[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]



=======================================================================
 
               SUBCOMMITTEE ON CONTRACTING AND TECHNOLOGY
                      COMMITTEE ON SMALL BUSINESS
                 UNITED STATES HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                              MAY 7, 2008

                               __________

                          Serial Number 110-91

                               __________

         Printed for the use of the Committee on Small Business


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



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                   HOUSE COMMITTEE ON SMALL BUSINESS

                NYDIA M. VELAZQUEZ, New York, Chairwoman


HEATH SHULER, North Carolina         STEVE CHABOT, Ohio, Ranking Member
CHARLIE GONZALEZ, Texas              ROSCOE BARTLETT, Maryland
RICK LARSEN, Washington              SAM GRAVES, Missouri
RAUL GRIJALVA, Arizona               TODD AKIN, Missouri
MICHAEL MICHAUD, Maine               BILL SHUSTER, Pennsylvania
MELISSA BEAN, Illinois               MARILYN MUSGRAVE, Colorado
HENRY CUELLAR, Texas                 STEVE KING, Iowa
DAN LIPINSKI, Illinois               JEFF FORTENBERRY, Nebraska
GWEN MOORE, Wisconsin                LYNN WESTMORELAND, Georgia
JASON ALTMIRE, Pennsylvania          LOUIE GOHMERT, Texas
BRUCE BRALEY, Iowa                   DAVID DAVIS, Tennessee
YVETTE CLARKE, New York              MARY FALLIN, Oklahoma
BRAD ELLSWORTH, Indiana              VERN BUCHANAN, Florida
HANK JOHNSON, Georgia
JOE SESTAK, Pennsylvania
BRIAN HIGGINS, New York
MAZIE HIRONO, Hawaii

                  Michael Day, Majority Staff Director

                 Adam Minehardt, Deputy Staff Director

                      Tim Slattery, Chief Counsel

               Kevin Fitzpatrick, Minority Staff Director

                                 ______

               Subcommittee on Contracting and Technology

                      BRUCE BRALEY, IOWA, Chairman


HENRY CUELLAR, Texas                 DAVID DAVIS, Tennessee, Ranking
GWEN MOORE, Wisconsin                ROSCOE BARTLETT, Maryland
YVETTE CLARKE, New York              SAM GRAVES, Missouri
JOE SESTAK, Pennsylvania             TODD AKIN, Missouri
                                     MARY FALLIN, Oklahoma

        .........................................................

                                  (ii)




                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page

Braley, Hon. Bruce...............................................     1
Davis, Hon. David................................................     2

                               WITNESSES

Hephner, Mr. Greg, Hephner TV, Wichita, KS, On behalf of the 
  Consumer Electronics Retailers Coalition.......................     3
Pardini, Mr. Ed, Senior Vice-President of Operations/North 
  Central Division, Mediacom Communications, West Des Moines, IA, 
  On behalf of the American Cable Association....................     6
Oliver, Mr. Keith, Senior Vice President, Corporate Operations, 
  Home Telephone Company, Inc., Moncks Corner, SC,On behalf of 
  the Organization for the Promotion and Advancement of Small 
  Telecommunications Companies (OPASTCO).........................     8
Dempsey, Mr. Jack D., President/General Manager, WJHL-TV/
  NEWSCHANNEL 11, Johnson City, TN...............................    10

                                APPENDIX


Prepared Statements:
Braley, Hon. Bruce...............................................    22
Davis, Hon. David................................................    24
Clarke, Hon. Yvette..............................................    25
Hephner, Mr. Greg, Hephner TV, Wichita, KS, On behalf of the 
  Consumer Electronics Retailers Coalition.......................    28
Pardini, Mr. Ed, Senior Vice-President of Operations/North 
  Central Division, Mediacom Communications, West Des Moines, IA, 
  On behalf of the American Cable Association....................    32
Oliver, Mr. Keith, Senior Vice President, Corporate Operations, 
  Home Telephone Company, Inc., Moncks Corner, SC,On behalf of 
  the Organization for the Promotion and Advancement of Small 
  Telecommunications Companies (OPASTCO).........................    38
Dempsey, Mr. Jack D., President/General Manager, WJHL-TV/
  NEWSCHANNEL 11, Johnson City, TN...............................    44

Statements for the Record:
Community Broadcasters Association...............................    64

                                 (iii)




                    SUBCOMMITTEE HEARING ON THE DTV



                    TRANSITION AND SMALL BUSINESSES:



                     SMALL FIRMS CONTRIBUTING TO A



                               BIG CHANGE

                              ----------                              


                         Wednesday, May 7, 2008

                     U.S. House of Representatives,
                               Committee on Small Business,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 2:00 p.m., in 
Room 1539 Longworth House Office Building, Hon. Bruce Braley 
[chairman of the Subcommittee] presiding.
    Present: Representatives Braley, Cuellar, Clarke, Davis, 
and Akin.

              OPENING STATEMENT OF CHAIRMAN BRALEY

    Chairman Braley. Good afternoon. I call this hearing to 
order on The DTV Transition and Small Businesses: Small Firms 
Contributing to a Big Change.
    This afternoon, the Subcommittee will consider the impact 
of the Digital Television, also known as DTV, transition on 
small firms. Throughout our country, small companies are making 
significant efforts to ensure that American households are 
prepared for the changes that will occur in February 2009. 
Small broadcasters, electronics retailers, and cable and 
telecommunications companies all are playing a critical role in 
the DTV transition.
    This hearing will examine those efforts and it will also 
consider whether there are additional actions that Congress 
should take in order to minimize the burden of the transition 
on small firms, particularly those serving in rural areas. On 
February 18th of 2009, television broadcasters will no longer 
transmit over-the-air television broadcasts in an analog 
format. As a result, millions of households with analog-only 
televisions are faced with the prospect of no longer receiving 
a signal unless they act. They will need to either buy a new TV 
or subscribe to a new video service or these Americans will be 
forced to purchase a digital-to-analog converter box. This 
transition requires a public/private partnership.
    The government has enlisted the assistance of businesses, 
both large and small, to carry out many of these changes. 
Broadcasters, retailers, electronics manufacturers and video 
service companies are providing consumer education on the 
transition. Federal guidelines have also been established for 
equipment manufacturers and retailers participating in the 
converter box program.
    It is critical that the efforts of the small firms are 
recognized and that the federal government's policies are not 
unduly burdensome on small firms. This is particularly 
important in rural areas where the broadcasters, cable 
companies and primary retail outlets responsible for these 
efforts of small businesses.
    At today's hearing we will hear testimony from a number of 
small businesses in the affected industries. I expect that this 
hearing will help the Subcommittee and Congress consider more 
fully the impact of the DTV transition on smaller firms.
    One of the issues with the transition is whether the 
Federal Communications Commission is accounting for the 
concerns of small broadcasters and cable companies. Both 
broadcasters and cable companies are actively promoting the 
transition having spent millions to educate the public and 
having invested in the necessary infrastructure to carry out 
the transition.
    The Subcommittee is interested in whether the regulations 
issued by the FCC have taken into account the limited resources 
of many small broadcasters and cable companies. It may be that 
a greater public investment is necessary. These changes also 
must account for the unique needs of small companies. I know 
there is a concern about the must-carry requirements; resolving 
this issue requires balancing the resource constraints of small 
cable companies with consumers' legitimate interests in 
receiving the full benefits of digital television.
    It is critical that these cable companies remain viable 
while addressing the concerns of TV viewers.
    The role of small retailers must also be acknowledged in 
this transition as well. The Committee looks forward to 
testimony on how retailers are handling the converter box 
program. These retailers are on the front line and are the most 
likely source of where consumers will have their questions 
answered on the transition. Small retailers have made the 
necessary investment in new technology, training, and consumer 
education to become certified retailers in the converter box 
coupon program. For this program to be successful, however, 
these businesses cannot be left with unredeemable government-
issued coupons or unsellable converter boxes if federal funds 
for the converter box program are exhausted.
    Congress is monitoring closely the success of these efforts 
as the public and small businesses have a huge stake in it. 
Indeed, all Members of Congress want to ensure that the 
transition set for February 18, 2009 is a smooth one. 
Representing a District with populations that are among the 
most likely to be affected by the DTV transition, I think it is 
critically important that the federal government and private 
sector stakeholders minimize the number of televisions that go 
dark in February. It's clear that the DTV transition will not 
be a successful one without the important contributions of 
small businesses in a variety of industries.
    I look forward to the testimony of our witnesses today, and 
thank them all for participating and I now recognize my friend 
from Tennessee, Ranking Member David Davis for his opening 
statement.

