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Testimony:

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

United States Government Accountability Office:

GAO:

For Release on Delivery Expected at 11:30 a.m. EDT:

Thursday, May 26, 2005:

Digital Broadcast Television Transition:

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

Statement of Mark L. Goldstein, Director, Physical Infrastructure 
Issues:

GAO-05-623T:

GAO Highlights:

Highlights of GAO-05-623T, a testimony before the Subcommittee on 
Telecommunications and the Internet, Committee on Energy and Commerce, 
House of Representatives: 

Why GAO Did This Study:

The digital television (DTV) transition offers the promise of enhanced 
television. At the end of the transition, radiofrequency spectrum 
currently used for analog broadcast television will be used for other 
wireless services and for critical public safety services. To spur the 
digital transition while preventing any loss of television service to 
households, some industry participants and experts have suggested that 
the government subsidize DTV equipment to enable households to view 
digital broadcast signals. This testimony provides information on (1) 
some challenges to administering a subsidy program for DTV equipment, 
(2) some administrative options for implementing a DTV subsidy, (3) 
examples of government programs that make use of rebates or vouchers to 
provide subsidies, and (4) other efforts necessary for the completion 
of the DTV transition.

We discussed administrative challenges to and options for a DTV subsidy 
with federal and state government officials, electronics manufacturers 
and retailers, and experts in product promotion. As in our previous 
work, we take no position on whether a subsidy should be implemented or 
not, or whether, if a subsidy program is established, it should be 
implemented in any particular way. While policies other than a subsidy 
might help promote the DTV transition, any other such approaches were 
not part of this investigation. 

What GAO Found:

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

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

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

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

www.gao.gov/cgi-bin/getrpt?GAO-05-623T.

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Mark Goldstein at (202) 
512-2834 or goldsteinm@gao.gov.

[End of section]

Mr. Chairman and Members of the Subcommittee:

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

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

In order to spur households' adoption of the digital equipment 
necessary for the transition, some have suggested that the government 
provide a subsidy to certain households to purchase a device, known as 
a set-top box, that can receive digital broadcast television signals 
and convert them into analog signals so that they can be displayed on 
existing analog television sets. This device--which several 
manufacturers have stated could sell for as little as $50[Footnote 1] 
once they are produced in high volume--would enable the household to 
view digital broadcast signals without purchasing a digital television 
set.[Footnote 2] To the extent a subsidy facilitates the DTV 
transition, it might be advantageous for several reasons, such as (1) 
promoting a more rapid reclamation of valuable radiofrequency spectrum 
for other uses, which could spur economic growth and improve public 
safety, (2) possibly increasing government revenues from spectrum 
auctions by ensuring that companies that bid on spectrum can more 
quickly and with greater assuredness claim unencumbered spectrum, and 
(3) minimizing any loss in television service that households might 
suffer because they have not yet obtained necessary equipment for 
receiving digital broadcasts. At the same time, policymakers might 
consider these benefits in relation to other contexts in which policy 
decisions of the federal government have imposed costs and burdens on 
Americans without compensation. We believe while it is difficult to 
measure the specific benefits and costs of undertaking a specific DTV 
subsidy program, it is also difficult to evaluate the suitability of 
subsidizing the costs imposed by this particular government policy 
relative to other policies that have also imposed costs on citizens.

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

In February we testified before this Subcommittee and provided 
estimates of the cost of a subsidy for set-top boxes using data on 
household television characteristics and expected set-top box costs. 
Today we will discuss (1) some challenges to administering a subsidy 
program for DTV equipment, (2) some administrative options for 
implementing a DTV subsidy, (3) examples of government programs that 
make use of rebates and vouchers to provide subsidies, and (4) some 
other efforts necessary for the completion of the DTV transition. In 
addition to information provided in this testimony, we will provide a 
more detailed study on these and other issues related to the DTV 
transition for the Committee later this year.

