This is the accessible text file for GAO report number GAO-05-940R 
entitled 'Digital Television Transition: Issues Related to an 
Information Campaign Regarding the Transition' which was released on 
September 6, 2005. 

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September 6, 2005: 

The Honorable Joe Barton: 
Chairman: 
The Honorable John D. Dingell: 
Ranking Minority Member: 
Committee on Energy and Commerce: 
House of Representatives: 

The Honorable Fred Upton: 
Chairman: 
The Honorable Edward J. Markey: 
Ranking Minority Member: 
Subcommittee on Telecommunications and the Internet: 
Committee on Energy and Commerce: 
House of Representatives: 

Subject: Digital Television Transition: Issues Related to an 
Information Campaign Regarding the Transition: 

The United States is currently undergoing a transition from analog to 
digital broadcast television. This transition offers the promise of 
more television programming options, interactive television, and high- 
definition television. An additional goal of the digital television 
(DTV) transition is for the federal government to reclaim 
radiofrequencies--or spectrum--that broadcasters currently use to 
transmit analog television signals. Because of the virtual explosion of 
wireless applications in recent years, there is considerable concern 
that future spectrum needs--both for commercial as well as government 
purposes--will not be met. The spectrum that will be cleared at the end 
of the DTV transition is considered to be highly valuable spectrum 
because of its particular technical properties. In all, the DTV 
transition will clear 108 megahertz (MHz) of spectrum, which is a 
fairly significant amount. In the 1997 Balanced Budget Act, the 
Congress directed the Federal Communications Commission (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 1] The return of the radiofrequency spectrum at the 
end of the transition will thus provide many benefits to society by 
easing the spectrum scarcity facing public safety first-responders, 
engendering economic growth and consumer value from spectrum redeployed 
to wireless services, and affording revenues to the federal government 
from the proceeds of a spectrum auction. 

Due to your interest in the DTV transition, we testified before the 
House Subcommittee on Telecommunications and the Internet, Committee on 
Energy and Commerce, on May 26, 2005; February 17, 2005; and July 21, 
2004, and on issues related to the DTV transition.[Footnote 2] 
Additionally, you asked us to report on the information Americans need 
to know about the DTV transition. As such, this report specifically 
focuses on information campaign issues that we have not previously 
discussed. We are providing (1) stakeholder views on Americans' 
knowledge of the DTV transition, (2) stakeholder views on how 
government and industry might most effectively communicate critical DTV 
information, and (3) information on efforts by Germany and the United 
Kingdom to inform their citizens about the DTV transitions taking place 
in those countries. See enclosures I, II, and III for our recent 
testimonies related to the DTV transition. 

In preparing this report, we obtained information from a variety of 
stakeholders, including companies in several key industry segments, 
government officials, telecommunications experts, and representatives 
from industry trade and consumer groups. We interviewed these 
stakeholders because of their knowledge and involvement with the DTV 
transition and the varying perspectives they may have had. There may be 
other views on information issues related to the DTV transition that 
are not represented by the stakeholders we contacted. Specifically, we 
interviewed 45 stakeholders, including 9 consumer electronics 
manufacturers, 4 electronics retailers, 7 broadcasters, 5 television 
station owners, 2 cable television providers, and 1 satellite provider. 
We also met with FCC staff and several individuals who are considered 
experts in the telecommunications industry. The industry trade and 
consumer groups we contacted include AARP, the American Cable 
Association, the Association of Public Safety Communications Officials, 
the Association of Public Television Stations, the Cellular 
Telecommunications and Internet Association, Cable Television 
Laboratories Incorporated, the Consumer Electronics Association, the 
Consumer Federation of America, the Minority Media and 
Telecommunications Council, the National Association of Broadcasters, 
the National Cable & Telecommunications Association, and the Satellite 
Broadcasting and Communications Association. 

We conducted our work between August 2004 and August 2005 in accordance 
with generally accepted government auditing standards. 

Background: 

With traditional analog technology, television pictures and sounds are 
converted into "waveform" electrical signals for transmission through 
the radiofrequency spectrum.[Footnote 3] These analog signals fade with 
distance, so consumers living further from a television tower will 
experience pictures that are distorted or full of "snow." With digital 
technology, pictures and sounds are converted into a stream of digits 
consisting of zeros and ones. Although digital signals also fade over 
distance, because each bit of information is either a zero or a one, a 
digital television set or receiver can adjust for minor weaknesses in 
the signal to recreate the zeros and ones as originally transmitted. 
Thus, pictures and sound generally retain their high quality unless 
significant fading of the signal occurs, at which point the 
transmission cannot be corrected and there is no picture at all. 

Digital technology uses the radiofrequency spectrum more efficiently 
than analog technology and, as a result, provides greater flexibility 
in terms of the television content that television stations can 
provide. Television stations can transmit a single analog signal in the 
6 MHz of radio spectrum allocated to each television station. In 
contrast, with digital technology, television stations can use that 6 
MHz of spectrum to simultaneously transmit multiple signals in standard 
definition digital format, a concept known as "multicasting." The 
television station could use the full 6 MHz of spectrum to provide high-
definition television, which provides roughly twice as many lines of 
resolution and thus creates a television picture that is much sharper 
than traditional analog television service.[Footnote 4] To facilitate 
the transition from analog to digital television, the Congress and FCC 
provided each full-powered television station (both commercial and 
public) with an additional 6 MHz of radiofrequency spectrum so that 
stations could transmit both an analog and digital television signal; 
that is, each local television station now has 12 MHz of spectrum, 6 
MHz for their analog signal and 6 MHz for their digital signal. Once 
the transition is complete, broadcast stations will operate solely in 
digital and must return the 6 MHz of additional spectrum to the 
government. 

There are over 1,700 commercial and noncommercial (such as public) 
television stations in the United States. Commercial television 
stations produce local programming, such as local news, and may get 
their remaining programming content through an affiliation with one of 
the top seven television broadcast networks (ABC, CBS, Fox, NBC, PAX, 
UPN, and WB). Other commercial television stations are independent. 
Public television stations operate as nonprofit, community-based 
organizations. While public stations produce local programming, many 
stations are affiliated with and receive programming from the Public 
Broadcasting Service. 

Households can view television signals through three primary means. 
First, a household can rely on over-the-air television and receive the 
television signals directly from television stations through a rooftop 
antenna or antennae attached to the television sets in their home. 
Second, a household can receive television signals from cable 
companies, which deliver the signals from cable facilities to 
subscribers' homes via a localized network of cable lines.[Footnote 5] 
Third, households can receive television signals from a direct 
broadcast satellite company.[Footnote 6]

As we have previously reported, households with analog televisions sets 
that rely solely on over-the-air signals must take action to be able to 
view digital broadcast signals after the DTV transition is 
complete.[Footnote 7] Options available to these households include (1) 
purchasing a digital television set that includes a tuner capable of 
receiving, processing, and displaying a digital signal; (2) purchasing 
a digital-to-analog converter box, which converts the digital broadcast 
signals to analog so that they can be viewed on an existing analog 
set;[Footnote 8] or (3) subscribing to a cable or satellite service to 
eliminate the need to acquire a digital-to-analog converter box. 
Without some form of public information campaign, these households 
might not be aware of the impending changes related to the DTV 
transition and the actions they need to take. 

Many Stakeholders Believed That American Households Do Not Fully 
Understand the DTV Transition: 

In 2002, we reported that consumer knowledge about the DTV transition 
and its implications was low.[Footnote 9] In fact, a survey we 
conducted found that 83 percent of respondents had never heard of or 
were only somewhat aware of the transition. Therefore, in November 
2002, we recommended that FCC explore options to raise public awareness 
about the DTV transition and the impact it will have on the 
public.[Footnote 10] FCC developed a Web site [Hyperlink, 
http://www.dtv.gov] to provide consumer information on the DTV 
transition. This Web site provides information about DTV news, terms, 
and regulatory information, as well as a listing of digital and high-
definition television programming and a consumer's guide for digital 
television sets. FCC told us it has also developed several consumer 
publications on DTV, in English and Spanish, and co- authored a "tip 
sheet" with the Consumer Electronics Association and the Consumer 
Electronics Retailers Coalition that is being distributed through major 
consumer electronics retail stores and Web sites. FCC said its staff 
has met with a number of organizations about possible joint DTV 
consumer education efforts, including AARP, the Alliance for Public 
Technology, Hispanic Technology and Telecommunications Partnership, and 
the Federal Citizen Information Center. Additionally, FCC told us they 
have participated in several widely attended consumer events, such as 
the National Council of La Raza annual conference and AARP's "National 
Event & Expo," to assess DTV consumer information needs and to 
disseminate current information about the transition. According to FCC, 
its Consumer Center also provides DTV information through a toll-free 
line and by e-mail and postal mail. Consumers also may subscribe to 
FCC's Consumer Information Registry to receive updates about the DTV 
transition. Additionally, some retailers we contacted told us they have 
made efforts to provide information about the DTV transition. For 
example, one retailer said his business advises customers about the DTV 
transition and the implications it will have on analog television. A 
manufacturer we contacted said that the Consumer Electronics 
Association is doing a great deal to educate consumers. 

Despite these efforts, several of the stakeholders we interviewed 
believed that consumers are still confused and do not understand the 
DTV transition. For example, one broadcaster we spoke with stated that 
consumers do not understand the difference between the DTV transition 
and high-definition television, and that few people are even aware that 
the transition is taking place. Further, a retailer told us that many 
consumers do not understand that after the transition, analog signals 
will no longer be used to transmit television signals; rather, he said 
those consumers believe that they will always have a choice between 
viewing analog and digital signals, similar to the manner in which they 
can choose between digital and film cameras. This retailer also said 
that because analog television sets are priced much lower than digital 
sets, consumers with no knowledge of the DTV transition or when it will 
occur are not eager to adopt DTV equipment. 

Stakeholders Viewed Advertisements as the Most Effective Means to 
Communicate DTV Information: 

Of the 35 stakeholders who responded to our question about the most 
effective mechanism to inform the public about the DTV transition, 22 
believed that public service announcements, such as television 
advertisements, should be the primary form of communication. For 
example, a retailer told us that television would be the most effective 
mechanism because it is the medium that most people use. A trade group 
representative said that, in his opinion, using public service 
announcements on television would reach at least 60 percent of the 
people. Several of the stakeholders who were in favor of television 
advertisements also believed that the information campaign should be 
coupled with other forms of advertisement. For example, a broadcaster 
told us that in addition to television advertisements, other items such 
as books, pamphlets, and information packets should be made available 
at retail locations and other places of interest. A trade group 
representative said that a variety of advertising mechanisms should be 
used, including commercials and newspaper advertisements. 

Some stakeholders believed that other approaches could be used to 
inform the public about the DTV transition. For example, a number of 
broadcasters we interviewed stated that an effective approach to inform 
consumers would be to place labels on analog televisions at retail 
locations stating that the analog sets would not be able to receive 
digital broadcast signals after the transition is complete without 
being connected to some device or service. An electronics manufacturer 
told us that digital and high-definition television program information 
should be listed in newspapers, television guides, and the Internet to 
inform the public. A television station owner told us that a task force 
consisting of broadcasters, press, and government officials should be 
established with consumer education as the focal point. 

Stakeholders who responded to our question on which entity should be 
responsible for implementing a public information campaign had 
differing opinions. Eleven stakeholders stated that broadcasters should 
be primarily responsible, 10 said that the government should have 
primary responsibility, and another 4 believed that all parties 
involved in the transition should play a role in educating the public 
on the DTV transition. For example, a television station owner told us 
that the campaign should be a partnership between the government, 
broadcasters, advertisers, manufacturers, and cable and satellite 
companies, but that the government should take the lead. A trade group 
representative told us that all groups should play a role, but that 
broadcasters should begin utilizing public service announcements 
immediately. One broadcaster told us that the government is responsible 
for informing the public, but that it should work with manufacturers, 
retailers, and broadcasters in doing so. 

A majority of stakeholders who responded to our question about the 
appropriate timing for a public information campaign believed that the 
campaign should start as soon as possible. For example, an electronics 
retailer told us that the information campaign is already late and 
should begin immediately. A trade group representative said that the 
information campaign should begin as soon as possible to begin 
influencing the purchase of DTV equipment. Several of the responding 
stakeholders told us that the information campaign should be tied to a 
point in time before the actual transition date. For example, a 
representative of an electronics manufacturer stated that consumer 
education should begin 6 to 12 months prior to the end date of analog 
service because the consumer education would be "background noise" if 
it begins too early. A trade group representative also told us that the 
information campaign should begin at least 1 year before the transition 
date. 

Several of the stakeholders we spoke with noted that a prerequisite for 
an effective information campaign is certainty as to when the 
transition will actually take place. In particular, some stakeholders 
told us that with certainty regarding the transition's completion, they 
could take steps to more effectively raise the level of pubic awareness 
about the transition and its implications. Some stakeholders we spoke 
with also told us that it is important for any public information 
campaign to be consistent, stating that a unified effort by industry 
and government participants would be effective at reducing consumer 
confusion. For example, one retailer told us that the consumer 
confusion is driven by poor education, and that a unified message would 
be most effective to educate the public. Another consideration for an 
effective information campaign that was discussed with us is ensuring 
that information about the transition is communicated in multiple 
languages. Since many stakeholders suggested using television 
advertisements to inform the public, it might be beneficial to produce 
and broadcast these advertisements in Spanish. According to a 
broadcaster, a large percentage of Spanish-speaking households watch 
over-the-air television exclusively. 