                 OPENING STATEMENT OF MR. DAVIS

    Mr. Davis. Good afternoon. Thank you, Mr. Chairman, for 
holding this hearing on DTV transition and its impact on small 
firms. I would like to thank all of the witnesses for taking 
time out of your busy schedules to come and testify before this 
Committee and most particularly, Mr. Jack Dempsey has made the 
trip here from Johnson City, Tennessee. Welcome, Jack.
    Since the Deficit Reduction Act became law on February 6, 
2006, the days of the analog television signal have been 
numbered. On February 17, 2009, the nation will undergo a 
change in the way television broadcasting is transmitted over 
the air. On that day, all television stations will terminate 
broadcasting and log signals. Thereafter, only digital signals 
will be transmitted. Small broadcasters, electronic retailers 
and other small firms are at the forefront of the DTV 
transition.
    The switch from analog to digital transmission signals will 
provide television viewers with the clear pictures and more 
program choices and will free up more portions of airwaves for 
public safety communications such as police, fire and rescue 
and new broadband wireless services. All of these are admiral 
goals, but the DTV transition is not without cost. Since the 
late 1990s, television broadcasters have spent billions of 
dollars to build the infrastructure for into air digital 
signals while continuing to broadcast in analog. While all 
broadcasters are being asked with--tasked with making this 
change, small cable companies and broadcasters are feeling the 
pinch of these expenditures more acutely than their larger 
counterparts.
    Once again, I'd like to thank the witnesses for being with 
us today and I'm eager to hear your testimony.
    Thank you.

    Chairman Braley. Thank you, Pat.
    Witnesses will be allowed five minutes to deliver their 
prepared statements. The way the lights work is when you have 
one minute remaining, the yellow light will turn on in a light 
fixture in front of you and when the time is up, the red light 
is on. Your written statements will be included in the record 
in their entirety and at this time it's my pleasure to 
introduce our first witness, Mr. Greg Hephner is the president 
and owner of Hephner TV and Electronics, Incorporated. For over 
50 years, Hephner TV has been a leading retailer of home 
entertainment products in Wichita, Kansas. Mr. Hephner is 
testifying on behalf of the Consumer Electronics Retailers 
Coalition. CERC is an association of established electronic 
specialty and general retailers. Welcome. And we look forward 
to your testimony.

   STATEMENT OF MR. GREG HEPHNER, PRESIDENT, HEPHNER TV AND 
               ELECTRONICS, INC., WICHITA, KANSAS

    Mr. Hephner. Chairman Braley, Ranking Member Davis, thank 
you for inviting me to appear before your Subcommittee on 
behalf of Hephner TV and the Consumer Electronics Retailers 
Coalition.
    It is our privilege to offer you our perspective as an 
independent consumer electronics firm on the progress of the 
DTV transition in America's heartland.
    Transition in the electronics industry is nothing new. Our 
company was established by my father, Lonnie, in 1950, long 
before which Wichita had an TV stations. We witnessed the 
transition from radio to TV from black and white to color and 
now from analog TV broadcast to digital TV broadcast.
    While technological changes can confuse and frustrate 
consumers, these same changes eventually enhance consumers' 
lives and are accepted and enjoyed once they are understood. As 
probably the smallest member of the Consumer Electronics 
Retailers Coalition, our management team gets to observe these 
changes and consumers' reactions to them on a daily basis in 
our own store. The sheer scope of the DTV broadcast transition 
is without precedent, leaving some small consumer electronics 
firms to choose not to participate in the NTIA coupon and 
education programs. The reasons given are varied, but most of 
these other dealers have told me that they wanted to avoid the 
hassle of redeeming coupons providing customer education and 
dealing with customer complaints.
    Our company, however, embraced the transition and our 
experience has been very positive. Hephner TV was an early 
participant in NTIA's coupon eligible converter box program. In 
partnership with CLC Services, part of the IBM Team that NTIA 
is contracting with, we served as a pilot site to test the 
coupon redemption system prior to the general public launch. 
The application process with both NTIA and the Central 
Contractor Registration are simple and fast for a company of 
our size. We have redeemed coupons using both the retailer web 
site and the toll-free phone number with little difficulty.
    The CLS Services Retailer Support Center has been 
responsive to any questions we have had and we have received 
our coupon reimbursement payments in a timely manner. We have 
found that customers aren't putting off the purchase of the 
converter box, thus the demand for the boxes should be 
consistent over the next 12 months.
    In summary, we are very pleased with the coupon redemption 
processes as created by the Congress, the NTIA, and IBM CLC 
Services. Our observations are that consumers seem to have a 
high degree of awareness and interest in the DTV transition. 
Web sites dedicated to the DTV transition sponsored by the 
NTIA, the Consumer Electronics Retailers Coalition, the FCC, 
and countless others have provided a wealth of information to 
any consumer that has questions.
    In Wichita, we have cooperated with our local TV affiliates 
on news stories that educate consumers about the transition. 
All of our local TV stations have ubiquitous crawls along the 
bottom of the screen directing consumers to call or log on to 
web site for details about the transition. Our local newspaper, 
The Wichita Eagle, continues to run stories and updates on the 
coupon program.
     It is my belief that if someone is unaware that TV is 
changing, they simply haven't been paying attention. However, 
we also understand that awareness doesn't always translate to 
understanding. Creating consumer understanding of the 
transition falls to local retailers like us. We are on the 
front lines of public education, explaining the details of the 
transition and reassuring the customers that the transition 
will not be as draconian as some have assumed.
    Through this we are successfully using the free handouts 
provided by the NTIA on their web site. We also use reprints of 
pertinent newspaper articles as handouts and post helpful links 
on our company web site. We have observed that once we educate 
customers about the transition in easy to understand terms, 
they are relieved that they won't have to make any changes if 
they are on cable or satellite, or that the converter box 
solution is simpler than they had imagined.
    We have fielded substantially fewer complaints than I had 
anticipated. Very few customers have mentioned any problems 
with the coupon application process. Most customers have had 
little trouble connecting their boxes. In fact, many customers 
have been pleasantly surprised that they are receiving more 
channels via the digital box than they did with their analog 
tuners.
    From our vantage point, the DTV transition is progressing 
very smoothly. The coupon redemption procedures designed by the 
NTIA and IBM/CLC Services are easy to use and transparent for 
the retailer. We have seen little of the consumer angst that 
was predicted. Our customers understand the transition and are 
preparing themselves for the day that most analog broadcast 
end.
    We would encourage the NTIA to continue the programs that 
are currently in place. The existing systems strike a good 
balance between the needs of the consumer and the retailer, 
while offering reasonable security against fraud.
    Finally, Mr. Chairman, there is one area in which Members 
of your Committee could make our lives a bit easier. When we 
started ordering our boxes, we found that the price had gone up 
several dollars from the announced price, apparently due to a 5 
percent tariff category in which the government seems to have 
included these converter boxes. Representatives Ron Kind and 
Kevin Brady have introduced a bill into Congress, Bill No. HR 
5635 that would reform this tariff so that the government would 
not be assessing a special tax that increases the cost to us of 
the very products that it is subsidizing.
    I would hope that your Members would consider becoming co-
sponsors of this legislation.
    At Hephner TV we are excited to be part of one of the 
largest technical upgrades in the last 60 years. The transition 
has spurred an unparalleled public interest and enthusiasm in 
the products we sell and in our industry as a whole.
    I appreciate this Committee's interest in us and our 
concerns and I hope you will remain in touch with us as the 
transition moves to its conclusion next year.
    [The prepared statement of Mr. Hephner may be found in the 
Appendix on page 28.]