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

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

In summary:

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

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

* Another key challenge would be to make sure that eligible recipients 
understand that a subsidy is available to them, how they can obtain it, 
which equipment the subsidy can be used for, and where they can obtain 
the equipment. Effectively communicating this information would likely 
first require that information about the broader DTV transition is 
effectively communicated to the public. Three years ago we found that 
many Americans did not have an awareness of the DTV transition. 
Recently, the Consumer Electronics Association reported that knowledge 
of DTV is increasing. Our interviews with several retailers and 
manufacturers, indicated, however, that while consumers are more 
familiar with the concept of high-definition television, many are still 
confused or unaware that at some point in the future analog television 
will cease operation and analog televisions sets will not be able to 
receive digital over-the-air television signals.

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

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

* If a subsidy program is implemented, it will pose many challenges for 
the implementing agency and industry. However, there are other aspects 
of the DTV transition not related to the implementation of possible 
subsidy program that are ongoing and will take time to complete or may 
pose their own challenges. For example, the channel election process, 
which will determine the channel placement for each television 
station's digital signal, is ongoing. Because a proposed rulemaking 
will follow the end of this selection process (scheduled to be 
completed in August 2006), all stations' final selections will not be 
set until sometime in 2007, according to an FCC official. Another 
example of an issue that may arise as the DTV transition progresses 
relates to antennas used to receive digital broadcast signals. While 
many stakeholders we interviewed told us that antennas used for analog 
over-the-air reception should work well for the digital broadcast 
signal, a few stakeholders (including an antenna manufacturer, a 
broadcaster, and a retailer) told us that reception will depend on 
geographic and topographic factors and that some people may need new 
antennas or adjustment of existing antennas.

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.

A primary goal of the DTV transition is for the federal government to 
reclaim spectrum that broadcasters currently use to provide analog 
television signals. The radiofrequency spectrum is a medium that 
enables many forms of wireless communications, such as mobile 
telephone, paging, broadcast television and radio, private radio 
systems, and satellite services. Because of the virtual explosion of 
wireless applications in recent years, there is considerable concern 
that future spectrum needs--both for commercial as well as for varied 
government purposes--will not be met. The spectrum that will be cleared 
at the end of the DTV transition is considered highly valuable 
spectrum--sometimes called "beachfront spectrum"--because of its 
particular technical properties. In all, the DTV transition will clear 
108 MHz of spectrum--a fairly significant amount. In the Balanced 
Budget Act of 1997, the Congress directed FCC to reallocate 24 MHz of 
the reclaimed spectrum to public safety uses. Since the terrorist 
attacks of September 11, 2001, there has been a greater sense of 
urgency to free spectrum for public safety purposes. The remaining 
returned spectrum will be auctioned for use in advanced wireless 
services, such as wireless high-speed Internet access.[Footnote 3]

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

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

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

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

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

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

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

When we contacted four state heath and human services agencies that 
administer various assistance programs on behalf of the federal 
government, such as food stamps, all four indicated that it might be 
possible for the states to provide the DTV subsidy to the low-income 
individuals who already receive assistance from one or more programs 
they administer. However, they told us there would be costs associated 
with implementing a subsidy program, such as staff time, programming 
costs, postage, and envelopes. One state we contacted estimated that it 
would cost approximately $552,000 to mail vouchers to the approximately 
1.5 million households that receive food stamps, Medicaid, and 
Temporary Assistance for Needy Families within the state. However, two 
states told us that if the program ran over a period of time it would 
be difficult to track which households already received the DTV subsidy 
as people go on and off of assistance over time, so some households 
could receive duplicate benefits. Further, three of the four states 
told us that such a program would be burdensome on their limited staff 
resources.

Implementing a Subsidy Program May Require a Rulemaking Process:

A rulemaking process might be required to implement a DTV subsidy, and 
if so, this would likely have implications for how quickly a subsidy 
program could be established. While legislation could broadly define 
the parameters of the subsidy program and may even prescribe specific 
elements of the programs' structure and administration, it is not 
uncommon for a federal agency to determine that a rulemaking process is 
necessary to more fully detail how a program will be implemented. 
Through a rulemaking, the agency would finalize the rules of the 
program that were not specifically addressed in the legislation. FCC 
told us that if the legislation is very specific a rulemaking process 
may not be necessary for a DTV subsidy. However, FCC did note that 
rulemakings have been used in the past after legislation enacted new 
programs. For example, rulemaking processes have been undertaken 
several times to make adjustments to the Lifeline Assistance Program 
since it was established in 1985.[Footnote 5]

