# **[W. Kenneth Ferree, Chief]{.smallcaps}**

# **[Media Bureau]{.smallcaps}**

# **[Federal Communications Commission]{.smallcaps}**

# **[at the]{.smallcaps}**

## [53rd Annual Broadcast Symposium]{.smallcaps}

## [sponsored by IEEE and AFCCE]{.smallcaps}

**Thursday, October 16, 2003**

***"FROM DEAD TO DYNAMO"***

# **[[Remarks As Prepared For Delivery]{.underline}]{.smallcaps}**

Thank you for that kind introduction. I am thrilled to be here with you
today. You have given me an opportunity to highlight the fact that we
have reached a watershed moment in one of the FCC's major communications
policy initiatives.

No, I'm not talking about broadcast ownership or broadband roll-out. I'm
not here to convince you that a healthy broadcast industry is better for
America than an anemic one, or that the build-out of broadband platforms
will require significant capital investment, which will not flow when
the space is heavily regulated. Both of these areas have garnered a
tremendous amount of attention lately, and I've already spent a lot of
my time talking about them.

Today, on the other hand, and consistent with the theme of this
conference, I want to focus my remarks on the DTV transition and the
Commission's ambitious agenda in this area.

I. "[The Way We Were]{.underline}"

First, I need to provide some context for these remarks. When Chairman
Powell took the helm of the FCC, the DTV transition was plodding along
so slowly that many observers were questioning whether, in fact, it
could ever be completed. In December of 2000, the magazine [Electronic
Business]{.underline}, which covers electronic media as closely as any
that I know of, called the DTV transition "A Disaster by Definition."
Similarly, in an October 2000 speech, then Chairman Kennard chided
broadcasters for not using their digital allotments, calling them
"spectrum squatters." Others had even less charitable comments.
Meanwhile, broadcast stations were blaming the cable industry, while the
networks and cable programmers were reluctant to produce compelling
digital programming, and digital television equipment sales were
flat-lined. The transition was moribund.

When I was playing college football, we had a saying. "It's not whether
you win or lose; it's where you place the blame." In the DTV game at the
end of the millennium, it seemed everyone had a preferred bearer of
blame.

And there was plenty to go around. After all, why would a broadcast
network invest in expensive production for an over-the-air DTV service
when only 170 stations \-- of some 1300 commercial stations \-- were
broadcasting a DTV signal as of the end of 2000? But why would a station
bother constructing expensive DTV facilities, and double its energy
consumption, to broadcast both in analog and digital formats, when DTV
set sales were completely anemic? According to CEA, there were only
about 625,000 DTV sets in America in December of 2000, and new sets were
not selling fast. But no wonder -- the median price for a basic DTV set
then was \$2,201. By comparison, a DVD player cost only about \$200 at
that time. The slow pace of sales, in turn, prevented manufacturers from
realizing the economies that can result from mass production --
economies that are particularly pronounced, I have been told, in the
manufacture of consumer electronics equipment.

II\. "[Don't Rain on My Parade]{.underline}"

That was then, this is now. Today there are over 1,200 stations on the
air with DTV operations -- more than 500 of which are on the air with
licensed facilities, the others are operating with special or
experimental DTV authority. According to the NAB, over 99% of U.S. TV
Households now have an over-the-air DTV service available to them.

Meanwhile, the number of DTV sets in the market has grown by leaps and
bounds. CEA reports that there are approximately 4.3 million sets in
American homes, and the median set price has fallen to \$1,441. That
number is dropping by something like 2% per month as set sales increase.
Consumer electronics representatives tell me that \$1000 is the magic
number. When set prices fall below \$1000, sales are expected to
increase dramatically. So do the math. Set prices are now about \$1,500;
decreasing by 2% per month, so in about a year and a half we should see
the median price of DTV sets to fall below the \$1000 mark.

In the meantime, consumer demand for digital equipment is surpassing all
expectations. Indeed, DTV set sales already have outpaced any other
consumer electronics technology at the same point in development -- that
includes VCRs, DVDs, and color TVs. Consumer acceptance of digital
television technology seems to be general and broad-based.

Why are consumers making the switch to digital television? Content. The
range of high value programming available to consumers with digital
equipment is exploding. All of CBS's scripted prime time comedies and
dramas, and most of its prime time movies and sporting events including
college football and a weekly NFL football game are produced in high
definition. Similarly, all of ABC's scripted prime time comedies,
dramas, and theatrical movies, the NBA finals, NHL finals, and Monday
night football now are available in HD. NBC is almost there and Fox
recently committed to high definition programming.