Legislation introduced in the Senate and a House staff draft of 
legislation contains requirements for consumer education related to the 
DTV transition.[Footnote 11] In particular, the legislation requires 
labels to be placed on analog television sets informing consumers that 
the televisions will not be able to receive digital broadcast signals 
after the transition is complete, unless it is connected to a digital 
tuner; digital-to-analog converter box; or cable, satellite, or other 
multichannel video service. The bills also require FCC to educate 
consumers about the deadline when analog signals will be terminated and 
about the options consumers have to continue to receive broadcast 
programming. The House staff draft of legislation requires (1) 
television broadcasters to air public service announcements and (2) 
cable and satellite providers to include a notice of the DTV transition 
in billing statements. 

Two Other Countries Have Been Engaged in Extensive Public Information 
Campaigns to Inform Their Citizens about Their DTV Transitions: 

We found that Germany and the United Kingdom undertook extensive public 
information campaigns regarding their DTV transitions. As we reported 
in July 2004,[Footnote 12] the Berlin authorities and broadcasters 
provided considerable information to the public, the media, and 
retailers about what the transition would entail, what consumers needed 
to do, how they would benefit by transitioning to digital television, 
and where to get assistance if there was confusion about what equipment 
was necessary or if there were problems with equipment or reception. 
This effort was planned and coordinated among many parties, resources 
were dedicated to the information campaign, and nearly everyone we 
spoke with told us it was a critical factor to the rapid DTV transition 
in Berlin. We also were told that a short consumer education period was 
best for informing households about the DTV transition; in Berlin, the 
consumer education effort lasted approximately 4 weeks and cost 
approximately 800,000 Euro ($984,160).[Footnote 13]

In preparation for their DTV transition, the United Kingdom (1) 
developed an action plan that identified a series of events that needed 
to occur to ensure the transition was completed and (2) formed various 
strategic groups charged with raising public awareness and knowledge of 
the DTV transition. Membership in these groups consisted of government 
and consumer group representatives, broadcasters, manufacturers, and 
industry experts. These groups developed a specific project plan to 
raise awareness and educate the public through information campaigns, 
research on DTV market conditions, training of stakeholders, and 
product labeling. Additionally, a not-for-profit company has been 
tasked to lead a major communication campaign to educate the public 
about the DTV transition and ensure everyone knows what is happening, 
what they need to do, and when they need to take action. The not-for- 
profit company will coordinate with television manufacturers, 
retailers, consumer groups, and others to ensure that the transition is 
properly implemented. 

In both Germany and the United Kingdom, the countries have devoted 
resources to determine what people understood about the DTV transition. 
During our work on the DTV transition in Berlin, German broadcasters 
told us that studies were conducted to determine citizens' experiences 
with the transition and to determine what was confusing to them as they 
transitioned to digital. The United Kingdom also undertook research to 
evaluate the human effects of the transition, specifically with regards 
to how this would affect the elderly and disabled members of their 
society. They tested the individuals' experiences in transition to 
digital television in two villages, and subsequently used 
questionnaires and interviews with members from the trial areas to 
measure changes in attitudes on a larger scale before and after digital 
installation. 

Agency Comments: 

We provided FCC with a draft of this report for their review and 
comment. On August 8, 2005, we met with the Chair of FCC's Digital 
Television Task Force and other FCC staff within the Media Bureau and 
the Consumer and Governmental Affairs Bureau to discuss the report. FCC 
officials provided information regarding the Commission's efforts to 
educate consumers about DTV and suggested technical corrections, which 
we incorporated into the report as appropriate. 

We are sending copies of this report to interested congressional 
committees; the Chairman, FCC; and other interested parties. The report 
is available at no charge on GAO's Web site at [Hyperlink, 
http://www.gao.gov]. If you have any questions concerning this report, 
please contact me on (202) 512-2834 or [Hyperlink, goldsteinm@gao.gov]. 
Contact points for our Offices of Congressional Relations and Public 
Affairs may be found on the last page of this report. 

Key contributors to this report were Amy Abramowitz, Michael Clements, 
Andy Clinton, Simon Galed, Eric Hudson, Bert Japikse, and Sally Moino. 

Signed by: 

Mark L. Goldstein: 
Director, Physical Infrastructure Issues: 

Enclosures - 3: 

FOOTNOTES

[1] Some of this spectrum--24 MHz--has already been auctioned. 

[2] GAO, Digital Broadcast Television Transition: Several Challenges 
Could Arise in Administering a Subsidy Program for DTV Equipment, GAO- 
05-623T (Washington, D.C.: May 26, 2005); Digital Broadcast Television 
Transition: Estimated Cost of Supporting Set-Top Boxes to Help Advance 
the DTV Transition, GAO-05-258T (Washington, D.C.: Feb. 17, 2005); and 
Telecommunications: German DTV Transition Differs from U.S. Transition 
in Many Respects, but Certain Key Challenges Are Similar, GAO-04-926T 
(Washington, D.C.: July 21, 2004). 

[3] The radiofrequency spectrum is the part of the natural spectrum of 
electromagnetic radiation lying between the frequency limits of 9 
kilohertz and 300 gigahertz. It is the medium that makes possible 
wireless communications, including cellular and paging services, radio 
and television broadcasting, radar, and satellite-based services. 

[4] Current analog television sets display about 480 lines of 
resolution; high-definition television sets display up to 1,080 lines 
of resolution and are often "widescreen" format, similar to movie 
theater screens. High-definition sets offer improved picture and audio 
quality. 

[5] The facility where cable operators originate and distribute cable 
service in a geographic area is referred to as a "headend." Cable 
operators receive and package television signals from a variety of 
television stations and networks and distribute the signals over 
coaxial wires emanating from the headend and terminating at 
subscribers' residences. 

[6] In the markets in which satellite companies provide so-called 
"local-into-local service," local television stations' signals are 
transmitted to satellites orbiting above the equator, and then are 
provided to subscribers in the local market through satellite 
retransmissions. 

[7] GAO-05-258T. 

[8] Viewers with digital-to-analog converter boxes would not actually 
see the broadcast digital signal in a digital format. They would be 
viewing that signal after it has been converted, by the converter box, 
to be compatible with their existing analog television set. 

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

[10] GAO-03-7. 

[11] Senate bill S. 1268; House staff draft entitled, Digital 
Television Transition Act of 2005. 

[12] GAO-04-926T. 

[13] This amount does not include the value of commercial time that 
broadcasters devoted to the DTV transition. We used the July 13, 2004, 
exchange rate of 1.2302 to convert Euros into U.S. dollars, which was 
current at the time our previous report was issued. 

[End of section]

Enclosure I: GAO May 26, 2005, Testimony [Hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-05-623T]: 

This is the accessible text file for GAO report number GAO-05-623T 
entitled 'Digital Broadcast Television Transition: Several Challenges 
Could Arise in Administering a Subsidy Program for DTV Equipment' which 
was released on May 27, 2005. 

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). 

[End of section]

Enclosure II: GAO February 17, 2005, Testimony [Hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-05-258T]: 

This is the accessible text file for GAO report number GAO-05-258T 
entitled 'Digital Broadcast Television Transition: Estimated Cost of 
Supporting Set-Top Boxes to Help Advance the DTV Transition' which was 
released on February 17, 2005. 

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 10:00 a.m. EST: 

Thursday, February 17, 2005: 

Digital Broadcast Television Transition: 

Estimated Cost of Supporting Set-Top Boxes to Help Advance the DTV 
Transition: 

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

GAO-05-258T: 

GAO Highlights: 

Highlights of GAO-05-258T, 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 services. At the end of the transition, radiofrequency 
spectrum used for analog broadcast television will be used for other 
wireless services and for critical public safety services. To spur the 
digital transition, some industry participants and experts have 
suggested that the government may choose to provide a subsidy for set-
top boxes, which can receive digital broadcast television signals and 
convert them into analog signals so that they can be displayed on 
existing television sets. This testimony provides information on (1) 
the current distribution of American households by television viewing 
methods and whether there are demographic differences among these 
groups; (2) the equipment required for households to receive digital 
broadcast signals; and (3) the estimated cost to the federal 
government, under various scenarios, of providing a subsidy for set-top 
boxes that would enable households to view digital broadcast signals. 

We developed estimates of the cost of a subsidy for set-top boxes using 
data on household television characteristics, expected set-top box 
costs, and varied assumptions about how certain key regulatory issues 
will be decided. 

What GAO Found: 

The three primary means through which Americans view television signals 
are over the air, cable, and direct broadcast satellite (DBS). GAO 
found that 19 percent, or roughly 21 million American households, rely 
exclusively on free over-the-air television; 57 percent, or nearly 64 
million households, view television via a cable service; and 19 
percent, or about 22 million households, have a subscription to a 
direct broadcast satellite (DBS) service. On average, over-the-air 
households are more likely to have lower incomes compared to cable and 
DBS households. While 48 percent of over-the-air households have 
incomes under $30,000, roughly 29 percent of cable and DBS households 
have incomes less than that level. Also, 6 percent of over-the-air 
households have incomes over $100,000, while about 13 percent of cable 
and DBS households have incomes exceeding $100,000. 

The specific equipment that each household needs to transition to 
DTVthat is, to be able to view digital broadcast signalsdepends on 
the method through which the household watches television, whether the 
household has already upgraded its television equipment to be 
compatible with DTV, and the resolution of certain key regulatory 
issues. GAO examined two key cases regarding the regulatory issues. 
The assumption for case one is that cable and DBS providers would 
continue providing broadcasters signals as they currently do, thus 
eliminating the need for their subscribers to acquire new equipment. 
In this case, only households viewing television using only an over-the-
air antenna would need to take action to be able to view broadcasters 
digital signals. The assumption for the second case is that cable and 
DBS providers would be required to provide broadcasters digital 
signals to subscribers in substantially the same format as broadcasters 
transmitted those signals. This would require cable and DBS 
subscribers, in addition to over-the-air households, to have equipment 
in place to be able to receive their providers high-definition digital 
signals. 

If a subsidy for set-top boxes is only needed for over-the-air 
households (case one), GAO estimates that its cost could range from 
about $460 million to about $2 billion, depending on the price of the 
set-top boxes and whether a means testwhich would limit eligibility to 
only those households with incomes lower than some specified limitis 
employed. If cable and satellite subscribers also need new equipment 
(case two), the cost of providing the subsidy could range from about 
$1.8 billion to approximately $10.6 billion. 

We provided a draft of this testimony to the Federal Communications 
Commission (FCC) for their review and comment. FCC staff provided 
technical comments that we incorporated where appropriate. 

www.gao.gov/cgi-bin/getrpt?GAO-05-258T. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Mark L. Goldstein, (202) 
512-2834, 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 potential 
cost of providing a subsidy to consumers for the purchase of set-top 
boxes in order to accelerate the transition from analog to digital 
broadcast television. This transition--known as the DTV transition-- 
offers the promise of more programming options, interactive services, 
and high-definition television (HDTV). Moreover, the return of 
radiofrequency spectrum used for analog broadcast television at the end 
of the transition will provide many benefits to society, such as easing 
the spectrum scarcity facing public safety first responders, 
engendering economic growth and consumer value from spectrum redeployed 
to wireless services, and affording the federal government revenues 
from the proceeds of a spectrum auction. To facilitate the transition, 
the Congress and the Federal Communications Commission (FCC) 
temporarily provided television stations nationwide with additional 
spectrum so that stations could simultaneously broadcast both an analog 
and a digital signal. Stations' analog licenses are mandated to 
terminate in December 2006, or when 85 percent of households in each 
market can receive digital broadcast signals, whichever is 
later.[Footnote 1] While the purchase of digital televisions is 
steadily increasing, it nevertheless appears unlikely that a sufficient 
proportion of households will have digital television equipment in 
place by the end of 2006. 

In order to spur households' adoption of the digital equipment 
necessary for the transition, some have suggested that the government 
provide a subsidy to certain households to purchase a device, known as 
a set-top box, that can receive digital broadcast television signals 
and convert them into analog signals so that they can be displayed on 
existing television sets. This device would enable the household to 
view digital broadcast signals without purchasing a digital television 
set; such sets currently sell at considerably higher prices than 
traditional analog television sets. Aiding in the deployment of set-top 
boxes may enable the transition to end sooner than it might otherwise 
by increasing the number of households that can view digital broadcast 
signals. 

At the request of this subcommittee, we have examined (1) the current 
distribution of American households by television viewing methods and 
whether there are demographic differences among these groups; (2) the 
equipment required for households to receive digital broadcast signals; 
and (3) the estimated cost to the federal government, under various 
scenarios, of providing a subsidy for set-top boxes that would enable 
households to view digital broadcast signals. In addition to 
information provided in this testimony, we are conducting additional 
work on the DTV transition, subsidy options, and administrative 
approaches for implementing a subsidy program, and will provide a more 
detailed study for the Committee and the Subcommittee later this year. 

While a subsidy for set-top boxes may be one policy option to spur the 
transition, there are other policies that might do so as well. In our 
statement today, we provide cost estimates for a possible subsidy 
program under various scenarios. We note, however, that in providing 
these cost estimates, GAO is taking no position on this policy option. 
We are merely providing, as requested by the Committee and the 
Subcommittee, cost estimates for such a program. 