The rulemaking process generally takes time because it requires a wide 
range of procedural, consultative, and analytical actions on the part 
the agencies. Sometimes agencies take years to develop final rules. 
Among other things, the rulemaking process generally requires agencies 
to (1) publish a notice of proposed rulemaking in the Federal Register; 
(2) allow interested parties an opportunity to participate in the 
rulemaking process by providing written data, views, or arguments; (3) 
review the comments received and make any changes to the rule that it 
believes are necessary to respond to those comments; and (4) publish 
the final rule at least 30 days before it becomes effective. Further, 
the Office of Management and Budget reviews significant proposed and 
final rules initiated by executive branch agencies other than 
independent regulatory agencies before those rules are published in the 
Federal Register.[Footnote 6] A former official from the Department of 
Health and Human Services told us that industry participants, interest 
groups, or other stakeholders can challenge a proposed rulemaking, 
which can delay the process further. He said that in order to avoid 
such challenges, it is essential to have the key stakeholders involved 
early in the process. That is, if the key stakeholders have the 
opportunity to provide input prior to the development of the rulemaking 
and are satisfied that their concerns are addressed, they will be less 
likely to file a challenge to the proposed rulemaking.

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

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

Eligibility for Low-Income Households: If it is determined that a DTV 
subsidy will only be made available to low-income households, a means 
test of some kind would need to be used to identify the appropriate 
target households. Officials from the Department of Health and Human 
Services told us that using the income-based eligibility criteria of 
existing social service programs to define eligibility for a DTV 
subsidy program would be the most efficient way to employ a means test. 
That is, by using the receipt of an existing program benefit that is 
means tested, a new program could be effectively implemented without 
developing a means test specifically for that program. However, we were 
also told that one of the drawbacks to using these existing programs is 
that not all who are eligible for any particular program actually 
choose to apply for and receive benefits. This would mean that by only 
providing a DTV subsidy to those already receiving other assistance, 
some people who would be eligible for the subsidy based on their 
underlying income would not qualify for the subsidy because they have 
chosen not to receive another form of assistance. Officials from the 
Food and Nutrition Service told us that for the Food Stamp Program, 
approximately 54 percent of those who would be eligible for the program 
receive the benefit nationwide. It was thus suggested to us that if 
recipient lists from social assistance programs were used in developing 
eligibility determinations for a DTV subsidy, it might be beneficial to 
use more than one program. By combining the participants of several 
programs, a DTV subsidy for low-income households would target a higher 
percentage of needy households than if only one program was used to 
establish eligibility. For example, FCC told us that the Lifeline 
Assistance Program uses receipt of any of seven social assistance 
programs, including food stamps and Medicaid, as an eligibility 
requirement.[Footnote 7]

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

Eligibility for Over-the-Air Households: Some stakeholders we contacted 
indicated that a DTV subsidy should be focused on or limited to only 
those households that rely exclusively on over-the-air television. 
Because no list of these households exists, limiting a subsidy in this 
manner will require determining who the over-the-air households are--a 
task that could pose administrative challenges. One possible approach 
to identifying over-the-air households is to first identify cable and 
satellite[Footnote 8] subscribers. A combined list of all cable and 
satellite subscribers could be used as a mechanism to check whether 
those applying for a DTV subsidy are not qualified for the subsidy.

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

A second challenge to developing a national list of all cable and 
satellite subscribers is the difficulty of merging this information 
across all cable and satellite companies. Currently, there are over 
1,100 cable and satellite companies operating throughout the country, 
with a total of nearly 90 million subscribers. Information from these 
companies, which is maintained in various formats, would have to be 
collected and combined into a comprehensive list of subscribers. Cable 
industry officials stated that the process of merging and maintaining a 
list of nearly 90 million subscribers would not be an easy undertaking. 
For example, one cable industry official estimated that the process of 
working through all the technical logistics for establishing a list 
could take 6 to 12 months. Additionally, cable industry officials 
stated that there is significant "churn" (i.e., the number of people 
moving on and off subscriber lists) in the industry. For example, one 
cable company official stated that churn can be as high as 10 percent 
of subscribers from month to month. Another cable industry official 
told us that a significant level of resources would be needed to keep 
such a combined subscriber list up to date.