As for cable programming services, 2 channels of HBO and 2 channels of
Showtime are now in HD, Discovery provides an HD service, ESPN HD has
recently launched, and HDNet provides a variety of HD Movies, sports,
and programming services. There is even In Demand HD-VOD.

In contrast to the headlines and news stories of December 2000, we now
read headlines like this one from USA Today in August, "As for the
\[DTV\] View, Its Grrreat," or this one from June, "MSOs Accelerate HDTV
Rollouts as Consumer Demand Surges." We are, in short, witnessing one of
the most dramatic market-place shifts in recent memory; perhaps the most
dramatic ever.

III\. "[Gotta Move]{.underline}"

So what has happened? How did we go from *dead* to *dynamo* in about two
years? Although there is no doubt that a lot of people have put a lot of
work into the digital transition, one name stands above all others when
you try to answer that question -- Michael K. Powell. Chairman Powell
was honored with the Government Leadership Award by the Academy of
Digital Television Pioneers earlier this year, and the honor was richly
deserved. I am biased, of course, but no one comes close to Chairman
Powell in terms of taking a DTV transition that was in crisis two years
ago and turning it into a stunning success story.

It started when Chairman Powell created the DTV Task Force to be a
central repository for DTV ideas, and a clearinghouse for DTV-related
activities. It was in the skunk works of the DTV Task Force that an idea
was born of using a voluntary DTV plan, which would allow the industries
a great deal of flexibility in advancing the transition, rather than
coercive micromanagement of the transition through direct regulation. In
the Spring of 2002, Chairman Powell issued what is referred to as "the
Powell Plan," which asked each of the industries with a stake in the DTV
transition to put aside their own parochial interests, stop the finger
pointing and blame laying, and take positive steps forward in their own
corner of the DTV transition.

For example, he asked the top four broadcast networks, as well as HBO
and Showtime to provide high-definition or other "value-added DTV
programming" during at least 50% of their prime-time schedule, beginning
with the 2002-03 season. Value-added DTV programming may be
high-definition, innovative multicasting, interactive services or other
programming, so long as it gives consumers something significantly
different than that which they are receiving in analog.

With respect to broadcast licensees, the Chairman challenged the
affiliates of the top four networks in the top 100 markets to install
the equipment necessary to pass through network DTV signals without
degradation; that is, to pass through HD programming if that is what the
network provides, by January 1, 2003.

The Chairman asked the cable industry to commit to carrying, at no cost,
the signals of up to five digital broadcast or other digital programming
services during at least 50% of their prime-time schedule in cable
systems with 750 MHz or higher channel capacity by January 1, 2003. The
Chairman also challenged the cable industry to provide subscribers the
option of leasing or purchasing a single set-top box that allows for the
display of high definition programming. These devices were to include
digital connectors.

Similarly, the Chairman challenged the direct broadcast satellite TV
industry to carry the signals of up to five digital programming services
that are providing value-added digital programming during at least 50%
of their prime-time schedule by January 1, 2003.

With respect consumer electronics retailers, the Chairman asked that
they do a better job of marketing broadcast, cable and satellite DTV
options to consumers at point-of-sale.

Finally, the Chairman asked equipment manufacturers to commit to meeting
the demand for cable set-top boxes that allow for the display of high
definition programming and include over-the-air DTV tuners in new
broadcast television receivers according to a phased in schedule. They
were also challenged to include digital inputs on all new HD-capable
television receivers by January 1, 2004.

With the exception of the consumer electronics manufacturers, each of
the industries responded positively and with vigor to the Chairman's
challenge. Cable immediately began to roll-out digital services,
programmers began producing compelling programming in high definition,
broadcasters have made Herculean efforts to bring their transmission
systems into the 21st Century digital environment, and retailers have
stepped up efforts to educate and train their sales staffs so that
consumers get reliable and accurate information when they begin to
consider the purchase of digital television equipment.

The one industry that did not quickly embrace the Powell Plan -- the
consumer electronics manufacturers -- soon found that the full legal
force of the Commission was brought to bear to make sure that their
reticence to include DTV tuners in television sets was not an impediment
to the transition. In August of 2002, the Commission voted to require
the inclusion of DTV tuners in television sets according to a phased in
plan beginning with the largest sets. The one thing this will ensure is
that, at some point in the future as television sets are retired
naturally, everyone in America will have equipment capable of receiving
digital signals.