To address the issues we will discuss today, we purchased data from 
Knowledge Networks, a survey research firm that had conducted a 
consumer survey on household television characteristics. The survey 
provided the responses of 2,471 randomly selected American households 
and covers such topics as the method each household uses to view 
television (e.g., cable, over the air), how many television sets they 
have, and whether they have set-top boxes for digital cable service. 
The survey also provides information on an array of demographic 
characteristics for each household. These data were collected between 
February and April 2004. The response rate for Knowledge Network's 
survey was 47 percent. The relevance of the response rate for the 
study's findings is discussed in appendix I.[Footnote 2] Using a 95 
percent confidence interval, all percentage estimates from the survey 
have margins of error of plus or minus 6 percentage points or less, and 
all cost estimates based on the survey data have margins of error of 
plus or minus 16 percent or less. To assess the reliability of these 
survey data, we reviewed documentation of survey procedures provided by 
Knowledge Networks and questioned knowledgeable officials about the 
survey process and resulting data. We determined that the data were 
sufficiently reliable for the purposes of this testimony. We also 
contracted with Knowledge Networks to recontact some of respondents to 
its survey to ask additional questions that GAO developed. [Footnote 3] 
Because the number of recontacted households for the additional 
questions requested by GAO was small, the findings for these questions 
are not generalizable to a larger population. To gather information 
about the likely costs of set-top boxes, we interviewed several 
consumer electronics firms and experts. 

The estimate of the potential cost of a subsidy that we are providing 
should not be interpreted as the cost of a government program. In 
preparing these estimates we discussed the nature of our work with 
Congressional Budget Office (CBO). If the Congress considers 
legislation for a set-top box subsidy program, the CBO will, based on 
the specifics of the law, prepare an estimate of the cost of the 
program. We conducted our work from August 2004 to January 2005 in 
accordance with generally accepted government auditing standards. 

We provided a draft of this testimony to the Federal Communications 
Commission (FCC) for their review and comment. FCC staff provided 
technical comments that we incorporated where appropriate. 

In summary: 

* The three primary means through which Americans view television 
signals are over the air, cable, and direct broadcast satellite (DBS). 
We found that 19 percent, or roughly 21 million American households, 
rely exclusively on over-the-air transmissions for their television 
viewing; 57 percent, or nearly 64 million American households, view 
television via a cable service; and about 19 percent, or about 22 
million American households, have a subscription to a DBS 
service[Footnote 4]. We recognize that others have estimated a lower 
value for the percent of households relying on over the air 
television[Footnote 5]. Our results were derived from a survey of over 
2,400 households, from which we estimated with 95 percent certainty 
that between 17 and 21 percent of households rely on over the air 
television. On average, over-the-air households are more likely to have 
lower incomes compared to cable or DBS households. While 48 percent of 
over-the-air households have incomes under $30,0[Footnote 6]00, roughly 
29 percent of both cable and satellite homes had household incomes less 
than or equal to that level. Also, only 6 percent of over-the-air 
households had incomes over $100,000, while about 13 percent of cable 
and satellite households had incomes exceeding $100,000. Additionally, 
non-white and Hispanic households are more likely to rely on over-the- 
air television than are white and non-Hispanic households. 

* The specific equipment needs for each household to transition to DTV-
-that is, to be able to view broadcast digital signals--depends on 
certain key factors. First, the method through which a household 
watches television and whether it has already upgraded its television 
equipment to be compatible with digital television, will factor into 
the equipment needs of the household. Additionally, certain regulatory 
decisions yet to be made by FCC will play a role in determining some 
consumers' equipment needs. We examined two key cases regarding the 
regulatory decisions. 

* In case one, we assume that cable and DBS providers would continue 
providing broadcasters' signals as they currently do, thus eliminating 
any need for their subscribers to acquire new equipment. That is, cable 
providers would initially "downconvert"[Footnote 7] broadcasters' high-
definition digital signals to an analog format before they are 
transmitted to their subscribers. Similarly, DBS providers would 
initially downconvert broadcasters' high-definition digital signals to 
a standard-definition digital format before they are transmitted to 
their subscribers. This enables the signals to be viewed on 
subscribers' existing televisions sets. In this case, only households 
viewing television using only an over-the-air antenna must take action 
to be able to view broadcasters' digital signals. 

* In case two, we assume that cable and DBS providers would be required 
to provide broadcasters' digital signals to subscribers in 
substantially the same format as broadcasters transmitted those 
signals. Because some of the broadcasters' digital transmissions are in 
a high-definition digital format, the second case would require cable 
and DBS providers to transmit the signals in this format to their 
subscribers. To be able to view these signals, cable and DBS 
subscribers would need to have equipment in place, or to acquire new 
equipment, that can receive their providers' high-definition digital 
signals. The second case would also require, as does case one, all over-
the-air households to acquire new equipment. 

* If a subsidy for set-top boxes were needed only for over-the-air 
households, we estimate that its cost could range from about $460 
million to about $2 billion. The subsidy cost varies depending on the 
price of the set-top boxes and whether a means test--which would limit 
eligibility for the subsidy to only those households with incomes lower 
than some specified limit--were employed. However, if cable and 
satellite subscribers also needed new equipment and the subsidy 
provides some support for these households as well, the overall cost of 
the program would grow. We estimate that in this case, the cost of 
providing the subsidy could range from about $1.8 billion to over $10 
billion, depending, again, on the price of the set-top boxes and 
whether a means test were employed. 

Background: 

The United States is currently undergoing a transition from analog to 
digital broadcast television. With traditional analog technology, 
pictures and sounds are converted into "waveform" electrical signals 
for transmission through the radiofrequency spectrum, while digital 
technology converts these pictures and sounds into a stream of digits 
consisting of zeros and ones for transmission. Digital transmission of 
television signals provides several advantages compared to analog 
transmission, such as enabling better quality picture and sound 
reception as well as using the radiofrequency spectrum more efficiently 
than analog transmission. This increased efficiency makes multicasting-
-where several digital television signals are transmitted in the same 
amount of spectrum necessary for one analog television signal--and 
HDTV[Footnote 8] services possible. 

A primary goal of the DTV transition is for the federal government to 
reclaim spectrum that broadcasters currently use to provide analog 
television signals. The radiofrequency spectrum is a medium that 
enables many forms of wireless communications, such as mobile 
telephone, paging, broadcast television and radio, private radio 
systems, and satellite services. Because of the virtual explosion of 
wireless applications in recent years, there is considerable concern 
that future spectrum needs--both for commercial as well as government 
purposes--will not be met. The spectrum that will be cleared at the end 
of the DTV transition is considered highly valuable spectrum because of 
its particular technical properties. In all, the DTV transition will 
clear 108 megahertz of spectrum--a fairly significant amount. In the 
Balanced Budget Act of 1997, the Congress directed FCC to reallocate 24 
MHz of the reclaimed spectrum to public safety uses. Since the 
terrorist attacks of September 11, 2001, there has been a greater sense 
of urgency to free spectrum for public safety purposes. The remaining 
returned spectrum will be auctioned for use in advanced wireless 
services, such as wireless high-speed Internet access.[Footnote 9]

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

Americans Watch Television through Three Primary Modes: 

The three primary means through which Americans view television signals 
are over the air, cable, and direct broadcast satellite (DBS). Over- 
the-air broadcast television, which began around 1940, uses 
radiofrequencies to transmit television signals from stations' 
television towers to households' television antennas mounted on 
rooftops, in attics, or directly on television sets. Over-the-air 
television is a free service. Cable television service, a pay 
television service, emerged in the late 1940s to fill a need for 
television service in areas with poor over-the-air reception, such as 
mountainous or remote areas. Cable providers run localized networks of 
cable lines that deliver television signals from cable facilities to 
subscribers' homes.[Footnote 10] Cable operators provide their 
subscribers with, on average, approximately 73 analog television 
channels and 150 digital television channels. In 1994, a third primary 
means of providing television emerged: direct broadcast satellite 
(DBS). Subscribers to DBS service use small reception dishes that can 
be mounted on rooftops or windowsills to receive television programming 
beamed down from satellites that orbit over the equator. Like cable, 
DBS service is a subscription television service that provides 
consumers with many channels of programming. When the Congress enacted 
the Satellite Home Viewer Improvement Act of 1999, it allowed DBS 
carriers to provide local broadcast signals--such as the local 
affiliate of ABC or NBC--which they had previously not generally been 
able to provide. 

Over-the-Air Households. We found that 19 percent, or 20.8 million 
American households, rely exclusively on over-the-air transmissions for 
their television viewing. We recognize that others have estimated a 
lower value for the percent of households relying on over the air 
television. Our results were derived from a survey of over 2,400 
households, from which we estimated with 95 percent certainty that 
between 17 and 21 percent of households rely on over the air 
television. Compared to households that purchase a subscription to 
cable or DBS service, we found that exclusive over-the-air viewers are 
somewhat different demographically. Overall, over-the-air households 
are more likely to have lower incomes than cable or satellite 
households. Approximately 48 percent of exclusive over-the-air viewers 
have household incomes less than $30,000, and 6 percent have household 
incomes over $100,000. Additionally, nonwhite and Hispanic households 
are more likely to rely on over-the-air television than are white and 
non-Hispanic households; over 23 percent of non-white households rely 
on over-the-air television compared to less than 16 percent of white 
households, and about 28 percent of Hispanic households rely on over- 
the-air television compared to about 17 percent of non-Hispanic 
households. Finally, we found that, on average, exclusive over-the-air 
households have 2.1 televisions, which is lower than the average for 
cable and satellite households. 

We asked the survey research firm to recontact approximately 100 of the 
respondents who exclusively watch television through over-the-air 
transmission to ask additional questions, including the primary reason 
the household does not purchase a subscription video service.[Footnote 
11] Forty-one of these respondents said that it was too costly for them 
to purchase a subscription video service, and 44 said that they do not 
watch enough television to warrant paying for television service. Most 
of the recontacted households seemed unlikely to purchase a 
subscription service in the near future. Only 18 of the recontacted 
households said that they would be likely to purchase a subscription 
video service in the near future, and another 10 said that they might 
do so. 

Cable Households. We found that 57 percent, or 63.7 million American 
households, view television through a cable service. On average, cable 
households have 2.7 television sets. Sixteen percent of cable 
households have at least one television set in the home that is not 
connected to cable but instead receives only over-the-air television 
signals. Of the cable households surveyed, roughly 29 percent had 
household incomes of less than or equal to $30,000, and about 13 
percent had incomes exceeding $100,000. We also found that 44 percent 
of the cable homes have at least one set-top box. Of those cable 
subscribers with a set-top box, about 67 percent reported that their 
box is capable of viewing channels the cable system sells on "digital 
cable tiers," meaning that the channels are transmitted by their cable 
provider in a digital format. A subset of these "digital cable" 
customers have a special set-top box capable of receiving their 
providers' transmission of high-definition digital signals. 

Because the existence of a set-top box in the home may be relevant for 
determining what equipment households would need to view broadcast 
digital television signals, we asked the survey research firm to 
recontact approximately 100 cable households that do not have a set-top 
box to ask questions about their likely purchase of digital cable 
tiers--which require a set-top box--in the near future.[Footnote 12] 
First, we asked the primary reason why the household did not currently 
purchase any cable digital tiers of programming. Fifty-one of the 
recontacted respondents said that they did not want to bear the extra 
expense of digital tiers of cable programming, and 33 said that they 
did not watch enough television to justify purchasing digital cable 
service. Only 9 of the recontacted respondents said that they would be 
likely to purchase digital cable service in the near future, and 
another 9 said that they might purchase such service in the near 
future. Finally, we asked these respondents whether they would be 
reluctant to change their service in any way that would require them to 
use a set-top box. Of the recontacted respondents, 37 said they would 
be very reluctant to change their service in a way that would require 
them to use a set-top box, and another 38 said that they would be 
somewhat reluctant to do so. 

DBS Households. We found that about 19 percent, or 21.7 million 
American households, have a subscription to a DBS service. These 
households have, on average, 2.7 television sets. About one-third of 
these households have at least one television set that is not hooked to 
their DBS dish and only receives over-the-air television signals. In 
terms of income, 29 percent of DBS subscribers have incomes less than 
or equal to $30,000, and 13 percent have incomes exceeding $100,000. 

One important difference between cable and DBS service is that not all 
DBS subscribers have the option of viewing local broadcast signals 
through their DBS provider.[Footnote 13] Although the DBS providers 
have been rolling out local broadcast stations in many markets around 
the country in the past few years, not all markets are served. DBS 
subscribers in markets without local broadcast signals available 
through their DBS provider usually obtain their local broadcast signals 
through an over-the-air antenna, or through a cable connection. This is 
important to the DTV transition because how households with DBS service 
view their local broadcast channels will play into the determination of 
their requirements to transition to broadcast DTV. We therefore 
requested that the survey research firm recontact approximately 100 DBS 
customers to ask how they receive their local broadcast 
channels.[Footnote 14] We found that when local channels are available 
to DBS subscribers, they are very likely to purchase those channels. 
Well more than half of the DBS subscribers who were recontacted viewed 
their local broadcast channels through their DBS service. Nearly one- 
fourth of the recontacted DBS subscribers view their local broadcast 
channels through free over-the-air television. As DBS providers 
continue to roll out local channels to more markets, the percentage of 
DBS subscribers relying on over-the-air transmissions to view local 
signals will likely decline. 

Households' Equipment Needs for DTV Transition Will Depend on their 
Mode of Television Viewing and Current Equipment Status, and Will Also 
Be Affected by Regulatory Decisions: 

The specific equipment needs for each household to transition to DTV-- 
that is, to be able to view broadcast digital signals--depends on 
certain key factors: the method through which a household watches 
television, the television equipment the household currently has, and 
certain critical regulatory decisions yet to be made. In this section 
we discuss two cases regarding a key regulatory decision that will need 
to be made and the implications that decision will have on households' 
DTV equipment needs. 

