Testimony of Larry Irving, 
               Assistant Secretary of Commerce for 
                  Communications and Information
            House Commerce Committee  -- Subcommittee
                on Telecommunications and Finance
                          March 21, 1996
     Good morning, Mr. Chairman and members of the Committee. 
Thank you for the opportunity to testify today.  The National
Telecommunications and Information Administration, (NTIA), which
is part of the Department of Commerce, is the principal adviser
to the President on domestic and international telecommunications
issues.  I am pleased to be here today as the head of NTIA to
present the views of the Administration on the matters before
this Committee.  
     The focus of my testimony today will be the conversion from
analog television to advanced television (ATV) and the preferable
way of meeting the twin goals of ensuring that the American
people receive the benefits of digital television as well as fair
value for use of a scarce valuable national resource.    
     The transition to a digital television system is unlike
anything previously attempted in American mass media.  Because
ATV is a digitally-based system that cannot be received by
currently-used television receivers, simply turning off the
analog signal and turning on the digital signal would
disenfranchise the nation's millions of television viewers.  In
addition, an incomplete or partial transition could result in a
fragmented television market operating in two different
incompatible transmission standards.  A successful transition
will require acceptance of -- and investment in -- new technology
by consumers, programmers, and broadcasters and other video
program distributors.   If accomplished completely and quickly,
the transition to digital television will provide unique and
historic opportunities for the American people.   
     We believe that these goals can best be met by following the
framework of the Federal Communications Commission's (FCC)
original plan and loaning existing broadcasters for the
transition period the spectrum they need to upgrade to the new
digital technology and then reclaiming the spectrum for licensing
at auction.  This would be a "loan" because the broadcasters
would be provided the additional spectrum at no charge for a
limited time with the expectation that a channel would be
returned.  The Administration believes, however, that the FCC's
original 15-year transition period is too long and would result
in the loss of economic opportunities that a more rapid
conversion might otherwise foster.  A number of factors have
developed since 1992 -- when the FCC outlined its proposal --
that suggest that a shorter transition period is warranted.  A
ten-year transition period would provide ample time for a
successful conversion without harming consumers or broadcasters
but would have the added benefit of making valuable spectrum
available sooner for a wide range of new wireless services.  The
Administration is committed as part of this effort to finding
ways to ease the transition to digital television for the
smallest broadcasters and would like to work with Congress to
develop suitable proposals.  While the Administration realizes
that certain details of this proposal could undoubtedly be
improved, we believe that, when measured against competing
alternatives, it best balances the varied public policy
objectives associated with a smooth transition to ATV.  
     Before proceeding, I'd like to clarify one aspect of this
discussion.  Although returned spectrum is sometimes referred to
as "analog" spectrum and the new ATV channels as "digital"
spectrum, it should be noted that these are merely short-hand
ways of referring to different methods of transmission over the
electromagnetic spectrum rather than different types of spectrum. 
I.   Why Advanced Television is Important
     Advanced television represents the next stage of development
for America's free broadcast television system.  Despite the
proliferation over the past several decades of different methods
of video programming distribution, broadcast television remains
the primary means of disseminating and receiving information and
entertainment in the nation.  Unlike cable television and other
subscription media, broadcast television is available to
virtually the entire U.S. population, has no monthly fee, and
requires no special equipment beyond a standard television set.  
     In addition, only broadcast licensees are subject to FCC
public interest requirements to serve the interests and needs of
their community through locally-oriented news and programming. 
This system of free locally-based broadcast television has worked
well for half a century and is widely regarded as the most
successful broadcast system in the world.  The localism,
universal service, and diversity of this system should be
maintained as television advances into the next generation.
     The shift to digital television is particularly important
because the technical constraints imposed by the existing analog
transmission standard have until now limited the introduction of
substantially more sophisticated technologies.  Even when the
United States adopted a color television standard in the 1950s,
we perpetuated the spectrally inefficient features of the NTSC
system to avoid making existing black and white receivers
obsolete.  Broadcasters have long advocated the importance of
converting from analog to digital television.  Now we have the
opportunity not only for dramatic television improvements but
also to make the nation's broadcast television system more
spectrum-efficient and to free up substantial amounts of spectrum
to auction for a variety of new wireless uses.
     Digital technology can dramatically improve television and
bring important benefits to millions of Americans in at least
three areas -- better quality pictures and more viewing choices,
advancement of American technological strength, and the more
efficient use of the radio frequency spectrum.  Advanced
television could give viewers dramatic, new entertainment and
educational experiences.  And, if digital broadcasters choose to
provide multiple channels using a digital signal, ATV would also
provide 4 to 6 channels for every channel provided today.  By
using a digital medium, broadcasters will also have the
flexibility to offer a variety of other "ancillary and
supplementary" services to consumers, as envisioned under the
recently-enacted Telecommunications Act of 1996.  
