Digital Broadcast Television Transition: Several Challenges Could
Arise in Administering a Subsidy Program for DTV Equipment	 
(26-MAY-05, GAO-05-623T).					 
                                                                 
The digital television (DTV) transition offers the promise of	 
enhanced television. At the end of the transition, radiofrequency
spectrum currently used for analog broadcast television will be  
used for other wireless services and for critical public safety  
services. To spur the digital transition while preventing any	 
loss of television service to households, some industry 	 
participants and experts have suggested that the government	 
subsidize DTV equipment to enable households to view digital	 
broadcast signals. This testimony provides information on (1)	 
some challenges to administering a subsidy program for DTV	 
equipment, (2) some administrative options for implementing a DTV
subsidy, (3) examples of government programs that make use of	 
rebates or vouchers to provide subsidies, and (4) other efforts  
necessary for the completion of the DTV transition. We discussed 
administrative challenges to and options for a DTV subsidy with  
federal and state government officials, electronics manufacturers
and retailers, and experts in product promotion. As in our	 
previous work, we take no position on whether a subsidy should be
implemented or not, or whether, if a subsidy program is 	 
established, it should be implemented in any particular way.	 
While policies other than a subsidy might help promote the DTV	 
transition, any other such approaches were not part of this	 
investigation.							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-05-623T					        
    ACCNO:   A25324						        
  TITLE:     Digital Broadcast Television Transition: Several	      
Challenges Could Arise in Administering a Subsidy Program for DTV
Equipment							 
     DATE:   05/26/2005 
  SUBJECT:   Consumer education 				 
	     Eligibility determinations 			 
	     Government information dissemination		 
	     Subsidies						 
	     Television and television stations 		 
	     Television broadcasting				 
	     Digital broadcasting				 
	     Rebates						 
	     Vouchers						 

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GAO-05-623T

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 11:30 a.m. EDT DIGITAL BROADCAST

Thursday, May 26, 2005

TELEVISION TRANSITION

Several Challenges Could Arise in Administering a Subsidy Program for DTV
                                   Equipment

Statement of Mark L. Goldstein, Director Physical Infrastructure Issues

GAO-05-623T

[IMG]

May 26, 2005

DIGITAL BROADCAST TELEVISION TRANSITION

Several Challenges Could Arise in Administering a Subsidy Program for DTV
Equipment

  What GAO Found

We found that several administrative challenges might arise in
implementing a subsidy for DTV equipment. One of several key challenges we
identified would be determining those eligible to receive a subsidy. If
the subsidy were restricted to low-income households or to households that
rely exclusively on over-the-air television, methods to identify these
households would need to be developed and may prove to be challenging.
Another key challenge would be ensuring that eligible recipients
understand the availability of a subsidy, how they could obtain it, and
what equipment would be subsidized. Effectively communicating this
information will likely first require that information about the DTV
transition itself is successfully communicated to the public.

Several administrative options could be used to provide a government
subsidy to help households obtain DTV equipment, including a refundable
tax credit, government distribution of equipment, a voucher program, and a
rebate program. The suitability of any of these methods depends on aspects
of the subsidy's design, such as which entity is most appropriate to
administer the subsidy and who would be eligible to receive the benefit.

Various government programs make use of rebates or vouchers to subsidize
consumers' purchase of products. We reviewed three rebate and three
voucher programs that might provide insight for the development of a DTV
subsidy and found that differences existed between these types of
programs. We observed that eligibility for the voucher programs was
specifically defined and the benefits were targeted to low-income
individuals, whereas eligibility for the rebate programs was not based on
income. Overall, however, we found these programs differed with respect to
what might be undertaken for a DTV subsidy.

In addition to the administrative challenges of a subsidy program, there
are other aspects of the DTV transition that are ongoing and will take
time to complete or may pose their own challenges. For example, the
channel election process, which will determine each television station's
channel placement for its digital signal, will not be final until sometime
in 2007, according to the Federal Communications Commission. Another issue
that might arise relates to antennas used to receive digital broadcast
signals. Although many stakeholders believe that antennas used for analog
reception will work well for digital signals, we were also told that
reception of digital signals may vary on the basis of a household's
geography and other factors.

                 United States Government Accountability Office

Mr. Chairman and Members of the Subcommittee:

I am pleased to be here today to report on our work on the challenges to
and the administrative options for implementing a subsidy program for
consumers to purchase digital television (DTV) equipment. As you know, the
return of radiofrequency spectrum used for analog broadcast television at
the end of the DTV transition will provide many benefits to society, such
as easing the spectrum scarcity facing public safety first responders,
engendering economic growth and consumer value from spectrum redeployed to
wireless services, and affording the federal government revenues from the
proceeds of a spectrum auction. Under the law, the transition's end is, in
part, dictated by consumers' adoption of digital television equipment.
While the purchase of digital televisions is steadily increasing, it
nevertheless appears unlikely that a sufficient proportion of households
will have digital television equipment in place by the end of 2006-the
date originally set by Congress as a goal for the transition's end.

Households viewing television solely through the reception of over-the-air
signals must take action to ensure that they have the necessary equipment
to be able to view digital broadcast signals before the transition occurs
and analog broadcast signals are shut off. If they do not take such
action, they will lose television service. Consequently, the DTV
transition imposes costs on some American households, assuming those
households purchase equipment capable of receiving digital television
signals to avoid the loss of television service. In February we reported
to this Subcommittee that of the roughly 21 million households in the
United States that rely exclusively on over-the-air television, nearly
half have incomes under $30,000. Cable and satellite subscribers might
also, at some point, need to upgrade their equipment-and thus incur costs
related to the DTV transition-in order to be able to continue to receive
broadcasters' digital signals through their subscription providers.

In order to spur households' adoption of the digital equipment necessary
for the transition, some have suggested that the government provide a
subsidy to certain households to purchase a device, known as a set-top
box, that can receive digital broadcast television signals and convert
them into analog signals so that they can be displayed on existing analog
television sets. This device-which several manufacturers have stated

could sell for as little as $501 once they are produced in high volume-
would enable the household to view digital broadcast signals without
purchasing a digital television set.2 To the extent a subsidy facilitates
the DTV transition, it might be advantageous for several reasons, such as
(1) promoting a more rapid reclamation of valuable radiofrequency spectrum
for other uses, which could spur economic growth and improve public
safety, (2) possibly increasing government revenues from spectrum auctions
by ensuring that companies that bid on spectrum can more quickly and with
greater assuredness claim unencumbered spectrum, and (3) minimizing any
loss in television service that households might suffer because they have
not yet obtained necessary equipment for receiving digital broadcasts. At
the same time, policymakers might consider these benefits in relation to
other contexts in which policy decisions of the federal government have
imposed costs and burdens on Americans without compensation. We believe
while it is difficult to measure the specific benefits and costs of
undertaking a specific DTV subsidy program, it is also difficult to
evaluate the suitability of subsidizing the costs imposed by this
particular government policy relative to other policies that have also
imposed costs on citizens.

