Telecommunications: German DTV Transition Differs from U.S.	 
Transition in Many Respects, but Certain Key Challenges Are	 
Similar (21-JUL-04, GAO-04-926T).				 
                                                                 
In Berlin, Germany, the transition from analog to digital	 
television (DTV), the DTV transition, culminated in the shutoff  
of analog television signals in August 2003. As GAO previously	 
reported, the December 2006 deadline for the culmination of the  
DTV transition in the United States seems unlikely to be met.	 
Failure to meet this deadline will delay the return of valuable  
spectrum for public safety and other commercial purposes. Thus,  
the rapid completion of the DTV transition in Berlin has sparked 
interest among policymakers and industry participants in the	 
United States. At the request of the Subcommittee on		 
Telecommunications and the Internet, House Committee on Energy	 
and Commerce, GAO examined (1) the structure and regulation of	 
the German television market, (2) how the Berlin DTV transition  
was achieved, and (3) whether there are critical components of	 
how the DTV transition was achieved in Berlin and other areas of 
Germany that have relevance to the ongoing DTV transition in the 
United States.							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-04-926T					        
    ACCNO:   A11025						        
  TITLE:     Telecommunications: German DTV Transition Differs from   
U.S. Transition in Many Respects, but Certain Key Challenges Are 
Similar 							 
     DATE:   07/21/2004 
  SUBJECT:   Broadcasting standards				 
	     Cable television					 
	     Commercial television broadcasting 		 
	     Federal regulations				 
	     Public television broadcasting			 
	     Telecommunication equipment			 
	     Television equipment industry			 
	     Digital broadcasting				 
	     Berlin (Germany)					 

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GAO-04-926T

United States Government Accountability Office

GAO Testimony

Before the Subcommittee on Telecommunications and the Internet, Committee
on Energy and Commerce, House of Representatives

For Release on Delivery

Expected at 10:00 a.m. EDT TELECOMMUNICATIONS

Wednesday, July 21, 2004

German DTV Transition Differs from U.S. Transition in Many Respects, but Certain
                           Key Challenges Are Similar

Statement of Mark L. Goldstein, Director Physical Infrastructure Issues

GAO-04-926T

Highlights of GAO-04-926T, a testimony before the Subcommittee on
Telecommunications and the Internet, Committee on Energy and Commerce,
House of Representatives

In Berlin, Germany, the transition from analog to digital television
(DTV), the DTV transition, culminated in the shutoff of analog television
signals in August 2003. As GAO previously reported, the December 2006
deadline for the culmination of the DTV transition in the United States
seems unlikely to be met. Failure to meet this deadline will delay the
return of valuable spectrum for public safety and other commercial
purposes. Thus, the rapid completion of the DTV transition in Berlin has
sparked interest among policymakers and industry participants in the
United States.

At the request of this subcommittee, GAO examined (1) the structure and
regulation of the German television market, (2) how the Berlin DTV
transition was achieved, and (3) whether there are critical components of
how the DTV transition was achieved in Berlin and other areas of Germany
that have relevance to the ongoing DTV transition in the United States.

www.gao.gov/cgi-bin/getrpt?GAO-04-926T.

To view the full product, including the scope and methodology, click on
the link above. For more information, contact Mark L. Goldstein at (202)
512-2834 or [email protected].

July 21, 2004

TELECOMMUNICATIONS

German DTV Transition Differs from U.S. Transition in Many Respects, but Certain
Key Challenges Are Similar

The German television market is characterized by a central role of public
broadcasting and is regulated largely at the state level. Although the
federal government establishes general objectives for the
telecommunications sector and manages allocations of the German
radiofrequency spectrum, 15 media authorities organize and regulate
broadcasting services within their areas of authority. The two public
broadcasters are largely financed through a mandatory radio and television
license fee of 16 Euro ($19.68) per household, per month, or about 6
billion Euro ($7.38 billion) in aggregate per year. Today, only 5 to 7
percent of German households rely on terrestrial television. Most
households receive television through cable service, which typically costs
less than 15 Euro ($18.45) per month, or satellite service, which is free
once the household installs the necessary satellite equipment.

Berlin officials and industry participants engaged in extensive planning
for the rapid DTV transition in the Berlin test market. In Germany,
government officials and industry participants are implementing the DTV
transition largely for the purpose of improving the viability of
terrestrial television; officials do not expect to recapture radio
spectrum after the transition. Several elements of the DTV transition
apply throughout Germany. For example, Germany is implementing the
transition within specified "islands," which are typically larger
metropolitan areas, because officials thought that a nationwide DTV
transition would be too big to manage at one time. Also, the German DTV
transition focuses exclusively on terrestrial television, not cable and
satellite television. The Media Authority in Berlin specified other
components of the DTV transition for the Berlin area, including a short
(10 month) simulcast period, financial and nonfinancial support provided
to private broadcasters, subsidies provided to low-income households, and
an extensive consumer education effort.

Certain aspects of the DTV transition in Berlin and other regions of
Germany are relevant to the ongoing transition in the United States
because, even though the television market and the transition are
structured differently in the two countries, government officials face
similar key challenges. We found that much of the focus of government
officials leading up to and during the brief simulcast in Berlin was on
ensuring households who rely on terrestrial television received the
necessary consumer equipment. In the United States, most television
stations are providing a digital signal-that is, the United States is in
the simulcast phase. Thus, the challenge facing the Congress and the
Federal Communications Commission, as was the case in Berlin, is
encouraging households to purchase set-top boxes or digital televisions.
The key components of the Berlin DTV transition that enabled the rapid
deployment of set-top boxes included (1) implementing an extensive
consumer education effort; (2) providing subsidies to low-income
households for set-top boxes; and (3) setting a relatively near-term, date
certain that all stakeholders understood would be the shutoff date for
analog television.

