Telecommunications: Many Broadcasters Will Not Meet May 2002	 
Digital Television Deadline (23-APR-02, GAO-02-466).		 
                                                                 
U. S. broadcast television stations are now switching from analog
to digital television (DTV). The transition to digital		 
technologies was sought by many broadcasters and was mandated by 
Congress and the Federal Communications Commission (FCC). FCC	 
established 2006 as the target date for ending analog		 
transmissions---a deadline later codified by Congress. At least  
24 percent of all commercial television stations are now	 
broadcasting a digital signal. However, these stations report	 
little interest in receiving DTV. Transitioning stations reported
that funding was one of the most prevalent problems. Seventy-four
percent of transitioning stations indicated that the problems	 
they are facing are so significant that they may not be able to  
begin broadcasting a DTV signal by May 2002, as required.	 
Sixty-eight percent of transitioning stations said that a	 
realistic extension for them would be one year or more. 	 
Thirty-one percent of the transitioning stations that said they  
might miss their May 2002 deadline reported that, if the	 
transition were driven by market forces such as competition,	 
technology, and consumer demand, they likely would not be on the 
air with a digital signal until after 2010. Another four percent 
of these stations reported that without a government mandate,	 
they likely would never transition to digital.			 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-02-466 					        
    ACCNO:   A03142						        
  TITLE:     Telecommunications: Many Broadcasters Will Not Meet May  
2002 Digital Television Deadline				 
     DATE:   04/23/2002 
  SUBJECT:   Broadcasting standards				 
	     Competition					 
	     Telecommunication industry 			 
	     Television broadcasting				 


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GAO-02-466
     
A

Report to the Ranking Minority Member, Subcommittee on Telecommunications
and the Internet, Committee on Energy and Commerce, House of Representatives

April 2002 TELECOMMUNICATIONS Many Broadcasters Will Not Meet May 2002
Digital Television Deadline

GAO- 02- 466

Letter 1 Results in Brief 4 Background 6 Almost One- Quarter of Commercial
Stations Are Broadcasting a

Digital Signal, Although Many Stations Perceive Little Consumer Demand 11
The Building of DTV Stations Is Proceeding, but Problems Have Arisen for
Many Broadcasters 15 Many Transitioning Stations Reported that Problems
Might Keep

Them from Meeting FCC Deadlines 26 Observations 30 Agency Comments 31

Appendixes

Appendix I: Scope and Methodology 33

Appendix II: The World Trade Center Attacks Severely Disrupted Over- the-
Air Broadcast Television Throughout New York City 36

Broadcasters Struggled to Restore Service in the Immediate Aftermath of the
Trade Center Attacks 36 The Priority for Station Executives Was Full
Restoration of Their Analog Signals 37

As They Seek Permanent Broadcasting Space, Stations Are Working to Address
Financial Issues 38 FCC Received High Marks from New York City Broadcasters
in the

Aftermath of September 11 40

Appendix III: Public Broadcasting Stations Also Report Experiencing Problems
in Their Transition to DTV 42

Appendix IV: Survey Results for Commercial Current DTV Stations 44

Appendix V: Survey Results for Commercial Transitioning Stations 53

Appendix VI: Survey Results for Public Current DTV Stations 63

Appendix VII: Survey Results for Public Transitioning Stations 72

Appendix VIII: GAO Contacts and Staff Acknowledgments 82 GAO Contacts 82
Acknowledgments 82

Figures Figure 1: Average Costs of Building DTV for Different Types of
Stations 17 Figure 2: Stations? Funding Sources for Building DTV Stations 20
Figure 3: Percentage of Stations Reporting Problems with Building

DTV Stations 25 Figure 4: Stations? Reported Dates of Broadcasting Digitally
If No Government Mandate Existed 30

Abbreviations

DBS direct broadcast satellite DMA designated market area DTV digital
television FAA Federal Aviation Administration FCC Federal Communications
Commission HDTV high definition television PBS Public Broadcasting Service

Lett er

April 23, 2002 The Honorable Edward J. Markey Ranking Minority Member,
Subcommittee on

Telecommunications and the Internet Committee on Energy and Commerce House
of Representatives

Dear Mr. Markey: The transition of broadcast television stations throughout
the United States from analog to digital television (DTV) technologies is
under way. DTV technologies enable broadcasters to offer their viewers
clearer, sharper pictures and a wider range of broadcast services than are
possible with traditional analog technologies. This transition to digital
technologies was

sought by many broadcasters and was mandated by Congress and the Federal
Communications Commission (FCC). Pursuant to statute, FCC (which administers
radiofrequency spectrum for nonfederal government use) is temporarily
providing each broadcast station with additional spectrum on which to begin
broadcasting a digital signal. 1 For several years, during which time it is
envisioned that consumers will begin to purchase digital television sets and
other equipment, broadcasters will transmit both digital and analog signals.
At some point, the analog signals

are to be discontinued, leaving television stations to continue broadcasting
only in digital format. FCC established 2006 as the target date for ending
analog transmissions and this was later codified by Congress. 2 Spectrum
that broadcasters vacate is to be returned for other uses. Some of the
returned spectrum has been reallocated for public safety uses and some for

1 The radiofrequency spectrum is the part of the natural spectrum of
electromagnetic radiation lying between the frequency limits of 9 kilohertz
and 300 gigahertz. It is the medium that makes possible wireless
communications, including cellular and paging services, radio and television
broadcasting, radar, and satellite- based services. 2 In April 1997, FCC
established a 2006 target date for the cessation of analog service in its
Fifth Report and Order (FCC 96- 493). Congress later codified the date
(while at the same time creating exceptions to the date) in the Balanced
Budget Act of 1997.

commercial uses. 3 After September 11, 2001, reassigning the spectrum for
wireless uses, such as public safety communications and mobile phones, has
become a higher priority and greater emphasis has been placed on a timely
completion of the DTV transition.

To move the transition along and more quickly reassign the spectrum, FCC
established staggered deadlines by which broadcasters must build their DTV
stations and begin broadcasting a digital signal. Generally, larger stations
in major television markets were required to begin broadcasting a

digital signal by May or November 1999, while all remaining full- power
commercial stations were required to begin broadcasting a digital signal by
May 1, 2002. 4 Additionally, all of the nation?s public broadcast stations
are to begin broadcasting a digital signal by May 1, 2003.

According to a commercial database that contains information on
broadcasters, there are currently 1,240 full- power commercial television
stations in the United States. As of April 12, 2002, according to FCC, 298
of these stations had begun broadcasting a DTV signal. Although some

stations are on the air with a digital signal and others are close to
launching their DTV stations, some stations are still investigating what
funds and equipment they will require and have much work remaining before
they can broadcast a digital signal. Concerns have been expressed by
industry officials that many commercial stations will have difficulty
building their DTV stations by the May 2002 deadline. Because of your
interest in the DTV rollout and the ultimate reassignment of the broadcast
radiofrequency

spectrum for other uses, you asked us to provide you with information on the
following: (1) broadcasters? progress in building DTV stations, as well as
broadcasters? perceptions of consumer interest in DTV and

broadcasters? plans for developing and marketing DTV content; (2) the
experiences among broadcasters who have and have not completed the 3 There
are incumbent television stations (both analog and digital) operating in
channels 52

to 69, the portion of the broadcast spectrum that is to be returned. These
stations will have to move before the spectrum can become completely
available to the new licensees. Pursuant to congressional direction, FCC has
reallocated some of the spectrum from television channels 60 to 69 for
public safety uses. FCC has established a voluntary relocation scheme for
the stations operating in channels 59 to 69 and will examine voluntary
relocation of stations operating in channels 52 to 58 on a case- by- case
basis. Thus, according to FCC staff, public safety and commercial users may
be able to begin using the

spectrum before the completion of the DTV transition. 4 There are also more
than 2,300 licensed low- power television stations operating throughout the
United States. These stations were not given additional radiofrequency
spectrum and are under no mandate to transition to digital technologies.

building of their DTV stations, including any key problems that may have
arisen; and (3) the extent to which there are concerns about meeting DTV
deadlines among broadcasters who have not completed building DTV stations.
This report provides information on these broadcaster- specific issues.
Later in 2002, we plan to provide an additional report on other issues
affecting the DTV transition, including digital content production,
copyright protection, cable carriage of DTV channels, and consumer

knowledge about DTV. To respond to your request for information about the
progress in building DTV stations, we conducted a survey of all full- power
commercial and public broadcast television stations operating in the United
States. We developed two versions of the survey: one was sent to stations
that are

already on the air in digital, and one was sent to stations that are not yet
on the air in digital. The survey asked a variety of questions about the
stations? transitions. The survey questions and detailed survey results for

commercial stations are contained in appendixes IV and V, and the questions
and results for public stations are contained in appendixes VI and VII. To
supplement and better analyze the broadcasters? responses to our survey, we
purchased a commercial database with information on

broadcast stations, which included information such as annual revenues,
market size, and parent company or ownership information. Throughout this
report, percentages are rounded to the nearest whole number. A more detailed
discussion of our overall scope and methodology is provided in appendix I.
We conducted our review from May 2001 to April 2002 in accordance with
generally accepted government auditing standards.