While there may be other policy options to spur the DTV transition, my
testimony today only will focus on the use of a DTV equipment subsidy
program. In particular, I will discuss the challenges to and several
administrative options for a possible subsidy program. As we developed
this work, no specific option for administering a DTV subsidy was formed,
and as such, our work focused on the possible challenges to a hypothetical
program. As in our previous work, we take no position on whether a subsidy
should be implemented or not, or whether, if a subsidy program is
established, it should be implemented in any particular way.

In February we testified before this Subcommittee and provided estimates
of the cost of a subsidy for set-top boxes using data on household
television characteristics and expected set-top box costs. Today we will
discuss (1) some challenges to administering a subsidy program for DTV
equipment, (2) some administrative options for implementing a DTV

1Set-top boxes that have enhanced features, such as digital video
recorders and output of high definition signals, would be more costly.

2Viewers using such a set-top box would not actually be viewing the
channels digitally, but would be viewing the broadcasters' digital signals
after they have been downconverted to analog.

subsidy, (3) examples of government programs that make use of rebates and
vouchers to provide subsidies, and (4) some other efforts necessary for
the completion of the DTV transition. In addition to information provided
in this testimony, we will provide a more detailed study on these and
other issues related to the DTV transition for the Committee later this
year.

To address the issues we will discuss today, we interviewed federal and
state government officials who have experience in providing assistance to
individuals or households through various subsidy programs. The agencies
we contacted include the Department of the Treasury, the Department of
Agriculture's Food and Nutrition Service, the Department of Health and
Human Services, and state social service agencies from Alabama, Illinois,
Maryland, and Texas. These states were chosen to represent varied
demographic and geographic characteristics. We also spoke with companies
in several key industry segments including nine electronics manufacturers,
four electronics retailers, and a rebate fulfillment house (a company that
processes rebates for manufacturers and retailers). Additionally, we
interviewed a rebate and retail promotion expert, an academic who has
studied consumer rebate redemption behavior, and representatives from the
Promotion Marketing Association. We also contacted a company that provides
identification and credential verification services. For general
information about the DTV transition, we spoke with seven broadcasters,
three cable and satellite companies, and five television station owners.
We also had several meetings with Federal Communications Commission (FCC)
staff and various industry trade groups, such as the National Cable &
Telecommunications Association, the Satellite Broadcasting and
Communications Association, the Consumer Electronics Association, the
National Association of Broadcasters, and the American Cable Association.
We obtained information on government programs that used rebates or
vouchers from program administrators and other sources. We contacted the
National Telecommunications and Information Administration (NTIA) to ask
questions about their views on the administration of a DTV subsidy
program, but an agency official stated that they had no official comment.

We conducted our work from August 2004 to May 2005 in accordance with
generally accepted government auditing standards. We discussed this
testimony with FCC officials to obtain their comments. FCC provided
technical corrections that we incorporated where appropriate.

In summary:

o  	We found that several administrative challenges might arise in
implementing a subsidy for DTV equipment. Key issues we identified include
challenges related to making determinations about (1) which federal entity
would administer a subsidy program, (2) whether a rulemaking process would
be necessary to fully determine and stipulate how the subsidy program will
be structured, (3) who would be eligible to receive a subsidy, (4) what
equipment would be covered, (5) how information about the subsidy would be
communicated to consumers and industry, and (6) what measures, if any,
would be taken to limit fraud. Some of these issues could be particularly
difficult to address. For example:

o  	If the subsidy were only available to low-income households, a
possible method of identifying these households would be to use receipt of
some other low-income assistance-such as food stamps-to identify those
eligible for the DTV subsidy. A drawback to this approach, however, is
that agencies overseeing such programs may not be allowed to release lists
of their recipients to others. If the subsidy is only provided to
households that rely exclusively on over-the-air television, the
identification of these households may be difficult because no list of
such households exists, and information on the inverse-those households
that subscribe to cable or satellite service- is dispersed across hundreds
of providers in the country, and these providers may also face limitations
on the release of their subscribers' lists to others.

o  	Another key challenge would be to make sure that eligible recipients
understand that a subsidy is available to them, how they can obtain it,
which equipment the subsidy can be used for, and where they can obtain the
equipment. Effectively communicating this information would likely first
require that information about the broader DTV transition is effectively
communicated to the public. Three years ago we found that many Americans
did not have an awareness of the DTV transition. Recently, the Consumer
Electronics Association reported that knowledge of DTV is increasing. Our
interviews with several retailers and manufacturers, indicated, however,
that while consumers are more familiar with the concept of high-definition
television, many

are still confused or unaware that at some point in the future analog
television will cease operation and analog televisions sets will not be
able to receive digital over-the-air television signals.

o  	Several administrative options could be used to provide a government
subsidy to help households obtain DTV equipment. The four options for
administering a DTV subsidy that we reviewed are a refundable tax credit,
government distribution of equipment, a voucher program, and a rebate
program. We found that the suitability of any of these methods depends on
aspects of the subsidy's design, such as which entity is most appropriate
to administer the subsidy and who would be eligible to receive the
benefit. For example, if the DTV subsidy were only available to low-income
households, a voucher might be a possible method to deliver the subsidy.
Alternatively, if the subsidy is more widely available, a rebate might be
a good delivery mechanism.

o  	Various government programs make use of rebates or vouchers to
subsidize consumers' purchase of products. We reviewed three local
government rebate programs that provide incentives for furthering
environmental policy goals and three voucher programs, including one state
program that subsidizes equipment for deaf and hard of hearing individuals
and two federal programs that provide assistance to needy households to
purchase food. For the programs we reviewed, we found differences existed
between the rebates and vouchers programs that might provide insight for
the development of DTV subsidy. Regarding eligibility determinations, we
observed that eligibility for the voucher programs was specifically
defined and the benefits were targeted to low-income individuals, whereas
eligibility for the rebate programs was not based on income. Overall,
however, we found these programs differed with respect to what might be
undertaken for a DTV subsidy. Further, choosing not to participate in any
of the programs we reviewed would not cause a household to lose any
existing service or functionality. In contrast, if a household relying
exclusively on over-the-air television chose not to take advantage of a
DTV subsidy for which it is qualified, and then did not obtain the
necessary equipment to receive broadcast digital signals, the household
would lose access to broadcast television signals when the transition
occurs.

o  	If a subsidy program is implemented, it will pose many challenges for
the implementing agency and industry. However, there are other aspects of
the DTV transition not related to the implementation of possible subsidy
program that are ongoing and will take time to complete or may pose their
own challenges. For example, the channel election process, which will
determine the channel placement for each television station's digital

Background

signal, is ongoing. Because a proposed rulemaking will follow the end of
this selection process (scheduled to be completed in August 2006), all
stations' final selections will not be set until sometime in 2007,
according to an FCC official. Another example of an issue that may arise
as the DTV transition progresses relates to antennas used to receive
digital broadcast signals. While many stakeholders we interviewed told us
that antennas used for analog over-the-air reception should work well for
the digital broadcast signal, a few stakeholders (including an antenna
manufacturer, a broadcaster, and a retailer) told us that reception will
depend on geographic and topographic factors and that some people may need
new antennas or adjustment of existing antennas.

The United States is currently undergoing a transition from analog to
digital broadcast television. With traditional analog technology, pictures
and sounds are converted into "waveform" electrical signals for
transmission through the radiofrequency spectrum, while digital technology
converts these pictures and sounds into a stream of digits consisting of
zeros and ones for transmission. Digital transmission of television
signals provides several advantages compared to analog transmission, such
as enabling better quality picture and sound reception as well as using
the radiofrequency spectrum more efficiently than analog transmission.

