[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]
THE ROLE OF TECHNOLOGY IN ACHIEVING A HARD DEADLINE FOR THE DTV
TRANSITION
=======================================================================
HEARING
before the
SUBCOMMITTEE ON TELECOMMUNICATIONS AND THE INTERNET
of the
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
__________
FEBRUARY 17, 2005
__________
Serial No. 109-9
__________
Printed for the use of the Committee on Energy and Commerce
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
__________
U.S. GOVERNMENT PRINTING OFFICE
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------------------------------
COMMITTEE ON ENERGY AND COMMERCE
JOE BARTON, Texas, Chairman
RALPH M. HALL, Texas JOHN D. DINGELL, Michigan
MICHAEL BILIRAKIS, Florida Ranking Member
Vice Chairman HENRY A. WAXMAN, California
FRED UPTON, Michigan EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida RICK BOUCHER, Virginia
PAUL E. GILLMOR, Ohio EDOLPHUS TOWNS, New York
NATHAN DEAL, Georgia FRANK PALLONE, Jr., New Jersey
ED WHITFIELD, Kentucky SHERROD BROWN, Ohio
CHARLIE NORWOOD, Georgia BART GORDON, Tennessee
BARBARA CUBIN, Wyoming BOBBY L. RUSH, Illinois
JOHN SHIMKUS, Illinois ANNA G. ESHOO, California
HEATHER WILSON, New Mexico BART STUPAK, Michigan
JOHN B. SHADEGG, Arizona ELIOT L. ENGEL, New York
CHARLES W. ``CHIP'' PICKERING, ALBERT R. WYNN, Maryland
Mississippi, Vice Chairman GENE GREEN, Texas
VITO FOSSELLA, New York TED STRICKLAND, Ohio
ROY BLUNT, Missouri DIANA DeGETTE, Colorado
STEVE BUYER, Indiana LOIS CAPPS, California
GEORGE RADANOVICH, California MIKE DOYLE, Pennsylvania
CHARLES F. BASS, New Hampshire TOM ALLEN, Maine
JOSEPH R. PITTS, Pennsylvania JIM DAVIS, Florida
MARY BONO, California JAN SCHAKOWSKY, Illinois
GREG WALDEN, Oregon HILDA L. SOLIS, California
LEE TERRY, Nebraska CHARLES A. GONZALEZ, Texas
MIKE FERGUSON, New Jersey JAY INSLEE, Washington
MIKE ROGERS, Michigan TAMMY BALDWIN, Wisconsin
C.L. ``BUTCH'' OTTER, Idaho MIKE ROSS, Arkansas
SUE MYRICK, North Carolina
JOHN SULLIVAN, Oklahoma
TIM MURPHY, Pennsylvania
MICHAEL C. BURGESS, Texas
MARSHA BLACKBURN, Tennessee
Bud Albright, Staff Director
James D. Barnette, Deputy Staff Director and General Counsel
Reid P.F. Stuntz, Minority Staff Director and Chief Counsel
______
Subcommittee on Telecommunications and the Internet
FRED UPTON, Michigan, Chairman
MICHAEL BILIRAKIS, Florida EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida Ranking Member
PAUL E. GILLMOR, Ohio ELIOT L. ENGEL, New York
ED WHITFIELD, Kentucky ALBERT R. WYNN, Maryland
BARBARA CUBIN, Wyoming MIKE DOYLE, Pennsylvania
JOHN SHIMKUS, Illinois CHARLES A. GONZALEZ, Texas
HEATHER WILSON, New Mexico JAY INSLEE, Washington
CHARLES W. ``CHIP'' PICKERING, RICK BOUCHER, Virginia
Mississippi EDOLPHUS TOWNS, New York
VITO FOSSELLA, New York FRANK PALLONE, Jr., New Jersey
GEORGE RADANOVICH, California SHERROD BROWN, Ohio
CHARLES F. BASS, New Hampshire BART GORDON, Tennessee
GREG WALDEN, Oregon BOBBY L. RUSH, Illinois
LEE TERRY, Nebraska ANNA G. ESHOO, California
MIKE FERGUSON, New Jersey BART STUPAK, Michigan
JOHN SULLIVAN, Oklahoma JOHN D. DINGELL, Michigan,
MARSHA BLACKBURN, Tennessee (Ex Officio)
JOE BARTON, Texas,
(Ex Officio)
(ii)
C O N T E N T S
__________
Page
Testimony of:
Goldstein, Mark L., Director, Physical Infrastructure Issues,
Government Accountability Office........................... 13
Kim, Jong, Vice President, Public Affairs and Communications,
LG Electronics USA, Inc.................................... 25
Willner, Michael S., President and Chief Executive Officer,
Insight Communications..................................... 42
Yager, K. James, Chief Executive Officer, Barrington
Broadcasting Company, LLC, on Behalf of Association for
Maximum Service Television, Inc., National Association of
Broadcasters............................................... 28
(iii)
THE ROLE OF TECHNOLOGY IN ACHIEVING A HARD DEADLINE FOR THE DTV
TRANSITION
----------
THURSDAY, FEBRUARY 17, 2005
House of Representatives,
Committee on Energy and Commerce,
Subcommittee on Telecommunications
and the Internet,
Washington, DC.
The subcommittee met, pursuant to notice, at 9:36 a.m., in
room 2123 of the Rayburn House Office Building, Hon. Fred Upton
(chairman) presiding.
Members present: Representatives Stearns, Whitfield,
Shimkus, Wilson, Pickering, Fossella, Radanovich, Bass, Walden,
Terry, Ferguson, Sullivan, Blackburn, Barton (ex officio),
Markey, Engel, Wynn, Doyle, Gonzalez, Inslee, Boucher, Towns,
Brown, and Rush.
Staff present: Howard Waltzman, chief counsel; Will
Nordwind, policy coordinator; Neil Fried, majority counsel;
Kelly Cole, majority counsel; Jaylyn Jensen, senior research
analyst; Billy Harvard, legislative clerk; Johanna Shelton,
minority counsel; Peter Filon, minority counsel; Ashley
Groesbeck, research assistant; and Turney Hall, staff
assistant.
Mr. Upton. Good morning. Today, we begin the first in a
series of hearings this year on the DTV transition as we move
with deliberate speed toward the introduction and consideration
of legislation to bring the transition to an expeditious end by
a date certain so that broadcasters and the analog spectrum can
be returned and used for both public safety, interoperable
radio communications, and advanced wireless services. And it is
my goal to move DTV legislation in a timeframe to enable its
consideration on the House floor by early summer.
Today's hearing focuses on the role of technology in
helping us achieve a hard deadline for the DTV transition. I
would begin by noting that because of current law, Congress did
nothing for those 15 percent of American households which rely
exclusively on over-the-air television service could see their
TV sets go dark at the end of the digital TV transition.
Fortunately, exclusively over-the-air households could use
digital to analog converter boxes to ensure that their current
analog sets can receive digital broadcast signals.
Alternatively, the could purchase a TV with a DTV tuner,
subscribe to cable, or subscribe to satellite. We are
contemplating in our hard day of legislation the creation of
some type of digital to analog converter box program to assist
exclusively over-the-air TV households in getting those
converter boxes. Such a program could be financed by using a
portion of the proceeds from auction of the returned analog
spectrum.
Consequently, we need to know how much those converter
boxes will cost and when they will be available in mass
quantities. I think that that is the right policy direction,
but we will need to consider the appropriate scope of such a
program and make sure that it is crafted in a way to prevent
fraud, abuse, and mismanagement. Technology also enables cable
and satellite operators to convert digital signals to analog
for those subscribers who have analog TV sets so that those
sets will continue to work. However, we need to grapple with
the question of whether cable and satellite operators are
permitted to convert the broadcasters of digital signal at the
head end or at the subscriber's house. The answer to the
question may have a dramatic impact on what we will have to do
to ensure that their analog TVs continue to work the way that
they expect them to work.
I look forward to hearing from today's witnesses on these
important issues. I appreciate their willingness to be with us
today for sure. And I want to thank the GAO for its tremendous
work and competence.
With that, I yield to an opening statement to my friend and
colleague, the ranking member of the subcommittee, Mr. Markey
from Massachusetts.
Mr. Markey. Thank you, Mr. Chairman. Thank you very much
for helping us to explore these issues today.
Today's hearing will explore issues related to ending
analog television broadcasting in the United States. I think
for public policy discussion we can safely assume that the
analog era will end on a date certain. This is largely because
budgetary interests will force a hard date for shutting down
the analog signal in order to obtain proceeds from any auctions
for licenses to use frequencies that the broadcast industry
vacates.
The question remains which date should be chosen. My
feeling is that the date should be driven not by budgetary
considerations but rather by our telecommunications policy
goals. We must be mindful that television penetration in the
United States exceeds telephone penetration. The Government
Accountability Office will report to us this morning that some
21 million households in the United States rely exclusively
upon free over-the-air analog broadcasting. On average,
American consumers also have multiple television sets in their
households, and today, all over the country, consumers will be
walking into a store and, rather than buying a DTV set, they
will buy yet another analog TV set, and these TV sets typically
last 15 to 20 years longer, not 18 months, like an Ipod, 15 to
20 years. Ipod automatically goes broke in 18 months. Isn't
that something? That is the new technology. The old technology
lasts for 15 to 20 years.
There is little debate that getting the analog TV spectrum
backed soon can offer consumers and taxpayers alike important
public and economic benefits. More importantly, even freeing up
the upper portion of the broadcast spectrum for our public
safety would be a significant public interest achievement that
has also eluded the Federal Communications Commission for
several years. At its core, the DTV transition represents a
government-driven policy, not a purely market-driven
phenomenon, and it is therefore imperative that government
create the conditions and environment for policy success. In
that context, any transition plan that abruptly cuts off analog
television service must come only after consumers have been
adequately informed of the impending shut off of service.
Moreover, it should only occur after the government has fully
implemented a program to effectively identify individuals who
may warrant a subsidy to buy needed equipment so that they do
not lose TV reception in their household. And in considering a
timetable for this proposed--for this purpose, we must remember
that neither the FCC nor the Commerce Department has any
experience in administering this type of program.
Finally, a date certain shut off of the analog television
feed should arrive only after consumers have had sufficient
time to make the purchases they need to continue receiving
television broadcasts in the digital TV era. Another intricate
component of any early and less costly date certain shut off of
the analog signal is the notion that cable operators will take
the digital signals of broadcasters and down-convert such
signals to analog. In other words, millions of cable consumers
would receive their local TV broadcasters in analog format
rather than in digital format in order to bring the DTV
transition to a more rapid conclusion.
I believe we have to have a discussion of the consumer
impact of down-converting a broadcaster's signal. Over the next
couple of years, millions of consumers will make investments in
digital television equipment. And millions more may be induced
to make such purchases if the government is advertising that it
is ending the analog TV era on a certain date. If we permit the
down-conversion of the quality of the broadcaster's signal in
order to end up--in order to end the DTV transition early, will
there be any policy of up-conversion of that signal back to its
original digital format further down the road so that all cable
consumers eventually get to see the digital quality picture the
broadcaster is delivering to the cable operator on the new
digital set that this committee will have advised all consumers
to have purchased although they are now watching an analog set
in the digital era in--oh, God, is it going to be confusing.
These are important issues that the subcommittee must
understand so that we can explain it to our constituents. And
we appreciate all of the expert testimony that we are going to
hear today, because Congress is a stimulating--is a stimulus-
response institution, and there is nothing more stimulating
than millions of consumers who will demand to know why they
can't see their favorite programming this coming Sunday. There
could never--I can't even imagine the issue that could match it
in its intensity if this committee mishandles this issue.
I yield back the balance of my time.
Mr. Upton. Thank you.
The gentleman from Illinois, Mr. Shimkus, for an opening
statement.
Mr. Shimkus. Just briefly, Mr. Chairman, let me use this
time to welcome at least two of the panelists who are
testifying today. We have Mr. James Yager who is testifying on
behalf of NAB. He is from Hoffman Estates in Illinois. He was
in the Army and owns a CBS affiliate in Quincy, and I--Quincy
was part of my old District, so I know the community well and
the broadcast area. And Michael Willner is testifying for
cable. He is president of Insight Communications, which has a
large presence in central Illinois. So following up on Mr.
Markey's comments, there is schizophrenia in the committee room
and I welcome two folks who probably have different views on
this issue. And we will try to work it out.
I yield back my time, Mr. Chairman.
Mr. Upton. Thank you.
Mr. Boucher.
Mr. Boucher. Well, thank you very much, Mr. Chairman.
I think all of us would welcome an early return of the
analog spectrum, which could then be utilized for a variety of
valuable communications services. I think that all of us would
also agree that the owners of the 73 million analog television
sets currently in use in the United States should not find
themselves with stranded equipment as a consequence of the
digital television transition.
It is a difficult balance to strike, accelerating the
digital transition while holding harmless the owners of analog
television sets. In these remarks, I want to strike a
cautionary note and underscore the difficulty that a hard date
for surrender of the analog spectrum could create for analog
set owners.
As I indicated, there are 73 million analog sets currently
in use in the Nation today. 45 million of these sets are in
households that rely solely on over-the-air reception. These
20.5 million households don't have a cable or a satellite
subscription. They get their television solely over the air.
These 20.5 million households represent some of the most
economically challenged residents in our Nation. Many are in
less financially fortunate rural areas. 43 percent of the
Spanish language households are in over-the-air markets only.
25 percent of households with incomes of less than $30,000 are
over-the-air reliant. I don't think any of us would expect
these individuals to bear the burden of a transition that will
turn their television sets into scrap metal.
Some have suggested that we use proceeds from the auction
of the analog 6 megahertz to purchase converters that would
then be given to analog set owners along the lines of the
experience that occurred in the city of Berlin. But the math
that underlies this suggestion is questionable at best. A $100
converter box supplied for 73 million television sets would
cost $7.3 billion. The low end of the estimate of the revenue
that the government would receive upon the auction of the
return of 6 megahertz of analog spectrum is approximately $4
billion. Even if the converter boxes prove cheaper than $100,
and even if many of the owners of analog sets decide to
purchase digital sets, the cost of the converter boxes could
well exceed the revenues that the government will get for the
auction of the analog spectrum.
And so I urge the members not to rush to judgment and to
pose a hard date for analog spectrum surrender. There are other
steps that we can take to accelerate the transition, and I will
look forward to suggestions this morning from our witnesses
about what some of those steps might be.
Thank you very much, Mr. Chairman. I yield back.
Mr. Upton. Thank you.
Mr. Walden.
Mr. Walden. Thank you very much, Mr. Chairman. I appreciate
your holding this hearing on this DTV conversion issue, and I
want to especially thank our witnesses for their testimony
today. I have read the report from the General Accounting--or
the Government Accountability Office. I have to keep reminding
myself of the name change there. And I appreciate it, because
it really lays out, in a very factual context, the kind of TV
tax we are looking at here. And I label it there because
somewhere between $463 million and $10 billion is at issue
here.
And for what? I am a Republican. I came here as a
Republican. I intend to leave as a Republican, and I think the
marketplace is probably the best place to resolve this issue.
And consumers aren't exactly ready for this transition and
apparently, according to the GAO's report, aren't necessarily
embracing what it may cost them. Over time, they will get
there, but if we drop this hammer on consumers, the
sledgehammer is going to come back on us, as it should. I am
concerned about issues relating to down-converting when
broadcasters are having to convert their signals to digital
only to have the bulk of their audience see it in analog,
because there is no requirement on cable to maintain that
digital pass-through. And then I don't know how I am going to
explain a drop dead date to consumers when they realize the
three to five television sets they have in their house no
longer will function as of a given date. I know the pushback
that is received by us when there is a small add-on fee on a
phone bill, for example, of 25 cents a month or something. I
hasten to wonder what that feedback will be when that fee is
somewhere in the $50 to $100 range just to watch TV. And for
those who may not have read the constitution lately having gone
through the satellite TV issues, I have found this little
clause that says being able to watch TV is a constitutional
right that we will all hear about.
And so, Mr. Chairman, I appreciate the opportunity to hear
from our witnesses today, and I look forward to this vigorous
debate.
Mr. Upton. Mr. Gonzalez.
Mr. Gonzalez. Thank you. With that comment, Walden for
Supreme Court Justice. I like that interpretation.
Mr. Walden. Do you have to be a lawyer?
Mr. Gonzalez. Actually not for the Supreme Court.
Anyway, that is another story.
But thank you very much, Mr. Chairman, and I welcome this
opportunity. I don't know what it will take. I am new to the
committee. This has been going around for a number of years.
How do you bring all of the stakeholders together and respect
their interests? Do we ever really get this thing moving? Do we
keep talking about it? And have we created something that we
don't know what we are going to do? As we get to the end of the
road, my suggestion, of course, to get Congress moving is maybe
to restrict all political advertising to be digitally
transmitted. And we probably would have some real movement.
But again, just thank you. And I look forward to it. My
apologies. I may be called to some meetings, and I will try to
attend as much of this as possible.
Again, thank you, and I yield back.
Mr. Upton. Mr. Terry.
Mr. Terry. Thank you, Mr. Chairman.
I am a strong believer in the digital transition and a firm
believer that in order to make this transition a reality, we
need to have a hard date. However, we have to realize that
there are consequences associated with the transition that we
need to vet and fix. I am happy today to see that today's
hearing will be the first in a series of hearings to discuss
this transition. And I am delighted to see today that we will
be focusing on an issue that I think is one of the most
important, and that is the technology associated with the
conversion.
According to the NAB, as Rick said, 20.5 million U.S.
households rely solely on over-the-air broadcasting for their
TV viewing. Now we don't know if this is an exact number, but I
am going to take it as such. Therefore, we need to realize that
there are just a heck of a lot of folks that still get their
signal over the air that will be significantly harmed by a hard
date.
We also have to focus on those that receive their signal
from cable or satellite that have analog sets that will lose
their services unless the consumer is provided a converter box
where the signal is down-converted at the cable head end. For
these consumers, I believe it is up to the provider to figure
out how to get them the best quality signal to their customer.
The issue then becomes, of the people who rely solely on
over-the-air broadcasting, how does the Federal Government help
to get set-top boxes to them, and who do we provide this help
to.
One of our witnesses today, LG Electronics, has stated that
they believe that the retail price of a simple digital to
analog converter box should be under $100 by 2006 and under $50
by 2008. But as the price of the set-top box decreases, there
are still those that will not be able to afford one, let alone
several, at whatever price these boxes are sold at. It is for
these people that I think we have an obligation to help and
allow them to go to Nebraska Furniture Mart in Omaha, Nebraska,
yes, a selfless plug for one of our biggest electronic stores,
or Best Buys or other electronic stores in other areas and
purchase a set-top box. Maybe under a voucher type of program--
there are a number of ways to put a program like this into
place that we must explore.
Again, thank you, Mr. Chairman, for holding this hearing.
And I look forward to hearing from our witnesses.
[The prepared statement of Hon. Lee Terry follows:]
Prepared Statement of Hon. Lee Terry, a Representative in Congress from
the State of Nebraska
Thank you Mr. Chairman,
Mr. Chairman, like you--I am a strong believer in the Digital
Television (DTV) Transition and I am a firm believer that in order to
make this transition a reality--we need to have a hard date. While it
is commonly understood that this transition will bring a host of
benefits to the American Consumer, it is an unfortunate reality that
there are many issues we must get through to make this transition as
smooth as possible.
I am happy to see that today's hearing will be the first in a
series of hearings to discuss the transition and am delighted to see
that today we will be focusing on an issue I think is one of the most
important--the set-top box.
According to the National Association of Broadcasters there are
20.5 million U.S. television households that rely solely on over-the-
air broadcasting for their TV viewing. Whether or not this number is
exact--there will still be a lot of homes that will have to figure out
a way to receive a Digital signal once this hard date is established.
Additionally, those that receive their signal from cable or satellite
and have analog sets will lose service unless the consumer is provided
a converter box or the signal is down converted at the cable head-end.
For these customers, I believe that it is up to the provider to figure
out how to get the best quality signal to their customer.
The issue then becomes--of the people who rely solely on over-the-
air broadcasting; how does the Federal Government help get set-top
boxes to them, and who do we provide this help to. One of our witnesses
today, LG Electronics, has stated that they believe the retail price of
a simple digital-to-analog converter box should be under $100 by 2006
and under $50 by 2008. But as the price of the set-top box decreases,
there are those that will not be able to afford one no matter what the
price point. It is these people that we must help and allow them to go
to Nebraska Furniture Mart, or their local Best Buy and purchase a set-
top box under a voucher program. And while there are a number of ways
to put a program like this into place, I think one of the best ways to
set it up is to use a portion of the proceeds from the auction of the
analog spectrum we will get back once this hard date is reached.
Again, thank you Mr. Chairman for holding this hearing and I look
forward to hearing from our witnesses.
Mr. Upton. Mr. Brown.
Mr. Brown. Mr. Chairman, I would waive my opening
statement.
Mr. Upton. Thank you.
Mr. Doyle.
Mr. Doyle. Thank you, Mr. Chairman.
I want to start by thanking you and Mr. Markey for
scheduling this important hearing, and I would also like to
thank all of the witnesses for agreeing to appear before us
today to discuss the numerous issues surrounding a hard
deadline for the digital television transition.
Today, only between 8 and 9 percent of Americans are
capable of viewing digital television signals. And at the
current pace of transition, we are not going to even come close
to reaching the 85 percent threshold prior to the December 31,
2006 statutory deadline. So clearly, we must do something to
speed up the process.
It seems to me that the certainty of a hard deadline to
convert would have this speeding up effect. I guess the
question in my mind is regardless of what hard date we choose,
exactly what types of things must happen for a hard date to be
achievable? Can manufacturers make the set-top boxes we need
prior to a hard deadline? And how would the price per unit of
each device vary depending on the hard date? Will these devices
be considerably cheaper per unit with a later date?
I know we are early in the process, but today's hearing is
essential, because in order to meet a hard deadline, we will
need the expertise of our witnesses and the industries and
interests you represent.
One of my biggest concerns as we navigate this process
revolves around the impact the conversion will have on the
American people. Millions of Americans simply don't have the
disposable income to go out and purchase new hardware in order
to watch television. What will be the financial impact on these
people? And if we decide to help lower-income Americans afford
converter boxes, where do we draw the line? At what point
should we start with public outreach so that whatever we decide
doesn't blind-side our constituents?
You know, just a few years ago, many of us here on this
committee were inundated with angry constituents when 500,000
satellite subscribers lost access to their network TV signal.
500,000, a large number indeed, but when you consider that
there are 45 million television sets and homes that rely on
free, over-the-air broadcasts, televisions that could be
obsolete, I cringe to think of the backlash that would come if
we don't get this right, which is why we better get this right,
Mr. Chairman.
Thank you very much, and I yield back my time.
[The prepared statement of Hon. Mike Doyle follows:]
Prepared Statement of Hon. Mike Doyle, a Representative in Congress
from the State of Penmnsylvania
I want to start today by thanking Mr. Upton and Mr. Markey for
scheduling this important hearing. I'd also like to thank all of the
witnesses for agreeing to appear before us today to discuss the
numerous issues surrounding a hard deadline for the digital television
transition.
Today, only between 8% and 9% of Americans are capable of viewing
digital television signals. And at the current pace of transition, we
are not going to come close to reaching the 85% threshold prior to the
December 31st 2006 statutory deadline. So clearly we must do something
to speed up this process.
It seems to me that the certainty of a hard deadline to convert
would have this ``speeding up'' effect. I guess the question on my mind
is, regardless of what hard date we choose, exactly what types of
things must happen for a hard date to be achievable? Can manufacturers
make the set-top boxes we will need prior to a hard deadline? How would
the price per unit of each device vary depending on the hard date? Will
these devices be considerably cheaper per unit with a later date? I
know we are early in the process, but today's hearing is essential
because in order to meet a hard deadline we need the expertise of our
witnesses and the industries and interests you represent.
One of my biggest concerns as we navigate this process revolves
around the impact this conversion will have on the American people.
Millions of Americans simply don't have the disposable income to go out
and purchase new hardware in order to watch television. What will the
financial impact be on these people? And, if we decide to help lower
income Americans afford converter boxes, exactly where do we draw the
line in defining low income? And at what point should we start with
public outreach so that whatever we decide does not blindside our
constituents?
A few years ago, many of us were inundated with calls from angry
constituents when 500,000 satellite subscribers lost access to their
network TV signals. 500,000--a large number indeed, but when you
consider that there are 45 million television sets in homes that rely
on free, over-the-air broadcasts--televisions that could be rendered
obsolete--I cringe to think of the backlash that will come if we don't
get this right.
Which is why we better get this right!
Thank you Mr. Chairman.
Mr. Upton. Mr. Barton.
Chairman Barton. Thank you, Mr. Chairman.
I am going to submit my opening statement for the record,
but something that is not in the opening statement that I want
to put on the record is that in the very near future, I intend
to introduce a hard date, stand-alone bill on digital
transition, and I hope we can get all of the members of the
subcommittee and full committee to be cosponsors.
Thank you.
[The prepared statement of Hon. Joe Barton follows:]
Prepared Statement of Hon. Joe Barton, Chairman, Committee on Energy
and Commerce
Thank you, Mr. Chairman, for holding this hearing on the role of
technology in achieving a hard deadline for the digital television
transition. As I have made clear in previous hearings and elsewhere, I
intend to introduce DTV hard-deadline legislation this year. We need to
expedite the transition so that consumers and the economy can benefit
from the full rollout of DTV, and so that we can repurpose the analog
spectrum for public safety use and advanced wireless services.
Moreover, unless Congress takes action, current provisions in the
Communications Act could cause approximately 15 million households to
lose television service. The statute requires local broadcasters to
stop broadcasting in analog once 85 percent of their markets have
access to digital broadcast channels. The remaining 15 percent of
households relying on analog over-the-air signals would then no longer
be able to view broadcast programming.
