                         the State of Nebraska

    Thank you Mr. Chairman,
    Mr. Chairman, like you--I am a strong believer in the Digital 
Television (DTV) Transition and I am a firm believer that in order to 
make this transition a reality--we need to have a hard date. While it 
is commonly understood that this transition will bring a host of 
benefits to the American Consumer, it is an unfortunate reality that 
there are many issues we must get through to make this transition as 
smooth as possible.
    I am happy to see that today's hearing will be the first in a 
series of hearings to discuss the transition and am delighted to see 
that today we will be focusing on an issue I think is one of the most 
important--the set-top box.
    According to the National Association of Broadcasters there are 
20.5 million U.S. television households that rely solely on over-the-
air broadcasting for their TV viewing. Whether or not this number is 
exact--there will still be a lot of homes that will have to figure out 
a way to receive a Digital signal once this hard date is established. 
Additionally, those that receive their signal from cable or satellite 
and have analog sets will lose service unless the consumer is provided 
a converter box or the signal is down converted at the cable head-end. 
For these customers, I believe that it is up to the provider to figure 
out how to get the best quality signal to their customer.
    The issue then becomes--of the people who rely solely on over-the-
air broadcasting; how does the Federal Government help get set-top 
boxes to them, and who do we provide this help to. One of our witnesses 
today, LG Electronics, has stated that they believe the retail price of 
a simple digital-to-analog converter box should be under $100 by 2006 
and under $50 by 2008. But as the price of the set-top box decreases, 
there are those that will not be able to afford one no matter what the 
price point. It is these people that we must help and allow them to go 
to Nebraska Furniture Mart, or their local Best Buy and purchase a set-
top box under a voucher program. And while there are a number of ways 
to put a program like this into place, I think one of the best ways to 
set it up is to use a portion of the proceeds from the auction of the 
analog spectrum we will get back once this hard date is reached.
    Again, thank you Mr. Chairman for holding this hearing and I look 
forward to hearing from our witnesses.

    Mr. Upton. Mr. Brown.
    Mr. Brown. Mr. Chairman, I would waive my opening 
statement.
    Mr. Upton. Thank you.
    Mr. Doyle.
    Mr. Doyle. Thank you, Mr. Chairman.
    I want to start by thanking you and Mr. Markey for 
scheduling this important hearing, and I would also like to 
thank all of the witnesses for agreeing to appear before us 
today to discuss the numerous issues surrounding a hard 
deadline for the digital television transition.
    Today, only between 8 and 9 percent of Americans are 
capable of viewing digital television signals. And at the 
current pace of transition, we are not going to even come close 
to reaching the 85 percent threshold prior to the December 31, 
2006 statutory deadline. So clearly, we must do something to 
speed up the process.
    It seems to me that the certainty of a hard deadline to 
convert would have this speeding up effect. I guess the 
question in my mind is regardless of what hard date we choose, 
exactly what types of things must happen for a hard date to be 
achievable? Can manufacturers make the set-top boxes we need 
prior to a hard deadline? And how would the price per unit of 
each device vary depending on the hard date? Will these devices 
be considerably cheaper per unit with a later date?
    I know we are early in the process, but today's hearing is 
essential, because in order to meet a hard deadline, we will 
need the expertise of our witnesses and the industries and 
interests you represent.
    One of my biggest concerns as we navigate this process 
revolves around the impact the conversion will have on the 
American people. Millions of Americans simply don't have the 
disposable income to go out and purchase new hardware in order 
to watch television. What will be the financial impact on these 
people? And if we decide to help lower-income Americans afford 
converter boxes, where do we draw the line? At what point 
should we start with public outreach so that whatever we decide 
doesn't blind-side our constituents?
    You know, just a few years ago, many of us here on this 
committee were inundated with angry constituents when 500,000 
satellite subscribers lost access to their network TV signal. 
500,000, a large number indeed, but when you consider that 
there are 45 million television sets and homes that rely on 
free, over-the-air broadcasts, televisions that could be 
obsolete, I cringe to think of the backlash that would come if 
we don't get this right, which is why we better get this right, 
Mr. Chairman.
    Thank you very much, and I yield back my time.
    [The prepared statement of Hon. Mike Doyle follows:]

  Prepared Statement of Hon. Mike Doyle, a Representative in Congress 
                    from the State of Penmnsylvania

    I want to start today by thanking Mr. Upton and Mr. Markey for 
scheduling this important hearing. I'd also like to thank all of the 
witnesses for agreeing to appear before us today to discuss the 
numerous issues surrounding a hard deadline for the digital television 
transition.
    Today, only between 8% and 9% of Americans are capable of viewing 
digital television signals. And at the current pace of transition, we 
are not going to come close to reaching the 85% threshold prior to the 
December 31st 2006 statutory deadline. So clearly we must do something 
to speed up this process.
    It seems to me that the certainty of a hard deadline to convert 
would have this ``speeding up'' effect. I guess the question on my mind 
is, regardless of what hard date we choose, exactly what types of 
things must happen for a hard date to be achievable? Can manufacturers 
make the set-top boxes we will need prior to a hard deadline? How would 
the price per unit of each device vary depending on the hard date? Will 
these devices be considerably cheaper per unit with a later date? I 
know we are early in the process, but today's hearing is essential 
because in order to meet a hard deadline we need the expertise of our 
witnesses and the industries and interests you represent.
    One of my biggest concerns as we navigate this process revolves 
around the impact this conversion will have on the American people. 
Millions of Americans simply don't have the disposable income to go out 
and purchase new hardware in order to watch television. What will the 
financial impact be on these people? And, if we decide to help lower 
income Americans afford converter boxes, exactly where do we draw the 
line in defining low income? And at what point should we start with 
public outreach so that whatever we decide does not blindside our 
constituents?
    A few years ago, many of us were inundated with calls from angry 
constituents when 500,000 satellite subscribers lost access to their 
network TV signals. 500,000--a large number indeed, but when you 
consider that there are 45 million television sets in homes that rely 
on free, over-the-air broadcasts--televisions that could be rendered 
obsolete--I cringe to think of the backlash that will come if we don't 
get this right.
    Which is why we better get this right!
    Thank you Mr. Chairman.

    Mr. Upton. Mr. Barton.
    Chairman Barton. Thank you, Mr. Chairman.
    I am going to submit my opening statement for the record, 
but something that is not in the opening statement that I want 
to put on the record is that in the very near future, I intend 
to introduce a hard date, stand-alone bill on digital 
transition, and I hope we can get all of the members of the 
subcommittee and full committee to be cosponsors.
    Thank you.
    [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 hearing on the role of 
technology in achieving a hard deadline for the digital television 
transition. As I have made clear in previous hearings and elsewhere, I 
intend to introduce DTV hard-deadline legislation this year. We need to 
expedite the transition so that consumers and the economy can benefit 
from the full rollout of DTV, and so that we can repurpose the analog 
spectrum for public safety use and advanced wireless services.
    Moreover, unless Congress takes action, current provisions in the 
Communications Act could cause approximately 15 million households to 
lose television service. The statute requires local broadcasters to 
stop broadcasting in analog once 85 percent of their markets have 
access to digital broadcast channels. The remaining 15 percent of 
households relying on analog over-the-air signals would then no longer 
be able to view broadcast programming.
    We could address this problem by eliminating the 85-percent 
penetration requirement and setting a December 31, 2006, ``hard 
deadline'' for television broadcasters to cease analog broadcasts. Some 
of the revenue from auction of the returned spectrum could then be used 
to create a digital-to-analog converter box program. Such converter 
boxes can help ensure that analog over-the-air households do not lose 
television service. Similarly, cable and satellite operators could 
convert digital broadcasts to analog format for their subscribers with 
analog televisions. In this way, analog households would continue to 
get programming, and consumers could upgrade to digital televisions 
when they are ready.
    Clearing the spectrum on an accelerated and nationwide basis with 
hard-date legislation will raise the money necessary to fund the 
converter-box program. Without such legislation, the spectrum would 
remain encumbered for many years and yield far less at auction. We 
would not have the converter-box program, and millions of analog over-
the-air households would go dark under the current law once the 85-
percent requirement is met.
    On a side but related note, the FCC this week solicited comment on 
a petition by the consumer electronics industry to modify the digital 
tuner mandate rules. The consumer electronics industry would like to 
eliminate one of the July 1, 2005, requirements to include digital 
tuners in certain televisions in exchange for moving sooner a July 1, 
2006, deadline. I will keep an eye on this petition, looking at it from 
the perspective of whether it will slow or speed the DTV transition.
    I thank the witnesses for appearing before the Subcommittee. Their 
testimony will help us decide how we might craft hard-deadline 
legislation and a converter box program, and estimate how much it will 
cost. I yield back.

    Mr. Upton. Ms. Blackburn. Mr. Whitfield.
    Mr. Whitfield. Waive.
    Mr. Upton. Mr. Stearns.
    Mr. Stearns. Thank you, Mr. Chairman.
    I just have a few comments.
    I am glad we are having this hearing. I sort of feel like 
our chairman, Mr. Barton, that a hard date would help us 
accomplish a lot. I think it would promote certainty in the 
marketplace. It would also free up spectrum for public safety 
purposes and also, I think it would accommodate what would be 
an explosive growth in the next generation of commercial 
wireless technology and services. So I am an advocate of a hard 
date if we can move forward. Obviously, this hearing is here 
because we have a legitimate question whether consumers can 
fully transition--whether they fully understand this digital 
transition and its implications. A lot of my District is rural, 
so the question is how that would impact the rural part of 
north central Florida.
    There are several ways to go about doing this, there's some 
talk about subsidizing the converter boxes or providing 
extensive consumer education to help the consumers to 
understand what is involved. Perhaps--some people have talked 
about what they did in Germany in Berlin with some type of tax 
incentive. These are all possible solutions. I would prefer to 
see the marketplace, but our overriding concern should be how 
do we get this transition accomplished. I want to make sure 
older Americans are not overly disrupted by this transition so 
in the end, we might have to all just move forward with a hard 
date.
    So I look forward to the testimony.
    Thank you, Mr. Chairman.
    [The prepared statement of Hon. Cliff Stearns follows:]

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

    Thank you, Mr. Chairman.
    Today we will be looking into the role of technology in helping 
achieve a hard deadline for the DTV transition.
    Specifically, we'll examine how any proposed digital-to-analog 
converter boxes or set-top boxes will help ensure that analog, over-
the-air households do not lose their television service.
    We are looking for a timely and ideally convenient end to the 
digital transition. A hard date should help accomplish this goal, which 
will in turn promote certainty and free up spectrum for public safety 
purposes, as well as accommodate what should be an explosive growth in 
the next generation of commercial wireless technologies and services.
    But there is a legitimate question whether consumers fully 
understand the DTV transition and its implications, and whether 
consumers have been purchasing digital television sets at a pace rapid 
enough to be fully prepared once the December 31, 2006 hard deadline 
arrives.
    These digital offerings are widely available, but consumer demand 
is not where it should be. For instance, consumers continue to purchase 
thousands of analog television sets, mainly because the threshold of 
digital offerings does not appear to be sufficient for the average 
consumer to cross over and spend that extra money.
    In my district, I have many rural and senior constituents who may 
fall into this category. While I support the hard deadline, I also hope 
that we can do all that we can to prevent any circumstances that would 
disenfranchise these over-the-air customers.
    It remains to be seen whether this means directly subsidizing these 
converter boxes, or providing an extensive consumer education effort, 
or providing some sort of tax incentive like they did in Berlin, or 
some other potential solution.
    In the end, our overriding concern should be how American consumers 
are affected by this transition. These digital offerings are truly 
``disruptive technologies,'' in that they are new advances that will 
displace analog sets, but we'd all like to make sure that this 
transition isn't disruptive to the millions of American households 
won't be fully prepared when the transition ends.
    So Mr. Chairman, I look forward to hearing from our panelists 
today, and to learn how they are proposing to help the American 
consumer cope with the DTV transition. I appreciate you having this 
hearing.

    Mr. Upton. Mr. Radanovich. Mr. Bass.
    Mr. Bass. Thank you, Mr. Chairman. Thank you for holding 
this hearing. It is an important issue.
    I support a firm deadline for complete digital transition. 
I am not sure what the right date should be, but sooner, I 
think, is better than later. We have known for a long time that 
the end of 2006 is a target date, and it should--nobody should 
be surprised. Other sign posts, such as the Balanced Budget Act 
in 1997 and the recent 9/11 Commission report have pointed to 
this rough timeframe to accomplish the very goals of good 
stewardship of the public airways, expanding the public 
safety's interoperability in promoting advanced consumer 
services. Now if December 2006 is legitimately too soon for 
many broadcasters or other assets of the regulatory 
transmission, then I want to reach a consensus on a better date 
as soon as we can in order to build certainty into the 
decisionmaking process for consumers.
    So with that, I am looking forward to hearing the testimony 
of our witnesses, and I will yield back.
    Mr. Upton. Mr. Ferguson.
    That concludes the opening statements. I thank you all.
    [Additional statements submitted for the record follow:][

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

    Thank you, Mr. Chairman, for this opportunity to discuss 
technology's role in achieving a hard deadline for the DTV transition, 
as well as how the transition is progressing and its potential impact 
on the telecommunications sector and consumers alike.
    I had the opportunity to talk about this very issue yesterday 
morning when I sat down with the general manager of WBGU in Bowling 
Green, Ohio, the sole public broadcasting station providing quality 
local, educational and cultural programming to my constituency in rural 
Northwest Ohio. Of note, he informed me that while digital conversion 
set-top boxes are available for purchase in selective retail outlets 
nationwide, they still need to be made more widely available to 
consumers, and more importantly, at a cheaper price. Currently, when 
confronted with the decision of whether to buy a DTV conversion box 
costing hundreds of dollars, a typical patron is likely to either hold 
off until the boxes go down in value, or continue to delay their 
decision until they can cough-up enough extra cash to take home a 
digital television set, leaving their old TV box-less, but otherwise in 
perfect working order.
    Furthermore, as the co-chair of the Congressional Public 
Broadcasting Caucus, I am happy to report that WBGU is transitioning 
into our digital world with much success. They are currently multi-
casting digital channels, meeting the needs of those who can receive 
them by dedicating one channel as an all-day safe haven for children as 
well as providing another channel devoted to broadcasting local and 
Northwest Ohio programming to the region.
    I welcome the well-balanced panel of witnesses, look forward to 
their testimony on this important issue, and again, thank the Chairman 
and yield back the remainder of my time.
                                 ______
                                 
Prepared Statement of Hon. Barbara Cubin, a Representative in Congress 
                       from the State of Wyoming

    Thank you, Mr. Chairman.
    I appreciate your efforts to keep the Subcommittee focused on the 
Digital Television, or DTV, transition. Since our two hearings last 
year, it appears that the affected stakeholders are starting to share 
the same opinion--that it is in our country's best interest to 
transition to digital promptly and predictably.
    Besides the obvious benefits to the consumer--that of a clearer, 
and higher quality picture and more reliable over-the-air reception--
transitioning to DTV will also free up precious spectrum for important 
national interests, like first responders and advanced wireless 
services. Not to mention provide a windfall to the U.S. Treasury.
    The biggest concern to me, however, is how to ensure the estimate 
20 million households that receive their TV signal over the air--and 
are predicted to be unable to view the new digital programming when the 
transition occurs--can still use their televisions. I am confident that 
no Member of Congress wants to be responsible for a blank television 
screen. That's why we need to get solid numbers, and costs, of how we 
get digital-to-analog converter boxes to these folks so they are not 
left in the dark.
    The December 31, 2006-deadline for the DTV transition is rapidly 
approaching. This Committee has heard from many panelists on this 
matter and is seeking to establish a record of deliberation on how to 
make the transition a success. There are still difficult decisions to 
be made, and I believe this requires Congressional action. Inaction, 
and retention of the current statutory framework for Digital Transition 
could mean that December 31, 2006 could slip to 2010 or later before we 
reap the benefits of DTV and advanced wireless services.
    That's why I look forward to hearing from our distinguished panel 
on these matters today and want to continue our dialog as we take the 
next steps in this transition.
    I yield back the balance of my time.
                                 ______
                                 
   Prepared Statement of Hon. George Radanovich, a Representative in 
                 Congress from the State of California

    Mr. Chairman, thank you for holding this hearing today that will 
allow us to hear testimony about whether attempting to establish a hard 
deadline for television broadcasters to end the transmission of analog 
television signals is economically and technologically feasible and 
whether it is good public policy.
    As many of you are aware, the concept of digital television has 
been progressing since the 1980's. What began as a concept has evolved 
into a statuary requirement in which television broadcasters must 
return one of two channels, that the FCC licensed each eligible 
broadcaster, on January 31, 2006 unless less than 85% of the viewers in 
a market can not receive a digital signal from each TV station in that 
market. The statutory 85% penetration test is the key to completing the 
transition to digital television and critical to freeing valuable 
spectrum that will be auctioned off for advanced commercial wireless 
services and used by public safety entities that are in desperate need 
of additional spectrum.
    During the past two decades a great deal of time, energy and 
resources has been expended in the effort to transition television 
broadcasting to digital technology. In the past five years alone, 
broadcasters have built and are now operating digital television 
facilities, cable operators have spent tens of billions of dollars 
upgrading their systems to digital, and consumer electronics 
manufacturers have developed digital television sets that are more 
affordable to the average consumer. However, in order to ensure that 
all of these parties get a return on their investments, we need to make 
sure that our constituents, the American consumers, also receive some 
benefit.
    I hope that today's witnesses will provide the information that we 
will need to determine how we can complete the transition to digital 
television in a manner in which all parties involved will receive the 
benefits of converting to digital technology; this includes, consumers, 
broadcasters, cable and satellite providers, public safety entities and 
new wireless services providers. Since Congress is mandating the 
conversion to digital television, I believe that we also have an 
obligation to ensure that no Americans get left in the dark as a result 
of a hard deadline. Therefore, I look forward to hearing about the 
technology and economic cost associated with making this a reality. 
Additionally, I would like to learn more about how establishing a hard 
deadline is necessary and will be a good policy decision.
    Thank you Mr. Chairman.
                                 ______
                                 
Prepared Statement of Hon. Mike Ferguson, a Representative in Congress 
                      from the State of New Jersey

    Chairman Upton, as a new member of the telecommunications 
subcommittee, I am looking forward to working with my colleagues on a 
whole range of issues that will affect not only the communications 
industry as a whole, but just as much the American consumer--our 
constituents. Among those issues, the Digital Television conversion is 
among the most exciting and challenging we will consider this Congress.
    DTV is arguably the most significant development of television 
technology since the American public was introduced to color television 
in the 1950's. DTV will allow consumers to experience television like 
never before, from sharp, realistic pictures to CD quality sound.
    However, with the anticipation of DTV in our living rooms, comes 
the question of how we make as smooth a transition as possible. As we 
meet our responsibility of setting a hard transition deadline, we must 
also ensure that those consumers with standard, analog TV's continue to 
have uninterrupted access to their television service.
    I look forward to hearing the testimony of the GAO regarding the 
potential costs of the transition to the federal government, the view 
from the private sector, as well as the perspectives of two groups with 
major roles in this debate, the broadcast and cable industry. 
Determining the costs and options available to the American public is a 
critical to achieving a successful and timely DTV transition, and your 
input is valuable as we move forward. Thank you Mr. Chairman.
                                 ______
                                 
Prepared Statement of Hon. Bobby L. Rush, a Representative in Congress 
                       from the State of Illinois

    Mr. Chairman, it seems that the transition from analog to digital 
is finally here. I think we all can agree that a hard date is necessary 
for the timely and successful DTV transition. But in setting this hard 
deadline we must ensure that the remaining 21 percent of the American 
population that rely on analog over the air broadcast do not lose 
television service simply because they cannot afford to buy a set-top 
box.
    As you know the GAO conducted a study and found that on the average 
over the air households are likely to have lower incomes compared to 
cable and DBS households. In addition, over the air households are 
likely to be non-white and Hispanic households.
    There are many lingering issues that must be iron out before DTV 
transition can be a success. For example, questions still remain as to 
how much will a set-top box cost. Will there be a subsidy, how will 
this subsidy be administered and who will qualify for this subsidy. 
Also, will a means test be employed. Nevertheless, I must point out 
that as we move forward with the digital transition, I strongly believe 
that we should require warning labels on analog-only sets, alerting 
consumers to the limited useful life of their television sets.
    On that point, I look forward to hearing from our distinguished 
panelists regarding this very important issue.
    Thank you Mr. Chairman

    Mr. Upton. Gentlemen, we are delighted that you are here. 
We are joined by Mr. Mark Goldstein, Director of the Physical 
Infrastructure Issues from the Government Accountability 
Office, Dr. Jong Kim, Vice President in Public Affairs and 
Communications for LG Electronics, Mr. James Yager, CEO of 
Barrington Broadcasting Company, Illinois on behalf of the 
National Association of Broadcasters, and Mr. Michael Willner, 
President and CEO of Insight Communications.
    Gentlemen, we appreciate you submitting your testimony 
early. We had a chance to review it last night. Your testimony 
is made part of the record in its entirety, and we would like 
you, at this point, to summarize and to keep your remarks to no 
more than 5 minutes.
    Mr. Goldstein, we are just going into session, we will 
begin with you. Why don't you wait until this long buzzer is 
completed?
    Thank you.