    Chairman Braley. Thank you, Mr. Hephner, and I certainly 
will take a good look at HR 5635 and the Committee will also 
follow up on that. I appreciate that suggestion.
    Our next witness is Mr. Ed Pardini who is a Senior Vice 
President of Operations in the North Central Division at 
Mediacom Communications in Des Moines, Iowa. As a Mediacom 
subscriber, I look forward to your testimony.
    Mediacom serves several smaller cities and towns throughout 
Iowa, Minnesota, and North Illinois, South Dakota and 
Wisconsin. They provide a broad array of broadband products and 
services, including traditional video services, digital 
television, video on demand, digital video recorders, high 
definition televisions, high speed Internet access and phone 
service.
    Mr. Pardini is testifying on behalf of the American Cable 
Association which is a voice of independent cable operators. 
Welcome.

     STATEMENT OF MR. ED PARDINI, SENIOR VICE PRESIDENT OF 
OPERATIONS, NORTH CENTRAL DIVISION AT MEDIACOM COMMUNICATIONS, 
                        DES MOINES, IOWA

    Mr. Pardini. My name is Ed Pardini, and I am Senior Vice 
President of Operations, North Central Division at Mediacom 
Communications, an independent cable business. My company, 
whose division is based in Des Moines, Iowa, provides essential 
video and broadband products and services to smaller cities and 
towns in many states represented by this Committee, including 
Iowa, Wisconsin, Missouri, and several others.
    I'm here today on behalf of the American Cable Association. 
The Association's members range from family-run businesses 
serving a single community to multiple system operators like 
Mediacom that provide vital video, broadband, and advanced 
services that bridge the digital divide in many smaller 
markets.
    Small cable operators are important businesses in their 
communities, providing not only broadcast and cable 
programming, but also extending the geographic reach of 
broadcast programming to consumers and increasing their 
viewership.
    Additionally, many of ACA's members offer exclusive local 
and community-oriented programming not carried by other 
operators like Iowa's Mediacom Connections channel.
    As we approach next year's digital transition, ACA and its 
members are fully committed to ensuring its customers have a 
seamless transition and we're working to ensure others know how 
to prepare for the transition. ACA is an active member of the 
DTV Transition Coalition and like many ACA members, Mediacom 
has undertaken a massive education campaign to prepare 
consumers for the digital transition that includes public 
service announcements, information in our monthly billing 
statements and meetings with community groups.
    ACA and its members are committed to ensuring its 
subscribers can continue to view broadcast stations after the 
transition. To make that happen, tens of millions of dollars 
have been invested in purchasing and upgrading the equipment 
necessary to provide digital signals in a format that is 
viewable on both digital and traditional analog sets.
    Today, even as government broadcasters and cable operators 
work together to minimize the confusion among consumers 
associated with the digital transition, their collective 
efforts may be disrupted by broadcasters who will be 
negotiating retransmission consent deals with cable operators 
at roughly the same time. In the second half of 2008, the 
retransmission consent agreements that enable cable operators 
to offer local broadcast signals will expire and ACA expects a 
significant number of its members to face difficult 
negotiations. In fact, while ACA members may well have good 
relationships with WJHL, many are worried by the news from its 
parent company, Media General, and other companies' analyst 
calls, and the pressure mounting from Wall Street to extract 
cash from consumers foretells a potentially very different and 
ominous experience this fall.
    As it stands, federal retransmission consent and network 
nonduplication rules grant broadcasters unrestrained power in 
these negotiations and broadcasters commonly leverage their 
power to demand unreasonable prices, terms and conditions from 
small and medium-sized operators. Furthermore, they use this 
power to demand per subscriber fees, 200 to 1100 percent higher 
for smaller operators than for larger ones for identical 
content without any rational justification.
    These higher costs are then borne by consumers. As a 
committee focused on the important role that small business 
plays in the economy and one that cares for consumers, I hope a 
growing awareness of this problem of discriminatory pricing 
will prompt further inquiries and action.
    As a negotiating tactic, broadcasters often threaten to 
force small cable operators to drop their signal, as a means of 
pressuring operators into accepting unfair deals which raise 
the rates on consumers. This practice, which will under the 
best of circumstances disrupt service with no regard for 
consumers, will cause mass confusion in the months before and 
after the transition. This is precisely what happened in early 
2007, when 2 million television viewers in 700,000 households 
were disrupted by Sinclair Broadcast Group's unilateral 
decision to pull 22 stations from Mediacom Cable Systems in 12 
states, including Waterloo and Dubuque in the Chairman's 
District, and other states represented on this Subcommittee.
    In September 2007, the FCC issued a rulemaking seeking 
comment on revisions to the Commission's program access and 
retransmission consent rules. The ACA filed comments in this 
proceeding describing the broadcasters' discriminatory conduct 
towards small cable operators and proposing and prohibiting 
these tactics.
    More recently, Mediacom and several other cable operators 
filed a petition with the FCC, asking the Commission to 
promptly adopt a retransmission consent "quiet period" to 
ensure that these disputes in the months surrounding the 
digital transition do not trigger consumer confusion or service 
disruptions. To put an end to the discriminatory retransmission 
consent practices that harm consumers and to ensure 
uninterrupted service for ACA's members' subscribers during 
this transition, we encourage this Committee to conduct a 
further review of these issues.We also urge every Member of 
Congress to play an active role in monitoring negotiations in 
their own districts.
    Chairman Braley, Ranking Member Davis and Members of the 
Subcommittee, thank you again for your opportunity to testify.
    [The prepared statement of Mr. Pardini may be found in the 
Appendix on page 32.]