We could address this problem by eliminating the 85-percent
penetration requirement and setting a December 31, 2006, ``hard
deadline'' for television broadcasters to cease analog broadcasts. Some
of the revenue from auction of the returned spectrum could then be used
to create a digital-to-analog converter box program. Such converter
boxes can help ensure that analog over-the-air households do not lose
television service. Similarly, cable and satellite operators could
convert digital broadcasts to analog format for their subscribers with
analog televisions. In this way, analog households would continue to
get programming, and consumers could upgrade to digital televisions
when they are ready.
Clearing the spectrum on an accelerated and nationwide basis with
hard-date legislation will raise the money necessary to fund the
converter-box program. Without such legislation, the spectrum would
remain encumbered for many years and yield far less at auction. We
would not have the converter-box program, and millions of analog over-
the-air households would go dark under the current law once the 85-
percent requirement is met.
On a side but related note, the FCC this week solicited comment on
a petition by the consumer electronics industry to modify the digital
tuner mandate rules. The consumer electronics industry would like to
eliminate one of the July 1, 2005, requirements to include digital
tuners in certain televisions in exchange for moving sooner a July 1,
2006, deadline. I will keep an eye on this petition, looking at it from
the perspective of whether it will slow or speed the DTV transition.
I thank the witnesses for appearing before the Subcommittee. Their
testimony will help us decide how we might craft hard-deadline
legislation and a converter box program, and estimate how much it will
cost. I yield back.
Mr. Upton. Ms. Blackburn. Mr. Whitfield.
Mr. Whitfield. Waive.
Mr. Upton. Mr. Stearns.
Mr. Stearns. Thank you, Mr. Chairman.
I just have a few comments.
I am glad we are having this hearing. I sort of feel like
our chairman, Mr. Barton, that a hard date would help us
accomplish a lot. I think it would promote certainty in the
marketplace. It would also free up spectrum for public safety
purposes and also, I think it would accommodate what would be
an explosive growth in the next generation of commercial
wireless technology and services. So I am an advocate of a hard
date if we can move forward. Obviously, this hearing is here
because we have a legitimate question whether consumers can
fully transition--whether they fully understand this digital
transition and its implications. A lot of my District is rural,
so the question is how that would impact the rural part of
north central Florida.
There are several ways to go about doing this, there's some
talk about subsidizing the converter boxes or providing
extensive consumer education to help the consumers to
understand what is involved. Perhaps--some people have talked
about what they did in Germany in Berlin with some type of tax
incentive. These are all possible solutions. I would prefer to
see the marketplace, but our overriding concern should be how
do we get this transition accomplished. I want to make sure
older Americans are not overly disrupted by this transition so
in the end, we might have to all just move forward with a hard
date.
So I look forward to the testimony.
Thank you, Mr. Chairman.
[The prepared statement of Hon. Cliff Stearns follows:]
Prepared Statement of Hon. Clifford Stearns, a Representative in
Congress from the State of Florida
Thank you, Mr. Chairman.
Today we will be looking into the role of technology in helping
achieve a hard deadline for the DTV transition.
Specifically, we'll examine how any proposed digital-to-analog
converter boxes or set-top boxes will help ensure that analog, over-
the-air households do not lose their television service.
We are looking for a timely and ideally convenient end to the
digital transition. A hard date should help accomplish this goal, which
will in turn promote certainty and free up spectrum for public safety
purposes, as well as accommodate what should be an explosive growth in
the next generation of commercial wireless technologies and services.
But there is a legitimate question whether consumers fully
understand the DTV transition and its implications, and whether
consumers have been purchasing digital television sets at a pace rapid
enough to be fully prepared once the December 31, 2006 hard deadline
arrives.
These digital offerings are widely available, but consumer demand
is not where it should be. For instance, consumers continue to purchase
thousands of analog television sets, mainly because the threshold of
digital offerings does not appear to be sufficient for the average
consumer to cross over and spend that extra money.
In my district, I have many rural and senior constituents who may
fall into this category. While I support the hard deadline, I also hope
that we can do all that we can to prevent any circumstances that would
disenfranchise these over-the-air customers.
It remains to be seen whether this means directly subsidizing these
converter boxes, or providing an extensive consumer education effort,
or providing some sort of tax incentive like they did in Berlin, or
some other potential solution.
In the end, our overriding concern should be how American consumers
are affected by this transition. These digital offerings are truly
``disruptive technologies,'' in that they are new advances that will
displace analog sets, but we'd all like to make sure that this
transition isn't disruptive to the millions of American households
won't be fully prepared when the transition ends.
So Mr. Chairman, I look forward to hearing from our panelists
today, and to learn how they are proposing to help the American
consumer cope with the DTV transition. I appreciate you having this
hearing.
Mr. Upton. Mr. Radanovich. Mr. Bass.
Mr. Bass. Thank you, Mr. Chairman. Thank you for holding
this hearing. It is an important issue.
I support a firm deadline for complete digital transition.
I am not sure what the right date should be, but sooner, I
think, is better than later. We have known for a long time that
the end of 2006 is a target date, and it should--nobody should
be surprised. Other sign posts, such as the Balanced Budget Act
in 1997 and the recent 9/11 Commission report have pointed to
this rough timeframe to accomplish the very goals of good
stewardship of the public airways, expanding the public
safety's interoperability in promoting advanced consumer
services. Now if December 2006 is legitimately too soon for
many broadcasters or other assets of the regulatory
transmission, then I want to reach a consensus on a better date
as soon as we can in order to build certainty into the
decisionmaking process for consumers.
So with that, I am looking forward to hearing the testimony
of our witnesses, and I will yield back.
Mr. Upton. Mr. Ferguson.
That concludes the opening statements. I thank you all.
[Additional statements submitted for the record follow:][
Prepared Statement of Hon. Paul E. Gillmor, a Representative in
Congress from the State of Ohio
Thank you, Mr. Chairman, for this opportunity to discuss
technology's role in achieving a hard deadline for the DTV transition,
as well as how the transition is progressing and its potential impact
on the telecommunications sector and consumers alike.
I had the opportunity to talk about this very issue yesterday
morning when I sat down with the general manager of WBGU in Bowling
Green, Ohio, the sole public broadcasting station providing quality
local, educational and cultural programming to my constituency in rural
Northwest Ohio. Of note, he informed me that while digital conversion
set-top boxes are available for purchase in selective retail outlets
nationwide, they still need to be made more widely available to
consumers, and more importantly, at a cheaper price. Currently, when
confronted with the decision of whether to buy a DTV conversion box
costing hundreds of dollars, a typical patron is likely to either hold
off until the boxes go down in value, or continue to delay their
decision until they can cough-up enough extra cash to take home a
digital television set, leaving their old TV box-less, but otherwise in
perfect working order.
Furthermore, as the co-chair of the Congressional Public
Broadcasting Caucus, I am happy to report that WBGU is transitioning
into our digital world with much success. They are currently multi-
casting digital channels, meeting the needs of those who can receive
them by dedicating one channel as an all-day safe haven for children as
well as providing another channel devoted to broadcasting local and
Northwest Ohio programming to the region.
I welcome the well-balanced panel of witnesses, look forward to
their testimony on this important issue, and again, thank the Chairman
and yield back the remainder of my time.
______
Prepared Statement of Hon. Barbara Cubin, a Representative in Congress
from the State of Wyoming
Thank you, Mr. Chairman.
I appreciate your efforts to keep the Subcommittee focused on the
Digital Television, or DTV, transition. Since our two hearings last
year, it appears that the affected stakeholders are starting to share
the same opinion--that it is in our country's best interest to
transition to digital promptly and predictably.
Besides the obvious benefits to the consumer--that of a clearer,
and higher quality picture and more reliable over-the-air reception--
transitioning to DTV will also free up precious spectrum for important
national interests, like first responders and advanced wireless
services. Not to mention provide a windfall to the U.S. Treasury.
The biggest concern to me, however, is how to ensure the estimate
20 million households that receive their TV signal over the air--and
are predicted to be unable to view the new digital programming when the
transition occurs--can still use their televisions. I am confident that
no Member of Congress wants to be responsible for a blank television
screen. That's why we need to get solid numbers, and costs, of how we
get digital-to-analog converter boxes to these folks so they are not
left in the dark.
The December 31, 2006-deadline for the DTV transition is rapidly
approaching. This Committee has heard from many panelists on this
matter and is seeking to establish a record of deliberation on how to
make the transition a success. There are still difficult decisions to
be made, and I believe this requires Congressional action. Inaction,
and retention of the current statutory framework for Digital Transition
could mean that December 31, 2006 could slip to 2010 or later before we
reap the benefits of DTV and advanced wireless services.
That's why I look forward to hearing from our distinguished panel
on these matters today and want to continue our dialog as we take the
next steps in this transition.
I yield back the balance of my time.
______
Prepared Statement of Hon. George Radanovich, a Representative in
Congress from the State of California
Mr. Chairman, thank you for holding this hearing today that will
allow us to hear testimony about whether attempting to establish a hard
deadline for television broadcasters to end the transmission of analog
television signals is economically and technologically feasible and
whether it is good public policy.
As many of you are aware, the concept of digital television has
been progressing since the 1980's. What began as a concept has evolved
into a statuary requirement in which television broadcasters must
return one of two channels, that the FCC licensed each eligible
broadcaster, on January 31, 2006 unless less than 85% of the viewers in
a market can not receive a digital signal from each TV station in that
market. The statutory 85% penetration test is the key to completing the
transition to digital television and critical to freeing valuable
spectrum that will be auctioned off for advanced commercial wireless
services and used by public safety entities that are in desperate need
of additional spectrum.
During the past two decades a great deal of time, energy and
resources has been expended in the effort to transition television
broadcasting to digital technology. In the past five years alone,
broadcasters have built and are now operating digital television
facilities, cable operators have spent tens of billions of dollars
upgrading their systems to digital, and consumer electronics
manufacturers have developed digital television sets that are more
affordable to the average consumer. However, in order to ensure that
all of these parties get a return on their investments, we need to make
sure that our constituents, the American consumers, also receive some
benefit.
I hope that today's witnesses will provide the information that we
will need to determine how we can complete the transition to digital
television in a manner in which all parties involved will receive the
benefits of converting to digital technology; this includes, consumers,
broadcasters, cable and satellite providers, public safety entities and
new wireless services providers. Since Congress is mandating the
conversion to digital television, I believe that we also have an
obligation to ensure that no Americans get left in the dark as a result
of a hard deadline. Therefore, I look forward to hearing about the
technology and economic cost associated with making this a reality.
Additionally, I would like to learn more about how establishing a hard
deadline is necessary and will be a good policy decision.
Thank you Mr. Chairman.
______
Prepared Statement of Hon. Mike Ferguson, a Representative in Congress
from the State of New Jersey
Chairman Upton, as a new member of the telecommunications
subcommittee, I am looking forward to working with my colleagues on a
whole range of issues that will affect not only the communications
industry as a whole, but just as much the American consumer--our
constituents. Among those issues, the Digital Television conversion is
among the most exciting and challenging we will consider this Congress.
DTV is arguably the most significant development of television
technology since the American public was introduced to color television
in the 1950's. DTV will allow consumers to experience television like
never before, from sharp, realistic pictures to CD quality sound.
However, with the anticipation of DTV in our living rooms, comes
the question of how we make as smooth a transition as possible. As we
meet our responsibility of setting a hard transition deadline, we must
also ensure that those consumers with standard, analog TV's continue to
have uninterrupted access to their television service.
I look forward to hearing the testimony of the GAO regarding the
potential costs of the transition to the federal government, the view
from the private sector, as well as the perspectives of two groups with
major roles in this debate, the broadcast and cable industry.
Determining the costs and options available to the American public is a
critical to achieving a successful and timely DTV transition, and your
input is valuable as we move forward. Thank you Mr. Chairman.
______
Prepared Statement of Hon. Bobby L. Rush, a Representative in Congress
from the State of Illinois
Mr. Chairman, it seems that the transition from analog to digital
is finally here. I think we all can agree that a hard date is necessary
for the timely and successful DTV transition. But in setting this hard
deadline we must ensure that the remaining 21 percent of the American
population that rely on analog over the air broadcast do not lose
television service simply because they cannot afford to buy a set-top
box.
As you know the GAO conducted a study and found that on the average
over the air households are likely to have lower incomes compared to
cable and DBS households. In addition, over the air households are
likely to be non-white and Hispanic households.
There are many lingering issues that must be iron out before DTV
transition can be a success. For example, questions still remain as to
how much will a set-top box cost. Will there be a subsidy, how will
this subsidy be administered and who will qualify for this subsidy.
Also, will a means test be employed. Nevertheless, I must point out
that as we move forward with the digital transition, I strongly believe
that we should require warning labels on analog-only sets, alerting
consumers to the limited useful life of their television sets.
On that point, I look forward to hearing from our distinguished
panelists regarding this very important issue.
Thank you Mr. Chairman
Mr. Upton. Gentlemen, we are delighted that you are here.
We are joined by Mr. Mark Goldstein, Director of the Physical
Infrastructure Issues from the Government Accountability
Office, Dr. Jong Kim, Vice President in Public Affairs and
Communications for LG Electronics, Mr. James Yager, CEO of
Barrington Broadcasting Company, Illinois on behalf of the
National Association of Broadcasters, and Mr. Michael Willner,
President and CEO of Insight Communications.
Gentlemen, we appreciate you submitting your testimony
early. We had a chance to review it last night. Your testimony
is made part of the record in its entirety, and we would like
you, at this point, to summarize and to keep your remarks to no
more than 5 minutes.
Mr. Goldstein, we are just going into session, we will
begin with you. Why don't you wait until this long buzzer is
completed?
Thank you.
STATEMENTS OF MARK L. GOLDSTEIN, DIRECTOR, PHYSICAL
INFRASTRUCTURE ISSUES, GOVERNMENT ACCOUNTABILITY OFFICE; JONG
KIM, VICE PRESIDENT, PUBLIC AFFAIRS AND COMMUNICATIONS, LG
ELECTRONICS USA, INC.; K. JAMES YAGER, CHIEF EXECUTIVE OFFICER,
BARRINGTON BROADCASTING COMPANY, LLC, ON BEHALF OF ASSOCIATION
FOR MAXIMUM SERVICE TELEVISION, INC., NATIONAL ASSOCIATION OF
BROADCASTERS; AND MICHAEL S. WILLNER, PRESIDENT AND CHIEF
EXECUTIVE OFFICER, INSIGHT COMMUNICATIONS
Mr. Goldstein. Thank you, Mr. Chairman, and members of the
subcommittee.
I am pleased to be here today to report on our work on the
potential cost of providing a subsidy to consumers for the
purchase of set-top boxes in order to accelerate the DTV
transition. As you know, the return of radio frequency spectrum
at the end of the transition will provide many benefits to
society, such as easing the spectrum scarcity facing public
safety providers, engendering economic growth and consumer
value from spectrum redeployed to wireless services, and
affording the Federal Government revenues from the proceeds of
a spectrum auction.
Stations' analog licenses are mandated to terminate in
December of 2006, or when 85 percent of households in each
market can receive digital broadcast signals, whichever is
later. In order to spur households' adoption of the digital
equipment, some have suggested that the government subsidize
the purchase of set-top boxes that can receive digital
broadcast television signals and convert them into analog
signals for displaying on existing television sets.
Today I provide cost estimates for a possible subsidy
program under various scenarios, but I would like to note that
in providing these cost estimates, GAO is not taking a position
on the subsidy policy option.
To undertake this work, we purchased data on household
television characteristics from a survey research firm and
gathered information about the likely cost of set-top boxes
from several consumer electronics firms and experts. My
statement will summarize our preliminary findings.
First, we found that 19 percent of American households rely
exclusively on over-the-air transmissions for their television
viewing, and nearly all other households view television
through a cable or DBS service. We recognize that others have
estimated a lower value for the percent of households relying
on the over-the-air television, but we estimated with 95
percent certainty that between 17 and 21 percent of households
rely on over-the-air television. On average, over-the-air
households are more likely to have lower incomes compared to
cable or DBS households. While we found that 29 percent of
cable and DBS households had incomes under $30,000, roughly 48
percent of over-the-air homes had household incomes less than
that level. Additionally, we found that non-white and Hispanic
households are more likely to rely on over-the-air television
than our white and non-Hispanic households.
Two, the specific equipment needs for each household to
transition to DTV depends on certain key factors. First, the
method through which a household watches television and whether
it has already upgraded its television equipment to be
compatible with digital television will factor into the
equipment needs of the household. Additionally, certain
regulatory decisions will play a role in determining some
consumers' equipment needs. We examined two key cases.
In case one, we assume that cable and DBS providers would
initially down-convert broadcasters' digital signals to a
format the viewer--viewable on their subscribers' existing
equipment before the signals are transmitted to those
subscribers. That is, cable providers would initially down-
convert broadcasters' high-definition signals to an analog
format before they are transmitted to their subscribers.
Similarly, DBS providers would initially down-convert
broadcasters' high-definition digital signals to a standard
definition digital format before they are transmitted to their
subscribers. In this case, only households viewing television
using an over-the-air antenna must take action to be able to
view broadcasters' digital signals. Case one is similar to the
Berlin model for DTV transition.
In case two, we assume that cable and DBS providers would
be required to provide broadcasters' digital signals to
subscribers in substantially the same format as broadcasters
transmitted those signals. Because some of the broadcasters'
digital transmissions are in a high-definition digital format,
the second case would require cable and DBS providers to
transmit the signals in this format to their subscribers,
which, in turn, would require cable and DBS subscribers to have
equipment in place or to acquire new equipment that can receive
their providers' high-definition digital signals. The second
case would also require, as in case one, that all over-the-air
households acquire new equipment, also.
Three, if the subsidy for set-top boxes were needed only
for over-the-air households, our case one scenario, we estimate
that it could cost in a range from about $460 million to about
$2 billion. The subsidy cost varies depending on the price for
the set-top boxes and whether a means test, which would limit
eligibility for the subsidy to only those households with
incomes lower than a specified level, were employed. However,
if cable and satellite subscribers also needed new equipment
and the subsidy provides some support for those households as
well, which is our case two scenario, the overall cost of the
program would grow. We estimated that in this case the cost of
providing the subsidy could range from about $1.8 billion to
over $10 billion, depending, again, on the price of the set-top
boxes and whether a means test were employed. Each of these
subsidy scenarios assumes that only one television per
household was subsidized.
There are two issues that stand as important caveats to the
analyses that we have presented.
First, we based the majority of the analyses on survey
results that provide information on the status of American
television households as of early 2004, but over the next few
years, the purchase of DTV equipment could obviate the need for
certain households to receive a subsidy for new television
equipment. Second, these subsidy estimates do not include any
costs associated with implementing a subsidy program.
Our work on the DTV transition continues for this
committee, and we will provide more information in our report
later this year.
Mr. Chairman, this concludes my prepared statement. I will
be happy to respond to any questions that you and members have.
[The prepared statement of Mark L. Goldstein follows:]
Prepared Statement of Mark L. Goldstein, Director, Physical
Infrastructure Issues, United States Government Accountability Office
Mr. Chairman and Members of the Subcommittee: I am pleased to be
here today to report on our work on the potential cost of providing a
subsidy to consumers for the purchase of set-top boxes in order to
accelerate the transition from analog to digital broadcast television.
This transition--known as the DTV transition--offers the promise of
more programming options, interactive services, and high-definition
television (HDTV). Moreover, the return of radiofrequency spectrum used
for analog broadcast television at the end of the transition will
provide many benefits to society, such as easing the spectrum scarcity
facing public safety first responders, engendering economic growth and
consumer value from spectrum redeployed to wireless services, and
affording the federal government revenues from the proceeds of a
spectrum auction. To facilitate the transition, the Congress and the
Federal Communications Commission (FCC) temporarily provided television
stations nationwide with additional spectrum so that stations could
simultaneously broadcast both an analog and a digital signal. Stations'
analog licenses are mandated to terminate in December 2006, or when 85
percent of households in each market can receive digital broadcast
signals, whichever is later.1 While the purchase of digital
televisions is steadily increasing, it nevertheless appears unlikely
that a sufficient proportion of households will have digital television
equipment in place by the end of 2006.
---------------------------------------------------------------------------
\1\ Additional requirements include (1) television stations
affiliated with the four largest national networks (ABC, CBS, Fox, and
NBC) are broadcasting a DTV signal and (2) the technology to convert a
digital signal for use on an analog television set is generally
available.
---------------------------------------------------------------------------
In order to spur households' adoption of the digital equipment
necessary for the transition, some have suggested that the government
provide a subsidy to certain households to purchase a device, known as
a set-top box, that can receive digital broadcast television signals
and convert them into analog signals so that they can be displayed on
existing television sets. This device would enable the household to
view digital broadcast signals without purchasing a digital television
set; such sets currently sell at considerably higher prices than
traditional analog television sets. Aiding in the deployment of set-top
boxes may enable the transition to end sooner than it might otherwise
by increasing the number of households that can view digital broadcast
signals.
At the request of this subcommittee, we have examined (1) the
current distribution of American households by television viewing
methods and whether there are demographic differences among these
groups; (2) the equipment required for households to receive digital
broadcast signals; and (3) the estimated cost to the federal
government, under various scenarios, of providing a subsidy for set-top
boxes that would enable households to view digital broadcast signals.
In addition to information provided in this testimony, we are
conducting additional work on the DTV transition, subsidy options, and
administrative approaches for implementing a subsidy program, and will
provide a more detailed study for the Committee and the Subcommittee
later this year.
While a subsidy for set-top boxes may be one policy option to spur
the transition, there are other policies that might do so as well. In
our statement today, we provide cost estimates for a possible subsidy
program under various scenarios. We note, however, that in providing
these cost estimates, GAO is taking no position on this policy option.
We are merely providing, as requested by the Committee and the
Subcommittee, cost estimates for such a program.
To address the issues we will discuss today, we purchased data from
Knowledge Networks, a survey research firm that had conducted a
consumer survey on household television characteristics. The survey
provided the responses of 2,471 randomly selected American households
and covers such topics as the method each household uses to view
television (e.g., cable, over the air), how many television sets they
have, and whether they have set-top boxes for digital cable service.
The survey also provides information on an array of demographic
characteristics for each household. These data were collected between
February and April 2004. The response rate for Knowledge Network's
survey was 47 percent. The relevance of the response rate for the
study's findings is discussed in appendix I.2 Using a 95
percent confidence interval, all percentage estimates from the survey
have margins of error of plus or minus 6 percentage points or less, and
all cost estimates based on the survey data have margins of error of
plus or minus 16 percent or less. To assess the reliability of these
survey data, we reviewed documentation of survey procedures provided by
Knowledge Networks and questioned knowledgeable officials about the
survey process and resulting data. We determined that the data were
sufficiently reliable for the purposes of this testimony. We also
contracted with Knowledge Networks to recontact some of respondents to
its survey to ask additional questions that GAO developed.3
Because the number of recontacted households for the additional
questions requested by GAO was small, the findings for these questions
are not generalizable to a larger population. To gather information
about the likely costs of set-top boxes, we interviewed several
consumer electronics firms and experts.
---------------------------------------------------------------------------
\2\ Because we did not have information on those contacted who
chose not to participate in the survey, we could not estimate the
impact of the nonresponse on our results. However, distributions of
selected household characteristics (including presence of children,
race, and household income) for the sample and the U.S. Census estimate
of households show a similar pattern.
\3\ The additional questions were related to why the household
chose to view television as they currently do and whether they are
likely to make changes in the viewing methods in the near future.
---------------------------------------------------------------------------
The estimate of the potential cost of a subsidy that we are
providing should not be interpreted as the cost of a government
program. In preparing these estimates we discussed the nature of our
work with Congressional Budget Office (CBO). If the Congress considers
legislation for a set-top box subsidy program, the CBO will, based on
the specifics of the law, prepare an estimate of the cost of the
program. We conducted our work from August 2004 to January 2005 in
accordance with generally accepted government auditing standards.
We provided a draft of this testimony to the Federal Communications
Commission (FCC) for their review and comment. FCC staff provided
technical comments that we incorporated where appropriate.
In summary:
The three primary means through which Americans view television
signals are over the air, cable, and direct broadcast satellite (DBS).
We found that 19 percent, or roughly 21 million American households,
rely exclusively on over-the-air transmissions for their television
viewing; 57 percent, or nearly 64 million American households, view
television via a cable service; and about 19 percent, or about 22
million American households, have a subscription to a DBS
service.4 We recognize that others have estimated a lower
value for the percent of households relying on over the air
television.5 Our results were derived from a survey of over
2,400 households, from which we estimated with 95 percent certainty
that between 17 and 21 percent of households rely on over the air
television. On average, over-the-air households are more likely to have
lower incomes compared to cable or DBS households. While 48 percent of
over-the-air households have incomes under $30,000,6 roughly
29 percent of both cable and satellite homes had household incomes less
than or equal to that level. Also, only 6 percent of over-the-air
households had incomes over $100,000, while about 13 percent of cable
and satellite households had incomes exceeding $100,000. Additionally,
non-white and Hispanic households are more likely to rely on over-the-
air television than are white and non-Hispanic households.
---------------------------------------------------------------------------
\4\ These percentages do not add up to 100 percent because (1)
between 1 and 2 percent of American households do not have a
television, (2) about 1 percent of households receive television
service through other means, such as a wireless cable system, and (3)
the numbers reported here do not include close to 3 percent of
households that reported having a subscription to both cable and DBS.
\5\ In its most recent report on video competition, FCC found that
number of households subscribing to a multichannel video provider, such
as a cable or DBS company, was approximately 85 percent of television
households, thus implying that about 15 percent of television
households rely on over-the-air television. The methodology employed by
FCC differed from the household survey used to prepare our estimate.
\6\ For a family of four, the poverty level is just under $19,000,
so the $30,000 income level would correspond to about 160 percent of
the 2004 poverty level for a family of four. The cutoff for eligibility
for food stamps is 175 percent of the poverty level.