A primary goal of the DTV transition is for the federal government to
reclaim spectrum that broadcasters currently use to provide analog
television signals. The radiofrequency spectrum is a medium that enables
many forms of wireless communications, such as mobile telephone, paging,
broadcast television and radio, private radio systems, and satellite
services. Because of the virtual explosion of wireless applications in
recent years, there is considerable concern that future spectrum needs-
both for commercial as well as for varied government purposes-will not be
met. The spectrum that will be cleared at the end of the DTV transition is
considered highly valuable spectrum-sometimes called "beachfront
spectrum"-because of its particular technical properties. In all, the DTV
transition will clear 108 MHz of spectrum-a fairly significant amount. In
the Balanced Budget Act of 1997, the Congress directed FCC to reallocate
24 MHz of the reclaimed spectrum to public safety uses. Since the
terrorist attacks of September 11, 2001, there has been a greater sense of
urgency to free spectrum for public safety purposes. The remaining
returned

spectrum will be auctioned for use in advanced wireless services, such as
wireless high-speed Internet access.3

To implement the DTV transition, television stations must provide a
digital signal, which requires them to upgrade their transmission
facilities, such as transmission lines, antennas, and digital transmitters
and encoders. Depending on each individual station's tower configuration,
the digital conversion may require new towers or upgrades to existing
towers. Most television stations throughout the country are now providing
a digital broadcast signal in addition to their analog signal. After 2006,
the transition will end in each market-that is, analog broadcast signals
will no longer be provided-when at least 85 percent of households in a
given market have the ability to receive digital broadcast signals.

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

  Several Challenges Might Arise That Require Consideration in Administering a
  Subsidy Program for DTV Equipment

It is Unclear What Entity Would Be Best Suited to Administer the Subsidy
Program

One challenge to the DTV subsidy that we identified is determining which
entity should administer the subsidy program. An industry representative
told us that the implementing agency should have some level of
telecommunications expertise in order to be able to set appropriate
standards for the equipment being subsidized and to effectively educate
consumers about the DTV transition. In our opinion, policymakers might
also consider if the entity has experience administering a household
assistance program.

Based on our discussions with government officials, it appears that no
single entity has the combined technical knowledge and subsidy
administration expertise that might be necessary to successfully

3In addition to the 24 MHz that is allocated to public safety, another 24
MHz has already been auctioned.

implement a DTV subsidy. For example, while FCC and NTIA have
telecommunications knowledge and are responsible for managing the use of
the radiofrequency spectrum, neither has experience administering a
federal subsidy program of this kind. We asked these agencies about their
ability, based on their experience, to administer a DTV subsidy. NTIA had
no official comment. FCC officials told us they believe the Commission
could have some role, such as defining which equipment would be eligible
for the subsidy, but did not believe FCC was best suited to administer the
entire subsidy program. Further, an FCC official said it might be
advantageous for the administering entity to leverage the expertise of
state government agencies to assist with delivering the subsidy to
low-income households.

We also asked two agencies that have experience administering federal
assistance programs, the Department of Health and Human Services and the
Department of Agriculture's Food and Nutrition Service, about their
ability to implement a DTV subsidy.4 Although these agencies have
experience with subsidy programs, they do not have expertise in
telecommunications. Officials from the Department of Health and Human
Services told us the agency would not be well suited to administer a DTV
subsidy because their programs, such as Temporary Assistance for Needy
Families, are narrowly defined-a household must have children to be
eligible for Temporary Assistance for Needy Families-and would not offer
broad enough coverage for a DTV subsidy. Similarly, officials from the
Food and Nutrition Service said they did not believe their agency would be
the best entity to administer the subsidy. However, after we asked whether
the state agencies that administer food stamps could provide a DTV subsidy
to their recipients, Food and Nutrition Service officials said that this
might be possible under certain conditions, but that an agreement would
most likely have to be reached with each state and, in their view, the
states should be paid for the costs they incur in doing so.

When we contacted four state heath and human services agencies that
administer various assistance programs on behalf of the federal
government, such as food stamps, all four indicated that it might be
possible for the states to provide the DTV subsidy to the low-income
individuals who already receive assistance from one or more programs

4The Department of Heath and Human Services administers a number of
programs, including Temporary Assistance for Needy Families. The Food and
Nutrition Service also administers various programs, including the
nation's Food Stamp Program and the Special Supplemental Nutrition Program
for Women, Infants, and Children, better known as WIC.

they administer. However, they told us there would be costs associated
with implementing a subsidy program, such as staff time, programming
costs, postage, and envelopes. One state we contacted estimated that it
would cost approximately $552,000 to mail vouchers to the approximately
1.5 million households that receive food stamps, Medicaid, and Temporary
Assistance for Needy Families within the state. However, two states told
us that if the program ran over a period of time it would be difficult to
track which households already received the DTV subsidy as people go on
and off of assistance over time, so some households could receive
duplicate benefits. Further, three of the four states told us that such a
program would be burdensome on their limited staff resources.

Implementing a Subsidy Program May Require a Rulemaking Process

A rulemaking process might be required to implement a DTV subsidy, and if
so, this would likely have implications for how quickly a subsidy program
could be established. While legislation could broadly define the
parameters of the subsidy program and may even prescribe specific elements
of the programs' structure and administration, it is not uncommon for a
federal agency to determine that a rulemaking process is necessary to more
fully detail how a program will be implemented. Through a rulemaking, the
agency would finalize the rules of the program that were not specifically
addressed in the legislation. FCC told us that if the legislation is very
specific a rulemaking process may not be necessary for a DTV subsidy.
However, FCC did note that rulemakings have been used in the past after
legislation enacted new programs. For example, rulemaking processes have
been undertaken several times to make adjustments to the Lifeline
Assistance Program since it was established in 1985.5

The rulemaking process generally takes time because it requires a wide
range of procedural, consultative, and analytical actions on the part the
agencies. Sometimes agencies take years to develop final rules. Among
other things, the rulemaking process generally requires agencies to (1)
publish a notice of proposed rulemaking in the Federal Register; (2) allow
interested parties an opportunity to participate in the rulemaking process
by providing written data, views, or arguments; (3) review the comments
received and make any changes to the rule that it believes are necessary
to respond to those comments; and (4) publish the final rule at least 30
days

5The Lifeline program, created in 1985, provides a discount on local
telephone bills for certain low-income customers so that basic local phone
service is more affordable.

before it becomes effective. Further, the Office of Management and Budget
reviews significant proposed and final rules initiated by executive branch
agencies other than independent regulatory agencies before those rules are
published in the Federal Register.6 A former official from the Department
of Health and Human Services told us that industry participants, interest
groups, or other stakeholders can challenge a proposed rulemaking, which
can delay the process further. He said that in order to avoid such
challenges, it is essential to have the key stakeholders involved early in
the process. That is, if the key stakeholders have the opportunity to
provide input prior to the development of the rulemaking and are satisfied
that their concerns are addressed, they will be less likely to file a
challenge to the proposed rulemaking.