      STATEMENTS OF MARK L. GOLDSTEIN, DIRECTOR, PHYSICAL 
 INFRASTRUCTURE ISSUES, GOVERNMENT ACCOUNTABILITY OFFICE; JONG 
  KIM, VICE PRESIDENT, PUBLIC AFFAIRS AND COMMUNICATIONS, LG 
ELECTRONICS USA, INC.; K. JAMES YAGER, CHIEF EXECUTIVE OFFICER, 
BARRINGTON BROADCASTING COMPANY, LLC, ON BEHALF OF ASSOCIATION 
 FOR MAXIMUM SERVICE TELEVISION, INC., NATIONAL ASSOCIATION OF 
   BROADCASTERS; AND MICHAEL S. WILLNER, PRESIDENT AND CHIEF 
           EXECUTIVE OFFICER, INSIGHT COMMUNICATIONS

    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 
potential cost of providing a subsidy to consumers for the 
purchase of set-top boxes in order to accelerate the DTV 
transition. As you know, the return of radio frequency spectrum 
at the end of the transition will provide many benefits to 
society, such as easing the spectrum scarcity facing public 
safety providers, 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.
    Stations' analog licenses are mandated to terminate in 
December of 2006, or when 85 percent of households in each 
market can receive digital broadcast signals, whichever is 
later. In order to spur households' adoption of the digital 
equipment, some have suggested that the government subsidize 
the purchase of set-top boxes that can receive digital 
broadcast television signals and convert them into analog 
signals for displaying on existing television sets.
    Today I provide cost estimates for a possible subsidy 
program under various scenarios, but I would like to note that 
in providing these cost estimates, GAO is not taking a position 
on the subsidy policy option.
    To undertake this work, we purchased data on household 
television characteristics from a survey research firm and 
gathered information about the likely cost of set-top boxes 
from several consumer electronics firms and experts. My 
statement will summarize our preliminary findings.
    First, we found that 19 percent of American households rely 
exclusively on over-the-air transmissions for their television 
viewing, and nearly all other households view television 
through a cable or DBS service. We recognize that others have 
estimated a lower value for the percent of households relying 
on the over-the-air television, but we estimated with 95 
percent certainty that between 17 and 21 percent of households 
rely on over-the-air television. On average, over-the-air 
households are more likely to have lower incomes compared to 
cable or DBS households. While we found that 29 percent of 
cable and DBS households had incomes under $30,000, roughly 48 
percent of over-the-air homes had household incomes less than 
that level. Additionally, we found that non-white and Hispanic 
households are more likely to rely on over-the-air television 
than our white and non-Hispanic households.
    Two, the specific equipment needs for each household to 
transition to DTV depends on certain key factors. First, the 
method through which a household watches television and whether 
it has already upgraded its television equipment to be 
compatible with digital television will factor into the 
equipment needs of the household. Additionally, certain 
regulatory decisions will play a role in determining some 
consumers' equipment needs. We examined two key cases.
    In case one, we assume that cable and DBS providers would 
initially down-convert broadcasters' digital signals to a 
format the viewer--viewable on their subscribers' existing 
equipment before the signals are transmitted to those 
subscribers. That is, cable providers would initially down-
convert broadcasters' high-definition signals to an analog 
format before they are transmitted to their subscribers. 
Similarly, DBS providers would initially down-convert 
broadcasters' high-definition digital signals to a standard 
definition digital format before they are transmitted to their 
subscribers. In this case, only households viewing television 
using an over-the-air antenna must take action to be able to 
view broadcasters' digital signals. Case one is similar to the 
Berlin model for DTV transition.
    In case two, we assume that cable and DBS providers would 
be required to provide broadcasters' digital signals to 
subscribers in substantially the same format as broadcasters 
transmitted those signals. Because some of the broadcasters' 
digital transmissions are in a high-definition digital format, 
the second case would require cable and DBS providers to 
transmit the signals in this format to their subscribers, 
which, in turn, would require cable and DBS subscribers to have 
equipment in place or to acquire new equipment that can receive 
their providers' high-definition digital signals. The second 
case would also require, as in case one, that all over-the-air 
households acquire new equipment, also.
    Three, if the subsidy for set-top boxes were needed only 
for over-the-air households, our case one scenario, we estimate 
that it could cost in a range from about $460 million to about 
$2 billion. The subsidy cost varies depending on the price for 
the set-top boxes and whether a means test, which would limit 
eligibility for the subsidy to only those households with 
incomes lower than a specified level, were employed. However, 
if cable and satellite subscribers also needed new equipment 
and the subsidy provides some support for those households as 
well, which is our case two scenario, the overall cost of the 
program would grow. We estimated that in this case the cost of 
providing the subsidy could range from about $1.8 billion to 
over $10 billion, depending, again, on the price of the set-top 
boxes and whether a means test were employed. Each of these 
subsidy scenarios assumes that only one television per 
household was subsidized.
    There are two issues that stand as important caveats to the 
analyses that we have presented.
    First, we based the majority of the analyses on survey 
results that provide information on the status of American 
television households as of early 2004, but over the next few 
years, the purchase of DTV equipment could obviate the need for 
certain households to receive a subsidy for new television 
equipment. Second, these subsidy estimates do not include any 
costs associated with implementing a subsidy program.
    Our work on the DTV transition continues for this 
committee, and we will provide more information in our report 
later this year.
    Mr. Chairman, this concludes my prepared statement. I will 
be happy to respond to any questions that you and members have.
    [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 potential cost of providing a 
subsidy to consumers for the purchase of set-top boxes in order to 
accelerate the transition from analog to digital broadcast television. 
This transition--known as the DTV transition--offers the promise of 
more programming options, interactive services, and high-definition 
television (HDTV). Moreover, the return of radiofrequency spectrum used 
for analog broadcast television at the end of the 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. To facilitate the transition, the Congress and the 
Federal Communications Commission (FCC) temporarily provided television 
stations nationwide with additional spectrum so that stations could 
simultaneously broadcast both an analog and a digital signal. Stations' 
analog licenses are mandated to terminate in December 2006, or when 85 
percent of households in each market can receive digital broadcast 
signals, whichever is later.1 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.
---------------------------------------------------------------------------
    \1\ Additional requirements include (1) television stations 
affiliated with the four largest national networks (ABC, CBS, Fox, and 
NBC) are broadcasting a DTV signal and (2) the technology to convert a 
digital signal for use on an analog television set is generally 
available.
---------------------------------------------------------------------------
    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 television sets. This device would enable the household to 
view digital broadcast signals without purchasing a digital television 
set; such sets currently sell at considerably higher prices than 
traditional analog television sets. Aiding in the deployment of set-top 
boxes may enable the transition to end sooner than it might otherwise 
by increasing the number of households that can view digital broadcast 
signals.
    At the request of this subcommittee, we have examined (1) the 
current distribution of American households by television viewing 
methods and whether there are demographic differences among these 
groups; (2) the equipment required for households to receive digital 
broadcast signals; and (3) the estimated cost to the federal 
government, under various scenarios, of providing a subsidy for set-top 
boxes that would enable households to view digital broadcast signals. 
In addition to information provided in this testimony, we are 
conducting additional work on the DTV transition, subsidy options, and 
administrative approaches for implementing a subsidy program, and will 
provide a more detailed study for the Committee and the Subcommittee 
later this year.
    While a subsidy for set-top boxes may be one policy option to spur 
the transition, there are other policies that might do so as well. In 
our statement today, we provide cost estimates for a possible subsidy 
program under various scenarios. We note, however, that in providing 
these cost estimates, GAO is taking no position on this policy option. 
We are merely providing, as requested by the Committee and the 
Subcommittee, cost estimates for such a program.
    To address the issues we will discuss today, we purchased data from 
Knowledge Networks, a survey research firm that had conducted a 
consumer survey on household television characteristics. The survey 
provided the responses of 2,471 randomly selected American households 
and covers such topics as the method each household uses to view 
television (e.g., cable, over the air), how many television sets they 
have, and whether they have set-top boxes for digital cable service. 
The survey also provides information on an array of demographic 
characteristics for each household. These data were collected between 
February and April 2004. The response rate for Knowledge Network's 
survey was 47 percent. The relevance of the response rate for the 
study's findings is discussed in appendix I.2 Using a 95 
percent confidence interval, all percentage estimates from the survey 
have margins of error of plus or minus 6 percentage points or less, and 
all cost estimates based on the survey data have margins of error of 
plus or minus 16 percent or less. To assess the reliability of these 
survey data, we reviewed documentation of survey procedures provided by 
Knowledge Networks and questioned knowledgeable officials about the 
survey process and resulting data. We determined that the data were 
sufficiently reliable for the purposes of this testimony. We also 
contracted with Knowledge Networks to recontact some of respondents to 
its survey to ask additional questions that GAO developed.3 
Because the number of recontacted households for the additional 
questions requested by GAO was small, the findings for these questions 
are not generalizable to a larger population. To gather information 
about the likely costs of set-top boxes, we interviewed several 
consumer electronics firms and experts.
---------------------------------------------------------------------------
    \2\ Because we did not have information on those contacted who 
chose not to participate in the survey, we could not estimate the 
impact of the nonresponse on our results. However, distributions of 
selected household characteristics (including presence of children, 
race, and household income) for the sample and the U.S. Census estimate 
of households show a similar pattern.
    \3\ The additional questions were related to why the household 
chose to view television as they currently do and whether they are 
likely to make changes in the viewing methods in the near future.
---------------------------------------------------------------------------
    The estimate of the potential cost of a subsidy that we are 
providing should not be interpreted as the cost of a government 
program. In preparing these estimates we discussed the nature of our 
work with Congressional Budget Office (CBO). If the Congress considers 
legislation for a set-top box subsidy program, the CBO will, based on 
the specifics of the law, prepare an estimate of the cost of the 
program. We conducted our work from August 2004 to January 2005 in 
accordance with generally accepted government auditing standards.
    We provided a draft of this testimony to the Federal Communications 
Commission (FCC) for their review and comment. FCC staff provided 
technical comments that we incorporated where appropriate.
    In summary:
    The three primary means through which Americans view television 
signals are over the air, cable, and direct broadcast satellite (DBS). 
We found that 19 percent, or roughly 21 million American households, 
rely exclusively on over-the-air transmissions for their television 
viewing; 57 percent, or nearly 64 million American households, view 
television via a cable service; and about 19 percent, or about 22 
million American households, have a subscription to a DBS 
service.4 We recognize that others have estimated a lower 
value for the percent of households relying on over the air 
television.5 Our results were derived from a survey of over 
2,400 households, from which we estimated with 95 percent certainty 
that between 17 and 21 percent of households rely on over the air 
television. On average, over-the-air households are more likely to have 
lower incomes compared to cable or DBS households. While 48 percent of 
over-the-air households have incomes under $30,000,6 roughly 
29 percent of both cable and satellite homes had household incomes less 
than or equal to that level. Also, only 6 percent of over-the-air 
households had incomes over $100,000, while about 13 percent of cable 
and satellite households had incomes exceeding $100,000. Additionally, 
non-white and Hispanic households are more likely to rely on over-the-
air television than are white and non-Hispanic households.
---------------------------------------------------------------------------
    \4\ These percentages do not add up to 100 percent because (1) 
between 1 and 2 percent of American households do not have a 
television, (2) about 1 percent of households receive television 
service through other means, such as a wireless cable system, and (3) 
the numbers reported here do not include close to 3 percent of 
households that reported having a subscription to both cable and DBS.
    \5\ In its most recent report on video competition, FCC found that 
number of households subscribing to a multichannel video provider, such 
as a cable or DBS company, was approximately 85 percent of television 
households, thus implying that about 15 percent of television 
households rely on over-the-air television. The methodology employed by 
FCC differed from the household survey used to prepare our estimate.
    \6\ For a family of four, the poverty level is just under $19,000, 
so the $30,000 income level would correspond to about 160 percent of 
the 2004 poverty level for a family of four. The cutoff for eligibility 
for food stamps is 175 percent of the poverty level.
---------------------------------------------------------------------------
    The specific equipment needs for each household to transition to 
DTV--that is, to be able to view broadcast digital signals--depends on 
certain key factors. First, the method through which a household 
watches television and whether it has already upgraded its television 
equipment to be compatible with digital television, will factor into 
the equipment needs of the household. Additionally, certain regulatory 
decisions yet to be made by FCC will play a role in determining some 
consumers' equipment needs. We examined two key cases regarding the 
regulatory decisions.
    In case one, we assume that cable and DBS providers would continue 
providing broadcasters' signals as they currently do, thus eliminating 
any need for their subscribers to acquire new equipment. That is, cable 
providers would initially ``downconvert'' 7 broadcasters' 
high-definition digital signals to an analog format before they are 
transmitted to their subscribers. Similarly, DBS providers would 
initially downconvert broadcasters' high-definition digital signals to 
a standard-definition digital format before they are transmitted to 
their subscribers. This enables the signals to be viewed on 
subscribers' existing televisions sets. In this case, only households 
viewing television using only an over-the-air antenna must take action 
to be able to view broadcasters' digital signals.
---------------------------------------------------------------------------
    \7\ The word ``downconvert'' means to take a signal in a given 
format and transform it into a lower-resolution format.
---------------------------------------------------------------------------
    In case two, we assume that cable and DBS providers would be 
required to provide broadcasters' digital signals to subscribers in 
substantially the same format as broadcasters transmitted those 
signals. Because some of the broadcasters' digital transmissions are in 
a high-definition digital format, the second case would require cable 
and DBS providers to transmit the signals in this format to their 
subscribers. To be able to view these signals, cable and DBS 
subscribers would need to have equipment in place, or to acquire new 
equipment, that can receive their providers' high-definition digital 
signals. The second case would also require, as does case one, all 
over-the-air households to acquire new equipment.
    If a subsidy for set-top boxes were needed only for over-the-air 
households, we estimate that its cost could range from about $460 
million to about $2 billion. The subsidy cost varies depending on the 
price of the set-top boxes and whether a means test--which would limit 
eligibility for the subsidy to only those households with incomes lower 
than some specified limit--were employed. However, if cable and 
satellite subscribers also needed new equipment and the subsidy 
provides some support for these households as well, the overall cost of 
the program would grow. We estimate that in this case, the cost of 
providing the subsidy could range from about $1.8 billion to over $10 
billion, depending, again, on the price of the set-top boxes and 
whether a means test were employed.

                               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. This increased efficiency makes 
multicasting--where several digital television signals are transmitted 
in the same amount of spectrum necessary for one analog television 
signal--and HDTV 8 services possible.
---------------------------------------------------------------------------
    \8\ HD television provides roughly twice as many lines of 
resolution, creating a television picture that is much sharper than 
traditional analog television pictures. HD television can also provide 
CD-quality sound and is in ``widescreen'' format, with display screen 
ratios similar to a movie theater.
---------------------------------------------------------------------------
    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 government 
purposes--will not be met. The spectrum that will be cleared at the end 
of the DTV transition is considered highly valuable spectrum because of 
its particular technical properties. In all, the DTV transition will 
clear 108 megahertz 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.9
---------------------------------------------------------------------------
    \9\ Some of this spectrum--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 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 signals will no longer be provided--when at 
least 85 percent of households have the ability to receive digital 
broadcast signals.

         AMERICANS WATCH TELEVISION THROUGH THREE PRIMARY MODES

    The three primary means through which Americans view television 
signals are over the air, cable, and direct broadcast satellite (DBS). 
Over-the-air broadcast television, which began around 1940, uses 
radiofrequencies to transmit television signals from stations' 
television towers to households' television antennas mounted on 
rooftops, in attics, or directly on television sets. Over-the-air 
television is a free service. Cable television service, a pay 
television service, emerged in the late 1940s to fill a need for 
television service in areas with poor over-the-air reception, such as 
mountainous or remote areas. Cable providers run localized networks of 
cable lines that deliver television signals from cable facilities to 
subscribers' homes.10 Cable operators provide their 
subscribers with, on average, approximately 73 analog television 
channels and 150 digital television channels. In 1994, a third primary 
means of providing television emerged: direct broadcast satellite 
(DBS). Subscribers to DBS service use small reception dishes that can 
be mounted on rooftops or windowsills to receive television programming 
beamed down from satellites that orbit over the equator. Like cable, 
DBS service is a subscription television service that provides 
consumers with many channels of programming. When the Congress enacted 
the Satellite Home Viewer Improvement Act of 1999, it allowed DBS 
carriers to provide local broadcast signals--such as the local 
affiliate of ABC or NBC--which they had previously not generally been 
able to provide.
---------------------------------------------------------------------------
    \10\ When cable service first emerged, it was simply a service that 
provided a wire-based delivery of broadcast, or traditional television 
stations' signals, but by the late 1970s, cable operators began to 
provide new networks that were only available through a pay television 
service, such as HBO, Showtime, and ESPN.
---------------------------------------------------------------------------
    Over-the-Air Households. We found that 19 percent, or 20.8 million 
American households, rely exclusively on over-the-air transmissions for 
their television viewing. We recognize that others have estimated a 
lower value for the percent of households relying on over the air 
television. Our results were derived from a survey of over 2,400 
households, from which we estimated with 95 percent certainty that 
between 17 and 21 percent of households rely on over the air 
television. Compared to households that purchase a subscription to 
cable or DBS service, we found that exclusive over-the-air viewers are 
somewhat different demographically. Overall, over-the-air households 
are more likely to have lower incomes than cable or satellite 
households. Approximately 48 percent of exclusive over-the-air viewers 
have household incomes less than $30,000, and 6 percent have household 
incomes over $100,000. Additionally, nonwhite and Hispanic households 
are more likely to rely on over-the-air television than are white and 
non-Hispanic households; over 23 percent of non-white households rely 
on over-the-air television compared to less than 16 percent of white 
households, and about 28 percent of Hispanic households rely on over-
the-air television compared to about 17 percent of non-Hispanic 
households. Finally, we found that, on average, exclusive over-the-air 
households have 2.1 televisions, which is lower than the average for 
cable and satellite households.
    We asked the survey research firm to recontact approximately 100 of 
the respondents who exclusively watch television through over-the-air 
transmission to ask additional questions, including the primary reason 
the household does not purchase a subscription video 
service.11 Forty-one of these respondents said that it was 
too costly for them to purchase a subscription video service, and 44 
said that they do not watch enough television to warrant paying for 
television service. Most of the recontacted households seemed unlikely 
to purchase a subscription service in the near future. Only 18 of the 
recontacted households said that they would be likely to purchase a 
subscription video service in the near future, and another 10 said that 
they might do so.
---------------------------------------------------------------------------
    \11\ The actual recontacted number was 102.
---------------------------------------------------------------------------
    Cable Households. We found that 57 percent, or 63.7 million 
American households, view television through a cable service. On 
average, cable households have 2.7 television sets. Sixteen percent of 
cable households have at least one television set in the home that is 
not connected to cable but instead receives only over-the-air 
television signals. Of the cable households surveyed, roughly 29 
percent had household incomes of less than or equal to $30,000, and 
about 13 percent had incomes exceeding $100,000. We also found that 44 
percent of the cable homes have at least one set-top box. Of those 
cable subscribers with a set-top box, about 67 percent reported that 
their box is capable of viewing channels the cable system sells on 
``digital cable tiers,'' meaning that the channels are transmitted by 
their cable provider in a digital format. A subset of these ``digital 
cable'' customers have a special set-top box capable of receiving their 
providers' transmission of high-definition digital signals.
    Because the existence of a set-top box in the home may be relevant 
for determining what equipment households would need to view broadcast 
digital television signals, we asked the survey research firm to 
recontact approximately 100 cable households that do not have a set-top 
box to ask questions about their likely purchase of digital cable 
tiers--which require a set-top box--in the near future.12 
First, we asked the primary reason why the household did not currently 
purchase any cable digital tiers of programming. Fifty-one of the 
recontacted respondents said that they did not want to bear the extra 
expense of digital tiers of cable programming, and 33 said that they 
did not watch enough television to justify purchasing digital cable 
service. Only 9 of the recontacted respondents said that they would be 
likely to purchase digital cable service in the near future, and 
another 9 said that they might purchase such service in the near 
future. Finally, we asked these respondents whether they would be 
reluctant to change their service in any way that would require them to 
use a set-top box. Of the recontacted respondents, 37 said they would 
be very reluctant to change their service in a way that would require 
them to use a set-top box, and another 38 said that they would be 
somewhat reluctant to do so.
---------------------------------------------------------------------------
    \12\ The firm actually recontacted 102 such households.
---------------------------------------------------------------------------
    DBS Households. We found that about 19 percent, or 21.7 million 
American households, have a subscription to a DBS service. These 
households have, on average, 2.7 television sets. About one-third of 
these households have at least one television set that is not hooked to 
their DBS dish and only receives over-the-air television signals. In 
terms of income, 29 percent of DBS subscribers have incomes less than 
or equal to $30,000, and 13 percent have incomes exceeding $100,000.
    One important difference between cable and DBS service is that not 
all DBS subscribers have the option of viewing local broadcast signals 
through their DBS provider.13 Although the DBS providers 
have been rolling out local broadcast stations in many markets around 
the country in the past few years, not all markets are served. DBS 
subscribers in markets without local broadcast signals available 
through their DBS provider usually obtain their local broadcast signals 
through an over-the-air antenna, or through a cable connection. This is 
important to the DTV transition because how households with DBS service 
view their local broadcast channels will play into the determination of 
their requirements to transition to broadcast DTV. We therefore 
requested that the survey research firm recontact approximately 100 DBS 
customers to ask how they receive their local broadcast 
channels.14 We found that when local channels are available 
to DBS subscribers, they are very likely to purchase those channels. 
Well more than half of the DBS subscribers who were recontacted viewed 
their local broadcast channels through their DBS service. Nearly one-
fourth of the recontacted DBS subscribers view their local broadcast 
channels through free over-the-air television. As DBS providers 
continue to roll out local channels to more markets, the percentage of 
DBS subscribers relying on over-the-air transmissions to view local 
signals will likely decline.
---------------------------------------------------------------------------
    \13\ While cable providers are generally required to provide the 
local broadcast signals in each market, DBS providers are required to 
provide all local broadcast stations in markets where they provide any 
of those stations.
    \14\ They actually recontacted 102 such households.
---------------------------------------------------------------------------
  HOUSEHOLDS' EQUIPMENT NEEDS FOR DTV TRANSITION WILL DEPEND ON THEIR 
MODE OF TELEVISION VIEWING AND CURRENT EQUIPMENT STATUS, AND WILL ALSO 
                  BE AFFECTED BY REGULATORY DECISIONS

    The specific equipment needs for each household to transition to 
DTV--that is, to be able to view broadcast digital signals--depends on 
certain key factors: the method through which a household watches 
television, the television equipment the household currently has, and 
certain critical regulatory decisions yet to be made. In this section 
we discuss two cases regarding a key regulatory decision that will need 
to be made and the implications that decision will have on households' 
DTV equipment needs.
    Before turning to the two cases, a key assumption underlying this 
analysis must be discussed. Currently, broadcasters have a right to 
insist that cable providers carry their analog television signals. This 
is known as the ``must carry'' rule, and dates to the Cable Television 
Consumer Protection and Competition Act of 1992. FCC made a 
determination that these must carry rules will apply to the digital 
local broadcast signals once a station is no longer transmitting an 
analog signal. In our analysis, we assume that the must carry right 
applies to broadcasters' digital signals, and as such, cable providers 
are generally carrying those signals. DBS providers face some must 
carry rules as well, although they are different in some key respects 
from the requirements that apply to cable providers. For the purposes 
of this analysis, we assume that to the extent that DBS providers face 
must carry requirements, those requirements apply to the digital 
broadcast signals.
    For nearly all cable subscribers, and more than half of the DBS 
subscribers, local broadcast analog signals are provided by their 
subscription television provider. This means that these providers 
capture the broadcasters' signals through an antenna or a wire and 
retransmit those signals by cable or DBS to subscribers. We make two 
disparate assumptions, which we call case one and case two, about how 
cable and DBS providers might provide digital broadcast signals to 
subscribers. We do not suggest that these are the only two 
possibilities regarding how the requirements for carriage of broadcast 
signals might ultimately be decided--these are simply two possible 
scenarios.
    Case One. In this case, we assume that cable and DBS providers will 
continue providing broadcasters' signals as they currently do. This 
assumption would be realized if cable and DBS providers initially 
downconvert broadcasters' digital signals at the providers' facilities, 
which may require legislative or regulatory action. That is, cable 
providers would initially downconvert broadcasters' high-definition 
digital signals to an analog format before they are transmitted to 
their subscribers. Similarly, DBS providers would initially downconvert 
broadcasters' high-definition digital signals to a standard-definition 
digital format before they are transmitted to their subscribers. In 
this case, there would be no need for cable and DBS subscribers to 
acquire new equipment; only households viewing television using only an 
over-the-air antenna must take action to be able to view broadcasters' 
digital signals. This case shares many attributes with the recently-
completed DTV transition in Berlin, Germany.
    All over-the-air households--which account for approximately 21 
million households in the United States--must do one of two things to 
be able to view digital broadcast signals.15 First, they 
could purchase a digital television set that includes a tuner capable 
of receiving, processing, and displaying a digital signal. The survey 
data we used indicated that only about 1 percent of over-the-air 
viewers have, as of now, purchased a digital television that contains a 
tuner. However, some large televisions sold today are required to 
include such a tuner and by July 2007, all television sets larger than 
13 inches are required to include a tuner. After that time, consumers 
who purchase new television sets will automatically have the capability 
of viewing digital signals. Approximately 25 to 30 million new 
television sets are purchased each year in the United States. The 
second option available to over-the-air households is to purchase a 
digital-to-analog set-top box. That is, for those households that have 
not purchased a new television set, the set-top box will convert the 
digital broadcast signals to analog so that they can be viewed on an 
existing analog television set. Viewers with digital-to-analog set-top 
boxes would not actually see the broadcast digital signal in a digital 
format, but would be viewing that signal after it has been 
downconverted, by the set-top box, to be compatible with their existing 
analog television set. Currently, simple set-top boxes that only have 
the function of downconverting digital signals to analog are not on the 
market. More complex boxes that include a variety of functions and 
features, including digital to analog downconversion, are available, 
but at a substantial cost. However, manufacturers told us that simple, 
and less expensive, set-top boxes would come to the market when a 
demand for them develops.
---------------------------------------------------------------------------
    \15\ Additionally, these households could also choose to subscribe 
to cable or DBS service to eliminate the need to acquire additional 
equipment to view a television signal over the air.
---------------------------------------------------------------------------
    Case Two. In the second case, we assume that cable and DBS 
companies would be required to provide the broadcasters' signals to 
their subscribers in substantially the same format as it was received 
from the broadcasters. Because some of the broadcasters' signals are in 
a high-definition digital format, cable and DBS subscribers--just like 
over-the-air households--would need to have the equipment in place to 
be able to receive high-definition digital signals. There are several 
ways these subscribers could view these signals:

 Cable or DBS subscribers would be able to view digital broadcast 
        television if they have purchased a digital television set with 
        an over-the-air digital tuner. They would then have the 
        capability of viewing local digital broadcast stations through 
        a traditional television antenna--just like an over-the-air 
        viewer. However, many cable and DBS households may want to 
        continue to view broadcast television signals through their 
        cable or DBS provider.
 Cable or DBS subscribers could purchase a digital television with a 
        ``cable card'' slot. By inserting a ``card'' provided by the 
        cable company into such a television, subscribers can receive 
        and display the digital content transmitted by the cable 
        provider. Only very recently, however, have cable-ready digital 
        television sets--which allow cable subscribers to receive their 
        providers' digital signals directly into the television set--
        come to the market. Similar televisions sets with built-in 
        tuners for satellite digital signals are not currently on the 
        market.
 To view the high-definition signals transmitted by their subscription 
        provider, the other possibility for cable and DBS households 
        would be to have a set-top box that downconverts the signals so 
        that they can be displayed on their existing analog television 
        sets. That is, any downconversion in this scenario takes place 
        at the subscribers' household, as opposed to the subscription 
        television providers' facilities, as in case one. While all DBS 
        subscribers and about a third of cable subscribers have set-top 
        boxes that enable a digital signal from their provider to be 
        converted to an analog signal for display on existing 
        television sets, few of these set-top boxes are designed for 
        handling high-definition digital signals. As such, if 
        broadcasters' signals are transmitted by cable and DBS 
        providers in a high-definition format, not all cable and 
        satellite subscribers would need new equipment, although most 
        would. In case two, as in case one, all exclusively over-the-
        air households need a digital television set or a set-top box.