In total, we received 1,036 of 1,554 surveys (a response rate of 67
percent). We received 135 of 168 surveys (80 percent) from commercial
stations that had gone on the air with a digital signal as of September
2001, 5 hereafter referred to as ?current DTV stations.? 6 We received 727
of 1,014 surveys (72 percent) from commercial stations that were still in
the process of building their DTV stations as of September 2001, and that
had not yet gone on the air with a digital signal, hereafter referred to as
?transitioning 5 Although the list of current DTV stations was created in
September 2001, we sent a

different survey to any station that indicated that we had misclassified its
digital broadcasting status. As such, some of the stations that filled out
the survey for digital stations began that service after September 2001.

6 Many of the current DTV stations were larger stations in major television
markets that had been given an earlier deadline by FCC to be on the air with
a digital signal.

stations.? We also received 174 of 372 surveys (47 percent) from public
stations; 15 of these responses were from 37 public stations that were
already on the air in digital as of September 2001 (41 percent). 7 Because
all public stations are under a deadline to be on the air in May 2003- 1
year later than most commercial stations- we report separately on our survey
results for public stations in appendix III. This letter discusses only the
survey results for commercial stations. Lastly, we did not mail surveys to 8
New York City stations that had broadcast towers located atop the World
Trade Center, and that were directly affected by the September 11, 2001,
terrorist attacks. Instead, we directly spoke to a representative from each
of those stations to gather information about how the events of September 11
affected their station operations generally and affected their DTV plans in
particular. A discussion of the current situation of the New York stations
is provided in appendix II.

Results in Brief At the present time, at least 24 percent of all commercial
television stations are broadcasting a digital signal. At least 113 of the
119 broadcast stations that were mandated to be broadcasting a digital
signal by 1999 are doing so. In addition, at least 185 of the remaining
1,121 commercial television stations that are to be broadcasting in digital
by May 1, 2002, are on the air with a digital signal. As for the progress of
transitioning stations, we

conducted interviews with representatives from a few transitioning stations
and found them to be in various stages of building the DTV stations. Once on
the air, 74 percent of current DTV stations reported providing some amount
of high definition content- an average of 23 hours per week for those
stations showing some high definition content. However, current DTV stations
reported that they perceive little interest in DTV among consumers in their
viewing areas at the present time.

Responses to our survey indicate that differences exist between the
experiences of current DTV stations and transitioning stations. Compared
with transitioning stations, current DTV stations (many of which had an
earlier DTV deadline) were less likely to report having had as many problems
in building their DTV stations. Transitioning stations (which are 7 We
conducted a nonresponse analysis and found no significant differences
between

respondents and nonrespondents. For more information on the nonresponse
analysis, see appendix I.

more likely to be smaller stations in smaller television markets) reported
experiencing a variety of problems related to getting their digital signals
on the air by the May 2002 deadline. Transitioning stations reported funding
to be one of the most prevalent problems in building their DTV stations.
While 79 percent of current DTV stations reported relying in whole or in
part on funding from a station owner or parent company, 62 percent of
transitioning stations said they could rely on similar financing. Moreover,
43 percent of transitioning stations relied to some degree on debt
financing,

compared with only 16 percent of current DTV stations. Six percent of
transitioning stations (many of which were small broadcasters) said that the
station might have to be sold to fund the transition to digital. Seventy-
four percent of transitioning stations reported to us that the problems they
are facing are so significant that their station may not be able to begin
broadcasting a DTV signal by May 2002, as required. 8 These transitioning
stations, when compared with other transitioning stations

that said they would meet the deadline, were more likely to have annual
revenues of less than $2 million and to be in the bottom 100 television
markets. 9 Sixty- eight percent of transitioning stations said that, were
FCC to extend its deadline for having the digital signal on the air, a
realistic extension for them would be 1 year or more. Thirty- one percent of
the transitioning stations that said they might miss their May 2002 deadline
reported that, if the transition were driven by market forces such as
competition, technology, and consumer demand (rather than a government
mandate), they likely would not be on the air with a digital signal until
after 2010. Another 4 percent of these stations reported that without a
government mandate, they likely would never transition to digital.

We provided a draft of this report to FCC staff for their review and
comment. FCC staff stated that they believe the costs of building DTV
facilities and the anticipated construction dates reported to us may not
reflect the current status in light of FCC rule modifications made in 8
Later in this report we discuss the actual number of broadcasters?
applications that were filed with FCC for extension of the May 2002
deadline. 9 The market for a broadcast station is known as its designated
market area (DMA). According to Nielson Media Research, DMAs are used to
identify television stations whose broadcast signals reach a specific area
and attract the most viewers. Nonoverlapping DMAs cover the entire
continental United States, Hawaii, and parts of Alaska. There are currently
210 DMAs throughout the United States.

November 2001. In addition, FCC staff provided technical comments that were
incorporated as appropriate. Background Free over- the- air television
broadcasts have been available to Americans

for more than 50 years. According to the National Association of
Broadcasters, the average television market includes over- the- air signals
from at least seven local broadcast stations. 10 Commercial stations may get
their programming content through an affiliation with one of the top seven
television networks (ABC, CBS, Fox, NBC, PAX, UPN, and WB) or they may be an
independent broadcaster. Some commercial television stations are owned by
large media companies or other corporations; others are owned by individuals
or small companies. The United States also has 380 public television
stations that receive funding from a variety of sources, including

federal funding, state funding, commercial grants and donations, and private
donations from individuals. Public stations tend to show more educational
and arts programming, and many of these stations are affiliated with the
Public Broadcasting Service (PBS). In addition to over- the- air
availability, most broadcasters are carried on local cable television
systems

along with numerous cable programming channels. Also, satellite television
providers now offer subscribers the signals of local broadcasters in
approximately 40 television markets. In fact, according to FCC, more than 86
percent of television households nationwide now subscribe to

some type of multichannel video programming service, such as a cable or
satellite provider, rather than relying solely on over- the- air broadcast
television. 11 Since its inception, the broadcast television industry has
relied on ?analog? technologies to transmit over- the- air television
signals. During the last few

decades, however, media of all types have been transitioning to ?digital?
technologies. Because digital technologies can provide greater versatility
and higher quality pictures and audio than traditional analog technologies,
the broadcast television industry supported, and Congress and FCC mandated,
a transition of broadcast television stations from analog to 10 Consumers
living in rural areas tend to receive over- the- air signals from fewer
broadcasters than consumers living in urban areas. More independent stations
are located near urban areas. 11 In the Matter of Annual Assessment of the
Status of Competition in the Market for the Delivery of Video Programming,
CS Docket No. 01- 129, Eighth Annual Report, FCC 01- 389 (released Jan. 14,
2002) at paragraph 6.

digital technology. 12 This decision was based on the notion that a
transition to digital television would bring the broadcast television
industry into the 21 st century with current and competitive technology, 13
and would help to preserve for consumers the benefits of a healthy free
over- the- air television service in the future. Traditional television
broadcasting uses the radiofrequency spectrum to transmit analog signals-
that is, signals in which motion pictures and sounds have been converted
into a ?wave form? electrical signal. Traditional analog signals fade with
distance, so consumers living farther from a broadcast tower will experience
pictures that are distorted or full of ?snow.? With digital technology, the
analog wave form is converted into a

stream of digits consisting of zeros and ones. Although digital signals also
fade over distance, because each bit of information is either a zero or a
one, the digital television set or receiver can adjust for minor weaknesses
in the signal to recreate the zeros and ones originally transmitted.
Pictures and sound thus remain perfect unless significant fading of the
signal occurs, at which point the transmission cannot be corrected and there
is no picture at all. 14 12 The decision to transition the broadcast
television industry to digital technologies and the establishment of a
process for doing so took many years.

13 Cable television systems are also transitioning to digital, although they
are under no government mandate to do so. Many cable operators have added
?digital tiers? to their programming offerings. Direct broadcast satellite
systems (such as DirecTV and EchoStar) have always transmitted their signals
in digital. Both cable and satellite operators primarily use digital
technology as a way of increasing the number of channels they can offer. 14
This is known as ?the cliff effect?- a viewer gets either a perfect picture
or no picture at all.