Before turning to the two cases, a key assumption underlying this 
analysis must be discussed. Currently, broadcasters have a right to 
insist that cable providers carry their analog television signals. This 
is known as the "must carry" rule, and dates to the Cable Television 
Consumer Protection and Competition Act of 1992. FCC made a 
determination that these must carry rules will apply to the digital 
local broadcast signals once a station is no longer transmitting an 
analog signal. In our analysis, we assume that the must carry right 
applies to broadcasters' digital signals, and as such, cable providers 
are generally carrying those signals. DBS providers face some must 
carry rules as well, although they are different in some key respects 
from the requirements that apply to cable providers. For the purposes 
of this analysis, we assume that to the extent that DBS providers face 
must carry requirements, those requirements apply to the digital 
broadcast signals. 

For nearly all cable subscribers, and more than half of the DBS 
subscribers, local broadcast analog signals are provided by their 
subscription television provider. This means that these providers 
capture the broadcasters' signals through an antenna or a wire and 
retransmit those signals by cable or DBS to subscribers. We make two 
disparate assumptions, which we call case one and case two, about how 
cable and DBS providers might provide digital broadcast signals to 
subscribers. We do not suggest that these are the only two 
possibilities regarding how the requirements for carriage of broadcast 
signals might ultimately be decided--these are simply two possible 
scenarios. 

Case One. In this case, we assume that cable and DBS providers will 
continue providing broadcasters' signals as they currently do. This 
assumption would be realized if cable and DBS providers initially 
downconvert broadcasters' digital signals at the providers' facilities, 
which may require legislative or regulatory action. That is, cable 
providers would initially downconvert broadcasters' high-definition 
digital signals to an analog format before they are transmitted to 
their subscribers. Similarly, DBS providers would initially downconvert 
broadcasters' high-definition digital signals to a standard-definition 
digital format before they are transmitted to their subscribers. In 
this case, there would be no need for cable and DBS subscribers to 
acquire new equipment; only households viewing television using only an 
over-the-air antenna must take action to be able to view broadcasters' 
digital signals. This case shares many attributes with the recently- 
completed DTV transition in Berlin, Germany. 

All over-the-air households--which account for approximately 21 million 
households in the United States--must do one of two things to be able 
to view digital broadcast signals.[Footnote 15] First, they could 
purchase a digital television set that includes a tuner capable of 
receiving, processing, and displaying a digital signal. The survey data 
we used indicated that only about 1 percent of over-the-air viewers 
have, as of now, purchased a digital television that contains a tuner. 
However, some large televisions sold today are required to include such 
a tuner and by July 2007, all television sets larger than 13 inches are 
required to include a tuner. After that time, consumers who purchase 
new television sets will automatically have the capability of viewing 
digital signals. Approximately 25 to 30 million new television sets are 
purchased each year in the United States. The second option available 
to over-the-air households is to purchase a digital-to-analog set-top 
box. That is, for those households that have not purchased a new 
television set, the set-top box will convert the digital broadcast 
signals to analog so that they can be viewed on an existing analog 
television set. Viewers with digital-to-analog set-top boxes would not 
actually see the broadcast digital signal in a digital format, but 
would be viewing that signal after it has been downconverted, by the 
set-top box, to be compatible with their existing analog television 
set. Currently, simple set-top boxes that only have the function of 
downconverting digital signals to analog are not on the market. More 
complex boxes that include a variety of functions and features, 
including digital to analog downconversion, are available, but at a 
substantial cost. However, manufacturers told us that simple, and less 
expensive, set-top boxes would come to the market when a demand for 
them develops. 

Case Two. In the second case, we assume that cable and DBS companies 
would be required to provide the broadcasters' signals to their 
subscribers in substantially the same format as it was received from 
the broadcasters. Because some of the broadcasters' signals are in a 
high-definition digital format, cable and DBS subscribers--just like 
over-the-air households--would need to have the equipment in place to 
be able to receive high-definition digital signals. There are several 
ways these subscribers could view these signals: 

* Cable or DBS subscribers would be able to view digital broadcast 
television if they have purchased a digital television set with an over-
the-air digital tuner. They would then have the capability of viewing 
local digital broadcast stations through a traditional television 
antenna--just like an over-the-air viewer. However, many cable and DBS 
households may want to continue to view broadcast television signals 
through their cable or DBS provider. 

* Cable or DBS subscribers could purchase a digital television with a 
"cable card" slot. By inserting a "card" provided by the cable company 
into such a television, subscribers can receive and display the digital 
content transmitted by the cable provider. Only very recently, however, 
have cable-ready digital television sets--which allow cable subscribers 
to receive their providers' digital signals directly into the 
television set--come to the market. Similar televisions sets with built-
in tuners for satellite digital signals are not currently on the 
market. 

* To view the high-definition signals transmitted by their subscription 
provider, the other possibility for cable and DBS households would be 
to have a set-top box that downconverts the signals so that they can be 
displayed on their existing analog television sets. That is, any 
downconversion in this scenario takes place at the subscribers' 
household, as opposed to the subscription television providers' 
facilities, as in case one. While all DBS subscribers and about a third 
of cable subscribers have set-top boxes that enable a digital signal 
from their provider to be converted to an analog signal for display on 
existing television sets, few of these set-top boxes are designed for 
handling high-definition digital signals. As such, if broadcasters' 
signals are transmitted by cable and DBS providers in a high-definition 
format, not all cable and satellite subscribers would need new 
equipment, although most would. In case two, as in case one, all 
exclusively over-the-air households need a digital television set or a 
set-top box. 

Cost of Federal Subsidy for Set-Top Boxes Varies Considerably, 
Depending on Several Factors: 

In this section we present the estimated cost of providing a subsidy to 
consumers for the purchase of a set-top box that would be designed to 
advance the digital television transition. The estimated subsidy costs 
presented here vary based on (1) the two cases discussed above about 
whether cable and DBS providers initially downconvert broadcasters' 
digital signals at their facilities before transmitting them to 
subscribers; (2) varied assumptions about whether a means test is 
imposed and, if so, at what level; and (3) the expected cost of a 
simple digital-to-analog set-top box. All of the estimates presented 
here assume that only one television set is subsidized in each 
household that is determined to be eligible for the subsidy.[Footnote 
16]

Means test. Imposing a means test would limit the subsidy to only those 
households determined to be in financial need of a subsidy. A means 
test would limit eligibility for the subsidy to only those households 
with incomes lower than some specified limit. We employed two different 
levels of means tests. The scenarios with means tests are roughly based 
on 200 percent and 300 percent of the poverty level[Footnote 17] as the 
income threshold under which a household's income must lie to be 
eligible for the subsidy. The poverty level is determined based on both 
income and the number of persons living in the household; for a family 
of four the official federal poverty level in 2004 was $18,850. 

Set-top boxes. We provide estimates based on two possible price levels 
for the boxes: $50 and $100. This range is based on conversations we 
had with consumer electronics manufacturers who will likely produce set-
top boxes in the future. Set-top boxes for cable and DBS are often 
rented by subscribers, rather than purchased. Nevertheless, in cases 
where cable and DBS subscribers need new equipment, we assume that the 
financial support provided to them would be equivalent to that provided 
to over-the-air households. 

Table 1 provides the cost of a subsidy program under the assumption 
that cable and DBS providers downconvert broadcasters' signals at their 
facilities in a manner that enables them to continue to transmit those 
signals to subscribers as they currently transmit broadcasters' 
signals. In this case, cable or DBS subscribers do not require any new 
equipment, so only over-the-air households--approximately 21 million 
American households--would need new equipment. As shown in table 1, 
there is considerable variation in the cost of the subsidy program 
depending on the level of a means test and the price of the set-top 
box. 

Table 1: Estimated Cost of Set-Top Box Subsidy, Assuming Cable and DBS 
Downconversion, only Over-the-Air Households Are Subsidized: 

Assumption about means test: Means test at 200% of poverty level; 
Percent of over-the-air households eligible: 50% of over-the-air 
households; 
Number of households subsidized (in millions): 9.3; (7.8 - 10.7); 
Cost of subsidy, by estimated cost of set-top box (dollars in 
millions): $50 set-top box: $463; ($391 - $534); 
Cost of subsidy, by estimated cost of set-top box (dollars in 
millions): $100 set-top box: $925; ($782 - $1,068). 

Assumption about means test: Means test at 300% of poverty level; 
Percent of over-the-air households eligible: 67 % of over-the-air 
households; 
Number of households subsidized (in millions): 12.5; (10.9 - 14.1); 
Cost of subsidy, by estimated cost of set-top box (dollars in 
millions): $50 set-top box: $626; ($545 - $707); Cost of subsidy, by 
estimated cost of set-top box (dollars in millions): $100 set-top box: 
$1,252; ($1,090 - $1,415). 

Assumption about means test: No means test; Percent of over-the-air 
households eligible: All over-the-air households; 
Number of households subsidized (in millions): 20.8; (19.1 - 22.6); 
Cost of subsidy, by estimated cost of set-top box (dollars in 
millions): $50 set-top box: $1,042; ($954 - $1,130); 
Cost of subsidy, by estimated cost of set-top box (dollars in 
millions): $100 set-top box: $2,083; ($1,907 - $2,259). 

Source: GAO. 

Notes: Ninety-five percent confidence intervals in parentheses. 

Analysis based on the status of television households in 2004. 

[End of table]

Table 2 provides the cost of a subsidy program under the assumption 
that cable and DBS providers are required to transmit broadcasters' 
digital signals in the same format as they are received. Under this 
scenario, nearly all over-the-air households and most cable and DBS 
subscribers will not have the equipment in place to view high- 
definition digital broadcast signals. Although subscribers typically 
rent, rather than purchase, set-top boxes, we assume that the same 
level of subsidy is provided to these households as is provided to over-
the-air households to defray the cost of having to obtain a new or 
upgraded set-top box from their provider. 

Table 2: Estimated Cost of Set-Top Box Subsidy, No Cable or DBS 
Downconversion, Subsidy Provided to Over-the-Air and Cable and DBS 
Households: 

Assumption about means test: Means test at 200% of poverty level; 
Percent of U.S. households eligible: 31% of households; 
Number of households subsidized (in millions): 35.1; (32.7 - 37.5); 
Cost of subsidy, by estimated cost of set-top box (dollars in 
millions): $50 set-top box: $1,753; ($1,633 - $1,873); 
Cost of subsidy, by estimated cost of set-top box (dollars in 
millions): $100 set-top box: $3,506; ($3,266 - $3,745). 

Assumption about means test: Means test at 300% of poverty level; 
Percent of U.S. households eligible: 50% of households; 
Number of households subsidized (in millions): 55.5; (52.9 - 58.1); 
Cost of subsidy, by estimated cost of set-top box (dollars in 
millions): $50 set-top box: $2,775; ($2,646 - $2,904); 
Cost of subsidy, by estimated cost of set-top box (dollars in 
millions): $100 set-top box: $5,551; ($5,293 - $5,809). 

Assumption about means test: No means test; 
Percent of U.S. households eligible: Nearly all households; 
Number of households subsidized (in millions): 106.2; (105.1 - 107.3); 
Cost of subsidy, by estimated cost of set-top box (dollars in 
millions): $50 set-top box: $5,312; ($5,257 - $5,367); 
Cost of subsidy, by estimated cost of set- top box (dollars in 
millions): $100 set-top box: $10,624; ($10,514 - $10,734). 

Source: GAO. 

Notes: Ninety-five percent confidence intervals in parentheses. 

Analysis based on the status of television households in 2004. 

[End of table]

There are two issues that stand as important caveats to the analyses we 
have presented on estimated set-top box subsidy costs. The first is 
that we based the majority of the analyses on survey results that 
provide information on the status of American television households as 
of early 2004. Over the next several years, new households will be 
established, some households might change the means through which they 
watch television, televisions sets with integrated digital over-the-air 
tuners as well as digital cable compatibility will be purchased, and 
some cable and DBS households will have obtained set-top boxes capable 
of receiving high-definition digital signals from their providers. 
Households' purchase of certain new equipment could obviate the need 
for a subsidy for new television equipment. For example, some 
households may purchase a digital television set with an over-the-air 
tuner and begin to view digital broadcast signals in this manner; some 
large televisions sold today are required to include such a tuner and 
by July 2007, all television sets larger than 13 inches are required to 
include a tuner. In time, these factors could have the effect of 
reducing the cost of a set-top box subsidy because fewer households 
would need to be subsidized.[Footnote 18]

The second caveat to these analyses is that these subsidy estimates do 
not include any costs associated with implementing a subsidy program. 
If the federal government determines that it would be worthwhile to 
provide this subsidy, the subsidy would need to be administered in some 
fashion, such as through a voucher system, a tax credit, a mail-in 
rebate, government distribution of equipment, or some other means. Any 
of these methods would impose costs that could be significant for the 
federal government and any other entities involved in administering the 
program. Such costs would be difficult to estimate until a host of 
decisions are made about how a subsidy program would be administered. 

As I mentioned earlier, our work on the DTV transition continues, and 
we will provide more information in a report later this year. We will 
discuss various ways that a subsidy program might be administered and 
provide some analysis of the benefits and drawbacks of these various 
methods. We will also provide a discussion of how information regarding 
the DTV transition and any associated subsidy program might best be 
provided to the American people. 

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

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, Dennis 
Amari, Michael Clements, Andy Clinton, Michele Fejfar, Simon Galed, 
Eric Hudson, Catherine Hurley, Bert Japikse, Sally Moino, Karen 
O'Conor, and Madhav Panwar. 