Mr. Chairman and Members of the Subcommittee:

I am pleased to be here today to report on our ongoing work on the
transition from analog to digital television, commonly referred to as the
digital television (DTV) transition. The DTV transition offers the promise
of more programming options, interactive services, and high-definition
television (HDTV). To facilitate the transition, the Congress and the
Federal Communications Commission (FCC) temporarily provided television
stations nationwide with additional spectrum to simultaneously broadcast
both an analog and a digital signal. This simulcast is mandated to end in
December 2006, or when 85 percent of American households can receive
digital broadcast signals, whichever is later. At that time, television
stations will return valuable radio spectrum for public safety and other
commercial services; however, as we reported in 2002, that deadline seems
unlikely to be met.1

In Berlin, Germany, a DTV transition-referred to in that country as the
DVB-T switchover-culminated in the shutoff of analog broadcast television
signals in August 2003. The rapid completion of the DTV transition in
Berlin has sparked interest among policymakers and industry participants
in the United States. At the request of this subcommittee, we have
examined (1) the structure and regulation of the German television market,
(2) how the Berlin DTV transition was achieved, and (3) whether there are
critical components of how the DTV transition was achieved in Berlin and
other areas of Germany that have relevance to the ongoing DTV transition
in the United States. In addition to information provided in this
testimony, we are conducting additional work on the ongoing DTV transition
in the United States and will provide a more detailed study for this
committee in early 2005.

To address these issues, we conducted a site visit in Germany and
interviewed a variety of government, industry, and consumer
representatives. In particular, we met with

o  	two federal government agencies with responsibilities related to the
DTV transition;

1See U.S. General Accounting Office, Telecommunications: Additional
Federal Efforts Could Help Advance Digital Television Transition, GAO-03-7
(Washington, D.C.: Nov. 8, 2002).

o  	two Media Authorities that are overseeing the DTV transition in their
respective areas;

o  	the Berlin Social Welfare Office, which assisted in providing
subsidies for set-top boxes during the transition;

o  the two major public broadcasting station groups;

o  the two primary commercial station groups;

o  a cable television provider and a cable television association;

o  	Deutsche Telekom, which is a primary owner of broadcast towers
throughout Germany;

o  	an official who works for association of electrical and electronic
equipment manufacturers and is also the director of Deutsche TV-Plattform,
an organization of government and industry participants in the DTV
transition; and

o  a German association of consumer groups.

In addition to the meetings we conducted in Germany, we spoke by telephone
with a German expert on digital television issues and representatives of a
European satellite provider. We also met with officials at the German
Embassy in Washington, D.C. The information that we gathered was
sufficiently reliable for the purposes of our review. We conducted our
work from April 2004 to June 2004 in accordance with generally accepted
government auditing standards.

We provided a draft of this testimony to FCC and the Department of State
(State) for their review and comment. Staff from FCC and State provided
technical comments that we incorporated as appropriate.

My statement will make the following points:

o  	The German television market is characterized by a central role of
public broadcasting and is regulated largely at the state level. Although
the federal government establishes general objectives for the
telecommunications sector and manages allocations of the German
radiofrequency spectrum, 15 media authorities organize and regulate
broadcasting services within their areas of authority. Broadcasting in
Germany is commonly characterized as a "dual system" in which public and
private broadcasting coexist, with each market segment consisting of

two dominant broadcasting entities. The two public broadcasters are

largely financed through a mandatory radio and television license fee of
16

Euro ($19.68)2 per household per month, which amounts to about 6 billion

Euro ($7.38 billion) per year. Although terrestrial broadcasting-the

transmission of television signals from towers to homes through the

radiofrequency spectrum-was once the only means by which German

households received television program signals, today only 5 to 7 percent

of German households rely exclusively on terrestrial broadcasting. The

remaining households obtain either cable service-which typically costs

less than 15 Euro ($18.45) per month-or satellite service, which is free

once the household has installed the satellite receiving dish and
receivers.

o  	Berlin officials and industry participants engaged in extensive
planning for the rapid DTV transition in the Berlin test market. In
particular, digital terrestrial transmissions were initiated in November
2002 and all analog signals were shut off in August 2003. In Germany,
government officials and industry participants are implementing the DTV
transition largely for the purposes of improving the viability of
terrestrial television. Government officials do not expect spectrum to be
returned after the transition. Several elements of the DTV transition were
decided by federal authorities and will thus apply throughout Germany. For
example, Germany is implementing the transition within specified
"islands," with each island defined as a specific metropolitan area.
Additionally, the DTV transition focused exclusively on terrestrial
television, and households that rely on cable and satellite service did
not need to purchase equipment to continue to receive television service.
The Media Authority in Berlin specified other components of the
transition, such as the short simulcast period, the financial and
nonfinancial support provided to private broadcasters, the subsidies
provided to certain low-income households, and an extensive consumer
education effort. While the Berlin DTV transition is generally viewed as
successful, it is unclear whether a full DTV transition will occur
throughout Germany.

o  	Certain aspects of the DTV transition in Berlin and other regions of
Germany are relevant to the ongoing transition in the United States
because, even though the television market and the transition are
structured differently in the two countries, government officials in both
countries face similar key challenges for completing the transition. In
particular, we found that much of the focus of government officials
leading up to and during the brief simulcast in Berlin was on ensuring
that

2Throughout this testimony, we use the July 13, 2004, exchange rate of
1.2302 to convert Euros into U.S. dollars.

terrestrial households received the necessary consumer equipment to
support the switchover to digital. In the United States, most broadcast
television stations are now providing a digital signal-that is, we are
already within the simulcast phase. The concern today in the Congress and
at FCC is how to coax consumers to purchase set-top boxes or digital
televisions-the same objective of Berlin officials. The key components of
the Berlin transition that enabled a rapid deployment of set-top boxes to
terrestrial consumers and thereby enabled the switchover to DTV were (1)
an extensive public information campaign; (2) subsidies for needy
households to defray the set-top box costs; and (3) the setting of a
nearterm, date certain for the cessation of analog broadcasts that all
stakeholders understood must be met.