Digital technology also makes it easier to offer high definition television
(HDTV). With HDTV, roughly twice as many lines of resolution are
transmitted, creating a television picture that is much sharper than
traditional analog television pictures. 15 Another advantage of digital
television is that ?digital compression? technologies allow for more

efficient use of the radiofrequency spectrum than analog technologies. Using
digital compression, broadcasters will have the opportunity to use the 6
megahertz of spectrum required to broadcast one analog television show to
transmit four or five different digital ?standard definition? television
shows simultaneously. 16 This process of using the digital spectrum to show
multiple programs at once is known as multicasting. To enjoy HDTV broadcasts
or to be able to see multicasts of digital signals, consumers must own a
television monitor that is capable of displaying

these features and a digital tuner that is capable of receiving the
broadcasts. 17

15 Current analog television sets display about 480 lines of resolution.
HDTV sets display up to 1,080 lines of resolution and are often ?widescreen?
format, similar to movie theater screens. 16 The idea of broadcasters as
?multichannel? operators could make broadcast television more competitive
with cable and satellite television providers. A transition to digital

technology also opens doors to future links between television sets and
computers and the Internet, possibly making television viewing more of an
interactive experience. 17 It is likely that consumers who subscribe to a
cable or satellite television provider will not need a separate over- the-
air digital tuner because the cable or satellite set- top converter may
perform that function. These equipment issues have not yet been settled, and
we plan to address them further in our next DTV report. Regardless, even
cable and satellite subscribers will require a DTV monitor to see HDTV
programming.

The DTV transition involves a substantial overhaul and replacement of the
stations? transmitting and studio equipment as well as the eventual
replacement of consumers? analog television sets or the attachment of
?digital converter boxes? to those analog sets. Thus, building DTV stations

involves a large outlay of capital and effort by the broadcast television
industry. Sometimes a new broadcast tower or significant modifications to an
existing tower are required for the digital antennas. Broadcasters must
purchase digital transmission equipment, obtain digital programming, and
acquire equipment for converting analog programming to digital. One station
representative with whom we spoke noted that broadcasters must then incur
the costs of running two stations simultaneously during the transition
period, even though viewership and advertising revenues are likely to remain
roughly the same. 18 To facilitate the transition, Congress and FCC
temporarily provided each

full- power television station (both commercial and public) with another 6
megahertz of radiofrequency spectrum so that they could begin broadcasting a
digital signal. A transition period was established during which
broadcasters would build their DTV stations and simultaneously transmit both
analog and digital signals. In 1997, FCC established a timeline for this
transition period. By May 1, 1999, the affiliate stations of the 4 largest
networks (ABC, CBS, Fox, and NBC) in the top 10 television

markets in the country were to have a digital signal on the air. 19 By
November 1, 1999, the affiliates of the 4 largest networks in the top 11 to
30 television markets were to have a digital signal on the air. 20 By May 1,
2002, all full- power commercial television stations across America are to
have a DTV signal on the air. By May 1, 2003, all public stations are to be

broadcasting a DTV signal as well. 18 With time, however, it is possible
that broadcasters will realize opportunities for new businesses and new
sources of revenues from DTV. 19 According to FCC, 39 of those 40 stations
met the deadline and 38 are broadcasting today in digital (36 with licensed
facilities and 2 with special temporary authority). Two New York City
stations met the 1999 deadline but lost their digital antennas in the
terrorist attacks on September 11, 2001. They, along with 4 other New York
stations broadcasting in digital before September 11, have not yet restored
digital services. See appendix II for more information about these New York
stations.

20 Seventy- five of these 79 stations met this deadline (68 with licensed
facilities and 7 with special temporary authority).

The few stations that missed the earlier 1999 deadlines were granted
extensions by FCC. In March 2002, FCC closed an application period for
stations that have May 2002 deadlines to file for extensions. FCC said it
will not issue any type of blanket waiver of the deadline, but it would
allow extensions on a case- by- case basis. According to FCC, it also has
the

authority to sanction stations that do not meet their deadlines. FCC said it
is currently considering what those sanctions might be and under what
circumstances the sanctions might be imposed. The goal is for the transition
period to end in December 2006. By that time, the analog signals presumably
are to be shut off, and Americans are to be watching DTV broadcasts on
either a DTV set or on an analog set with some form of a digital converter
box. The government is supposed to ?repack? the digital stations within
channels 2 to 51. 21 The federal government has reallocated some of the
spectrum in channels 52 to 69 for public safety needs and some for
commercial uses (such as mobile phone

services). The public safety spectrum is currently being licensed, and the
spectrum set aside for commercial uses will be auctioned later this year. 22
21 The government plans to leave television broadcasters with less
radiofrequency spectrum overall because of this repacking of the DTV
stations within a smaller slice of spectrum than was used previously for
analog television. DTV signals are less susceptible to interference,
enabling less spectrum to be assigned as buffers between channels than was
the case with analog signals. 22 The Congressional Budget Office has raised
concerns that early auction timing could devalue the spectrum because
bidders would have to wait years before being able to use the spectrum. The
administration?s latest budget plan calls for moving auctions to 2004 and
2006 and would give FCC the authority to charge lease fees to broadcasters
who remain on the spectrum beginning in 2007.

However, Congress created exceptions to the 2006 date. In the Balanced
Budget Act of 1997, Congress stated that no analog television station
license was to be extended beyond December 31, 2006, except in cases where
(1) one or more of the top four network affiliates in a market is not yet on
the air in digital, (2) digital converter technology is not generally
available in the market, or (3) 15 percent or more of the households in the

market cannot receive DTV signals. The last exception- often referred to as
?the 85 percent rule?- has the potential to significantly delay the cutoff
of analog signals and the turnback of some spectrum beyond 2006. This is
because the 85 percent rule might rely on consumer adoption of DTV

equipment, which is currently market- driven (i. e., based on consumer
demand, rather than on a government mandate) and does not appear at the
present time to be progressing at a rate that will reach 85 percent in the

next 4 years. 23 Almost One- Quarter of In this section, we address several
issues related to the progress of Commercial Stations broadcasters to date
in getting digital signals on the air. In particular, we discuss (1) the
status of broadcasters in building the DTV stations; (2) the Are
Broadcasting a

amount of digital, high definition, or multicast programming that stations
Digital Signal, are showing or planning to show; and (3) the stations?
perceptions of Although Many consumer interest in DTV and how broadcasters
are promoting or planning to promote DTV to consumers.

Stations Perceive Little Consumer Demand Broadcasters Are in Various As of
April 12, 2002, 24 percent of commercial television stations (298 of Stages
of Building DTV 1,240) had completed construction of DTV stations and were
broadcasting Stations

a digital signal. Most Americans now have available to them an over- the-
air signal from at least 1 DTV station, and many Americans living in larger
television markets have several DTV signals available to them. Only 119 of

the 298 current DTV stations were mandated to be broadcasting a digital 23
FCC has asked for comments on transition issues, including under what
circumstances and statutory interpretations will the statutory criteria for
the auction of recaptured broadcast television spectrum be satisfied. In the
Matter of Carriage of Digital Television Broadcast Signals, CS Docket No.
98- 120, First Report and Order and Further Notice of Proposed Rule
Rulemaking, FCC 01- 22 (released Jan. 23, 2001) at paragraphs 117 and 118.

signal before May 2002. 24 Thus, some stations have elected to build their
DTV stations and begin broadcasting a digital signal before they were
required to do so. As for the progress of transitioning stations, we

conducted interviews with representatives from a few transitioning stations
and found them to be in various stages of building their DTV facilities. For
example, one station had just begun planning for the construction of its DTV
station and was currently analyzing its tower and equipment requirements,
while another station was almost ready to start broadcasting a digital
signal, several months before the deadline.

Transitioning Stations Have Once on the air with a digital signal,
broadcasters have been given some Plans for Less High flexibility in
determining how to structure their DTV services. A station Definition
Content than

can simply duplicate the programming shown on its analog channel by Current
DTV Stations

?converting? it to digital, or it can provide programming actually filmed in
digital, which can include HDTV. A station also can choose to multicast or
to take advantage of the ability of DTV to transmit text or data, such as
stock quotes or electronic newspapers. There are concerns that if broadcast
stations use their digital channel largely to duplicate the programming from
their analog channel, consumers would have little incentive to purchase
digital televisions sets and cable systems would have little incentive to
carry broadcasters? DTV channels. This lack of DTV adoption could delay the
goal of having broadcasters vacate the spectrum in channels 52 to 69 by the
end of 2006 to make the spectrum fully available for public safety and other
uses.

We asked current DTV stations what services they were offering over their
digital spectrum, and they responded as follows:

 Seventy- four percent of current DTV stations are providing some amount of
HDTV content on their digital broadcast channel. These stations reported an
average of 23 hours of HDTV content per week.

24 This number is 119 instead of 120 because 1 of the top network affiliates
in San Diego, Calif., is a Mexican station.

 Affiliates of CBS- one of the biggest supporters of HDTV- reported
providing more HDTV programming than affiliates of other networks. CBS
affiliates of current DTV stations reported an average of 33 hours per week
of HDTV programming. 25  Affiliates of the smaller television networks
(PAX, UPN, and WB)

reported broadcasting no HDTV.  Twenty- eight percent of current DTV
stations said they are producing some of their own content in digital
format, either in standard definition digital or high definition. In
addition to offering high definition content, 22 percent of current DTV
stations said that some of their programming included the multicasting of
two or more programs simultaneously over their digital channel. We contacted
a number of these stations to learn precisely what they were

doing with their multicasting. We were told by several stations that they
are providing a second 24- hour local weather channel or showing a local
weather radar picture. Another station told us that they broadcast live
feeds from several traffic cameras throughout the state to give current

traffic and weather information. Our survey showed that within the first
year of broadcasting in digital, commercial transitioning stations plan to
do the following:

 Forty- three percent plan to show nothing more than content that has been
converted from analog to digital.