---------------------------------------------------------------------------
The specific equipment needs for each household to transition to
DTV--that is, to be able to view broadcast digital signals--depends on
certain key factors. First, the method through which a household
watches television and whether it has already upgraded its television
equipment to be compatible with digital television, will factor into
the equipment needs of the household. Additionally, certain regulatory
decisions yet to be made by FCC will play a role in determining some
consumers' equipment needs. We examined two key cases regarding the
regulatory decisions.
In case one, we assume that cable and DBS providers would continue
providing broadcasters' signals as they currently do, thus eliminating
any need for their subscribers to acquire new equipment. That is, cable
providers would initially ``downconvert'' 7 broadcasters'
high-definition digital signals to an analog format before they are
transmitted to their subscribers. Similarly, DBS providers would
initially downconvert broadcasters' high-definition digital signals to
a standard-definition digital format before they are transmitted to
their subscribers. This enables the signals to be viewed on
subscribers' existing televisions sets. In this case, only households
viewing television using only an over-the-air antenna must take action
to be able to view broadcasters' digital signals.
---------------------------------------------------------------------------
\7\ The word ``downconvert'' means to take a signal in a given
format and transform it into a lower-resolution format.
---------------------------------------------------------------------------
In case two, we assume that cable and DBS providers would be
required to provide broadcasters' digital signals to subscribers in
substantially the same format as broadcasters transmitted those
signals. Because some of the broadcasters' digital transmissions are in
a high-definition digital format, the second case would require cable
and DBS providers to transmit the signals in this format to their
subscribers. To be able to view these signals, cable and DBS
subscribers would need to have equipment in place, or to acquire new
equipment, that can receive their providers' high-definition digital
signals. The second case would also require, as does case one, all
over-the-air households to acquire new equipment.
If a subsidy for set-top boxes were needed only for over-the-air
households, we estimate that its cost could range from about $460
million to about $2 billion. The subsidy cost varies depending on the
price of the set-top boxes and whether a means test--which would limit
eligibility for the subsidy to only those households with incomes lower
than some specified limit--were employed. However, if cable and
satellite subscribers also needed new equipment and the subsidy
provides some support for these households as well, the overall cost of
the program would grow. We estimate that in this case, the cost of
providing the subsidy could range from about $1.8 billion to over $10
billion, depending, again, on the price of the set-top boxes and
whether a means test were employed.
BACKGROUND
The United States is currently undergoing a transition from analog
to digital broadcast television. With traditional analog technology,
pictures and sounds are converted into ``waveform'' electrical signals
for transmission through the radiofrequency spectrum, while digital
technology converts these pictures and sounds into a stream of digits
consisting of zeros and ones for transmission. Digital transmission of
television signals provides several advantages compared to analog
transmission, such as enabling better quality picture and sound
reception as well as using the radiofrequency spectrum more efficiently
than analog transmission. This increased efficiency makes
multicasting--where several digital television signals are transmitted
in the same amount of spectrum necessary for one analog television
signal--and HDTV 8 services possible.
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\8\ HD television provides roughly twice as many lines of
resolution, creating a television picture that is much sharper than
traditional analog television pictures. HD television can also provide
CD-quality sound and is in ``widescreen'' format, with display screen
ratios similar to a movie theater.
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A primary goal of the DTV transition is for the federal government
to reclaim spectrum that broadcasters currently use to provide analog
television signals. The radiofrequency spectrum is a medium that
enables many forms of wireless communications, such as mobile
telephone, paging, broadcast television and radio, private radio
systems, and satellite services. Because of the virtual explosion of
wireless applications in recent years, there is considerable concern
that future spectrum needs--both for commercial as well as government
purposes--will not be met. The spectrum that will be cleared at the end
of the DTV transition is considered highly valuable spectrum because of
its particular technical properties. In all, the DTV transition will
clear 108 megahertz of spectrum--a fairly significant amount. In the
Balanced Budget Act of 1997, the Congress directed FCC to reallocate 24
MHz of the reclaimed spectrum to public safety uses. Since the
terrorist attacks of September 11, 2001, there has been a greater sense
of urgency to free spectrum for public safety purposes. The remaining
returned spectrum will be auctioned for use in advanced wireless
services, such as wireless high-speed Internet access.9
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\9\ Some of this spectrum--24 MHz--has already been auctioned.
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To implement the DTV transition, television stations must provide a
digital signal, which requires them to upgrade their transmission
facilities, such as transmission lines, antennas, and digital
transmitters and encoders. Depending on individual station's tower
configuration, the digital conversion may require new towers or
upgrades to existing towers. Most television stations throughout the
country are now providing a digital broadcast signal in addition to
their analog signal. After 2006, the transition will end in each
market--that is, analog signals will no longer be provided--when at
least 85 percent of households have the ability to receive digital
broadcast signals.
AMERICANS WATCH TELEVISION THROUGH THREE PRIMARY MODES
The three primary means through which Americans view television
signals are over the air, cable, and direct broadcast satellite (DBS).
Over-the-air broadcast television, which began around 1940, uses
radiofrequencies to transmit television signals from stations'
television towers to households' television antennas mounted on
rooftops, in attics, or directly on television sets. Over-the-air
television is a free service. Cable television service, a pay
television service, emerged in the late 1940s to fill a need for
television service in areas with poor over-the-air reception, such as
mountainous or remote areas. Cable providers run localized networks of
cable lines that deliver television signals from cable facilities to
subscribers' homes.10 Cable operators provide their
subscribers with, on average, approximately 73 analog television
channels and 150 digital television channels. In 1994, a third primary
means of providing television emerged: direct broadcast satellite
(DBS). Subscribers to DBS service use small reception dishes that can
be mounted on rooftops or windowsills to receive television programming
beamed down from satellites that orbit over the equator. Like cable,
DBS service is a subscription television service that provides
consumers with many channels of programming. When the Congress enacted
the Satellite Home Viewer Improvement Act of 1999, it allowed DBS
carriers to provide local broadcast signals--such as the local
affiliate of ABC or NBC--which they had previously not generally been
able to provide.
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\10\ When cable service first emerged, it was simply a service that
provided a wire-based delivery of broadcast, or traditional television
stations' signals, but by the late 1970s, cable operators began to
provide new networks that were only available through a pay television
service, such as HBO, Showtime, and ESPN.
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Over-the-Air Households. We found that 19 percent, or 20.8 million
American households, rely exclusively on over-the-air transmissions for
their television viewing. We recognize that others have estimated a
lower value for the percent of households relying on over the air
television. Our results were derived from a survey of over 2,400
households, from which we estimated with 95 percent certainty that
between 17 and 21 percent of households rely on over the air
television. Compared to households that purchase a subscription to
cable or DBS service, we found that exclusive over-the-air viewers are
somewhat different demographically. Overall, over-the-air households
are more likely to have lower incomes than cable or satellite
households. Approximately 48 percent of exclusive over-the-air viewers
have household incomes less than $30,000, and 6 percent have household
incomes over $100,000. Additionally, nonwhite and Hispanic households
are more likely to rely on over-the-air television than are white and
non-Hispanic households; over 23 percent of non-white households rely
on over-the-air television compared to less than 16 percent of white
households, and about 28 percent of Hispanic households rely on over-
the-air television compared to about 17 percent of non-Hispanic
households. Finally, we found that, on average, exclusive over-the-air
households have 2.1 televisions, which is lower than the average for
cable and satellite households.
We asked the survey research firm to recontact approximately 100 of
the respondents who exclusively watch television through over-the-air
transmission to ask additional questions, including the primary reason
the household does not purchase a subscription video
service.11 Forty-one of these respondents said that it was
too costly for them to purchase a subscription video service, and 44
said that they do not watch enough television to warrant paying for
television service. Most of the recontacted households seemed unlikely
to purchase a subscription service in the near future. Only 18 of the
recontacted households said that they would be likely to purchase a
subscription video service in the near future, and another 10 said that
they might do so.
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\11\ The actual recontacted number was 102.
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Cable Households. We found that 57 percent, or 63.7 million
American households, view television through a cable service. On
average, cable households have 2.7 television sets. Sixteen percent of
cable households have at least one television set in the home that is
not connected to cable but instead receives only over-the-air
television signals. Of the cable households surveyed, roughly 29
percent had household incomes of less than or equal to $30,000, and
about 13 percent had incomes exceeding $100,000. We also found that 44
percent of the cable homes have at least one set-top box. Of those
cable subscribers with a set-top box, about 67 percent reported that
their box is capable of viewing channels the cable system sells on
``digital cable tiers,'' meaning that the channels are transmitted by
their cable provider in a digital format. A subset of these ``digital
cable'' customers have a special set-top box capable of receiving their
providers' transmission of high-definition digital signals.
Because the existence of a set-top box in the home may be relevant
for determining what equipment households would need to view broadcast
digital television signals, we asked the survey research firm to
recontact approximately 100 cable households that do not have a set-top
box to ask questions about their likely purchase of digital cable
tiers--which require a set-top box--in the near future.12
First, we asked the primary reason why the household did not currently
purchase any cable digital tiers of programming. Fifty-one of the
recontacted respondents said that they did not want to bear the extra
expense of digital tiers of cable programming, and 33 said that they
did not watch enough television to justify purchasing digital cable
service. Only 9 of the recontacted respondents said that they would be
likely to purchase digital cable service in the near future, and
another 9 said that they might purchase such service in the near
future. Finally, we asked these respondents whether they would be
reluctant to change their service in any way that would require them to
use a set-top box. Of the recontacted respondents, 37 said they would
be very reluctant to change their service in a way that would require
them to use a set-top box, and another 38 said that they would be
somewhat reluctant to do so.
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\12\ The firm actually recontacted 102 such households.
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DBS Households. We found that about 19 percent, or 21.7 million
American households, have a subscription to a DBS service. These
households have, on average, 2.7 television sets. About one-third of
these households have at least one television set that is not hooked to
their DBS dish and only receives over-the-air television signals. In
terms of income, 29 percent of DBS subscribers have incomes less than
or equal to $30,000, and 13 percent have incomes exceeding $100,000.
One important difference between cable and DBS service is that not
all DBS subscribers have the option of viewing local broadcast signals
through their DBS provider.13 Although the DBS providers
have been rolling out local broadcast stations in many markets around
the country in the past few years, not all markets are served. DBS
subscribers in markets without local broadcast signals available
through their DBS provider usually obtain their local broadcast signals
through an over-the-air antenna, or through a cable connection. This is
important to the DTV transition because how households with DBS service
view their local broadcast channels will play into the determination of
their requirements to transition to broadcast DTV. We therefore
requested that the survey research firm recontact approximately 100 DBS
customers to ask how they receive their local broadcast
channels.14 We found that when local channels are available
to DBS subscribers, they are very likely to purchase those channels.
Well more than half of the DBS subscribers who were recontacted viewed
their local broadcast channels through their DBS service. Nearly one-
fourth of the recontacted DBS subscribers view their local broadcast
channels through free over-the-air television. As DBS providers
continue to roll out local channels to more markets, the percentage of
DBS subscribers relying on over-the-air transmissions to view local
signals will likely decline.
---------------------------------------------------------------------------
\13\ While cable providers are generally required to provide the
local broadcast signals in each market, DBS providers are required to
provide all local broadcast stations in markets where they provide any
of those stations.
\14\ They actually recontacted 102 such households.
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HOUSEHOLDS' EQUIPMENT NEEDS FOR DTV TRANSITION WILL DEPEND ON THEIR
MODE OF TELEVISION VIEWING AND CURRENT EQUIPMENT STATUS, AND WILL ALSO
BE AFFECTED BY REGULATORY DECISIONS
The specific equipment needs for each household to transition to
DTV--that is, to be able to view broadcast digital signals--depends on
certain key factors: the method through which a household watches
television, the television equipment the household currently has, and
certain critical regulatory decisions yet to be made. In this section
we discuss two cases regarding a key regulatory decision that will need
to be made and the implications that decision will have on households'
DTV equipment needs.
Before turning to the two cases, a key assumption underlying this
analysis must be discussed. Currently, broadcasters have a right to
insist that cable providers carry their analog television signals. This
is known as the ``must carry'' rule, and dates to the Cable Television
Consumer Protection and Competition Act of 1992. FCC made a
determination that these must carry rules will apply to the digital
local broadcast signals once a station is no longer transmitting an
analog signal. In our analysis, we assume that the must carry right
applies to broadcasters' digital signals, and as such, cable providers
are generally carrying those signals. DBS providers face some must
carry rules as well, although they are different in some key respects
from the requirements that apply to cable providers. For the purposes
of this analysis, we assume that to the extent that DBS providers face
must carry requirements, those requirements apply to the digital
broadcast signals.
For nearly all cable subscribers, and more than half of the DBS
subscribers, local broadcast analog signals are provided by their
subscription television provider. This means that these providers
capture the broadcasters' signals through an antenna or a wire and
retransmit those signals by cable or DBS to subscribers. We make two
disparate assumptions, which we call case one and case two, about how
cable and DBS providers might provide digital broadcast signals to
subscribers. We do not suggest that these are the only two
possibilities regarding how the requirements for carriage of broadcast
signals might ultimately be decided--these are simply two possible
scenarios.
Case One. In this case, we assume that cable and DBS providers will
continue providing broadcasters' signals as they currently do. This
assumption would be realized if cable and DBS providers initially
downconvert broadcasters' digital signals at the providers' facilities,
which may require legislative or regulatory action. That is, cable
providers would initially downconvert broadcasters' high-definition
digital signals to an analog format before they are transmitted to
their subscribers. Similarly, DBS providers would initially downconvert
broadcasters' high-definition digital signals to a standard-definition
digital format before they are transmitted to their subscribers. In
this case, there would be no need for cable and DBS subscribers to
acquire new equipment; only households viewing television using only an
over-the-air antenna must take action to be able to view broadcasters'
digital signals. This case shares many attributes with the recently-
completed DTV transition in Berlin, Germany.
All over-the-air households--which account for approximately 21
million households in the United States--must do one of two things to
be able to view digital broadcast signals.15 First, they
could purchase a digital television set that includes a tuner capable
of receiving, processing, and displaying a digital signal. The survey
data we used indicated that only about 1 percent of over-the-air
viewers have, as of now, purchased a digital television that contains a
tuner. However, some large televisions sold today are required to
include such a tuner and by July 2007, all television sets larger than
13 inches are required to include a tuner. After that time, consumers
who purchase new television sets will automatically have the capability
of viewing digital signals. Approximately 25 to 30 million new
television sets are purchased each year in the United States. The
second option available to over-the-air households is to purchase a
digital-to-analog set-top box. That is, for those households that have
not purchased a new television set, the set-top box will convert the
digital broadcast signals to analog so that they can be viewed on an
existing analog television set. Viewers with digital-to-analog set-top
boxes would not actually see the broadcast digital signal in a digital
format, but would be viewing that signal after it has been
downconverted, by the set-top box, to be compatible with their existing
analog television set. Currently, simple set-top boxes that only have
the function of downconverting digital signals to analog are not on the
market. More complex boxes that include a variety of functions and
features, including digital to analog downconversion, are available,
but at a substantial cost. However, manufacturers told us that simple,
and less expensive, set-top boxes would come to the market when a
demand for them develops.
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\15\ Additionally, these households could also choose to subscribe
to cable or DBS service to eliminate the need to acquire additional
equipment to view a television signal over the air.
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Case Two. In the second case, we assume that cable and DBS
companies would be required to provide the broadcasters' signals to
their subscribers in substantially the same format as it was received
from the broadcasters. Because some of the broadcasters' signals are in
a high-definition digital format, cable and DBS subscribers--just like
over-the-air households--would need to have the equipment in place to
be able to receive high-definition digital signals. There are several
ways these subscribers could view these signals:
Cable or DBS subscribers would be able to view digital broadcast
television if they have purchased a digital television set with
an over-the-air digital tuner. They would then have the
capability of viewing local digital broadcast stations through
a traditional television antenna--just like an over-the-air
viewer. However, many cable and DBS households may want to
continue to view broadcast television signals through their
cable or DBS provider.
Cable or DBS subscribers could purchase a digital television with a
``cable card'' slot. By inserting a ``card'' provided by the
cable company into such a television, subscribers can receive
and display the digital content transmitted by the cable
provider. Only very recently, however, have cable-ready digital
television sets--which allow cable subscribers to receive their
providers' digital signals directly into the television set--
come to the market. Similar televisions sets with built-in
tuners for satellite digital signals are not currently on the
market.
To view the high-definition signals transmitted by their subscription
provider, the other possibility for cable and DBS households
would be to have a set-top box that downconverts the signals so
that they can be displayed on their existing analog television
sets. That is, any downconversion in this scenario takes place
at the subscribers' household, as opposed to the subscription
television providers' facilities, as in case one. While all DBS
subscribers and about a third of cable subscribers have set-top
boxes that enable a digital signal from their provider to be
converted to an analog signal for display on existing
television sets, few of these set-top boxes are designed for
handling high-definition digital signals. As such, if
broadcasters' signals are transmitted by cable and DBS
providers in a high-definition format, not all cable and
satellite subscribers would need new equipment, although most
would. In case two, as in case one, all exclusively over-the-
air households need a digital television set or a set-top box.
COST OF FEDERAL SUBSIDY FOR SET-TOP BOXES VARIES CONSIDERABLY,
DEPENDING ON SEVERAL FACTORS
In this section we present the estimated cost of providing a
subsidy to consumers for the purchase of a set-top box that would be
designed to advance the digital television transition. The estimated
subsidy costs presented here vary based on (1) the two cases discussed
above about whether cable and DBS providers initially downconvert
broadcasters' digital signals at their facilities before transmitting
them to subscribers; (2) varied assumptions about whether a means test
is imposed and, if so, at what level; and (3) the expected cost of a
simple digital-to-analog set-top box. All of the estimates presented
here assume that only one television set is subsidized in each
household that is determined to be eligible for the
subsidy.16
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\16\ In our final report that will be issued later this year, we
will also present scenarios under which more than one television set
per household is subsidized.
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Means test. Imposing a means test would limit the subsidy to only
those households determined to be in financial need of a subsidy. A
means test would limit eligibility for the subsidy to only those
households with incomes lower than some specified limit. We employed
two different levels of means tests. The scenarios with means tests are
roughly based on 200 percent and 300 percent of the poverty level
17 as the income threshold under which a household's income
must lie to be eligible for the subsidy. The poverty level is
determined based on both income and the number of persons living in the
household; for a family of four the official federal poverty level in
2004 was $18,850.
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\17\ See appendix I for a methodological discussion and assumptions
surrounding our determination of thresholds used to approximate the
poverty level.
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Set-top boxes. We provide estimates based on two possible price
levels for the boxes: $50 and $100. This range is based on
conversations we had with consumer electronics manufacturers who will
likely produce set-top boxes in the future. Set-top boxes for cable and
DBS are often rented by subscribers, rather than purchased.
Nevertheless, in cases where cable and DBS subscribers need new
equipment, we assume that the financial support provided to them would
be equivalent to that provided to over-the-air households.
Table 1 provides the cost of a subsidy program under the assumption
that cable and DBS providers downconvert broadcasters' signals at their
facilities in a manner that enables them to continue to transmit those
signals to subscribers as they currently transmit broadcasters'
signals. In this case, cable or DBS subscribers do not require any new
equipment, so only over-the-air households--approximately 21 million
American households--would need new equipment. As shown in table 1,
there is considerable variation in the cost of the subsidy program
depending on the level of a means test and the price of the set-top
box.
Table 1: Estimated Cost of Set-Top Box Subsidy, Assuming Cable and DBS Downconversion, only Over-the-Air
Households Are Subsidized
----------------------------------------------------------------------------------------------------------------
Cost of subsidy, by estimated cost
Percent of over-the- Number of of set-top box (dollars in
Assumption about means test air households households millions)
eligible subsidized ------------------------------------
(in millions) $50 set-top box $100 set-top box
----------------------------------------------------------------------------------------------------------------
Means test at 200% of poverty level 50% of over-the-air 9.3 $463 $925
households. (7.8-10.7) ($391-$534) ($782-$1,068)
Means test at 300% of poverty level 67% of over-the-air 12.5 $626 $1,252
households. (10.9-14.1) ($545-$707) ($1,090-$1,415)
No means test...................... All over-the-air 20.8 $1,042 $2,083
households. (19.1-22.6) ($954-$1,130) ($1,907-$2,259)
----------------------------------------------------------------------------------------------------------------
Source: GAO.
Notes: Ninety-five percent confidence intervals in parentheses.
Analysis based on the status of television households in 2004.
Table 2 provides the cost of a subsidy program under the assumption
that cable and DBS providers are required to transmit broadcasters'
digital signals in the same format as they are received. Under this
scenario, nearly all over-the-air households and most cable and DBS
subscribers will not have the equipment in place to view high-
definition digital broadcast signals. Although subscribers typically
rent, rather than purchase, set-top boxes, we assume that the same
level of subsidy is provided to these households as is provided to
over-the-air households to defray the cost of having to obtain a new or
upgraded set-top box from their provider.
Table 2: Estimated Cost of Set-Top Box Subsidy, No Cable or DBS Downconversion, Subsidy Provided to Over-the-Air
and Cable and DBS Households
----------------------------------------------------------------------------------------------------------------
Cost of subsidy, by estimated cost
Number of of set-top box (dollars in
Assumption about means test Percent of U.S. households millions)
households eligible subsidized ------------------------------------
(in millions) $50 set-top box $100 set-top box
----------------------------------------------------------------------------------------------------------------
Means test at 200% of poverty level 31% of households..... 35.1 $1,753 $3,506
(32.7-37.5) ($1,633-$1,873) ($3,266-$3,745)
Means test at 300% of poverty level 50% of households..... 55.5 $2,775 $5,551
(52.9-58.1) ($2,646-$2,904) ($5,293-$5,809)
No means test...................... Nearly all households. 106.2 $5,312 $10,624
(105.1-107.3) ($5,257-$5,367) ($10,514-$10,734)
----------------------------------------------------------------------------------------------------------------
Source: GAO.
Notes: Ninety-five percent confidence intervals in parentheses.
Analysis based on the status of television households in 2004.
There are two issues that stand as important caveats to the
analyses we have presented on estimated set-top box subsidy costs. The
first is that we based the majority of the analyses on survey results
that provide information on the status of American television
households as of early 2004. Over the next several years, new
households will be established, some households might change the means
through which they watch television, televisions sets with integrated
digital over-the-air tuners as well as digital cable compatibility will
be purchased, and some cable and DBS households will have obtained set-
top boxes capable of receiving high-definition digital signals from
their providers. Households' purchase of certain new equipment could
obviate the need for a subsidy for new television equipment. For
example, some households may purchase a digital television set with an
over-the-air tuner and begin to view digital broadcast signals in this
manner; some large televisions sold today are required to include such
a tuner and by July 2007, all television sets larger than 13 inches are
required to include a tuner. In time, these factors could have the
effect of reducing the cost of a set-top box subsidy because fewer
households would need to be subsidized.18
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\18\ As we mentioned above, if at a later date the Congress
considers legislation for a set-top box subsidy program, the CBO will,
based on the specifics of the law, prepare an estimate of the cost of
the program.
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The second caveat to these analyses is that these subsidy estimates
do not include any costs associated with implementing a subsidy
program. If the federal government determines that it would be
worthwhile to provide this subsidy, the subsidy would need to be
administered in some fashion, such as through a voucher system, a tax
credit, a mail-in rebate, government distribution of equipment, or some
other means. Any of these methods would impose costs that could be
significant for the federal government and any other entities involved
in administering the program. Such costs would be difficult to estimate
until a host of decisions are made about how a subsidy program would be
administered.
As I mentioned earlier, our work on the DTV transition continues,
and we will provide more information in a report later this year. We
will discuss various ways that a subsidy program might be administered
and provide some analysis of the benefits and drawbacks of these
various methods. We will also provide a discussion of how information
regarding the DTV transition and any associated subsidy program might
best be provided to the American people.
Mr. Chairman, this concludes my prepared statement. I would be
happy to respond to any questions you or other Members of the Committee
may have at this time.
Appendix I: Methodology for Use of Survey Data Regarding Television
Viewing
To obtain information on the types of television service and
equipment used by U.S. households, we purchased existing survey data
from Knowledge Networks Statistical Research. Their survey was
completed with 2,375 of the estimated 5,075 eligible sampled
individuals for a response rate of 47 percent; partial interviews were
conducted with an additional 96 people, for a total of 2,471
individuals completing some of the survey questions. The survey was
conducted between February 23 and April 25, 2004.
The study procedures yielded a sample of members of telephone
households in the continental United States using a national random-
digit dialing method. Survey Sampling Inc. (SSI) provided the sample of
telephone numbers, which included both listed and unlisted numbers and
excluded blocks of telephone numbers determined to be nonworking or
business-only. At least five calls were made to each telephone number
in the sample to attempt to interview a responsible person in the
household. Special attempts were made to contact refusals and convert
them into interviews; refusals were sent a letter explaining the
purpose of the study and an incentive. Data were obtained from
telephone households and are weighted by the number of household
telephone numbers.
As with all sample surveys, this survey is subject to both sampling
and nonsampling errors. The effect of sampling errors due to the
selection of a sample from a larger population can be expressed as a
confidence interval based on statistical theory. The effects of
nonsampling errors, such as nonresponse and errors in measurement, may
be of greater or lesser significance but cannot be quantified on the
basis of available data.
Sampling errors arise because of the use of a sample of individuals
to draw conclusions about a much larger population. The study's sample
of telephone numbers is based on a probability selection procedure. As
a result, the sample was only one of a large number of samples that
might have been drawn from the total telephone exchanges from
throughout the country. If a different sample had been taken, the
results might have been different. To recognize the possibility that
other samples might have yielded other results, we express our
confidence in the precision of our particular sample's results as a 95
percent confidence interval. We are 95 percent confident that when only
sampling errors are considered each of the confidence intervals in this
report will include the true values in the study population. All
percentage estimates from the survey have margins of error of plus or
minus 6 percentage points or less, unless otherwise noted.