[End of section]

Appendix I: Methodology for Use of Survey Data Regarding Television 
Viewing: 

To obtain information on the types of television service and equipment 
used by U.S. households, we purchased existing survey data from 
Knowledge Networks Statistical Research. Their survey was completed 
with 2,375 of the estimated 5,075 eligible sampled individuals for a 
response rate of 47 percent; partial interviews were conducted with an 
additional 96 people, for a total of 2,471 individuals completing some 
of the survey questions. The survey was conducted between February 23 
and April 25, 2004. 

The study procedures yielded a sample of members of telephone 
households in the continental United States using a national random- 
digit dialing method. Survey Sampling Inc. (SSI) provided the sample of 
telephone numbers, which included both listed and unlisted numbers and 
excluded blocks of telephone numbers determined to be nonworking or 
business-only. At least five calls were made to each telephone number 
in the sample to attempt to interview a responsible person in the 
household. Special attempts were made to contact refusals and convert 
them into interviews; refusals were sent a letter explaining the 
purpose of the study and an incentive. Data were obtained from 
telephone households and are weighted by the number of household 
telephone numbers. 

As with all sample surveys, this survey is subject to both sampling and 
nonsampling errors. The effect of sampling errors due to the selection 
of a sample from a larger population can be expressed as a confidence 
interval based on statistical theory. The effects of nonsampling 
errors, such as nonresponse and errors in measurement, may be of 
greater or lesser significance but cannot be quantified on the basis of 
available data. 

Sampling errors arise because of the use of a sample of individuals to 
draw conclusions about a much larger population. The study's sample of 
telephone numbers is based on a probability selection procedure. As a 
result, the sample was only one of a large number of samples that might 
have been drawn from the total telephone exchanges from throughout the 
country. If a different sample had been taken, the results might have 
been different. To recognize the possibility that other samples might 
have yielded other results, we express our confidence in the precision 
of our particular sample's results as a 95 percent confidence interval. 
We are 95 percent confident that when only sampling errors are 
considered each of the confidence intervals in this report will include 
the true values in the study population. All percentage estimates from 
the survey have margins of error of plus or minus 6 percentage points 
or less, unless otherwise noted. 

In addition to the reported sampling errors, the practical difficulties 
of conducting any survey introduce other types of errors, commonly 
referred to as nonsampling errors. For example, questions may be 
misinterpreted, some types of people may be more likely to be excluded 
from the study, errors could be made in recording the questionnaire 
responses into the computer-assisted telephone interview software, and 
the respondents' answers may differ from those who did not respond. 
Knowledge Networks has been fielding versions of this survey for over 
20 years. In addition, to reduce measurement error, Knowledge Networks 
employs interviewer training, supervision, and monitoring, as well as 
computer-assisted interviewing to reduce error in following skip 
patterns. 

For this survey, the 47 percent response rate is a potential source of 
nonsampling error; we do not know if the respondents' answers are 
different from the 53 percent who did not respond. Knowledge Networks 
took steps to maximize the response rate--the questionnaire was 
carefully designed and tested through deployments over many years, at 
least five telephone calls were made at varied time periods to try to 
contact each telephone number, the interview period extended over about 
8 weeks, and attempts were made to contact refusals and convert them 
into interviews. 

Because we did not have information on those contacted who chose not to 
participate in the survey, we could not estimate the impact of the 
nonresponse on our results. Our findings will be biased to the extent 
that the people at the 53 percent of the telephone numbers that did not 
yield an interview have different experiences with television service 
or equipment than did the 47 percent of our sample who responded. 
However, distributions of selected household characteristics (including 
presence of children, race, and household income) for the sample and 
the U.S. Census estimate of households show a similar pattern. 

To assess the reliability of these survey data, we reviewed 
documentation of survey procedures provided by Knowledge Networks, 
interviewed knowledgeable officials about the survey process and 
resulting data, and performed electronic testing of the data elements 
used in the report. We determined that the data were sufficiently 
reliable for the purposes of this report. 

Due to limitations in the data collected, we made several assumptions 
in the analysis. Number of televisions and number of people in the 
household were reported up to five; households exceeding four for 
either variable were all included in the category of five or more. For 
the purposes of our analyses, we assumed that households had no more 
than five televisions that would need to be transitioned and no more 
than five people. Number of people in the household was only used in 
calculating poverty, but may result in an underestimate of those 
households in poverty. 

Calculations of poverty were based on the 2004 Poverty Guidelines for 
the 48 contiguous states and the District of Columbia, published by the 
Department of Health and Human Services. We determined whether or not 
each responding household would be considered poor at roughly 200 
percent and 300 percent of the poverty guidelines. Income data were 
reported in categories so the determination of whether or not a 
household met the 200 percent or 300 percent threshold required 
approximation, and for some cases this approximation may have resulted 
in an overestimate of the number of poor households. In addition, 
income data were missing for 24 percent of the respondents. To conduct 
the analyses involving poverty, we assumed that the distribution of 
those in varying poverty status was the same for those reporting and 
not reporting income data. Comparisons of those reporting and not 
reporting income data show some possible differences on variables 
examined for this report; however, the income distribution is very 
close to the 2003 income estimates published by the U.S. Census Bureau. 

To determine total numbers of U.S. households affected by the 
transition and total cost estimates for various transition scenarios, 
we used the U.S. Census Bureau's Current Population Survey estimate of 
the total number of households in the United States as of March 2004. 
To derive the total number of households covered by the various 
scenarios, we multiplied this estimate by the proportions of households 
covered by the scenarios derived from the survey data. The standard 
error for the total number of U.S. households was provided by the 
Census Bureau, and the standard errors of the total number of 
households covered by the scenarios take into account the variances of 
both the proportions from the survey data and the total household 
estimate. All cost estimates based on the survey data have margins of 
error of plus or minus 16 percent or less. 

In addition, we contracted with Knowledge Networks to recontact a 
sample of their original 2004 survey respondents in October 2004. 
Households were randomly selected from each of three groups: broadcast- 
only television reception, cable television service without a set-top 
box, and satellite television service. For each group, 102 interviews 
were completed, yielding 306 total respondents (for a 63 percent 
response rate). To reduce measurement error, the survey was pretested 
with nine respondents, and Knowledge Networks employed interviewer 
training, supervision, and monitoring, as well as computer-assisted 
interviewing, to reduce error in following skip patterns. Due to the 
small sample size, the findings of these questions are not 
generalizable to a larger population. 

FOOTNOTES

[1] Additional requirements include (1) television stations affiliated 
with the four largest national networks (ABC, CBS, Fox, and NBC) are 
broadcasting a DTV signal and (2) the technology to convert a digital 
signal for use on an analog television set is generally available. 

[2] Because we did not have information on those contacted who chose 
not to participate in the survey, we could not estimate the impact of 
the nonresponse on our results. However, distributions of selected 
household characteristics (including presence of children, race, and 
household income) for the sample and the U.S. Census estimate of 
households show a similar pattern. 

[3] The additional questions were related to why the household chose to 
view television as they currently do and whether they are likely to 
make changes in the viewing methods in the near future. 

[4] These percentages do not add up to 100 percent because (1) between 
1 and 2 percent of American households do not have a television, (2) 
about 1 percent of households receive television service through other 
means, such as a wireless cable system, and (3) the numbers reported 
here do not include close to 3 percent of households that reported 
having a subscription to both cable and DBS. 

[5] In its most recent report on video competition, FCC found that 
number of households subscribing to a multichannel video provider, such 
as a cable or DBS company, was approximately 85 percent of television 
households, thus implying that about 15 percent of television 
households rely on over-the-air television. The methodology employed by 
FCC differed from the household survey used to prepare our estimate. 

[6] For a family of four, the poverty level is just under $19,000, so 
the $30,000 income level would correspond to about 160 percent of the 
2004 poverty level for a family of four. The cutoff for eligibility for 
food stamps is 175 percent of the poverty level. 

[7] The word "downconvert" means to take a signal in a given format and 
transform it into a lower-resolution format. 

[8] HD television provides roughly twice as many lines of resolution, 
creating a television picture that is much sharper than traditional 
analog television pictures. HD television can also provide CD-quality 
sound and is in "widescreen" format, with display screen ratios similar 
to a movie theater. 

[9] Some of this spectrum--24 MHz--has already been auctioned. 

[10] When cable service first emerged, it was simply a service that 
provided a wire-based delivery of broadcast, or traditional television 
stations' signals, but by the late 1970s, cable operators began to 
provide new networks that were only available through a pay television 
service, such as HBO, Showtime, and ESPN. 

[11] The actual recontacted number was 102. 

[12] The firm actually recontacted 102 such households. 

[13] While cable providers are generally required to provide the local 
broadcast signals in each market, DBS providers are required to provide 
all local broadcast stations in markets where they provide any of those 
stations. 

[14] They actually recontacted 102 such households. 

[15] Additionally, these households could also choose to subscribe to 
cable or DBS service to eliminate the need to acquire additional 
equipment to view a television signal over the air. 

[16] In our final report that will be issued later this year, we will 
also present scenarios under which more than one television set per 
household is subsidized. 

[17] See appendix I for a methodological discussion and assumptions 
surrounding our determination of thresholds used to approximate the 
poverty level. 

[18] As we mentioned above, if at a later date the Congress considers 
legislation for a set-top box subsidy program, the CBO will, based on 
the specifics of the law, prepare an estimate of the cost of the 
program. 

[End of section]

Enclosure III: GAO July 21, 2004, Testimony [Hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-04-926T]: 

This is the accessible text file for GAO report number GAO-04-926T 
entitled 'Telecommunications: German DTV Transition Differs from U.S. 
Transition in Many Respects, but Certain Key Challenges Are Similar' 
which was released on July 21, 2004. 

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 10: 00 a.m. EDT: 

Wednesday, July 21, 2004: 

Telecommunications: 

German DTV Transition Differs from U.S. Transition in Many Respects, 
but Certain Key Challenges Are Similar: 

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

GAO-04-926T: 

GAO Highlights: 

Highlights of GAO-04-926T, a testimony before the Subcommittee on 
Telecommunications and the Internet, Committee on Energy and Commerce, 
House of Representatives 

Why GAO Did This Study: 

In Berlin, Germany, the transition from analog to digital television 
(DTV), the DTV transition, culminated in the shutoff of analog 
television signals in August 2003. As GAO previously reported, the 
December 2006 deadline for the culmination of the DTV transition in the 
United States seems unlikely to be met. Failure to meet this deadline 
will delay the return of valuable spectrum for public safety and other 
commercial purposes. Thus, the rapid completion of the DTV transition 
in Berlin has sparked interest among policymakers and industry 
participants in the United States. 

At the request of this subcommittee, GAO examined (1) the structure and 
regulation of the German television market, (2) how the Berlin DTV 
transition was achieved, and (3) whether there are critical components 
of how the DTV transition was achieved in Berlin and other areas of 
Germany that have relevance to the ongoing DTV transition in the United 
States

What GAO Found: 

The German television market is characterized by a central role of 
public broadcasting and is regulated largely at the state level. 
Although the federal government establishes general objectives for the 
telecommunications sector and manages allocations of the German 
radiofrequency spectrum, 15 media authorities organize and regulate 
broadcasting services within their areas of authority. The two public 
broadcasters are largely financed through a mandatory radio and 
television license fee of 16 Euro ($19.68) per household, per month, or 
about 6 billion Euro ($7.38 billion) in aggregate per year. Today, 
only 5 to 7 percent of German households rely on terrestrial 
television. Most households receive television through cable service, 
which typically costs less than 15 Euro ($18.45) per month, or 
satellite service, which is free once the household installs the 
necessary satellite equipment. 

Berlin officials and industry participants engaged in extensive 
planning for the rapid DTV transition in the Berlin test market. In 
Germany, government officials and industry participants are 
implementing the DTV transition largely for the purpose of improving 
the viability of terrestrial television; officials do not expect to 
recapture radio spectrum after the transition. Several elements of the 
DTV transition apply throughout Germany. For example, Germany is 
implementing the transition within specified islands, which are 
typically larger metropolitan areas, because officials thought that a 
nationwide DTV transition would be too big to manage at one time. 
Also, the German DTV transition focuses exclusively on terrestrial 
television, not cable and satellite television. The Media Authority in 
Berlin specified other components of the DTV transition for the Berlin 
area, including a short (10 month) simulcast period, financial and 
nonfinancial support provided to private broadcasters, subsidies 
provided to low-income households, and an extensive consumer education 
effort. 

Certain aspects of the DTV transition in Berlin and other regions of 
Germany are relevant to the ongoing transition in the United States 
because, even though the television market and the transition are 
structured differently in the two countries, government officials face 
similar key challenges. We found that much of the focus of government 
officials leading up to and during the brief simulcast in Berlin was on 
ensuring households who rely on terrestrial television received the 
necessary consumer equipment. In the United States, most television 
stations are providing a digital signalthat is, the United States is 
in the simulcast phase. Thus, the challenge facing the Congress and 
the Federal Communications Commission, as was the case in Berlin, is 
encouraging households to purchase set-top boxes or digital 
televisions. The key components of the Berlin DTV transition that 
enabled the rapid deployment of set-top boxes included (1) implementing 
an extensive consumer education effort; (2) providing subsidies to 
low-income households for set-top boxes; and (3) setting a relatively 
near-term, date certain that all stakeholders understood would be the 
shutoff date for analog television. 

www.gao.gov/cgi-bin/getrpt?GAO-04-926T. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Mark L. 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 ongoing work on the 
transition from analog to digital television, commonly referred to as 
the digital television (DTV) transition. The DTV transition offers the 
promise of more programming options, interactive services, and high-
definition television (HDTV). To facilitate the transition, the 
Congress and the Federal Communications Commission (FCC) temporarily 
provided television stations nationwide with additional spectrum to 
simultaneously broadcast both an analog and a digital signal. This 
simulcast is mandated to end in December 2006, or when 85 percent of 
American households can receive digital broadcast signals, whichever is 
later. At that time, television stations will return valuable radio 
spectrum for public safety and other commercial services; however, as 
we reported in 2002, that deadline seems unlikely to be met.[Footnote 
1]

In Berlin, Germany, a DTV transition--referred to in that country as 
the DVB-T switchover--culminated in the shutoff of analog broadcast 
television signals in August 2003. The rapid completion of the DTV 
transition in Berlin has sparked interest among policymakers and 
industry participants in the United States. At the request of this 
subcommittee, we have examined (1) the structure and regulation of the 
German television market, (2) how the Berlin DTV transition was 
achieved, and (3) whether there are critical components of how the DTV 
transition was achieved in Berlin and other areas of Germany that have 
relevance to the ongoing DTV transition in the United States. In 
addition to information provided in this testimony, we are conducting 
additional work on the ongoing DTV transition in the United States and 
will provide a more detailed study for this committee in early 2005. 