    Chairman Braley. Thank you.
    Our next witness is Keith Oliver, who is the Senior Vice 
President of Corporate Operations for Home Telephone Company in 
Moncks Corner, South Carolina. Home Telephone also provides 
voice services, broadband and video services to the homes and 
small business in their community.
    Mr. Oliver also serves as chairman of OPATSCO, the 
Organization for the Promotion and Advancement of Small 
Telecommunications Companies. OPATSCO is a national trade 
association made up of more than 600 small, local 
telecommunications carriers serving rural areas.
    Welcome.

    STATEMENT OF MR. KEITH OLIVER, SENIOR VICE PRESIDENT OF 
CORPORATE OPERATIONS FOR HOME TELEPHONE COMPANY, MONCKS CORNER, 
                         SOUTH CAROLINA

    Mr. Oliver. Good afternoon, Mr. Chairman, Ranking Member 
Davis, and Members of the Committee.
    I appreciate the opportunity to testify before you today. 
My name is Keith Oliver and I am Senior Vice President of 
Corporate Operations for Home Telephone Company which is a 
small business located on Moncks Corner, South Carolina.
    We provide voice, broadband, and video service to the small 
businesses and homes in the communities in which we serve. But 
I'm also here today in my role as chairman of OPATSCO, the 
Organization for the Promotion and Advancement of Small 
Telecommunications Companies. OPATSCO is a national trade 
organization made up of more than 600 small phone companies 
that provide modern communication services to customers in the 
rural areas of 47 states. These areas are often too sparsely 
populated to attract the major national providers.
    You may remember that OPATSCO was part of the High-Tech DTV 
Coalition which encouraged Congress' decision to institute a 
hard date in the DTV transition. We supported this effort 
because the 700 megahertz spectrum involved in this transition 
was ideally suited to delivering broadband services to small 
communities.
    OPATSCO had hoped that the auction of the 700 megahertz 
spectrum would facilitate this goal. For our members, the DTV 
transition has always been about deploying more broadband in 
the rural areas in America.
    Unfortunately, Federal Communications Commission decided to 
auction the spectrum off in large geographic licensing areas 
which most small carriers could not afford. When measured in 
terms of population coverage and spectrum blocks in the 700 MHz 
auction, the rural telecom group found that the small companies 
obtained less than 1.5 percent of the coverage. This result is 
not in accordance with the intent of Congress. Congress knew 
that large carriers do not have incentives to serve sparsely 
populated areas. Therefore, in Section 309(j) of the 
Communication Act, Congress directed the FCC to ensure that 
small entities specifically including rural carriers had a 
reasonable chance of obtaining spectrum.We have repeatedly 
asked the FCC to adhere to this goal by returning to smaller 
geographic licensing areas. The 700- MHz auction represents a 
lost opportunity.
    I'd now like to turn my intention to the customer 
notification requirements of the DTV transition. Small carriers 
understand the need to help inform the public about the DTV 
transition and we're happy to do our part. The FCC has required 
small carriers to notify certain customers about the DTV 
transition by including information in their telephone bills. 
But it has barely acknowledged that there are any costs 
associated with this requirement. And the FCC is now 
considering expanding this requirement to all consumers of 
telecommunications services.
    But how will small companies recover costs such as printing 
and extra postage? In my own company's case such cost alone 
will exceed $23,000. That's a lot of money for a small company. 
But in addition to the hard costs, we must also consider the 
staff training and the manpower costs. When we include new 
information on phone bills, customers understandably call the 
carrier who sent them the information. We have to take extra 
time to train our customer service representatives on this 
issue and the small carriers, we have limited staffs. This is 
one reason that we're very encouraged by the introduction in 
the Senate, S.2902, the Independent Office Advocacy in Small 
Business Regulatory Reform Act. This bill will enhance efforts 
to consider the impacts of new rules on small businesses.
    We hope that the House Small Business Committee will give 
similar legislation serious consideration.
    Finally, I'd like to mention several areas where it appears 
the FCC is moving in the right direction. The Commission has 
found that when video and broadband services are provide 
together, more customers buy broadband. The FCC has also found 
instances of large programmers discriminating against their 
small competitors which hurts both broadband deployment and 
video competition. The FCC is to be commended for its on-going 
proceedings that are considering helpful reform to program 
access rules. Currently, force tying of unwanted programming 
content and outmoded retransmission consent results in higher 
prices for our consumers and the terrestrial loophole in 
programming access rules allows large programmers to restrict 
access to some content.
    We're hopeful that the Committee will encourage the 
Commission to implement reform in all of these areas. Let me 
emphasize, however, OPATSCO does not favor intrusion regulation 
of the video content market. We only seek updates to existing 
rules in order to recognize new technologies and competition.
    In conclusion, let me stress again the need for the 
government to consider the impact on small broadband providers 
when it imposes new regulation. Smaller licensing areas and 
wireless auctions can market opening reform to program access 
rules and help expand broadband deployment.
    Thank you for your attention and I look forward to your 
questions.
    [The prepared statement of Mr. Oliver may be found in the 
Appendix on page 38.]

    Chairman Braley. Thank you, Mr. Oliver.
    Our next witness will be introduced by the Ranking Member.
    Mr. Davis. Thank you Mr. Chairman. It is a pleasure to 
introduce our next witness from my District back in Tennessee. 
Mr. Jack Dempsey started his professional career with WAXU AM-
FM Radio in Georgetown, Kentucky. He then went on to work as 
account executive for WKWT-TV in Lexington, Kentucky and WOWK-
TV in Huntington, West Virginia before moving to the Tri-Cities 
area of Tennessee in 1985.
    In August of 1985, Mr. Dempsey jointed WJHL-TV as a general 
sales manager. He became president and general manager of WJHL-
TV in May of 1989. Mr. Dempsey is actively involved in numerous 
organizations in the Tri-Cities such as the Rotary Club of 
Johnson City, Barter Theater Board of Directors, United Way of 
Greater Kingsport, Board of Directors, United--the Johnson City 
and Bristol Chamber of Commerce.
    Mr. Dempsey, welcome. We look forward to your testimony.