 Thirty- four percent plan to provide some HDTV content.

 Eight percent plan to do some multicasting. Our finding that transitioning
stations expect to show less digital content than current DTV stations are
showing is likely because many of the current DTV stations are affiliates of
the top four networks and are in major television markets. By contrast,
transitioning DTV stations are more likely than current DTV stations to be
unaffiliated with the top four networks or to be in smaller television
markets. Unaffiliated stations have less access

25 CBS provides nearly its entire prime- time schedule, as well as its major
sporting events and a daytime soap opera, in HDTV.

to the increasing amount of HDTV or other digital content that is provided
by the major networks. Smaller stations sometimes rely more on syndicated
shows- such as game shows, talk shows, or reruns of popular network
programming- that are less likely to have been filmed in digital or high
definition. Smaller stations also have fewer resources to buy the

equipment necessary to film and produce their own digital content. In fact,
only 10 percent of transitioning stations with annual revenues less than $2
million said that they expect to produce any digital content of their own
within their first year of digital broadcasting.

Many Current DTV Stations We asked current DTV stations to describe the
overall interest level in Perceive Little Consumer digital broadcasts by the
consumers in their markets. According to these Interest in DTV

stations, few consumers have a high interest in DTV. Seven percent of the
stations said that consumers in their markets had no interest in DTV, and
another 56 percent of the stations described overall consumer interest in
their digital broadcasts as ?low.? Stations that reported providing more
high definition content did not report higher consumer interest than current
DTV stations as a whole.

Despite broadcasters? perceptions of low consumer demand for digital and
high definition television, only some of the current DTV stations reported
undertaking promotion activities that have significant cost in order to
promote or market their digital broadcasts. The two most prominent ways

stations chose to promote their DTV channel- methods that do not involve
great expense- were through a digital or high definition identifier running
at the beginning of the program (52 percent) and by making information about
digital programming available on the stations? Web sites (50 percent). In
addition to these methods, current DTV stations reported the following:

 Thirteen percent said they use advertising spots or promotions for
specific shows available in high definition, and 22 percent said they
advertise their DTV channel.  Twelve percent said that their DTV channel is
mentioned in the local television listings.

 Twenty- three percent said they do not promote their DTV channel. Compared
with current DTV stations, only 6 percent of transitioning stations reported
that they do not plan to promote their DTV channel. Thirty- five percent of
transitioning stations said they plan to use

advertising spots or promotions regarding their digital channel, 16 percent
plan to advertise their high definition programming, and 33 percent said
they plan to have their DTV channel mentioned in the local television
listings. Transitioning stations answered our survey based on future plans
and may or may not promote their DTV channels to the level they indicated

on our survey. The Building of DTV In this section, we address several
issues related to the experiences of Stations Is Proceeding, broadcasters to
date in building their DTV stations. In particular, we discuss (1) the
financial costs associated with building the DTV stations, but Problems Have
(2) the problems stations reported experiencing (or the problems they Arisen
for Many

expect to experience) in building the DTV stations, and (3) the various
Broadcasters government reviews that are involved in building the DTV
stations.

Stations Report High Costs Broadcasters must make large capital investments
to begin broadcasting in and Funding Problems

digital, and many of the stations we surveyed reported problems in raising
Associated with the DTV

the necessary capital. We asked stations to report or estimate the
Transition

approximate total cost they incurred or expect to incur in complying with
the initial requirements for digital transmission- including expenses for a
new tower or construction on an existing tower, transmission line, antenna,
digital transmiters and encoders, consultants, licensing, and other capital
expenditures. 26 Our comparisons of reported costs by station types showed
that the average reported costs per station among different types of
stations were not dramatically different. Figure 1 shows that current DTV
stations and larger stations on average reported somewhat higher costs than
transitioning stations and smaller stations. For example, current DTV
stations reported an average cost of $3.1 million per station to comply with
the initial requirements for digital transmission, while transitioning
stations reported an average of $2. 3 million per station. 27 26 We asked
that broadcasters not include program production or acquisition costs in
these estimates.

27 In addition to the overall cost of complying with the initial
requirements for digital transmission, we also asked broadcasters about one
particular cost of operating the DTV station: the increased energy cost
associated with transmitting a digital signal. During the transition period,
stations will bear the energy costs of transmitting two television signals.
Current DTV stations reported spending about $6, 300 per month in increased
energy costs, and transitioning stations reported expecting to spend about
$6, 100 per month in increased

energy costs.

Figure 1: Average Costs of Building DTV for Different Types of Stations

Dollars in millions 3 .5

3.1 3.1

3

2.7

2 .5

2.5 2.4 2.3

2.2

2

1.9

1.5 1 0 .5

0 Current DTV

Transitioning Top 50

Bottom 50 Revenue Revenue

Stations Stations

stations DTV stations

markets markets

exceeding less than affiliated not

$17 million $2 million

with the affiliated top 7 with the networks

top 7 Station characteristics

networks

Source: GAO survey of broadcast stations (Oct. 2001 - Mar. 2002).

Some of the lower cost reported by transitioning stations may be due to
recent rule changes by FCC that were designed to reduce the amount stations
must spend to meet the initial requirements for digital transmission. For
example, FCC?s new rules allow stations to build less than maximum broadcast
facilities. 28 FCC staff said they believe that the

costs of meeting the requirements for building DTV stations are
significantly lower than the costs reported in our survey. The amounts
reported to us may be due in part to stations? reporting their actual costs
of construction, even where construction exceeded FCC?s minimum
requirements. At a recent meeting of the National Association of
Broadcasters, one broadcaster said he was able to go on the air for
approximately $125,000 and that most of the equipment he was using could

be upgraded to higher power. However, another speaker stated that for some
stations, FCC?s minimum requirements are not a long- term solution,
particularly for stations that plan to show HDTV, and that upgrading the
equipment at a later date could be problematic. Thus, some stations prefer
to spend the money initially to build their DTV stations to exceed FCC?s
minimum requirements for broadcasting a digital signal.

Although there were no dramatic differences in the overall costs of building
DTV facilities among various types of stations, our analysis of the reported
overall expenditures as a percentage of station annual revenue did show
considerable differences among various types of stations. For example, among
current DTV stations the overall expenditures averaged 11 percent

of annual revenues, while for transitioning stations the overall
expenditures averaged 63 percent of annual revenues. For stations with
annual revenues below $2 million (based on all stations), the overall
expenditures averaged 242 percent of annual revenues. Thus, the overall cost
of building the DTV stations appears to be more burdensome for some

broadcasters than for others. Given the significant costs reported for
getting a DTV signal on the air, it is not surprising that survey
respondents cited funding as one of the most common problems they had
experienced or expected to experience.

Although the overall costs of building the DTV stations reported by 28
Stations can build a facility to serve only their community of license- a
smaller geographic area than their entire viewing region- without losing
interference protection that would prevent them from later increasing their
signal strength to cover their larger allocated service area. See In the
Matter of Review of the Commission?s Rules and Policies Affecting the
Conversion to Digital Television, MM Docket No. 00- 39, Memorandum Opinion
and Order on Reconsideration, FCC 01- 330 (released Nov. 15, 2001).

broadcasters were fairly similar, the annual revenues of stations and the
funding sources available to stations differed. Thus, the problem of
obtaining funding did not appear to affect all stations equally. While 14

percent of the current DTV stations said they had experienced problems in
the area of funding, 55 percent of transitioning stations reported funding
as a problem. This difference raises concerns about the ability of some

transitioning stations to pay for construction of their DTV stations and
meet the May 1, 2002, deadline for broadcasting in digital. We asked
stations what sources of funding they used or expected to use to pay for the
building of their DTV stations. Almost half of all commercial stations that
responded reported multiple sources of funding. As shown in

figure 2, the most commonly cited source of funding for both current DTV
stations and transitioning stations was funding from the station owner or
parent company. Over 79 percent of current DTV stations had relied, in whole
or in part, on their owner or parent company to provide money for their DTV
construction. For transitioning stations, 62 percent reported

obtaining some amount of funding from the station owner or parent company.
This difference may be explained, in part, because stations with earlier DTV
deadlines were more likely to have a large corporate parent, whereas
transitioning stations are somewhat less likely to be owned by a large
parent company.