In addition to the reported sampling errors, the practical
difficulties of conducting any survey introduce other types of errors,
commonly referred to as nonsampling errors. For example, questions may
be misinterpreted, some types of people may be more likely to be
excluded from the study, errors could be made in recording the
questionnaire responses into the computer-assisted telephone interview
software, and the respondents' answers may differ from those who did
not respond. Knowledge Networks has been fielding versions of this
survey for over 20 years. In addition, to reduce measurement error,
Knowledge Networks employs interviewer training, supervision, and
monitoring, as well as computer-assisted interviewing to reduce error
in following skip patterns.
For this survey, the 47 percent response rate is a potential source
of nonsampling error; we do not know if the respondents' answers are
different from the 53 percent who did not respond. Knowledge Networks
took steps to maximize the response rate--the questionnaire was
carefully designed and tested through deployments over many years, at
least five telephone calls were made at varied time periods to try to
contact each telephone number, the interview period extended over about
8 weeks, and attempts were made to contact refusals and convert them
into interviews.
Because we did not have information on those contacted who chose
not to participate in the survey, we could not estimate the impact of
the nonresponse on our results. Our findings will be biased to the
extent that the people at the 53 percent of the telephone numbers that
did not yield an interview have different experiences with television
service or equipment than did the 47 percent of our sample who
responded. However, distributions of selected household characteristics
(including presence of children, race, and household income) for the
sample and the U.S. Census estimate of households show a similar
pattern.
To assess the reliability of these survey data, we reviewed
documentation of survey procedures provided by Knowledge Networks,
interviewed knowledgeable officials about the survey process and
resulting data, and performed electronic testing of the data elements
used in the report. We determined that the data were sufficiently
reliable for the purposes of this report.
Due to limitations in the data collected, we made several
assumptions in the analysis. Number of televisions and number of people
in the household were reported up to five; households exceeding four
for either variable were all included in the category of five or more.
For the purposes of our analyses, we assumed that households had no
more than five televisions that would need to be transitioned and no
more than five people. Number of people in the household was only used
in calculating poverty, but may result in an underestimate of those
households in poverty.
Calculations of poverty were based on the 2004 Poverty Guidelines
for the 48 contiguous states and the District of Columbia, published by
the Department of Health and Human Services. We determined whether or
not each responding household would be considered poor at roughly 200
percent and 300 percent of the poverty guidelines. Income data were
reported in categories so the determination of whether or not a
household met the 200 percent or 300 percent threshold required
approximation, and for some cases this approximation may have resulted
in an overestimate of the number of poor households. In addition,
income data were missing for 24 percent of the respondents. To conduct
the analyses involving poverty, we assumed that the distribution of
those in varying poverty status was the same for those reporting and
not reporting income data. Comparisons of those reporting and not
reporting income data show some possible differences on variables
examined for this report; however, the income distribution is very
close to the 2003 income estimates published by the U.S. Census Bureau.
To determine total numbers of U.S. households affected by the
transition and total cost estimates for various transition scenarios,
we used the U.S. Census Bureau's Current Population Survey estimate of
the total number of households in the United States as of March 2004.
To derive the total number of households covered by the various
scenarios, we multiplied this estimate by the proportions of households
covered by the scenarios derived from the survey data. The standard
error for the total number of U.S. households was provided by the
Census Bureau, and the standard errors of the total number of
households covered by the scenarios take into account the variances of
both the proportions from the survey data and the total household
estimate. All cost estimates based on the survey data have margins of
error of plus or minus 16 percent or less.
In addition, we contracted with Knowledge Networks to recontact a
sample of their original 2004 survey respondents in October 2004.
Households were randomly selected from each of three groups: broadcast-
only television reception, cable television service without a set-top
box, and satellite television service. For each group, 102 interviews
were completed, yielding 306 total respondents (for a 63 percent
response rate). To reduce measurement error, the survey was pretested
with nine respondents, and Knowledge Networks employed interviewer
training, supervision, and monitoring, as well as computer-assisted
interviewing, to reduce error in following skip patterns. Due to the
small sample size, the findings of these questions are not
generalizable to a larger population.
Mr. Upton. Thank you.
Dr. Kim.
STATEMENT OF JONG KIM
Mr. Kim. Thank you, Mr. Chairman and members of the
subcommittee.
My name is Jong Kim. I am Vice President of Research for LG
Electronics, a $30 billion global consumer electronics company.
I also serve as Senior Vice President of LG's Zenith
Electronics subsidiary in Chicago, Illinois where I have been
working on digital television for the past 15 years.
This committee has requested that LG comment on the pricing
and the timetable for deployment of these converter boxes.
Among the factors to consider are technology, sales volume, and
license fees. Please allow me to address each of these topics
briefly.
First, technology. We expect to produce converter boxes
that will receive all 18 formats of the ATSC DTV standard and
it will output only a standard definition analog signals
similar to DVD players and VCRs that connect to today's analog
TVs. This will allow the consumer with a current analog TV to
enjoy the best possible pictures as well as to take advantage
of the extra channels available through digital multi-cast
terrestrial DTV broadcasts.
The level of technology in this converter box is very
similar to that in our $40 to $60 DVD players with the DVD's
disk player mechanism replaced by a low-cost DTV tuner. This
similarity suggests comparable pricing between these two
devices.
Second, sales volume. The price of DVD players dropped from
more than $500 to less than $100 within 5 years, due almost
entirely to the growth in sales volume. At the least, 70
million analog TVs in the U.S. today rely upon over-the-air
service. While many consumers already replaced these analog TVs
with new integrated DTV sets, many others will wish to continue
to use their analog sets, providing a viable market for low-
cost converter boxes. In addition, the FCC's DTV tuner
regulations will drive down cost of the ATSC chip sets. A
digital tuner 3 years from now should cost about the same as an
analog tuner today.
Third, and final consideration in the set-top box pricing
equation relates to the licensing fees for patents held by the
companies that invested in bringing set-top box technologies to
market. For comparison, even the lowest-priced, bargain
basement DVD player today has royalties in the range of $10 to
$15. This is comparable to the royalty range for a basic
digital-to-analog converter box. Based upon LG's experience
with DTV set-top boxes, we estimate that the retail price of a
simple digital-to-analog converter box will be under $100 by
2006 based upon volumes in the millions of units. And it should
reach the $50 to $70 range by 2008, assuming sales volumes in
the tens of millions of units. Of course, as more units are
required, the price will be lower, and could be lower even
earlier than these dates.
These low-cost set-top boxes will provide an option for
consumers who will be satisfied with the standard definition.
At the same time, consumers who want the high-definition
reception and other features will pay more, just as they do
today for progressive scan DVD players.
There are other factors that will help to advance the
transition to DTV. These include new products, additional
compelling digital content, consumer education efforts, and the
final resolution of digital cable carriage and digital
copyright concerns. We look forward to continuing to work with
you to ensure that all Americans are able to enjoy the benefits
of digital TV.
I am, of course, pleased to respond to any questions that
you may have, and I appreciate the opportunity to appear before
you today. Thank you.
[The prepared statement of Jong Kim follows:]
Prepared Statement of Jong Kim, LG Electronics, Inc.
Mr. Chairman and members of the Subcommittee, my name is Jong Kim
and I welcome the opportunity to appear before you today. I am Vice
President of Research for LG Electronics Inc. (LG), a $30 billion
global leader in consumer electronics, information technology and
communications products. I also serve as Senior Vice President for LG's
Zenith subsidiary, where I have been working on digital television
(DTV) technologies for the past 13 years.
As a long-time participant in digital television, I am pleased to
appear before you today on behalf of LG Electronics U.S.A., Inc., which
is the North American subsidiary of LG. A leading supplier of digital
high-definition television (HDTV) integrated receivers, set-top boxes
(STBs) and displays, LG already is developing its sixth-generation DTV
reception chipset. LG is the parent company of Zenith Electronics
Corporation, a long-time leader in consumer electronics generally and
digital HDTV specifically. Zenith is the inventor of the digital
modulation technology at the heart of the DTV Standard adopted by the
Federal Communications Commission (FCC) and has been a wholly owned
subsidiary of LG Electronics since 1999.
The Committee is focused today on the specific issue of the
relationship of converter boxes to the digital transition. Mr.
Chairman, LG shares your view that this transition is of critical
importance. This Committee has been instrumental in advancing DTV's
deployment, and we are seeing exciting marketplace developments
involving digital technologies. Digital transmission offers incredible
high-resolution video, and anyone who has experienced HDTV becomes a
believer in this technology. In addition to these benefits, the digital
transition provides an opportunity to return spectrum for important
governmental objectives (including public safety and homeland security
needs) and to deploy new commercial technologies for consumers. There
are many issues associated with the transition, including potential
government subsidies to help consumers purchase boxes capable of
converting free, over-the-air DTV broadcast signals for viewing on
their existing analog TV sets. These are exciting times for all
involved in digital technologies.
LG has been asked to comment today on the pricing and timetable for
deployment of converter boxes. Several factors influence any estimate
of converter box costs, including the level of technology, unit sales
volume, and licensing fees. Please permit me to address each of these
topics briefly.
The level of technology necessary for a basic digital-to-analog
converter box is much less than is required for today's more full-
featured STBs that output high-definition signals and retail for $200
to $400. We contemplate the manufacture of converter boxes that will
receive and demodulate all 18 formats of the ATSC DTV Standard, but
will output only low-resolution analog signals via a simple radio
frequency (RF) connector--like DVD players and VCRs connect to analog
TVs today.
This is sufficient for the average consumer to enjoy the DTV
experience. In fact, consumers who have been watching snowy analog TV
pictures will love the crisp, studio-quality digital pictures even on
their older, low-definition televisions sets using one of these simple
digital-to-analog converters. While analog TVs will not display full
high-definition resolution, these boxes will allow consumers to take
advantage of the increased number of channels available through digital
multicast terrestrial DTV broadcasts.
With regard to the price of converter boxes, we think it is useful
to compare the technology of DVD players to the technology of these
simple digital-to-analog converter boxes. Even today's most affordable
DVD players (in the $40-$60 range) contain a disc-handling mechanism,
along with a microprocessor, memory, MPEG decoding chipset, as well as
the standard power supply, enclosure hardware and remote control. A
digital-to-analog converter box will have essentially the same
components, with a low-cost DTV tuner replacing the disc-playing
mechanism; this similarity suggests comparable pricing between these
two devices.
In considering the impact of unit sales volume relative to digital-
to-analog converter box prices, the DVD example is instructive again.
Prices for DVD players plummeted within five years from more than $500
to less than $100, based almost solely on their explosive sales growth.
As you know, the FCC has adopted DTV tuner regulations requiring the
phased-in inclusion of DTV tuners in all television receivers 13--
inches and larger by mid-2007. This requirement is expected to have an
effect similar to the DVD experience, exponentially driving down the
costs of ATSC chipsets. As a result, a digital tuner three years from
now should cost about the same as an analog TV tuner today.
In addition, LG believes that we can achieve the economies of scale
required to ensure that a very low-cost converter box is available.
Estimates point to 70 million-plus analog television receivers in the
United States today that rely upon over the-air service (i.e., are not
connected to a cable or satellite provider). We expect that, while many
consumers will replace these analog TVs with new, integrated DTV sets,
many others will continue to use their analog sets, thereby providing a
viable market to drive the production of a very large volume of low-
cost converter boxes.Another consideration in the overall STB pricing
equation relates to licensing fees for patents held by the companies
that invested in bringing STB technologies to market. Even the lowest-
priced, bargain-basement DVD player has royalties in the $10-$15 range.
This is essentially comparable to the royalty range for any basic
digital-to-analog converter box.
Based on our DTV experience and expertise in the design and
manufacture of DTV set-top boxes, LG estimates that the retail price of
a simple digital-to-analog converter box such as I have described will
be under $100 by 2006, accounting for technology levels and licensing
fees, and assuming production volumes in the millions of units. These
three key factors affecting future STB pricing--(technology level, unit
sales volume and licensing fees) suggest to us that that digital-to-
analog TV converter prices may be as low as $50 by 2008, assuming
industry-wide demand of tens of millions of units by then.
Of course, by 2008 there will be a range of options, including very
affordable integrated DTV receivers. Those who want high definition
reception and other features will pay more, just as they do today for
progressive-scan DVD players. For consumers who want a very low-cost
standard definition solution, a target retail price of $50-$70 should
be attainable in a little over three years from now, assuming annual
sales volume in the tens of millions of units.
There are other factors, of course, that affect the digital
transition. Manufacturers such as LG Electronics are doing our part to
offer consumers a wide array of quality DTV products at affordable
prices. Product prices will continue to decline, as they have done
since DTV's introduction in 1998, and this will speed the transition.
Other remaining issues that must be addressed to bring the DTV
transition to completion include the provision of additional compelling
digital content, consumer education efforts, and final resolution of
digital cable carriage and digital copyright concerns. Progress has
been made on the issue of compatibility between cable equipment and
consumer electronics products as a result of cooperative effort by
these industries, and work continues on two-way compatibility.
LG Electronics commends this Committee for having the foresight now
to examine the end of the transition and to consider a framework for
minimizing the potential disruption to consumers when the final switch-
over to digital broadcasting occurs. We look forward to continuing to
work with you to ensure that all Americans are able to enjoy the
tremendous benefits of digital television.
I am, of course, pleased to respond to any questions you may have,
and I appreciate the opportunity to appear before you today.
Mr. Upton. Thank you.
Mr. Yager, welcome.
STATEMENT OF K. JAMES YAGER
Mr. Yager. Thank you, Mr. Chairman, and members of the
subcommittee----
Mr. Upton. You need to get that--you just need to punch the
button on that mike.
Mr. Yager. Right here? Did I get it?
Thank you.
I had my good friend from the electronics industry to help
me out there.
My name is Jim Yager. I am Chief Executive Officer of
Barrington Broadcasting, which owns and operates three
television stations in Michigan and Illinois. I serve on the
board of directors of the National Association of Broadcasters
and the Association for Maximum Service Television.
Today, I would like to discuss the status of the DTV
transition, the necessity of protecting viewers that rely on-
over-the air television, the importance of ensuring that cable
subscribers are not deprived of the benefits of DTV, and most
importantly, the need to insulate consumers from any harm
during the digital transition.
Broadcasters are proud of our DTV accomplishments. Today,
according to FCC, 1,488 local television stations are on the
air in digital in markets that serve over 99 percent of U.S. TV
households. DTV content has arrived as well, with over 2,500
hours of broadcast HDTV programming a year. After spending
billions of dollars, broadcasters have done their part to make
DTV a reality. We recognize the need to bring this transition
to a conclusion and ultimately to end analog broadcasts. In
fact, our stations have strong economic incentives to do so.
None of us enjoys paying double in operating costs to power
both our analog and digital transmitters. However, it is
premature to discuss the end of the transition without first
resolving the number of policy impediments that could block
consumers from reaping the full benefits of digital television.
Chief among the remaining stumbling blocks are questions
surrounding what broadcast DTV service cable companies will
permit their subscribers to view. Cable operators have known
for years of the impending DTV transition, but now are seeking
to convert digital, high-definition signals to analog formats
at the head end of their systems.
Down-conversion at the head end would mean that consumers
who invest in HDTV sets would then find themselves receiving an
identical picture as their neighbor's analog-only TVs. Imagine
if, during the 1960's, consumers purchased color sets, brought
them home, and plugged them into their cable box only to see
black-and-white pictures. That is what cable today is proposing
with conversion at the head end. And the question must be
asked, if the end result is turning digital signals back into
analog, why did we undertake this transition to begin with.
Perhaps the most critical policy question now is how to
protect consumers during the shift to digital. A few simple
facts highlight exactly why this is imperative.
The GAO reports nearly 21 million U.S. households rely
exclusively on over-the-air television reception for their TV.
These households are among our most economically vulnerable,
such as low-income senior citizens. For instance, \1/2\ of
households with the head of the family who is over 50 and the
annual income is less than $30,000 are broadcast-only
households. As GAO stated, minorities are also
disproportionately affected. Twenty-eight percent of Hispanic
households rely solely on over-the-air television. And
according to Knowledge Networks, African American households
are 22 percent more likely to rely on over-the-air signals. If
a hard cutoff date for the end of analog were imposed tomorrow,
these households would lose their ability to receive any
television whatsoever.
The problem of a hard date does not end with the 20 million
over-the-air homes. Including second and third sets and
satellite and cable homes, there are 73 million television sets
in this country that rely solely on over-the-air signals. A
premature hard date sends these 73 million television sets to
the local landfill. It is unconscionable to me that every year
another 30 million analog-only sets are sold to unsuspecting
consumers without any warning that the product may soon be
obsolete. Under the current tuner phase-in schedule, analog-
only sets will continue to be sold until July 2007.
As Congress seeks solutions for migrating these analog-only
viewers into the digital world in an orderly fashion, a series
of questions must be answered. As there are currently no
digital-to-analog converter boxes on the market today, will any
manufacturer step up and offer a low-cost converter box? How
quickly can manufacturers produce enough converter boxes for
consumers? Will government reimburse households for converter
boxes? Who will be eligible for reimbursement? Will households
be reimbursed for converting multiple sets in the same home or
only for a primary set? Will reimbursement cover just converter
boxes or the cost of an antenna? And how much will this whole
process cost?
I am sure that before legislating such an ambitious
program, the committee will hold extensive hearings to probe
these issues. Broadcasters want to be part of that dialog.
In closing, let me re-emphasize. The transition system for
DTV has been built. The programming is here. Now the challenge
for Congress is two-fold: first, ensuring that both over-the-
air viewers and cable subscribers enjoy the full benefits of
digital television while, second, protecting over-the-air
viewers from losing local television altogether.
Thank you.
[The prepared statement of K. James Yager follows:]
Prepared Statement of K. James Yager, CEO, Barrington Broadcasting
Company on Behalf of The National Association of Broadcasters and MSTV
Good morning Mr. Chairman. I am K. James Yager, CEO of Barrington
Broadcasting Company. I appear today on behalf of the National
Association of Broadcasters to discuss important issues related to our
transition to digital television (DTV). I will emphasize the critical
need to focus on consumers during this transition to ensure that all
Americans will continue to have access to the best free over-the-air
television service in the world. As I will explain below, there are
valuable lessons we can learn from the DTV conversion experience in
Berlin, Germany. I will also note, however, that the German experience
is not fully translatable to ours here in America because the potential
for consumer disenfranchisement we face in this country is much greater
than that faced in Berlin.
As an initial matter, let me say that broadcasters have and will
continue to fully support the digital television transition. We
recognize that consumers will reap dramatic benefits from the amazing
digital television technology. The transition period gives consumers an
opportunity to trade out their analog receivers for digital ones on
their own timetable. But, the transition cannot go on forever. Thus,
Congress settled on the point when 85 percent of U.S. households is
digital-capable for the turn-off of analog broadcasting.
It remains important to focus on the remaining 15 percent of
households that will need to be accommodated in some way. As the 85
percent test is met in market after market, analog television sets
without converters will go dark. Consumers in 20.5 million households
that rely solely on over-the-air (``OTA'') broadcast television will
lose all television service if they have not procured digital
television-capable receivers or converters. This situation has the sure
signs of significant disruption, and the Subcommittee is wise to begin
to plan for that time, in order to minimize disruption.
NAB believes that protecting consumer's access to their favorite
television programming and channels, as well as to news, information
and emergency alerts, will be critical to a successful conclusion to
our digital television transition. Thus, we would like to discuss in
this testimony what we see as necessary to preserve consumers' access
to television, most particularly over-the-air only consumers who could
be completely cut off from television by a hard cut-off date. And we
must not forget that there are millions of unwired television sets in
cable and satellite homes as well. Approximately 18.3 million MVPD
households have one or more television sets that rely solely on over-
the-air television reception. There are today approximately 280.5
million analog sets in use.1 Consumers may not readily
dispose of these sets, even if they have purchased a new digital
television receiver.
---------------------------------------------------------------------------
\1\ NAB appends hereto, as Attachment A, a series of charts
constructed for the FCC's proceeding inquiring about options for
minimizing the disruption to consumers when the switch-over to digital
broadcasting occurs. See Public Notice, MB Docket No. 04-210, DA 04-
1497, May 27, 2004. In that proceeding, the FCC asked for quantitative
data on viewers and receivers. See also Comments and Reply Comments of
the National Association of Broadcasters and the Association for
Maximum Service Television, Inc. in that docket. The estimates used in
this testimony are from Attachment A.
---------------------------------------------------------------------------
The FCC has set in motion measures that will foster the DTV
transition by providing incentives for consumers to buy DTVs. At some
point, however, Congress must take the steps necessary to protect OTA
sets from obsolescence. Clearly, the free, universal OTA broadcast
service must be preserved and the 20.5 million households that rely on
it must be protected against loss of television service.
Many OTA households will likely have purchased DTV-capable
receivers by the time analog broadcasting ends. But for the remaining
OTA households (and for analog sets in all households), there must be a
solution, or rather, a series of solutions. One answer is the
subsidization of digital-to-analog converters for ``non-digital'' OTA
households. Another measure is promotion and education about DTV, to
encourage consumers to purchase DTVs. A near term measure that could be
adopted would be to require warning labels on analog-only sets,
alerting consumers to the limited useful life of these sets.
The real key to ending the transition, to not disenfranchising
large numbers of consumers and to mitigating the disruption for
consumers with analog sets, will be making digital-to-analog converters
widely available at a reasonable price. Some government subsidization
likely may be necessary here. The FCC's practice of requiring auction
winners to bear the costs of moving incumbent spectrum users would seem
to be a useful idea, particularly as broadcasters have shouldered DTV
transmission costs.
Before we return to our comments on the numbers of consumers and
sets to be dealt with at the end of the transition and our thoughts
about digital-to-analog converters, we would like to take a moment to
discuss the Berlin transition to digital. We agree with the
Subcommittee that it is important to examine both the Berlin and the
greater German experience and the distinctions between that situation
and ours in the United States. We look forward to hearing and reviewing
the testimony presented today by GAO on the greater German experience,
but we would like to review some of what NAB told this Committee last
year about Berlin's transition and ours.
Germany, and particularly Berlin--the first place in the world
where digital television broadcasting has completely supplanted
analog--offers some instructive comparisons to the DTV transition in
the United States. Nonetheless, there are striking differences between
the German experience and ours which amply demonstrate why accelerating
the digital transition here will require significantly more consumer-
friendly actions by the government.
Let's look at some of the ways German digital television differs
from our DTV transition. The single biggest difference is that Berlin--
like other European DTV plans--does not include any provision for High
Definition Television. DTV in the United States began in response to
HDTV, a new Japanese technology that promised much greater picture and
sound quality. Although the U.S. digital television system will also
permit multicasting and the distribution of new data services, it has
always included HDTV capability, and the amount of HDTV programming
available here is great and continues to expand. In the United States,
HD has been the only incentive for consumers to purchase digital
receivers, particularly since most cable systems have refused to pass
through any other DTV services. While the FCC recently voted to deny
cable carriage of broadcasters' multicast programming, NAB believes
that decision bears re-evaluation by this Subcommittee. We believe that
multicasting as an option for some programming and some dayparts will
be critical to preserving the vitality of the free over-the-air
broadcast system. Multicasting is also a powerful additional incentive
for consumers (particularly OTA-only consumers) to purchase digital
sets or converters. But multicasting will only be developed if there is
access to the entire audience for such offerings, not just access to
OTA-only sets.
By contrast, European DTV was intended primarily to offer more
programming choices. European analog television for the most part has
offered fewer television signals to consumers than are available in the
United States and a higher percentage of noncommercial services (for
which viewers pay a receiver tax).2
---------------------------------------------------------------------------
\2\ In many countries, penetration of cable or satellite multi-
channel video providers has been far less than in the United States
and, even where MVPD penetration has been substantial (like Berlin),
the number of channels provided has been fewer than typical American
systems provide.
---------------------------------------------------------------------------
This profound difference has several consequences. First, European
consumers who move to DTV reception receive an immediate benefit of
more channels at no additional cost. In Berlin, buying a digital TV or
a set-top box increased viewer choice from eight channels to roughly 30
channels.3 Second, since there is no need to decode or
display HDTV signals, the memory and processing requirements of DTV
receivers and set-top boxes is much less in Europe than in the United
States. Thus, it is relatively cheaper to manufacture digital receivers
for European DTV. DTV receivers were available in Berlin, for example,
for around 200 euros, far less than HDTV-capable receivers cost
here,4 and set-top boxes there were also less
expensive.5
---------------------------------------------------------------------------
\3\ The Berlin authorities thought it particularly significant that
moving to DTV resulted in consumers ``receiving more services for which
the license fee is paid.'' DVB-TV: Das Uberall Fernsehen, Berlin Goes
Digital (accessed at http://www.mabb.de/start.cfm?content=
aktuelles&id=632) at 15 (hereinafter Berlin Goes Digital). Berlin
already had more operating channels than other parts of Germany where
three to five analog channels are typical. Berlin was able to have
these additional channels because of spectrum vacated by former East
German stations after reunification. While some other German cities are
expected to begin digital transmission this year, much of Germany under
current plans will never have digital over-the-air television because
sufficient channels are not available.
\4\ Id. at 5.
\5\ The current exchange rate is approximately $1.30 to the euro.
Set-top boxes have been on sale in Berlin for as little as 69 euros, or
about $89.00 (U.S.).
---------------------------------------------------------------------------
Moreover, because digital transmissions in Germany are not high
definition, a consumer with an analog receiver who acquires a digital
set-top box would receive the same programs at almost the same quality
as a consumer with a new digital receiver. Similarly, if a cable system
in Berlin converts a broadcast digital signal to analog for display on
analog receivers connected to the cable system, the cable subscriber
receives essentially the same thing as he or she would if the cable
system were delivering the digital signal in its native format to a
digital receiver.