Background 	Terrestrial television service-also known as over-the-air
broadcast television-is transmitted from television towers through the
radiofrequency spectrum to rooftop antennas or antennas attached directly
to television sets inside of homes. With traditional analog technology,
pictures and sounds are converted into "waveform" electrical signals for
transmission, while digital technology converts these pictures and sounds
into a stream of digits consisting of zeros and ones. Digital transmission
of television signals provides several advantages compared with analog
transmission, by enabling better quality picture and sound reception as
well as other new services. In addition, digital transmission uses the
radiofrequency spectrum more efficiently than analog transmission. This
increased efficiency makes multicasting, where several digital television
signals are transmitted in the same amount of spectrum as one analog
television signal, and HDTV services possible. But, to implement digital
transmission, upgrades to transmission facilities, such as television
towers, are necessary, and consumers must purchase a digital television or
a set-top box that will convert digital signals into an analog form for
viewing on existing analog televisions.

Both the United States and Germany have programs in place to complete the
transition from analog to digital television. In the United States, the
Congress and FCC provided television stations with additional spectrum to
transmit both an analog and digital signal, and set a deadline for the
shutoff of the analog signal at the end of 2006, or when 85 percent of
households can receive the digital signal, whichever is later. In Germany,
the federal government set a deadline of 2010 for the shutoff of analog
signals and did not provide spectrum for an extended simulcast period.
Each Media Authority (there are a total of 15 throughout Germany) decides
on the specific timing of the terrestrial transition. The city of

  German Television Market Is Characterized by Central Role of Public
  Broadcasting and Is Regulated Largely at the State Level

Berlin, Germany, and its surrounding metropolitan area initiated digital
terrestrial transmissions in November 2002 and shut-off all analog signals
in August 2003.

We were told that regulation of the German television market is primarily
the responsibility of state government, with the federal government
exercising only limited authority to regulate this market. Television
broadcasting in Germany is commonly characterized as a "dual system" in
which public and private broadcasting coexist, with each market segment
consisting of two dominant broadcasting entities. Both segments are
subject to the broadcasting laws passed by the respective German states.
Although terrestrial broadcasting was once the only means by which German
households received television program signals, today only 5 to 7 percent
of these households rely on terrestrial broadcasting, with the remainder
using cable or satellite service for the reception of television signals.

Federal and State Government Agencies Have Important Roles in Television
Regulation

The federal government exercises important but limited authority in
regulating television broadcasting, leaving the state (called La:nder)
governments with the primary responsibility for broadcasting regulation.
At the federal government level, the Ministry of Economics and Labour is
responsible for establishing and advancing general objectives in the
telecommunications sector, such as the promotion of new technologies and
innovation, and ensuring competition among providers of telecommunications
services. In the context of the DTV transition, the Ministry led the
effort in Germany to develop and recommend a strategy for the transition
from analog to digital radio and television broadcasting. A separate
federal entity, the Regulatory Authority for Telecommunications and Posts
(RegTP), established in 1998, is responsible for technical aspects in the
provision of telecommunications services, including management of
Germany's radiofrequency spectrum allocations, the development of
standards for the distribution and use of telecommunications systems, and
testing of electronics equipment. RegTP is playing a key role in the DTV
transition in Germany by establishing procedures for and assigning
frequency allocations to roll out digital video broadcasting service.

Federal and state government officials told us that the authority to
directly organize and regulate broadcasting services rests with each of
the regional governments as part of their jurisdiction over educational
and cultural matters. In each of the German states, a "Media Authority"
serves as the

primary regulatory authority over radio and television broadcasting
services.3 Charged with implementation of their respective state-enacted
broadcasting laws, the 15 Media Authorities are independent agencies and
are not considered to be part of the state government administrations.
Among the most important functions of the Media Authorities is the
establishment of procedures for assigning broadcast frequencies allocated
by RegTP to public and private broadcasters.4 The Media Authorities also
have a significant role in overseeing the transition to digital
television.

Broadcasting laws and regulations in Germany are affected to some extent
by actions of the European Union (EU). Although Germany and other EUmember
states manage their own broadcasting policies, rules and guidelines are
set at the EU level on matters that involve common interests, such as open
borders, fair competition, and a commitment to public broadcasting. In the
EU's Action Plan to stimulate advanced services, applications, and
content, EU member states are encouraged to have a strategy for the DTV
transition with an assessment of market conditions, a date for the
switchoff of analog terrestrial broadcasting, and a platform-neutral
approach that takes into account the competing cable, satellite, and
terrestrial delivery platforms.

German Television Market Dominated by Two Public Stations Groups and Two
Commercial Stations Groups

Terrestrial, or over-the-air, television in German is commonly
characterized as a "dual system" in which public and private broadcasting
coexist, with each market segment consisting of two dominant broadcasting
entities. Public broadcasting corporations are the creation of the states,
but operate largely as self-regulated entities. At the regional level, the
German states have formed regional public broadcasters that operate their
own television channels with regional-specific programming. The regional
public broadcasters also formed a national network in 1950 known as ARD.
ARD provides a nationwide broadcast channel (Channel 1), with some of its
programming supplied by these regional broadcasters. A second nationwide
public broadcasting channel, ZDF, was formed directly by the German states
in 1961 as an independent, nonprofit

3The states of Berlin and Brandenburg have jointly formed a single media
authority.