Eligibility Criteria Pose Challenges to the Administration of a DTV
Subsidy Program

Determining who would be eligible to receive the subsidy could present an
administrative challenge to developing a subsidy program. If the
government decides not to provide a DTV subsidy to all households, it
would need to establish criteria to determine who is eligible. For
example, a means test could be imposed to restrict eligibility to
low-income households determined to be in financial need of the subsidy.
The subsidy could also be limited to only those households relying on
over-the-air television signals, on the grounds that these households are
likely to be the most adversely affected by the DTV transition.

Eligibility for Low-Income Households: If it is determined that a DTV
subsidy will only be made available to low-income households, a means test
of some kind would need to be used to identify the appropriate target
households. Officials from the Department of Health and Human Services
told us that using the income-based eligibility criteria of existing
social service programs to define eligibility for a DTV subsidy program
would be the most efficient way to employ a means test. That is, by using
the receipt of an existing program benefit that is means tested, a new
program could be effectively implemented without developing a means test
specifically for that program. However, we were also told that one of the
drawbacks to using these existing programs is that not all who are
eligible for any particular program actually choose to apply for and
receive benefits. This would mean that by only providing a DTV subsidy to
those already receiving other assistance, some people who would be
eligible for the

6The Office of Management and Budget does not review rules of independent
regulatory agencies, such as FCC.

subsidy based on their underlying income would not qualify for the subsidy
because they have chosen not to receive another form of assistance.
Officials from the Food and Nutrition Service told us that for the Food
Stamp Program, approximately 54 percent of those who would be eligible for
the program receive the benefit nationwide. It was thus suggested to us
that if recipient lists from social assistance programs were used in
developing eligibility determinations for a DTV subsidy, it might be
beneficial to use more than one program. By combining the participants of
several programs, a DTV subsidy for low-income households would target a
higher percentage of needy households than if only one program was used to
establish eligibility. For example, FCC told us that the Lifeline
Assistance Program uses receipt of any of seven social assistance
programs, including food stamps and Medicaid, as an eligibility
requirement.7

Privacy concerns could, however, be a limitation of using existing social
welfare programs to develop eligibility for a DTV subsidy because the
agencies administering these programs may be prohibited from providing the
list of recipients to any outside entity. Under current law for example,
food stamp recipient information might not be available to other federal
agencies or to any private party or outside entity that might be involved
in the administering the subsidy. Another limitation in using these data
is that there is continuous change in recipient rolls because of people
entering and leaving the program. Those implementing a DTV subsidy program
would need to take into account the volatility of recipient rolls in
deciding how this information could be used.

Eligibility for Over-the-Air Households: Some stakeholders we contacted
indicated that a DTV subsidy should be focused on or limited to only those
households that rely exclusively on over-the-air television. Because no
list of these households exists, limiting a subsidy in this manner will
require determining who the over-the-air households are-a task that could
pose administrative challenges. One possible approach to identifying
over-theair households is to first identify cable and satellite8
subscribers. A

7Consumers can receive assistance if they participate in Medicaid, the
Food Stamp Program, Supplemental Security Income, Federal Public Housing
Assistance (Section 8), the Low Income Home Energy Assistance Program, the
National School Lunch Program's free lunch program, or Temporary
Assistance for Needy Families.

8For satellite subscribers, we are referring to those that subscribe to a
direct broadcast satellite (DBS) service, such as DIRECTV or DISH Network.

combined list of all cable and satellite subscribers could be used as a
mechanism to check whether those applying for a DTV subsidy are not
qualified for the subsidy.

The process of combining cable and satellite subscriber information into a
comprehensive list could be a highly challenging task. First, cable
industry officials we interviewed expressed concern over providing their
subscriber lists to a government agency or another entity. Cable officials
told us that under current law, they could not turn over subscriber
information to the government without prior permission from subscribers
unless they were under a court order.9 Cable industry officials also told
us that any change in current legislation would need to include liability
protection for cable and satellite companies because their subscriber
lists-which include personal information provided to these companies from
subscribers-would be outside their control. An industry official said that
even more stringent safeguards would need to be in place if the
information were provided to an outside entity-such as a contractor-
rather than to a government agency. One cable company official stated that
even if the law were changed to allow the company to provide its
subscriber lists, it would be placed in the awkward situation of having to
inform their subscribers that their names were provided to the government
to help administer a subsidy that the cable subscribers are not eligible
to receive. The cable company official also stated that subscribers would
be sensitive to their information being used in this manner, especially in
light of recent security issues related to personal information.

A second challenge to developing a national list of all cable and
satellite subscribers is the difficulty of merging this information across
all cable and satellite companies. Currently, there are over 1,100 cable
and satellite companies operating throughout the country, with a total of
nearly 90 million subscribers. Information from these companies, which is
maintained in various formats, would have to be collected and combined
into a comprehensive list of subscribers. Cable industry officials stated
that the process of merging and maintaining a list of nearly 90 million
subscribers would not be an easy undertaking. For example, one cable
industry official estimated that the process of working through all the
technical logistics for establishing a list could take 6 to 12 months.
Additionally, cable industry officials stated that there is significant
"churn" (i.e., the number of people moving on and off subscriber lists) in
the

947 U.S.C. S:S: 338(i) and 551.

industry. For example, one cable company official stated that churn can be
as high as 10 percent of subscribers from month to month. Another cable
industry official told us that a significant level of resources would be
needed to keep such a combined subscriber list up to date.

Another possible, albeit difficult, way to determine who the over-the-air
households are would be to send queries to cable and satellite providers
to ask if particular people who have applied for the DTV subsidy are, in
fact, already subscribing to cable or satellite. For cable customers, a
database would need to be developed to direct the queries to the
applicable provider. According to FCC, the Commission maintains a master
data base with information on all franchised cable areas-of which there
are over 30,000. The most identifiable geographic information in that
database is the name of county where each cable franchise is located. If
an applicant for the DTV subsidy provided a county of residence, a query
could be sent to all the franchised cable areas in that county. However,
an FCC official told us that in many counties there are multiple cable
franchises operating. Moreover, the FCC official stated that even though
there is a contact name for each franchise area, in many cases, the
contact was someone at a corporate headquarters of the cable company.
Thus, we believe that to contact the local cable franchise directly, the
database would need to be further developed to include information-perhaps
an e-mail address at the local franchise level-to which the query could be
sent. This process could be time consuming for both the entity processing
the subsidy applications and the cable providers. On the satellite side,
we believe querying the satellite providers might not be too difficult
because there are only two primary providers. However, people may object
to their personal information being sent to the satellite providers as
well as the cable providers in their area. Another option might be to use
information maintained by companies that perform subscriber billing for
cable and satellite companies. We were told that about six large billing
companies provide billing services for a substantial majority of the cable
and satellite companies. Representatives from a company that provides
identification and credential verification services told us they could
verify that individuals applying for a DTV subsidy do not subscribe to a
cable or satellite service by checking the applicant's address against the
addresses maintained by the cable and satellite providers' billing
companies. To protect the privacy of subsidy applicants, the
identification and verification services company told us such queries
should be based on an individual's address rather than name or Social
Security number. Company officials also told us that it would likely take
a few months to develop this checking process.