Figure 2: Stations? Funding Sources for Building DTV Stations

Percentage 80

79

70

62

60 50

43

40 30

29 29

20

17 16

10

6 6

3 0 1 0

0

0 Station owner

Debt capital Station Equity capital State

Possible sale Don't know or station revenues

government of station

parent or cash

assistance reserves Stations' funding sources

Current DTV stations Transitioning stations

Note 1: For transitioning stations, answers included both actual and
expected funding sources. Note 2: Current DTV stations were not given the
options of ?don?t know? and ?possible sale of station.? Source: GAO survey
of broadcast stations (Oct. 2001 - Mar. 2002).

Regarding funding sources, survey respondents also reported the following:

 Transitioning stations were more than twice as likely to rely on debt
financing than current DTV stations. 29 Forty- three percent of
transitioning stations reported that they had borrowed or planned to borrow
money to fund the construction of their DTV stations, while 16 percent of
current DTV stations said they had relied on debt capital.  Six percent of
the transitioning stations said they were considering sale of the station as
a way to fund the DTV transition. We met with a

representative of one TV station who said that sale of the station to a
larger ownership group might be the only way for the station to fund its
transition to DTV. Concerns about a reduction in the number of small,
independent broadcasters serving local communities could arise should

such sales actually take place.

 Seventeen percent of transitioning stations reported that they did not
know how they would completely fund the construction of the DTV station.
This uncertainty raises concerns about whether these stations will be able
to broadcast a digital signal on time, given that our survey

was conducted only 7 months before the May 2002 deadline. We also asked
stations to select the primary funding source from the funding sources that
they reported using. Both current DTV stations and transitioning stations
most often named funding from the station owner or parent company as their
primary funding source. However, 72 percent of current DTV stations said
funding from the station owner or parent was their primary source, while 45
percent of transitioning stations listed a

station owner or parent as the primary source. 30 Eleven percent of
transitioning stations reported that they did not know what would be their
primary funding source.

Some industry executives noted that there are ways to mitigate the initial
costs of the DTV transition. We asked about some of these methods in our
survey, and the responses showed the following: 29 One industry
representative with whom we spoke noted that obtaining a loan is difficult
in this situation because broadcasters cannot show the lender a likelihood
of increased future earnings or revenue from the DTV station. 30 See
appendix III for a discussion of public stations? funding sources, which
include federal and state funding.

 Some stations reported sharing a broadcast tower with other stations,
which can be less expensive than having an individual, private tower.
However, we found no relationship between reported shared tower use

and reported lower average overall cost for construction of the DTV station.
 We were told by industry executives that a temporary or ?side- mount?
antenna can be less expensive to mount on the broadcast tower and can be
used to delay the construction of a new tower. Twenty- seven percent of
current DTV stations reported having an antenna in a temporary location; 26
percent of transitioning stations said that they plan to temporarily install
an antenna.

 FCC currently allows a broadcaster to transmit a DTV signal at less than
full power. 31 For the broadcaster, this can save money on equipment
purchases and energy bills. However, broadcasting at less than full power
can reduce the effective market coverage and mean that fewer consumers can
receive the over- the- air digital signal. Forty- five percent

of current DTV stations reported that they are operating at less than full
power and full market coverage, and 50 percent of transitioning stations
told us they plan to operate at less than full power when they begin
broadcasting in digital. 31 FCC allows transmission of a DTV signal at less
than full power provided that the

broadcaster covers its community of license with an adequate signal.

Many Stations Are One of the key physical facilities that broadcasters must
have in place is the

Experiencing Problems broadcast tower, which supports the digital antenna.
We were told by Getting Physical Facilities in industry executives that some
broadcasters can mount the digital antenna

Place on their current analog tower. However, other broadcasters need to

increase the height of or reinforce their current tower, while still others
must construct an entirely new broadcast tower on which to install their
digital antenna. We asked stations what changes they required or expected to
require from their existing analog towers. There was great variance among
the stations in the need for tower work. While 18 percent of current DTV
stations and 20 percent of transitioning stations reported being able to use
their current tower without modification, 21 percent of current DTV stations
and 25 percent of transitioning stations reported that they needed to build
an entirely new tower. 32 Once a station determines its tower needs, it can
run into various problems

related to constructing the broadcast towers and other facilities needed for
DTV transmission. One of the most commonly cited problems among all
stations, for example, was weather. Frozen ground, wind, and snow can cause
complications in tower work, particularly in the northern states during the
winter months, and can lead to delays in DTV construction schedules. Of the
stations answering our survey, 41 percent of current DTV stations and 57
percent of transitioning stations cited the weather as a problem that had
arisen or that was expected to arise. We spoke with representatives of three
tower crew companies who told us that certain types of weather require tower
work to be delayed. The tower crew company representatives noted that wind
is a particular problem in tower work because the wind patterns above 1,000
feet can be significantly stronger than at ground level, making the work too
difficult and dangerous to attempt. We also asked one of the tower crew
representatives if the May

deadline- following winter- created more problems with regard to weather.
The tower crew representative told us that a fall or winter deadline may
have been better because May through October were the best months for tower
work and tower construction.

Another concern noted by many broadcasters- again related to tower work- was
?manpower availability.? The digital transition has caused many stations to
be requiring tower work within a short time period. 32 In addition, 13
percent of current DTV stations and 6 percent of transitioning stations
reported a need to change the height of their existing towers.

Broadcasters said that there are a limited number of tower crews in the
United States that are qualified to do the type of work involved in
constructing or reinforcing broadcast television towers and mounting
broadcast antennas. According to our survey, 30 percent of current DTV
stations and 56 percent of transitioning stations cited manpower
availability as a problem area or expected problem area. Despite these views
by broadcasters, we were told by representatives of the three tower crew
companies that, although they are currently busy and have a significant
amount of tower worked scheduled for the next few months,

they do not feel overwhelmed by work related to the installation of digital
antennas and are generally able to provide the services requested by
broadcast stations.

Broadcasters reported various other problems with building DTV stations, as
shown in figure 3. 33

33 Our survey found that ?signal interference? was a problem area for 26
percent of transitioning stations and 16 percent of current DTV stations. We
note, however, that a large number of stations reported signal interference
to be a problem because they said they had to do lengthy and expensive
signal interference analysis for FCC before they were allowed to maximize
their signal. They did not experience actual signal interference. According
to FCC, few stations have experienced more signal interference than was
planned for in FCC?s

DTV channel allotment table.

Figure 3: Percentage of Stations Reporting Problems with Building DTV
Stations

Percentage 60

57 56 55

50

47 41

40

40

32 32

30

30 25

26

20

19 16 14

10 0

Weather Funding Manpower Equipment

Lengthy review Coordination

Signal availability

availability or permit

with other interference

processing users of tower

Problems with building DTV stations Current DTV stations Transitioning
stations Note 1: For transitioning stations, problems include those already
experienced and those expected. Note 2: ?Lengthy review or permit
processing? can include reviews or permit processing by any federal, state,
or local government entity.

Source: GAO survey of broadcast stations (Oct. 2001 - Mar. 2002).

Various Governmental We also examined whether any governmental reviews were
necessary

Reviews Are Involved in the during the DTV transition process and, if so,
whether such reviews had DTV Transition

been the cause of any delays for the stations. Generally, these issues fell
under the licensing or review authority of various government entities.

Specifically, we asked stations if issues had arisen or were expected to
arise regarding the following: (1) review, permitting, or processing by FCC;
(2) review or permitting by local authorities; (3) environmental review by
state or local authorities; (4) review by the Federal Aviation
Administration (FAA); (5) review by the Bureau of Land Management; (6)
review by the National Park Service; and (7) coordination with Canadian or
Mexican governments. We also asked stations whether the review took longer
or was taking longer than they anticipated and whether lengthy reviews or
permit processing was considered a problem area.

In general, the stations responded as follows:

 Some stations reported needing multiple reviews by various governmental
agencies. For example, 15 percent of current DTV stations and 30 percent of
transitioning stations told us they required reviews by three or more
government entities.

 Stations located near a border with another country may require a review
by Canadian and Mexican governments for coordination. Of the stations that
reported they required such a review, 50 percent of current DTV stations and
73 percent of transitioning stations said the process of getting necessary
approvals from Canadian or Mexican authorities had taken longer than they
expected. Of the transitioning stations needing Canadian or Mexican review,
65 percent reported they had yet to resolve the international coordination
issues.  Review by FAA- which often must approve changes to the height of
an existing tower or the construction of a new tower, in coordination with
FCC- was noted by 19 percent of current DTV stations. Of those, 32

percent said the issue took longer than expected. For transitioning
stations, 25 percent reported having or expecting to have an FAA review.

Many Transitioning In this section, we address several issues related to the
progress of Stations Reported That transitioning stations in meeting the May
2002 deadline to be on the air with

a digital signal. In particular, we discuss (1) the number of transitioning
Problems Might Keep stations that reported they have had problems or expect
problems that Them from Meeting might keep them from meeting the deadline;
(2) the lengths of extensions

FCC Deadlines to the deadline that stations reported would be realistic for
their situations;

and (3) the dates when stations reported they would have built DTV stations
if the transition were based on market forces rather than government
mandate.