STATEMENT OF MR. JACK DEMPSEY, PRESIDENT AND GENERAL MANAGER OF 
                WJHL-TV, JOHNSON CITY, TENNESSEE

    Mr. Dempsey.Good afternoon, Chairman Braley, Ranking Member 
Davis and Members of the Subcommittee. Thank you for inviting 
me to testify on what is my station's number one priority, a 
successful digital television transition.
    My name is Jack Dempsey and I'm the general manager of 
Media General's WJHL-TV in Johnson City, Tennessee. I'm located 
in a smaller market, the 91st rated market out of 210 markets 
in the country. I'm happy to be here to offer my perspective on 
the role of small broadcasters in the upcoming digital 
television conversation.
    Broadcasters are fully committed to ensuring that no viewer 
loses access to free television after the transition, but I 
want you to be aware that broadcasters, particularly small 
broadcasters are making this transition at a significant cost. 
To give you some scope of the investment, broadcasters 
nationwide have spent in excess of $5 billion upgrading 
equipment to migrate to an all-digital world in 2009.
    My station alone has spent over $6 million to make the DTV 
transition a reality. What many people don't realize is that 
DTV transition costs are the same in a small market as in a 
large market. The equipment costs are the same whether you're 
in Johnson City or New York City. Unfortunately, the DTV 
transition has produced virtually no increase in our revenues 
that can be used to offset the significant costs broadcasters 
have had to incur.
    Take my station, for example. In first constructing WJHL's 
transitional DTV facility, we had to buy and install a new 
antenna on the side of our tower keeping our analog antenna on 
the top. In addition to a new antenna, we had to install a new 
DTV transmitter, a new filter and new transmission lines. We 
completed construction of our initial DTV facility in early 
2002. Since 2005, we've been broadcasting in full power in both 
analog and digital which entails running two facilities with 
two electric bills.
    Almost a third of the $6 million we are spending will go 
toward transitional equipment that we will no longer use after 
February 17, 2009. Unfortunately, this equipment has no resale 
value and as a result about $2 million of our DTV transition 
expenses cannot be recouped.
    In addition to the cost of transitioning WJHL's technical 
facilities to DTV, we have undertaken extensive efforts to 
educate the public about the transition. In fact, most full 
power commercial stations are participating in the National 
Association of Broadcasters' Public/Private Partnership, 
adopted by the Federal Communications Commission on March 3rd. 
Those broadcasters, like WJHL, that have opted into the 
partnership have agreed to air public service announcements, 
crawls, snipes, news tickers, a 100-day countdown clock and a 
30-minute DTV informational television program in English and 
Spanish.
    All tolled, the value of this national, multi-platform, 
multi-faceted campaign is estimated at more than $1 billion and 
will generate 132 billion audience impressions, meaning the 
country will view these images 132 billion times. All said, 
every viewer will see this message approximately 642 times.
    Certainly, broadcasters are excited about the possibility 
that digital broadcasting brings, but there continue to be 
challenges that we face. First, in the current must-carry 
retransmission consent cycle, we have not received any fees 
from cable systems carrying our signals, be it analog or 
digital. Broadcasters provide the most watched content on 
television and I believe we should be fairly compensated by 
cable companies for that content.
    Secondly, a digital world allows broadcasters to offer 
additional streams for multi-cast channels so we can provide 
more local programming. We offer a 24-hour local weather 
channel, but we have very limited cable carriage for this 
multi-cast channel and it affects our ability to obtain any new 
advertising revenue from the channel. Although we have arranged 
for its carriage on the two largest cable systems serving our 
market, they carry the channel only on their digital tier, 
which reaches only 35 to 40 percent of the cable homes in the 
market.
    Finally, as much as we would like to sell more advertising 
on our multi-cast weather channel, we are hampered by the lack 
of ratings information for that channel. In addition, there's 
no commercially available ratings information measuring the 
viewership of our primary DTV channel separate and apart from 
our analog channel. Without ratings data, we are stymied with 
coming up with other ways to gain more advertising revenue from 
our DTV investment. This is a historic moment in broadcasting 
and we, as local television broadcasters remain fully committed 
to the DTV transition.
    I believe that through our efforts and sacrifices, the 
public will be well prepared on February 17, 2009. I thank you 
for the opportunity to testify, and I look forward to answering 
any questions you may have.
    [The prepared statement of Mr. Dempsey may be found in the 
Appendix on page 44.]