Congress and Implementing Agency Must Determine What Specific Equipment
Would Be Subsidized

One of the administrative elements of a subsidy program that would likely
need to be determined is exactly what equipment will be subsidized. In
making this determination, policymakers might consider both policy issues
as well as issues related to the ability of the program to be implemented
and managed.

From a policy perspective, several of the manufacturers and retailers we
contacted told us that they believe it would be most beneficial to
consumers if the program did not put highly specific limits on the type of
equipment they could buy with the subsidy. In particular, some
stakeholders generally believed that eligible consumers should not only be
allowed to apply the subsidy toward a basic set-top box, but should also
be allowed to apply that amount toward enhanced set-top boxes (those with
upgraded features or functions) or digital televisions capable of
receiving and displaying digital broadcast signals. Several stakeholders
noted that any product that enables consumers to receive digital broadcast
signals does the job of ensuring that there is no loss in television
service when the transition occurs. Moreover, some said a wide application
of the subsidy provides consumers the most choice and promotes the
adoption of digital television. An opposing view is that a subsidy should
only be designed to ensure that there is no loss of television service
when the DTV transition is completed, and therefore the subsidy should
only be applicable to a set-top box.

From the perspective of administering the program, determining what items
the subsidy can be applied towards is critical for communicating to
manufacturers, retailers, and consumers a key parameter of the program.
Some stakeholders noted that either the Congress or the administering
agency would need to identify the products that would be subsidized so
that manufacturers produce the appropriate equipment. If the intent is to
subsidize only simple set-top boxes, FCC officials told us that the
subsidy would cover boxes that have only analog outputs. If the Congress
or the implementing agency determines that the subsidy will be more
broadly applicable, the particular parameters of the program would need to
be communicated to the manufacturing industry so that their business plans
can proceed.

There would also likely be some process by which specific items meeting
the parameters of the subsidy program are approved and flagged as eligible
for the subsidy. Manufacturers need certainty about what items are
approved for the subsidy if they are to place a rebate coupon on or inside
of the equipment boxes, along with any related information.

Specific identification of subsidized items will also be important for
retailers as they make inventory decisions and train staff about how to
guide consumers' purchasing decisions. Also, if retailers are asked to
play a part in the administration of the program, such as by accepting
vouchers or printing rebate coupons at the time of sale, it will be
critical for them to have validation of items that are eligible for the
subsidy. And, clearly, consumers need to understand which items they can
purchase using the subsidy.

Some industry representatives we contacted also expressed concern about
the interface between industry and the government in the design of the
subsidy program. In particular, industry representatives said that the
government should work with industry as the subsidy program is developed
to ensure that the program is designed in a manner that will provide
incentives for manufacturers and retailers to participate. Additionally,
some companies noted that the government would need to provide industry
with information on the expected scope of the program in order to avoid
shortages of equipment at retail. In general, some companies told us that
industry should be involved in the development of the program to help
ensure that it is designed and implemented efficiently.

A Successful Subsidy Program Will Require an Effective Information
Campaign about the DTV Transition and Subsidy

To successfully implement a DTV subsidy program, eligible recipients will
need to understand that a subsidy is available, how to obtain it, which
equipment the subsidy can be used for, and where they can obtain the
equipment. Thus the agency responsible for implementing the program would
need to undertake a communication campaign. At the same time, it could be
difficult to provide information about the parameters of the subsidy
program if there is not a general understanding about the broader DTV
transition. As such, it appears that an information campaign regarding the
availability of a subsidy for DTV equipment might need to be coordinated
with a more general information campaign about the transition and its
ramifications for American households.

Three years ago we found that many Americans did not have significant
awareness of the DTV transition, and we recommended that FCC explore
options to raise public awareness about the transition and the impact it
will have on consumers.10 Since that time, FCC and industry have

10See GAO, Telecommunications: Additional Federal Efforts Could Help
Advance Digital Television Transition, GAO-03-7 (Washington, D.C.: Nov. 8,
2002).

undertaken efforts to better inform the public about the transition. In
March of this year, the Consumer Electronics Association, an association
of electronics manufacturers, reported that consumers' understanding of
digital television has improved. This association surveyed individuals and
found that, compared to past years, there has been an increase in consumer
familiarity and understanding of DTV, as well as an increase in the
likelihood of over-the-air households to take action to avoid losing
television service.

Based on our interviews with several stakeholders, it appears that despite
these findings many consumers-particularly those who may be the most
affected by the transition-may still be unaware or confused about the DTV
transition. Several of the company representatives with whom we spoke told
us that while consumers are more familiar with the concept of
high-definition television, they are still unaware or confused about other
aspects of the DTV transition. Some told us that few consumers understand
that at some point analog television will cease operation and analog
television sets will be unable to receive digital over-the-air signals. We
were told that it is especially difficult to provide consumers with a
better understanding of this in the absence of a hard transition date.
Additionally, some populations might be difficult to reach because English
may not be their primary language or because they only receive television
over-the-air and have no business relationship with a subscription
television provider that would likely provide them with information about
the transition.

Minimizing Fraud Might Be a Consideration in the Development of a Subsidy
Program

Depending on how a subsidy program is structured and implemented, there
may be opportunities for people to defraud the government. For example,
one official familiar with government subsidy programs noted that if
everyone were eligible for the subsidy, the opportunities for fraud would
decline. For this reason, the more restrictive the eligibility
requirements, the greater may be the chances for fraud. In terms of
reducing fraud, those familiar with rebates noted that the more
requirements for rebate redemption-that is, the more documentation the
consumer must provide to redeem the rebate-the fewer problems with fraud
there are likely to be. However, we were also told that increased
requirements would tend to reduce the number of people who attempt to
redeem the rebate. An additional consideration regarding fraud is the cost
of fraud mitigation. A former official from the Department of Health and
Human Services told us that while minimizing fraud should be considered in
developing a subsidy program, the cost-effectiveness of these efforts
should also be measured. For example, we were told that administering

  A Variety of Options Exist for Administering a DTV Subsidy, Each with Unique
  Challenges

systems to mitigate and prevent fraud may be costly and may not be
worthwhile, especially if the value of the subsidy is low.

While a government subsidy for consumers to purchase DTV equipment could
be administered in several ways, each of the subsidy options we examined
had advantages and disadvantages. Following is a description of and
stakeholders' views on four DTV subsidy options: a refundable tax credit,
government distribution of equipment, a voucher program, and a rebate
program. As we noted above, we take no position on whether a subsidy
should be implemented, or whether, if a subsidy program is established, it
should be implemented in any particular way.