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

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

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

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

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

There would also likely be some process by which specific items meeting 
the parameters of the subsidy program are approved and flagged as 
eligible for the subsidy. Manufacturers need certainty about what items 
are approved for the subsidy if they are to place a rebate coupon on or 
inside of the equipment boxes, along with any related information. 
Specific identification of subsidized items will also be important for 
retailers as they make inventory decisions and train staff about how to 
guide consumers' purchasing decisions. Also, if retailers are asked to 
play a part in the administration of the program, such as by accepting 
vouchers or printing rebate coupons at the time of sale, it will be 
critical for them to have validation of items that are eligible for the 
subsidy. And, clearly, consumers need to understand which items they 
can purchase using the subsidy.

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

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

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

Three years ago we found that many Americans did not have significant 
awareness of the DTV transition, and we recommended that FCC explore 
options to raise public awareness about the transition and the impact 
it will have on consumers.[Footnote 10] Since that time, FCC and 
industry have undertaken efforts to better inform the public about the 
transition. In March of this year, the Consumer Electronics 
Association, an association of electronics manufacturers, reported that 
consumers' understanding of digital television has improved. This 
association surveyed individuals and found that, compared to past 
years, there has been an increase in consumer familiarity and 
understanding of DTV, as well as an increase in the likelihood of over- 
the-air households to take action to avoid losing television service.

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

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

Depending on how a subsidy program is structured and implemented, there 
may be opportunities for people to defraud the government. For example, 
one official familiar with government subsidy programs noted that if 
everyone were eligible for the subsidy, the opportunities for fraud 
would decline. For this reason, the more restrictive the eligibility 
requirements, the greater may be the chances for fraud. In terms of 
reducing fraud, those familiar with rebates noted that the more 
requirements for rebate redemption--that is, the more documentation the 
consumer must provide to redeem the rebate--the fewer problems with 
fraud there are likely to be. However, we were also told that increased 
requirements would tend to reduce the number of people who attempt to 
redeem the rebate. An additional consideration regarding fraud is the 
cost of fraud mitigation. A former official from the Department of 
Health and Human Services told us that while minimizing fraud should be 
considered in developing a subsidy program, the cost-effectiveness of 
these efforts should also be measured. For example, we were told that 
administering systems to mitigate and prevent fraud may be costly and 
may not be worthwhile, especially if the value of the subsidy is low.

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

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

Refundable Tax Credit Program: One method that could be used to 
administer a subsidy program for DTV equipment would be a refundable 
tax credit, administered as part of the federal individual income tax. 
A refundable tax credit could be designed to provide qualifying 
taxpayers a refund greater than the amount of their tax liability 
before credits. Based on the manner in which tax credits work, we 
believe that a tax credit for DTV equipment would likely be structured 
such that consumers purchase an eligible set-top box, maintain required 
information on their purchase, and seek reimbursement for all or some 
portion of the cost from the federal government for the equipment when 
they file their federal income taxes. Based on discussions with an 
official from the Department of the Treasury, it does not appear that 
this method would be well suited for a DTV subsidy. The Treasury 
official told us that considerable administrative burdens would be 
imposed on the Internal Revenue Service (IRS) to administer a 
refundable tax credit for a one-time subsidy. This official noted that 
implementation of a new tax credit would require the IRS to change tax 
forms, as well as instructions, for the years that the program would be 
in operation. Changing tax forms imposes administrative costs, 
particularly if tax laws are changed after forms have been developed 
for a given tax year. Additionally, he noted that IRS Form 1040 is 
currently completely full, so that any new credit could require the 
form to be lengthened from two pages to three pages, which would be 
costly and burdensome. The official also noted that the availability of 
the tax credit may cause some individuals who otherwise would not file 
a tax form to do so, which would increase IRS administrative burdens. 
The Treasury official also noted that there could be compliance 
problems with a tax credit approach. Because of the small amount of the 
credit--likely about $50--it would not be cost-effective for the IRS to 
assign resources to check compliance, thus it would be very difficult 
to minimize fraudulent use of the credit. In fact, IRS has had 
difficulty assuring compliance for a refundable tax credit. In 
particular, for the Earned Income Tax Credit, IRS estimated that 
roughly 30 percent of the dollars claimed was erroneous.