To address these issues, we conducted a site visit in Germany and 
interviewed a variety of government, industry, and consumer 
representatives. In particular, we met with: 

* two federal government agencies with responsibilities related to the 
DTV transition;

* two Media Authorities that are overseeing the DTV transition in their 
respective areas;

* the Berlin Social Welfare Office, which assisted in providing 
subsidies for set-top boxes during the transition;

* the two major public broadcasting station groups;

* the two primary commercial station groups;

* a cable television provider and a cable television association;

* Deutsche Telekom, which is a primary owner of broadcast towers 
throughout Germany;

* an official who works for association of electrical and electronic 
equipment manufacturers and is also the director of Deutsche TV-
Plattform, an organization of government and industry participants in 
the DTV transition; and: 

* a German association of consumer groups. 

In addition to the meetings we conducted in Germany, we spoke by 
telephone with a German expert on digital television issues and 
representatives of a European satellite provider. We also met with 
officials at the German Embassy in Washington, D.C. The information 
that we gathered was sufficiently reliable for the purposes of our 
review. We conducted our work from April 2004 to June 2004 in 
accordance with generally accepted government auditing standards. 

We provided a draft of this testimony to FCC and the Department of 
State (State) for their review and comment. Staff from FCC and State 
provided technical comments that we incorporated as appropriate. 

My statement will make the following points: 

* The German television market is characterized by a central role of 
public broadcasting and is regulated largely at the state level. 
Although the federal government establishes general objectives for the 
telecommunications sector and manages allocations of the German 
radiofrequency spectrum, 15 media authorities organize and regulate 
broadcasting services within their areas of authority. Broadcasting in 
Germany is commonly characterized as a "dual system" in which public 
and private broadcasting coexist, with each market segment consisting 
of two dominant broadcasting entities. The two public broadcasters are 
largely financed through a mandatory radio and television license fee 
of 16 Euro ($19.68)[Footnote 2] per household per month, which amounts 
to about 6 billion Euro ($7.38 billion) per year. Although terrestrial 
broadcasting--the transmission of television signals from towers to 
homes through the radiofrequency spectrum--was once the only means by 
which German households received television program signals, today only 
5 to 7 percent of German households rely exclusively on terrestrial 
broadcasting. The remaining households obtain either cable service--
which typically costs less than 15 Euro ($18.45) per month--or 
satellite service, which is free once the household has installed the 
satellite receiving dish and receivers. 

* Berlin officials and industry participants engaged in extensive 
planning for the rapid DTV transition in the Berlin test market. In 
particular, digital terrestrial transmissions were initiated in 
November 2002 and all analog signals were shut off in August 2003. In 
Germany, government officials and industry participants are 
implementing the DTV transition largely for the purposes of improving 
the viability of terrestrial television. Government officials do not 
expect spectrum to be returned after the transition. Several elements 
of the DTV transition were decided by federal authorities and will thus 
apply throughout Germany. For example, Germany is implementing the 
transition within specified "islands," with each island defined as a 
specific metropolitan area. Additionally, the DTV transition focused 
exclusively on terrestrial television, and households that rely on 
cable and satellite service did not need to purchase equipment to 
continue to receive television service. The Media Authority in Berlin 
specified other components of the transition, such as the short 
simulcast period, the financial and nonfinancial support provided to 
private broadcasters, the subsidies provided to certain low-income 
households, and an extensive consumer education effort. While the 
Berlin DTV transition is generally viewed as successful, it is unclear 
whether a full DTV transition will occur throughout Germany. 

* Certain aspects of the DTV transition in Berlin and other regions of 
Germany are relevant to the ongoing transition in the United States 
because, even though the television market and the transition are 
structured differently in the two countries, government officials in 
both countries face similar key challenges for completing the 
transition. In particular, we found that much of the focus of 
government officials leading up to and during the brief simulcast in 
Berlin was on ensuring that terrestrial households received the 
necessary consumer equipment to support the switchover to digital. In 
the United States, most broadcast television stations are now providing 
a digital signal--that is, we are already within the simulcast phase. 
The concern today in the Congress and at FCC is how to coax consumers 
to purchase set-top boxes or digital televisions--the same objective of 
Berlin officials. The key components of the Berlin transition that 
enabled a rapid deployment of set-top boxes to terrestrial consumers 
and thereby enabled the switchover to DTV were (1) an extensive public 
information campaign; (2) subsidies for needy households to defray the 
set-top box costs; and (3) the setting of a near-term, date certain for 
the cessation of analog broadcasts that all stakeholders understood 
must be met. 

Background: 

Terrestrial television service--also known as over-the-air broadcast 
television--is transmitted from television towers through the 
radiofrequency spectrum to rooftop antennas or antennas attached 
directly to television sets inside of homes. With traditional analog 
technology, pictures and sounds are converted into "waveform" 
electrical signals for transmission, while digital technology converts 
these pictures and sounds into a stream of digits consisting of zeros 
and ones. Digital transmission of television signals provides several 
advantages compared with analog transmission, by enabling better 
quality picture and sound reception as well as other new services. In 
addition, digital transmission uses the radiofrequency spectrum more 
efficiently than analog transmission. This increased efficiency makes 
multicasting, where several digital television signals are transmitted 
in the same amount of spectrum as one analog television signal, and 
HDTV services possible. But, to implement digital transmission, 
upgrades to transmission facilities, such as television towers, are 
necessary, and consumers must purchase a digital television or a set-
top box that will convert digital signals into an analog form for 
viewing on existing analog televisions. 

Both the United States and Germany have programs in place to complete 
the transition from analog to digital television. In the United States, 
the Congress and FCC provided television stations with additional 
spectrum to transmit both an analog and digital signal, and set a 
deadline for the shutoff of the analog signal at the end of 2006, or 
when 85 percent of households can receive the digital signal, whichever 
is later. In Germany, the federal government set a deadline of 2010 for 
the shutoff of analog signals and did not provide spectrum for an 
extended simulcast period. Each Media Authority (there are a total of 
15 throughout Germany) decides on the specific timing of the 
terrestrial transition. The city of Berlin, Germany, and its 
surrounding metropolitan area initiated digital terrestrial 
transmissions in November 2002 and shut-off all analog signals in 
August 2003. 

German Television Market Is Characterized by Central Role of Public 
Broadcasting and Is Regulated Largely at the State Level: 

We were told that regulation of the German television market is 
primarily the responsibility of state government, with the federal 
government exercising only limited authority to regulate this market. 
Television broadcasting in Germany is commonly characterized as a "dual 
system" in which public and private broadcasting coexist, with each 
market segment consisting of two dominant broadcasting entities. Both 
segments are subject to the broadcasting laws passed by the respective 
German states. Although terrestrial broadcasting was once the only 
means by which German households received television program signals, 
today only 5 to 7 percent of these households rely on terrestrial 
broadcasting, with the remainder using cable or satellite service for 
the reception of television signals. 

Federal and State Government Agencies Have Important Roles in 
Television Regulation: 

The federal government exercises important but limited authority in 
regulating television broadcasting, leaving the state (called Lnder) 
governments with the primary responsibility for broadcasting 
regulation. At the federal government level, the Ministry of Economics 
and Labour is responsible for establishing and advancing general 
objectives in the telecommunications sector, such as the promotion of 
new technologies and innovation, and ensuring competition among 
providers of telecommunications services. In the context of the DTV 
transition, the Ministry led the effort in Germany to develop and 
recommend a strategy for the transition from analog to digital radio 
and television broadcasting. A separate federal entity, the Regulatory 
Authority for Telecommunications and Posts (RegTP), established in 
1998, is responsible for technical aspects in the provision of 
telecommunications services, including management of Germany's 
radiofrequency spectrum allocations, the development of standards for 
the distribution and use of telecommunications systems, and testing of 
electronics equipment. RegTP is playing a key role in the DTV 
transition in Germany by establishing procedures for and assigning 
frequency allocations to roll out digital video broadcasting service. 

Federal and state government officials told us that the authority to 
directly organize and regulate broadcasting services rests with each of 
the regional governments as part of their jurisdiction over educational 
and cultural matters. In each of the German states, a "Media Authority" 
serves as the primary regulatory authority over radio and television 
broadcasting services.[Footnote 3] Charged with implementation of their 
respective state-enacted broadcasting laws, the 15 Media Authorities 
are independent agencies and are not considered to be part of the state 
government administrations. Among the most important functions of the 
Media Authorities is the establishment of procedures for assigning 
broadcast frequencies allocated by RegTP to public and private 
broadcasters.[Footnote 4] The Media Authorities also have a significant 
role in overseeing the transition to digital television. 

Broadcasting laws and regulations in Germany are affected to some 
extent by actions of the European Union (EU). Although Germany and 
other EU-member states manage their own broadcasting policies, rules 
and guidelines are set at the EU level on matters that involve common 
interests, such as open borders, fair competition, and a commitment to 
public broadcasting. In the EU's Action Plan to stimulate advanced 
services, applications, and content, EU member states are encouraged to 
have a strategy for the DTV transition with an assessment of market 
conditions, a date for the switchoff of analog terrestrial 
broadcasting, and a platform-neutral approach that takes into account 
the competing cable, satellite, and terrestrial delivery platforms. 

German Television Market Dominated by Two Public Stations Groups and 
Two Commercial Stations Groups: 

Terrestrial, or over-the-air, television in German is commonly 
characterized as a "dual system" in which public and private 
broadcasting coexist, with each market segment consisting of two 
dominant broadcasting entities. Public broadcasting corporations are 
the creation of the states, but operate largely as self-regulated 
entities. At the regional level, the German states have formed regional 
public broadcasters that operate their own television channels with 
regional-specific programming. The regional public broadcasters also 
formed a national network in 1950 known as ARD. ARD provides a 
nationwide broadcast channel (Channel 1), with some of its programming 
supplied by these regional broadcasters. A second nationwide public 
broadcasting channel, ZDF, was formed directly by the German states in 
1961 as an independent, nonprofit corporation. In addition to their own 
channels, ARD and ZDF jointly operate four additional public television 
channels that are broadcast in various parts of Germany. We were told 
that approximately 40 percent of television viewing in Germany is of 
the various public channels provided by ARD and ZDF. 

The public broadcasters are given one frequency each by the Media 
Authorities for the terrestrial broadcast of their programming channel. 
Their primary source of revenue derives from a compulsory monthly fee 
paid by owners of radios and television sets.[Footnote 5] The amount of 
the fee is set jointly by the states, based on a recommendation of an 
independent panel, and is set at 16 Euro ($19.68) per month for each 
household.[Footnote 6] We were told that this amounts to about 6 
billion Euro ($7.38 billion) annually. ARD receives slightly less than 
two-thirds of the fee revenues and allocates shares among its regional 
broadcasters, while ZDF receives about one-third of the total fee 
revenues. Two percent of the total fee revenue is distributed to the 15 
Media Authorities. ARD and ZDF generate additional revenues from 
limited on-air advertisements. However, they are restricted to a 
maximum of 20 minutes of advertising per day before 8: 00 p.m. and are 
precluded from any advertising on Sundays and holidays. 

The introduction of private television broadcasting in Germany is a 
relatively recent development. In the early 1980s, additional spectrum 
frequencies were made available for the opening of private television 
broadcasting. Today, two broadcasting groups--RTL Group and 
ProSiebenSat.1 Media--dominate this segment of the television 
broadcasting market, each operating multiple channels. Unlike their 
public broadcasting counterparts, private broadcasters must obtain 
licenses from relevant Media Authorities. Because frequencies are 
limited, not all private broadcasters operate nationally, and with the 
growth of cable and satellite systems, some have chosen not to renew 
terrestrial licenses in all locations. In particular, private 
broadcasters often do not provide terrestrial service in rural areas. 
Private broadcasters generate all of their revenues from advertising 
and receive no payments from the fees paid by owners of radios and 
television sets. 

German Television Is Available on Three Platforms: Terrestrial, Cable, 
and Satellite: 

Although terrestrial broadcasting as described above was once the only 
means by which German households could receive television program 
signals, there are currently three methods for television delivery--
terrestrial broadcasting, cable television service, and satellite 
service. Terrestrial broadcasting, in fact, is now the method least 
relied upon by German television households for receiving program 
signals--only about 5 to 7 percent of German households rely 
exclusively on terrestrial television. Some German households that 
receive their primary television signals by satellite or cable may have 
a second or third set in the household that is used only for 
terrestrial reception. Households relying on analog terrestrial 
broadcasting receive between 3 to 12 channels, with an average of 5 to 
6 channels. The primary transmitter networks that transmit television 
broadcast signals from various towers throughout the country are owned 
and operated by Deutsche Telekom. Broadcast stations pay Deutsche 
Telekom to transmit their terrestrial signals. ARD also owns a network 
of terrestrial broadcast towers for its own operations. 