4Because broadcasting frequencies do not respect state jurisdictional
boundaries, an "Interstate Agreement on Broadcasting" was entered into by
the states to harmonize disparate provisions of state broadcasting laws.
The treaty addresses matters related to the protection of children,
advertising content and sponsorship, and specific aspects of public
broadcasting and private broadcasting.

corporation. In addition to their own channels, ARD and ZDF jointly
operate four additional public television channels that are broadcast in
various parts of Germany. We were told that approximately 40 percent of
television viewing in Germany is of the various public channels provided
by ARD and ZDF.

The public broadcasters are given one frequency each by the Media
Authorities for the terrestrial broadcast of their programming channel.
Their primary source of revenue derives from a compulsory monthly fee paid
by owners of radios and television sets.5 The amount of the fee is set
jointly by the states, based on a recommendation of an independent panel,
and is set at 16 Euro ($19.68) per month for each household.6 We were told
that this amounts to about 6 billion Euro ($7.38 billion) annually. ARD
receives slightly less than two-thirds of the fee revenues and allocates
shares among its regional broadcasters, while ZDF receives about onethird
of the total fee revenues. Two percent of the total fee revenue is
distributed to the 15 Media Authorities. ARD and ZDF generate additional
revenues from limited on-air advertisements. However, they are restricted
to a maximum of 20 minutes of advertising per day before 8:00 p.m. and are
precluded from any advertising on Sundays and holidays.

The introduction of private television broadcasting in Germany is a
relatively recent development. In the early 1980s, additional spectrum
frequencies were made available for the opening of private television
broadcasting. Today, two broadcasting groups-RTL Group and ProSiebenSat.1
Media-dominate this segment of the television broadcasting market, each
operating multiple channels. Unlike their public broadcasting
counterparts, private broadcasters must obtain licenses from relevant
Media Authorities. Because frequencies are limited, not all private
broadcasters operate nationally, and with the growth of cable and
satellite systems, some have chosen not to renew terrestrial licenses in
all locations. In particular, private broadcasters often do not provide
terrestrial service in rural areas. Private broadcasters generate all of
their revenues from advertising and receive no payments from the fees paid
by owners of radios and television sets.

5The fee may be waived for welfare recipients and low-income households.
Collected by a special agency known as GEZ (Gebuhreneinzugszentrale), the
fee is based upon a treaty entered into by the German states.

6We were told that the 16 Euro ($19.68) fee is in some cases assessed for
a second or third television set in a home if an adult child in the home
owns the television.

German Television Is Available on Three Platforms: Terrestrial, Cable, and
Satellite

Although terrestrial broadcasting as described above was once the only
means by which German households could receive television program signals,
there are currently three methods for television delivery- terrestrial
broadcasting, cable television service, and satellite service. Terrestrial
broadcasting, in fact, is now the method least relied upon by German
television households for receiving program signals-only about 5 to 7
percent of German households rely exclusively on terrestrial television.
Some German households that receive their primary television signals by
satellite or cable may have a second or third set in the household that is
used only for terrestrial reception. Households relying on analog
terrestrial broadcasting receive between 3 to 12 channels, with an average
of 5 to 6 channels. The primary transmitter networks that transmit
television broadcast signals from various towers throughout the country
are owned and operated by Deutsche Telekom. Broadcast stations pay
Deutsche Telekom to transmit their terrestrial signals. ARD also owns a
network of terrestrial broadcast towers for its own operations.

Introduced in the early 1980s, cable television service is now the
dominant method for the delivery of television programming in Germany:
about 60 percent of the households subscribe to a cable system. Like
terrestrial broadcasting in Germany, the 15 Media Authorities regulate
cable television service in their respective areas. The state media laws
set forth the must-carry requirements in each region, which specify the
broadcast stations that cable providers are required to carry on their
systems.7 We were told that these regulations vary considerably by region,
with some areas requiring cable systems to carry nearly all public and
private stations, and other areas imposing significantly fewer must-carry
responsibilities on cable systems. To be carried by a cable operator,
however, public and private broadcasters must pay a carriage fee to the
cable operator, which is negotiated directly between the parties. Typical
cable systems in Germany were constructed for the provision of analog
service, provide about 30 to 33 channels of analog programming, and cost

7These must-carry requirements can apply to stations that are broadcast
terrestrially and stations that are not broadcast terrestrially.

subscribers less than 15 Euro ($18.45) per month. It is often the case
that

                                       8

this fee is included in the household's rent.

The third method of distribution of television programming is through
satellite service, which today is received by an estimated 35 percent of
German television households. According to RegTP, to provide satellite
television service in Germany, a license to use the necessary spectrum is
required by the agency. Also, any broadcast station that wants to be
carried on a satellite system must obtain authorization to do so from one
of the Media Authorities. The predominant provider of satellite television
service in Germany is ASTRA, a Luxembourg-based company that provides
satellite service throughout Europe. In order for a broadcast
channel-whether a public station or a private station-to be carried by a
satellite provider, a contractual agreement is reached between the
broadcaster and the satellite provider that gives the right to the
satellite provider to rebroadcast the signal, but requires the broadcast
station to pay a fee for that carriage. For viewers, satellite service is
available free of charge; however, viewers must purchase the equipment
needed in order to receive programming. In addition, they must be able to
situate the satellite dish toward the southern sky to receive the
transmission signal from the geostationary satellite. The costs for a
satellite dish and related equipment are estimated at less than 200 Euro
($246.04). Satellite television service provides viewers in Germany with
approximately 125 channels, about 60 of which are in German.