It is important to emphasize that down-conversion has a far more
negative impact in the United States. If a U.S. cable system down-
converts a broadcast DTV signal, as some have suggested, cable
subscribers will not receive what they would get if they had a digital
receiver and the cable system carried the broadcast digital signal. The
consumer would not receive high definition pictures or better sound and
would not receive multicast signals or data transmissions. There would
be little reason for those consumers to purchase digital receivers and,
of course, if they already had DTV sets, they would not get much of the
benefit of their purchase. An apt analogy would be to imagine that
consumers who purchased color television sets in the 1960s found when
they brought the color sets home, they would still only see black and
white pictures. The predictable public outcry against wasteful
government requirements would likely be intense.
As a consequence of these differences, the digital conversion in
Berlin presented consumers with a very different value proposition--for
a fairly modest one-time expenditure, the consumers could get the
equivalent of free basic cable for life. Moreover, nearly the full
benefits of the conversion could be realized on TV sets, small and
large, analog and digital alike. So it was not difficult to persuade
consumers to buy the digital sets and boxes and there was little danger
of consumer resentment over the premature obsolescence of their
existing sets.6 In the long run, we believe that European
consumers and broadcasters will come to regret foreclosing the benefits
that HDTV will provide, particularly as other digital media increase
their ability to deliver the highest quality sound and pictures.
---------------------------------------------------------------------------
\6\ The license fee paid by all set owners is 16 euros per month,
so the cost of a set-top box represented about four months of license
fees.
---------------------------------------------------------------------------
Another distinction between the Berlin and American transitions are
the obligations placed on cable. Cable in Berlin was required to carry
all broadcast services and to protect analog-only households after the
switch-over to digital. In stark contrast, the FCC just last week acted
to deny cable carriage for all but one free stream of digital broadcast
programming. And, there are still no obligations on cable systems to
ensure that their analog-only subscribers will have access to local
television signals after analog broadcasting ends.
This is a very important point. One of the reasons that analog
broadcasting was able to be switched off in Berlin was the prevalence
of cable and satellite delivery systems. Only about seven percent of
Berlin households received television over the air, a lower percentage
than in the rest of Germany.7 An even smaller number of
homes in Berlin (about 90,000) relied on terrestrial transmission for
second and third sets.8 In the United States, it is
estimated that there are 45 million sets in homes that are not
connected to any cable or satellite system and an additional 28 million
unwired sets in cable or satellite households. In total, over 25
percent of all televisions (73 million receivers) rely solely on over-
the-air transmission and will need to be replaced or have converters
attached in order to operate after analog broadcasting ends.
---------------------------------------------------------------------------
\7\ Berlin Goes Digital at 2. In Germany, satellite service is free
to the consumer after the purchase of the receiver; cable service
typically costs only 12-15 euros, much less than the cost of American
cable service.
\8\ Id. at 3.
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Because so large a percentage of Berlin homes relied on cable or
satellite to receive local television, and those systems were required
to ensure that broadcast digital programming reached all of their
subscribers, there was no risk that consumers would be stranded as is
likely here. Further, there was very little risk that ending analog
broadcasting would result in a significant loss of audience or revenue
for commercial broadcasting. The result here is much different.
One of Congress' objectives when it authorized the transition to
digital beginning in 1996 was to strengthen the over-the-air
broadcasting system. A premature end to analog broadcasting before
consumers are ready may have the opposite effect of reducing the
audience of local stations and thus reducing their ability to provide
attractive programming and local public service. If consumers are
driven to cable and satellite programming, that would increase those
monopoly providers' gatekeeper power and frustrate Congress' goal of
improving local broadcasting.9
---------------------------------------------------------------------------
\9\ In this regard, it is worth noting that there are no plans to
bring terrestrial digital service to much of rural Germany. It is not
clear whether those areas will lose over-the-air service altogether or
be left with analog service only. The American DTV transition is
intended to ensure that high-quality digital television be available
across the country.
---------------------------------------------------------------------------
These differences are significant and make it apparent that Berlin
does not provide a ready model for the United States. In particular, as
we discuss here, the very much larger number of sets that rely on over-
the-air transmissions, as well as the very large number of analog sets
in cable and satellite homes for which no DTV transitional carriage
rules have been established, make it impossible to conclude that a
Berlin-style transition would not harm the public interest in a strong
local broadcasting system.
Despite this, there are certainly lessons that we can take from the
Berlin experience. The German authorities recognized that moving
millions of consumers from analog to digital, while resulting in
significant benefits for consumers, would create burdens that should
not fall on broadcasters. Instead, they concluded that ``[s]olving the
issue of social acceptability of the switchover is a public duty to be
fulfilled by the state.'' 10 The response from consumers in
Berlin also counters suggestions that it is not important to maintain
the level of over-the-air services. ``Numerous comments by viewers . .
. refute the claim that viewers traditionally receiving television
through the air would be content with fewer services--the opposite is
the case.'' 11
---------------------------------------------------------------------------
\10\ Berlin Goes Digital at 12.
\11\ Id. at 15.
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Another important lesson is that free TV is crucial to any
transition from analog to digital. The experience not only in Germany,
but also in the United Kingdom and in Spain with pay digital
television--where those services languished--shows that the
``switchover must be undertaken with free-to-air television.''
12 Indeed, in England, the subscription terrestrial DTV
service collapsed; digital penetration began to increase significantly
only with the development of the Freeview system that greatly expanded
consumer choice by providing multiple channels of free over-the-air
programming.13
---------------------------------------------------------------------------
\12\ Id. at 3; see id. at 16.
\13\ See Office of Communications, Driving digital switchover: a
report to the Secretary of State (April 5, 2004)(accessed at http://
www.ofcom.org.uk/research/dso--report/?a=87101).
---------------------------------------------------------------------------
One other part of the Berlin experience is particularly
instructive. The Berlin authorities concluded that one of the
advantages that could be obtained from a transition to DTV was the
increased potential for portable applications. This is achieved through
a system of distributed transmission where additional transmitters
repeat the signal and enable it to reach televisions without roof-top
antennas. The same capability has been developed for the U.S. digital
broadcast system, and broadcasters have asked the FCC to authorize its
use. The FCC has agreed in principle. Final action by the FCC on this
issue would also help advance the transition here.
Let me turn back for a moment to the critical issue of over-the-air
viewership and the availability of digital converters. Without the
widespread availability of low cost digital-to-analog down-converters,
the FCC risks disenfranchising millions of viewers and rendering
useless the analog sets they rely on and, in many cases, just recently
bought. Not only is the OTA analog set population enormous (73 million)
and the number of OTA-only homes huge (20.3 million households), the
importance of OTA service cannot be overstated in terms of the OTA
viewing public's reliance on the free, over-the-air service for news
and information and emergency alerts.
To evaluate the stake the public has in this transition (and to
assess the damage that various proposals affecting the digital
transition may inflict on the public), Congress must take into account
three components of the public interest served by over-the-air
television: The first component is the 18.9 percent of viewers that
rely solely on over-the-air service, whether because they cannot afford
to subscribe to cable or DBS, because cable or DBS service is not
available to them or does not provide local broadcast signals, or
because they believe in the universal availability of free, over-the-
air broadcast service. The second component is the owners of the 28
million of television sets in MVPD homes that are OTA-only analog sets.
The third component consists of all viewers, because all viewers rely
on over-the-air service in times of weather, terrorist or other
emergencies when cable or satellite service may not be available and
because broadcast television service provides an effective competitive
check on cable and DBS services in terms of price, service, and
diversity.
Many of the 18.9 percent of U.S. households that receive television
service solely over the air do so by choice, not because economics
dictates it. For example, a survey conducted by the Consumer
Electronics Association found that ``[l]ess than 30 percent [of
households that have chosen not to subscribe to cable or DBS] indicate
that insufficient funds play a role in their decision not to
subscribe.'' 14 Many Spanish-speaking viewers choose not to
subscribe to cable or DBS because these services offer primarily
English-language programming.15
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\14\ Comments of the Consumer Electronics Association, MB Docket
No. 04-210, August 11, 2004 (``CEA'') at 4.
\15\ Comments of Entravision Holdings, LLC, MB Docket No. 04-210,
August 11, 2004, at 2.
---------------------------------------------------------------------------
But there are also a large number of viewers who cannot afford pay
television. Twelve percent of American households fall below the
poverty line.16 They should not be forced by government
policy into paying subscriber fees that only escalate over time and
that they can't afford. They deserve as an option--the preferred and
responsible option--a vibrant, over-the-air service that provides the
benefits of new digital technologies.
---------------------------------------------------------------------------
\16\ See Census Bureau says 1.3 million more slipped into poverty
last year; health care coverage also drops, CNN Money (Aug. 26, 2004),
available at http://money.cnn.com/2004/08/26/news/economy/poverty--
survey.
---------------------------------------------------------------------------
Over-the-air viewers have important, well thought out and
legitimate reasons for relying on over-the-air reception, e.g., they
believe in the value of free, over-the-air television; they do not want
to be locked into the ever-increasing costs of pay television service;
they view primarily alternative-language programming; they have
additional sets that are not hooked up to cable or satellite, among
others. They feel well-served by the locally-oriented and public
interest programming they receive over the air and do not see the need
nor do they want to be pushed to ever more expensive pay television
services. Because broadcast television is universally available and is
the only service used by millions of Americans, Congress should ensure
that these viewers are not shut out or marginalized, but continue to
have the option to rely on over-the-air reception and still receive
meaningful local broadcast service.
As mentioned above, a key to ending the transition without
disenfranchising large numbers of consumers and to mitigating the
disruption for consumers with analog sets will be making digital-to-
analog converters widely available at a reasonable price. In this
regard, it is important to keep in mind not only the cost of such
converters, but that low cost converters for making digital signals
available to analog sets will need to have defined minimum technical
capabilities. At a minimum, digital converters should be capable of
receiving all digital broadcast formats, both HD and SD, on any VHF or
UHF broadcast channel, and provide connection to an existing analog TV
receiver via a channel 3 (or 4) RF interface. Thus, in conjunction with
any analog receiver, the digital converter box should be able to
receive, render and display usable pictures and sound from high
definition as well as standard definition broadcasts, but would not be
required to render pictures and sound at more than standard definition
quality.
In order not to disenfranchise current OTA-only television viewers,
digital converter boxes should be designed so as to maximize the
likelihood that they will work with digital broadcast signals in the
same receiving configuration (same antenna, location, etc.) as used for
current analog NTSC reception. Thus, the digital converters should be
able to receive and display signals under the most challenging
receiving conditions, including low signal level, severe multipath and
adjacent channel interference conditions. While marginal NTSC pictures
are often comprehensible and accepted by TV viewers, the digital
``cliff effect'' cleanly separates digital TV viewers into those with
watchable pictures and those without pictures at all. Thus, because
viewers with poor digital reception would be essentially eliminated as
television viewers, allowing less than excellent RF receiver
performance in digital converters may sacrifice much of the broadcast-
only viewing audience when analog transmissions cease.
Current DTV converters are available from about $200 and up,
although none are presently available with SD-only outputs. Like all
other electronic components, the manufacturing cost of a digital
converter box is closely related to the manufacturing volume. NAB and
MSTV previously studied the cost of adding DTV capability to television
receivers as well as the likely cost of set top boxes.17 The
Arthur D. Little study noted that by the year 2006 digital converter
boxes could be expected to sell at retail for under $200, with a
manufacturing cost near $100, composed mostly of the fixed recurring
costs of manufacturing (a physical box with a TV tuner, power supply,
cabinet, remote control, switches, knobs, jacks, etc.) and only
slightly impacted by the cost of the integrated circuits required to
receive and process digital broadcasts.
---------------------------------------------------------------------------
\17\ ``Assessment of the Impact of DTV on the Cost of Consumer
Television Receivers,'' Final Report to MSTV and NAB, Arthur D. Little,
Inc., September 10, 2001.
---------------------------------------------------------------------------
Motorola's 2004 testimony before this Subcommittee 18
that a digital converter box with a retail price of $67 is possible in
2007 would indicate that further price reductions from large volume
production are possible. Similarly, LG Electronics indicated in FCC
filings last summer that the retail price of a simple digital-to-analog
converter box could be under $100 by late 2005, assuming production
volumes in the millions of units and that they believe that digital-
analog TV converter prices may be as low as $50 by 2008, assuming
industry-wide demand of tens of millions of units by then.19
---------------------------------------------------------------------------
\18\ ``Motorola Broadband CTO to Speak Before House Subcommittee on
Telecommunications Regarding DTV Transition,'' Motorola press release,
July 21, 2004.
\19\ Comments of LG Electronics filed in FCC MB Docket, 04-210,
August 11, 2004 at 3.
---------------------------------------------------------------------------
What does this all really mean? It tells us that relying on cable
or satellite services to drive the transition to digital--as some have
argued--will ultimately fail. Free local broadcasting has always been
the core of television service. It will be, it must be, a primary
driver of the digital transition. With it, we will have a vibrant new
television service. Without it, we will have simply more variations on
the same pay services, as well as diminishing news, emergency services
and other public interest activities for which our communities rely on
local broadcasters.
Broadcasters share the desire to bring the DTV transition to a
close. Unlike Germany, American commercial broadcasters have been
required to shoulder an enormous financial burden to build and operate
digital facilities. No broadcaster wants to continue paying for both
analog and digital operations for any longer than necessary. Instead,
we look forward to an all-digital future.
There is no question the DTV transition is progressing. Over 1370
television broadcasters are now on the air and reaching 99% of
households in their communities and across the country with digital
signals. What remains is a harder problem to solve and that is consumer
adoption.
The FCC has taken significant steps to advance the transition,
including the digital tuner mandate, the ``Powell plan'' and the
agreement on cable compatibility standards. It is to be commended for
its constructive approach. These steps are bearing fruit, not only in
the availability of more and more exciting programming, but also in
increased sales of digital receivers and displays. But, more is needed,
particularly the now-denied digital carriage rules for the transition
and afterwards. The FCC has failed to do what is needed to make this
transition smoother. It is now up to Congress to correct that failure
so that we can bring the transition to an end in this decade without
causing significant disruption to consumers or reducing service.
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Mr. Upton. Mr. Willner.
STATEMENT OF MICHAEL S. WILLNER
Mr. Willner. Thank you, Mr. Chairman and Congressman
Markey, members of the subcommittee. My name is Michael
Willner, and I am the President and CEO of Insight
Communications, the Nation's ninth largest cable operator.
Thank you for inviting me to testify here today.
Mr. Chairman, I have said before, and I will say it again,
cable is, indeed, leading the digital transition in America.
When I testified before this committee last summer, I reported
that cable companies were offering high-definition television
on systems passing some 84 million homes. In less than a year,
that number had grown to 92 million homes, almost a 10-percent
increase. In fact, cable operators now offer HDTV in all of the
top 100 markets and 184 of the 210 markets nationwide.
During the digital transition law, broadcasters are
transmitting both analog and digital signals. Cable operators
are only required, by law, to carry the analog signals.
Nevertheless, cable systems now voluntarily carry an additional
504 digital signals from broadcast signals that offer HDTV and
other compelling digital content. Most recent--the most recent
and comprehensive of all is the example of the cable industry's
willingness to carry compelling digital broadcast programming,
which is the agreement announced just 2 weeks ago between the
NCTA and the Association of Public Television Stations. This
voluntary agreement was reached because the public broadcasters
demonstrated that they have a plan to offer digital programming
that is attractive to our customers. The agreement will ensure
that digital programming on local public television stations
will be carried on cable systems serving the vast majority of
the Nation. And it was done without any government
intervention.
Cable operators are also providing digital tiers that
include substantial amounts of high-definition programming. For
example, 18 different cable networks are now delivering HDTV,
most of them on a 24-hour-a-day basis.
My company was an early proponent of HDTV and first
launched high-definition television service in 2002. We carry
most local HD signals in the markets we serve, provided the
local broadcasters do not demand unreasonable economic
concessions. We do not want our customers to have to pay for
programming that the broadcaster provides free of charge over-
the-air so that one neighbor pays for it and the other neighbor
doesn't. Currently, 95 percent of our customers have access to
HDTV.
Today, only a small portion of the Nation's households own
digital televisions. Indeed, only 33,000 of our customers
currently have HD service. But the good news is that we are
adding more than ever before. Nearly 1,000 new customers a
week, on a net basis, are adding HDTV services to their cable
service. The problem is that there are still about 250 million
analog television sets in viewers' homes. The large majority of
over-the-air and cable households still will watch television
on analog TV sets and will continue to do so well into the
future.
Cable operators have introduced a digital and high-
definition service plan, which gives viewers options that do
not require them to purchase digital TV sets or obtain digital
set-top boxes until they are ready to do so.
Ladies and gentlemen, I personally believe that the only
way for this transition to ever be completed is for Congress to
set a date certain. The cable industry is not in the business
of deciding this matter. That is up to you. I do want you to
know that we are ready, willing, and able to comply with
whatever date you choose. The smooth transition will occur if
you analyze the impact on two distinct consumer groups: the 90
million households who receive their broadcast signals from
cable and DBS, and the 20 million who receive broadcast signals
directly over the air.
Those who rely on over-the-air reception have a number of
options. The least expensive option will be to obtain a set-top
box that converts digital signals so that they are viewable on
analog television sets. I have a favorite option. I hope those
people will subscribe to cable, and we will take care of it all
for them.
Cable customers, on the other hand, should not face those
decisions. Whether we convert digital signals to analog at the
head end or in the set-top box, the cable operator should have
the flexibility on a market-by-market basis to determine the
method that is least disruptive and most cost-effective for the
consumer. Indeed, cable operators have been converting cable
networks from their digital format received at the head end to
analog for well over a decade. It is nothing new. In fact,
broadcasters have, for years, been receiving digital feeds from
their networks, and they convert them at their receptionsite
into analog so they can broadcast that signal over the air.
Consumers with analog TVs will receive the same quality
signal they are receiving today. By the way, contrary to the
broadcasters' written testimony, no matter where we convert the
digital signal into analog, at the head end or in the home,
those with digital TVs will still enjoy, as they do today, the
benefits of digital television signals.
Mr. Chairman, as I said earlier, the cable industry stands
ready, willing, and able to participate in a seamless
transition to an all digital world. You set the date. We will
be there. And I thank you for allowing me to testify today.
[The prepared statement of Michael S. Willner follows:]
Prepared Statement of Michael Willner, President and Chief Executive
Officer, Insight Communications
Mr. Chairman, Congressman Markey, members of the subcommittee, my
name is Michael Willner. I am President and CEO of Insight
Communications, the nation's ninth largest cable operator. I am also a
Director of the National Cable & Telecommunications Association (NCTA)
and serve on its Executive Committee. Thank you for inviting me to
testify about the ``The Role of Technology in Achieving a Hard Deadline
for the DTV Transition,'' and the cable industry's efforts to advance
the digital transition.
I. INSIGHT COMMUNICATIONS: COMPANY OVERVIEW
Insight Communications provides bundled, state-of-the-art services
to 1.3 million cable customers living in Illinois, Indiana, Kentucky,
and Ohio. The company pursues an aggressive business plan to deliver
leading-edge technology to its customers and has successfully upgraded
its infrastructure to support numerous advanced services including high
definition television (HDTV), digital video recorders (DVR), video-on-
demand (VOD), subscription video-on-demand (SVOD), two tiers of high-
speed Internet access service, voice telephony, and standard analog
video. At the end of the third quarter of 2004, Insight Communications
served 1.3 million basic customers; including 440,000 digital
customers; 312,000 high-speed Internet customers, and 63,000 circuit-
switched telephony customers. The capital investment required to make
these enhancements was approximately $500 million, a huge commitment
for a company of our size.
Insight Communications was an early proponent of HDTV programming
and first launched high definition service in 2002. Insight carries at
least one major broadcast network in HD format in almost all of our
markets. Insight carries nearly all local HD signals in all markets--
provided the local broadcaster offers HD and does not demand
unreasonable economic concessions that require our customers to pay for
programming which the broadcaster is obligated to provide for free over
the public airwaves. Currently 33,000 Insight customers have HDTV-
enabled set-top boxes in their homes, and 95 percent of our customers
have access to HD services (98 percent of Insight's digital customers).
II. THE CABLE INDUSTRY IS LEADING THE TRANSITION TO DIGITAL TELEVISION
IN THE UNITED STATES.
Insight's investment in digital technology and its provision of
HDTV and an ever-increasing array of advanced digital services
exemplifies what the entire cable industry is doing to expedite the
transition to digital television. Since enactment of the
Telecommunications Act of 1996, the cable industry has invested nearly
$100 billion to transform its infrastructure and provide not only
advanced video services but also competitive voice and data services to
consumers throughout the nation. This is precisely what we said we
would do if Congress established a stable regulatory environment that
allowed companies to invest, take risks, and compete in the video
marketplace. Congress provided impetus for the industry by passing the
1996 Telecommunications Act--and we acted accordingly.
Cable's own transition from analog to digital technology has been
spurred by competitive market forces. The technological advances which
have transformed our business and benefited consumers stem from cable
operators risking their own private capital--without any government
guarantees, subsidies, or gifting of public airwaves. Moreover, the
delivery by cable operators of large and increasing amounts of high
definition programming from broadcasters and cable networks has
occurred without any government requirement to do so.
As the Federal Communications Commission recently noted, most
television households today have a choice of at least three
multichannel video programming distributors--at least one local cable
operator, and two nationwide Direct Broadcast Satellite (DBS) services.
Those DBS services are vigorously competing for every one of our
customers. If we do not offer compelling high definition programming
for the ever-increasing number of consumers with high definition
television sets, we will lose those consumers to competitors who do
offer such services.
A. Cable operators are now offering packages that include a full mix of
broadcast, basic, and premium networks featuring HD content.
When I testified before this subcommittee last summer, I reported
that as of March 2004, cable companies were offering high definition
television on systems passing 84 million homes. By January 2005, that
number had grown to 92 million,--almost a 10 percent increase in less
than a year. Those kinds of increases cannot go on much longer, because
these numbers mean that we are already offering high definition
television to most of our subscribers. In fact, in all of the top 100
markets--and in 184 of the 210 markets in the nation--at least one
cable operator now offers HDTV.
During the digital transition, while broadcasters are transmitting
both analog and digital signals, cable operators are only required to
carry the analog signals. Nevertheless, cable systems are now
voluntarily carrying an additional 504 digital signals from broadcast
stations that offer HDTV or other compelling digital content--a more
than five-fold increase just since January 2003 (and a 32 percent
increase since March 2004, when 382 stations were being carried).
Indeed, the most recent--and most comprehensive--example of the
cable industry's desire to carry compelling high definition and other
digital broadcast programming is the agreement, announced two weeks
ago, between the NCTA and the Association of Public Television Stations
(APTS). That voluntary agreement was reached because the public
broadcasters showed us that they had a plan to offer digital
programming that is attractive to our customers. The agreement will
ensure that local public television stations' digital programming will
be carried on cable systems serving the vast majority of the nation's
cable subscribers--and it was done without any government intervention.
Moreover, cable operators are also providing digital tiers that
include substantial amounts of high definition programming. Eighteen
different cable networks are producing HD programming, including
Cinemax HDTV, Comcast SportsNet HD, Discovery HD Theater, ESPN HD,
ESPN2 HD, HBO HDTV, HDNet, HDNet Movies, INHD, INHD2, MSG Networks in
HD, NBA TV, NFL HD, Showtime HD, STARZ! HD, The Movie Channel HD, TNT
HD, and Universal HD. Unlike many broadcast stations that offer HD
programming for only a few hours a day, most cable networks that offer
HD do so on a 24-hour or nearly full-time basis.
B. National Digital Technical Standards Are Helping to Speed the
Transition.
Along with creating and carrying compelling digital programming,
the cable industry has joined with the consumer electronics industry
and various organizations to establish digital standards. In December
2002, the cable and consumer electronics industries entered into a
landmark agreement that set the stage for a national ``plug and play''
standard between digital television products and digital cable systems.
As a result of this agreement, cable customers can buy unidirectional
DTVs and other devices that connect to digital cable systems without a
set-top box, thus allowing easy access to HDTV and other services
offered by cable providers.
The agreement ensures that the next generation of digital
television sets will receive one-way cable services without the need
for set-top converter boxes; enable consumers to receive HDTV signals
with full image quality; allow the easy recording of digital content
for personal use; permit an array of new devices to be easily connected
to the new HDTV sets; give access to cable's two-way services through
digital connectors on high definition digital sets; and encourage
manufacturers to speed the production of new sets and services for
delivery to market.
In September 2003, the FCC adopted rules tracking the voluntary
agreements between the cable and consumer electronics industries and
imposing legal obligations on cable operators to facilitate the
commercial availability of ``digital cable-ready'' equipment.
Specifically, the FCC's rules assure consumers that cable operators
will provide them with Point of Deployment (POD) separate security
modules, now called CableCARDs, that will work in their CableCARD-
enabled equipment purchased at retail. The FCC also required that these
``cable-ready'' DTV sets include digital tuners--a requirement the
cable industry supported--so that owners of those sets will retain the
option of receiving broadcast signals over-the-air.
As cable operators implement the ``plug and play'' agreement,
unidirectional digital cable-ready products have made their way into
the marketplace. Today, more products and innovations are clearly on
the way, as evidenced by the vast array of equipment on display last
month at the Consumer Electronics Show in Las Vegas. Meanwhile,
discussions are continuing between the cable and consumer electronics
industries to reach similar agreement on two-way digital ``cable-
ready'' products.
III. A HARD DEADLINE FOR THE RETURN OF THE BROADCASTERS' ANALOG
SPECTRUM REQUIRES STEPS TO MINIMIZE COSTS AND DISRUPTIONS FOR OVER-THE-
AIR AND CABLE VIEWERS ALIKE.