In any event, as successful as the original Powell Plan was, it was only
the first step. In 2003, Chairman Powell followed up on his original
challenge by sending out detailed information requests to the industries
in order to monitor progress, and to understand better the impediments
to final transition. We are in the midst of reviewing the responses to
those requests and attempting to reduce the voluminous data collected to
aggregated summary numbers from which we may draw conclusions and
identify areas where additional work is needed.

While we are in the process of doing this, the Chairman has directed us
to bring to closure a number of regulatory proceedings tied inextricably
to the DTV transition. I can tell you, as the one trying to pull lots of
these strings together, the DTV agenda for the next six months is
incredibly comprehensive and ambitious.

Looking forward from today, however, you only get a partial view of this
effort. It actually began in August when the Commission initiated its
LPTV NPRM. Through this proceeding the FCC will establish rules and
policies for the digital transition of television translator and low
power stations. These stations deliver television services to some of
the smallest communities in the United States, serve areas in rural
parts of the country remote from metropolitan areas, and sometimes
provide the only source of local television programming in their
communities. The transition of these stations is, therefore, an
essential element to final DTV transition.

Without pausing for a breath, we next rolled out our so-called "plug and
play" Report and Order, which will make it easier and more convenient
for consumers to access one-way digital cable services, with fewer
boxes, wires, and remotes. Gary Shapiro of CEA called the adoption of a
plug and play standard \"a huge decision for the transition\" and I've
been told by people with interests in virtually all quarters that it was
perhaps the most important step in the digital transition since the
adoption of a high definition digital standard. As a result of this
action, consumers will soon find that, in addition to displays for
satellite products at stores like Circuit City and Best Buy, there will
be displays for digital-cable products as well.

So plug and play was, as Gary said, "huge," but it was not the end of
the story. Again, almost without pause, we have moved to complete our
work on so-called "broadcast flag," or redistribution control
descriptor. And today the Commission voted on an item dealing with those
commercial broadcasters who requested a third extension on their DTV
build-out deadline. I think when it was all said and done, people will
recognize that the Commission, though reasonable, is being very tough on
these requests. There is less and less patience within the FCC for
broadcasters who fail to get their digital signals on the air.

We will end the Fall dealing, I hope, with digital carriage and by
completing our DTV Periodic Review, both of which have to do with
establishing baseline rules for DTV operations on broadcast and cable
platforms. As I hope you can tell even from this brief overview, this
will be quite a six month stretch in terms of the DTV transition. During
these few months the Commission will tackle and resolve more DTV related
issues than in any comparable period in the past.

IV\. "[Tomorrow]{.underline}"

But this, too, is merely another step in a long and complex process. Our
work doesn't end when these last items go out the door. The larger point
here is not that we are done, but that, under Chairman Powell's
leadership, the FCC is moving aggressively on all fronts to see the
transition to its end using what I refer to as a "Push/Pull" approach.
We *push* industries to make necessary upgrades and commit to digital
television so that the infrastructure for success is in place. This
takes the form of hard look review when broadcasters ask for
construction extensions, tuner mandates when the consumer electronics
industry was slow to build products that will actually receive next
generation broadcasts, and hoe-downs (our meetings with the parties) to
push industries to resolve sticky technical issues.

But we also *pull* the digital transition along by providing regulatory
incentives to completion of major steps. We've provided a vehicle for
broadcasters to begin digital broadcasting at lower power, we've taken
steps to improve content protection capabilities in a digital age, and
we are working to ensure that digital signals are carried on cable and
that consumer equipment in the marketplace is capable of receiving them.

This push/pull approach has been a demonstrated success, but we have a
lot of work ahead of us. Although we are nearing the end of what might
be thought of as the "infrastructure development" stage of the
transition, we are only at the beginning of the "consumer adoption"
stage. And more and more it is becoming apparent that significant
strides remain to be made in the area of consumer education.

I travel around the country a fair amount in my job and I always enjoy
talking to people about the media services they use, what they like and
don't like, complaints they may have, and what they think the future
holds. Although a lot of people seem to have heard about digital
television, very few know what it is or have any understanding of even
some of the basic terms. Some of the questions I hear are: What is the
difference between digital television and high definition television? I
subscribe to the "digital" tier offered by my cable operator; do I still
need to buy a digital television? I have a TV that was advertised as
"enhanced definition," is that the same as high definition? I have a
plasma TV, so I'm already watching things in high definition, right?