Almost Three- Quarters of Seventy- four percent of transitioning stations
told us that they had

Transitioning Stations problems or expected problems that might keep them
from meeting the

Reported They May Not May 1, 2002, deadline for having a digital signal on
the air. In particular:

Meet the May 2002 Deadline

 Eighty- five percent of transitioning stations with annual revenues of
less than $2 million reported that they had problems that might keep them
from meeting the May 2002 deadline.

 Eighty- four percent of transitioning stations outside of the largest 100
television markets reported that they had problems that might keep them from
meeting the May 2002 deadline.

 Stations that said they might not meet the deadline reported higher
incidences of all types of problems. Funding was the most common problem,
cited by 66 percent of stations that might not meet the deadline

(funding problems were noted by 26 percent of stations that do not expect
problems with meeting the deadline). In addition, of the stations that may
not meet the deadline, 64 percent reported problems with manpower
availability, 55 reported problems with equipment availability, 59 percent
reported weather- related problems, and 45 percent reported lengthy permit
or review problems. In contrast, of the transitioning stations that do not
expect problems with meeting the

deadline, 34 percent reported problems with manpower availability, 24
percent reported problems with equipment availability, 49 percent reported
weather- related problems, and 26 percent reported lengthy permit or review
problems.  Station network affiliation and size of the station owner (based
on how

many broadcast stations the owner held) had little relationship to whether a
station expected problems with meeting the deadline. As FCC Begins Granting
In March 2002, FCC closed an application period for stations with a May
Extensions, Half of

2002 deadline to apply for extensions of time to construct their digital
Transitioning Stations stations. FCC is handling the stations? applications
on a case- by- case basis. Reported They Could Use FCC allowed stations that
applied for an extension to note technical, legal, financial, or other
reasons (e. g., natural disaster) for the extension request. an Extension of
2 Years or Applicants had to show support for the reasons given and mention
steps

More taken to solve or mitigate the problems. In our survey of broadcasters,
we

asked whether stations should be required to show a ?good faith effort? in
meeting the deadline before being granted an extension. Seventy percent

of current DTV stations and 52 percent of transitioning stations thought
that a station should be required to show a good faith effort.

As of April 3, 2002, FCC had received applications for extension from 810
commercial stations and had granted 476 of these stations a 6- month
extension. FCC granted extensions for more than 200 of these stations on the
basis of technical problems alone (e. g., equipment delays). Over 180
stations were given extensions that were based on some combination of
technical, legal, financial, or other reasons. No stations were granted

extensions that were based solely on financial reasons. The 334 stations not
initially granted an extension were sent Letters of Inquiry by FCC in order
to obtain more specific information. FCC staff said that many of the letters
sought more financial and technical information with respect to finalizing
DTV construction plans and that most of the letters gave stations 15 days to
respond.

In our survey of broadcasters, we asked transitioning stations to estimate a

?realistic extension? if FCC were to extend its deadline for them to be on
the air with a digital signal. In general, smaller stations were most likely
to believe that an extension of more than 2 years was realistic for them. Of

the transitioning stations that expected problems with meeting the May 2002
deadline, only 19 percent considered an extension of 6 months or less to be
sufficient, while 54 percent said that an extension of 2 years or more was
realistic for their situation. Under commission standards, FCC staff may
grant up to two extensions, each not to exceed 6 months. Further

requests by a station for an extension of its DTV deadline would have to be
granted at the commission level. From the responses to our survey, it
appears that the 6- month extensions that FCC has granted so far may be

insufficient for many transitioning stations and that additional rounds of
applications for extension appear likely. 34 Few Transitioning Stations We
asked broadcasters to estimate when they would likely have begun Would
Broadcast Digitally

broadcasting a digital signal- assuming they had been given the spectrum
This Year Without a

but were not under any government deadline to transition to digital- on
Government Mandate

the basis of market forces such as competition, technology, and viewer
demand. While many current DTV stations said they would have broadcast
digitally by the end of 2002, most transitioning DTV stations reported they
would have begun broadcasting digitally much later, as shown in figure 4.

A small percentage of stations reported that without a government mandate,
they never would have chosen to transition to digital technologies. 34 FCC
staff, however, said that they believe that many of these stations may be
able to get on the air sooner than they indicated in response to our survey
because of the commission?s

relaxed requirements for building DTV stations that were adopted in November
2001.

Figure 4: Stations? Reported Dates of Broadcasting Digitally If No
Government Mandate Existed

Percentage 45

41

40 35

32 32

30

28

25 20

20

15

13 13

10 5

5 4 3

0 By the end

By the end By the end

Later than Never of 2002

of 2006 of 2010

2010 Time frame of broadcasting digitally, without mandate

Current DTV stations Transitioning stations

Source: GAO survey of broadcast stations (Oct. 2001 - Mar. 2002).

Observations The digital television transition timeline established by FCC
included an ambitious construction schedule for DTV stations. The level of
difficulty in readying digital broadcasting facilities that was reported to
us by

transitioning stations indicates that many stations will have problems
meeting the timeline. But even after construction of all DTV stations, only
part of the DTV transition will have been completed. Because of the 85
percent rule (i. e., the requirement that 85 percent of households in a

market be able to receive a digital signal before the analog signals are
discontinued), much of the spectrum is likely to remain encumbered by analog
broadcast stations until consumers adopt the necessary digital technologies.
According to our survey, however, broadcasters currently perceive little
consumer demand for digital and HDTV programming. Nonetheless, it appears
that the broadcasters will move forward- some more slowly than others- with
building the DTV stations. Other market participants- cable and satellite
companies, content providers, consumer electronics manufacturers, and
others- also play important roles in influencing the speed of the DTV
transition. FCC recently addressed the role of these other market
participants as well as that of the broadcasters in a letter from Chairman
Michael K. Powell to Senator Ernest F. Hollings and Representative W. J.
?Billy? Tauzin. In the letter, Chairman Powell proposed voluntary industry
actions to speed the DTV transition by calling for the

provision of more HDTV or other value- added DTV programming, more cable
carriage of DTV channels, the provision of cable set- top boxes that allow
for the display of HDTV programming, and the inclusion of over- theair DTV
tuners into almost all new television receivers by the end of 2006. If
embraced by the industry, these actions could help to keep the DTV
transition on track since their combined effect would be to encourage
consumers to adopt DTV technologies. We will examine these critical issues
in our next report on the digital television transition, which we

expect to issue in November 2002. Agency Comments We provided a draft of
this report to FCC staff for their review and

comment. FCC staff believes that its Memorandum Opinion and Order on
Reconsideration, which was adopted on November 8, 2001, may have a
substantial impact on certain survey responses made before that date. In the
order, the commission modified its rules to permit stations to adopt a more
graduated approach to providing DTV service, initially operating with lower
powered- and therefore less expensive- DTV facilities, while retaining the
right to expand their coverage area as the transition continues

to progress. We added information related to FCC?s order in this report. FCC
staff also provided technical comments that were incorporated throughout
this report as appropriate. As agreed with your office, unless you publicly
announce its contents earlier, we plan no further distribution of this
report until 10 days after the

date of this letter. At that time, we will send copies to interested
congressional committees; the chairman, FCC; and other interested parties.
We will also make copies available to others upon request. If you have any
questions about this report, please contact me at 202- 512- 2834 or
guerrerop@ gao. gov. Key contacts and major contributors to this report are
listed in appendix VIII.

Sincerely yours, Peter Guerrero Director, Physical Infrastructure Issues

Appendi Appendi xes x I

Scope and Methodology To provide information on the progress in building
digital television (DTV) stations and on broadcaster problems and concerns,
we mailed surveys to all full- power, on- the- air commercial and public
broadcasting stations. To develop our survey questions, we interviewed
officials at the Federal Communications Commission (FCC) as well as
officials of organizations representing industries affected by the
transition to DTV. We also reviewed relevant documents, such as FCC orders
and proposed rulemakings. We then conducted pretests with several individual
broadcast stations to help further refine our questions, identify any
unclear portions of the survey, and identify any potentially biased
questions. These pretests were conducted in- person and by telephone with
stations covering a number of different metropolitan areas. Two versions of
our survey were developed, one for stations that had begun broadcasting a
digital signal (? current DTV stations?) and one for stations that had not
begun broadcasting a digital signal (? transitioning stations?). The survey
questions and detailed survey results for commercial stations are contained
in appendixes IV and V, and the questions and results for public stations
are contained in appendixes VI and VII. To provide the population
information, we acquired the MEDIA Access Pro

database of BIA Financial Network, Inc., which is a private firm that
specializes in broadcast industry data. This database provided us with the
names, addresses, and other contact information of broadcast stations as
well as information on such things as station size and ownership, station
revenues, market size, and station operating status. We also used this
database to determine which stations were commercial and which were

public as well as which were broadcasting in digital and which were not. The
digital broadcasting status listed in BIA?s database was combined with
information from the National Association of Broadcasters? Web site to
determine which version of the survey to mail to each station. We mailed
surveys to all full- power commercial and public television stations on the
air at the end of September 2001. We sent a different survey to any station
that indicated that we had misclassified its digital broadcasting status. As
such, some of the stations that filled out the survey for digital stations
began that service after September 2001. Our survey was not sent to lowpower
commercial broadcast stations because these stations have not been required
by FCC to transition to digital technologies. In addition, the survey was
not mailed to the eight stations in New York City whose broadcast towers
atop the World Trade Center were destroyed in the September 11 terrorist
attacks. Instead, we spoke directly to a representative of each of these
stations to gather information about how the events of September 11 affected
their operations generally and affected

their DTV plans in particular. A discussion of the situations of the
stations in New York City is provided in appendix II. We also adjusted the
survey population to exclude the few stations that (1) had recently gone off
the air, (2) indicated that they were not assigned a digital channel, or (3)
were

broadcasting outside of the United States. The resulting population to which
we sent surveys consisted of 1,182 full- power commercial television
stations and 372 full- power public television stations on the air at the
end of