Refundable Tax Credit Program: One method that could be used to administer
a subsidy program for DTV equipment would be a refundable tax credit,
administered as part of the federal individual income tax. A refundable
tax credit could be designed to provide qualifying taxpayers a refund
greater than the amount of their tax liability before credits. Based on
the manner in which tax credits work, we believe that a tax credit for DTV
equipment would likely be structured such that consumers purchase an
eligible set-top box, maintain required information on their purchase, and
seek reimbursement for all or some portion of the cost from the federal
government for the equipment when they file their federal income taxes.
Based on discussions with an official from the Department of the Treasury,
it does not appear that this method would be well suited for a DTV
subsidy. The Treasury official told us that considerable administrative
burdens would be imposed on the Internal Revenue Service (IRS) to
administer a refundable tax credit for a one-time subsidy. This official
noted that implementation of a new tax credit would require the IRS to
change tax forms, as well as instructions, for the years that the program
would be in operation. Changing tax forms imposes administrative costs,
particularly if tax laws are changed after forms have been developed for a
given tax year. Additionally, he noted that IRS Form 1040 is currently
completely full, so that any new credit could require the form to be
lengthened from two pages to three pages, which would be costly and
burdensome. The official also noted that the availability of the tax
credit may cause some individuals who otherwise would not file a tax form
to do so, which would increase IRS administrative burdens. The Treasury
official also noted that there could be compliance problems with a tax
credit approach. Because of the small amount of the credit-likely about
$50-it would not be cost-effective for the IRS to assign resources to
check compliance, thus it would be very difficult to minimize fraudulent

use of the credit. In fact, IRS has had difficulty assuring compliance for
a refundable tax credit. In particular, for the Earned Income Tax Credit,
IRS estimated that roughly 30 percent of the dollars claimed was
erroneous.

We heard from stakeholders that a tax credit for DTV equipment might not
be the most helpful to low-income Americans because individuals would have
to purchase the equipment with their own money and file-possibly many
months later-for a tax refund. Also, we were told some low-income
Americans do not file tax returns. We believe the additional costs and
burdens for such individuals to file taxes for the purpose of obtaining a
tax credit may exceed the value of the credit.

Government Distribution: With government distribution, the government
provides certain goods for needy citizens. One example of government
distribution is the Emergency Food Assistance Program whereby the
government provides food, such as dried fruit, non-fat dry milk, and
peanut butter, to states for distribution to selected local
agencies-usually food banks-which, in turn, distribute the food to soup
kitchens and food pantries that serve the public directly.

For the DTV transition, the government could directly provide the
necessary equipment to individuals, but we found there would be a number
of challenges to implementing and administering such a program, and, based
on discussions with state social service agencies, it appears that this
would be an unwieldy way to administer a DTV subsidy. One challenge would
be finding locations for distributing the equipment. We heard from several
officials whose state agencies administer benefit programs that using
local social services offices as a distribution point would not be
feasible. These officials cited the lack of space and staff resources to
store, secure, and distribute equipment as reasons why local offices could
not be used to administer such a program. Further, stakeholders told us
that government distribution does not take advantage of existing retail
supply chains that already move large quantities of goods to stores
throughout the country.

While a government distribution program would not require households to
pay for equipment in advance of receiving the subsidy, which would be
beneficial to low-income households, the program could present other
challenges to those eligible to participate. For example, stakeholders we
interviewed told us that a distribution program limits consumers' choices
and provides no mechanism for consumers to obtain support if the equipment
does not work properly. Additionally, officials from one state agency told
us that people obtaining equipment at local offices would have

to wait in long lines, which could be problematic for those with physical
limitations, such as the disabled and the elderly.

Voucher Program: Another mechanism to subsidize DTV equipment could be
through a voucher program. A voucher-which is a coupon or electronic
benefit card, similar to a credit card, which provides purchasing power
for a restricted set of goods or services-could be provided to households
that qualify for a DTV subsidy. The federal government has used vouchers
to provide a variety of assistance to households, such as food stamps and
housing subsidies. Also, vouchers have been used on a limited basis to
provide benefits to consumers for the changeover of certain technology.
For example, the Colorado Department of Human Services provided a voucher
to individuals who qualified as hard of hearing to purchase text
telephones and other specialized telecommunications equipment.

For a DTV equipment subsidy using a voucher system, various administrative
steps would be necessary to design and implement an effective program.
After decisions were made about the specific equipment to be covered,
vouchers would need to be distributed to eligible households. Several of
those we contacted noted that if the program is to be means tested, state
agencies-such as those that administer the Food Stamp Program-might be
able to mail vouchers to their existing recipients.11 Additionally, with a
voucher program, several administrative steps involving the retail
industry would be required. Participating retailers would have to know how
the program is structured, which specific items were covered by the
subsidy, approximately how many pieces of DTV equipment were expected to
be subsidized in a particular area, and how the mechanism for retailer
reimbursement would operate.

Overall, using vouchers to administer a DTV subsidy might be beneficial
for low-income households because such households would not be required to
pay for the DTV equipment in advance and then wait to be reimbursed.
However, stakeholders told us that this type of program could create a
burden on retailers because they must determine the authenticity of the
vouchers. Also, stakeholders mentioned that it might be more

11State agencies we contacted suggested that mailing a paper voucher to
recipients would be the least difficult and most effective way of
distributing a voucher for a potential DTV subsidy. While food stamp
benefits are provided to recipients electronically (through an Electronic
Benefit Transfer (EBT) card), the state agencies told us it would be
costly and time-consuming to add the DTV subsidy to these electronic
cards.

challenging to include smaller and independent retailers in a subsidy
program that uses vouchers.

Rebate Program: A rebate program could also be used to administer a DTV
subsidy. Rebates generally require consumers to pay the full cost of an
item at the time of purchase and then send documentation to an address
specified by the manufacturer or retailer to receive a rebate by mail. The
documentation required generally includes the original sales receipt, the
UPC code from the product packaging, a rebate slip, and the customer's
name, address, and telephone number. In most cases, this paperwork must be
sent within 30 days of the purchase, and consumers generally receive their
rebates up to 12 weeks later. According to the three rebate experts we
interviewed, only about 30 percent of rebates are ever redeemed. While two
rebate experts said that redemption rates would likely rise with a larger
rebate, such as might be provided with a DTV subsidy, none of the three we
spoke with believed that the redemption rate would rise above 50 percent.
Also we were told that depending on the type of rebate, on average 1
percent to 20 percent of rebate applications are rejected based on the
lack of proper documentation.

Typically, a variety of decisions are made in developing a rebate program.
For example, as we discussed these decisions with stakeholders, various
methods of implementing a rebate were highlighted, including placing the
rebate coupon inside the equipment box, affixing it to the outside of the
box, or printing a coupon at the cash register at the time of sale. The
method used would, in part, determine which entities have some
administrative responsibility for the rebate program. If a DTV subsidy
program were designed to have a rebate coupon placed in or on the box, it
would be the responsibility of the manufacturer to do so, while if it were
designed to have a rebate coupon generated at the cash register, the
retailer would be responsible for managing this process. A consensus on
the best rebate method did not emerge from our interviews with industry
experts.

One of the most difficult elements associated with using a rebate for a
DTV subsidy would be applying eligibility requirements. As previously
discussed, information about over-the-air and low-income eligibility is
not readily available to the rebate fulfillment houses-which are the
entities that process rebates for manufacturers and retailers-and there
are legal obstacles to the government collecting and providing that
information to them. Another downside of rebates is that consumers
generally pay the full cost of an item at the time of purchase, which
could create a hardship for low-income households. Furthermore, one rebate
fulfillment center

  Several Government Programs Have Employed Rebates or Vouchers to Provide
  Subsidies

representative told us that low-income individuals are less likely to
redeem rebates than other segments of the population. Similarly, an
official from a state agency told us that based on her experience a rebate
program is not a good choice if the subsidy is supposed to target
lowincome individuals because many low-income individuals are not
comfortable with rebates and will not redeem them. If eligibility for the
subsidy is not restricted, a rebate might provide a good delivery
mechanism. A benefit of using a rebate program for a DTV subsidy is that
this method could take advantage of the relationships that already exist
between retailers, manufacturers, and the rebate fulfillment industry.