Largely as a result of the marketplace forces that have required
cable operators to carry packages of compelling digital and high
definition programming, sales of digital and high definition television
sets are increasing at a rapid pace. More than 7.2 million units were
sold in 2004--a 75 percent increase over the previous year--and all
signs indicate that this accelerating trend will continue in 2005.
Nevertheless, it is still the case that only a small portion of the
nation's households own digital television sets. There are 250 million
analog television sets in viewers' homes. The large majority of over-
the-air and cable households still watch television on analog sets and
will continue to do so for the foreseeable future. Consequently, cable
operators have introduced digital and high definition services in a
manner that gives viewers options that do not require them to: (1)
purchase digital television sets, or (2) obtain digital set-top boxes
that allow digital programming to be viewed on analog sets.
Thus, cable operators still typically provide the most popular and
widely-viewed programming in analog format. This allows viewers with
``cable-ready'' analog television sets to watch this programming
without a set-top box. Cable operators also offer optional tiers of
digital program networks, as well as digital pay-per-view programming
and other digital services. Most of this programming can be viewed on
analog television sets in ``standard definition,'' but only with a
digital set-top box that converts the digital signals to an analog
format allowing all TVs to receive them. As previously discussed, cable
operators offer digital high definition programming provided by cable
networks and local broadcast stations. To view this programming,
customers need a high definition television set and a more complex and
expensive set-top box (or a cable-ready HD set).
Today, nearly 40 percent of our customers purchase digital tiers
and services. Eventually, it will be most efficient and desirable to
provide all our programming and services digitally. But that will occur
gradually so the consumer can choose if and when to purchase a new
digital television set. In the meantime, most of our customers still
have analog sets and do not purchase digital tiers. For now and the
foreseeable future, we serve our customers best by making the most
popular services available in analog format, even though we also
provide the same services in high definition on digital channels.
When Congress sets a date certain for the digital transition, the
cable industry will be ready, willing, and able to complete a smooth
transition. And broadcasters could be too--if they only wanted to be. A
smooth transition will occur if we recognize and deal with the
different impact that ending analog broadcasting will have on two
different groups of consumers: (1) people who receive their broadcast
signals from cable and DBS, and (2) people who receive broadcast
signals directly (over-the-air). If Congress were to require
broadcasters to transmit only digital signals in the next few years,
households that rely on over-the-air reception would have to incur some
costs to continue watching television. They would have to: (1) replace
their analog TVs with new high definition sets; (2) replace their sets
with new analog TVs equipped with digital tuners; (3) obtain a set-top
box that converts digital signals into analog format so that they are
viewable on analog sets; or (4) become cable or DBS customers. Motorola
currently estimates the cost of set-top converter boxes to be $67 per
unit. Some costs and inconvenience for over-the-air viewers will be
unavoidable unless Congress is willing to wait to recapture the analog
spectrum until all over-the-air viewers have replaced their existing
sets--which would delay the conversion indefinitely.
Cable customers, on the other hand, need not face such costs. Cable
operators, if permitted to do so, can convert the broadcasters' new
primary digital signal to analog so customers who choose not to
purchase new digital sets or digital tiers can continue to receive
service without any additional equipment. Whether we convert to analog
at the head-end or in the set-top box should be determined by the cable
operator, who will decide on a market-by-market basis the method that
is least disruptive and most cost-effective to the customer. Cable
operators have been converting cable networks from their digital format
received at the head-end to analog for well over a decade so that they
can be viewed by customers without digital TVs or set-top boxes.
Indeed, broadcast network affiliates have for years been receiving
digital network feeds in digital format via satellite and fiber optic
cables which they convert to analog before transmitting the programming
over-the-air. The digital broadcast transition will be advanced if that
same conversion right applies to local broadcast signals. Cable
operators, in order to minimize the expense and disruption imposed on
their customers by the digital transition, should be permitted the
discretion to convert digital broadcast signals to analog at the
headend. Consumers with analog TVs will receive the same quality signal
they are receiving today and those with digital TVs will enjoy the
benefits of the digital signals where such benefits exist.
The cable industry has already shown that where broadcasters
provide compelling high definition (and/or multicast) programming, we
will voluntarily carry such programming digitally in addition to
providing the analog signal--just as we carry some popular non-
broadcast cable program networks on analog channels while also carrying
their programming digitally in high definition. And we will continue to
do so.
IV. MULTICAST MUST CARRY
Broadcasters continue to suggest that they need multicast must
carry in order to facilitate the digital transition. Their argument is
a diversionary tactic and nothing more. Multicast must carry will not
solve any consumer issue in the post-transition, digital world. Must
carry simply allows broadcasters to provide any content they choose,
including home shopping and info-mercials, while blocking competing
services from utilizing cable's valuable bandwidth.
Multicast must-carry would have virtually no effect on the
attractiveness of digital sets and would do nothing to expedite the
date on which the transition might end. It is hard to see why any cable
subscriber would purchase a digital set to watch additional standard
definition programming that is not significantly better in picture
quality than the hundreds of channels already available on cable
systems. Moreover, giving broadcasters guaranteed carriage of their
multicast channels will remove their incentives to invest in and
develop compelling content that consumers will want to watch and cable
operators will want to carry.
Cable operators will continue to make analog televisions and VCRs
work long after the broadcasters shut off their analog transmissions by
providing a digital-to-analog set-top box or by converting the digital
TV signals at the head-end. The only steps that need be taken in order
to implement a hard deadline for the return of the broadcasters' analog
spectrum are: (1) ensuring the availability of affordable digital-to-
analog equipment for over-the-air viewers, and (2) permitting cable
operators to convert digital broadcast signals to analog.
IV. CONCLUSION
Mr. Chairman, the cable industry has made a massive commitment to
digital technology--not just to digital television but to a digital
platform that will provide an ever-expanding array of competitive
voice, data, and video services to American consumers. We are also
committed to managing the digital transition in a way that makes the
most advanced services available without imposing unnecessary costs and
disruption on our customers. The government's need for the return of
the analog spectrum (for important public safety and wireless purposes)
means that some inconvenience, particularly for over-the-air viewers,
may be inevitable. The cable industry has demonstrated, through its
voluntary commitment to carry high definition programming during the
transition, and its comprehensive agreement to carry public
broadcasters' high definition and multicast digital programming during
and after the transition, its willingness to help minimize the
disruption for broadcasters and their over-the-air viewers.
We also continue to be required by law to carry the broadcasters'
analog signals during the transition and their primary digital video
programming streams after the transition is completed. We need to
fulfill that obligation in a manner that imposes the least expense and
disruption on the largest group of television viewers in the nation--
i.e., our own customers, who number 70 million. We can do that if we
have the discretion to convert broadcast television signals at the
headend when that conversion best serves the needs and interests of
local customers.
Thank you again for inviting me to testify before you today. I know
that my entire industry stands ready to work with the subcommittee in
its efforts to expedite the transition from analog to digital
television.
Mr. Upton. Well, thank you all for your testimony, and I
want to go directly to, perhaps, a conflict between Mr. Yager
and Mr. Willner in terms of your testimony. And I am going to
use an example that I know well, the Upton household.
I have cable. I have four TVs. Two of them are analog, and
they plug right into the wall into the cable. One is a digital
set, and one is a digital HD set. The digital set and the HD
set both have set-top boxes. What happens if, when we do the
date, like we all want to do, the conversion is made at the
head end, what happens to each of those sets?
Mr. Yager, we will start with you. What happens to my two
analog sets without the box?
Mr. Yager. Thank you, Mr. Chairman.
If the signal is converted at the head end, I am afraid
both of your sets that are digital will become analog.
Mr. Upton. What about the analog sets? Do they become
digital?
Mr. Yager. I wish it worked that way. But it----
Mr. Upton. So that is your finding? So even with a new box,
the HD set will simply perform in an analog capacity, is that
what you are telling me?
Mr. Yager. No, sir, what I said was----
Mr. Upton. I think the chairman has an HD set as well, do
you not?
Mr. Yager. If they can----
Chairman Barton. I have got every kind of set you can have.
And I am going to talk about that on my time.
Mr. Upton. All right. Go ahead, Mr. Yager.
Mr. Yager. If they convert the signal at the head end to
analog, which is what they propose to do to make everybody on
an equal playing field, as they say, then your sets would
receive an analog signal. They would no longer receive----
Mr. Upton. So it--so are you also saying that the set-top
box that I have as--for the HD set would not be able to
reconvert it to digital?
Mr. Yager. No, I didn't mean to imply that, because if you
have a box at the set, which is what we propose----
Mr. Upton. Well, that is what I have now.
Mr. Yager. Okay. I----
Mr. Upton. My HD set has a box.
Mr. Yager. I do not know the answer technically if they are
converting at the--my bet is they are converting at the set
today. But do you subscribe to a tier of digital service?
Mr. Upton. I do.
Mr. Yager. And you pay extra for that tier?
Mr. Upton. And I pay an extra small fee for the HD, about
10 or 12 stations that I----
Mr. Yager. Then you would continue, I would think, to
receive the digital service, providing they continued to feed
both--keep the digital signal and the analog signal going down.
Mr. Upton. The key is now that I have the HD service that
that HD service will--I would--so what you are saying then is
that the box will likely----
Mr. Yager. The--I would think the box would work.
Mr. Upton. [continuing] convert it, but I--it will still
have HD?
Mr. Yager. I would think the box would work, but I am not
familiar with the system you are on or what the--I understand
the cable proposal is to get everything to an equal playing
field as they convert everything at the head end to analog.
Then your box would not work.
Mr. Upton. But a new box might be able to convert it? That
is what I think that you are saying.
Mr. Yager. Well, our proposal is--we have no problem with
converting at the television set. No problem whatsoever. If
digital--if cable wants to transmit nothing but digital signals
and convert those to analog at the set, we have no problem with
that whatsoever.
Mr. Upton. Mr. Willner, would you like to comment?
Mr. Willner. Well, I would like to correct Mr. Yager,
because the fact of the matter is, you know, we are
transmitting digital signals right now simultaneously into
analog signals, and that what we would continue to do. If we
convert what is--it is just a reception at the head end issue,
and if it is a digital signal, in order for people to receive
them on legacy analog television sets, we would convert that
digital signal to analog and there would be no degradation in
signal from what they are receiving today.
Mr. Upton. Well, that is the other question that I was
going to--is the signal going to be----
Mr. Willner. No. You know, to call going from digital to
analog a down-conversion is kind of comparing an apple to an
orange. There are some issues of quality of pictures within
digital where you wouldn't consider down and up-converting,
because they are different formats. But to go from analog to
digital is--they are just two separate--completely separate
platforms, and the consumer can choose right now when they want
to convert to the advantages of digital. If we convert--we are
going to convert somewhere in order to make analog TVs work. If
we convert at the head end or we convert at the set-top box,
nothing will change on your digital TVs. What would change if
we convert--if we have to do it in the home is that we will
have to supply you with a box on each of your analog TVs, which
you might not have right now. So for the purpose of convenience
and cost, cable operators may choose to convert at the head end
to save you the inconvenience of having to have a box put in
your home.
Mr. Upton. So to summarize--I want a yes or a no. To
summarize, if it is converted at the head end at my household,
I will have to get two new boxes----
Mr. Willner. No.
Mr. Upton. [continuing] for the analog sets?
Mr. Willner. No, if it is converted at the head end, you
wouldn't.
Mr. Upton. Oh, that is right.
Mr. Willner. Right.
Mr. Upton. Okay. I won't need a box for the analog sets----
Mr. Willner. Right.
Mr. Upton. [continuing] but I will need the proper
equipment, the box for the HD and the digital set will have to
be compatible to take that----
Mr. Willner. What you have now would continue to work.
Mr. Upton. Should work?
Mr. Willner. Will work.
Mr. Upton. Will work?
Mr. Willner. Will work.
Mr. Upton. And there will not be a degradation of picture
for any of the four sets?
Mr. Willner. For any of them.
Mr. Upton. Is that right?
Mr. Willner. That is right.
Mr. Upton. Mr. Yager, yes or no?
Mr. Yager. I----
Mr. Upton. Is that your understanding?
Mr. Yager. That is not totally my understanding of cable's
proposal. If that is what Mr. Willner's company is doing, then
I would not argue with what he says he is doing. My
understanding of what cable would like is to convert digital
signals to analog at the head end so that everybody receives
the same signal.
Mr. Upton. But if I already have a box for the HD or the
digital, and it is not going to----
Mr. Yager. And you are paying extra for that box, and one
of our major concerns here is----
Mr. Upton. Well, I am now.
Mr. Yager. Well, I----
Mr. Upton. It is about $3.
Mr. Yager. One of our concerns--$3 a month, I would take
it?
Mr. Upton. That is right.
Mr. Yager. One of our major concerns here, you know,
broadcast television converted millions of dollars to convert
the transmitting digital signals with no charge to the consumer
whatsoever. And a matter of fact, with very little help from
advertisers to support our conversion to digital. Cable has
made conversions to digital and been able to charge the
consumer for that conversion. We have not. And we haven't asked
to. We think it was going to a superior transmission that
motivated us to support the whole transition to digital to
begin with.
Mr. Upton. Okay. Mr. Markey.
Mr. Markey. Thank you, Mr. Chairman.
Mr. Goldstein, I know this isn't the subject of today's
hearings, but who are these families that are totally dependent
upon free, over-the-air broadcasting? Can you break down for us
their demographic profile?
Mr. Goldstein. Yes, I can, to some extent. The--we found
that 19 percent of over-the-air viewers was--the population we
are talking about, of the total, it is about 21 million. We
found that on average they had about 2.1 televisions where
cable and DBS viewers had about 2.7. We also found that about
48 percent of over-the-air viewers had incomes under $30,000
compared to about 29 percent----
Mr. Markey. Under what?
Mr. Goldstein. $30,000.
Mr. Markey. So 48 percent of these viewers are--have an
income under $30,000 a year.
Mr. Goldstein. Yes, sir. About 6 percent of them had
incomes over $100,000. 23 percent of non-white households rely
on over-the-air----
Mr. Markey. What is that? I am sorry.
Mr. Goldstein. 23 percent----
Mr. Markey. Okay.
Mr. Goldstein. [continuing] of non-white households rely on
over-the-air, and 28 percent of Hispanic households relied on
over-the-air. Those are the figures I have with me today. There
are others we could certainly provide.
Mr. Markey. Now, if when we put together the new government
subsidy program, what would be the privacy issues that would
exist in terms of identifying who these people are and making
sure they get the--those--how would--we could use the cable
lists to know who doesn't subscribe to cable just by knowing
who gets cable. How would we work that out to ensure that we
only gave the new government subsidy program over to people who
had exclusively free, over-the-air as their means of receiving
a signal?
Mr. Goldstein. Congressman, we are working on a much larger
report for this committee for July that will get at a lot of
the issues of administration and how you might administer this
program, the kinds of ways in which you could conceive----
Mr. Markey. We don't really have until July. Could you give
us a preliminary sense of how we would handle those issues
right now?
Mr. Goldstein. At this point, all I can really tell you is
that it--clearly, there are complications to it if you are
going to--depending on the kind of list you might use, if you
used the cable and satellite lists to try and discern, you
know, who does not receive it. My understanding is you can't
use census data. It is pretty unclear to us right now exactly
how you would proceed. It is problematic.
Mr. Markey. So there would be competitive issues. The cable
and the----
Mr. Goldstein. Absolutely.
Mr. Markey. [continuing] satellite industry might not want
to give us the names of the people who subscribe so we could
give the money to the people who don't subscribe. You have
privacy issues----
Mr. Goldstein. Yes, sir.
Mr. Markey. [continuing] in terms of the people whose
names--that they would give us in terms of who does subscribe
and might not want that to be part of a government--part of
information, so it does become complicated.
Mr. Goldstein. Yes, it----
Mr. Markey. How much money would it take, in your
estimation, to implement a program like that?
Mr. Goldstein. Well, the implementation phase?
Mr. Markey. Yeah, the implementation. How much would it
cost?
Mr. Goldstein. We honestly don't know, at this point. In
fact, the cost of the implementation--we are actually not
looking at how much implementation might cost. We are looking
at various options.
Mr. Markey. All right. If it takes until July for you to
give us a report as to what the issues are, how long would it
take to implement a policy that takes another 6 months just to
put together the--and identify the issues much less putting
into place an implementation--how long do you think it would
take to put an implementation program into----
Mr. Goldstein. To identify the cost?
Mr. Markey. [continuing] effect? To identify cost and
then--but I mean for then the Federal Government to put
together a program that actually could implement the
recommendations which it took you 6 months to put together?
Mr. Goldstein. It would all depend, Congressman, of course
on what the Congress or the FCC decided to implement. That is
part of the problem here. Until you know exactly what is to be
implemented and how that would work, it is really difficult to
determine how much it would cost.
Mr. Markey. Yeah. Well, it is a big program, though. There
are--you say there are 21 million households in America relying
exclusively upon free, over-the-air broadcasting while France,
in its totality only has 22 million households. So it is,
essentially, the job of figuring out how to have all of France
get a subsidy, every single home, and make the conversion,
which is no small task for the Federal Government to do in an
effective way that doesn't disadvantage, especially the 48
percent that are under $30,000 in income who may have--that is
their only source of information. I mean, over $100,000, they
are going to have computers in their homes, other means of
communication. But here, for the poorest, they are going to
have a problem. And our Federal Government, at the end of the
day, we do--this committee, we just can't say to those people,
``C'est la vie.'' You know. We would have to have a much more
effective and readily available answer than, you know, just,
``I am sorry it didn't work out for you.''
So I thank you for your report. I think this is an
invaluable document that outlines--begins to outline the
parameters of the dilemma.
Mr. Goldstein. Thank you.
Mr. Upton. Thank you.
Chairman Barton. Thank you, Mr. Chairman.
And let me say at the outset, you know, I am not undecided
on this issue, so I think everybody knows that.
We have more people in this country that have television
sets than we have--that have telephones, and we have a
universal servers requirement for telephone service that we
subsidize through a fairly extensive subsidy program internally
within various telephone subscribers, yet we have no subsidy
for TV, and there are a higher percentage of households that
have TVs than have telephones. So we are trying to debate here
an issue where we know that we want to go to the digital age,
and I think everybody supports that, and yet, for various
reasons, some are not quite as willing to go purely digital. We
still want to maintain the ability to do analog and have analog
sets in service. As I heard Mr. Upton talk about how--his TVs,
I got to thinking how many TVs I have purchased in the
proprietor of, and I have a principle residence in Arlington,
Texas, a condo in Arlington, Virginia, a principle residence in
Ennis, Texas. I have two congressional offices, two campaign
offices. In my personal residences, I have 15 television sets
that are plugged in. Now I have three in reserve. I have a
Zenith cabinet set purchased at Knox Hardware Store in
Crockett, Texas in the 1970's that still works. And it is my
reserve set here in Arlington, just in case the other two TV
sets blink out at me. If we had no means test and we required
nothing except verification that you actually had the TV set in
your home, I would make a gold mine from any kind of a subsidy
program they put in place to get the digital. But we are
probably going to have some sort of a subsidy. And you know,
the real question is what do we do for those households that
are not as affluent and they only have one or two TV sets and
they are all analog and they get it over-the-air, and if we
don't help them when we go digital in their region, they don't
get television service. And I don't think anybody, regardless
of political affiliation, wants to see that happen.
Having said that, if we don't do a hard day bill, if we
just leave the current law alone and do nothing, as the FCC
determines that various regions in--and I am not sure how they
calculate what a region is, but I know it does--it has to do
with the television market. I think it is DMA. You are going to
be out of luck if you are in that region, say the New York City
region, and it is the first to go meet the 85 percent test, and
you don't have cable or digital TV, you or satellite, you are
out of luck. So I don't see why we all don't agree that there
should be a hard date. Now I think the hard date ought to be
what is in the current law, which is December 31, 2006.
So I guess my first question would be to Mr. Yager. What
happens if we do nothing? What happens to these sets that--in
low-income families that have no capability when the region
meets the 85-percent test right now? What do we do? Or what do
they do?
Mr. Yager. Well, Congressman, we want to work with you as
badly as you want a hard date. But your constituents are our
viewers. And our concern is exactly what you have just
described. What happens to the people who rely totally on over-
the-air television? Are we going to disenfranchise them from
total television? Or is there a plan that can be set in motion,
which we are very willing to work with the Congress on, to get
to a--some kind of way to convert these 20 million sets,
whether it be through a box that converts digital to analog or
whether it be some kind of subsidy program or some method. But
to set a date, at this point in time, seems to me to be beyond
the kind of scope that we can deal with until we get full----
Chairman Barton. Well, I mean, we have a date. The date we
have--it is a soft date, because it is an either or, and I will
tell you one more story and then my time is about up. My wife,
thinking that I was under TV-ed, gave me a voucher for
Christmas for $300 for a new TV set. And so we went to Best
Buy, you know, in January. They were having a sale, and we
walked in, and we went over and got a salesman. And the
salesman said, ``What do you guys want?'' And I said, ``I want
the best TV I can get for $300.'' And so they started showing
us all of these analog sets. You know. A 28-inch set, I mean,
really nice sets with the clicker and the whole bit. I said,
``Well, what about these digital sets over here?'' ``Oh, no.
You said you wanted the best set you could get for $300. And
those are all $700 and $800 sets and more.'' And I said, ``You
know, I heard that Congress is probably going to, you know, do
something about that.'' And he said, ``No, they will never get
around to doing it. You want this set right over here.'' And so
I bought a $300 analog set. And it is in my bedroom in my home
in Ennis, Texas right now. It is this huge thing. I mean, you
know--so I mean we have got to do something, because they are
going to keep selling those sets, because they are basically--
the analog sets, it is just the cost of materials and shipping.
There is no technology innovation in them. And there is a big
price differential. I mean, it is double.
My top-of-the-line TV set is a 42-inch plasma screen with
every gadget you can get on it, so, you know, I am not purely a
Zenith guy from the 1970's. I have one that is high-definition
all of the way.
Thank you, Mr. Chairman.
Mr. Upton. Did you get picture-in-picture on the $300 set?
Chairman Barton. I did not. I don't think I did. I may
have. My daughter could tell you or my stepdaughter.
Mr. Upton. That way you can watch the Aggies in Texas, too,
so----
Chairman Barton. I don't want to watch that until I know
the Aggies will win.
Mr. Upton. Yeah.
Chairman Barton. Thank you.
Mr. Upton. The gentleman from Illinois, Mr. Rush.
Mr. Rush. Thank you, Mr. Chairman.
I want to welcome all of the witnesses this morning. I want
to ask all of you all a question, and respond as you will. Do
you all agree that the consumers have a right to know that they
are--as the chairman eluded to, that their purchased--newly
purchased sets will only have a limited use? And would you--I
am going to take a little--a step further. Do you think that we
should adopt some type of a warning label on these analog sets,
alerting the buying public that their sets will go dark at a
certain time?
Mr. Yager. I would be happy to answer that, because in my
testimony, Congressman, I thought it was unconscionable that 30
million sets were analogs sold last year without any warning to
the consumer that they could soon be obsolete. So the answer is
yes, I most definitely think the consumer electronic industry
should start labeling analog-only sets as, perhaps, being
obsolete in a short period of time.
Mr. Rush. Mr. Goldstein.
Mr. Goldstein. Sir, I would actually answer probably just
slightly broader, which is in the work that we have done in
digital television. When we went to and examined Berlin last
year for this committee, one of the things we found was that
consumer education was absolutely critical to achieving the
transition in an orderly and quick way. And they provided a lot
of information from a lot of different sources. Both the
government provided information as well as the industry itself.
And so the sooner the information on the pending transition can
occur once the particulars are settled, the better off I think
everyone is going to be.
Mr. Rush. Dr. Kim.
Mr. Kim. If the specific dates that, you know--the hard
date is on--hard date is specified and that we support and we
definitely have to educate, you know, consumers as these, you
know, analog sets are obsolete in certain date.
Mr. Willner. Congressman, the only thing I can add to this
is that, for cable subscribers, whatever TV they buy, it won't
become obsolete. We will be able to deliver service on the day
of the transition. But I do think that, you know, if a hard
date is set, it becomes more of a reality and it is just easier
to communicate to the American consumers exactly what is going
to happen and when it is going to happen.
Mr. Rush. Okay. I----
Mr. Yager. If I may follow up just 1 minute on that, we
have had a hard date, or the parameters of a hard date, for a
number of years, since 1996 and sets are still not being
labeled that this set could soon be obsolete. I don't think it
has to say it will be October 1, 2006 or October 1, 2007, but
the truth of the matter is, and I think the Congressman had
said this, these sets are lasting 15 to 18 years today.
Mr. Rush. Mr. Willner, assuming that the following is,
indeed, a fact, we have a consumer who gets their digital
signals through cable or DBS and they have not purchased a
digital television. And like many consumers, they fall on hard
times, laid off from a job, job moves out, and somehow they are
not working anymore. So therefore, they have got limited
income, more limited than they had when they had the digital
sets. And they can't pay their cable bill or their satellite
bill. Will their sets go dark if, in fact, they can't pay the
bill, cable or satellite bill?
Mr. Willner. Well, I don't believe so. First of all, most
cable companies, I think virtually all cable companies, have
service available, which is basically an over-the-air antenna
service in the $10 to $12 a month range. So if they wanted to
reduce their cable bill and still receive the over-the-air
signals, plus others like CSpan and other basic services, they
would be able to reduce service down to that price range. In a
world where the electronic device that Dr. Kim was talking
about is available, and I do believe that the cost of that
device will be significantly less than $100, maybe less than
$50. Nobody could have ever convinced me 4 years ago that a
cable modem would only cost $50 in the retail market today, but
standards allowed that to happen and technology allows that to
happen. I do believe a converter will be able to transmit--
translate digital signals to analog by simply plugging it in,
putting it on top of the TV set in the $50 range. So I do
believe there will be alternatives for people to continue to
get television after the analog frequencies are turned off.