    COST OF FEDERAL SUBSIDY FOR SET-TOP BOXES VARIES CONSIDERABLY, 
                      DEPENDING ON SEVERAL FACTORS

    In this section we present the estimated cost of providing a 
subsidy to consumers for the purchase of a set-top box that would be 
designed to advance the digital television transition. The estimated 
subsidy costs presented here vary based on (1) the two cases discussed 
above about whether cable and DBS providers initially downconvert 
broadcasters' digital signals at their facilities before transmitting 
them to subscribers; (2) varied assumptions about whether a means test 
is imposed and, if so, at what level; and (3) the expected cost of a 
simple digital-to-analog set-top box. All of the estimates presented 
here assume that only one television set is subsidized in each 
household that is determined to be eligible for the 
subsidy.16
---------------------------------------------------------------------------
    \16\ In our final report that will be issued later this year, we 
will also present scenarios under which more than one television set 
per household is subsidized.
---------------------------------------------------------------------------
    Means test. Imposing a means test would limit the subsidy to only 
those households determined to be in financial need of a subsidy. A 
means test would limit eligibility for the subsidy to only those 
households with incomes lower than some specified limit. We employed 
two different levels of means tests. The scenarios with means tests are 
roughly based on 200 percent and 300 percent of the poverty level 
17 as the income threshold under which a household's income 
must lie to be eligible for the subsidy. The poverty level is 
determined based on both income and the number of persons living in the 
household; for a family of four the official federal poverty level in 
2004 was $18,850.
---------------------------------------------------------------------------
    \17\ See appendix I for a methodological discussion and assumptions 
surrounding our determination of thresholds used to approximate the 
poverty level.
---------------------------------------------------------------------------
    Set-top boxes. We provide estimates based on two possible price 
levels for the boxes: $50 and $100. This range is based on 
conversations we had with consumer electronics manufacturers who will 
likely produce set-top boxes in the future. Set-top boxes for cable and 
DBS are often rented by subscribers, rather than purchased. 
Nevertheless, in cases where cable and DBS subscribers need new 
equipment, we assume that the financial support provided to them would 
be equivalent to that provided to over-the-air households.
    Table 1 provides the cost of a subsidy program under the assumption 
that cable and DBS providers downconvert broadcasters' signals at their 
facilities in a manner that enables them to continue to transmit those 
signals to subscribers as they currently transmit broadcasters' 
signals. In this case, cable or DBS subscribers do not require any new 
equipment, so only over-the-air households--approximately 21 million 
American households--would need new equipment. As shown in table 1, 
there is considerable variation in the cost of the subsidy program 
depending on the level of a means test and the price of the set-top 
box.

    Table 1: Estimated Cost of Set-Top Box Subsidy, Assuming Cable and DBS Downconversion, only Over-the-Air
                                            Households Are Subsidized
----------------------------------------------------------------------------------------------------------------
                                                                              Cost of subsidy, by estimated cost
                                      Percent of over-the-      Number of         of set-top box (dollars in
    Assumption about means test          air households        households                 millions)
                                            eligible           subsidized   ------------------------------------
                                                              (in millions)  $50 set-top box   $100 set-top box
----------------------------------------------------------------------------------------------------------------
Means test at 200% of poverty level  50% of over-the-air                9.3             $463                $925
                                      households.                (7.8-10.7)      ($391-$534)       ($782-$1,068)
Means test at 300% of poverty level  67% of over-the-air               12.5             $626              $1,252
                                      households.               (10.9-14.1)      ($545-$707)     ($1,090-$1,415)
No means test......................  All over-the-air                  20.8           $1,042              $2,083
                                      households.               (19.1-22.6)    ($954-$1,130)     ($1,907-$2,259)
----------------------------------------------------------------------------------------------------------------
Source: GAO.
Notes: Ninety-five percent confidence intervals in parentheses.
Analysis based on the status of television households in 2004.

    Table 2 provides the cost of a subsidy program under the assumption 
that cable and DBS providers are required to transmit broadcasters' 
digital signals in the same format as they are received. Under this 
scenario, nearly all over-the-air households and most cable and DBS 
subscribers will not have the equipment in place to view high-
definition digital broadcast signals. Although subscribers typically 
rent, rather than purchase, set-top boxes, we assume that the same 
level of subsidy is provided to these households as is provided to 
over-the-air households to defray the cost of having to obtain a new or 
upgraded set-top box from their provider.

Table 2: Estimated Cost of Set-Top Box Subsidy, No Cable or DBS Downconversion, Subsidy Provided to Over-the-Air
                                          and Cable and DBS Households
----------------------------------------------------------------------------------------------------------------
                                                                              Cost of subsidy, by estimated cost
                                                                Number of         of set-top box (dollars in
    Assumption about means test          Percent of U.S.       households                 millions)
                                      households  eligible     subsidized   ------------------------------------
                                                              (in millions)  $50 set-top box   $100 set-top box
----------------------------------------------------------------------------------------------------------------
Means test at 200% of poverty level  31% of households.....            35.1           $1,753              $3,506
                                                                (32.7-37.5)  ($1,633-$1,873)     ($3,266-$3,745)
Means test at 300% of poverty level  50% of households.....            55.5           $2,775              $5,551
                                                                (52.9-58.1)  ($2,646-$2,904)     ($5,293-$5,809)
No means test......................  Nearly all households.           106.2           $5,312             $10,624
                                                              (105.1-107.3)  ($5,257-$5,367)   ($10,514-$10,734)
----------------------------------------------------------------------------------------------------------------
Source: GAO.
Notes: Ninety-five percent confidence intervals in parentheses.
Analysis based on the status of television households in 2004.

    There are two issues that stand as important caveats to the 
analyses we have presented on estimated set-top box subsidy costs. The 
first is that we based the majority of the analyses on survey results 
that provide information on the status of American television 
households as of early 2004. Over the next several years, new 
households will be established, some households might change the means 
through which they watch television, televisions sets with integrated 
digital over-the-air tuners as well as digital cable compatibility will 
be purchased, and some cable and DBS households will have obtained set-
top boxes capable of receiving high-definition digital signals from 
their providers. Households' purchase of certain new equipment could 
obviate the need for a subsidy for new television equipment. For 
example, some households may purchase a digital television set with an 
over-the-air tuner and begin to view digital broadcast signals in this 
manner; some large televisions sold today are required to include such 
a tuner and by July 2007, all television sets larger than 13 inches are 
required to include a tuner. In time, these factors could have the 
effect of reducing the cost of a set-top box subsidy because fewer 
households would need to be subsidized.18
---------------------------------------------------------------------------
    \18\ As we mentioned above, if at a later date the Congress 
considers legislation for a set-top box subsidy program, the CBO will, 
based on the specifics of the law, prepare an estimate of the cost of 
the program.
---------------------------------------------------------------------------
    The second caveat to these analyses is that these subsidy estimates 
do not include any costs associated with implementing a subsidy 
program. If the federal government determines that it would be 
worthwhile to provide this subsidy, the subsidy would need to be 
administered in some fashion, such as through a voucher system, a tax 
credit, a mail-in rebate, government distribution of equipment, or some 
other means. Any of these methods would impose costs that could be 
significant for the federal government and any other entities involved 
in administering the program. Such costs would be difficult to estimate 
until a host of decisions are made about how a subsidy program would be 
administered.
    As I mentioned earlier, our work on the DTV transition continues, 
and we will provide more information in a report later this year. We 
will discuss various ways that a subsidy program might be administered 
and provide some analysis of the benefits and drawbacks of these 
various methods. We will also provide a discussion of how information 
regarding the DTV transition and any associated subsidy program might 
best be provided to the American people.
    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.

  Appendix I: Methodology for Use of Survey Data Regarding Television 
                                Viewing

    To obtain information on the types of television service and 
equipment used by U.S. households, we purchased existing survey data 
from Knowledge Networks Statistical Research. Their survey was 
completed with 2,375 of the estimated 5,075 eligible sampled 
individuals for a response rate of 47 percent; partial interviews were 
conducted with an additional 96 people, for a total of 2,471 
individuals completing some of the survey questions. The survey was 
conducted between February 23 and April 25, 2004.
    The study procedures yielded a sample of members of telephone 
households in the continental United States using a national random-
digit dialing method. Survey Sampling Inc. (SSI) provided the sample of 
telephone numbers, which included both listed and unlisted numbers and 
excluded blocks of telephone numbers determined to be nonworking or 
business-only. At least five calls were made to each telephone number 
in the sample to attempt to interview a responsible person in the 
household. Special attempts were made to contact refusals and convert 
them into interviews; refusals were sent a letter explaining the 
purpose of the study and an incentive. Data were obtained from 
telephone households and are weighted by the number of household 
telephone numbers.
    As with all sample surveys, this survey is subject to both sampling 
and nonsampling errors. The effect of sampling errors due to the 
selection of a sample from a larger population can be expressed as a 
confidence interval based on statistical theory. The effects of 
nonsampling errors, such as nonresponse and errors in measurement, may 
be of greater or lesser significance but cannot be quantified on the 
basis of available data.
    Sampling errors arise because of the use of a sample of individuals 
to draw conclusions about a much larger population. The study's sample 
of telephone numbers is based on a probability selection procedure. As 
a result, the sample was only one of a large number of samples that 
might have been drawn from the total telephone exchanges from 
throughout the country. If a different sample had been taken, the 
results might have been different. To recognize the possibility that 
other samples might have yielded other results, we express our 
confidence in the precision of our particular sample's results as a 95 
percent confidence interval. We are 95 percent confident that when only 
sampling errors are considered each of the confidence intervals in this 
report will include the true values in the study population. All 
percentage estimates from the survey have margins of error of plus or 
minus 6 percentage points or less, unless otherwise noted.
    In addition to the reported sampling errors, the practical 
difficulties of conducting any survey introduce other types of errors, 
commonly referred to as nonsampling errors. For example, questions may 
be misinterpreted, some types of people may be more likely to be 
excluded from the study, errors could be made in recording the 
questionnaire responses into the computer-assisted telephone interview 
software, and the respondents' answers may differ from those who did 
not respond. Knowledge Networks has been fielding versions of this 
survey for over 20 years. In addition, to reduce measurement error, 
Knowledge Networks employs interviewer training, supervision, and 
monitoring, as well as computer-assisted interviewing to reduce error 
in following skip patterns.
    For this survey, the 47 percent response rate is a potential source 
of nonsampling error; we do not know if the respondents' answers are 
different from the 53 percent who did not respond. Knowledge Networks 
took steps to maximize the response rate--the questionnaire was 
carefully designed and tested through deployments over many years, at 
least five telephone calls were made at varied time periods to try to 
contact each telephone number, the interview period extended over about 
8 weeks, and attempts were made to contact refusals and convert them 
into interviews.
    Because we did not have information on those contacted who chose 
not to participate in the survey, we could not estimate the impact of 
the nonresponse on our results. Our findings will be biased to the 
extent that the people at the 53 percent of the telephone numbers that 
did not yield an interview have different experiences with television 
service or equipment than did the 47 percent of our sample who 
responded. However, distributions of selected household characteristics 
(including presence of children, race, and household income) for the 
sample and the U.S. Census estimate of households show a similar 
pattern.
    To assess the reliability of these survey data, we reviewed 
documentation of survey procedures provided by Knowledge Networks, 
interviewed knowledgeable officials about the survey process and 
resulting data, and performed electronic testing of the data elements 
used in the report. We determined that the data were sufficiently 
reliable for the purposes of this report.
    Due to limitations in the data collected, we made several 
assumptions in the analysis. Number of televisions and number of people 
in the household were reported up to five; households exceeding four 
for either variable were all included in the category of five or more. 
For the purposes of our analyses, we assumed that households had no 
more than five televisions that would need to be transitioned and no 
more than five people. Number of people in the household was only used 
in calculating poverty, but may result in an underestimate of those 
households in poverty.
    Calculations of poverty were based on the 2004 Poverty Guidelines 
for the 48 contiguous states and the District of Columbia, published by 
the Department of Health and Human Services. We determined whether or 
not each responding household would be considered poor at roughly 200 
percent and 300 percent of the poverty guidelines. Income data were 
reported in categories so the determination of whether or not a 
household met the 200 percent or 300 percent threshold required 
approximation, and for some cases this approximation may have resulted 
in an overestimate of the number of poor households. In addition, 
income data were missing for 24 percent of the respondents. To conduct 
the analyses involving poverty, we assumed that the distribution of 
those in varying poverty status was the same for those reporting and 
not reporting income data. Comparisons of those reporting and not 
reporting income data show some possible differences on variables 
examined for this report; however, the income distribution is very 
close to the 2003 income estimates published by the U.S. Census Bureau.
    To determine total numbers of U.S. households affected by the 
transition and total cost estimates for various transition scenarios, 
we used the U.S. Census Bureau's Current Population Survey estimate of 
the total number of households in the United States as of March 2004. 
To derive the total number of households covered by the various 
scenarios, we multiplied this estimate by the proportions of households 
covered by the scenarios derived from the survey data. The standard 
error for the total number of U.S. households was provided by the 
Census Bureau, and the standard errors of the total number of 
households covered by the scenarios take into account the variances of 
both the proportions from the survey data and the total household 
estimate. All cost estimates based on the survey data have margins of 
error of plus or minus 16 percent or less.
    In addition, we contracted with Knowledge Networks to recontact a 
sample of their original 2004 survey respondents in October 2004. 
Households were randomly selected from each of three groups: broadcast-
only television reception, cable television service without a set-top 
box, and satellite television service. For each group, 102 interviews 
were completed, yielding 306 total respondents (for a 63 percent 
response rate). To reduce measurement error, the survey was pretested 
with nine respondents, and Knowledge Networks employed interviewer 
training, supervision, and monitoring, as well as computer-assisted 
interviewing, to reduce error in following skip patterns. Due to the 
small sample size, the findings of these questions are not 
generalizable to a larger population.

    Mr. Upton. Thank you.
    Dr. Kim.

                     STATEMENT OF JONG KIM

    Mr. Kim. Thank you, Mr. Chairman and members of the 
subcommittee.
    My name is Jong Kim. I am Vice President of Research for LG 
Electronics, a $30 billion global consumer electronics company. 
I also serve as Senior Vice President of LG's Zenith 
Electronics subsidiary in Chicago, Illinois where I have been 
working on digital television for the past 15 years.
    This committee has requested that LG comment on the pricing 
and the timetable for deployment of these converter boxes. 
Among the factors to consider are technology, sales volume, and 
license fees. Please allow me to address each of these topics 
briefly.
    First, technology. We expect to produce converter boxes 
that will receive all 18 formats of the ATSC DTV standard and 
it will output only a standard definition analog signals 
similar to DVD players and VCRs that connect to today's analog 
TVs. This will allow the consumer with a current analog TV to 
enjoy the best possible pictures as well as to take advantage 
of the extra channels available through digital multi-cast 
terrestrial DTV broadcasts.
    The level of technology in this converter box is very 
similar to that in our $40 to $60 DVD players with the DVD's 
disk player mechanism replaced by a low-cost DTV tuner. This 
similarity suggests comparable pricing between these two 
devices.
    Second, sales volume. The price of DVD players dropped from 
more than $500 to less than $100 within 5 years, due almost 
entirely to the growth in sales volume. At the least, 70 
million analog TVs in the U.S. today rely upon over-the-air 
service. While many consumers already replaced these analog TVs 
with new integrated DTV sets, many others will wish to continue 
to use their analog sets, providing a viable market for low-
cost converter boxes. In addition, the FCC's DTV tuner 
regulations will drive down cost of the ATSC chip sets. A 
digital tuner 3 years from now should cost about the same as an 
analog tuner today.
    Third, and final consideration in the set-top box pricing 
equation relates to the licensing fees for patents held by the 
companies that invested in bringing set-top box technologies to 
market. For comparison, even the lowest-priced, bargain 
basement DVD player today has royalties in the range of $10 to 
$15. This is comparable to the royalty range for a basic 
digital-to-analog converter box. Based upon LG's experience 
with DTV set-top boxes, we estimate that the retail price of a 
simple digital-to-analog converter box will be under $100 by 
2006 based upon volumes in the millions of units. And it should 
reach the $50 to $70 range by 2008, assuming sales volumes in 
the tens of millions of units. Of course, as more units are 
required, the price will be lower, and could be lower even 
earlier than these dates.
    These low-cost set-top boxes will provide an option for 
consumers who will be satisfied with the standard definition. 
At the same time, consumers who want the high-definition 
reception and other features will pay more, just as they do 
today for progressive scan DVD players.
    There are other factors that will help to advance the 
transition to DTV. These include new products, additional 
compelling digital content, consumer education efforts, and the 
final resolution of digital cable carriage and digital 
copyright concerns. We look forward to continuing to work with 
you to ensure that all Americans are able to enjoy the benefits 
of digital TV.
    I am, of course, pleased to respond to any questions that 
you may have, and I appreciate the opportunity to appear before 
you today. Thank you.
    [The prepared statement of Jong Kim follows:]

          Prepared Statement of Jong Kim, LG Electronics, Inc.

    Mr. Chairman and members of the Subcommittee, my name is Jong Kim 
and I welcome the opportunity to appear before you today. I am Vice 
President of Research for LG Electronics Inc. (LG), a $30 billion 
global leader in consumer electronics, information technology and 
communications products. I also serve as Senior Vice President for LG's 
Zenith subsidiary, where I have been working on digital television 
(DTV) technologies for the past 13 years.
    As a long-time participant in digital television, I am pleased to 
appear before you today on behalf of LG Electronics U.S.A., Inc., which 
is the North American subsidiary of LG. A leading supplier of digital 
high-definition television (HDTV) integrated receivers, set-top boxes 
(STBs) and displays, LG already is developing its sixth-generation DTV 
reception chipset. LG is the parent company of Zenith Electronics 
Corporation, a long-time leader in consumer electronics generally and 
digital HDTV specifically. Zenith is the inventor of the digital 
modulation technology at the heart of the DTV Standard adopted by the 
Federal Communications Commission (FCC) and has been a wholly owned 
subsidiary of LG Electronics since 1999.
    The Committee is focused today on the specific issue of the 
relationship of converter boxes to the digital transition. Mr. 
Chairman, LG shares your view that this transition is of critical 
importance. This Committee has been instrumental in advancing DTV's 
deployment, and we are seeing exciting marketplace developments 
involving digital technologies. Digital transmission offers incredible 
high-resolution video, and anyone who has experienced HDTV becomes a 
believer in this technology. In addition to these benefits, the digital 
transition provides an opportunity to return spectrum for important 
governmental objectives (including public safety and homeland security 
needs) and to deploy new commercial technologies for consumers. There 
are many issues associated with the transition, including potential 
government subsidies to help consumers purchase boxes capable of 
converting free, over-the-air DTV broadcast signals for viewing on 
their existing analog TV sets. These are exciting times for all 
involved in digital technologies.
    LG has been asked to comment today on the pricing and timetable for 
deployment of converter boxes. Several factors influence any estimate 
of converter box costs, including the level of technology, unit sales 
volume, and licensing fees. Please permit me to address each of these 
topics briefly.
    The level of technology necessary for a basic digital-to-analog 
converter box is much less than is required for today's more full-
featured STBs that output high-definition signals and retail for $200 
to $400. We contemplate the manufacture of converter boxes that will 
receive and demodulate all 18 formats of the ATSC DTV Standard, but 
will output only low-resolution analog signals via a simple radio 
frequency (RF) connector--like DVD players and VCRs connect to analog 
TVs today.
    This is sufficient for the average consumer to enjoy the DTV 
experience. In fact, consumers who have been watching snowy analog TV 
pictures will love the crisp, studio-quality digital pictures even on 
their older, low-definition televisions sets using one of these simple 
digital-to-analog converters. While analog TVs will not display full 
high-definition resolution, these boxes will allow consumers to take 
advantage of the increased number of channels available through digital 
multicast terrestrial DTV broadcasts.
    With regard to the price of converter boxes, we think it is useful 
to compare the technology of DVD players to the technology of these 
simple digital-to-analog converter boxes. Even today's most affordable 
DVD players (in the $40-$60 range) contain a disc-handling mechanism, 
along with a microprocessor, memory, MPEG decoding chipset, as well as 
the standard power supply, enclosure hardware and remote control. A 
digital-to-analog converter box will have essentially the same 
components, with a low-cost DTV tuner replacing the disc-playing 
mechanism; this similarity suggests comparable pricing between these 
two devices.
    In considering the impact of unit sales volume relative to digital-
to-analog converter box prices, the DVD example is instructive again. 
Prices for DVD players plummeted within five years from more than $500 
to less than $100, based almost solely on their explosive sales growth. 
As you know, the FCC has adopted DTV tuner regulations requiring the 
phased-in inclusion of DTV tuners in all television receivers 13--
inches and larger by mid-2007. This requirement is expected to have an 
effect similar to the DVD experience, exponentially driving down the 
costs of ATSC chipsets. As a result, a digital tuner three years from 
now should cost about the same as an analog TV tuner today.
    In addition, LG believes that we can achieve the economies of scale 
required to ensure that a very low-cost converter box is available. 
Estimates point to 70 million-plus analog television receivers in the 
United States today that rely upon over the-air service (i.e., are not 
connected to a cable or satellite provider). We expect that, while many 
consumers will replace these analog TVs with new, integrated DTV sets, 
many others will continue to use their analog sets, thereby providing a 
viable market to drive the production of a very large volume of low-
cost converter boxes.Another consideration in the overall STB pricing 
equation relates to licensing fees for patents held by the companies 
that invested in bringing STB technologies to market. Even the lowest-
priced, bargain-basement DVD player has royalties in the $10-$15 range. 
This is essentially comparable to the royalty range for any basic 
digital-to-analog converter box.
    Based on our DTV experience and expertise in the design and 
manufacture of DTV set-top boxes, LG estimates that the retail price of 
a simple digital-to-analog converter box such as I have described will 
be under $100 by 2006, accounting for technology levels and licensing 
fees, and assuming production volumes in the millions of units. These 
three key factors affecting future STB pricing--(technology level, unit 
sales volume and licensing fees) suggest to us that that digital-to-
analog TV converter prices may be as low as $50 by 2008, assuming 
industry-wide demand of tens of millions of units by then.
    Of course, by 2008 there will be a range of options, including very 
affordable integrated DTV receivers. Those who want high definition 
reception and other features will pay more, just as they do today for 
progressive-scan DVD players. For consumers who want a very low-cost 
standard definition solution, a target retail price of $50-$70 should 
be attainable in a little over three years from now, assuming annual 
sales volume in the tens of millions of units.
    There are other factors, of course, that affect the digital 
transition. Manufacturers such as LG Electronics are doing our part to 
offer consumers a wide array of quality DTV products at affordable 
prices. Product prices will continue to decline, as they have done 
since DTV's introduction in 1998, and this will speed the transition. 
Other remaining issues that must be addressed to bring the DTV 
transition to completion include the provision of additional compelling 
digital content, consumer education efforts, and final resolution of 
digital cable carriage and digital copyright concerns. Progress has 
been made on the issue of compatibility between cable equipment and 
consumer electronics products as a result of cooperative effort by 
these industries, and work continues on two-way compatibility.
    LG Electronics commends this Committee for having the foresight now 
to examine the end of the transition and to consider a framework for 
minimizing the potential disruption to consumers when the final switch-
over to digital broadcasting occurs. We look forward to continuing to 
work with you to ensure that all Americans are able to enjoy the 
tremendous benefits of digital television.
    I am, of course, pleased to respond to any questions you may have, 
and I appreciate the opportunity to appear before you today.