September 2001. We first mailed our survey in early October 2001. However,
on October 15, 2001, all incoming mail to our headquarters was halted due to
the receipt of letters containing anthrax by several federal agencies in the
Washington, D. C., area. We received no U. S. mail for more than 2 months.
On December 27, 2001, we conducted a second mailing of the survey to all
stations from which we had not received a survey response before October

15, 2001. This time, surveys were mailed from and returned to our Boston
field office. The second mailing went only to commercial stations due to
time constraints on the research phase created by the mail stoppage. For
commercial stations that may have completed and returned the survey twice,
only the original survey from the October mailing was analyzed. We made a
third and last attempt to contact the commercial station nonrespondents in
telephone reminder calls during the first 2 weeks of March. These telephone
contacts resulted in an additional 237 questionnaires from late respondents
(approximately 27 percent of all commercial responses).

Of the population of broadcast stations, we received 1, 036 of 1,554 usable
questionnaires, for an overall response rate of 67 percent. We received 135
of 168 surveys from commercial current DTV stations (80 percent response
rate) and 15 of 37 surveys from public current DTV stations (41 percent
response rate). We received 727 of 1,014 surveys from commercial
transitioning stations (72 percent response rate) and 159 of 335 public
transitioning stations (47 percent response rate). We conducted two types of
analyses of commercial stations to evaluate the

possibility that the respondents might differ from nonrespondents. Although
there is some evidence of differences, these are not sufficiently consistent
nor large enough to provide a basis for adjusting our survey responses. The
first type of analysis directly compared two measures of the size of the
responding and nonresponding stations. The nonrespondents tended to be from
larger markets and from larger ownership groups. For the transitioning
stations, for example, 40 percent

of the nonrespondents and 31 percent of the respondents were from the top 50
markets. The second analysis compared the early responses (sent between
October and February) with the later responses (sent in March). The evidence
was mixed as to whether the earlier or later responding

stations might have more difficulties in meeting the DTV station deadline.
On the one hand, transitioning early respondents were less likely than
transitioning late respondents to give the direct assessment that they might
have problems in meeting the deadline (73 percent and 80 percent,
respectively). On the other hand, early respondents were more likely than
late respondents to report experiencing specific types of digital transition
problems. For example, a funding problem was reported by 19 percent of
digital early respondents versus 5 percent of digital late respondents, and
62 percent of transitioning early respondents versus 43 percent of
transitioning late respondents. No definite pattern emerges from these

findings, and it is unclear whether differences are due to actual
differences in the station characteristics of early and later respondents or
to the differing proximity to the deadline for broadcasting a digital
signal. Questionnaires were mailed to station managers but were completed by
station managers, station engineers, or officials of the station owner or
parent company. All returned questionnaires were reviewed, and we called

respondents to obtain information where clarification was needed. All data
were double keyed and verified during entry, and computer analyses were
performed to identify any inconsistencies or other indications of errors.
Because the questionnaires were mailed to all broadcast stations in the
appropriate population, percentage estimates do not have sampling errors.

Other potential sources of errors associated with the questionnaires, such
as question misinterpretation and question nonresponse, may be present.

The World Trade Center Attacks Severely Disrupted Over- the- Air Broadcast
Television

Appendi x II

Throughout New York City This appendix focuses on the special circumstances
of the broadcast television stations in New York City following the
terrorist attacks of September 11, 2001. We did not mail our survey to the
New York City stations, but instead conducted telephone interviews with the
stations in December 2001 and January 2002. Since the attacks, the eight
local broadcasters whose antennas and other equipment were located atop the
twin towers of the World Trade Center have struggled to restore over- theair
service to their viewers. Of these eight stations, six said they had
completed building their DTV stations by September 11 and were broadcasting
digital signals. All six digital antennas were also lost in the

collapse of the World Trade Center. All of the broadcasters with whom we
spoke stated that restoration of their full- power analog signals was their
highest priority.

Broadcasters Struggled The destruction of the World Trade Center buildings
on September 11,

to Restore Service in 2001, also destroyed the antennas, transmitters, and
associated equipment

of eight broadcast television stations. Lacking immediate backup the
Immediate

transmission equipment or other immediate contingency plans, the stations
Aftermath of the Trade ceased over- the- air broadcasts entirely on
September 11. Several of the Center Attacks

stations had direct fiber links to some or all of the cable systems on which
their analog signal was carried; thus these stations were able to continue
providing a signal to some portion of their cable viewers on September 11.
In addition, several of the broadcasters were carried on the direct
broadcast satellite (DBS) systems of DirecTV and EchoStar and, although

in some cases the broadcast signals were momentarily disrupted, local
broadcast channel service continued for satellite subscribers on September
11. Within 10 days of September 11, most of the stations said they had
resumed over- the- air broadcasting from a temporary tower in Alpine, N. J.
However, the broadcasters considered the move to Alpine a short- term
solution.

Station executives with whom we spoke said that, although they were pleased
that the site was immediately available, they were disappointed to discover
that signal weakness from the site meant that only about 70 percent of their
viewers could be reached. Some stations attempted to increase coverage by
arranging for additional cable providers to carry their

signals via fiber links. 35 However, we were told that large numbers of
viewers- particularly in Brooklyn and Queens- do not subscribe to cable
service. The Priority for Station

Station executives told us that fully restoring their over- the- air analog
Executives Was Full

broadcasts was of the highest priority. It is the analog signal- not the
digital signal- that the stations count on for their revenue stream. One
Restoration of Their executive estimated that his station?s signal is still
lost to over 3 million Analog Signals viewers since September 11. We were
told that it will take up to 3 years to achieve full analog signal
restoration because each station must repair

transmission lines, install new antennas, acquire backup generators, and
negotiate for temporary and permanent space on rooftops and towers.

An immediate need for the broadcasters was to negotiate the terms of placing
antennas, transmitters, and other equipment atop the Empire State Building,
which was the favored temporary location due to its more than 100- story
height. By mid- October, nearly every local TV station had begun to
broadcast from the roof of the Empire State Building. Although the Empire
State Building seemed initially to be an effective substitute for the World
Trade Center location, unanticipated constraints arose, including limited
physical space, an aging infrastructure, and the lower height (as compared
with the World Trade Center).

First, we were told that space on the Empire State Building?s rooftop is
severely limited. Many of New York City?s radio stations have broadcast from
the rooftop for decades, and, as the rooftop is currently configured, there
is little room for the TV stations to install new broadcasting equipment.
Second, the station representatives said that television broadcasting is
limited by engineering constraints related to the Empire State Building?s
aging infrastructure. Unlike the World Trade Center buildings, the Empire
State Building?s infrastructure is more than 70 years old. While considered
a safe building for workers, it is nonetheless a fragile physical plant on
which to place the amount of broadcasting equipment required by eight
television stations. The aging infrastructure also creates 35 DirecTV and
EchoStar, two DBS service providers, have allowed several cable systems in

New York City to receive their satellite transmissions of the local stations
and retransmit those signals on their cable systems. DirecTV told us they
have provided their local signals to cable systems free of charge; EchoStar
told us they have provided their local signals to public safety groups free
of charge.

wiring and powering issues. One station representative said that it simply
may not be possible to wire the Empire State Building to power the necessary
antennas, transmitters, and associated equipment. Third, the broadcasters
used antennas perched on a 343- foot tower rising from a 110- story base
when they were using the World Trade Center. The Empire State Building
offers either operation from a 200- foot tower atop the somewhat lower
roofline or operation from the 81 st floor. In either case, nearby Manhattan
buildings- even the Empire State Building itself- cause interference with
the stations? signals and prevent reception for some

viewers. One executive we spoke with believed that the Empire State Building
would serve more effectively as a backup transmission location. Another
executive noted the importance of this backup role, since the events of
September 11 so dramatically demonstrated the need for

?transmission redundancy.? Broadcasting at less than their accustomed levels
of power and sharing limited space at and near the Empire State Building?s
roof, stations have continued to experience difficulty in reaching their
entire audience. The Alpine site also reduces stations? market coverage.
Reaching Brooklyn and Queens has been particularly problematic because
viewers in these boroughs must contend with signals that are weakened or
blocked by a variety of Manhattan obstructions. One station executive told
us that he is currently reaching only about 80 percent of his viewers
citywide.