8The ownership of German cable systems is somewhat more complex than in
the United States. While in the United States, there is only one entity
that distributes programming from the cable headend to customers, more
than one entity may own portions of the cable infrastructure in Germany.
That is, one cable company may own the infrastructure and transmit signals
from the headend into neighborhoods, but another may own the distribution
network within an apartment building-in which a much higher percentage of
Germans live compared with the United States. Although there is only a
limited number of companies in Germany that own the portion of the cable
infrastructure from the headend into neighborhoods, we were told there are
thousands of entities that own facilities that reach individual
households.

  Berlin Officials and Industry Participants Engaged in Extensive Planning for
  the Rapid DTV Transition in the Berlin Test Market

In Germany, government officials and industry participants are
implementing the DTV transition to improve the viability of terrestrial
television in the face of a low and declining share of households that
rely solely on terrestrial television. Several elements of the DTV
transition will apply throughout Germany, including an island based
approach, where the DTV transition will occur separately in different
metropolitan areas, and the adoption of standard-definition digital
television.9 In Berlin, extensive planning facilitated the rapid DTV
transition. Important elements of the Berlin DTV transition included a
short simulcast period, financial and nonfinancial support provided to
private broadcasters, subsidies provided to eligible low-income households
for set-top boxes, and an extensive consumer education effort. While the
Berlin DTV transition is generally viewed as successful, it is unclear
whether a full DTV transition will occur throughout Germany.

German DTV Transition Was Largely Designed to Preserve Terrestrial
Television

A primary rationale for the German DTV transition was to preserve
terrestrial television in the face of a low and declining share of
households that rely solely on this method of television reception. As
mentioned previously, fewer than 10 percent of German households rely
solely on terrestrial television, and the share has been rapidly declining
in recent years. Since broadcasters reach over 90 percent of German
households through cable and satellite service, concerns arose about the
continued costs associated with the transmission of terrestrial television
relative to the number of viewers. By increasing the number of television
channels delivered terrestrially, the DTV transition was seen as a means
to improve the viability of terrestrial television. Because there was
concern that terrestrial viewership would continue to decline, German
regulators decided that any DTV transition would need to occur relatively
quickly.

Some industry participants in Germany suggested that a switch-off of
terrestrial television might be the better course. These parties argued
that terrestrial television is costly and that German households have both
cable and satellite as alternatives. Further, cable service is offered at
reasonably low prices and satellite service is completely free of charge
once the

9As mentioned previously, DTV functions through the transmission of
pictures and sounds in streams of digits consisting of zeros and ones,
which reduces interference, improves picture and sound quality, and makes
new services possible. HDTV is a type of DTV that provides significantly
enhanced picture and sound quality, with up to 1,080 lines of resolution
compared with 480 in analog television. We refer to standard-definition
digital television to identify digital television that is not of the
high-definition variety.

satellite dish and receiver have been installed. Ultimately, however,
German regulators decided to proceed with a DTV transition.

The transition provided benefits for both consumers and broadcasters. For
consumers, the presence of digital terrestrial television ensures that
consumers maintain a choice of three mechanisms to receive television
service. We were told that this choice is important in cities such as
Berlin, where many people cannot receive satellite service and, without
terrestrial television, would be dependent on cable service. Further, one
consumer group noted that digital terrestrial television allows consumers
to avoid paying a fee for cable service while receiving a similar number
of channels as they would with cable service. For broadcasters, the
presence of terrestrial television provides a third mechanism for the
transmission of their signals. We were told that this helps keep the fees
that broadcasters must pay to cable companies to carry their signals lower
than would be the case if broadcasters were reliant solely on cable and
satellite for the transmission of their signals.

Certain Decisions about the DTV Transition Will Apply Throughout Germany

In Germany, the Digital Broadcasting Initiative (the Initiative)
establishes a nationwide framework for digital broadcasting. The federal
government established the Initiative in 1997, and the federal Ministry of
Economics and Labour and the La:nder (or states) chair and deputy chair,
respectively, the Initiative. Other members of the Initiative include
representatives of the federal and state governments; public and private
broadcasters; content providers; cable, satellite, and terrestrial
operators; equipment manufacturers; and consumer groups. The Initiative
develops strategies for digital broadcasting, including terrestrial
television and radio, cable, and satellite service. The Initiative set a
deadline for the DTV transition of 2010; this date is a strategy or
recommendation, and not set forth in German law.

The Initiative developed different strategies for television and radio,
cable, and satellite service, and the DTV transition occurring throughout
Germany at this time only focuses on terrestrial television. Thus, only
households that rely solely on terrestrial television-about 160,000 in
Berlin-were required to purchase equipment in order be able to continue to
receive terrestrial television service on their existing analog
televisions. Households that rely on cable or satellite service were
unaffected by the DTV transition because cable and satellite providers
converted the signals to ensure that households receiving their service
could continue to view the signals without any additional equipment.
Although, households that

receive cable or satellite service would require equipment for televisions
in their homes that are not connected to the cable or satellite service.

The Initiative determined that the German DTV transition would occur
through an island-based approach, in which each island will transition
independently to digital terrestrial television. Each island is a major
metropolitan area, such as Berlin or Munich. Figure 1 illustrates the
various islands in Germany and the actual or planned year for the DTV
transition. We were told that Germany adopted this approach because the
DTV transition could not be achieved throughout the entire country
simultaneously; officials thought that a nationwide DTV transition would
be too big to manage at one time. Additionally, by adopting the island
approach, German officials gained experience with the DTV transition, and
thereby were able to assess whether the public would accept terrestrial
digital television. Several officials told us that the islands will
eventually grow together, and the DTV transition will encompass the entire
country. However, we were also told that had the Berlin DTV transition not
been a success, the transition in other areas may have been reevaluated
and may not have gone forward.