    Mr. Upton. Thank you.
    Mr. Yager, welcome.

                  STATEMENT OF K. JAMES YAGER

    Mr. Yager. Thank you, Mr. Chairman, and members of the 
subcommittee----
    Mr. Upton. You need to get that--you just need to punch the 
button on that mike.
    Mr. Yager. Right here? Did I get it?
    Thank you.
    I had my good friend from the electronics industry to help 
me out there.
    My name is Jim Yager. I am Chief Executive Officer of 
Barrington Broadcasting, which owns and operates three 
television stations in Michigan and Illinois. I serve on the 
board of directors of the National Association of Broadcasters 
and the Association for Maximum Service Television.
    Today, I would like to discuss the status of the DTV 
transition, the necessity of protecting viewers that rely on-
over-the air television, the importance of ensuring that cable 
subscribers are not deprived of the benefits of DTV, and most 
importantly, the need to insulate consumers from any harm 
during the digital transition.
    Broadcasters are proud of our DTV accomplishments. Today, 
according to FCC, 1,488 local television stations are on the 
air in digital in markets that serve over 99 percent of U.S. TV 
households. DTV content has arrived as well, with over 2,500 
hours of broadcast HDTV programming a year. After spending 
billions of dollars, broadcasters have done their part to make 
DTV a reality. We recognize the need to bring this transition 
to a conclusion and ultimately to end analog broadcasts. In 
fact, our stations have strong economic incentives to do so.
    None of us enjoys paying double in operating costs to power 
both our analog and digital transmitters. However, it is 
premature to discuss the end of the transition without first 
resolving the number of policy impediments that could block 
consumers from reaping the full benefits of digital television. 
Chief among the remaining stumbling blocks are questions 
surrounding what broadcast DTV service cable companies will 
permit their subscribers to view. Cable operators have known 
for years of the impending DTV transition, but now are seeking 
to convert digital, high-definition signals to analog formats 
at the head end of their systems.
    Down-conversion at the head end would mean that consumers 
who invest in HDTV sets would then find themselves receiving an 
identical picture as their neighbor's analog-only TVs. Imagine 
if, during the 1960's, consumers purchased color sets, brought 
them home, and plugged them into their cable box only to see 
black-and-white pictures. That is what cable today is proposing 
with conversion at the head end. And the question must be 
asked, if the end result is turning digital signals back into 
analog, why did we undertake this transition to begin with.
    Perhaps the most critical policy question now is how to 
protect consumers during the shift to digital. A few simple 
facts highlight exactly why this is imperative.
    The GAO reports nearly 21 million U.S. households rely 
exclusively on over-the-air television reception for their TV. 
These households are among our most economically vulnerable, 
such as low-income senior citizens. For instance, \1/2\ of 
households with the head of the family who is over 50 and the 
annual income is less than $30,000 are broadcast-only 
households. As GAO stated, minorities are also 
disproportionately affected. Twenty-eight percent of Hispanic 
households rely solely on over-the-air television. And 
according to Knowledge Networks, African American households 
are 22 percent more likely to rely on over-the-air signals. If 
a hard cutoff date for the end of analog were imposed tomorrow, 
these households would lose their ability to receive any 
television whatsoever.
    The problem of a hard date does not end with the 20 million 
over-the-air homes. Including second and third sets and 
satellite and cable homes, there are 73 million television sets 
in this country that rely solely on over-the-air signals. A 
premature hard date sends these 73 million television sets to 
the local landfill. It is unconscionable to me that every year 
another 30 million analog-only sets are sold to unsuspecting 
consumers without any warning that the product may soon be 
obsolete. Under the current tuner phase-in schedule, analog-
only sets will continue to be sold until July 2007.
    As Congress seeks solutions for migrating these analog-only 
viewers into the digital world in an orderly fashion, a series 
of questions must be answered. As there are currently no 
digital-to-analog converter boxes on the market today, will any 
manufacturer step up and offer a low-cost converter box? How 
quickly can manufacturers produce enough converter boxes for 
consumers? Will government reimburse households for converter 
boxes? Who will be eligible for reimbursement? Will households 
be reimbursed for converting multiple sets in the same home or 
only for a primary set? Will reimbursement cover just converter 
boxes or the cost of an antenna? And how much will this whole 
process cost?
    I am sure that before legislating such an ambitious 
program, the committee will hold extensive hearings to probe 
these issues. Broadcasters want to be part of that dialog.
    In closing, let me re-emphasize. The transition system for 
DTV has been built. The programming is here. Now the challenge 
for Congress is two-fold: first, ensuring that both over-the-
air viewers and cable subscribers enjoy the full benefits of 
digital television while, second, protecting over-the-air 
viewers from losing local television altogether.
    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 and MSTV

    Good morning Mr. Chairman. I am K. James Yager, CEO of Barrington 
Broadcasting Company. I appear today on behalf of the National 
Association of Broadcasters to discuss important issues related to our 
transition to digital television (DTV). I will emphasize the critical 
need to focus on consumers during this transition to ensure that all 
Americans will continue to have access to the best free over-the-air 
television service in the world. As I will explain below, there are 
valuable lessons we can learn from the DTV conversion experience in 
Berlin, Germany. I will also note, however, that the German experience 
is not fully translatable to ours here in America because the potential 
for consumer disenfranchisement we face in this country is much greater 
than that faced in Berlin.
    As an initial matter, let me say that broadcasters have and will 
continue to fully support the digital television transition. We 
recognize that consumers will reap dramatic benefits from the amazing 
digital television technology. The transition period gives consumers an 
opportunity to trade out their analog receivers for digital ones on 
their own timetable. But, the transition cannot go on forever. Thus, 
Congress settled on the point when 85 percent of U.S. households is 
digital-capable for the turn-off of analog broadcasting.
    It remains important to focus on the remaining 15 percent of 
households that will need to be accommodated in some way. As the 85 
percent test is met in market after market, analog television sets 
without converters will go dark. 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. Thus, we would like to discuss in 
this testimony what we see as necessary to preserve consumers' access 
to television, most particularly over-the-air only consumers who could 
be completely cut off from television by a hard cut-off date. And 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.1 Consumers may not readily 
dispose of these sets, even if they have purchased a new digital 
television receiver.
---------------------------------------------------------------------------
    \1\ 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.
---------------------------------------------------------------------------
    The FCC has set in motion measures that will foster the DTV 
transition by providing incentives for consumers to buy DTVs. At some 
point, however, 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 answer is the 
subsidization of digital-to-analog converters for ``non-digital'' OTA 
households. Another measure is promotion and education about DTV, to 
encourage consumers to purchase DTVs. A near term measure that could be 
adopted would be to require warning labels on analog-only sets, 
alerting consumers to the limited useful life of these sets.
    The real key to ending the transition, to not 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. Some government subsidization 
likely may be necessary here. The FCC's practice of requiring auction 
winners to bear the costs of moving incumbent spectrum users would seem 
to be a useful idea, particularly as broadcasters have shouldered DTV 
transmission costs.
    Before we return to our comments on the numbers of consumers and 
sets to be dealt with at the end of the transition and our thoughts 
about digital-to-analog converters, we would like to take a moment to 
discuss the Berlin transition to digital. We agree with the 
Subcommittee that it is important to examine both the Berlin and the 
greater German experience and the distinctions between that situation 
and ours in the United States. We look forward to hearing and reviewing 
the testimony presented today by GAO on the greater German experience, 
but we would like to review some of what NAB told this Committee last 
year about Berlin's transition and ours.
    Germany, and particularly Berlin--the first place in the world 
where digital television broadcasting has completely supplanted 
analog--offers some instructive comparisons to the DTV transition in 
the United States. Nonetheless, there are striking differences between 
the German experience and ours which amply demonstrate why accelerating 
the digital transition here will require significantly more consumer-
friendly actions by the government.
    Let's look at some of the ways German digital television differs 
from our DTV transition. The single biggest difference is that Berlin--
like other European DTV plans--does not include any provision for High 
Definition Television. DTV in the United States began in response to 
HDTV, a new Japanese technology that promised much greater picture and 
sound quality. Although the U.S. digital television system will also 
permit multicasting and the distribution of new data services, it has 
always included HDTV capability, and the amount of HDTV programming 
available here is great and continues to expand. In the United States, 
HD has been the only incentive for consumers to purchase digital 
receivers, particularly since most cable systems have refused to pass 
through any other DTV services. While the FCC recently voted to deny 
cable carriage of broadcasters' multicast programming, NAB believes 
that decision bears re-evaluation by this Subcommittee. We believe that 
multicasting as an option for some programming and some dayparts will 
be critical to preserving the vitality of the free over-the-air 
broadcast system. Multicasting is also a powerful additional incentive 
for consumers (particularly OTA-only consumers) to purchase digital 
sets or converters. But multicasting will only be developed if there is 
access to the entire audience for such offerings, not just access to 
OTA-only sets.
    By contrast, European DTV was intended primarily to offer more 
programming choices. European analog television for the most part has 
offered fewer television signals to consumers than are available in the 
United States and a higher percentage of noncommercial services (for 
which viewers pay a receiver tax).2
---------------------------------------------------------------------------
    \2\ In many countries, penetration of cable or satellite multi-
channel video providers has been far less than in the United States 
and, even where MVPD penetration has been substantial (like Berlin), 
the number of channels provided has been fewer than typical American 
systems provide.
---------------------------------------------------------------------------
    This profound difference has several consequences. First, European 
consumers who move to DTV reception receive an immediate benefit of 
more channels at no additional cost. In Berlin, buying a digital TV or 
a set-top box increased viewer choice from eight channels to roughly 30 
channels.3 Second, since there is no need to decode or 
display HDTV signals, the memory and processing requirements of DTV 
receivers and set-top boxes is much less in Europe than in the United 
States. Thus, it is relatively cheaper to manufacture digital receivers 
for European DTV. DTV receivers were available in Berlin, for example, 
for around 200 euros, far less than HDTV-capable receivers cost 
here,4 and set-top boxes there were also less 
expensive.5
---------------------------------------------------------------------------
    \3\ The Berlin authorities thought it particularly significant that 
moving to DTV resulted in consumers ``receiving more services for which 
the license fee is paid.'' DVB-TV: Das Uberall Fernsehen, Berlin Goes 
Digital (accessed at http://www.mabb.de/start.cfm?content=
aktuelles&id=632) at 15 (hereinafter Berlin Goes Digital). Berlin 
already had more operating channels than other parts of Germany where 
three to five analog channels are typical. Berlin was able to have 
these additional channels because of spectrum vacated by former East 
German stations after reunification. While some other German cities are 
expected to begin digital transmission this year, much of Germany under 
current plans will never have digital over-the-air television because 
sufficient channels are not available.
    \4\ Id. at 5.
    \5\ The current exchange rate is approximately $1.30 to the euro. 
Set-top boxes have been on sale in Berlin for as little as 69 euros, or 
about $89.00 (U.S.).
---------------------------------------------------------------------------
    Moreover, because digital transmissions in Germany are not high 
definition, a consumer with an analog receiver who acquires a digital 
set-top box would receive the same programs at almost the same quality 
as a consumer with a new digital receiver. Similarly, if a cable system 
in Berlin converts a broadcast digital signal to analog for display on 
analog receivers connected to the cable system, the cable subscriber 
receives essentially the same thing as he or she would if the cable 
system were delivering the digital signal in its native format to a 
digital receiver.
    It is important to emphasize that down-conversion has a far more 
negative impact in the United States. If a U.S. cable system down-
converts a broadcast DTV signal, as some have suggested, cable 
subscribers will not receive what they would get if they had a digital 
receiver and the cable system carried the broadcast digital signal. The 
consumer would not receive high definition pictures or better sound and 
would not receive multicast signals or data transmissions. There would 
be little reason for those consumers to purchase digital receivers and, 
of course, if they already had DTV sets, they would not get much of the 
benefit of their purchase. An apt analogy would be to imagine that 
consumers who purchased color television sets in the 1960s found when 
they brought the color sets home, they would still only see black and 
white pictures. The predictable public outcry against wasteful 
government requirements would likely be intense.
    As a consequence of these differences, the digital conversion in 
Berlin presented consumers with a very different value proposition--for 
a fairly modest one-time expenditure, the consumers could get the 
equivalent of free basic cable for life. Moreover, nearly the full 
benefits of the conversion could be realized on TV sets, small and 
large, analog and digital alike. So it was not difficult to persuade 
consumers to buy the digital sets and boxes and there was little danger 
of consumer resentment over the premature obsolescence of their 
existing sets.6 In the long run, we believe that European 
consumers and broadcasters will come to regret foreclosing the benefits 
that HDTV will provide, particularly as other digital media increase 
their ability to deliver the highest quality sound and pictures.
---------------------------------------------------------------------------
    \6\ The license fee paid by all set owners is 16 euros per month, 
so the cost of a set-top box represented about four months of license 
fees.
---------------------------------------------------------------------------
    Another distinction between the Berlin and American transitions are 
the obligations placed on cable. Cable in Berlin was required to carry 
all broadcast services and to protect analog-only households after the 
switch-over to digital. In stark contrast, the FCC just last week acted 
to deny cable carriage for all but one free stream of digital broadcast 
programming. And, there are still no obligations on cable systems to 
ensure that their analog-only subscribers will have access to local 
television signals after analog broadcasting ends.
    This is a very important point. One of the reasons that analog 
broadcasting was able to be switched off in Berlin was the prevalence 
of cable and satellite delivery systems. Only about seven percent of 
Berlin households received television over the air, a lower percentage 
than in the rest of Germany.7 An even smaller number of 
homes in Berlin (about 90,000) relied on terrestrial transmission for 
second and third sets.8 In the United States, it is 
estimated that there are 45 million sets in homes that are not 
connected to any cable or satellite system and an additional 28 million 
unwired sets in cable or satellite households. In total, over 25 
percent of all televisions (73 million receivers) rely solely on over-
the-air transmission and will need to be replaced or have converters 
attached in order to operate after analog broadcasting ends.
---------------------------------------------------------------------------
    \7\ Berlin Goes Digital at 2. In Germany, satellite service is free 
to the consumer after the purchase of the receiver; cable service 
typically costs only 12-15 euros, much less than the cost of American 
cable service.
    \8\ Id. at 3.
---------------------------------------------------------------------------
    Because so large a percentage of Berlin homes relied on cable or 
satellite to receive local television, and those systems were required 
to ensure that broadcast digital programming reached all of their 
subscribers, there was no risk that consumers would be stranded as is 
likely here. Further, there was very little risk that ending analog 
broadcasting would result in a significant loss of audience or revenue 
for commercial broadcasting. The result here is much different.
    One of Congress' objectives when it authorized the transition to 
digital beginning in 1996 was to strengthen the over-the-air 
broadcasting system. A premature end to analog broadcasting before 
consumers are ready may have the opposite effect of reducing the 
audience of local stations and thus reducing their ability to provide 
attractive programming and local public service. If consumers are 
driven to cable and satellite programming, that would increase those 
monopoly providers' gatekeeper power and frustrate Congress' goal of 
improving local broadcasting.9
---------------------------------------------------------------------------
    \9\ In this regard, it is worth noting that there are no plans to 
bring terrestrial digital service to much of rural Germany. It is not 
clear whether those areas will lose over-the-air service altogether or 
be left with analog service only. The American DTV transition is 
intended to ensure that high-quality digital television be available 
across the country.
---------------------------------------------------------------------------
    These differences are significant and make it apparent that Berlin 
does not provide a ready model for the United States. In particular, as 
we discuss here, the very much larger number of sets that rely on over-
the-air transmissions, as well as the very large number of analog sets 
in cable and satellite homes for which no DTV transitional carriage 
rules have been established, make it impossible to conclude that a 
Berlin-style transition would not harm the public interest in a strong 
local broadcasting system.
    Despite this, there are certainly lessons that we can take from the 
Berlin experience. The German authorities recognized that moving 
millions of consumers from analog to digital, while resulting in 
significant benefits for consumers, would create burdens that should 
not fall on broadcasters. Instead, they concluded that ``[s]olving the 
issue of social acceptability of the switchover is a public duty to be 
fulfilled by the state.'' 10 The response from consumers in 
Berlin also counters suggestions that it is not important to maintain 
the level of over-the-air services. ``Numerous comments by viewers . . 
. refute the claim that viewers traditionally receiving television 
through the air would be content with fewer services--the opposite is 
the case.'' 11
---------------------------------------------------------------------------
    \10\ Berlin Goes Digital at 12.
    \11\ Id. at 15.
---------------------------------------------------------------------------
    Another important lesson is that free TV is crucial to any 
transition from analog to digital. The experience not only in Germany, 
but also in the United Kingdom and in Spain with pay digital 
television--where those services languished--shows that the 
``switchover must be undertaken with free-to-air television.'' 
12 Indeed, in England, the subscription terrestrial DTV 
service collapsed; digital penetration began to increase significantly 
only with the development of the Freeview system that greatly expanded 
consumer choice by providing multiple channels of free over-the-air 
programming.13
---------------------------------------------------------------------------
    \12\ Id. at 3; see id. at 16.
    \13\ See Office of Communications, Driving digital switchover: a 
report to the Secretary of State (April 5, 2004)(accessed at http://
www.ofcom.org.uk/research/dso--report/?a=87101).
---------------------------------------------------------------------------
    One other part of the Berlin experience is particularly 
instructive. The Berlin authorities concluded that one of the 
advantages that could be obtained from a transition to DTV was the 
increased potential for portable applications. This is achieved through 
a system of distributed transmission where additional transmitters 
repeat the signal and enable it to reach televisions without roof-top 
antennas. The same capability has been developed for the U.S. digital 
broadcast system, and broadcasters have asked the FCC to authorize its 
use. The FCC has agreed in principle. Final action by the FCC on this 
issue would also help advance the transition here.
    Let me turn back for a moment to the critical issue of over-the-air 
viewership and the availability of digital converters. Without the 
widespread availability of low cost digital-to-analog down-converters, 
the FCC 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), 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.'' 14 Many Spanish-speaking viewers choose not to 
subscribe to cable or DBS because these services offer primarily 
English-language programming.15
---------------------------------------------------------------------------
    \14\ Comments of the Consumer Electronics Association, MB Docket 
No. 04-210, August 11, 2004 (``CEA'') at 4.
    \15\ Comments of Entravision Holdings, LLC, 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.16 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.
---------------------------------------------------------------------------
    \16\ 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.
    As mentioned above, a key to ending the transition without 
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. In this 
regard, it is important to keep in mind not only the cost of such 
converters, but that low cost converters for making digital signals 
available to analog sets will need to have defined minimum technical 
capabilities. 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.17 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.
---------------------------------------------------------------------------
    \17\ ``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 18 
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.19
---------------------------------------------------------------------------
    \18\ ``Motorola Broadband CTO to Speak Before House Subcommittee on 
Telecommunications Regarding DTV Transition,'' Motorola press release, 
July 21, 2004.
    \19\ Comments of LG Electronics filed in FCC MB Docket, 04-210, 
August 11, 2004 at 3.
---------------------------------------------------------------------------
    What does this all really mean? It tells us that relying on cable 
or satellite services to drive the transition to digital--as some have 
argued--will ultimately fail. Free local broadcasting has always been 
the core of television service. It will be, it must be, a primary 
driver of the digital transition. With it, we will have a vibrant new 
television service. Without it, we will have simply more variations on 
the same pay services, as well as diminishing news, emergency services 
and other public interest activities for which our communities rely on 
local broadcasters.
    Broadcasters share the desire to bring the DTV transition to a 
close. Unlike Germany, American commercial broadcasters have been 
required to shoulder an enormous financial burden to build and operate 
digital facilities. No broadcaster wants to continue paying for both 
analog and digital operations for any longer than necessary. Instead, 
we look forward to an all-digital future.
    There is no question the DTV transition is progressing. Over 1370 
television broadcasters are now on the air and reaching 99% of 
households in their communities and across the country with digital 
signals. What remains is a harder problem to solve and that is consumer 
adoption.
    The FCC has taken significant steps to advance the transition, 
including the digital tuner mandate, the ``Powell plan'' and the 
agreement on cable compatibility standards. It is to be commended for 
its constructive approach. These steps are bearing fruit, not only in 
the availability of more and more exciting programming, but also in 
increased sales of digital receivers and displays. But, more is needed, 
particularly the now-denied digital carriage rules for the transition 
and afterwards. The FCC has failed to do what is needed to make this 
transition smoother. It is now up to Congress to correct that failure 
so that we can bring the transition to an end in this decade without 
causing significant disruption to consumers or reducing service.

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    Mr. Upton. Mr. Willner.