Mr. Rush. So you are saying, under no circumstances--you
are confident that, under no circumstances, will, say, the 41
percent of folks who are cable subscribers whose income is
under $30,000? Is that--was that correct? Did I hear that?
Under no circumstances will these individuals ever have a
television set and it would--and there would never be a time
that a television set would go dark? Is that what you are
saying?
Mr. Willner. I think they have very, very cost-effective
alternatives to keep that television set working.
Mr. Rush. Okay. Thank you.
Thank you, Mr. Chairman. I yield back.
Mr. Upton. Mr. Shimkus.
Mr. Shimkus. Thank you, Mr. Chairman. And I thank my
colleague from Chicago. It is an interesting point. I don't
know if we got the answer right, or at least I don't understand
whether there will be a time, if we go to full digital
transmission, and someone has an analog TV with an antenna that
they will no longer receive a signal. That--I think that is my
colleague's question.
Mr. Yager. It is my understanding, Congressman, that the
consumer electronics industry is going to work on a box that
will convert digital to analog, which should be a low-priced
purchase for the consumer.
Mr. Shimkus. Or in the spectrum auction, I mean, that is
the debate on the Berlin model in giving the--but his question
doesn't address that. His question is, I think--and Bob, you
can jump in, if you want, I think his question is, right now,
is there a time, if we go to--if we are going to digital
signal, and you have an analog TV and you are not plugged in
and paying a $3 fee, and you are just--will, under that
premise, you will no longer receive a signal?
Mr. Yager. If we have a hard date to turn the analog
transmitters off, that is correct.
Mr. Shimkus. Okay. And so our debate is how to limit the
political damage, the cost issue, the Berlin model that we
discussed in hearings last year, and some people have mentioned
today about using the spectrum sales to get the boxes to the
consumers who are not going to pay to upgrade themselves in
that issues. And so I just wanted to follow up on that.
And my colleague, Mr. Markey, he went over the
demographics, Mr. Goldstein, but I had to leave the room for a
minute. And I--was there a discussion on the urban and the
rural differentiations of the breakout of services?
Mr. Goldstein. No, Congressman. It was mainly dealing with
the income levels and some of the ethnic and kinds of issues
like that. We may have those breakouts. We don't have them in
this particular report. And we could certainly----
Mr. Shimkus. If you could check into that. That is going to
be very important to----
Mr. Goldstein. Absolutely.
Mr. Shimkus. [continuing] a lot of, you know, folks who
have large rural areas.
Mr. Goldstein. Right.
Mr. Shimkus. When I used to represent Quincy, I had 19
counties. Now I represent 30 counties. I border Missouri,
Indiana, and Kentucky. So it is a large area. And it is--they
are not--I know my friend, Mr. Willner, would like to service
them all with cable, but the reality is it is not going to be--
there is no great economic return to go to some communities
where they have 75 residents. So I mean, they are serviced by
other providers, but they are also serviced by some local
broadcast entities that--so I think that will help us in the
debate, and I don't know if that calls for us to submit another
letter or----
Mr. Goldstein. No, I think we have some of that material.
It is just simply not in this particular rendition.
Mr. Shimkus. Great. And I also would like to follow up on--
just ask Dr. Kim a question, and I hate it when everybody is
asking around the question, but I think this is an interesting
debate. Talk about the production of the set-top boxes, the
capital expense that is portrayed, and the need for some
certainty to ramp up, to provide a product at a given time, and
the risk entailed if there is not a set time for which you can
do that, raising the--just--I think it is important for--a lot
of times for us to understand that it is not easy. One of the
problems with trying to manufacture something that the
government is dictating, and the broadcasters understand this,
is that there is always uncertainty and we don't--government
never provides certainty for you all. Talk about the challenges
in trying to get these set-top boxes to the consumer in a
credible price range.
Mr. Kim. Thank you, Congressman.
Certain manufacturers needs at least, you know, 12 to 16
months lead time to make a new product. So we need that
absolute time beforehand, okay. And I think the major portion
of the, you know, cost reduction will be chip set, how we can
reduce components in very simple, one chip solutions. So we
need chip development of at least 6 months. So if we have, you
know, time specified, 12 to 18 months ahead of time, we have
plenty of time to make that set-top box available to consumers.
Mr. Shimkus. Thank you.
My time has expired, Mr. Chairman. Thank you.
Mr. Upton. Mr. Terry.
Mr. Terry. Thank you.
That is a good question about a warning on the set. And as
a lawyer who actually did a couple of cases involving warnings,
I was trying to figure it out in my mind. I think it goes
something like, ``Advisory: due to congressional mandate, there
may or may not be a digital transition in the future, so you
may or may not need additional equipment, like a set-top
converter box, at some time in the future.'' And I am not sure
that is a very good warning right now. If we did have a hard
date, it would be a lot simpler to write, but we have to come
back with the fact that it is not necessarily obsolete to have
an analog set. It is just that they are going to need an
additional piece of equipment to operate that TV. Which brings
me to my high-definition TV set with my cable operator of which
I need a set-top box to operate it. In fact, I have a set-top
box on the analog sets. So we did go through a period in our
television history of cable converter box, then the plug-and-
play sets, and for some reason, we are back into, in this
digital transition, a set-top box on every TV. So I am not sure
how, really, difficult this transition will be. It will be
difficult on a class of individuals, I think, who are over-the-
air users who do not have the economic means, perhaps, to buy a
$50 set-top box converter.
So the issue, then, becomes how do we focus on them. That
was the focus of my opening statement. And Mr. Yager, I want to
ask you a question. We have heard the term ``market forces''
and ``market solutions'' here, and I am trying to figure out
what that means in the digital transition. What that means is
that the government is not going to subsidize the consumer to
purchase the converter box, or at least that is how I interpret
it when we say that we will rely on market forces. Then who
does pay for that converter box? It is either the consumer or
you, as the owner of the broadcast television station, whose
consumer doesn't use the cable industry to receive the signal.
So my question to you is if you want your viewers to see a
commercial, at least in Omaha it is 90 percent car dealers, if
you want that local car dealership or Nebraska Furniture Mart
ad to be seen, because that is your revenue source, isn't it in
your best interest to figure out how to get a set-top box to
that consumer?
Mr. Yager. Congressman, having, at one point, been involved
with the NBC station in Omaha and knowing that we spent over
$1.5 million to put the digital signal on the air, we feel we
have gone a long way to implementing the digital transition
across the United States. I think most broadcasters have made
similar kinds of commitments to getting digital out to the
public. For us now to be asked to pay for a converter box so
viewers could see it, to me, was never part of the original
plan for digital to begin with. And I might say that--going
back to cable, let us just talk about cable's role in this for
a minute, it is my understanding that in the 1992 act, cable
was required to carry basic broadcast signals on their basic
tier. Cable now has an upcharge, and I am getting back to
answer your question. Cable now has a basic upcharge for
getting a digital signal. We have no ability to receive a
second revenue stream, nor do we intend--nor do we want one, at
this point, to deliver a digital signal to our viewers.
Mr. Terry. Channel three in Omaha, which would have been
your competitor then----
Mr. Yager. Yes, it was.
Mr. Terry. [continuing] the CBS affiliate will not allow
Cox Cable or any cable station to rebroadcast their HD, and the
only way you can get their digital HD signal is by an over-the-
air antenna that costs about $300. I only have 8 seconds left.
Same question to the cable industry. I have been told by
smaller cable companies that they think it is unfair that their
customers may have to have a set-top box, and they don't want
to incur the cost. So they are encouraging us to also include
in the digital transition buying the cable company's set-top
box for the consumer as well, which I think is an outrageous
request. But what are your feelings on that?
Mr. Willner. Well, I don't agree with that. I think, you
know, we--if we have a subscriber, and they are going to pay us
a monthly fee, we will do what we have to do to make that
television work.
I would like to point out, if I might, just very briefly,
that the cable industry has spent not millions of dollars per
cable system, but hundreds of millions and billions of dollars
to get ready for the digital transition, and we did not ask for
this over-the-air transition. The broadcasters asked for the
over-the-air transition. You know, it is a very common
occurrence to bring cable into the debate, but cable is just
kind of raising its own money. We spent $100 billion, close to
$100 billion as an industry converting to digital service. We
are doing it for business purposes. We think it is the future
of television viewing, but we did it with our own raised
capital, our own equity and our own debt. We didn't come to the
government for any favors for this, no tax incentives, no
frequency space over the air. And I think that to come back and
ask us to do even more for broadcasters is really just going
above and beyond what we should be doing for our consumers.
Mr. Yager. Could I respond to that just a minute?
Mr. Upton. Quickly.
Mr. Yager. It is my understanding that cable has been able
to recognize a return on their investment in the transition of
digital through the cost to the consumer, yet television does
not charge the consumer for the use of the over-air signal.
Mr. Upton. Mr. Wynn.
Mr. Wynn. Thank you, Mr. Chairman. I will waive.
Mr. Upton. Mr. Towns.
Mr. Towns. Thank you, Mr. Chairman.
Dr. Kim, in your testimony, you note that converter boxes
will be available for sale in the $50 to $70 range in a little
over 3 years from now, assuming sales volume is 10 million
units or more. Are these assumptions based on your company
receiving a sole source contract to manufacture these converter
boxes?
Mr. Kim. I beg your pardon, sir?
Mr. Towns. I mean, are these assumptions based on your
company receiving a sole----
Mr. Kim. No, sir; we are not--our company is not in a
position to say on subsidy issues. Basically, what I am talking
about currently available--this is HD set-top boxes. And you
know, a $50 set-top box would be like this and with a small
power supply. Okay. So you know, market--the volume is--the
cost is the function of the time and the volume. Okay. So while
I am talking about $50 in 3 years, it starts like this.
Mr. Towns. But if Congress implemented a rebate program and
other companies manufactured the boxes for sale, would
competition drive the price down? If Congress implemented a
rebate program and everybody is allowed to manufacture them,
would it drive the prices down?
Mr. Kim. I think so, yes. This is not--our company does--
certain manufacturers will be willing to make the set-top boxes
available to the consumers.
Mr. Towns. Are there any electric property rights that
would pose a problem to competition for these products?
Mr. Kim. No, sir.
Mr. Towns. As a national consumer of electronic company,
you have familiarity with distributing your product across the
country. But does even a company as large as yours have
sufficient relationships with enough retailers nationwide that
all consumers would have easy access to a store selling the
converter box?
Mr. Kim. Yes, sir.
Mr. Towns. A television can last a long time, even though
all TVs by July 2007, of course, must have a digital receiver.
TVs will be around for a long time to come. As consumers
upgrade their TVs, these TVs might move from the family room to
a spare bedroom where it needs to get an over-the-air
reception. Do you envision making the converter box for the
long term, or would you phase the product out after the initial
rush of purchases?
Mr. Kim. Well, if you receive the HD signal through analog
TV sets currently available, then definitely you need the set-
top boxes. And also, easily, this is very--you know, interface.
You can connect any current available analog TV sets. It
doesn't matter what it is.
Mr. Towns. It is flexible?
Mr. Kim. Yes.
Mr. Towns. Let me ask you, Mr. Goldstein. What do you think
would be more efficient in getting low-cost converter boxes to
the public: a sole source contract, one manufacturer, or
competition?
Mr. Goldstein. We haven't looked at that question,
Congressman. I am not really sure. It strikes me, just off the
top of my head, that competition, because it would--if you had
sufficient volume and enough players in the market that that
would help to drive prices down. And the work we are still
doing for the committee now, we have done a number of
interviews and talked to quite a number of manufacturers who
have indicated to us that they are willing to manufacture these
boxes and that the price ranges probably would be in the $50 to
$100 range.
Mr. Towns. All right. If we implemented a subsidy program,
would consumer electronic stores be able to handle such a
credit?
Mr. Goldstein. They might. One of the things we are looking
at is how you could implement various programs, and we are
examining a number of options and talking to people about how
best to proceed in this kind of an area, because there are a
lot of ways that you could proceed. There are tax credits.
There are rebates. There are vouchers. There are a whole
variety of methods that one could utilize to get a subsidy
across, as well as a more direct distribution approach. When we
did our work in Berlin last year, of course, it was a subsidy
in the way of a voucher that was provided to people in the low-
income group from the welfare office, the social welfare
office. But again, that was--you know, the Berlin model was
obviously different. It was a much smaller number of households
involved.
Mr. Towns. All right.
Thank you very much, Mr. Chairman. I yield back.
Mr. Upton. Mr. Bass.
Mr. Bass. Thank you, Mr. Chairman.
10 years ago, consumers could buy an IBM clone computer,
personal computer, not an IBM, with a 386 SX Intel chip, and it
only had DOS loaded on it, no Windows. And that system could
cost as much as $1,500. But it wasn't a year before you
couldn't buy any software for that computer. You had to buy
Windows upgrade. You had to--Windows 3.1. And then it wasn't
long after that before it wouldn't--you couldn't put any
spreadsheets on it unless you had a 486 SX, or whatever the
other initials were, and then you couldn't connect that to the
Internet without a Pentium. And then you couldn't get past the
year 2000 without doing something else to it. And I upgraded
a--I would have upgraded--I wasn't stupid enough to buy that
computer then, but the--I would have upgraded without any
subsidy or anything else, and now we are--you know, computer
costs have come down. So I was wondering if each one of you
would be willing to reflect upon that process and explain to me
what the difference is between that and what we are facing
today with the digital conversion date.
Mr. Willner. I think the American consumer is far more
comfortable with change in technology than it ever has been in
the past, and I think they will become increasingly comfortable
with those changes. And I would also just, you know, once again
point out that cable subscribers are not going to have to do
anything on that date. And you know, the vast majority of the
American public does receive their television signals through
either a cable company or a DBS company who will not have to
lift a finger.
Mr. Yager. Well, I would agree with Mr. Willner that the
public has become very receptive to change in technology. And
we want them to become even more, kind of, acceptance of the
digital transition, because we have made millions of dollars of
investments in converting our stations to digital. But I am
concerned about that 20 million number of analog-only sets and
the cost of a converter box so that all Americans can afford to
continue to receive over-the-air television without having to
pay a cable subscription fee.
Mr. Kim. Our goal is to make it consumer-friendly and
simple interconnections. And you know, currently, cable TV is
into TV sets and integrate the sets that we are making. But
very simple, that is possible.
Mr. Goldstein. I think that people are more savvy when it
comes to technology and more likely to make investments. They
go to the stores and see a whole variety of things that they
can purchase that sort of glitter before them, and I think
people are increasingly savvy about it. I think at the same
time our research has shown that not everyone is going to be
willing to do so. Our report reflects that some analog people
are not--quite a number are not going to be willing to, you
know, probably purchase cable or satellite and that some cable
people are not all that interested in obtaining new boxes and
the like. At the same time, there is the policy question for
Congress of how to deal with the lower-income people.
Mr. Bass. Well, of course, right. And I am not responding
to your point, but faced with the choice of being able to have
access to the Internet or getting an upgrade, there was a
tremendous amount of demand that was created for that upgrade,
and the cost of that upgrade became very small. So just to
follow up on that, you all are probably familiar with the
computer analogy Moore's law. And since we are approximately 22
months away from the 2006 deadline, what is to say that this
whole debate over a $100 or a $300 set-top converter is going
to be rendered obsolete for the very reasons that you, Mr.
Goldstein, started to elude to in the answer to my first
question?
Mr. Goldstein. I mean, I guess I would say it is the--you
are possibly quite right. I think we--I would say we don't
know. It is clear that, as time goes on, more people are going
to buy digital televisions a lot more, and you know, that will
sell----
Mr. Bass. How about you----
Mr. Goldstein. That will solve part of the problem.
Mr. Bass. --Dr. Kim? You are in the electronics business.
What--can you answer that question?
Mr. Kim. Well, I think, you know, the digital conversion
is, you know, the inevitable trend and----
Mr. Bass. Do you agree with my contention that there may--
this may be an irrelevant debate?
Mr. Kim. Well, it is somewhat related, okay, but I don't
believe it, the majority of the consumers don't know how to
hook up some complicated devices, so----
Mr. Bass. Just like hooking up a computer. Okay.
Mr. Kim. Yeah, and----
Mr. Bass. I yield back, Mr. Chairman.
Mr. Kim. [continuing] we would like to make an
interconnection as simple as possible----
Mr. Bass. Okay.
Mr. Kim. [continuing] for consumers.
Mr. Upton. Mr. Boucher.
Mr. Boucher. Mr. Chairman, for the moment, I will pass if
someone else has questions.
Mr. Upton. Mr. Gonzalez.
Mr. Gonzalez. Thank you very much. My apologies for being
absent during most of the testimony and the questions, so I am
just going to assume that a whole lot has already been covered,
and I don't know if this particular aspect of it, and I think
it--the problem will take care of itself. In the meantime,
though, it does present a real problem in frustrating the
progress that we have made with--that is the transmission of
the digital signal so that cable can, in fact, carry it. The
big news in San Antonio was that the Super Bowl was not going
to come with high definition, and the reason for that, that
particular broadcaster was not digitally transmitting to the
cable company. All right. So you had the capability or the
broadcaster, but it wasn't happening anyway. And I guess I
just--and I am just going to read part of it, because I think
there is good argument to be made on both sides of this thing.
And you know, we start getting into multi-cast, we start
getting into must carry, and all of these arguments. And
somehow, we have to factor all of that in as we move forward
and see if some of these things are going to be resolved. And I
don't know if a--some people say a drop-dead date. I would
rather say it is a date certain for the conversion, if it takes
care of some of this. But in the meantime, we all believe in
market forces, and we are looking to you to work something out
so that we don't come in with our own answer. But I wrote a
letter, and I was inquiring. My poor public is not going to see
this. ``Thank you for your letter concerning availability of
our digital signal to the public. We believe that the consumer
has every right to receive our DTV signal and they can for
free.'' I emphasize ``free''. And then, of course, they start
talking about over-the-air. ``As for the cable companies not
offering our signal, they certainly can if they are willing to
pay a fee. As you are aware, our industry has invested a
fortune in building out DTV stations.'' This particular company
has spent in excess of $150 million and has yet--has seen no
business model to recoup this investment. ``The cable industry,
as I am sure you are aware, charges the public for essentially
everything they supply, and they, in fact, pay substantial
dollars to content providers like ESPN, Fox News, and hoards of
others so they can offer their service to the consumers. Our
view is simple: if you want our content, treat us like other
content suppliers and everybody wins. If not, the consumer, as
always, has the choice to watch for free.'' And so, Mr. Yager,
I would like just, I guess, your view on where we are today,
where all of this is going in the negotiation, what happens if
you have a date certain. And again, I really do appreciate your
views.
Mr. Yager. All right, sir.
First of all, let me speak to the situation, and I am not
familiar with the situation in San Antonio regarding cable
carriage, but we have had ongoing discussions with the cable
industry for, I think, probably the last 3 years where we have
made no progress whatsoever, either in terms of multi-cast
carriage or carriage of digital as part of the basic service
they offer to their subscribers. Yes, they are willing to carry
a digital tier, and Mr. Willner's company itself carries our
digital signal, but there is a $12.95 surcharge if you
subscribe to that digital service. So the position of the
broadcasters is relatively simple: we want to be carried on the
cable systems. Individual broadcasters have the right to
negotiate retransmission fees under the law if they are going
to allow cable to carry their signals. And so I can't speak to
the specifics of what happened in San Antonio. But we don't
even, at this day and time, have the right to the carriage of
our digital signals on cable systems. They will carry one
stream and one stream only. Mr. Willner's company, obviously,
in Peoria, Illinois, carries two streams in the chairman's home
district. He receives both a digital signal and an analog
signal. But that is two streams he is carrying. We requested
and were turned down dual must-carry carriage. We wanted both
the analog signal carried and the digital signal carried. This
is all part of this whole transition that we have got to
address. It is very confusing to the consumer, and then you top
on that the 20 million sets that aren't connected to a cable
system whatsoever.
Mr. Gonzalez. May--I have about a half a minute, so Mr.
Willner.
Mr. Willner. There is a lot of confusion around this. The
fact of the matter is the way that we are carrying Mr. Yager's
digital signal is that we are also carrying his analog signal,
taking up the bandwidth on the cable system. So all consumers
that subscribe to cable in Peoria, Illinois get both of his
signals. There is a lot of confusion, that is there is a lot of
noise around this issue. The fact of the matter is cable
operators want to carry the primary signal of all broadcasters.
If broadcasters want to multiplex and want us to carry multiple
signals, all we want them to do is to come to us and tell us
like the public broadcasters did, what is the plan, will it
work for our consumers, we--should we utilize valuable
bandwidth in order to provide you with access through the cable
system, and we will do that, just like we did with the public
broadcasters. But what the commercial broadcasters don't seem
to want to do is come up with the plan and show us exactly what
it is they have in mind.
Mr. Gonzalez. Well, I thank you all very much. And not to
speak for the chairman, but I know that it is just not the
chairman, but there is a point where this committee has an
obligation and a responsibility to move forward if you guys in
the--you know, the vested parties, the, as I say, stakeholders
don't resolve it. And we encourage you to start moving quickly.
Thank you very much.
Mr. Upton. Ms. Blackburn.
Ms. Blackburn. Thank you, Mr. Chairman.
And thank you to our panel. I appreciate you all being
here, and I appreciate the discussion today.
Mr. Kim, I think I would like to come to you first and ask
a question. You mentioned in your response to--I think it was
either Mr. Shimkus' or Mr. Terry's question, that you needed a
12 to 16 month lead-time for production of a converter box. And
so what I would like to know is if you are currently
manufacturing a box. And then we have talked a little bit about
what the anticipated cost would be. There are--I have heard you
all say $50. I have heard you say $100. And I apologize, I have
been in and out of the room just a little bit. What you think
the cost would end up being and then the third part of that
question would be how you all plan to market and educate on the
use of that box. So if you would lay those out for us if you
are currently producing what you anticipate, your retail cost
being, and then your marketing information education plan.
Mr. Kim. Thank you, ma'am.
We are thinking the cost would be in the range of $60 to
$70. That is based upon the volume of tens of millions of
units. And that--assuming, also, we need 12 to 18 months lead-
time basically to develop and deploy that technology. Okay.
Right now, as I showed before, this is current--currently
available set-top boxes that decode HD, okay, solutions. But I
am proposing within 3 years replacing this box with small, like
this. And also, the consumer education is very important to
sell our product. And with our salesmen and most of the retail
chain, the, you know, staff, we have very--education
suggestions throughout the country. And I think that they will
talk about our new product to our needy customers in the retail
chain. And this is, you know--definitely, we have the program
to educate consumers, and we are planning to have this product
available if those volumes are available in the right time. But
we have to get the lead time as early as possible.
Thank you.
Ms. Blackburn. Thank you.
You know, in my town hall meetings in my District, one of
the No. 1 questions that comes up is: ``Is my TV going to be
completely dark?'' And ``How much is this going to cost me?''
And I would just suggest to you all that for many of my
constituents and the conversations that we have had, they
consider the purchase of a top-box another tax that they are
having to pay. And so we are sensitive to that issue. And I
appreciate your comments. Thank you, sir.
Mr. Yager, we have heard from some of our broadcasters, and
they talk a little bit about how they have built out their
digital transmission systems. And one of the things they see as
being a problem, as we move forward into 2006 and 2007, is
the--maybe the ready--readily available or the lack of digital
production studios. And I am just curious. Are you seeing
this--are other broadcasters seeing this as a problem, that
there is a lack on the production end of digital studios?
Mr. Yager. I--Congresswoman, I don't know that there is. I
think almost all production equipment sold today is digital. We
built 7 years ago, in Quincy, Illinois, which is the 168th
market in the country, a total digital facility. It is totally
digital. Now it is not high definition, and I want to make that
very clear going in. There is a difference between high
definition and digital pass-through equipment that we produce.
But every news clip we shoot at the three stations we own is
now done digitally.
Ms. Blackburn. Okay. Thank you, sir.
Mr. Goldstein, page two of your testimony, you have a
comment there, second paragraph, ``While a subsidy for set-top
boxes might be one policy option to spur the transition, there
are other policies that might do so as well.'' Do you want to
elaborate on what you think some of those other policies may
be?
Mr. Goldstein. Congresswoman, for the report that we are
doing for the committee, we are going into a lot of those
issues. For the purposes of today, we were really coming just
to set out what the subsidy issues were. We will be prepared to
talk about those in more detail as we finish our work.
Ms. Blackburn. Thank you.
I appreciate that, Mr. Chairman. I yield back.
Mr. Sullivan [presiding]. I thank you. I would like to
yield to the gentleman from Virginia, Mr. Boucher, for 5
minutes.
Mr. Boucher. Well, thank you very much, Mr. Chairman.
Mr. Goldstein, I would like to pursue with you
clarification of several facts, and the shorter your answers
can be to these questions, the better, from my perspective.
I would just like for you to confirm several numbers
relating to the potential for a government subsidy, for
converter boxes, for analog set owners after the digital
transition is complete. First of all, are these numbers
correct? The number that I have is that there are 73 million
sets in the U.S. that are analog that rely on over-the-air
delivery, that 45 million of those are in households that are
over-the-air only where there is no cable or satellite
subscription, and the balance of those would be in cable or
satellite-served households where a second or third or fourth
set relies not on the cable or satellite subscription but on
over-the-air delivery. Are those numbers accurate?
Mr. Goldstein. We think they are roughly accurate. We can
get those figures for you.
Mr. Boucher. Rough is good enough.
Mr. Goldstein. We can get it for the record for you.
Mr. Boucher. I know you are not going to go count every
one, so that is--if they are roughly accurate, that is good
enough for me.
Now the range of converter box cost is a key question, and
I heard Mr. Kim say that--his estimate, I believe he said, is
$62 to $70, is that correct, Mr. Kim?
Mr. Kim. Yes, sir.
Mr. Boucher. Mr. Goldstein, do you concur in that, or do
you have any other estimates?