Figure 1: Actual and Planned Start Date for German DTV Islands

Note: Primary refers to areas with reception via room antenna, and
secondary refers to areas with reception via outside antenna.

In addition to the island-based approach, Germany decided to adopt
standard-definition digital television, instead of high-definition digital
television.10 The government and industry officials with whom we spoke
cited several advantages of standard-definition digital versus
highdefinition digital for Germany.11 First, the equipment that consumers
must purchase for standard-definition digital is generally less expensive
than the equipment necessary for high-definition digital.12 Second, with
highdefinition digital, broadcasters must install more costly equipment
and incur higher transmission costs than would be the case with
standarddefinition digital. Finally, German officials believe that
terrestrial television with a standard-definition digital signal is more
competitive with cable and satellite than it would be with a
high-definition digital signal. These officials noted that the increase in
competitiveness of terrestrial television derives from its mobility and
the increased channels available with standard definition digital. In
particular, officials we spoke with noted that standard-definition digital
technology allows multiple channels to be shown with the same amount of
spectrum that was previously used to transmit one analog terrestrial
channel. Thus, terrestrial television in Berlin now offers nearly as many
channels to viewers as they receive on their cable systems. This greater
number of channels combined with the mobility of terrestrial television-a
feature not available with cable or satellite that enables consumers to
take their television to their boats and garden homes-was seen as a factor
that would make terrestrial television more attractive relative to cable
or satellite service.13

Finally, German officials did not plan for the return of spectrum
following the DTV transition. Germany has allocated a limited amount of
spectrum for terrestrial television, and all the analog frequencies have
been dedicated to digital television. As previously mentioned,
broadcasters

10The digital standard that Germany adopted supports both
standard-definition and highdefinition digital television. However,
Germany decided to implement standard-definition digital television.

11The advantages of high-definition digital primarily relate to the
picture quality. Highdefinition digital provides roughly twice as many
lines of resolution, creating a television picture that is much sharper
than analog television. Further, high-definition digital is in wide-screen
format, with display screen ratios similar to a movie theater.

12Consumer groups generally opposed the introduction of high-definition
television because of these higher costs and the fact that high-definition
digital only provides benefits with large-screen televisions.

13The German digital standard also permits indoor reception. Thus,
households in the central areas of the islands do not need to modify or
install a rooftop antenna.

intend to use the spectrum for multiplexing-providing four digital
channels in the same amount of spectrum that they previously provided one
analog channel. However, if all multiplexes are not used, some spectrum
could be returned to the government. But, it is not clear that this
spectrum could or would be assigned to a different use, such as mobile
telephone or Internet access.

mabb and Industry Participants Engaged in Extensive Planning for the
Berlin DTV Transition

mabb, the Media Authority that regulates radio and television in the
states of Berlin and Brandenburg, made several key decisions about how the
DTV transition would occur in the area under its authority.

When to undertake the DTV transition. Each of the 15 Media Authorities
throughout Germany made decisions about when to undertake the DTV
transition within their region. Berlin was the first of Germany's islands
to undertake the DTV transition.14 We were told that Berlin had several
characteristics that made it favorable to serve as a test market for the
DTV transition. First, the percent of households that rely solely on
terrestrial television is relatively low in Berlin. Since the DTV
transition in Germany requires only equipment modifications for
terrestrial televisions, the number of households affected was relatively
small-only about 160,000 households-and the transition more manageable.
Second, Berlin had more spectrum dedicated to television because spectrum
that had been used by both East and West Berlin was all still allocated to
terrestrial television use. Third, because Berlin is not near other major
cities, no signal interference concerns arose in the area, as they might
for cities such as Bonn or Cologne, which are near other cities and the
German border with other countries. Finally, Berlin also has fairly simple
topography-it is basically flat-enabling easier transmission of television
signals.

Length of Simulcast. mabb and industry participants implemented the DTV
transition in the Berlin area with a short simulcast period. The DTV
transition agreement negotiated between mabb and the broadcasters
specified a three-phase simulcast process:

o  	On November 1, 2002, the simulcast period commenced as digital signals
for some of the stations of both public and commercial broadcasters began
to be transmitted. Berlin officials dedicated two additional channels

14By the end of 2004, eight islands plan to have digital terrestrial
television, including Berlin, Cologne and Bonn, Du:sseldorf and
Ruhrgebiert, Hannover, Bremen, Frankfurt, Hamburg and Lu:beck, and Kiel.

for the simulcast, with each of these channels carrying four multicast
digital stations. Thus, eight of Berlin's eleven analog stations were
initially simulcast.

o  	On February 28, 2003, five previously analog channels were converted
to digital channels, with each channel carrying multiple stations. Thus,
the digital signals of more stations were turned on, including stations
that were not previously available terrestrially in Berlin. The analog
transmission of all national private broadcasters stopped, and public
broadcasters transitioned their analog signals to lower-power analog
frequencies.

o  On August 8, 2003, all analog transmission stopped.

The government and industry officials with whom we spoke with cited
several reasons for the short simulcast period. First, Germany does not
have enough spectrum dedicated to television service to implement a long
simulcast period while also providing additional stations; the spectrum
used for analog transmission is the same spectrum that will be used for
digital transmission. Second, an extended simulcast period is costly for
broadcasters, who, as mentioned earlier, must pay for terrestrial
transmission. Third, a quick and certain shutoff date provides an
incentive for households to purchase the necessary set-top boxes. German
federal officials and other Media Authorities are generally encouraged by
the success of the short simulcast period in Berlin. In the state of
North-Rhine Westphalia, the Media Authority intends to implement a 6-month
simulcast period for public broadcasters, with no simulcast period for
private broadcasters, in the state's two islands.