We identified several government programs that have used or are using
rebates or vouchers to subsidize consumers' purchase of products. While
aspects of these programs might provide insight into the establishment of
a DTV subsidy, we found, overall, that the programs we reviewed differed
in many respects from what might be undertaken for a DTV subsidy. We
reviewed three rebate programs that were implemented by local governments
to provide incentives for furthering a policy goal, such as clean air,
water conservation, and the use of energy-efficient appliances. We also
reviewed three voucher programs, including one state program that
subsidizes equipment for deaf and hard of hearing citizens and two federal
programs that provide assistance to needy households to purchase food. See
table 1 for key information about the six programs we reviewed.

Table 1: Information on Rebate and Voucher Programs GAO Reviewed

Page 1 GAO-05-623T GAO-05-623TPage 2

                               The program was      Advertised in   
                             launched with a high  water bills and  
                                profile press       newsletters;    
                             conference attended       allowed      
                               by regional and      installers to   
                             national press; then     advertise     
                               used main stream       program's     
              Information    media to promote the   availability    
             dissemination         program        
               Length of     August 2000 through                    
                program           June 2006       Ongoing; started  
               existence                               in 2003
                                                    About 18 months 
                                                      to implement; 
                               About 12 months     majority of this 
                              total; 6 months to     time was spent 
                              design the program  coordinating with 
                               and 6 months to    the various water 
            Time required to    secure funding        agencies that 
              develop and                                      were 
               implement                           participating in 
                program                                 the program 
               Number of                                            
             persons served          879             142 in 2004
                                   Start up                         
                             administrative costs                   
               Percent of     were 26.4 percent;   Administrative   
            budget allocated once the program was     costs not     
                   to            established,       separated out   
             administrative  administrative costs   from general
                 costs         were 14 percent      agency costs
                                                   $45,000 in 2004  
              Total budget        $1 million          and 2005      
                              Must be a resident      Must be a     
                                of Santa Cruz     Sacramento County 
                              County, also must     Water Agency    
                               attend a safety    customer (with a  
              Eligibility       training class    high flow toilet  
              requirements                                )         
                                                   Ultra-low flush  
             Item/commodity                       toilets (that use 
               subsidized                         only 1.6 gallons  
                               Electric-powered     of water per    
                                   bicycles            flush)       
                             Ecology Action, Inc.                   
             Administering    on behalf of Santa      County of     
                 entity          Cruz County,        Sacramento,    
                                  California         California
                               Rebate; maximum     Rebate; rebates  
            Subsidy type and    rebate is $375    vary from $75 to  
                 amount                            $125 per rebate  
                                                  Sacramento County 
                              Santa Cruz County     Water Agency    
                                Electric Bike       Ultralow Flow   
                              Commuter Incentive    Toilet Rebate   
              Program name         Program             Program      

                             Provided handouts                       
                             at retail stores                        
                             and LADWP branch                        
                             offices,          Worked with rehab and 
                             advertised on        independent living 
                             radio, placed         centers, advocacy 
                             inserts in all       groups, subscriber 
                             residential           based emails, and 
                             utility bills,          newsletters for 
                             created special     groups representing 
                             page on LADWP web  the deaf and hard of 
                             site, had           hearing. Also did a
                             kick-off event at   one-time stuffer in
                             Home Depot that             phone bills
                             was carried on    
              Information    local news        
             dissemination   stations          
           Length of program Ongoing; started   Ongoing; started in  
               existence         in 2002.              2003          
                             Original program                        
                              development was  
                             lengthy; program  
                             implemented in 3  
            Time required to    months once    
                 develop and  contractor was   
           implement program       hired           Not available
           Number of persons   Approximately                         
                served        6,000 per year            260
                               Approximately                         
                             $1.18 million, or 
                             39 percent of the 
           Percent of budget total budget, is  
           allocated to         for labor,     
           administrative      marketing and   
           costs                 materials         Not available
             Total budget       $3 million           $650,000        
                                                Medically certified  
                                                as deaf or hard of   
                              Must be a LADWP     hearing and low    
                                 customer       income, defined as   
              Eligibility                       185 percent of the   
             requirements                      federal poverty level 
                                                 Text telephones,    
            Item/commodity   Energy efficient      printing text     
              subsidized        appliances,      telephones, phone   
                               lighting, and      signalers, and     
                                  windows            amplifier       
                             Los Angeles Dept.  Colorado Commission  
             Administering     of Water and    for the Deaf and Hard 
                entity        Power (LADWP),        of Hearing       
                                California     
           Subsidy type and                                          
                amount            Rebate              Voucher
                              Consumer Rebate        Colorado        
                               Program (for     Telecommunications   
                             Energy Efficient        Equipment       
             Program name        Products)     Distribution Program  

                     Information                             
                    dissemination       c            c
                      Length of      Ongoing;     Ongoing;   
                       program      started in   started in  
                      existence        1974         1964     
                     Time required                           
                    to develop and              
                         implement              
                           program      c            c
                                   7.6 million  21.3 million 
                      Number of     in fiscal    in fiscal   
                    persons served  year 2003    year 2003   
                                     About 28                
                    Percent of       percent,                
                    budget           includes   
                    allocated to    nutrition   
                    administrative services as    About 10
                    costs              well       percent
                                   $4.5 billion    $23.9     
                                    in fiscal    billion in  
                                    year 2003   fiscal year  
                     Total budget                   2003     
                                   185 percent  130 percent  
                                    of federal   of federal  
                                     poverty      poverty    
                                    guideline,   guideline,  
                     Eligibility   among other  among other  
                     requirements    criteria     criteria   
                    Item/commodity                           
                      subsidized       Food         Food
                                   Department    Department  
                                   of                of      
                    Administering  Agriculture, Agriculture, 
                        entity     Food and       Food and   
                                   Nutrition     Nutrition   
                                   Service        Service    
                     Subsidy type   Voucher a    Voucher b   
                      and amount                
                                     Special                 
                                   Supplemental              
                                    Nutrition   
                                   Program for   Food Stamp
                                      Women,      Program
                                   Infants, and 
                                     Children   
                     Program name     (WIC)     

Source: GAO analysis.

aMost state agencies distribute WIC benefits through checks or vouchers
that enable recipients to purchase specific foods each month. A few state
agencies distribute WIC foods through warehouses or deliver the foods to
participants' homes.

bThe Food Stamp Program provides low-income households with coupons or
electronic benefits that recipients use as cash at most grocery stores.

cFor long-standing programs, we did not obtain information on time
required to develop and implement the program and to disseminate
information to eligible participants.