    Chairman Braley. Thank you, Mr. Dempsey.
    Mr. Hephner, let me start with you. I grew up in a small 
town of 1500 people. I remember going down to Foster's TV back 
when there were very few models available and it was a big, big 
deal in a family to purchase a black and white television set, 
back when looking a test pattern was considered excitement on a 
late night.
    One of the things that we know is that your business has 
changed dramatically because of the impact of big box retailers 
and competition for the products that you sell.
    In your testimony, you indicated that the NTIA rules 
governing the government's converter-box program helped to 
facilitate the participation of small electronic retailers.
    Can you share with us some of the observations you had 
about the specific rules that NTIA did or did not impose that 
allowed this voluntary program to assist small retailers like 
yourself.
    Mr. Hephner. Sure. One of the major considerations was the 
fact that we wouldn't have to spend a ton of money coming up 
with some kind of, or buying or having to rewrite a computer 
system. The NITA/IBM CLC services system allows us to go on to 
a standard Internet connection, redeem the cards, track the 
payments, see how many coupons have been requested for our zip 
code. All of that is very simple and easy for us to access 
through normal, off-the-shelf Internet capable computers which 
we have in the store.
    The other thing that we really liked was that there were 
essentially five major rules, none of them were very stringent 
as far as--they were common sense rules. You have to provide 
backup material in case somebody wants to audit. That's 
reasonable.
    And yet, there wasn't any rule that seemed to be--put us in 
a position where if we made an honest error in accounting or 
something of that nature, we were going to be hit with some 
large fine. The system was simple, fair, easy for us to 
understand and implement.
    Chairman Braley. Thank you.
    Mr. Dempsey, one of the things that we all have had 
experience with is having day-to-day impact by what comes out 
of our local broadcasters. Many of us depend on them for the 
news that we watch and inform us about what's going on in our 
communities. And I imagine, given the length of time you've 
spent in the Johnson City area, you've had a good opportunity 
to observe how your market depends on the station to provide 
them with news and information.
    Your testimony highlights many of the benefits that people 
should see as a result of the DTV transition. Do you have any 
concerns that people like the citizens I represent in the rural 
parts of my District in Iowa may not receive the full benefits 
of this transition?
    Mr. Dempsey. Yes. Mr. Chairman, we have concerns really 
about three groups. And this is really where we focus our 
efforts: elderly folks, people with lower incomes, and then 
people in very remote areas that don't have access to other 
forms of delivery.
    I think thus far we've done a really good job of letting 
the public know what's coming. When we first started this I 
spoke in February to a group in Bristol, the Bristol Rotary 
Club. And I asked them the question have you heard about the 
date February 17, 2009? One person in that group raised their 
hand. These were business people, people "in the know."
    The last group I spoke to was the Kingsport Kiwanis Club 
and I asked that same question. And every hand in the room went 
up. So I think we have at least made people aware that a major 
change is coming.
    The next step that we're concerned about is how this is 
actually going to take place because it's tricky. A lot of 
folks cannot connect these devices to their television. They 
simply don't know how to do it. There are going to be some 
antenna issues that I think need to be addressed for people to 
pick these signals up. And those would be the two groups that 
we would be most concerned with at this time.
    Chairman Braley. Thank you.
    Mr. Pardini, you happen to mention the city of Dubuque 
which is where my wife was born and where I spent a good deal 
of my time back in the first District of Iowa. And in my former 
life, I had the opportunity to represent a UHF-ABC affiliate 
named KDUB, back in a time when the whole issue of must-carry 
rules and the impact they were having on different types of 
markets in the cable that were being served by the cable 
industry were being impacted.
    In terms of Mediacom's experience, what I'd like you to do 
is share with us your perspective on the impact that Iowa 
subscribers and other subscribers around the country should 
expect to receive on February 18th, for example, after this DTV 
transition will all of the Iowa subscribers that you serve be 
able to view all of the channels that they can today?
    Mr. Pardini. Absolutely, all of our cable subscribers will 
continue to receive all of the traditional off-air signals that 
they currently receive. So on February 19th, the sun will rise, 
the birds will sing and the Today Show will be on. Mediacom 
cable subscribers will not need to buy additional equipment in 
order to receive those signals.
    We're very thankful that the chairman of the FCC, Chairman 
Martin, has announced a waiver for small cable operators with 
less than 552 MHz of capacity from dual carriage requirements 
under must-carry. This will allow them to continue to carry 
these signals and minimize the investment of very scarce 
resources so that small cable operators can continue to provide 
these valuable local services to their customer base.
    Chairman Braley. One of the reasons I mentioned Dubuque is 
because I was surprised to learn that Dubuque was one of the 
pioneers in the cable TV industry in this country because of 
the geography and the topography and the bluffs around Dubuque 
located on the Mississippi River.
    Mr. Pardini. Well, the terrain of Dubuque is a challenging 
terrain to receive an off-air signal and that's one of the 
benefits that cable operators provide the broadcast community. 
And in exchange for the valuable entertainment services that 
the broadcast community provides, cable operators extend the 
range of their signals to places where off-air signals wouldn't 
normally go. They generally improve the picture quality over 
that terrain so that you have a very watchable snow-free 
picture, and thereby increase the viewership and the eyeballs 
that are enjoying the program offerings that are being put 
forth by the broadcast community.
    So I think that it's very much a win-win situation until 
you get into the area of retransmission consent where 
government regulation has created an extraordinary and unusual 
market that allows broadcasters, some broadcasters to use an 
unhealthy degree of leverage to extract fees from consumers 
that they wouldn't normally receive in the course of their 
business policy.
    Mr. Dempsey. May I address that, Mr. Chairman?
    Chairman Braley. You may.
    Mr. Dempsey. I can't speak, of course, to Mr. Pardini's 
experience, but in my market we receive no retransmission 
consent fees from any cable operator. In our market, probably 
80 percent of the homes who receive cable are subscribers to 
either Charter or Comcast, so we've never really had any 
position to go to them with demands for compensation. I want to 
echo Mr. Pardini's comments that we think that we've helped 
each other. We certainly recognize the value that the cable 
systems bring us and we know from our own ratings information 
that we bring a great deal of value to them because the 
broadcast over-the-air stations are viewed significantly more 
than the cable sources on their own cable systems.
    So while we look at this as basically a market matter, I 
want to point out that we have never in the history of our 
station threatened anyone to remove our signal except one time 
back in 1993 because they wouldn't sign the agreement. It had 
no money attached to it. We just couldn't get the agreement.
    Chairman Braley. Thank you.
    Mr. Oliver, I want to talk to you a little bit about 
something we hear about called triple play.
    More and more of the telecommunications companies are 
offering their customers a triple play of voice, Internet and 
video services and we heard Mr. Pardini talk about some of the 
services that his company provides.
    How do you expect the DTV transition may affect consumer 
demand for video services provided by telecommunications 
companies?
    Mr. Oliver. That's an interesting question and it's 
somewhat difficult probably for us to tell in many respects. I 
would not think that it would have significant impact because 
of again we're talking about the consumers receiving their TV 
signal off-the-air as being ones that are impacted.
    Our company, for instance, does provide video. We've got 
roughly 6800 video subscribers that we currently serve. And I 
wouldn't necessarily expect that it's going to be tremendously 
increased as a result of the DTV transition.
    I don't think it's going to have tremendous impact but as 
you say, the triple play has been a tremendous success for us 
as rural carriers in our ability to deliver the broadband 
signal out to our customers. There's been a number of studies 
and the FCC has even concluded that the provision of video 
signal along with broadband tremendously increases that 
penetration rate and that's what we strive to do in rural areas 
is to ensure that the facilities that we're putting out there 
which are high cost to start with have as much subscribership 
as possible. So our interest in this is again from that 
broadband deployment side and being in a position to continue 
to link that video with that broadband service.
    Chairman Braley. Thank you. At this time I yield to the 
Ranking Member.
    Mr. Davis. Thank you, Mr. Chairman, and again I'd like to 
thank the panel. You did a wonderful job, thank you.
    I'd like to start with Mr. Oliver, if I may. You briefly 
mentioned problems with technological issues related to the 
equipment in your testimony. Would you like to go into a little 
more detail so we could understand some of those technological 