                STATEMENT OF MICHAEL S. WILLNER

    Mr. Willner. Thank you, Mr. Chairman and Congressman 
Markey, members of the subcommittee. My name is Michael 
Willner, and I am the President and CEO of Insight 
Communications, the Nation's ninth largest cable operator. 
Thank you for inviting me to testify here today.
    Mr. Chairman, I have said before, and I will say it again, 
cable is, indeed, leading the digital transition in America. 
When I testified before this committee last summer, I reported 
that cable companies were offering high-definition television 
on systems passing some 84 million homes. In less than a year, 
that number had grown to 92 million homes, almost a 10-percent 
increase. In fact, cable operators now offer HDTV in all of the 
top 100 markets and 184 of the 210 markets nationwide.
    During the digital transition law, broadcasters are 
transmitting both analog and digital signals. Cable operators 
are only required, by law, to carry the analog signals. 
Nevertheless, cable systems now voluntarily carry an additional 
504 digital signals from broadcast signals that offer HDTV and 
other compelling digital content. Most recent--the most recent 
and comprehensive of all is the example of the cable industry's 
willingness to carry compelling digital broadcast programming, 
which is the agreement announced just 2 weeks ago between the 
NCTA and the Association of Public Television Stations. This 
voluntary agreement was reached because the public broadcasters 
demonstrated that they have a plan to offer digital programming 
that is attractive to our customers. The agreement will ensure 
that digital programming on local public television stations 
will be carried on cable systems serving the vast majority of 
the Nation. And it was done without any government 
intervention.
    Cable operators are also providing digital tiers that 
include substantial amounts of high-definition programming. For 
example, 18 different cable networks are now delivering HDTV, 
most of them on a 24-hour-a-day basis.
    My company was an early proponent of HDTV and first 
launched high-definition television service in 2002. We carry 
most local HD signals in the markets we serve, provided the 
local broadcasters do not demand unreasonable economic 
concessions. We do not want our customers to have to pay for 
programming that the broadcaster provides free of charge over-
the-air so that one neighbor pays for it and the other neighbor 
doesn't. Currently, 95 percent of our customers have access to 
HDTV.
    Today, only a small portion of the Nation's households own 
digital televisions. Indeed, only 33,000 of our customers 
currently have HD service. But the good news is that we are 
adding more than ever before. Nearly 1,000 new customers a 
week, on a net basis, are adding HDTV services to their cable 
service. The problem is that there are still about 250 million 
analog television sets in viewers' homes. The large majority of 
over-the-air and cable households still will watch television 
on analog TV sets and will continue to do so well into the 
future.
    Cable operators have introduced a digital and high-
definition service plan, which gives viewers options that do 
not require them to purchase digital TV sets or obtain digital 
set-top boxes until they are ready to do so.
    Ladies and gentlemen, I personally believe that the only 
way for this transition to ever be completed is for Congress to 
set a date certain. The cable industry is not in the business 
of deciding this matter. That is up to you. I do want you to 
know that we are ready, willing, and able to comply with 
whatever date you choose. The smooth transition will occur if 
you analyze the impact on two distinct consumer groups: the 90 
million households who receive their broadcast signals from 
cable and DBS, and the 20 million who receive broadcast signals 
directly over the air.
    Those who rely on over-the-air reception have a number of 
options. The least expensive option will be to obtain a set-top 
box that converts digital signals so that they are viewable on 
analog television sets. I have a favorite option. I hope those 
people will subscribe to cable, and we will take care of it all 
for them.
    Cable customers, on the other hand, should not face those 
decisions. Whether we convert digital signals to analog at the 
head end or in the set-top box, the cable operator should have 
the flexibility on a market-by-market basis to determine the 
method that is least disruptive and most cost-effective for the 
consumer. Indeed, cable operators have been converting cable 
networks from their digital format received at the head end to 
analog for well over a decade. It is nothing new. In fact, 
broadcasters have, for years, been receiving digital feeds from 
their networks, and they convert them at their receptionsite 
into analog so they can broadcast that signal over the air.
    Consumers with analog TVs will receive the same quality 
signal they are receiving today. By the way, contrary to the 
broadcasters' written testimony, no matter where we convert the 
digital signal into analog, at the head end or in the home, 
those with digital TVs will still enjoy, as they do today, the 
benefits of digital television signals.
    Mr. Chairman, as I said earlier, the cable industry stands 
ready, willing, and able to participate in a seamless 
transition to an all digital world. You set the date. We will 
be there. And I thank you for allowing me to testify today.
    [The prepared statement of Michael S. Willner follows:]

 Prepared Statement of Michael Willner, President and Chief Executive 
                    Officer, Insight Communications

    Mr. Chairman, Congressman Markey, members of the subcommittee, my 
name is Michael Willner. I am President and CEO of Insight 
Communications, the nation's ninth largest cable operator. I am also a 
Director of the National Cable & Telecommunications Association (NCTA) 
and serve on its Executive Committee. Thank you for inviting me to 
testify about the ``The Role of Technology in Achieving a Hard Deadline 
for the DTV Transition,'' and the cable industry's efforts to advance 
the digital transition.

              I. INSIGHT COMMUNICATIONS: COMPANY OVERVIEW

    Insight Communications provides bundled, state-of-the-art services 
to 1.3 million cable customers living in Illinois, Indiana, Kentucky, 
and Ohio. The company pursues an aggressive business plan to deliver 
leading-edge technology to its customers and has successfully upgraded 
its infrastructure to support numerous advanced services including high 
definition television (HDTV), digital video recorders (DVR), video-on-
demand (VOD), subscription video-on-demand (SVOD), two tiers of high-
speed Internet access service, voice telephony, and standard analog 
video. At the end of the third quarter of 2004, Insight Communications 
served 1.3 million basic customers; including 440,000 digital 
customers; 312,000 high-speed Internet customers, and 63,000 circuit-
switched telephony customers. The capital investment required to make 
these enhancements was approximately $500 million, a huge commitment 
for a company of our size.
    Insight Communications was an early proponent of HDTV programming 
and first launched high definition service in 2002. Insight carries at 
least one major broadcast network in HD format in almost all of our 
markets. Insight carries nearly all local HD signals in all markets--
provided the local broadcaster offers HD and does not demand 
unreasonable economic concessions that require our customers to pay for 
programming which the broadcaster is obligated to provide for free over 
the public airwaves. Currently 33,000 Insight customers have HDTV-
enabled set-top boxes in their homes, and 95 percent of our customers 
have access to HD services (98 percent of Insight's digital customers).

II. THE CABLE INDUSTRY IS LEADING THE TRANSITION TO DIGITAL TELEVISION 
                         IN THE UNITED STATES.

    Insight's investment in digital technology and its provision of 
HDTV and an ever-increasing array of advanced digital services 
exemplifies what the entire cable industry is doing to expedite the 
transition to digital television. Since enactment of the 
Telecommunications Act of 1996, the cable industry has invested nearly 
$100 billion to transform its infrastructure and provide not only 
advanced video services but also competitive voice and data services to 
consumers throughout the nation. This is precisely what we said we 
would do if Congress established a stable regulatory environment that 
allowed companies to invest, take risks, and compete in the video 
marketplace. Congress provided impetus for the industry by passing the 
1996 Telecommunications Act--and we acted accordingly.
    Cable's own transition from analog to digital technology has been 
spurred by competitive market forces. The technological advances which 
have transformed our business and benefited consumers stem from cable 
operators risking their own private capital--without any government 
guarantees, subsidies, or gifting of public airwaves. Moreover, the 
delivery by cable operators of large and increasing amounts of high 
definition programming from broadcasters and cable networks has 
occurred without any government requirement to do so.
    As the Federal Communications Commission recently noted, most 
television households today have a choice of at least three 
multichannel video programming distributors--at least one local cable 
operator, and two nationwide Direct Broadcast Satellite (DBS) services. 
Those DBS services are vigorously competing for every one of our 
customers. If we do not offer compelling high definition programming 
for the ever-increasing number of consumers with high definition 
television sets, we will lose those consumers to competitors who do 
offer such services.

A. Cable operators are now offering packages that include a full mix of 
        broadcast, basic, and premium networks featuring HD content.
    When I testified before this subcommittee last summer, I reported 
that as of March 2004, cable companies were offering high definition 
television on systems passing 84 million homes. By January 2005, that 
number had grown to 92 million,--almost a 10 percent increase in less 
than a year. Those kinds of increases cannot go on much longer, because 
these numbers mean that we are already offering high definition 
television to most of our subscribers. In fact, in all of the top 100 
markets--and in 184 of the 210 markets in the nation--at least one 
cable operator now offers HDTV.
    During the digital transition, while broadcasters are transmitting 
both analog and digital signals, cable operators are only required to 
carry the analog signals. Nevertheless, cable systems are now 
voluntarily carrying an additional 504 digital signals from broadcast 
stations that offer HDTV or other compelling digital content--a more 
than five-fold increase just since January 2003 (and a 32 percent 
increase since March 2004, when 382 stations were being carried).
    Indeed, the most recent--and most comprehensive--example of the 
cable industry's desire to carry compelling high definition and other 
digital broadcast programming is the agreement, announced two weeks 
ago, between the NCTA and the Association of Public Television Stations 
(APTS). That voluntary agreement was reached because the public 
broadcasters showed us that they had a plan to offer digital 
programming that is attractive to our customers. The agreement will 
ensure that local public television stations' digital programming will 
be carried on cable systems serving the vast majority of the nation's 
cable subscribers--and it was done without any government intervention.
    Moreover, cable operators are also providing digital tiers that 
include substantial amounts of high definition programming. Eighteen 
different cable networks are producing HD programming, including 
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. Unlike many broadcast stations that offer HD 
programming for only a few hours a day, most cable networks that offer 
HD do so on a 24-hour or nearly full-time basis.

B. National Digital Technical Standards Are Helping to Speed the 
        Transition.
    Along with creating and carrying compelling digital programming, 
the cable industry has joined with the consumer electronics industry 
and various organizations to establish digital standards. In December 
2002, the cable and consumer electronics industries entered into a 
landmark agreement that set the stage for a national ``plug and play'' 
standard between digital television products and digital cable systems. 
As a result of this agreement, cable customers can buy unidirectional 
DTVs and other devices that connect to digital cable systems without a 
set-top box, thus allowing easy access to HDTV and other services 
offered by cable providers.
    The agreement ensures that the next generation of digital 
television sets will receive one-way cable services without the need 
for set-top converter boxes; enable consumers to receive HDTV signals 
with full image quality; allow the easy recording of digital content 
for personal use; permit an array of new devices to be easily connected 
to the new HDTV sets; give access to cable's two-way services through 
digital connectors on high definition digital sets; and encourage 
manufacturers to speed the production of new sets and services for 
delivery to market.
    In September 2003, the FCC adopted rules tracking the voluntary 
agreements between the cable and consumer electronics industries and 
imposing legal obligations on cable operators to facilitate the 
commercial availability of ``digital cable-ready'' equipment. 
Specifically, the FCC's rules assure consumers that cable operators 
will provide them with Point of Deployment (POD) separate security 
modules, now called CableCARDs, that will work in their CableCARD-
enabled equipment purchased at retail. The FCC also required that these 
``cable-ready'' DTV sets include digital tuners--a requirement the 
cable industry supported--so that owners of those sets will retain the 
option of receiving broadcast signals over-the-air.
    As cable operators implement the ``plug and play'' agreement, 
unidirectional digital cable-ready products have made their way into 
the marketplace. Today, more products and innovations are clearly on 
the way, as evidenced by the vast array of equipment on display last 
month at the Consumer Electronics Show in Las Vegas. Meanwhile, 
discussions are continuing between the cable and consumer electronics 
industries to reach similar agreement on two-way digital ``cable-
ready'' products.

    III. A HARD DEADLINE FOR THE RETURN OF THE BROADCASTERS' ANALOG 
SPECTRUM REQUIRES STEPS TO MINIMIZE COSTS AND DISRUPTIONS FOR OVER-THE-
                      AIR AND CABLE VIEWERS ALIKE.

    Largely as a result of the marketplace forces that have required 
cable operators to carry packages of compelling digital and high 
definition programming, sales of digital and high definition television 
sets are increasing at a rapid pace. More than 7.2 million units were 
sold in 2004--a 75 percent increase over the previous year--and all 
signs indicate that this accelerating trend will continue in 2005.
    Nevertheless, it is still the case that only a small portion of the 
nation's households own digital television sets. There are 250 million 
analog television sets in viewers' homes. The large majority of over-
the-air and cable households still watch television on analog sets and 
will continue to do so for the foreseeable future. Consequently, cable 
operators have introduced digital and high definition services in a 
manner that gives viewers options that do not require them to: (1) 
purchase digital television sets, or (2) obtain digital set-top boxes 
that allow digital programming to be viewed on analog sets.
    Thus, cable operators still typically provide the most popular and 
widely-viewed programming in analog format. This allows viewers with 
``cable-ready'' analog television sets to watch this programming 
without a set-top box. Cable operators also offer optional tiers of 
digital program networks, as well as digital pay-per-view programming 
and other digital services. Most of this programming can be viewed on 
analog television sets in ``standard definition,'' but only with a 
digital set-top box that converts the digital signals to an analog 
format allowing all TVs to receive them. As previously discussed, cable 
operators offer digital high definition programming provided by cable 
networks and local broadcast stations. To view this programming, 
customers need a high definition television set and a more complex and 
expensive set-top box (or a cable-ready HD set).
    Today, nearly 40 percent of our customers purchase digital tiers 
and services. Eventually, it will be most efficient and desirable to 
provide all our programming and services digitally. But that will occur 
gradually so the consumer can choose if and when to purchase a new 
digital television set. In the meantime, most of our customers still 
have analog sets and do not purchase digital tiers. For now and the 
foreseeable future, we serve our customers best by making the most 
popular services available in analog format, even though we also 
provide the same services in high definition on digital channels.
    When Congress sets a date certain for the digital transition, the 
cable industry will be ready, willing, and able to complete a smooth 
transition. And broadcasters could be too--if they only wanted to be. A 
smooth transition will occur if we recognize and deal with the 
different impact that ending analog broadcasting will have on two 
different groups of consumers: (1) people who receive their broadcast 
signals from cable and DBS, and (2) people who receive broadcast 
signals directly (over-the-air). If Congress were to require 
broadcasters to transmit only digital signals in the next few years, 
households that rely on over-the-air reception would have to incur some 
costs to continue watching television. They would have to: (1) replace 
their analog TVs with new high definition sets; (2) replace their sets 
with new analog TVs equipped with digital tuners; (3) obtain a set-top 
box that converts digital signals into analog format so that they are 
viewable on analog sets; or (4) become cable or DBS customers. Motorola 
currently estimates the cost of set-top converter boxes to be $67 per 
unit. Some costs and inconvenience for over-the-air viewers will be 
unavoidable unless Congress is willing to wait to recapture the analog 
spectrum until all over-the-air viewers have replaced their existing 
sets--which would delay the conversion indefinitely.
    Cable customers, on the other hand, need not face such costs. Cable 
operators, if permitted to do so, can convert the broadcasters' new 
primary digital signal to analog so customers who choose not to 
purchase new digital sets or digital tiers can continue to receive 
service without any additional equipment. Whether we convert to analog 
at the head-end or in the set-top box should be determined by the cable 
operator, who will decide on a market-by-market basis the method that 
is least disruptive and most cost-effective to the customer. Cable 
operators have been converting cable networks from their digital format 
received at the head-end to analog for well over a decade so that they 
can be viewed by customers without digital TVs or set-top boxes. 
Indeed, broadcast network affiliates have for years been receiving 
digital network feeds in digital format via satellite and fiber optic 
cables which they convert to analog before transmitting the programming 
over-the-air. The digital broadcast transition will be advanced if that 
same conversion right applies to local broadcast signals. Cable 
operators, in order to minimize the expense and disruption imposed on 
their customers by the digital transition, should be permitted the 
discretion to convert digital broadcast signals to analog at the 
headend. Consumers with analog TVs will receive the same quality signal 
they are receiving today and those with digital TVs will enjoy the 
benefits of the digital signals where such benefits exist.
    The cable industry has already shown that where broadcasters 
provide compelling high definition (and/or multicast) programming, we 
will voluntarily carry such programming digitally in addition to 
providing the analog signal--just as we carry some popular non-
broadcast cable program networks on analog channels while also carrying 
their programming digitally in high definition. And we will continue to 
do so.

                        IV. MULTICAST MUST CARRY

    Broadcasters continue to suggest that they need multicast must 
carry in order to facilitate the digital transition. Their argument is 
a diversionary tactic and nothing more. Multicast must carry will not 
solve any consumer issue in the post-transition, digital world. Must 
carry simply allows broadcasters to provide any content they choose, 
including home shopping and info-mercials, while blocking competing 
services from utilizing cable's valuable bandwidth.
    Multicast must-carry would have virtually no effect on the 
attractiveness of digital sets and would do nothing to expedite the 
date on which the transition might end. It is hard to see why any cable 
subscriber would purchase a digital set to watch additional standard 
definition programming that is not significantly better in picture 
quality than the hundreds of channels already available on cable 
systems. Moreover, giving broadcasters guaranteed carriage of their 
multicast channels will remove their incentives to invest in and 
develop compelling content that consumers will want to watch and cable 
operators will want to carry.
    Cable operators will continue to make analog televisions and VCRs 
work long after the broadcasters shut off their analog transmissions by 
providing a digital-to-analog set-top box or by converting the digital 
TV signals at the head-end. The only steps that need be taken in order 
to implement a hard deadline for the return of the broadcasters' analog 
spectrum are: (1) ensuring the availability of affordable digital-to-
analog equipment for over-the-air viewers, and (2) permitting cable 
operators to convert digital broadcast signals to analog.

                             IV. CONCLUSION

    Mr. Chairman, the cable industry has made a massive commitment to 
digital technology--not just to digital television but to a digital 
platform that will provide an ever-expanding array of competitive 
voice, data, and video services to American consumers. We are also 
committed to managing the digital transition in a way that makes the 
most advanced services available without imposing unnecessary costs and 
disruption on our customers. The government's need for the return of 
the analog spectrum (for important public safety and wireless purposes) 
means that some inconvenience, particularly for over-the-air viewers, 
may be inevitable. The cable industry has demonstrated, through its 
voluntary commitment to carry high definition programming during the 
transition, and its comprehensive agreement to carry public 
broadcasters' high definition and multicast digital programming during 
and after the transition, its willingness to help minimize the 
disruption for broadcasters and their over-the-air viewers.
    We also continue to be required by law to carry the broadcasters' 
analog signals during the transition and their primary digital video 
programming streams after the transition is completed. We need to 
fulfill that obligation in a manner that imposes the least expense and 
disruption on the largest group of television viewers in the nation--
i.e., our own customers, who number 70 million. We can do that if we 
have the discretion to convert broadcast television signals at the 
headend when that conversion best serves the needs and interests of 
local customers.
    Thank you again for inviting me to testify before you today. I know 
that my entire industry stands ready to work with the subcommittee in 
its efforts to expedite the transition from analog to digital 
television.