These and other questions greet me wherever I travel. And it is not that
consumers are incapable of grasping the DTV concepts. To the contrary,
people seem to put more energy and time into understanding their
television set than almost any other technology that they have to deal
with in their daily life. I know my brother-in-law spent more time
shopping for his last TV than he did for his car.

The problem is that the information out there is spotty, confusing, and
sometimes contradictory. Unfortunately, consumer education is the one
part of the transition that the FCC has the least control over and input
into. We are not a Madison Avenue advertising firm, we don't do Public
Service Announcements, and we don't have large budgets to promote
products. I can go on, of course, like the Johnny Appleseed of digital
television, planting interest and information about digital television
wherever I go, but it's a big country out there and my single-handed
efforts are not going to substantially improve the level of consumer
knowledge in this area.

No, the industries that have a financial stake in this transition have
to step up to the plate and push DTV. American consumers have to
understand the equipment that they are being asked to buy, the services
they will get, and what it will take to get those services. They also
have to better understand the choices they have and the impact that the
end of the transition will have on their analog equipment.

Now, the picture is not all bleak on this front. For one thing, consumer
electronics retailers are doing a much better job in training their
staffs to sell digital television equipment. Two years ago, when I
became Chief of what was then the Cable Services Bureau at the FCC, I
started doing informal personal surveys of retailers every few weeks or
months. I go into electronics stores on the pretense of being an average
consumer who knows very little about DTV but would like to know more. I
ask a lot of questions. Two years ago I got a lot of wrong answers, or
sometimes just blank stares. By contrast, a few weeks ago I was in a
Circuit City store near my home and I talked to a sales person who I
think knew more about the digital transition than I do. This is
consistent with the trend that I've been seeing more generally among CE
retailers. Sales people, at least, understand the transition and are
becoming accomplished at explaining it to customers. So I'm starting to
have confidence that, once consumers get into a store, they will get
pretty good information on how to board the DTV train.

The difficulty is getting them into the stores in the first place.
Unlike many other consumer products, DTV must be experienced, not just
heard about. In particular, it is becoming apparent that \-- at this
stage of the transition \-- HDTV is proving to be the real driver for
digital adoption. There may come a time when new applications using
digital television spectrum are in command, but today it is the crystal
clear picture in high definition that is selling sets.

But here a picture really is worth a thousand words. I liken HDTV to
putting on my first pair of prescription glasses -- I suddenly realized
that I couldn't see anything before. But even having heard me say that,
I'm pretty sure that I will not find a lot of you down at the local
television store tomorrow morning trying to buy a high definition
television.

This is the big challenge confronting all of those involved in the DTV
transition. How do we get people to see and experience high definition
for themselves? Perhaps there ought to be more demos out there. If I
were a retailer, I would think very seriously about donating HDTV sets
to sports bars. And those that have the rights to unique content have to
ensure that it is available in high definition and that consumers know
about it -- particularly sports programming. It was, after all, the 1921
broadcast of the World Series between the Yankees and the Giants that
many regard as the birth of commercial broadcasting. It's time to get
people buying digital television equipment on a large scale. One
football game a week in HD is ok as a tantalizer -- the entire schedule
in HD would make it impossible for a football fan NOT to have a high
definition television in her home.

Perhaps I am asking too much. Some of this seems like a stretch right
now. But two years ago it would have seemed equally impossible to
achieve the kind of progress that we so recently have. I think, in fact,
that we are right on the doorstep of turning the transition from one
pushed by government and industry, to one pulled by consumer demand.

Thus, although completion of the transition seemed like a pipe dream
only two years ago, I am confident that we will see significant set
penetration within the next two to five years. Enough to meet the
statutory standard for transition -- almost certainly no, but far, far
more than anyone would have guessed in 2001.

I'm proud of the role the Media Bureau has played in this transition,
proud to have worked with Chairman Powell to implement his vision, and
proud of the industries that have helped to make this happen. As I said,
there is a lot that remains to be done, but I am more optimistic than
I've been on this issue. Achieving full transition to digital television
will enhance the quality and quantity of broadcast services available to
the public and release large bands of spectrum for other commercial and
public safety uses. All of us have a stake in this. I look forward to
working with all of you to get it done.

\- FCC -