     ATV's technological benefits are already being seen in the
medical and research fields.  For example, telemedicine
applications are now available that allow doctors to "examine"
patients in remote locations.  The flexibility and versatility of
this new transmission standard will undoubtedly stimulate myriad
new applications in fields such as teaching, manufacturing, and
science that cannot even be dreamed about today. 
          Finally, ATV technology uses radio frequency spectrum
more efficiently than the current system.  As a result of ATV
technology, broadcast television's current requirement for 402
MHz of spectrum could be reduced significantly to 252 MHz, making
up to 150 MHz of prime spectrum available for other uses.  More
importantly, although today's broadcasters must be reassigned to
a new channel for that service, the channel it vacates may be
even more valuable after the FCC has repacked the spectrum and
allocated it for new uses.
II.  The ATV Transition Process
     In the mid-1980s, when the potential for advanced television
first burst upon the American scene, it appeared as if America
had already lost the race to develop the new technology.  The
importance of competing in this technological race was an issue
this Subcommittee spent a great deal of time on.  The development
of digital broadcasting in 1990 by U.S. companies and
researchers, however, propelled America to the lead.  After many
years of hard work through the FCC's Advisory Committee on
Advanced Television Service, four competing companies reached a
pact to combine their systems, resulting in the formation of the
HDTV Grand Alliance in 1993.  The Grand Alliance proposed a
transmission standard that sought to accommodate the competing
needs of the television, cable, and computer industries. 
     For nearly a decade, the FCC has been wrestling with the
question of how best to convert the nation's television system
from the current NTSC format to this next generation of
technology without disenfranchising the nations's television
viewers.  With the development of a workable digital system by
the Grand Alliance, the debate has narrowed over the past several
years as attention has focused on a few specific transition
alternatives.  
     Under the scenario outlined by the Commission in several
1992 releases, each existing broadcast licensee would be loaned
additional spectrum in the form of a new paired ATV "transition"
channel, which would be used in part for simulcasting during the
conversion to digital television.  After a period of 15 years,
broadcasters would be required to cease analog broadcasting and
to return the analog channel to the government for reallocation
to other uses.  It should be noted that this plan represents only
a tentative proposal by the FCC, and the Commission has not yet
made a formal decision on the best way to proceed.  Continuing
technological advances suggest the transition will be more rapid
than previously expected. 
     The Administration's proposal adheres to many of the FCC's
tentative conclusions but provides for a more rapid transition to
digital and requires the licensing of the returned "analog"
spectrum through auctions.  Existing licensees would be loaned a
second channel for a transition period and would be required to
cease analog broadcasting and return their original channel to
the government no later than 2005.  The FCC would reorganize or
"repack" the spectrum to maximize both the amount and
desirability of spectrum available to be auctioned for other
services.  Returned spectrum would then be licensed at auction
for other uses.  As discussed later, the Administration believes
ways can be found to alleviate the burden that this transition
plan might cause rural broadcasters.  
     Under a third proposal, referred to as "digital auctions,"
the new ATV channels would not be assigned to existing
broadcasters but would instead be licensed at auction to the
highest bidders.  This proposal would allow entities other than
current television licensees to compete in the broadcasting
business and would allow auctions for the new spectrum to be held
relatively quickly.  Under this plan, analog and digital
licensees would both broadcast in different transmission
standards for an indefinite period, since analog licensees would
continue broadcasting in NTSC format (although they could
potentially switch to digital at a future, though indeterminate,
date). 
 
     III. The Administration's Proposal Balances Sound Public         Policy Objectives
     Because of the importance of the Nation's broadcast
television system, it is essential to devise a transition
mechanism that is least disruptive to viewers and ensures that
both broadcasters and viewers are able to make the transition
from analog to digital television.  Loaning existing broadcast
licensees for a limited time the spectrum needed to make possible
a transition to digital television -- and licensing the returned
spectrum at auction following a ten-year conversion period -- is
the best means for achieving this conversion for several
important reasons.  We believe this approach would benefit the
viewing public and broadcasters as well as meet the Government's
budget objectives.  
     A.   "Analog" Auctions Would Ensure a Orderly Transition for
          the Nation's Television Viewers and Broadcasters 
     The Administration's plan to auction returned "analog"
spectrum would, as did the FCC plan on which it is based, allow a
transition to digital television that would protect the nation's
television viewers.  Under the plan, they would be able to
continue to use their current televisions since broadcasters
would be required to broadcast in both analog and digital formats
during the transition period.  Thus, an orderly transition to
digital television as envisioned in the FCC's proposal would be
ensured.       