Private broadcaster support. mabb made the decision to provide financial
and nonfinancial support to private broadcasters. Public broadcasters were
able to finance their transition costs through the radio and television
license fee they receive. Private broadcasters, on the other hand, do not
receive license fees, but were viewed as important participants in the DTV
transition. Therefore, mabb decided to provide support to private
stations, which consisted of three elements. First, for 5 years, mabb will
pay the broadcasters' incremental costs associated with digital
transmission (i.e., mabb will pay the difference between the broadcasters'
former analog transmission costs and their digital transmission costs). In
return, the private broadcasters agreed to provide digital terrestrial
television for at least 5 years. Second, as incumbent broadcasters, the
private broadcasters received authority to provide multiplexed service.
That is, the private broadcasters were allowed to increase the number of
terrestrial channels

they provide in Berlin using the spectrum they were already assigned.15
Third, one broadcaster told us that in return for participating in the DTV
transition in the Berlin island, it received favorable must-carry status
throughout the region that mabb regulates-that is, mabb will require that
its stations be carried on cable systems in the region. At this time, it
is not clear whether and to what extent the other Media Authorities plan
to provide similar support for private broadcasters' DTV transition in
other regions.16 One private broadcaster told us that it would be
unwilling to participate in the DTV transition in other islands if it does
not receive the multicast authority.

Subsidy of set-top box for needy households. In addition to supporting
private broadcasters, mabb provided support to certain households for the
purchase of set-top boxes. According to mabb, the overriding principle was
that households must pay for the set-top boxes necessary to watch
terrestrial digital broadcast signals. However, mabb made contingencies
for low-income households. Households that were entitled to government aid
could apply to the Social Welfare Office for assistance. If the household
met the income eligibility criteria and relied solely on terrestrial
television (i.e., the household did not receive cable or satellite
service), the household received a voucher for a free set-top box.
Qualifying households received their set-top box either from specified
retailers, or the box was delivered to their home, whichever means was
least costly. During the DTV transition period, mabb paid 75 percent of
the subsidy cost and the Social Welfare Office paid the remaining 25
percent of the subsidy cost. mabb funded its share of the subsidy through
the portion of the radio and television license fee that it receives,
while the Social Welfare Office funded its share of the subsidy through
its regular budget. Following the transition period, the Social Welfare
Office began paying the entire cost of the subsidy, up to 129 Euro
($158.70). According to mabb, a total of 6,000 set-top boxes were provided
to needy households with a total cost of 500,000 Euro ($615,100).

Extensive consumer education. mabb and industry participants conducted an
extensive consumer education effort. One official told us that a primary
concern with the DTV transition is making sure that

15Public broadcasters were also allowed to provide multicast service.

16The private broadcasters that we spoke with told us that they do not
anticipate receiving financial support in Germany's northern states, since
the anticipated digital transmission costs will be similar to the existing
analog transmission costs.

households that rely solely on terrestrial television understand that they
must do something to be able to continue receiving television. In Berlin,
two important consumer education mechanisms were messages on
terrestrial-only television signals and information sessions with
retailers. On television signals received by terrestrial television,
households saw a rolling scroll that informed them about the DTV
transition. Deutsche TV-Plattform and the Berlin Chamber of Commerce also
held information sessions with retailers. Other consumer education
mechanisms included a direct mailing to every household, a consumer
hotline, flyers and newsletters, an Internet Web site, and advertisements
on buses and subways.17 One primary concern with the consumer education
effort was to avoid confusing cable and satellite subscribers. Because the
DTV transition only affected households relying solely on terrestrial
television, the consumer education effort focused on means that would
target only these households, and not households subscribing to cable and
satellite service. We were also told that a short consumer education
period was best for informing households about the DTV transition; in
Berlin, the consumer education effort lasted approximately 4 weeks and
cost approximately 800,000 Euro ($984,160).18

The Berlin DTV Transition Is Generally Viewed as Successful, but Full DTV
Transition May Not Occur in Rural Areas

Relatively few consumer complaints and problems arose during the Berlin
DTV transition. For example, a consumer organization that we spoke with
told us that there were very few complaints, and that most complaints that
did arise concerned the cost of the set-top box, which they said was
approximately 100 to 125 Euro ($123.02 to $153.78).19 We were also told
that there were minor technical problems and few reception problems. An
mabb official with whom we spoke thought that reception had improved
following the DTV transition, because the agency ensured a strong digital
signal and because digital transmission is superior to analog
transmission. The technical and reception problems that did arise included
difficulties installing and using the set-top box; reception problems in
some multipledwelling units, particularly ground-floor units and buildings
with rooftop antennas and boosters; and interference problems for some
cable subscribers because of the strength of the digital signal.

17We were told that the direct mailing was expensive and not very
effective.

18This figure does not include the value of commercial time that
broadcasters devoted to the DTV transition.

19This consumer organization did mention that the DTV switchover could be
expensive for households with multiple televisions, as each television
would need a separate set-top box.

During the Berlin DTV transition, some households changed the mechanism
through which they receive television service. We were told that between
one-third and one-half of households that previously relied solely on
terrestrial television switched to either cable or satellite service,
rather than purchase the set-top box. An official with mabb told us that
the percent of households switching from terrestrial television to cable
and satellite was less than they had expected. On the other hand, more
set-top boxes-over 200,000-were sold than the number of former
terrestrialonly households, indicating that some households purchased
multiple boxes, and that some cable and satellite households also
purchased settop boxes for a second or third television that only received
terrestrial service. We were also told that relatively few cable
subscribers switched to terrestrial television following the DTV
transition. As previously mentioned, cable payments are often included in
the household's rent payment and some cable contracts are long-term in
nature, thereby reducing the incentive and flexibility that some
households have to switch away from cable service. Some industry officials
told us, however, that they expect some cable subscribers to switch to
terrestrial service in the longer term.