Mr. Goldstein. The work that we are doing for the
committee, we have talked to a number of manufacturers that
have told us that they are likely to be involved in
manufacturing boxes, and the range most of them--I think we
have talked about 10 to 12 companies so far. We are continuing
our work still, so we are not done, but most of them have
fallen into the $50 to $100 range. There have been one or two
on either side of that.
Mr. Boucher. Mr. Kim, would you agree that that is
possible?
Mr. Kim. Yes, sir. It is definitely a function of the
volume and time.
Mr. Boucher. Okay. Thank you.
Mr. Goldstein, again, do you have any estimate, based on
the research that you have done, of the number of owners of
analog sets that depend on over-the-air delivery, and I am
using the full 73 million set number for purposes of this
question, who would, upon the termination of analog
broadcasting, decide to purchase digital sets? What I am
looking for is the number of sets that are analog sets that
would have to be equipped with converter boxes if we are not to
strand any equipment. So do you have an estimate of the number
of sets where the owners would basically surplus those analog
sets and purchase digital sets?
Mr. Goldstein. I don't think we do, but I would say that
there is nothing that would suggest to us that people who have
analog sets today are going to be any less inclined than other
people to purchase digital.
Mr. Boucher. Well, the answer is we don't have that number.
Let me ask you about another number. Do you have any
estimate of the amount of dollars, the number of dollars that
an auction of the analog spectrum by the government would
produce for the government?
Mr. Goldstein. We don't. We have talked with folks--with a
number of individuals who are experts in this area, and as you
know, the industry has widely varying figures for the cost.
What we all, I think, recognize, is that a hard date is going
to add some certainty to the issue so the value would rise.
Mr. Boucher. Well, the estimate that I have heard at the
low end of the scale is about $4 billion. Do you have any
reason to contest that number?
Mr. Goldstein. I don't have any reason one way or another
just to say we have heard----
Mr. Boucher. Okay.
Mr. Goldstein. [continuing] a range of----
Mr. Boucher. All right. That is fine. Mr. Goldstein, thank
you for the research you have done. That is very helpful to us.
If you do further research on any of these questions, we would
very much welcome the results of that research.
Mr. Willner, in the brief few moments I have remaining, let
me just ask you the questions I have here for you, and I will
ask them all at once and give you an opportunity to respond.
These are pretty simple things, really.
I am interested in knowing what is going to happen at the
cable household when the analog signal gets turned off. And
here are the precise questions I would appreciate you
addressing.
First of all, do you intend that the analog household will
get a down-converted digital signal that presumably you would
down-convert at the cable head end and then send analog across
to that home? And that is question one.
Question No. 2, will the households with digital sets get a
complete high-definition digital signal? Can people, when they
purchase their sets, anticipate that they are actually going to
be getting high definition brought to them over the cable
system?
And question No. 3, will the households that have both
digital and analog sets be able to receive, over cable, both a
digital signal and an analog signal, so that they can continue,
through their cable subscription, to have both their analog and
digital sets served?
Mr. Willner. Briefly, yes, yes, and--no----
Mr. Boucher. Yes, yes, and no, did you say?
Mr. Willner. Yes, yes, and yes. No----
Mr. Boucher. Yes, yes, and yes?
Mr. Willner. [continuing] analog conversion, which is
really just a change of format. It is not a down-conversion,
per se, will allow us to provide service to every cable
subscriber after the transition. The question is whether we
convert it at the head end or at the set-top box. If it is at
the set-top box, there may be an additional box put into a
cable-ready analog television----
Mr. Boucher. Well, bear in mind a lot of these subscribers
don't have set-top boxes.
Mr. Willner. Right.
Mr. Boucher. They wouldn't want to have to acquire one.
Mr. Willner. That is right. So if we can do it at the head
end, which we already do with all of our cable networks, then
there would be no change at all in a regular analog household.
In a digital household, they will continue to get the
digital signals that we are already providing.
Mr. Boucher. Even with the down-conversion for analog?
Mr. Willner. Even with the conversion to analog, it would
be two streams going out at the same time.
Mr. Boucher. All right. And so the answer to question three
would therefore be yes?
Mr. Willner. That is correct.
Mr. Boucher. All right. Thank you, Mr. Willner.
Thank you, Mr. Chairman.
Mr. Sullivan. Thank you. The gentleman from New York, Mr.
Fossella, for 5 minutes.
Mr. Fossella. Thank you.
Welcome.
In all of this, one of, I guess, the ultimate beneficiaries
of a transition will be public safety agencies across the
country, and, by extension, the public. Enhanced
communications, perhaps interoperability, better able to
protect the public. For example, New York City police
departments, fire departments, and other first responders are
waiting anxiously for this transition to occur to allow these
agencies to, again, enhance the ability to communicate with
each other, between and among the agencies to protect the
public. Why should they wait any longer than is necessary as
part of this--as this process unfolds? Is there any
justification for it?
Mr. Yager. If you would like, I will respond, Congressman.
Mr. Fossella. Sure.
Mr. Yager. We would love to see the transition to digital
sooner rather than later, but the consumer isn't involved in
that transition. And the interests of the public, in terms of
being able to continue to receive television, have to be viewed
side by side with the interest of public safety. Most
commercial television stations offer public service the time
and efforts in any case of emergency. Most of the time, we do
continuous weather coverage when there are serious weather
situations. Our involvement in amber alerts are also extremely
important, we think, to public safety. Our cooperation--our
existing cooperation with police and fire departments are very
critical to that whole public service issue. But we believe
that you have to consider the consumer as well as the pubic
safety issues and come up with a resolution. And as I said
earlier, the broadcast industry is willing to work with the
Congress to achieve those objectives.
Mr. Fossella. Well, and those are all admirable and noble
and the broadcasters across the country, I know, perform a
great public service in disseminating information as it relates
to public safety. This speaks to, more than that, the
operational aspect of the business, but by that, I mean
actually allowing the agencies to obtain and to utilize a
spectrum that will--has nothing to do with the broadcasters,
per se, it has to do with themselves. And I guess as much as we
want to address the issues of consumers, I am not minimizing
that, I just happen to believe personally that the most
important responsibility of government and the Congress is to
ensure that the people are protected to the best of our
ability. So I hope that criteria is not minimized in this
debate at all. That should be, and must remain, paramount to
any of these economic discussions.
Does anybody else have any comments on that? If not, I
yield back.
Thank you.
Mr. Sullivan. Thank you.
Mr. Engel from New York for 5 minutes.
Mr. Engel. Thank you, Mr. Chairman. And I would echo what
my friend from New York, Vito Fossella, just said about the
interoperability problem.
Mr. Chairman, I would just make a brief statement before I
would ask my question, and I am very happy that we are getting
to work here on our efforts to spur the transition to digital
television.
The broadcast industry has made a great deal of progress
and just a few years ago just dozens and then a few hundred
stations were transmitting in digital, and today, we have more
than 1,300 stations doing so. The consumer electronics industry
has made progress as well with a little push from the FCC.
There are now many TVs on the market with digital tuners, and
by 2007, virtually all will include a DTV tuner. So I believe
most of the technical problems have been addressed, but there
remains, obviously, a number of policy issues for the 20
million families that rely on free over the time, half of whom
earn less than $30,000 a year should not be harmed, or we face,
as I have said many times on this committee, our own political
peril. Thus, I don't believe that a 2006 deadline is possible.
And second, as Mr. Fossella mentioned in the past, New York
continues to heal from the wounds of September 11. Our
broadcasters have done work to get back on the air, though not
at full power and not reaching the same distance as they did
from the World Trade Center, thus, depending on what date is
chosen for a shut off, the New York area may need some extra
time.
And finally, I want to return to an issue that this
committee has looked at in the past, the problem of protecting
content in the digital age. Writers, filmmakers, and the other
creative talent who bring us that content are entitled to be
fully compensated for their efforts, yet they are already being
financially hurt, just the way musicians and songwriters,
unfortunately have been. If we complete the transition to
digital television without providing some protection of being
uploaded onto the Internet, then content producers will have a
disincentive to produce new digital content. So I am concerned
that there are machines already being manufactured that allow a
digital TV signal to be converted to an analog format and then
redigitized for mass redistribution. The current law doesn't
guard against it, so we must encourage the film, computer, and
electronics industries to work together to solve this problem,
because if they don't, then a true digital transition will be
pushed even further off into the future.
I would like to welcome the panelists, and I would like to
ask Mr. Willner, recently public television and the NCTA struck
a deal for carriage of the many offerings that public TV will
have in the digital age. NCTA is to be strongly commended for
its efforts, and I was just delighted to see that. And I want
to say that publicly. I am really happy that the cable industry
has come to a voluntary agreement on this. And for many years I
was urging this, because I could see the value in these
offerings, such as an adult learning channel and all the--
toddler's channel and things like that. So this didn't really
get a lot of press, so I was hoping that you could provide some
details of this for the record for this hearing.
Mr. Willner. Thank you, Congressman.
The NCTA and the Association of Public Broadcasters came to
this agreement because they--the broadcasters came to us with a
plan. And they showed us that they had a plan that was
attractive to our consumers, and the industry came together
with the public broadcasters and agreed to carry not only their
HD signals but multiple streams, multi-cast some of their
signals as well. The only debate we have with broadcasters here
is whether or not that particular function should be a function
of government or a function of business. And if the commercial
broadcasters wanted to sit down and have a discussion about a
plan that works for consumers in our markets, on a market-by-
market basis nationwide, we are happy to sit down as an
industry to have that discussion and do what we did with the
public broadcasters and do what we did with the consumer
electronic industry, and that is come to a voluntary agreement.
Mr. Engel. Thank you. Thank you very much.
Mr. Goldstein, it is my understanding that, in addition to
a converter box, an over-the--correct me if I am wrong, an
over-the-air television household would also need an antenna to
which--to--through which to receive the signal. Do your
estimates of a government subsidy include the cost of an
antenna as well?
Mr. Goldstein. They do not, sir. And you are right. Our
understanding is that you would need the antenna as well, and
they range in cost. They can be $300 or more, depending. Some
are lower, but it--we do not include the cost of an antenna. We
do not include the cost of what any kind of technical
assistance households might need to have the set-top box
installed if they can't do it themselves, that sort of thing.
Mr. Engel. So if we are really going to put out the prices
there, we need to include this as well. I thought it was
important to get that out there.
Mr. Goldstein. Those are additional costs, yes.
Mr. Engel. Thank you.
Thank you, Mr. Chairman.
Mr. Sullivan. Thank you.
I yield myself some--to ask some questions, 5 minutes.
Mr. Willner, if you convert digital signals at your end,
the head end, so that they will work for subscribers with
analog televisions, who will need set top boxes, and who will
need set-top boxes if you converted the set-top? And also, how
much will these cost?
Mr. Willner. If we convert at the head end, no consumer
will have to add a box or change a box. If we convert at the
set-top box, as opposed to the head end, consumers who
currently have cable service, analog cable service on what is
called cable-ready televisions who do not require boxes, would
then require a box.
Mr. Sullivan. Okay.
And Dr. Kim, in your testimony, you state that consumers
who use digital-to-analog converter boxes will get improved,
crisp, studio-quality pictures. Does this mean that even
consumers with analog televisions will be better off than
before the transition if they use a converter box?
Mr. Kim. Yes. You can--full digital advantage, so no
ghosts, and you know, just a very crisp--and those fuzzy noise
symptoms will disappear. And those--I think I would like to
comment on the antenna issue. If you are using currently an
antenna, analog antennas and digital antennas are the same
thing. And you can use the same antenna in your household.
Mr. Sullivan. Did you say how much those were? Do you know?
Mr. Kim. The--currently--you mean, the antenna?
Mr. Sullivan. Yes.
Mr. Kim. No difference between analog antennas and digital
antennas. Okay. So you can use--you can buy a $5, you know,
bow-tie antenna. You can use that for digital televisions.
And--yes.
Mr. Sullivan. Thank you.
Mr. Wynn, you have 5 minutes.
Mr. Wynn. Thank you, Mr. Chairman.
Mr. Goldstein, have you contemplated the necessity or need
for a public education program to explain all of this to the
general public? And if so, what would be the cost of such a
program? And also, who would--who should be responsible, in
your opinion, for that program?
Mr. Goldstein. Congressman, the work that we are doing
right now for the committee--it is not part of today's report,
but we are doing work already that is trying to ascertain just
what would be required in a, sort of, public service program
and a consumer education program. When we did work last year
for this committee and went to Berlin to examine how the
transition in Berlin occurred, one of the things that we did
find was, among the most critical elements of their success was
a very strong consumer education program that most of the
stakeholders had a part in. There were, you know, banners on
televisions, but they also had a shorter period of time, too.
The--their simulcast period was quite short. And I think that
probably helped them as well. But absolutely. We believe that a
consumer education program----
Mr. Wynn. So you will be giving us more information on
that?
Mr. Goldstein. Yes, sir; we will.
Mr. Wynn. The second question I have is I have heard the
discussion of, perhaps, 200 percent of poverties are cutoff for
the government subsidy. Is that, in fact, what is being
contemplated by your office, and if so, what is the rationale
for that determination? Because as my colleague said earlier,
this is going to sound like a tax. And I am sure that there are
people who are above that level who would also feel put upon to
pay this tax. What is your--how would you analyze this problem?
Mr. Goldstein. We actually aren't taking any position on
this at all, Congressman. We simply used, for the purposes of
doing our work, a 200-percent and a 300-percent level of
poverty to ascertain, you know, what different levels of
support might be----
Mr. Wynn. Have you done a model that basically says this is
the number of people that will require a subsidy, not taking
into consideration any policy analysis relative to poverty,
just said this number of people will be affected, and will need
converter boxes?
Mr. Goldstein. If you did not--yes, I--the report you have
today shows that if you did not use a means test and you just
talked about the number of people who had to get a set-top box
for an analog--for their analog television, and assuming just
one television per household.
Mr. Wynn. Well, how does it go to this? What would be the
number for just assuming one television? And then what would be
the number if we assume, say, two televisions?
Mr. Goldstein. Well, the number for--if you were assuming
one, it would run--and there is no means tested, it would be
between $1 billion and $2 billion essentially, depending on
what the cost of the set-top box was, which is either--
somewhere between $50 and $100.
Mr. Wynn. So that is $1 billion to $2 billion in cost?
Mr. Goldstein. Yes.
Mr. Wynn. For how many units? That is one unit for how many
people?
Mr. Goldstein. For 20.8 million.
Mr. Wynn. 20.8 million? Okay.
Let us see. Mr. Yager, the cable industry basically said
they want to do business. They want, rather than have a
governmental imposition of the multi-casting regime, they want
to have you negotiate with them. What is wrong with that?
Mr. Yager. Not a thing, sir. We have tried, on numerous
occasions, to reach agreement with the cable industry regarding
carriage of our signals, regarding multi-cast. Cable enjoys its
role as the gatekeeper to what the public can see that we
broadcast free over the air. And you heard Mr. Willner say they
want to control what we air. They want to control what we put
out to the public. And we, as a television station, have never
answered anybody but the public interest in terms of what we
program.
Mr. Wynn. Can I interject just a question? Are you
basically saying they are not negotiating in good faith over
issues----
Mr. Yager. I was----
Mr. Wynn. Over issues beyond--right.
Mr. Yager. I can't say that they are not negotiating in
good faith, because I was not part of that negotiating team,
but I do know that there have been committees of the NAB MSTV
that have met with the NCTA and those negotiations have not
resulted in an agreement.
Mr. Wynn. Are there sticking points other than price of how
much you would have to pay for that? Is it mostly over content?
Mr. Yager. It is mostly over content. Yes, sir.
Mr. Wynn. Okay.
Mr. Yager. You have got to remember that--I think the NCTA,
the PBS deal was a wonderful public relations move. They cut a
multi-cast deal with the PBS stations with somebody that
doesn't compete for the local advertising dollar. The reason we
can't get to a multi-cast deal is we compete in our local
markets with cable for the local advertising dollar. And for
them to control the content that we can put out free over the
air is unacceptable to us in any kind of negotiation.
Mr. Wynn. Okay. I see you shaking your head, if the
chairman would indulge me just to get a rebuttal, if that is
permitted.
Mr. Willner. Thank you, Congressman.
I was a part of that negotiating team between the NCTA and
the broadcasters, and the issue does come down to the
broadcasters seeking out a dual stream of revenue, which was
not part of their business model. It is not part of the
contract they had with the public for use of the public
airways. They want to extract additional money out of our
consumers' homes where they don't have--where they don't
extract it out of people who choose to put up antennas.
Mr. Wynn. So you say it is money?
Mr. Willner. I say it is money.
Mr. Wynn. Okay.
Mr. Willner. It is not about how much they are going to pay
us. It is about how much they want us to pay them for the same
signal they send out for free over the air. And that is the
fundamental breakdown. The fact of the matter is, we have a lot
in common in serving the American public, and we could come
together as two industries and do just that if we have
legitimate discussions about the use of valuable band width so
that broadcasters don't have a particular advantage over A&E or
Oxygen or all of the cable networks that come and show us
business plans that make sense for our consumers. If you give
them a free ride on a cable system, the content will be less
good than it would be if they had to prove to the consumer that
this is something that they would really want.
Mr. Wynn. Okay.
Thank you, Mr. Chairman.
Mr. Sullivan. I recognize the chairman of the Energy and
Commerce Committee for a point of personal privilege.
Chairman Barton. I think that--thank you, Mr. Chairman. And
I am not going to take long, but I am going to have to leave,
and before I leave, I just want to say, since this--we have
heard--learned of the announcement that Mr. Fritz is going to
be leaving NAB, it think it would be very unfair if, as the
chairman of this committee, I didn't tell him and the people he
represents what a privilege it has been to be associated with
him in the 20-some odd years that I have been in the Congress.
He is a gentleman of integrity and character and has
represented his industry with fairness and honor. Going back to
the Cable Deregulation Bill, the Home Satellite Bill, the
Telecommunications Act, and many, many others, he hadn't won
them all, but he has always represented his industry's position
in a way that kept the doors open on both sides of the aisle.
And whatever Mr. Fritz does in his next career, he is going to
be remember very fondly in this committee. And I want to say
thank you for the way you have presented your industry's
positions in the time that I have been in the Congress.
Mr. Sullivan. Thank you, Mr. Chairman.
I recognize Ms. Wilson from New Mexico for 5 minutes.
Ms. Wilson. Thank you, Mr. Chairman.
I--on this issue, I think I have a--may have a slightly
different perspective in that all of us represent, you know,
where we come from. And in New Mexico, while Albuquerque has a
fairly high penetration of cable, rural New Mexico is less so.
And we--when I look at your statistics, Mr. Goldstein, of kinds
of households that are very low on the penetration of digital
television, it sounds like a cross-section of New Mexico, a
much lower per capita income, high percentages of Hispanic
Americans. And so I have to say that setting a date certain is
not particularly attractive in the State of New Mexico, because
there will be so many people who are low income whose
televisions may go dark.
I also--I look at these numbers. You know, here we are in a
budget battle where we are talking about health care and
education and where we, you know--how we are going to meet the
needs of this country, and we are talking as though, you know,
$1 billion or $2 billion or $4 billion for boxes on top of
television sets is no big deal. And I think it is a big deal.
And I would like to ask where do you think where do you think
we are going to get the money from? Does anybody--where is the
money going to come from? The sound of one hand clapping here
is a--Mr. Goldstein, I mean where do we get the money?
Mr. Goldstein. I am not sure that I really have an answer
for you, Congresswoman. It is a policy question that Congress
really has to struggle with, obviously, and this whole hearing
has been about that, about whether or not, you know, you do
subsidize and at what level do you subsidize and the like. But
I certainly don't have an answer of where in the budget you
might find this money.
Ms. Wilson. I think that is a real problem. And it is
particularly a problem in New Mexico when the alternative is
that folks won't have their TVs work anymore. And when we
approach that time, we are going to have a really serious
problem, which is why setting a date certain, I mean, not
convinced at all is the right thing to do. And in New Mexico,
85 percent penetration is a long way off. I have heard various
estimates, but I haven't heard one get to double-digits yet in
the percentages of households in New Mexico that are ready for
digital.
I wanted to follow up on something Mr. Engel said, and I
have to say that the voluntary agreement is--that cable has
reached with public television, one of the first local
agreements was in New Mexico. It was in Albuquerque and was
very satisfactory to the public broadcasters as well as to the
local cable operator and will probably frame some great
services to people in New Mexico. And so I wanted to commend
you on negotiating those agreements. Maybe market by market is
the best way rather than trying to sort that out at a national
committee kind of level between two very strong interest groups
and that maybe this can be sorted out community by community
rather than two industries going around big mahogany tables in
Washington, DC. So I wanted to commend you on your local work
in solving local problems with these kinds of agreements.
Thank you, Mr. Chairman.
Mr. Sullivan. In response to Ms. Wilson's cost, it is my
understanding that Chairman Barton will introduce a hard date
bill that raises the auction revenues necessary to pay for the
subsidy.
Ms. Wilson. Mr. Chairman.
Mr. Sullivan. Yes.
Ms. Wilson. We have auctioned that spectrum and used that
money several times over in various budgets, and you know, we
act as though that is our money to use in this committee. And
it--those priorities are set nationally. And if we use $2
billion of spectrum auction money to pay for boxes on top of TV
sets, that is $2 billion we are not using to immunize kids or
to make sure kids can read or to buy body armor for our
soldiers. These are important decisions, and I think we are
going to have to treat them very seriously.
Thank you, Mr. Chairman.
Mr. Sullivan. I recognize Mr. Markey from Massachusetts for
5 minutes.
Mr. Markey. I thank you very much, Mr. Chairman.
We have a dual tuner mandate that the FCC belated put on
the books so that we at least end a policy of selling TV sets
that the government intends to render obsolete. The dual tuner
mandate starts with the larger TV sets and scales down to 13-
inch sets with the requirement that these smaller sets have the
capability of receiving and displaying digital signals by July
1, 2007. Have you done any analyses that, recognizing that we
sell some 30 million TVs annually in the United States, that
under the dual tuner mandate, how many of the 21 million
households will obtain a dual tuner set under the ordinary
course of events, and especially how many would get a new TV on
their own with digital capability, especially once the 13-inch
mandate arrives in mid-2007?
Mr. Goldstein.
Mr. Goldstein. We haven't done any specific analysis of
this issue, Congressman, but I mean, I think just from a--well,
one could argue from the extrapolation standpoint if there are,
you know, 120 million households and, you know, 25 to 30
million new televisions in, you know, \1/4\ of the over-the-air
people were to buy a set, you know, in a year, that is a lot
of--that is certainly a lot of television sets every year. We
haven't done any specific analysis of that point.
Mr. Markey. But what would you think, Mr. Goldstein,
though, is the likelihood that if we sell 25 or 30 million sets
a year over the next 3 years that x number of consumers in this
category will have purchased a new digital TV set or one that
is capable of receiving a digital signal and converting it?
Mr. Goldstein. Some certainly will. Obviously, there is a
larger than average percentage of them that are of a low-income
nature, so it may not be as many as from other categories.
Mr. Markey. So you are saying that it--for many of the
poorer people, and that is almost half of all of the people
in--that are totally dependent upon free, over-the-air
television, that if they had a TV set that was 5 years old, and
that is one decision they could make to continue for another 5
or 10 years, and they wouldn't necessarily be going out into
the market looking for a new TV set.
Mr. Goldstein. It is true. It is hard to predict, but
because there is a--you know, such a substantial number of them
who are poor, I think that is a real issue.
Mr. Markey. Okay. Good.
Could I ask each of you just to give us the 30 seconds you
want us to remember as we are leaving here today? What is the
one core nugget that you want the committee to maintain as we
are now moving to--more actively into this area?
Mr. Willner. Good to see you, by the way.
Mr. Willner. Good seeing you, too. Thank you.
I would like the committee to know that the cable industry
is prepared to move forward with the digital transition
whenever you folks are ready to declare it. A hard date is, I
think, important. We don't have a hard date now because there
is that caveat of 85 percent and nobody really knows what that
85 percent means, which is one of the reasons why I think the
manufacturers aren't really embracing putting dual tuners and
digital tuners into television sets. So when you get on with
the business of converting the Nation's airwaves to digital, we
will be there, and we will be providing service seamlessly to
our subscribers the day after.
Mr. Markey. Thank you.
Mr. Yager.
Mr. Yager. I think what I would like you to remember is the
impact that any decision this committee makes has on the
consumer, your constituents, our viewers, and the impact the
digital transition will have on them.
Mr. Markey. Okay. Thank you.
Mr. Kim--Dr. Kim.
Mr. Kim. As a consumer electronics manufacturer point of
view, we are very anxious to this transition quickly move on,
and we can make television sets available at an affordable
price to the consumers.
Mr. Markey. Thank you.
And Mr. Goldstein.
Mr. Goldstein. I think the hearing this morning really
showed that there are a tremendous number of issues that have
to be grappled with and answered, a lot of policy issues before
the committee and the Congress. And the work that we have
started to do for you and that we will finish up in the coming
months, hopefully, will help you reach those conclusions, and
we are happy to continue to take on other work related to this,
as the committee wishes.
Mr. Markey. Yes or no: can we get this done by January 1,
2007? Yes or no.
Mr. Goldstein.
Mr. Goldstein. Yes.
Mr. Markey. Dr. Kim.
Mr. Kim. Yes.
Mr. Markey. Mr. Yager.
Mr. Yager. No.
Mr. Markey. Mr. Willner.
Mr. Willner. The yeses have it three to one, sir.
Mr. Markey. I thank you.
And Mr. Yager, I understand your position. I am a Democrat
in the House, so I sympathize with you. Thank you.
I thank you, Mr. Chairman.
Mr. Sullivan. Thank you, Mr. Markey.
I would like to thank the panelists for being here today.
Thank you very much. It was very insightful. This hearing is
adjourned.
[Whereupon, at 12 p.m., the subcommittee was adjourned.]