issues?
    Mr. Oliver. I am not certain exactly what you're referring 
to in my testimony to tell you the truth.
    Mr. Davis. If you could, the equipment that you're using, 
the transition, do you feel like the equipment is working well?
    Mr. Oliver. Again, most of my testimony related more to the 
telephone side. We do have video proponents out there as well 
that we're serving. And yes, sir. I think that we are finding 
not major problems at this point, and at this point in time we 
would see a relatively smooth transition from our standpoint as 
a cable service provider.
    Mr. Davis. Okay, thank you for that.
    Mr. Dempsey, thank you for being here. It's good to have 
you in Washington. You mentioned $6 million it's cost your 
station so far. Is that pretty typical standard for most small 
stations?
    Mr. Dempsey. Oh, yes. Again, you may refer to my testimony, 
whether you're in Johnson City or New York City, the cost to 
make this transition are basically the same. So it's very 
burdensome and we're the 91st market so we're kind of midway in 
the country. You get into the markets that are 150 and on up, 
it's even more difficult because they have less of a revenue 
stream.
    Mr. Davis. How do you hope to absorb that cost, that $6 
million that you've had to outlay? How do you plan on bringing 
that money back into your business?
    Mr. Dempsey. Well, one of the ways that we hope to is the 
fact that we're able now to provide other streams of 
programming. For example, WJHL-TV has a second channel. It's a 
24-hour local weather and we hope once we get access to all of 
the homes in the market via cable or satellite, we think that 
that service will be in need, that it will get ratings and 
we'll be able to sell the advertising on that.And maybe a third 
channel and a fourth channel.
    Mr. Davis. The $6 million that you've paid to date, do you 
foresee still the on-going increases and expanse until you make 
the transition in February?
    Mr. Dempsey. Yes, sir.
    Mr. Davis. Do you have any idea how much that costs?
    Mr. Dempsey. It would probably be another million and a 
half. Because when you make this transition, for example, when 
you go to the full digital signal, for example, you're going to 
have to have basically new equipment because when we broadcast 
in high definition, you basically have to reconfigure your set 
to fill that 16 by 9 ratio screen versus what we've had. So 
that's just one example. That alone will probably be $150,000 
to $200,000.
    Mr. Davis. One thing I have noticed when I'm back home, you 
are running are PSAs and you actually started those before 
federal mandates kicked in to make you do those things.
    Can you tell me how that's working and the feedback you're 
getting on your PSAs?
    Mr. Dempsey. I think it's working very well. This is so 
important to us because we don't want to lose one set of eyes. 
We don't want to lose one household to this transition because 
they're all important to us.
    We've undertaken in the last few months this education 
program that I think is working. We noticed from the calls we 
get at our station in addition to what we run that's broadcast, 
we also have basically a grass roots approach where in my case 
I go and speak to civic groups or say the First Tennessee 
Development Council on Aging which was one of the best, by the 
way, I ever visited, because it really did help folks 
understand what they were going to have to do.
    So I think we have the public. They now know that a huge 
change is coming and I think we've been very successful in 
doing that.
    Mr. Davis. Thank you. Mr. Hephner, in your testimony you 
mentioned that many retailers are hesitant to participant in 
the coupon program. What concerns do they have that are 
preventing them from participating?
    Mr. Hephner. Well, from the feedback from the dealers 
around me, they first of all thought the coupon program was 
going to be very difficult. They looked it up on the web site 
and they saw these four or five pages of participation rules. I 
think they just felt overwhelmed by it, thought they were going 
to have to do more than they have to do.
    I understand that there were a lot more odious prior to 
CERC getting involved, that there was a lot more regulations, 
but it got streamlined down. When we started, it seemed fairly 
simple. I mean once you read it through you realize it's really 
not as bad as it seems. Plus they feel like it's going to be a 
hassle to redeem the coupons and deal with the customers. They 
would just rather say go buy your box at Wal-Mart.
    For us, that wasn't an option. We have positioned ourselves 
over the last 58 years to be the expert in our market area for 
TV. We're going to get those calls anyway, so we have to have a 
solution period.
    Mr. Davis. So do you think those concerns have been valid?
    Mr. Hephner. No, I don't at all.
    Mr. Davis. The Government Accountability Office recently 
released a report regarding the progress of DTV transition. In 
this report, the GAO found that many small retailers had to 
make costly changes to their point-of-sale process to 
accommodate the government-issued coupons. Did you need to make 
any changes to your point-of-sale process?
    Mr. Hephner. The only change we made was to add a link on 
our computer screen that said redeem coupon that took us to the 
NTIA's web site.
    Mr. Davis. Very good. I started my question--this will be 
last question to Mr. Oliver and I'm going to go back and ask 
that same question to everyone on the panel if anyone would 
like to answer, talking about any problems or technological 
issues related to the equipment. Have any of you seen that 
happening and if you could, if you could respond to the 
question?
    Mr. Pardini. Sure, I'll talk to the point which will 
hopefully in the next few weeks become moot. For example, with 
Mediacom, there are some 45 signal processing centers in small 
communities that service less than 100 customers. To upgrade 
these centers with the necessary equipment would average 
approximately $15,000 per location. So in essence, what we're 
looking at was an investment on the order of $650,000 to 
service 4500 customers. That means an investment of roughly 
$1,000 per customer. There's very few businesses in this 
country that can survive when a resource demand is placed on 
them to put $1,000 down on your house. And this is on top of an 
already highly-pressured great structure. So we looked at this, 
and many small cable operators looked at this as being a 
potential deal breaker in their business model and in their 
ability to conduct businesses after that, after the February 
17th transition date.
    The FCC, as I mentioned, recently indicated that it was 
going to adopt an order that would provide a waiver of the 
dual-carriage requirements that would require such a huge 
financial outlay for small cable operators and that's why we 
applaud the FCC's actions. We hope that they will adopt the 
order in the next coming, few coming weeks and prevent small 
cable operators from having to go through such an excessive 
investment for very little return.
    Mr. Davis. Would anyone else like to answer that question?
    Mr. Dempsey. I would just like to say that we tested 
getting coupons. We purchased converter boxes. The last display 
when I spoke to the group on aging was in the Millennium Center 
and I took a 10-inch monitor over there and rabbit ears and it 
picked up the signal. So I think they're going to be, by and 
large, they work great. There will be some areas, particularly 
in our region with mountains that will be some challenges, but 
thus far, the coupons, we've had various people say you know, 
we ordered them up, they came right in and we've had basically 
all positive comments.
    Mr. Davis. Thank you. I yield back.
    Chairman Braley. The chair recognizes the gentleman from 
Texas for five minutes.
    Mr. Cuellar. I appreciate what you're all doing and I do 
understand the difficulty when we have a major transition. The 
general question I will ask you has to do a little bit more 
with some of the TV stations that deal with the Spanish-
speaking individuals which I think provides extra challenges 
from the ones that you all are talking about. And I understand 
what you all are going through.
    What do you do with the--what's the impact of the DTV 
transition stations that do not have the must-carry rides like 
several of the Univision stations? Does anybody have an idea?
    Mr. Pardini. Well, I can tell you in Iowa we carry two off-
air Hispanic language stations. We also offer a tier of 
Hispanic language services in our service area on our digital 
tier that enable Hispanic households which represent the 
largest-growing population segment in Iowa to receive services. 
So we do carry all full-power Hispanic language stations in our 
service areas.
    Mr. Cuellar. What about the--have you all voiced as an 
industry the cable plan to move Class A and lower power 
broadcast stations whose transmission agreement have expired 
off their analog cable tier?
    Mr. Pardini. I think that that's on a market-by-market 
basis dependent upon the station. I do think that low power, 
Class A stations under the regulations do not have a mandatory 
right of carriage on cable systems. I think that for cable 
operators that are sensitive to local market conditions, 
they'll continue to carry and make that service available, 
simply as a matter of business survival.
    Mr. Cuellar. And I appreciate that, whether it's in your 
state or certainly in Texas. The Hispanic population is just 
growing by large amounts and Texas I think it's almost like 36 
percent is already Hispanic. Texas, as a whole, to the last 
census has grown, is now--I don't know if this is a right term, 
minority majority state, mainly with Hispanics and if you look 
at different states you see this growth. I know on the border 
we have a different type of situation because as we move to 
transition right across the river, the Mexicans are not doing 
that. So they're staying on that, so that means some sort of 
impact, economic impact to our TV stations on the U.S. side. I 