The government, industry, and consumer representatives with whom we spoke
mentioned several factors as contributing to the success of the Berlin DTV
transition. These factors include the following:

o  	The DTV transition provided enhanced consumer value for Berlin
households. The number of channels available through terrestrial
television increased from approximately 11 to 27 and included an
electronic program guide.

o  	The government and broadcasters did not have to finance the new
programs. The new channels available through terrestrial television
following the DTV transition already existed on cable and satellite
systems.

o  	There was good cooperation between the government officials and
broadcasters, which helped ensure that consumers received additional
channels.

o  	The transition affected a relatively small percentage of Berlin
households; only households that relied solely on terrestrial
television-less than 10 percent of Berlin households-had to take action to
avoid losing their television service.

o  	The set-top boxes were relatively inexpensive, and the price fell
throughout the transition period.

o  	There was a scheduled time line for the DTV transition and a firm
shutoff date.

o  There was good communication to consumers about the DTV transition.

While the Berlin DTV transition appears successful, a full DTV transition
might not extend throughout Germany. Government and industry officials
with whom we spoke said that private broadcasters will most likely not
provide digital service in rural areas outside the islands, but that
public broadcasters will provide digital service in these areas. This is
not entirely different than the current situation with analog television,
where the private broadcasters do not provide terrestrial television in
all areas of the country. However, it does raise the possibility that a
full DTV transition, including the digital terrestrial transmission of
both public and private broadcasters, might not occur throughout Germany.

Finally, some groups we spoke with identified problems with the Berlin DTV
transition. The cable television industry in Germany mentioned several
problems. Cable industry officials with whom we spoke objected to the use
of the radio and television license fee for the DTV transition. These
officials told us that all German households pay the license fee, but only
terrestrial households in the islands benefit from the DTV transition. In
fact, the cable industry has petitioned the European Commission about the
use of the license fee for the DTV transition. Other problems noted by the
cable industry officials with whom we spoke include cable subscribers
purchasing set-top boxes by mistake and the expense and problems cable
operators incurred to upgrade their headend facilities to receive the
digital signal. Regarding the set-top box subsidy, the Social Welfare
Office thought that the process could have been handled a little better.
In particular, it found that approximately 20 percent of the applications
for subsidies were not handled adequately, most often because they were
incomplete or missing signatures.

  Need for Set-Top Box Deployment Is Key Challenge in Germany and in the United
  States

Based on our examination of the DTV transition in Berlin and other areas
of Germany, it is clear that the manner in which DTV is to be rolled out
is considerably different than in the United States. Nevertheless, we
found that much of the focus in Berlin leading up to and during the
simulcast period was on making sure that consumers who receive television
solely through terrestrial means obtain the necessary set-top boxes so
that they would be able to view DTV signals once the analog signals were
turned off. Since the DTV transition in the United States is already in a
simulcast phase-that is, most digital broadcast television signals are
already being transmitted-the phase of encouraging consumers to adopt DTV
equipment is upon us. FCC has yet to fully determine how cable and
satellite households will count toward the 85 percent threshold.
Ultimately, the Congress and FCC will need to turn their attention to
providing information, incentives, and possibly assistance to those who
need to purchase equipment in order for the transition-and the return of
valuable spectrum-to be completed. Ensuring that consumers understand the
transition, how they will be affected by it, and what steps they need to
take is critical not only for ensuring the transition moves forward, but
for ensuring that consumers do not unexpectedly lose television reception
or incur costs beyond what is necessary to successfully transition to
digital television.

The Berlin experience highlights a few factors, which relate to consumers'
purchase of set-top boxes, that were very important for the success of the
DTV transition in that city:

o  	Information provided focused a great deal on need for set-top box and
benefits of completing the transition. The Berlin authorities and
broadcasters provided extensive information to the public, the media, and
retailers about what the transition would entail, what consumers needed to
do, how they would benefit by transitioning to digital television, and
where to get assistance if there was confusion about what equipment was
necessary or if there were problems with equipment or reception. This
effort was planned and coordinated among many parties, adequate resources
were dedicated to the information campaign, and nearly everyone we spoke
with told us it a critical factor to the success of the rapid DTV
transition in Berlin.

o  	Set-top boxes were subsidized for needy households. Subsidies were
provided to certain households that might have had difficulties affording
the necessary set-top boxes. In particular, low-income households that
rely on terrestrial television could apply for financial assistance for
the purchase of a set-top box. Because of the low penetration of
terrestrial

television, only about 6,000 households required this subsidy at a cost of
about half a million Euro ($615,100). Nevertheless, this may have helped
in the management of the transition by ensuring that the transition would
not be an undue burden for lower-income households.

o  Near-term date certain for transition deadline made clear when set-top

  GAO Contacts and Staff Acknowledgments

(543093)

boxes would need to be in place. Finally, the Media Authority in Berlin
set a date certain for the transition that required consumers to make
decisions quickly about how they would adapt to the transition. This
enabled all stakeholders to know what they needed to work toward: when
set-top boxes needed to be available in the market; when education of
consumers, hotlines, and TV scroll information would be required; and the
date by which consumers needed to decide how to transition or lose their
television service.

To summarize my statement, Mr. Chairman, although the context of the
transition differs considerably in Germany as compared with the United
States, there may be interesting and helpful lessons for the Congress and
FCC from the DTV transition in Berlin and other areas of Germany. This
concludes my prepared statement. I would be happy to respond to any
questions that you or other Members of the Subcommittee may have at this
time.

For questions regarding this testimony, please contact Mark L. Goldstein
on (202) 512-2834 or [email protected]. Individuals making key
contributions to this testimony included Amy Abramowitz, Dennis Amari, and
Michael Clements.

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