     A number of factors have developed since the FCC outlined
its proposal in 1992, however, that would suggest that a shorter
transition than first proposed by the FCC is warranted.  First,
Congress originally authorized spectrum auctions in 1993.  As a
result of the phenomenal success of the PCS and subsequent
auctions, we now know the value and importance of freeing up
spectrum for new services that in turn create new jobs and
economic activity.  Second, technological developments have
considerably reduced the estimated costs of switching to digital
technology.  In lieu of purchasing a new television set,
consumers now will have the option of purchasing relatively
inexpensive converter boxes.  This means that consumers will be
able to receive digital television signals without spending
hundreds of dollars on a new television set.  Analog
transmissions could therefore be turned off sooner without fear
of disenfranchising viewers.
     In addition, estimates of broadcasters' transition costs
have also come down since 1992.  For example, technological
developments now permit the manufacture of lighter transmitters,
which may enable broadcasters to continue using existing towers. 
Also, the increasing demand for space on towers by wireless
service providers will permit broadcasters to more readily lease
tower space to such entities and recapture much of their tower
upgrade costs.  The Telecommunications Act of 1996 also allows
ATV licensees to provide ancillary and supplementary services on
their digital channel.  The additional revenue stream from such
services was not envisioned in 1992 when the FCC's plan was
proposed and will help offset some of the transition costs
broadcasters will incur.  Finally, it should be noted that a
longer transition period will impose additional costs on
broadcasters.  They will have to continue to simulcast for a
longer period, which some estimate may significantly increase
broadcasters' transition costs. 
     While some have claimed that under this proposal
broadcasters would receive a windfall in the form of free access
to a valuable resource, in fact, broadcasters would be loaned an
additional channel for a finite period to ensure a smooth
transition to digital television.  On a date certain,
broadcasters would be required to cease analog broadcasting (and
return the analog channel), thereby ensuring that digital
television becomes the national television standard.   
     On the other hand, "digital" auctions may result in a less
orderly and complete transition to digital broadcasting.  If we
do not develop procedures now to provide incentives for today's
broadcasters to migrate to new channels for digital operations,
we may find ourselves with a fragmented television system for an
extended period of time.  
     B.   A Ten-Year Transition Would More Rapidly Provide the
          American Public with the Opportunity for New Services
     A ten-year transition to digital television would provide
the American people not only with a new and better television
system, but it would also provide them with tremendous economic
opportunities.  Most telecommunications experts anticipate that,
as more spectrum becomes available in the coming years, spectrum-hungry wireless applications will multiply at a rapid pace,
including land mobile applications, PCS, wireless data systems,
telemedicine and biomedical services, and wireless portions of
the local loop.  History has shown too that these services
develop much faster than anticipated.  A 1983 study commission by
AT&T forecast a total of less than one million cellular users by
2000.  There are presently over 30 million cellular users in the
U.S., and the number is expected to double by 2000.
     New services will mean new jobs and economic opportunities
for the American people.  The cellular industry has created over
250,000 jobs using just 50 MHz of spectrum.  The Administration's
proposal, which would free up 150 MHz of spectrum, would likely
create even more jobs, and the sooner this occurs the more the
public will benefit.  A 15-year transition would delay these
economic benefits for five years, resulting in lost economic
opportunity.  
     C.   Licensing the Returned Spectrum at Auction Would Allow
          the American Taxpayer to Recover the Full Value of the
          Spectrum
     
     The Administration's proposal for an accelerated transition
would also help achieve the important goal of achieving a
balanced budget by 2002 and allow the American taxpayer to
recover the full value of this prime spectrum.  The
Administration estimates that an auction of the returned spectrum
would yield at least $17 billion for the U.S. Treasury.  This
estimate is based on the FCC's range of $20 to $132 billion in
revenues from auctioning the "analog" spectrum.  Since the
auctions of returned spectrum will actually take place in 2002,
the most conservative FCC estimate was reduced to allow for the
three-year delay in companies' actually being able to deploy
services.   Based on the phenomenal success of the FCC auctions
to date, the Administration is confident that $17 billion will be
the minimum that will be raised through auctioning the "analog"
spectrum.   To ensure that this minimal value is received from
auctions, however, the Administration has developed a contingency
mechanism that would permit assessment of a fee on recipients of
ATV licenses in the event of a shortfall in auction receipts. 