Introduced in the early 1980s, cable television service is now the 
dominant method for the delivery of television programming in Germany: 
about 60 percent of the households subscribe to a cable system. Like 
terrestrial broadcasting in Germany, the 15 Media Authorities regulate 
cable television service in their respective areas. The state media 
laws set forth the must-carry requirements in each region, which 
specify the broadcast stations that cable providers are required to 
carry on their systems.[Footnote 7] We were told that these regulations 
vary considerably by region, with some areas requiring cable systems to 
carry nearly all public and private stations, and other areas imposing 
significantly fewer must-carry responsibilities on cable systems. To be 
carried by a cable operator, however, public and private broadcasters 
must pay a carriage fee to the cable operator, which is negotiated 
directly between the parties. Typical cable systems in Germany were 
constructed for the provision of analog service, provide about 30 to 33 
channels of analog programming, and cost subscribers less than 15 Euro 
($18.45) per month. It is often the case that this fee is included in 
the household's rent.[Footnote 8]

The third method of distribution of television programming is through 
satellite service, which today is received by an estimated 35 percent 
of German television households. According to RegTP, to provide 
satellite television service in Germany, a license to use the necessary 
spectrum is required by the agency. Also, any broadcast station that 
wants to be carried on a satellite system must obtain authorization to 
do so from one of the Media Authorities. The predominant provider of 
satellite television service in Germany is ASTRA, a Luxembourg-based 
company that provides satellite service throughout Europe. In order for 
a broadcast channel--whether a public station or a private station--to 
be carried by a satellite provider, a contractual agreement is reached 
between the broadcaster and the satellite provider that gives the right 
to the satellite provider to rebroadcast the signal, but requires the 
broadcast station to pay a fee for that carriage. For viewers, 
satellite service is available free of charge; however, viewers must 
purchase the equipment needed in order to receive programming. In 
addition, they must be able to situate the satellite dish toward the 
southern sky to receive the transmission signal from the geostationary 
satellite. The costs for a satellite dish and related equipment are 
estimated at less than 200 Euro ($246.04). Satellite television service 
provides viewers in Germany with approximately 125 channels, about 60 
of which are in German. 

Berlin Officials and Industry Participants Engaged in Extensive 
Planning for the Rapid DTV Transition in the Berlin Test Market: 

In Germany, government officials and industry participants are 
implementing the DTV transition to improve the viability of terrestrial 
television in the face of a low and declining share of households that 
rely solely on terrestrial television. Several elements of the DTV 
transition will apply throughout Germany, including an island based 
approach, where the DTV transition will occur separately in different 
metropolitan areas, and the adoption of standard-definition digital 
television.[Footnote 9] In Berlin, extensive planning facilitated the 
rapid DTV transition. Important elements of the Berlin DTV transition 
included a short simulcast period, financial and nonfinancial support 
provided to private broadcasters, subsidies provided to eligible low-
income households for set-top boxes, and an extensive consumer 
education effort. While the Berlin DTV transition is generally viewed 
as successful, it is unclear whether a full DTV transition will occur 
throughout Germany. 

German DTV Transition Was Largely Designed to Preserve Terrestrial 
Television: 

A primary rationale for the German DTV transition was to preserve 
terrestrial television in the face of a low and declining share of 
households that rely solely on this method of television reception. As 
mentioned previously, fewer than 10 percent of German households rely 
solely on terrestrial television, and the share has been rapidly 
declining in recent years. Since broadcasters reach over 90 percent of 
German households through cable and satellite service, concerns arose 
about the continued costs associated with the transmission of 
terrestrial television relative to the number of viewers. By increasing 
the number of television channels delivered terrestrially, the DTV 
transition was seen as a means to improve the viability of terrestrial 
television. Because there was concern that terrestrial viewership would 
continue to decline, German regulators decided that any DTV transition 
would need to occur relatively quickly. 

Some industry participants in Germany suggested that a switch-off of 
terrestrial television might be the better course. These parties argued 
that terrestrial television is costly and that German households have 
both cable and satellite as alternatives. Further, cable service is 
offered at reasonably low prices and satellite service is completely 
free of charge once the satellite dish and receiver have been 
installed. Ultimately, however, German regulators decided to proceed 
with a DTV transition. 

The transition provided benefits for both consumers and broadcasters. 
For consumers, the presence of digital terrestrial television ensures 
that consumers maintain a choice of three mechanisms to receive 
television service. We were told that this choice is important in 
cities such as Berlin, where many people cannot receive satellite 
service and, without terrestrial television, would be dependent on 
cable service. Further, one consumer group noted that digital 
terrestrial television allows consumers to avoid paying a fee for cable 
service while receiving a similar number of channels as they would with 
cable service. For broadcasters, the presence of terrestrial television 
provides a third mechanism for the transmission of their signals. We 
were told that this helps keep the fees that broadcasters must pay to 
cable companies to carry their signals lower than would be the case if 
broadcasters were reliant solely on cable and satellite for the 
transmission of their signals. 

Certain Decisions about the DTV Transition Will Apply Throughout 
Germany: 

In Germany, the Digital Broadcasting Initiative (the Initiative) 
establishes a nationwide framework for digital broadcasting. The 
federal government established the Initiative in 1997, and the federal 
Ministry of Economics and Labour and the Lnder (or states) chair and 
deputy chair, respectively, the Initiative. Other members of the 
Initiative include representatives of the federal and state 
governments; public and private broadcasters; content providers; cable, 
satellite, and terrestrial operators; equipment manufacturers; and 
consumer groups. The Initiative develops strategies for digital 
broadcasting, including terrestrial television and radio, cable, and 
satellite service. The Initiative set a deadline for the DTV transition 
of 2010; this date is a strategy or recommendation, and not set forth 
in German law. 

The Initiative developed different strategies for television and radio, 
cable, and satellite service, and the DTV transition occurring 
throughout Germany at this time only focuses on terrestrial television. 
Thus, only households that rely solely on terrestrial television--about 
160,000 in Berlin--were required to purchase equipment in order be able 
to continue to receive terrestrial television service on their existing 
analog televisions. Households that rely on cable or satellite service 
were unaffected by the DTV transition because cable and satellite 
providers converted the signals to ensure that households receiving 
their service could continue to view the signals without any additional 
equipment. Although, households that receive cable or satellite service 
would require equipment for televisions in their homes that are not 
connected to the cable or satellite service. 

The Initiative determined that the German DTV transition would occur 
through an island-based approach, in which each island will transition 
independently to digital terrestrial television. Each island is a major 
metropolitan area, such as Berlin or Munich. Figure 1 illustrates the 
various islands in Germany and the actual or planned year for the DTV 
transition. We were told that Germany adopted this approach because the 
DTV transition could not be achieved throughout the entire country 
simultaneously; officials thought that a nationwide DTV transition 
would be too big to manage at one time. Additionally, by adopting the 
island approach, German officials gained experience with the DTV 
transition, and thereby were able to assess whether the public would 
accept terrestrial digital television. Several officials told us that 
the islands will eventually grow together, and the DTV transition will 
encompass the entire country. However, we were also told that had the 
Berlin DTV transition not been a success, the transition in other areas 
may have been reevaluated and may not have gone forward. 

Figure 1: Actual and Planned Start Date for German DTV Islands: 

[See PDF for image]

Note: Primary refers to areas with reception via room antenna, and 
secondary refers to areas with reception via outside antenna. 

[End of figure]

In addition to the island-based approach, Germany decided to adopt 
standard-definition digital television, instead of high-definition 
digital television.[Footnote 10] The government and industry officials 
with whom we spoke cited several advantages of standard-definition 
digital versus high-definition digital for Germany.[Footnote 11] First, 
the equipment that consumers must purchase for standard-definition 
digital is generally less expensive than the equipment necessary for 
high-definition digital.[Footnote 12] Second, with high-definition 
digital, broadcasters must install more costly equipment and incur 
higher transmission costs than would be the case with standard-
definition digital. Finally, German officials believe that terrestrial 
television with a standard-definition digital signal is more 
competitive with cable and satellite than it would be with a high-
definition digital signal. These officials noted that the increase in 
competitiveness of terrestrial television derives from its mobility and 
the increased channels available with standard definition digital. In 
particular, officials we spoke with noted that standard-definition 
digital technology allows multiple channels to be shown with the same 
amount of spectrum that was previously used to transmit one analog 
terrestrial channel. Thus, terrestrial television in Berlin now offers 
nearly as many channels to viewers as they receive on their cable 
systems. This greater number of channels combined with the mobility of 
terrestrial television--a feature not available with cable or satellite 
that enables consumers to take their television to their boats and 
garden homes--was seen as a factor that would make terrestrial 
television more attractive relative to cable or satellite 
service.[Footnote 13]

Finally, German officials did not plan for the return of spectrum 
following the DTV transition. Germany has allocated a limited amount of 
spectrum for terrestrial television, and all the analog frequencies 
have been dedicated to digital television. As previously mentioned, 
broadcasters intend to use the spectrum for multiplexing--providing 
four digital channels in the same amount of spectrum that they 
previously provided one analog channel. However, if all multiplexes are 
not used, some spectrum could be returned to the government. But, it is 
not clear that this spectrum could or would be assigned to a different 
use, such as mobile telephone or Internet access. 

mabb and Industry Participants Engaged in Extensive Planning for the 
Berlin DTV Transition: 

mabb, the Media Authority that regulates radio and television in the 
states of Berlin and Brandenburg, made several key decisions about how 
the DTV transition would occur in the area under its authority. 

When to undertake the DTV transition. Each of the 15 Media Authorities 
throughout Germany made decisions about when to undertake the DTV 
transition within their region. Berlin was the first of Germany's 
islands to undertake the DTV transition.[Footnote 14] We were told that 
Berlin had several characteristics that made it favorable to serve as a 
test market for the DTV transition. First, the percent of households 
that rely solely on terrestrial television is relatively low in Berlin. 
Since the DTV transition in Germany requires only equipment 
modifications for terrestrial televisions, the number of households 
affected was relatively small--only about 160,000 households--and the 
transition more manageable. Second, Berlin had more spectrum dedicated 
to television because spectrum that had been used by both East and West 
Berlin was all still allocated to terrestrial television use. Third, 
because Berlin is not near other major cities, no signal interference 
concerns arose in the area, as they might for cities such as Bonn or 
Cologne, which are near other cities and the German border with other 
countries. Finally, Berlin also has fairly simple topography--it is 
basically flat--enabling easier transmission of television signals. 

Length of Simulcast. mabb and industry participants implemented the DTV 
transition in the Berlin area with a short simulcast period. The DTV 
transition agreement negotiated between mabb and the broadcasters 
specified a three-phase simulcast process: 

* On November 1, 2002, the simulcast period commenced as digital 
signals for some of the stations of both public and commercial 
broadcasters began to be transmitted. Berlin officials dedicated two 
additional channels for the simulcast, with each of these channels 
carrying four multicast digital stations. Thus, eight of Berlin's 
eleven analog stations were initially simulcast. 

* On February 28, 2003, five previously analog channels were converted 
to digital channels, with each channel carrying multiple stations. 
Thus, the digital signals of more stations were turned on, including 
stations that were not previously available terrestrially in Berlin. 
The analog transmission of all national private broadcasters stopped, 
and public broadcasters transitioned their analog signals to lower-
power analog frequencies. 

* On August 8, 2003, all analog transmission stopped. 

The government and industry officials with whom we spoke with cited 
several reasons for the short simulcast period. First, Germany does not 
have enough spectrum dedicated to television service to implement a 
long simulcast period while also providing additional stations; the 
spectrum used for analog transmission is the same spectrum that will be 
used for digital transmission. Second, an extended simulcast period is 
costly for broadcasters, who, as mentioned earlier, must pay for 
terrestrial transmission. Third, a quick and certain shutoff date 
provides an incentive for households to purchase the necessary set-top 
boxes. German federal officials and other Media Authorities are 
generally encouraged by the success of the short simulcast period in 
Berlin. In the state of North-Rhine Westphalia, the Media Authority 
intends to implement a 6-month simulcast period for public 
broadcasters, with no simulcast period for private broadcasters, in the 
state's two islands. 

Private broadcaster support. mabb made the decision to provide 
financial and nonfinancial support to private broadcasters. Public 
broadcasters were able to finance their transition costs through the 
radio and television license fee they receive. Private broadcasters, on 
the other hand, do not receive license fees, but were viewed as 
important participants in the DTV transition. Therefore, mabb decided 
to provide support to private stations, which consisted of three 
elements. First, for 5 years, mabb will pay the broadcasters' 
incremental costs associated with digital transmission (i.e., mabb will 
pay the difference between the broadcasters' former analog transmission 
costs and their digital transmission costs). In return, the private 
broadcasters agreed to provide digital terrestrial television for at 
least 5 years. Second, as incumbent broadcasters, the private 
broadcasters received authority to provide multiplexed service. That 
is, the private broadcasters were allowed to increase the number of 
terrestrial channels they provide in Berlin using the spectrum they 
were already assigned.[Footnote 15] Third, one broadcaster told us that 
in return for participating in the DTV transition in the Berlin island, 
it received favorable must-carry status throughout the region that mabb 
regulates--that is, mabb will require that its stations be carried on 
cable systems in the region. At this time, it is not clear whether and 
to what extent the other Media Authorities plan to provide similar 
support for private broadcasters' DTV transition in other 
regions.[Footnote 16] One private broadcaster told us that it would be 
unwilling to participate in the DTV transition in other islands if it 
does not receive the multicast authority. 