    Mr. Upton. Well, thank you all for your testimony, and I 
want to go directly to, perhaps, a conflict between Mr. Yager 
and Mr. Willner in terms of your testimony. And I am going to 
use an example that I know well, the Upton household.
    I have cable. I have four TVs. Two of them are analog, and 
they plug right into the wall into the cable. One is a digital 
set, and one is a digital HD set. The digital set and the HD 
set both have set-top boxes. What happens if, when we do the 
date, like we all want to do, the conversion is made at the 
head end, what happens to each of those sets?
    Mr. Yager, we will start with you. What happens to my two 
analog sets without the box?
    Mr. Yager. Thank you, Mr. Chairman.
    If the signal is converted at the head end, I am afraid 
both of your sets that are digital will become analog.
    Mr. Upton. What about the analog sets? Do they become 
digital?
    Mr. Yager. I wish it worked that way. But it----
    Mr. Upton. So that is your finding? So even with a new box, 
the HD set will simply perform in an analog capacity, is that 
what you are telling me?
    Mr. Yager. No, sir, what I said was----
    Mr. Upton. I think the chairman has an HD set as well, do 
you not?
    Mr. Yager. If they can----
    Chairman Barton. I have got every kind of set you can have. 
And I am going to talk about that on my time.
    Mr. Upton. All right. Go ahead, Mr. Yager.
    Mr. Yager. If they convert the signal at the head end to 
analog, which is what they propose to do to make everybody on 
an equal playing field, as they say, then your sets would 
receive an analog signal. They would no longer receive----
    Mr. Upton. So it--so are you also saying that the set-top 
box that I have as--for the HD set would not be able to 
reconvert it to digital?
    Mr. Yager. No, I didn't mean to imply that, because if you 
have a box at the set, which is what we propose----
    Mr. Upton. Well, that is what I have now.
    Mr. Yager. Okay. I----
    Mr. Upton. My HD set has a box.
    Mr. Yager. I do not know the answer technically if they are 
converting at the--my bet is they are converting at the set 
today. But do you subscribe to a tier of digital service?
    Mr. Upton. I do.
    Mr. Yager. And you pay extra for that tier?
    Mr. Upton. And I pay an extra small fee for the HD, about 
10 or 12 stations that I----
    Mr. Yager. Then you would continue, I would think, to 
receive the digital service, providing they continued to feed 
both--keep the digital signal and the analog signal going down.
    Mr. Upton. The key is now that I have the HD service that 
that HD service will--I would--so what you are saying then is 
that the box will likely----
    Mr. Yager. The--I would think the box would work.
    Mr. Upton. [continuing] convert it, but I--it will still 
have HD?
    Mr. Yager. I would think the box would work, but I am not 
familiar with the system you are on or what the--I understand 
the cable proposal is to get everything to an equal playing 
field as they convert everything at the head end to analog. 
Then your box would not work.
    Mr. Upton. But a new box might be able to convert it? That 
is what I think that you are saying.
    Mr. Yager. Well, our proposal is--we have no problem with 
converting at the television set. No problem whatsoever. If 
digital--if cable wants to transmit nothing but digital signals 
and convert those to analog at the set, we have no problem with 
that whatsoever.
    Mr. Upton. Mr. Willner, would you like to comment?
    Mr. Willner. Well, I would like to correct Mr. Yager, 
because the fact of the matter is, you know, we are 
transmitting digital signals right now simultaneously into 
analog signals, and that what we would continue to do. If we 
convert what is--it is just a reception at the head end issue, 
and if it is a digital signal, in order for people to receive 
them on legacy analog television sets, we would convert that 
digital signal to analog and there would be no degradation in 
signal from what they are receiving today.
    Mr. Upton. Well, that is the other question that I was 
going to--is the signal going to be----
    Mr. Willner. No. You know, to call going from digital to 
analog a down-conversion is kind of comparing an apple to an 
orange. There are some issues of quality of pictures within 
digital where you wouldn't consider down and up-converting, 
because they are different formats. But to go from analog to 
digital is--they are just two separate--completely separate 
platforms, and the consumer can choose right now when they want 
to convert to the advantages of digital. If we convert--we are 
going to convert somewhere in order to make analog TVs work. If 
we convert at the head end or we convert at the set-top box, 
nothing will change on your digital TVs. What would change if 
we convert--if we have to do it in the home is that we will 
have to supply you with a box on each of your analog TVs, which 
you might not have right now. So for the purpose of convenience 
and cost, cable operators may choose to convert at the head end 
to save you the inconvenience of having to have a box put in 
your home.
    Mr. Upton. So to summarize--I want a yes or a no. To 
summarize, if it is converted at the head end at my household, 
I will have to get two new boxes----
    Mr. Willner. No.
    Mr. Upton. [continuing] for the analog sets?
    Mr. Willner. No, if it is converted at the head end, you 
wouldn't.
    Mr. Upton. Oh, that is right.
    Mr. Willner. Right.
    Mr. Upton. Okay. I won't need a box for the analog sets----
    Mr. Willner. Right.
    Mr. Upton. [continuing] but I will need the proper 
equipment, the box for the HD and the digital set will have to 
be compatible to take that----
    Mr. Willner. What you have now would continue to work.
    Mr. Upton. Should work?
    Mr. Willner. Will work.
    Mr. Upton. Will work?
    Mr. Willner. Will work.
    Mr. Upton. And there will not be a degradation of picture 
for any of the four sets?
    Mr. Willner. For any of them.
    Mr. Upton. Is that right?
    Mr. Willner. That is right.
    Mr. Upton. Mr. Yager, yes or no?
    Mr. Yager. I----
    Mr. Upton. Is that your understanding?
    Mr. Yager. That is not totally my understanding of cable's 
proposal. If that is what Mr. Willner's company is doing, then 
I would not argue with what he says he is doing. My 
understanding of what cable would like is to convert digital 
signals to analog at the head end so that everybody receives 
the same signal.
    Mr. Upton. But if I already have a box for the HD or the 
digital, and it is not going to----
    Mr. Yager. And you are paying extra for that box, and one 
of our major concerns here is----
    Mr. Upton. Well, I am now.
    Mr. Yager. Well, I----
    Mr. Upton. It is about $3.
    Mr. Yager. One of our concerns--$3 a month, I would take 
it?
    Mr. Upton. That is right.
    Mr. Yager. One of our major concerns here, you know, 
broadcast television converted millions of dollars to convert 
the transmitting digital signals with no charge to the consumer 
whatsoever. And a matter of fact, with very little help from 
advertisers to support our conversion to digital. Cable has 
made conversions to digital and been able to charge the 
consumer for that conversion. We have not. And we haven't asked 
to. We think it was going to a superior transmission that 
motivated us to support the whole transition to digital to 
begin with.
    Mr. Upton. Okay. Mr. Markey.
    Mr. Markey. Thank you, Mr. Chairman.
    Mr. Goldstein, I know this isn't the subject of today's 
hearings, but who are these families that are totally dependent 
upon free, over-the-air broadcasting? Can you break down for us 
their demographic profile?
    Mr. Goldstein. Yes, I can, to some extent. The--we found 
that 19 percent of over-the-air viewers was--the population we 
are talking about, of the total, it is about 21 million. We 
found that on average they had about 2.1 televisions where 
cable and DBS viewers had about 2.7. We also found that about 
48 percent of over-the-air viewers had incomes under $30,000 
compared to about 29 percent----
    Mr. Markey. Under what?
    Mr. Goldstein. $30,000.
    Mr. Markey. So 48 percent of these viewers are--have an 
income under $30,000 a year.
    Mr. Goldstein. Yes, sir. About 6 percent of them had 
incomes over $100,000. 23 percent of non-white households rely 
on over-the-air----
    Mr. Markey. What is that? I am sorry.
    Mr. Goldstein. 23 percent----
    Mr. Markey. Okay.
    Mr. Goldstein. [continuing] of non-white households rely on 
over-the-air, and 28 percent of Hispanic households relied on 
over-the-air. Those are the figures I have with me today. There 
are others we could certainly provide.
    Mr. Markey. Now, if when we put together the new government 
subsidy program, what would be the privacy issues that would 
exist in terms of identifying who these people are and making 
sure they get the--those--how would--we could use the cable 
lists to know who doesn't subscribe to cable just by knowing 
who gets cable. How would we work that out to ensure that we 
only gave the new government subsidy program over to people who 
had exclusively free, over-the-air as their means of receiving 
a signal?
    Mr. Goldstein. Congressman, we are working on a much larger 
report for this committee for July that will get at a lot of 
the issues of administration and how you might administer this 
program, the kinds of ways in which you could conceive----
    Mr. Markey. We don't really have until July. Could you give 
us a preliminary sense of how we would handle those issues 
right now?
    Mr. Goldstein. At this point, all I can really tell you is 
that it--clearly, there are complications to it if you are 
going to--depending on the kind of list you might use, if you 
used the cable and satellite lists to try and discern, you 
know, who does not receive it. My understanding is you can't 
use census data. It is pretty unclear to us right now exactly 
how you would proceed. It is problematic.
    Mr. Markey. So there would be competitive issues. The cable 
and the----
    Mr. Goldstein. Absolutely.
    Mr. Markey. [continuing] satellite industry might not want 
to give us the names of the people who subscribe so we could 
give the money to the people who don't subscribe. You have 
privacy issues----
    Mr. Goldstein. Yes, sir.
    Mr. Markey. [continuing] in terms of the people whose 
names--that they would give us in terms of who does subscribe 
and might not want that to be part of a government--part of 
information, so it does become complicated.
    Mr. Goldstein. Yes, it----
    Mr. Markey. How much money would it take, in your 
estimation, to implement a program like that?
    Mr. Goldstein. Well, the implementation phase?
    Mr. Markey. Yeah, the implementation. How much would it 
cost?
    Mr. Goldstein. We honestly don't know, at this point. In 
fact, the cost of the implementation--we are actually not 
looking at how much implementation might cost. We are looking 
at various options.
    Mr. Markey. All right. If it takes until July for you to 
give us a report as to what the issues are, how long would it 
take to implement a policy that takes another 6 months just to 
put together the--and identify the issues much less putting 
into place an implementation--how long do you think it would 
take to put an implementation program into----
    Mr. Goldstein. To identify the cost?
    Mr. Markey. [continuing] effect? To identify cost and 
then--but I mean for then the Federal Government to put 
together a program that actually could implement the 
recommendations which it took you 6 months to put together?
    Mr. Goldstein. It would all depend, Congressman, of course 
on what the Congress or the FCC decided to implement. That is 
part of the problem here. Until you know exactly what is to be 
implemented and how that would work, it is really difficult to 
determine how much it would cost.
    Mr. Markey. Yeah. Well, it is a big program, though. There 
are--you say there are 21 million households in America relying 
exclusively upon free, over-the-air broadcasting while France, 
in its totality only has 22 million households. So it is, 
essentially, the job of figuring out how to have all of France 
get a subsidy, every single home, and make the conversion, 
which is no small task for the Federal Government to do in an 
effective way that doesn't disadvantage, especially the 48 
percent that are under $30,000 in income who may have--that is 
their only source of information. I mean, over $100,000, they 
are going to have computers in their homes, other means of 
communication. But here, for the poorest, they are going to 
have a problem. And our Federal Government, at the end of the 
day, we do--this committee, we just can't say to those people, 
``C'est la vie.'' You know. We would have to have a much more 
effective and readily available answer than, you know, just, 
``I am sorry it didn't work out for you.''
    So I thank you for your report. I think this is an 
invaluable document that outlines--begins to outline the 
parameters of the dilemma.
    Mr. Goldstein. Thank you.
    Mr. Upton. Thank you.
    Chairman Barton. Thank you, Mr. Chairman.
    And let me say at the outset, you know, I am not undecided 
on this issue, so I think everybody knows that.
    We have more people in this country that have television 
sets than we have--that have telephones, and we have a 
universal servers requirement for telephone service that we 
subsidize through a fairly extensive subsidy program internally 
within various telephone subscribers, yet we have no subsidy 
for TV, and there are a higher percentage of households that 
have TVs than have telephones. So we are trying to debate here 
an issue where we know that we want to go to the digital age, 
and I think everybody supports that, and yet, for various 
reasons, some are not quite as willing to go purely digital. We 
still want to maintain the ability to do analog and have analog 
sets in service. As I heard Mr. Upton talk about how--his TVs, 
I got to thinking how many TVs I have purchased in the 
proprietor of, and I have a principle residence in Arlington, 
Texas, a condo in Arlington, Virginia, a principle residence in 
Ennis, Texas. I have two congressional offices, two campaign 
offices. In my personal residences, I have 15 television sets 
that are plugged in. Now I have three in reserve. I have a 
Zenith cabinet set purchased at Knox Hardware Store in 
Crockett, Texas in the 1970's that still works. And it is my 
reserve set here in Arlington, just in case the other two TV 
sets blink out at me. If we had no means test and we required 
nothing except verification that you actually had the TV set in 
your home, I would make a gold mine from any kind of a subsidy 
program they put in place to get the digital. But we are 
probably going to have some sort of a subsidy. And you know, 
the real question is what do we do for those households that 
are not as affluent and they only have one or two TV sets and 
they are all analog and they get it over-the-air, and if we 
don't help them when we go digital in their region, they don't 
get television service. And I don't think anybody, regardless 
of political affiliation, wants to see that happen.
    Having said that, if we don't do a hard day bill, if we 
just leave the current law alone and do nothing, as the FCC 
determines that various regions in--and I am not sure how they 
calculate what a region is, but I know it does--it has to do 
with the television market. I think it is DMA. You are going to 
be out of luck if you are in that region, say the New York City 
region, and it is the first to go meet the 85 percent test, and 
you don't have cable or digital TV, you or satellite, you are 
out of luck. So I don't see why we all don't agree that there 
should be a hard date. Now I think the hard date ought to be 
what is in the current law, which is December 31, 2006.
    So I guess my first question would be to Mr. Yager. What 
happens if we do nothing? What happens to these sets that--in 
low-income families that have no capability when the region 
meets the 85-percent test right now? What do we do? Or what do 
they do?
    Mr. Yager. Well, Congressman, we want to work with you as 
badly as you want a hard date. But your constituents are our 
viewers. And our concern is exactly what you have just 
described. What happens to the people who rely totally on over-
the-air television? Are we going to disenfranchise them from 
total television? Or is there a plan that can be set in motion, 
which we are very willing to work with the Congress on, to get 
to a--some kind of way to convert these 20 million sets, 
whether it be through a box that converts digital to analog or 
whether it be some kind of subsidy program or some method. But 
to set a date, at this point in time, seems to me to be beyond 
the kind of scope that we can deal with until we get full----
    Chairman Barton. Well, I mean, we have a date. The date we 
have--it is a soft date, because it is an either or, and I will 
tell you one more story and then my time is about up. My wife, 
thinking that I was under TV-ed, gave me a voucher for 
Christmas for $300 for a new TV set. And so we went to Best 
Buy, you know, in January. They were having a sale, and we 
walked in, and we went over and got a salesman. And the 
salesman said, ``What do you guys want?'' And I said, ``I want 
the best TV I can get for $300.'' And so they started showing 
us all of these analog sets. You know. A 28-inch set, I mean, 
really nice sets with the clicker and the whole bit. I said, 
``Well, what about these digital sets over here?'' ``Oh, no. 
You said you wanted the best set you could get for $300. And 
those are all $700 and $800 sets and more.'' And I said, ``You 
know, I heard that Congress is probably going to, you know, do 
something about that.'' And he said, ``No, they will never get 
around to doing it. You want this set right over here.'' And so 
I bought a $300 analog set. And it is in my bedroom in my home 
in Ennis, Texas right now. It is this huge thing. I mean, you 
know--so I mean we have got to do something, because they are 
going to keep selling those sets, because they are basically--
the analog sets, it is just the cost of materials and shipping. 
There is no technology innovation in them. And there is a big 
price differential. I mean, it is double.
    My top-of-the-line TV set is a 42-inch plasma screen with 
every gadget you can get on it, so, you know, I am not purely a 
Zenith guy from the 1970's. I have one that is high-definition 
all of the way.
    Thank you, Mr. Chairman.
    Mr. Upton. Did you get picture-in-picture on the $300 set?
    Chairman Barton. I did not. I don't think I did. I may 
have. My daughter could tell you or my stepdaughter.
    Mr. Upton. That way you can watch the Aggies in Texas, too, 
so----
    Chairman Barton. I don't want to watch that until I know 
the Aggies will win.
    Mr. Upton. Yeah.
    Chairman Barton. Thank you.
    Mr. Upton. The gentleman from Illinois, Mr. Rush.
    Mr. Rush. Thank you, Mr. Chairman.
    I want to welcome all of the witnesses this morning. I want 
to ask all of you all a question, and respond as you will. Do 
you all agree that the consumers have a right to know that they 
are--as the chairman eluded to, that their purchased--newly 
purchased sets will only have a limited use? And would you--I 
am going to take a little--a step further. Do you think that we 
should adopt some type of a warning label on these analog sets, 
alerting the buying public that their sets will go dark at a 
certain time?
    Mr. Yager. I would be happy to answer that, because in my 
testimony, Congressman, I thought it was unconscionable that 30 
million sets were analogs sold last year without any warning to 
the consumer that they could soon be obsolete. So the answer is 
yes, I most definitely think the consumer electronic industry 
should start labeling analog-only sets as, perhaps, being 
obsolete in a short period of time.
    Mr. Rush. Mr. Goldstein.
    Mr. Goldstein. Sir, I would actually answer probably just 
slightly broader, which is in the work that we have done in 
digital television. When we went to and examined Berlin last 
year for this committee, one of the things we found was that 
consumer education was absolutely critical to achieving the 
transition in an orderly and quick way. And they provided a lot 
of information from a lot of different sources. Both the 
government provided information as well as the industry itself. 
And so the sooner the information on the pending transition can 
occur once the particulars are settled, the better off I think 
everyone is going to be.
    Mr. Rush. Dr. Kim.
    Mr. Kim. If the specific dates that, you know--the hard 
date is on--hard date is specified and that we support and we 
definitely have to educate, you know, consumers as these, you 
know, analog sets are obsolete in certain date.
    Mr. Willner. Congressman, the only thing I can add to this 
is that, for cable subscribers, whatever TV they buy, it won't 
become obsolete. We will be able to deliver service on the day 
of the transition. But I do think that, you know, if a hard 
date is set, it becomes more of a reality and it is just easier 
to communicate to the American consumers exactly what is going 
to happen and when it is going to happen.
    Mr. Rush. Okay. I----
    Mr. Yager. If I may follow up just 1 minute on that, we 
have had a hard date, or the parameters of a hard date, for a 
number of years, since 1996 and sets are still not being 
labeled that this set could soon be obsolete. I don't think it 
has to say it will be October 1, 2006 or October 1, 2007, but 
the truth of the matter is, and I think the Congressman had 
said this, these sets are lasting 15 to 18 years today.
    Mr. Rush. Mr. Willner, assuming that the following is, 
indeed, a fact, we have a consumer who gets their digital 
signals through cable or DBS and they have not purchased a 
digital television. And like many consumers, they fall on hard 
times, laid off from a job, job moves out, and somehow they are 
not working anymore. So therefore, they have got limited 
income, more limited than they had when they had the digital 
sets. And they can't pay their cable bill or their satellite 
bill. Will their sets go dark if, in fact, they can't pay the 
bill, cable or satellite bill?
    Mr. Willner. Well, I don't believe so. First of all, most 
cable companies, I think virtually all cable companies, have 
service available, which is basically an over-the-air antenna 
service in the $10 to $12 a month range. So if they wanted to 
reduce their cable bill and still receive the over-the-air 
signals, plus others like CSpan and other basic services, they 
would be able to reduce service down to that price range. In a 
world where the electronic device that Dr. Kim was talking 
about is available, and I do believe that the cost of that 
device will be significantly less than $100, maybe less than 
$50. Nobody could have ever convinced me 4 years ago that a 
cable modem would only cost $50 in the retail market today, but 
standards allowed that to happen and technology allows that to 
happen. I do believe a converter will be able to transmit--
translate digital signals to analog by simply plugging it in, 
putting it on top of the TV set in the $50 range. So I do 
believe there will be alternatives for people to continue to 
get television after the analog frequencies are turned off.
    Mr. Rush. So you are saying, under no circumstances--you 
are confident that, under no circumstances, will, say, the 41 
percent of folks who are cable subscribers whose income is 
under $30,000? Is that--was that correct? Did I hear that? 
Under no circumstances will these individuals ever have a 
television set and it would--and there would never be a time 
that a television set would go dark? Is that what you are 
saying?
    Mr. Willner. I think they have very, very cost-effective 
alternatives to keep that television set working.
    Mr. Rush. Okay. Thank you.
    Thank you, Mr. Chairman. I yield back.
    Mr. Upton. Mr. Shimkus.
    Mr. Shimkus. Thank you, Mr. Chairman. And I thank my 
colleague from Chicago. It is an interesting point. I don't 
know if we got the answer right, or at least I don't understand 
whether there will be a time, if we go to full digital 
transmission, and someone has an analog TV with an antenna that 
they will no longer receive a signal. That--I think that is my 
colleague's question.
    Mr. Yager. It is my understanding, Congressman, that the 
consumer electronics industry is going to work on a box that 
will convert digital to analog, which should be a low-priced 
purchase for the consumer.
    Mr. Shimkus. Or in the spectrum auction, I mean, that is 
the debate on the Berlin model in giving the--but his question 
doesn't address that. His question is, I think--and Bob, you 
can jump in, if you want, I think his question is, right now, 
is there a time, if we go to--if we are going to digital 
signal, and you have an analog TV and you are not plugged in 
and paying a $3 fee, and you are just--will, under that 
premise, you will no longer receive a signal?
    Mr. Yager. If we have a hard date to turn the analog 
transmitters off, that is correct.
    Mr. Shimkus. Okay. And so our debate is how to limit the 
political damage, the cost issue, the Berlin model that we 
discussed in hearings last year, and some people have mentioned 
today about using the spectrum sales to get the boxes to the 
consumers who are not going to pay to upgrade themselves in 
that issues. And so I just wanted to follow up on that.
    And my colleague, Mr. Markey, he went over the 
demographics, Mr. Goldstein, but I had to leave the room for a 
minute. And I--was there a discussion on the urban and the 
rural differentiations of the breakout of services?
    Mr. Goldstein. No, Congressman. It was mainly dealing with 
the income levels and some of the ethnic and kinds of issues 
like that. We may have those breakouts. We don't have them in 
this particular report. And we could certainly----
    Mr. Shimkus. If you could check into that. That is going to 
be very important to----
    Mr. Goldstein. Absolutely.
    Mr. Shimkus. [continuing] a lot of, you know, folks who 
have large rural areas.
    Mr. Goldstein. Right.
    Mr. Shimkus. When I used to represent Quincy, I had 19 
counties. Now I represent 30 counties. I border Missouri, 
Indiana, and Kentucky. So it is a large area. And it is--they 
are not--I know my friend, Mr. Willner, would like to service 
them all with cable, but the reality is it is not going to be--
there is no great economic return to go to some communities 
where they have 75 residents. So I mean, they are serviced by 
other providers, but they are also serviced by some local 
broadcast entities that--so I think that will help us in the 
debate, and I don't know if that calls for us to submit another 
letter or----
    Mr. Goldstein. No, I think we have some of that material. 
It is just simply not in this particular rendition.
    Mr. Shimkus. Great. And I also would like to follow up on--
just ask Dr. Kim a question, and I hate it when everybody is 
asking around the question, but I think this is an interesting 
debate. Talk about the production of the set-top boxes, the 
capital expense that is portrayed, and the need for some 
certainty to ramp up, to provide a product at a given time, and 
the risk entailed if there is not a set time for which you can 
do that, raising the--just--I think it is important for--a lot 
of times for us to understand that it is not easy. One of the 
problems with trying to manufacture something that the 
government is dictating, and the broadcasters understand this, 
is that there is always uncertainty and we don't--government 
never provides certainty for you all. Talk about the challenges 
in trying to get these set-top boxes to the consumer in a 
credible price range.
    Mr. Kim. Thank you, Congressman.
    Certain manufacturers needs at least, you know, 12 to 16 
months lead time to make a new product. So we need that 
absolute time beforehand, okay. And I think the major portion 
of the, you know, cost reduction will be chip set, how we can 
reduce components in very simple, one chip solutions. So we 
need chip development of at least 6 months. So if we have, you 
know, time specified, 12 to 18 months ahead of time, we have 
plenty of time to make that set-top box available to consumers.
    Mr. Shimkus. Thank you.
    My time has expired, Mr. Chairman. Thank you.
    Mr. Upton. Mr. Terry.
    Mr. Terry. Thank you.
    That is a good question about a warning on the set. And as 
a lawyer who actually did a couple of cases involving warnings, 
I was trying to figure it out in my mind. I think it goes 
something like, ``Advisory: due to congressional mandate, there 
may or may not be a digital transition in the future, so you 
may or may not need additional equipment, like a set-top 
converter box, at some time in the future.'' And I am not sure 
that is a very good warning right now. If we did have a hard 
date, it would be a lot simpler to write, but we have to come 
back with the fact that it is not necessarily obsolete to have 
an analog set. It is just that they are going to need an 