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

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

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

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

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

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

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

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

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

One of the most difficult elements associated with using a rebate for a 
DTV subsidy would be applying eligibility requirements. As previously 
discussed, information about over-the-air and low-income eligibility is 
not readily available to the rebate fulfillment houses--which are the 
entities that process rebates for manufacturers and retailers--and 
there are legal obstacles to the government collecting and providing 
that information to them. Another downside of rebates is that consumers 
generally pay the full cost of an item at the time of purchase, which 
could create a hardship for low-income households. Furthermore, one 
rebate fulfillment center representative told us that low-income 
individuals are less likely to redeem rebates than other segments of 
the population. Similarly, an official from a state agency told us that 
based on her experience a rebate program is not a good choice if the 
subsidy is supposed to target low-income individuals because many low- 
income individuals are not comfortable with rebates and will not redeem 
them. If eligibility for the subsidy is not restricted, a rebate might 
provide a good delivery mechanism. A benefit of using a rebate program 
for a DTV subsidy is that this method could take advantage of the 
relationships that already exist between retailers, manufacturers, and 
the rebate fulfillment industry.

Several Government Programs Have Employed Rebates or Vouchers to 
Provide Subsidies:

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

Table 1: Information on Rebate and Voucher Programs GAO Reviewed:

Program name: Santa Cruz County Electric Bike Commuter Incentive 
Program; 
Subsidy type and amount: Rebate; 
maximum rebate is $375; 
Administering entity: Ecology Action, Inc. on behalf of Santa Cruz 
County, California; 
Item/commodity subsidized: Electric-powered bicycles; Eligibility 
requirements: Must be a resident of Santa Cruz County, also must attend 
a safety training class; 
Total budget: $1 million; 
Percent of budget allocated to administrative costs: Start up 
administrative costs were 26.4 percent; 
once the program was established, administrative costs were 14 percent; 
Number of persons served: 879; 
Time required to develop and implement program: About 12 months total; 
6 months to design the program and 6 months to secure funding; Length 
of program existence: August 2000 through June 2006; Information 
dissemination: The program was launched with a high profile press 
conference attended by regional and national press; then used main 
stream media to promote the program. 

Program name: Sacramento County Water Agency Ultra-low Flow Toilet 
Rebate Program; 
Subsidy type and amount: Rebate; 
rebates vary from $75 to $125 per rebate; 
Administering entity: County of Sacramento, California; Item/commodity 
subsidized: Ultra-low flush toilets (that use only 1.6 gallons of water 
per flush); 
Eligibility requirements: Must be a Sacramento County Water Agency 
customer (with a high flow toilet ); 
Total budget: $45,000 in 2004 and 2005; 
Percent of budget allocated to administrative costs: Administrative 
costs not separated out from general agency costs; Number of persons 
served: 142 in 2004; 
Time required to develop and implement program: About 18 months to 
implement; 
majority of this time was spent coordinating with the various water 
agencies that were participating in the program; Length of program 
existence: Ongoing; 
started in 2003; 
Information dissemination: Advertised in water bills and newsletters; 
allowed installers to advertise programs availability. 

Program name: Consumer Rebate Program (for Energy Efficient Products); 
Subsidy type and amount: Rebate; 
Administering entity: Los Angeles Dept. of Water and Power (LADWP), 
California; 
Item/commodity subsidized: Energy efficient appliances, lighting, and 
windows; 
Eligibility requirements: Must be a LADWP customer; Total budget: $3 
million; 
Percent of budget allocated to administrative costs: Approximately 
$1.18 million, or 39 percent of the total budget, is for labor, 
marketing and materials; 
Number of persons served: Approximately 6,000 per year; Time required 
to develop and implement program: Original program development was 
lengthy; 
program implemented in 3 months once contractor was hired; Length of 
program existence: Ongoing; 
started in 2002; 
Information dissemination: Provided handouts at retail stores and LADWP 
branch offices, advertised on radio, placed inserts in all residential 
utility bills, created special page on LADWP web site, had kick-off 
event at Home Depot that was carried on local news stations. 