Subsidy of set-top box for needy households. In addition to supporting 
private broadcasters, mabb provided support to certain households for 
the purchase of set-top boxes. According to mabb, the overriding 
principle was that households must pay for the set-top boxes necessary 
to watch terrestrial digital broadcast signals. However, mabb made 
contingencies for low-income households. Households that were entitled 
to government aid could apply to the Social Welfare Office for 
assistance. If the household met the income eligibility criteria and 
relied solely on terrestrial television (i.e., the household did not 
receive cable or satellite service), the household received a voucher 
for a free set-top box. Qualifying households received their set-top 
box either from specified retailers, or the box was delivered to their 
home, whichever means was least costly. During the DTV transition 
period, mabb paid 75 percent of the subsidy cost and the Social Welfare 
Office paid the remaining 25 percent of the subsidy cost. mabb funded 
its share of the subsidy through the portion of the radio and 
television license fee that it receives, while the Social Welfare 
Office funded its share of the subsidy through its regular budget. 
Following the transition period, the Social Welfare Office began paying 
the entire cost of the subsidy, up to 129 Euro ($158.70). According to 
mabb, a total of 6,000 set-top boxes were provided to needy households 
with a total cost of 500,000 Euro ($615,100). 

Extensive consumer education. mabb and industry participants conducted 
an extensive consumer education effort. One official told us that a 
primary concern with the DTV transition is making sure that households 
that rely solely on terrestrial television understand that they must do 
something to be able to continue receiving television. In Berlin, two 
important consumer education mechanisms were messages on terrestrial-
only television signals and information sessions with retailers. On 
television signals received by terrestrial television, households saw a 
rolling scroll that informed them about the DTV transition. Deutsche 
TV-Plattform and the Berlin Chamber of Commerce also held information 
sessions with retailers. Other consumer education mechanisms included a 
direct mailing to every household, a consumer hotline, flyers and 
newsletters, an Internet Web site, and advertisements on buses and 
subways.[Footnote 17] One primary concern with the consumer education 
effort was to avoid confusing cable and satellite subscribers. Because 
the DTV transition only affected households relying solely on 
terrestrial television, the consumer education effort focused on means 
that would target only these households, and not households subscribing 
to cable and satellite service. We were also told that a short consumer 
education period was best for informing households about the DTV 
transition; in Berlin, the consumer education effort lasted 
approximately 4 weeks and cost approximately 800,000 Euro 
($984,160).[Footnote 18]

The Berlin DTV Transition Is Generally Viewed as Successful, but Full 
DTV Transition May Not Occur in Rural Areas: 

Relatively few consumer complaints and problems arose during the Berlin 
DTV transition. For example, a consumer organization that we spoke with 
told us that there were very few complaints, and that most complaints 
that did arise concerned the cost of the set-top box, which they said 
was approximately 100 to 125 Euro ($123.02 to $153.78).[Footnote 19] We 
were also told that there were minor technical problems and few 
reception problems. An mabb official with whom we spoke thought that 
reception had improved following the DTV transition, because the agency 
ensured a strong digital signal and because digital transmission is 
superior to analog transmission. The technical and reception problems 
that did arise included difficulties installing and using the set-top 
box; reception problems in some multiple-dwelling units, particularly 
ground-floor units and buildings with rooftop antennas and boosters; 
and interference problems for some cable subscribers because of the 
strength of the digital signal. 

During the Berlin DTV transition, some households changed the mechanism 
through which they receive television service. We were told that 
between one-third and one-half of households that previously relied 
solely on terrestrial television switched to either cable or satellite 
service, rather than purchase the set-top box. An official with mabb 
told us that the percent of households switching from terrestrial 
television to cable and satellite was less than they had expected. On 
the other hand, more set-top boxes--over 200,000--were sold than the 
number of former terrestrial-only households, indicating that some 
households purchased multiple boxes, and that some cable and satellite 
households also purchased set-top boxes for a second or third 
television that only received terrestrial service. We were also told 
that relatively few cable subscribers switched to terrestrial 
television following the DTV transition. As previously mentioned, cable 
payments are often included in the household's rent payment and some 
cable contracts are long-term in nature, thereby reducing the incentive 
and flexibility that some households have to switch away from cable 
service. Some industry officials told us, however, that they expect 
some cable subscribers to switch to terrestrial service in the longer 
term. 

The government, industry, and consumer representatives with whom we 
spoke mentioned several factors as contributing to the success of the 
Berlin DTV transition. These factors include the following: 

* The DTV transition provided enhanced consumer value for Berlin 
households. The number of channels available through terrestrial 
television increased from approximately 11 to 27 and included an 
electronic program guide. 

* The government and broadcasters did not have to finance the new 
programs. The new channels available through terrestrial television 
following the DTV transition already existed on cable and satellite 
systems. 

* There was good cooperation between the government officials and 
broadcasters, which helped ensure that consumers received additional 
channels. 

* The transition affected a relatively small percentage of Berlin 
households; only households that relied solely on terrestrial 
television--less than 10 percent of Berlin households--had to take 
action to avoid losing their television service. 

* The set-top boxes were relatively inexpensive, and the price fell 
throughout the transition period. 

* There was a scheduled time line for the DTV transition and a firm 
shutoff date. 

* There was good communication to consumers about the DTV transition. 

While the Berlin DTV transition appears successful, a full DTV 
transition might not extend throughout Germany. Government and industry 
officials with whom we spoke said that private broadcasters will most 
likely not provide digital service in rural areas outside the islands, 
but that public broadcasters will provide digital service in these 
areas. This is not entirely different than the current situation with 
analog television, where the private broadcasters do not provide 
terrestrial television in all areas of the country. However, it does 
raise the possibility that a full DTV transition, including the digital 
terrestrial transmission of both public and private broadcasters, might 
not occur throughout Germany. 

Finally, some groups we spoke with identified problems with the Berlin 
DTV transition. The cable television industry in Germany mentioned 
several problems. Cable industry officials with whom we spoke objected 
to the use of the radio and television license fee for the DTV 
transition. These officials told us that all German households pay the 
license fee, but only terrestrial households in the islands benefit 
from the DTV transition. In fact, the cable industry has petitioned the 
European Commission about the use of the license fee for the DTV 
transition. Other problems noted by the cable industry officials with 
whom we spoke include cable subscribers purchasing set-top boxes by 
mistake and the expense and problems cable operators incurred to 
upgrade their headend facilities to receive the digital signal. 
Regarding the set-top box subsidy, the Social Welfare Office thought 
that the process could have been handled a little better. In 
particular, it found that approximately 20 percent of the applications 
for subsidies were not handled adequately, most often because they were 
incomplete or missing signatures. 

Need for Set-Top Box Deployment Is Key Challenge in Germany and in the 
United States: 

Based on our examination of the DTV transition in Berlin and other 
areas of Germany, it is clear that the manner in which DTV is to be 
rolled out is considerably different than in the United States. 
Nevertheless, we found that much of the focus in Berlin leading up to 
and during the simulcast period was on making sure that consumers who 
receive television solely through terrestrial means obtain the 
necessary set-top boxes so that they would be able to view DTV signals 
once the analog signals were turned off. Since the DTV transition in 
the United States is already in a simulcast phase--that is, most 
digital broadcast television signals are already being transmitted--the 
phase of encouraging consumers to adopt DTV equipment is upon us. FCC 
has yet to fully determine how cable and satellite households will 
count toward the 85 percent threshold. Ultimately, the Congress and FCC 
will need to turn their attention to providing information, incentives, 
and possibly assistance to those who need to purchase equipment in 
order for the transition--and the return of valuable spectrum--to be 
completed. Ensuring that consumers understand the transition, how they 
will be affected by it, and what steps they need to take is critical 
not only for ensuring the transition moves forward, but for ensuring 
that consumers do not unexpectedly lose television reception or incur 
costs beyond what is necessary to successfully transition to digital 
television. 

The Berlin experience highlights a few factors, which relate to 
consumers' purchase of set-top boxes, that were very important for the 
success of the DTV transition in that city: 

* Information provided focused a great deal on need for set-top box and 
benefits of completing the transition. The Berlin authorities and 
broadcasters provided extensive information to the public, the media, 
and retailers about what the transition would entail, what consumers 
needed to do, how they would benefit by transitioning to digital 
television, and where to get assistance if there was confusion about 
what equipment was necessary or if there were problems with equipment 
or reception. This effort was planned and coordinated among many 
parties, adequate resources were dedicated to the information campaign, 
and nearly everyone we spoke with told us it a critical factor to the 
success of the rapid DTV transition in Berlin. 

* Set-top boxes were subsidized for needy households. Subsidies were 
provided to certain households that might have had difficulties 
affording the necessary set-top boxes. In particular, low-income 
households that rely on terrestrial television could apply for 
financial assistance for the purchase of a set-top box. Because of the 
low penetration of terrestrial television, only about 6,000 households 
required this subsidy at a cost of about half a million Euro 
($615,100). Nevertheless, this may have helped in the management of the 
transition by ensuring that the transition would not be an undue burden 
for lower-income households. 

* Near-term date certain for transition deadline made clear when set-
top boxes would need to be in place. Finally, the Media Authority in 
Berlin set a date certain for the transition that required consumers to 
make decisions quickly about how they would adapt to the transition. 
This enabled all stakeholders to know what they needed to work toward: 
when set-top boxes needed to be available in the market; when education 
of consumers, hotlines, and TV scroll information would be required; 
and the date by which consumers needed to decide how to transition or 
lose their television service. 

To summarize my statement, Mr. Chairman, although the context of the 
transition differs considerably in Germany as compared with the United 
States, there may be interesting and helpful lessons for the Congress 
and FCC from the DTV transition in Berlin and other areas of Germany. 
This concludes my prepared statement. I would be happy to respond to 
any questions that you or other Members of the Subcommittee may have at 
this time. 

GAO Contacts and Staff 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, Dennis 
Amari, and Michael Clements. 

FOOTNOTES

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

[2] Throughout this testimony, we use the July 13, 2004, exchange rate 
of 1.2302 to convert Euros into U.S. dollars. 

[3] The states of Berlin and Brandenburg have jointly formed a single 
media authority. 

[4] Because broadcasting frequencies do not respect state 
jurisdictional boundaries, an "Interstate Agreement on Broadcasting" 
was entered into by the states to harmonize disparate provisions of 
state broadcasting laws. The treaty addresses matters related to the 
protection of children, advertising content and sponsorship, and 
specific aspects of public broadcasting and private broadcasting. 

[5] The fee may be waived for welfare recipients and low-income 
households. Collected by a special agency known as GEZ 
(Gebuhreneinzugszentrale), the fee is based upon a treaty entered into 
by the German states. 

[6] We were told that the 16 Euro ($19.68) fee is in some cases 
assessed for a second or third television set in a home if an adult 
child in the home owns the television. 

[7] These must-carry requirements can apply to stations that are 
broadcast terrestrially and stations that are not broadcast 
terrestrially. 

[8] The ownership of German cable systems is somewhat more complex than 
in the United States. While in the United States, there is only one 
entity that distributes programming from the cable headend to 
customers, more than one entity may own portions of the cable 
infrastructure in Germany. That is, one cable company may own the 
infrastructure and transmit signals from the headend into 
neighborhoods, but another may own the distribution network within an 
apartment building--in which a much higher percentage of Germans live 
compared with the United States. Although there is only a limited 
number of companies in Germany that own the portion of the cable 
infrastructure from the headend into neighborhoods, we were told there 
are thousands of entities that own facilities that reach individual 
households. 

[9] As mentioned previously, DTV functions through the transmission of 
pictures and sounds in streams of digits consisting of zeros and ones, 
which reduces interference, improves picture and sound quality, and 
makes new services possible. HDTV is a type of DTV that provides 
significantly enhanced picture and sound quality, with up to 1,080 
lines of resolution compared with 480 in analog television. We refer to 
standard-definition digital television to identify digital television 
that is not of the high-definition variety. 

[10] The digital standard that Germany adopted supports both standard-
definition and high-definition digital television. However, Germany 
decided to implement standard-definition digital television. 

[11] The advantages of high-definition digital primarily relate to the 
picture quality. High-definition digital provides roughly twice as many 
lines of resolution, creating a television picture that is much sharper 
than analog television. Further, high-definition digital is in wide-
screen format, with display screen ratios similar to a movie theater. 

[12] Consumer groups generally opposed the introduction of high-
definition television because of these higher costs and the fact that 
high-definition digital only provides benefits with large-screen 
televisions. 

[13] The German digital standard also permits indoor reception. Thus, 
households in the central areas of the islands do not need to modify or 
install a rooftop antenna. 

[14] By the end of 2004, eight islands plan to have digital terrestrial 
television, including Berlin, Cologne and Bonn, Dsseldorf and 
Ruhrgebiert, Hannover, Bremen, Frankfurt, Hamburg and Lbeck, and Kiel. 

[15] Public broadcasters were also allowed to provide multicast 
service. 

[16] The private broadcasters that we spoke with told us that they do 
not anticipate receiving financial support in Germany's northern 
states, since the anticipated digital transmission costs will be 
similar to the existing analog transmission costs. 

[17] We were told that the direct mailing was expensive and not very 
effective. 

[18] This figure does not include the value of commercial time that 
broadcasters devoted to the DTV transition. 

[19] This consumer organization did mention that the DTV switchover 
could be expensive for households with multiple televisions, as each 
television would need a separate set-top box. 

[End of section] 

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