know that that's a different subject, Mr. Chairman, but 
whatever you all can do to help some of those minority 
businesses and keep that in consideration we would appreciate 
it.
    Thank you.
    Chairman Braley. Thank you. We'll continue on with a second 
round of questioning and we're watching to see what happens 
with more votes, but as long as we're on a roll, we'll just 
keep going. This is a very, very timely topic and I think that 
it's been very informative, so I'm going to continue to explore 
some of these issues and hopefully, we'll be able to shed some 
light on some additional things.
    Mr. Hephner, one of the things you've talked about was the 
intimidation factor of these four to five pages of 
participation rules, do you remember that?
    Mr. Hephner. Yes.
    Chairman Braley. I'm hopeful that my Plain Language in 
Government Communications Act which has passed the House 
recently by an overwhelming bipartisan majority, will have a 
positive impact on reducing the length and the intimidation 
portion of those participation rules.
    One of the things we are all concerned about is reducing 
the imposition on small businesses by regulatory communications 
from our federal agencies. So one of the other concerns I had 
is this whole issue of the profit margins and the impact that 
these requirements have on the sale of the digital analog 
converter box. If electronic retailers do not stand to make a 
profit on the sale of those devices, do you believe that there 
are currently adequate incentives for those retailers to 
participate in the program and if so, what are they?
    Mr. Hephner. In our case, being a small business, we don't 
just look at the bottom line, we look at the long term. We've 
been in business for 58 years. Customers come to us for 
answers. If we don't have the answers, they'll go someplace 
else. So we have to have the answers. We did not think about 
not participating in the program just because we knew we were 
going to have to. So ours is more of a customer service 
incentive versus a profit incentive because there is no profit 
incentive when you make $10 on a sale that's going to take you 
a lot more time than most sales.Our margins are very, very 
slim.
    As for that tariff issue, every couple bucks we can take 
off the cost side helps us. But for us, it was being there for 
customer service. The customer is going to call us with these 
questions and they're going to expect us to know and that's our 
incentive, customer service.
    Chairman Braley. One of the things we know about your 
business is that it changes with the change in consumer 
products and consumer demand. And obviously one of the side 
impacts of this decision is probably going to have a negative 
impact on companies that manufacture TV antennas or if you look 
at it another way depending on some of the waivers that are 
being allowed by the FCC, it could increase market demand. So 
as you look at your particular business industry, what do you 
see as some of the challenges ahead that could be directly or 
indirectly related to this change?
    Mr. Hephner. Speaking specifically to the antenna issue, we 
have seen an increase in antenna sales just because customers 
generally need a little bit better antenna to pull in the 
digital signals. They tend to have what I've heard the "cliff" 
effect. They go along great, but then once they drop below a 
certain signal strength, they just drop off and they're gone. 
So if a customer is used to using an old antenna where they got 
a snowy picture, now they can't use that same antenna. They're 
going to need something better. So I think in the short term, 
things like antennas, we're seeing an increase; cable wires, 
antenna masts to attach them to, all those things are going to 
be increased. But there obviously is going to be a bubble 
effect. Once they put the antenna in, that's not going to 
continue on down the road.
    And obviously, the life expectancy of this product is 
fairly short term. As people's analog TVs die, they're going to 
be replaced with these new digital televisions which have those 
tuners already. So this whole concept of the box and all that 
is fairly narrow, in our time frame anyway, it is a fairly 
narrow situation we're going to be in. In a couple of years, it 
probably will not be a big issue for us.
    Chairman Braley. Mr. Oliver, I understand that many cable 
companies are seeking an exemption from the FCC regs issued on 
September 11 of 2007 and the concern that the ACA and these 
small operators have is that the dual-carriage requirements 
would overwhelm the limited band width for many small cable 
companies.
    Do small telecommunications companies have similar concerns 
about the FCC's dual-carriage requirements and how they impact 
small cable companies?
    Mr. Oliver. Mr. Chairman, I am not a technological expert, 
but I can say that in most cases that really doesn't have a 
major impact on us as telephone providers because in most cases 
that's being provided over either a provider to the home which 
is digital or over our DSL product which is again a strong tie 
back to broadband which is already a digital signal as well.
    So on the telephone side, we do find ourselves in a little 
bit of a different situation than typical cable companies.
    Chairman Braley. Mr. Pardini, you talked a little bit about 
the upcoming FCC application for a waiver of the must-carry 
rules, the dual-carriage requirements and one of questions I 
have for you is assuming a possible scenario that would not 
include full relief from that request, what, if anything, is 
the ACA and small cable companies doing in order to plan for 
how they would proceed?
    Mr. Pardini. I think without the waiver, you're likely to 
see that a number of signal processing centers will be shut 
down which means that cable customers in that part of the 
country will have to switch to satellite, or find some other 
way to do that because you simply can't afford to invest in the 
equipment necessary to deliver all of these duplicative 
programming outlets.
    So I think that there are going to be some companies that 
simply look to refer their customers to satellite at that point 
which means that there's going to be a local business in a 
small town that is shutting down and losing jobs and those jobs 
are going out of state and potentially with some competitors 
going out of the country.
    So I think that it's very important that the FCC understand 
the impact that this will have on main street America, 
especially in these small communities. Within Mediacom, where 
you certainly have some degree of size and scope, we're not the 
big boys like Comcast and Time Warner, but where you have some 
size and scope you might be able to justify the break even on 
the equipment, but there would be a disruption in services as 
operators, either trade service areas in order to get those 
economies of scale or look to exit the business. And I think 
that what we all agree here, my fellow panelists, is that we're 
trying desperately to provide a minimum of disruption to the 
consumer. This digital transition should be transparent when 
it's done extremely well. And I think much of this partnership 
has done that.
    There are a few bumps in the road. There are some threats 
to what is now a very smooth transition process that could loom 
ahead unless oversight is exercised by you folks on the 
Committee.
    Chairman Braley. Thank you. Mr. Davis, any further comments 
or questions for the record?
    Mr. Davis. Just a follow-up of what you just said. There's 
some threats looming, have you outlined those in the hearing 
today?
    Mr. Pardini. Yes, I have. The one threat which we believe 
will become a moot point in the next couple of weeks is this 
FCC waiver for small cable operators at 552 MHz or less. The 
other one is the upcoming retransmission consent cycle in which 
some broadcasters may be seeking to use excessive leverage to 
extract fees from consumers and withhold programming and that 
may be a point of confusion as to whether it's a retransmission 
issue or whether it's part of the digital transition and we 
want to be very clear about that. We think there are some 
things by adopting a "quiet period" in the months before and 
after this transition where negotiations can continue without 
necessarily withholding programming. We believe that that's a 
very sincere step that would allow market conditions to dictate 
an outcome for these agreements to take place that reflect the 
value that cable and broadcasters provide each other without 
necessarily disrupting consumers.
    Mr. Davis. It appears we put a panel together that can work 
together as we move towards the February time line for that. 
Thank you for being here today. I have no further questions. I 
yield back.
    Chairman Braley. Well, I would like to thank all of our 
panelists. It's been a very enlightening, informative 
discussion. I think one of the things that this hearing has 
highlighted is what an enormous impact on this country this DTV 
transition is going to have despite the incredible volume of 
public service announcements and crawlers and other forms of 
communication. Mr. Dempsey, I think your personal description 
of some of the conversations you've had with people in your ADI 
are probably representative of what other consumers around the 
country are facing in terms of their lack of awareness of this 
problem is rapidly approaching. I think some of the stops and 
starts and when the DTV requirements are actually going to be 
implemented has probably led to some of that confusion, but I 
think this hearing has helped focus the attention on the 
importance of everyone to do what we can to get the word out 
and help make this transition as seamless as possible.
    I would also like to make sure that we have unanimous 
consent that Members will have five days to submit statements 
and supporting materials for the record. Without objection, so 
ordered. This hearing is now adjourned.
    [Whereupon, at 4:16 p.m., the Subcommittee was adjourned.]
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