Program name: Colorado Telecommunications Equipment Distribution 
Program; 
Subsidy type and amount: Voucher; 
Administering entity: Colorado Commission for the Deaf and Hard of 
Hearing; 
Item/commodity subsidized: Text telephones, printing text telephones, 
phone signalers, and amplifier; 
Eligibility requirements: Medically certified as deaf or hard of 
hearing and low income, defined as 185 percent of the federal poverty 
level; 
Total budget: $650,000; 
Percent of budget allocated to administrative costs: Not available; 
Number of persons served: 260; 
Time required to develop and implement program: Not available; Length 
of program existence: Ongoing; 
started in 2003; 
Information dissemination: Worked with rehab and independent living 
centers, advocacy groups, subscriber based emails, and newsletters for 
groups representing the deaf and hard of hearing. Also did a one-time 
stuffer in phone bills. 

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

Program name: Food Stamp Program; 
Subsidy type and amount: Voucher[B]; 
Administering entity: Department of Agriculture, Food and Nutrition 
Service; 
Item/commodity subsidized: Food; 
Eligibility requirements: 130 percent of federal poverty guideline, 
among other criteria; 
Total budget: $23.9 billion in fiscal year 2003; Percent of budget 
allocated to administrative costs: About 10 percent; Number of persons 
served: 21.3 million in fiscal year 2003; Time required to develop and 
implement program: [C]; Length of program existence: Ongoing; started 
in 1964; Information dissemination: [C]. 

Source: GAO analysis.

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

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

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

[End of table]

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

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

Other Efforts Necessary for the Completion of the DTV Transition Are 
Ongoing:

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

* Under current FCC time frames, the final process for television 
stations to select their permanent channel placement for their digital 
signals is ongoing. Broadcast stations began the process of choosing 
their final DTV channel in February 2005.[Footnote 12] In August 2006, 
FCC expects to issue a Notice of Proposed Rulemaking that includes a 
tentative DTV Table of Allotments once the channel election process is 
finished. FCC will seek comment on the proposed Table and then issue an 
order with a Final DTV Table of Allotments, which, at a minimum, would 
take several months. An FCC official told us that it would likely be 
sometime in 2007 before all the allotments are finalized. In order for 
the DTV Table of Allotments to be finalized by the end of 2006, FCC 
officials told us that they would need to shorten the channel election 
process time frames that they currently have in place. We were told 
that once stations know their final channel assignments, they might 
need to make adjustments to certain equipment. Therefore, we found that 
for stations that do not have certainty on their assignments until 
sometime in 2007, equipment modifications will be undertaken well into 
that year.

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

* At present, no requirements for the application of the Emergency 
Alert System (EAS) apply to stations' digital broadcast signals. FCC is 
now considering how requirements will be set. An FCC official told us 
that rules for EAS on DTV stations that are similar to requirements for 
analog stations should be developed within a few months, but additional 
work will look at whether there will be expanded functionality required 
in the digital environment. According to FCC, the equipment that 
stations will be required to purchase to meet the basic requirements 
that are likely to be set before the end of 2005 is not very expensive. 
Because the requirements for expanded functionality are not yet set, an 
FCC official told us that it is not clear what the cost of any 
additional equipment will be.

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

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

Concluding Observations:

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

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

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

Contact and Acknowledgments:

For questions regarding this testimony, please contact Mark L. 
Goldstein on (202) 512-2834 or goldsteinm@gao.gov. Individuals making 
key contributions to this testimony included Amy Abramowitz, Michael 
Clements, Andy Clinton, Simon Galed, Eric Hudson, Bert Japikse, and 
Sally Moino.

FOOTNOTES

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

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

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

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

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

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

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

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

[9] 47 U.S.C.  338(i) and 551. 

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

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

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