additional piece of equipment to operate that TV. Which brings 
me to my high-definition TV set with my cable operator of which 
I need a set-top box to operate it. In fact, I have a set-top 
box on the analog sets. So we did go through a period in our 
television history of cable converter box, then the plug-and-
play sets, and for some reason, we are back into, in this 
digital transition, a set-top box on every TV. So I am not sure 
how, really, difficult this transition will be. It will be 
difficult on a class of individuals, I think, who are over-the-
air users who do not have the economic means, perhaps, to buy a 
$50 set-top box converter.
    So the issue, then, becomes how do we focus on them. That 
was the focus of my opening statement. And Mr. Yager, I want to 
ask you a question. We have heard the term ``market forces'' 
and ``market solutions'' here, and I am trying to figure out 
what that means in the digital transition. What that means is 
that the government is not going to subsidize the consumer to 
purchase the converter box, or at least that is how I interpret 
it when we say that we will rely on market forces. Then who 
does pay for that converter box? It is either the consumer or 
you, as the owner of the broadcast television station, whose 
consumer doesn't use the cable industry to receive the signal. 
So my question to you is if you want your viewers to see a 
commercial, at least in Omaha it is 90 percent car dealers, if 
you want that local car dealership or Nebraska Furniture Mart 
ad to be seen, because that is your revenue source, isn't it in 
your best interest to figure out how to get a set-top box to 
that consumer?
    Mr. Yager. Congressman, having, at one point, been involved 
with the NBC station in Omaha and knowing that we spent over 
$1.5 million to put the digital signal on the air, we feel we 
have gone a long way to implementing the digital transition 
across the United States. I think most broadcasters have made 
similar kinds of commitments to getting digital out to the 
public. For us now to be asked to pay for a converter box so 
viewers could see it, to me, was never part of the original 
plan for digital to begin with. And I might say that--going 
back to cable, let us just talk about cable's role in this for 
a minute, it is my understanding that in the 1992 act, cable 
was required to carry basic broadcast signals on their basic 
tier. Cable now has an upcharge, and I am getting back to 
answer your question. Cable now has a basic upcharge for 
getting a digital signal. We have no ability to receive a 
second revenue stream, nor do we intend--nor do we want one, at 
this point, to deliver a digital signal to our viewers.
    Mr. Terry. Channel three in Omaha, which would have been 
your competitor then----
    Mr. Yager. Yes, it was.
    Mr. Terry. [continuing] the CBS affiliate will not allow 
Cox Cable or any cable station to rebroadcast their HD, and the 
only way you can get their digital HD signal is by an over-the-
air antenna that costs about $300. I only have 8 seconds left. 
Same question to the cable industry. I have been told by 
smaller cable companies that they think it is unfair that their 
customers may have to have a set-top box, and they don't want 
to incur the cost. So they are encouraging us to also include 
in the digital transition buying the cable company's set-top 
box for the consumer as well, which I think is an outrageous 
request. But what are your feelings on that?
    Mr. Willner. Well, I don't agree with that. I think, you 
know, we--if we have a subscriber, and they are going to pay us 
a monthly fee, we will do what we have to do to make that 
television work.
    I would like to point out, if I might, just very briefly, 
that the cable industry has spent not millions of dollars per 
cable system, but hundreds of millions and billions of dollars 
to get ready for the digital transition, and we did not ask for 
this over-the-air transition. The broadcasters asked for the 
over-the-air transition. You know, it is a very common 
occurrence to bring cable into the debate, but cable is just 
kind of raising its own money. We spent $100 billion, close to 
$100 billion as an industry converting to digital service. We 
are doing it for business purposes. We think it is the future 
of television viewing, but we did it with our own raised 
capital, our own equity and our own debt. We didn't come to the 
government for any favors for this, no tax incentives, no 
frequency space over the air. And I think that to come back and 
ask us to do even more for broadcasters is really just going 
above and beyond what we should be doing for our consumers.
    Mr. Yager. Could I respond to that just a minute?
    Mr. Upton. Quickly.
    Mr. Yager. It is my understanding that cable has been able 
to recognize a return on their investment in the transition of 
digital through the cost to the consumer, yet television does 
not charge the consumer for the use of the over-air signal.
    Mr. Upton. Mr. Wynn.
    Mr. Wynn. Thank you, Mr. Chairman. I will waive.
    Mr. Upton. Mr. Towns.
    Mr. Towns. Thank you, Mr. Chairman.
    Dr. Kim, in your testimony, you note that converter boxes 
will be available for sale in the $50 to $70 range in a little 
over 3 years from now, assuming sales volume is 10 million 
units or more. Are these assumptions based on your company 
receiving a sole source contract to manufacture these converter 
boxes?
    Mr. Kim. I beg your pardon, sir?
    Mr. Towns. I mean, are these assumptions based on your 
company receiving a sole----
    Mr. Kim. No, sir; we are not--our company is not in a 
position to say on subsidy issues. Basically, what I am talking 
about currently available--this is HD set-top boxes. And you 
know, a $50 set-top box would be like this and with a small 
power supply. Okay. So you know, market--the volume is--the 
cost is the function of the time and the volume. Okay. So while 
I am talking about $50 in 3 years, it starts like this.
    Mr. Towns. But if Congress implemented a rebate program and 
other companies manufactured the boxes for sale, would 
competition drive the price down? If Congress implemented a 
rebate program and everybody is allowed to manufacture them, 
would it drive the prices down?
    Mr. Kim. I think so, yes. This is not--our company does--
certain manufacturers will be willing to make the set-top boxes 
available to the consumers.
    Mr. Towns. Are there any electric property rights that 
would pose a problem to competition for these products?
    Mr. Kim. No, sir.
    Mr. Towns. As a national consumer of electronic company, 
you have familiarity with distributing your product across the 
country. But does even a company as large as yours have 
sufficient relationships with enough retailers nationwide that 
all consumers would have easy access to a store selling the 
converter box?
    Mr. Kim. Yes, sir.
    Mr. Towns. A television can last a long time, even though 
all TVs by July 2007, of course, must have a digital receiver. 
TVs will be around for a long time to come. As consumers 
upgrade their TVs, these TVs might move from the family room to 
a spare bedroom where it needs to get an over-the-air 
reception. Do you envision making the converter box for the 
long term, or would you phase the product out after the initial 
rush of purchases?
    Mr. Kim. Well, if you receive the HD signal through analog 
TV sets currently available, then definitely you need the set-
top boxes. And also, easily, this is very--you know, interface. 
You can connect any current available analog TV sets. It 
doesn't matter what it is.
    Mr. Towns. It is flexible?
    Mr. Kim. Yes.
    Mr. Towns. Let me ask you, Mr. Goldstein. What do you think 
would be more efficient in getting low-cost converter boxes to 
the public: a sole source contract, one manufacturer, or 
competition?
    Mr. Goldstein. We haven't looked at that question, 
Congressman. I am not really sure. It strikes me, just off the 
top of my head, that competition, because it would--if you had 
sufficient volume and enough players in the market that that 
would help to drive prices down. And the work we are still 
doing for the committee now, we have done a number of 
interviews and talked to quite a number of manufacturers who 
have indicated to us that they are willing to manufacture these 
boxes and that the price ranges probably would be in the $50 to 
$100 range.
    Mr. Towns. All right. If we implemented a subsidy program, 
would consumer electronic stores be able to handle such a 
credit?
    Mr. Goldstein. They might. One of the things we are looking 
at is how you could implement various programs, and we are 
examining a number of options and talking to people about how 
best to proceed in this kind of an area, because there are a 
lot of ways that you could proceed. There are tax credits. 
There are rebates. There are vouchers. There are a whole 
variety of methods that one could utilize to get a subsidy 
across, as well as a more direct distribution approach. When we 
did our work in Berlin last year, of course, it was a subsidy 
in the way of a voucher that was provided to people in the low-
income group from the welfare office, the social welfare 
office. But again, that was--you know, the Berlin model was 
obviously different. It was a much smaller number of households 
involved.
    Mr. Towns. All right.
    Thank you very much, Mr. Chairman. I yield back.
    Mr. Upton. Mr. Bass.
    Mr. Bass. Thank you, Mr. Chairman.
    10 years ago, consumers could buy an IBM clone computer, 
personal computer, not an IBM, with a 386 SX Intel chip, and it 
only had DOS loaded on it, no Windows. And that system could 
cost as much as $1,500. But it wasn't a year before you 
couldn't buy any software for that computer. You had to buy 
Windows upgrade. You had to--Windows 3.1. And then it wasn't 
long after that before it wouldn't--you couldn't put any 
spreadsheets on it unless you had a 486 SX, or whatever the 
other initials were, and then you couldn't connect that to the 
Internet without a Pentium. And then you couldn't get past the 
year 2000 without doing something else to it. And I upgraded 
a--I would have upgraded--I wasn't stupid enough to buy that 
computer then, but the--I would have upgraded without any 
subsidy or anything else, and now we are--you know, computer 
costs have come down. So I was wondering if each one of you 
would be willing to reflect upon that process and explain to me 
what the difference is between that and what we are facing 
today with the digital conversion date.
    Mr. Willner. I think the American consumer is far more 
comfortable with change in technology than it ever has been in 
the past, and I think they will become increasingly comfortable 
with those changes. And I would also just, you know, once again 
point out that cable subscribers are not going to have to do 
anything on that date. And you know, the vast majority of the 
American public does receive their television signals through 
either a cable company or a DBS company who will not have to 
lift a finger.
    Mr. Yager. Well, I would agree with Mr. Willner that the 
public has become very receptive to change in technology. And 
we want them to become even more, kind of, acceptance of the 
digital transition, because we have made millions of dollars of 
investments in converting our stations to digital. But I am 
concerned about that 20 million number of analog-only sets and 
the cost of a converter box so that all Americans can afford to 
continue to receive over-the-air television without having to 
pay a cable subscription fee.
    Mr. Kim. Our goal is to make it consumer-friendly and 
simple interconnections. And you know, currently, cable TV is 
into TV sets and integrate the sets that we are making. But 
very simple, that is possible.
    Mr. Goldstein. I think that people are more savvy when it 
comes to technology and more likely to make investments. They 
go to the stores and see a whole variety of things that they 
can purchase that sort of glitter before them, and I think 
people are increasingly savvy about it. I think at the same 
time our research has shown that not everyone is going to be 
willing to do so. Our report reflects that some analog people 
are not--quite a number are not going to be willing to, you 
know, probably purchase cable or satellite and that some cable 
people are not all that interested in obtaining new boxes and 
the like. At the same time, there is the policy question for 
Congress of how to deal with the lower-income people.
    Mr. Bass. Well, of course, right. And I am not responding 
to your point, but faced with the choice of being able to have 
access to the Internet or getting an upgrade, there was a 
tremendous amount of demand that was created for that upgrade, 
and the cost of that upgrade became very small. So just to 
follow up on that, you all are probably familiar with the 
computer analogy Moore's law. And since we are approximately 22 
months away from the 2006 deadline, what is to say that this 
whole debate over a $100 or a $300 set-top converter is going 
to be rendered obsolete for the very reasons that you, Mr. 
Goldstein, started to elude to in the answer to my first 
question?
    Mr. Goldstein. I mean, I guess I would say it is the--you 
are possibly quite right. I think we--I would say we don't 
know. It is clear that, as time goes on, more people are going 
to buy digital televisions a lot more, and you know, that will 
sell----
    Mr. Bass. How about you----
    Mr. Goldstein. That will solve part of the problem.
    Mr. Bass. --Dr. Kim? You are in the electronics business. 
What--can you answer that question?
    Mr. Kim. Well, I think, you know, the digital conversion 
is, you know, the inevitable trend and----
    Mr. Bass. Do you agree with my contention that there may--
this may be an irrelevant debate?
    Mr. Kim. Well, it is somewhat related, okay, but I don't 
believe it, the majority of the consumers don't know how to 
hook up some complicated devices, so----
    Mr. Bass. Just like hooking up a computer. Okay.
    Mr. Kim. Yeah, and----
    Mr. Bass. I yield back, Mr. Chairman.
    Mr. Kim. [continuing] we would like to make an 
interconnection as simple as possible----
    Mr. Bass. Okay.
    Mr. Kim. [continuing] for consumers.
    Mr. Upton. Mr. Boucher.
    Mr. Boucher. Mr. Chairman, for the moment, I will pass if 
someone else has questions.
    Mr. Upton. Mr. Gonzalez.
    Mr. Gonzalez. Thank you very much. My apologies for being 
absent during most of the testimony and the questions, so I am 
just going to assume that a whole lot has already been covered, 
and I don't know if this particular aspect of it, and I think 
it--the problem will take care of itself. In the meantime, 
though, it does present a real problem in frustrating the 
progress that we have made with--that is the transmission of 
the digital signal so that cable can, in fact, carry it. The 
big news in San Antonio was that the Super Bowl was not going 
to come with high definition, and the reason for that, that 
particular broadcaster was not digitally transmitting to the 
cable company. All right. So you had the capability or the 
broadcaster, but it wasn't happening anyway. And I guess I 
just--and I am just going to read part of it, because I think 
there is good argument to be made on both sides of this thing. 
And you know, we start getting into multi-cast, we start 
getting into must carry, and all of these arguments. And 
somehow, we have to factor all of that in as we move forward 
and see if some of these things are going to be resolved. And I 
don't know if a--some people say a drop-dead date. I would 
rather say it is a date certain for the conversion, if it takes 
care of some of this. But in the meantime, we all believe in 
market forces, and we are looking to you to work something out 
so that we don't come in with our own answer. But I wrote a 
letter, and I was inquiring. My poor public is not going to see 
this. ``Thank you for your letter concerning availability of 
our digital signal to the public. We believe that the consumer 
has every right to receive our DTV signal and they can for 
free.'' I emphasize ``free''. And then, of course, they start 
talking about over-the-air. ``As for the cable companies not 
offering our signal, they certainly can if they are willing to 
pay a fee. As you are aware, our industry has invested a 
fortune in building out DTV stations.'' This particular company 
has spent in excess of $150 million and has yet--has seen no 
business model to recoup this investment. ``The cable industry, 
as I am sure you are aware, charges the public for essentially 
everything they supply, and they, in fact, pay substantial 
dollars to content providers like ESPN, Fox News, and hoards of 
others so they can offer their service to the consumers. Our 
view is simple: if you want our content, treat us like other 
content suppliers and everybody wins. If not, the consumer, as 
always, has the choice to watch for free.'' And so, Mr. Yager, 
I would like just, I guess, your view on where we are today, 
where all of this is going in the negotiation, what happens if 
you have a date certain. And again, I really do appreciate your 
views.
    Mr. Yager. All right, sir.
    First of all, let me speak to the situation, and I am not 
familiar with the situation in San Antonio regarding cable 
carriage, but we have had ongoing discussions with the cable 
industry for, I think, probably the last 3 years where we have 
made no progress whatsoever, either in terms of multi-cast 
carriage or carriage of digital as part of the basic service 
they offer to their subscribers. Yes, they are willing to carry 
a digital tier, and Mr. Willner's company itself carries our 
digital signal, but there is a $12.95 surcharge if you 
subscribe to that digital service. So the position of the 
broadcasters is relatively simple: we want to be carried on the 
cable systems. Individual broadcasters have the right to 
negotiate retransmission fees under the law if they are going 
to allow cable to carry their signals. And so I can't speak to 
the specifics of what happened in San Antonio. But we don't 
even, at this day and time, have the right to the carriage of 
our digital signals on cable systems. They will carry one 
stream and one stream only. Mr. Willner's company, obviously, 
in Peoria, Illinois, carries two streams in the chairman's home 
district. He receives both a digital signal and an analog 
signal. But that is two streams he is carrying. We requested 
and were turned down dual must-carry carriage. We wanted both 
the analog signal carried and the digital signal carried. This 
is all part of this whole transition that we have got to 
address. It is very confusing to the consumer, and then you top 
on that the 20 million sets that aren't connected to a cable 
system whatsoever.
    Mr. Gonzalez. May--I have about a half a minute, so Mr. 
Willner.
    Mr. Willner. There is a lot of confusion around this. The 
fact of the matter is the way that we are carrying Mr. Yager's 
digital signal is that we are also carrying his analog signal, 
taking up the bandwidth on the cable system. So all consumers 
that subscribe to cable in Peoria, Illinois get both of his 
signals. There is a lot of confusion, that is there is a lot of 
noise around this issue. The fact of the matter is cable 
operators want to carry the primary signal of all broadcasters. 
If broadcasters want to multiplex and want us to carry multiple 
signals, all we want them to do is to come to us and tell us 
like the public broadcasters did, what is the plan, will it 
work for our consumers, we--should we utilize valuable 
bandwidth in order to provide you with access through the cable 
system, and we will do that, just like we did with the public 
broadcasters. But what the commercial broadcasters don't seem 
to want to do is come up with the plan and show us exactly what 
it is they have in mind.
    Mr. Gonzalez. Well, I thank you all very much. And not to 
speak for the chairman, but I know that it is just not the 
chairman, but there is a point where this committee has an 
obligation and a responsibility to move forward if you guys in 
the--you know, the vested parties, the, as I say, stakeholders 
don't resolve it. And we encourage you to start moving quickly.
    Thank you very much.
    Mr. Upton. Ms. Blackburn.
    Ms. Blackburn. Thank you, Mr. Chairman.
    And thank you to our panel. I appreciate you all being 
here, and I appreciate the discussion today.
    Mr. Kim, I think I would like to come to you first and ask 
a question. You mentioned in your response to--I think it was 
either Mr. Shimkus' or Mr. Terry's question, that you needed a 
12 to 16 month lead-time for production of a converter box. And 
so what I would like to know is if you are currently 
manufacturing a box. And then we have talked a little bit about 
what the anticipated cost would be. There are--I have heard you 
all say $50. I have heard you say $100. And I apologize, I have 
been in and out of the room just a little bit. What you think 
the cost would end up being and then the third part of that 
question would be how you all plan to market and educate on the 
use of that box. So if you would lay those out for us if you 
are currently producing what you anticipate, your retail cost 
being, and then your marketing information education plan.
    Mr. Kim. Thank you, ma'am.
    We are thinking the cost would be in the range of $60 to 
$70. That is based upon the volume of tens of millions of 
units. And that--assuming, also, we need 12 to 18 months lead-
time basically to develop and deploy that technology. Okay. 
Right now, as I showed before, this is current--currently 
available set-top boxes that decode HD, okay, solutions. But I 
am proposing within 3 years replacing this box with small, like 
this. And also, the consumer education is very important to 
sell our product. And with our salesmen and most of the retail 
chain, the, you know, staff, we have very--education 
suggestions throughout the country. And I think that they will 
talk about our new product to our needy customers in the retail 
chain. And this is, you know--definitely, we have the program 
to educate consumers, and we are planning to have this product 
available if those volumes are available in the right time. But 
we have to get the lead time as early as possible.
    Thank you.
    Ms. Blackburn. Thank you.
    You know, in my town hall meetings in my District, one of 
the No. 1 questions that comes up is: ``Is my TV going to be 
completely dark?'' And ``How much is this going to cost me?'' 
And I would just suggest to you all that for many of my 
constituents and the conversations that we have had, they 
consider the purchase of a top-box another tax that they are 
having to pay. And so we are sensitive to that issue. And I 
appreciate your comments. Thank you, sir.
    Mr. Yager, we have heard from some of our broadcasters, and 
they talk a little bit about how they have built out their 
digital transmission systems. And one of the things they see as 
being a problem, as we move forward into 2006 and 2007, is 
the--maybe the ready--readily available or the lack of digital 
production studios. And I am just curious. Are you seeing 
this--are other broadcasters seeing this as a problem, that 
there is a lack on the production end of digital studios?
    Mr. Yager. I--Congresswoman, I don't know that there is. I 
think almost all production equipment sold today is digital. We 
built 7 years ago, in Quincy, Illinois, which is the 168th 
market in the country, a total digital facility. It is totally 
digital. Now it is not high definition, and I want to make that 
very clear going in. There is a difference between high 
definition and digital pass-through equipment that we produce. 
But every news clip we shoot at the three stations we own is 
now done digitally.
    Ms. Blackburn. Okay. Thank you, sir.
    Mr. Goldstein, page two of your testimony, you have a 
comment there, second paragraph, ``While a subsidy for set-top 
boxes might be one policy option to spur the transition, there 
are other policies that might do so as well.'' Do you want to 
elaborate on what you think some of those other policies may 
be?
    Mr. Goldstein. Congresswoman, for the report that we are 
doing for the committee, we are going into a lot of those 
issues. For the purposes of today, we were really coming just 
to set out what the subsidy issues were. We will be prepared to 
talk about those in more detail as we finish our work.
    Ms. Blackburn. Thank you.
    I appreciate that, Mr. Chairman. I yield back.
    Mr. Sullivan [presiding]. I thank you. I would like to 
yield to the gentleman from Virginia, Mr. Boucher, for 5 
minutes.
    Mr. Boucher. Well, thank you very much, Mr. Chairman.
    Mr. Goldstein, I would like to pursue with you 
clarification of several facts, and the shorter your answers 
can be to these questions, the better, from my perspective.
    I would just like for you to confirm several numbers 
relating to the potential for a government subsidy, for 
converter boxes, for analog set owners after the digital 
transition is complete. First of all, are these numbers 
correct? The number that I have is that there are 73 million 
sets in the U.S. that are analog that rely on over-the-air 
delivery, that 45 million of those are in households that are 
over-the-air only where there is no cable or satellite 
subscription, and the balance of those would be in cable or 
satellite-served households where a second or third or fourth 
set relies not on the cable or satellite subscription but on 
over-the-air delivery. Are those numbers accurate?
    Mr. Goldstein. We think they are roughly accurate. We can 
get those figures for you.
    Mr. Boucher. Rough is good enough.
    Mr. Goldstein. We can get it for the record for you.
    Mr. Boucher. I know you are not going to go count every 
one, so that is--if they are roughly accurate, that is good 
enough for me.
    Now the range of converter box cost is a key question, and 
I heard Mr. Kim say that--his estimate, I believe he said, is 
$62 to $70, is that correct, Mr. Kim?
    Mr. Kim. Yes, sir.
    Mr. Boucher. Mr. Goldstein, do you concur in that, or do 
you have any other estimates?
    Mr. Goldstein. The work that we are doing for the 
committee, we have talked to a number of manufacturers that 
have told us that they are likely to be involved in 
manufacturing boxes, and the range most of them--I think we 
have talked about 10 to 12 companies so far. We are continuing 
our work still, so we are not done, but most of them have 
fallen into the $50 to $100 range. There have been one or two 
on either side of that.
    Mr. Boucher. Mr. Kim, would you agree that that is 
possible?
    Mr. Kim. Yes, sir. It is definitely a function of the 
volume and time.
    Mr. Boucher. Okay. Thank you.
    Mr. Goldstein, again, do you have any estimate, based on 
the research that you have done, of the number of owners of 
analog sets that depend on over-the-air delivery, and I am 
using the full 73 million set number for purposes of this 
question, who would, upon the termination of analog 
broadcasting, decide to purchase digital sets? What I am 
looking for is the number of sets that are analog sets that 
would have to be equipped with converter boxes if we are not to 
strand any equipment. So do you have an estimate of the number 
of sets where the owners would basically surplus those analog 
sets and purchase digital sets?
    Mr. Goldstein. I don't think we do, but I would say that 
there is nothing that would suggest to us that people who have 
analog sets today are going to be any less inclined than other 
people to purchase digital.
    Mr. Boucher. Well, the answer is we don't have that number.
    Let me ask you about another number. Do you have any 
estimate of the amount of dollars, the number of dollars that 
an auction of the analog spectrum by the government would 
produce for the government?
    Mr. Goldstein. We don't. We have talked with folks--with a 
number of individuals who are experts in this area, and as you 
know, the industry has widely varying figures for the cost. 
What we all, I think, recognize, is that a hard date is going 
to add some certainty to the issue so the value would rise.
    Mr. Boucher. Well, the estimate that I have heard at the 
low end of the scale is about $4 billion. Do you have any 
reason to contest that number?
    Mr. Goldstein. I don't have any reason one way or another 
just to say we have heard----
    Mr. Boucher. Okay.
    Mr. Goldstein. [continuing] a range of----
    Mr. Boucher. All right. That is fine. Mr. Goldstein, thank 
you for the research you have done. That is very helpful to us. 
If you do further research on any of these questions, we would 
very much welcome the results of that research.
    Mr. Willner, in the brief few moments I have remaining, let 
me just ask you the questions I have here for you, and I will 
ask them all at once and give you an opportunity to respond. 
These are pretty simple things, really.
    I am interested in knowing what is going to happen at the 
cable household when the analog signal gets turned off. And 
here are the precise questions I would appreciate you 
addressing.