As They Seek Concomitant with securing temporary tower space at the Empire
State

Permanent Building is the stations? need to find a new permanent location
for their antennas. Currently, industry stakeholders are negotiating to
select a

Broadcasting Space, Stations Are Working to Address Financial Issues

location that is acceptable to all parties. 36 Station executives with whom
we spoke said that their preference is Governor?s Island, which is currently
owned by the federal government and located in New York Harbor near lower
Manhattan. 37 The station executives consider the island to be a nearly
optimal location because it is unused, virtually vacant, and lacks private
residents who might object to the construction of broadcast towers. In
addition, use of the island would allow all stations to be located together,
thus obviating the need for each station to secure its own space in
Manhattan proper.

While station executives attempt to secure permanent broadcasting space,
they must grapple with a range of budget and finance matters. We were told
that, in particular, stations are dealing with (1) ensuring redundancy in
equipment placement, which requires negotiating twice for building rent,

consulting services, and other key purchases; (2) seeking reimbursement from
insurers for losses directly attributable to the events of September 11; and
(3) retaining high- quality programming so that affected viewers will return
when the analog signal is fully restored.

Station executives with whom we spoke emphasized the need for ?redundancy?
of their broadcast signal as a precaution against future terrorist attacks,
natural disasters, or other calamities. This redundancy requires stations to
invest at least twice the amount that would be required simply to replace
the equipment that was destroyed on September 11, contract twice for the
services of design and engineering consultants, and seek permits and
negotiate rent at two distinct locations. In addition, stations are
currently negotiating with their insurance companies to determine precisely
what is reimbursable in the wake of the September 11 events. One station
executive told us that his ?complex claim? could

surpass $30 million. Although some of this amount represents lost 36 In the
wake of the World Trade Center attacks, the New York area television
stations have begun to work as a private coalition to pursue common goals.
According to one executive, the broadcasters have formed the Metropolitan
Television Transmission Committee, which meets regularly ?in a communal
effort to restore adequate broadcast television coverage to the New York
metropolitan area.? The coalition?s primary mission is to secure a single
location for a broadcast tower that all member stations may share. During
the rebuilding process, coalition members are developing consensus requests
for presentation to landlords, creditors, regulators, and other interested
outside parties. Ancillary goals include devising a workable temporary plan
for sharing space on the Empire State Building?s roof, negotiating jointly
with the insurance industry, and exploring how best to reacquire digital
broadcast technologies in the most efficient and cost- effective manner. 37
The federal government plans to transfer Governor?s Island to New York for a
nominal fee.

hardware, he said, some of it represents a request for reimbursement of lost
revenue. The amount of lost advertising revenue is difficult to estimate and
insurers have argued that the events of September 11 are not the sole cause
of lower advertising revenues. Rebuilding the DTV Stations Six of the eight
stations had completed building their DTV stations before Is an Important
Long- Term

September 11, 2001, and all six lost their digital antennas. The other two
Goal

stations were in the process of building their DTV infrastructure. Station
executives with whom we spoke said that restoring full traditional analog
service was their immediate priority. However, one executive noted the
importance of regaining digital broadcasting capabilities in the long term.

Ultimately, he said, viewers will want high definition content and other
digital services. Another station executive mentioned that reacquiring
digital capability was essential to recoup earlier financial investments in

digital technologies. The eight stations? reported costs- to- date on the
digital transition ranged from $250, 000 to $27 million.

The station executives reiterated their commitment to high definition
content, although they acknowledged that the viewers of New York City had
yet to express widespread interest in HDTV. However, the executives
anticipated that this will change as equipment prices decline and as HDTV

is more aggressively promoted in coming years. Before September 11, 2001,
local stations were broadcasting sports (such as the games of the New York
Mets), cultural programs (such as Live from the Met), children?s shows,
nature shows, and other special programming in high definition format. One
station had plans for a high definition broadcast of the Tournament of Roses
Parade on January 1, 2002. Stations with whom we spoke were unable to
estimate precisely when they might have their digital signals back on the
air, although one station was hoping to be broadcasting

a limited digital signal by May 2002. FCC Received High

We were told by the station executives that, in the wake of the World Trade
Marks from New York

Center attacks, FCC was cooperative, supportive, and accommodating- a full
partner in helping to restore broadcast television service to the New City
Broadcasters in York metropolitan area. Specifically, according to the
station executives,

the Aftermath of FCC offered temporary licenses, facilitated stations? moves
to Alpine and

September 11 the Empire State Building, and issued necessary waivers. One
station

executive said that FCC acknowledged and approved requests ?in minutes,
rather than days or weeks,? while another expressed appreciation that FCC

had granted it temporary permission to file requests electronically. This
executive expressed satisfaction with the proactive nature of FCC?s
involvement, noting that an FCC official called him within a day of the
World Trade Center attacks to ask how the agency might facilitate the
rebuilding process. The executives felt that other federal, state, and local
government agencies have been similarly cooperative, including the U. S.

Department of Commerce, the Federal Emergency Management Agency, the Federal
Aviation Administration, and the Port Authority of New York & New Jersey.

Public Broadcasting Stations Also Report Experiencing Problems in Their
Transition to

Appendi x I II

DTV The federal mandate that all full- power broadcast television stations
must transition to digital technologies also applies to the nation?s 380
public television stations. FCC has ordered that these stations have a
digital signal on the air by May 1, 2003. We mailed surveys to all full-
power, onthe- air public stations. Public stations were sent the same survey
as commercial stations. Just as with the commercial stations, they were sent
one version of the survey if they were already broadcasting a digital signal
(? current DTV stations?) and another version of the survey if they had not
begun broadcasting a digital signal (? transitioning stations?). We did one
mailing to the public stations in early October 2001. For more information

on our response rates, see appendix I. Our survey responses from public
stations were often similar to the responses of commercial stations. In this
appendix, we report mostly on areas where survey results differed from those
of the commercial stations. See appendixes VI and VII for complete results
from the public stations. As of April 12, 2002, according to FCC, there were
60 public stations on the air with a digital signal. Costs reported for the
digital transition were $3. 0 million for public current DTV stations and
$2.6 million expected for public transitioning stations. Again, the costs
are not dramatically different (the costs for commercial stations having
been $3. 1 million for current DTV stations and $2. 3 million for
transitioning stations). One of the biggest differences between public and
commercial stations was the reported

funding sources for building the DTV station. Commercial stations often
relied on funding from the corporate parent or owner. For public stations,
the most reported funding sources were state government funding, station
cash reserves, federal funding or grants from the National
Telecommunications and Information Administration, and fund- raising or
private grants. Both public current DTV stations and transitioning stations

reported that they relied heavily on state government funding sources.
Current DTV stations also reported relying heavily on station cash reserves.

The public stations that had already gone on the air with a digital signal-
all of which chose to do so ahead of the schedule set by FCC- reported that
they were often providing their viewers with high definition content. Eighty
percent of public current DTV stations said they were offering some

HDTV programming. Many had their digital signal on the air constantly; the
stations averaged 50 hours per week of HDTV content and 66 hours per week of
multicasting. Two- thirds of current DTV stations said they were producing
some of their own content in digital. Of the transitioning stations, most
had various plans for their digital channel, including 84 percent that said
they planned some amount of HDTV and 73 percent that

said they planned some amount of multicasting. Fifty- three percent plan to
produce their own content in digital. As for problems that the public
stations were experiencing or expecting, funding ranked as the most reported
problem. Similar to the commercial stations, funding was said to be a
problem by 76 percent of transitioning

stations. Weather was reported as a problem by 57 percent of transitioning
stations, and lengthy permit reviews were reported by 30 percent of
transitioning stations. Another difference from the commercial stations was
the number of public transitioning stations that said they might not make
the deadline for broadcasting a digital signal. While 74 percent of
commercial stations said this, 45 percent of public stations said this. It
is likely that the additional

year given to public stations in the FCC?s schedule partly explains the
lower number of public stations that think they will fail to meet their
deadline. There were also differences in the extensions that public stations
felt they might need from FCC. Thirty- eight percent of public stations said
they would need an extension of 2 years or more, compared with 54 percent of

commercial stations that said this. Lastly, public stations were more
optimistic about when they would have had a DTV signal on the air had they
not been given a timeline. Fifty- two percent of public transitioning
stations said they would have been on the air in digital by 2006 (compared

with 46 percent of commercial transitioning stations).

Survey Results for Commercial Current DTV

Appendi x V I Stations             
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