Page 3 GAO-05-623T

We believe some aspects of the programs' implementation, such as the time
required to develop a program and the manner in which program information
was disseminated, might have relevance to the establishment of a DTV
subsidy. For example, for two of the rebate programs, we learned that it
took several months to develop and implement the programs, with one rebate
program taking 12 months and another taking 18 months to implement. In
reviewing various other aspects of the programs, such as eligibility
determinations and what products were subsidized, we found that
differences existed between the voucher and rebate programs that might
also provide some insight for a DTV subsidy. For example, for all of the
voucher programs we reviewed, benefits were targeted to low-income
individuals, and eligibility was specifically defined. In contrast,
eligibility for the rebate programs not based on income; rather, a person
only had to reside in the location where the subsidy was being offered or
be a water or power customer to be eligible. We also found differences in
the types of products subsidized for the rebate and voucher programs that
we reviewed. Whereas the rebates subsidized items in an effort to further
a policy goal (generally environmental protection), the voucher programs
provided recipients with items for their basic needs.

Overall, however, we observed that aspects of these programs'
implementation are dissimilar to what might be undertaken for a DTV
subsidy. First, choosing not to participate in any of the programs we
reviewed would not cause a household to lose any existing service or
functionality. In contrast, if a household chose not to take advantage of
a DTV subsidy for which it was qualified, and then did not obtain the
necessary equipment to receive broadcast digital signals, the household
might lose access to broadcast television signals when the transition
occurs. Additionally, none of the rebate programs we reviewed are
comparable to the size of a potential DTV subsidy in terms of number of
people served. While the national voucher programs serve millions of
households, they are unlike the DTV subsidy in that they are
longestablished programs with an entire infrastructure designed to provide
benefits to recipients on a recurring monthly basis. Due to differences in
the scope of the rebate and voucher programs we reviewed and a potential
DTV subsidy, it is not clear how applicable the administrative costs of
these programs are to estimating the costs of a DTV subsidy.

Other Efforts Necessary for the Completion of the DTV Transition Are

o

  Ongoing

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

Under current FCC time frames, the final process for television stations
to select their permanent channel placement for their digital signals is
ongoing. Broadcast stations began the process of choosing their final DTV
channel in February 2005.1 In August 2006, FCC expects to issue a Notice
of Proposed Rulemaking that includes a tentative DTV Table of Allotments
once the channel election process is finished. FCC will seek comment on
the proposed Table and then issue an order with a Final DTV Table of
Allotments, which, at a minimum, would take several months. An FCC
official told us that it would likely be sometime in 2007 before all the
allotments are finalized. In order for the DTV Table of Allotments to be
finalized by the end of 2006, FCC officials told us that they would need
to shorten the channel election process time frames that they currently
have in place. We were told that once stations know their final channel
assignments, they might need to make adjustments to certain equipment.
Therefore, we found that for stations that do not have certainty on their
assignments until sometime in 2007, equipment modifications will be
undertaken well into that year.

o  	Currently, a small number of television stations are not yet
broadcasting digital signals. FCC told us that issues of technical
interference and the permitting process for locating and constructing
broadcast towers are the primary reasons these stations are not yet online
with a digital broadcast signal. For example, for any station located
within 200 miles of the Canadian border, coordination and approval from
the Canadian government is required, in accordance with international
treaties.

o  	At present, no requirements for the application of the Emergency Alert
System (EAS) apply to stations' digital broadcast signals. FCC is now
considering how requirements will be set. An FCC official told us that
rules for EAS on DTV stations that are similar to requirements for analog
stations should be developed within a few months, but additional work

1In the Matter of Second Periodic Review of the Commission's Rules and
Policies Affecting the Conversion to Digital Television, MB Docket No.
03-15, Report and Order, FCC 04-192, released September 7, 2004, FCC
established a multistep channel election and repacking process through
which broadcast licensees will select their ultimate DTV channel (i.e.,
channels 2-51).

will look at whether there will be expanded functionality required in the
digital environment. According to FCC, the equipment that stations will be
required to purchase to meet the basic requirements that are likely to be
set before the end of 2005 is not very expensive. Because the requirements
for expanded functionality are not yet set, an FCC official told us that
it is not clear what the cost of any additional equipment will be.

o  	Another challenge that may be posed by the DTV transition relates to
antenna reception of digital over-the-air broadcast signals. Many
stakeholders said that antennas currently used to view analog over-the-air
signals will be sufficient to receive DTV signals and an FCC official told
us that many viewers will have improved picture quality with digital
signals. However, a few indicated that improved antenna technology may be
needed for some households. An antenna manufacturer, a broadcaster, a
retailer, and other stakeholders said that the ability to receive digital
overthe-air signals is variable and contingent on each household's
geography, among other things, and that some people may need new antennas
or adjustment of existing antennas. In particular, we were told that
adjusting the antenna to receive digital broadcast signals can be more
difficult than analog signals because if the antenna is not aimed
correctly, the television may not be able to display any signal. Also,
while interference from trees, buildings, and other structures can distort
an analog picture, this type of interference can cause a complete loss of
digital signals.

o  	Ensuring that households understand the transition and how they will
be affected is critical to a smooth transition. Any household that does
not understand what will occur could be adversely affected. Over-the-air
households are the most likely to be impacted by the transition because,
to whatever extent cable subscribers will be affected, they will likely
have support and information provided by their subscription video
providers. Based on our work, other specific populations might also be
more difficult to reach with needed information about the transition,
including lowincome households and those who do not speak English as a
first language. The consequences of any information gaps are serious
because households could lose their access to television signals. During
our work on the transition to DTV in Berlin, Germany, we found that an
extensive information campaign was widely viewed as critical to the
success of the transition.

Concluding There are many difficult decisions and determinations that will
likely be considered if a subsidy program for DTV equipment is developed.
In Observations addition, there are unique interfaces between the
challenges we identified and the administrative method used to deliver the
subsidy that will require

careful consideration. For example, if such a program were developed and
eligibility were limited to only low-income individuals, it might be
advantageous to leverage the infrastructure and expertise that state
social service agencies have in providing assistance to needy households.
But to utilize the state agencies, the subsidy might need to be provided
in the form of a voucher because the state agencies have experience
mailing information and could mail a voucher to the low-income recipients
of other assistance. In contrast, if there were no eligibility
restrictions applied to the subsidy, a rebate might be a good method for
administering the subsidy because it would draw on the existing
relationships between manufacturers, retailers, and rebate fulfillment
companies, all of whom have extensive knowledge and experience in
developing, advertising, and implementing rebates. However, such a design
might render the subsidy less usable by low-income Americans.

The return of the spectrum for public safety and commercial purposes is a
critical goal for the United States. Implementing a subsidy program for
DTV equipment poses a variety of difficult challenges and may not be the
only policy option that could help advance the overall goal of reclaiming
spectrum. Given the importance of this transition, it seems critical for
knowledgeable officials in government and in industry to work together to
find the best means to address any issues that may impede progress in
completing the DTV transition-and the associated reclamation of valuable
radiofrequency spectrum.

Mr. Chairman, this concludes my prepared statement. I would be happy to
respond to any questions you or other Members of the Committee may have at
this time.

Contact and	For questions regarding this testimony, please contact Mark L.
Goldstein on (202) 512-2834 or [email protected]. Individuals making key

Acknowledgments 	contributions to this testimony included Amy Abramowitz,
Michael Clements, Andy Clinton, Simon Galed, Eric Hudson, Bert Japikse,
and Sally Moino.

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