    First of all, do you intend that the analog household will 
get a down-converted digital signal that presumably you would 
down-convert at the cable head end and then send analog across 
to that home? And that is question one.
    Question No. 2, will the households with digital sets get a 
complete high-definition digital signal? Can people, when they 
purchase their sets, anticipate that they are actually going to 
be getting high definition brought to them over the cable 
system?
    And question No. 3, will the households that have both 
digital and analog sets be able to receive, over cable, both a 
digital signal and an analog signal, so that they can continue, 
through their cable subscription, to have both their analog and 
digital sets served?
    Mr. Willner. Briefly, yes, yes, and--no----
    Mr. Boucher. Yes, yes, and no, did you say?
    Mr. Willner. Yes, yes, and yes. No----
    Mr. Boucher. Yes, yes, and yes?
    Mr. Willner. [continuing] analog conversion, which is 
really just a change of format. It is not a down-conversion, 
per se, will allow us to provide service to every cable 
subscriber after the transition. The question is whether we 
convert it at the head end or at the set-top box. If it is at 
the set-top box, there may be an additional box put into a 
cable-ready analog television----
    Mr. Boucher. Well, bear in mind a lot of these subscribers 
don't have set-top boxes.
    Mr. Willner. Right.
    Mr. Boucher. They wouldn't want to have to acquire one.
    Mr. Willner. That is right. So if we can do it at the head 
end, which we already do with all of our cable networks, then 
there would be no change at all in a regular analog household.
    In a digital household, they will continue to get the 
digital signals that we are already providing.
    Mr. Boucher. Even with the down-conversion for analog?
    Mr. Willner. Even with the conversion to analog, it would 
be two streams going out at the same time.
    Mr. Boucher. All right. And so the answer to question three 
would therefore be yes?
    Mr. Willner. That is correct.
    Mr. Boucher. All right. Thank you, Mr. Willner.
    Thank you, Mr. Chairman.
    Mr. Sullivan. Thank you. The gentleman from New York, Mr. 
Fossella, for 5 minutes.
    Mr. Fossella. Thank you.
    Welcome.
    In all of this, one of, I guess, the ultimate beneficiaries 
of a transition will be public safety agencies across the 
country, and, by extension, the public. Enhanced 
communications, perhaps interoperability, better able to 
protect the public. For example, New York City police 
departments, fire departments, and other first responders are 
waiting anxiously for this transition to occur to allow these 
agencies to, again, enhance the ability to communicate with 
each other, between and among the agencies to protect the 
public. Why should they wait any longer than is necessary as 
part of this--as this process unfolds? Is there any 
justification for it?
    Mr. Yager. If you would like, I will respond, Congressman.
    Mr. Fossella. Sure.
    Mr. Yager. We would love to see the transition to digital 
sooner rather than later, but the consumer isn't involved in 
that transition. And the interests of the public, in terms of 
being able to continue to receive television, have to be viewed 
side by side with the interest of public safety. Most 
commercial television stations offer public service the time 
and efforts in any case of emergency. Most of the time, we do 
continuous weather coverage when there are serious weather 
situations. Our involvement in amber alerts are also extremely 
important, we think, to public safety. Our cooperation--our 
existing cooperation with police and fire departments are very 
critical to that whole public service issue. But we believe 
that you have to consider the consumer as well as the pubic 
safety issues and come up with a resolution. And as I said 
earlier, the broadcast industry is willing to work with the 
Congress to achieve those objectives.
    Mr. Fossella. Well, and those are all admirable and noble 
and the broadcasters across the country, I know, perform a 
great public service in disseminating information as it relates 
to public safety. This speaks to, more than that, the 
operational aspect of the business, but by that, I mean 
actually allowing the agencies to obtain and to utilize a 
spectrum that will--has nothing to do with the broadcasters, 
per se, it has to do with themselves. And I guess as much as we 
want to address the issues of consumers, I am not minimizing 
that, I just happen to believe personally that the most 
important responsibility of government and the Congress is to 
ensure that the people are protected to the best of our 
ability. So I hope that criteria is not minimized in this 
debate at all. That should be, and must remain, paramount to 
any of these economic discussions.
    Does anybody else have any comments on that? If not, I 
yield back.
    Thank you.
    Mr. Sullivan. Thank you.
    Mr. Engel from New York for 5 minutes.
    Mr. Engel. Thank you, Mr. Chairman. And I would echo what 
my friend from New York, Vito Fossella, just said about the 
interoperability problem.
    Mr. Chairman, I would just make a brief statement before I 
would ask my question, and I am very happy that we are getting 
to work here on our efforts to spur the transition to digital 
television.
    The broadcast industry has made a great deal of progress 
and just a few years ago just dozens and then a few hundred 
stations were transmitting in digital, and today, we have more 
than 1,300 stations doing so. The consumer electronics industry 
has made progress as well with a little push from the FCC. 
There are now many TVs on the market with digital tuners, and 
by 2007, virtually all will include a DTV tuner. So I believe 
most of the technical problems have been addressed, but there 
remains, obviously, a number of policy issues for the 20 
million families that rely on free over the time, half of whom 
earn less than $30,000 a year should not be harmed, or we face, 
as I have said many times on this committee, our own political 
peril. Thus, I don't believe that a 2006 deadline is possible.
    And second, as Mr. Fossella mentioned in the past, New York 
continues to heal from the wounds of September 11. Our 
broadcasters have done work to get back on the air, though not 
at full power and not reaching the same distance as they did 
from the World Trade Center, thus, depending on what date is 
chosen for a shut off, the New York area may need some extra 
time.
    And finally, I want to return to an issue that this 
committee has looked at in the past, the problem of protecting 
content in the digital age. Writers, filmmakers, and the other 
creative talent who bring us that content are entitled to be 
fully compensated for their efforts, yet they are already being 
financially hurt, just the way musicians and songwriters, 
unfortunately have been. If we complete the transition to 
digital television without providing some protection of being 
uploaded onto the Internet, then content producers will have a 
disincentive to produce new digital content. So I am concerned 
that there are machines already being manufactured that allow a 
digital TV signal to be converted to an analog format and then 
redigitized for mass redistribution. The current law doesn't 
guard against it, so we must encourage the film, computer, and 
electronics industries to work together to solve this problem, 
because if they don't, then a true digital transition will be 
pushed even further off into the future.
    I would like to welcome the panelists, and I would like to 
ask Mr. Willner, recently public television and the NCTA struck 
a deal for carriage of the many offerings that public TV will 
have in the digital age. NCTA is to be strongly commended for 
its efforts, and I was just delighted to see that. And I want 
to say that publicly. I am really happy that the cable industry 
has come to a voluntary agreement on this. And for many years I 
was urging this, because I could see the value in these 
offerings, such as an adult learning channel and all the--
toddler's channel and things like that. So this didn't really 
get a lot of press, so I was hoping that you could provide some 
details of this for the record for this hearing.
    Mr. Willner. Thank you, Congressman.
    The NCTA and the Association of Public Broadcasters came to 
this agreement because they--the broadcasters came to us with a 
plan. And they showed us that they had a plan that was 
attractive to our consumers, and the industry came together 
with the public broadcasters and agreed to carry not only their 
HD signals but multiple streams, multi-cast some of their 
signals as well. The only debate we have with broadcasters here 
is whether or not that particular function should be a function 
of government or a function of business. And if the commercial 
broadcasters wanted to sit down and have a discussion about a 
plan that works for consumers in our markets, on a market-by-
market basis nationwide, we are happy to sit down as an 
industry to have that discussion and do what we did with the 
public broadcasters and do what we did with the consumer 
electronic industry, and that is come to a voluntary agreement.
    Mr. Engel. Thank you. Thank you very much.
    Mr. Goldstein, it is my understanding that, in addition to 
a converter box, an over-the--correct me if I am wrong, an 
over-the-air television household would also need an antenna to 
which--to--through which to receive the signal. Do your 
estimates of a government subsidy include the cost of an 
antenna as well?
    Mr. Goldstein. They do not, sir. And you are right. Our 
understanding is that you would need the antenna as well, and 
they range in cost. They can be $300 or more, depending. Some 
are lower, but it--we do not include the cost of an antenna. We 
do not include the cost of what any kind of technical 
assistance households might need to have the set-top box 
installed if they can't do it themselves, that sort of thing.
    Mr. Engel. So if we are really going to put out the prices 
there, we need to include this as well. I thought it was 
important to get that out there.
    Mr. Goldstein. Those are additional costs, yes.
    Mr. Engel. Thank you.
    Thank you, Mr. Chairman.
    Mr. Sullivan. Thank you.
    I yield myself some--to ask some questions, 5 minutes.
    Mr. Willner, if you convert digital signals at your end, 
the head end, so that they will work for subscribers with 
analog televisions, who will need set top boxes, and who will 
need set-top boxes if you converted the set-top? And also, how 
much will these cost?
    Mr. Willner. If we convert at the head end, no consumer 
will have to add a box or change a box. If we convert at the 
set-top box, as opposed to the head end, consumers who 
currently have cable service, analog cable service on what is 
called cable-ready televisions who do not require boxes, would 
then require a box.
    Mr. Sullivan. Okay.
    And Dr. Kim, in your testimony, you state that consumers 
who use digital-to-analog converter boxes will get improved, 
crisp, studio-quality pictures. Does this mean that even 
consumers with analog televisions will be better off than 
before the transition if they use a converter box?
    Mr. Kim. Yes. You can--full digital advantage, so no 
ghosts, and you know, just a very crisp--and those fuzzy noise 
symptoms will disappear. And those--I think I would like to 
comment on the antenna issue. If you are using currently an 
antenna, analog antennas and digital antennas are the same 
thing. And you can use the same antenna in your household.
    Mr. Sullivan. Did you say how much those were? Do you know?
    Mr. Kim. The--currently--you mean, the antenna?
    Mr. Sullivan. Yes.
    Mr. Kim. No difference between analog antennas and digital 
antennas. Okay. So you can use--you can buy a $5, you know, 
bow-tie antenna. You can use that for digital televisions. 
And--yes.
    Mr. Sullivan. Thank you.
    Mr. Wynn, you have 5 minutes.
    Mr. Wynn. Thank you, Mr. Chairman.
    Mr. Goldstein, have you contemplated the necessity or need 
for a public education program to explain all of this to the 
general public? And if so, what would be the cost of such a 
program? And also, who would--who should be responsible, in 
your opinion, for that program?
    Mr. Goldstein. Congressman, the work that we are doing 
right now for the committee--it is not part of today's report, 
but we are doing work already that is trying to ascertain just 
what would be required in a, sort of, public service program 
and a consumer education program. When we did work last year 
for this committee and went to Berlin to examine how the 
transition in Berlin occurred, one of the things that we did 
find was, among the most critical elements of their success was 
a very strong consumer education program that most of the 
stakeholders had a part in. There were, you know, banners on 
televisions, but they also had a shorter period of time, too. 
The--their simulcast period was quite short. And I think that 
probably helped them as well. But absolutely. We believe that a 
consumer education program----
    Mr. Wynn. So you will be giving us more information on 
that?
    Mr. Goldstein. Yes, sir; we will.
    Mr. Wynn. The second question I have is I have heard the 
discussion of, perhaps, 200 percent of poverties are cutoff for 
the government subsidy. Is that, in fact, what is being 
contemplated by your office, and if so, what is the rationale 
for that determination? Because as my colleague said earlier, 
this is going to sound like a tax. And I am sure that there are 
people who are above that level who would also feel put upon to 
pay this tax. What is your--how would you analyze this problem?
    Mr. Goldstein. We actually aren't taking any position on 
this at all, Congressman. We simply used, for the purposes of 
doing our work, a 200-percent and a 300-percent level of 
poverty to ascertain, you know, what different levels of 
support might be----
    Mr. Wynn. Have you done a model that basically says this is 
the number of people that will require a subsidy, not taking 
into consideration any policy analysis relative to poverty, 
just said this number of people will be affected, and will need 
converter boxes?
    Mr. Goldstein. If you did not--yes, I--the report you have 
today shows that if you did not use a means test and you just 
talked about the number of people who had to get a set-top box 
for an analog--for their analog television, and assuming just 
one television per household.
    Mr. Wynn. Well, how does it go to this? What would be the 
number for just assuming one television? And then what would be 
the number if we assume, say, two televisions?
    Mr. Goldstein. Well, the number for--if you were assuming 
one, it would run--and there is no means tested, it would be 
between $1 billion and $2 billion essentially, depending on 
what the cost of the set-top box was, which is either--
somewhere between $50 and $100.
    Mr. Wynn. So that is $1 billion to $2 billion in cost?
    Mr. Goldstein. Yes.
    Mr. Wynn. For how many units? That is one unit for how many 
people?
    Mr. Goldstein. For 20.8 million.
    Mr. Wynn. 20.8 million? Okay.
    Let us see. Mr. Yager, the cable industry basically said 
they want to do business. They want, rather than have a 
governmental imposition of the multi-casting regime, they want 
to have you negotiate with them. What is wrong with that?
    Mr. Yager. Not a thing, sir. We have tried, on numerous 
occasions, to reach agreement with the cable industry regarding 
carriage of our signals, regarding multi-cast. Cable enjoys its 
role as the gatekeeper to what the public can see that we 
broadcast free over the air. And you heard Mr. Willner say they 
want to control what we air. They want to control what we put 
out to the public. And we, as a television station, have never 
answered anybody but the public interest in terms of what we 
program.
    Mr. Wynn. Can I interject just a question? Are you 
basically saying they are not negotiating in good faith over 
issues----
    Mr. Yager. I was----
    Mr. Wynn. Over issues beyond--right.
    Mr. Yager. I can't say that they are not negotiating in 
good faith, because I was not part of that negotiating team, 
but I do know that there have been committees of the NAB MSTV 
that have met with the NCTA and those negotiations have not 
resulted in an agreement.
    Mr. Wynn. Are there sticking points other than price of how 
much you would have to pay for that? Is it mostly over content?
    Mr. Yager. It is mostly over content. Yes, sir.
    Mr. Wynn. Okay.
    Mr. Yager. You have got to remember that--I think the NCTA, 
the PBS deal was a wonderful public relations move. They cut a 
multi-cast deal with the PBS stations with somebody that 
doesn't compete for the local advertising dollar. The reason we 
can't get to a multi-cast deal is we compete in our local 
markets with cable for the local advertising dollar. And for 
them to control the content that we can put out free over the 
air is unacceptable to us in any kind of negotiation.
    Mr. Wynn. Okay. I see you shaking your head, if the 
chairman would indulge me just to get a rebuttal, if that is 
permitted.
    Mr. Willner. Thank you, Congressman.
    I was a part of that negotiating team between the NCTA and 
the broadcasters, and the issue does come down to the 
broadcasters seeking out a dual stream of revenue, which was 
not part of their business model. It is not part of the 
contract they had with the public for use of the public 
airways. They want to extract additional money out of our 
consumers' homes where they don't have--where they don't 
extract it out of people who choose to put up antennas.
    Mr. Wynn. So you say it is money?
    Mr. Willner. I say it is money.
    Mr. Wynn. Okay.
    Mr. Willner. It is not about how much they are going to pay 
us. It is about how much they want us to pay them for the same 
signal they send out for free over the air. And that is the 
fundamental breakdown. The fact of the matter is, we have a lot 
in common in serving the American public, and we could come 
together as two industries and do just that if we have 
legitimate discussions about the use of valuable band width so 
that broadcasters don't have a particular advantage over A&E or 
Oxygen or all of the cable networks that come and show us 
business plans that make sense for our consumers. If you give 
them a free ride on a cable system, the content will be less 
good than it would be if they had to prove to the consumer that 
this is something that they would really want.
    Mr. Wynn. Okay.
    Thank you, Mr. Chairman.
    Mr. Sullivan. I recognize the chairman of the Energy and 
Commerce Committee for a point of personal privilege.
    Chairman Barton. I think that--thank you, Mr. Chairman. And 
I am not going to take long, but I am going to have to leave, 
and before I leave, I just want to say, since this--we have 
heard--learned of the announcement that Mr. Fritz is going to 
be leaving NAB, it think it would be very unfair if, as the 
chairman of this committee, I didn't tell him and the people he 
represents what a privilege it has been to be associated with 
him in the 20-some odd years that I have been in the Congress. 
He is a gentleman of integrity and character and has 
represented his industry with fairness and honor. Going back to 
the Cable Deregulation Bill, the Home Satellite Bill, the 
Telecommunications Act, and many, many others, he hadn't won 
them all, but he has always represented his industry's position 
in a way that kept the doors open on both sides of the aisle. 
And whatever Mr. Fritz does in his next career, he is going to 
be remember very fondly in this committee. And I want to say 
thank you for the way you have presented your industry's 
positions in the time that I have been in the Congress.
    Mr. Sullivan. Thank you, Mr. Chairman.
    I recognize Ms. Wilson from New Mexico for 5 minutes.
    Ms. Wilson. Thank you, Mr. Chairman.
    I--on this issue, I think I have a--may have a slightly 
different perspective in that all of us represent, you know, 
where we come from. And in New Mexico, while Albuquerque has a 
fairly high penetration of cable, rural New Mexico is less so. 
And we--when I look at your statistics, Mr. Goldstein, of kinds 
of households that are very low on the penetration of digital 
television, it sounds like a cross-section of New Mexico, a 
much lower per capita income, high percentages of Hispanic 
Americans. And so I have to say that setting a date certain is 
not particularly attractive in the State of New Mexico, because 
there will be so many people who are low income whose 
televisions may go dark.
    I also--I look at these numbers. You know, here we are in a 
budget battle where we are talking about health care and 
education and where we, you know--how we are going to meet the 
needs of this country, and we are talking as though, you know, 
$1 billion or $2 billion or $4 billion for boxes on top of 
television sets is no big deal. And I think it is a big deal. 
And I would like to ask where do you think where do you think 
we are going to get the money from? Does anybody--where is the 
money going to come from? The sound of one hand clapping here 
is a--Mr. Goldstein, I mean where do we get the money?
    Mr. Goldstein. I am not sure that I really have an answer 
for you, Congresswoman. It is a policy question that Congress 
really has to struggle with, obviously, and this whole hearing 
has been about that, about whether or not, you know, you do 
subsidize and at what level do you subsidize and the like. But 
I certainly don't have an answer of where in the budget you 
might find this money.
    Ms. Wilson. I think that is a real problem. And it is 
particularly a problem in New Mexico when the alternative is 
that folks won't have their TVs work anymore. And when we 
approach that time, we are going to have a really serious 
problem, which is why setting a date certain, I mean, not 
convinced at all is the right thing to do. And in New Mexico, 
85 percent penetration is a long way off. I have heard various 
estimates, but I haven't heard one get to double-digits yet in 
the percentages of households in New Mexico that are ready for 
digital.
    I wanted to follow up on something Mr. Engel said, and I 
have to say that the voluntary agreement is--that cable has 
reached with public television, one of the first local 
agreements was in New Mexico. It was in Albuquerque and was 
very satisfactory to the public broadcasters as well as to the 
local cable operator and will probably frame some great 
services to people in New Mexico. And so I wanted to commend 
you on negotiating those agreements. Maybe market by market is 
the best way rather than trying to sort that out at a national 
committee kind of level between two very strong interest groups 
and that maybe this can be sorted out community by community 
rather than two industries going around big mahogany tables in 
Washington, DC. So I wanted to commend you on your local work 
in solving local problems with these kinds of agreements.
    Thank you, Mr. Chairman.
    Mr. Sullivan. In response to Ms. Wilson's cost, it is my 
understanding that Chairman Barton will introduce a hard date 
bill that raises the auction revenues necessary to pay for the 
subsidy.
    Ms. Wilson. Mr. Chairman.
    Mr. Sullivan. Yes.
    Ms. Wilson. We have auctioned that spectrum and used that 
money several times over in various budgets, and you know, we 
act as though that is our money to use in this committee. And 
it--those priorities are set nationally. And if we use $2 
billion of spectrum auction money to pay for boxes on top of TV 
sets, that is $2 billion we are not using to immunize kids or 
to make sure kids can read or to buy body armor for our 
soldiers. These are important decisions, and I think we are 
going to have to treat them very seriously.
    Thank you, Mr. Chairman.
    Mr. Sullivan. I recognize Mr. Markey from Massachusetts for 
5 minutes.
    Mr. Markey. I thank you very much, Mr. Chairman.
    We have a dual tuner mandate that the FCC belated put on 
the books so that we at least end a policy of selling TV sets 
that the government intends to render obsolete. The dual tuner 
mandate starts with the larger TV sets and scales down to 13-
inch sets with the requirement that these smaller sets have the 
capability of receiving and displaying digital signals by July 
1, 2007. Have you done any analyses that, recognizing that we 
sell some 30 million TVs annually in the United States, that 
under the dual tuner mandate, how many of the 21 million 
households will obtain a dual tuner set under the ordinary 
course of events, and especially how many would get a new TV on 
their own with digital capability, especially once the 13-inch 
mandate arrives in mid-2007?
    Mr. Goldstein.
    Mr. Goldstein. We haven't done any specific analysis of 
this issue, Congressman, but I mean, I think just from a--well, 
one could argue from the extrapolation standpoint if there are, 
you know, 120 million households and, you know, 25 to 30 
million new televisions in, you know, \1/4\ of the over-the-air 
people were to buy a set, you know, in a year, that is a lot 
of--that is certainly a lot of television sets every year. We 
haven't done any specific analysis of that point.
    Mr. Markey. But what would you think, Mr. Goldstein, 
though, is the likelihood that if we sell 25 or 30 million sets 
a year over the next 3 years that x number of consumers in this 
category will have purchased a new digital TV set or one that 
is capable of receiving a digital signal and converting it?
    Mr. Goldstein. Some certainly will. Obviously, there is a 
larger than average percentage of them that are of a low-income 
nature, so it may not be as many as from other categories.
    Mr. Markey. So you are saying that it--for many of the 
poorer people, and that is almost half of all of the people 
in--that are totally dependent upon free, over-the-air 
television, that if they had a TV set that was 5 years old, and 
that is one decision they could make to continue for another 5 
or 10 years, and they wouldn't necessarily be going out into 
the market looking for a new TV set.
    Mr. Goldstein. It is true. It is hard to predict, but 
because there is a--you know, such a substantial number of them 
who are poor, I think that is a real issue.
    Mr. Markey. Okay. Good.
    Could I ask each of you just to give us the 30 seconds you 
want us to remember as we are leaving here today? What is the 
one core nugget that you want the committee to maintain as we 
are now moving to--more actively into this area?
    Mr. Willner. Good to see you, by the way.
    Mr. Willner. Good seeing you, too. Thank you.
    I would like the committee to know that the cable industry 
is prepared to move forward with the digital transition 
whenever you folks are ready to declare it. A hard date is, I 
think, important. We don't have a hard date now because there 
is that caveat of 85 percent and nobody really knows what that 
85 percent means, which is one of the reasons why I think the 
manufacturers aren't really embracing putting dual tuners and 
digital tuners into television sets. So when you get on with 
the business of converting the Nation's airwaves to digital, we 
will be there, and we will be providing service seamlessly to 
our subscribers the day after.
    Mr. Markey. Thank you.
    Mr. Yager.
    Mr. Yager. I think what I would like you to remember is the 
impact that any decision this committee makes has on the 
consumer, your constituents, our viewers, and the impact the 
digital transition will have on them.
    Mr. Markey. Okay. Thank you.
    Mr. Kim--Dr. Kim.
    Mr. Kim. As a consumer electronics manufacturer point of 
view, we are very anxious to this transition quickly move on, 
and we can make television sets available at an affordable 
price to the consumers.
    Mr. Markey. Thank you.
    And Mr. Goldstein.
    Mr. Goldstein. I think the hearing this morning really 
showed that there are a tremendous number of issues that have 
to be grappled with and answered, a lot of policy issues before 
the committee and the Congress. And the work that we have 
started to do for you and that we will finish up in the coming 
months, hopefully, will help you reach those conclusions, and 
we are happy to continue to take on other work related to this, 
as the committee wishes.
    Mr. Markey. Yes or no: can we get this done by January 1, 
2007? Yes or no.
    Mr. Goldstein.
    Mr. Goldstein. Yes.
    Mr. Markey. Dr. Kim.
    Mr. Kim. Yes.
    Mr. Markey. Mr. Yager.
    Mr. Yager. No.
    Mr. Markey. Mr. Willner.
    Mr. Willner. The yeses have it three to one, sir.
    Mr. Markey. I thank you.
    And Mr. Yager, I understand your position. I am a Democrat 
in the House, so I sympathize with you. Thank you.
    I thank you, Mr. Chairman.
    Mr. Sullivan. Thank you, Mr. Markey.
    I would like to thank the panelists for being here today. 
Thank you very much. It was very insightful. This hearing is 
adjourned.
    [Whereupon, at 12 p.m., the subcommittee was adjourned.]

                                 
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