     For the reasons described in the preceding section, the
Administration believes that the demand for spectrum --
particularly the prime spectrum located in today's television
bands -- will continue to grow in the coming years.  In addition,
one of the major benefits of auctioning the returned "analog"
spectrum rather than the "digital" spectrum is that the former
proposal will permit the FCC more readily to "repack" the
spectrum after transition, maximizing both the amount of spectrum
available for auctioning and the value of the frequencies made
available.  Under the "analog" auction scenario, the FCC will
have the ability to "repack" the broadcast spectrum without
regard to the more demanding interference characteristics
required by analog broadcasting.   Repacking would have several
benefits.  First, repacking would maximize the amount of spectrum
available for auction.  The amount of spectrum that would have to
remain fallow in each market to prevent interference would be
determined by the minimal digital separation requirements rather
than the greater separation requirements necessitated by analog
television.  Second, the ability to repack the channels
efficiently would result in nationwide contiguous spectrum blocks
that could be divided into smaller nationwide bands devoted to
specific services such as two-way applications, point-to-multipoint distribution services, as well as mobile services. 
Systems that are designed to operate nationwide will in many
cases be cheaper to manufacture and operate, since the
transmitter and receiver equipment will not require built-in
flexibility to accommodate different operational characteristics. 
     D.   The Costs to Broadcasters and Consumers of a Rapid
          Transition are Reasonable
          1.   The Costs to Consumers
     Because under the Administration's proposal analog
broadcasting will cease in 2005, consumers would have to have the
ability to receive digital television signals by then.  We
anticipate that the vast majority of American households will
have either a digital television set or some other way to convert
digital signals to analog signals.  For example, by 2005, it is
expected that most cable television systems will either have
switched to digital signal transmission and provided their
subscribers with converter boxes to receive these signals or will
be able to convert digital signals to analog signals at the cable
facility.  Currently 60-65 percent of television households
subscribe to cable and this number is expected to grow.  Thus,
millions of consumers will be able to receive digital signals
without buying a set top converter box or a new television.   
     Estimates on the total number of consumers who, because they
do not subscribe to a multichannel service, will need to buy a
new television or a set top box to receive digital signals range
from 10 to 20 percent.  By 2005, some smaller percentage of these
consumers still will not have purchased a digital television or a
converter.
     Industry experts have estimated that converter boxes will
cost as little as $50 by 2005.  The Administration is considering
a plan to help alleviate the burden that purchasing converters
will impose on some consumers and debating whether, to alleviate
the cost to consumers, it would be appropriate to rebate to
consumers 50 percent of the cost of the converter box, up to $25. 
It is important to note that, in return for the cost of buying
the converter boxes, consumers will be compensated by the ability
to receive as many as six times the current number of channels or
a much higher quality television signal. 
          2.   The Cost to Broadcasters
     The cost to convert each analog broadcaster to digital
broadcasting vary dramatically, based on geography and station
operations.  The 1992 Advisory Committee on Advanced Television
Service (ACATS) estimated the cost of conversion to digital for
broadcast stations as low as $1.3 to $1.6 million per station,
while the NAB's current estimate ranges from $1.5 to 10 million
per station.  With a date certain of 2005 for spectrum reversion,
broadcasters would still have a significant amount of advance
notice that equipment had to be replaced.  Since the expense of
buying new equipment would be spread over time, much of this
expenditure would be incurred through normal studio and equipment
upgrades.  Many stations, especially those owned by networks and
large group owners, have already begun to incur these costs as
part of their routine upgrades and replacement schedules.  A more
rapid transition could require broadcasters to purchase equipment
before the prices have significantly fallen.  On the other hand,
market forces may result in prices falling sooner than is now
anticipated.  
     The Administration realizes that the rapid transition to
digital may be more difficult for small stations located in rural
areas, but we believe that mechanisms can be found to ease the
burden on such stations.  For instance, to meet the equipment
upgrade needs of rural public television stations, we have
provided supplemental funds through NTIA's Public
Telecommunications Facilities Program.
IV.  Conclusion
     In conclusion, Mr. Chairman and members of the
Committee, I want to emphasize again how important it is
that we ensure a smooth transition of our national
broadcasting system from one based on analog transmission
technology to one that uses digital technology, the best
that this country has to offer.  Free over-the-air
television is vitally important to the nation and must be
able to compete with other video providers, such as cable
and satellite services.  The Administration proposal would
ease the transition to digital television by making each of
today's broadcasters eligible for an ATV license.  At the
same time, it would also recapture for auctioning, on behalf
of the American public, a full 150 MHz of radio spectrum. 
While there are alternative ways to achieve this second
objective, we believe the Administration proposal is most
consistent with sound telecommunications policy.  The
Administration's ten-year transition plan would provide for
a smooth conversion to digital television while ensuring
that the American public receives the economic benefit of
the new services made possible with 150 MHz of spectrum
sooner rather than later.  It is a "win-win-win" situation
for America's television viewers, broadcasters, and
taxpayers.  I would also like to reiterate that the
Administration is committed to finding ways to ease the
transition to digital television for the smallest
broadcasters and would like to work with Congress to develop
suitable proposals.  
     Mr. Chairman and members of this Committee, again, I
appreciate this opportunity to share these views with you. 
I am ready to respond to any questions that you may have.